Shutterfly debt rises as consumer segment outperforms, offsetting Lifetouch drag

Shutterfly’s debt traded up after the company reported better-than-expected earnings for 2Q20, despite weathering a shipping delay in its Lifetouch segment due to the COVID-19 pandemic, according to two sources following the situation.

Management also guided to positive free cash flow for full-year 2020, though the company burned USD 277m year-to-date, the sources added. The business is cyclical, with most of its cash flow generated in the fourth quarter, one of the sources added.

“The takeaway here is that the consumer business is firing on all cylinders and the customer base is growing. It’s an e-commerce play. The Lifetouch segment will take longer to come back,” one of the sources said.

Shutterfly’s USD 750m 8.5% senior secured notes due 2026 traded today at 93.75 to yield 9.885% from trades at 90.5 to yield 10.649% on 18 August, prior to yesterday’s earnings report, according to MarketAxess.

The Libor+ 600bps institutional tranche – USD 775m at issuance – traded up yesterday after the earnings report to the 89.417/91.583 context, from the 88.4/90.5 context on 18 August. The loan ticked up further to the 89.583/91.75 context today, according to Markit.

For the quarter, the company reported USD 66m of adjusted EBITDA, somewhat in line with the USD 65m generated in the same period last year. Combined revenue for the quarter declined 24% to USD 398m, from USD 527m in 2Q19.

The company encountered a yearbook shipping delay in its Lifetouch segment – which produces school pictures and yearbooks – due to the pandemic, impacting revenue by USD 15m and EBITDA by USD 10m.

The consumer segment, including the recently completed Snapfish acquisition, reported a 24% year-over-year increase in revenue to USD 276m and a more than 324% year-over-year increase in EBITDA to USD 73m. Customer count for the segment increased 23% in the last six weeks compared to last year.

Without the Lifetouch shipping delay, the company would have generated USD 76m of adjusted EBITDA.

As of 30 June, Shutterfly had USD 255m of liquidity through USD 110m of cash and USD 145m of revolver availability.

After the quarter ended, the company completed a sale leaseback of equipment, the proceeds of which added USD 50m to the company’s cash balance. Pro forma liquidity totals USD 305m.

On an LTM basis, the company generated USD 323m of adjusted EBITDA. Factoring in USD 37m of cost savings, USD 51m of to-be-actioned cost savings and USD 5m of adjusted EBITDA losses for business to be sold, the company generated USD 417m of LTM credit agreement adjusted EBITDA.

As of 30 June, the company is 4.1x levered on a net secured debt basis and 4.9x levered on a net total debt basis through USD 1.835bn of secured debt, USD 2.135bn of total debt and USD 417m of credit agreement adjusted EBITDA.

Shutterfly did not respond to a request for comment.

2020 Debtwire

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