Shutterfly Announces Second Quarter 2018 Financial Results
REDWOOD CITY, Calif. August 7, 2018 -- Shutterfly, Inc. (NASDAQ:SFLY), the leading online retailer and manufacturer of high-quality personalized products and services, today announced financial results for the second quarter ended June 30, 2018.
“With the closing of the Lifetouch acquisition, the second quarter of 2018 marks the beginning of a new stage of Shutterfly's growth,” said Christopher North, President and Chief Executive Officer of Shutterfly. “Shutterfly now comprises three divisions: Shutterfly Consumer, Lifetouch, and Shutterfly Business Solutions. All three are large, profitable businesses that are the leaders in their respective industries, and all three have significant opportunities ahead of them. As we continue to integrate Lifetouch, all three divisions will both contribute to and benefit from the combined scale and capabilities of the overall company, most significantly via our world-class manufacturing platform. This sets Shutterfly on a long-term path for sustained, profitable growth.”
"After three full months of Lifetouch ownership, we're pleased with the business results, the Lifetouch leadership, and the close alignment of mission and culture between the two companies. While the full integration of Lifetouch will take several years, the early integration work is off to a strong start and confirms our excitement about the potential for the combined company.”
Second Quarter 2018 Financial Highlights
GAAP net revenue was $443.4 million, which includes Lifetouch from the acquisition date of April 2, 2018. Shutterfly Consumer segment net revenue totaled $165.0 million, an 8% year-over-year decrease. GAAP Lifetouch segment net revenue was $228.6 million. Shutterfly Business Solutions segment net revenue totaled $49.8 million, a 66% year-over-year increase. GAAP operating loss totaled $22.9 million. Net loss was $26.5 million, or a loss of $0.80 per share.
Non-GAAP net revenue, excluding purchase accounting adjustments related to the deferred revenue write-down, was $476.7 million. Shutterfly Consumer brand like-for-like revenue growth was 4%, compared to the second quarter of 2017. Non-GAAP Lifetouch segment net revenue was $261.9 million. Normalized operating income, excluding restructuring, acquisition-related charges and purchase accounting adjustments related to the deferred revenue write-down and inventory write-up, was $32.3 million. Normalized net income was $13.6 million. Adjusted EBITDA was $84.4 million.
The Company expanded its segment reporting which will help investors better understand the trends in the business (see Appendix 2.1, page 10 and 11).
Capital Structure Update
In the second quarter of 2018, the Company settled its $300.0 million of convertible notes in cash, as planned and communicated previously. As expected, the conversion option settled in the money. Therefore, the Company transferred 1,108,176 shares to the noteholders, and pursuant to the
Company's bond hedge, received shares from the bond hedge counterparties offsetting any dilution from the conversion option. The warrants initially sold with the convertible notes settle in the third quarter of 2018. There are 4,675,408 warrants that will settle ratably over an 80-day period commencing on August 15. The Company intends to net share settle the warrants.
As a reminder, in the near term the Company anticipates using cash to pay down its acquisition debt, and maintaining a BB rating profile. Longer term, the Company will continue to focus on optimizing capital allocation across organic re-investment in the business, further M&A, and returning excess capital to shareholders.
iMemories Update
At the time the Company purchased Lifetouch, the Company anticipated that it would exit the iMemories business, as Shutterfly Photos was a more complete and advanced solution. As communicated on the Q1 earnings call, the Company decided to accelerate the process of exiting iMemories. The Company completed the divestiture in the second quarter, resulting in restructuring charges of $3.0 million.
Business Outlook[1]
On a full-year 2018 basis the Company is raising its guidance on net revenue and adjusted EBITDA, and is updating non-GAAP guidance to the following (in millions, except per share amounts):
|
| | | | | | | | | | | |
| | Prior Non-GAAP Guidance Midpoint as of May 2, 2018 | | | | Updated Non-GAAP Guidance Midpoint |
| | Twelve Months Ending
December 31, 2018 | | Change | | Twelve Months Ending December 31, 2018 |
| | | | | | |
| Net revenue |
| $2,035 |
| |
| $3 |
| |
| $2,038 |
|
| Shutterfly Consumer net revenue |
| $1,035 |
| |
| ($22 | ) | |
| $1,013 |
|
| Lifetouch net revenue |
| $785 |
| |
| $15 |
| |
| $800 |
|
| SBS net revenue |
| $215 |
| |
| $10 |
| |
| $225 |
|
| | | | | | |
Gross profit margin[2] | 62.4 | % | | | | 53.7 | % |
| | | | | | |
| Operating income |
| $196 |
| |
| $9 |
| |
| $205 |
|
| Adjusted EBITDA |
| $400 |
| |
| $10 |
| |
| $410 |
|
| | | | | | |
| Earnings per share |
| $3.06 |
| |
| $0.21 |
| |
| $3.27 |
|
| | | | | | |
| Capital expenditures |
| $100 |
| | — |
| |
| $100 |
|
| | | | | | |
[1] Excludes restructuring, acquisition-related charges and purchase accounting adjustments related to the deferred revenue write-down and inventory write-up. |
[2] The Company substantially completed its assessment of Lifetouch accounting policies during the second quarter of 2018, which resulted in the presentation of photography expenses as cost of net revenue, whereas it had previously been reflected in sales and marketing. Please note, this only impacts income statement presentation and does not impact operating income or adjusted EBITDA. Q2 results and updated guidance reflect this presentation. |
Notes to the Second Quarter 2018 Financial Results and Operating Metrics and 2018 Business Outlook
Adjusted EBITDA is a non-GAAP financial measure that the Company defines as earnings before interest, taxes, depreciation, amortization, stock-based compensation, capital lease termination, restructuring and acquisition-related costs.
The Company expanded segment reporting in the second quarter of 2018, which now includes segment margin. Segment reporting will continue to report net revenue and cost of net revenue, consistent with previous reporting, but now will also include technology and development, sales and marketing, and credit card fees, arriving at a margin for the segment. The margin of the Company's three segments compares to non-GAAP operating income by adding corporate expenses, amortization of intangible assets, stock-based compensation, and other non-recurring items including restructuring and acquisition-related charges.
Shutterfly Consumer segment includes sales from the Shutterfly brand, the Tiny Prints boutique and BorrowLenses, and are derived from the sale of a variety of products such as, professionally-bound photo books, cards and stationery, custom home décor products and unique photo gifts, calendars and prints, and the related shipping revenue, as well as rental revenue from the BorrowLenses brand. Consumer also includes revenue from advertising displayed on the Company’s website.
Lifetouch segment includes net revenue from professional photography services for schools, preschools and churches, as well as retail studios operated by Lifetouch under the JCPenney Portrait brand.
Shutterfly Business Solutions ("SBS") segment includes net revenue from personalized direct marketing and other end-consumer communications as well as just-in-time, inventory-free printing for the Company's business customers.
Average Order Value ("AOV") is defined as total net revenue (excluding Lifetouch and SBS) divided by total orders.
The Company substantially completed its assessment of Lifetouch accounting policies during the second quarter of 2018, which resulted in the presentation of photography expenses as cost of net revenue, whereas it had previously been reflected in sales and marketing. Please note this only impacts income statement presentation, and does not impact operating income or adjusted EBITDA. Q2 results and updated guidance reflect this presentation.
The financial guidance herein replaces any of the Company’s previously issued financial guidance which should no longer be relied upon.
Second Quarter Conference Call
Management will review the second quarter 2018 financial results and its expectations for the third quarter and full year 2018 on a conference call on Tuesday, August 7, 2018 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.shutterflyinc.com. In the Investor Relations area, click on the link provided for the webcast, or dial (888) 243-4451 or (412) 542-4135, and ask to be to be joined into the Shutterfly call. The webcast will be archived and available at http://www.shutterflyinc.com in the Investor Relations section. A replay of the conference call will be available through Tuesday, August 21, 2018. To hear the replay, please dial (877) 344-7529 or (412) 317-0088 and enter access code 10121786.
Non-GAAP Financial Information
This press release contains non-GAAP financial measures. Tables are provided at the end of this press release that reconcile the non-GAAP financial measures that the Company uses to the most directly comparable financial measures prepared in accordance with Generally Accepted Accounting Principles (GAAP). These non-GAAP financial measures include non-GAAP net revenue, operating income (loss), net income (loss), net income (loss) per share and adjusted EBITDA. The method the Company uses to produce non-GAAP financial measures is not computed according to GAAP and may differ from methods used by other companies.
To supplement the Company's consolidated financial statements presented on a GAAP basis, the Company believes that these non-GAAP measures provide useful information about 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 gross margins, operating income (loss), net income (loss), or net income (loss) per share determined in accordance with GAAP. For more information, please see Shutterfly's SEC Filings, including the most recent Form 10-K and Form 10-Q, which are available on the Securities and Exchange Commission's website at www.sec.gov.
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, that involve risks and uncertainties. These forward-looking statements include statements regarding expected opportunities in each of the Company's three segments; the Company's expectation that all three segments will contribute to and benefit from the combined scale and capabilities of the overall Company; the Company's expectation of being on a long-term path for sustained, profitable growth; the Company's excitement about the potential for the combined Company; the Company's intention to net share settle its outstanding warrants; the Company's intention to use cash to pay down acquisition debt and maintain a BB rating profile; the Company's expected continued focus on methods for optimizing capital allocation; the Company's business outlooks for the third and fourth quarters of 2018, and the full year 2018; and the Company's intention to provide additional disclosure about the Company's non-Lifetouch businesses through the second quarter of 2019. You can identify these statements by the use of terminology such as “guidance”, “believe”, “expect”, “will”, “should”, “could”, “estimate”, “anticipate” or similar forward-looking terms. You should not rely on these forward-looking statements as they involve risks and uncertainties that may cause actual results to vary materially from the forward-looking statements. Factors that might contribute to such differences include, among others, decreased consumer discretionary spending as a result of general economic conditions; the Company's ability to expand its customer base and increase sales to existing customers; the Company's ability to meet production requirements; the Company's ability to retain and hire necessary employees, including seasonal personnel, and appropriately staff its operations; the impact of seasonality on the Company's business; the Company's ability to develop innovative, new products and services on a timely and cost-effective basis; failure to realize the anticipated benefits of the Company's 2017 restructuring activities or of the Lifetouch acquisition; consumer acceptance of the Company's products and services; the Company's ability to develop additional adjacent lines of
business; unforeseen changes in expense levels; competition and the pricing strategies of the Company's competitors, which could lead to pricing pressure; the retention of Lifetouch employees and the Company's ability to successfully integrate the Lifetouch businesses; risks inherent in the achievement of anticipated synergies and the timing thereof; and general economic conditions and changes in laws and regulations. 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 the Company's business in general, the Company refers you to the “Risk Factors” section of its Securities and Exchange Commission (“SEC”) filings, including the Company's most recent Form 10-K and 10-Q, which are available on the SEC’s website at www.sec.gov. These forward-looking statements are based on current expectations and the Company assumes no obligation to update this information.
# # #
About Shutterfly, Inc.
Shutterfly, Inc. is the leading retailer and manufacturing platform for high-quality personalized products. Founded in 1999, Shutterfly, Inc. helps customers capture, preserve and share life’s joy through its Shutterfly and Lifetouch brands. Shutterfly brings photos to life in photo books, gifts, home décor, and cards and stationery, through its flagship Shutterfly.com website, including premium offerings in its Tiny Prints boutique. Lifetouch is the national leader in school photography, built on the enduring tradition of “Picture Day”, as well as serving families through portrait studios and partnerships with churches. Additionally, Shutterfly, Inc. operates Shutterfly Business Solutions, delivering digital printing services to businesses, and BorrowLenses, the premier online marketplace for photographic and video equipment rentals. For more information about Shutterfly, Inc. (Nasdaq: SFLY), visit www.shutterflyinc.com.
|
| |
Contacts Investor Relations: Shawn Tabak, 650-610-6026 stabak@shutterfly.com |
Media Relations: Sondra Harding, 650-610-5129 sharding@shutterfly.com
|
Appendix 1.1
Shutterfly, Inc.
Consolidated Statements of Operations - GAAP
(In thousands, except per share amounts)
(Unaudited)
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, | | June 30, |
| | 2018 | | 2017 | | 2018 | | 2017 |
| | | | | | | | |
| Net revenue | $ | 443,372 |
| | $ | 209,032 |
| | $ | 643,097 |
| | $ | 401,004 |
|
| Cost of net revenue | 233,228 |
| | 118,205 |
| | 359,275 |
| | 234,324 |
|
| Restructuring | — |
| | 196 |
| | — |
| | 1,436 |
|
| Gross profit | 210,144 |
| | 90,631 |
| | 283,822 |
| | 165,244 |
|
| Operating expenses: | | | |
| | | | |
|
| Technology and development | 44,420 |
| | 39,398 |
| | 82,924 |
| | 85,353 |
|
| Sales and marketing | 130,643 |
| | 42,987 |
| | 168,363 |
| | 85,874 |
|
General and administrative[1] | 55,040 |
| | 27,511 |
| | 86,604 |
| | 55,306 |
|
| Capital lease termination | — |
| | 8,098 |
| | — |
| | 8,098 |
|
Restructuring[2] | 2,952 |
| | 4,477 |
| | 2,952 |
| | 12,213 |
|
| Total operating expenses | 233,055 |
| | 122,471 |
| | 340,843 |
| | 246,844 |
|
| Loss from operations | (22,911 | ) | | (31,840 | ) | | (57,021 | ) | | (81,600 | ) |
| Interest expense | (17,769 | ) | | (5,955 | ) | | (27,402 | ) | | (11,919 | ) |
| Interest and other income, net | 1,561 |
| | 244 |
| | 3,310 |
| | 433 |
|
| Loss before income taxes | (39,119 | ) | | (37,551 | ) | | (81,113 | ) | | (93,086 | ) |
| Benefit from income taxes | 12,607 |
| | 14,713 |
| | 27,436 |
| | 37,054 |
|
| Net loss | $ | (26,512 | ) | | $ | (22,838 | ) | | $ | (53,677 | ) | | $ | (56,032 | ) |
| | | | | | | | |
| Net loss per share - basic and diluted | $ | (0.80 | ) | | $ | (0.68 | ) | | $ | (1.63 | ) | | $ | (1.67 | ) |
| | | | | | | | |
| Weighted-average shares outstanding - basic and diluted | 33,234 |
| | 33,579 |
| | 32,970 |
| | 33,646 |
|
| | | | | | | | |
| Stock-based compensation is allocated as follows: | | | | | | | |
| Cost of net revenue | $ | 943 |
| | $ | 1,074 |
| | $ | 1,942 |
| | $ | 2,243 |
|
| Technology and development | 2,571 |
| | 2,179 |
| | 5,001 |
| | 4,875 |
|
| Sales and marketing | 2,941 |
| | 2,980 |
| | 6,445 |
| | 6,153 |
|
| General and administrative | 5,242 |
| | 4,236 |
| | 10,001 |
| | 8,703 |
|
| Restructuring | — |
| | — |
| | — |
| | 814 |
|
| | $ | 11,697 |
| | $ | 10,469 |
| | $ | 23,389 |
| | $ | 22,788 |
|
| | | | | | | | |
| Depreciation and amortization is allocated as follows: | | | | | | | |
| Cost of net revenue | $ | 21,944 |
| | $ | 15,069 |
| | $ | 37,386 |
| | $ | 30,052 |
|
| Technology and development | 7,418 |
| | 7,099 |
| | 13,715 |
| | 14,888 |
|
| Sales and marketing | 9,530 |
| | 2,693 |
| | 11,571 |
| | 5,787 |
|
| General and administrative | 1,485 |
| | 1,096 |
| | 2,603 |
| | 2,594 |
|
| Restructuring | — |
| | 2,493 |
| | — |
| | 5,335 |
|
| | $ | 40,377 |
| | $ | 28,450 |
| | $ | 65,275 |
| | $ | 58,656 |
|
[1] The General and administrative expenses of $55.0 million and $86.6 million for the three and six months ended June 30, 2018, respectively, include $8.0 million and $12.6 million, respectively, of acquisition-related charges.
[2] The divestiture of iMemories resulted in restructuring charges of $3.0 million for the three and six months ended June 30, 2018.
Appendix 1.2
Shutterfly, Inc.
Consolidated Balance Sheets - GAAP
(In thousands, except par value amounts)
(Unaudited)
|
| | | | | | | |
| | June 30, 2018 | | December 31, 2017 |
| ASSETS | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 146,701 |
| | $ | 489,894 |
|
| Short-term investments | 53,890 |
| | 178,021 |
|
| Accounts receivable, net | 58,578 |
| | 82,317 |
|
| Inventories | 15,269 |
| | 11,019 |
|
| Prepaid expenses and other current assets | 112,196 |
| | 41,383 |
|
| Total current assets | 386,634 |
| | 802,634 |
|
| Long-term investments | 24,974 |
| | 9,242 |
|
| Property and equipment, net | 392,662 |
| | 266,860 |
|
| Intangible assets, net | 341,769 |
| | 29,671 |
|
| Goodwill | 841,374 |
| | 408,975 |
|
| Other assets | 23,623 |
| | 17,418 |
|
| Total assets | $ | 2,011,036 |
| | $ | 1,534,800 |
|
| | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
| Current liabilities: | | | |
| Current portion of long-term debt | $ | 15,249 |
| | $ | 297,054 |
|
| Accounts payable | 33,178 |
| | 91,473 |
|
| Accrued liabilities | 146,372 |
| | 159,248 |
|
| Deferred revenue | 29,448 |
| | 24,649 |
|
| Total current liabilities | 224,247 |
| | 572,424 |
|
| Long-term debt | 1,094,347 |
| | 292,457 |
|
| Other liabilities | 148,146 |
| | 119,195 |
|
| Total liabilities | 1,466,740 |
| | 984,076 |
|
| Stockholders’ equity: | | | |
| Common stock, $0.0001 par value; 100,000 shares authorized; 33,381 and 32,297 shares issued and outstanding on June 30, 2018 and December 31, 2017, respectively | 3 |
| | 3 |
|
| Additional paid-in capital | 1,036,962 |
| | 996,301 |
|
| Accumulated other comprehensive income | 4,164 |
| | 1,778 |
|
| Accumulated deficit | (496,833 | ) | | (447,358 | ) |
| Total stockholders' equity | 544,296 |
| | 550,724 |
|
| Total liabilities and stockholders' equity | $ | 2,011,036 |
| | $ | 1,534,800 |
|
Appendix 1.3
Shutterfly, Inc.
Consolidated Statements of Cash Flows - GAAP
(In thousands)
(Unaudited)
|
| | | | | | | |
| | Six Months Ended |
| | June 30, |
| | 2018 | | 2017 |
| Cash flows from operating activities: | | | |
| Net loss | $ | (53,677 | ) | | $ | (56,032 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | |
| Depreciation and amortization | 50,111 |
| | 45,121 |
|
| Amortization of intangible assets | 15,164 |
| | 8,200 |
|
| Amortization of debt discount and issuance costs | 7,009 |
| | 7,524 |
|
| Stock-based compensation, net of forfeitures | 23,389 |
| | 21,974 |
|
| Loss on disposal of property and equipment | 154 |
| | 467 |
|
| Deferred income taxes | 17,571 |
| | (7,103 | ) |
| Restructuring | 752 |
| | 10,764 |
|
| Other | (272 | ) | | — |
|
| Changes in operating assets and liabilities, net of acquisition: | | | |
| Accounts receivable | 30,767 |
| | 27,286 |
|
| Inventories | 15,607 |
| | 1,415 |
|
| Prepaid expenses and other assets | (42,795 | ) | | (19,776 | ) |
| Accounts payable | (69,708 | ) | | (39,949 | ) |
| Accrued and other liabilities | (130,127 | ) | | (58,605 | ) |
| Net cash used in operating activities | (136,055 | ) | | (58,714 | ) |
| Cash flows from investing activities: | | | |
| Acquisition of business, net of cash acquired | (890,052 | ) | | — |
|
| Purchases of property and equipment | (17,692 | ) | | (8,176 | ) |
| Capitalization of software and website development costs | (21,392 | ) | | (17,058 | ) |
| Purchases of investments | (9,523 | ) | | (39,805 | ) |
| Proceeds from the maturities of investments | 174,329 |
| | 19,033 |
|
| Proceeds from the sales of investments | 45,106 |
| | — |
|
| Proceeds from sale of property and equipment | 1,132 |
| | 11,678 |
|
| Net cash used in investing activities | (718,092 | ) | | (34,328 | ) |
| Cash flows from financing activities: | | | |
| Proceeds from issuance of common stock upon exercise of stock options | 16,577 |
| | 520 |
|
| Repurchases of common stock | — |
| | (50,000 | ) |
| Principal payments of borrowings | (302,608 | ) | | — |
|
| Principal payments of capital lease and financing obligations | (9,396 | ) | | (20,621 | ) |
| Proceeds from borrowings, net of issuance costs | 806,652 |
| | — |
|
| Net cash provided by (used in) financing activities | 511,225 |
| | (70,101 | ) |
| Effect of exchange rate changes on cash and cash equivalents | (271 | ) | | — |
|
| Net decrease in cash and cash equivalents | (343,193 | ) | | (163,143 | ) |
| Cash and cash equivalents, beginning of period | 489,894 |
| | 289,224 |
|
| Cash and cash equivalents, end of period | $ | 146,701 |
| | $ | 126,081 |
|
| | | | |
| Supplemental schedule of non-cash investing / financing activities: | | | |
| Net (decrease) increase in accrued purchases of property and equipment | $ | (1,200 | ) | | $ | 745 |
|
| Net increase in accrued capitalized software and website development costs | 1,119 |
| | 270 |
|
| Stock-based compensation capitalized with software and website development costs | 697 |
| | 758 |
|
| Property and equipment acquired under capital leases | 2,969 |
| | 6,228 |
|
| Net increase in receivable proceeds from the sale of property and equipment | — |
| | 9,250 |
|
Appendix 1.4
Shutterfly, Inc.
Shutterfly Consumer Metrics Disclosure
(Unaudited)
|
| | | | | | | |
| | Three Months Ended |
| | June 30, |
| | 2018 | | 2017 |
| Shutterfly Consumer Metrics | | | |
Customers [1] | 3,140,246 |
| | 3,350,434 |
|
| year-over-year change | (6 | )% | | |
| | | | |
| Orders | 4,788,564 |
| | 5,467,763 |
|
| year-over-year change | (12 | )% | | |
| | | | |
Average order value [2] |
| $34.46 |
| |
| $32.75 |
|
| year-over-year change | 5 | % | | |
[1] An active customer is defined as one that has transacted in the last trailing twelve months.
[2] Average order value excludes Lifetouch and SBS revenue.
Appendix 1.5
Shutterfly, Inc.
Shutterfly Consumer net revenue by Brand
(In thousands)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Year Ended |
| | Mar. 31, | | Jun. 30, | | Sep. 30, | | Dec. 31, | | Mar. 31, | | Jun. 30, | | Dec. 31, |
| | 2017 | | 2017 | | 2017 | | 2017 | | 2018 | | 2018 | | 2017 |
| | | | | | | | | | | | | | |
| Shutterfly Consumer net revenue | | | | | | | | | | | | | |
| Shutterfly brand | $ | 123,903 |
| | $ | 139,908 |
| | $ | 115,883 |
| | $ | 464,547 |
| | $ | 142,664 |
| | $ | 154,181 |
| | $ | 844,242 |
|
| Tiny Prints Boutique | — |
| | — |
| | 1,942 |
| | 48,932 |
| | 2,103 |
| | 1,397 |
| | 50,874 |
|
Tiny Prints [1] | 10,465 |
| | 12,917 |
| | — |
| | — |
| | — |
| | — |
| | 23,382 |
|
Wedding Paper Divas [2] | 14,290 |
| | 11,365 |
| | 8,523 |
| | — |
| | — |
| | — |
| | 34,178 |
|
MyPublisher [3] | 4,936 |
| | 6,056 |
| | — |
| | — |
| | — |
| | — |
| | 10,992 |
|
| Other | 7,051 |
| | 8,844 |
| | 9,070 |
| | 8,330 |
| | 7,292 |
| | 9,425 |
| | 33,295 |
|
| Total | $ | 160,645 |
| | $ | 179,090 |
| | $ | 135,418 |
| | $ | 521,809 |
| | $ | 152,059 |
| | $ | 165,003 |
| | $ | 996,963 |
|
| | | | | | | | | | | | | | |
[1] Tiny Prints website shut down on June 28, 2017.
|
[2] Wedding Paper Divas website shut down on September 13, 2017.
|
[3] MyPublisher website shut down on May 15, 2017.
|
Appendix 2.1
Shutterfly, Inc.
Segment Disclosure
(In thousands)
(Unaudited)
The Company expanded segment reporting, which now includes segment margin. Segment reporting will continue to report net revenue and cost of net revenue, consistent with previous reporting, but now will also include technology and development, sales and marketing, and credit card fees, arriving at a margin for the segment. The margin of the Company's three segments compares to non-GAAP operating income by adding corporate expenses, amortization of intangible assets, stock-based compensation, and other non-recurring items including restructuring and acquisition-related charges.
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, | | June 30, |
| | 2018 | | 2017 | | 2018 | | 2017 |
| Shutterfly Consumer: | | | | | | | |
| Net revenue | $ | 165,003 |
| | $ | 179,090 |
| | $ | 317,062 |
| | $ | 339,735 |
|
| Cost of net revenue | 86,065 |
| | 92,049 |
| | 170,909 |
| | 181,903 |
|
| Technology and development | 29,830 |
| | 33,037 |
| | 61,959 |
| | 71,966 |
|
| Sales and marketing | 29,956 |
| | 36,406 |
| | 60,681 |
| | 72,144 |
|
| Credit card fees | 4,349 |
| | 4,654 |
| | 8,548 |
| | 8,943 |
|
Margin[1] | $ | 14,803 |
| | $ | 12,944 |
| | $ | 14,965 |
| | $ | 4,779 |
|
| Margin % | 9 | % | | 7 | % | | 5 | % | | 1 | % |
| | | | | | | | |
Lifetouch[2]: | | | | | | | |
Net revenue[3] | $ | 261,911 |
| | $ | — |
| | $ | 261,911 |
| | $ | — |
|
Cost of net revenue[4] | 91,148 |
| | — |
| | 91,148 |
| | — |
|
| Technology and development | 7,109 |
| | — |
| | 7,109 |
| | — |
|
| Sales and marketing | 86,960 |
| | — |
| | 86,960 |
| | — |
|
| Credit card fees | 1,165 |
| | — |
| | 1,165 |
| | — |
|
Margin[1] | $ | 75,529 |
| | $ | — |
| | $ | 75,529 |
| | $ | — |
|
| Margin % | 29 | % | | — | % | | 29 | % | | — | % |
| | | | | | | | |
| Shutterfly Business Solutions: | | | | | | | |
| Net revenue | $ | 49,809 |
| | $ | 29,942 |
| | $ | 97,475 |
| | $ | 61,269 |
|
| Cost of net revenue | 41,610 |
| | 23,900 |
| | 81,519 |
| | 47,738 |
|
| Technology and development | 3,049 |
| | 4,182 |
| | 6,994 |
| | 8,511 |
|
| Sales and marketing | 1,619 |
| | 931 |
| | 3,069 |
| | 1,839 |
|
Margin[1] | $ | 3,531 |
| | $ | 929 |
| | $ | 5,893 |
| | $ | 3,181 |
|
| Margin % | 7 | % | | 3 | % | | 6 | % | | 5 | % |
| | | | | | | | |
| Consolidated Segments: | | | | | | | |
Net revenue[3] | $ | 476,723 |
| | $ | 209,032 |
| | $ | 676,448 |
| | $ | 401,004 |
|
Cost of net revenue[4] | 218,823 |
| | 115,949 |
| | 343,576 |
| | 229,641 |
|
| Technology and development | 39,988 |
| | 37,219 |
| | 76,062 |
| | 80,477 |
|
| Sales and marketing | 118,535 |
| | 37,337 |
| | 150,710 |
| | 73,983 |
|
| Credit card fees | 5,514 |
| | 4,654 |
| | 9,713 |
| | 8,943 |
|
Margin[1] | $ | 93,863 |
| | $ | 13,873 |
| | $ | 96,387 |
| | $ | 7,960 |
|
| Margin % | 20 | % | | 7 | % | | 14 | % | | 2 | % |
| | | | | | | | |
[1] The margins reported reflect only costs that are directly attributable or allocable to a specific segment and exclude corporate expenses, amortization of intangible assets, stock-based compensation and other one-time charges. |
[2] The Company acquired Lifetouch on April 2, 2018. |
[3] Yearbook sales and collections are made throughout the school year, whereas yearbooks are typically delivered toward the end of the school year in the second quarter. Business combination accounting principles require the Company to write down to fair value the deferred revenue assumed in acquisitions based on the cost to manufacture and deliver the yearbooks, plus a profit margin. Therefore, GAAP revenue after an acquisition does not reflect the full amount that would have been reported if the acquired deferred revenue was not written down to fair value. The non-GAAP adjustments eliminate the effect of the deferred revenue write-down. The Company believes these adjustments are useful to investors as an additional means to reflect revenue and gross margin trends of the Company's business. |
[4] Business combination accounting principles require the Company to measure acquired inventory at fair value. The fair value of inventory reflects the acquired company’s cost of manufacturing plus a portion of the expected profit margin. The non-GAAP adjustment to the Company's cost of net revenue excludes the expected profit margin component that is recorded under business combination accounting principles. The Company believes the adjustment is useful to investors as an additional means to reflect cost of net revenue and gross profit trends of the Company's business. |
The following table reconciles operating segment margin to total operating income (loss), operating segment net revenue to total net revenue and operating segment cost of net revenue to total cost of net revenue:
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, | | June 30, |
| | 2018 | | 2017 | | 2018 | | 2017 |
| | | | | | | | |
| Total margin for operating segments | $ | 93,863 |
| | $ | 13,873 |
| | $ | 96,387 |
| | $ | 7,960 |
|
Purchase accounting deferred revenue adjustment[1] | (33,351 | ) | | — |
| | (33,351 | ) | | — |
|
Purchase accounting inventory adjustment[2] | (10,931 | ) | | — |
| | (10,931 | ) | | — |
|
Corporate expenses[3] | (37,012 | ) | | (18,613 | ) | | (55,036 | ) | | (36,825 | ) |
| Amortization of intangible assets | (12,831 | ) | | (3,860 | ) | | (15,164 | ) | | (8,200 | ) |
| Stock-based compensation for operating segments | (11,697 | ) | | (10,469 | ) | | (23,389 | ) | | (22,788 | ) |
| Restructuring | (2,952 | ) | | (4,673 | ) | | (2,952 | ) | | (13,649 | ) |
| Acquisition-related charges | (8,000 | ) | | — |
| | (12,585 | ) | | — |
|
| Capital lease termination | — |
| | (8,098 | ) | | — |
| | (8,098 | ) |
| Operating income (loss) | $ | (22,911 | ) | | $ | (31,840 | ) | | $ | (57,021 | ) | | $ | (81,600 | ) |
| Operating margin | (5 | )% | | (15 | )% | | (9 | )% | | (20 | )% |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Total net revenue for all operating segments | $ | 476,723 |
| | $ | 209,032 |
| | $ | 676,448 |
| | $ | 401,004 |
|
Purchase accounting deferred revenue adjustment[1] | (33,351 | ) | | — |
| | (33,351 | ) | | — |
|
| Total net revenue | $ | 443,372 |
| | $ | 209,032 |
| | $ | 643,097 |
| | $ | 401,004 |
|
| | | | | | | | |
| Total cost of net revenue for all operating segments | $ | 218,823 |
| | $ | 115,949 |
| | $ | 343,576 |
| | $ | 229,641 |
|
Purchase accounting inventory adjustment[2] | 10,931 |
| | — |
| | 10,931 |
| | — |
|
| Stock-based compensation for cost of net revenue | 943 |
| | 1,074 |
| | 1,942 |
| | 2,243 |
|
| Amortization of intangible assets for cost of net revenue | 2,531 |
| | 1,182 |
| | 2,826 |
| | 2,440 |
|
| Total cost of net revenue | $ | 233,228 |
| | $ | 118,205 |
| | $ | 359,275 |
| | $ | 234,324 |
|
| | | | | | | | |
[1] Yearbook sales and collections are made throughout the school year, whereas yearbooks are typically delivered toward the end of the school year in the second quarter. Business combination accounting principles require the Company to write down to fair value the deferred revenue assumed in acquisitions based on the cost to manufacture and deliver the yearbooks, plus a profit margin. Therefore, GAAP revenue after an acquisition does not reflect the full amount that would have been reported if the acquired deferred revenue was not written down to fair value. The non-GAAP adjustments eliminate the effect of the deferred revenue write-down. The Company believes these adjustments are useful to investors as an additional means to reflect revenue and gross margin trends of the Company's business. |
[2] Business combination accounting principles require the Company to measure acquired inventory at fair value. The fair value of inventory reflects the acquired company’s cost of manufacturing plus a portion of the expected profit margin. The non-GAAP adjustment to the Company's cost of net revenue excludes the expected profit margin component that is recorded under business combination accounting principles. The Company believes the adjustment is useful to investors as an additional means to reflect cost of net revenue and gross profit trends of the Company's business. |
[3] Corporate expenses include activities that are not directly attributable or allocable to a specific segment. This category consists primarily of expenses related to certain functions performed at the corporate level such as non-manufacturing facilities, human resources, finance and accounting, legal, information technology, integration, etc. |
Appendix 3.1
Shutterfly, Inc.
Reconciliation of Non-GAAP Financial Measures
(In thousands)
(Unaudited)
The Company substantially completed its assessment of Lifetouch accounting policies during the second quarter of 2018, which resulted in the presentation of photography expenses as cost of net revenue, whereas it had previously been reflected in sales and marketing, which has the impact of reducing sales and marketing expense by $48 million and increasing cost of net revenue by a corresponding amount. There is no impact to operating income or adjusted EBITDA.
|
| | | | | | | | | | | | | |
| | Three Months Ended | | | | | | Three Months Ended |
| | June 30, 2018 | | | | | | June 30, 2018 |
| | GAAP Income | | Non-GAAP | | Non-recurring | | Normalized |
| | Statement | | Adjustments | | Adjustments | | Non-GAAP |
| Net revenue | | | | | | | |
| Shutterfly consumer | $ | 165,003 |
| | | | | | $ | 165,003 |
|
| Lifetouch | 228,560 |
| | 33,351 |
| [1] | | | 261,911 |
|
| Shutterfly business solutions | 49,809 |
| | | | | | 49,809 |
|
| Total net revenue | 443,372 |
| | 33,351 |
| | | | 476,723 |
|
| Cost of net revenue | 233,228 |
| | (10,931 | ) | [2] | | | 222,297 |
|
| Gross profit | 210,144 |
| | 44,282 |
| | | | 254,426 |
|
| Gross profit margin | 47.4 | % | | | | | | 53.4 | % |
| | | | | | | | |
| Operating expenses | | | | | | | |
| Technology and development | 44,420 |
| | | | | | 44,420 |
|
| Sales and marketing | 130,643 |
| | | | | | 130,643 |
|
| General and administrative | 55,040 |
| | | | (8,000 | ) | [3] | 47,040 |
|
| Restructuring | 2,952 |
| | | | (2,952 | ) | [4] | — |
|
| Total operating expenses | 233,055 |
| | | | (10,952 | ) | | 222,103 |
|
| Operating (loss) income | (22,911 | ) | | | | | | 32,323 |
|
| Operating margin | (5.2 | )% | | | | | | 6.8 | % |
| | | | | | | | |
| Interest expense | (17,769 | ) | | | | | | (17,769 | ) |
| Interest and other income, net | 1,561 |
| | | | | | 1,561 |
|
| (Loss) income before income taxes | (39,119 | ) | | 44,282 |
| | 10,952 |
| | 16,115 |
|
| (Provision for) benefit from income taxes | 12,607 |
| | | | | | (2,564 | ) |
| Net (loss) income | $ | (26,512 | ) | | | | | | $ | 13,551 |
|
| | | | | | | | |
| Net (loss) income per share: | | | | | | | |
| Basic | $ | (0.80 | ) | | | | | | $ | 0.41 |
|
| Diluted | $ | (0.80 | ) | | | | | | $ | 0.38 |
|
| | | | | | | | |
| Weighted-average shares outstanding | | | | | | | |
| Basic | 33,234 |
| | | | | | 33,234 |
|
| Diluted | 33,234 |
| | | | | | 35,775 |
|
| | | | | | | | |
| Operating (loss) income |
|
| | | | | | 32,323 |
|
| Stock-based compensation | | | | | | | 11,697 |
|
| Amortization of intangible assets | | | | | | | 12,831 |
|
| Depreciation | | | | | | | 27,546 |
|
| Adjusted EBITDA |
|
| | | | | | $ | 84,397 |
|
| Adjusted EBITDA margin |
|
| | | | | | 17.7 | % |
|
| | | | | | | | | | | | | |
| | Six Months Ended | | | | | | Six Months Ended |
| | June 30, 2018 | | | | | | June 30, 2018 |
| | GAAP Income | | Non-GAAP | | Non-recurring | | Normalized |
| | Statement | | Adjustments | | Adjustments | | Non-GAAP |
| Net revenue | | | | | | | |
| Shutterfly consumer | $ | 317,062 |
| | | | | | $ | 317,062 |
|
| Lifetouch | 228,560 |
| | 33,351 |
| [1] | | | 261,911 |
|
| Shutterfly business solutions | 97,475 |
| | | | | | 97,475 |
|
| Total net revenue | 643,097 |
| | 33,351 |
| | | | 676,448 |
|
| Cost of net revenue | 359,275 |
| | (10,931 | ) | [2] | | | 348,344 |
|
| Gross profit | 283,822 |
| | 44,282 |
| | | | 328,104 |
|
| Gross profit margin | 44.1 | % | | | | | | 48.5 | % |
| | | | | | | | |
| Operating expenses | | | | | | | |
| Technology and development | 82,924 |
| | | | | | 82,924 |
|
| Sales and marketing | 168,363 |
| | | | | | 168,363 |
|
| General and administrative | 86,604 |
| | | | (12,585 | ) | [3] | 74,019 |
|
| Restructuring | 2,952 |
| | | | (2,952 | ) | [4] | — |
|
| Total operating expenses | 340,843 |
| | | | (15,537 | ) | | 325,306 |
|
| Operating (loss) income | (57,021 | ) | | | | | | 2,798 |
|
| Operating margin | (8.9 | )% | | | | | | 0.4 | % |
| | | | | | | | |
| Interest expense | (27,402 | ) | | | | | | (27,402 | ) |
| Interest and other income, net | 3,310 |
| | | | | | 3,310 |
|
| Loss before income taxes | (81,113 | ) | | 44,282 |
| | 15,537 |
| | (21,294 | ) |
| Benefit from income taxes | 27,436 |
| | | | | | 11,080 |
|
| Net loss | $ | (53,677 | ) | | | | | | $ | (10,214 | ) |
| | | | | | | | |
| Net loss per share - basic and diluted | $ | (1.63 | ) | | | | | | $ | (0.31 | ) |
| | | | | | | | |
| Weighted-average shares outstanding | 32,970 |
| | | | | | 32,970 |
|
| | | | | | | | |
| Operating (loss) income |
|
| | | | | | 2,798 |
|
| Stock-based compensation | | | | | | | 23,389 |
|
| Amortization of intangible assets | | | | | | | 15,164 |
|
| Depreciation | | | | | | | 50,111 |
|
| Adjusted EBITDA |
|
| | | | | | $ | 91,462 |
|
| Adjusted EBITDA margin |
|
| | | | | | 13.5 | % |
| | | | | | | | |
[1] Yearbook sales and collections are made throughout the school year, whereas yearbooks are typically delivered toward the end of the school year in the second quarter. Business combination accounting principles require the Company to write down to fair value the deferred revenue assumed in acquisitions based on the cost to manufacture and deliver the yearbooks, plus a profit margin. Therefore, GAAP revenue after an acquisition does not reflect the full amount that would have been reported if the acquired deferred revenue was not written down to fair value. The non-GAAP adjustments eliminate the effect of the deferred revenue write-down. The Company believes these adjustments are useful to investors as an additional means to reflect revenue and gross margin trends of the Company's business. |
[2] Business combination accounting principles require the Company to measure acquired inventory at fair value. The fair value of inventory reflects the acquired company’s cost of manufacturing plus a portion of the expected profit margin. The non-GAAP adjustment to the Company's cost of net revenue excludes the expected profit margin component that is recorded under business combination accounting principles. The Company believes the adjustment is useful to investors as an additional means to reflect cost of net revenue and gross profit trends of the Company's business. |
[3] Acquisition-related charges for Lifetouch acquisition. |
[4] Restructuring charge related to divestiture of iMemories. |
Appendix 4.1
Shutterfly, Inc.
Reconciliation of Net Income (Loss) to Non-GAAP Net Income (Loss) and Non-GAAP Net Income (Loss) per Share
(In thousands, except per share amounts)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Year Ended |
| | Mar. 31, | | Jun. 30, | | Sep. 30, | | Dec. 31, | | Mar. 31, | | Jun. 30, | | Dec. 31, |
| | 2017 | | 2017 | | 2017 | | 2017 | | 2018 | | 2018 | | 2017 |
| | | | | | | | | | | | | | |
| GAAP net income (loss) | $ | (33,194 | ) | | $ | (22,838 | ) | | $ | (25,607 | ) | | $ | 111,724 |
| | $ | (27,165 | ) | | $ | (26,512 | ) | | $ | 30,085 |
|
| Capital lease termination | — |
| | 8,098 |
| | — |
| | — |
| | — |
| | — |
| | 8,098 |
|
| Restructuring | 8,976 |
| | 4,673 |
| | 3,317 |
| | — |
| | — |
| | 2,952 |
| | 16,966 |
|
| Acquisition-related charges | — |
| | — |
| | — |
| | — |
| | 4,585 |
| | 8,000 |
| | — |
|
| Purchase accounting adjustments | — |
| | — |
| | — |
| | — |
| | — |
| | 44,282 |
| | — |
|
| Tax benefit impact of non-recurring items | (3,948 | ) | | (4,829 | ) | | (1,669 | ) | | — |
| | (1,185 | ) | | (15,171 | ) | | (10,446 | ) |
| Benefit from 2017 tax reform legislation | — |
| | — |
| | — |
| | (8,875 | ) | | — |
| | — |
| | (8,875 | ) |
| Non-GAAP net income (loss) | $ | (28,166 | ) | | $ | (14,896 | ) | | $ | (23,959 | ) | | $ | 102,849 |
| | $ | (23,765 | ) | | $ | 13,551 |
| | $ | 35,828 |
|
| | | | | | | | | | | | | | |
| GAAP diluted shares outstanding | 33,712 |
| | 33,579 |
| | 32,878 |
| | 33,114 |
| | 32,702 |
| | 33,234 |
| | 34,106 |
|
| Non-GAAP diluted shares outstanding | 33,712 |
| | 33,579 |
| | 32,878 |
| | 33,114 |
| | 32,702 |
| | 35,775 |
| | 34,106 |
|
| | | | | | | | | | | | | | |
| GAAP net income (loss) per share | $ | (0.98 | ) | | $ | (0.68 | ) | | $ | (0.78 | ) | | $ | 3.37 |
| | $ | (0.83 | ) | | $ | (0.80 | ) | | $ | 0.88 |
|
| Non-GAAP net income (loss) per share | $ | (0.84 | ) | | $ | (0.44 | ) | | $ | (0.73 | ) | | $ | 3.11 |
| | $ | (0.73 | ) | | $ | 0.38 |
| | $ | 1.05 |
|
Appendix 4.2
Shutterfly, Inc.
Reconciliation of Net Income (Loss) to Non-GAAP Adjusted EBITDA
(In thousands)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Year Ended |
| | Mar. 31, | | Jun. 30, | | Sep. 30, | | Dec. 31, | | Mar. 31, | | Jun. 30, | | Dec. 31, |
| | 2017 | | 2017 | | 2017 | | 2017 | | 2018 | | 2018 | | 2017 |
| | | | | | | | | | | | | | |
| GAAP net income (loss) | $ | (33,194 | ) | | $ | (22,838 | ) | | $ | (25,607 | ) | | $ | 111,724 |
| | $ | (27,165 | ) | | $ | (26,512 | ) | | $ | 30,085 |
|
| Interest expense | 5,964 |
| | 5,955 |
| | 6,699 |
| | 9,219 |
| | 9,633 |
| | 17,769 |
| | 27,836 |
|
| Interest and other income, net | (189 | ) | | (244 | ) | | (253 | ) | | (794 | ) | | (1,749 | ) | | (1,561 | ) | | (1,481 | ) |
| Tax (benefit) provision | (22,341 | ) | | (14,713 | ) | | (16,660 | ) | | 58,873 |
| | (14,829 | ) | | (12,607 | ) | | 5,160 |
|
| Depreciation and amortization | 27,364 |
| | 25,957 |
| | 24,815 |
| | 25,724 |
| | 24,898 |
| | 40,377 |
| | 103,862 |
|
| Stock-based compensation | 11,505 |
| | 10,469 |
| | 10,736 |
| | 10,863 |
| | 11,692 |
| | 11,697 |
| | 43,573 |
|
| Capital lease termination | — |
| | 8,098 |
| | — |
| | — |
| | — |
| | — |
| | 8,098 |
|
| Restructuring | 8,976 |
| | 4,673 |
| | 3,317 |
| | — |
| | — |
| | 2,952 |
| | 16,966 |
|
| Acquisition-related charges | — |
| | — |
| | — |
| | — |
| | 4,585 |
| | 8,000 |
| | — |
|
| Purchase accounting adjustments | — |
| | — |
| | — |
| | — |
| | — |
| | 44,282 |
| | — |
|
| Non-GAAP Adjusted EBITDA | $ | (1,915 | ) | | $ | 17,357 |
| | $ | 3,047 |
| | $ | 215,609 |
| | $ | 7,065 |
| | $ | 84,397 |
| | $ | 234,099 |
|
Appendix 4.3
Shutterfly, Inc.
Reconciliation of Cash Flow from Operating Activities to Non-GAAP Adjusted EBITDA
(In thousands)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Year Ended |
| | Mar. 31, | | Jun. 30, | | Sep. 30, | | Dec. 31, | | Mar. 31, | | Jun. 30, | | Dec. 31, |
| | 2017 | | 2017 | | 2017 | | 2017 | | 2018 | | 2018 | | 2017 |
| | | | | | | | | | | | | | |
| Net cash provided by (used in) operating activities | $ | (72,386 | ) | | $ | 13,672 |
| | $ | (21,945 | ) | | $ | 320,183 |
| | $ | (124,332 | ) | | $ | (11,723 | ) | | $ | 239,524 |
|
| Interest expense | 5,964 |
| | 5,955 |
| | 6,699 |
| | 9,219 |
| | 9,633 |
| | 17,769 |
| | 27,836 |
|
| Interest and other income, net | (189 | ) | | (244 | ) | | (253 | ) | | (794 | ) | | (1,749 | ) | | (1,561 | ) | | (1,481 | ) |
| Tax (benefit) provision | (22,341 | ) | | (14,713 | ) | | (16,660 | ) | | 58,873 |
| | (14,829 | ) | | (12,607 | ) | | 5,160 |
|
| Changes in operating assets and liabilities | 92,194 |
| | (2,565 | ) | | 35,336 |
| | (159,600 | ) | | 142,368 |
| | 53,888 |
| | (34,634 | ) |
| Other adjustments | (6,265 | ) | | 5,377 |
| | (2,575 | ) | | (13,026 | ) | | (8,611 | ) | | (15,851 | ) | | (16,488 | ) |
| Cash restructuring | 1,108 |
| | 1,777 |
| | 2,445 |
| | 754 |
| | — |
| | 2,200 |
| | 6,084 |
|
| Capital lease termination | — |
| | 8,098 |
| | — |
| | — |
| | — |
| | — |
| | 8,098 |
|
| Acquisition-related charges | — |
| | — |
| | — |
| | — |
| | 4,585 |
| | 8,000 |
| | — |
|
| Purchase accounting adjustments | — |
| | — |
| | — |
| | — |
| | — |
| | 44,282 |
| | — |
|
| Non-GAAP Adjusted EBITDA | $ | (1,915 | ) | | $ | 17,357 |
| | $ | 3,047 |
| | $ | 215,609 |
| | $ | 7,065 |
| | $ | 84,397 |
| | $ | 234,099 |
|
Appendix 5.1
Shutterfly, Inc.
Reconciliation of Forward-Looking Guidance for Non-GAAP Financial Measures
(In millions, except per share amounts)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | |
| | Forward-Looking Guidance [1] |
| | GAAP | | | | Non-GAAP |
| | Twelve Months Ending
December 31, 2018 | | Non-GAAP Adjustment | | Twelve Months Ending December 31, 2018 |
| | Low | | High | | | Low | | High |
| | | | | | | | | | |
| Net revenue |
| $1,972 |
| |
| $2,027 |
| |
| $38 |
| [2] |
| $2,010 |
| |
| $2,065 |
|
| Shutterfly Consumer net revenue |
| $1,000 |
| |
| $1,025 |
| | | |
| $1,000 |
| |
| $1,025 |
|
| Lifetouch net revenue |
| $752 |
| |
| $772 |
| |
| $38 |
| [2] |
| $790 |
| |
| $810 |
|
| SBS net revenue |
| $220 |
| |
| $230 |
| | | |
| $220 |
| |
| $230 |
|
| | | | | | | | | | |
| Cost of net revenue |
| $942 |
| |
| $966 |
| |
| ($11 | ) | [3] |
| $931 |
| |
| $956 |
|
| Gross profit |
| $1,030 |
| |
| $1,060 |
| |
| $49 |
| [2][3] |
| $1,079 |
| |
| $1,109 |
|
| Gross profit margin | 52.2 | % | | 52.3 | % | | | | 53.7 | % | | 53.7 | % |
| | | | | | | | | | |
| Operating income |
| $146 |
| |
| $166 |
| |
| $49 |
| [2][3] |
| $196 |
| |
| $215 |
|
| Operating margin | 7.4 | % | | 8.2 | % | | | | 9.7 | % | | 10.4 | % |
| | | | | | | | | | |
| Operating income |
| $146 |
| |
| $166 |
| |
| $49 |
| [2][3] |
| $196 |
| |
| $215 |
|
| Stock-based compensation | | | | | | |
| $51 |
| |
| $51 |
|
| Amortization of intangible assets | | | | | | |
| $39 |
| |
| $39 |
|
| Depreciation | | | | | | |
| $114 |
| |
| $114 |
|
| Adjusted EBITDA |
|
| |
|
| | | |
| $400 |
| |
| $420 |
|
| Adjusted EBITDA margin |
|
| |
|
| | | | 19.9 | % | | 20.3 | % |
| | | | | | | | | | |
| Capital expenditures |
| $100 |
| |
| $100 |
| | | |
| $100 |
| |
| $100 |
|
| Capital expenditures as % of net revenue | 5.1 | % | | 4.9 | % | | | | 5.0 | % | | 4.8 | % |
| | | | | | | | | | |
Tax rate [4] | 21.0 | % | | 21.0 | % | | | | 21.0 | % | | 21.0 | % |
| | | | | | | | | | |
| Net income per share | | | | | | | | | |
| Basic and Diluted |
| $1.94 |
| |
| $2.39 |
| |
| $1.11 |
| |
| $3.05 |
| |
| $3.50 |
|
| | | | | | | | | | |
| Weighted average shares | | | | | | | | | |
| Basic and Diluted | 35.0 |
| | 35.0 |
| | | | 35.0 |
| | 35.0 |
|
| | | | | | | | | | |
[1] Excludes restructuring and acquisition-related charges. |
[2] Yearbook sales and collections are made throughout the school year, whereas yearbooks are typically delivered toward the end of the school year in the second quarter. Business combination accounting principles require the Company to write down to fair value the deferred revenue assumed in acquisitions based on the cost to manufacture and deliver the yearbooks, plus a profit margin. Therefore, GAAP revenue after an acquisition does not reflect the full amount that would have been reported if the acquired deferred revenue was not written down to fair value. The non-GAAP adjustments eliminate the effect of the deferred revenue write-down. The Company believes these adjustments are useful to investors as an additional means to reflect revenue and gross margin trends of the Company's business. |
[3] Business combination accounting principles require the Company to measure acquired inventory at fair value. The fair value of inventory reflects the acquired company’s cost of manufacturing plus a portion of the expected profit margin. The non-GAAP adjustment to the Company's cost of net revenue excludes the expected profit margin component that is recorded under business combination accounting principles. The Company believes the adjustment is useful to investors as an additional means to reflect cost of net revenue and gross margin trends of the Company's business. |
[4] Effective tax rate assumes windfall from stock-based compensation for shares expected to vest for the remainder of 2018, based on the Company’s average stock price over the last three months. |
Appendix 5.2
Shutterfly, Inc.
Supplemental Information on Forward-Looking Guidance
(In millions, except per share amounts)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | |
| | Actuals | | Non-GAAP Quarterly Midpoint Targets[1] | | |
| | Three Months Ended | | Three Months Ending | | Twelve Months Ending |
| | March 31, 2018 | | June 30, 2018 | | September 30, 2018 | | December 31, 2018 | | December 31, 2018 |
| | | | | | | | | | |
| Net revenue |
| $200 |
| |
| $477 |
| |
| $379 |
| |
| $982 |
| |
| $2,038 |
|
| Shutterfly Consumer net revenue |
| $152 |
| |
| $165 |
| |
| $133 |
| |
| $563 |
| |
| $1,013 |
|
| Lifetouch net revenue | — |
| |
| $262 |
| |
| $190 |
| |
| $348 |
| |
| $800 |
|
| SBS net revenue |
| $48 |
| |
| $50 |
| |
| $56 |
| |
| $72 |
| |
| $225 |
|
| | | | | | | | | | |
| Gross profit |
| $74 |
| |
| $254 |
| |
| $163 |
| |
| $603 |
| |
| $1,093 |
|
| Gross profit margin | 36.9 | % | | 53.4 | % | | 43.0 | % | | 61.4 | % | | 53.7 | % |
| | | | | | | | | | |
| Operating income (loss) |
| ($30 | ) | |
| $32 |
| |
| ($92 | ) | |
| $294 |
| |
| $205 |
|
| Operating margin | (14.8 | %) | | 6.8 | % | | (24.2 | %) | | 29.9 | % | | 10.1 | % |
| | | | | | | | | | |
| Operating income (loss) |
| ($30 | ) | |
| $32 |
| |
| ($92 | ) | |
| $294 |
| |
| $205 |
|
| Stock-based compensation |
| $12 |
| |
| $12 |
| |
| $13 |
| |
| $15 |
| |
| $51 |
|
| Amortization of intangible assets |
| $2 |
| |
| $12 |
| |
| $12 |
| |
| $13 |
| |
| $39 |
|
| Depreciation |
| $23 |
| |
| $28 |
| |
| $31 |
| |
| $33 |
| |
| $114 |
|
| Adjusted EBITDA |
| $7 |
| |
| $84 |
| |
| ($36 | ) | |
| $354 |
| |
| $410 |
|
| Adjusted EBITDA margin | 3.5 | % | | 17.7 | % | | (9.4 | %) | | 36.1 | % | | 20.1 | % |
| | | | | | | | | | |
| Tax rate | 36.5 | % | | 15.9 | % | | 24.2 | % | | 24.3 | % | | 21.0 | % |
| | | | | | | | | | |
| Net income (loss) per share | | | | | | | | | |
| Basic |
| ($0.73 | ) | | — |
| |
| ($2.44 | ) | | — |
| | — |
|
| Diluted | — |
| |
| $0.38 |
| | — |
| |
| $5.89 |
| |
| $3.27 |
|
| | | | | | | | | | |
| Weighted average shares | | | | | | | | | |
| Basic | 32.7 |
| | — |
| | 33.4 |
| | — |
| | — |
|
| Diluted | — |
| | 35.8 |
| | — |
| | 35.1 |
| | 35.0 |
|
| | | | | | | | | | |
[1] Sum of quarterly targets equal the mid-point of 2018 annual non-GAAP guidance. Excludes restructuring and acquisition-related charges. |
