Shutterfly, Inc.
SHUTTERFLY INC (Form: 8-K, Received: 10/24/2017 17:11:18)


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): October 24, 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 October 24, 2017, Shutterfly, Inc. (“Shutterfly”) issued a press release announcing its financial results for the third quarter ended September 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 furnished under Item 2.02 of Form 8-K, “Results of Operations and Financial Condition,” including Exhibit 99.1, 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 in Item 2.02 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 2.03.  Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant

On October 18, 2017, Shutterfly, Inc. (the “Company”) borrowed a $300.0 million term loan (the “Term Loan”) under that certain Credit Agreement, dated as of August 17, 2017 (the “Closing Date”), by and among the Company, the lenders from time to time party thereto, and Morgan Stanley Senior Funding, Inc., as administrative agent and collateral agent (the “Credit Agreement”). In addition to the Term Loan, which has been fully drawn, the Credit Agreement also provides for a secured revolving loan facility in an aggregate principal amount of up to $200.0 million, the full amount of which remains undrawn as of October 18, 2017.
The Term Loan will initially bear interest at an adjusted one month LIBOR rate, subject to a floor of 0.0%, plus an applicable margin of 2.50% per annum.
The Term Loan will mature on the seventh anniversary of the Closing Date. Commencing on the last day of the first full fiscal quarter following the Company’s borrowing of the Term Loan, the Term Loan will amortize in equal quarterly installments of 0.25% of the original principal thereof, with the principal balance payable on the maturity date.
The proceeds of the Term Loan will be used (i) to settle the Company’s existing 0.25% Convertible Senior Notes due 2018 and (ii) for working capital and general corporate purposes.
The foregoing description of the Credit Agreement does not purport to be complete and is qualified in its entirety by reference to the Credit Agreement, which was filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the United States Securities and Exchange Commission on August 17, 2017 and is incorporated by reference herein.

Item 9.01.  Financial Statements and Exhibits.

(d)   Exhibits.






Number
 
 
Description
 
99.1
 


 
 







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:  October 24, 2017

 
 





 

EXHIBIT INDEX


Number
 
 
Description
 
99.1
 
Press release, dated October 24, 2017.

 





IMAGE0A09.JPG  
Shutterfly Announces Third Quarter 2017 Financial Results


REDWOOD CITY, Calif. October 24, 2017 -- Shutterfly, Inc. (NASDAQ:SFLY), the leading online retailer and manufacturer of high-quality personalized products and services, today announced financial results for the third quarter ended September 30, 2017 .

“Q3 marked an important milestone for the company as we substantially completed the platform consolidation and the restructuring announced earlier this year in February,” said Christopher North, President and Chief Executive Officer.  “Now, Shutterfly, TinyPrints, and our Weddings business - representing the overwhelming majority of our Consumer customers - are on a single technical platform. Combined with our streamlined cost structure and sharpened focus, we’re in a strong position to execute against our growth plan going forward.”
“Our Shutterfly brand and Shutterfly Business Solutions performed well in Q3. We continue to make good progress against our areas of strategic focus while maintaining strong cost control, and also closed a $500 million credit facility. And we’re ready for the fourth quarter with a beautiful selection of holiday products for both Shutterfly and TinyPrints customers, and having significantly improved customer experiences both on the web and in our mobile app.”

Third Quarter 2017 Financial Highlights
Net revenues totaled $195.4 million , a 4% year-over-year increase. Consumer net revenues totaled $135.4 million , a 6% year-over-year decrease as anticipated, as we migrated TinyPrints customers to the Shutterfly Platform, and shut down Wedding Paper Divas in the quarter and MyPublisher earlier in the year. Shutterfly Business Solutions net revenues totaled $60.0 million , a 39% year-over-year increase.

GAAP Operating loss totaled $35.8 million and Net loss was $25.6 million or $0.78 per share.

On a proforma basis, which excludes restructuring charges of $3.3 million , our operating loss was $32.5 million, Adjusted EBITDA was $3.0 million, and Net loss was $24.0 million or $0.73 per share. Restructuring charges for the third quarter are primarily related to property and equipment, and

1



employee costs. Restructuring costs on a year-to-date basis were $17.0 million. Approximately 30% of these restructuring costs are in cash, which is less than our initial forecast of 50%.

During the third quarter of 2017, we entered into a credit agreement which provides for a $300 million Delayed Draw Term Loan B and a $200 million revolving credit facility. The proceeds from the Term Loan B will finance the repayment of our $300 million convertible debt due in May 2018, which we expect to repay at maturity. Given the economic provisions of the delayed draw, we funded the $300 million term loan in the month of October.  The term loan carries variable interest at LIBOR + 250 basis points with a seven-year tenor.  Concurrent with the funding, we hedged $150 million of the notional value of the loan with interest rate swaps, resulting in a fixed interest rate of 4.27% for the hedged portion of the debt.

During the third quarter of 2017, we repurchased a total of 632 thousand shares for $30.0 million bringing our year-to-date repurchases to over 1.6 million shares. We anticipate repurchasing approximately $30.0 million in the fourth quarter of 2017, bringing total estimated share repurchases for 2017 to $110.0 million.

Earlier in the year, we announced that we would undertake a strategic review of BorrowLenses. We completed the process in the third quarter, and decided to retain and operate the business.  BorrowLenses is growing at a modest growth rate and generates positive cash flow.








2



Business Outlook [1]  
Full Year 2017:
For the full year we are maintaining our guidance for Net revenues and Adjusted EBITDA, raising our guidance for Operating Income and Earnings Per Share, and decreasing our guidance for capital expenditures.

Net revenues to range from $1.135 billion to $1.165 billion [2]  
Gross profit margin to range from 48.0% to 49.0% of net revenues
Operating income to range from $59.0 million to $79.0 million
Effective tax rate of 37.5%
Net income per share to range from $0.60 to $0.95
Weighted average shares of approximately 34.2 million
Adjusted EBITDA to range from $210.0 million to $230.0 million
Capital expenditures to be approximately $70.0 million

Fourth Quarter 2017:
Net revenues to range from $538.0 million to $568.0 million
Gross profit margin to range from 58.0% to 60.0% of net revenues
Operating income to range from $151.5 million to $171.5 million
Effective tax rate of 39.0%
Net income per share to range from $2.60 to $3.00
Weighted average shares of approximately 33.4 million
Adjusted EBITDA to range from $191.5 million to $211.5 million




[1] Excludes restructuring charges 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 Third 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.
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.

Third Quarter Conference Call
Management will review the third quarter 2017 financial results and its expectations for the fourth quarter and full year 2017 on a conference call on Tuesday, October 24, 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) 243-4451 or (412) 542-4135, 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, November 7, 2017. To hear the replay, please dial (877) 344-7529 or (412) 317-0088, and enter access code 10112161.
 
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 regarding our expected positioning for future growth, our readiness for the all-important fourth quarter and for the full year 2017, our anticipated share repurchase levels 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 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; failure to realize the anticipated benefits of our 2017 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 - as well as 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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
Net revenues
$
195,443

 
$
187,328

 
$
596,447

 
$
572,998

Cost of net revenues
131,108

 
117,754

 
365,432

 
336,069

Restructuring
39

 

 
1,475

 

Gross profit
64,296

 
69,574

 
229,540

 
236,929

Operating expenses:
 
 
 

 
 
 
 

Technology and development
39,614

 
43,284

 
124,968

 
122,866

Sales and marketing
33,331

 
41,903

 
119,205

 
135,284

General and administrative
23,894

 
26,181

 
79,200

 
83,462

Capital lease termination

 

 
8,098

 

Restructuring
3,278

 

 
15,491

 

Total operating expenses
100,117

 
111,368

 
346,962

 
341,612

Loss from operations
(35,821
)
 
(41,794
)
 
(117,422
)
 
(104,683
)
Interest expense
(6,699
)
 
(5,726
)
 
(18,617
)
 
(17,062
)
Interest and other income, net
253

 
130

 
687

 
379

Loss before income taxes
(42,267
)
 
(47,390
)
 
(135,352
)
 
(121,366
)
Benefit from income taxes
16,660

 
18,235

 
53,713

 
46,290

Net loss
$
(25,607
)
 
$
(29,155
)
 
$
(81,639
)
 
$
(75,076
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss per share - basic and diluted
$
(0.78
)
 
$
(0.86
)
 
$
(2.45
)
 
$
(2.19
)
 
 
 
 
 
 
 
 
Weighted-average shares outstanding - basic and diluted
32,878

 
33,932

 
33,363

 
34,235

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock-based compensation is allocated as follows:
 
 
 
 
 
 
 
Cost of net revenues
$
1,041

 
$
1,131

 
$
3,284

 
$
3,436

Technology and development
2,512

 
2,725

 
7,388

 
5,696

Sales and marketing
2,864

 
3,664

 
9,017

 
11,697

General and administrative
4,319

 
4,694

 
13,021

 
12,459

Restructuring

 

 
814

 

 
$
10,736

 
$
12,214

 
$
33,524

 
$
33,288

 
 
 
 
 
 
 
 
Depreciation and amortization is allocated as follows:
 
 
 
 
 
 
 
Cost of net revenues
$
14,681

 
$
14,063

 
$
44,733

 
$
41,447

Technology and development
6,634

 
8,184

 
21,522

 
25,007

Sales and marketing
2,484

 
3,174

 
8,271

 
11,582

General and administrative
1,016

 
2,166

 
3,611

 
7,022

Restructuring
665

 

 
5,999

 

 
$
25,480

 
$
27,587

 
$
84,136

 
$
85,058


7



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


 
September 30, 2017
 
December 31, 2016
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
55,959

 
$
289,224

Short-term investments
44,977

 
26,352

Accounts receivable, net
61,468

 
57,365

Inventories
12,057

 
11,751

Prepaid expenses and other current assets
81,322

 
48,084

Total current assets
255,783

 
432,776

Long-term investments
11,739

 
14,479

Property and equipment, net
269,145

 
284,110

Intangible assets, net
32,544

 
43,420

Goodwill
408,975

 
408,975

Other assets
28,751

 
11,816

Total assets
$
1,006,937

 
$
1,195,576

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Convertible senior notes, current
$
290,157

 
$

Accounts payable
25,098

 
58,790

Accrued liabilities
90,596

 
138,869

Deferred revenue, current portion
22,794

 
22,929

Total current liabilities
428,645

 
220,588

Convertible senior notes, net

 
278,792

Other liabilities
121,522

 
137,035

Total liabilities
550,167

 
636,415

Stockholders’ equity:
 
 
 
Common stock, $0.0001 par value; 100,000 shares authorized; 32,798 and 33,637 shares issued and outstanding on September 30, 2017 and December 31, 2016, respectively
3

 
3

Additional paid-in capital
985,098

 
949,864

Accumulated other comprehensive income (loss)
828

 
(32
)
Accumulated deficit
(529,159
)
 
(390,674
)
Total stockholders' equity
456,770

 
559,161

Total liabilities and stockholders' equity
$
1,006,937

 
$
1,195,576



8



Shutterfly, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 
Nine Months Ended
 
September 30,
 
2017
 
2016
Cash flows from operating activities:
 
 
 
Net loss
$
(81,639
)
 
$
(75,076
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation and amortization
66,367

 
69,314

Amortization of intangible assets
11,770

 
15,744

Amortization of debt discount and issuance costs
11,365

 
10,747

Stock-based compensation
32,710

 
33,288

Loss on disposal of property and equipment
705

 
378

Deferred income taxes
(8,607
)
 
5,786

Tax benefit from stock-based compensation

 
263

Excess tax benefits from stock-based compensation

 
(886
)
Restructuring
11,636

 

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(4,103
)
 
10,463

Inventories
(1,782
)
 
2,115

Prepaid expenses and other assets
(34,064
)
 
(61,113
)
Accounts payable
(35,819
)
 
(15,105
)
Accrued and other liabilities
(49,198
)
 
(66,493
)
Net cash used in operating activities
(80,659
)
 
(70,575
)
 
 
 
 
Cash flows from investing activities:
 
 
 
Purchases of property and equipment
(22,960
)
 
(43,733
)
Capitalization of software and website development costs
(25,977
)
 
(27,136
)
Purchases of investments
(44,381
)
 
(21,891
)
Proceeds from the maturities of investments
28,456

 
25,070

Proceeds from sale of property and equipment
21,232

 
14,071

Net cash used in investing activities
(43,630
)
 
(53,619
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Proceeds from issuance of common stock upon exercise of stock options
626

 
1,935

Repurchases of common stock
(80,000
)
 
(90,837
)
Excess tax benefits from stock-based compensation

 
886

Principal payments of capital lease and financing obligations
(24,813
)
 
(15,128
)
Payment for contingent consideration liabilities

 
(1,313
)
Payment of credit agreement issuance costs
(4,789
)
 

Net cash used in financing activities
(108,976
)
 
(104,457
)
 
 
 
 
Net decrease in cash and cash equivalents
(233,265
)
 
(228,651
)
Cash and cash equivalents, beginning of period
289,224

 
288,863

Cash and cash equivalents, end of period
$
55,959

 
$
60,212

 
 
 
 
Supplemental schedule of non-cash investing / financing activities:
 
 
 
Net increase (decrease) in accrued purchases of property and equipment
$
4,263

 
$
(1,274
)
Net decrease in accrued capitalized software and website development costs
(161
)
 
(97
)
Stock-based compensation capitalized with software and website development costs
1,084

 
1,322

Property and equipment acquired under capital leases
18,224

 
23,946


9



Shutterfly, Inc.
Consumer Metrics Disclosure


 
Three Months Ended
 
September 30,
 
2017 [2]
 
2016
Consumer Metrics
 
 
 
Customers
2,969,451

 
3,150,894

   year-over-year change
(6
)%
 
 
 
 
 
 
Orders
4,861,262

 
5,394,902

   year-over-year change
(10
)%
 
 
 
 
 
 
Average order value  [1]

$27.86

 

$26.71

   year-over-year change
4
 %
 
 

[1] Average order value excludes Shutterfly Business Solutions revenue.
[2] I n the third quarter of 2017, customers and orders decreased over the prior year, primarily due to the platform consolidation.
 


10



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

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2017
 
2016
 
2017
 
2016
Consumer
 
 
 
 
 
 
 
Net revenues
$
135,418

 
$
144,074

 
$
475,153

 
$
476,072

Cost of net revenues
81,439

 
84,825

 
263,345

 
256,438

Restructuring
39

 

 
1,475

 

Gross profit
$
53,940

 
$
59,249

 
$
210,333

 
$
219,634

Consumer gross profit margin
39.8
%
 
41.1
%
 
44.3
%
 
46.1
%
 
 
 
 
 
 
 
 
Shutterfly Business Solutions (SBS)
 
 
 
 
 
 
 
Net revenues
$
60,025

 
$
43,254

 
$
121,294

 
$
96,926

Cost of net revenues
47,520

 
30,389

 
95,256

 
71,909

Gross profit
$
12,505

 
$
12,865

 
$
26,038

 
$
25,017

SBS gross profit margin
20.8
%
 
29.7
%
 
21.5
%
 
25.8
%
 
 
 
 
 
 
 
 
Corporate  [1]
 
 
 
 
 
 
 
Net revenues
$

 
$

 
$

 
$

Cost of net revenues
2,149

 
2,540

 
6,831

 
7,722

Gross profit
$
(2,149
)
 
$
(2,540
)
 
$
(6,831
)
 
$
(7,722
)
 
 
 
 
 
 
 
 
Consolidated
 
 
 
 
 
 
 
Net revenues
$
195,443

 
$
187,328

 
$
596,447

 
$
572,998

Cost of net revenues
131,108

 
117,754

 
365,432

 
336,069

Restructuring
39

 

 
1,475

 

Gross profit
$
64,296

 
$
69,574

 
$
229,540

 
$
236,929

 
 
 
 
 
 
 
 
Gross profit margin
32.9
%
 
37.1
%
 
38.5
%
 
41.3
%
 
 
 
 
 
 
 
 
Gross profit margin excluding restructuring
32.9
%
 
37.1
%
 
38.7
%
 
41.3
%

[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
 
Nine Months Ended
 
September 30, 2017
 
September 30, 2017
Restructuring:
 
 
 
Property and equipment
$
1,798

 
$
8,414

Employee costs
697

 
5,851

Inventory
39

 
1,475

Other costs
783

 
1,226

Total
$
3,317

 
$
16,966



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,
 
Sep. 30,
 
Dec. 31,
 
2016
 
2016
 
2016
 
2016
 
2017
 
2017
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP net income (loss)
$
(29,436
)
 
$
(16,485
)
 
$
(29,155
)
 
$
90,982

 
$
(33,194
)
 
$
(22,838
)
 
$
(25,607
)
 
$
15,906

Capital lease termination

 

 

 

 

 
8,098

 

 

Restructuring

 

 

 

 
8,976

 
4,673

 
3,317

 

Tax benefit impact of restructuring and capital lease termination charges

 

 

 

 
(3,948
)
 
(4,829
)
 
(1,669
)
 

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

 
$
(28,166
)
 
$
(14,896
)
 
$
(23,959
)
 
$
15,906

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP diluted shares outstanding
34,596

 
34,177

 
33,932

 
34,625

 
33,712

 
33,579

 
32,878

 
35,190

Non-GAAP diluted shares outstanding
34,596

 
34,177

 
33,932

 
34,625

 
33,712

 
33,579

 
32,878

 
35,190

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

 
$
(0.98
)
 
$
(0.68
)
 
$
(0.78
)
 
$
0.45

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

 
$
(0.84
)
 
$
(0.44
)
 
$
(0.73
)
 
$
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,
 
Sep. 30,
 
Dec. 31,
 
2016
 
2016
 
2016
 
2016
 
2017
 
2017
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP net income (loss)
$
(29,436
)
 
$
(16,485
)
 
$
(29,155
)
 
$
90,982

 
$
(33,194
)
 
$
(22,838
)
 
$
(25,607
)
 
$
15,906

Interest expense
5,675

 
5,661

 
5,726

 
5,961

 
5,964

 
5,955

 
6,699

 
23,023

Interest and other income, net
(121
)
 
(128
)
 
(130
)
 
(122
)
 
(189
)
 
(244
)
 
(253
)
 
(501
)
Tax (benefit) provision
(17,932
)
 
(10,123
)
 
(18,235
)
 
56,972

 
(22,341
)
 
(14,713
)
 
(16,660
)
 
10,682

Depreciation and amortization
29,114

 
28,357

 
27,587

 
28,593

 
27,364

 
25,957

 
24,815

 
113,651

Stock-based compensation
10,150

 
10,924

 
12,214

 
12,404

 
11,505

 
10,469

 
10,736

 
45,692

Capital lease termination

 

 

 

 

 
8,098

 

 

Restructuring

 

 

 

 
8,976

 
4,673

 
3,317

 

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

 
$
(1,993
)
 
$
194,790

 
$
(1,915
)
 
$
17,357

 
$
3,047

 
$
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,
 
Sep. 30,
 
Dec. 31,
 
2016 [2]
 
2016
 
2016
 
2016
 
2017
 
2017
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net cash provided by (used in) operating activities
$
(82,610
)
 
$
16,916

 
$
(4,881
)
 
$
263,998

 
$
(72,386
)
 
$
13,672

 
$
(21,945
)
 
$
193,423

Interest expense
5,675

 
5,661

 
5,726

 
5,961

 
5,964

 
5,955

 
6,699

 
23,023

Interest and other income, net
(121
)
 
(128
)
 
(130
)
 
(122
)
 
(189
)
 
(244
)
 
(253
)
 
(501
)
Tax (benefit) provision
(17,932
)
 
(10,123
)
 
(18,235
)
 
56,972

 
(22,341
)
 
(14,713
)
 
(16,660
)
 
10,682

Changes in operating assets and liabilities
98,604

 
2,374

 
29,155

 
(126,361
)
 
92,194

 
(2,565
)
 
35,336

 
3,772

Other adjustments
(6,166
)
 
3,506

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

 
(2,575
)
 
(21,946
)
Capital lease termination

 

 

 

 

 
8,098

 

 

Cash restructuring

 

 

 

 
1,108

 
1,777

 
2,445

 

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

 
(1,993
)
 
194,790

 
(1,915
)
 
17,357

 
3,047

 
208,453

Less: Purchases of property and equipment
(5,497
)
 
(22,005
)
 
(14,957
)
 
(9,792
)
 
(1,669
)
 
(7,252
)
 
(18,302
)
 
(52,251
)
Less: Capitalized technology & development costs
(8,168
)
 
(10,052
)
 
(8,819
)
 
(6,065
)
 
(7,726
)
 
(9,602
)
 
(8,488
)
 
(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

 
$
(23,743
)
 
$
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
December 31, 2017
 
Twelve Months Ending
December 31, 2017
 
Low
 
High
 
Low
 
High
 
 
 
 
 
 
 
 
Net revenues [2]

$538.0

 

$568.0

 

$1,135.0

 

$1,165.0

 
 
 
 
 
 
 
 
Gross profit margin
58.0
%
 
60.0
%
 
48.0
%
 
49.0
%
 
 
 
 
 
 
 
 
Operating income

$151.5

 

$171.5

 

$59.0

 

$79.0

Operating margin
28.1
%
 
30.2
%
 
5.2
%
 
6.8
%
 
 
 
 
 
 
 
 
Operating income

$151.5

 

$171.5

 

$59.0

 

$79.0

Stock-based compensation

$13.3

 

$13.3

 

$46.0

 

$46.0

Amortization of intangible assets

$3.1

 

$3.1

 

$15.0

 

$15.0

Depreciation

$23.6

 

$23.6

 

$90.0

 

$90.0

Adjusted EBITDA

$191.5

 

$211.5

 

$210.0

 

$230.0

Adjusted EBITDA margin
35.6
%
 
37.2
%
 
18.5
%
 
19.7
%
 
 
 
 
 
 
 
 
Capital expenditures
 
 
 
 

$70.0

 

$70.0

Capital expenditures as % of net revenues
 
 
 
 
6.2
%
 
6.0
%
 
 
 
 
 
 
 
 
Adjusted EBITDA minus capital expenditures
 
 
 
 

$140.0

 

$160.0

Adjusted EBITDA minus capital expenditures as % of net revenues
 
 
 
 
12.3
%
 
13.7
%
 
 
 
 
 
 
 
 
Tax rate
39.0
%
 
39.0
%
 
37.5
%
 
37.5
%
 
 
 
 
 
 
 
 
Net income per share
 
 
 
 
 
 
 
Diluted

$2.60

 

$3.00

 

$0.60

 

$0.95

 
 
 
 
 
 
 
 
Weighted average shares
 
 
 
 
 
 
 
Diluted
33.4

 
33.4

 
34.2

 
34.2

 
 
 
 
 
 
 
 
[1] Excludes restructuring charges 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