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

• Fourth Quarter net sales increased to $257.0 million, up 100% year over year.
• Full Year net sales increased to $695.7 million, up 110% year over year.
• Fourth Quarter adjusted EBITDA increased to $17.8 million, up 277% year over year.
• Full Year adjusted EBITDA increased to $27.0 million, compared to a loss of $(5.9) million in the prior year.
• Fourth Quarter net income increased to $12.8 million, up 293% year over year.
• Full Year net income increased to $12.9 million compared to a net loss of $(10.3) million in the prior year.

"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

• Active customers grew to 3.2 million by the end of 2013, an increase of over 100% year over year.
   
• Non-GAAP diluted net income per share for the Fourth Quarter 2013 was $0.10 compared to non-GAAP diluted net income per share of $0.03 for the Fourth Quarter of 2012.
   
• Non-GAAP adjusted EBITDA for the Fourth Quarter 2013 was $17.8 million compared to $4.7 million for the Fourth Quarter of 2012, which represented a 277% year over year increase.
   
• Non-GAAP free cash flow totaled $37.0 million for the Fourth Quarter 2013 compared to $13.0 million for the Fourth Quarter of 2012, which represented a 184% year over year increase.
   
• At the end of the Fourth Quarter 2013, cash, cash equivalents, and short-term investments totaled $308.1 million.

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):

• Net sales are expected to be between $225.0 million and $235.0 million.
• Net loss is expected to be between $(5.0) million and $(1.0) million.
• Non-GAAP adjusted EBITDA is expected to be between $1.0 million and $5.0 million.

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

• Net sales are expected to be between $1.10 billion and $1.15 billion.
• Net income before provision for income taxes is expected to be between $15.0 million and $25.0 million.
• Non-GAAP adjusted EBITDA is expected to be between $45.0 million and $55.0 million.
• Capital expenditures are expected to be between $45.0 million and $55.0 million and will be primarily for our fulfillment centers to support our growth.

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:

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:

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:

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.