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Press release from Business Wire

Shutterfly Announces Third Quarter 2010 Financial Results

<p> ● Net revenues increase 21% year-over-year to $49.0 million </p> <p> ● 39th consecutive quarter of year-over year net revenue growth </p> <p> ● GAAP net loss of ($0.17) per diluted share </p> <p> ● Adjusted EBITDA of $2.2 million </p> <p> </p>

Wednesday, October 27, 2010

Shutterfly Announces Third Quarter 2010 Financial Results16:02 EDT Wednesday, October 27, 2010 REDWOOD CITY, Calif. (Business Wire) -- Shutterfly, Inc. (NASDAQ:SFLY), a leading Internet-based social expression and personal publishing service, today announced financial results for the three months ended September 30, 2010. “Shutterfly continued the momentum from the first half of the year to drive record third quarter revenues, customers, orders and EBITDA,” said President and Chief Executive Officer Jeffrey Housenbold. “Investments in our product and service offerings, platform infrastructure and people throughout 2010 have positioned us well for the Q4 holiday shopping period. Our commitment to innovation, design forward products and services, customer friendly policies, industry-leading quality and focused financial discipline continue to differentiate Shutterfly from the competition.” Third Quarter 2010 Financial Highlights ● Net revenues totaled $49.0 million, a 21% year-over-year increase and a 25% increase excluding referral fee revenue. ● Third quarter 2010 represents the 39th consecutive quarter of year-over-year net revenue growth. ● Personalized Products & Services net revenues totaled $32.7 million, a 38% year-over-year increase and a 47% increase excluding referral fee revenue. ● Personalized Products & Services net revenues represented 67% of total net revenues. ● Net revenues from prints totaled $15.7 million and were in line with the third quarter of 2009. ● Commercial print net revenues totaled $0.6 million. ● Existing customers generated 76% of total net revenues. ● Gross profit margin was 49% of net revenues, compared to 47% in the third quarter of 2009. ● Operating expenses, excluding $3.7 million of stock-based compensation, totaled $28.3 million. ● GAAP net loss was ($4.8) million, compared to a net loss of ($6.3) million in the third quarter of 2009. ● GAAP net loss per diluted share was ($0.17), compared to a net loss per diluted share of ($0.25) in the third quarter of 2009. ● Adjusted EBITDA was $2.2 million, compared to $2.0 million in the third quarter of 2009. ● At September 30, 2010, the Company had $160.5 million of cash and cash equivalents. Third Quarter 2010 Operating Metrics ● Transacting customers totaled 1.2 million, a 27% increase over the third quarter of 2009. ● Orders totaled 2.0 million, a 20% increase over the third quarter of 2009. ● Average order value was $23.75, a 3% increase over the third quarter of 2009. Recent Operating Highlights ● Continued to improve our photo book creation experience by adding access to Picasa images from the photo book creation path, and by introducing new styles like travel, vacation, and holiday and enhancing layout control options. ● Launched Shutterfly's largest holiday collection ever with nearly 1,400 new holiday designs across all form factors – including our new 5x5 flat stationery cards with new innovations like “Story Cards” and “Tarjetas de Navidad.” Expanded our direct mail service to include 5x5 stationery cards in addition to 5x7 stationery cards and folded greeting cards. ● Enhanced features added to Shutterfly's Classroom and Youth Sports Share sites to offer parents, teachers and coaches a powerful, easy-to-use solution for sharing information, photos and videos. Partnered with AYSO to make Share sites available to over 50,000 soccer teams across the country. ● Expanded retail presence by providing Shutterfly customers more shopping options with in-store pickup at CVS/pharmacy and Walgreens locations, and by offering Best Buy customers promotional offers for photo books. ● Introduced new calendar designs and form factors and unveiled a new home décor collection in time for the holiday gift giving season. Business Outlook The Company's current financial expectations for the fourth quarter and the full year 2010 are as follows: Fourth Quarter 2010: ● Net revenues to range from $148.5 million to $153.5 million, a year-over-year increase of 13% to 17%. ● GAAP gross profit margins to range from 60% to 62% of net revenues. ● Non-GAAP gross profit margins to range from 60% to 62% of net revenues. ● GAAP operating income to range from $40 million to $44 million. ● Non-GAAP operating income to range from $44 million to $48 million. ● GAAP effective tax rate to range from 36% to 38%. ● Non-GAAP effective tax rate to range from 36% to 37%. ● GAAP diluted net income per share to range from $0.86 to $0.92. ● Non-GAAP diluted net income per share to range from $0.97 to $1.04. ● Weighted average diluted shares of approximately 29.5 million. ● Adjusted EBITDA to range from $49.5 million to $53.5 million. Full Year 2010: ● Net revenues to range from $290 million to $295 million, a year-over-year increase of 18% to 20%. ● GAAP gross profit margins to range from 55% to 56% of net revenues. ● Non-GAAP gross profit margins to range from 56% to 57% of net revenues. ● GAAP operating income to range from $14 million to $18 million. ● Non-GAAP operating income to range from $33 million to $37 million. ● GAAP effective tax rate to range from 32% to 37%. ● Non-GAAP effective tax rate to range from 36% to 37%. ● GAAP diluted net income per share to range from $0.34 to $0.40. ● Non-GAAP diluted net income per share to range from $0.74 to $0.81. ● Weighted average diluted shares of 29.0 million. ● Adjusted EBITDA to range from 19.5% to 20.5% of net revenues. ● Capital expenditures to range from $22 million to $24 million. Notes to the Third Quarter 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 minus purchases of property, plant, and equipment, and capitalization of software and website development costs. Print revenues consist of photo prints in wallet, 2x6, 4x6, 5x7, 8x10, photocards, and large format sizes. Personalized Products and Services (“PPS”) revenues primarily include photo books, stationery and folded greeting cards, calendars, and photo-based merchandise. PPS also includes revenue from advertising and sponsorship programs and referral fees. The Company's referral fee program was discontinued effective March 31, 2010, and no referral fee revenue has been recorded subsequent to that date. Commercial printing revenues are a separate component of net revenues and are excluded from prints and PPS revenues. Average order value is defined as total net revenues, excluding commercial printing revenues, divided by total orders. The foregoing financial guidance replaces any of the Company's previously issued guidance and all such previous guidance should no longer be relied upon. Third Quarter 2010 Conference Call Management will review the third quarter 2010 financial results and its expectations for the fourth quarter and full year 2010 on a conference call on Wednesday, October 27, 2010 at 2:00 p.m. Pacific Daylight Time (5:00 p.m. Eastern Daylight 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 Monday, November 1, 2010. To hear the replay, please dial 706-645-9291, replay passcode 14159021. About 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, 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 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 fourth quarter and full year 2010 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 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; 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, 2009, 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. Shutterfly, Inc.Condensed Consolidated Statement of Operations (In thousands, except per share amounts) (Unaudited)     Three Months Ended             Nine Months EndedSeptember 30,September 30,2010     20092010     2009   Net revenues $ 48,958 $ 40,495 $ 141,507 $ 115,365 Cost of net revenues   24,906     21,420     70,663     61,161   Gross profit   24,052     19,075     70,844     54,204   Operating expenses: Technology and development 11,602 11,390 36,248 33,347 Sales and marketing 11,500 9,377 32,968 26,075 General and administrative   8,927     7,363     27,348     22,642   Total operating expenses   32,029     28,130     96,564     82,064   Loss from operations (7,977 ) (9,055 ) (25,720 ) (27,860 ) Interest expense - (22 ) (42 ) (136 ) Interest and other income, net   26     74     462     681   Loss before income taxes (7,951 ) (9,003 ) (25,300 ) (27,315 ) Benefit from income taxes   3,181     2,657     9,914     9,083   Net loss $ (4,770 ) $ (6,346 ) $ (15,386 ) $ (18,232 )     Net loss per share - basic and diluted $ (0.17 ) $ (0.25 ) $ (0.57 ) $ (0.72 )   Weighted-average shares outstanding - basic and diluted   27,292     25,517     26,827     25,303     Stock-based compensation is allocated as follows:   Cost of net revenues $ 120 $ 119 $ 380 $ 297 Technology and development 759 1,077 2,316 2,292 Sales and marketing 870 955 2,938 2,428 General and administrative   2,117     2,005     6,665     4,778   $ 3,866   $ 4,156   $ 12,299   $ 9,795     Shutterfly, Inc.Condensed Consolidated Balance Sheet (In thousands, except par value amounts) (Unaudited)             September 30,December 31,20102009   ASSETS Current assets: Cash and cash equivalents $ 160,512 $ 132,812 Short-term investments - 47,925 Accounts receivable, net 2,506 5,472 Inventories 3,427 2,968 Deferred tax asset, current portion 2,747 2,243 Prepaid expenses and other current assets   18,863     4,501   Total current assets 188,055 195,921 Property and equipment, net 38,798 41,845 Goodwill and intangible assets, net 12,034 13,406 Deferred tax asset, net of current portion 17,455 14,674 Other assets   5,050     5,467   Total assets $ 261,392   $ 271,313     LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 8,982 $ 13,116 Accrued liabilities 14,499 32,793 Deferred revenue   9,169     8,602   Total current liabilities 32,650 54,511 Other liabilities   3,112     1,638   Total liabilities   35,762     56,149     Stockholders' equity Common stock, $0.0001 par value; 100,000 shares authorized; 27,353 and25,909 shares issued and outstanding on September 30, 2010and December 31, 2009, respectively 3 3 Additional paid-in-capital 252,262 226,410 Accumulated deficit   (26,635 )   (11,249 ) Total stockholders' equity   225,630     215,164   Total liabilities and stockholders' equity $ 261,392   $ 271,313       Shutterfly, Inc.           Condensed Consolidated Statement of Cash Flows (In thousands) (Unaudited) Nine Months EndedSeptember 30,20102009   Cash flows from operating activities: Net loss $ (15,386 ) $ (18,232 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 18,398 18,844 Amortization of intangible assets 1,892 1,491 Stock-based compensation, net of forfeitures 12,299 9,795 Loss/(gain) on disposal of property and equipment (243 ) 79 Deferred income taxes (3,285 ) 1,223 Tax benefit/(charge) from stock-based compensation 4,302 (93 ) Excess tax benefits from stock-based compensation (4,687 ) (427 ) Changes in operating assets and liabilities: Accounts receivable, net 3,027 2,389 Inventories (459 ) 294 Prepaid expenses and other current assets (14,362 ) (10,700 ) Other assets 1,977 (2,421 ) Accounts payable (4,935 ) (5,083 ) Accrued and other liabilities (16,997 ) (14,737 ) Deferred revenue   567     (546 ) Net cash used in operating activities   (17,892 )   (18,124 )   Cash flows from investing activities: Acquisition of business and intangibles, net of cash acquired (150 ) (796 ) Purchases of property and equipment (11,532 ) (8,272 ) Capitalization of software and website development costs (4,608 ) (3,032 ) Proceeds from sale of equipment 216 - Proceeds from the sale of auction rate securities   47,925     3,875   Net cash provided by (used in) investing activities   31,851     (8,225 )   Cash flows from financing activities: Principal payments of capital lease obligations (7 ) (90 ) Proceeds from issuance of common stock upon exercise of stock options 9,061 2,139 Excess tax benefits from stock-based compensation 4,687 427 Shares withheld for payment of employees' withholding tax liability   -     (1,041 ) Net cash provided by financing activities   13,741     1,435     Net increase (decrease) in cash and cash equivalents 27,700 (24,914 ) Cash and cash equivalents, beginning of period   132,812     88,164   Cash and cash equivalents, end of period $ 160,512   $ 63,250     Supplemental schedule of non-cash investing activities Net change in accrued purchases of property and equipment $ 741 $ 1,524 Escrow liability from acquisition of business - 150   Shutterfly, Inc.User Metrics Disclosure             Three Months EndedSeptember,20102009   User Metrics   Customers 1,246,389 981,670 year-over-year growth 27% 7%   Orders 2,037,162 1,704,591 year-over-year growth 20% 3%   Average order value (1) $23.75 $23.03 year-over-year growth 3% 6%   Average orders per customer 1.6x 1.7x   (1) 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 GuidanceGAAPNon-GAAPRange of EstimateAdjustmentsRange of EstimateFrom   ToFrom   ToFrom   To   Three Months Ending December 31, 2010   Net revenues $148.5$153.5 - - $148.5$153.5 Gross profit margin 60% 62% - - [a] 60% 62% Operating income $40 $44   $4 [b] $44 $48 Operating margin 27% 29%   3%   [b] 30% 32%   Stock-based compensation $4.2 $4.2 $4.2 $4.2 - - Amortization of intangible assets $0.6 $0.6 $0.6 $0.6 - -   Adjusted EBITDA* $49.5 $53.5   Diluted earnings per share $0.86 $0.92 $0.11 $0.12 [c] $0.97 $1.04 Diluted shares 29.5 29.5 - - 29.5 29.5 Effective tax rate 36% 38% - (1%) [d] 36% 37%   Twelve Months Ending December 31, 2010   Net revenues $290.0$295.0 - - $290.0$295.0 Gross profit margin 55% 56%   1%   [e] 56% 57% Operating income $14 $18   $19   [f] $33 $37 Operating margin 5% 6% 6% 7% [f] 11% 13%   Stock-based compensation $16.5 $16.5 $16.5 $16.5 - - Amortization of intangible assets $2.5 $2.5 $2.5 $2.5 - -   Adjusted EBITDA* $57 $60 Adjusted EBITDA* margin 19.5% 20.5%   Diluted earnings per share $0.34 $0.40 $0.40 $0.41 [g] $0.74 $0.81 Diluted shares 29.0 29.0 - - 29.0 29.0 Effective tax rate 32% 37% 4% - [h] 36% 37%   Capital expenditures $22 $24 $22 $24         * 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 $4.2 million and amortization of purchased intangible assets of approximately $600k. [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 $500k and amortization of purchased intangible assets of approximately $2.3 million. [f] Reflects estimated adjustments for stock-based compensation expense of approximately $16.5 million and amortization of purchased intangible assets of approximately $2.5 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 EndedMar. 31,   Jun. 30,   Sep. 30,   Dec. 31,   Mar. 31,   Jun. 30,   Sep. 30,Dec. 31,20092009200920092010   2010   20102009   GAAP gross profit $ 16,340 $ 18,789 $ 19,075 $ 80,580 $ 23,164 $ 23,628 $ 24,052 $ 134,784 Stock-based compensation expense within cost of net revenues 95 82 119 119 131 129 120 416 Amortization of intangible assets within cost of net revenues 367 394 460 488 556 552 541 1,709                     Non-GAAP gross profit $ 16,802   $ 19,265   $ 19,654   $ 81,187   $ 23,851     $ 24,309     $ 24,713   $ 136,909     Non-GAAP gross profit margin   47 %   50 %   49 %   62 %   52 %     52 %     50 %   56 %   Shutterfly, Inc.Reconciliation of GAAP Operating Margin to Non-GAAP Operating Margin (In thousands) (Unaudited) Three Months Ended   Year EndedMar. 31,Jun. 30,Sep. 30,Dec. 31,Mar. 31,Jun. 30,Sep. 30,Dec. 31,20092009200920092010   2010   20102009   GAAP operating income (loss) $ (9,396 ) $ (9,408 ) $ (9,055 ) 36,569 (7,963 ) (9,780 ) (7,977 ) $ 8,710 Stock-based compensation expense 2,804 2,834 4,156 4,479 4,374 4,059 3,866 14,273 Amortization of intangible assets 457 484 550 581 647 642 603 2,072                 Non-GAAP operating income (loss) $ (6,135 ) $ (6,090 ) $ (4,349 ) $ 41,629   $ (2,942 ) $ (5,079 ) $ (3,508 ) $ 25,055     Non-GAAP operating margin   (17 %)   (16 %)   (11 %)   32 %   (6 %)   (11 %)   (7 %)   10 %   Shutterfly, Inc.Reconciliation of GAAP Net Income (Loss) to Non-GAAP Net Income (Loss) (In thousands) (Unaudited) Three Months Ended   Year EndedMar. 31,Jun. 30,Sep. 30,Dec. 31,Mar. 31,Jun. 30,Sep. 30,Dec. 31,20092009200920092010   2010   20102009   GAAP net income (loss) $ (6,232 ) $ (5,655 ) $ (6,346 ) $ 24,086 $ (4,731 ) $ (5,885 ) $ (4,770 ) $ 5,853 Stock-based compensation expense 2,804 2,834 4,156 4,479 4,374 4,059 3,866 14,273 Amortization of intangible assets 457 484 550 581 647 642 603 2,072 Income taxes associated with certain non-GAAP entries (1,168 ) (1,190 ) (1,255 ) (1,542 ) (2,028 ) (1,945 ) (1,908 ) (5,155 )                 Non-GAAP net income (loss) $ (4,139 ) $ (3,527 ) $ (2,895 ) $ 27,604   $ (1,738 ) $ (3,129 ) $ (2,209 ) $ 17,043       Diluted net income (loss) per share: GAAP   ($0.25 )   ($0.22 )   ($0.25 ) $ 0.88     ($0.18 )   ($0.22 )   ($0.17 ) $ 0.22   Non-GAAP   ($0.16 )   ($0.14 )   ($0.11 ) $ 1.01     ($0.07 )   ($0.12 )   ($0.08 ) $ 0.64       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     26,810     Shutterfly, Inc.Reconciliation of GAAP to Non-GAAP Effective Tax Rate (In thousands) (Unaudited) Three Months Ended   Year EndedMar. 31,Jun. 30,Sep. 30,Dec. 31,Mar. 31,Jun. 30,Sep. 30,Dec. 31,20092009200920092010   2010   20102009   GAAP benefit (provision) for income taxes $ 2,928 $ 3,497 $ 2,657 (12,596 ) 3,011 3,722 3,181 $ (3,514 ) Income taxes associated with certain non-GAAP entries (1,168 ) (1,190 ) (1,255 ) (1,542 ) (2,028 ) (1,945 ) (1,908 ) (5,155 )                 Non-GAAP benefit (provision) for income taxes $ 1,760   $ 2,307   $ 1,402   $ (14,138 ) $ 983   $ 1,777   $ 1,273   $ (8,669 )   GAAP income (loss) before income taxes $ (9,160 ) $ (9,152 ) $ (9,003 ) 36,682 (7,742 ) (9,607 ) (7,951 ) $ 9,367 Stock-based compensation expense 2,804 2,834 4,156 4,479 4,374 4,059 3,866 14,273 Amortization of intangible assets 457 484 550 581 647 642 603 2,072                 Non-GAAP income (loss) before income taxes $ (5,899 ) $ (5,834 ) $ (4,297 ) $ 41,742   $ (2,721 ) $ (4,906 ) $ (3,482 ) $ 25,712     GAAP effective tax rate   32 %   38 %   30 %   34 %   39 %   39 %   40 %   38 %   Non-GAAP effective tax rate   30 %   40 %   33 %   34 %   36 %   36 %   37 %   34 %     Shutterfly, Inc.Reconciliation of Net Income (Loss) to Non-GAAP Adjusted EBITDA (In thousands) (Unaudited)   Three Months Ended   Year EndedMar. 31,Jun. 30,Sep. 30,Dec. 31,Mar. 31,Jun. 30,Sep. 30,Dec. 31,20092009200920092010   2010   20102009   GAAP net income (loss) $ (6,232 ) $ (5,655 ) $ (6,346 ) $ 24,086 $ (4,731 ) $ (5,885 ) $ (4,770 ) 5,853 Interest expense 88 27 22 20 21 21 - 157 Interest and other income, net (324 ) (283 ) (74 ) (133 ) (242 ) (194 ) (26 ) (814 ) Tax provision (2,928 ) (3,497 ) (2,657 ) 12,596 (3,011 ) (3,722 ) (3,181 ) 3,514 Depreciation and amortization 6,706 6,779 6,850 6,859 7,020 6,949 6,321 27,194 Stock-based compensation expense 2,804 2,834 4,156 4,479 4,374 4,059 3,866 14,273                 Non-GAAP Adjusted EBITDA $ 114   $ 205   $ 1,951   $ 47,907   $ 3,431   $ 1,228   $ 2,210   $ 50,177     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 EndedMar. 31,Jun. 30,Sep. 30,Dec. 31,Mar. 31,Jun. 30,Sep. 30,Dec. 31,20092009200920092010   2010   20102009   Net cash provided by (used in) operating activities (19,258 ) 2,847 (1,714 ) 72,015 (28,264 ) 5,101 5,271 53,890 Interest expense 88 27 22 20 21 21 - 157 Interest and other income, net (324 ) (283 ) (74 ) (133 ) (242 ) (194 ) (26 ) (814 ) Tax provision (2,928 ) (3,497 ) (2,657 ) 12,596 (3,011 ) (3,722 ) (3,181 ) 3,514 Changes in operating assets and liabilities 24,510 (1,236 ) 7,529 (38,238 ) 33,153 (1,969 ) (2 ) (7,435 ) Other adjustments   (1,974 )   2,347     (1,155 )   1,647     1,774     1,991     148     865   Non-GAAP Adjusted EBITDA   114     205     1,951     47,907     3,431     1,228     2,210     50,177   Less: Purchases of property and equipment (4,158 ) (1,826 ) (3,811 ) (3,969 ) (5,534 ) (4,010 ) (2,729 ) (13,764 ) Less: Capitalized technology & development costs (824 ) (1,114 ) (1,094 ) (859 ) (802 ) (1,247 ) (2,559 ) (3,891 )                 Free cash flow $ (4,868 ) $ (2,735 ) $ (2,954 ) $ 43,079   $ (2,905 ) $ (4,029 ) $ (3,078 ) $ 32,522   Shutterfly, Inc.Gretchen Sloan, 650-610-5276 (Media Relations)gsloan@shutterfly.comJohn Kaelle, 650-610-3541 (Investor Relations)jkaelle@shutterfly.com