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

Exhibit 99.01

 

Shutterfly Announces First Quarter 2013 Financial Results

● Net revenues increase 28% year-over-year to $116.7 million

● GAAP net loss of ($0.33) per diluted share

● Adjusted EBITDA of $3.3 million

● 49th consecutive quarter of year-over-year net revenue growth

REDWOOD CITY, May 1, 2013 -- Shutterfly, Inc. (NASDAQ:SFLY), the leading manufacturer and digital retailer of high-quality personalized products and services offered through a family of lifestyle brands, today announced financial results for the first quarter ended March 31, 2013.

“The first quarter was a solid start to the year, with strong execution across our businesses,” said Jeffrey Housenbold, President and CEO. “Capitalizing on our scale, scope and profitability, we continued to enhance our world-class platform across our four lifestyle brands and invest in early stage customer facing initiatives including Wedding, Enterprise, Treat, Mobile and our new Enhanced Cloud Service. Our acquisition of MyPublisher will enable Shutterfly to engage with new audiences, further extending our footprint in the multi-billion dollar social expression and personal publishing markets.”

First Quarter 2013 Financial Highlights

● Net revenues totaled $116.7 million, a 28% year-over-year increase.

● First quarter 2013 represents the 49th consecutive quarter of year-over-year net revenue growth.

● Consumer net revenues totaled $109.8 million, a 29% year-over-year increase.

● Enterprise net revenues totaled $6.9 million, a 12% year-over-year increase.

● Gross profit margin was 47% of net revenues, compared to 45% in the first quarter of 2012.

● Operating expenses, excluding $11.0 million of stock-based compensation, totaled $67.8 million.

● GAAP net loss was ($12.4) million, compared to ($10.0) million in the first quarter of 2012.

● GAAP net loss per diluted share was ($0.33), compared to ($0.29) in the first quarter of 2012.

● Adjusted EBITDA was $3.3 million, compared to $0.6 million in the first quarter of 2012.

● At March 31, 2013, cash and cash equivalents totaled $164.5 million.

First Quarter 2013 Operating Metrics

● Transacting customers totaled 2.2 million, a 20% year-over-year increase.

● Orders totaled 3.4 million, a 20% year-over-year increase.

● Average order value was $32.13, an increase of 7% year-over-year.

Business Outlook

Second Quarter 2013:

● Net revenues to range from $118.0 million to $121.2 million, a year-over-year increase of 19.2% to 22.4%.

● GAAP gross profit margin to range from 45.5% to 46.0% of net revenues.

● Non-GAAP gross profit margin to range from 49.3% to 49.6% of net revenues.

● GAAP operating loss to range from ($35.3) million to ($36.8) million.

● Non-GAAP operating loss to range from ($12.0) million to ($13.5) million.

● GAAP effective tax rate to range from 39.5% to 40.5%.

● GAAP net loss per diluted share to range from ($0.55) to ($0.58).

● Weighted average diluted shares of approximately 38.1 million.

● Adjusted EBITDA loss to range from ($1.5) million to ($3.0) million. 

Full Year 2013:

● Net revenues to range from $766.0 million to $771.0 million, a year-over-year increase of 19.6% to 20.4%.

● GAAP gross profit margin to range from 53.0% to 53.4% of net revenues.

● Non-GAAP gross profit margin to range from 55.1% to 55.5% of net revenues.

● GAAP operating income to range from $12.7 million to $18.9 million.

● Non-GAAP operating income to range from $96.5 million to $104.6 million.

● GAAP effective tax rate to range from 32% to 34%.

● GAAP net income per diluted share to range from $0.20 to $0.30.

● Weighted average diluted shares of approximately 39.9 million.

● Adjusted EBITDA to range from $137.7 million to $146.8 million, or 18% to 19% of net revenues.

● Capital expenditures to range from 9.4% to 10.4% of net revenues.

Notes to the First Quarter 2013 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.

Consumer category includes net revenues from stationery and greeting cards, photo books, calendars and photo-based merchandise, photo prints, and the related shipping revenues.  Consumer also includes net revenues from advertising and sponsorship programs. 

Enterprise category includes net revenues primarily from variable, four-color direct marketing collateral manufactured and fulfilled for business customers.

Average Order Value (AOV) is defined as total net revenues (excluding Enterprise) 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.

First Quarter 2013 Conference Call

Management will review the first quarter 2013 financial results and its expectations for the second quarter and full year 2013 on a conference call on Wednesday, May 1, 2013 at 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time).  To listen to the call and view the accompanying slides, please visit http://www.shutterfly.com. In the Investor Relations area, found in the "About Us" section, click on the link provided for the webcast, or dial 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, May 15, 2013. To hear the replay, please dial (404) 537-3406, replay passcode 41973218.

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, Adjusted EBITDA and free cash flow. 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. Management believes these non-GAAP financial measures reflect an additional way of viewing the Company’s liquidity that, when viewed with GAAP results, provides a more complete understanding of factors and trends affecting the Company’s cash flows.   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 second quarter and full year 2013 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, increase sales to existing customers and meet production requirements; our ability to successfully integrate acquired businesses and assets; 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 innovative, new products and services on a timely and cost-effective basis; consumer acceptance of our 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-K for the year ended December 31, 2012, 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, Inc.

Shutterfly, Inc. is the leading manufacturer and digital retailer of high-quality personalized products and services offered through a family of lifestyle brands. Founded in 1999, the Shutterfly, Inc. family of brands includes: Shutterfly, where your photos come to life in photo books, cards and gifts; Tiny Prints, premium cards and stationery for all life’s occasions; Wedding Paper Divas, wedding invitations and stationery for every step of the planning process; and Treat, personalized greeting cards that really stand out. For more information about Shutterfly, Inc. (NASDAQ:SFLY), visit www.shutterfly-inc.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 Statements of Income
(In thousands, except per share amounts)
(Unaudited)
	Three Months Ended
	March 31,
	2013			2012
Net revenues	$	116,708		$	91,291
Cost of net revenues		61,853			50,053
Gross profit		54,855			41,238
Operating expenses:
Technology and development		24,027			18,508
Sales and marketing		34,895			27,038
General and administrative		19,897			14,772
Total operating expenses		78,819			60,318
Loss from operations		(23,964	)		(19,080	)
Interest expense		(139	)		(152	)
Interest and other income, net		7			7
Loss before income taxes		(24,096	)		(19,225	)
Benefit from income taxes		11,691			9,185
Net loss	$	(12,405	)	$	(10,040	)
Net loss per share - basic and diluted	$	(0.33	)	$	(0.29	)
Weighted-average shares outstanding - basic and diluted		37,034			35,199
Stock-based compensation is allocated as follows:
Cost of net revenues	$	564		$	462
Technology and development		1,932			2,288
Sales and marketing		3,705			3,150
General and administrative		5,337			3,717
	$	11,538		$	9,617

Shutterfly, Inc.
Consolidated Balance Sheets
(In thousands, except par value amounts)
(Unaudited)
	March 31,		December 31,
	2013		2012
ASSETS
Current assets:
Cash and cash equivalents	$	164,453	$	245,088
Accounts receivable, net		10,714		13,574
Inventories		4,845		5,032
Deferred tax asset, current portion		7,713		7,713
Prepaid expenses and other current assets		44,089		15,268
Total current assets		231,814		286,675
Property and equipment, net		100,769		92,667
Intangible assets, net		116,092		122,269
Goodwill		358,050		358,349
Deferred tax asset, net of current portion		854		854
Other assets		10,873		4,310
Total assets	$	818,452	$	865,124
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	11,993	$	31,503
Accrued liabilities		34,376		88,472
Deferred revenue		17,508		17,845
Total current liabilities		63,877		137,820
Deferred tax liability		27,686		24,298
Other liabilities		14,091		11,720
Total liabilities		105,654		173,838
Stockholders' equity
Common stock, $0.0001 par value; 100,000 shares authorized; 37,899 and 36,358 shares
issued and outstanding at March 31, 2013 and December 31, 2012, respectively		4		4
Additional paid-in-capital		688,268		652,110
Accumulated earnings		24,526		39,172
��     Total stockholders' equity		712,798		691,286
Total liabilities and stockholders' equity	$	818,452	$	865,124

Shutterfly, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
	Three Months Ended
	March 31,
	2013			2012
Cash flows from operating activities:
Net loss	$	(12,405	)	$	(10,040	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		9,227			6,011
Amortization of intangible assets		6,511			4,013
Stock-based compensation, net of forfeitures		11,538			9,617
Loss / (Gain) on disposal of property and equipment		188			(402	)
Deferred income taxes		3,387			(1,248	)
Tax benefit from stock-based compensation		11,755			16,334
Excess tax benefits from stock-based compensation		(12,279	)		(16,334	)
Changes in operating assets and liabilities:
Accounts receivable, net		2,859			(381	)
Inventories		186			27
Prepaid expenses and other current assets		(28,349	)		(23,204	)
Other assets		(6,897	)		(2,253	)
Accounts payable		(13,944	)		(2,257	)
Accrued and other liabilities		(54,599	)		(28,764	)
Deferred revenue		(337	)		1,072
Other non-current liabilities		(345	)		(152	)
Net cash used in operating activities		(83,504	)		(47,961	)
Cash flows from investing activities:
Acquisition of business and intangibles, net of cash acquired		(1,031	)		-
Purchases of property and equipment		(15,033	)		(5,037	)
Capitalization of software and website development costs		(3,495	)		(3,072	)
Proceeds from sale of equipment		-			410
Net cash used in investing activities		(19,559	)		(7,699	)
Cash flows from financing activities:
Proceeds from issuance of common stock upon exercise of stock options		12,390			3,345
Repurchases of common stock		(2,241	)		-
Excess tax benefits from stock-based compensation		12,279			16,334
Net cash provided by financing activities		22,428			19,679
Net decrease in cash and cash equivalents		(80,635	)		(35,981	)
Cash and cash equivalents, beginning of period		245,088			179,915
Cash and cash equivalents, end of period	$	164,453		$	143,934
Supplemental schedule of non-cash activities
Net change in accrued purchases of property and equipment	$	(4,201	)	$	1,462
Increase in estimated fair market value of building under build-to-suit lease		2,716			-
Amount due from adjustment of net working capital from acquired business		465			-

Shutterfly, Inc.
Consumer Metrics Disclosure
	Three Months Ended
	March 31,
	2013			2012
Consumer Metrics
Customers		2,248,858			1,880,171
year-over-year growth		20	%
Orders		3,417,312			2,839,650
year-over-year growth		20	%
Average order value*	$	32.13		$	29.97
year-over-year growth		7	%

* Average order value excludes Enterprise 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 June 30, 2013
Net revenues		$118.0			$121.2			-				-				$118.0			$121.2
Gross profit margin		45.5	%		46.0	%		3.8	%			3.6	%	[a]		49.3	%		49.6	%
Operating loss		($36.8	)		($35.3	)		$23.3				$23.3		[b]		($13.5	)		($12.0	)
Operating margin		(31	%)		(29	%)		20	%			19	%	[b]		(11	%)		(10	%)
Stock-based compensation		$12.8			$12.8			$12.8				$12.8				-			-
Amortization of intangible assets		$10.5			$10.5			$10.5				$10.5				-			-
Adjusted EBITDA*																($3.0	)		($1.5	)
Diluted loss per share		($0.58	)		($0.55	)
Diluted shares		38.1			38.1
Effective tax rate		39.5	%		40.5	%
Twelve Months Ending December 31, 2013
Net revenues		$766.0			$771.0			-				-				$766.0			$771.0
Gross profit margin		53.0	%		53.4	%		2.1	%			2.1	%	[c]		55.1	%		55.5	%
Operating income		$12.7			$18.9			$83.8		[d]		$85.7		[e]		$96.5			$104.6
Operating margin		2	%		2	%		11	%	[d]		12	%	[e]		13	%		14	%
Stock-based compensation		$49.9			$51.9			$49.9				$51.9				-			-
Amortization of intangible assets		$33.8			$33.8			$33.8				$33.8				-			-
Adjusted EBITDA*																$137.7			$146.8
Adjusted EBITDA* margin																18.0	%		19.0	%
Diluted earnings per share		$0.20			$0.30
Diluted shares		39.9			39.9
Effective tax rate		32	%		34	%
Capital expenditures - % of net revenues		9.4	%		10.4	%

*	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 $600K and amortization of purchased
	intangible assets of approximately $3.9 million.
[b]	Reflects estimated adjustments for stock-based compensation expense of approximately $12.8 million and amortization of purchased
	intangible assets of approximately $10.5 million
[c]	Reflects estimated adjustments for stock-based compensation expense of approximately $2.3 million and amortization of purchased
	intangible assets of approximately $14.1 million.
[d]	Reflects estimated adjustments for stock-based compensation expense of approximately $49.9 million and amortization of purchased
	intangible assets of approximately $33.8 million.
[e]	Reflects estimated adjustments for stock-based compensation expense of approximately $51.9 million and amortization of purchased
	intangible assets of approximately $33.8 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,			Dec. 31,
		2012			2012			2012			2012			2013			2012
GAAP gross profit	$	41,238		$	48,310		$	43,407		$	212,812		$	54,855		$	345,767
Stock-based compensation		462			443			424			367			564			1,696
Amortization of intangible assets		1,454			1,516			1,570			1,856			2,390			6,396
Non-GAAP gross profit	$	43,154		$	50,269		$	45,401		$	215,035		$	57,809		$	353,859
Non-GAAP gross profit margin		47	%		51	%		46	%		61	%		50	%		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,			Dec. 31,
		2012			2012			2012			2012			2013			2012
GAAP operating income (loss)	$	(19,080	)	$	(17,786	)	$	(23,745	)	$	101,324		$	(23,964	)	$	40,713
Stock-based compensation		9,617			9,526			8,365			9,814			11,538			37,322
Amortization of intangible assets		4,013			5,090			5,658			5,924			6,511			20,685
Non-GAAP operating income (loss)	$	(5,450	)	$	(3,170	)	$	(9,722	)	$	117,062		$	(5,915	)	$	98,720
Non-GAAP operating margin		(6	%)		(3	%)		(10	%)		33	%		(5	%)		15	%
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,			Dec. 31,
		2012			2012			2012			2012			2013			2012
GAAP net income (loss)	$	(10,040	)	$	(9,511	)	$	(10,478	)	$	53,027		$	(12,405	)	$	22,998
Interest expense		152			156			148			141			139			597
Interest and other income, net		(7	)		(9	)		(14	)		(12	)		(7	)		(42	)
Tax (benefit) provision		(9,185	)		(8,422	)		(13,401	)		48,168			(11,691	)		17,160
Depreciation and amortization		10,024			11,820			12,244			16,021			15,738			50,109
Stock-based compensation		9,617			9,526			8,365			9,814			11,538			37,322
Non-GAAP Adjusted EBITDA	$	561		$	3,560		$	(3,136	)	$	127,159		$	3,312		$	128,144
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,			Dec. 31,
		2012			2012			2012			2012			2013			2012
Net cash provided by (used in) operating activities	$	(47,961	)	$	9,339		$	(3,568	)	$	193,571		$	(83,504	)	$	151,381
Interest expense		152			156			148			141			139			597
Interest and other income, net		(7	)		(9	)		(14	)		(12	)		(7	)		(42	)
Tax (benefit) provision		(9,185	)		(8,422	)		(13,401	)		48,168			(11,691	)		17,160
Changes in operating assets and liabilities		55,912			739			11,482			(111,895	)		101,426			(43,762	)
Other adjustments		1,650			1,757			2,217			(2,814	)		(3,051	)		2,810
Non-GAAP Adjusted EBITDA		561			3,560			(3,136	)		127,159			3,312			128,144
Less: Purchases of property and equipment		(6,499	)		(12,264	)		(16,628	)		(12,838	)		(10,832	)		(48,229	)
Less: Capitalized technology & development costs		(3,072	)		(2,801	)		(3,730	)		(2,925	)		(3,495	)		(12,528	)
Free cash flow	$	(9,010	)	$	(11,505	)	$	(23,494	)	$	111,396		$	(11,015	)	$	67,387