Shutterfly Inc. Q1 2010 Earnings Call Transcript

Shutterfly Inc. Q1 2010 Earnings Call Transcript
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Shutterfly Inc. (SFLY)

Q1 2010 Earnings Call

April 28, 2010 5:00 pm ET

Executives

John Kaelle – Vice President, Finance

Jeffrey Housenbold – Chief Executive Officer

Mark Rubash – Chief Financial Officer

Analysts

Youssef Squali – Jefferies & Company

Mitch Bartlett – Craig Hallum Capital Group

Analyst for Jim Friedland – Cowen & Company

Shawn Milne – Janney Capital Markets

Kristine Koerber – JMP Securities

Imran Khan – JP Morgan Securities

Colin Sebastian – Lazard

Scott Devitt – Morgan Stanley

Joseph Okleberry – Morgan Stanley

James Cakmak – Sidoti & Company

Presentation

Operator

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» Shutterfly, Inc. Q4 2009 Earnings Call Transcript
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Welcome everyone to the Shutterfly first quarter 2010 earnings conference call. Today's call is being recorded. I would now like to turn the call over to John Kaelle, Vice President of Finance for Shutterfly.

John Kaelle

Thank you, operator. Good afternoon everyone. Welcome to Shutterfly's first quarter 2010 conference call. With us today are Jeff Housenbold, Chief Executive Officer of Shutterfly, and Mark Rubash, Chief Financial Officer.

A press release detailing our results is available on shutterfly.com and an archived copy will be kept on our site. We have also released some visuals that we use as we go through the call. Additionally, within a few hours we will release a recording of this call both in a streaming online format and through a downloadable podcast. You can access all of these through the Investor Relations section of our website at shutterfly.com.

Before we begin, I would like to note that our discussion today will include forward-looking statements within the meaning of the Securities Act of 1933 and the Securities and Exchange Act of 1934. These forward-looking statements include statements about our business outlook and strategy and statements about historical results that may suggest trends for our business. For more information regarding these 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 section entitled Risk Factors in the company's last annual report on Form 10K and its other filings with the SEC.

I would also like to note that any forward-looking statements made on this call reflect analysis as of today. This presentation contains certain financial performance measures that are different from financial measures calculated in accordance with GAAP and may be different from calculations of measures made by other companies. A quantitative reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures is available in our Q1 2010 earnings press release which is posted on the Investor Relations section of our website at shutterfly.com.

Now, I would like to turn the call over to Shutterfly's CEO, Jeffrey Housenbold.

Jeffrey Housenbold

Thanks, John, and welcome everyone. I will start today with a review of Q1 2010 and then turn the call over to Mark to review our financials in detail and provide our financial guidance for Q2 and full-year 2010. We will then open up the call for Q&A.

As you listen to our remarks today I would like you to keep in mind the following key messages; During Q1 we continued to gain momentum and market share across the business as we demonstrated strong execution against our strategy. Our consistent innovation, design forward products and services, customer friendly policies and industry leading quality attracted record new customers and continued high loyalty rates among our existing customers.

Throughout 2010 we will continue to make appropriately sized investments in our product and services offerings, customer insights and analytics and other activities that leverage our manufacturing assets and active customer base. We believe these types of investments will enable increases in market penetration along with continued growth in top line revenues, bottom line profitability and free cash flows.

With those messages in mind I will summarize our first quarter headline financial results. Consistent execution against our key strategic initiatives; relentless focus on the customer and strong financial discipline resulted in solid financial results for Q1. The first quarter marked our 37

th

consecutive quarter of year-over-year revenue growth and we delivered a top line with better than expected margins.

During Q1 we delivered $45.7 million in revenue representing a 27% year-over-year increase. Our strong performance was fueled by continued growth in our line of personalized products and services which grew 43% over Q1 2009.

Now I will briefly recap some of the progress we made during the quarter starting with our products. In Q1 we continued to see increased momentum in our Photo Book business which included a significant uptick in first time buyers. Based on learnings from our strong fourth quarter we made a number of enhancements to our Simple Path creation experience making it even easier for customers to make a Personalized Photo Book in just one-click. We also launched our Local Picture Access feature which further lowers the barriers to creating a Photo Book.

With local picture access users can select pictures from their desktop and then are immediately sent to the Simple Path creation process where they can create a Photo Book without having to register or for photos to upload. Once the book is complete and the customer places her order the Photo Book is uploaded in the background, thus reducing time and complexity.

Now turning to cards and stationery. We further grew our collection by giving customers more opportunities to make personalized, premium invitations for occasions like baptisms, first communion and Easter. We also launched a variety of children and adult birthday invitations as part of our own 10

th

birthday celebration. Finally, based on customer feedback from Q4 we introduced a series of enhancements to the cards in stationery shopping and creation experience.

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