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Form 8-K SHUTTERFLY INC For: Oct 30

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October 30, 2015 5:09 PM EDT


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 

Date of Report (Date of Earliest Event Reported): October 27, 2015

 
Shutterfly, Inc.
(Exact Name of the Registrant as Specified in Its Charter)

 
Delaware
(State or Other Jurisdiction of Incorporation)


001-33031
 
94-3330068
(Commission File Number)
 
(IRS Employer Identification No.)
 

 
2800 Bridge Parkway
Redwood City, California
 
94065
(Address of Principal Executive Offices)
 
(Zip Code)


(650) 610-5200
(Registrant’s Telephone Number, Including Area Code)
 

(Former Name or Former Address, If Changed Since Last Report)


Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

[   ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[   ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[   ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2)

[   ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))




Item 2.02.  Results of Operations and Financial Condition.

On October 27, 2015, Shutterfly, Inc. (“Shutterfly”) issued a press release announcing its financial results for the third quarter ended September 30, 2015.

This press release is being furnished as Exhibit 99.01 to this Current Report on Form 8-K and is incorporated herein by this reference.

The information in this report, including the exhibit hereto, is furnished and is not deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of that section.  The information contained herein and in the accompanying exhibit is not incorporated by reference in any filing of Shutterfly under the Securities Act of 1933 or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.

 
Use of Non-GAAP Financial Information
 
Shutterfly has supplemented the financial measures contained in the attached press release that are provided in accordance with generally accepted accounting principles (“GAAP”) with non-GAAP financial measures. Shutterfly believes that these non-GAAP financial measures provide useful information about its core operating results and thus are appropriate to enhance the overall understanding of its past financial performance and its prospects for the future. These adjustments to Shutterfly’s GAAP results are made with the intent of providing both management and investors a more complete understanding of Shutterfly’s underlying operational results and trends and performance. Management uses these non-GAAP measures to evaluate Shutterfly’s financial results, develop budgets, manage expenditures and determine employee compensation. The methods used by Shutterfly to produce non-GAAP financial results may differ from the methods used by other companies.  Shutterfly’s reference to these non-GAAP financial results should be considered in addition to results that are prepared under current accounting standards but should not be considered as a substitute for, or superior to, the financial results that are presented as consistent with GAAP.  Reconciliation to the nearest GAAP financial measures of the non-GAAP financial measures is included in the press release attached hereto as Exhibit 99.01.


Item 9.01.  Financial Statements and Exhibits.

(d)   Exhibits.

Number
 
 
Description
 
99.01
 
Press release, dated October 27, 2015.


 
 






SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
SHUTTERFLY, INC.
 
 
By:
 
/s/ Brian M. Regan
Brian M. Regan
Senior Vice President and Chief Financial Officer

Date:  October 30, 2015

 
 




 

EXHIBIT INDEX


Number
 
 
Description
 
99.01
 
Press release, dated October 28, 2015.

 



 
Shutterfly Announces Third Quarter 2015 Financial Results

●
Net revenues increase 18% year-over-year to $167.5 million representing our 59th consecutive quarter of year-over-year net revenue growth
●
GAAP net loss of $1.73 per share includes estimated $0.48 from a year-to-date tax true-up related to favorable full year forecast
●
Enterprise segment revenues up 100% year-over-year
●
Adjusted EBITDA loss of $4.4 million
●
Increased guidance for the full year for adjusted EBITDA, operating income, GAAP EPS, Non-GAAP EPS, free cash flow, and free cash flow per share

REDWOOD CITY, Calif. October 27, 2015 -- 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 third quarter ended September 30, 2015.

“We are very pleased with our third quarter execution and financial results as we posted our 59th consecutive quarter of year-over-year revenue growth, delivered better than expected profitability and raised our outlook for the year,” said Jeffrey Housenbold, president and chief executive officer of Shutterfly. “We continue to profitably grow our consumer and enterprise businesses, and we are beginning to demonstrate improved margins and deliver meaningful returns as we enter our all-important fourth quarter. We are excited to surpass two significant milestones of more than $1 billion in revenues and more than $100 million in free cash flow this year, and we are well prepared to handle this holiday season’s expected record order volumes with the highest level of execution.”

Third Quarter 2015 Financial Highlights
●
Net revenues totaled $167.5 million, an 18% year-over-year increase.
•
Consumer net revenues totaled $138.0 million, an 8% year-over-year increase.(1) 
•
Enterprise net revenues totaled $29.5 million, a 100% year-over-year increase.(1) 
●
Third quarter 2015 represents the 59th consecutive quarter of year-over-year net revenue growth.
●
Gross profit margin was 36% of net revenues, compared to 37% in the third quarter of 2014.
•
Consumer gross profit margin was 40% of net revenues, compared to 42% in the third quarter of 2014. (1) 
•
Enterprise gross profit margin was 23% of net revenues, compared to 17% in the third quarter of 2014. (1)
●
Operating expenses, excluding $14.8 million of stock-based compensation, totaled $93.8 million, a 6% year-over-year increase.
●
GAAP net loss was $63.1 million, compared to $46.2 million in the third quarter of 2014.


●
GAAP net loss per share was $1.73, compared to $1.20 in the third quarter of 2014.
●
Non-GAAP net loss per share was $1.61, compared to $1.12 in the third quarter of 2014.
●
Adjusted EBITDA loss was $4.4 million, compared to $9.7 million in the third quarter of 2014.
●
At September 30, 2015, cash and investments totaled $142.8 million, reflecting more than $83 million in share repurchases in the third quarter.
●
Total capital expenditures totaled $21.5 million compared to $24.9 million in the third quarter of 2014.
●
In the third quarter of 2015, the Company repurchased 1.9 million shares at an average price of $43.41 under its share repurchase program, including the accelerated stock repurchase agreement, which was entered into the second quarter and settled in the third quarter.

(1) Effective in the fourth quarter of 2014, the Company defined two reportable segments based on factors such as how management manages the operations and how the chief operating decision maker views results. The Company’s two reportable segments are Consumer and Enterprise. Refer to the Segment Disclosure table at the back of the release for segment level disclosures.

Third Quarter 2015 Consumer Operating Metrics
●
Transacting customers totaled 3.1 million, a 24% year-over-year increase.
●
Orders totaled 5.3 million, a 29% year-over-year increase.
●
Average order value was $25.83, a decrease of 16% year-over-year. Average order value without the impact of the Groovebook acquisition and Treat, which was closed during the first quarter, was $29.17, a decrease of 6% year-over-year.

Business Outlook

Fourth Quarter 2015:
•
Net revenues to range from $528.7 million to $548.7 million, a year-over-year increase of 9.4% to 13.5%.
•
GAAP gross profit margin to range from 59.2% to 59.9% of net revenues.
•
Non-GAAP gross profit margin to range from 59.7% to 60.3% of net revenues.
•
GAAP operating income to range from $128.8 million to $139.5 million.
•
Non-GAAP operating income to range from $152.1 million to $162.1 million.
•
GAAP effective tax rate to range from 1.0% to 4.1%.
•
GAAP net income per share to range from $3.46 to $3.64.
•
Weighted average shares of approximately 35.4 million.
•
Adjusted EBITDA to range from $176.7 million to $186.1 million. 

Full Year 2015:


•
Net revenues to range from $1.040 billion to $1.060 billion, a year-over-year increase of 12.8% to 15.0%.
•
GAAP gross profit margin to range from 50.5% to 51.0% of net revenues.
•
Non-GAAP gross profit margin to range from 51.7% to 52.2% of net revenues.
•
GAAP operating income to range from $5.1 million to $15.8 million.
•
Non-GAAP operating income to range from $99.1 million to $109.0 million.
•
GAAP effective tax rate to range from 20.0% to 35.0%.
•
GAAP net loss per share to range from $0.26 to $0.09.
•
Weighted average shares of approximately 36.8 million.
•
Adjusted EBITDA to range from $187.1 million to $196.5 million, or 18.0% to 18.5% of net revenues.
•
Free cash flow to range from $103.9 million to $107.5 million.
•
Capital expenditures to range from 8.0% to 8.4% of net revenues.
 
CFO Transition
Simultaneous with this release, the Company filed a Form 8-K announcing that Mike Pope will join Shutterfly today as SVP and transition the CFO duties through November 6, 2015, when Brian Regan leaves the Company to join a private equity firm. 

Notes to the Third Quarter 2015 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.
Non-GAAP earnings per share is defined as non-GAAP net income (loss), which excludes interest expense related to the Company’s issuance of 0.25% convertible senior notes in May 2013, divided by diluted non-GAAP shares outstanding, which is GAAP diluted weighted average shares outstanding less any shares issuable under the Company’s convertible senior notes.
Consumer segment includes net revenues from stationery and greeting cards, photo books, calendars and photo-based merchandise, photo prints, and the related shipping revenues and rental revenue. Consumer also includes net revenues from advertising and sponsorship programs. 
Enterprise segment 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.

Third Quarter 2015 Conference Call
Management will review the third quarter 2015 financial results and its expectations for the fourth quarter and full year 2015 on a conference call on Tuesday, October 27, 2015 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.shutterflyinc.com. In the Investor Relations area, click on the link provided for the webcast, or dial 877-303-4375 or 970-315-0490.  The webcast, as well as a podcast, will be archived and


available at http://www.shutterflyinc.com.  A replay of the conference call will be available through Monday, November 9, 2015. To hear the replay, please dial 855-859-2056 or 404-537-3406, replay conference ID is 60203467.
 
Non-GAAP Financial Information
This press release contains non-GAAP financial measures.  Tables are provided at the end of this press release that reconcile the non-GAAP financial measures that the Company uses 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 profit margin, non-GAAP operating income (loss) and operating margin, adjusted EBITDA, free cash flow, and non-GAAP net income (loss) per share. 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.
 
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 gross margins, operating income (loss), net income (loss) or net income (loss) per share determined in accordance with GAAP. For more information, please see Shutterfly's SEC Filings, including the most recent Form 10-K and Form 10-Q, which are available on the Securities and Exchange Commission's Web site at www.sec.gov.
  
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, that involve risks and uncertainties. These forward-looking statements include statements regarding the Company's growth and financial expectations for the fourth quarter and full year 2015 set forth under the caption "Business Outlook," and statements about historical results that may suggest trends for our business. 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; changes in consumer discretionary spending as a result of the macroeconomic environment; the loss of sales partners for our products; 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 and pricing strategies of our competitors, 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" section of the Company's most recent Form 10-K and Form 10-Q, 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; MyPublisher, one of the pioneers in the photo book industry and creator of easy-to-use photo book-making software; ThisLife, a private, cloud-based solution that makes it easy for consumers to find, share and enjoy their photos and videos, all in one place; GrooveBook, a mobile photo book app subscription service that sends customers a keepsake book of their mobile photos each month; and BorrowLenses, the premier online marketplace for photographic and video equipment rentals. For more information about Shutterfly, Inc. (NASDAQ: SFLY), visit www.shutterflyinc.com.
Contacts
Media Relations:
Gretchen Sloan, 650-610-5276
 

Investor Relations:
Christiane Pelz, 650-632-2310




Shutterfly, Inc.
Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)


 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
 
Net revenues
$
167,492

 
$
142,008

 
$
511,349

 
$
438,255

Cost of net revenues
107,991

 
89,726

 
299,345

 
249,404

Gross profit
59,501

 
52,282

 
212,004

 
188,851

Operating expenses:
 
 
 
 
 
 
 
Technology and development
38,066

 
33,488

 
111,928

 
97,102

Sales and marketing
43,052

 
42,082

 
138,028

 
128,695

General and administrative
27,449

 
25,639

 
85,730

 
77,289

Total operating expenses
108,567

 
101,209

 
335,686

 
303,086

Loss from operations
(49,066
)
 
(48,927
)
 
(123,682
)
 
(114,235
)
Interest expense
(5,613
)
 
(4,381
)
 
(15,334
)
 
(12,184
)
Interest and other income, net
433

 
102

 
655

 
383

Loss before income taxes
(54,246
)
 
(53,206
)
 
(138,361
)
 
(126,036
)
Benefit from/(provision for) income taxes
(8,831
)
 
6,962

 
6,404

 
18,526

Net loss
$
(63,077
)
 
$
(46,244
)
 
$
(131,957
)
 
$
(107,510
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss per share - basic and diluted
$
(1.73
)
 
$
(1.20
)
 
$
(3.54
)
 
$
(2.79
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted-average shares outstanding - basic and diluted
36,369

 
38,453

 
37,291

 
38,470

 
 
 
 
 
 
 
 
Stock-based compensation is allocated as follows:
 
 
 
 
 
 
 
Cost of net revenues
$
952

 
$
886

 
$
3,145

 
$
2,782

Technology and development
2,443

 
1,320

 
7,744

 
6,196

Sales and marketing
5,329

 
5,591

 
17,202

 
16,837

General and administrative
7,032

 
5,991

 
21,740

 
18,679

 
$
15,756

 
$
13,788

 
$
49,831

 
$
44,494




Shutterfly, Inc.
Consolidated Balance Sheets
(In thousands, except par value amounts)
(Unaudited)

 
September 30,
 
December 31,
 
2015
 
2014
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
96,451

 
$
380,543

Short-term investments
37,616

 
64,866

Accounts receivable, net
48,902

 
31,105

Inventories
11,610

 
13,016

Deferred tax asset, current portion
36,652

 
34,645

Prepaid expenses and other current assets
37,751

 
24,983

Total current assets
268,982

 
549,158

Long-term investments
8,718

 
29,928

Property and equipment, net
285,566

 
241,742

Intangible assets, net
68,187

 
87,950

Goodwill
408,975

 
408,975

Deferred tax asset, net of current portion
549

 
549

Other assets
11,992

 
13,976

Total assets
$
1,052,969

 
$
1,332,278

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
14,904

 
$
30,086

Accrued liabilities
76,047

 
135,485

Deferred revenue
25,590

 
31,415

Total current liabilities
116,541

 
196,986

Convertible senior notes, net
264,452

 
255,218

Deferred tax liability
35,734

 
48,090

Other liabilities
114,672

 
74,178

Total liabilities
531,399

 
574,472

Stockholders’ equity:
 
 
 
Common stock, $0.0001 par value; 100,000 shares authorized; 35,446 and 37,906 shares issued and outstanding on September 30, 2015 and December 31, 2014, respectively
4

 
4

Additional paid-in capital
901,737

 
838,313

Accumulated other comprehensive income/(loss)
30

 
(53
)
Accumulated deficit
(380,201
)
 
(80,458
)
Total stockholders' equity
521,570

 
757,806

Total liabilities and stockholders' equity
$
1,052,969

 
$
1,332,278




Shutterfly, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 
Nine Months Ended
 
September 30,
 
2015
 
2014
Cash flows from operating activities:
 
 
 
Net loss
$
(131,957
)
 
$
(107,510
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation and amortization
63,435

 
46,079

Amortization of intangible assets
20,798

 
25,853

Amortization of debt discount and debt issuance costs
10,163

 
9,610

Stock-based compensation, net of forfeitures
49,831

 
44,494

Loss on disposal of property and equipment and rental assets
1,475

 
51

Deferred income taxes
(14,414
)
 
(14,852
)
Tax benefit from stock-based compensation
13,041

 
13,713

Excess tax benefits from stock-based compensation
(13,666
)
 
(14,102
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable, net
(17,797
)
 
(4,338
)
Inventories
1,406

 
(6,650
)
Prepaid expenses and other current assets
(12,767
)
 
(22,064
)
Other assets
621

 
(2,391
)
Accounts payable
(14,157
)
 
(5,710
)
Accrued and other liabilities
(66,401
)
 
(62,447
)
Deferred revenue
(5,825
)
 
7,719

Other non-current liabilities
8,514

 
(496
)
Net cash used in operating activities
(107,700
)
 
(93,041
)
 
 
 
 
Cash flows from investing activities:
 
 
 
Purchases of property and equipment
(46,448
)
 
(56,872
)
Capitalization of software and website development costs
(15,448
)
 
(15,539
)
Purchases of investments
(4,400
)
 
(117,329
)
Maturities and sales of investments
52,460

 
15,520

Proceeds from sale of property and equipment and rental assets
1,128

 
743

Acquisition of business and intangible assets, net of cash acquired
(127
)
 
—

Net cash used in investing activities
(12,835
)
 
(173,477
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Proceeds from issuance of common stock upon exercise of stock options
2,670

 
3,058

Repurchases of common stock
(134,084
)
 
(50,520
)
Prepayment of accelerated share repurchase
(75,000
)
 
—

Refund of accelerated share repurchase
38,179

 
—

Excess tax benefits from stock-based compensation
13,666

 
14,102

Principal payments of capital lease and financing obligations
(8,988
)
 
(1,541
)
Net cash used in financing activities
(163,557
)
 
(34,901
)
 
 
 
 
Net decrease in cash and cash equivalents
(284,092
)
 
(301,419
)
Cash and cash equivalents, beginning of period
380,543

 
499,084

Cash and cash equivalents, end of period
$
96,451

 
$
197,665

 
 
 
 
Supplemental schedule of non-cash activities:
 
 
 
Net increase/(decrease) in accrued purchases of property and equipment
$
(154
)
 
$
1,050

Net increase in accrued capitalized software and website development costs
363

 
981

Increase in estimated fair market value of buildings under build-to-suit leases
17,161

 
17,575

Property and equipment acquired under capital leases
29,097

 
6,831

Amount due from adjustment of net working capital from acquired business
—

 
253



Shutterfly, Inc.
Consumer Metrics Disclosure

 
Three Months Ended September 30,
 
2015
 
2014
Consumer Metrics
 
 
 
Customers
3,112,094

 
2,516,567

   year-over-year growth
24
 %
 
 
 
 
 
 
Orders
5,343,650

 
4,156,382

   year-over-year growth
29
 %
 
 
 
 
 
 
Average order value*
$
25.83

 
$
30.63

   year-over-year growth
(16
)%
 
 

* Average order value excludes Enterprise revenue.



Shutterfly, Inc.
Segment Disclosure
(In thousands)
(Unaudited)

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Consumer
 
 
 
 
 
 
 
Net revenues
$
138,025

 
$
127,299

 
$
458,087

 
$
408,072

Cost of net revenues
82,760

 
73,845

 
246,925

 
212,503

Gross margin
55,265

 
53,454

 
211,162

 
195,569

Consumer gross margin
40.0
%
 
42.0
%
 
46.1
%
 
47.9
%
 
 
 
 
 
 
 
 
Enterprise
 
 
 
 
 
 
 
Net revenues
29,467

 
14,709

 
53,262

 
30,183

Cost of net revenues
22,566

 
12,173

 
42,699

 
25,651

Gross margin
6,901

 
2,536

 
10,563

 
4,532

Enterprise gross margin
23.4
%
 
17.2
%
 
19.8
%
 
15.0
%
 
 
 
 
 
 
 
 
Corporate (1)
 
 
 
 
 
 
 
Net revenues
—

 
—

 
—

 
—

Cost of net revenues
2,665

 
3,708

 
9,721

 
11,250

Gross margin
(2,665
)
 
(3,708
)
 
(9,721
)
 
(11,250
)
 
 
 
 
 
 
 
 
Consolidated
 
 
 
 
 
 
 
Net revenues
167,492

 
142,008

 
511,349

 
438,255

Cost of net revenues
107,991

 
89,726

 
299,345

 
249,404

Gross margin
$
59,501

 
$
52,282

 
$
212,004

 
$
188,851

 
 
 
 
 
 
 
 
GAAP gross margin
35.5
%
 
36.8
%
 
41.5
%
 
43.1
%
 
 
 
 
 
 
 
 
Non-GAAP gross margin
37.1
%
 
39.4
%
 
43.4
%
 
45.7
%

(1) Corporate category includes activities that are not directly attributable or allocable to a specific segment. This category consists of stock-based compensation and amortization of intangible assets.



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
Range of Estimate
 
Adjustments
 
Non-GAAP
Range of Estimate
 
 
From
 
To
 
From
 
To
 
From
 
To
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ending December 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Net revenues

$528.7

 

$548.7

 
—

 
—

 

$528.7

 

$548.7

 
   Gross profit margin
59.2
%
 
59.9
%
 
0.5
%
 
0.4
%
[a]
59.7
%
 
60.3
%
 
   Operating income

$128.8

 

$139.5

 

$23.3

 

$22.6

[b]

$152.1

 

$162.1

 
   Operating margin
24.4
%
 
25.4
%
 
4.4
%
 
4.1
%
[b]
28.8
%
 
29.5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Stock-based compensation

$17.2

 

$16.4

 

$17.2

 

$16.4

 
—

 
—

 
   Amortization of intangible assets

$6.2

 

$6.2

 

$6.2

 

$6.2

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Adjusted EBITDA*
 
 
 
 
 
 
 
 

$176.7

 

$186.1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Diluted earnings per share

$3.46

 

$3.64

 

$0.10

 

$0.10

[e]

$3.56

 

$3.74

 
   Weighted average diluted shares
35.4

 
35.4

 
 
 
 
 
 
 
 
 
   Effective tax rate
1.0
%
 
4.1
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Twelve Months Ending December 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Net revenues

$1,040.0

 

$1,060.0

 
—

 
—

 

$1,040.0

 

$1,060.0

 
   Gross profit margin
50.5
%
 
51.0
%
 
1.2
%
 
1.2
%
[c]
51.7
%
 
52.2
%
 
   Operating income

$5.1

 

$15.8

 

$94.0

 

$93.2

[d]

$99.1

 

$109.0

 
   Operating margin
0.5
%
 
1.5
%
 
9.0
%
 
8.8
%
[d]
9.5
%
 
10.3
%
 
   Operating income excluding restructuring

$5.1

 

$15.8

 

$11.3

 

$12.3

[g]

$16.4

 

$28.1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Stock-based compensation

$67.0

 

$66.2

 

$67.0

 

$66.2

 
—

 
—

 
   Amortization of intangible assets

$27.0

 

$27.0

 

$27.0

 

$27.0

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Adjusted EBITDA*
 
 
 
 
 
 
 
 

$187.1

 

$196.5

 
   Adjusted EBITDA* margin
 
 
 
 
 
 
 
 
18.0
%
 
18.5
%
 
   Adjusted EBITDA* excluding restructuring
 
 
 
 
 
 
 
 

$197.1

 

$207.5

[h]
   Adjusted EBITDA* margin excluding restructuring
 
 
 
 
 
 
 
 
19.0
%
 
19.6
%
[h]
 
 
 
 
 
 
 
 
 
 
 
 
 
   Diluted earnings/(loss) per share

($0.26
)
 

($0.09
)
 

$0.25

 

$0.31

[f]

($0.01
)
 

$0.22

 
Weighted average diluted shares
36.8

 
36.8

 
 
 
 
 
 
 
 
 
   Effective tax rate
35.0
%
 
20.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Capital expenditures - % of net revenues
8.0
%
 
8.4
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
* 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 $1.0 million to $1.1 million and amortization of purchased intangible assets of approximately $1.5 million.
[b] Reflected estimated adjustment for stock-based compensation expense of approximately $16.4 million to $17.2 million, and amortization of purchased intangible assets of approximately $6.2 million.
[c] Reflects estimated adjustments for stock-based compensation expense of approximately $4.1 million to $4.2 million and amortization of purchased intangible assets of approximately $8.1 million.
[d] Reflects estimated adjustments for stock-based compensation expense of approximately $66.2 million to $67.0 million and amortization of purchased intangible assets of approximately $27.0 million.
[e] Reflects estimated adjustments for interest expense of approximately $3.6 million, net of tax.
[f] Reflects estimated adjustments for interest expense of approximately $10.8 million to $12.2 million, net of tax.


 
[g] Reflects a range of estimated adjustments for the following restructuring events:
 
From
 
To
 
 
 
 
 
 
 
 
 
Platform consolidation
$
3.0

 
$
3.5

 
 
 
 
 
 
 
 
 
Facility closure/consolidation and Treat shutdown
5.0

 
5.5

 
 
 
 
 
 
 
 
 
Depreciation and amortization [1]
1.3

 
1.3

 
 
 
 
 
 
 
 
 
Proxy-related costs
2.0

 
2.0

 
 
 
 
 
 
 
 
 
 
$
11.3

 
$
12.3

 
 
 
 
 
 
 
 
 
[1] Includes accelerated depreciation of capitalized website costs and amortization of intangible assets.
[h] Reflects estimated adjustments for platform consolidation, facility closure and consolidations, Treat shutdown (excluding depreciation and amortization), and proxy-related costs of approximately $10.0 million to $11.0 million.


Shutterfly, Inc.
Reconciliation of GAAP Gross Profit Margin to Non-GAAP Gross Profit Margin
(In thousands)
(Unaudited)
 
Three Months Ended
 
Year Ended
 
Mar. 31,
 
Jun. 30,
 
Sep. 30,
 
Dec. 31,
 
Mar. 31,
 
Jun. 30,
 
Sep. 30,
 
Dec. 31,
 
2014
 
2014
 
2014
 
2014
 
2015
 
2015
 
2015
 
2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP gross profit
$
60,756

 
$
75,813

 
$
52,282

 
$
280,009

 
$
65,271

 
$
87,232

 
$
59,501

 
$
468,860

Stock-based compensation
1,002

 
894

 
886

 
875

 
1,192

 
1,001

 
952

 
3,657

Amortization of intangible assets
2,823

 
2,823

 
2,822

 
2,874

 
2,849

 
2,014

 
1,713

 
11,342

Non-GAAP gross profit
$
64,581

 
$
79,530

 
$
55,990

 
$
283,758

 
$
69,312

 
$
90,247

 
$
62,166

 
$
483,859

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-GAAP gross profit margin
47%

 
50%

 
39%

 
59%

 
43%

 
49
%
 
37
%
 
53%


Shutterfly, Inc.
Reconciliation of GAAP Operating Margin to Non-GAAP Operating Margin
(In thousands)
(Unaudited)
 
Three Months Ended
 
Year Ended
 
Mar. 31,
 
Jun. 30,
 
Sep. 30,
 
Dec. 31,
 
Mar. 31,
 
Jun. 30,
 
Sep. 30,
 
Dec. 31,
 
2014
 
2014
 
2014
 
2014
 
2015
 
2015
 
2015
 
2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP operating income (loss)
$
(38,611
)
 
$
(26,697
)
 
$
(48,927
)
 
$
120,480

 
$
(46,224
)
 
$
(28,392
)
 
$
(49,066
)
 
$
6,245

Stock-based compensation
15,992

 
14,714

 
13,788

 
17,268

 
17,760

 
16,315

 
15,756

 
61,762

Amortization of intangible assets
8,583

 
8,740

 
8,530

 
8,014

 
7,684

 
6,735

 
6,379

 
33,867

Non-GAAP operating income (loss)
$
(14,036
)
 
$
(3,243
)
 
$
(26,609
)
 
$
145,762

 
$
(20,780
)
 
$
(5,342
)
 
$
(26,931
)
 
$
101,874

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-GAAP operating margin
(10
)%
 
(2
)%
 
(19
)%
 
30
%
 
(13
)%
 
(3
)%
 
(16
)%
 
11
%

Shutterfly, Inc.
Reconciliation of Net Income (Loss) to Non-GAAP Adjusted EBITDA
(In thousands)
(Unaudited)
 
Three Months Ended
 
Year Ended
 
Mar. 31,
 
Jun. 30,
 
Sep. 30,
 
Dec. 31,
 
Mar. 31,
 
Jun. 30,
 
Sep. 30,
 
Dec. 31,
 
2014
 
2014
 
2014
 
2014
 
2015
 
2015
 
2015
 
2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP net income (loss)
$
(34,214
)
 
$
(27,052
)
 
$
(46,244
)
 
$
99,650

 
$
(45,103
)
 
$
(23,777
)
 
$
(63,077
)
 
$
(7,860
)
Interest Expense
3,947

 
3,856

 
4,381

 
4,548

 
4,736

 
4,985

 
5,613

 
16,732

Interest and other income, net
(227
)
 
(54
)
 
(102
)
 
(125
)
 
(102
)
 
(120
)
 
(433
)
 
(508
)
Tax (benefit) provision
(8,117
)
 
(3,447
)
 
(6,962
)
 
16,407

 
(5,755
)
 
(9,480
)
 
8,831

 
(2,119
)
Depreciation and amortization
22,805

 
23,712

 
25,415

 
26,820

 
27,593

 
27,707

 
28,933

 
98,752

Stock-based compensation
15,992

 
14,714

 
13,788

 
17,268

 
17,760

 
16,315

 
15,756

 
61,762

Non-GAAP Adjusted EBITDA
$
186

 
$
11,729

 
$
(9,724
)
 
$
164,568

 
$
(871
)
 
$
15,630

 
$
(4,377
)
 
$
166,759




Shutterfly, Inc.
Reconciliation of Cash Flow from Operating Activities to Non-GAAP Adjusted EBITDA
(In thousands)
(Unaudited)
 
Three Months Ended
 
Year Ended
 
Mar. 31,
 
Jun. 30,
 
Sep. 30,
 
Dec. 31,
 
Mar. 31,
 
Jun. 30,
 
Sep. 30,
 
Dec. 31,
 
2014
 
2014
 
2014
 
2014
 
2015
 
2015
 
2015
 
2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net cash provided by (used in) operating activities
$
(97,473
)
 
$
12,282

 
$
(7,850
)
 
$
259,529

 
$
(107,731
)
 
$
22,171

 
$
(22,140
)
 
$
166,488

Interest Expense
3,947

 
3,856

 
4,381

 
4,548

 
4,736

 
4,985

 
5,613

 
16,732

Interest and other income, net
(227
)
 
(54
)
 
(102
)
 
(125
)
 
(102
)
 
(120
)
 
(433
)
 
(508
)
Tax (benefit) provision
(8,117
)
 
(3,447
)
 
(6,962
)
 
16,407

 
(5,755
)
 
(9,480
)
 
8,831

 
(2,119
)
Changes in operating assets and liabilities
106,531

 
(7,633
)
 
(2,521
)
 
(100,737
)
 
113,075

 
(6,803
)
 
134

 
(4,360
)
Other adjustments
(4,475
)
 
6,725

 
3,330

 
(15,054
)
 
(5,094
)
 
4,877

 
3,618

 
(9,474
)
Non-GAAP Adjusted EBITDA
186

 
11,729

 
(9,724
)
 
164,568

 
(871
)
 
15,630

 
(4,377
)
 
166,759

Less: Purchase of property and equipment
(16,419
)
 
(22,734
)
 
(18,769
)
 
(10,573
)
 
(13,978
)
 
(17,199
)
 
(15,117
)
 
(68,495
)
Less: Capitalized technology & development costs
(5,112
)
 
(5,324
)
 
(6,084
)
 
(5,228
)
 
(4,072
)
 
(5,386
)
 
(6,353
)
 
(21,748
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Free cash flow
$
(21,345
)
 
$
(16,329
)
 
$
(34,577
)
 
$
148,767

 
$
(18,921
)
 
$
(6,955
)
 
$
(25,847
)
 
$
76,516


Shutterfly, Inc.
Reconciliation of Net Income (Loss) per Share to Non-GAAP Net Income (Loss) per Share
(In thousands)
(Unaudited)
 
Three Months Ended
 
Year Ended
 
Mar. 31,
 
Jun. 30,
 
Sep. 30,
 
Dec. 31,
 
Mar. 31,
 
Jun. 30,
 
Sep. 30,
 
Dec. 31,
 
2014
 
2014
 
2014
 
2014
 
2015
 
2015
 
2015
 
2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP net income (loss)
$
(34,214
)
 
$
(27,052
)
 
$
(46,244
)
 
$
99,650

 
$
(45,103
)
 
$
(23,777
)
 
$
(63,077
)
 
$
(7,860
)
Add back interest expense related to:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Amortization of debt discount
2,870

 
2,911

 
2,951

 
2,994

 
3,035

 
3,078

 
3,120

 
11,726

   Amortization of debt issuance costs
288

 
293

 
297

 
301

 
305

 
310

 
314

 
1,179

   0.25% coupon
188

 
187

 
187

 
188

 
187

 
188

 
188

 
750

   Tax effect
(637
)
 
(438
)
 
(395
)
 
(1,430
)
 
(391
)
 
(731
)
 
769

 
(2,900
)
Non-GAAP net income (loss)
$
(31,505
)
 
$
(24,099
)
 
$
(43,204
)
 
$
101,703

 
$
(41,967
)
 
$
(20,932
)
 
$
(58,686
)
 
$
2,895

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP basic shares outstanding
38,503

 
38,438

 
38,453

 
38,412

 
37,968

 
37,537

 
36,369

 
38,452

Add back:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dilutive effect of stock options and restricted awards
—

 
—

 
—

 
1,219

 
—

 
—

 
—

 
—

GAAP diluted shares outstanding
38,503

 
38,438

 
38,453

 
39,631

 
37,968

 
37,537

 
36,369

 
38,452

Add back:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dilutive effect of stock options and restricted awards
—

 
—

 
—

 
—

 
—

 
—

 
—

 
1,442

   Dilutive effect of convertible notes
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Non-GAAP diluted shares outstanding
38,503

 
38,438

 
38,453

 
39,631

 
37,968

 
37,537

 
36,369

 
39,894

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP net income (loss) per share
$
(0.89
)
 
$
(0.70
)
 
$
(1.20
)
 
$
2.51

 
$
(1.19
)
 
$
(0.63
)
 
$
(1.73
)
 
$
(0.20
)
Non-GAAP net income (loss) per share
$
(0.82
)
 
$
(0.63
)
 
$
(1.12
)
 
$
2.57

 
$
(1.11
)
 
$
(0.56
)
 
$
(1.61
)
 
$
0.07




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