Press Releases

Shutterfly, Inc.
Aug 7, 2019

Shutterfly Announces Second Quarter 2019 Financial Results

REDWOOD CITY, Calif.--(BUSINESS WIRE)--Aug. 7, 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 second quarter ended June 30, 2019.

Second Quarter 2019 Financial Highlights

Net revenue was $473 million. Shutterfly Consumer segment net revenue totaled $170 million, a 3% year-over-year increase. Lifetouch segment GAAP net revenue was $254 million, an 11% year-over-year increase. Shutterfly Business Solutions segment net revenue remained relatively flat at $50 million. Operating loss totaled $7.9 million. Net loss was $13 million or a loss of $0.37 per share.

Lifetouch segment non-GAAP net revenue was $254 million, a 3% year-over-year decrease.

Normalized operating income, excluding restructuring and executive transition and strategic review charges was $3.5 million. Normalized net loss was $8.0 million. Adjusted EBITDA was $57 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.”

Shutterfly Acquisition by Apollo

Shutterfly announced in June 2019 that it has entered into a definitive agreement (the "Merger Agreement") with the affiliates of certain funds (the “Apollo Funds”), managed by affiliates of Apollo Global Management, LLC (together with its consolidated subsidiaries, “Apollo”) (NYSE: APO), a leading global alternative investment manager, pursuant to which affiliates of Apollo Funds will acquire all the outstanding shares of Shutterfly for $51.00 per share in cash. The transaction is expected to close by early fourth quarter 2019, pending approval by Shutterfly stockholders and satisfaction of certain other closing conditions. Early termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 was granted on July 17, 2019, effective immediately.

Due to the pending acquisition by affiliates of the Apollo Funds, Shutterfly does not plan to host an earnings conference call nor provide forward-looking guidance.

Notes to the Second Quarter 2019 Financial Results and Operating Metrics

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.

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), non-GAAP operating margin, 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), operating margin, 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.

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 timing of the expected closing of our pending acquisition by the Apollo Funds. 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, the parties' inability to consummate the acquisition due to failure to satisfy conditions to the completion of the transaction, including the receipt of stockholder approval, which may not be obtained on the anticipated schedule or at all, and the outcome of lawsuits that may be brought by certain purported stockholders seeking to rescind the Merger Agreement or enjoin the consummation of the acquisition. 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.

Additional Information and Where to Find It

In connection with the proposed acquisition of Shutterfly by certain affiliates of the Apollo Funds, Shutterfly has filed and will continue to file relevant materials with the SEC, including a preliminary and definitive proxy statement. Promptly after filing the definitive proxy statement, Shutterfly will mail the definitive proxy statement and a proxy card to the stockholders of Shutterfly. SHUTTERFLY STOCKHOLDERS ARE URGED TO READ THE DEFINITIVE PROXY STATEMENT (INCLUDING ANY AMENDMENTS OR SUPPLEMENTS THERETO) CAREFULLY WHEN IT BECOMES AVAILABLE BEFORE MAKING ANY VOTING OR INVESTMENT DECISION WITH RESPECT TO THE PROPOSED TRANSACTION BECAUSE IT WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION AND THE PARTIES TO THE PROPOSED TRANSACTION. Stockholders of Shutterfly will be able to obtain a free copy of these documents, when they become available, at the website maintained by the SEC at www.sec.gov or free of charge at www.shutterflyinc.com.

Additionally, Shutterfly will file other relevant materials in connection with the proposed acquisition of Shutterfly by certain affiliates of the Apollo Funds pursuant to the terms of the Merger Agreement by and such affiliates of the Apollo Funds and Shutterfly. Shutterfly and its directors, executive officers and other members of its management and employees, under SEC rules, may be deemed to be participants in the solicitation of proxies of Shutterfly stockholders in connection with the proposed transaction. Information concerning the interests of Shutterfly’s participants in the solicitation, which may, in some cases, be different than those of Shutterfly’s stockholders generally, are available in Shutterfly’s proxy statement for its 2019 annual meeting of stockholders, which was filed with the SEC on April 8, 2019. To the extent holdings of securities by Shutterfly’s directors or executive officers have changed since the amounts disclosed in its proxy statement, such changes have been or will be reflected on Statements of Change in Ownership on Form 4 filed with the SEC. Additional information regarding these persons and their interests in the proposed transaction will be set forth in the definitive proxy statement relating to the proposed transaction when it becomes available. These documents are available free of charge at the SEC’s web site at www.sec.gov or by going to Shutterfly’s website at www.shutterflyinc.com.

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

 

Six Months Ended

 

June 30,

 

June 30,

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

Net revenue

$

473,416

 

$

443,372

 

$

798,097

 

$

643,097

Cost of net revenue

240,513

 

233,228

 

450,912

 

359,275

Gross profit

232,903

 

210,144

 

347,185

 

283,822

Operating expenses:

 

 

 

 

 

 

 

Technology and development

49,606

 

44,420

 

97,939

 

82,924

Sales and marketing

135,468

 

130,643

 

254,837

 

168,363

General and administrative[1]

52,491

 

55,040

 

100,878

 

86,604

Restructuring[2]

3,274

 

2,952

 

7,247

 

2,952

Total operating expenses

240,839

 

233,055

 

460,901

 

340,843

Loss from operations

(7,936)

 

(22,911)

 

(113,716)

 

(57,021)

Interest expense

(13,312)

 

(17,769)

 

(31,566)

 

(27,402)

Interest and other income, net

1,088

 

1,561

 

2,266

 

3,310

Loss before income taxes

(20,160)

 

(39,119)

 

(143,016)

 

(81,113)

Benefit from income taxes

7,428

 

12,607

 

46,665

 

27,436

Net loss

$

(12,732)

 

$

(26,512)

 

$

(96,351)

 

$

(53,677)

 

 

 

 

 

 

 

 

Net loss per share - basic and diluted

$

(0.37)

 

$

(0.80)

 

$

(2.83)

 

$

(1.63)

 

 

 

 

 

 

 

 

Weighted-average shares outstanding - basic and diluted

34,254

 

33,234

 

34,089

 

32,970

 

 

 

 

 

 

 

 

Stock-based compensation is allocated as follows:

 

 

 

 

 

 

 

Cost of net revenue

$

844

 

$

943

 

$

1,736

 

$

1,942

Technology and development

2,268

 

2,571

 

4,566

 

5,001

Sales and marketing

3,574

 

2,941

 

7,039

 

6,445

General and administrative

4,821

 

5,242

 

10,204

 

10,001

 

$

11,507

 

$

11,697

 

$

23,545

 

$

23,389

 

 

 

 

 

 

 

 

Depreciation and amortization is allocated as follows:

 

 

 

 

 

 

 

Cost of net revenue

$

24,566

 

$

21,944

 

$

48,853

 

$

37,386

Technology and development

6,344

 

7,418

 

12,814

 

13,715

Sales and marketing

9,893

 

9,530

 

19,759

 

11,571

General and administrative

1,625

 

1,485

 

3,161

 

2,603

Restructuring

937

 

 

2,232

 

 

$

43,365

 

$

40,377

 

$

86,819

 

$

65,275

[1] The General and administrative expenses of $52.5 million and $100.9 million for the three and six months ended June 30, 2019, respectively, include $7.5 million and $9.7 million, respectively, of costs related to executive transition and the strategic review. The General and administrative expenses of $55.0 million and $86.6 million for the three and six months ended June 30, 2018, respectively, include $8.0 million and $12.6 million, respectively, of acquisition-related charges.

[2] The restructuring plan approved in the fourth quarter of 2018 to close four Lifetouch facilities resulted in restructuring charges of $3.3 million and $7.2 million for the three and six months ended June 30, 2019, respectively. The exit of iMemories business in the second quarter of 2018 resulted in restructuring charges of $3.0 million for the three and six months ended June 30, 2018.

 

Appendix 1.2

Shutterfly, Inc.

Consolidated Balance Sheets - GAAP

(In thousands, except par value amounts)

(Unaudited)

 

 

June 30, 2019

 

December 31, 2018

ASSETS

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

105,338

 

$

521,567

Short-term investments

19,013

 

34,011

Accounts receivable, net

60,433

 

87,023

Inventories

20,916

 

18,015

Assets held for sale

9,142

 

1,000

Prepaid expenses and other current assets

114,776

 

65,961

Total current assets

329,618

 

727,577

Long-term investments

4,872

 

10,808

Property and equipment, net

336,655

 

381,018

Intangible assets, net

291,459

 

316,154

Goodwill

843,698

 

843,607

Other assets

84,872

 

23,045

Total assets

$

1,891,174

 

$

2,302,209

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

Current liabilities:

 

 

 

Current portion of long-term debt

$

5,234

 

$

14,203

Accounts payable

45,129

 

105,407

Accrued liabilities

142,836

 

226,445

Operating lease liabilities, current portion

21,045

 

Deferred revenue, current portion

38,350

 

57,319

Total current liabilities

252,594

 

403,374

Long-term debt

897,985

 

1,090,442

Operating lease liabilities

59,301

 

Other liabilities

84,707

 

134,027

Total liabilities

1,294,587

 

1,627,843

Stockholders’ equity:

 

 

 

Common stock, $0.0001 par value; 100,000 shares authorized; 34,382 and 33,673 shares issued and outstanding on June 30, 2019 and December 31, 2018, respectively

3

 

3

Additional paid-in capital

1,090,694

 

1,065,531

Accumulated other comprehensive (loss) income

(1,027)

 

1,592

Accumulated deficit

(493,083)

 

(392,760)

Total stockholders' equity

596,587

 

674,366

Total liabilities and stockholders' equity

$

1,891,174

 

$

2,302,209

Appendix 1.3

Shutterfly, Inc.

Consolidated Statements of Cash Flows - GAAP

(In thousands)

(Unaudited)

 

 

Six Months Ended

 

June 30,

 

2019

 

2018

Cash flows from operating activities:

 

 

 

Net loss

$

(96,351)

 

$

(53,677)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

Depreciation and amortization

58,967

 

50,111

Amortization of intangible assets

25,620

 

15,164

Amortization of debt discount and issuance costs

5,533

 

7,009

Amortization of operating lease assets

11,150

 

Repayment of convertible senior notes attributable to debt discount[1]

 

(63,510)

Stock-based compensation

23,545

 

23,389

(Gain) loss on disposal of property and equipment

(426)

 

154

Deferred income taxes

3,808

 

17,571

Restructuring

2,301

 

752

Other

(57)

 

(272)

Changes in operating assets and liabilities, net of acquisition:

 

 

 

Accounts receivable

26,605

 

30,767

Inventories

(2,959)

 

15,607

Prepaid expenses and other assets

(48,994)

 

(42,795)

Accounts payable

(60,267)

 

(69,708)

Accrued and other liabilities

(114,092)

 

(130,127)

Net cash used in operating activities

(165,617)

 

(199,565)

 

 

 

 

Cash flows from investing activities:

 

 

 

Acquisition of business, net of cash acquired

 

(890,052)

Purchases of property and equipment

(27,129)

 

(17,692)

Capitalization of software and website development costs

(30,642)

 

(21,392)

Purchases of investments

 

(9,523)

Proceeds from maturities of investments

21,184

 

174,329

Proceeds from sales of investments

 

45,106

Proceeds from sales of property and equipment

1,136

 

1,132

Net cash used in investing activities

(35,451)

 

(718,092)

 

 

 

 

Cash flows from financing activities:

 

 

 

Proceeds from issuance of common stock upon exercise of stock options

1,007

 

16,577

Principal payments of borrowings[1]

(207,292)

 

(239,098)

Principal payments of finance lease liabilities and financing obligations

(9,587)

 

(9,396)

Proceeds from borrowings, net of issuance costs

 

806,652

Net cash (used in) provided by financing activities

(215,872)

 

574,735

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

711

 

(271)

Net decrease in cash and cash equivalents

(416,229)

 

(343,193)

Cash and cash equivalents, beginning of period

521,567

 

489,894

Cash and cash equivalents, end of period

$

105,338

 

$

146,701

 

 

 

 

Supplemental schedule of non-cash investing / financing activities:

 

 

 

Net decrease in accrued purchases of property and equipment

$

(1,915)

 

$

(1,200)

Net increase in accrued capitalized software and website development costs

2,532

 

1,119

Stock-based compensation capitalized with software and website development costs

612

 

697

Leased assets obtained in exchange for finance lease liabilities

2,973

 

2,969

[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 should have been classified as cash used in operating activities instead of cash used in financing activities. Such error resulted in a $63.5 million understatement of net cash used in operating activities with a corresponding understatement of cash provided by financing activities in the statement of cash flows for the six months ended June 30, 2018. The statement of cash flows for the six months ended June 30, 2018 above has been revised to reflect the appropriate classification of such repayment between financing and operating activities.

 

Appendix 1.4

Shutterfly, Inc.

Shutterfly Consumer Metrics Disclosure

(Unaudited)

 

 

Three Months Ended

 

June 30,

 

2019

 

2018

Shutterfly Consumer Metrics

 

 

 

Customers [1]

3,034,584

 

3,140,246

year-over-year change

(3)

%

 

 

 

 

 

 

Orders

4,410,299

 

4,788,564

year-over-year change

(8)

%

 

 

 

 

 

 

Average order value [2]

$38.45

 

$34.46

year-over-year change

12

%

 

 

[1]An active customer is defined as one that has transacted in the last trailing-twelve months.

[2] Average order value is calculated using solely Shutterfly Consumer revenue.

 

Appendix 1.5

Shutterfly, Inc.

Shutterfly Consumer Net Revenue by Brand

(In thousands)

(Unaudited)

 

 

Three Months Ended

 

 

 

Mar. 31,

 

Jun. 30,

 

Sep. 30,

 

Dec. 31,

 

Mar. 31,

 

Jun. 30,

 

Dec. 31,

 

2018

 

2018

 

2018

 

2018

 

2019

 

2019

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shutterfly Consumer net revenue[1]

 

 

 

 

 

 

 

 

 

 

 

 

 

Shutterfly Brand Core

$

111,668

 

$

116,041

 

$

85,502

 

$

369,016

 

$

105,076

 

$

115,583

 

$

682,228

Shutterfly Brand Personalized Gifts and Home Décor

30,965

 

38,163

 

30,006

 

110,173

 

34,585

 

44,171

 

209,307

Tiny Prints Boutique

2,134

 

1,374

 

1,446

 

39,910

 

1,695

 

1,067

 

44,864

Other

7,292

 

9,425

 

9,934

 

8,779

 

7,491

 

8,763

 

35,430

Total

$

152,059

 

$

165,003

 

$

126,888

 

$

527,878

 

$

148,847

 

$

169,584

 

$

971,829

[1]2018 quarterly net revenue by brand 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 charges, executive transition and strategic review charges, and purchase accounting adjustments.

 

 

Three Months Ended

 

Six Months Ended

 

June 30,

 

June 30,

 

2019

 

2018

 

2019

 

2018

Shutterfly Consumer:

 

 

 

 

 

 

 

Net revenue

$

169,584

 

$

165,003

 

$

318,432

 

$

317,062

Cost of net revenue[1]

95,261

 

86,065

 

185,667

 

170,909

Technology and development

34,373

 

29,830

 

67,896

 

61,959

Sales and marketing

31,739

 

29,956

 

60,863

 

60,681

Credit card fees

4,346

 

4,349

 

8,501

 

8,548

Margin[1][2]

$

3,865

 

$

14,803

 

$

(4,495)

 

$

14,965

Margin %

2.3

%

 

9.0

%

 

(1.4)

%

 

4.7

%

 

 

 

 

 

 

 

 

Lifetouch[3]:

 

 

 

 

 

 

 

Net revenue[4]

$

254,174

 

$

261,911

 

$

384,126

 

$

261,911

Cost of net revenue[5]

98,844

 

91,148

 

177,172

 

91,148

Technology and development

8,021

 

7,109

 

15,994

 

7,109

Sales and marketing

89,847

 

86,960

 

166,141

 

86,960

Credit card fees

2,693

 

1,165

 

4,920

 

1,165

Margin[2]

$

54,769

 

$

75,529

 

$

19,899

 

$

75,529

Margin %

21.5

%

 

28.8

%

 

5.2

%

 

28.8

%

 

 

 

 

 

 

 

 

Shutterfly Business Solutions:

 

 

 

 

 

 

 

Net revenue

$

49,658

 

$

49,809

 

$

96,184

 

$

97,475

Cost of net revenue

42,941

 

41,610

 

81,092

 

81,519

Technology and development

3,700

 

3,049

 

6,992

 

6,994

Sales and marketing

1,107

 

1,619

 

2,515

 

3,069

Margin[2]

$

1,910

 

$

3,531

 

$

5,585

 

$

5,893

Margin %

3.8

%

 

7.1

%

 

5.8

%

 

6.0

%

 

 

 

 

 

 

 

 

Consolidated Segments:

 

 

 

 

 

 

 

Net revenue[4]

$

473,416

 

$

476,723

 

$

798,742

 

$

676,448

Cost of net revenue[1][5]

237,046

 

218,823

 

443,931

 

343,576

Technology and development

46,094

 

39,988

 

90,882

 

76,062

Sales and marketing

122,693

 

118,535

 

229,519

 

150,710

Credit card fees

7,039

 

5,514

 

13,421

 

9,713

Margin[1][2]

$

60,544

 

$

93,863

 

$

20,989

 

$

96,387

Margin %

12.8

%

 

19.7

%

 

2.6

%

 

14.2

%

 

[1] The six months ended June 30, 2019 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 purchase accounting adjustments, 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 six months ended June 30, 2019 and the three and six months ended June 30, 2018 due to business combination accounting requirements.

[5] Business combination accounting principles require the Company to measure acquired inventory at fair value. The fair value of inventory reflects Lifetouch's cost of manufacturing plus a portion of the expected profit margin. Segment reporting excludes this purchase accounting adjustment from cost of net revenue for the Lifetouch segment for the three and six months ended June 30, 2018.

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

 

 

Three Months Ended

 

Six Months Ended

 

June 30,

 

June 30,

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

Total segment margin

$

60,544

 

$

93,863

 

$

20,989

 

$

96,387

Purchase accounting deferred revenue adjustment[1]

 

(33,351)

 

(645)

 

(33,351)

Purchase accounting inventory adjustment[2]

 

(10,931)

 

 

(10,931)

Corporate expenses[3]

(32,459)

 

(37,012)

 

(67,549)

 

(55,036)

Amortization of intangible assets

(12,795)

 

(12,831)

 

(25,620)

 

(15,164)

Stock-based compensation expense

(11,507)

 

(11,697)

 

(23,545)

 

(23,389)

Restructuring

(3,274)

 

(2,952)

 

(7,247)

 

(2,952)

Executive transition and strategic review charges

(8,445)

 

 

(10,099)

 

Acquisition-related charges

 

(8,000)

 

 

(12,585)

Operating loss

$

(7,936)

 

$

(22,911)

 

$

(113,716)

 

$

(57,021)

Operating margin

(1.7)

%

 

(5.2)

%

 

(14.2)

%

 

(8.9)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total segment net revenue

$

473,416

 

$

476,723

 

$

798,742

 

$

676,448

Purchase accounting deferred revenue adjustment[1]

 

(33,351)

 

(645)

 

(33,351)

Net revenue

$

473,416

 

$

443,372

 

$

798,097

 

$

643,097

 

 

 

 

 

 

 

 

Total segment cost of net revenue

$

237,046

 

$

218,823

 

$

443,931

 

$

343,576

Purchase accounting inventory adjustment[2]

 

10,931

 

 

10,931

Stock-based compensation for cost of net revenue

844

 

943

 

1,736

 

1,942

Amortization of intangible assets for cost of net revenue

2,623

 

2,531

 

5,245

 

2,826

Cost of net revenue

$

240,513

 

$

233,228

 

$

450,912

 

$

359,275

[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 due to business combination accounting requirements.

[2] Business combination accounting principles require the Company to measure acquired inventory at fair value. The fair value of inventory reflects the acquired company’s cost of manufacturing plus a portion of the expected profit margin. Management reporting excludes this purchase accounting adjustment from cost of net revenue for the Lifetouch segment.

[3] 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)

 

 

Three Months Ended

 

 

 

Three Months Ended

 

June 30, 2019

 

 

 

June 30, 2019

 

GAAP Income

 

 

 

Normalized

 

Statement

 

Adjustments

 

Non-GAAP

Net revenue:

 

 

 

 

 

Shutterfly Consumer

$

169,584

 

 

 

$

169,584

Lifetouch

254,174

 

 

 

254,174

Shutterfly Business Solutions

49,658

 

 

 

49,658

Total net revenue

473,416

 

 

 

473,416

Cost of net revenue

240,513

 

 

 

240,513

Gross profit

232,903

 

 

 

232,903

Gross profit margin

49.2

%

 

 

 

49.2

%

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

Technology and development

49,606

 

 

 

49,606

Sales and marketing

135,468

 

(651)

[1]

134,817

General and administrative

52,491

 

(7,518)

[1]

44,973

Restructuring

3,274

 

(3,274)

[2]

Total operating expenses

240,839

 

(11,443)

 

229,396

Operating (loss) income

(7,936)

 

11,443

 

3,507

Operating margin

(1.7)

%

 

 

 

0.7

%

 

 

 

 

 

 

Interest expense

(13,312)

 

 

 

(13,312)

Interest and other income, net

1,088

 

 

 

1,088

Loss before income taxes

(20,160)

 

11,443

 

(8,717)

Benefit from income taxes

7,428

 

 

 

766

Net loss

$

(12,732)

 

 

 

$

(7,951)

 

 

 

 

 

 

Net loss per share - basic and diluted

$

(0.37)

 

 

 

$

(0.23)

 

 

 

 

 

 

Weighted-average shares outstanding - basic and diluted

34,254

 

 

 

34,254

 

 

 

 

 

 

Operating loss

$

(7,936)

 

 

 

$

3,507

Stock-based compensation

11,507

 

 

 

11,507

Amortization of intangible assets

12,795

 

 

 

12,795

Depreciation

30,570

 

(937)

[2]

29,633

Adjusted EBITDA

 

 

 

 

$

57,442

Adjusted EBITDA margin

 

 

 

 

12.1

%

 

The GAAP and Non-GAAP amounts presented below for the six months ended June 30, 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.

 

 

Six Months Ended

 

 

 

Six Months Ended

 

June 30, 2019

 

 

 

June 30, 2019

 

GAAP Income

 

 

 

Normalized

 

Statement

 

Adjustments

 

Non-GAAP

Net revenue:

 

 

 

 

 

Shutterfly Consumer

$

318,432

 

 

 

$

318,432

Lifetouch

383,481

 

645

[4]

384,126

Shutterfly Business Solutions

96,184

 

 

 

96,184

Total net revenue

798,097

 

645

 

798,742

Cost of net revenue

450,912

[3]

 

 

450,912

Gross profit

347,185

[3]

645

 

347,830

Gross profit margin

43.5

%

[3]

 

 

43.5

%

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

Technology and development

97,939

 

 

 

97,939

Sales and marketing

254,837

 

(1,030)

[1]

253,807

General and administrative

100,878

 

(9,704)

[1]

91,174

Restructuring

7,247

 

(7,247)

[2]

Total operating expenses

460,901

 

(17,981)

 

442,920

Operating loss

(113,716)

[3]

18,626

 

(95,090)

Operating margin

(14.2)

%

[3]

 

 

(11.9)

%

 

 

 

 

 

 

Interest expense

(31,566)

 

3,886

[5]

(27,680)

Interest and other income, net

2,266

 

 

 

2,266

Loss before income taxes

(143,016)

[3]

22,512

 

(120,504)

Benefit from income taxes

46,665

[3]

 

 

29,835

Net loss

$

(96,351)

[3]

 

 

$

(90,669)

 

 

 

 

 

 

Net loss per share - basic and diluted

$

(2.83)

[3]

 

 

$

(2.66)

 

 

 

 

 

 

Weighted-average shares outstanding - basic and diluted

34,089

 

 

 

34,089

 

 

 

 

 

 

Operating loss

$

(113,716)

 

 

 

$

(95,090)

Stock-based compensation

23,545

 

(911)

[1]

22,634

Amortization of intangible assets

25,620

 

 

 

25,620

Depreciation

61,199

 

(2,232)

[2]

58,967

Adjusted EBITDA

 

 

 

 

$

12,131

Adjusted EBITDA margin

 

 

 

 

1.5

%

[1] Charges related to executive transition and strategic review. $0.9 million of the charges was related to stock-based compensation expense for the six months ended June 30, 2019.

[2] Restructuring charges related to the planned closure of four Lifetouch facilities of which $0.9 million and $2.2 million was related to depreciation expense for the three and six months ended June 30, 2019, respectively.

[3] The six months ended June 30, 2019, 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.

[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 six months ended June 30, 2019 due to business combination accounting requirements.

[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,

 

Jun. 30,

 

Dec. 31,

 

2018

 

2018

 

2018

 

2018

 

2019

 

2019

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

$

(27,165)

 

$

(26,512)

 

$

(73,543)

 

$

177,616

 

$

(83,619)

 

$

(12,732)

 

$

50,396

Restructuring

 

2,952

 

 

1,667

 

3,973

 

3,274

 

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

 

8,169

 

Debt repayment impact

 

 

 

 

3,886

 

 

Tax benefit impact of adjustments

(1,185)

 

(15,171)

 

(3,603)

 

5,050

 

(10,168)

 

(6,662)

 

(14,910)

Non-GAAP net income (loss)

$

(23,765)

 

$

13,551

 

$

(70,796)

 

$

187,203

 

$

(82,718)

 

$

(7,951)

 

$

106,191

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted shares outstanding

32,702

 

33,234

 

33,470

 

34,218

 

33,918

 

34,254

 

34,832

Non-GAAP diluted shares outstanding

32,702

 

35,775

 

33,470

 

34,218

 

33,918

 

34,254

 

34,832

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share

$

(0.83)

 

$

(0.80)

 

$

(2.20)

 

$

5.19

 

$

(2.47)

 

$

(0.37)

 

$

1.45

Non-GAAP net income (loss) per share

$

(0.73)

 

$

0.38

 

$

(2.12)

 

$

5.47

 

$

(2.44)

 

$

(0.23)

 

$

3.05

 

Appendix 4.2

Shutterfly, Inc.

Reconciliation of Net Income (Loss) to Adjusted EBITDA

(In thousands)

(Unaudited)

 

 

Three Months Ended

 

Year Ended

 

Mar. 31,

 

Jun. 30,

 

Sep. 30,

 

Dec. 31,

 

Mar. 31,

 

Jun. 30,

 

Dec. 31,

 

2018

 

2018

 

2018

 

2018

 

2019

 

2019

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

$

(27,165)

 

$

(26,512)

 

$

(73,543)

 

$

177,616

 

$

(83,619)

 

$

(12,732)

 

$

50,396

Interest expense

9,633

 

17,769

 

16,660

 

17,176

 

18,253

 

13,312

 

61,239

Interest and other income, net

(1,749)

 

(1,561)

 

(856)

 

(1,278)

 

(1,178)

 

(1,088)

 

(5,444)

Tax (benefit) provision

(14,829)

 

(12,607)

 

(28,797)

 

65,496

 

(39,237)

 

(7,428)

 

9,262

Depreciation and amortization

24,898

 

40,377

 

41,970

 

43,883

 

42,158

 

42,428

 

151,127

Stock-based compensation

11,692

 

11,697

 

11,931

 

12,400

 

11,128

 

11,507

 

47,721

Restructuring

 

2,952

 

 

1,667

 

3,973

 

3,274

 

4,618

Executive transition and strategic review charges

 

 

 

 

2,565

 

8,169

 

Acquisition-related charges

4,585

 

8,000

 

2,392

 

572

 

 

 

15,549

Purchase accounting adjustments

 

44,282

 

3,958

 

2,298

 

645

 

 

50,538

Adjusted EBITDA

$

7,065

 

$

84,397

 

$

(26,285)

 

$

319,830

 

$

(45,312)

 

$

57,442

 

$

385,006

 

Appendix 4.3

Shutterfly, Inc.

Reconciliation of Cash Flow from Operating Activities to Adjusted EBITDA

(In thousands)

(Unaudited)

   

 

Three Months Ended

 

Year Ended

 

Mar. 31,

 

Jun. 30,

 

Sep. 30,

 

Dec. 31,

 

Mar. 31,

 

Jun. 30,

 

Dec. 31,

 

2018

 

2018[1]

 

2018

 

2018

 

2019

 

2019

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash (used in) provided by operating activities

$

(124,332)

 

$

(75,233)

 

$

27,041

 

$

374,450

 

$

(144,115)

 

(21,502)

 

$

201,926

Interest expense

9,633

 

17,769

 

16,660

 

17,176

 

18,253

 

13,312

 

61,239

Interest and other income, net

(1,749)

 

(1,561)

 

(856)

 

(1,278)

 

(1,178)

 

(1,088)

 

(5,444)

Tax (benefit) provision

(14,829)

 

(12,607)

 

(28,797)

 

65,496

 

(39,237)

 

(7,428)

 

9,262

Changes in operating assets and liabilities

142,368

 

53,888

 

(45,554)

 

(150,834)

 

128,121

 

71,586

 

(132)

Other adjustments

(8,611)

 

47,659

 

(1,129)

 

11,950

 

(12,081)

 

(7,927)

 

49,868

Cash restructuring

 

2,200

 

 

 

2,626

 

2,320

 

2,200

Cash executive transition and strategic review charges

 

 

 

 

1,654

 

8,169

 

Acquisition-related charges

4,585

 

8,000

 

2,392

 

572

 

 

 

15,549

Purchase accounting adjustments

 

44,282

 

3,958

 

2,298

 

645

 

 

50,538

Adjusted EBITDA

$

7,065

 

$

84,397

 

$

(26,285)

 

$

319,830

 

$

(45,312)

 

$

57,442

 

$

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 $63.5 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.

 

 

Source: Shutterfly, Inc.

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

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