Shutterfly released cleansing materials this week that included the personalized photo product maker's delayed 4Q22 and FY22 results, preliminary 1Q23 earnings and future cash flow projections, according to three sources familiar with the matter. The slew of information came alongside the company's launch of a public exchange offer and broader capital structure refinancing effort, they said.
The Apollo Global Management-owned company posted its preliminary first quarter results for the period ended 31 March, estimating revenue to clock in at the range of USD 361m-USD 371m, composed of around 62% consumer, 26% Lifetouch and 12% Shutterfly Business Solutions (SBS) revenue, the sources said. For reference, the company booked USD 366m of revenue in the prior year quarter, including around 60% consumer, 30% Lifetouch and 10% SBS revenue.
Meanwhile, the initial figures show an adjusted EBITDA loss of USD 19m-USD 29m in 1Q23, compared to a USD 33m loss recorded in 1Q22, the sources noted.
On an LTM basis ended 31 March, revenue is projected to come in at around USD 2.193bn-USD 2.203bn, with LTM adjusted EBITDA of roughly USD 279m-USD 289m. This compares to LTM revenue of USD 2.197bn and LTM adjusted EBITDA of USD 319m as of 31 March 2022, the sources continued.
Liquidity at quarter-end is forecasted to drop to USD 143m in cash with a fully drawn revolver, compared to USD 290m in liquidity comprising USD 95m of cash and USD 195m in revolver availability in 1Q22, they said. Liquidity as of 31 December 2022 totaled USD 433m all cash and a drawn revolver, the sources added.
For FY22, revenue rose a slight 1% YoY to USD 2.198bn as weakness in the consumer and Lifetouch segments was partially offset by gains in SBS revenue, which climbed 25% YoY to USD 224m that management attributed to growth in new accounts and expanded partnerships with existing accounts, sources said.
Meanwhile, adjusted EBITDA for FY22 fell about 16% YoY to USD 274m from USD 328m booked in the prior year, which Shutterfly attributed to continued inflationary pressures that were partially offset by its cost-savings initiatives, the sources continued.
Further out
Looking ahead, Shutterfly revealed its cash flow forecast to investors based on pre-transaction and pre-actual 1Q23 numbers, projecting revenue to rise around 2% YoY to USD 2.247bn for FY23 and a further 4% YoY to USD 2.346bn for FY24, sources said. Meanwhile, adjusted EBITDA is forecasted to climb to USD 296m in 2023 and USD 346m in 2024, they noted.
“The revenue and EBITDA projections for the next couple of years look reasonable, basically alluding that management will be able to return the company back to pre-COVID operating levels more or less," one of the sources noted. "However, the expected cost savings do look overblown. Apollo has owned Shutterfly for quite a number of years now, if there were massive cost savings to be realized you would think it would have been done earlier."
The company had identified total cost savings of USD 18m in FY22 and further expects USD 98m of costs savings for this year and subsequently another USD 134m in 2024, the sources said. Initiatives get to the savings target include headcount reductions, further plans to tap into outsourcing and offshoring opportunities, and the rationalization of technology programs and development spend, they noted.
Shutterfly expects negative levered free cash flow of USD 116m for FY23 before improving to negative USD 44m FCF in 2024. Liquidity-wise, the issuer noted estimates to end the year with USD 352m through USD 52m in cash and USD 300m revolver availability, the sources went on. It also projected USD 80m total capital expenditure in 2023 and USD 85m total capital expenditure in 2024.
Recap boon
The company announced an exchange offer on 15 May, with over 80% support from term loan lenders and around 74% support from senior secured note holders. Under the deal, the company’s debt will be borrowed under a newly formed subsidiary entity, Shutterfly Finance, which holds certain assets including brands and customer lists that will be used as collateral to secure new capital.
On a pro forma basis, Shutterfly’s capital structure, assuming full participation in the exchange, will have its existing total debt of about USD 2.5bn be exchanged into the new debt of around USD 2.3bn on a pro rata basis. The new money portion of the capital structure will include USD 200m backstopped by secured lenders and split between a USD 118m first lien SOFR+ 600bps TL due 2027 and a USD 82m first lien 9.75% senior secured note due 2027, the sources said. Meanwhile, the exchange offer proposes existing debt holders swapping into a USD 278m second lien S+ 550bps revolver due 2026, a USD 975m second lien S+ 500bps (50% PIK) due 2027, a USD 675m second lien 8.5% (50% PIK) senior secured note due 2027, a USD 300m 11% PIK unsecured notes due 2028 and a USD 51m 8% PIK unsecured bond due 2028, the same sources added.
The company estimates that the recap will provide it with around USD 534m of total liquidity benefit through the USD 200m new money raised, USD 281m PIK on exchanged debt and USD 53m from permanent interest reduction through deleveraging, the sources said.
The issuer's USD 750m 8.5% senior secured notes due 2026 last traded at 44.5 today, compared to trades at 44 on 12 May, according to MarketAxess.
Its USD 1.083bn Libor+ 500bps TL due 2026 was last quoted 44.333/46.667 today compared to quotes at 40.438/45.016 on 15 May, according Markit.
Shutterfly and Apollo did not respond to requests for comment.
