EX-99.1 2 sfly-12312017resultsreleas.htm EXHIBIT 99.1 Exhibit


image0a10.jpg 
Shutterfly Announces Fourth Quarter and Full Year 2017 Financial Results


REDWOOD CITY, Calif. January 30, 2018 -- Shutterfly, Inc. (NASDAQ:SFLY), the leading online retailer and manufacturer of high-quality personalized products and services, today announced financial results for the fourth quarter and full year ended December 31, 2017.

“Q4 was a strong conclusion to a year in which we made significant strides in positioning Shutterfly for long-term, profitable growth,” said Christopher North, President and Chief Executive Officer. “I’m proud of the effort from the Shutterfly team which has allowed us to bring our customers together on a single consumer platform, re-focusing on Shutterfly and Tiny Prints, our two strongest Consumer brands. We exceeded the high-end of guidance on all major metrics thanks to organic growth in the Shutterfly brand, good retention of customers and revenues from legacy websites, accelerating mobile growth, overperformance by Shutterfly Business Solutions, and continued expense control.”

North continued, “At the same time, today we announced a definitive agreement to acquire Lifetouch, the leader in school photography. Lifetouch is a strong strategic fit, bringing significant synergies while adding scale and profitability. With this acquisition, and continued growth in our existing Shutterfly business, we are targeting a minimum of $450 million of Adjusted EBITDA by 2020.” Please see our separate press release announcing Shutterfly’s definitive agreement to acquire privately-held Lifetouch.

Fourth Quarter 2017 Financial Highlights

Net revenues totaled $593.8 million, a 6% year-over-year increase. Consumer net revenues totaled $521.8 million, flat year-over-year which were better than anticipated, as growth in the Shutterfly brand was offset by loss of revenue from the three websites we shut down. Shutterfly Business Solutions net revenues totaled $71.9 million, an 81% year-over-year increase.

GAAP Operating income totaled $179.0 million, a $25.2 million or 16% year-over-year increase. Net income was $111.7 million or $3.37 per share. Adjusted EBITDA was $215.6 million, a $20.8 million or 11% year-over-year increase.

On a proforma basis, which excludes a benefit from tax reform of $8.9 million, Net income was $102.8 million, an increase of $11.9 million or 13%, and Earnings per share increased $0.48 per share to $3.11 per share.

During the fourth quarter of 2017, we repurchased a total of 660 thousand shares for $30.0 million bringing our year-to-date repurchases to over 2.3 million shares and total share repurchases for 2017 to $110.0 million.





1


Full Year 2017 Financial Highlights

Net revenues totaled $1,190.2 million, a 5% year-over-year increase. Consumer net revenues totaled $997.0 million, flat year-over-year as anticipated, as growth in the Shutterfly brand was offset by loss of revenue from the three websites we shut down. Shutterfly Business Solutions net revenues totaled $193.2 million, a 41% year-over-year increase.

GAAP Operating income totaled $61.6 million and Net income was $30.1 million or $0.88 per share.

On a proforma basis, our operating income was $86.7 million[1], a $37.6 million or a 76% year-over-year increase. Adjusted EBITDA was $234.1 million[2], a $25.6 million or 12% year-over-year increase and Net income was $35.8 million[2], a $19.9 million or 125% year-over-year increase. Earnings per share increased $0.60 per share to $1.05 per share.


[1] Normalized for restructuring charges of $17.0 million and capital lease termination charges of $8.1 million.
[2] Refer to page 14 for reconciliation of GAAP net income to Non-GAAP net income and reconciliation of GAAP net income to Non-GAAP Adjusted EBITDA.

2


Business Outlook [1] 
Full Year 2018:
●
Net revenues to range from $1,220.0 million to $1,260.0 million
●
Consumer revenue to range from $1,020.0 million to $1,050.0 million
●
We anticipate mid-to-high single digit Shutterfly brand growth will be offset by lost revenue from the three websites we shut down
●
We expect Consumer revenue to increase throughout the year. We expect a mid-single digit Consumer decline in the first half of 2018, a return to modest growth in the third quarter of 2018, and high-single digit growth in the fourth quarter of 2018, our first, true like-for-like comparable period
●
SBS revenue to range from $200.0 million to $210.0 million
●
Gross profit margin to range from 48.5% to 49.5% of net revenues
●
Operating income to range from $115.0 million to $135.0 million
●
Effective tax rate of 26.0%
●
Net income per share to range from $1.94 to $2.38
●
Weighted average shares of approximately 33.9 million
●
Adjusted EBITDA to range from $260.0 million to $280.0 million
●
Capital expenditures to be approximately $65.0 million

First Quarter 2018:
●
Net revenues to range from $190.0 million to $194.0 million
●
Consumer net revenue expected to decline mid-single digits over the first quarter of 2017
●
Gross profit margin to range from 38.0% to 38.5% of net revenues
●
Operating loss to range from $34.0 million to $32.0 million
●
Effective tax rate of 26.0%
●
Net loss per share to range from $0.96 to $0.92
●
Weighted average shares of approximately 32.5 million
●
Adjusted EBITDA to range from $3.0 million to $5.0 million

[1] Excludes Lifetouch and acquisition-related expenses.





3


Notes to the Fourth Quarter 2017 Financial Results and Operating Metrics and 2018 Business Outlook
Adjusted EBITDA is a non-GAAP financial measure that the Company defines as earnings before interest, taxes, depreciation, amortization, stock-based compensation, capital lease termination, and restructuring.
Adjusted EBITDA minus capital expenditures 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.
Free cash flow is a non-GAAP financial measure that the Company defines as cash provided by operating activities less capital expenditures.
Consumer segment includes net revenues from cards and stationery, professionally-bound photo books, home décor, personalized gifts, high quality prints, and other photo-based merchandise, and the related shipping revenues as well as rental revenue from the BorrowLenses brand. Consumer also includes net revenues from advertising displayed in the Company’s website.
Shutterfly Business Solutions (SBS) includes net revenues generated from the printing and shipping of marketing and variable data print products and formats.
Average Order Value (AOV) is defined as total net revenues (excluding SBS) 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 Conference Call
Management will review the fourth quarter 2017 financial results and its expectations for the first quarter and full year 2018 on a conference call on Tuesday, January 30, 2018 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 (888) 243-4451 or (412) 542-4135, and ask to be to be joined into the Shutterfly call.  The webcast will be archived and available at http://www.shutterflyinc.com in the Investor Relations section.  A replay of the conference call will be available through Tuesday, February 13, 2018. To hear the replay, please dial (877) 344-7529 or (412) 317-0088 and enter access code 10116000.

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 net income (loss) and net income (loss) per share, adjusted EBITDA, adjusted EBITDA minus capital expenditures, and free cash flow. The method the Company uses to produce non-GAAP financial measures is not computed according to GAAP and may differ from methods used by other companies.
 
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

4


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 cash flows provided by (used in) operating activities 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.

We have provided a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure, where possible, except that we have not reconciled our 2020 non-GAAP Adjusted EBITDA target of $450 million to comparable GAAP operating income at this stage of the process because it is unreasonably difficult to provide guidance for stock-based compensation expense, capitalization and amortization of internal-use software and charges related to the proposed acquisition, which are reconciling items between GAAP operating loss and non-GAAP Adjusted EBITDA. The factors that may impact our future stock-based compensation expense and capitalization and amortization of internal-use software are out of our control and/or cannot be reasonably predicted, and therefore we are unable to provide such guidance without unreasonable effort. Factors include our market capitalization and related volatility of our stock price and our inability to project the cost or scope of internally produced software and charges related to the proposed acquisition during this time period.

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 our expected positioning for long-term, profitable growth; our minimum Adjusted EBITDA targets by 2020; our business outlook for the first quarter and full year 2018; and statements about historical results that may suggest trends for our business. You can identify these statements by the use of terminology such as “guidance”, “believe”, “expect”, “will”, “should,” “could”, “estimate”, “anticipate” or similar forward-looking terms. You should not rely on these forward-looking statements as they involve risks and uncertainties that may cause actual results to vary materially from the forward-looking statements. Factors that might contribute to such differences include, among others, decreased consumer discretionary spending as a result of general economic conditions; our ability to expand our customer base and increase sales to existing customers; our ability to 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 innovative, new products and services on a timely and cost-effective basis; failure to realize the anticipated benefits of our 2017 restructuring activities; consumer acceptance of our products and services; our ability to develop additional adjacent lines of business; unforeseen changes in expense levels; competition and the pricing strategies of our competitors, which could lead to pricing pressure; the possibility that the closing conditions to the proposed Lifetouch acquisition may not be satisfied or waived, including that a governmental entity may prohibit, delay or refuse to grant a regulatory approval; delay in closing the Lifetouch acquisition or the possibility of non-consummation of the transaction; the risk of stockholder litigation in connection with contemplated Lifetouch Acquisition; the retention of Lifetouch employees and our ability to successfully integrate the Lifetouch businesses; risks inherent in the achievement of anticipated synergies and the timing thereof; and general economic conditions and changes in laws and regulations. For more information regarding the risks and uncertainties that could cause

5


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 our SEC filings, including our most recent Form 10-K and 10-Q, 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 online retailer and manufacturer of high-quality personalized products and services. Founded in 1999, the Shutterfly, Inc. brands includes Shutterfly, where your photos come to life in photo books, gifts, and cards and stationery - with premium offerings in its Tiny Prints boutique - as well as wedding invitations and stationery for every step of the planning process; BorrowLenses, the premier online marketplace for photographic and video equipment rentals; and GrooveBook, an iPhone and Android app and subscription service that prints up to 100 mobile phone photos in a GrooveBook and mails it to customers every month. For more information about Shutterfly, Inc. (SFLY), visit www.shutterflyinc.com.
Contacts
Investor Relations:
Shawn Tabak, 650-610-6026
stabak@shutterfly.com
 

Media Relations:
Nicole Stier, 650-610-6013
nstier@shutterfly.com



6


Shutterfly, Inc.
Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
 
Three Months Ended
 
Twelve Months Ended
 
December 31,
 
December 31,
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
Net revenues
$
593,755

 
$
561,226

 
$
1,190,202

 
$
1,134,224

Cost of net revenues
254,218

 
230,048

 
619,650

 
566,117

Restructuring
—

 
—

 
1,475

 
—

Gross profit
339,537

 
331,178

 
569,077

 
568,107

Operating expenses:
 
 
 

 
 
 
 

Technology and development
43,415

 
44,043

 
168,383

 
166,909

Sales and marketing
78,503

 
98,301

 
197,708

 
233,585

General and administrative
38,597

 
35,041

 
117,797

 
118,503

Capital lease termination
—

 
—

 
8,098

 
—

Restructuring
—

 
—

 
15,491

 
—

Total operating expenses
160,515

 
177,385

 
507,477

 
518,997

Income from operations
179,022

 
153,793

 
61,600

 
49,110

Interest expense
(9,219
)
 
(5,961
)
 
(27,836
)
 
(23,023
)
Interest and other income, net
794

 
122

 
1,481

 
501

Income before income taxes
170,597

 
147,954

 
35,245

 
26,588

Provision for income taxes
(58,873
)
 
(56,972
)
 
(5,160
)
 
(10,682
)
Net income
$
111,724

 
$
90,982

 
$
30,085

 
$
15,906

 
 
 
 
 
 
 
 
Net income per share:
 
 
 
 
 
 
 
Basic
$
3.45

 
$
2.70

 
$
0.91

 
$
0.47

Diluted
$
3.37

 
$
2.63

 
$
0.88

 
$
0.45

Weighted-average shares outstanding:
 
 
 
 
 
 
 
Basic
32,372

 
33,683

 
33,113

 
34,097

Diluted
33,114

 
34,625

 
34,106

 
35,190

 
 
 
 
 
 
 
 
Stock-based compensation is allocated as follows:
 
 
 
 
 
 
 
Cost of net revenues
$
1,055

 
$
1,143

 
$
4,339

 
$
4,579

Technology and development
2,391

 
2,854

 
9,778

 
8,550

Sales and marketing
3,211

 
3,748

 
12,229

 
15,445

General and administrative
4,206

 
4,659

 
17,227

 
17,118

Restructuring
—

 
—

 
814

 
—

 
$
10,863

 
$
12,404

 
$
44,387

 
$
45,692

 
 
 
 
 
 
 
 
Depreciation and amortization is allocated as follows:
 
 
 
 
 
 
 
Cost of net revenues
$
15,682

 
$
15,914

 
$
60,415

 
$
57,362

Technology and development
6,935

 
7,542

 
28,457

 
32,549

Sales and marketing
2,122

 
3,124

 
10,393

 
14,706

General and administrative
985

 
2,013

 
4,597

 
9,034

Restructuring
—

 
—

 
5,999

 
—

 
$
25,724

 
$
28,593

 
$
109,861

 
$
113,651


7


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


 
December 31, 2017
 
December 31, 2016
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
489,894

 
$
289,224

Short-term investments
178,021

 
26,352

Accounts receivable, net
82,317

 
57,365

Inventories
11,019

 
11,751

Prepaid expenses and other current assets
41,383

 
48,084

Total current assets
802,634

 
432,776

Long-term investments
9,242

 
14,479

Property and equipment, net
266,860

 
284,110

Intangible assets, net
29,671

 
43,420

Goodwill
408,975

 
408,975

Other assets
17,418

 
11,816

Total assets
$
1,534,800

 
$
1,195,576

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Current portion of long-term debt
$
297,054

 
$
—

Accounts payable
91,473

 
58,790

Accrued liabilities
159,248

 
138,869

Deferred revenue, current portion
24,649

 
22,929

Total current liabilities
572,424

 
220,588

Long-term debt
292,457

 
278,792

Other liabilities
119,195

 
137,035

Total liabilities
984,076

 
636,415

Stockholders’ equity:
 
 
 
Common stock, $0.0001 par value; 100,000 shares authorized; 32,297 and 33,637 shares issued and outstanding on December 31, 2017 and December 31, 2016, respectively
3

 
3

Additional paid-in capital
996,301

 
949,864

Accumulated other comprehensive income (loss)
1,778

 
(32
)
Accumulated deficit
(447,358
)
 
(390,674
)
Total stockholders' equity
550,724

 
559,161

Total liabilities and stockholders' equity
$
1,534,800

 
$
1,195,576



8


Shutterfly, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 
Twelve Months Ended
 
December 31,
 
2017
 
2016
Cash flows from operating activities:
 
 
 
Net income
$
30,085

 
$
15,906

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
88,946

 
93,531

Amortization of intangible assets
14,916

 
20,120

Amortization of debt discount and issuance costs
15,508

 
14,432

Stock-based compensation
43,573

 
45,692

Loss on disposal of property and equipment
1,141

 
738

Deferred income taxes
(161
)
 
8,899

Tax benefit from stock-based compensation
—

 
290

Excess tax benefits from stock-based compensation
—

 
(2,413
)
Restructuring
10,882

 
—

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(24,952
)
 
(2,142
)
Inventories
(743
)
 
1,715

Prepaid expenses and other assets
5,603

 
(19,140
)
Accounts payable
32,189

 
27,128

Accrued and other liabilities
22,537

 
(11,333
)
Net cash provided by operating activities
239,524

 
193,423

 
 
 
 
Cash flows from investing activities:
 
 
 
Purchases of property and equipment
(36,745
)
 
(56,264
)
Capitalization of software and website development costs
(34,006
)
 
(33,423
)
Purchases of investments
(205,466
)
 
(29,422
)
Proceeds from the maturities of investments
45,257

 
28,234

Proceeds from the sales of investments
13,874

 
12,213

Proceeds from sale of property and equipment
21,724

 
14,261

Net cash used in investing activities
(195,362
)
 
(64,401
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Proceeds from issuance of common stock upon exercise of stock options
677

 
2,104

Repurchases of common stock
(110,000
)
 
(112,488
)
Excess tax benefits from stock-based compensation
—

 
2,413

Principal payments of capital lease and financing obligations
(29,380
)
 
(19,377
)
Payment for contingent consideration liabilities
—

 
(1,313
)
Proceeds from borrowings, net of issuance costs
295,211

 
—

Net cash provided by (used in) financing activities
156,508

 
(128,661
)
 
 
 
 
Net increase in cash and cash equivalents
200,670

 
361

Cash and cash equivalents, beginning of period
289,224

 
288,863

Cash and cash equivalents, end of period
$
489,894

 
$
289,224

 
 
 
 
Supplemental schedule of non-cash investing / financing activities:
 
 
 
Net increase (decrease) in accrued purchases of property and equipment
$
2,693

 
$
(4,013
)
Net decrease in accrued capitalized software and website development costs
(396
)
 
(319
)
Stock-based compensation capitalized with software and website development costs
1,373

 
1,560

Property and equipment acquired under capital leases
19,145

 
23,946


9


Shutterfly, Inc.
Consumer Metrics Disclosure
(Unaudited)

 
Three Months Ended
 
Twelve Months Ended
 
December 31,
 
December 31,
 
2017
 
2016
 
2017
 
2016
Consumer Metrics
 
 
 
 
 
 
 
Customers [1]
6,110,833

 
6,219,011

 
10,048,431

 
10,115,763

   year-over-year change
(2
)%
 
 
 
(1
)%
 
 
 
 
 
 
 
 
 
 
Orders
10,463,752

 
10,869,499

 
26,328,121

 
27,108,889

   year-over-year change
(4
)%
 
 
 
(3
)%
 
 
 
 
 
 
 
 
 
 
Average order value [2]

$49.87

 

$47.98

 

$37.87

 

$36.80

   year-over-year change
4
 %
 
 
 
3
 %
 
 

[1] An active customer is defined as one that has transacted in the last trailing twelve months. 
[2] Average order value excludes Shutterfly Business Solutions revenue.

 


10


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

 
Three Months Ended
 
Twelve Months Ended
 
December 31,
 
December 31,
 
2017
 
2016
 
2017
 
2016
Consumer
 
 
 
 
 
 
 
Net revenues
$
521,809

 
$
521,484

 
$
996,963

 
$
997,556

Cost of net revenues
193,320

 
198,949

 
456,665

 
455,387

Restructuring
—

 
—

 
1,475

 
—

Gross profit
$
328,489

 
$
322,535

 
$
538,823

 
$
542,169

Consumer gross profit margin
63.0
%
 
61.8
%
 
54.0
%
 
54.3
%
 
 
 
 
 
 
 
 
Shutterfly Business Solutions (SBS)
 
 
 
 
 
 
 
Net revenues
$
71,946

 
$
39,742

 
$
193,239

 
$
136,668

Cost of net revenues
58,812

 
28,673

 
154,068

 
100,582

Gross profit
$
13,134

 
$
11,069

 
$
39,171

 
$
36,086

SBS gross profit margin
18.3
%
 
27.9
%
 
20.3
%
 
26.4
%
 
 
 
 
 
 
 
 
Corporate [1]
 
 
 
 
 
 
 
Net revenues
$
—

 
$
—

 
$
—

 
$
—

Cost of net revenues
2,086

 
2,426

 
8,917

 
10,148

Gross profit
$
(2,086
)
 
$
(2,426
)
 
$
(8,917
)
 
$
(10,148
)
 
 
 
 
 
 
 
 
Consolidated
 
 
 
 
 
 
 
Net revenues
$
593,755

 
$
561,226

 
$
1,190,202

 
$
1,134,224

Cost of net revenues
254,218

 
230,048

 
619,650

 
566,117

Restructuring
—

 
—

 
1,475

 
—

Gross profit
$
339,537

 
$
331,178

 
$
569,077

 
$
568,107

 
 
 
 
 
 
 
 
Gross profit margin
57.2
%
 
59.0
%
 
47.8
%
 
50.1
%
 
 
 
 
 
 
 
 
Gross profit margin excluding restructuring
57.2
%
 
59.0
%
 
47.9
%
 
50.1
%

[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.



11


Shutterfly, Inc.
Consumer Revenues by Brand
(In thousands)
(Unaudited)

 
Three Months Ended
 
Year Ended
 
Mar. 31,
 
Jun. 30,
 
Sep. 30,
 
Dec. 31,
 
Mar. 31,
 
Jun. 30,
 
Sep. 30,
 
Dec. 31,
 
Dec. 31,
 
Dec. 31,
 
2016
 
2016
 
2016
 
2016
 
2017
 
2017
 
2017
 
2017
 
2016
 
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer net revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


 


Shutterfly brand
$
114,407

 
$
133,387

 
$
111,035

 
$
404,101

 
$
123,903

 
$
139,908

 
$
115,883

 
$
464,547

 
$
762,930

 
$
844,242

Tiny Prints Boutique
—

 
—

 
—

 
—

 
—

 
—

 
1,942

 
48,932

 
—

 
50,874

Tiny Prints [1]
12,202

 
14,757

 
7,963

 
93,635

 
10,465

 
12,917

 
—

 
—

 
128,557

 
23,382

Wedding Paper Divas [2]
16,407

 
14,642

 
11,423

 
8,957

 
14,290

 
11,365

 
8,523

 
—

 
51,429

 
34,178

MyPublisher [3]
4,980

 
4,538

 
4,413

 
6,561

 
4,936

 
6,056

 
—

 
—

 
20,492

 
10,992

Other
7,385

 
9,293

 
9,240

 
8,230

 
7,051

 
8,844

 
9,070

 
8,330

 
34,148

 
33,295

Total
$
155,381

 
$
176,617

 
$
144,074

 
$
521,484

 
$
160,645

 
$
179,090

 
$
135,418

 
$
521,809

 
$
997,556

 
$
996,963

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
[1] Tiny Prints website shut down on June 28, 2017.

[2] Wedding Paper Divas website shut down on September 13, 2017.

[3] MyPublisher website shut down on May 15, 2017.





12


Shutterfly, Inc.
Restructuring
(In thousands)
(Unaudited)

 
 
Twelve Months Ended
 
 
December 31, 2017
Restructuring:
 
 
Property and equipment
 
$
8,414

Employee costs
 
5,851

Inventory
 
1,475

Other costs
 
1,226

Total
 
$
16,966


There were no restructuring charges for the three months ended December 31, 2017.


13


Shutterfly, Inc.
Reconciliation of Net Income (Loss) to Non-GAAP Net Income (Loss) and Non-GAAP Net Income (Loss) per Share
(In thousands, except per share amounts)
(Unaudited)
 
Three Months Ended
 
Year Ended
 
Mar. 31,
 
Jun. 30,
 
Sep. 30,
 
Dec. 31,
 
Mar. 31,
 
Jun. 30,
 
Sep. 30,
 
Dec. 31,
 
Dec. 31,
 
Dec. 31,
 
2016
 
2016
 
2016
 
2016
 
2017
 
2017
 
2017
 
2017
 
2016
 
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP net income (loss)
$
(29,436
)
 
$
(16,485
)
 
$
(29,155
)
 
$
90,982

 
$
(33,194
)
 
$
(22,838
)
 
$
(25,607
)
 
$
111,724

 
$
15,906

 
$
30,085

Capital lease termination
—

 
—

 
—

 
—

 
—

 
8,098

 
—

 
—

 
—

 
8,098

Restructuring
—

 
—

 
—

 
—

 
8,976

 
4,673

 
3,317

 
—

 
—

 
16,966

Tax benefit impact of restructuring and capital lease termination charges
—

 
—

 
—

 
—

 
(3,948
)
 
(4,829
)
 
(1,669
)
 
—

 
—

 
(10,446
)
Benefit from 2017 tax reform legislation
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(8,875
)
 
—

 
(8,875
)
Non-GAAP net income (loss)
$
(29,436
)
 
$
(16,485
)
 
$
(29,155
)
 
$
90,982

 
$
(28,166
)
 
$
(14,896
)
 
$
(23,959
)
 
$
102,849

 
$
15,906

 
$
35,828

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP diluted shares outstanding
34,596

 
34,177

 
33,932

 
34,625

 
33,712

 
33,579

 
32,878

 
33,114

 
35,190

 
34,106

Non-GAAP diluted shares outstanding
34,596

 
34,177

 
33,932

 
34,625

 
33,712

 
33,579

 
32,878

 
33,114

 
35,190

 
34,106

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP net income (loss) per share
$
(0.85
)
 
$
(0.48
)
 
$
(0.86
)
 
$
2.63

 
$
(0.98
)
 
$
(0.68
)
 
$
(0.78
)
 
$
3.37

 
$
0.45

 
$
0.88

Non-GAAP net income (loss) per share
$
(0.85
)
 
$
(0.48
)
 
$
(0.86
)
 
$
2.63

 
$
(0.84
)
 
$
(0.44
)
 
$
(0.73
)
 
$
3.11

 
$
0.45

 
$
1.05



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,
 
Dec. 31,
 
Dec. 31,
 
2016
 
2016
 
2016
 
2016
 
2017
 
2017
 
2017
 
2017
 
2016
 
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP net income (loss)
$
(29,436
)
 
$
(16,485
)
 
$
(29,155
)
 
$
90,982

 
$
(33,194
)
 
$
(22,838
)
 
$
(25,607
)
 
$
111,724

 
$
15,906

 
$
30,085

Interest expense
5,675

 
5,661

 
5,726

 
5,961

 
5,964

 
5,955

 
6,699

 
9,219

 
23,023

 
27,836

Interest and other income, net
(121
)
 
(128
)
 
(130
)
 
(122
)
 
(189
)
 
(244
)
 
(253
)
 
(794
)
 
(501
)
 
(1,481
)
Tax (benefit) provision
(17,932
)
 
(10,123
)
 
(18,235
)
 
56,972

 
(22,341
)
 
(14,713
)
 
(16,660
)
 
58,873

 
10,682

 
5,160

Depreciation and amortization
29,114

 
28,357

 
27,587

 
28,593

 
27,364

 
25,957

 
24,815

 
25,724

 
113,651

 
103,862

Stock-based compensation
10,150

 
10,924

 
12,214

 
12,404

 
11,505

 
10,469

 
10,736

 
10,863

 
45,692

 
43,573

Capital lease termination
—

 
—

 
—

 
—

 
—

 
8,098

 
—

 
—

 
—

 
8,098

Restructuring
—

 
—

 
—

 
—

 
8,976

 
4,673

 
3,317

 
—

 
—

 
16,966

Non-GAAP Adjusted EBITDA
$
(2,550
)
 
$
18,206

 
$
(1,993
)
 
$
194,790

 
$
(1,915
)
 
$
17,357

 
$
3,047

 
$
215,609

 
$
208,453

 
$
234,099




14


Shutterfly, Inc.
Reconciliation of Cash Flow from Operating Activities to Non-GAAP Adjusted EBITDA and Adjusted EBITDA minus Capital Expenditures
(In thousands)
(Unaudited)
 
Three Months Ended
 
Year Ended
 
Mar. 31,
 
Jun. 30,
 
Sep. 30,
 
Dec. 31,
 
Mar. 31,
 
Jun. 30,
 
Sep. 30,
 
Dec. 31,
 
Dec. 31,
 
Dec. 31,
 
2016 [2]
 
2016
 
2016
 
2016
 
2017
 
2017
 
2017
 
2017
 
2016
 
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net cash provided by (used in) operating activities
$
(82,610
)
 
$
16,916

 
$
(4,881
)
 
$
263,998

 
$
(72,386
)
 
$
13,672

 
$
(21,945
)
 
$
320,183

 
$
193,423

 
$
239,524

Interest expense
5,675

 
5,661

 
5,726

 
5,961

 
5,964

 
5,955

 
6,699

 
9,219

 
23,023

 
27,836

Interest and other income, net
(121
)
 
(128
)
 
(130
)
 
(122
)
 
(189
)
 
(244
)
 
(253
)
 
(794
)
 
(501
)
 
(1,481
)
Tax (benefit) provision
(17,932
)
 
(10,123
)
 
(18,235
)
 
56,972

 
(22,341
)
 
(14,713
)
 
(16,660
)
 
58,873

 
10,682

 
5,160

Changes in operating assets and liabilities
98,604

 
2,374

 
29,155

 
(126,361
)
 
92,194

 
(2,565
)
 
35,336

 
(159,600
)
 
3,772

 
(34,634
)
Other adjustments
(6,166
)
 
3,506

 
(13,628
)
 
(5,658
)
 
(6,265
)
 
5,377

 
(2,575
)
 
(13,026
)
 
(21,946
)
 
(16,488
)
Capital lease termination
—

 
—

 
—

 
—

 
—

 
8,098

 
—

 
—

 
—

 
8,098

Cash restructuring
—

 
—

 
—

 
—

 
1,108

 
1,777

 
2,445

 
754

 
—

 
6,084

Non-GAAP Adjusted EBITDA
(2,550
)
 
18,206

 
(1,993
)
 
194,790

 
(1,915
)
 
17,357

 
3,047

 
215,609

 
208,453

 
234,099

Less: Purchases of property and equipment
(5,497
)
 
(22,005
)
 
(14,957
)
 
(9,792
)
 
(1,669
)
 
(7,252
)
 
(18,302
)
 
(12,215
)
 
(52,251
)
 
(39,438
)
Less: Capitalized technology & development costs
(8,168
)
 
(10,052
)
 
(8,819
)
 
(6,065
)
 
(7,726
)
 
(9,602
)
 
(8,488
)
 
(7,794
)
 
(33,104
)
 
(33,610
)
Add: Capex adjustments [1]
—

 
9,827

 
—

 
—

 
—

 
—

 
—

 
—

 
9,827

 
—

Adjusted EBITDA minus capital expenditures
$
(16,215
)
 
$
(4,024
)
 
$
(25,769
)
 
$
178,933

 
$
(11,310
)
 
$
503

 
$
(23,743
)
 
$
195,600

 
$
132,925

 
$
161,051

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
[1] In the second quarter of 2016, the Company acquired and immediately sold $9.8 million of printers.
[2] The Company reclassified an immaterial contingent consideration payment (to Groovebook Founders) in the first quarter of 2016 between operating and financing activities within the cash flow statement.

Shutterfly, Inc.
Reconciliation of GAAP Operating Cash Flow to Free Cash Flow
(In thousands)
(Unaudited)

 
Year Ended
 
2017
 
2016
 
2015
 
 
 
 
 
 
Net cash provided by operating activities
$
239,524

 
$
193,423

 
$
165,037

Less: capital expenditures[1]
70,751

 
79,860

 
76,669

Free cash flow
$
168,773

 
$
113,563

 
$
88,368

% Growth over prior year
49
%
 
29
%
 
 
 
 
 
 
 
 
[1] Excludes purchase of printers of $9.8 million that the Company acquired and immediately sold during the second quarter of 2016.


15


Shutterfly, Inc.
Reconciliation of Forward-Looking Guidance for Non-GAAP Financial Measures
(In millions, except per share amounts)
(Unaudited)
 
Forward-Looking Guidance [1]
 
Three Months Ending
March 31, 2018
 
Twelve Months Ending
December 31, 2018
 
Low
 
High
 
Low
 
High
 
 
 
 
 
 
 
 
Net revenues

$190.0

 

$194.0

 

$1,220.0

 

$1,260.0

Consumer revenues
 
 
 
 

$1,020.0

 

$1,050.0

SBS revenues
 
 
 
 

$200.0

 

$210.0

 
 
 
 
 
 
 
 
Gross profit margin
38.0
%
 
38.5
%
 
48.5
%
 
49.5
%
 
 
 
 
 
 
 
 
Operating income (loss)

($34.0
)
 

($32.0
)
 

$115.0

 

$135.0

Operating margin
(17.9
%)
 
(16.5
%)
 
9.4
%
 
10.7
%
 
 
 
 
 
 
 
 
Operating income (loss)

($34.0
)
 

($32.0
)
 

$115.0

 

$135.0

Stock-based compensation

$12.0

 

$12.0

 

$50.0

 

$50.0

Amortization of intangible assets

$2.4

 

$2.4

 

$6.0

 

$6.0

Depreciation

$22.5

 

$22.5

 

$89.0

 

$89.0

Adjusted EBITDA

$3.0

 

$5.0

 

$260.0

 

$280.0

Adjusted EBITDA margin
1.6
%
 
2.6
%
 
21.3
%
 
22.2
%
 
 
 
 
 
 
 
 
Capital expenditures
 
 
 
 

$65.0

 

$65.0

Capital expenditures as % of net revenues
 
 
 
 
5.3
%
 
5.2
%
 
 
 
 
 
 
 
 
Tax rate
26.0
%
 
26.0
%
 
26.0
%
 
26.0
%
 
 
 
 
 
 
 
 
Net income (loss) per share
 
 
 
 
 
 
 
Basic

($0.96
)
 

($0.92
)
 
—

 
—

Diluted
—

 
—

 

$1.94

 

$2.38

 
 
 
 
 
 
 
 
Weighted average shares
 
 
 
 
 
 
 
Basic
32.5

 
32.5

 
—

 
—

Diluted
—

 
—

 
33.9

 
33.9

 
 
 
 
 
 
 
 
[1] Excludes Lifetouch and acquisition-related expenses.

16