Shutterfly Announces First Quarter 2018 Financial Results

Shutterfly, Inc. (NASDAQ:SFLY), the leading online retailer and manufacturer of high-quality personalized products and services, today announced financial results for the first quarter ended March 31, 2018.

“The first quarter of 2018 was a good start to the year for Shutterfly, led by healthy Shutterfly organic growth and overperformance in Shutterfly Business Solutions,” said Christopher North, President and Chief Executive Officer. “We showed a significant improvement in profitability over the first quarter of 2017, thanks to organic Shutterfly brand growth of 10% and the benefits of last year’s platform consolidation. We continue to execute against our strategic plan, with notable progress in mobile as well as pricing and promotion optimization. Finally, we closed the transformational acquisition of Lifetouch, and are now fully focused on achieving the cost and revenue synergies that will contribute to our target of a minimum of $450 million in combined company Adjusted EBITDA by 2020.”

First Quarter 2018 Financial Highlights
Net revenues were $199.7 million, a 4% year-over-year increase. Shutterfly Consumer net revenues totaled $152.1 million, a 5% year-over-year decrease which was consistent with the Company’s expectations of a mid-single digit decline in the first quarter of 2018 as indicated on prior earnings calls. Shutterfly brand growth was supported by strong performance in Photo Books as well as the Wedding Shop, which was launched in the third quarter of 2017, and was offset by anticipated revenue declines in the non-Shutterfly brands due to the platform consolidation and the brand shutdowns over the course of 2017. Shutterfly Business Solutions net revenues totaled $47.7 million, a 52% year-over-year increase.

GAAP operating loss totaled $34.1 million and net loss was $27.2 million or a $0.83 loss per share.

On a normalized basis, which excludes acquisition-related charges in the first quarter of 2018 and restructuring charges in the first quarter of 2017, operating loss improved $11.3 million year-over-year to a loss of $29.5 million, net loss improved $4.4 million year-over-year to a loss of $23.8 million, and net loss per share improved $0.11 to a net loss of $0.73 per share.

Adjusted EBITDA was $7.1 million, a $9.0 million year-over-year increase primarily due to growth in the Shutterfly brand and the benefits of the platform consolidation and restructuring.

The acquisition of Lifetouch will significantly increase the Company’s overall profitability. Since the acquisition closed on April 2, 2018, management has updated its guidance to include Lifetouch. The Lifetouch annual guidance is consistent with the guidance provided in January when the deal was announced, except for the impact of exiting the iMemories business which is expected to occur in the second quarter, and reduces full-year 2018 revenue guidance by $22 million but has no impact on Adjusted EBITDA. Please see page 16 for more detail.

Lifetouch purchased iMemories in 2016 to provide a cloud photo storage and organization service coupled with a broader range of photo-based products to its customers. When the Company agreed to purchase Lifetouch, it anticipated that it would ultimately exit the iMemories business as over time Shutterfly’s Photos service and its broader range of products would be offered to Lifetouch customers. Since closing the Lifetouch acquisition, the Company has decided to accelerate the process of exiting iMemories, and now expects to exit it by the end of the second quarter.
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