Shutterfly (SFLY) 8-K Results of Operations and Financial Condition

Exhibit 99.01

Contacts:           Financial:                                           Press:

Marilyn LattinBridgette Thomas

Investor Relations   Senior Director of Corporate Communications

650/610-5853                                      650/610-3519

Shutterfly Announces Fourth Quarter and

 Full Year 2007 Financial Results

· Net revenues increase 51% year-over-year

· Personalized products and services increase 69% year-over-year

· Net income increases 74% year-over-year

REDWOOD CITY, Calif., February 6, 2008 (BUSINESS WIRE) -- Shutterfly, Inc. (NASDAQ:SFLY), an Internet-based social expression and personal publishing service, today announced fourth quarter and full year 2007 financial results for the period ended December 31, 2007.

“2007 marks another year of strong execution for Shutterfly,” said president and chief executive officer Jeffrey Housenbold. “We delivered record growth in net revenues, adjusted EBITDA, net income, customers and orders. We are delighted that Shutterfly continues to take advantage of the enormous markets for social expression and personal publishing.”

Fourth Quarter 2007 Financial Highlights

· Net revenues totaled $97.5 million, a 49% year-over-year increase.

· Personalized Products & Services revenues1 were $61.9 million, a 55% year-over-year increase, and comprising 64% of total net revenues.

· Print revenues totaled $35.6 million, a 39% year-over-year increase.

· Net revenues from existing customers were 72% of total net revenues.

· Gross profit margin was 60.0% of net revenues, as compared to 60.2% in 2006.

· Operating expenses, excluding stock-based compensation, totaled $30.9 million, or 32% of net revenues

· Adjusted EBITDA2was $33.1 million, a 45% year-over-year increase.

· GAAP net income was $16.9 million, a 39% year-over-year increase.

· GAAP net income per diluted share was $0.63, a 26% year-over-year increase.

Full Year 2007 Financial Highlights

· Total net revenues were $186.7 million, an increase of 51% over 2006.

· Personalized Products & Services revenues1 were $105.3 million, a 69% increase over 2006, and comprising 56% of total revenues.

· Print revenues totaled $81.4 million, an increase of 34% over 2006.

· Net revenues from existing customers were 74% of total, unchanged from 2006.

· Gross profit margin was 55.0% of revenues, as compared to 55.0% of revenues in 2006.

· Operating expenses, excluding stock-based compensation, totaled $87.7 million, as compared to $58.0 million in 2006.

· Adjusted EBITDA2 was $32.9 million, as compared to $21.6 million in 2006.

· GAAP net income was $10.1 million, an increase of 74% over 2006.

· GAAP net income per diluted share was $0.38, as compared to a net income per diluted share of $0.56 in 2006.

· Capital expenditures for 2007 were $35.0 million.

· The Company ended the year with $125.6 million in cash, cash equivalents and short-term investments.

Fourth Quarter 2007 Operating Metrics

· Orders totaled 2.7 million, a 44% increase over 2006.

· Transacting customers totaled 1.4 million, a 45% increase over 2006.

· Average order value was $36.80, as compared to $35.72 for the fourth quarter of 2006.

· Average orders per day were approximately 28,800, a 44% year-over-year increase.

Full Year 2007 Operating Metrics

· Orders totaled 7.1 million, a 38% increase over 2006.

· Transacting customers totaled 2.4 million, a 37% increase over 2006.

· Average order value was $26.44, as compared to $24.16 for 2006.

· Average orders per day were approximately 19,300, a 38% year-over-year increase.

Recent Operating Highlights

· Expanded holiday greeting card, calendar and photo book offerings with new designs, styles and form factors, including designer greeting cards.

· Announced several initiatives for digital scrapbooking - -

·   Availability of digital scrapbooking holiday card templates and new scrapbook page form-factors.

·   Marketing relationship with CK Media, that will introduce Shutterfly to CK Media’s customers through scrapbooking classes, premium scrapbooks created by leading designers, and online co-marketing and collaboration.

· Announced the acquisition of Nexo Technologies, a leading technology platform for group websites, as a way to extend Shutterfly’s technology leadership in online sharing and collaboration services.

· Announced its entrée into online social stationery, with a premium baby stationery collection that enables parents to celebrate their newborn’s arrival with stylish, announcements, invitations and thank you notes.

Business Outlook

The Company's financial expectations for the first quarter and the full year 2008 are as follows:

First Quarter 2008:

· Net Revenues to range from $34 million to $36 million, an increase of 27% to 35% as compared to the first quarter of 2007.

· Gross margin to range from 50% to 51% of net revenues.

· Adjusted EBITDA to range from a loss of $1.8 million to a loss of $2.3 million.

· Effective tax rate of approximately 42%.

· Weighted average shares of approximately 24.9 million for EPS purposes.

Full Year 2008:

· Net revenues to range from $245 million to $255 million, an increase of 31% to 37% as compared to the full year 2007.

· Gross margins to range from 53% to 55% of net revenues.

· Adjusted EBITDA to range from 16% to 18% of net revenues.

· Capital expenditures of approximately 17.5% to 18.5% of net revenues.

· Effective tax rate of approximately 42%.

· Weighted average shares of approximately 27.3 million for diluted EPS purposes.

The foregoing guidance supersedes any guidance previously issued by the Company. All such previous guidance should no longer be relied upon.

Historically approximately half of the Company’s net revenue and essentially all of its adjusted EBITDA profits occur during the seasonally strong fourth quarter, and as a result, the Company’s insights into performance may change throughout the course of the year.

Fourth Quarter and Full Year 2007 Conference Call

Management will review the fourth quarter and full year 2007 financial results and its expectations for the first quarter and full year 2008, at a conference call on Wednesday, February 6, 2008 at 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time). To listen to the call and view the accompanying slides, please visit http://www.shutterfly.com. In the Investor Relations area, found in the "About Us" section, click on the link provided for the webcast, or dial 1-913-312-0649.  The webcast, as well as a podcast, will be archived and available at http://www.shutterfly.com.  A replay of the conference call will be available through Wednesday, February 20, 2008. To hear the replay, please dial 1-719-457-0820, replay passcode: 4576104.

About Non-GAAP Financial Information

When used in connection with historical results and forward-looking guidance, the non-GAAP financial measure Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization and stock-based compensation.  In addition, for the three and twelve months ended December 31, 2006, adjusted EBITDA also excluded a one-time non-cash charitable contribution.  For more information, please see Shutterfly’s SEC Filings.

To supplement the Company's consolidated financial statements presented on a GAAP basis, we believe that these non-GAAP measures better reflect the Company's core operating results and thus are appropriate to enhance the overall understanding of the Company's past financial performance and its prospects for the future. These adjustments to the Company's GAAP results are made with the intent of providing both management and investors a more complete understanding of the Company's underlying operational results and trends and performance. Management uses these non-GAAP measures to evaluate the Company's financial results, develop budgets, manage expenditures, and determine employee compensation. The presentation of additional information is not meant to be considered in isolation or as a substitute for or superior to net income (loss) or net income (loss) per share determined in accordance with GAAP.

About Shutterfly

Founded in 1999, Shutterfly, Inc. is an Internet-based social expression and personal publishing service. Shutterfly provides high quality products and world class services that make it easy, convenient and fun for consumers to preserve their digital photos in a creative and thoughtful manner. Shutterfly's flagship product is its award-winning Photo Book line, which helps consumers celebrate memories and tell their stories in professionally bound coffee table books.  More information about Shutterfly (NASDAQ: SFLY) is available at www.shutterfly.com. Shutterfly and Shutterfly.com are trademarks of Shutterfly, Inc.

Notice Regarding Forward-Looking Statements

This media release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which involve risks and uncertainties. These forward-looking statements include all statements regarding the Company's financial expectations for the first quarter and full year 2008 set forth under the caption "Business Outlook." The Company's actual results may differ materially from those anticipated in these forward-looking statements. Factors that might contribute to such differences include, among others, our ability to expand our customer base; our ability to develop on a timely basis, as well as consumer acceptance of, new products and services; our ability to develop additional adjacent lines of business; our ability to retain and hire necessary employees, including seasonal personnel, and appropriately staff our operations; the impact of seasonality on our business; our management's broad discretion regarding the spending of the net proceeds from our public offering; unforeseen changes in expense levels; competition, which could lead to pricing pressure; and general economic conditions. 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 Factors" sections of the Company's Form 10-Q for the quarter ended September 30, 2007, and the Company's other filings, which are available on the Securities and Exchange Commission's Web site at www.sec.gov. These forward-looking statements are based on current expectations and the Company assumes no obligation to update this information.

 

1 Personalized Products and Services revenues were previously referred to as "Non-print revenues" and include primarily, photo books, folded greeting cards, calendars, and photo-based merchandise.

 

2 Adjusted EBITDA is a non-GAAP financial measure that the Company defines as earnings before interest, taxes, depreciation, amortization and stock-based compensation and, in 2006, a one-time non-cash charitable contribution to establish the Shutterfly Foundation.

Shutterfly, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
(Unaudited)
	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
	2007			2006			2007			2006
Net revenues	$	97,543		$	65,678		$	186,727		$	123,353
Cost of revenues (1)		39,005			26,120			84,111			55,491
Gross profit		58,538			39,558			102,616			67,862
Operating expenses (1):
Technology and development		8,601			5,875			28,635			19,087
Sales and marketing		13,942			8,345			33,363			21,940
General and administrative		9,500			6,461			29,557			19,216
		32,043			20,681			91,555			60,243
Income from operations		26,495			18,877			11,061			7,619
Interest expense		(31	)		(57	)		(179	)		(266	)
Other income (expense), net		1,262			1,373			5,515			2,387
Income before income taxes		27,726			20,193			16,397			9,740
Provision for income taxes		(10,817	)		(7,990	)		(6,302	)		(3,942	)
Net income	$	16,909		$	12,203		$	10,095		$	5,798
Net income per share:
- Basic	$	0.68		$	0.53		$	0.42		$	0.67
- Diluted	$	0.63		$	0.50		$	0.38		$	0.56
Weighted-average shares outstanding:
Basic		24,688			22,819			24,295			8,622
Diluted		26,864			24,521			26,273			10,331
(1) Stock-based compensation is allocated as follows:	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
	2007			2006			2007			2006
Cost of revenues	$	67		$	34		$	189		$	96
Technology and development		261			262			880			736
Sales and marketing		297			164			877			521
General and administrative		568			288			2,055			947
	$	1,193		$	748		$	4,001		$	2,300

Shutterfly, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except par value amounts)
(Unaudited)
	December 31,			December 31,
	2007			2006
Assets
Current assets:
Cash and cash equivalents	$	122,582		$	119,051
Short-term investments		3,002			-
Accounts receivable, net		4,480			2,164
Inventories		4,788			2,493
Deferred tax asset, current portion		1,674			2,129
Prepaid expenses and other current assets		4,510			2,760
Total current assets		141,036			128,597
Property and equipment, net		48,416			30,919
Goodwill and intangible assets, net		3,859			1,396
Deferred tax asset, net of current portion		13,497			18,754
Other assets		2,162			494
Total assets	$	208,970		$	180,160
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	8,783		$	9,385
Accrued liabilities		18,924			8,808
Deferred revenue		8,699			6,278
Current portion of capital lease obligations		808			1,961
Total current liabilities		37,214			26,432
Other liabilities		1,083			660
Capital lease obligations, less current portion		107			1,742
Total liabilities		38,404	��		28,834
Commitments and contingencies
Stockholders' equity
Undesignated preferred stock, $0.0001 par value; 5,000 shares authorized;
no shares issued and outstanding		-			-
Common stock, $0.0001 par value; 100,000 shares authorized; 24,805 and
23,705 shares issued and outstanding on December 31, 2007 and
December 31, 2006, respectively		2			2
Additional paid-in-capital		190,849			181,890
Accumulated other comprehensive loss		(12	)		(35	)
Deferred stock-based compensation		(28	)		(191	)
Accumulated deficit		(20,245	)		(30,340	)
Total stockholders' equity		170,566			151,326
Total liabilities and stockholders' equity	$	208,970		$	180,160

Shutterfly, Inc.
Consolidated Condensed Statements of Cash Flows
(in thousands)
(Unaudited)
	Twelve Months Ended
	December 31,
	2007			2006
Cash flows from operating activities:
Net Income	$	10,095		$	5,798
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization		17,384			10,525
Amortization of intangible assets		412			222
Amortization of stock-based compensation, net of cancellations		4,001			2,300
Charitable contribution expense for shares issued to charitable foundation		-			923
Change in carrying value of preferred stock warrant liability		-			(152	)
Loss/(gain) on disposal of inventory and property and equipment		262			(29	)
Deferred income taxes		5,729			3,199
Changes in operating assets and liabilities
Inventories		(2,290	)		(1,419	)
Accounts receivable, net		(2,316	)		(1,215	)
Prepaid expenses and other current assets		(1,750	)		(1,171	)
Other assets		(1,667	)		(121	)
Accounts payable		(601	)		5,514
Accrued and other liabilities		10,539			(2,603	)
Deferred revenue		2,421			1,714
Net cash provided by operating activities		42,219			23,485
Cash flows from investing activities:
Purchases of property and equipment		(34,993	)		(20,681	)
Acquisition of business and intangibles, net of cash acquired		(2,858	)		-
Purchases of short term investments		(3,000	)		-
Proceeds from sale of property and equipment		28			-
Net cash used in investing activities		(40,823	)		(20,681	)
Cash flows from financing activities:
Principal payments of capital lease obligations and note payable		(2,840	)		(1,446	)
Proceeds from IPO shares issued, net of issuance costs		-			78,468
Proceeds from issuance of common stock upon exercise of stock options		4,975			83
Repurchases of common stock		-			(11	)
Net cash provided by financing activities		2,135			77,094
Net increase in cash and cash equivalents		3,531			79,898
Cash and cash equivalents, beginning of period		119,051			39,153
Cash and cash equivalents, end of period	$	122,582		$	119,051
Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	198		$	205
Cash paid during the period for income taxes		812			-

Shutterfly, Inc.
Non-GAAP Adjusted EBITDA Reconciliation:
	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
	2007			2006			2007			2006
Income from operations	$	26,495		$	18,877		$	11,061		$	7,619
Add back:
Depreciation and amortization		5,362			3,225			17,796			10,747
Stock-based compensation expense		1,193			748			4,001			2,300
Charitable Contribution		-			-			-			923
Non-GAAP Adjusted EBITDA	$	33,050		$	22,850		$	32,858		$	21,589
Metrics:
	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
	2007			2006			2007			2006
Customers		1,384,625			955,104			2,356,971			1,724,504
Orders		2,650,489			1,838,932			7,061,604			5,104,950
Average Order Value	$	36.80		$	35.72		$	26.44		$	24.16
Average Orders per Customer		2	x		2	x		3	x		3	x
Average Orders per Day		28,810			19,988			19,347			13,986