Shutterfly, Inc. - Shutterfly Announces First Quarter 2009 Financial Results

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Shutterfly Announces First Quarter 2009 Financial Results

Net revenues increase 5% year-over-year to $36.0 million
33^rd consecutive quarter of year-over-year net revenue growth
GAAP net loss of ($0.25) per diluted share
Break-even Adjusted EBITDA¹ of $0.1 million

REDWOOD CITY, Calif., Apr 29, 2009 (BUSINESS WIRE) -- Shutterfly, Inc. (NASDAQ:SFLY), the leading Internet-based social expression and personal publishing service, today announced financial results for the three-months ended March 31, 2009.

"Shutterfly delivered solid growth during the first quarter of 2009. Despite the sluggish economy, our customers continue to use Shutterfly products and services to connect with family and friends," said President and CEO Jeffrey Housenbold. "We are focused on our strategic imperatives and making smart investments to increase net revenues, free cash flows and long term shareholder value."

First Quarter 2009 Financial Highlights

Net revenues totaled $36.0 million, a 5% year-over-year increase.
Q1 2009 represents the 33^rd consecutive quarter of year-over-year net revenue growth.
Personalized Products & Services² net revenues totaled $22.0 million, a 19% year-over-year increase.
Personalized Products & Services net revenues represented 61% of total net revenues.
Net revenues from Prints declined 12% year-over-year, to $14.0 million.
Commercial print net revenues totaled $0.7 million.
Existing customers generated 79% of total net revenues.
Gross profit margin was 45% of net revenues, compared to 48% in the first quarter of 2008.
Operating expenses, excluding $2.7 million of stock-based compensation, totaled $23.0 million.
GAAP net loss was ($6.2) million, compared to a net loss of ($3.6) million in the first quarter of 2008.
GAAP net loss per diluted share was ($0.25), compared to ($0.15) in the first quarter of 2008.
Adjusted EBITDA was $0.1 million, compared to ($0.7) million in the first quarter of 2008.
At March 31, 2009, the Company had $65.9 million in cash and cash equivalents and $52.3 million of long-term investments.

First Quarter 2009 Operating Metrics

Transacting customers totaled 888,000, a (1%) decrease over the first quarter of 2008.
Orders totaled 1.5 million, a (9%) decrease over the first quarter of 2008.
Average order value was $24.48, a 15% increase over the first quarter of 2008.

Recent Operating Highlights

Expanded Cards and Stationery offering to include: non-photo invitations, thank you cards and gift tags.
Launched Shutterfly for iPhone, a free mobile application enabling the power to upload, view and share memories.
Optimized and redesigned our website home and registration pages to increase customer registration and conversion.
Awarded National Parenting Center "Seal of Approval."
Honored by iParenting for our CenterStage Story Books.
Shutterfly now integrated as default print option in Adobe Photoshop Elements 6 & 7(R), Photoshop Album Starter Edition (R) and Photoshop.com(R).

Business Outlook

The Company's current financial expectations for the second quarter and the full year 2009 are as follows:

Second Quarter 2009:

Net revenues to range from $34 million to $37 million, a year-over-year change of (4%) to 4%.
GAAP gross profit margins to range from 45% to 47% of net revenues.
Non-GAAP gross profit margins to range from 47% to 49% of net revenues.
GAAP operating loss to range from ($13) million to ($11) million.
Non-GAAP operating loss to range from ($10) million to ($8) million.
GAAP effective tax rate to range from 40% to 67%.
Non-GAAP effective tax rate to range from (10%) to 32%.
GAAP diluted net loss per share to range from ($0.30) to ($0.14).
Non-GAAP diluted net loss per share to range from ($0.41) to ($0.20).
Weighted average diluted shares of approximately 25.2 million.
Adjusted EBITDA to range from ($3.0) million to ($1.0) million.

Full Year 2009:

Net revenues to range from $195 million to $215 million, a year-over-year change of (9%) to 1%.
GAAP gross profit margins to range from 51% to 53% of net revenues.
Non-GAAP gross profit margins to range from 52% to 54% of net revenues.
GAAP operating loss to range from ($13) million to ($2) million.
Non-GAAP operating income to range from $1 million to $13 million.
GAAP effective tax rate to range from 40% to 67%.
Non-GAAP effective tax rate to range from (10%) to 32%.
GAAP diluted net loss per share to range from a net loss of ($0.29) to ($0.01).
Non-GAAP diluted net income per share to range from $0.09 to $0.35.
Weighted average diluted shares of approximately 25.4 million.
Adjusted EBITDA to range from 14% to 18% of net revenues.
Capital expenditures to range from 11% to 12% of net revenues.

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

First Quarter 2009 Conference Call

Management will review the first quarter 2009 financial results and its expectations for the second quarter and full year 2009 at a conference call on Wednesday, April 29, 2009 at 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time). To listen to the call and view the accompanying slides, please visit http://www.shutterfly.com. In the Investor Relations area, found in the "About Us" section, click on the link provided for the webcast, or dial 877-591-4956. The webcast, as well as a podcast, will be archived and available at http://www.shutterfly.com. A replay of the conference call will be available through Wednesday, May 13, 2009. To hear the replay, please dial 719-457-0820, replay passcode 2835574.

About Non-GAAP Financial Information

The accompanying press release dated April 29, 2009, contains certain non-GAAP financial measures. Tables are provided in the press release that reconcile the non-GAAP financial measures to the most directly comparable financial measures prepared in accordance with Generally Accepted Accounting Principles (GAAP). These non-GAAP financial measures include non-GAAP gross margins, non-GAAP operating income (loss) and the related operating income (loss) margins, non-GAAP income (loss) per share, adjusted EBITDA and free cash flow. When used in connection with historical results and forward-looking guidance, the non-GAAP financial measure Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization and stock-based compensation while free cash flow is defined as Adjusted EBITDA less purchases of property and equipment and capitalization of software and website development costs. For more information, please see Shutterfly's SEC Filings.

To supplement the Company's consolidated financial statements presented on a GAAP basis, we believe that these non-GAAP measures provide useful information about the Company's core operating results and thus are appropriate to enhance the overall understanding of the Company's past financial performance and its prospects for the future. These adjustments to the Company's GAAP results are made with the intent of providing both management and investors a more complete understanding of the Company's underlying operational results and trends and performance. Management uses these non-GAAP measures to evaluate the Company's financial results, develop budgets, manage expenditures, and determine employee compensation. The presentation of additional information is not meant to be considered in isolation or as a substitute for or superior to net income (loss) or net income (loss) per share determined in accordance with GAAP.

Notice Regarding Forward-Looking Statements

This media release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which involve risks and uncertainties. These forward-looking statements include all statements regarding the Company's financial expectations for the first quarter and full year 2009 set forth under the caption "Business Outlook." The Company's actual results may differ materially from those anticipated in these forward-looking statements. Factors that might contribute to such differences include, among others, economic downturns and the general state of the economy, our ability to expand our customer base; 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 on a timely basis, as well as consumer acceptance of, new products and services; our ability to develop additional adjacent lines of business; unforeseen changes in expense levels; and competition, which could lead to pricing pressure. For more information regarding the risks and uncertainties that could cause actual results to differ materially from those expressed or implied in these forward-looking statements, as well as risks relating to our business in general, we refer you to the "Risk Factors" sections of the Company's Form 10-K for the year ended December 31, 2008, and the Company's other filings, which are available on the Securities and Exchange Commission's Web site at www.sec.gov. These forward-looking statements are based on current expectations and the Company assumes no obligation to update this information.

About Shutterfly

Founded in 1999, Shutterfly, Inc. is an Internet-based social expression and personal publishing service. Shutterfly provides high quality products and world class services that make it easy, convenient and fun for consumers to preserve their digital photos in a creative and thoughtful manner. Shutterfly's flagship product is its award-winning Photo Book line, which helps consumers celebrate memories and tell their stories in professionally bound coffee table books. More information about Shutterfly (NASDAQ:SFLY) is available at www.shutterfly.com. Shutterfly and Shutterfly.com are trademarks of Shutterfly, Inc.

¹ Adjusted EBITDA is a non-GAAP financial measure that the Company defines as earnings before interest, taxes, depreciation, amortization and stock-based compensation.

² Personalized Products and Services revenues primarily include photo books, stationery and folded greeting cards, calendars, photo-based merchandise, advertising and commercial printing.

Shutterfly, Inc. Condensed Consolidated Statements of Operations (In thousands, except per share amounts) (Unaudited)
	Three Months Ended March 31,
	2009			2008

Net revenues	$	36,012		$	34,338
Cost of net revenues (1)		19,672			17,929
Gross profit		16,340			16,409
Operating expenses (1):
Technology and development		10,994			9,164
Sales and marketing		7,797			8,055
General and administrative		6,945			7,621
Total operating expenses		25,736			24,840
Loss from operations		(9,396	)		(8,431	)
Interest expense		(88	)		(28	)
Interest and other income, net		324			1,347
Loss before income taxes		(9,160	)		(7,112	)
Provision for income taxes		2,928			3,473
Net loss	$	(6,232	)	$	(3,639	)


Net loss per share:
Basic and diluted	$	(0.25	)	$	(0.15	)

Weighted-average shares:
Basic and diluted		25,148			24,949

(1) Stock-based compensation is allocated as follows:

Cost of net revenues	$	95		$	84
Technology and development		633			391
Sales and marketing		716			411
General and administrative		1,360			932
	$	2,804		$	1,818

Shutterfly, Inc. Condensed Consolidated Balance Sheets (In thousands, except par value amounts) (Unaudited)
	March 31, 2009			December 31, 2008
ASSETS
Current assets:
Cash and cash equivalents	$	65,874		$	88,164
Accounts receivable, net		3,287			5,992
Inventories		3,128			3,610
Deferred tax asset, current portion		956			1,194
Prepaid expenses and other current assets		9,646			4,749
Total current assets		82,891			103,709
Long-term investments		52,250			52,250
Property and equipment, net		47,083			48,006
Goodwill and intangible assets, net		14,090			14,547
Deferred tax asset, net of current portion		9,971			11,877
Other assets		2,754			2,417
Total assets	$	209,039		$	232,806

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	4,664		$	11,214
Accrued liabilities		10,811			24,712
Deferred revenue		8,970			9,461
Current portion of capital lease obligations		35			90
Total current liabilities		24,480			45,477
Other liabilities		1,419			1,001
Capital lease obligations, less current portion		12			17
Total liabilities		25,911			46,495
Stockholders' equity
Common stock, $0.0001 par value; 100,000 shares authorized; 25,162 and 25,138 shares issued and outstanding on March 31, 2009 and December 31, 2008, respectively		2			2
Additional paid-in-capital		205,042			201,993
Accumulated deficit		(21,916	)		(15,684	)
Total stockholders' equity		183,128			186,311
Total liabilities and stockholders' equity	$	209,039		$	232,806

Shutterfly, Inc. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited)
	Three Months Ended March 31,
	2009			2008

Cash flows from operating activities:
Net loss	$	(6,232	)	$	(3,639	)
Adjustments to reconcile net income to net cash used by operating activities:
Depreciation and amortization		6,249			5,428
Amortization of intangible assets		457			457
Stock-based compensation		2,804			1,818
Loss / (gain) on disposal of property and equipment		13			(8	)
Deferred income taxes		1,961			(2,981	)
Changes in operating assets and liabilities:
Accounts receivable, net		2,705			1,754
Inventories		482			772
Prepaid expenses and other current assets		(4,671	)		624
Other assets		(337	)		(4	)
Accounts payable		(7,786	)		(5,519	)
Accrued and other liabilities		(14,412	)		(10,596	)
Deferred revenue		(491	)		(136	)
Net cash used by operating activities		(19,258	)		(12,030	)

Cash flows from investing activities:
Purchases of property and equipment		(2,150	)		(7,930	)
Capitalization of software and website development costs		(824	)		(848	)
Acquisition of business, net of cash acquired		-			(10,101	)
Proceeds from sale of short term investments		-			3,002
Proceeds from sale of equipment		-			6
Purchase of auction rate securities		-			(52,250	)
Net cash used in investing activities		(2,974	)		(68,121	)

Cash flows from financing activities:
Principal payments of capital lease obligations		(59	)		(201	)
Proceeds from issuance of common stock upon exercise of stock options		57			592
Shares withheld for payment of employee's withholding tax liability		(56	)		-
Net cash (used in) provided by financing activities		(58	)		391

Net increase in cash and cash equivalents		(22,290	)		(79,760	)
Cash and cash equivalents, beginning of period		88,164			122,582
Cash and cash equivalents, end of period	$	65,874		$	42,822

Supplemental schedule of non-cash investing activities
Net change in accrued purchases of property and equipment	$	2,008		$	-

Shutterfly, Inc. User Metrics Disclosure

	Three Months Ended March 31,
	2009	2008

User Metrics

Customers	887,699	895,257
year-over-year growth	(1%)	29%

Orders	1,471,352	1,617,127
year-over-year growth	(9%)	26%

Average order value	$24.48	$21.23
year-over-year growth	15%	2%

Average orders per customer	1.7x	1.8x

Shutterfly, Inc. Reconciliation of Forward-Looking Guidance for Non-GAAP Financial Measures to GAAP Measures (In millions, except per share amounts)


		Forward-Looking Guidance
		GAAP Range of Estimate		Adjustments			Non-GAAP Range of Estimate
		From	To	From	To		From	To

	Three Months Ending June 30, 2009

	Net revenues	$34.0	$37.0	-	-		$34.0	$37.0
	Gross profit margin	45%	47%	2%		[a]	47%	49%
	Operating loss	($13)	($11)	$3		[b]	($10)	($8)
	Operating margin	(38%)	(30%)	9%	8%	[b]	(29%)	(22%)

	Stock-based compensation	$2.7	$2.7	$2.7	$2.7		-	-
	Amortization of intangible assets	$0.5	$0.5	$0.5	$0.5		-	-

	Adjusted EBITDA*						($3.0)	($1.0)

	Diluted loss per share	($0.30)	($0.14)	($0.11)	($0.06)	[c]	($0.41)	($0.20)
	Diluted shares	25.2	25.2	-	-		25.2	25.2
	Effective tax rate	40%	67%	(50%)	(35%)	[d]	(10%)	32%

	Twelve Months Ending December 31, 2009

	Net revenues	$195.0	$215.0	-	-		$195.0	$215.0
	Gross profit margin	51%	53%	1%		[e]	52%	54%
	Operating income (loss)	($13)	($2)	$14		[f]	$1	$13
	Operating margin	(7%)	(1%)	(7%)	(7%)	[f]	1%	6%

	Stock-based compensation	$12.4	$12.4	$12.4	$12.4		-	-
	Amortization of intangible assets	$1.9	$1.9	$1.9	$1.9		-	-

	Adjusted EBITDA*						$27	$39
	Adjusted EBITDA* margin						14%	18%

	Diluted earnings (loss) per share	($0.29)	($0.01)	$0.38	$0.36	[g]	$0.09	$0.35
	Diluted shares	25.4	25.4	-	-		26.7	26.7
	Effective tax rate	40%	67%	(50%)	(35%)	[h]	(10%)	32%

	Capital expenditures as % of net revenues	12%	11%				12%	11%

*	Adjusted EBITDA is a non-GAAP financial measure defined as earnings before interest, taxes, depreciation, amortization and stock-based compensation.
[a]	Reflects estimated adjustments for stock-based compensation expense of approximately $100k and amortization of purchased intangible assets of approximately $500k.
[b]	Reflects estimated adjustments for stock-based compensation expense of approximately $2.7 million and amortization of purchased intangible assets of approximately $500k.
[c]	Reflects the estimated adjustments in item [b] and the income tax impact related to these adjustments.
[d]	Reflects the estimated adjustments to the effective tax rate based on the adjustments in item [b].
[e]	Reflects estimated adjustments for stock-based compensation expense of approximately $500k and amortization of purchased intangible assets of approximately $1.9 million.
[f]	Reflects estimated adjustments for stock-based compensation expense of approximately $12.4 million and amortization of purchased intangible assets of approximately $1.9 million.
[g]	Reflects the estimated adjustments in item [f] and the income tax impact related to these adjustments.
[h]	Reflects the estimated adjustments to the effective tax rate based on the adjustments in item [f].

Shutterfly, Inc. Reconciliation of GAAP Gross Profit Margin to Non-GAAP Gross Profit Margin (In thousands) (Unaudited)
	Three months ended,															Year Ended
	Mar. 31, 2008			Jun. 30, 2008			Sept. 30, 2008			Dec. 31, 2008			Mar. 31, 2009			Dec. 31, 2008

GAAP gross profit	$	16,409		$	18,067		$	17,523		$	65,322		$	16,340		$	117,321
Stock-based compensation expense within cost of net revenues		84			92			88			53			95			317
Amortization of intangible assets within cost of net revenues		367			367			367			368			367			1,469

Non-GAAP gross profit	$	16,860		$	18,526		$	17,978		$	65,743		$	16,802		$	119,107

Non-GAAP gross profit margin		49%			52%			50%			61%			47%			56%


Reconciliation of GAAP Operating Margin to Non-GAAP Operating Margin (In thousands)
(Unaudited)	Three months ended,															Year Ended
	Mar. 31, 2008			Jun. 30, 2008			Sept. 30, 2008			Dec. 31, 2008			Mar. 31, 2009			Dec. 31, 2008

GAAP operating income (loss)	$	(8,431	)	$	(7,939	)	$	(8,981	)	$	29,079		$	(9,396	)	$	3,728
Stock-based compensation expense		1,818			2,088			2,430			2,292			2,804			8,628
Amortization of intangible assets		457			457			457			456			457			1,827

Non-GAAP operating income (loss)	$	(6,156	)	$	(5,394	)	$	(6,094	)	$	31,827		$	(6,135	)	$	14,183

Non-GAAP operating margin		(18%	)		(15%	)		(17%	)		30%			(17%	)		7%


Reconciliation of GAAP Net Income to Non-GAAP Net Income (In thousands)
(Unaudited)	Three months ended,															Year Ended
	Mar. 31, 2008			Jun. 30, 2008			Sept. 30, 2008			Dec. 31, 2008			Mar. 31, 2009			Dec. 31, 2008

GAAP net income (loss)	$	(3,639	)	$	(4,017	)	$	(2,711	)	$	14,928		$	(6,232	)	$	4,561
Stock-based compensation expense		1,818			2,088			2,430			2,292			2,804			8,628
Amortization of intangible assets		457			457			457			456			457			1,827
Income taxes associated with certain non-GAAP entries		(1,587	)		(1,419	)		(3,045	)		2,912			(1,168	)		(3,139	)

Non-GAAP net income (loss)	$	(2,951	)	$	(2,891	)	$	(2,869	)	$	20,588		$	(4,139	)	$	11,877


Diluted net income per share:
GAAP		($0.15	)		($0.16	)		($0.11	)	$	0.59			($0.25	)	$	0.18
Non-GAAP		($0.12	)		($0.12	)		($0.11	)	$	0.81			($0.16	)	$	0.46

Shares used in GAAP and non-GAAP diluted net income per-share calculation		24,949			25,045			25,067			25,455			25,148			25,787


Reconciliation of GAAP to Non-GAAP Effective Tax Rate (In thousands)
(Unaudited)	Three months ended,															Year Ended
	Mar. 31, 2008			Jun. 30, 2008			Sept. 30, 2008			Dec. 31, 2008			Mar. 31, 2009			Dec. 31, 2008

GAAP benefit (provision) for income taxes	$	3,473		$	3,267		$	5,915		$	(14,447	)	$	2,928		$	(1,792	)
Income taxes associated with certain non-GAAP entries		(1,587	)		(1,419	)		(3,045	)		2,912			(1,168	)		(3,139	)

Non-GAAP benefit (provision) for income taxes	$	1,886		$	1,848		$	2,870		$	(11,535	)	$	1,760		$	(4,931	)

GAAP income (loss) before income taxes	$	(7,112	)	$	(7,284	)	$	(8,626	)	$	29,375		$	(9,160	)	$	6,353
Stock-based compensation expense		1,818			2,088			2,430			2,292			2,804			8,628
Amortization of intangible assets		457			457			457			456			457			1,827

Non-GAAP income (loss) before income taxes	$	(4,837	)	$	(4,739	)	$	(5,739	)	$	32,123		$	(5,899	)	$	16,808

GAAP Effective tax rate		49%			45%			69%			49%			32%			28%

Non-GAAP effective tax rate		39%			39%			50%			36%			30%			29%


Shutterfly, Inc. Reconciliation of Non-GAAP Adjusted EBITDA (In thousands)
(Unaudited)	Three months ended,															Year Ended
	Mar. 31, 2008			Jun. 30, 2008			Sept. 30, 2008			Dec. 31, 2008			Mar. 31, 2009			Dec. 31, 2008

Income (loss) from Operations	$	(8,431	)	$	(7,939	)	$	(8,981	)	$	29,079		$	(9,396	)	$	3,728
Add back:
Depreciation and amortization		5,885			6,266			6,682			7,205			6,706			26,038
Stock-based compensation expense		1,818			2,088			2,430			2,292			2,804			8,628

Non-GAAP Adjusted EBITDA	$	(728	)	$	415		$	131		$	38,576		$	114		$	38,394


Reconciliation of Non-GAAP Adjusted EBITDA to Free Cash Flows (In thousands)
(Unaudited)	Three months ended,															Year Ended
	Mar. 31, 2008			Jun. 30, 2008			Sept. 30, 2008			Dec. 31, 2008			Mar. 31, 2009			Dec. 31, 2008

Non-GAAP Adjusted EBITDA	$	(728	)	$	415		$	131		$	38,576		$	114		$	38,394
Less: Purchases of property and equipment		(7,930	)		(3,840	)		(4,990	)		(1,460	)		(4,158	)		(18,220	)
Less: Capitalized software and development costs		(848	)		(1,410	)		(981	)		(1,288	)		(824	)		(4,527	)

Free cash flows	$	(9,506	)	$	(4,835	)	$	(5,840	)	$	35,828		$	(4,868	)	$	15,647

SOURCE: Shutterfly, Inc.

Media Relations:
Gretchen Sloan, 650-610-5276
gsloan@shutterfly.com
Investor Relations:
John Kaelle, 650-610-3541
jkaelle@shutterfly.com

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Shutterfly Announces First Quarter 2009 Financial Results

Net revenues increase 5% year-over-year to $36.0 million 33rd consecutive quarter of year-over-year net revenue growth GAAP net loss of ($0.25) per diluted share Break-even Adjusted EBITDA1 of $0.1 million

Net revenues increase 5% year-over-year to $36.0 million
33^rd consecutive quarter of year-over-year net revenue growth
GAAP net loss of ($0.25) per diluted share
Break-even Adjusted EBITDA¹ of $0.1 million