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Shutterfly, Inc. (NASDAQ:SFLY)

February 26, 2013 6:50 pm ET

Executives

Jeffrey T. Housenbold - Chief Executive Officer, President and Director

Analysts

Andrew Ruud - Morgan Stanley, Research Division

Andrew Ruud - Morgan Stanley, Research Division

Hi. Thank you all for joining us today. I've got Jeff Housenbold, the CEO of Shutterfly. Before we get started, I just want to read a quick disclosure. Please note that all important disclosures, including personal holdings disclosures and Morgan Stanley disclosures, appear on the Morgan Stanley public website at morganstanley.com/researchdisclosures or at the registration desk. So with that, we'll get started. Thank you very much for coming.

Jeffrey T. Housenbold

Good to see you.

Andrew Ruud - Morgan Stanley, Research Division

So 2012 was a pretty big year for Shutterfly. And I just wanted to see if you could talk -- touch on 3 kind of themes, first being consolidation, kind of where are we within the entire product category? There, vertical integration and technology, how has that kind of helped differentiate Shutterfly amongst your competitors? And also sort of this whole movement into content as opposed to just kind of allowing commoditization to, I guess, marginalize yourself?

Jeffrey T. Housenbold

Great. So we pioneered this industry in 1999. And over that period of time, we've had some small competitors you probably haven't heard of: Yahoo!, Sony, HP, Kodak, Cannon, AOL, Microsoft, Apple, to name a few. And because of our singular focus, our customer centricity and our investment in technology, both on the front-end web services and on the back-end print on demand, we've been able to kind of outpace and out-execute the competition. We've also -- and some of the hallmarks of that was the focus of the customer. We offer free unlimited non-compressed, non-downsampled, and non-forced deleted storage. 100% happiness guarantee. We have live chat, phone and email, right? It's just in our ethos as a consumer-direct company to really focus on it. The second thing we focused on was innovation. How do we keep pace with technology, with consumer changing in their behavior? How do we make sure we're ubiquitous across devices? So I don't care if you take it with a Canon or a Nikon or a Kodak device. I don't care if it's on an Apple or an Android, if it's a Mac or a PC. We're just ubiquitous to the customer. The third thing is quality. Not just quality of the physical products, which matters, and that's what we're vertically integrated. And we have higher quality. We're able to control the consistency and the delivery time and the expectations to our customers. We're also able to capture 8 to 12 points better margin because we're not outsourcing and sharing that margin. So we have quality of physical product. But we also have quality of our customer care, quality of the uptime of the website, quality that we haven't lost a photo, and we have more than 18 billion of them in our cloud service. So quality has mattered. Design does matter. So our customer, she 80% female, she's 25 to 50, and design matters. Just like when she's thoughtful about the car she drives or the clothes she wears, the shoes she buys or the handbag she carries, it's all an extension of her personality. And what Shutterfly does is help people stay connected and deepen their personal relationships with the people that matter most to them. And Shutterfly is a reflection on them. It's seen as a thoughtful, personalized gift that means that you care and design and being design forward and on trend matters, and we really embrace that. We have, between insource and outsource, we have more than 200 designers that work for Shutterfly. And then lastly, we focused on building a profitable sustainable business. So we didn't believe in just getting revenue or users. We believed in getting revenue and profits, and you've seen that through the company's history, and 2012 was a record year on delivering top line and bottom line. And so as we think about the competition and the consolidation, we've seen Sony ImageStation go under, Yahoo! Photos, American Greetings PhotoWorks, Kodak Gallery and Fuji, the latter 2 last year. And we've been a good partner in helping to take those customers' precious memories and move them onto our servers because those owners were going to delete them. And the Kodak deal was a great illustration where we should never have even existed, right? Kodak invented the digital camera. They locked it in their vault for 6 years because they were afraid of cannibalizing film sales. And they allowed a market where Shutterfly came out. I remember when I joined the company a little over 8 years ago, I was at PMA, which is the Big Photo Marketing Association attached to CES. And the CMO of Kodak put his arm around me and said, "Welcome to the industry, young man." He's 6'5" and I'm 5'6", and he said, but I got some advice for you, "You can't make a meal from those fish heads." And I looked at him and said, "What the hell does that mean?" And he said, "You know, you guys doing that photo personalized stuff, it's all about the 4 by 6 print. That's where the profit is. That's where you make a meal. Fish heads, you can't make soup out of that." And because we weren't printing people, we weren't industry people, we're a group of consumer technologists, we came at the industry in a different way. So we believe that the vast -- the large consolidation has happened, but there's still more to come. There's been over 1,000 venture-backed companies in the space that have come and gone, some founded by very well successful entrepreneurs. But we think there has been about $1.3 billion of invested capital into this category, and most of it has, outside of Shutterfly, Tiny Prints and Instagram, not a whole lot of return from that.

The next biggest asset left Snapfish. I know a lot of people asking about that, particularly that Meg remarked about perhaps shutting down core assets today in her speech. Our stance on Snapfish hasn't changed. We're about 5 or 6x bigger than Snapfish.com. They white-labeled for Walmart and Walgreens. We're much more profitable. But we have a lot of respect for HP and Meg and her team there that if they decided they wanted to jettison that asset, we'd logically take a look, but it has to be at the right price and the right structure. If that works out, that'd be great, because we think we could get those customers to do more, and because we utilize -- we're the #1 or #2 largest customer for HP Indigo. If we can generate more clicks in ink and paper for them, which is high margin, I think it can be a win-win, but it has to be at the right price and the right structure.

Andrew Ruud - Morgan Stanley, Research Division

So it seems that you guys are now kind of fighting third war from a position of scale. And I think that we clearly saw what that meant when it comes to enter the fourth quarter. Has the strategy shifted now in terms of where you're really trying to invest the incremental dollar in order to grow the business? Is it no longer that you're forced to go and step up to the plate in the fourth quarter? You can be more tactical in Qs 1, 2, 3?

Jeffrey T. Housenbold

I would describe it that I think we are benefiting. InfoTrends estimates we have 52% in the market. Snapfish would be #2 at 9%; Walmart, Walgreens at 5%; and Apple at 3%. So we're still outgrowing the industry, meaning we're taking share. But at 52%, it gets harder and harder to outgrow the industry. So while we're thoughtful about the competitors, and stealing shares is always a good thing, we want to steal profitable share. But that's not where our focus as a company is. Less than 10% of the $30 billion U.S. TAM is online. That's really the price that we keep our eye on. How do we go from offline to online, from static and generic content to dynamic and personalized? How do we go from mass to mass customization where I can make a personalized iPhone case for you or a card in order quantity for one and do it profitably? So I think we do have some wind behind our sails. I think we're benefiting from scale and scope economies. We're benefiting from increased brand equity and the ability to acquire customers below $12. And it's remained below $12 for the 8 years I've been here. So that's all good. So what that's allowing us to do, as we said on the call, was focus on 5 key initiatives. One is to grow the core established brands of Shutterfly and Tiny Prints. And then to -- second is to invest in a basket of new ventures at different periods of scale and development, starting with wedding, which is tens and tens of millions of dollars with single-digit EBITDA margins, continue to push on the wedding theme. The second is enterprise, which was $27 million, up from $13 million, up from $8 million, up from $3 million, up from 0, where that is low single-digit EBITDA margins. And we think that could be $100 million plus business in a couple of years. And then we're investing in Treat, our fourth brand, which is modest revenue and negative EBITDA margins. Mobile, we're making meaningful investments, which is negative EBITDA margins today. And then our new cloud service, which I'd be delighted to explain more as we talk about content. That's negative today and the product's not entered the market. So we're taking Shutterfly and Tiny Prints, which has high EBITDA margins, higher than the 20% the company delivered, and we're taking those profits and we're plowing into innovation and marketing expansion across a number of vectors, where our competitors. Don't have the resources to do that.

Andrew Ruud - Morgan Stanley, Research Division

And so for a lot of investors out there that think that you're just merely taking the profits from the core business and blowing it all in marketing, you're actually going -- that's how you're supporting these rather nascent businesses.

Jeffrey T. Housenbold

Yes, in fact our discretionary marketing spend over revenue came down in the fourth quarter, as my new CMO has been in the seat now for 10.5 months, and we're getting more leverage from the brand Halo from the optimization of our integrated marketing. We do TV, we do direct mail, we do catalog, we do online, SEO, SEM affiliates, media. And we have more than 41 active business partnerships ranging from Ellen Degeneres to American Express to Motherhood Maternity to David's Bridal to Target to Costco, right? So we're leveraging all those, now cost of acquisition and now discretionary dollars are actually coming down. We're funneling that more into tech and dev in hiring mobile engineers to develop more mobile apps in our new cloud service into our storage architecture, into places that create differentiated and perhaps build more of a competitive mode.

Andrew Ruud - Morgan Stanley, Research Division

Okay. So if you can -- are there any of the specific investments you'd like to go into further like the cloud business or...

Jeffrey T. Housenbold

Sure. Let me talk about cloud, and I'll use my life as an example, because my wife and I are the targeted demographic. So I have an iPhone 5, my wife has an iPhone 4, my 3 boys each have an iTouch. I have an iPad 3, my wife has an iPad 2, she has a MacBook Pro, I've a Lenovo at work and a Dell at home. We have pictures on Shutterfly, our hard drives, a little on Flickr, some an Dropbox, some on Picasa, and some on Shutterfly. So the vision is we're going to go scoop all those pictures regardless if it's on Android or iPhone at the time, Mac or PC, and it's going to go up into the Shutterfly cloud.

Well, a lot of people offer that today, right? Amazon Cloud Drive, Microsoft Sky Drive, Google G Drive, Apple iCloud, Dropbox, Symantec, Mozy, Carbonite, Verizon, Comcast, right? So just the aggregation in storage is a commodity, okay? What we're going to do after that aggregation, and this is part of putting together the ThisLife, the Photoccino and the Shutterfly assets into a robust differentiated offering, we're going to take that aggregation. So I have 248,187 photos right now. Now I know I'm an outlier. But in 3 to 5 years from now, you guys are going to look like me as the cost of taking a picture is 0 and as you carry a camera with you all the time. And when you have 3 kids, believe me, you're taking a lot of pictures. So my son turned 9. My middle guy turned 9 in January, and he wants to make a photo book for grandma, but he only wants the pictures him and grandma and didn't want his brothers. So now imagine taking those 248,000 photos and you ran that through our ThisLife application, which has facial recognition and has import of social tags, right, and it goes through those 248,000, and the 1,152 of him and grandma get allocated, right, and then come out as search result. Then we layer it through Photoccino, which tells you if the picture is in focus, if there's a person in it, are their eyes open or are they smiling. It'll [indiscernible] -- if you have a picture from Facebook and your hard drive, it'll look at which one has higher resolution. And now it'll take that 1,152 down to 328. Now you take those pictures and you overlay the Shutterfly smart creation, and it made a photo book instantly. It looked at the timestamp, it looked at the geocode, it looked at the exif information, the metadata, and it laid out the pictures according to all of that through our proprietary patented pending algorithms. And now our photo book is created. And Aiden says -- and that all took, by the way, about 3 minutes. Aiden says, "Well, but I don't want a blue background." Well, fine. He clicks on black. He adds a couple of text boxes to the front page, and it's called Aiden's ninth birthday gift to grandma. So now in 3 minutes, I went from a problem of an ever-growing array of digital content that I don't know how to manage through. And the way most of us manage is 2012, January; Aiden, lacrosse; Eli, soccer; and Noah, water polo, right? And I'm able to take a two-dimensional structure and apply a 3 dimensional relational database and solve the consumer problem. We think that's the next big consumer problem. It's how do I manage my ever-growing array of digital content. And for us, we're focused on videos and pictures. And this whole Technology will handle both video and pictures. I can output a digital manifestation, that photo book, like we do today. You can post it on Facebook. You can put in your blog. You send it to MySpace. You can email it. And then imagine putting music and audio to that, too, where Aiden can annotate, "Grandma, do you remember when we went to?" right? And it becomes a powerful memory. And it's a way to pass down those photos for generations to come. I don't have to argue who's getting which. Remember in the old days when -- my experience when my dad passed away and me and my sisters were fighting over who's going to get what picture. We don't have to do that. We just hand the keys to the digital archive, and they can do different filters and arrays into it. That will be launched this year integrated into Shutterfly. And we have the potential not only charging for the service upfront -- and we won't just charge for storage because we give away storage free today, and that's a commodity offering. We'll charge for this value-added application. But we might decide for our best customers to give it away free. Or we might say 3 months or 6 months free or sign up for an annual planning and get a free photo book. There are things that we could do because of our business model that others can't. And then because of our brand equity, I personally -- while, I'm a big customer of Verizon for mobile and I have Comcast at home, I'm not trusting them with my kids' pictures nor Mr. Softie [ph] or even Google because I don't know that it "do no evil" -- so Shutterfly, we're now targeting demographic of women. [ph] And we think with our 7.1 million paying customers out there, our 30 million to 40 million registered users, we have an installed base we can now market this industry-changing offering to as we move throughout 2013.

Andrew Ruud - Morgan Stanley, Research Division

You just gave us some pretty interesting stats. You've got 30 million or so users, but you've only -- well, not only, but you had 7 million paying customers. So could this potentially drive monetization of the dormant users that you have?

Jeffrey T. Housenbold

Exactly.

Andrew Ruud - Morgan Stanley, Research Division

And how do you awaken the dormant user?

Jeffrey T. Housenbold

Yes. So we do that today, right? We have a fairly sophisticated CRM capability, where we look at actives and how to grow their lifetime value. We look at low-active customers and how do we get more out of them. We look at inactive customers, and we look at people who have never been a customer. Some that signed up and used our free services, like storage or our share site or our editing tools and those that haven't even done anything yet with Shutterfly. And so we have a whole communication streams to each one of those. We did that with the Kodak database, too, to try to reactivate them. So CRM is a very cost effective way to reach them. And if you put a -- and because we can offer it for free, it's just a piece of software, right? You write once, apply many. I can just give it away free. Let them see the magic as it scans their hard drive as it pulls their pictures from Instagram and Dropbox and Facebook and see this visual UI. And then they can decide after a 3-month trial to pay us. So we think it's an interesting grouping of unique assets positioned correctly under the right brand that will allow us to continue to take market share.

Andrew Ruud - Morgan Stanley, Research Division

So this investment technology, is that really kind of the answer to bears, who would step up and say, "You know, if we think about the longevity and the terminal value of printing that it's not really that exciting"?

Jeffrey T. Housenbold

I think it's one of the answers. But I mean any business is going to have a bear, right? eBay had bears. A year ago, everyone wants a bear on Google and a bull on Apple. And now however, you can't find anyone supporting it. So we don't live our life thinking about the bears. They said I can't compete against Walmart, right? We're now bigger than Walmart. They said Yahoo! Photos will kill us or Flickr or Google, Picasa or -- the notion that people are going to stop printing at least in my lifetime, and I've got another 30 years of my career ahead of me, I don't think it's true. I can't give you a slide share for your wedding or for your kid's first birthday. And we make a very strong distinction between dealing in memories versus fleeting moment. So I have 1,900 friends on Facebook. It's a valuable tool for me, right? And so is Linkedin. But if I'm not sitting there, all that stream of information flying by every single day, I'm missing it, right? And the fact that someone takes a picture of their sushi, put some cool filters on Instagram, put it up is very different. No one is going to pay for that Flickr -- if Instagram charged for that. There's 100 other photo effect applications. But your kid playing in his basketball championship, scoring the winning goal in a matter of time, people, they're going to pay for that, right? And so -- and they're going to print it. And there's value to that touch and feel today. Having said that, we're not just taking one modality, and it's all about ink and paper, right? We're doing a lot of other things. But every year, our revenue keeps going up. And every year, our EBITDA keeps going up. And every year, our free cash flow keeps going up. And the notion -- people ask me mostly, "Isn't Facebook killing your business?" Well, no. We just guided Wall Street $740 million, $746 million with 18% to 19% EBITDA margin.

Andrew Ruud - Morgan Stanley, Research Division

Going forward, how do you -- how are you going to get better customer acquisition cost leverage? Do you think it's going to be the same or is it going to depend whether you're chasing something on the [indiscernible] side versus Street? How are you going to try to deploy your marketing dollars more efficiently?

Jeffrey T. Housenbold

Let me take the second first. We now are a portfolio of premium lifestyle brands, with different average order values, right? Traded the $2 card where wedding is a $400, $500 purchase. And so your cost of acquisition will often map against your revenue. But -- and while I have a whole team focused on how do we continue to optimize, and we are, where doing the job of that, it's actually at the executive level, we don't talk about how do we drive acquisition cost down very frequently. Because below $12 is a pretty good place when your average order value is $33 and your gross margins are 52% to 54%. So I'm profitable in the first order. We actually thought the opposite. Should we spend more to go get more customers into the franchise and get more of their lifetime value and share of wallet. So we optimize, but we don't think we have a customer acquisition cost problem in our model. What we have is an awareness to the category challenges. How do we get more than 10% of the economic activity happening in this $30 billion U.S. TAM to move from offline to online? And that might actually take more marketing dollars to go from the early adopters to the mass mainstream.

Andrew Ruud - Morgan Stanley, Research Division

Okay. Let's turn to the audience to see if you have any questions. We'll also have a microphone that's passed around.

Unknown Analyst

Indiscernible] How do you currently define your market share in that segment? And how much increase in share do you think you saw in the last year?

Jeffrey T. Housenbold

So InfoTrends, there's -- we don't benefit from a dozen kind of Forrester Research or Juniper. We have just a couple of industry analysts, and they estimate that we have 50% to 52% in the market, right? Apple, 3%; Snapfish, 9%; Walmart, Walgreen 5% to 7%. That seems to be up normalizing for Kodak, up by about 5 points in the last 12 months. So with Kodak, it's up by about 12 points in the last year. When you look at breakdown in the various, different segments, we have about 60-plus percent of the online greeting card market. But that still represents less than 3% of all the $9 billion greeting card industry, right? In photo books, we probably have a 40% share. In prints, we probably have a 25% share, right? So it depends. When overall blended, InfoTrends estimate it to be 50% to 52%.

Unknown Analyst

You mentioned video couple of times with the cloud service, and that's -- while it's ultimately a collection of photos, it's fundamentally different type in terms of the amount of storage and dealing with it and how consumers deal with it. Can you talk more about that?

Jeffrey T. Housenbold

Sure. Today, we offer the ability for customers to upload their high-definition videos. We offer that for free. You hit some type of gigabyte level, and we start to ask you to sign up for subscription or delete some old ones, so that you stay within that cap. And that's a very modest business. Nobody has made money on driving subscriptions on user-generated content, right? YouTube generates advertising around user-generated content, and they're just starting to get through a scale after billions of investment, but it's worthwhile. Without cloud service, it will be swept into these memories. And the beauty of our service is, we call it rediscovery. As you sit there and you're like, "Oh, wow, I forgot that picture. I forgot that moment," right? There's that rejoicing in living life's joy and the ability to share it, and videos are a part of that. So we won't monetize it directly on the video, but if we can sell that service, that value-added application, and that's part of it. Because we build our own storage bricks with our own proprietary file system, our storage is extremely cost efficient. We have more than 80 petabyte. We started on EMC and NetApp. We went to DDN and then Hitachi. And we can now build it efficiently, and we store customers videos and photos in 3 different locations. So 1/3 of hard drives crash a year, house is gone, fire, floods come through, now your precious memories are safe up in the Shutterfly cloud. So we think it's part of the overall ensemble, but we don't think there is a tremendous opportunity to monetize it directly in the near future.

A question from Vic from Reuters.

Unknown Analyst

Is there an opportunity to work with Facebook? They're doing a lot of gifting activity. I think Treat is already part of that platform. Facebook has said that gifting is not big a deal for them so far. How can you imagine expanding something there?

Jeffrey T. Housenbold

Yes. So let me start with we're delighted by our current relationship with Facebook, right? We're doing 5 or 6 different things with them at different degrees of, what I'll call, sophistication or partnership. We allow customers to pull their Facebook photos in our mobile apps in our Facebook creation, in our share sites. We allow you to pull your birthday reminders through our Treat card service. We allow you to post your photos and your projects and your photo books out on to Facebook. We also partnered with them around the gift initiative. We're offering both the Shutterfly and Treat digital cards for free, and it's a branding exercise for us today. We'll suck in Facebook photos into our cloud service, right? So we think about when they want the most open social graph, and they provided a set of robust APIs, which is great for our business. We allow Instagram and other things. And I think there's potential that as they continue developing growth, they think about additional avenues for monetization. We are the experts at monetizing photos in a profitable way. And we'd be delighted to continue to partner with them in different ways to help drive high-margin revenue to them and some type of form of rev share that drives new customers into our ecosystem. Seems like a natural. It's -- I don't think from a lack of desire, I think it's one of prioritization as Facebook has a lot of major projects on their plate. But we're also being a good partner in testing their new platform. I think some of you had mention to me Sheryl Sandberg mentioned us on their earnings call as the one company who saw great results from FBX, and we were one of the 10 company's invited into that beta. So we're always trying to test new things, optimize and develop that relationship further. I would characterize it as good, healthy, growing and exciting about what we can do together in the future.

Andrew Ruud - Morgan Stanley, Research Division

I had one question on enterprise revenue. So you said it could be $100 million business within the next 2 years or so. Is that really being derived from larger businesses or small businesses or micro businesses?

Jeffrey T. Housenbold

Yes, it's so -- I get asked this question a lot. It's how are you the same or different from Vistaprint. Vistaprint is going after the SoHo market, right? And 80-plus percent of their customers are 2 or less employees, where they're doing micro transactions in average order value below $30. We're so not interested in that business. We are focused on Fortune 1000 companies, where my desire is to have 20, 30 customers doing $5 million, $10 million, $15 million a year with us. So in the last year or so, we signed up Dell, Gap, Toyota, AutoNation, AT&T as some examples of large customers. And what we're doing for them, unlike most printing companies who are selling into the supply chain or the logistics or the purchasing manager, we're going into the Chief Marketing Officer, and we're saying, Shutterfly is the largest digital printer in the world, we're the largest application and consumer-facing application. We have a sophisticated CRM team. We have a sophisticated marketing, customer insights analysis. And what we're doing is bringing the power of one-to-one email marketing to snail mail direct marketing. And so what they're doing -- for example, AT&T is sniffing. Are you already a cell phone customer, a cable customers an Internet customer? And instead of getting a generic piece of direct mail in your mailbox, we've already sniffed it, and we know that Andrew only has Internet. And so we grabbed different rules of different creative onto that, right? You're a young, affluent, well-paid San Franciscan, and so the imagery, the text, the offer is all targeted to you. And we could print that at a cost effective way in a unit of one versus offset where you would typically say, hey, 20% off Bed, Bath & Beyond. For everyone, we're going to do offset press and we'll run along big volume of that to amortize the set-up cost. Every single customer we could do different. Not only are we providing the ripping of the sheets or the printing, we're doing the value-added marketing analysis on top of that. Well, if Andrew got it, should we send a second touch? Do we create a Internet experience where on it is a unique URL for you that you type in and you see a set of offers and a dedicated customer number to call? So the typical per-price piece and offset might range from $0.12 to $0.18. We're charging for that same 5 x 7 piece of paper maybe $0.18 to $0.25. But the ROI, the open rates, the conversion rates are much higher. And so what we're doing is going in and saying to the CMO, "You're spending $170 million on direct mail a year. Can you give us $2 million? And if we can't prove to you that we could get a better response rate, better ROI on your marketing dollars, then I'll thank you for the opportunity. But if we do, I'm sure you're a smart business person. You're going to continue to allocate more to us." And so we got in with a very small deal with Dell. Now we have a national and a global now deal with Dell. Same thing with AT&T. And so we're excited about that opportunity. And it's essentially a backhaul because I already have the people, the machines and the depreciation in the stack, right? So now I can get greater flow-through. So at about $100 million, you should see about 30% flow-throughs to the bottom line. And if we're trading at historically 10x EBITDA or 20x pretax free cash and you've got 36 million, 37 million, 38 million shares, you can see a $12, $13 that are baked in just over the next few years. And so it's exciting. I'm doing that with 3 sales people. Well, right, so should I go add 3 more?

Andrew Ruud - Morgan Stanley, Research Division

So I guess one of the things that I recall you saying before though was that, that business is about 30% gross margin. So is it pretty much 100% variable cost of business or can you get leverage off of that?

Jeffrey T. Housenbold

Yes. So our only additional input outside of the commission for those 3 sales people is paper and ink, right? And so we just -- and postage, but you can't mark up postage because you're a sophisticated company. You pass it at that price. You could charge a handling fee if they want you to drop it in the mail stream. So we're essentially taking those variable costs, marking those up slightly, but it flows through because we already have the cost in the stack for us. There's other indirect benefits to Shutterfly by doing that. One is I have a huge seasonal labor force, so we have 1,100 employees at Shutterfly, and I hired 2,000 to 3,000 during the fourth quarter. The more trained operators you can have throughout the year, you get greater efficiency, especially at the supervisor and up level. So now if I have a level cadence of business all year around, I get more trained employees. It also increases the number of clicks, which is a measure of ink and paper that we use, that we pay Xerox and HP. The more you do, the better discounts you have, and so that applies to my Consumer business. These machines are also like Ferraris. They like to be run. The battery dies if you don't drive them, right? And then the collaboration. So we get to run them all, all of time, which is better. They want to be run. They're thoroughbreds. So we get all of these, and then we get greater volume, we get better shipping discounts from UPS and FedEx. So there's the direct P&L, and they'll never have as high EBITDA margins as the Consumer business, but it has indirect benefits to the Consumer business, and we're excited about the potential.

Andrew Ruud - Morgan Stanley, Research Division

Great. Well, I think we're out of time. Thank you very much for coming today, Jeffrey.

Jeffrey T. Housenbold

Thank you. It's my pleasure.

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