zulily, inc. (ZU)

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Zulily Inc. (ZU)

Q1 2014 Earnings Conference Call

May 6, 2014 5:00 PM ET


Nancy Shipp – IR

Darrell Cavens – President and CEO

Marc Stolzman – CFO


Debra Schwartz – Goldman Sachs

Mark Miller – William Blair

Justin Post – Bank of America Merrill Lynch

Shawn Milne – Janney Capital Markets

Rohit Kulkarni – RBC Capital Markets



Good afternoon, ladies and gentlemen. My name is Shannon and I will be your host operator on this call. Your lines will be placed on a listen-only mode. At the end of the presentation management will be available for questions. (Operator Instructions). At this time I would like to introduce Nancy Shipp, Investor Relations at Zulily.

Nancy Shipp

Good afternoon and thank you for joining us on our conference call today to view our first quarter 2014 financial results. With me today are Darrell Cavens, Chief Executive Officer; Marc Stolzman, Chief Financial Officer and Mark Vadon, Chairman. Each will be available for Q&A following today’s prepared remarks.

Before we begin I would like to remind you that we will make forward-looking statements during this call regarding future events and financial performance, including our guidance for Q2 2014 and full fiscal year 2014. These statements are based upon assumptions that are believed to be reasonable at the time they have made and are subject to significant risk and uncertainties. You should not relay on these forward-looking statements as predications of future events and we undertake no obligation to update or revise these statements.

Our actual results may differ materially and adversely from any forward-looking statements discussed on this call. For a discussion of factors that could affect our future results and business, please refer to our disclosure in today’s earnings release and our most annual report on Form 10-K and subsequent reports we filed with or furnish to the SEC in particular our quarterly report on Form 10-Q for the three months ended March 30, 2014 to be filed with the SEC.

Also please note that during the course of this conference call we may discuss certain non-GAAP financial measures as we review the company’s performance. Please refer to the investor relations section of our website to obtain a copy of our earnings release which contains descriptions of our non-GAAP financial measures and reconciliations of non-GAAP measures to nearest comparable GAAP measures.

This call is being recorded and webcast live on our investor relations website and a replay of this call will be available there as well for the next 30 days. Now I would like to turn the call over to Darrell our CEO. Darrell?

Darrell Cavens

Thanks, Nancy. Good afternoon everybody and thanks for joining us on Zulily’s first quarter earnings conference call. I’m excited to share with you our first quarter results which reflect our continued strong growth and performance. Today I’ll review some of the key highlights from the quarter and talk about the continuing investments we are making across all areas of the company.

After my comments I will pass the call on to Marc Stolzman, our Chief Financial Officer who will put our first quarter numbers in more details and provide and outlook for the second quarter and updated guidance for the full year.

This year started strong and shows our team’s obsession with operating new products every day at great value and how that continues to resonate with our customers. We ended the quarter with 3.7 million active customers, up 93% from the first quarter of 2013. We grew revenue 87% year-over-year to $238 million in the first quarter of 2014. Revenue per active customers remains strong at $65 in the quarter. Non-GAAP adjusted EBITDA for the quarter was $2.6 million while Non-GAAP free cash flow was $1.6 million. Our customer continues to stay passionate about our business and 83% of our North American orders for this quarter were placed by customers who purchased from us in the last year.

While these metrics demonstrates the strength of our business model, I still believe there is more work to do. While our revenue growth was strong at 87% versus a year ago our actual order growth exceeded the revenue growth. Total orders placed were 5.5 million up 91% from a year ago. Additionally average order value was up 4.3% compared to the first quarter of 2013. The difference in growth rates between orders placed and revenue recognized was caused by carrying a higher than normal backlog into the end of the quarter.

Incremental marketing spend and strong product offering delivered by our merchandising teams lead to a higher than expected order volume. This required our fulfillment centers to rapidly ramp operation as we approach the end of the quarter. Marc will discuss this in more detail later in the call but this dynamic not only contributed in increase in our deferred revenue but also lower our gross margins during the quarter.

The good news for the business and for our customers is that we’ve since worked through that extra backlog and normalized our shipping times to year end levels. We continue to focus on growing the business and investing in growth when the opportunities present themselves. Our merchandising team has stayed focused in bringing the new brands and expanding our assortment. To-date we have introduced over 13,000 brands to our customers and expanded to a wider diversity of product categories. We are now launching on average as many as a hundred of – today which I believe give us an incredible opportunity to deliver something each morning to our customers that could make them to say wow, look at what Zulily has today.

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