Shutterfly Announces Fourth Quarter and Full Year 2013 Financial Results

  Shutterfly Announces Fourth Quarter and Full Year 2013 Financial Results    *Fourth Quarter 2013 net revenues increase 17% year-over-year to $410.8     million   *Full Year 2013 net revenues increase 22% year-over-year to $783.6 million   *Full Year 2013 GAAP net income of $0.24 per diluted share   *Record Full Year adjusted EBITDA of $150.4 million, an increase of 17%     year-over-year   *52^nd consecutive quarter of year-over-year net revenue growth  Business Wire  REDWOOD CITY, Calif. -- February 5, 2014  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 fourth quarter and full year-ended December 31, 2013.  “Q4 was a strong finish to another outstanding year at Shutterfly resulting in record revenue, adjusted EBITDA and free cash flow,” said President and Chief Executive Officer Jeffrey Housenbold. “We executed well against our 2013 strategic plan while simultaneously focusing on the long-term through smart investments in consumer facing programs and back-end infrastructure projects that will provide future scale and scope efficiencies.”  Fourth Quarter 2013 Financial Highlights    *Net revenues totaled $410.8 million, a 17% year-over-year increase.   *Fourth quarter 2013 represents the 52^nd consecutive quarter of     year-over-year net revenue growth.   *Consumer net revenues totaled $398.6 million, a 16% year-over-year     increase.   *Enterprise net revenues totaled $12.2 million, a 48% year-over-year     increase.   *Gross profit margin was 59.9% of net revenues, compared to 60.5% in the     fourth quarter of 2012.   *Operating expenses, excluding $14.7 million of stock-based compensation,     totaled $126.8 million.   *GAAP net income was $43.6 million, compared to $53.0 million in the fourth     quarter of 2012.   *GAAP net income per diluted share was $1.10, compared to $1.40 in the     fourth quarter of 2012.   *Non-GAAP net income per diluted share was $1.20, compared to $1.40 in the     fourth quarter of 2012.   *Adjusted EBITDA was $141.9 million, compared to $127.2 million in the     fourth quarter of 2012.   *At December 31, 2013, cash and cash equivalents totaled $499.1 million.  Full Year 2013 Financial Highlights    *Net revenues totaled $783.6 million, a 22% year-over-year increase.   *Consumer net revenues totaled $746.0 million, a 22% year-over-year     increase.   *Enterprise net revenues totaled $37.7 million, a 39% year-over-year     increase.   *Gross profit margin was 52.8% of net revenues, compared to 54.0% in 2012.   *Operating expenses, excluding $51.0 million of stock-based compensation,     totaled $340.9 million.   *GAAP net income was $9.3 million, compared to $23.0 million in 2012.   *GAAP net income per diluted share was $0.24, compared to $0.61 in 2012.   *Non-GAAP net income per diluted share was $0.38, compared to $0.61 in     2012.   *Adjusted EBITDA was $150.4 million, compared to $128.1 million in 2012.  Fourth Quarter 2013 Operating Metrics    *Transacting customers totaled 4.7 million, a 10% year-over-year increase.   *Orders totaled 7.7 million, a 12% year-over-year increase.   *Average order value was $51.80, an increase of 4% year-over-year.  Full Year 2013 Operating Metrics    *Transacting customers totaled 8.1 million, a 15% year-over-year increase.   *Orders totaled 18.6 million, a 14% year-over-year increase.   *Average order value was $40.19, an increase of 7% year-over-year.  Business Outlook  First Quarter 2014:    *Net revenues to range from $132.0 million to $135.0 million, a     year-over-year increase of 13.1% to 15.7%.   *GAAP gross profit margin to range from 44.5% to 45.0% of net revenues.   *Non-GAAP gross profit margin to range from 47.4% to 47.9% of net revenues.   *GAAP operating loss to range from ($41.5) million to ($43.5) million.   *Non-GAAP operating loss to range from ($14.9) million to ($16.9) million.   *GAAP effective tax rate to range from 18.8% to 20.2%.   *GAAP net loss per diluted share to range from ($0.93) to ($0.99).   *Non-GAAP net loss per diluted share to range from ($0.86) to ($0.92).   *Weighted average diluted shares of approximately 38.7 million.   *Adjusted EBITDA to range from a loss of ($1.5) million to income of $0.5     million.  Full Year 2014:    *Net revenues to range from $900.0 million to $920.0 million, a     year-over-year increase of 14.8% to 17.4%.   *Net revenue guidance reflects a reduction of $15 million due to the     termination of the Costco relationship.   *GAAP gross profit margin to range from 52.0% to 53.0% of net revenues.   *Non-GAAP gross profit margin to range from 53.7% to 54.6% of net revenues.   *GAAP operating income/(loss) to range from a loss of ($11.5) million to     income of $1.7 million.   *Non-GAAP operating income to range from $94.5 million to $109.1 million.   *GAAP effective tax rate to range from 18% to 23%.   *GAAP net loss per diluted share to range from ($0.27) to ($0.55).   *Non-GAAP net loss per diluted share to range from ($0.02) to ($0.28).   *Net loss per share guidance reflects the impact of a full year of     depreciation from our expanded and acquired manufacturing facilities and     acquired rental assets, increased stock based compensation, and a full     year of intangible amortization from 2013 acquisitions.   *Weighted average diluted shares of approximately 40.8 million.   *Adjusted EBITDA to range from $160.2 million to $174.8 million, or 17.8%     to 19.0% of net revenues.   *Capital expenditures to range from 9.5% to 10.5% of net revenues.  Notes to the Fourth Quarter 2013 and Full Year 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.  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 category 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 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.  Fourth Quarter and Full Year 2013 Conference Call  Management will review the fourth quarter and full year 2013 financial results and its expectations for the first quarter and full year 2014 on a conference call on Wednesday, February 5, 2014 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 (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 Wednesday, February 19, 2014. To hear the replay, please dial (855) 859-2056 or (404) 537-3406, replay passcode 31471397.  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 profit margins, non-GAAP operating income (loss) and the related operating income (loss) margins, 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, which involve risks and uncertainties. These forward-looking statements include statements regarding the Company's growth, customer satisfaction with the Company’s products and services and financial expectations for thefirst quarter and full year 2014 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; decreased 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 and 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 the 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; Treat, personalized greeting cards that really stand out; 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; and BorrowLenses, the premier online marketplace for photographic and video equipment rentals. For more information about Shutterfly, Inc. (NASDAQ:SFLY), visit www.shutterflyinc.com.                                                                  Shutterfly, Inc. Consolidated Statements of Income (In thousands, except per share amounts) (Unaudited)                          Three Months Ended          Twelve Months Ended                          December 31,                December 31,                           2013        2012        2013        2012                                                                         Net revenues             $ 410,788     $ 351,777     $ 783,642     $ 640,624 Cost of net revenues      164,716     138,965     369,593     294,857  Gross profit              246,072     212,812     414,049     345,767  Operating expenses: Technology and             30,963        24,770        108,995       85,746 development Sales and marketing        80,039        62,191        189,985       148,806 General and               30,493      24,527      93,011      70,502   administrative Total operating expenses  141,495     111,488     391,991     305,054  Income from operations     104,577       101,324       22,058        40,713 Interest expense           (3,762  )     (141    )     (9,446  )     (597    ) Interest and other        127         12          308         42       income, net Income before income       100,942       101,195       12,920        40,158 taxes Provision for income      (57,293 )    (48,168 )    (3,635  )    (17,160 ) taxes Net income               $ 43,649     $ 53,027     $ 9,285      $ 22,998                                                                                                                                           Net income per share Basic                    $ 1.15       $ 1.46       $ 0.25       $ 0.64     Diluted                  $ 1.10       $ 1.40       $ 0.24       $ 0.61                                                                         Weighted-average shares outstanding Basic                     38,097      36,232      37,680      35,826   Diluted                   39,713      37,764      39,493      37,432                                                                       Stock-based compensation is allocated as follows:                                                                     Cost of net revenues     $ 683         $ 367         $ 2,485       $ 1,696 Technology and             2,634         2,170         9,477         8,635 development Sales and marketing        5,744         3,051         19,774        11,559 General and               6,298       4,226       21,792      15,432   administrative                          $ 15,359     $ 9,814      $ 53,528     $ 37,322                                                                     Shutterfly, Inc. Consolidated Balance Sheets (In thousands, except par value amounts) (Unaudited)                                                                                                                       December 31,   December 31,                                                    2013           2012                                                                    ASSETS Current assets: Cash and cash equivalents                          $  499,084     $   245,088 Accounts receivable, net                              21,641          13,574 Inventories                                           9,629           5,032 Deferred tax asset, current portion                   26,942          7,713 Prepaid expenses and other current assets            21,260         15,268 Total current assets                                  578,556         286,675 Property and equipment, net                           155,727         92,667 Intangible assets, net                                118,621         122,269 Goodwill                                              397,306         358,349 Deferred tax asset, net of current portion            520             854 Other assets                                         15,412         4,310 Total assets                                       $  1,266,142   $   865,124                                                                    LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable                                   $  33,656      $   31,503 Accrued liabilities                                   107,448         88,472 Deferred revenue                                     24,114         17,845 Total current liabilities                             165,218         137,820 Convertible senior notes, net                         243,493         - Deferred tax liability                                42,995          24,298 Other liabilities                                    26,341         11,720 Total liabilities                                    478,047        173,838                                                                    Stockholders' equity Common stock, $0.0001 par value; 100,000 shares authorized; 38,196 and 36,358 shares issued and outstanding at December 31, 2013 and December 31,     4               4 2012, respectively Additional paid-in-capital                            771,875         652,110 Accumulated earnings                                 16,216         39,172 Total stockholders' equity                           788,095        691,286 Total liabilities and stockholders' equity         $  1,266,142   $   865,124                                                                                                                                        Shutterfly, Inc. Consolidated Statements of Cash Flows (In thousands) (Unaudited)                                                    Twelve Months Ended                                                    December 31,                                                     2013         2012      Cash flows from operating activities: Net income                                         $ 9,285        $ 22,998 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization                        43,887         29,424 Amortization of intangible assets                    30,969         20,685 Amortization of debt discount and transaction        7,707          - costs Stock-based compensation, net of forfeitures         53,528         37,322 (Gain) / Loss on disposal of property and            13             (861     ) equipment Deferred income taxes                                331            54 Tax benefit from stock-based compensation            2,957          14,619 Excess tax benefits from stock-based                 (3,635   )     (16,622  ) compensation Changes in operating assets and liabilities: Accounts receivable, net                             (7,174   )     (577     ) Inventories                                          (3,681   )     (1,306   ) Prepaid expenses and other current assets            (4,347   )     (1,399   ) Other assets                                         (7,669   )     212 Accounts payable                                     3,583          15,230 Accrued and other liabilities                        16,089         26,610 Deferred revenue                                     5,258          5,739 Other non-current liabilities                       167          (747     ) Net cash provided by operating activities           147,268      151,381                                                                      Cash flows from investing activities: Acquisition of business and intangible assets,       (76,893  )     (57,212  ) net of cash acquired Purchases of property and equipment                  (62,582  )     (40,535  ) Capitalization of software and website               (15,760  )     (12,528  ) development costs Proceeds from sale of equipment                     388          986       Net cash used in investing activities               (154,847 )    (109,289 )                                                                    Cash flows from financing activities: Proceeds from borrowings of convertible senior       291,897        - notes, net of issuance costs Proceeds from issuance of warrants                   43,560         - Purchase of convertible note hedge                   (63,510  )     - Proceeds from issuance of common stock upon          19,112         10,211 exercise of stock options Repurchases of common stock                          (32,241  )     (3,752   ) Excess tax benefits from stock-based                 3,635          16,622 compensation Principal payments of capital lease obligations     (878     )    -         Net cash provided by financing activities           261,575      23,081                                                                       Net increase in cash and cash equivalents            253,996        65,173 Cash and cash equivalents, beginning of period      245,088      179,915   Cash and cash equivalents, end of period           $ 499,084     $ 245,088                                                                      Supplemental schedule of non-cash activities Net increase/ (decrease) in accrued purchases of   $ (3,372   )   $ 7,694 property and equipment Increase in estimated fair market value of           10,080         6,372 building under build-to-suit lease                                                                  Shutterfly, Inc. Consumer Metrics Disclosure                                                                                                     Three Months Ended      Twelve Months Ended                                December 31,            December 31,                                2013        2012        2013         2012                                                                      Consumer Metrics                                                                      Customers                      4,652,682   4,227,247   8,094,038    7,062,001 year-over-year growth          10%                     15%                                                                      Orders                         7,693,863   6,897,969   18,561,022   16,321,828 year-over-year growth          12%                     14%                                                                      Average order value*           $51.80      $49.80      $40.19       $37.58 year-over-year growth          4%                      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       March 31, 2014                                                                                 Net revenues  $132.0    $135.0    -        -              $132.0   $135.0       Gross profit  44.5%     45.0%     2.9%     2.9%     [a]   47.4%    47.9%       margin       Operating     ($43.5)   ($41.5)   $26.6    $26.6    [b]   ($16.9)  ($14.9)       loss       Operating     (33%)     (31%)     20%      20%      [b]   (13%)    (11%)       margin                                                                                 Stock-based   $18.0     $18.0     $18.0    $18.0          -        -       compensation       Amortization       of intangible $8.6      $8.6      $8.6     $8.6           -        -       assets                                                                                 Adjusted                                                  ($1.5)   $0.5       EBITDA*                                                                                 Diluted loss  ($0.99)   ($0.93)   $0.07    $0.07    [e]   ($0.92)  ($0.86)       per share       Diluted       38.7      38.7       shares       Effective     18.8%     20.2%       tax rate                                                                                                                                                           Twelve Months Ending       December 31, 2014                                                                                 Net revenues  $900.0    $920.0    -        -              $900.0   $920.0       Gross profit  52.0%     53.0%     1.7%     1.6%     [c]   53.7%    54.6%       margin       Operating       income /      ($11.5)   $1.7      $106.0   $107.5   [d]   $94.5    $109.1       (loss)       Operating     (1%)      0%        12%      12%      [d]   11%      12%       margin                                                                                 Stock-based   $72.5     $72.5     $72.5    $72.5          -        -       compensation       Amortization       of intangible $33.5     $35.0     $33.5    $35.0          -        -       assets                                                                                 Adjusted                                                  $160.2   $174.8       EBITDA*       Adjusted       EBITDA*                                                   17.8%    19.0%       margin                                                                                 Diluted loss  ($0.55)   ($0.27)   $0.27    $0.26    [f]   ($0.28)  ($0.02)       per share       Diluted       40.8      40.8       shares       Effective     18%       23%       tax rate                                                                                 Capital       expenditures  9.5%      10.5%       - % of net       revenues                                                                                                                                                                                                                                                                                                         *     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 and amortization of purchased intangible assets       of approximately $2.8 million. [b]   Reflects estimated adjustments for stock-based compensation expense of       approximately $18.0 million and amortization of purchased intangible       assets of approximately $8.6 million [c]   Reflects estimated adjustments for stock-based compensation expense of       approximately $3.7 million and amortization of purchased intangible assets       of approximately $11.3 million. [d]   Reflects estimated adjustments for stock-based compensation expense of       approximately $72.5 million and amortization of purchased intangible       assets of approximately $33.5 million to $35.0 million. [e]   Reflects estimated adjustments for interest expense of       approximately $2.7 million, net of tax. [f]   Reflects estimated adjustments for interest expense of approximately $10.5       million to $11.2 million, net of tax.                                                                                                                              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,      Dec. 31,     Dec. 31,                 2012        2012        2012        2012         2013        2013        2013        2013         2012        2013                                                                                                                                        GAAP gross     $ 41,238     $ 48,310     $ 43,407     $ 212,812     $ 54,855     $ 61,745     $ 51,377     $ 246,072     $ 345,767    $ 414,049 profit Stock-based      462          443          424          367           564          592          646          683           1,696        2,485 compensation Amortization of              1,454       1,516       1,570       1,856        2,390       2,608       2,685       2,800        6,396       10,483 intangible assets Non-GAAP gross          $ 43,154     $ 50,269     $ 45,401     $ 215,035     $ 57,809     $ 64,945     $ 54,708     $ 249,555     $ 353,859    $ 427,017 profit                                                                                                                                        Non-GAAP gross profit    47%         51%         46%         61%          50%         49%         45%         61%          55%         54% 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,     Jun. 30,     Sep. 30,     Dec. 31,      Dec. 31,     Dec. 31,                 2012        2012        2012        2012         2013        2013        2013        2013         2012        2013                                                                                                                                        GAAP operating      $ (19,080)   $ (17,786)   $ (23,745)   $ 101,324     $ (23,964)   $ (23,933)   $ (34,622)   $ 104,577     $ 40,713     $ 22,058 income (loss) Stock-based      9,617        9,526        8,365        9,814         11,538       12,649       13,982       15,359        37,322       53,528 compensation Amortization of              4,013       5,090       5,658       5,924        6,511       7,539       8,189       8,730        20,685      30,969 intangible assets Non-GAAP operating      $ (5,450)    $ (3,170)    $ (9,722)    $ 117,062     $ (5,915)    $ (3,745)    $ (12,451)   $ 128,666     $ 98,720     $ 106,555 income (loss)                                                                                                                                        Non-GAAP operating       (6%)        (3%)        (10%)       33%          (5%)        (3%)        (10%)       31%          15%         14% 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,     Jun. 30,     Sep. 30,     Dec. 31,      Dec. 31,     Dec. 31,                 2012        2012        2012        2012         2013        2013        2013        2013         2012        2013                                                                                                                                        GAAP net income         $ (10,040)   $ (9,511)    $ (10,478)   $ 53,027      $ (12,405)   $ (11,811)   $ (10,148)   $ 43,649      $ 22,998     $ 9,285 (loss) Interest         152          156          148          141           139          1,936        3,609        3,762         597          9,446 expense Interest and other            (7)          (9)          (14)         (12)          (7)          (35)         (139)        (127)         (42)         (308) income, net Tax (benefit)        (9,185)      (8,422)      (13,401)     48,168        (11,691)     (14,023)     (27,944)     57,293        17,160       3,635 provision Depreciation and              10,024       11,820       12,244       16,021        15,738       17,580       19,573       21,965        50,109       74,856 amortization Stock-based     9,617       9,526       8,365       9,814        11,538      12,649      13,982      15,359       37,322      53,528 compensation Non-GAAP Adjusted       $ 561        $ 3,560      $ (3,136)    $ 127,159     $ 3,312      $ 6,296      $ (1,067)    $ 141,901     $ 128,144    $ 150,442 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,     Jun. 30,     Sep. 30,     Dec. 31,      Dec. 31,     Dec. 31,                 2012        2012        2012        2012         2013        2013        2013        2013         2012        2013                                                                                                                                        Net cash provided by (used in)      $ (47,961)   $ 9,339      $ (3,568)    $ 193,571     $ (83,504)   $ 11,923     $ 309        $ 218,540     $ 151,381    $ 147,268 operating activities Interest         152          156          148          141           139          1,936        3,609        3,762         597          9,446 expense Interest and other            (7)          (9)          (14)         (12)          (7)          (35)         (139)        (127)         (42)         (308) income, net Tax (benefit)        (9,185)      (8,422)      (13,401)     48,168        (11,691)     (14,023)     (27,944)     57,293        17,160       3,635 provision Changes in operating        55,912       739          11,482       (111,895)     101,426      2,555        19,961       (126,168)     (43,762)     (2,226) assets and liabilities Other           1,650       1,757       2,217       (2,814)      (3,051)     3,940       3,137       (11,399)     2,810       (7,373) adjustments Non-GAAP Adjusted        561         3,560       (3,136)     127,159      3,312       6,296       (1,067)     141,901      128,144     150,442 EBITDA Less: Purchases of     (6,499)      (12,264)     (16,628)     (12,838)      (10,832)     (15,869)     (20,343)     (12,166)      (48,229)     (59,210) property and equipment Less: Capitalized technology &     (3,072)      (2,801)      (3,730)      (2,925)       (3,495)      (4,255)      (4,307)      (3,703)       (12,528)     (15,760) development costs                                                                                                                               Free cash      $ (9,010)    $ (11,505)   $ (23,494)   $ 111,396     $ (11,015)   $ (13,828)   $ (25,717)   $ 126,032     $ 67,387     $ 75,472 flow                                                                                                                                        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,      Dec. 31,     Dec. 31,                 2012        2012        2012        2012         2013        2013        2013        2013         2012        2013 GAAP net income         $ (10,040)   $ (9,511)    $ (10,478)   $ 53,027      $ (12,405)   $ (11,811)   $ (10,148)   $ 43,649      $ 22,998     $ 9,285 (loss) Add back interest expense related to: Amortization of debt          -            -            -            -             -            1,401        2,771        2,830         -            7,002 discount Amortization of debt          -            -            -            -             -            160          260          285           -            705 issuance costs 0.25%            -            -            -            -             -            93           188          188           -            469 coupon Tax effect      -           -           -           -            -           (770)       (2,046)     516          -           (2,300) Non-GAAP net income         $ (10,040)   $ (9,511)    $ (10,478)   $ 53,027      $ (12,405)   $ (10,927)   $ (8,975)    $ 47,468      $ 22,998     $ 15,161 (loss)                                                                                                                                        GAAP diluted shares           35,199       35,812       36,062       37,764        37,034       37,775       37,814       39,713        37,432       39,493 outstanding Add back: Dilutive effect of       -           -           -           -            -           -           -           -            -          - convertible notes Non-GAAP diluted         35,199      35,812      36,062      37,764       37,034      37,775      37,814      39,713       37,432      39,493 shares outstanding                                                                                                                                        GAAP net income         $ (0.29)     $ (0.27)     $ (0.29)     $ 1.40        $ (0.33)     $ (0.31)     $ (0.27)     $ 1.10        $ 0.61       $ 0.24 (loss) per share Non-GAAP net income         $ (0.29)     $ (0.27)     $ (0.29)     $ 1.40        $ (0.33)     $ (0.29)     $ (0.24)     $ 1.20        $ 0.61       $ 0.38 (loss) per share  Contact:  Shutterfly, Inc. Media Relations: Gretchen Sloan, 650-610-5276 gsloan@shutterfly.com or Investor Relations: Michael Look, 650-610-5910 mlook@shutterfly.com