Download - Shutterfly Earnings 1Q 2014 Powerpoint Slide Deck

Q1 2014 Earnings Conference Call APRIL 30, 2014

Jeff Housenbold, CEO Brian Regan, CFO

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Safe Harbor Disclaimer This presentation contains "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties. These forward-looking statements include statements about our plans for 2014 and beyond and our business outlook for the second quarter and full year 2014 and statements about historical results that may suggest trends for our business. You can identify these statements by the use of terminology such as “guidance”, “believe”, “expect”, “will”, “should,” “could”, “estimate”, “anticipate” or similar forward-looking terms. You should not rely on these forward-looking statements as they involve risks and uncertainties that may cause actual results to vary materially from the forward-looking statements. Factors that might contribute to such differences include, among others, economic downturns and the general state of the economy; the loss of sales partners for our products; our ability to expand our customer base, increase sales to existing customers and meet production requirements; our ability to successfully integrate acquired businesses and assets; our ability to retain and hire necessary employees, including seasonal personnel, and appropriately staff our operations; the impact of seasonality on our business; our ability to develop innovative, new products and services on a timely and cost-effective basis; consumer acceptance of our products and services; unforeseen changes in expense levels; and competition and the pricing strategies of our competitors, which could lead to pricing pressure. For more information regarding the risks and uncertainties that could cause actual results to differ materially from those expressed or implied in these forward-looking statements, as well as risks relating to our business in general, we refer you to the “Risk Factors” section of tour SEC filings, including our most recent Form 10-K and 10-Q, which are available on the Securities and Exchange Commission’s Web site at www.sec.gov. These forward-looking statements are based on current expectations and the company assumes no obligation to update this information.

This presentation includes non-GAAP financial measures, including non-GAAP gross margin, adjusted EBITDA, and non-GAAP net loss per share. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures is provided at the end of this presentation. The method we use to produce non-GAAP financial measures is not computed according to GAAP and may differ from the methods used by other companies. To supplement our consolidated financial statements presented on a GAAP basis, we believe that these non-GAAP measures provide useful information about our core operating results and thus are appropriate to enhance the overall understanding of our past financial performance and our prospects for the future. These adjustments to our GAAP results are made with the intent of providing both management and investors a more complete understanding of our underlying operational results and trends and performance. Management uses these non-GAAP measures to evaluate our financial results, develop budgets, manage expenditures, and determine employee compensation. The presentation of additional information is not meant to be considered in isolation or as a substitute for, or superior to comparable financial measures determined in accordance with GAAP. Management strongly encourages review of our financial statements and publicly-filed reports in their entirety and to not rely on any single financial measure.

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Conference Call Agenda

• Key Q1 accomplishments

• Q1 financial performance • Q2 / FY2014 outlook

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Q1 Financial Results

Net Revenue

Operating Loss

Adjusted EBITDA *

Net Loss per Share (GAAP)

Net Loss per Share (Non-GAAP)**

Q1 FY13 Q1 FY14 Guidance Provided

(on 2/5/14)

$116.7

($24.0)

$3.3

($0.33)

($0.33)

$137.1

($38.6)

$0.2

($0.89)

($0.82)

$132.0 to $135.0

($41.5) to ($43.5)

($1.5) to $0.5

($0.93) to ($0.99)

($0.86) to ($0.92)

($ in millions except per share amounts)

Strong growth in customers and orders combined with healthy increases in Average Order Value (AOV) resulted in Q1 results that were at or above the high-end of our guidance ranges for revenue, EBITDA, net loss and EPS

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* Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization and stock-based compensation. ** Non-GAAP Net Loss normalizes for the impact our Convertible Note offering has on Net Loss and earnings per share. A non-GAAP to GAAP reconciliation is provided at the end of this presentation.

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Q1 Consumer Metrics

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Improvements in brand awareness and customer engagement resulting from our integrated marketing campaigns and pricing and promotional initiatives resulted in strong customer and order growth and record Q1 AOV

Y/Y Growth

Customers

Orders

Average Order Value (AOV)

2,557,245

3,869,201

$33.76

2,248,858

3,417,312

$32.13

14%

13%

5%

Q1 FY14 Q1 FY13

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Enhancements to ThisLife Beta

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Personal Ratings Hide and Filter

Advanced Search Multi-platform

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Continued Innovation in Our Core Businesses

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Foil Stamped Collection

Belly Bands

Circle Stickers

Wrap Around Address Labels

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Continued Innovation in Our Core Businesses

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Luggage Tags Hallmark Photo Inserts

Make My Book Service Photo Story app

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Partnerships with Leading Brands and Designers

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Scale and Operational Infrastructure Initiatives

Las Vegas Datacenter Shakopee Production Facility

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Q1 FY14 Financial Results Review

Brian Regan, CFO

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Q1 Financial Results Summary

Net Revenue

Adjusted EBITDA *



Q1 FY13 Q1 FY14 Change (Y/Y)

$116.7

$3.3

($0.33)

($0.33)

$137.1

$0.2

($0.89)

($0.82)

$20.4

($3.1)

($0.56)

($0.49)


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Net Revenues by Category

Net Revenues

Consumer Enterprise

Q1 FY13 Q1 FY14 Y/Y Growth

$116.7

$109.8 $6.9

$137.1

$130.6 $6.5

17%

19% (6%)

($ in millions)

Q1 FY13 Q1 FY14

Revenue Mix by Category

94%

6%

93%

7%

Consumer Enterprise

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95%

5%

94%

6%

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Q1 Consumer Metrics

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Strong customer and order growth and continued improvements in AOV reflect improvements in brand awareness and customer engagement resulting from our integrated marketing campaigns and pricing and promotional initiatives

Y/Y Growth

Customers

Orders

Average Order Value (AOV)

2,557,245

3,869,201

$33.76

2,248,858

3,417,312

$32.13

14%

13%

5%

Q1 FY14 Q1 FY13

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GAAP – Gross Profit/Margin ($ in millions except per share amounts)

Net Revenue

Gross Profit / Margins

Gross Profit / Margins (Non-GAAP)*

of Total Net Revenues

Q1 FY13 Q1 FY14 Q1 FY13 Q1 FY14

$116.7

$54.9

$57.8

$137.1

$60.8

$64.6

44%

47%

47%

50%

Q1’s lower GAAP gross margin was largely driven by: • higher depreciation and equipment and customer service expenses related

to our new Fort Mill facility • unfavorable shift in product mix to lower gross margin products that are

typically outsourced • partially offset by lower material costs related to our increased scale and

insourcing, as well as lower overall shipping rates resulting from certain cost-savings initiatives

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* Non-GAAP Gross Profit/Margins excludes stock-based compensation and amortization of intangible assets. A non-GAAP to GAAP reconciliation is provided at the end of this presentation.

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Q1 operating expense levels reflect increased headcount, the increased cost structure from acquisitions and purchase accounting amortization

GAAP – Total Operating Expenses

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Net Revenue


Operating Expenses

Operating Expenses (excl. SBC)


Q1 FY13 Q1 FY14 Q1 FY13 Q1 FY14

$116.7

$54.9

$78.8

$67.8

$137.1

$60.8

$99.4

$84.4

44%

72%

62%

47%

68%

58%

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The increase in Technology and Development expenses was driven by: • incremental costs associated with our recent acquisitions • continuing strategic investments in technology and development headcount

to support core products, mobile initiatives and ThisLife

GAAP – Technology and Development Expense

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Net Revenue


Operating Expenses

Technology & Dev. T&D (excl. SBC and deprec.)


Q1 FY13 Q1 FY14 Q1 FY13 Q1 FY14

$116.7

$54.9

$78.8

$24.0 $18.0

$137.1

$60.8

$99.4

$31.5 $22.9

44%

72%

23% 17%

47%

68%

21% 15%

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GAAP – Sales and Marketing Expense ($ in millions except per share amounts)

The increase in Sales and Marketing expense was largely driven by investments in our integrated marketing campaigns and a modest increase in headcount

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Net Revenue


Operating Expenses

Technology & Dev. Sales & Marketing S&M (excl. SBC and amort.)


Q1 FY13 Q1 FY14 Q1 FY13 Q1 FY14

$116.7

$54.9

$78.8

$24.0 $34.9 $27.1

$137.1

$60.8

$99.4

$31.5 $42.1 $31.7

44%

72%

23% 31% 23%

47%

68%

21% 30% 23%

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GAAP - General and Administrative Expense

Q1’s General and Administration expense, excluding stock-based compensation and credit card processing fees, represented 11% of net revenues, slightly up from 10% in Q1 of last year primarily driven by acquisition-related costs


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Net Revenue


Operating Expenses

Technology & Dev. Sales & Marketing General & Admin. G&A (excl. SBC and CC fees)


Q1 FY13 Q1 FY14 Q1 FY13 Q1 FY14

$116.7

$54.9

$78.8

$24.0 $34.9 $19.9 $11.8

$137.1

$60.8

$99.4

$31.5 $42.1 $25.8 $15.5

44%

72%

23% 31% 19% 11%

47%

68%

21% 30% 17% 10%

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Non-GAAP Adjusted EBITDA ($ in millions except per share amounts)

Q1FY14’s Adj. EBITDA results reflect higher operating costs from our new manufacturing facilities and the annualized costs of M&A, offset by continued operational efficiency and scale gains. Q1FY13’s Adj. EBITDA results also benefited from a shift of costs to later quarters in 2013

* Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization and stock-based compensation. A non-GAAP to GAAP reconciliation is provided on the last slide of this presentation.

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Net Revenue


Operating Expenses

Technology & Dev. Sales & Marketing General & Admin.

Operating Loss

Adjusted EBITDA *


Q1 FY13 Q1 FY14 Q1 FY13 Q1 FY14

$116.7

$54.9

$78.8

$24.0 $34.9 $19.9

($24.0)

$3.3

$137.1

$60.8

$99.4

$31.5 $42.1 $25.8

($38.6)

$0.2

44%

72%

23% 31% 19%

(28%)

0.1%

47%

68%

21% 30% 17%

(21%)

3%

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GAAP and Non-GAAP Net Loss

Net Revenue


Operating Expenses

Operating Loss

Adjusted EBITDA*

Tax Rate

Net Loss (GAAP)

Net Loss (Non-GAAP)**




Q1 FY13 Q1 FY14 Q1 FY13 Q1 FY14

$116.7

$54.9

$78.8

($24.0)

$3.3

49%

($12.4)

($12.4)

($0.33)

($0.33)

$137.1

$60.8

$99.4

($38.6)

$0.2

19%

($34.2)

($31.5)

($0.89)

($0.82)

44%

72%

(28%)

0.1%

-

(25%)

(23%)

-

-

47%

68%

(21%)

3%

-

(11%)

(11%)

-

-


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12.6 3.8

5.1

Q1 FY14 CapEx: $21.5M

Technology equipment & softwareMfg, rental equipment & building improvementsCapitalized software development costs

($ in millions)

Capital Expenditures

Annual Capital Expenditures

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CapEx

(% of Rev)

$17.7 $22.4

$33.6

$60.8

$75.0

$96.6

2009 2010 2011 2012 2013 2014e

7.2% 7.3% 7.1%

9.5% 9.6%

10.5%

9.5%

$85.8

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Q2 FY14 Guidance (as of April 30, 2014)

Net Revenues

Year-over-year Growth

Gross Profit Margins

Operating Loss

Adjusted EBITDA *

Effective Tax Rate

Net Loss per Share

Weighted Average Shares

Q2 FY14 (GAAP)

Q2 FY14 (Non-GAAP)

($ and shares in millions, except per share components)

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$154.0 to $158.0

15.4% to 18.4%

46.0% to 47.0%

($33.2) to ($32.9)

-

22.0% to 25.0%

($0.75) to ($0.72)

38.5

-

-

48.4% to 49.3%

($9.0) to ($8.2)

$6.0 to $7.0

-

($0.68) to ($0.65)

38.5


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2014 Guidance (as of April 30, 2014)

Net Revenues

Year-over-year Growth

Gross Profit Margins

Operating Income / (Loss)

Adjusted EBITDA *

Effective Tax Rate

Net Income / (Loss) per Share **

Weighted Average Shares

Capital Expenditures

FY 2014 (GAAP)

FY 2014 (Non-GAAP)

($ and shares in millions, except per share components)

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$903 to $920

15.2% to 17.4%

52.0% to 53.0%

($0.6) to $9.2

-

15% to 23%

($0.38) to ($0.15)

38.6

9.5% to 10.5%

-

-

53.6% to 54.6%

$96.7 to $109.1

$160.6 to $174.8

-

($0.08) to $0.13

38.6

- * Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization and stock-based compensation. ** Non-GAAP Net Loss normalizes for the impact our Convertible Note offering has on Net Loss and earnings per share. A non-GAAP to GAAP reconciliation is provided at the end of this presentation.

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Reconciliation of Non-GAAP Gross Margin

Q1 FY14 Q1 FY13 Reconciliation of Non-GAAP Gross Margin GAAP gross profit $60.8 $54.9 Stock-based compensation 1.0 0.5 Amortization of intangible assets 2.8 2.4 Non-GAAP gross profit $64.6 $57.8

($ in millions)

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Reconciliation of Non-GAAP Adjusted EBITDA

Q1 FY14 Q1 FY13 Reconciliation of Non-GAAP Adjusted EBITDA GAAP net loss ($34.2) ($12.4) Interest expense / (income), net 3.7 0.1 Tax benefit (8.1) (11.6) Depreciation and amortization 22.8 15.7 Stock-based compensation expense 16.0 11.5 Non-GAAP Adjusted EBITDA $0.2 $3.3

Reconciliation of Cash Flows from Operations To Non-GAAP Adjusted EBITDA Net cash used in operations ($97.5) ($83.5) Interest expense / (income), net 3.7 0.1 Tax benefit (8.1) (11.6) Changes in operating assets/liabilities 106.6 101.4 Other adjustments (4.5) (3.1) Non-GAAP Adjusted EBITDA $0.2 $3.3

($ in millions)

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Reconciliation of Non-GAAP Net Loss Per Share

Q1 FY14 Q1 FY13 Reconciliation of Non-GAAP Net Loss Per Share GAAP Net loss ($34.2) ($12.4) Add back interest expense related to: Amortization of debt discount 2.9 0.0 Amortization of debt issuance costs 0.3 0.0 0.25% coupon 0.2 0.0 Tax effect (0.7) 0.0 Non-GAAP Net loss ($31.5) ($12.4)

GAAP Shares outstanding 38,503 37,034

Add: Dilutive effect of convertible notes 0 0

Non-GAAP Shares outstanding 38,503 37,814

GAAP Net loss per share ($0.89) ($0.33)

Non-GAAP Net loss per share ($0.82) ($0.33)

($ in millions, except per share amounts)

Share amounts in thousands

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Q&A

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Download - Shutterfly Earnings 1Q 2014 Powerpoint Slide Deck

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