- Company Issues $825M Term Loan B to Finance Acquisition
- Updated Credit Ratings Maintain Ba3/BB- Rating
REDWOOD CITY, Calif.--(BUSINESS WIRE)--Apr. 2, 2018--
Shutterfly (NASDAQ: SFLY), the leading online retailer and manufacturer
of high-quality personalized products and services, today announced it
has closed its previously announced acquisition of Lifetouch, the
national leader in school photography. The company financed the
acquisition with the proceeds of an $825 million incremental term loan
facility, which closed simultaneous with the acquisition.
“We are thrilled to welcome Lifetouch to the Shutterfly family, and are
excited to bring together two undisputed leaders in adjacent verticals,
both of which have the common mission of helping customers share life’s
joy through photos,” said Christopher North, President & Chief Executive
Officer of Shutterfly. “We are focused on realizing the three value
creation opportunities that we previously articulated: gaining access to
many Lifetouch customers as Shutterfly customers, offering Shutterfly’s
broader product range to Lifetouch customers and accelerating the
development of Lifetouch’s online platform, and realizing significant
supply chain, manufacturing, and fulfillment synergies over time.”
Michael Meek will remain as President and Chief Executive Officer of
Lifetouch, and will report to Christopher North.
Now that the acquisition has closed, Lifetouch will no longer be
required to fund the Lifetouch Inc. Employee Stock Ownership Plan
(ESOP). At closing, the sale proceeds were paid to the trustee of the
ESOP who will distribute the proceeds to participants. Generally,
participants will receive full payment for their ESOP interest in two
installments, and following expiration of applicable escrows and final
approval of the IRS, the ESOP will be terminated.
Shutterfly expects the acquisition to result in approximately $935.0
million of additional Net Revenues, and approximately $100.0 million of
additional Adjusted EBITDA in the twelve-month period following closing
of the acquisition. The Company will provide updated 2018 financial
guidance incorporating Lifetouch results of operations for the remainder
of the year, on its Q1’18 earnings call.
As mentioned on the fourth quarter earnings call, the Company is
targeting a minimum of $450 million of Adjusted EBITDA by 2020. For
additional information on the components of this Adjusted EBITDA target,
please see the presentation accompanying the Company’s January 30, 2018
conference call.
Transaction Details
Shutterfly acquired privately-held Lifetouch for $825 million,
cash-free, debt-free. The acquisition of Lifetouch was announced on
January 30, 2018 and was approved by the Board of Directors of
Shutterfly and the trustee of the Lifetouch ESOP prior to announcement.
Shutterfly financed the acquisition with incremental term loans, which
closed simultaneous with the acquisition.
Incremental Term Loan B Details
In connection with the acquisition of Lifetouch, the company incurred
$825 million of incremental term loans. The incremental term loans bear
interest at LIBOR, plus 250 - 275 basis points (determined based on the
company’s secured leverage ratio, as defined), and were issued at a
discount to par of 25 basis points. The incremental term loans mature on
August 17, 2024, concurrent with the company’s $300 million of existing
term loans incurred on August 17, 2017. The terms of the facility are
set forth in an Incremental Term Loan Amendment dated April 2, 2018 by
and among Shutterfly, the subsidiary guarantors, the lenders and issuing
banks, and Morgan Stanley Senior Funding, Inc., as administrative agent
and collateral agent, and amends the company’s existing Credit
Agreement, dated as of August 17, 2017. The incremental term loans were
drawn in full at closing.
As part of the Term Loan B issuance, the company received updated credit
ratings, which now incorporate the Lifetouch acquisition and the
incremental debt. The company maintained its Ba3/BB- rating profile
through this process, consistent with the company’s stated intentions.
About Non-GAAP Financial Measures
This press release contains a non-GAAP financial measure (adjusted
EBITDA). We have not reconciled our combined company non-GAAP Adjusted
EBITDA target of $450 million for 2020 and Lifetouch non-GAAP Adjusted
EBITDA of $100 million for the twelve-month period following closing of
the acquisition to comparable GAAP operating income at this stage of the
process because it is unreasonably difficult to provide guidance for
stock-based compensation expense, capitalization and amortization of
internal-use software and charges related to the proposed acquisition,
which are reconciling items between GAAP operating loss and non-GAAP
Adjusted EBITDA. The factors that may impact our future stock-based
compensation expense and capitalization and amortization of internal-use
software are out of our control and/or cannot be reasonably predicted,
and therefore we are unable to provide such guidance without
unreasonable effort. Factors include our market capitalization and
related volatility of our stock price and our inability to project the
cost or scope of internally-produced software and charges related to the
proposed acquisition during this time period.
To supplement the Company's consolidated financial statements presented
on a GAAP basis, we believe that this non-GAAP measure provides useful
information about the Company's core operating results. We believe this
measure provides both management and investors a more complete
understanding of the Company's underlying operational results and trends
and performance. The method we use to produce this measure may differ
from the methods used by other companies. The presentation of additional
information is not meant to be considered in isolation or as a
substitute for measures in accordance with GAAP. For more information,
please see Shutterfly's SEC Filings, including the most recent Form 10-K
and Form 10-Q, which are available on the Securities and Exchange
Commission's Web site at www.sec.gov.
Notice Regarding Forward-Looking Statements
This media release contains “forward-looking” statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, which
involve risks and uncertainties. These forward-looking statements
include the expected acceleration of Shutterfly and Lifetouch
strategies, expectations around gaining access to Lifetouch customers
and benefits to Shutterfly customers; anticipated acceleration of the
development of Lifetouch’s online platform; and expected supply chain,
manufacturing and fulfillment synergies over time; the distribution of
the proceeds to participants and the receipt of full payments by the
participants; the expected increase in New Revenue and Adjusted EBITDA
targets for the twelve months following closing; the Adjusted EBITDA
targets for 2020. You can identify these statements by the use of
terminology such as “guidance”, “believe”, “expect”, “will”, “should,”
“could”, “estimate”, “anticipate” or similar forward-looking terms.
Factors that might contribute to such differences include, among others,
the retention of Lifetouch employees and our ability to successfully
integrate the Lifetouch businesses; risks inherent in the achievement of
anticipated synergies and the timing thereof; general economic
conditions and changes in laws and regulations; decreased consumer
discretionary spending as a result of general economic conditions; our
ability to expand our customer base and increase sales to existing
customers; our ability to meet production requirements; our ability to
retain and hire necessary employees, including seasonal personnel, and
appropriately staff our operations; the impact of seasonality on our
business; our ability to develop innovative, new products and services
on a timely and cost-effective basis; consumer acceptance of our
products and services; our ability to develop additional adjacent lines
of business; unforeseen changes in expense levels; and competition and
the pricing strategies of our competitors, which could lead to pricing
pressure. You should not rely on these forward-looking statements as
they involve risks and uncertainties that may cause actual results to
vary materially from the forward-looking statements. For more
information regarding the 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 “Risk Factors” section of our
SEC filings, including our most recent Form 10-K and 10-Q, which are
available on the Securities and Exchange Commission’s website at www.sec.gov.
These forward-looking statements are based on current expectations and
the company assumes no obligation to update this information.
About Shutterfly, Inc.
Shutterfly, Inc. is the leading digital retailer and manufacturer of
high-quality personalized products and services. Founded in 1999,
Shutterfly brings your photos to life in photo books, gifts, and cards
and stationery – through its flagship Shutterfly products, premium
offerings in its Tiny Prints boutique, as well as wedding invitations
and stationery for every step of the planning process; and through
BorrowLenses, the premier online marketplace for photographic and video
equipment rentals. Shutterfly, Inc. also operates Shutterfly Business
Solutions, delivering high quality digital printing services to the
enterprise market, and Lifetouch, the leader in school photography. For
more information about Shutterfly, Inc. (SFLY), visit www.shutterflyinc.com.

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Source: Shutterfly, Inc.
Shutterfly, Inc.
Investor Relations:
Shawn Tabak, 650-610-6026
stabak@shutterfly.com
or
Media
Relations:
Nicole Stier, 650-610-6013
nstier@shutterfly.com