Shutterfly, Inc.
SHUTTERFLY INC (Form: 8-K, Received: 07/25/2017 16:48:01)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 

Date of Report (Date of Earliest Event Reported): July 25, 2017

 
Shutterfly, Inc.
(Exact Name of the Registrant as Specified in Its Charter)

 
Delaware
(State or Other Jurisdiction of Incorporation)

001-33031
 
94-3330068
(Commission File Number)
 
(IRS Employer Identification No.)
 

 
2800 Bridge Parkway
Redwood City, California
 
94065
(Address of Principal Executive Offices)
 
(Zip Code)


(650) 610-5200
(Registrant’s Telephone Number, Including Area Code)
 

(Former Name or Former Address, If Changed Since Last Report)


Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

[   ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[   ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[   ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2)

[   ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company o  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o  





Item 2.02.  Results of Operations and Financial Condition.

On July 25, 2017, Shutterfly, Inc. (“Shutterfly”) issued a press release announcing its financial results for the second quarter ended June 30, 2017.

This press release is being furnished as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by this reference.

The information in this report, including the exhibit hereto, is furnished and is not deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of that section.  The information contained herein and in the accompanying exhibit is not incorporated by reference in any filing of Shutterfly under the Securities Act of 1933 or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.

 
Use of Non-GAAP Financial Information
 
Shutterfly has supplemented the financial measures contained in the attached press release that are provided in accordance with generally accepted accounting principles (“GAAP”) with non-GAAP financial measures. Shutterfly believes that these non-GAAP financial measures provide useful information about its core operating results and thus are appropriate to enhance the overall understanding of its past financial performance and its prospects for the future. These adjustments to Shutterfly’s GAAP results are made with the intent of providing both management and investors a more complete understanding of Shutterfly’s underlying operational results and trends and performance. Management uses these non-GAAP measures to evaluate Shutterfly’s financial results, develop budgets, manage expenditures and determine employee compensation. The methods used by Shutterfly to produce non-GAAP financial results may differ from the methods used by other companies.  Shutterfly’s reference to these non-GAAP financial results should be considered in addition to results that are prepared under current accounting standards but should not be considered as a substitute for, or superior to, the financial results that are presented as consistent with GAAP.  Reconciliation to the nearest GAAP financial measures of the non-GAAP financial measures is included in the press release attached hereto as Exhibit 99.1.


Item 9.01.  Financial Statements and Exhibits.

(d)   Exhibits.

Number
 
 
Description
 
99.1
 
Press release, dated July 25, 2017.


 
 







SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
SHUTTERFLY, INC.
 
 
By:
 
/s/ Michael Pope
Michael Pope
Senior Vice President & Chief Financial Officer

Date:  July 25, 2017

 
 





 

EXHIBIT INDEX


Number
 
 
Description
 
99.1
 
Press release, dated July 25, 2017.

 





IMAGE0A06.JPG  
Shutterfly Announces Second Quarter 2017 Financial Results


REDWOOD CITY, Calif. July 25, 2017 -- Shutterfly, Inc. (NASDAQ:SFLY), the leading online retailer and manufacturer of high-quality personalized products and services, today announced financial results for the second quarter ended June 30, 2017 .

“Q2 was a solid quarter for Shutterfly, led by our flagship Shutterfly brand and our SBS segment,” said Christopher North, President and Chief Executive Officer. “We made excellent progress against our platform consolidation and restructuring initiatives, and remain on track to complete both prior to the fourth quarter.  In particular, we reached a major milestone by re-launching the Tiny Prints boutique on Shutterfly.com, bringing our top two brands onto a single platform. At the same time, we executed against our other areas of strategic focus, adding to our product range in Home Décor and Personalized Gifts, launching significant updates to our mobile app, extending our lead in manufacturing with the second phase of our HP printer upgrade, and improving the speed and reliability of our websites.  SBS further expanded its relationship with key clients, supporting our confidence in the full-year plan for 20% SBS growth. Overall, we’re pleased to reiterate our full year guidance for 2017.”

Second Quarter 2017 Financial Highlights
Net revenues totaled $209.0 million , a 2% year-over-year increase. Consumer net revenues totaled $179.1 million , a 1% year-over-year increase. Shutterfly Business Solutions net revenues totaled $29.9 million , a 10% year-over-year increase.

GAAP Operating loss totaled $31.8 million and Net loss was $22.8 million or $0.68 per share.

On a proforma basis, which excludes restructuring charges of $4.7 million and capital lease termination charges of $8.1 million , our operating loss was $19.1 million, Adjusted EBITDA was $17.4 million, and Net loss was $14.9 million or $0.44 per share.

“In the quarter we took advantage of an opportunity to complete the upgrade of our printer fleet, which we expect will benefit us through improved quality, increased throughput and automation,

1



and lower consumable costs resulting in approximately $15.0 million of expense savings over the next five years,” said Mike Pope, Chief Financial Officer.

As part of the transaction, we purchased leased equipment from the existing vendor for $21.6 million and immediately resold that equipment to HP for $20.5 million, resulting in a minimal cash outlay of $1.1 million. Under GAAP, the purchase of the existing leased equipment reduced the Company’s previously recorded future capital lease obligations on the balance sheet by $12.2 million and resulted in a balance sheet write-off of $8.1 million, which is recognized in our income statement under Capital Lease Termination in the quarter ended June 30, 2017. The remaining $1.3 million was recorded as a capital expenditure.

Restructuring charges for the second quarter totaled $4.7 million and are primarily related to property, plant and equipment and employees costs.

During the second quarter of 2017, we repurchased a total of 603 thousand shares for $30.0 million bringing our year to date repurchases to just over 1.0 million shares. At this time, we anticipate repurchasing approximately $60.0 million over the second half of 2017, bringing total estimated share repurchases for 2017 to $110.0 million, which approximates annual cash expected to be generated in the full year 2017.

Our senior convertible notes due in May 2018 were reclassified from long-term liabilities to current as these are now within one year of maturity. We are currently evaluating a number of alternatives and expect to complete a financing before year-end.




2



Business Outlook [1]  
Third Quarter 2017:
Net revenues to range from $187.0 million to $193.0 million.
Gross profit margin to range from 35.0% to 35.5% of net revenues.
Operating loss to range from $38.0 million to $35.0 million.
Effective tax rate of 38.0%.
Net loss per share to range from $0.80 to $0.76.
Weighted average shares of approximately 33.6 million.
Adjusted EBITDA to range from $0.0 million to $3.0 million.

Full Year 2017:
Net revenues to range from $1.135 billion to $1.165 billion. [2]  
Gross profit margin to range from 49.0% to 50.0% of net revenues.
Operating income to range from $48.5 million to $68.5 million.
Effective tax rate of 37.5%.
Net income per share to range from $0.45 to $0.80.
Weighted average shares of approximately 34.5 million.
Adjusted EBITDA to range from $210.0 million to $230.0 million.
Capital expenditures to be approximately $75.0 million.


[1] Excludes full year restructuring charges ranging from $15.0 million to $17.5 million as well as any costs related to refinancing our convertible debt and capital lease termination charges of $8.1 million.
[2] In 2017, net revenues from SBS segment are expected to increase 20% over 2016.



3



Notes to the Second Quarter 2017 Financial Results and Operating Metrics and 2017 Business Outlook
Adjusted EBITDA is a non-GAAP financial measure that the Company defines as earnings before interest, taxes, depreciation, amortization, stock-based compensation, capital lease termination, and restructuring.
Adjusted EBITDA minus capital expenditures 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. This measure was referred to as "free cash flow" prior to the fourth quarter of 2016.
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 2017 financial results and its expectations for the third quarter and full year 2017 on a conference call on Tuesday, July 25, 2017 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 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 Tuesday, August 8, 2017. To hear the replay, please dial (877) 344-7529 or (412) 317-0088, and enter access code 10109987.
 
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 net income (loss) and net income (loss) per share, adjusted EBITDA, and adjusted EBITDA minus capital expenditures. 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

4



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 about the status of our restructuring, the anticipated benefits of upgrading our printer fleet, our expectation of completing a financing before year end, and our business outlook for the third quarter and full year 2017 and statements about historical results that may suggest trends for our business. 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 consumer discretionary spending as a result of general economic conditions; our ability to expand our customer base and increase sales to existing customers; our ability to meet production requirements; our ability to successfully integrate acquired businesses and assets; our ability to retain and hire necessary employees, including seasonal personnel, and appropriately staff our operations; the impact of seasonality on our business; our ability to develop innovative, new products and services on a timely and cost-effective basis, including our next generation Shutterfly platform; unforeseen difficulties executing on planned strategic restructuring activities; consumer acceptance of our products and services; our ability to develop additional adjacent lines of business; unforeseen changes in expense levels; and competition and the pricing strategies of our competitors, which could lead to pricing pressure. For more information regarding the risks and uncertainties that could cause actual results to differ materially from those expressed or implied in these forward-looking statements, as well as risks relating to our business in general, we refer you to the “Risk Factors” section of our SEC filings, including our most recent Form 10-K and 10-Q, which are available on the Securities and Exchange Commission’s Web site at www.sec.gov. These forward-looking statements are based on current expectations and the company assumes no obligation to update this information.



# # #

About Shutterfly, Inc.
Shutterfly, Inc. is the leading online retailer and manufacturer of high-quality personalized products and services. Founded in 1999, the Shutterfly, Inc. brands includes Shutterfly , where your photos come to life in photo books, gifts, and cards and stationery with premium offerings in its Tiny Prints boutique; Wedding Paper Divas , wedding invitations and stationery for every step of the planning process; 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 .

5



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

Media Relations:
Nicole Stier, 650-610-6013
nstier@shutterfly.com



6



Shutterfly, Inc.
Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
Net revenues
$
209,032

 
$
203,961

 
$
401,004

 
$
385,670

Cost of net revenues
118,205

 
109,592

 
234,324

 
218,315

Restructuring
196

 

 
1,436

 

Gross profit
90,631

 
94,369

 
165,244

 
167,355

Operating expenses:
 
 
 

 
 
 
 

Technology and development
39,398

 
41,313

 
85,353

 
79,582

Sales and marketing
42,987

 
47,539

 
85,874

 
93,381

General and administrative
27,511

 
26,592

 
55,306

 
57,281

Capital lease termination
8,098

 

 
8,098

 

Restructuring
4,477

 

 
12,213

 

Total operating expenses
122,471

 
115,444

 
246,844

 
230,244

Loss from operations
(31,840
)
 
(21,075
)
 
(81,600
)
 
(62,889
)
Interest expense
(5,955
)
 
(5,661
)
 
(11,919
)
 
(11,336
)
Interest and other income, net
244

 
128

 
433

 
249

Loss before income taxes
(37,551
)
 
(26,608
)
 
(93,086
)
 
(73,976
)
Benefit from income taxes
14,713

 
10,123

 
37,054

 
28,055

Net loss
$
(22,838
)
 
$
(16,485
)
 
$
(56,032
)
 
$
(45,921
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss per share - basic and diluted
$
(0.68
)
 
$
(0.48
)
 
$
(1.67
)
 
$
(1.34
)
 
 
 
 
 
 
 
 
Weighted-average shares outstanding - basic and diluted
33,579

 
34,177

 
33,646

 
34,386

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock-based compensation is allocated as follows:
 
 
 
 
 
 
 
Cost of net revenues
$
1,074

 
$
1,081

 
$
2,243

 
$
2,305

Technology and development
2,179

 
2,512

 
4,875

 
2,971

Sales and marketing
2,980

 
3,754

 
6,153

 
8,033

General and administrative
4,236

 
3,577

 
8,703

 
7,765

Restructuring

 

 
814

 

 
$
10,469

 
$
10,924

 
$
22,788

 
$
21,074

 
 
 
 
 
 
 
 
Depreciation and amortization is allocated as follows:
 
 
 
 
 
 
 
Cost of net revenues
$
15,069

 
$
13,842

 
$
30,052

 
$
27,384

Technology and development
7,099

 
8,430

 
14,888

 
16,823

Sales and marketing
2,693

 
3,694

 
5,787

 
8,409

General and administrative
1,096

 
2,391

 
2,594

 
4,855

Restructuring
2,493

 

 
5,335

 

 
$
28,450

 
$
28,357

 
$
58,656

 
$
57,471


7



Shutterfly, Inc.
Consolidated Balance Sheets
(In thousands, except par value amounts)
(Unaudited)


 
June 30, 2017
 
December 31, 2016
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
126,081

 
$
289,224

Short-term investments
44,550

 
26,352

Accounts receivable, net
30,079

 
57,365

Inventories
8,900

 
11,751

Prepaid expenses and other current assets
76,370

 
48,084

Total current assets
285,980

 
432,776

Long-term investments
17,015

 
14,479

Property and equipment, net
252,485

 
284,110

Intangible assets, net
35,816

 
43,420

Goodwill
408,975

 
408,975

Other assets
21,796

 
11,816

Total assets
$
1,022,067

 
$
1,195,576

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Convertible senior notes, current
$
286,316

 
$

Accounts payable
20,270

 
58,790

Accrued liabilities
77,527

 
138,869

Deferred revenue, current portion
22,747

 
22,929

Total current liabilities
406,860

 
220,588

Convertible senior notes, net

 
278,792

Other liabilities
114,870

 
137,035

Total liabilities
521,730

 
636,415

Stockholders’ equity:
 
 
 
Common stock, $0.0001 par value; 100,000 shares authorized; 33,339 and 33,637 shares issued and outstanding on June 30, 2017 and December 31, 2016, respectively
3

 
3

Additional paid-in capital
973,930

 
949,864

Accumulated other comprehensive loss
(44
)
 
(32
)
Accumulated deficit
(473,552
)
 
(390,674
)
Total stockholders' equity
500,337

 
559,161

Total liabilities and stockholders' equity
$
1,022,067

 
$
1,195,576



8



Shutterfly, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

 
Six Months Ended
 
June 30,
 
2017
 
2016
Cash flows from operating activities:
 
 
 
Net loss
$
(56,032
)
 
$
(45,921
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation and amortization
45,121

 
46,278

Amortization of intangible assets
8,200

 
11,193

Amortization of debt discount and issuance costs
7,524

 
7,115

Stock-based compensation
21,974

 
21,074

Loss on disposal of property and equipment
467

 
324

Deferred income taxes
(7,103
)
 
(3,567
)
Tax benefit from stock-based compensation

 
4,021

Excess tax benefits from stock-based compensation

 
(5,233
)
Restructuring
10,764

 

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
27,286

 
26,277

Inventories
1,415

 
1,951

Prepaid expenses and other assets
(19,776
)
 
(34,045
)
Accounts payable
(39,949
)
 
(18,970
)
Accrued and other liabilities
(58,605
)
 
(76,191
)
Net cash used in operating activities
(58,714
)
 
(65,694
)
 
 
 
 
Cash flows from investing activities:
 
 
 
Purchases of property and equipment
(8,176
)
 
(33,067
)
Capitalization of software and website development costs
(17,058
)
 
(18,083
)
Purchases of investments
(39,805
)
 
(15,936
)
Proceeds from the maturities of investments
19,033

 
17,890

Proceeds from sale of property and equipment
11,678

 
10,247

Net cash used in investing activities
(34,328
)
 
(38,949
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Proceeds from issuance of common stock upon exercise of stock options
520

 
685

Repurchases of common stock
(50,000
)
 
(78,172
)
Excess tax benefits from stock-based compensation

 
5,233

Principal payments of capital lease and financing obligations
(20,621
)
 
(11,404
)
Payment for contingent consideration liabilities

 
(1,313
)
Net cash used in financing activities
(70,101
)
 
(84,971
)
 
 
 
 
Net decrease in cash and cash equivalents
(163,143
)
 
(189,614
)
Cash and cash equivalents, beginning of period
289,224

 
288,863

Cash and cash equivalents, end of period
$
126,081

 
$
99,249

 
 
 
 
Supplemental schedule of non-cash investing / financing activities:
 
 
 
Net increase (decrease) in accrued purchases of property and equipment
$
745

 
$
(5,565
)
Net increase in accrued capitalized software and website development costs
270

 
137

Stock-based compensation capitalized with software and website development costs
758

 
959

Property and equipment acquired under capital leases
6,228

 

Net increase in receivable proceeds from the sale of property and equipment
9,250

 
3,765


9



Shutterfly, Inc.
Consumer Metrics Disclosure


 
Three Months Ended
 
June 30,
 
2017
 
2016
Consumer Metrics
 
 
 
Customers
3,350,434

 
3,259,915

   year-over-year growth
3
 %
 
 
 
 
 
 
Orders
5,467,763

 
5,303,137

   year-over-year growth
3
 %
 
 
 
 
 
 
Average order value  [1]

$32.75

 

$33.30

   year-over-year growth
(2
)%
 
 

[1] Average order value excludes Shutterfly Business Solutions revenue.


10



Shutterfly, Inc.
Segment Disclosure
(In thousands)
(Unaudited)

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2017
 
2016
 
2017
 
2016
Consumer
 
 
 
 
 
 
 
Net revenues
$
179,090

 
$
176,617

 
$
339,735

 
$
331,998

Cost of net revenues
92,049

 
85,276

 
181,903

 
171,613

Restructuring
196

 

 
1,436

 

Gross profit
86,845

 
91,341

 
156,396

 
160,385

Consumer gross profit margin
48.5
%
 
51.7
%
 
46.0
%
 
48.3
%
 
 
 
 
 
 
 
 
Shutterfly Business Solutions (SBS)
 
 
 
 
 
 
 
Net revenues
29,942

 
27,344

 
61,269

 
53,672

Cost of net revenues
23,900

 
21,810

 
47,738

 
41,520

Gross profit
6,042

 
5,534

 
13,531

 
12,152

SBS gross profit margin
20.2
%
 
20.2
%
 
22.1
%
 
22.6
%
 
 
 
 
 
 
 
 
Corporate  [1]
 
 
 
 
 
 
 
Net revenues

 

 

 

Cost of net revenues
2,256

 
2,506

 
4,683

 
5,182

Gross profit
(2,256
)
 
(2,506
)
 
(4,683
)
 
(5,182
)
 
 
 
 
 
 
 
 
Consolidated
 
 
 
 
 
 
 
Net revenues
209,032

 
203,961

 
401,004

 
385,670

Cost of net revenues
118,205

 
109,592

 
234,324

 
218,315

Restructuring
196

 

 
1,436

 

Gross profit
$
90,631

 
$
94,369

 
$
165,244

 
$
167,355

 
 
 
 
 
 
 
 
Gross profit margin
43.4
%
 
46.3
%
 
41.2
%
 
43.4
%
 
 
 
 
 
 
 
 
Gross profit margin excluding restructuring
43.5
%
 
46.3
%
 
41.6
%
 
43.4
%

[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.



11



Shutterfly, Inc.
Restructuring
(In thousands)
(Unaudited)

 
Three Months Ended
 
Six Months Ended
 
June 30, 2017
 
June 30, 2017
Restructuring:
 
 
 
Property, plant and equipment
$
2,797

 
$
6,616

Employee costs
1,356

 
5,154

Inventory
196

 
1,436

Other costs
324

 
443

Total
$
4,673

 
$
13,649



12



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,
 
2016
 
2016
 
2016
 
2016
 
2017
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP net income (loss)
$
(29,436
)
 
$
(16,485
)
 
$
(29,155
)
 
$
90,982

 
$
(33,194
)
 
$
(22,838
)
 
$
15,906

Capital lease termination

 

 

 

 

 
8,098

 

Restructuring

 

 

 

 
8,976

 
4,673

 

Tax (benefit) provision restructuring and capital lease termination charges impact

 

 

 

 
(3,948
)
 
(4,829
)
 

Non-GAAP net income (loss)
$
(29,436
)
 
$
(16,485
)
 
$
(29,155
)
 
$
90,982

 
$
(28,166
)
 
$
(14,896
)
 
$
15,906

 
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP diluted shares outstanding
34,596

 
34,177

 
33,932

 
34,625

 
33,712

 
33,579

 
35,190

Non-GAAP diluted shares outstanding
34,596

 
34,177

 
33,932

 
34,625

 
33,712

 
33,579

 
35,190

 
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP net income (loss) per share
$
(0.85
)
 
$
(0.48
)
 
$
(0.86
)
 
$
2.63

 
$
(0.98
)
 
$
(0.68
)
 
$
0.45

Non-GAAP net income (loss) per share
$
(0.85
)
 
$
(0.48
)
 
$
(0.86
)
 
$
2.63

 
$
(0.84
)
 
$
(0.44
)
 
$
0.45



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,
 
2016
 
2016
 
2016
 
2016
 
2017
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP net income (loss)
$
(29,436
)
 
$
(16,485
)
 
$
(29,155
)
 
$
90,982

 
$
(33,194
)
 
$
(22,838
)
 
$
15,906

Interest expense
5,675

 
5,661

 
5,726

 
5,961

 
5,964

 
5,955

 
23,023

Interest and other income, net
(121
)
 
(128
)
 
(130
)
 
(122
)
 
(189
)
 
(244
)
 
(501
)
Tax (benefit) provision
(17,932
)
 
(10,123
)
 
(18,235
)
 
56,972

 
(22,341
)
 
(14,713
)
 
10,682

Depreciation and amortization
29,114

 
28,357

 
27,587

 
28,593

 
27,364

 
25,957

 
113,651

Stock-based compensation
10,150

 
10,924

 
12,214

 
12,404

 
11,505

 
10,469

 
45,692

Capital lease termination

 

 

 

 

 
8,098

 

Restructuring

 

 

 

 
8,976

 
4,673

 

Non-GAAP Adjusted EBITDA
$
(2,550
)
 
$
18,206

 
$
(1,993
)
 
$
194,790

 
$
(1,915
)
 
$
17,357

 
$
208,453




13



Shutterfly, Inc.
Reconciliation of Cash Flow from Operating Activities to Non-GAAP Adjusted EBITDA and Adjusted EBITDA minus Capital Expenditures
(In thousands)
(Unaudited)
 
Three Months Ended
 
Year Ended
 
Mar. 31,
 
Jun. 30,
 
Sep. 30,
 
Dec. 31,
 
Mar. 31,
 
Jun. 30,
 
Dec. 31,
 
2016 [2]
 
2016
 
2016
 
2016
 
2017
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net cash provided by (used in) operating activities
$
(82,610
)
 
$
16,916

 
$
(4,881
)
 
$
263,998

 
$
(72,386
)
 
$
13,672

 
$
193,423

Interest expense
5,675

 
5,661

 
5,726

 
5,961

 
5,964

 
5,955

 
23,023

Interest and other income, net
(121
)
 
(128
)
 
(130
)
 
(122
)
 
(189
)
 
(244
)
 
(501
)
Tax (benefit) provision
(17,932
)
 
(10,123
)
 
(18,235
)
 
56,972

 
(22,341
)
 
(14,713
)
 
10,682

Changes in operating assets and liabilities
98,604

 
2,374

 
29,155

 
(126,361
)
 
92,194

 
(2,565
)
 
3,772

Other adjustments
(6,166
)
 
3,506

 
(13,628
)
 
(5,658
)
 
(6,265
)
 
5,377

 
(21,946
)
Capital lease termination

 

 

 

 

 
8,098

 

Cash restructuring

 

 

 

 
1,108

 
1,777

 

Non-GAAP Adjusted EBITDA
(2,550
)
 
18,206

 
(1,993
)
 
194,790

 
(1,915
)
 
17,357

 
208,453

Less: Purchases of property and equipment
(5,497
)
 
(22,005
)
 
(14,957
)
 
(9,792
)
 
(1,669
)
 
(7,252
)
 
(52,251
)
Less: Capitalized technology & development costs
(8,168
)
 
(10,052
)
 
(8,819
)
 
(6,065
)
 
(7,726
)
 
(9,602
)
 
(33,104
)
Add: Capex adjustments [1]

 
9,827

 

 

 

 

 
9,827

Adjusted EBITDA minus capital expenditures
$
(16,215
)
 
$
(4,024
)
 
$
(25,769
)
 
$
178,933

 
$
(11,310
)
 
$
503

 
$
132,925

 
 
 
 
 
 
 
 
 
 
 
 
 
 
[1]  In the second quarter of 2016, the Company acquired and immediately sold $9.8 million of printers.
[2]   The Company reclassified an immaterial contingent consideration payment (to Groovebook Founders) in the first quarter of 2016 between operating and financing activities within the cash flow statement.


14



Shutterfly, Inc.
Reconciliation of Forward-Looking Guidance for Non-GAAP Financial Measures
(In millions, except per share amounts)
 
Forward-Looking Guidance [1]
 
Three Months Ending
September 30, 2017
 
Twelve Months Ending
December 31, 2017
 
Low
 
High
 
Low
 
High
 
 
 
 
 
 
 
 
Net revenues [2]

$187.0

 

$193.0

 

$1,135.0

 

$1,165.0

 
 
 
 
 
 
 
 
Gross profit margin
35.0
%
 
35.5
%
 
49.0
%
 
50.0
%
 
 
 
 
 
 
 
 
Operating income (loss)

($38.0
)
 

($35.0
)
 

$48.5

 

$68.5

Operating margin
(20.3
%)
 
(18.1
%)
 
4.3
%
 
5.9
%
 
 
 
 
 
 
 
 
Operating income (loss)

($38.0
)
 

($35.0
)
 

$48.5

 

$68.5

Stock-based compensation

$11.4

 

$11.4

 

$49.0

 

$49.0

Amortization of intangible assets

$3.6

 

$3.6

 

$14.9

 

$14.9

Depreciation

$23.0

 

$23.0

 

$97.6

 

$97.6

Adjusted EBITDA

$0.0

 

$3.0

 

$210.0

 

$230.0

Adjusted EBITDA margin
0.0
%
 
1.5
%
 
18.5
%
 
19.7
%
 
 
 
 
 
 
 
 
Capital expenditures
 
 
 
 

$75.0

 

$75.0

Capital expenditures as % of net revenues
 
 
 
 
6.6
%
 
6.4
%
 
 
 
 
 
 
 
 
Adjusted EBITDA minus capital expenditures
 
 
 
 

$135.0

 

$155.0

Adjusted EBITDA minus capital expenditures as % of net revenues
 
 
 
 
11.9
%
 
13.3
%
 
 
 
 
 
 
 
 
Tax rate
38.0
%
 
38.0
%
 
37.5
%
 
37.5
%
 
 
 
 
 
 
 
 
Net income (loss) per share
 
 
 
 
 
 
 
Basic

($0.80
)
 

($0.76
)
 

 

Diluted

 

 

$0.45

 

$0.80

 
 
 
 
 
 
 
 
Weighted average shares
 
 
 
 
 
 
 
Basic
33.6

 
33.6

 

 

Diluted

 

 
34.5

 
34.5

 
 
 
 
 
 
 
 
[1] Excludes full year 2017 expected restructuring charges ranging from $15.0 million to $17.5 million as well as any costs related to refinancing our convertible debt and capital lease termination charges of $8.1 million.
[2] In 2017, net revenues from SBS Segment to increase 20% over 2016 .

15