Shutterfly, Inc. (SFLY)
Q2 2010 Earnings Call
July 28, 2010 05:00 pm ET
John Kaelle - VP, IR
Jeff Housenbold - CEO
Mark Rubash - CFO
Imran Khan - JPMorgan
Sandeep Swadia - Jefferies & Co.
Mitch Bartlett - Craig Hallum
Michael Olson - Piper Jaffray
Greg Lazard - Lazard
James Cakmak – Sidoti & Company
Scott Devitt - Morgan Stanley
Good day ladies and gentlemen and welcome to the Shutterfly, Inc. second quarter 2010 financial results conference call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow with that time.
(Operator Instructions) As a reminder this program is being recorded. I would now like to introduce your host for today’s program Mr. John Kaelle of Vice President of Finance for Shutterfly. Sir you may begin.
Thank you operator. Good afternoon and welcome to the Shutterfly’s second quarter 2010 conference call. With us today are Jeff Housenbold, Chief Executive Officer for 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 visuals that we will use to speak out throughout the call. Additionally, within a few hours we will release a recording of this call both in the streaming online format and through a downloadable broadcast. You can access all of these through the Investor Relations section of our website at shutterfly.com.
Before we begin, I would like to mention our discussion today will include forward-looking statements within meaning of the Securities Act of 1933 and the Securities 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 to you section entitled Risk Factors in the company’s last annual report on Form 10-K and its 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 or 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 second quarter 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, Jeff Housenbold.
Thanks John and welcome everyone. I’ll start today with an overview of our Q2 performance, and then I’ll turn the call over to Mark to review our financial results in detail and provide our updated guidance for Q3 and full year 2010. We’ll then open the call to your questions.
As you listen to our remarks today, I’d like you to keep in mind two key messages. First, we continue to see solid growth and increasing contributions from our award winning lines of personalized products and services and I am particularly pleased with the strong performance of Photo Book, cards and stationery during the Mother’s Day and Father’s Day periods.
Our commitment to innovation, designed for our products and services, customer friendly policies and industry leading quality, once again delivered high customer loyalty and record new customers. Second, as we prepare for Q4, we will continue to make appropriately sized investments in our products and services offerings, customer insights and analytics, and other activities that leverage our manufacturing assets and active customer base.
We believe that these types of investments will enable continued penetration in our key target markets and continued growth in top line revenues, bottom line profitability and free cash flows. With these messages in mind I will now summarize the second quarter headline financial results. Consistent execution against our key strategic initiatives, relentless focus on the customer and strong financial discipline resulted in record financial results for the second quarter.
Q2 marked our 38
consecutive quarter of year-over-year revenue growth and we delivered the top line with better than expected margins. During Q2, we delivered $46.8 million in revenue representing a 20% year-over-year increase and a 25% growth rate excluding referral fees. Our strong performance was fueled by continued growth in our line of personalized products and services which grew 34% year-over-year or 42% excluding referral fees.
Now I will briefly recap some of the progress we made during the quarter starting with our products. In Q2, our photo book continued a strong momentum delivering outstanding results during the Mother’s Day and Father’s Day gift giving periods.
During the quarter, we introduced a number of new Photo Books features that further differentiates us in the category and let our customers create compelling products with their photos regardless of the store’s location. For example, we enhanced our local picture access functionality allowing customers to use photos right from hard drives further reducing barriers to try. We also added more intelligence to our simple path algorithm including the ability for customers to make a photo book in less than five minutes.
We also introduced a feature that allows users to create simple pass books using their own or their friends Facebook photos. By copying to the Facebook social graph users can create and order Shutterfly's award winning Photo Books in just a few clicks. And finally we have partnered with Sony to give customers instant access to Shutterfly's Simple Path Photo Books on new Sony VAIO computers broadening the awareness and potential adoption of our Photo Books.