Shutterfly Announces Third Quarter 2017 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 third quarter ended September 30, 2017.

“Q3 marked an important milestone for the company as we substantially completed the platform consolidation and the restructuring announced earlier this year in February,” said Christopher North, President and Chief Executive Officer. “Now, Shutterfly, TinyPrints, and our Weddings business – representing the overwhelming majority of our Consumer customers – are on a single technical platform. Combined with our streamlined cost structure and sharpened focus, we’re in a strong position to execute against our growth plan going forward.”

“Our Shutterfly brand and Shutterfly Business Solutions performed well in Q3. We continue to make good progress against our areas of strategic focus while maintaining strong cost control, and also closed a $500 million credit facility. And we’re ready for the fourth quarter with a beautiful selection of holiday products for both Shutterfly and TinyPrints customers, and having significantly improved customer experiences both on the web and in our mobile app.”

Third Quarter 2017 Financial Highlights
Net revenues totaled $195.4 million, a 4% year-over-year increase. Consumer net revenues totaled $135.4 million, a 6% year-over-year decrease as anticipated, as we migrated TinyPrints customers to the Shutterfly Platform, and shut down Wedding Paper Divas in the quarter and MyPublisher earlier in the year. Shutterfly Business Solutions net revenues totaled $60.0 million, a 39% year-over-year increase.

GAAP Operating loss totaled $35.8 million and Net loss was $25.6 million or $0.78 per share.

On a proforma basis, which excludes restructuring charges of $3.3 million, our operating loss was $32.5 million, Adjusted EBITDA was $3.0 million, and Net loss was $24.0 million or $0.73 per share. Restructuring charges for the third quarter are primarily related to property and equipment, and employee costs. Restructuring costs on a year-to-date basis were $17.0 million. Approximately 30% of these restructuring costs are in cash, which is less than our initial forecast of 50%.

During the third quarter of 2017, we entered into a credit agreement which provides for a $300 million Delayed Draw Term Loan B and a $200 million revolving credit facility. The proceeds from the Term Loan B will finance the repayment of our $300 million convertible debt due in May 2018, which we expect to repay at maturity. Given the economic provisions of the delayed draw, we funded the $300 million term loan in the month of October. The term loan carries variable interest at LIBOR + 250 basis points with a seven-year tenor. Concurrent with the funding, we hedged $150 million of the notional value of the loan with interest rate swaps, resulting in a fixed interest rate of 4.27% for the hedged portion of the debt.

During the third quarter of 2017, we repurchased a total of 632 thousand shares for $30.0 million bringing our year-to-date repurchases to over 1.6 million shares. We anticipate repurchasing approximately $30.0 million in the fourth quarter of 2017, bringing total estimated share repurchases for 2017 to $110.0 million.

Earlier in the year, we announced that we would undertake a strategic review of BorrowLenses. We completed the process in the third quarter, and decided to retain and operate the business. BorrowLenses is growing at a modest growth rate and generates positive cash flow.
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