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Press release from Business Wire

Shutterfly Announces First Quarter 2012 Financial Results

<ul> <li class='bwlistitemmargb'> Net revenues increase 60% year-over-year to $91.3 million </li> <li class='bwlistitemmargb'> GAAP net loss of ($0.29) per diluted share </li> <li class='bwlistitemmargb'> Adjusted EBITDA of $0.6 million </li> </ul>

Monday, April 30, 2012

Shutterfly Announces First Quarter 2012 Financial Results16:02 EDT Monday, April 30, 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 first quarter ended March 31, 2012. "The first quarter was a solid start to the year for us with strength across all three of our business categories," said President and Chief Executive Officer Jeffrey Housenbold. "Capitalizing on our scale and profitability, we enhanced our product and service offerings, launched Treat, our 1:1 greeting card service and were successful in negotiating the transfer of Kodak Gallery's customer accounts and data to Shutterfly. Our commitment to innovation, design-forward products and services, customer-friendly policies and industry-leading quality continues to resonate well with our existing and new customers as we continue to solidify our market leadership." First Quarter 2012 Financial Highlights Net revenues totaled $91.3 million, a 60% year-over-year increase. First quarter 2012 represents the 45th consecutive quarter of year-over-year net revenue growth. Personalized Products & Services net revenues totaled $70.2 million, a 72% year-over-year increase. Personalized Products & Services net revenues represented 77% of total net revenues. Net revenues from Prints totaled $14.9 million. Commercial Print net revenues totaled $6.2 million, a 171% year-over-year increase. Gross profit margin was 45% of net revenues, compared to 48% in the first quarter of 2011. Operating expenses, excluding $9.2 million of stock-based compensation, totaled $51.2 million. GAAP net loss was ($10.0) million, compared to ($7.8) million in the first quarter of 2011. GAAP net loss per diluted share was ($0.29), compared to ($0.27) in the first quarter of 2011. Adjusted EBITDA was $0.6 million, compared to ($1.9) million in the first quarter of 2011. At March 31, 2012, cash and cash equivalents totaled $143.9 million. First Quarter 2012 Operating MetricsShutterfly Transacting customers totaled 1.6 million, an 18% year-over-year increase. Orders totaled 2.5 million, a 22% year-over-year increase. Average order value was $24.60, a decrease of 8% year-over-year. Tiny Prints (pro forma) Transacting customers totaled 231,000, a 17% year-over-year increase. Orders totaled 322,000, a 29% year-over-year increase. Average order value, excluding 1:1 Greeting Cards, was $96.92, a decrease of 1% year-over-year. Recent Operating Highlights Launched a yearbook solution that provides high quality, affordable ways to commemorate the school year. Introduced Premium Content for Photo Books and a number of creation path enhancements. Launched Treat, our new 1:1 greeting card service. Treat offers consumers an easy and innovative way to create personalized greetings that reflect their style, personality and special relationship. Launched Shutterfly Videograms that allow our customers to tell their stories in a new way by turning their favorite pictures and video clips into a video slideshow with music that can be shared via email and Facebook. Introduced new customized iPhone cases that make great Mother's Day and Father's Day gifts. Updated our Sports and baby share sites to include scoreboards, player emails and an easier way for new parents to share their memories. Added hundreds of new card designs across Shutterfly and Tiny Prints. Expanded designs, color filters and Pearl Paper choices on Wedding Paper Divas. Business Outlook Our business outlook includes the financial impact of our pending Kodak transaction which is expected to close this week. Second Quarter 2012: Net revenues to range from $90 million to $92 million, a year-over-year increase of 19% to 21%. This range assumes minimal revenue from our pending Kodak transaction. GAAP gross profit margin to range from 44% to 45% of net revenues. Non-GAAP gross profit margin to range from 46% to 47% of net revenues. GAAP operating loss to range from ($23.8) million to ($27.3) million. Non-GAAP operating loss to range from ($8.7) million to ($12.2) million. GAAP effective tax rate to be approximately 50%. GAAP diluted net loss per share to range from ($0.33) to ($0.37). Weighted average diluted shares of approximately 36.4 million. Adjusted EBITDA loss to range from ($2.0) million to ($4.0) million. This range assumes approximately $2.0 million to $2.5 million of incremental non-recurring costs due to the pending Kodak transaction related to: Maintaining Kodak Gallery's current network infrastructure and website during the transition phase; Increased storage, power, bandwidth, and technical support costs; and Customer service and marketing costs associated with implementing marketing campaigns that promote the migration of Kodak Gallery's customers to Shutterfly. Full Year 2012: Net revenues to range from $576 million to $586 million, a year-over-year increase of 22% to 24%. This range assumes approximately $21 million in revenue from our pending Kodak transaction. GAAP gross profit margin to range from 52% to 54% of net revenues. Non-GAAP gross profit margin to range from 53% to 55% of net revenues. GAAP operating income to range from $5.0 million to $12.2 million. Non-GAAP operating income to range from $65.0 million to $72.2 million. GAAP effective tax rate to be approximately 50%. GAAP diluted net income per share to range from $0.07 to $0.16. Weighted average diluted shares of 38.3 million. Adjusted EBITDA to range from 16.5% to 17.5% of net revenues. This range assumes the pending Kodak transaction to be breakeven in 2012 on an Adjusted EBITDA basis. Capital expenditures to range from 8.0% to 9.0% of net revenues, reflecting increased data storage requirements associated with the pending Kodak transaction. Notes to the First Quarter 2012 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. First Quarter 2012 Conference Call Management will review the first quarter 2012 financial results, the pending Kodak transaction, and its expectations for the second quarter and full year 2012 on a conference call on Monday, April 30, 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 Monday, May 14, 2012. To hear the replay, please dial (404) 537-3406, replay passcode 72448952. 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. 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 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, our ability to expand our customer base and meet production requirements; our ability to successfully integrate acquired assets, for example, the customers and data we expect to acquire from Kodak Gallery; 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, 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, Weddingpaperdivas.com and Treat.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 http://www.shutterfly.com. Shutterfly, Inc.Consolidated Statement of Operations(In thousands, except per share amounts)(Unaudited)   Three Months EndedMarch 31,2012   2011   Net revenues $ 91,291 $ 57,229 Cost of net revenues   50,053     29,546   Gross profit   41,238     27,683   Operating expenses: Technology and development 18,508 13,113 Sales and marketing 27,038 14,265 General and administrative   14,772     13,291   Total operating expenses   60,318     40,669   Loss from operations (19,080 ) (12,986 ) Interest expense (152 ) - Interest and other income, net   7     14   Loss before income taxes (19,225 ) (12,972 ) Benefit from income taxes   9,185     5,212   Net loss $ (10,040 ) $ (7,760 )     Net loss per share - basic and diluted $ (0.29 ) $ (0.27 )   Weighted-average shares outstanding - basic and diluted   35,199     28,674     Stock-based compensation is allocated as follows:   Cost of net revenues $ 462 $ 175 Technology and development 2,288 914 Sales and marketing 3,150 1,361 General and administrative   3,717     2,785   $ 9,617   $ 5,235     Shutterfly, Inc.Consolidated Balance Sheet(In thousands, except par value amounts)(Unaudited)     March 31,December 31,20122011   ASSETS Current assets: Cash and cash equivalents $ 143,934 $ 179,915 Accounts receivable, net 13,378 12,997 Inventories 3,699 3,726 Deferred tax asset, current portion 598 598 Prepaid expenses and other current assets   37,073   13,870 Total current assets 198,682 211,106 Property and equipment, net 57,860 54,123 Intangible assets, net 91,244 95,016 Goodwill 340,408 340,408 Deferred tax asset, net of current portion 3,785 3,785 Other assets   7,461   5,448 Total assets $ 699,440 $ 709,886   LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 8,575 $ 9,470 Accrued liabilities 30,601 59,271 Deferred revenue   13,178   12,106 Total current liabilities 52,354 80,847 Deferred tax liability 12,700 13,948 Other liabilities   5,949   6,094 Total liabilities   71,003   100,889   Stockholders' equity Common stock, $0.0001 par value; 100,000 shares authorized; 35,638 and 34,839 shares issued and outstanding at March 31, 2012 and December 31, 2011, respectively 4 4 Additional paid-in-capital 618,547 589,067 Accumulated earnings   9,886   19,926 Total stockholders' equity   628,437   608,997 Total liabilities and stockholders' equity $ 699,440 $ 709,886     Shutterfly, Inc.Consolidated Statement of Cash Flows(In thousands)(Unaudited)   Three Months EndedMarch 31,2012   2011   Cash flows from operating activities: Net loss $ (10,040 ) $ (7,760 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 6,011 5,114 Amortization of intangible assets 4,013 719 Stock-based compensation, net of forfeitures 9,617 5,235 Loss/(gain) on disposal of property and equipment (402 ) 11 Deferred income taxes (1,248 ) (466 ) Tax benefit from stock-based compensation 16,334 15,709 Excess tax benefits from stock-based compensation (16,334 ) (15,709 ) Changes in operating assets and liabilities: Accounts receivable, net (381 ) 1,046 Inventories 27 811 Prepaid expenses and other current assets (23,204 ) (19,646 ) Other assets (2,253 ) 38 Accounts payable (2,257 ) (15,403 ) Accrued and other liabilities (28,916 ) (22,072 ) Deferred revenue   1,072     (476 ) Net cash used in operating activities   (47,961 )   (52,849 )   Cash flows from investing activities: Acquisition of intangible assets - (400 ) Purchases of property and equipment (5,037 ) (3,572 ) Capitalization of software and website development costs (3,072 ) (2,318 ) Proceeds from sale of equipment   410     20   Net cash used in investing activities   (7,699 )   (6,270 )   Cash flows from financing activities: Proceeds from issuance of common stock upon exercise of stock options 3,345 7,444 Excess tax benefits from stock-based compensation   16,334     15,709   Net cash provided by financing activities   19,679     23,153     Net decrease in cash and cash equivalents (35,981 ) (35,966 ) Cash and cash equivalents, beginning of period   179,915     252,244   Cash and cash equivalents, end of period $ 143,934   $ 216,278     Supplemental schedule of non-cash investing activities Net change in accrued purchases of property and equipment 1,462 1,874   Shutterfly, Inc.User Metrics Disclosure     Three Months EndedMarch 31,20122011   User Metrics - Shutterfly   Customers 1,581,994 1,335,855 year-over-year growth 18% 25%   Orders 2,517,870 2,063,000 year-over-year growth 22% 23%   Average order value $24.60 $26.64 year-over-year growth -8% 1%   Average orders per customer 1.6x 1.5x   Average order value excludes commercial printing revenue.       Three Months EndedMarch 31,20122011(Pro-Forma)User Metrics - Tiny Prints   Customers 230,625 197,091 year-over-year growth 17%   Orders 321,780 249,365 year-over-year growth 29%   Average order value (excluding 1:1 greeting cards) $96.92 $98.23 year-over-year growth -1%   Average orders per customer 1.4x 1.3x   Shutterfly, Inc.Reconciliation of Forward-Looking Guidance for Non-GAAP Financial Measures to GAAP Measures (In millions, except per share amounts)       Forward-Looking GuidanceGAAP         Non-GAAPRange of EstimateAdjustmentsRange of EstimateFrom   ToFromToFrom   To   Three Months Ending June 30, 2012   Net revenues $90.0$92.0 - - $90.0$92.0 Gross profit margin 44.0% 45.0% 2.0% 2.0% [a] 46.0% 47.0% Operating income ($27.3) ($23.8) $15.1 $15.1 [b] ($12.2) ($8.7) Operating margin (30%) (26%) 16% 17% [b] (14%) (9%)   Stock-based compensation $9.8 $9.8 $9.8 $9.8 - - Amortization of intangible assets $5.3 $5.3 $5.3 $5.3 - -   Adjusted EBITDA* ($4.0) ($2.0)   Diluted loss per share ($0.37) ($0.33) Diluted shares 36.4 36.4 Effective tax rate 50% 50%     Twelve Months Ending December 31, 2012   Net revenues $576.0$586.0 - - $576.0$586.0 Gross profit margin 52.0% 54.0% 1.0% 1.0% [c] 53.0% 55.0% Operating income $5.0 $12.2 $60.0 $60.0 [d] $65.0 $72.2 Operating margin 1% 2% 10% 10% [d] 11% 12%   Stock-based compensation $38.6 $38.6 $38.6 $38.6 - - Amortization of intangible assets $21.4 $21.4 $21.4 $21.4 - -   Adjusted EBITDA* $95 $103 Adjusted EBITDA* margin 16.5% 17.5%   Diluted earnings per share $0.07 $0.16 Diluted shares 38.3 38.3 Effective tax rate 50% 50%   Capital expenditures - % of net revenues 8.0% 9.0%     *   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 $9.8 million and amortization of purchased intangible assets of approximately $5.3 million. [c] Reflects estimated adjustments for stock-based compensation expense of approximately $1.8 million and amortization of purchased intangible assets of approximately $5.6 million. [d] Reflects estimated adjustments for stock-based compensation expense of approximately $38.6 million and amortization of purchased intangible assets of approximately $21.4 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,Dec. 31,201120112011201120122011   GAAP gross profit $ 27,683 $ 35,883 $ 34,876 $ 155,286 $ 41,238 $ 253,728 Stock-based compensation 175 754 584 625 462 2,138 Amortization of intangible assets 611 1,345 1,417 1,425 1,454 4,798             Non-GAAP gross profit $ 28,469   $ 37,982   $ 36,877   $ 157,336   $ 43,154   $ 260,664     Non-GAAP gross profit margin   50 %   50 %   48 %   60 %   47 %   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,Dec. 31,201120112011201120122011   GAAP operating income (loss) $ (12,986 ) $ (21,540 ) $ (22,692 ) $ 72,609 $ (19,080 ) $ 15,391 Stock-based compensation 5,235 12,099 9,822 6,714 9,617 33,870 Amortization of intangible assets 719 3,487 3,961 3,969 4,013 12,136             Non-GAAP operating income (loss) $ (7,032 ) $ (5,954 ) $ (8,909 ) $ 83,292   $ (5,450 ) $ 61,397     Non-GAAP operating margin   (12 %)   (8 %)   (12 %)   32 %   (6 %)   13 %   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,Dec. 31,201120112011201120122011   GAAP net income (loss) $ (7,760 ) $ (3,650 ) $ (9,953 ) $ 35,411 $ (10,040 ) $ 14,048 Interest expense - - - 64 152 64 Interest and other income, net (14 ) (6 ) (5 ) (10 ) (7 ) (35 ) Tax benefit (provision) (5,212 ) (17,884 ) (12,734 ) 37,144 (9,185 ) 1,314 Depreciation and amortization 5,833 9,159 9,534 9,926 10,024 34,452 Stock-based compensation 5,235 12,099 9,822 6,714 9,617 33,870             Non-GAAP Adjusted EBITDA $ (1,918 ) $ (282 ) $ (3,336 ) $ 89,249   $ 561   $ 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,Dec. 31,201120112011201120122011   Net cash provided by (used in) operating activities $ (52,849 ) $ (5,165 ) $ (1,577 ) $ 122,839 $ (47,961 ) $ 63,248 Interest expense - - - 64 152 64 Interest and other income, net (14 ) (6 ) (5 ) (10 ) (7 ) (35 ) Tax benefit (provision) (5,212 ) (17,884 ) (12,734 ) 37,144 (9,185 ) 1,314 Changes in operating assets and liabilities 55,702 23,217 8,962 (74,815 ) 55,912 13,066 Other adjustments   455     (444 )   2,018     4,027     1,650     6,056   Non-GAAP Adjusted EBITDA   (1,918 )   (282 )   (3,336 )   89,249     561     83,713   Less: Purchases of property and equipment (5,446 ) (3,811 ) (9,310 ) (4,994 ) (6,499 ) (23,561 ) Less: Capitalized technology & development costs (2,318 ) (2,726 ) (2,833 ) (2,173 ) (3,072 ) (10,050 )             Free cash flow $ (9,682 ) $ (6,819 ) $ (15,479 ) $ 82,082   $ (9,010 ) $ 50,102     Shutterfly, Inc.Media Relations:Gretchen Sloan, 650-610-5276gsloan@shutterfly.comorInvestor Relations:Michael Look, 650-610-5910mlook@shutterfly.com