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

Exhibit 99.01

Shutterfly Announces Fourth Quarter and Full Year 2010 Financial Results

● Fourth Quarter 2010 net revenues increase 27% year-over-year to $166.2 million

● Full Year 2010 net revenues increase 25% year-over-year to $307.7 million

● Fourth Quarter GAAP net income of $1.09 per diluted share

● Record Full Year Adjusted EBITDA of $67.1 million, representing 21.8% of net revenues

● Record Full Year Free Cash Flows of $44.7 million

REDWOOD CITY, February 2, 2011 -- Shutterfly, Inc. (NASDAQ:SFLY), a leading Internet-based social expression and personal publishing service, today announced financial results for the fourth quarter and full-year ended December 31, 2010.

"Our strategic investments throughout 2010, combined with our focus on strong execution, innovation and improved efficiencies led to record revenues, profits, and free cash flows" said President and Chief Executive Officer Jeffrey Housenbold. "We continue to outpace the industry in terms of innovation, user experience, on-trend designs, quality, and customer service. With the social expression and personal publishing markets still in the early stages, Shutterfly will focus on extending our leadership position in these large markets throughout 2011."

Fourth Quarter 2010 Financial Highlights

● Net revenues totaled $166.2 million, a 27% year-over-year increase; 29% increase excluding referral fees.

● Fourth quarter 2010 represents the 40th consecutive quarter of year-over-year net revenue growth.

● Personalized Products & Services net revenues totaled $123.8 million, a 33% year-over-year increase; 37% increase excluding referral fees.

● Personalized Products & Services net revenues represented 75% of total net revenues.

● Net revenues from Prints totaled $40.1 million, a 10% year-over-year increase.

● Commercial Print net revenues totaled $2.3 million.

● Existing customers generated 72% of total net revenues.

● Gross profit margin was 62% of net revenues, compared to 61% in the fourth quarter of 2009.

● Operating expenses, excluding $3.9 million of stock-based compensation, totaled $47.9 million.

● GAAP net income was $32.5 million, compared to $24.1 million in the fourth quarter of 2009.

● GAAP net income per diluted share was $1.09, compared to $0.88 in the fourth quarter of 2009.

● Adjusted EBITDA was $60.2 million, compared to $47.9 million in the fourth quarter of 2009.

● At December 31, 2010, cash and cash equivalents totaled $252.2 million.

Full Year 2010 Financial Highlights

● Net revenues totaled $307.7 million, a 25% year-over-year increase; 27% increase excluding referral fees.

● Personalized Products & Services net revenues totaled $218.7 million, a 35% year-over-year increase; 39% increase excluding referral fees.

● Personalized Products & Services net revenues represented 71% of total net revenues.

● Net revenues from Prints totaled $83.9 million, a 4% year-over-year increase.

● Commercial Print net revenues totaled $5.1 million, a 33% year-over-year increase.

● Existing customers generated 73% of total net revenues.

● Gross profit margin was 56% of net revenues, compared to 55% in 2009.

● Operating expenses, excluding $15.9 million of stock-based compensation, totaled $132.6 million.

● GAAP net income was $17.1 million, compared to $5.9 million in 2009.

● GAAP net income per diluted share was $0.59, compared to $0.22 in 2009.

● Adjusted EBITDA was $67.1 million, compared to $50.2 million in 2009.

Fourth Quarter 2010 Operating Metrics

● Transacting customers totaled 2.3 million, a 23% year-over-year increase.

● Orders totaled 3.7 million, a 21% year-over-year increase.

● Average order value was $44.41, a 5% year-over-year increase.

Full Year 2010 Operating Metrics

● Transacting customers totaled 4.1 million, a 24% year-over-year increase.

● Orders totaled 9.2 million, a 17% year-over-year increase.

● Average order value was $32.88, a 7% year-over-year increase.

Recent Operating Highlights

●   Enabled Simple Path photo books using photos from various sources, including: My Shutterfly, Shutterfly Share Sites, Facebook, Picasa and directly from personal computers.

●   Enhanced Simple Path algorithm to improve and expand page layout control options.

●   Improved customer shopping experience and expanded the breadth and depth of Cards & Stationery collection.  

●   Introduced attribute-based navigation tools, making it faster and easier for customers to find the perfect card.

●   Launched Shutterfly's largest holiday collection ever with nearly 1,400 new holiday designs across all form factors.

●   Added Shutterfly Share Site support for classrooms, youth sports, baby and wedding occasions.

●   Partnered with AYSO to enable Share Sites to over 50,000 youth soccer teams across the United States.

●   Partnered with Sony to provide instant access to Shutterfly photo books on VAIO(R) PCs.

●   Partnered with Best Buy to provide innovative solutions for preserving and sharing digital memories.

● Expanded customer shopping options through partnerships with Target, Walgreens and CVS/pharmacy.

Business Outlook

First Quarter 2011:

● Net revenues to range from $52 million to $53 million, a year-over-year increase of 14% to 16%; 20% to 22% excluding referral fees.

● GAAP gross profit margin to range from 47% to 48% of net revenues.

● Non-GAAP gross profit margin to range from 49% to 50% of net revenues.

● GAAP operating loss to range from ($12) million to ($13) million.

● Non-GAAP operating loss to range from ($6) million to ($7) million.

● GAAP effective tax rate to range from 33% to 37%.

● Non-GAAP effective tax rate to range from 35% to 37%.

● GAAP diluted net loss per share to range from ($0.26) to ($0.30).

● Non-GAAP diluted net loss per share to range from ($0.14) to ($0.17).

● Weighted average diluted shares of approximately 28.3 million.

● Adjusted EBITDA to range from ($1.0) million to ($2.0) million.

Full Year 2011:

● Net revenues to range from $363 million to $373 million, a year-over-year increase of 18% to 21%; 19% to 22% excluding referral fees.

● GAAP gross profit margin to range from 56% to 57% of net revenues.

● Non-GAAP gross profit margin to range from 57% to 58% of net revenues.

● GAAP operating income to range from $35 million to $40 million.

● Non-GAAP operating income to range from $56 million to $61 million.

● GAAP effective tax rate to range from 33% to 37%.

● Non-GAAP effective tax rate to range from 35% to 37%.

● GAAP diluted net income per share to range from $0.74 to $0.81.

● Non-GAAP diluted net income per share to range from $1.16 to $1.24.

● Weighted average diluted shares of 31.3 million.

● Adjusted EBITDA to range from 21% to 22% of net revenues.

● Capital expenditures to range from 7.5% to 8.5% of net revenues.

Notes to the Fourth Quarter and Full Year 2010 Financial Results and Business Outlook

Adjusted EBITDA is a non-GAAP financial measure that the Company defines as earnings before interest, taxes, depreciation, amortization and stock-based compensation.

Free cash flow is a non-GAAP financial measure that the Company defines as Adjusted EBITDA less purchases of property, plant, and equipment and capitalization of software development costs.

Personalized Products and Services (“PPS”) net revenues primarily include Photo Books, Stationery and folded Greeting Cards, Calendars and Photo-based Merchandise.  PPS also includes net revenues from advertising and sponsorship programs and referral fees.  The Company’s referral fee program was discontinued effective March 31, 2010, and no referral fee revenues have been recorded subsequent to that date.

Print net revenues consist of photo prints in Wallet, 2x6, 4x6, 5x7, 8x10, Photo Cards and large format sizes.

Commercial Print net revenues are excluded from net revenues from PPS and Prints.

Average Order Value (“AOV”) is defined as total net revenues (excluding Commercial Print), divided by total orders.

The foregoing financial guidance replaces any of the Company’s previously issued guidance and all previous guidance should no longer be relied upon.

Fourth Quarter and Full Year 2010 Conference Call

Management will review the fourth quarter and full year 2010 financial results and its expectations for the first quarter and full year 2011 on a conference call on Wednesday, February 2, 2011 at 2:00 p.m. Pacific Daylight 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 970-315-0490.  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 16, 2011. To hear the replay, please dial 706-645-9291, replay passcode 35692010.

Non-GAAP Financial Information

This press release contains certain non-GAAP financial measures.  Tables are provided at the end of this press release that reconcile the non-GAAP financial measures to the most directly comparable financial measures prepared in accordance with Generally Accepted Accounting Principles (GAAP).  These non-GAAP financial measures include non-GAAP gross margins, non-GAAP operating income (loss) and the related operating income (loss) margins, non-GAAP income (loss) per share, adjusted EBITDA and free cash flow.   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 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 ne t income (loss) or net income (loss) per share determined in accordance with GAAP.

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 2011 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, economic downturns and the general state of the economy, our ability to expand our customer base and meet production requirements; our ability to retain and hire necessary employees, including seasonal personnel, and appropriat ely staff our operations; the impact of seasonality on our business; 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;  unforeseen changes in expense levels; and competition, which could lead to pricing pressure. 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, 2010, 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.

# # #

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.

Contacts Media Relations: Gretchen Sloan, 650-610-5276 gsloan@shutterfly.com   Investor Relations: John Kaelle, 650-610-3541 jkaelle@shutterfly.com

Shutterfly, Inc.
Consolidated Statement of Operations
(In thousands, except per share amounts)
(Unaudited)
	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
	2010			2009			2010			2009
Net revenues	$	166,200		$	131,067		$	307,707		$	246,432
Cost of net revenues		63,828			50,487			134,491			111,648
Gross profit		102,372			80,580			173,216			134,784
Operating expenses:
Technology and development		12,145			12,656			48,393			46,003
Sales and marketing		26,316			18,795			59,284			44,870
General and administrative		13,416			12,560			40,764			35,201
Total operating expenses		51,877			44,011			148,441			126,074
Income from operations		50,495			36,569			24,775			8,710
Interest expense		-			(20	)		(42	)		(157	)
Interest and other income, net		20			133			482			814
Income before income taxes		50,515			36,682			25,215			9,367
Provision for income taxes		(18,002	)		(12,596	)		(8,088	)		(3,514	)
Net income	$	32,513		$	24,086		$	17,127		$	5,853
Net income per share:
Basic	$	1.18		$	0.93		$	0.63		$	0.23
Diluted	$	1.09		$	0.88		$	0.59		$	0.22
Weighted-average shares outstanding:
Basic		27,618			25,768			27,025			25,420
Diluted		29,924			27,433			29,249			26,810
Stock-based compensation is allocated as follows:
Cost of net revenues	$	128		$	119		$	508		$	416
Technology and development		753			1,049			3,069			3,340
Sales and marketing		985			1,149			3,923			3,577
General and administrative		2,201			2,162			8,866			6,940
	$	4,067		$	4,479		$	16,366		$	14,273

Shutterfly, Inc.
Consolidated Balance Sheet
(In thousands, except par value amounts)
(Unaudited)
	December 31,
	2010			2009
ASSETS
Current assets:
Cash and cash equivalents	$	252,244		$	132,812
Short-term investments		-			47,925
Accounts receivable, net		4,845			5,472
Inventories		3,580			2,968
Deferred tax asset, current portion		3,582	��		2,243
Prepaid expenses and other current assets		6,934			4,501
Total current assets		271,185			195,921
Property and equipment, net		39,726			41,845
Goodwill and intangible assets, net		16,835			13,406
Deferred tax asset, net of current portion		11,314			14,674
Other assets		4,770			5,467
Total assets	$	343,830		$	271,313
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	22,341		$	13,116
Accrued liabilities		38,831			32,793
Deferred revenue		9,731			8,602
Total current liabilities		70,903			54,511
Other liabilities		3,320			1,638
Total liabilities		74,223			56,149
Stockholders' equity
Common stock, $0.0001 par value; 100,000 shares authorized; 27,957 and
25,909 shares issued and outstanding at December 31, 2010 and
December 31, 2009, respectively		3			3
Additional paid-in-capital		263,726			226,410
Accumulated earnings (deficit)		5,878			(11,249	)
Total stockholders' equity		269,607			215,164
Total liabilities and stockholders' equity	$	343,830		$	271,313

Shutterfly, Inc.
Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)
	Twelve Months Ended
	December 31,
	2010			2009
Cash flows from operating activities:
Net income	$	17,127		$	5,853
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		23,429			25,122
Amortization of intangible assets		2,543			2,072
Stock-based compensation, net of forfeitures		16,366			14,273
Loss/(gain) on disposal of property and equipment		(345	)		346
Deferred income taxes		2,021			(2,903	)
Tax benefit from stock-based compensation		5,973			4,965
Excess tax benefits from stock-based compensation		(5,967	)		(3,273	)
Loss/(gain) on auction rate securities Rights		(6,266	)		2,747
Loss/(gain) on auction rate securities		6,266			(2,747	)
Changes in operating assets and liabilities:
Accounts receivable, net		688			520
Inventories		(558	)		642
Prepaid expenses and other current assets		(2,402	)		501
Other assets		2			(3,282	)
Accounts payable		8,652			1,947
Accrued and other liabilities		7,504			7,966
Deferred revenue		1,128			(859	)
Net cash provided by operating activities		76,161			53,890
Cash flows from investing activities:
Purchases of property and equipment		(14,405	)		(13,762	)
Capitalization of software and website development costs		(7,405	)		(3,891	)
Acquisition of business and intangibles, net of cash acquired		(5,981	)		(795	)
Proceeds from sale of equipment		2,476			-
Proceeds from the sale of auction rate securities		47,925			4,325
Net cash provided by (used in) investing activities		22,610			(14,123	)
Cash flows from financing activities:
Principal payments of capital lease obligations		(9	)		(91	)
Proceeds from issuance of common stock upon exercise of stock options		14,703			2,740
Shares withheld for payment of employee's withholding tax liability		-			(1,041	)
Excess tax benefits from stock-based compensation		5,967			3,273
Net cash provided by financing activities		20,661			4,881
Net increase in cash and cash equivalents		119,432			44,648
Cash and cash equivalents, beginning of period		132,812			88,164
Cash and cash equivalents, end of period	$	252,244		$	132,812
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	1		$	12
Income taxes		663			2,644
Supplemental schedule of non-cash investing activities
Net change in accrued purchases of property and equipment		556			2
Escrow liability from acquisition of business		-			150

Shutterfly, Inc.
User Metrics Disclosure
	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
	2010			2009			2010			2009
User Metrics
Customers		2,280,815			1,852,302			4,069,020			3,281,468
year-over-year growth		23	%		18	%		24	%		18	%
Orders		3,691,558			3,061,667			9,203,925			7,891,057
year-over-year growth		21	%		12	%		17	%		4	%
Average order value*	$	44.41		$	42.40		$	32.88		$	30.74
year-over-year growth		5	%		8	%		7	%		9	%
Average orders per customer		1.6	x		1.7	x		2.3	x		2.4	x
*Average order value excludes commercial printing revenue.

Shutterfly, Inc.

Reconciliation of Forward-Looking Guidance for Non-GAAP Financial Measures to GAAP Measures

(In millions, except per share amounts)

	Forward-Looking Guidance
	GAAP									Non-GAAP
	Range of Estimate						Adjustments			Range of Estimate
	From			To			From	To		From			To
Three Months Ending March 31, 2011
Net revenues		$52.0			$53.0		-	-			$52.0			$53.0
Gross profit margin		47	%		48	%	2%		[a]		49	%		50	%
Operating loss		($13	)		($12	)	$6		[b]		($7	)		($6	)
Operating margin		(24	%)		(22	%)	10%		[b]		(14	%)		(12	%)
Stock-based compensation		$4.7			4.7		$4.7	$4.7			-			-
Amortization of intangible assets		$0.7			$0.7		$0.7	0.7			-			-
Adjusted EBITDA*											($2.0	)		($1.0	)
Diluted loss per share		($0.30	)		($0.26	)	$0.13	$0.12	[c]		($0.17	)		($0.14	)
Diluted shares		28.3			28.3		-	-			28.3			28.3
Effective tax rate		33	%		37	%	2%	-	[d]		35	%		37	%
Twelve Months Ending December 31, 2011
Net revenues		$363.0			$373.0		-	-			$363.0			$373.0
Gross profit margin		56	%		57	%	1%		[e]		57	%		58	%
Operating income		$35			$40		$21		[f]		$56			$61
Operating margin		10	%		11	%	5%		[f]		15	%		16	%
Stock-based compensation		$18.6			$18.6		$18.6	$18.6			-			-
Amortization of intangible assets		$2.8			$2.8		$2.8	$2.8			-			-
Adjusted EBITDA*											$76			$82
Adjusted EBITDA* margin											21	%		22	%
Diluted earnings per share		$0.74			$0.81		$0.42	$0.43	[g]		$1.16			$1.24
Diluted shares		31.3			31.3		-	-			31.3			31.3
Effective tax rate		33	%		37	%	2%	-	[h]		35	%		37	%
Capital expenditures - % of net revenues		7.5	%		8.5	%					7.5	%		8.5	%

*	Adjusted EBITDA is a non-GAAP financial measure defined as earnings before interest, taxes, depreciation, amortization
	and stock-based compensation.
[a]	Reflects estimated adjustments for stock-based compensation expense of approximately $100k and amortization of purchased
	intangible assets of approximately $600k.
[b]	Reflects estimated adjustments for stock-based compensation expense of approximately $4.7 million and amortization of purchased
	intangible assets of approximately $700k.
[c]	Reflects the estimated adjustments in item [b] and the income tax impact related to these adjustments.
[d]	Reflects the estimated adjustments to the effective tax rate based on the adjustments in item [b].
[e]	Reflects estimated adjustments for stock-based compensation expense of approximately $600k and amortization of purchased
	intangible assets of approximately $2.5 million.
[f]	Reflects estimated adjustments for stock-based compensation expense of approximately $18.6 million and amortization of purchased
	intangible assets of approximately $2.8 million.
[g]	Reflects the estimated adjustments in item [f] and the income tax impact related to these adjustments.
[h]	Reflects the estimated adjustments to the effective tax rate based on the adjustments in item [f].

Shutterfly, Inc.
Reconciliation of GAAP Gross Profit Margin to Non-GAAP Gross Profit Margin
(In thousands)
(Unaudited)
	Three Months Ended																								Year Ended
	Mar. 31,			Jun. 30,			Sep. 30,			Dec. 31,			Mar. 31,			Jun. 30,			Sep. 30,			Dec. 31,			Dec. 31,			Dec. 31,
	2009			2009			2009			2009			2010			2010			2010			2010			2009			2010
GAAP gross profit	$	16,340		$	18,789		$	19,075		$	80,580		$	23,164		$	23,628		$	24,052		$	102,372		$	134,784		$	173,216
Stock-based compensation expense within    cost of net revenues		95			82			119			119			131			129			120			128			416			508
Amortization of intangible assets within    cost of net revenues		367			394			460			488			556			552			541			646			1,709			2,295
Non-GAAP gross profit	$	16,802		$	19,265		$	19,654		$	81,187		$	23,851		$	24,309		$	24,713		$	103,146		$	136,909		$	176,019
Non-GAAP gross profit margin		47	%		50	%		49	%		62	%		52	%		52	%		50	%		62	%		56	%		57	%
Shutterfly, Inc.
Reconciliation of GAAP Operating Margin to Non-GAAP Operating Margin
(In thousands)
(Unaudited)
	Three Months Ended																								Year Ended
	Mar. 31,			Jun. 30,			Sep. 30,			Dec. 31,			Mar. 31,			Jun. 30,			Sep. 30,			Dec. 31,			Dec. 31,			Dec. 31,
	2009			2009			2009			2009			2010			2010			2010			2010			2009			2010
GAAP operating income (loss)	$	(9,396	)	$	(9,408	)	$	(9,055	)		36,569			(7,963	)		(9,780	)		(7,977	)		50,495		$	8,710		$	24,775
Stock-based compensation expense		2,804			2,834			4,156			4,479			4,374			4,059			3,866			4,067			14,273			16,366
Amortization of intangible assets		457			484			550			581			647			642			603			651			2,072			2,543
Non-GAAP operating income (loss)	$	(6,135	)	$	(6,090	)	$	(4,349	)	$	41,629		$	(2,942	)	$	(5,079	)	$	(3,508	)	$	55,213		$	25,055		$	43,684
Non-GAAP operating margin		(17	%)		(16	%)		(11	%)		32	%		(6	%)		(11	%)		(7	%)		33	%		10	%		14	%
Shutterfly, Inc.
Reconciliation of GAAP Net Income (Loss) to Non-GAAP Net Income (Loss)
(In thousands, except per share amounts)
(Unaudited)
	Three Months Ended																								Year Ended
	Mar. 31,			Jun. 30,			Sep. 30,			Dec. 31,			Mar. 31,			Jun. 30,			Sep. 30,			Dec. 31,			Dec. 31,			Dec. 31,
	2009			2009			2009			2009			2010			2010			2010			2010			2009			2010
GAAP net income (loss)	$	(6,232	)	$	(5,655	)	$	(6,346	)	$	24,086		$	(4,731	)	$	(5,885	)	$	(4,770	)	$	32,513		$	5,853		$	17,127
Stock-based compensation expense		2,804			2,834			4,156			4,479			4,374			4,059			3,866			4,067			14,273			16,366
Amortization of intangible assets		457			484			550			581			647			642			603			651			2,072			2,543
Income taxes associated with certain    non-GAAP entries		(1,168	)		(1,190	)		(1,255	)		(1,542	)		(2,028	)		(1,945	)		(1,908	)		(2,064	)		(5,155	)		(7,945	)
Non-GAAP net income (loss)	$	(4,139	)	$	(3,527	)	$	(2,895	)	$	27,604		$	(1,738	)	$	(3,129	)	$	(2,209	)	$	35,167		$	17,043		$	28,091
Diluted net income (loss) per share:
GAAP	$	(0.25	)	$	(0.22	)	$	(0.25	)	$	0.88		$	(0.18	)	$	(0.22	)	$	(0.17	)	$	1.09		$	0.22		$	0.59
Non-GAAP	$	(0.16	)	$	(0.14	)	$	(0.11	)	$	1.01		$	(0.07	)	$	(0.12	)	$	(0.08	)	$	1.18		$	0.64		$	0.96
Shares used in GAAP and non-GAAP diluted net income (loss)
per-share calculation		25,148			25,246			25,517			27,433			26,238			26,952			27,292			29,924			26,810			29,249

Shutterfly, Inc.
Reconciliation of GAAP to Non-GAAP Effective Tax Rate
(In thousands)
(Unaudited)
	Three Months Ended																								Year Ended
	Mar. 31,			Jun. 30,			Sep. 30,			Dec. 31,			Mar. 31,			Jun. 30,			Sep. 30,			Dec. 31,			Dec. 31,			Dec. 31,
	2009			2009			2009			2009			2010			2010			2010			2010			2009			2010
GAAP benefit (provision) for income taxes	$	2,928		$	3,497		$	2,657			(12,596	)		3,011			3,722			3,181			(18,002	)	$	(3,514	)	$	(8,088	)
Income taxes associated with certain    non-GAAP entries		(1,168	)		(1,190	)		(1,255	)		(1,542	)		(2,028	)		(1,945	)		(1,908	)		(2,064	)		(5,155	)		(7,945	)
Non-GAAP benefit (provision) for income taxes	$	1,760		$	2,307		$	1,402		$	(14,138	)	$	983		$	1,777		$	1,273		$	(20,066	)	$	(8,669	)	$	(16,033	)
GAAP income (loss) before income taxes	$	(9,160	)	$	(9,152	)	$	(9,003	)		36,682			(7,742	)		(9,607	)		(7,951	)		50,515		$	9,367		$	25,215
Stock-based compensation expense		2,804			2,834			4,156			4,479			4,374			4,059			3,866			4,067			14,273			16,366
Amortization of intangible assets		457			484			550			581			647			642			603			651			2,072			2,543
Non-GAAP income (loss) before income taxes	$	(5,899	)	$	(5,834	)	$	(4,297	)	$	41,742		$	(2,721	)	$	(4,906	)	$	(3,482	)	$	55,233		$	25,712		$	44,124
GAAP effective tax rate		32	%		38	%		30	%		34	%		39	%		39	%		40	%		36	%		38	%		32	%
Non-GAAP effective tax rate		30	%		40	%		33	%		34	%		36	%		36	%		37	%		36	%		34	%		36	%
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,			Sep. 30,			Dec. 31,			Dec. 31,			Dec. 31,
	2009			2009			2009			2009			2010			2010			2010			2010			2009			2010
GAAP net income (loss)	$	(6,232	)	$	(5,655	)	$	(6,346	)	$	24,086		$	(4,731	)	$	(5,885	)	$	(4,770	)	$	32,513		$	5,853		$	17,127
Interest expense		88			27			22			20			21			21			-			-			157			42
Interest and other income, net		(324	)		(283	)		(74	)		(133	)		(242	)		(194	)		(26	)		(20	)		(814	)		(482	)
Tax benefit (provision)		(2,928	)		(3,497	)		(2,657	)		12,596			(3,011	)		(3,722	)		(3,181	)		18,002			3,514			8,088
Depreciation and amortization		6,706			6,779			6,850			6,859			7,020			6,949			6,321			5,682			27,194			25,972
Stock-based compensation expense		2,804			2,834			4,156			4,479			4,374			4,059			3,866			4,067			14,273			16,366
Non-GAAP Adjusted EBITDA	$	114		$	205		$	1,951		$	47,907		$	3,431		$	1,228		$	2,210		$	60,244		$	50,177		$	67,113
Shutterfly, Inc.
Reconciliation of Cash Flow from Operating Activities to Non-GAAP Adjusted EBITDA and Free Cash Flow
(In thousands)
(Unaudited)
	Three Months Ended																								Year Ended
	Mar. 31,			Jun. 30,			Sep. 30,			Dec. 31,			Mar. 31,			Jun. 30,			Sep. 30,			Dec. 31,			Dec. 31,			Dec. 31,
	2009			2009			2009			2009			2010			2010			2010			2010			2009			2010
Net cash provided by (used in) operating activities	$	(19,258	)	$	2,847		$	(1,714	)	$	72,015		$	(28,264	)	$	5,101		$	5,271		$	94,053		$	53,890		$	76,161
Interest expense		88			27			22			20			21			21			-			-			157			42
Interest and other income, net		(324	)		(283	)		(74	)		(133	)		(242	)		(194	)		(26	)		(20	)		(814	)		(482	)
Tax benefit (provision)		(2,928	)		(3,497	)		(2,657	)		12,596			(3,011	)		(3,722	)		(3,181	)		18,002			3,514			8,088
Changes in operating assets and liabilities		24,510			(1,236	)		7,529			(38,238	)		33,153			(1,969	)		(2	)		(46,196	)		(7,435	)		(15,014	)
Other adjustments		(1,974	)		2,347			(1,155	)		1,647			1,774			1,991			148			(5,595	)		865			(1,682	)
Non-GAAP Adjusted EBITDA		114			205			1,951			47,907			3,431			1,228			2,210			60,244			50,177			67,113
Less: Purchases of property and equipment		(4,158	)		(1,826	)		(3,811	)		(3,969	)		(5,534	)		(4,010	)		(2,729	)		(2,688	)		(13,764	)		(14,961	)
Less: Capitalized technology & development costs		(824	)		(1,114	)		(1,094	)		(859	)		(802	)		(1,247	)		(2,559	)		(2,797	)		(3,891	)		(7,405	)
Free cash flow	$	(4,868	)	$	(2,735	)	$	(2,954	)	$	43,079		$	(2,905	)	$	(4,029	)	$	(3,078	)	$	54,759		$	32,522		$	44,747