Q1 2009 Earnings Conference Call April 29, 2009 Jeff Housenbold, CEO Mark Rubash, CFO
Jun 26, 2015
Q1 2009 Earnings Conference CallgApril 29, 2009
Jeff Housenbold, CEOMark Rubash, CFO
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 business outlook and strategy and statements aboutThese forward-looking statements include statements about our business outlook and strategy, 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”, or similar forward-looking terms. You should not rely on these forward-looking statements as they involve risks and uncertainties and 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, our ability to expand our customer base; our ability to retain and hire necessary employees, g y y y y yincluding seasonal personnel, and appropriately staff our operations; the impact of seasonality on our business; our ability to develop on a timely basis, as well as consumer acceptance of, new products and services; our ability to develop additional adjacent lines of business; unforeseen changes in expense levels; and competition, 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
f t th “Ri k F t ” ti f th ’ SEC fili hi h il bl th S iti d E hrefer you to the “Risk Factors” sections of the company’s SEC filings, 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 Adjusted EBITDA, and non-GAAP EPS, and Free Cash Flows The method we use to produce non-GAAP financial measures is not computed according to GAAP and may differFlows. 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. We believe that these non-GAAP measures better reflect the company's core operating results and thus are appropriate to enhance the overall understanding of the company's past financial performance and its prospects for the future. These adjustments to the company's GAAP results are made with the intent of providing both management and investors a more complete understanding of the company's underlying operational results and trends and performance. Management uses these non-GAAP measures to evaluate the company's financial results,
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develop budgets and manage expenditures. The presentation of this additional information is not meant to be considered in isolation or as a substitute for or superior to comparable financial measures prepared in accordance with GAAP.
Earnings Conference Call Agenda
• Key Q1 accomplishments • Financial performance review
• Guidance for Q2 / FY 2009
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Today’s Key Messages
Solid ● 5% increase in Q1 total net revenues; and 19% increase
in personalized products & services net revenuesQ1-09
Results
p p● Break-even Adjusted EBITDA* of $0.1 million ● Better than expected gross and operating margins
Focus onThree
Strategic
● Photo Books: launched personalized 8x8 soft cover edition, and continued to improve experience
● Cards & Stationery: Launched coordinated cards, t t d & ift tStrategic
Imperativesannouncements, note pads & gift tags
● Share Sites: enhancements to drive creation, engagement and conversion; ended quarter with 920k + sites
Buildingfor the Future
● Successfully opened new Phoenix, AZ plant on schedule● Promoted Peter Elarde to SVP & CMO and
Dan McCormick to VP & GM of Products & Services units
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● Continued focus on initiatives to increase net revenues, free cash flows and long-term shareholder value
*Adjusted EBITDA is a non-GAAP financial measure defined as earnings before interest, taxes, depreciation, amortization and stock-based compensation. For more information, please see Shutterfly’s First Quarter 2009 Press Release dated April 29, 2009 and other SEC Filings.
New Soft Cover Photo Books
• Expanded photo book choice set with new 8x8 soft cover books$ $
Key Features
• Priced at $19.99 to compliment hard cover edition at $29.99• New option will encourage trial, increase gift giving and expand
consideration to more causal use occasions
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Expanded Card & Stationery CollectionCoordinated Invitation Suites Personal Stationery
Invitation
Thank You Card
Gift TagAddress Label
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Address Label
CenterStage Puzzles
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Improvements to Share sites
• Enhanced share site permissions and notificationsand notifications
• Optimized ability to order prints and photo books
• Improved ability to share to favorite social networking and blogging sitesand blogging sites
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Shutterfly for iPhone
Key Features• Access & view Shutterfly
albums• Upload photos to Shutterfly
Key Features
Upload photos to Shutterfly account from iPhone
• Post photos to Shutterfly Share sites
Results• #1 free photo app • Top 100 overall free apps
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Q1 Site & User Experience Changes
• Homepage redesign: improved registration, abandonment, conversion rates and natural search rankingsrankings
• Updated registration page: improved conversion rates
• Updated promotion engine:Updated promotion engine: improved segmentation and targeting
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Letter to Customers
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Enhanced Adobe Integration
• Announced default print solution into Adobe Photoshop Elements 6 & 7, Photoshop Album Starter Edition and Photoshop.com
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• Changes allow Adobe users to create photo books, cards, calendars and prints in just a few clicks
Target Wedding and Baby Registries
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Shutterfly Baby Solutions Page
Find announcements that compliments your baby’s name
Tips on photography, announcements and
more
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Recent Awards
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Leverage Manufacturing Assets
Redwood City, CACorporate HQ
Charlotte, NC
Phoenix, AZManufacturing
Charlotte, NCManufacturing
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Strong Management Team
Peter Elarde Senior Vice President and Chief Marketing Officer
D M C i kDan McCormickVice President & General Manager, Products and Services
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In Summary
Driving Key Initiatives
• Lead in photo books, cards & stationery and memory sharing • Revenue, free cash flow and long term shareholder value
Market Leaders
• Best products, services and brand• Track record of profitability since 2003 • Strong balance sheet
• History of executing in good and bad economic cycles
Talented Managers
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• History of executing in good and bad economic cycles• Commitment to financial discipline
Financial Review
Mark Rubash, CFO
Financial Topics
• Q1 PerformanceQ1 Performance• Key Metrics• Q1 Operating Results• Q1 Operating Results• Q2 and Full Year 2009 Guidance
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Q1 2009 User Engagement Metrics
User engagement metrics continued to show trends experienced in 2008• Lower activity during non-seasonal periods
● Up slightly year over year with fairly consistent growth
Lower activity during non seasonal periods • Stronger performance during days surrounding traditional gift-giving periods
Site Visits ● Up slightly year-over-year, with fairly consistent growth rates across the quarter
User Registrations ● Accelerated significantly from Q4, with double-digit year-over-year growth
Unique Uploaders ● Up only slightly year-over-year, but strong double-digit growth in images uploaded
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Image Shares Sent ● Double-digit year-over-year growth
Q1 2009 Key Metrics
Q1 2008 Q1 2009 Year-Over-Year Growth
Orders
Customers
1,617,000
895,000
1,471,000
888,000 (1%)
(9%)
Average Order Value $21.23 $24.48 15%
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Q1 2009 Revenue – Customer Mix
$34.3 M21%21%22%22%
$36.0 M
New Customers
1% Y-o-Y Growth
78%78% 79%79%
New Customers
Existing Customers
6% Y-o-Y
Q1 08 Q1 09
6% Y o Y Growth
Q1 08 Q1 09
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Q1 2009 Revenue – Product Mix
$36 0 M
Personalized Products &61%61%54%54%
19% Y o Y
$34.3 M $36.0 M
Personalized Products & Services(photo books, stationery & folded greeting cards, calendars, photo merchandise, etc.)
54%54%
(12%)
Y-o-Y Growth
Photo Prints46%46%
Q1 08 Q1 09
39%39% (12%) Y-o-Y Decline
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GAAP Operating Results –Gross Profit Margins
Q1 2009Q1 2009Q1 2009Q1 2009 Q1 2007Q1 2007Q1 2008Q1 2008 Q1 2008Q1 2008
Gross Profit/Margins
% of Total Revenues
45%$16.3 M 48%$16.4 MNet Revenue $34.3 M $36.0 M
• Year-over-year margin decline due to planned manufacturing transition from Hayward, CA to Phoenix, AZ
• Stronger-than-expected margin performance from improvements in shipping and materials costs and improved product mix
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GAAP Operating Results –Technology & Development Expenses
Q1 2007Q1 2007 Q1 2009Q1 2009Q1 2009Q1 2009Q1 2008Q1 2008 Q1 2008Q1 2008
Gross Profit/Margins
% of Total Revenues
45%$16.3 M 48%$16.4 MNet Revenue $34.3 M $36.0 M
Operating Expenses
Technology & Dev’t 31%$11.0 M 27%$9.2 M
• Increases in depreciation, amortization and stock-based compensation and increases in power, co-location space and bandwidth costs
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GAAP Operating Results –Sales & Marketing Expenses
Q1 2007Q1 2007 Q1 2009Q1 2009Q1 2009Q1 2009Q1 2008Q1 2008 Q1 2008Q1 2008
Gross Profit/Margins
% of Total Revenues
45%$16.3 M 48%$16.4 MNet Revenue $34.3 M $36.0 M
Operating Expenses
Technology & Dev’tSales & Marketing 22%$7.8 M 23%$8.1 M
31%$11.0 M 27%$9.2 Mg $$
• Q1 customer acquisition costs decreased by 4% from prior year reflecting improved performance from our search engineyear, reflecting improved performance from our search engine optimization efforts and greater promotional efficiency
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GAAP Operating Results – General and Administrative Expenses
Q1 2007Q1 2007 Q1 2009Q1 2009Q1 2009Q1 2009Q1 2008Q1 2008 Q1 2008Q1 2008
Gross Profit/Margins
% of Total Revenues
45%$16.3 M 48%$16.4 MNet Revenue $34.3 M $36.0 M
Operating Expenses
Technology & Dev’tSales & Marketing 22%$7.8 M 23%$8.1 M
31%$11.0 M 27%$9.2 Mg
General & Admin. 19%$6.9 M 22%$7.6 M$$
• Year-over-year decrease attributed primarily to headcount reductions and lower use of outside consultants and contractorsreductions and lower use of outside consultants and contractors
• G&A savings partially offset by increased costs for office space
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Adjusted EBITDA
Q1 2007Q1 2007 Q1 2009Q1 2009Q1 2009Q1 2009Q1 2008Q1 2008 Q1 2008Q1 2008
Gross Profit/Margins
% of Total Revenues
45%$16.3 M 48%$16.4 MNet Revenue $34.3 M $36.0 M
Operating Expenses
Technology & Dev’tSales & Marketing 22%$7.8 M 23%$8.1 M
31%$11.0 M 27%$9.2 Mg
General & Admin.
Operating Loss
Adj sted EBITDA*
(26%)($9.4) M
$0 1 M
(24%)
(2%)
($8.4) M
($0 7) M
19%$6.9 M 22%$7.6 M$$
Adjusted EBITDA* -$0.1 M (2%)($0.7) M
• Consistent, sustained effort across entire business to manage cost structure in line with revenue growth
29* Adjusted EBITDA is a non-GAAP financial measure defined as earnings before interest, taxes, depreciation, amortization and stock-based compensation. For more information, please see Shutterfly’s First Quarter 2009 Press Release dated April 29, 2009 and other SEC Filings.
• Continued commitment to deliver increasing profitability and free cash flows
GAAP Operating Results - EPS
Q1 2007Q1 2007 Q1 2009Q1 2009Q1 2009Q1 2009Q1 2008Q1 2008 Q1 2008Q1 2008
Gross Profit/Margins
% of Total Revenues
45%$16.3 M 48%$16.4 MNet Revenue $34.3 M $36.0 M
Operating Expenses
Technology & Dev’tSales & Marketing 22%$7.8 M 23%$8.1 M
31%$11.0 M 27%$9.2 Mg
General & Admin.
Operating Loss
Adj sted EBITDA*
(26%)($9.4) M
$0 1 M
(24%)
(2%)
($8.4) M
($0 7) M
19%$6.9 M 22%$7.6 M$$
Adjusted EBITDA*
Tax Rate
GAAP Net Loss
32%
(17%)($6.2) M
49%
(10%)($3.6) M
-$0.1 M (2%)($0.7) M
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EPS
( )($ )
($0.25)
( )($ )
($0.15)* Adjusted EBITDA is a non-GAAP financial measure defined as earnings before interest, taxes, depreciation, amortization and stock-based compensation. For more information, please see Shutterfly’s First Quarter 2009 Press Release dated April 29, 2009 and other SEC Filings.
Capital Expenditures($ in millions)
Annual C it l E dit
$35.0
2009 Q1-09
Capital Expenditures
Capital Expenditures
$20.7 Cap’d R&D$22.7
Guidance:
$22 - $26
$0.8$0.8
$5.0Capital Expenditures
$20.7Bldg. ImprovementsManf. equipmentTech equip / software
$1.3$1.3
$0.3$0.3CapEx as % of Rev
16.8%18.7%
$2.6$2.6
% of Rev
11% - 12%10.7%
31 2006 2007 2008 2009 Q1-09
Balance Sheet Update: Mar. 31, 2009
• $65.9 million in cash and liquid investmentsq
• $52.3 million in auction rate securities and UBS rights– In November 2008, accepted formal rights offering from UBS entitling Shutterfly to
sell auction rate securities to UBS at par value beginning June 30, 2010p g g ,– Auction rate securities impairment of $9M at 12/31/08 reduced to $7.3M at
3/31/09, with $1.7M gain recognized as component of other income/expense – UBS rights valued as separate financial instrument, with 1.7M loss recognized in
Q1 t f th i /Q1 as a component of other income/expense
• $20 million revolving line of credit through April 29, 2009– Expect to replace existing line with new $20M facility in Q2 2009
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Context on Guidance
• Since the end of Q4 holiday shopping period, have seen a consistent, seasonal slow-down in site traffic & order volumesseasonal slow down in site traffic & order volumes
• With continuing recessionary pressures, continue to believe 2009 will be most challenging year on record
• Given early ‘09 trends, believe ’09 top-line results will be difficult to predict• Expect continued trend of weak non-seasonal order volumes, with modest year-
over-year improvements around seasonal holidays• Expect consistent mix of revenues between new and existing customers, modest
growth in average order values and shift from prints to personalized products
G t d $680k f Q1 C i l P i t d t t b t ti ll• Generated $680k of Q1 Commercial Print revenues and expect to substantially build on that amount throughout ’09. However, initiative still in early business development phase and we are excluding from guidance
• Implemented cost management strategies in ‘08 and will continue in ’09
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• Remain firmly committed to increasing long-term profitability and free cash flows
Full Year 2009 Guidance
2009 Non-GAAP*
2009 GAAP$ and shares in millions Non GAAP
52% – 54%
$195 – $215
51% – 53%
$195 – $215
GAAP
Gross Profit/Margins
Net Revenues
52% 54%
14% – 18%
$1 – $13
51% 53%
($13) – ($2)
Gross Profit/Margins
Operating Income / (Loss)
Adjusted EBITDA** Margin
(10%) – 32%
$0 09 – $0 35
14% – 18%
40% – 67%
($0 29) – ($0 01)
Effective Tax Rate
Diluted EPS
Adjusted EBITDA Margin
11% - 12%
$0.09 – $0.35
26.7
11% - 12%
($0.29) – ($0.01)
25.4
Capital Expenditures
Diluted EPS
Weighted Average Shares
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11% - 12%11% - 12%Capital Expenditures(% of revenues)*Non-GAAP calculations exclude stock-based compensation expense, amortization of purchased intangibles and the income tax impact related to these adjustments.
* *Adjusted EBITDA is a non-GAAP financial measure defined as earnings before interest, taxes, depreciation, amortization and stock-based compensation. For more information, please see Shutterfly’s First Quarter 2009 Press Release dated April 29, 2009 and other SEC Filings.
Q2 2009 Guidance
Q2 2009 GAAP$ and shares in millions
Q2 2009 Non-GAAP*
Gross Profit/Margins
Net Revenues
45% – 47%
$34 – $37
GAAP Non GAAP
47% – 49%
$34 – $37
Gross Profit/Margins
Operating Loss
Adjusted EBITDA**
45% 47%
($13) – ($11)
47% 49%
($3 0) ($1 0)
($10) – ($8)
Effective Tax Rate
Diluted EPS
Adjusted EBITDA
40% – 67%
($0 30) – ($0 14)
(10%) – 32%
($0 41) – ($0 20)
($3.0) – ($1.0)
Diluted EPS
Weighted Average Shares
($0.30) – ($0.14)
25.2
($0.41) – ($0.20)
25.2
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*Non-GAAP calculations exclude stock-based compensation expense, amortization of purchased intangibles and the income tax impact related to these adjustments.
* *Adjusted EBITDA is a non-GAAP financial measure defined as earnings before interest, taxes, depreciation, amortization and stock-based compensation. For more information, please see Shutterfly’s First Quarter 2009 Press Release dated April 29, 2009 and other SEC Filings.
Annual Operating Results
Net Revenues Adjusted EBITDA* Free Cash Flows**
($ in millions)
jPP&SPrints
$186.7
$213.5$27 to
$195 to
$215
$4
$123.4
$186.7
56%56%
61%61% $32.9
$38.4$15.6
to $39
$4 to
$15
51%51%
49%49%44%44% 39%39%
$21.6
17.5%17.5%17.6%17.6%
18.0%18.0%
14% to
18%
14% to
18%
2006 2007 2008
49%49%$1.0
($2.1)Y/Y Growth:PP&SPrint
23%3%
69%34%
77%25%
2009E 2006 2007 2008 2009E 2006 2007 2008 2009E
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For more information, please see Shutterfly’s First Quarter 2009 Press Release dated April 29, 2009 and other SEC Filings.*Adjusted EBITDA is a non-GAAP financial measure defined as earnings before interest, taxes, depreciation, amortization and stock-based compensation. **Free Cash Flows is a non-GAAP financial measure defined as Adjusted EBITDA* less purchases of property and equipment and capitalization of software and website development costs.
Net Revenues 14%51%47% (9%) – 1%
Q&A
Jeff Housenbold, CEOMark Rubash, CFO