Shutterfly Announces First Quarter 2013 Financial Results

  Shutterfly Announces First Quarter 2013 Financial Results

  *Net revenues increase 28% year-over-year to $116.7 million
  *GAAP net loss of ($0.33) per diluted share
  *Adjusted EBITDA of $3.3 million
  *49^th consecutive quarter of year-over-year net revenue growth

Business Wire

REDWOOD CITY, Calif. -- May 01, 2013

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 first quarter
ended March 31, 2013.

“The first quarter was a solid start to the year, with strong execution across
our businesses,” said Jeffrey Housenbold, President and CEO. “Capitalizing on
our scale, scope and profitability, we continued to enhance our world-class
platform across our four lifestyle brands and invest in early stage customer
facing initiatives including Wedding, Enterprise, Treat, Mobile and our new
Enhanced Cloud Service. Our acquisition of MyPublisher will enable Shutterfly
to engage with new audiences, further extending our footprint in the
multi-billion dollar social expression and personal publishing markets.”

First Quarter 2013 Financial Highlights

  *Net revenues totaled $116.7 million, a 28% year-over-year increase.
  *First quarter 2013 represents the 49th consecutive quarter of
    year-over-year net revenue growth.
  *Consumer net revenues totaled $109.8 million, a 29% year-over-year
    increase.
  *Enterprise net revenues totaled $6.9 million, a 12% year-over-year
    increase.
  *Gross profit margin was 47% of net revenues, compared to 45% in the first
    quarter of 2012.
  *Operating expenses, excluding $11.0 million of stock-based compensation,
    totaled $67.8 million.
  *GAAP net loss was ($12.4) million, compared to ($10.0) million in the
    first quarter of 2012.
  *GAAP net loss per diluted share was ($0.33), compared to ($0.29) in the
    first quarter of 2012.
  *Adjusted EBITDA was $3.3 million, compared to $0.6 million in the first
    quarter of 2012.
  *At March 31, 2013, cash and cash equivalents totaled $164.5 million.

First Quarter 2013 Operating Metrics

  *Transacting customers totaled 2.2 million, a 20% year-over-year increase.
  *Orders totaled 3.4 million, a 20% year-over-year increase.
  *Average order value was $32.13, an increase of 7% year-over-year.

Business Outlook

Second Quarter 2013:

  *Net revenues to range from $118.0 million to $121.2 million, a
    year-over-year increase of 19.2% to 22.4%.
  *GAAP gross profit margin to range from 45.5% to 46.0% of net revenues.
  *Non-GAAP gross profit margin to range from 49.3% to 49.6% of net revenues.
  *GAAP operating loss to range from ($35.3) million to ($36.8) million.
  *Non-GAAP operating loss to range from ($12.0) million to ($13.5) million.
  *GAAP effective tax rate to range from 39.5% to 40.5%.
  *GAAP net loss per diluted share to range from ($0.55) to ($0.58).
  *Weighted average diluted shares of approximately 38.1 million.
  *Adjusted EBITDA loss to range from ($1.5) million to ($3.0) million.

Full Year 2013:

  *Net revenues to range from $766.0 million to $771.0 million, a
    year-over-year increase of 19.6% to 20.4%.
  *GAAP gross profit margin to range from 53.0% to 53.4% of net revenues.
  *Non-GAAP gross profit margin to range from 55.1% to 55.5% of net revenues.
  *GAAP operating income to range from $12.7 million to $18.9 million.
  *Non-GAAP operating income to range from $96.5 million to $104.6 million.
  *GAAP effective tax rate to range from 32% to 34%.
  *GAAP net income per diluted share to range from $0.20 to $0.30.
  *Weighted average diluted shares of approximately 39.9 million.
  *Adjusted EBITDA to range from $137.7 million to $146.8 million, or 18% to
    19% of net revenues.
  *Capital expenditures to range from 9.4% to 10.4% of net revenues.

Notes to the First Quarter 2013 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.

Consumer category includes net revenues from stationery and greeting cards,
photo books, calendars and photo-based merchandise, photo prints, and the
related shipping revenues. Consumer also includes net revenues from
advertising and sponsorshipprograms.

Enterprise category 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.

First Quarter 2013 Conference Call

Management will review the first quarter 2013 financial results and its
expectations for the second quarter and full year 2013 on a conference call on
Wednesday, May 1, 2013 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.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 Wednesday, May 15, 2013. To hear the replay, please dial (404)
537-3406, replay passcode 41973218.

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. 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. Management believes these non-GAAP financial measures reflect
an additional way of viewing the Company’s liquidity that, when viewed with
GAAP results, provides a more complete understanding of factors and trends
affecting the Company’s cash flows. 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 thesecond quarter and full
year 2013 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, 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, 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, 2012, 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; and Treat, personalized greeting cards that really stand
out. For more information about Shutterfly, Inc. (NASDAQ:SFLY), visit
www.shutterfly-inc.com.

Shutterfly, Inc.
Consolidated Statements of Income
(In thousands, except per share amounts)
(Unaudited)
                                                    Three Months Ended
                                                     March 31,
                                                     2013         2012
                                                                   
Net revenues                                         $ 116,708     $ 91,291
Cost of net revenues                                  61,853      50,053  
Gross profit                                          54,855      41,238  
Operating expenses:
Technology and development                             24,027        18,508
Sales and marketing                                    34,895        27,038
General and administrative                            19,897      14,772  
Total operating expenses                              78,819      60,318  
Loss from operations                                   (23,964 )     (19,080 )
Interest expense                                       (139    )     (152    )
Interest and other income, net                        7           7       
Loss before income taxes                               (24,096 )     (19,225 )
Benefit from income taxes                             11,691      9,185   
Net loss                                             $ (12,405 )   $ (10,040 )
                                                                   
                                                                   
Net loss per share - basic and diluted               $ (0.33   )   $ (0.29   )
                                                                   
Weighted-average shares outstanding - basic and       37,034      35,199  
diluted
                                                                   
Stock-based compensation is allocated as follows:
                                                                   
Cost of net revenues                                 $ 564         $ 462
Technology and development                             1,932         2,288
Sales and marketing                                    3,705         3,150
General and administrative                            5,337       3,717   
                                                     $ 11,538     $ 9,617   
                                                                             

Shutterfly, Inc.
Consolidated Balance Sheets
(In thousands, except par value amounts)
(Unaudited)
                                                               
                                                      March 31,   December 31,
                                                      2013        2012
                                                                  
ASSETS
Current assets:
Cash and cash equivalents                             $ 164,453   $   245,088
Accounts receivable, net                                10,714        13,574
Inventories                                             4,845         5,032
Deferred tax asset, current portion                     7,713         7,713
Prepaid expenses and other current assets              44,089       15,268
Total current assets                                    231,814       286,675
Property and equipment, net                             100,769       92,667
Intangible assets, net                                  116,092       122,269
Goodwill                                                358,050       358,349
Deferred tax asset, net of current portion              854           854
Other assets                                           10,873       4,310
Total assets                                          $ 818,452   $   865,124
                                                                  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable                                      $ 11,993    $   31,503
Accrued liabilities                                     34,376        88,472
Deferred revenue                                       17,508       17,845
Total current liabilities                               63,877        137,820
Deferred tax liability                                  27,686        24,298
Other liabilities                                      14,091       11,720
Total liabilities                                      105,654      173,838
                                                                  
Stockholders' equity
Common stock, $0.0001 par value; 100,000 shares
authorized; 37,899 and 36,358 shares issued and         4             4
outstanding at March 31, 2013 and December 31,
2012, respectively
Additional paid-in-capital                              688,268       652,110
Accumulated earnings                                   24,526       39,172
Total stockholders' equity                             712,798      691,286
Total liabilities and stockholders' equity            $ 818,452   $   865,124
                                                                  

Shutterfly, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
                                                    Three Months Ended
                                                     March 31,
                                                     2013         2012
                                                                   
Cash flows from operating activities:
Net loss                                             $ (12,405 )   $ (10,040 )
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization                          9,227         6,011
Amortization of intangible assets                      6,511         4,013
Stock-based compensation, net of forfeitures           11,538        9,617
Loss / (Gain) on disposal of property and              188           (402    )
equipment
Deferred income taxes                                  3,387         (1,248  )
Tax benefit from stock-based compensation              11,755        16,334
Excess tax benefits from stock-based compensation      (12,279 )     (16,334 )
Changes in operating assets and liabilities:
Accounts receivable, net                               2,859         (381    )
Inventories                                            186           27
Prepaid expenses and other current assets              (28,349 )     (23,204 )
Other assets                                           (6,897  )     (2,253  )
Accounts payable                                       (13,944 )     (2,257  )
Accrued and other liabilities                          (54,599 )     (28,764 )
Deferred revenue                                       (337    )     1,072
Other non-current liabilities                         (345    )    (152    )
Net cash used in operating activities                 (83,504 )    (47,961 )
                                                                   
Cash flows from investing activities:
Acquisition of business and intangibles, net of        (1,031  )     -
cash acquired
Purchases of property and equipment                    (15,033 )     (5,037  )
Capitalization of software and website development     (3,495  )     (3,072  )
costs
Proceeds from sale of equipment                       -           410     
Net cash used in investing activities                 (19,559 )    (7,699  )
                                                                   
Cash flows from financing activities:
Proceeds from issuance of common stock upon            12,390        3,345
exercise of stock options
Repurchases of common stock                            (2,241  )     -
Excess tax benefits from stock-based compensation     12,279      16,334  
Net cash provided by financing activities             22,428      19,679  
                                                                   
Net decrease in cash and cash equivalents              (80,635 )     (35,981 )
Cash and cash equivalents, beginning of period        245,088     179,915 
Cash and cash equivalents, end of period             $ 164,453    $ 143,934 
                                                                   
Supplemental schedule of non-cash activities
Net change in accrued purchases of property and      $ (4,201  )   $ 1,462
equipment
Increase in estimated fair market value of             2,716         -
building under build-to-suit lease
Amount due from adjustment of net working capital      465           -
from acquired business
                                                                             

Shutterfly, Inc.
Consumer Metrics Disclosure
                                                              
                                                     Three Months Ended
                                                     March 31,
                                                     2013        2012
                                                                 
Consumer Metrics
                                                                 
Customers                                            2,248,858   1,880,171
year-over-year growth                                20%
                                                                 
Orders                                               3,417,312   2,839,650
year-over-year growth                                20%
                                                                 
Average order value*                                 $32.13      $29.97
year-over-year growth                                7%
                                                                 
* Average order value excludes Enterprise revenue.
                                                                 

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                                            Non-GAAP
               Range of Estimate   Adjustments                 Range of Estimate
               From      To        From          To            From      To
                                                                         
Three Months
Ending June
30, 2013
                                                                         
Net revenues   $118.0    $121.2    -             -             $118.0    $121.2
Gross profit   45.5%     46.0%     3.8%          3.6%    [a]   49.3%     49.6%
margin
Operating      ($36.8)   ($35.3)   $23.3         $23.3   [b]   ($13.5)   ($12.0)
loss
Operating      (31%)     (29%)     20%           19%     [b]   (11%)     (10%)
margin
                                                                         
Stock-based    $12.8     $12.8     $12.8         $12.8         -         -
compensation
Amortization
of             $10.5     $10.5     $10.5         $10.5         -         -
intangible
assets
                                                                         
Adjusted                                                       ($3.0)    ($1.5)
EBITDA*
                                                                         
Diluted loss   ($0.58)   ($0.55)
per share
Diluted        38.1      38.1
shares
Effective      39.5%     40.5%
tax rate
                                                                         
                                                                         
Twelve
Months
Ending
December 31,
2013
                                                                         
Net revenues   $766.0    $771.0    -             -             $766.0    $771.0
Gross profit   53.0%     53.4%     2.1%          2.1%    [c]   55.1%     55.5%
margin
Operating      $12.7     $18.9     $83.8   [d]   $85.7   [e]   $96.5     $104.6
income
Operating      2%        2%        11%     [d]   12%     [e]   13%       14%
margin
                                                                         
Stock-based    $49.9     $51.9     $49.9         $51.9         -         -
compensation
Amortization
of             $33.8     $33.8     $33.8         $33.8         -         -
intangible
assets
                                                                         
Adjusted                                                       $137.7    $146.8
EBITDA*
Adjusted
EBITDA*                                                        18.0%     19.0%
margin
                                                                         
Diluted
earnings per   $0.20     $0.30
share
Diluted        39.9      39.9
shares
Effective      32%       34%
tax rate
                                                                         
Capital
expenditures   9.4%      10.4%
- % of net
revenues
                                                                         

      Adjusted EBITDA is a non-GAAP financial measure defined as earnings
*    before interest, taxes, depreciation, amortization and stock-based
      compensation.
      Reflects estimated adjustments for stock-based compensation expense of
[a]   approximately $600K and amortization of purchased intangible assets of
      approximately $3.9 million.
      Reflects estimated adjustments for stock-based compensation expense of
[b]   approximately $12.8 million and amortization of purchased intangible
      assets of approximately $10.5 million
      Reflects estimated adjustments for stock-based compensation expense of
[c]   approximately $2.3 million and amortization of purchased intangible
      assets of approximately $14.1 million.
      Reflects estimated adjustments for stock-based compensation expense of
[d]   approximately $49.9 million and amortization of purchased intangible
      assets of approximately $33.8 million.
      Reflects estimated adjustments for stock-based compensation expense of
[e]   approximately $51.9 million and amortization of purchased intangible
      assets of approximately $33.8 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,       Dec. 31,
               2012           2012           2012           2012           2013           2012
                                                                                          
GAAP gross     $ 41,238       $ 48,310       $ 43,407       $ 212,812      $ 54,855       $ 345,767
profit
Stock-based      462            443            424            367            564            1,696
compensation
Amortization
of               1,454          1,516          1,570          1,856          2,390          6,396
intangible
assets
                                                                                     
Non-GAAP       $ 43,154      $ 50,269      $ 45,401      $ 215,035     $ 57,809      $ 353,859 
gross profit
                                                                                          
Non-GAAP
gross profit    47      %     51      %     46      %     61       %    50      %     55      %
margin
                                                                                          
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,       Dec. 31,
               2012           2012           2012           2012           2013           2012
                                                                                          
GAAP
operating      $ (19,080 )    $ (17,786 )    $ (23,745 )    $ 101,324      $ (23,964 )    $ 40,713
income
(loss)
Stock-based      9,617          9,526          8,365          9,814          11,538         37,322
compensation
Amortization
of               4,013          5,090          5,658          5,924          6,511          20,685
intangible
assets
                                                                                     
Non-GAAP
operating      $ (5,450  )    $ (3,170  )    $ (9,722  )    $ 117,062     $ (5,915  )    $ 98,720  
income
(loss)
                                                                                          
Non-GAAP
operating       (6      %)    (3      %)    (10     %)    33       %    (5      %)    15      %
margin
                                                                                          
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,       Dec. 31,
               2012           2012           2012           2012           2013           2012
                                                                                          
GAAP net
income         $ (10,040 )    $ (9,511  )    $ (10,478 )    $ 53,027       $ (12,405 )    $ 22,998
(loss)
Interest         152            156            148            141            139            597
expense
Interest and
other            (7      )      (9      )      (14     )      (12      )     (7      )      (42     )
income, net
Tax
(benefit)        (9,185  )      (8,422  )      (13,401 )      48,168         (11,691 )      17,160
provision
Depreciation
and              10,024         11,820         12,244         16,021         15,738         50,109
amortization
Stock-based      9,617          9,526          8,365          9,814          11,538         37,322
compensation
                                                                                     
Non-GAAP
Adjusted       $ 561         $ 3,560       $ (3,136  )    $ 127,159     $ 3,312       $ 128,144 
EBITDA
                                                                                          
Shutterfly, Inc.
Reconciliation of Cash Flow from Operating Activities to Non-GAAP Adjusted EBITDA and Free Cash Flow
(In thousands)
(Unaudited)
               Three Months Ended                                                         Year Ended
               Mar. 31,       Jun. 30,       Sep. 30,       Dec. 31,       Mar. 31,       Dec. 31,
               2012           2012           2012           2012           2013           2012
                                                                                          
Net cash
provided by
(used in)      $ (47,961 )    $ 9,339        $ (3,568  )    $ 193,571      $ (83,504 )    $ 151,381
operating
activities
Interest         152            156            148            141            139            597
expense
Interest and
other            (7      )      (9      )      (14     )      (12      )     (7      )      (42     )
income, net
Tax
(benefit)        (9,185  )      (8,422  )      (13,401 )      48,168         (11,691 )      17,160
provision
Changes in
operating        55,912         739            11,482         (111,895 )     101,426        (43,762 )
assets and
liabilities
Other           1,650        1,757        2,217        (2,814   )    (3,051  )     2,810   
adjustments
Non-GAAP
Adjusted        561          3,560        (3,136  )     127,159      3,312        128,144 
EBITDA
Less:
Purchases of     (6,499  )      (12,264 )      (16,628 )      (12,838  )     (10,832 )      (48,229 )
property and
equipment
Less:
Capitalized
technology &     (3,072  )      (2,801  )      (3,730  )      (2,925   )     (3,495  )      (12,528 )
development
costs
                                                                                     
Free cash      $ (9,010  )    $ (11,505 )    $ (23,494 )    $ 111,396     $ (11,015 )    $ 67,387  
flow

Contact:

Shutterfly, Inc.
Media Relations:
Gretchen Sloan, 650-610-5276
gsloan@shutterfly.com
Investor Relations:
Michael Look, 650-610-5910
mlook@shutterfly.com
 
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