Shutterfly increases cost savings guidance through 2022; receives equity injection

Shutterfly posted mixed results for the quarter ended 31 March, with the core consumer business ticking up year-over-year, while Lifetouch lagged due to school closures, according to two sources familiar with the company. The company also received USD 62m in new cash equity from investors during the quarter, one of the sources and an additional source added. 

The core consumer business is also up 30% in orders for April and May, the sources added. The segment raked in USD 157m of revenue in 1Q20, compared to USD 149m in 1Q19. 

Lifetouch, on the other hand, did well revenue-wise the first two months of the quarter, but fell prey to the effects of the pandemic in the last month and ended the quarter down 30% to USD 90m from USD 130m the prior year, the sources noted. 

During the quarter, management also increased its cost savings target through 2022 to USD 120m from USD 85m. The company also expects an additional USD 85m of cost savings generated in response to COVID-19 through a reduction in labor costs, salary and other cuts for the year, the sources said. 

Including the recently completed Snapfish acquisition, Shutterfly generated USD 331m of pro forma revenue during the quarter, compared to USD 376m year-over-year. The company generated USD 286m of that on a standalone-basis. 

On the bottom line front, Shutterfly booked negative USD 60m of combined adjusted EBITDA in 1Q20, compared to negative USD 38m in 1Q19, the sources said. On an LTM basis, the company generated USD 426m of combined credit agreement adjusted EBITDA versus USD 430m as of LTM 31 December. Including the expected COVID-19-related cost savings, LTM pro forma adjusted EBITDA totals USD 511m. 

As of 31 March, liquidity stood at roughly USD 280m through USD 80m of cash and USD 200m of revolver availability. On a net basis, the company is levered 4x through the term loans and 4.7x total, based on USD 426m of combined LTM EBITDA, the sources said.

“It’s important to note that the highlight of our recent performance is the tremendous strength in our core consumer business.  The 30% growth in orders for April and May is significant, versus single digit growth in recent years, and we are very pleased with that performance and trajectory,” a Shutterfly spokesperson said.

Shutterfly’s USD 750m 8.5% senior secured notes due 2026 changed hands at 94.375 to yield 9.71% on 11 June, down from a print at 97.75 to yield 8.97% before the report, according to MarketAxess

The bonds were placed as part of a financing package backing an LBO by Apollo Management. The company faced a difficult syndication process, including several rounds of revisions and a postponement, before Apollo bought USD 300m of the bonds and the underwriters carved out a separate pro-rata tranche to hold on to for six months.

Shutterfly also made a USD 100m prepayment of its term loans during the quarter, as reported. The loan facility contained a provision requiring a USD 100m paydown if the company’s cash balance at year-end totaled USD 350m or less. The paydown was applied across both the underwriter and institutional tranches.

The Libor+ 600bps institutional tranche – USD 775m at issuance – was traded down to the 90.7/92.43 context yesterday (15 June), down from trades in the 91.813/94.688 on 9 June before the earnings report, according to Markit. Originally issued at a 95 OID, the loan recovered today to the 91.417/93.192 context. 

Apollo did not respond to a request for comment. 

2020 Debtwire

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