Shutterfly, Inc. (NASDAQ:SFLY) Q1 2018 Earnings Conference Call Transcript

May 01, 2018 • 05:00 pm ET

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Shutterfly, Inc. (NASDAQ:SFLY) Q1 2018 Earnings Conference Call Transcript

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Presentation
Executive
Christopher North

acquisition on April 2, we dramatically increased our customer base, nearly doubled our revenue to more than $2 billion and set ourselves up to almost double our adjusted EBITDA by 2020. We've come a long way in the last two years, but we're even more excited about what's ahead.

Today, I'll start by sharing an update on our Q1 2018 Shutterfly business performance. I'll then provide an update on the Lifetouch acquisition. After that, Mike Pope will present financial results for the first quarter of 2018 and update our outlook for the year. I'm pleased to say that we had a successful first quarter. Our Q1 results met or beat guidance on the most important metrics and showed a significant improvement in profitability over the first quarter of 2017. At the same time, we continue to make good progress against our key areas of strategic focus.

First quarter net revenues were $199.7 million, above the high end of guidance, led by organic Shutterfly brand growth, continued rapid mobile growth and over-delivery in SBS. Adjusted EBITDA for the first quarter was $7.1 million, slightly better than expected. That's a $9 million improvement in adjusted EBITDA versus Q1 2017, thanks to last year's platform consolidation and restructuring, as well as organic growth in the Shutterfly brand.

In the Shutterfly Consumer segment, the Shutterfly brand delivered organic growth of 10%, with solid performance across the business. We saw particularly good performance in Photo Books, as well as in the Shutterfly Wedding Shop, which launched in the third quarter of 2017. As expected, this healthy Shutterfly brand growth was offset by a loss of revenue from the three websites we shuttered in 2017: Tiny Prints, Wedding Paper Divas, and MyPublisher.

To help investors better understand the underlying growth in our Consumer business, we began providing additional brand level metrics in the last fall and will continue doing so this year. As a reminder, we shuttered MyPublisher in the middle of the second quarter of 2017, the Tiny Prints website towards the end of the second quarter of 2017 and Wedding Paper Divas towards the end of the third quarter of 2017 and will only have a like-for-like comparison to the prior year beginning in Q4 2018.

In addition to organic Shutterfly growth, Shutterfly.com also benefits from revenue we retain from customers of the websites we shuttered last year. While we retained approximately 75% of revenue from these legacy websites in Q4 2017 versus Q4 2016, we expect to retain a significantly lower percentage of revenue in Q1 to Q3. The reason for this is that Q1 to Q3 are quarters in which the legacy websites historically relied on a much higher mix of newly acquired customers each year, whereas Q4 is primarily a period of repeat business given that Tiny Prints enjoys strong Q4 to Q4 loyalty each year.

For Q1, we retained approximately 30% of revenue from the shuttered websites compared to last year, roughly in line with our expectations. More broadly, across