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Press release from Business Wire

Shutterfly Announces Fourth Quarter and Full Year 2011 Financial Results

<ul> <li class='bwlistitemmargb'> Fourth Quarter 2011 net revenues increase 59% year-over-year to $263.8 million </li> <li class='bwlistitemmargb'> Full Year 2011 net revenues increase 54% year-over-year to $473.3 million </li> <li class='bwlistitemmargb'> Fourth Quarter GAAP net income of $0.97 per diluted share </li> <li class='bwlistitemmargb'> Record Full Year Adjusted EBITDA of $83.7 million, representing 17.7% of net revenues </li> <li class='bwlistitemmargb'> Record Full Year Free Cash Flows of $50.1 million </li> </ul>

Wednesday, February 01, 2012

Shutterfly Announces Fourth Quarter and Full Year 2011 Financial Results16:02 EST Wednesday, February 01, 2012 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 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 MetricsShutterfly 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 MetricsShutterfly 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 OutlookFirst 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. Shutterfly, Inc.Consolidated Statement of Operations(In thousands, except per share amounts)(Unaudited)   Three Months Ended   Twelve Months EndedDecember 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 31,20112010   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 EndedDecember 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 EndedTwelve Months EndedDecember 31,December 31,2011201020112010   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 1.6x 1.6x 2.3x 2.3x   Average order value excludes commercial printing revenue.     Three Months EndedTwelve Months EndedDecember 31,December 31,2011201020112010(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 1.3x 1.3x 1.4x 1.2x   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   ToFromTo   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 EndedMar. 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 EndedYear EndedMar. 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 EndedYear EndedMar. 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 EndedYear EndedMar. 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 EndedYear EndedMar. 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 EndedYear EndedMar. 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   Shutterfly, Inc.Media Relations:Gretchen Sloan, 650-610-5276gsloan@shutterfly.comInvestor Relations:Michael Look, 650-610-5910mlook@shutterfly.com