zulily
Feb 24, 2014
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zulily Announces Fourth Quarter and Full Year 2013 Financial Results

Fourth Quarter Net Sales Increased 100% to $257.0 million
Full Year Adjusted EBITDA of $27.0 million
Full Year Net Income of $12.9 million
Full Year Free Cash Flow of $53.5 million

SEATTLE, Feb. 24, 2014 (GLOBE NEWSWIRE) -- zulily, inc. (Nasdaq: ZU), a leading online retailer, today reported financial results for its fourth quarter and full fiscal year ended December 29, 2013.

Financial Highlights

"We're excited to close out a great year with a strong quarter and increasing profitability," said Darrell Cavens, CEO of zulily. "The full year generated 110% year on year revenue growth. As I look forward to 2014 and beyond, I see an opportunity for us to change the way people shop. It's clear to me that our team's continued obsession with offering amazing products at a great value is driving tremendous performance for the company and excitement for our customers. We'll continue to aggressively invest in fulfillment, technology and people to maximize the long-term potential of our business."

Other Highlights

Financial Guidance

The following forward-looking statements reflect zulily's expectations as of February 24, 2014.

Expectations for the first quarter of 2014 (Quarter Ending March 30, 2014):

Expectations for the fiscal year 2014 (Year Ending December 28, 2014):

Forward-Looking Statements

This press release contains forward-looking statements that include risks and uncertainties, including, without limitation, all statements related to future financial and business performance for the first quarter and full year 2014, investments in fulfillment centers, technology and people, market opportunity and plans to grow our business. Words such as "expect," "anticipate," "believe," "project," "will" and similar expressions are intended to identify forward-looking statements. These forward-looking statements are based upon our current expectations. Forward-looking statements involve risks and uncertainties and reported results should not be considered as an indication of future performance. Our actual results and the timing of events could differ materially from those anticipated in such forward-looking statements as a result of these risks and uncertainties, which include, without limitation, risks related to our short operating history in an involving industry, our ability to manage our growth, our ability to maintain profitability, our ability to forecast net sales and plan expenses accordingly, competition, our ability to attract customers in a cost effective manner, our ability to acquire products on reasonable terms, general economic conditions, consumer spending, product assortment, our fluctuating operating results, seasonality in our business, our flash sales business model, demand for our products, the strength of our brand, fraud, system interruptions, our ability to fulfill orders and other risks detailed under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our final prospectus for our initial public offering, which was filed with the Securities and Exchange Commission (the "SEC") on November 15, 2013, and is available on our investor relations website at http://investor.zulily.com and on the SEC's website at www.sec.gov. Additional information will also be set forth in our Annual Report on Form 10-K for the fiscal year ended December 29, 2013 which we expect to file with the Securities and Exchange Commission in the near future and other reports and filings we will make with the SEC from time to time. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. All forward-looking statements are qualified in their entirety by this cautionary statement, and zulily undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date hereof.

Conference Call

zulily will host a conference call to discuss its Fourth Quarter and Fiscal Year 2013 financial results today at 2:00 p.m. PT/5:00 p.m. ET. A live webcast of the conference call may be accessed at http://investor.zulily.com. Following the completion of the call, a recorded replay of the webcast will be available at the same Internet address. This call will contain forward-looking statements and other material information regarding zulily's financial and operating results. In the event that any non-GAAP financial measure is discussed on the conference call that is not described in this release, related complementary information will be made available at http://investor.zulily.com as soon as practicable after the conclusion of the conference call.

Non-GAAP Financial Measures

To supplement zulily's consolidated financial statements presented in accordance with generally accepted accounting principles ("GAAP"), this press release and the accompanying tables and the related earnings conference call contain certain non-GAAP financial measures, including adjusted EBITDA, free cash flow, and diluted net income (loss) per share as measures of certain components of financial performance. zulily calculates adjusted EBITDA as earnings before interest and other income, taxes, depreciation and amortization, adjusted to exclude the effects of stock-based compensation expense. zulily calculates non-GAAP free cash flow as net cash provided by (used in) operating activities less cash outflows for purchases of fixed assets, including internal-use software and website development. zulily reports sales information in accordance with GAAP. 

zulily defines non-GAAP diluted net income (loss) per share on the following basis. As a result of our initial public offering, all outstanding shares of preferred stock were automatically converted into shares of Class B common stock. Consequently, zulily calculates non-GAAP diluted net income (loss) per share for periods prior to November 2013 assuming this conversion had occurred at the beginning of the reported periods, which we believe facilitates better comparison with prior periods. Additionally, our non-GAAP diluted net income (loss) per share assumes all vesting of restricted stock occurred at the beginning of the applicable reporting periods. The numerator of the non-GAAP diluted net income (loss) per share calculation also excludes the effect of the deemed dividend which resulted from a preferred stock repurchase in Q4 2012. Assuming the conversion of preferred stock and the vesting of restricted stock at the beginning of the applicable reporting periods, as well as the exclusion of the deemed dividend from Q4 2012 and fiscal year 2012, the result is the use of GAAP net income (loss) as the numerator and the denominator representing the weighted-average shares outstanding on an if-converted basis in the calculation of non-GAAP diluted net income (loss) per share for each period presented.

zulily's management believes that non-GAAP adjusted EBITDA, non-GAAP free cash flow, and non-GAAP diluted net income (loss) per share as defined above provide useful supplemental information to investors and others in understanding and evaluating our operating results in the same manner as management and our board of directors. We have included Adjusted EBITDA because it is a key measure used by our management and board of directors to evaluate our operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital. In particular, the exclusion of certain expenses in calculating Adjusted EBITDA facilitates operating performance comparisons on a period-to-period basis and, in the case of exclusion of the impact of stock-based compensation, excludes an item that we do not consider to be indicative of our core operating performance. Investors should, however, understand that stock-based compensation expense has been and will continue to be for the foreseeable future a significant recurring expense in our business and an important part of the compensation provided to our employees. We have included free cash flow because it is a key measure used by our management and board of directors as an important indicator of our business performance because it measures the amount of cash we generate. Free cash flow also reflects changes in working capital. We have included non-GAAP diluted net income (loss) per share as it represents how management and the board of directors measure our business performance. We believe this measure is more comparable in understanding our past financial performance and future results.

zulily's management does not itself, nor does it suggest that investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Investors should also note that the non-GAAP financial measures used by zulily may not be the same non-GAAP financial measures, and may not be calculated in the same manner, as that of other companies, including other companies in our industry. Whenever zulily uses such non-GAAP financial measures, it provides a reconciliation of non-GAAP financial measures to the most closely applicable GAAP financial measures. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures.

A reconciliation of non-GAAP adjusted EBITDA to net income (loss), the most directly comparable GAAP financial measure, for the periods presented is as follows:

     
  Quarter Ended Year Ended
  December 29,
2013
December 30,
2012
December 29,
2013
December 30,
2012
  (in thousands)
  (unaudited)
Net income (loss) $ 12,753 $ 3,244 $ 12,908 $ (10,335)
Interest (income) expense, net (50) (21) (136) (43)
Other (income) expense, net (137) 9 (99) (176)
Taxes 356 356
Depreciation and amortization 1,983 1,039 6,240 3,369
Stock-based compensation expense 2,881 448 7,777 1,265
Adjusted EBITDA $ 17,786 $ 4,719 $ 27,046 $ (5,920)

A reconciliation of non-GAAP free cash flow to net cash provided by operating activities, the most directly comparable GAAP financial measure, for the periods presented is as follows:

  Quarter Ended Year Ended
  December 29,
2013
December 30,
2012
December 29,
2013
December 30,
2012
  (in thousands)
  (unaudited)
Net cash provided by operating activities $ 43,876 $ 15,332 $ 73,120 $ 16,283
Capital expenditures (6,886) (2,294) (19,606) (7,858)
Free cash flow $ 36,990 $ 13,038 $ 53,514 $ 8,425

The following table gives effect to the assumed preferred stock conversion prior to our IPO and the vesting of outstanding restricted stock at the beginning of each period presented. A reconciliation of non-GAAP net income (loss) attributable to common stockholders to GAAP income (loss) attributable to common stockholders, the most directly comparable GAAP financial measure, and non-GAAP dilutive shares to GAAP dilutive shares, the most directly comparable GAAP financial measure, in order to calculate non-GAAP dilutive net income (loss) per share, is as follows:

  Quarter Ended Year Ended
  December 29,
2013
December 30,
2012
December 29,
2013
December 30,
2012
  (in thousands except share and per share amounts)
  (unaudited)
GAAP net income (loss) attributable to common stockholders $ 4,526 $ (30,724) $ — $ (46,822)
Add: Preferred stock deemed dividend 32,112 32,112
Add: Accretion of convertible redeemable preferred stock 1,344 1,856 8,974 4,375
Add: Undistributed earnings attributable to participating securities 5,267 3,934
Add: Allocation of undistributed earnings to preferred stock 1,616
Non-GAAP net income (loss) attributable to common stockholders $ 12,753 $ 3,244 $ 12,908 $ (10,335)
         
GAAP dilutive shares 96,193,651 43,051,652 59,450,186 37,976,724
Add: Convertible preferred stock 31,309,868 58,798,629 53,293,392 55,846,208
Add: Unvested restricted stock 163,404 11,484,439 3,644,546 16,468,775
Add: Additional dilutive effect of stock options 3,605,666 3,989,507
Non-GAAP dilutive shares 127,666,923 116,940,386 120,377,631 110,291,707
Non-GAAP diluted net income (loss) per share $ 0.10 $ 0.03 $ 0.11 $ (0.09)

About zulily, inc.

zulily (http://www.zulily.com) is a retailer obsessed with bringing moms special finds every day-all at incredible prices. We feature an always-fresh curated collection for the whole family, including clothing, home decor, toys, gifts and more. Unique products from up-and-coming brands are featured alongside favorites from top brands, giving customers something new to discover each morning. zulily was launched in 2010 and is headquartered in Seattle with offices in Reno, Columbus and London. zulily's shares are traded on the NASDAQ Global Select Market under the symbol ZU.

 
ZULILY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, unaudited)
     
  December 29,
2013
December 30,
2012
     
ASSETS    
CURRENT ASSETS:    
Cash and cash equivalents $ 290,089 $ 96,998
Short-term investments 18,014 8,000
Restricted cash 681
Accounts receivable 5,176 3,043
Inventories 12,979 7,571
Prepaid expenses and other current assets 3,720 1,700
Merchandise deposits 472 946
Total current assets 330,450 118,939
PROPERTY AND EQUIPMENT — Net 24,613 11,191
OTHER NON-CURRENT ASSETS 1,024 607
Total assets $ 356,087 $ 130,737
     
LIABILITIES, CONVERTIBLE REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)    
CURRENT LIABILITIES:    
Accounts payable $ 55,607 $ 34,198
Accrued expenses 30,773 12,483
Deferred revenue 23,250 9,653
Total current liabilities 109,630 56,334
NON-CURRENT LIABILITIES 4,254 1,439
Total liabilities 113,884 57,773
Convertible redeemable preferred stock 128,714
STOCKHOLDERS' EQUITY (DEFICIT)    
Convertible preferred stock 2
Class A common stock 1
Class B common stock 11 5
Additional paid-in capital 287,385
Accumulated other comprehensive loss (58) (6)
Accumulated deficit (45,136) (55,751)
Total stockholders' equity (deficit) 242,203 (55,750)
Total liabilities, convertible redeemable preferred stock, and stockholders' equity (deficit) $ 356,087 $ 130,737
 
 
ZULILY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands except share and per share amounts)
 
 
  Quarter Ended Year Ended
  December 29,
2013
December 30,
2012
December 29,
2013
December 30,
2012
         
NET SALES $ 257,033 $ 128,479 $ 695,709 $ 331,240
COST OF SALES 188,658 93,887 502,318 240,943
GROSS PROFIT 68,375 34,592 193,391 90,297
OPERATING EXPENSES:        
Marketing 16,960 11,059 59,667 37,780
Selling, general, and administrative 38,493 20,301 120,695 63,071
TOTAL OPERATING EXPENSES 55,453 31,360 180,362 100,851
INCOME (LOSS) FROM OPERATIONS 12,922 3,232 13,029 (10,554)
INTEREST INCOME (EXPENSE)—Net 50 21 136 43
OTHER INCOME (EXPENSE)—Net 137 (9) 99 176
NET INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES 13,109 3,244 13,264 (10,335)
PROVISION FOR INCOME TAXES (356) (356)
NET INCOME (LOSS) $ 12,753 $ 3,244 $ 12,908 $ (10,335)
Net income (loss) attributable to Class A and Class B common stockholders $ 4,526 $ (30,724) $ — $ (46,822)
Net income (loss) per share attributable to Class A and Class B common stockholders:        
Basic $ 0.05 $ (0.71) $ — $ (1.23)
Diluted $ 0.05 $ (0.71) $ — $ (1.23)
Weighted average shares outstanding used to compute net income (loss) per share attributable to Class A and Class B common stockholders:        
Basic 87,992,093 43,051,652 59,450,186 37,976,724
Diluted 127,603,215 43,051,652 59,450,186 37,976,724
 
 
ZULILY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
 
 
  Quarter Ended Year Ended
  December 29,
2013
December 30,
2012
December 29,
2013
December 30,
2012
         
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net income (loss) $ 12,753 $ 3,244 $ 12,908 $ (10,335)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:        
Depreciation and amortization 1,983 1,038 6,240 3,369
Stock-based compensation 2,881 448 7,777 1,265
Loss on disposal of assets 31 61 49 74
Changes in operating assets and liabilities:        
Accounts receivable 317 559 (2,131) (2,422)
Inventories 1,752 3,855 (5,399) (2,968)
Prepaid expenses and other assets (267) (551) (2,302) (910)
Merchandise deposits 238 (213) 475 (355)
Accounts payable 8,628 11,058 20,820 14,150
Accrued expenses and other liabilities 14,756 22 21,092 8,329
Deferred revenue 804 (4,190) 13,591 6,086
Net cash provided by operating activities 43,876 15,331 73,120 16,283
CASH FLOWS FROM INVESTING ACTIVITIES:        
Capital expenditures (6,886) (2,294) (19,606) (7,858)
Purchases of short-term and other investments (18,012) (200) (36,012) (10,200)
Proceeds from sale of available-for-sale securities 6,000
Proceeds from maturity of available-for-sale securities 18,000 26,000 10,000
Purchases of restricted cash (600) (2,019) (6,000) (9,281)
Proceeds from maturity of restricted cash 1,201 2,100 6,682 11,200
Net cash used in investing activities (6,297) (2,413) (28,936) (139)
CASH FLOWS FROM FINANCING ACTIVITIES:        
Proceeds from issuance of convertible redeemable preferred stock 85,000 85,000
Convertible redeemable preferred stock issuance costs (85) (85)
Proceeds from initial public offering, net of underwriter fees 150,863 150,863
Payments for deferred offering costs (1,370) (2,933)
Proceeds from issuance of common stock 509 30 1,029 78
Repurchase and retirement of preferred stock (32,500) (32,500)
Debt issuance costs (28) (28)
Net cash provided by financing activities 149,974 52,445 148,931 52,493
Effect of exchange rate changes on cash and cash equivalents (88) (24)
NET INCREASE IN CASH AND CASH EQUIVALENTS 187,465 65,363 193,091 68,637
CASH AND CASH EQUIVALENTS—Beginning of period 102,624 31,635 96,998 28,361
CASH AND CASH EQUIVALENTS—End of period $ 290,089 $ 96,998 $ 290,089 $ 96,998
SUPPLEMENTAL CASH FLOW DATA:        
Payable for capital purchases $ (276) $ 205 $ 84 $ 205
Investment in common stock warrant 47 47
Stock-based compensation capitalized 8 50 23 181
Vesting of early exercised shares 2 2 10 13
Accretion of redeemable convertible preferred stock 1,345 1,857 8,974 4,375
Unpaid offering costs in additional paid-in capital 59 385
Deferred debt issuance costs 102 102
CONTACT: zulily, inc.

         Nancy Shipp, 206.724-0500 x. 4193 (Investors)

         nshipp@zulily.com

         or

         Laura Jones, 206.724-0500 x. 4037 (Media)

         ljones@zulily.com

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Source: zulily

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