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Shutterfly (NASDAQ:SFLY)

Q4 2013 Earnings Call

February 05, 2014 5:00 pm ET

Executives

Michael Look - Vice President of Investor Relations

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

Brian M. Regan - Chief Financial Officer and Senior Vice President

Analysts

Rohit Kulkarni - Robert W. Baird & Co. Incorporated, Research Division

Paul Judd Bieber - BofA Merrill Lynch, Research Division

Kerry K. Rice - Needham & Company, LLC, Research Division

Kevin Kopelman - Cowen and Company, LLC, Research Division

Naved Khan - Cantor Fitzgerald & Co., Research Division

Shawn C. Milne - Janney Montgomery Scott LLC, Research Division

Trisha Dill - Wells Fargo Securities, LLC, Research Division

Heath P. Terry - Goldman Sachs Group Inc., Research Division

Brian Patrick Fitzgerald - Jefferies LLC, Research Division

Mitchell O. Bartlett - Craig-Hallum Capital Group LLC, Research Division

Operator

Good day, ladies and gentlemen, and thank you for standing by, and welcome to the Shutterfly Incorporated's Fourth Quarter 2013 Financial Results Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. It's now my pleasure to turn the floor over to Michael Look, Vice President of Investor Relations. Sir, the floor is yours.

Michael Look

Thank you, operator. Good afternoon, everyone. Welcome to Shutterfly's Fourth Quarter Fiscal 2013 Financial Results Conference Call. With us today are Jeff Housenbold, Chief Executive Officer of Shutterfly; and Brian Regan, Chief Financial Officer. By now, you should have received a copy of our earnings press release, which crossed the wire approximately 1 hour ago. If you need a copy of the press release, you can go to shutterfly.com under the Investor Relations link to find an electronic copy. We have also released a presentation that we will use as we go through this call. Call participants are advised that the audio of this conference call is being recorded for playback purposes and that a recording of this call will be made available on our website within a few hours. You can access these recordings through the Investor Relations section of our website at shutterfly.com.

Before we begin, I'd like to note that our discussion today will include forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. These forward-looking statements include statements about our business outlook and strategy, and the assumptions underlying those statements, and statements about historical results that may suggest trends for our business. 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 sections of our most recent Form 10-K and Form 10-Q and our other filings with the SEC.

I would also like to note that any forward-looking statements made on this call reflect information and analysis as of today and we assume no obligation to update this information. This presentation contains certain financial performance measures that are different from financial measures calculated in accordance with GAAP, and may be different from calculations or measures made by other companies. A quantitative reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures is available in our fourth quarter and fiscal 2013 financial results press release, which is posted on the Investor Relations section of our website at shutterfly.com. Now I'd like to turn the call over to Shutterfly's CEO, Jeff Housenbold. Jeff?

Jeffrey T. Housenbold

Thanks, Mike. Good afternoon, everyone, and welcome to our fourth quarter 2013 earnings call. I'll start with an overview of our Q4 and full year 2013 results, followed by some thoughts on our strategy for the coming year. I will then turn the call over to Brian for a detailed review about financial results, as well as our initial financial guidance for 2014.

Q4 was a strong finish to another outstanding year at Shutterfly. We continued to drive profitable revenue growth and healthy customer behavior across our entire family of premium lifestyle brands and our Enterprise business. We executed well against our 2013 strategic plan while simultaneously focusing on the long-term through smart investments in consumer-facing programs and back-end infrastructure projects that will provide future scale and scope efficiencies. We delivered these strong results while successfully navigating a challenged, shortened holiday shopping season and the unfavorable comp against our Q3 2012 migration of the Kodak's Gallery's customer base. Despite these headwinds, net revenues for the fourth quarter grew 17% year-over-year to $410.8 million and resulted in a 12% year-over-year increase in adjusted EBITDA.

Customer acquisition and behavior remained healthy throughout the quarter despite the challenges we faced from the termination of TinyPrints Costco relationship and the difficult comps from last year's Kodak Gallery acquisition. Unique transacting customers and orders increased year-over-year by 10% and 12%, respectively, translating into 4.7 million customers who generated 7.7 million orders during the quarter. Average order value for the fourth quarter was a record $51.80, 4% higher than the same period a year ago as we continue to drive improvements in our overall pricing and promotional strategies.

Looking at our full year 2013 performance, we set historical highs for revenue, adjusted EBITDA and free cash flows. Specifically, net revenues grew 22% to $783.6 million. Adjusted EBITDA was a record $150.4 million, up 17% from the prior year, and we generated more than $75 million in free cash flow. Furthermore, total unique transacting customers during the year totaled 8.1 million, representing a 15% year-over-year increase or the addition of more than 1 million customers. Customer orders for the year totaled 18.6 million, up 14% increase over year and average order value for the year increased by 7% year-over-year to a record $40.19, reflecting our continued focus on profitable customer acquisition driven by our integrated marketing campaigns along with efforts to optimize customer behavior.

In the beginning of the year, I outlined 5 key areas of focus that capitalized on our market-leading position and strong balance sheet. To refresh, they were: one, grow Shutterfly and Tiny Prints, our 2 core brands, through innovative products and services; two, invest in our early-stage growth initiatives, including Wedding Paper Divas, Treat, Mobile, ThisLife and Enterprise; three, broaden and enhance our overall brand awareness utilizing our integrated marketing platform; four, increase our manufacturing and operations capabilities; and five, expand our portfolio of premium lifestyle brands through disciplined strategic acquisitions. I'm proud to say we executed well against these 5 key areas, which resulted in profitable growth, increased market leadership and further progress towards transforming the multibillion dollar memories, social expression and personalized products markets from off-line to online.

Let me take a moment to discuss some of these achievements starting with our robust rate of innovation. Throughout our company's history, our commitment to innovation and outstanding product quality has been a key driver for our growth and success. In 2013, we enhanced our mobile consumer experience by introducing new features and functionality to our existing iPhone and iPad apps, expanded the number of devices, platforms and products that we support such as our upgraded Android app. And in August, we introduced Shutterfly Photo Story, our first-ever photo book creation app for the iPad, making it possible to create digital and physical photo books with enhanced multimedia features like audio annotations. Our investments in mobile innovation are starting to pay off as mobile-related revenues have grown from roughly 1% in 2012 to approximately 6.5% of Shutterfly brand revenues in 2013.

During 2013, we further leveraged the capabilities of our Photoccino team, incorporating many of their proprietary algorithms into our intelligent product creation apps such as Photo Books, where we have enhanced the intelligence of our auto fill capabilities. Photoccino's image analysis and ranking algorithms also power our Magic Shop service, where recently uploaded pictures are now instantly analyzed and automatically placed into a variety of popular photo products. Combined with some additional checkout flow optimization improvements, we have reduced product creation friction and improved overall customer satisfaction rates.

In October, we launched the beta version of our enhanced cloud service, ThisLife, where consumers can now gather and organize photos and videos from across devices, cloud services and social networks. ThisLife provides easy-to-use features like facial recognition, duplicate detection, chronological organization and image search, so users can interact with their memories by person, place or event. We are excited about the next generation way in which consumers aggregate, interact and share their personal memories and plan on rolling out many new capabilities and features as we exit the beta stage over the next couple of quarters.

Lastly, we continued to extend our industry-leading platform of products and services by introducing dozens of new innovative product offerings. We added more color, layout and back-of-the-card choices to our already expansive collection of cards and stationery, and introduced new premium options, such as pearlescent paper, clear cards, additional edge treatments and foil stamping. Additionally we expanded our premium Photo Book collection, adding matte-finish covers and new soft and hardcover form factors in 8x8 -- sorry, in 10 x 10 and 11 x 14 formats.

Finally, in our popular photo gifts and Home Decor category, we continued to expand and enhance our collection of personalized products adding personalized iPad cases, curved glass prints, table runners, accent pillows, 8 x 10 canvass prints, stainless steel travel mugs and wood wall art. As a key in a enabler to our growth, we continue to allocate significant resources toward continued product and service innovation.

As our business continues to grow, we are finding ways to further improve our operational efficiency and convert top line growth into bottom line gains. In particular, the significant scale and scope economies from our vertically integrated manufacturing and supply chain, enable us to extend our competitive position and improve overall customer satisfaction, further strengthening the barriers to success in our industry.

In June, we opened our new state-of-the-art production facility located in Fort Mill, South Carolina. Our Fort Mill expansion tripled our Southeast manufacturing footprint and has already reduced the time-to-market for new product introductions and enabled greater in-sourcing of our order volume and product offerings during the busy holiday season.

In late 2013, we began construction of our new Shakopee, Minnesota production facility, which will provide us with production facilities in the Midwest to round out our current West, Northeast and Southeast capabilities. We believe this expanded manufacturing footprint will provide a level of redundancy in our manufacturing network and supply chain, further support our scale needs and fulfillment strategies, such as next-day delivery, and ultimately increase customer satisfaction levels.

Now I would like share some thoughts on our recent decision to consolidate our operations in Arizona. We currently occupy 4 distinct locations in the greater Phoenix area. These locations are home to our manufacturing, customer service and engineering operations, including the recently acquired R&R Images facility, and do not offer any operational flexibility nor the possibility for further expansion. As a result, we have begun preliminary work on the build-out of a new facility in the Phoenix area that consolidates all of our Arizona operations and provides room for future expansion. Our estimated lights-on timeframe is projected to be sometime in mid-2015. We anticipate that this facility consolidation project will result in modest incremental operating expense during the year, but these costs are incorporated into our 2014 guidance that Brian will discuss in a few moments.

Lastly, we continue to augment our organic growth by leveraging our market-leading position and sizable balance sheet to make disciplined, strategic acquisitions. Despite a current abundance of sellers in the market, represented by the dozens of start-ups that have recently shut down, as well as the 100-plus third-party books that we've seen this year, we remain committed to our established framework for evaluating potential acquisitions. In 2013, only 3 companies met our criteria, MyPublisher, which expanded our customer base and further differentiated our product offerings; R&R Images, which immediately added new in-house printing capabilities, such as foil-stamped cards; and BorrowLenses, which will facilitate more of life's memories onto the Shutterfly platform and enable the ability to cross-sell new services and diversify our revenue streams.

In summary, we believe disciplined strategic acquisitions are a smart use of our balance sheet as they help to grow our business, increase our rate of innovation, reduce our time-to-market, deepen our overall market penetration and drive long-term shareholder value. As we head into 2014 and beyond, you can expect us to continue to leverage our market leadership and healthy balance sheet to continue innovating in our core businesses and early stage growth initiatives such as ThisLife; increase our overall brand awareness and make significant investments in our scale and operational infrastructure, including our new Shakopee production facility, our new colocation data center in Las Vegas and the consolidation of our Arizona facilities.

In closing, 2013 was another outstanding year for Shutterfly. We delivered record financial results for revenue, adjusted EBITDA and free cash flow, drove healthy customer growth and behavior, continued our robust pace of innovation, significantly enhanced our manufacturing capabilities, completed several strategic acquisitions resulting in expansion of our portfolio of premium lifestyle brands to 7 and extended our market-leading position. Shutterfly has clearly established online leadership in the multibillion dollar memories, social expression and personalized products markets and continues to make it easier for consumers to manage, share and preserve their precious memories.

As we look at how our markets continue to evolve and consider the strengths of our business, we cannot help but remain confident in our strategy and our ability to address many of these emerging consumer challenges. I would like to congratulate the entire team for another successful year and extend my sincere thanks to all of our customers and shareholders for their continued support.

With that, I will turn the call over to Brian to review our Q4 financial results in detail. Brian?

Brian M. Regan

Thanks, Jeff, and good afternoon, everyone. I'll begin my comments today with some observations about our fourth quarter performance, and I'll then conclude with an overview of our initial 2014 financial guidance. Please note that we completed the acquisition of BorrowLenses on October 24, and that our Q4 financial results reflect BorrowLenses operations from that date through the end of December.

Net revenues from BorrowLenses were modest and are included in our reported consumer results. Despite a shortened holiday shopping season, a persistent promotional environment and the termination of a major partnership just before the holiday season, we were able to deliver another quarter of record revenue adjusted EBITDA and free cash flow. Net revenues for the fourth quarter totaled $410.8 million, representing an increase of 17% over the prior year and above the high end of our guidance range. Q4 consumer revenue grew 16% year-over-year to $398.6 million, and reflects the combined effect of solid growth in customers, orders and continued improvements in average order values, partially offset by an approximate $10 million reduction in revenues resulting from the termination of our Costco ship-to-warehouse partnership at TinyPrints.

Full year 2013 consumer revenue grew 21.6% year-over-year totaling $746 million. Net revenues from our Enterprise business in the quarter grew 48% over the prior year to $12.2 million. Our strong growth in Enterprise in the fourth quarter was mostly driven by robust organic orders from existing clients with a small contribution from the R&R Images acquisition. For the full year 2013, our Enterprise business delivered revenue of $37.7 million, up 39% from 2012 results and representing nearly 5% of our total net revenues for the year.

During Q4, average order value grew 4% year-over-year to a record $51.80. This is the first quarter in which AOV had been above $50 and meaningfully higher than our previous AOV record of $49.93, achieved in Q4 of 2011. Our record AOV reflects the strength of our loyal customer base, new premium product offerings and continued benefits from our pricing and promotional initiatives. As Jeff indicated earlier on the call, despite the lapping of our Kodak customer migration in the second half of 2012, total unique transacting customers grew to 4.7 million and orders totaled 7.7 million in the fourth quarter, up 10% and 12%, respectively, from the same quarter a year ago. For the full year, total unique customers increased by 15% year-over-year to 8.1 million customers and resulted in 18.6 million orders across our family of lifestyle brands. Average order value for the full year 2013 was another record $40.19, reflecting a 7% year-over-year increase.

Moving down to cost of revenues and gross margins. GAAP gross margin in the fourth quarter was 59.9%, just below our guidance range. Our Q4 gross margin reflects the combined effects of acquired intangible amortization and higher depreciation, equipment expenses and increased overhead labor costs related to our new Fort Mill, South Carolina facility. While we were pleased with the operational efficiency gains we realized from our increased scale and in-sourcing, our Q4 cost of goods sold were impacted by unanticipated labor and materials and accelerated shipping and customer service costs resulting from a brief production issue in early December at our Tiny Prints brand.

Turning now to operating costs. Excluding stock-based compensation, OpEx totaled $126.8 million, reflecting the increased cost structure from acquisitions and purchase accounting amortization.

Looking more specifically at our operating expense components, technology and development costs totaled $31 million for the quarter or 8% of net revenues. Excluding stock-based compensation, depreciation and intangible amortization, our technology and development spending increased approximately $4 million or 22% from the prior year. Q4's increase in technology and development spending largely reflects the incremental costs associated with our recent acquisitions, as well as continuing investments in technology and development headcount. Sales and marketing expenses totaled $80 million in the quarter or 19% of net revenues, consistent with Q4 of last year. Excluding stock-based compensation and amortization, sales and marketing expense increased 26% or approximately $14 million, representing 17% of net revenues, up slightly from 16% in Q4 of last year.

This increase in sales and marketing expense was largely driven by increased investments in our integrated marketing campaigns and a modest increase in headcount. General and administrative expense for the quarter totaled $30.5 million or 7% of net revenues. Excluding stock-based comp and credit card processing fees, G&A expenses represented 4% of quarterly net revenues, approximately in line with Q4 of last year.

Moving to the bottom line. Adjusted EBITDA for Q4 increased by approximately $15 million or 12% year-over-year to $141.9 million. Our solid Q4-adjusted EBITDA performance was largely driven by healthy revenue growth and certain scale efficiencies. For the full year 2013, adjusted EBITDA increased 17% over the prior year to a record $150.4 million or 19.2% of total net revenues.

As Jeff indicated earlier, 2013 was another outstanding year for Shutterfly. Through 2013, we have delivered 52 consecutive quarters of revenue growth and 7 straight years of solid adjusted EBITDA growth since Shutterfly went public. Adjusted EBITDA profits grew at a compound annual growth rate of nearly 32% since Shutterfly went public in late 2006. The effective tax rate for the quarter was 56.8%, bringing our full year tax rate to 28.1%. The year-over-year decrease in our full year effective tax rate reflects Congress' late approval of federal R&D tax credits for the years 2012 and 2013 earlier in the year and certain discrete fixed rate items such as disqualifying dispositions of incentive stock options during the quarter.

Net income for the quarter on a GAAP basis totaled $43.6 million or $1.10 per share. Normalizing for the impact of our convertible note offering on our earnings per share, non-GAAP net income was $47.5 million or $1.20 per share. The weighted average shares used to calculate the net income per share totaled 39.7 million shares. And finally, capital expenditures during the quarter totaled $15.9 million, including $7.9 million for technology equipment and software; $4.3 million for building improvements, manufacturing and rental equipment; and $3.7 million in capitalized software development costs.

For the full year, CapEx was just under $75 million or 9.6% of total net revenues and reflects incremental growth investments in additional equipment at our Fort Mill production facility, the initial build-out costs associated with our Shakopee production facility in Minnesota, and costs in anticipation of our colocation data center move from the Bay Area to Las Vegas later this year. Cash and liquid investments at quarter-end totaled $499 million. In addition, we have access to our yet-untapped $200 million revolving credit facility. As you'll agree, 2013 was another highly successful year for Shutterfly.

Now let me turn to 2014 and summarize some insight into our underlying assumptions. We now anticipate the full year impact from the termination of our Costco partnership will be about $15 million for 2014, and while we will be able to reinvest marketing funds in other customer acquisition channels, we do not expect to generate the same efficiencies in other channels as our original partnership economics. We expect 2014 to be another strong year of growth in our Enterprise business as we expand business with existing clients and acquire new ones. While our Enterprise business -- while our Enterprise clients generate healthy incremental cash flows and provide some seasonal smoothing to our overall manufacturing capacity, as we've discussed over the past few years, Enterprise business growth typically impacts consolidated gross margins in a slightly negative manner, and we expect that will continue in 2014.

Finally, as Jeff alluded to earlier, and as we've discussed on previous earnings calls, we are investing heavily in the successful launch of our ThisLife cloud service and anticipate that the trend of significant investments in our scale and operational infrastructure will moderate in 2015. These investments include the annualized impact of depreciation, labor and equipment costs for our Fort Mill facilities, the initial scaling of our new Minnesota production facility, redundant operating costs as we move to our new colocation data center in Las Vegas, and the consolidation of our Arizona facilities.

With the context of these assumptions as a backdrop, we expect Q1 net revenues to range from $132 million to $135 million, which reflects year-over-year growth of up to 15.7%. We expect our Q1 GAAP gross margin to range from 44.5% to 45% of net revenues and our GAAP operating loss to range from $43.5 million to $41.5 million. We expect our adjusted EBITDA will range between negative $1.5 million to positive $0.5 million, and that our GAAP effective tax rate will range between 18.8% and 20.2%. And finally, we expect GAAP net loss per share to range from a loss of $0.99 to a loss of $0.93 based on approximately 38.7 million weighted average common shares. Excluding the effects of our convertible note offering, we expect non-GAAP net loss per share to range from $0.92 to $0.86 per share.

Turning now to full year 2014. We estimate that net revenues will range from $900 million to $920 million, which reflects year-over-year growth of up to 17.4%. We expect the full year GAAP gross margin to range from 52% to 53% of net revenues, and non-GAAP gross margin to be 53.7% to 54.6%.

We expect that our GAAP operating loss will range from approximately $11.5 million to GAAP operating income of $1.7 million, and that our full year 2014 adjusted EBITDA margin will range from 17.8% to 19% of net revenues. The full year GAAP effective tax rate is expected to range from 18% to 23%. We expect full year GAAP net loss per share to range from $0.55 to $0.27 per share based on 40.8 million weighted average diluted shares. Excluding the effects of our convertible note offering, we expect non-GAAP net loss per share to range from $0.28 to $0.02 per share.

And finally, we expect that 2014 capital expenditures will range from 9.5% to 10.5% of net revenues. So with that, we'll now open up the call for your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Ladies and gentlemen, it looks like our first question in queue will come from the line of Colin Sebastian with Robert W. Baird.

Rohit Kulkarni - Robert W. Baird & Co. Incorporated, Research Division

This is Rohit Kulkarni filling in for Colin. On Tiny Prints, on the production issue that you faced in Q4, any additional color that you can give? As in can you quantify the revenue -- effect on revenue or gross profit in Q4? Or even on Q1, are there any trickle-down effects that you're seeing as a result of more rebates or private discounts, what have you?

Jeffrey T. Housenbold

Yes. This is Jeff. We had a small production issue that had a couple of simultaneous issues. One was a software bug as we were bringing production in-house into our own facilities. So we were able to detect that and get that resolved in a couple of days. But given that the holiday season was shorter and customers were continuing to procrastinate, as they always do later in the season, that created a backlog. We then started pushing more to an outsource partner. They got overloaded, and it took us a couple of days to fix that. What we did was refund those orders so that hit both the net revenue, as well as the gross margin and the EBITDA lines for us. And that was several millions of dollars. We're not going to give an exact number. And then in Q1, what we're issuing today or tomorrow is an e-mail to our VIP customers saying, "Sorry that you had some issues. Here is a gift certificate to spend on the site." When we typically see when we give gift certificates is people come in and spend more than the amount of the gift certificate, and it gets them reengaged with the brand.

Brian M. Regan

And Rohit, it's Brian. Just one last thing is that while the delivery times were back to normal by mid-December, the several million dollar estimate from Jeff does include the comprehensive result of either refunds, expedited shipping costs, additional customer service, so there's an all-in impact there. And that's what we're referring to on the full impact on revenue gross margin or EBITDA for the quarter.

Rohit Kulkarni - Robert W. Baird & Co. Incorporated, Research Division

Okay. And one quick follow-up on just overall kind of pricing that you saw during holidays? At least, our checks seem to indicate that somehow pricing was largely in line with the kind of expectations there wasn't anything irrational, but probably Cardstore was a little bit more promotional? And if you could just wrap around what you anticipate 2014 to the extent you're baking in any price discounting or any change in pricing environment over the next few months?

Jeffrey T. Housenbold

Yes. I think what you saw was a tale of 2 markets, which you're seeing across most of retail. The high end is doing well and the low end is continuing to struggle given a -- while an improving economy, a still sluggish economy. So our average order value actually expanded to record highs, and so folks like us and Minted, and Paper Culture and Polka-Dot, people who are playing at the high end of the market did fine. The people playing at the lower end, the Costcos, the Wal-Marts, the Walgreens, the Vistaprints, the Snapfishes, they were doing more discounting, and that's not really different than what we saw in '11, '12 or '13. So how our expectation is, is a similar competitive dynamic throughout 2014 and with a potential for mild improvement if the economy gets better and there's further consolidation in the industry.

Rohit Kulkarni - Robert W. Baird & Co. Incorporated, Research Division

Okay. One last quick question on Mobile. Can you give out the percentage of revenues from Q4 coming from Mobile? I know you said 4%, 5% and 7% in prior 3 quarters.

Jeffrey T. Housenbold

No, we didn't. Because Q4 is such a large quarter. So many people are going to the website to order, but what you saw was roughly 1% of total Shutterfly-branded revenue from Mobile in 2012 and 6.5% coming in 2013. So good progress, more to be done. We're making continuing investments in Mobile across all of our brands this year in terms of M.dot-, T.dot-enabled [ph] sites, as well as endemic applications on Android, the iPad and the iPhone, and then, of course, the investments we're making in ThisLife. So we're excited about mobile but we're also doing it smartly in that certain form factors and products customers aren't going to make on a smaller screen.

Operator

Our next phone question will come from the line of Paul Bieber with Bank of America Merrill Lynch.

Paul Judd Bieber - BofA Merrill Lynch, Research Division

I was hoping you could walk us through the EBITDA and margin outlook? And outline what's the most important drivers of the deleverage are at the middle of the guidance range? And then secondly, as we look into -- as we head into 2014, which initiatives do you consider the most strategic for the company? Is it Mobile? Is it ThisLife? Is it expanding Tiny Prints? Which ones are on the top of your priority list?

Jeffrey T. Housenbold

Great. So we've been talking about for months now since the last earnings call that we were expecting EBITDA margins for 2014 to approximate those of 2013's guidance range, which was 18% to 19%. You see a slightly wider range this year. Because you have several thing happening. One is the migration of our colo from Santa Clara, California to Las Vegas Nevada. We're carrying about $6 million to 8 million in redundant OpEx cost because of that move. You have the opening of Shakopee later this year. You have still startup costs in Fort Mill. You heard us today announce the consolidation of our 4 facilities in the greater Phoenix area into one. We have investments in ThisLife that are still meaningful, and we're ramping up some of the infrastructure in terms of data warehouse and systems and integration of some of the acquisitions. So slightly a wider range in terms of 120 bps but that gives us flexibility given the strategic the infrastructure projects, as well as the investments we're making in ThisLife and some of the early-stage initiatives. With respect to which are the most important, I think if you go back to my prepared remarks, we're focused on growing the established brands of Shutterfly and Tiny Prints, investing in new initiatives, ThisLife probably being the biggest, but we have a very healthy market-leading position in Wedding that we're investing in, our Enterprise business has grown quite nicely and you'll see additional investments and capabilities and targeted verticals throughout this year. We're excited about our new acquisition of BorrowLenses, the continued incubation of Treat and the investments that we're making in terms of data that helps us make better upsell, cross-sell and lifetime value decisions in terms of pricing, promotion, feature functionality. So there's a list there, but we kind of break it down between grow the established, invest in the emerging brands and make smart bets in infrastructure that will get us greater efficiencies as we go forward.

Brian M. Regan

And Paul, it's Brian. One other thing on the first part of your question. The other impact too where, as Jeff called out, the investment that we're making in a year-on-year basis, there's also on the top line some benefits we got in 2013 from some of the tailwinds from the Kodak acquisition on a full year basis. And then alternatively, we're getting some bit of headwind as we talked about in the prepared remarks from the Costco partnership termination, where the full year impact now, we've estimated in this guidance, is about $15 million on an annual basis. So the last 2 factors on headwind -- relative headwind and tailwind basis to impact EBITDA margins.

Paul Judd Bieber - BofA Merrill Lynch, Research Division

Then one quick follow-up. What have you learned so far from the ThisLife beta?

Jeffrey T. Housenbold

It's been very exciting. Customers overwhelmingly are excited about the product and the capabilities. We heard people say things like, "Thank God. It's been a struggle." Or, "I've been waiting for a product that's easy-to-use, that helps me aggregate all my memories in a single place." And then they've been very conservative of what about this feature and that feature, and does it work like this or that. So we're taking all that feedback into consideration. We have a product roadmap that is ambitious and robust and exciting. And as we execute against that, we'll come out of the beta period in the middle part of the year, and then we'll start to market it to our customer base and to those who are not yet Shutterfly customers. So to date, our marketing has really consisted simply of putting an element in our overall navigation and customers are finding it, and we're seeing a very nice premium conversion rate meaningfully higher than overall marketplace for our premium models. And so it's early adopters, we understand that, but that gives us optimism as we move towards removing beta.

Operator

Next question in queue will come from the line of Jerry (sic) [Kerry] Rice with Needham & Company.

Kerry K. Rice - Needham & Company, LLC, Research Division

Not to beat a dead horse, but talking about the investments and EBITDA, as you pointed out, Jeff, these have been in the road map for some time. And so I didn't know -- other than Arizona, which seems like kind of a new announcement, is there anything else out there that would be -- or maybe the right way to ask this is, did the Arizona consolidation of facilities expand that range of EBITDA guidance that you provided today? Or was that not incremental enough to change that? And then a couple of other just quick questions. Following on with ThisLife. Can you talk anymore about maybe pricing strategy there? Are you going to start pricing when you start marketing it more outwardly in mid-2014? And then finally, on expedited shipping in Q4, can you talk about the impact there in the quarter?

Jeffrey T. Housenbold

Sure. So Arizona does have some cost this year in terms of planning and architectural costs, but most of the production manufacturing cost of that new built-to-suit facility will occur in 2015. The costs for this year are modest. The expansion of the range is really -- and we've been talking openly about this for the last 4 or 5 months, that 2013 and 2014 are heavy-investment years and all other things being equal, you should see EBITDA margins expand in 2015 as we start to realize the benefits of reduced shipping rates from a location in the Midwest vis-à-vis Shakopee from fuller utilization of Fort Mill, higher utilization of Tiny Prints, in-sourcing of high-volume, personalized products in Home Decor from some of the acquisitions, and getting past some of the infrastructure and Sarbanes-Oxley work that we have to do on those. And so there's a host of things that we should get benefits from 2015 and beyond including the colo where we get much cheaper power and operational costs. So Arizona is a small piece of that. I think the expansion by 20 bps is just operational and strategic flexibility as we look towards ThisLife and the opportunity to be able to spend or not spend behind that as we approach the latter part of the year. In terms of ThisLife, we have a pricing model that's out there today, which is free for up to 1,000 photos but no video, because video is expensive to store. If you want video, you can choose our paid tier, which is up to 25,000 photos and 1,000 videos for $79.99 on special for $59.99 today. And then for every incremental 25,000 or 1,000 -- 25,000 photos or 1,000 videos, an additional $59.99. So we're going to play with different pricing tiers as we learn more as we open it up out of beta. Right now, it's hard to get people to pay for something with a beta moniker on it, but even with that, we're seeing very nice conversion rates. I think early adopters have been waiting for a solution like this and the price is modest. It's lower than Dropbox or Symantec or Carbonite or some of the other services that are out there that do less, are just simply storage. So we're excited about that. And in terms of expedited shipping, with the shortened holiday, we upgraded certain customers' orders and then,, with some of the Tiny Prints' production issues, we expedited shipping as well and that ate into margin a little bit, but increases customer satisfaction and drives long-term value and loyalty. And it's not particularly unusual for us to do that even without operational challenges just to make sure we get the orders there in time for Christmas. And then one last thing about this holiday season in addition to the 6 shortened holiday days, the way the holiday fell on the last day of the year, we actually shipped more in Q4 than we typically would've. It would have carried over into Q1 in years past given the timing in the week. So Q4 got a little bit more shipping and Q1 gets a little bit less and that's reflected into our Q1 guidance. But the Q1 guidance is roughly the same percentage of total revenue in 2014 as it was in 2013.

Operator

Next questioner in queue will come from Kevin Kopelman with Cowen and Company.

Kevin Kopelman - Cowen and Company, LLC, Research Division

So I just had a couple of questions on the Q4 numbers. First, could you help us out with the revenue contribution from MyPublisher? And then also on BorrowLenses, is that in -- is BorrowLenses in Consumer Enterprise? And then also could you help us understand the Costco impact? So when you say that that was a $10 million impact, does that mean that it was $10 million higher in the fourth quarter last year than it was in this year? And also, help us understand the $15 million impact for '14? What that means exactly.

Jeffrey T. Housenbold

Sure. So as we said in the last call, we're not going to be breaking out the various brands and the revenue there. So MyPublisher did have a contribution to 2013 from April onward after the acquisition. We're lapping those -- we'll be done lapping those numbers come April, making the comps in the back of the year little tougher. BorrowLenses was de minimis revenue for the fourth quarter. We closed that acquisition in the middle of the quarter, and that is included in Consumer revenue, but it was a de minimis amount. Costco ship-to-home -- sorry, ship-to-warehouse relationship with Tiny Prints is estimated to be about a $15 million loss of revenue for 2014 and $10 million in the fourth quarter of 2013. So if that relationship was still in place, our revenue guidance would have been $15 million higher on the low-end and $15 million higher on the high-end if we still had Costco. So hopefully, that could give you the perspective.

Brian M. Regan

Yes. And Kevin, if you put it into perspective the last quarter, we gave guidance and indicated an estimated $8 million impact from Costco versus the initial guidance that was baked through the year. So now it ended up being a $10 million impact and then you roll that through to next year, that's the $15 million impact. The other thing to just point out is, with the individual brands and our traditional definition, which people asked and talked about. Organic growth is just not as straightforward as it once was, because we were buying companies to be able to expose our -- the customer base of our cross-brands to a new product or service. And so therefore, there's a lot of cross-pollinization of customer activity when the brands are first -- when first interacting with the brands. And so it's really difficult to then tease out cleanly a specific brand's activities. So that's why the organic growth -- the organic growth disclosure, we will not be giving that going forward.

Jeffrey T. Housenbold

And you see that coming to life with 4.6 million customers doing 7.7 million orders. So some of them are just placing a second order on the same brand but others are buying a photo book on MyPublisher and placing their cards order on Tiny Prints or Shutterfly. So we're starting to get a nice cross-pollination of the family of brands and that's part of the strategic intent to manage our portfolio.

Kevin Kopelman - Cowen and Company, LLC, Research Division

Okay. And just one more question. Can you give us any color on what you're seeing heading into Valentine's Day?

Jeffrey T. Housenbold

No. We never give current quarter guidance. But if you look at the 7-plus years we've been public and the increases in revenue and EBITDA, the market leadership position, the investments and innovation, the customer-centricity and the percentage of revenue that comes from existing customers, we think we have the market-leading franchise and continue to put distance between us and the competition and are riding the wave of the migration from off-line, generic commerce to online personalized commerce.

Operator

Next questioner in queue will come from Youssef Squali with Cantor Fitzgerald.

Naved Khan - Cantor Fitzgerald & Co., Research Division

This is Naved Khan for Youssef. Just a couple of questions. So just looking at the first quarter guidance, I know that Easter fell really early last year. How does it affect your Q1 growth rate this year? And then I have a follow-up.

Jeffrey T. Housenbold

A modest impact but nothing that warranted us calling it out.

Naved Khan - Cantor Fitzgerald & Co., Research Division

Okay. And then, Jeff, when we spoke with you previously, I think after the third quarter earnings call, I think you sounded a little bit more optimistic about being able to replace Costco not necessarily for the fourth quarter but over time. How do you feel about that? Are you maybe even wining back Costco later on as the year goes on?

Jeffrey T. Housenbold

Yes. I don't think we're going to be winning back Costco. It wasn't that they chose another partner over us. They decided that they wanted to have a white label solution and brand it Costco, and we're just not in the business of white-label solutions. We're building a premium lifestyle brand, and we're happy to co-partner and co-market for that brand just like Apple sells their devices through Target and Costco and Wal-Mart. They don't make a phone for Target or Wal-Mart or Costco. So I don't think we're going to be winning back the business unless they have a strategic change in that they want to go back to a third-party branded solution. We still remain optimistic about redeploying those dollars. We have over 100 active co-marketing and business development relationships, and we'll continue to add more throughout this year. Costco just happens to be a very large partner. We already have Target. We have other large partners like Coca-Cola and McDonald's and so they're not that many large partners and they tend to take longer to sign and secure. So we're giving guidance, I think, here today without a large replacement signed that reflects a loss of $15 million revenue but we're going to redeploy those funds into other marketing channels and perhaps on to other brands outside of Tiny Prints.

Naved Khan - Cantor Fitzgerald & Co., Research Division

Okay this is helpful. And then 1 quick follow-up, if I may. I think, previously, you have spoken about how the Enterprise business can see maybe operating margins or segment margins somewhat similar to the core as hits certain scale maybe $30 million to $40 million? How do you feel about that today? I mean you're getting in excess of -- you're already in excess of $30 million for 2013 and I guess 2014 will be even higher. Can you just comment on that?

Jeffrey T. Housenbold

Yes. So very pleased with the work the team's doing on Enterprise, the business, for a full year delivered close to $38 million, up 39% year-over-year with healthy expanded EBITDA margins on that business. They will likely continue to remain below the Consumer business, but on a incremental free cash flow basis, it's a great contribution because we already have those machines and the people and the depreciation in the stack, And we get to have fully trained employees year-round versus just for the seasonal fourth quarter. So it meets a bunch of financial, as well as strategic objectives. We're making additional investments in this year in Enterprise, in new systems that will allow us to take on additional types of projects that some current existing customers are asking for. So we're hiring up engineers and developing workflows and enhanced campaign capabilities, as well as data analytics. So part of our CapEx and part of our EBITDA guidance reflects some of those investments, and we think that will help us scale Enterprise and continue the robust top line growth in that sector.

Operator

Our next phone question will come from Shawn Milne from Janney Capital Markets.

Shawn C. Milne - Janney Montgomery Scott LLC, Research Division

I think your Q1 revenue guidance at the high end. Jeff, I'm just trying to get my arms around some of the impacts that may be taking that growth rate down. Is there a way to quantify the changes maybe that Tiny Prints -- would the gift certificates contra revenue there, or is that just a margin impact? I guess there'll be a little bit of a Costco piece in there? And then you said there was a seasonal shift to the end of the year. If you can maybe add a little bit more color on that.

Jeffrey T. Housenbold

Yes. So let me start with your last comment. I was saying that the seasonal mix of Q1 revenue over total full year is almost exactly the same in '13 and '14. You're right there, some impact from loss of Costco. The gift certificates on Tiny Prints are a margin hit. They don't hit top line revenue. We're lapping the Kodak acquisition numbers that aren't in there and just general trends that we've been seeing, which is the holiday season drives the predominant revenue and profitability for the business, smoothed out somewhat by Enterprise into a lesser extent BorrowLenses given its nascent and early-stage nature. So we think the guidance is appropriate at the beginning of the year here, with Q4 the furthest away. And if you look at our original guidance in the last few years and what we ended up doing on a full year basis, somehow during the year, we always find ways to add both organic and inorganic revenue and increase profits. So I'm excited about this year. I think we have a fantastic lineup of new products and services. The portfolio of brands is working, Enterprise is working. We're excited about the investments we're making in ThisLife and so we start this year with good wind behind our sails, but we're also mindful of the continued difficulties in the macroeconomic and the competitive landscape.

Brian M. Regan

And Shawn, if you also just look at -- you're asking about Q1 and the traditional modeling that folks do, which is just year-over-year growth, alluding to what Jeff mentioned earlier on the production timing, there's a cutoff timing issue in going into Q1 of 2014 versus Q1 of 2013 where the final 2 days of production in December of 2012 were on a weekend. So therefore, that carried more revenues into January and Q1 of 2013 versus what we would typically see, where we had more of that production competed in Q4. So that year-over-year impact is both the comp itself and the trend coming into Q1 of this year.

Shawn C. Milne - Janney Montgomery Scott LLC, Research Division

Okay. And then just secondly, I know this has been asked a couple of times, you widened the range a little bit on the EBITDA margins but you talked about the 20 bps, I mean, one of the things that you didn't list while you're going through that, Jeff, was actually the Tiny Prints gift certificates. Is that material enough to call out in terms of the full year EBITDA spread widening?

Jeffrey T. Housenbold

Yes, it's somewhere between the 0 and 20 bps. It wasn't the sole reason for widening it. Really, the key driver is the colo that's driving $6 million to $8 million of duplicate costs. So that's up to 80, 90 basis points of EBITDA hit from that redundancy that we have to incur this year. But then next year, we start to see about a 35% reduction in the power cost that we pay today. So it's more -- it's much more driven by the colo, the opening of Shakopee and the ramping of Fort Mill than it is by the gift certificates for Tiny Prints.

Brian M. Regan

And I would add, Shawn, there's also just the annualized impact not only of Fort Mill but of the operating expenses of our acquisitions, so MyPublisher, BorrowLenses and R&R Images being annualized is probably the last component of it that's going to have an EBITDA impact.

Shawn C. Milne - Janney Montgomery Scott LLC, Research Division

Okay. And then just last question. There were some questions on ThisLife and you talked a little bit about some of that conversion to premium from free you seemed pleased with. But is there anything anecdotally you can talk about in terms of reducing some friction to drive down certain product creation?

Jeffrey T. Housenbold

No, not yet because we haven't -- I mean, you could create out of ThisLife, but it's not a deep integration. It's not yet utilizing the intelligence from our Photoccino assets, and so we haven't really been focused on the product creation. To date, we'll kind of tackle that more in-depth in the second half of the year. Right now, we're more focused on the endemic features of the ThisLife as an aggregation, a search and a smart intelligent agent than the creation component of it.

Operator

Next question in queue comes from Trisha Dill with Wells Fargo Securities.

Trisha Dill - Wells Fargo Securities, LLC, Research Division

Just wanted to dig a little bit deeper into what you're seeing from the consumer. You've talked quite a bit over the past couple of quarters about how you're seeing consumers increasingly choose your premium offerings. I know you don't guide to AOV but just wondering if your guidance implies a continuation of that trend and maybe what you're continuing to do to drive that strength in the premium offering. And then I guess the Tiny Prints customer side, so just, maybe the core Shutterfly customer, are you seeing anything that suggests that they may not be feeling as good so far in 2014?

Jeffrey T. Housenbold

Yes, in AOV, I think -- I go back to, I think, the consumer's bifurcated. Those that have are doing really well and spending, and those that don't are struggling quite a bit. And the Tiny Prints brand is kind of a premium brand and Shutterfly is more mainstream but still an elevated brand. And so we're doing smart things about introducing new features like rounded edges and scalloped, pearlescent paper, our clear cards, super rush, super-super rush, our designer service. So we're adding high-end features and we're seeing our customers who are doing well saying, "Hey, I'd like to partake of that." And so that's driving AOV upwards. I would expect AOV to continue to expand this year. To what extent, we don't forecast. But I would expect it to continue to expand as we keep getting smarter and better at the cross-sell and the upsell capabilities. In terms of talking about what we see in the TP customer quarter-to-date, we don't give current quarter guidance, but we've always had a premium brand. There was a time before we bought Tiny Prints that they were outsourcing and they had a manufacturing snafu. They ran a similar approach that is making sure you; one, acknowledge you had a problem; two, saying you're sorry; and three, giving everyone a gift so they feel good. And that worked and the health of the brand remained, and it actually grew as customers appreciated that. And we're running a similar play. So we expect the investments that we've made in that brand equity over years to continue to carry forward.

Trisha Dill - Wells Fargo Securities, LLC, Research Division

And then are you seeing that bifurcation among your customers as well? So maybe the core Shutterfly customer you're seeing a sort of difference in trends? Or are you still considering that to be sort of a higher-end brand on the grand scheme of things for the consumer?

Jeffrey T. Housenbold

Yes, I think the latter, Trisha, that our average across our brand, the average household income for our customers is something around $109,000. So we have affluent moms with kids under 10 in the household, who are college-educated and live in predominantly urban areas, and so it's hard for us to say what the low-end is doing. But if you look at our market share gains relative to some of our competitors, vis-à-vis comScore, Compete or Alexa you can see that we continue to pull ahead. And so we're focused on acquisition of profitable customers and not just customer metrics, because we could take EBITDA margins down 200 or 300 bps and drive orders and customers up quite a bit, but that's not going to be a very sustainable nor profitable endeavor. So we're strategically growing both the top and the bottom line in a healthy sustainable manner.

Brian M. Regan

And Trisha, we're definitely seeing similar uptake rates on premium offerings whether it's new form factors in Photo Books for Shutterfly or the same types of premium offerings in holiday cards across the brands. We're not seeing any distinct difference in lower take-up rates on premium offerings at Shutterfly Tiny Prints. They're pretty much in line there.

Operator

Our next phone question will come from Heath Terry with Goldman Sachs.

Heath P. Terry - Goldman Sachs Group Inc., Research Division

I guess just quickly here at the tail-end. Jeff, is there a number or an idea that you can talk about in terms of what you would consider successful subscribers for ThisLife over the course of this year? And then as you look at sort of the very -- obviously, very, very early user activity on ThisLife, have we gotten to the point yet where you have any sense of to what degree usage of ThisLife might be contributing to an increase in physical product sales?

Jeffrey T. Housenbold

Thanks, Heath. Not a specific kind of subscriber or revenue number to disclose at that this time. Because for 2014, the goal really is, as you start with any product or new venture, you look at, is there a large addressable market? Is there a sufficient pain point in a consumer's mind? Do you have the right product market fit? And are you addressing that pain point in a sufficient way? Is the product easy and intuitive? And do you have brand equity and ability to distribute that? And is it a good value? And so we're really like any start-up, trying to make sure we get that right. And we believe it's a large addressable market. There's a lot of pain points, the product market fit is coming along. The feedback has been exceptional. But my real goal for the year is at the end of the year -- and we'll have phased launches throughout the year and beta will come out -- come off towards the middle part of the year. But at the end of the year, for everyone to say, "Wow, what an amazing product." If we have that, then the marketing gets easier behind that, right? You're able to do partnerships. You're able to spend dollars where the ARPU makes the cap [ph] appropriate. You're able to get upsells from your existing base. So I'm really focused on getting the product right. Making sure it scales, it works on Android, it works on Kindle, it works on iPad, it works on iPhone, it works on your desktop, it works across all of your storage or Cloud services and that it's intuitive and easy to use, it reduces friction in managing and sharing life's joy and then creating our products. And so it's still early to give out any of the metrics. Having said that, we're looking at 20 or 30 different metrics and the team's obsessing about that. But the direction is encouraging.

Operator

Looks like, our next question will come from Brian Fitzgerald with Jefferies.

Brian Patrick Fitzgerald - Jefferies LLC, Research Division

Most of our questions have been answered and very thorough responses, so appreciate that. Maybe quickly, in a truncated holiday [indiscernible] did you see any impacts from weather, or is it not really an issue? That's really all we kind of have now.

Jeffrey T. Housenbold

Yes. I think the 6 less shopping days was a much bigger impact to us than weather was. And weather is always harder to tease out. In some way, we benefit from worse weather because people aren't shopping in the malls, and they're in their house and they have time to make that last photo book or that last personalized gift. But certainly, 6 less shopping days had an impact, a negative impact on our total sales like many other retailers. And this year, we get 1 day back so that's beneficial, but it's only 1 of the 6 days.

Brian M. Regan

And Brian, I had to add that with the expedited shipping capabilities, so the scale that we've built up and the in-sourcing within the Fort Mill facility and what we'll do this year within Shakopee, Minnesota, the expedited shipping and control of the delivery cycle to the consumer is really much more helpful than if we had a production issue at Tiny Prints. Actually, having more of the control of that delivery cycle is really helpful to get it out there, on top of actual next day and custom upgrade capability. So especially in a truncated holiday season, which we will see more of next -- this coming holiday season, so the investments that we're making certainly paid off in that regard.

Operator

And it looks like we have another question in queue coming from the line of Mitch Bartlett with Craig-Hallum.

Mitchell O. Bartlett - Craig-Hallum Capital Group LLC, Research Division

Yes. Just at the tag in here, I just wanted to ask about customer growth. 10% good sequential increase from the last quarter, but year-over-year, facing the Tiny Prints customer -- or the Kodak Gallery customer additions in the second half last year? The third -- the $10 million of Costco, each one of those guys would've been a customer, right? That would've been included in the customer counts. And so if you normalize for that, you would've seen your traditional channels continue to grow. I'm just trying to figure out what the Kodak Gallery and the Costco and whatnot, if you look of those core traditional channels, are you still attracting the same kind of flow of customers that you historically have?

Jeffrey T. Housenbold

Yes, I think you're right. Lapping Kodak definitely depressed the customer growth numbers and maybe not all the Costco customers would've been new and unique but the vast majority would've, and so that dented the total new customer growth number as well. But if you look at the orders , they were quite robust relative to the customer growth and AOV even up 4% to a record $51.80. So as you get larger, it's hard to sustain the same new customer growth rates, and it costs you more to get that N plus 1 customer. And in a world where you have this bifurcation of the haves and the have nots, you have to make a strategic decision. Are you focused on total profitability and revenue? Or are you focused on just customer counts and transactions? And we have always been a company that try to balance top line and bottom line but we want to run the business as a business, and make sure the customers we bring into the fold, given 70-plus percent of our revenue comes from those existing customers, are high-quality consumers. As we see the economy improving, as further penetration of off-line to online happens, as our brand awareness continues to increase, as we reduce the friction to creation through ThisLife, that will give us the ability to spend more on customer acquisition and driving that number. But for the time being, all things being equal, we're very pleased with how the fourth quarter came out with 6 less shopping days and loss of Costco, and certainly, excited and optimistic as we head into 2014.

Mitchell O. Bartlett - Craig-Hallum Capital Group LLC, Research Division

Absolutely. And Brian, if I could just focus on the gross margin for a second. I'm just not sure. You talked about because of the 6 shorter days, more expedited shipping in general. But then you had the Tiny Prints issue. If you just normalized for Tiny Prints, if Tiny Prints didn't happen, the problems in the shipping and delayed orders and all that, would gross margins have risen year-over-year?

Brian M. Regan

Yes. So that's a great point, Mitch. If you look at our slides that we produced, we did indicate a non-GAAP gross margin that was actually flat in the fourth quarter year-on-year at 61%. So by definition, for certain, we would've gotten the benefit of scale. Because that actually still includes new equipment expenses at the start of the scaling of Fort Mill and certainly having some of the impact of unanticipated labor, materials and the expedited shipping and customer service, we would've certainly seen the nice scale benefits from those investments in gross margin.

Mitchell O. Bartlett - Craig-Hallum Capital Group LLC, Research Division

And you said that would have been maybe a $2 million impact or several million, something like that.

Brian M. Regan

Several was the adjective I used.

Operator

Thank you, sir. And presenters, at this time, I'm currently showing no additional phone questions in the queue. I'd like to turn the program back over to Mr. Housenbold for any additional or closing remarks.

Jeffrey T. Housenbold

Thanks, operator and thank you to all the sales side analysts and shareholders who have joined us today. As you can see, Q4 was another strong quarter for Shutterfly, Inc. We had record revenue, adjusted EBITDA and free cash flows for the company, average order value, customers and orders continue to grow and we're making appropriate strategic investments in our back-end infrastructure, our manufacturing, incubating new, exciting businesses like ThisLife and Treat and Wedding and BorrowLenses and Enterprise, as well as continuing to expand and grow the product assortment and reach of our established brands in Tiny Prints and Shutterfly. We're very optimistic as we head into 2014 and believe our leading position, our scale and scope efficiencies and our strong and healthy balance sheet will allow us to continue to innovate and grow our position, and ultimately, expand shareholder value. So we'll look to see you on the road and update you on our progress in 3 months from now. Thank you.

Operator

Thank you, gentlemen, and thank you, ladies and gentlemen. This does conclude today's call. Thank you for your participation and have a wonderful day. Attendees, you may now all disconnect.

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