Press Releases

Shutterfly, Inc.
Apr 25, 2019

Shutterfly Announces First Quarter 2019 Financial Results

REDWOOD CITY, Calif.--(BUSINESS WIRE)--Apr. 25, 2019-- Shutterfly, Inc. (NASDAQ:SFLY), the leading retailer and manufacturing platform dedicated to helping capture, preserve, and share life’s important moments, today announced financial results for the first quarter ended March 31, 2019.

“Our first-quarter results were solid across all three divisions, Shutterfly Consumer, Lifetouch, and SBS,” said Christopher North, President and Chief Executive Officer. “We met our expectations on revenue and exceeded our expectations on Adjusted EBITDA in the quarter. In addition, we made good progress against key initiatives across the company, including product range expansion, mobile, and personalized marketing in Shutterfly Consumer, and integration with Lifetouch. We also won a new client in SBS.”

Earlier this year, the Company announced that its Board of Directors had formed a Strategic Review Committee and retained Morgan Stanley as a financial advisor. The Committee continues its ongoing review of strategic alternatives and has no further update at this time. The Board has not set a timetable for the conclusion of its review of strategic alternatives. There can be no assurance that the review of strategic alternatives will result in a transaction or other outcome.

First Quarter 2019 Financial Highlights

GAAP net revenue was $325 million. Shutterfly Consumer segment net revenue totaled $149 million, a 2% year-over-year decrease. Shutterfly Consumer revenue was negatively impacted in the first quarter of 2019 by approximately $6.0 million primarily due to exiting the fourth quarter of 2018 with a lower year-over-year backlog. Lifetouch segment net revenue was $129 million. Shutterfly Business Solutions segment net revenue totaled $47 million, a 2% year-over-year decrease. GAAP operating loss totaled $106 million. Net loss was $84 million or a loss of $2.47 per share.

Non-GAAP net revenue, excluding purchase accounting adjustments related to the deferred revenue write-down, due to the Lifetouch acquisition, was $325 million, a 63% year-over-year increase driven by the Lifetouch acquisition. Non-GAAP Lifetouch segment net revenue was $130 million. Normalized operating loss, excluding restructuring, executive transition and strategic review charges, and purchase accounting adjustment related to the deferred revenue write-down, was $99 million. Normalized net loss was $83 million. Adjusted EBITDA loss was $45 million.

In the first quarter of 2019, the Company had an immaterial out-of-period adjustment for shipping services provided in the fourth quarter of 2018 of $2.8 million, which lowered our Adjusted EBITDA. Excluding this immaterial out-of-period adjustment, Adjusted EBITDA loss would have been $42.5 million.

A reconciliation of GAAP to non-GAAP financial measures has been provided in the financial statement tables included in this press release. An explanation of these measures is also included below under the heading “Non-GAAP Financial Information.”

Business Outlook[1][2]

The Company is revising its guidance on operating income and earnings per share due to a decrease in share-based compensation, and is updating non-GAAP guidance for the year ending December 31, 2019 to the following (in millions, except per share amounts):

     

Prior Non-GAAP Guidance
as of February 5, 2019 for
the Twelve Months Ending
December 31, 2019

Updated Non-GAAP
Guidance for the Twelve
Months Ending
December 31, 2019

Low   High Change Low   High
 
Net revenue $2,130 $2,210 $2,130 $2,210
Shutterfly Consumer net revenue $975 $1,025 $975 $1,025
Lifetouch net revenue $915 $935 $915 $935
SBS net revenue $240 $250 $240 $250
 
Gross profit margin 51.4 % 51.7 % 51.4 % 51.7 %
 
Operating income $76 $101 $4 $80 $105
Adjusted EBITDA $315 $340 $315 $340
 
Earnings per share $0.55 $1.06 $0.05 $0.61 $1.11
 
Capital Expenditures $125 $130 $125 $130
 
[1] Excludes any costs related to executive transition, the strategic review and the facility closures in 2019. Also excludes any proceeds from the sale of existing facilities.
[2] The Company's business outlook is composed entirely of non-GAAP measures. The Company considers it unreasonably difficult to reconcile its outlook to comparable GAAP measures. For additional information, see "Non-GAAP Information" below.
 

Notes to the First Quarter 2019 Financial Results and Operating Metrics and 2019 Business Outlook

Adjusted EBITDA is a non-GAAP financial measure that the Company defines as earnings before interest, taxes, depreciation, amortization, stock-based compensation, restructuring, acquisition-related costs, and executive transition and strategic review charges.

Shutterfly Consumer segment includes sales from the Shutterfly brand, the Tiny Prints boutique and BorrowLenses, and are derived from the sale of a variety of products such as, professionally-bound photo books, cards and stationery, custom home décor products and unique photo gifts, calendars and prints, and the related shipping revenue, as well as rental revenue from the BorrowLenses brand. Shutterfly Consumer also includes revenue from advertising displayed on the Company’s website.

Lifetouch segment includes net revenue from professional photography services for schools, preschools and churches, as well as retail studios operated by Lifetouch under the JCPenney Portrait brand.

Shutterfly Business Solutions ("SBS") segment includes net revenue from personalized direct marketing and other end-consumer communications as well as just-in-time, inventory-free printing for the Company's business customers.

Average Order Value ("AOV") is defined as total net revenue (Shutterfly Consumer revenue only) divided by total orders.

The financial guidance herein replaces any of the Company’s previously issued financial guidance which should no longer be relied upon.

First Quarter Conference Call

Management will review the first quarter 2019 financial results and its expectations for the second quarter and full year 2019 on a conference call on Thursday, April 25, 2019 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 (844) 763-8274 or (412) 717-9224, 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 Thursday, May 9, 2019. To hear the replay, please dial (877) 344-7529 or (412) 317-0088 and enter access code 10130408.

Non-GAAP Financial Information

To supplement the Company’s consolidated financial statements, which are prepared and presented in accordance with U.S. generally accepted accounting principles (GAAP), the Company uses certain 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 GAAP. These non-GAAP financial measures include non-GAAP net revenue, non-GAAP Lifetouch segment net revenue, non-GAAP gross margin, normalized operating income (loss), normalized net income (loss), non-GAAP diluted net income (loss) per share and Adjusted EBITDA. 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.

The Company believes 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, net revenue, operating income (loss), net income (loss), or net income (loss) per share determined in accordance with GAAP. For more information, please see Shutterfly'sSecurities and Exchange Commission (“SEC”) filings, including the most recent Form 10-K and Form 10-Q, which are available on the SEC's website at www.sec.gov.

The Company has provided a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure, where possible, except that the Company has not reconciled its second quarter and full year 2019 guidance to comparable GAAP measures 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; costs related to executive transition, the strategic review, the facility closures in 2019 and proceeds from the sale of existing facilities, which are reconciling items between GAAP measures and non-GAAP measures. The factors that may impact future stock-based compensation expense; capitalization and amortization of internal-use software; costs related to executive transition; the strategic review; the facility closures in 2019; and the proceeds from the sale of existing facilities are out of the Company's control and/or cannot be reasonably predicted, and therefore the Company is unable to provide such guidance without unreasonable effort. These factors include the Company's market capitalization and related volatility of its stock price; its inability to project the cost or scope of internally produced software; its inability to estimate the charges related to the facility closures in 2019 and the proceeds from the sale of existing facilities; its ability to attract new management personnel; and the lack of assurance that the review of strategic alternatives will result in a transaction or other outcome.

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 the Company's business outlook for the second quarter of 2019 and full year 2019. 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 spending as a result of general economic conditions; consumer acceptance of the Company’s products and services; the Company’s ability to develop innovative, new products and services on a timely and cost-effective basis; the Company’s ability to expand its customer base and increase sales to existing customers; the Company’s ability to meet production requirements; and general economic conditions and changes in laws and regulations. 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 the Company's business in general, the Company refers you to the “Risk Factors” section of its SEC filings, including the Company's most recent Form 10-K and 10-Q, which are available on the SEC’s website 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 retailer and manufacturing platform for personalized products and communications. Founded in 1999, Shutterfly, Inc. has three divisions: Shutterfly Consumer, Lifetouch, and Shutterfly Business Solutions. Shutterfly Consumer and Lifetouch help consumers capture, preserve, and share life’s important moments through professional and personal photography, and personalized products. The Shutterfly brand brings photos to life in photo books, gifts, home décor, and cards and stationery. Lifetouch is the national leader in school photography, built on the enduring tradition of “Picture Day”, and also serves families through portrait studios and other partnerships. Shutterfly Business Solutions delivers digital printing services that enable efficient and effective customer engagement through personalized communications. For more information about Shutterfly, Inc. (Nasdaq: SFLY), visit www.shutterflyinc.com.

 
Appendix 1.1
Shutterfly, Inc.
Consolidated Statements of Operations - GAAP
(In thousands, except per share amounts)
(Unaudited)
 
Three Months Ended
March 31,
2019   2018
 
Net revenue $ 324,681 $ 199,725
Cost of net revenue 210,399 126,046
Gross profit 114,282 73,679
Operating expenses:
Technology and development 48,332 38,504
Sales and marketing[1] 119,370 37,720
General and administrative[2] 48,388 31,565
Restructuring 3,973
Total operating expenses 220,063 107,789
Loss from operations (105,781) (34,110)
Interest expense (18,253) (9,633)
Interest and other income, net 1,178 1,749
Loss before income taxes (122,856) (41,994)
Benefit from income taxes 39,237 14,829
Net loss $ (83,619) $ (27,165)
 
Net loss per share - basic and diluted $ (2.47) $ (0.83)
 
Weighted-average shares outstanding - basic and diluted 33,918 32,702
 
Stock-based compensation is allocated as follows:
Cost of net revenue $ 892 $ 999
Technology and development 2,298 2,429
Sales and marketing 3,466 3,504
General and administrative 5,383 4,760
$ 12,039 $ 11,692
 
Depreciation and amortization is allocated as follows:
Cost of net revenue $ 24,286 $ 15,441
Technology and development 6,470 6,297
Sales and marketing 9,865 2,041
General and administrative 1,537 1,119
Restructuring 1,296
$ 43,454 $ 24,898
 
[1] The Sales and marketing expenses of $119.4 million for the three months ended March 31, 2019 includes $0.4 million of costs related to executive transition and the strategic review.
[2] The General and administrative expenses of $48.4 million for the three months ended March 31, 2019 includes $2.2 million of costs related to executive transition and the strategic review. The General and administrative expenses of $31.6 million for the three months ended March 31, 2018 includes $4.6 million of acquisition-related costs.
 
   

Appendix 1.2

Shutterfly, Inc.
Consolidated Balance Sheets - GAAP
(In thousands, except par value amounts)
(Unaudited)
 
March 31, 2019 December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents $ 156,337 $ 521,567
Short-term investments 24,439 34,011
Accounts receivable, net 56,735 87,023
Inventories 20,932 18,015
Prepaid expenses and other current assets 102,869 66,961
Total current assets 361,312 727,577
Long-term investments 6,082 10,808
Property and equipment, net 342,073 381,018
Intangible assets, net 303,526 316,154
Goodwill 843,628 843,607
Other assets 89,293 23,045
Total assets $ 1,945,914 $ 2,302,209
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt $ 5,348 $ 14,203
Accounts payable 41,569 105,407
Accrued liabilities 137,000 226,445
Operating lease liabilities, current portion 21,564
Deferred revenue, current portion 96,341 57,319
Total current liabilities 301,822 403,374
Long-term debt 900,145 1,090,442
Operating lease liabilities 60,701
Other liabilities 84,619 134,027
Total liabilities 1,347,287 1,627,843
Stockholders’ equity:
Common stock, $0.0001 par value; 100,000 shares authorized; 34,181 and 33,673 shares issued and outstanding on March 31, 2019 and December 31, 2018, respectively 3 3
Additional paid-in capital 1,077,922 1,065,531
Accumulated other comprehensive income 1,053 1,592
Accumulated deficit (480,351) (392,760)

Total stockholders' equity

598,627 674,366
Total liabilities and stockholders' equity $ 1,945,914 $ 2,302,209
 
 
Appendix 1.3
Shutterfly, Inc.
Consolidated Statements of Cash Flows - GAAP
(In thousands)
(Unaudited)
 
Three Months Ended March 31,
2019   2018
Cash flows from operating activities:
Net loss $ (83,619) $ (27,165)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 29,333 22,564
Amortization of intangible assets 12,825 2,334
Amortization of debt discount and issuance costs 4,660 4,122
Stock-based compensation 12,039 11,692
(Gain) loss on disposal of property and equipment (465) 225
Deferred income taxes 2,420 4,264
Restructuring 1,347
Other (37)
Changes in operating assets and liabilities:
Accounts receivable 30,294 28,174
Inventories (2,959) 869
Prepaid expenses and other assets (31,169) (15,642)
Accounts payable (65,277) (73,773)
Accrued and other liabilities (53,507) (81,996)
Net cash used in operating activities (144,115) (124,332)
 
Cash flows from investing activities:
Purchases of property and equipment (13,726) (8,075)
Capitalization of software and website development costs (13,927) (8,584)
Purchases of investments (9,523)
Proceeds from maturities of investments 14,444 72,068
Proceeds from sales of property and equipment 956 649
Net cash (used in) provided by investing activities (12,253) 46,535
 
Cash flows from financing activities:
Proceeds from issuance of common stock upon exercise of stock options 60 13,775
Principal payments of borrowings (203,891) (750)
Payment of debt issuance costs (1,108)
Principal payments of finance lease liabilities (5,312) (4,643)
Net cash (used in) provided by investing activities (209,143) 7,274
 
Effect of exchange rate changes on cash and cash equivalents 281
Net decrease in cash and cash equivalents (365,230) (70,523)
Cash and cash equivalents, beginning of period 521,567 489,894
Cash and cash equivalents, end of period $ 156,337 $ 419,371
 
Supplemental schedule of non-cash investing / financing activities:
Net decrease in accrued purchases of property and equipment $ (1,420) $ (3,780)
Net increase in accrued capitalized software and website development costs 1,920 357
Stock-based compensation capitalized with software and website development costs 292 323
Leased assets obtained in exchange for financing lease liabilities 2,969
 
 
Appendix 1.4
Shutterfly, Inc.
Shutterfly Consumer Metrics Disclosure
(Unaudited)
 
Three Months Ended
March 31,
2019   2018
Shutterfly Consumer Metrics
Customers [1] 2,872,369 3,220,881
year-over-year change (11) %
 
Orders 4,108,645 5,076,150
year-over-year change (19) %
 
Average order value [2] $36.23 $29.96
year-over-year change 21 %
 
[1] An active customer is defined as one that has transacted in the last trailing-twelve months.
[2] Average order value solely includes Shutterfly Consumer revenue.
 
   
Appendix 1.5
Shutterfly, Inc.
Shutterfly Consumer Net Revenue by Brand
(In thousands)
(Unaudited)
 
Three Months Ended Year Ended
Mar. 31,   Jun. 30,   Sep. 30,   Dec. 31,   Mar. 31, Dec. 31,
2018 2018 2018 2018 2019 2018
 
Shutterfly Consumer net revenue[1]
Shutterfly Brand Core $ 111,668 $ 116,041 $ 85,502 $ 369,016 $ 105,076 $ 682,228
Shutterfly Brand PGHD 30,965 38,163 30,006 110,173 34,585 209,307
Tiny Prints Boutique 2,134 1,374 1,446 39,910 1,695 44,864
Other 7,292 9,425 9,934 8,779 7,491 35,430
Total $ 152,059 $ 165,003 $ 126,888 $ 527,878 $ 148,847 $ 971,829
 
[1] This 2018 quarterly net revenue by brand table has been updated to allocate order-to-billed adjustments to each brand of Shutterfly Consumer net revenue.
 
 

Appendix 2.1

Shutterfly, Inc.

Segment Disclosure

(In thousands)

(Unaudited)

 
The margin of the Company's three segments compares to non-GAAP operating loss by adding corporate expenses, amortization of intangible assets, stock-based compensation, restructuring, acquisition-related, and executive transition and strategic review charges.
 
  Three Months Ended
March 31,
2019   2018
Shutterfly Consumer:
Net revenue $ 148,847 $ 152,059
Cost of net revenue[1] 90,406 84,845
Technology and development 33,523 32,129
Sales and marketing 29,123 30,725
Credit card fees 4,156 4,199
Margin[1][2] $ (8,361) $ 161
Margin % (5.6) % 0.1 %
 
Lifetouch[3]:
Net revenue[4] $ 129,952 $
Cost of net revenue 78,328
Technology and development 7,973
Sales and marketing 76,295
Credit card fees 2,227
Margin[2] $ (34,871) $
Margin % (26.8) % — %
 
Shutterfly Business Solutions:
Net revenue $ 46,527 $ 47,666
Cost of net revenue 38,151 39,910
Technology and development 3,292 3,945
Sales and marketing 1,408 1,450
Margin[2] $ 3,676 $ 2,361
Margin % 7.9 % 5.0 %
 
Consolidated Segments:
Net revenue[4] $ 325,326 $ 199,725
Cost of net revenue[1] 206,885 124,755
Technology and development 44,788 36,074
Sales and marketing 106,826 32,175
Credit card fees 6,383 4,199
Margin[1][2] $ (39,556) $ 2,522
Margin % (12.2) % 1.3 %
   
[1] Includes an immaterial out-of-period adjustment for shipping services provided in the fourth quarter of 2018 of $2.8 million, which increased cost of net revenue and lowered segment margin.
[2] The margins reported reflect only costs that are directly attributable or allocable to a specific segment and exclude corporate expenses, amortization of intangible assets, stock-based compensation, restructuring, acquisition-related, and executive transition and strategic review charges.
[3] The Company acquired Lifetouch on April 2, 2018.
[4] Lifetouch net revenue presented in management reporting related to certain obligations that would have otherwise been recorded by Lifetouch as an independent entity but were not recognized in our condensed consolidated financial statements for the three months ended March 31, 2019 due to business combination accounting requirements.
 

The following table reconciles segment margin to total operating loss, segment net revenue to Net revenue, and segment cost of net revenue to Cost of net revenue:

 
Three Months Ended
March 31,
2019   2018
 
Total segment margin $ (39,556) $ 2,522
Purchase accounting deferred revenue adjustment[1] (645)
Corporate expenses[2] (35,089) (18,021)
Amortization of intangible assets (12,825) (2,334)
Stock-based compensation expense (12,039) (11,692)
Restructuring (3,973)
Executive transition and strategic review charges (1,654)
Acquisition-related charges (4,585)
Operating loss $ (105,781) $ (34,110)
Operating margin (32.6) % (17.1) %
 
 
Total segment net revenue $ 325,326 $ 199,725
Purchase accounting deferred revenue adjustment[1] (645)
Net revenue $ 324,681 $ 199,725
 
Total segment cost of net revenue $ 206,885 $ 124,755
Stock-based compensation for cost of net revenue 892 999
Amortization of intangible assets for cost of net revenue 2,622 292
Cost of net revenue $ 210,399 $ 126,046
 
[1] Lifetouch net revenue presented in management reporting related to certain obligations that would have otherwise been recorded by Lifetouch as an independent entity but were not recognized in our condensed consolidated financial statements for the three months ended March 31, 2019 due to business combination accounting requirements.
[2] Corporate expenses include activities that are not directly attributable or allocable to a specific segment. This category consists primarily of expenses related to certain functions performed at the corporate level such as non-manufacturing facilities, human resources, finance and accounting, legal, information technology, integration, etc.
 
 

Appendix 3.1

Shutterfly, Inc.

Reconciliation of Non-GAAP Financial Measures

(In thousands)

(Unaudited)

 
The GAAP and Non-GAAP amounts presented below for the three months ended March 31, 2019 are impacted by an immaterial out-of-period adjustment for shipping services provided in the fourth quarter of 2018 of $2.8 million, which increased cost of net revenue and burdened gross margin, operating loss, net loss, and Adjusted EBITDA loss.
 
  Three Months Ended         Three Months Ended
March 31, 2019 March 31, 2019
GAAP Income Normalized
Statement Adjustments Non-GAAP
Net revenue:
Shutterfly Consumer $ 148,847 $ 148,847
Lifetouch 129,307 645 [2] 129,952
Shutterfly Business Solutions 46,527   46,527
Total net revenue 324,681 645 325,326
Cost of net revenue 210,399 [1]   210,399
Gross profit 114,282 [1] 645 114,927
Gross profit margin 35.2% [1] 35.3%
 
Operating expenses:
Technology and development 48,332 48,332
Sales and marketing 119,370 (379) [3] 118,991
General and administrative 48,388 (2,186) [3] 46,202
Restructuring 3,973 (3,973) [4]
Total operating expenses 220,063 (6,538) 213,525
Operating loss (105,781) [1] 7,183 (98,598)
Operating margin (32.6)% [1] (30.3)%
 
Interest expense (18,253) 3,886 [5] (14,367)
Interest and other income, net 1,178   1,178
Income before income taxes (122,856) [1] 11,069 (111,787)
Benefit from income taxes 39,237 [1] 29,069
Net loss $ (83,619) [1] $ (82,718)
 
Net loss per share - basic and diluted $ (2.47) [1] $ (2.44)
 
Weighted-average shares outstanding - basic and diluted 33,918 33,918
 
Operating loss $ (105,781) $ (98,598)
Stock-based compensation 12,039 (911) [3] 11,128
Amortization of intangible assets 12,825 12,825
Depreciation 30,629 (1,296) [4] 29,333
Adjusted EBITDA $ (45,312)

Adjusted EBITDA margin

(13.9)%
 
[1] Includes an immaterial out-of-period adjustment for shipping services provided in the fourth quarter of 2018 of $2.8 million, which increased cost of net revenue, and burdened gross margin, operating loss, net loss, and Adjusted EBITDA loss.
[2] Lifetouch net revenue presented in management reporting related to certain obligations that would have otherwise been recorded by Lifetouch as an independent entity but were not recognized in our condensed consolidated financial statements for the three months ended March 31, 2019 due to business combination accounting requirements.
[3] Charges related to executive transition and the strategic review of which $0.9 million was related to stock-based compensation expense.
[4] Restructuring charge related to the planned closure of four Lifetouch facilities of which $1.3 million was related to depreciation expense.
[5] Non-cash charges related to the $200 million debt repayment made in January 2019 that is considered a partial early debt extinguishment.
 
   
Appendix 4.1
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, Dec. 31,
2018 2018 2018 2018 2019 2018
 
GAAP net income (loss) $ (27,165) $ (26,512) $ (73,543) $ 177,616 $ (83,619) $ 50,396
Restructuring 2,952 1,667 3,973 4,618
Acquisition-related charges 4,585 8,000 2,392 572 15,549
Purchase accounting adjustments 44,282 3,958 2,298 645 50,538
Executive transition and strategic review charges 2,565
Debt repayment impact 3,886
Tax benefit impact of adjustments (1,185) (15,171) (3,603) 5,050 (10,168) (14,910)
Non-GAAP net income (loss) $ (23,765) $ 13,551 $ (70,796) $ 187,203 $ (82,718) $ 106,191
 
GAAP diluted shares outstanding 32,702 33,234 33,470 34,218 33,918 34,832
Non-GAAP diluted shares outstanding 32,702 35,775 33,470 34,218 33,918 34,832
 
GAAP net income (loss) per share $ (0.83) $ (0.80) $ (2.20) $ 5.19 $ (2.47) $ 1.45
Non-GAAP net income (loss) per share $ (0.73) $ 0.38 $ (2.12) $ 5.47 $ (2.44) $ 3.05
 
   
Appendix 4.2
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,
2018 2018 2018 2018 2019 2018
 
GAAP net income (loss) $ (27,165) $ (26,512) $ (73,543) $ 177,616 $ (83,619) $ 50,396
Interest expense 9,633 17,769 16,660 17,176 18,253 61,239
Interest and other income, net (1,749) (1,561) (856) (1,278) (1,178) (5,444)
Tax (benefit) provision (14,829) (12,607) (28,797) 65,496 (39,237) 9,262
Depreciation and amortization 24,898 40,377 41,970 43,883 42,158 151,127
Stock-based compensation 11,692 11,697 11,931 12,400 11,128 47,721
Restructuring 2,952 1,667 3,973 4,618
Executive transition and strategic review charges 2,565
Acquisition-related charges 4,585 8,000 2,392 572 15,549
Purchase accounting adjustments 44,282 3,958 2,298 645 50,538
Non-GAAP Adjusted EBITDA $ 7,065 $ 84,397 $ (26,285) $ 319,830 $ (45,312) $ 385,006
 
   
Appendix 4.3
Shutterfly, Inc.
Reconciliation of Cash Flow from Operating Activities to Non-GAAP Adjusted EBITDA
(In thousands)
(Unaudited)
 
Three Months Ended Year Ended
Mar. 31,   Jun. 30,   Sep. 30,   Dec. 31,   Mar. 31, Dec. 31,
2018 2018[1] 2018 2018 2019 2018
 
Net cash provided by (used in) operating activities $ (124,332) $ (75,233) $ 27,041 $ 374,450 $ (144,115) $ 201,926
Interest expense 9,633 17,769 16,660 17,176 18,253 61,239
Interest and other income, net (1,749) (1,561) (856) (1,278) (1,178) (5,444)
Tax (benefit) provision (14,829) (12,607) (28,797) 65,496 (39,237) 9,262
Changes in operating assets and liabilities 142,368 53,888 (45,554) (150,834) 122,617 (132)
Other adjustments (8,611) 47,659 (1,129) 11,950 (6,577) 49,868
Cash restructuring 2,200 2,626 2,200
Cash executive transition and strategic review charges 1,654
Acquisition-related charges 4,585 8,000 2,392 572 15,549
Purchase accounting adjustments 44,282 3,958 2,298 645 50,538
Non-GAAP Adjusted EBITDA $ 7,065 $ 84,397 $ (26,285) $ 319,830 $ (45,312) $ 385,006
 
[1] During the third quarter of 2018, the Company identified certain amounts attributable to the repayment of accreted interest on its convertible senior notes that were misclassified within the statement of cash flows. This misclassification resulted in a $64 million understatement of net cash used in operating activities with a corresponding understatement of cash provided by financing activities for the second quarter of 2018. The quarterly amounts in the above table have been revised to appropriately reflect such repayment of accreted interest in cash used in operating activities during the second quarter of 2018.
 
 

Appendix 5.1

Shutterfly, Inc.
Forward-Looking Guidance for Non-GAAP Financial Measures
(In millions, except per share amounts)
(Unaudited)
 
Forward-Looking Guidance[1][2]
   

Three Months Ending
June 30, 2019

Twelve Months Ending
December 31, 2019

   
Low High Low High
 
Net revenue $469 $479 $2,130 $2,210
Shutterfly Consumer net revenue $166 $170 $975 $1,025
Lifetouch net revenue $255 $258 $915 $935
SBS net revenue $48 $51 $240 $250
 
Gross profit $239 $244 $1,095 $1,143
Gross profit margin 51.0 % 51.0 % 51.4 % 51.7 %
 
Operating income (loss) $0 $5 $80 $105
Operating margin % 1.1 % 3.8 % 4.8 %
 
Operating income (loss) $0 $5 $80 $105
Stock-based compensation $13 $13 $50 $50
Amortization of intangible assets $13 $13 $51 $51
Depreciation $33 $33 $133 $133
Adjusted EBITDA $59 $64 $315 $340
Adjusted EBITDA margin 12.6 % 13.4 % 14.8 % 15.4 %
 
Capital Expenditures $125 $130
Capital expenditures as % of net revenue 5.9 % 5.9 %
 
Tax rate 22.0 % 22.0 % 30.0 % 30.0 %
 
Net income (loss) per share
Basic

($0.27)

($0.17)
Diluted $0.61 $1.11
 
Weighted average shares
Basic 34.5 34.5
Diluted 34.8 34.8
 
[1] Excludes any costs related to executive transition, the strategic review, the facility closures in 2019, and any non-recurring charges related to the $200 million debt repayment made in January 2019. Also excludes any proceeds from the sale of existing facilities.
[2] The Company's business outlook is composed entirely of non-GAAP measures. The Company considers it unreasonably difficult to reconcile its outlook to comparable GAAP measures.
 

Source: Shutterfly, Inc.

Investor Relations:
Shawn Tabak, 650-610-6026
stabak@shutterfly.com

Media Relations:
Sondra Harding, 650-610-5129
sharding@shutterfly.com