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

Exhibit 99.01

Shutterfly Announces Fourth Quarter and Full Year 2011 Financial Results

● Fourth Quarter 2011 net revenues increase 59% year-over-year to $263.8 million  

● Full Year 2011 net revenues increase 54% year-over-year to $473.3 million  

● Fourth Quarter GAAP net income of $0.97 per diluted share  

● Record Full Year Adjusted EBITDA of $83.7 million, representing 17.7% of net revenues  

● Record Full Year Free Cash Flows of $50.1 million

REDWOOD CITY, February 1, 2012 -- 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, 2011.

"Our strategic investments throughout 2011, combined with our focus on strong execution, diverse product offerings and improved efficiencies led to record revenues, adjusted EBITDA, and free cash flows,” said President and Chief Executive Officer Jeffrey Housenbold. "We continue to outpace the industry in terms of innovation, user experience, quality, and customer service. With the social expression and personal publishing markets still in the early stages, Shutterfly is well prepared to extend our leadership position in these large markets."

Fourth Quarter 2011 Financial Highlights

● Net revenues totaled $263.8 million, a 59% year-over-year increase.  

● Q4 2011 represents the 44th consecutive quarter of year-over-year net revenue growth.  

● Personalized Products & Services net revenues totaled $218.9 million, a 77% year-over-year increase.  

● Personalized Products & Services net revenues represented 83% of total net revenues.  

● Net revenues from Prints totaled $40.3 million.  

● Commercial Print net revenues totaled $4.6 million, a 104% year-over-year increase.  

● Gross profit margin was 59% of net revenues, compared to 62% in the fourth quarter of 2010.  

● Operating expenses, excluding $6.1 million of stock-based compensation, totaled $76.6 million.  

● GAAP net income was $35.4 million, compared to $32.5 million in the fourth quarter of 2010.  

● GAAP net income per diluted share was $0.97, compared to $1.09 in the fourth quarter of 2010.

● Adjusted EBITDA was $89.3 million, compared to $60.2 million in the fourth quarter of 2010.  

● At December 31, 2011, cash and cash equivalents totaled $179.9 million.

Full Year 2011 Financial Highlights

● Net revenues totaled $473.3 million, a 54% year-over-year increase.  

● Personalized Products & Services net revenues totaled $374.7 million, a 71% year-over-year increase.  

● Personalized Products & Services net revenues represented 79% of total net revenues.  

● Net revenues from Prints totaled $85.0 million.  

● Commercial Print net revenues totaled $13.5 million, a 165% year-over-year increase.  

● Gross profit margin was 54% of net revenues, compared to 56% in 2010.  

● Operating expenses, excluding $31.7 million of stock-based compensation, totaled $206.6 million.  

● GAAP net income was $14.0 million, compared to $17.1 million in 2010.  

● GAAP net income per diluted share was $0.40, compared to $0.59 in 2010.  

● Adjusted EBITDA was $83.7 million, compared to $67.1 million in 2010.

Fourth Quarter 2011 Operating Metrics

Shutterfly

● Transacting customers totaled 2.8 million, a 23% year-over-year increase.  

● Orders totaled 4.6 million, a 24% year-over-year increase.  

● Average order value was $43.05, a decrease of 3% year-over-year.

TinyPrints

● Transacting customers totaled 465 thousand, a 25% year-over-year increase.  

● Orders totaled 617 thousand, a 33% year-over-year increase.  

● Average order value, excluding 1:1 Greeting Cards, was $116.81, a 10% year-over-year increase.

Full Year 2011 Operating Metrics

Shutterfly

● Transacting customers totaled 4.9 million, a 20% year-over-year increase.  

● Orders totaled 11.3 million, a 22% year-over-year increase.  

● Average order value was $32.57, a decrease of 1% year-over-year.

TinyPrints (Pro Forma)

● Transacting customers totaled 1.0 million, a 36% year-over-year increase.  

● Orders totaled 1.4 million, a 54% year-over-year increase.  

● Average order value, excluding 1:1 Greeting Cards, was $110.63, an 8% year-over-year increase.

Business Outlook

First Quarter 2012:

● Net revenues to range from $83 million to $85 million, a year-over-year increase of 45% to 49%.  

● GAAP gross profit margin to range from 42% to 43% of net revenues.  

● Non-GAAP gross profit margin to range from 44.5% to 45.5% of net revenues.  

● GAAP operating loss to range from ($25) million to ($28) million.  

● Non-GAAP operating loss to range from ($12) million to ($15) million.  

● GAAP effective tax rate to range from 45% to 55%.  

● GAAP diluted net loss per share to range from ($0.31) to ($0.43).  

● Weighted average diluted shares of approximately 35.9 million.  

● Adjusted EBITDA to range from ($6.5) million to ($8.0) million.

Full Year 2012:

● Net revenues to range from $550 million to $560 million, a year-over-year increase of 16% to 18%.  

● GAAP gross profit margin to range from 52% to 54% of net revenues.  

● Non-GAAP gross profit margin to range from 53% to 56% of net revenues.  

● GAAP operating income to range from $17 million to $24 million.  

● Non-GAAP operating income to range from $64 million to $71 million.  

● GAAP effective tax rate to range from 45% to 55%.  

● GAAP diluted net income per share to range from $0.25 to $0.28.  

● Weighted average diluted shares of 38.9 million.  

● Adjusted EBITDA to range from 17% to 18% of net revenues.  

● Capital expenditures to range from 7.0% to 7.5% of net revenues.

Notes to the Fourth Quarter and Full Year 2011 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 (“PP&S”) net revenues primarily include Photo Books, Stationery and folded Greeting Cards, Calendars and Photo-based Merchandise. PP&S also includes net revenues from advertising and sponsorship programs. 

Print net revenues consist of photo prints in Wallet, 4x6, 5x7, 8x10 and various large format sizes; as well as personalized Photo Cards manufactured using a silver halide process.

Commercial Print net revenues are excluded from PP&S and Print revenues, and primarily include variable, four-color direct marketing collateral manufactured and fulfilled for business customers.

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 financial guidance which should no longer be relied upon.

Fourth Quarter and Full Year 2011 Conference Call

Management will review the fourth quarter and full year 2011 financial results and its expectations for the first quarter and full year 2012 on a conference call on Wednesday, February 1, 2012 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 Tuesday, February 14, 2012. To hear the replay, please dial (404) 537-3406, replay passcode 41083885.

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 net 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 2012 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, competition, which could lead to pricing pressure; our ability to expand our customer base and meet production requirements; our ability to retain and hire necessary employees, including seasonal personnel, and appropriately 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;  and unforeseen changes in expense levels. 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, 2011, 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 company and operates Shutterfly.com, Tiny Prints.com and Weddingpaperdivas.com. 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. Shutterfly was recently named one of the top 25 Best Midsized Companies to Work For by the Great Place to Work Institute. More information about Shutterfly (NASDAQ:SFLY) is available at www.shutterfly.com.

Contacts   Media Relations: Gretchen Sloan, 650-610-5276 gsloan@shutterfly.com       Investor Relations: Michael Look, 650-610-5910 mlook@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,
	2011			2010			2011			2010
Net revenues	$	263,754		$	166,200		$	473,270		$	307,707
Cost of net revenues		108,468			63,828			219,542			134,491
Gross profit		155,286			102,372			253,728			173,216
Operating expenses:
Technology and development		17,485			12,145			65,675			48,393
Sales and marketing		49,505			26,316			113,952			59,284
General and administrative		15,687			13,416			58,710			40,764
Total operating expenses		82,677			51,877			238,337			148,441
Income from operations		72,609			50,495			15,391			24,775
Interest expense		(64	)		-			(64	)		(42	)
Interest and other income, net		10			20			35			482
Income before income taxes		72,555			50,515			15,362			25,215
Provision for income taxes		(37,144	)		(18,002	)		(1,314	)		(8,088	)
Net income	$	35,411		$	32,513		$	14,048		$	17,127
Net income per share:
Basic	$	1.02		$	1.18		$	0.43		$	0.63
Diluted	$	0.97		$	1.09		$	0.40		$	0.59
Weighted-average shares outstanding:
Basic		34,743			27,618			32,788			27,025
Diluted		36,490			29,924			35,007			29,249
Stock-based compensation is allocated as follows:
Cost of net revenues	$	625		$	128		$	2,138		$	508
Technology and development		2,182			753			8,201			3,069
Sales and marketing		2,574			985			11,350			3,923
General and administrative		1,333			2,201			12,181			8,866
	$	6,714		$	4,067		$	33,870		$	16,366

Shutterfly, Inc.
Consolidated Balance Sheet
(In thousands, except par value amounts)
(Unaudited)
	December 31,
	2011		2010
ASSETS
Current assets:
Cash and cash equivalents	$	179,915	$	252,244
Accounts receivable, net		12,997		4,845
Inventories		3,726		3,580
Deferred tax asset, current portion		598		3,582
Prepaid expenses and other current assets		13,870		6,934
Total current assets		211,106		271,185
Property and equipment, net		54,123		39,726
Intangible assets, net		95,016		5,672
Goodwill		340,408		11,163
Deferred tax asset, net of current portion		3,785		11,314
Other assets		5,448		4,770
Total assets	$	709,886	$	343,830
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	9,470	$	22,341
Accrued liabilities		59,271		38,831
Deferred revenue		12,106		9,731
Total current liabilities		80,847		70,903
Deferred tax liability		13,948		-
Other liabilities		6,094		3,320
Total liabilities		100,889		74,223
Stockholders' equity
Common stock, $0.0001 par value; 100,000 shares authorized; 34,839 and
27,957 shares issued and outstanding at December 31, 2011 and
December 31, 2010, respectively		4		3
Additional paid-in-capital		589,067		263,726
Accumulated earnings		19,926		5,878
Total stockholders' equity		608,997		269,607
Total liabilities and stockholders' equity	$	709,886	$	343,830

Shutterfly, Inc.
Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)
	Twelve Months Ended
	December 31,
	2011				2010
Cash flows from operating activities:
Net income	$	14,048			$	17,127
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		22,316				23,429
Amortization of intangible assets		12,136				2,543
Stock-based compensation, net of forfeitures		33,870				16,366
Gain on disposal of property and equipment		(301	)			(345	)
Deferred income taxes		(5,766	)			2,021
Tax benefit from stock-based compensation		8,391				5,973
Excess tax benefits from stock-based compensation		(8,380	)			(5,967	)
Gain on auction rate securities Rights		-				(6,266	)
Loss on auction rate securities		-				6,266
Changes in operating assets and liabilities:
Accounts receivable, net		(7,205	)			688
Inventories		766				(558	)
Prepaid expenses and other current assets		(5,667	)			(2,402	)
Other assets		(1,402	)			2
Accounts payable		(16,458	)			8,652
Accrued and other liabilities		15,030				7,504
Deferred revenue		1,870				1,128
Net cash provided by operating activities		63,248				76,161
				��
Cash flows from investing activities:
Acquisition of business and intangibles, net of cash acquired		(133,705	)			(5,981	)
Purchases of property and equipment		(23,149	)			(14,405	)
Capitalization of software and website development costs		(10,050	)			(7,405	)
Proceeds from sale of equipment		676				2,476
Proceeds from the sale of auction rate securities		-				47,925
Net cash (used in) provided by investing activities		(166,228	)			22,610
Cash flows from financing activities:
Principal payments of capital lease obligations		(6	)			(9	)
Proceeds from issuance of common stock upon exercise of stock options		22,277				14,703
Excess tax benefits from stock-based compensation		8,380				5,967
Net cash provided by financing activities		30,651				20,661
Net (decrease) increase in cash and cash equivalents		(72,329	)			119,432
Cash and cash equivalents, beginning of period		252,244				132,812
Cash and cash equivalents, end of period	$	179,915			$	252,244
Supplemental schedule of non-cash investing activities
Net change in accrued purchases of property and equipment		412				556

Shutterfly, Inc.
User Metrics Disclosure
	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
	2011			2010			2011			2010
User Metrics - Shutterfly
Customers		2,800,456			2,280,815			4,863,944			4,069,020
year-over-year growth		23	%		23	%		20	%		24	%
Orders		4,572,872			3,691,558			11,258,967			9,203,925
year-over-year growth		24	%		21	%		22	%		17	%
Average order value	$	43.05		$	44.41		$	32.57		$	32.88
year-over-year growth		-3	%		5	%		-1	%		7	%
Average orders per customer		1.6	x		1.6	x		2.3	x		2.3	x
Average order value excludes commercial printing revenue.
	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
	2011			2010			2011			2010
							(Pro-Forma)
User Metrics - Tiny Prints
Customers		464,809			370,528			1,030,221			759,417
year-over-year growth		25	%					36	%
Orders		617,071			464,755			1,417,488			919,840
year-over-year growth		33	%					54	%
Average order value (excluding 1:1 greeting cards)	$	116.81		$	106.62		$	110.63		$	102.40
year-over-year growth		10	%					8	%
Average orders per customer		1.3	x		1.3	x		1.4	x		1.2	x

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, 2012
Net revenues		$83.0		$85.0		-		-			$83.0		$85.0
Gross profit margin		42.0%		43.0%		2.5%		2.5%	[a]		44.5%		45.5%
Operating loss		$(28.0)		$(25.0)		$13.0		$13.0	[b]		$(15.0)		$(12.0)
Operating margin		(34%)		(29%)		16%		15%	[b]		(18%)		(14%)
Stock-based compensation		$9.0		$9.0		$9.0		$9.0			-		-
Amortization of intangible assets		$4.0		$4.0		$4.0		$4.0			-		-
Adjusted EBITDA*											$(8.0)		$(6.5)
Diluted loss per share		$(0.43)		$(0.31)
Diluted shares		35.9		35.9
Effective tax rate		45%		55%
Twelve Months Ending December 31, 2012
Net revenues		$550.0		$560.0		-		-			$550.0		$560.0
Gross profit margin		52.0%		54.0%		1.0%		2.0%	[c]		53.0%		$56.0%
Operating income		$17.0		$24.0		$47.0		$47.0	[d]		$64.0		$71.0
Operating margin		3%		4%		9%		9%	[d]		12%		13%
Stock-based compensation		$31.4		$31.4		$31.4		$31.4			-		-
Amortization of intangible assets		$15.6		$15.6		$15.6		$15.6			-		-
Adjusted EBITDA*											$94		$101
Adjusted EBITDA* margin											17.0%		18.0%
Diluted earnings per share		$0.25		$0.28
Diluted shares		38.9		38.9
Effective tax rate		45%		55%
Capital expenditures - % of net revenues		7.0%		7.5%

*	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 $500k and amortization of purchased intangible assets of approximately $1.4 million.
[b]	Reflects estimated adjustments for stock-based compensation expense of approximately $9.0 million and amortization of purchased intangible assets of approximately $4.0 million
[c]	Reflects estimated adjustments for stock-based compensation expense of approximately $1.7 million and amortization of purchased intangible assets of approximately $6.5 million.
[d]	Reflects estimated adjustments for stock-based compensation expense of approximately $31.4 million and amortization of purchased
	intangible assets of approximately $15.6 million.

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,
	2010			2010			2010			2010			2011			2011			2011			2011			2010			2011
GAAP gross profit	$	23,164		$	23,628		$	24,052		$	102,372		$	27,683		$	35,883		$	34,876		$	155,286		$	173,216		$	253,728
Stock-based compensation		131			129			120			128			175			754			584			625			508			2,138
Amortization of intangible     assets		556			552			541			646			611			1,345			1,417			1,425			2,295			4,798
Non-GAAP gross profit	$	23,851		$	24,309		$	24,713		$	103,146		$	28,469		$	37,982		$	36,877		$	157,336		$	176,019		$	260,664
Non-GAAP gross profit margin		52	%		52	%		50	%		62	%		50	%		50	%		48	%		60	%		57	%		55	%
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,
	2010			2010			2010			2010			2011			2011			2011			2011			2010			2011
GAAP operating income (loss)	$	(7,963	)	$	(9,780	)	$	(7,977	)	$	50,495		$	(12,986	)	$	(21,540	)	$	(22,692	)	$	72,609		$	24,775		$	15,391
Stock-based compensation		4,374			4,059			3,866			4,067			5,235			12,099			9,822			6,714			16,366			33,870
Amortization of intangible     assets		647			642			603			651			719			3,487			3,961			3,969			2,543			12,136
Non-GAAP operating income (loss)	$	(2,942	)	$	(5,079	)	$	(3,508	)	$	55,213		$	(7,032	)	$	(5,954	)	$	(8,909	)	$	83,292		$	43,684		$	61,397
Non-GAAP operating margin		(6	%)		(11	%)		(7	%)		33	%		(12	%)		(8	%)		(12	%)		32	%		14	%		13	%
Shutterfly, Inc.
Reconciliation of GAAP Net Income (Loss) to Non-GAAP Net Income (Loss)
(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,
	2010			2010			2010			2010			2011			2011			2011			2011			2010			2011
GAAP net income (loss)	$	(4,731	)	$	(5,885	)	$	(4,770	)	$	32,513		$	(7,760	)	$	(3,650	)	$	(9,953	)	$	35,411		$	17,127		$	14,048
Stock-based compensation		4,374			4,059			3,866			4,067			5,235			12,099			9,822			6,714			16,366			33,870
Amortization of intangible     assets		647			642			603			651			719			3,487			3,961			3,969			2,543			12,136
Related income taxes		(2,028	)		(1,945	)		(1,908	)		(2,064	)		(2,587	)		(15,862	)		(9,102	)		7,736			(7,945	)		(19,815	)
Non-GAAP net income (loss)	$	(1,738	)	$	(3,129	)	$	(2,209	)	$	35,167		$	(4,393	)	$	(3,926	)	$	(5,272	)	$	53,830		$	28,091		$	40,239
Diluted net income (loss) per share:
GAAP	$	(0.18	)	$	(0.22	)	$	(0.17	)	$	1.09		$	(0.27	)	$	(0.11	)	$	(0.29	)	$	0.97		$	0.59		$	0.40
Non-GAAP	$	(0.07	)	$	(0.12	)	$	(0.08	)	$	1.18		$	(0.15	)	$	(0.12	)	$	(0.15	)	$	1.48		$	0.96		$	1.15
Shares used in GAAP and non- GAAP diluted net income (loss)
per-share calculation		26,238			26,952			27,292			29,924			28,674			33,160			34,576			36,490			29,249			35,007

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,
	2010			2010			2010			2010			2011			2011			2011			2011			2010			2011
GAAP benefit (provision) for income taxes	$	3,011		$	3,722		$	3,181		$	(18,002	)	$	5,212		$	17,884		$	12,734		$	(37,144	)	$	(8,088	)	$	(1,314	)
Income taxes associated with     certain non-GAAP entries		(2,028	)		(1,945	)		(1,908	)		(2,064	)		(2,587	)		(15,862	)		(9,102	)		7,736			(7,945	)		(19,815	)
Non-GAAP benefit (provision) for income taxes	$	983		$	1,777		$	1,273		$	(20,066	)	$	2,625		$	2,022		$	3,632		$	(29,408	)	$	(16,033	)	$	(21,129	)
GAAP income (loss) before income taxes	$	(7,742	)	$	(9,607	)	$	(7,951	)	$	50,515		$	(12,972	)	$	(21,534	)	$	(22,687	)	$	72,555		$	25,215		$	15,362
Stock-based compensation		4,374			4,059			3,866			4,067			5,235			12,099			9,822			6,714			16,366			33,870
Amortization of intangible     assets		647			642			603			651			719			3,487			3,961			3,969			2,543			12,136
Non-GAAP income (loss) before income taxes	$	(2,721	)	$	(4,906	)	$	(3,482	)	$	55,233		$	(7,018	)	$	(5,948	)	$	(8,904	)	$	83,238		$	44,124		$	61,368
GAAP effective tax rate		39	%		39	%		40	%		36	%		40	%		83	%		56	%		51	%		32	%		9	%
Non-GAAP effective tax rate		36	%		36	%		37	%		36	%		37	%		34	%		41	%		35	%		36	%		34	%
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,
	2010			2010			2010			2010			2011			2011			2011			2011			2010			2011
GAAP net income (loss)	$	(4,731	)	$	(5,885	)	$	(4,770	)	$	32,513		$	(7,760	)	$	(3,650	)	$	(9,953	)	$	35,411		$	17,127		$	14,048
Interest expense		21			21			-			-			-			-			-			64			42			64
Interest and other income, net		(242	)		(194	)		(26	)		(20	)		(14	)		(6	)		(5	)		(10	)		(482	)		(35	)
Tax benefit (provision)		(3,011	)		(3,722	)		(3,181	)		18,002			(5,212	)		(17,884	)		(12,734	)		37,144			8,088			1,314
Depreciation and amortization		7,020			6,949			6,321			5,682			5,833			9,159			9,534			9,926			25,972			34,452
Stock-based compensation		4,374			4,059			3,866			4,067			5,235			12,099			9,822			6,714			16,366			33,870
Non-GAAP Adjusted EBITDA	$	3,431		$	1,228		$	2,210		$	60,244		$	(1,918	)	$	(282	)	$	(3,336	)	$	89,249		$	67,113		$	83,713
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,
	2010			2010			2010			2010			2011			2011			2011			2011			2010			2011
Net cash provided by (used in) operating activities	$	(28,264	)	$	5,101		$	5,271		$	94,053		$	(52,849	)	$	(5,165	)	$	(1,577	)	$	122,839		$	76,161		$	63,248
Interest expense		21			21			-			-			-			-			-			64			42			64
Interest and other income, net		(242	)		(194	)		(26	)		(20	)		(14	)		(6	)		(5	)		(10	)		(482	)		(35	)
Tax benefit (provision)		(3,011	)		(3,722	)		(3,181	)		18,002			(5,212	)		(17,884	)		(12,734	)		37,144			8,088			1,314
Changes in operating assets     and liabilities		33,153			(1,969	)		(2	)		(46,196	)		55,702			23,217			8,962			(74,815	)		(15,014	)		13,066
Other adjustments		1,774			1,991			148			(5,595	)		455			(444	)		2,018			4,027			(1,682	)		6,056
Non-GAAP Adjusted EBITDA		3,431			1,228			2,210			60,244			(1,918	)		(282	)		(3,336	)		89,249			67,113			83,713
Less: Purchases of property and equipment		(5,534	)		(4,010	)		(2,729	)		(2,688	)		(5,446	)		(3,811	)		(9,310	)		(4,994	)		(14,961	)		(23,561	)
Less: Capitalized technology & development costs		(802	)		(1,247	)		(2,559	)		(2,797	)		(2,318	)		(2,726	)		(2,833	)		(2,173	)		(7,405	)		(10,050	)
Free cash flow	$	(2,905	)	$	(4,029	)	$	(3,078	)	$	54,759		$	(9,682	)	$	(6,819	)	$	(15,479	)	$	82,082		$	44,747		$	50,102