Press Releases

Shutterfly, Inc.
Jul 27, 2016

Shutterfly Announces Second Quarter 2016 Financial Results

  • Second quarter 2016 net revenues increase 11% year-over-year
  • Shutterfly Business Solutions segment revenues double year-over-year

REDWOOD CITY, Calif.--(BUSINESS WIRE)-- 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 second quarter ended June 30, 2016.

"We're pleased with our second quarter results," said Christopher North, President and CEO. "Our performance was led by our flagship Shutterfly brand and continued strength in our SBS business. The team continues to make solid progress on Shutterfly 3.0, both in mobile and in migrating customers to the All New Shutterfly. Lastly, I'm delighted to have joined the Shutterfly team eight weeks ago, and look forward to working with the team as we enter the next phase of our growth."

Second Quarter 2016 Financial Highlights

  • Net revenues totaled $204.0 million, an 11% year-over-year increase.
    • Consumer net revenues totaled $176.6 million, a 3% year-over-year increase.
    • Shutterfly Business Solutions net revenues totaled $27.4 million, a 117% year-over year increase.
    • Excluding a flash deal deferred revenue breakage catch-up in the second quarter of 2015, net revenues increased 16% year-over-year.
    • Excluding flash deal deferred revenue breakage in the second quarter of 2015, consumer net revenues increased 8% year-over-year.
  • Gross profit margin was 46.3% of net revenues, compared to 47.4% in the second quarter of 2015.
    • Excluding the effect of the flash deal deferred revenue breakage in the second quarter of 2015, gross profit margin was up 110 basis points year-over-year.
  • Operating expenses totaled $115.4 million compared to $115.6 million in the second quarter of 2015.
    • Excluding marketing expenses related to the flash deal deferred revenue breakage in the second quarter of 2015, total operating expenses increased 3% year-over-year.
  • Operating loss totaled $(21.1) million compared to a loss of $(28.4) million in the second quarter of 2015.
  • Net loss was $(16.5) million, compared to $(23.8) million in the second quarter of 2015.
  • Net loss per share was $(0.48), compared to $(0.63) in the second quarter of 2015.
  • Adjusted EBITDA was $18.2 million, compared to $15.6 million in the second quarter of 2015. Excluding the effect of the flash deal deferred revenue breakage in the second quarter of 2015 of $4 million, adjusted EBITDA increased 58%.
  • At June 30, 2016, cash and investments totaled $149.3 million.
  • In the second quarter of 2016, the Company repurchased 658,988 shares for $30.7 million, at an average price of $46.61 under its share repurchase program. As of June 30, 2016, $117.1 million remained authorized under the repurchase program.

Second Quarter 2016 Consumer Operating Metrics

  • Transacting customers totaled 3.3 million, an increase of 4% year-over-year.
  • Orders totaled 5.3 million, an increase of 5% year-over-year.
  • Average order value was $33.30, an increase of 2% year-over-year.

Business Outlook

Third Quarter 2016:

  • Net revenues to range from $179.2 million to $185.9 million, a year-over-year increase of 7.0% to 11.0%.
  • Gross profit margin to range from 36.7% to 37.8% of net revenues.
  • Operating loss to range from $(44.2) million to $(47.7) million.
  • Effective tax rate of 38.5%.
  • Net loss per share to range from $(0.90) to $(0.97).
  • Weighted average shares of approximately 34.0 million.
  • Adjusted EBITDA loss to range from $(1.0) million to $(4.0) million.

Full Year 2016:

  • Net revenues to range from $1.130 billion to $1.160 billion, a year-over-year increase of 6.7% to 9.5%.
  • Gross profit margin to range from 51.3% to 51.7% of net revenues.
  • Operating income to range from $40.8 million to $55.6 million.
  • Effective tax rate to range from 38.5% to 39.5%.
  • Net income per share to range from $0.31 to $0.58.
  • Weighted average shares of approximately 35.3 million.
  • Adjusted EBITDA to range from $210.0 million to $222.9 million, or 18.6% to 19.2% of net revenues.
  • Free cash flow, defined as adjusted EBITDA less capital expenditures, to range from $130.0 million to $132.9 million.
  • Capital expenditures to range from 7.1% to 7.8% of net revenues.

Notes to the Second Quarter 2016 Financial Results and Operating Metrics and 2016 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 segment includes net revenues from stationery and greeting cards, photo books, calendars and photo-based merchandise, photo prints, and the related shipping revenues and rental revenue. Consumer also includes net revenues from advertising and sponsorship programs.

Shutterfly Business Solutions (SBS) 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 SBS) divided by total orders.

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

Second Quarter Conference Call

Management will review the second quarter 2016 financial results and its expectations for the third quarter and full year 2016 on a conference call on Wednesday, July 27, 2016 at 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time). To listen to the call and view the accompanying slides, please visit http://www.shutterflyinc.com. In the Investor Relations area, click on the link provided for the webcast, or dial (888) 317-6003 or (412) 317-6061, and enter the conference access code 8724055. 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 Wednesday, August 10, 2016. To hear the replay, please dial (877) 344-7529 or (412) 317-0088, and enter access code 10088423.

Non-GAAP Financial Information

This press release contains non-GAAP financial measures. Tables are provided at the end of this press release that reconcile the non-GAAP financial measures that the Company uses to the most directly comparable financial measures prepared in accordance with Generally Accepted Accounting Principles (GAAP). These non-GAAP financial measures include non-GAAP gross profit margin, non-GAAP operating income (loss) and operating margin, adjusted EBITDA, and free cash flow. The method the Company uses to produce non-GAAP financial measures is not computed according to GAAP and may differ from methods used by other companies.

To supplement the Company's consolidated financial statements presented on a GAAP basis, we believe that these non-GAAP measures provide useful information about the Company's core operating results and thus are appropriate to enhance the overall understanding of the Company's past financial performance and its prospects for the future. These adjustments to the Company's GAAP results are made with the intent of providing both management and investors a more complete 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), or net income (loss) determined in accordance with GAAP. For more information, please see Shutterfly's SEC Filings, including the most recent Form 10-K and Form 10-Q, which are available on the Securities and Exchange Commission's Web site at www.sec.gov.

Notice Regarding Forward-Looking Statements

This media release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties. These forward-looking statements include statements regarding the Company's growth and financial expectations for the third quarter and full year 2016 set forth under the caption "Business Outlook," and statements about historical results that may suggest trends for our business. The Company's actual results may differ materially from those anticipated in these forward-looking statements. Factors that might contribute to such differences include, among others, economic downturns and the general state of the economy; changes in consumer discretionary spending as a result of the macroeconomic environment; the loss of sales partners for our products; our ability to expand our customer base, increase sales to existing customers and meet production requirements; our ability to successfully integrate acquired businesses and assets; our ability to retain and hire necessary employees, including seasonal personnel, and appropriately staff our operations; the impact of seasonality on our business; our ability to develop and implement innovative, new products and services on a timely and cost-effective basis, including our next generation Shutterfly platform; consumer acceptance of our products and services; our ability to develop additional adjacent lines of business; unforeseen changes in expense levels; and competition and pricing strategies of our competitors, which could lead to pricing pressure. For more information regarding the risks and uncertainties that could cause actual results to differ materially from those expressed or implied in these forward-looking statements, as well as risks relating to our business in general, we refer you to the "Risk Factors" section of the Company's most recent Form 10-K and Form 10-Q, and the Company's other filings, which are available on the Securities and Exchange Commission's 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 manufacturer and digital retailer of high-quality personalized products and services offered through a family of lifestyle brands. Founded in 1999, the Shutterfly, Inc. family of brands includes Shutterfly, where your photos come to life in photo books, cards and gifts; Tiny Prints, premium cards and stationery for all life's occasions; Wedding Paper Divas, wedding invitations and stationery for every step of the planning process; MyPublisher, one of the pioneers in the photo book industry and creator of easy-to-use photo book-making software; BorrowLenses, the premier online marketplace for photographic and video equipment rentals; and GrooveBook, an iPhone and Android app and subscription service that prints up to 100 mobile phone photos in a GrooveBook and mails it to customers every month. For more information about Shutterfly, Inc. (SFLY), visit www.shutterflyinc.com.

   

Shutterfly, Inc.

Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)

 
Three Months Ended Six Months Ended
June 30, June 30,
2016   2015 2016   2015
 
Net revenues $ 203,961 $ 183,879 $ 385,670 $ 343,857
Cost of net revenues 109,592   96,647   218,315   191,354  
Gross profit 94,369   87,232   167,355   152,503  
Operating expenses:
Technology and development 41,313 36,502 79,582 73,862
Sales and marketing 47,539 50,446 93,381 94,976
General and administrative 26,592   28,676   57,281   58,281  
Total operating expenses 115,444   115,624   230,244   227,119  
Loss from operations (21,075 ) (28,392 ) (62,889 ) (74,616 )
Interest expense (5,661 ) (4,985 ) (11,336 ) (9,721 )
Interest and other income, net 128   120   249   222  
Loss before income taxes (26,608 ) (33,257 ) (73,976 ) (84,115 )
Benefit from income taxes 10,123   9,480   28,055   15,235  
Net loss $ (16,485 ) $ (23,777 ) $ (45,921 ) $ (68,880 )
 
 
Net loss per share - basic and diluted $ (0.48 ) $ (0.63 ) $ (1.34 ) $ (1.82 )
 
 
Weighted-average shares outstanding - basic and diluted 34,177   37,537   34,386   37,753  
 
 
Stock-based compensation is allocated as follows:
Cost of net revenues $ 1,081 $ 1,001 $ 2,305 $ 2,193
Technology and development 2,512 3,309 2,971 5,301
Sales and marketing 3,754 5,654 8,033 11,873
General and administrative 3,577   6,351   7,765   14,708  
$ 10,924   $ 16,315   $ 21,074   $ 34,075  
 
Depreciation and amortization is allocated as follows:
Cost of net revenues $ 13,842 $ 12,697 $ 27,384 $ 25,376
Technology and development 8,430 8,010 16,823 15,840
Sales and marketing 3,694 4,779 8,409 9,681
General and administrative 2,391   2,220   4,855   4,403  
$ 28,357   $ 27,706   $ 57,471   $ 55,300  
 

Shutterfly, Inc.

Consolidated Balance Sheets

(In thousands, except par value amounts)

(Unaudited)

   

   June 30,   

December 31,

2016 2015
ASSETS
Current assets:
Cash and cash equivalents $ 99,249 $ 288,863
Short-term investments 31,564 22,918
Accounts receivable, net 28,946 55,222
Inventories 11,515 13,466
Prepaid expenses and other current assets 67,595   31,828  
Total current assets 238,869 412,297
Long-term investments 18,504 29,005
Property and equipment, net 267,846 281,779
Intangible assets, net 51,763 62,323
Goodwill 408,975 408,975
Other assets 12,838   10,948  
Total assets $ 998,795   $ 1,205,327  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,642 $ 35,329
Accrued liabilities 71,522 149,134
Deferred revenue, current portion 25,243   27,329  
Total current liabilities 108,407 211,792
Convertible senior notes, net 271,476 264,361
Other liabilities 110,078   123,112  
Total liabilities 489,961   599,265  
Stockholders' equity:

Common stock, $0.0001 par value; 100,000 shares authorized; 33,950 and 34,777 shares issued and outstanding on June 30, 2016 and December 31, 2015, respectively

3 4
Additional paid-in capital 926,956 900,218
Accumulated other comprehensive income (loss) 60 (68 )
Accumulated deficit (418,185 ) (294,092 )
Total stockholders' equity 508,834   606,062  
Total liabilities and stockholders' equity $ 998,795   $ 1,205,327  
 

Shutterfly, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 
Six Months Ended
June 30,
2016   2015
Cash flows from operating activities:
Net loss $ (45,921 ) $ (68,880 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 46,278 40,881
Amortization of intangible assets 11,193 14,419
Amortization of debt discount and transaction costs 7,115 6,728
Stock-based compensation 21,074 34,075
Loss on disposal of property and equipment 324 498
Deferred income taxes (3,567 ) (6,623 )
Tax benefit from stock-based compensation 4,021 13,986
Excess tax benefits from stock-based compensation (5,233 ) (14,372 )
Changes in operating assets and liabilities:
Accounts receivable 26,277 6,962
Inventories 1,951 2,552
Prepaid expenses and other assets (34,045 ) (20,563 )
Accounts payable (18,970 ) (17,753 )
Accrued and other liabilities (77,504 ) (77,470 )
Net cash used in operating activities (67,007 ) (85,560 )
 
Cash flows from investing activities:
Purchases of property and equipment (33,067 ) (28,935 )
Capitalization of software and website development costs (18,083 ) (9,297 )
Purchases of investments (15,936 ) (4,400 )
Proceeds from the maturities of investments 17,890 32,358
Proceeds from sale of property and equipment 10,247   265  
Net cash used in investing activities (38,949 ) (10,009 )
 
Cash flows from financing activities:
Proceeds from issuance of common stock upon exercise of stock options 685 2,312
Repurchases of common stock (78,172 ) (87,757 )
Excess tax benefits from stock-based compensation 5,233 14,372
Principal payments of capital lease and financing obligations (11,404 ) (5,347 )
Prepayment of accelerated share repurchase   (75,000 )
Net cash used in financing activities (83,658 ) (151,420 )
 
Net decrease in cash and cash equivalents (189,614 ) (246,989 )
Cash and cash equivalents, beginning of period 288,863   380,543  
Cash and cash equivalents, end of period $ 99,249   $ 133,554  
 
 
Supplemental schedule of non-cash investing / financing activities:
Net increase (decrease) in accrued purchases of property and equipment $ (5,565 ) $ 2,242
Net increase in accrued capitalized software and website development costs 137 161
Stock-based compensation capitalized with software and website development costs 959 673
Increase in estimated fair market value of buildings under build-to-suit leases 16,414
Property and equipment acquired under capital leases 21,640
 

Shutterfly, Inc.

Consumer Metrics Disclosure

     
Three Months Ended
June 30,
2016   2015
Consumer Metrics
Customers 3,259,915 3,134,346
year-over-year growth 4 %
 
Orders 5,303,137 5,038,421
year-over-year growth 5 %
 
Average order value*

 

$33.30

 

$32.50

year-over-year growth 2 %
 

* Average order value excludes Shutterfly Business Solutions revenue. AOV for the second quarter of 2015 excluded a flash deal deferred revenue breakage catch-up.

 
   

Shutterfly, Inc.

Segment Disclosure

(In thousands)

(Unaudited)

 
Three Months Ended Six Months Ended
June 30, June 30,
2016   2015 2016   2015
Consumer
Net revenues $ 176,617 $ 171,274 $ 331,998 $ 320,062
Cost of net revenues 85,276   83,387   171,613   164,165  
Gross profit 91,341   87,887   160,385   155,897  
Consumer gross profit margin 51.7 % 51.3 % 48.3 % 48.7 %
 
Shutterfly Business Solutions (SBS)
Net revenues 27,344 12,605 53,672 23,795
Cost of net revenues 21,810   10,245   41,520   20,133  
Gross profit 5,534   2,360   12,152   3,662  
SBS gross profit margin 20.2 % 18.7 % 22.6 % 15.4 %
 
Corporate (1)
Net revenues
Cost of net revenues 2,506   3,015   5,182   7,056  
Gross profit (2,506 ) (3,015 ) (5,182 ) (7,056 )
 
Consolidated
Net revenues 203,961 183,879 385,670 343,857
Cost of net revenues 109,592   96,647   218,315   191,354  
Gross profit $ 94,369   $ 87,232   $ 167,355   $ 152,503  
 
Gross profit margin 46.3 % 47.4 % 43.4 % 44.4 %
 

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

 
   

Shutterfly, Inc.

Reconciliation of 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, Dec. 31,
2015 2015 2015 2015 2016 2016 2015
 
GAAP gross profit $ 65,271 $ 87,232 $ 59,501 $ 319,347 $ 72,986 $ 94,369 $ 531,351
Stock-based compensation 1,192 1,001 952 989 1,224 1,081 4,134
Amortization of intangible assets 2,849   2,014   1,713   1,526   1,452   1,424   8,102  
Non-GAAP gross profit $ 69,312   $ 90,247   $ 62,166   $ 321,862   $ 75,662   $ 96,874   $ 543,587  
 
Non-GAAP gross profit margin 43 % 49 % 37 % 59 % 42 % 47 % 51 %
 

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, Dec. 31,
2015 2015 2015 2015 2016 2016 2015
 
GAAP operating income (loss) $ (46,224 ) $ (28,392 ) $ (49,066 ) $ 141,947 $ (41,814 ) $ (21,075 ) $ 18,265
Stock-based compensation 17,760 16,315 15,756 10,627 10,150 10,924 60,458
Amortization of intangible assets 7,684   6,735   6,379   6,252   6,119   5,074   27,050  
Non-GAAP operating income (loss) $ (20,780 ) $ (5,342 ) $ (26,931 ) $ 158,826   $ (25,545 ) $ (5,077 ) $ 105,773  
 
Non-GAAP operating margin (13 )% (3 )% (16 )% 29 % (14 )% (2 )% 10 %
 

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, Dec. 31,
2015 2015 2015 2015 2016 2016 2015
 
GAAP net income (loss) $ (45,103 ) $ (23,777 ) $ (63,077 ) $ 131,114 $ (29,436 ) $ (16,485 ) $ (843 )
Interest expense 4,736 4,985 5,613 5,664 5,675 5,661 20,998
Interest and other income, net (102 ) (120 ) (433 ) (89 ) (121 ) (128 ) (744 )
Tax (benefit) provision (5,755 ) (9,480 ) 8,831 5,258 (17,932 ) (10,123 ) (1,146 )
Depreciation and amortization 27,593 27,707 28,933 29,044 29,114 28,357 113,277
Stock-based compensation 17,760   16,315   15,756   10,627   10,150   10,924   60,458  
Non-GAAP Adjusted EBITDA $ (871 ) $ 15,630   $ (4,377 ) $ 181,618   $ (2,550 ) $ 18,206   $ 192,000  
 

Shutterfly, Inc.

Reconciliation of Cash Flow from Operating Activities to Non-GAAP Adjusted EBITDA

(In thousands)

(Unaudited)

   
Three Months Ended Year Ended
Mar. 31,   Jun. 30,   Sep. 30,   Dec. 31,   Mar. 31,   Jun. 30, Dec. 31,
2015 2015 2015 2015 2016 2016 2015
 
Net cash provided by (used in) operating activities $ (107,731 ) $ 22,171 $ (22,140 ) $ 272,737 $ (83,923 ) $ 16,916 $ 165,037
Interest expense 4,736 4,985 5,613 5,664 5,675 5,661 20,998
Interest and other income, net (102 ) (120 ) (433 ) (89 ) (121 ) (128 ) (744 )
Tax (benefit) provision (5,755 ) (9,480 ) 8,831 5,258 (17,932 ) (10,123 ) (1,146 )
Changes in operating assets and liabilities 113,075 (6,803 ) 134 (87,013 ) 99,917 2,374 19,393
Other adjustments (5,094 ) 4,877   3,618   (14,939 ) (6,166 ) 3,506   (11,538 )
Non-GAAP Adjusted EBITDA (871 ) 15,630   (4,377 ) 181,618   (2,550 ) 18,206   192,000  

Less: Purchases of property and equipment

(13,978 ) (17,199 ) (15,117 ) (12,972 ) (5,497 ) (22,005 ) (59,266 )
Less: Capitalized technology & development costs (4,072 ) (5,386 ) (6,353 ) (6,302 ) (8,168 ) (10,052 ) (22,113 )
Add: Capex adjustments [1]           9,827    
Free cash flow $ (18,921 ) $ (6,955 ) $ (25,847 ) $ 162,344   $ (16,215 ) $ (4,024 ) $ 110,621  
 
[1] In the second quarter of 2016, the Company acquired and immediately sold $9.8 million of printers.
 

Shutterfly, Inc.

Reconciliation of Forward-Looking Guidance for Non-GAAP Financial Measures to GAAP Measures

(In millions, except per share amounts)

 
Forward-Looking Guidance
Three Months Ending

September 30, 2016

  Twelve Months Ending

December 31, 2016

Low   High Low   High
 
Net revenues $179.2 $185.9 $1,130.0 $1,160.0
 
GAAP gross profit margin 36.7 % 37.8 % 51.3 % 51.7 %
 
GAAP operating income (loss) ($47.7 ) ($44.2 ) $40.8 $55.6
GAAP operating margin (26.6 %) (23.8 %) 3.6 % 4.8 %
 
GAAP operating income (loss) ($47.7 ) ($44.2 ) $40.8 $55.6
Stock-based compensation $13.0 $12.5 $48.9 $47.0
Amortization of intangible assets $4.6 $4.6 $20.1 $20.1
Depreciation $26.1   $26.1   $100.2   $100.2  
Adjusted EBITDA ($4.0 ) ($1.0 ) $210.0   $222.9  
Adjusted EBITDA margin (2.2 %) (0.5 %) 18.6 % 19.2 %
 
Capital expenditures* $80.0 $90.0
Capital expenditures as % of net revenues 7.1 % 7.8 %
 
Free cash flow** $130.0 $132.9
Free cash flow as % of net revenues 11.5 % 11.5 %
 
Tax rate 38.5 % 38.5 % 39.5 % 38.5 %
 
Net income (loss) per share
Basic ($0.97 ) ($0.90 )
Diluted $0.31 $0.58
 
Weighted average shares
Basic 34.0 34.0
Diluted 35.3 35.3
 
* Excludes $9.8 million related to printers that were acquired and then immediately sold in the second quarter of 2016
** Free cash flow is defined as adjusted EBITDA less capital expenditures

Shutterfly, Inc.
Investor Relations:
Shawn Tabak, 650-610-6026
stabak@shutterfly.com
or
Media Relations:
Gretchen Sloan, 650-610-5276
gsloan@shutterfly.com

Source: Shutterfly, Inc.

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