Current Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 29, 2009
 
Shutterfly, Inc.
(Exact Name of Registrant as Specified in Its Charter)
 
Delaware
(State or Other Jurisdiction of Incorporation)

001-33031
 
99-3330068
(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(b))

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

 
 
 


 

Item 2.02.  Results of Operations and Financial Condition.

On July 29, 2009, Shutterfly, Inc. (“Shutterfly”) issued a press release announcing its financial results for the second quarter ended June 30, 2009.

This press release is being furnished as Exhibit 99.01 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 and manage expenditures. The method Shutterfly uses 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 99.01.


Item 9.01.  Financial Statements and Exhibits.

(d)   Exhibits.

Number
 
 
Description
 
99.01
 
Press release, dated July 29, 2009.


 

 
 
 

 
 

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/ Mark J. Rubash
Mark J. Rubash
Senior Vice President & Chief Financial Officer
 
Date:  July 29, 2009

 
 

 
 
 
 

EXHIBIT INDEX


Number
 
 
Description
 
99.01
 
Press release, dated July 29, 2009
 

Exhibit 99.01
  
Shutterfly Announces Second Quarter 2009 Financial Results

●
Net revenues increase 10% year-over-year to $38.9 million
●
34 th consecutive quarter of year-over year net revenue growth
●
Adjusted EBITDA 1 of $0.2 million
●
GAAP net loss of ($0.22) per diluted share

 REDWOOD CITY, July 29, 2009 -- Shutterfly, Inc. (NASDAQ:SFLY), the leading Internet-based social expression and personal publishing service, today announced financial results for the three-months ended June 30, 2009.
 
“Shutterfly delivered solid second quarter results with better than expected growth in transacting customers despite the weakened economic environment” said President and CEO Jeffrey Housenbold.  “Our disciplined financial management and strong execution allowed us to continue to deliver innovative products and services that support our strategic imperatives in the photo book, stationery, and memory sharing markets.”

Second Quarter 2009 Financial Highlights
 
●
Net revenues totaled $38.9 million, a 10% year-over-year increase.
●
Q2 2009 represents the 34 th consecutive quarter of year-over-year net revenue growth.
●
Personalized Products & Services 2 net revenues totaled $23.6 million, a 20% year-over-year increase.
●
Personalized Products & Services net revenues represented 61% of total net revenues.
●
Net revenues from Prints declined 7% year-over-year, to $14.6 million.
●
Commercial print net revenues totaled $680 thousand.
●
Existing customers generated 77% of total net revenues.
●
Gross profit margin was 48% of net revenues, compared to 51% in the second quarter of 2008.
●
Operating expenses, excluding $2.8 million of stock-based compensation, totaled $25.4 million.
●
GAAP net loss was ($5.7) million, compared to a net loss of ($4.0) million in the second quarter of 2008.
●
GAAP net loss per diluted share was ($0.22), compared to ($0.16) in the second quarter of 2008.
●
Adjusted EBITDA was $0.2 million, compared to $0.4 million in the second quarter of 2008.
●
At June 30, 2009, the Company had $115.8 million of cash, cash equivalents and long-term investments.

Second Quarter 2009 Operating Metrics
 
●
Transacting customers totaled 946,000, a 13% increase over the second quarter of 2008.
●
Orders totaled 1.7 million, a 6% increase over the second quarter of 2008.
●
Average order value 3 was $23.09, a 2% increase over the second quarter of 2008.
 
Recent Operating Highlights
 
 
●
Introduced Shutterfly Video for Share sites.
●
Enhanced stationery offering to include baby & bridal shower invitations, wedding save the dates, notepads & calling cards.
●
Named Neil Day Senior Vice President and Chief Technology Officer.
●
Launched new 7x9 and 5x7 sizes for photo books to accommodate every budget.
●
Redesigned our store to optimize and improve user experience and conversion.
●
Announced partnership with premier Hollywood baby boutique, Petit Tr é sor.
●
Ranked 69 on Internet Retailer Top 500, up from 76 in 2008.

Business Outlook
 
The Company's current financial expectations for the third quarter and the full year 2009 are as follows:
 
Third Quarter 2009:
 
●
Net revenues to range from $34 million to $36 million, a year-over-year change of (5%) to 0%.
●
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 ($14) million to ($12) million.
●
Non-GAAP operating loss to range from ($10) million to ($8) million.
●
GAAP effective tax rate to range from 25% to 45%.
●
Non-GAAP effective tax rate to range from 20% to 35%.
●
GAAP diluted net loss per share to range from ($0.29) to ($0.35).
●
Non-GAAP diluted net loss per share to range from ($0.20) to ($0.30).
●
Weighted average diluted shares of approximately 25.4 million.
●
Adjusted EBITDA 2 to range from ($2.0) million to ($3.5) million.
 
Full Year 2009:
 
●
Net revenues to range from $205 million to $220 million, a year-over-year change of (4%) to 3%.
●
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 ($11) million to break even.
●
Non-GAAP operating income to range from $4 million to $15 million.
●
GAAP effective tax rate to range from 25% to 45%.
●
Non-GAAP effective tax rate to range from 20% to 35%.
●
GAAP diluted net income (loss) per share to range from a net loss of ($0.21) to net income of $0.03.
●
Non-GAAP diluted net income per share to range from $0.14 to $0.38.
●
Weighted average diluted shares of 25.4 million in net loss scenario to 26.7 million in net income scenario.
●
Adjusted EBITDA to range from 14% to 18% of net revenues.
●
Capital expenditures to range from $20 million to $22 million.
 
The foregoing financial guidance replaces any of the Company’s previously issued guidance and all such previous guidance should no longer be relied upon.
 
Second Quarter 2009 Conference Call
 
Management will review the second quarter 2009 financial results and its expectations for the third quarter and full year 2009 at a conference call on Wednesday, July 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 913-312-0641.  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, August 12, 2009. To hear the replay, please dial 719-457-0820, replay passcode 8084606.
 
About Non-GAAP Financial Information
 
The accompanying press release dated July 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 third 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.

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

 
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.  Commercial printing revenues are excluded from personalized products and services revenues.
 
3 Average order value excludes commercial printing revenue.

 
 
 
 

Shutterfly, Inc
                       
Condensed Consolidated Statements of Operations                        
(In thousands, except per share amounts)
                       
(Unaudited)
                       
   
Three Months Ended
   
Six Months Ended
 
    June 30,    
June 30,
 
   
2009
   
2008
   
2009
   
2008
 
                         
Net revenues
  $ 38,858     $ 35,447     $ 74,870     $ 69,785  
Cost of net revenues (1)
    20,069       17,380       39,741       35,309  
        Gross profit
    18,789       18,067       35,129       34,476  
Operating expenses (1):
                               
   Technology and development
    10,963       9,833       21,957       18,997  
   Sales and marketing
    8,901       8,619       16,698       16,675  
   General and administrative
    8,333       7,554       15,279       15,174  
Total operating expenses
    28,197       26,006       53,934       50,846  
Loss from operations
    (9,408 )     (7,939 )     (18,805 )     (16,370 )
Interest expense
    (27 )     (57 )     (114 )     (85 )
Interest and other income, net
    283       712       607       2,059  
Loss before income taxes
    (9,152 )     (7,284 )     (18,312 )     (14,396 )
Benefit from income taxes
    3,497       3,267       6,426       6,740  
Net loss
  $ (5,655 )   $ (4,017 )   $ (11,886 )   $ (7,656 )
                                 
                                 
Net loss per share - basic and diluted
  $ (0.22 )   $ (0.16 )   $ (0.47 )   $ (0.31 )
                                 
Weighted-average shares outstanding - basic and diluted
    25,246       25,045       25,197       24,995  
 
                               
                                 
(1) Stock-based compensation is allocated as follows:
                               
                                 
Cost of net revenues
  $ 82     $ 92     $ 178     $ 175  
Technology and development
    582       538       1,214       929  
Sales and marketing
    757       504       1,473       915  
General and administrative
    1,413       954       2,773       1,887  
    $ 2,834     $ 2,088     $ 5,638     $ 3,906  
                                 

 
 
 

Shutterfly, Inc.
           
Condensed Consolidated Balance Sheets
           
(In thousands, except par value amounts)
           
(Unaudited)
           
             
   
June 30,
   
December 31,
 
   
2009
   
2008
 
             
ASSETS
           
Current assets:
           
   Cash and cash equivalents
  $ 63,579     $ 88,164  
   Accounts receivable, net
    3,203       5,992  
   Inventories
    2,737       3,610  
   Deferred tax asset, current portion
    1,303       1,194  
   Prepaid expenses and other current assets
    10,734       4,749  
              Total current assets
    81,556       103,709  
Long-term investments
    52,200       52,250  
Property and equipment, net
    44,066       48,006  
Goodwill and intangible assets, net
    13,634       14,547  
Deferred tax asset, net of current portion
    12,038       11,877  
Other assets
    5,398       2,417  
              Total assets
  $ 208,892     $ 232,806  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Current liabilities:
               
   Accounts payable
  $ 4,340     $ 11,214  
   Accrued liabilities
    13,472       24,712  
   Deferred revenue
    8,967       9,461  
   Current portion of capital lease obligations
    35       90  
              Total current liabilities
    26,814       45,477  
Other liabilities
    1,479       1,001  
Capital lease obligations, less current portion
    10       17  
              Total liabilities
    28,303       46,495  
                 
Stockholders' equity
               
   Common stock, $0.0001 par value; 100,000 shares authorized; 25,415 and
               
        25,138 shares issued and outstanding on June 30, 2009 and
               
        December 31, 2008, respectively
    3       2  
   Additional paid-in-capital
    208,157       201,993  
   Accumulated deficit
    (27,571 )     (15,684 )
              Total stockholders' equity
    180,589       186,311  
              Total liabilities and stockholders' equity
  $ 208,892     $ 232,806  
                 
                 

 
 
 


Shutterfly, Inc.
         
Condensed Consolidated Statements of Cash Flows
         
(In thousands)
         
(Unaudited)
         
   
Six Months Ended
 
   
June 30,
 
   
2009
 
2008
 
           
Cash flows from operating activities:
         
Net loss
  $ (11,886 ) $ (7,656 )
Adjustments to reconcile net income to net cash provided by operating activities:
             
Depreciation and amortization
    12,544     11,237  
Amortization of intangible assets
    941     914  
Stock-based compensation
    5,638     3,906  
Loss on disposal of property and equipment
    79     291  
Deferred income taxes
    (452 )   (5,813 )
Changes in operating assets and liabilities:
             
Accounts receivable, net
    2,789     1,374  
Inventories
    873     1,255  
Prepaid expenses and other current assets
    (5,759 )   (853 )
Other assets
    (3,009 )   88  
Accounts payable
    (6,895 )   (5,589 )
Accrued and other liabilities
    (10,780 )   (8,828 )
Deferred revenue
    (494 )   324  
Net cash used in operating activities
    (16,411 )   (9,350 )
               
Cash flows from investing activities:
             
Acquisition of business and intangibles, net of cash acquired
    -     (10,098 )
Purchases of property and equipment
    (6,102 )   (11,770 )
Capitalization of software and website development costs
    (1,938 )   (2,258 )
Proceeds from sale of short term investments
    -     3,002  
Proceeds from sale of equipment
    -     6  
Purchase of auction rate securities
    -     (52,250 )
Proceeds from the sale of auction rate securities
    50     -  
Net cash used in investing activities
    (7,990 )   (73,368 )
               
Cash flows from financing activities:
             
Principal payments of capital lease obligations
    (62 )   (323 )
Proceeds from issuance of common stock upon exercise of stock options
    869     1,094  
Shares withheld for payment of employee's withholding tax liability
    (991 )   -  
Net cash provided by (used in) financing activities
    (184 )   771  
               
Net increase in cash and cash equivalents
    (24,585 )   (81,947 )
Cash and cash equivalents, beginning of period
    88,164     122,582  
Cash and cash equivalents, end of period
  $ 63,579   $ 40,635  
               
               
Supplemental schedule of non-cash investing activities
             
Net change in accrued purchases of property and equipment
    (118 )   -  
               

 
 
 


Shutterfly, Inc.
           
User Metrics Disclosure
           
             
   
Three Months Ended
 
   
June 30,
 
   
2009
   
2008
 
             
User Metrics
           
             
Customers
  946,213     833,786  
   year-over-year growth
  13 %   14 %
             
Orders
  1,653,447     1,561,877  
   year-over-year growth
  6 %   7 %
             
Average order value
  $23.09     $22.70  
   year-over-year growth
  2 %   11 %
             
Average orders per customer
  1.7 x   1.9 x
             

 
 
 

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
         
Non-GAAP
     
Range of Estimate
 
Adjustments
 
Range of Estimate
     
From
 
To
 
From
 
To
 
From
 
To
                           
 
Three Months Ending September 30, 2009
                   
                           
 
   Net revenues
 
$34.0
 
$36.0
 
       -
 
       -
 
$34.0
 
$36.0
 
   Gross profit margin
 
45%
 
47%
 
2%
[a]
47%
 
49%
 
   Operating loss
 
($14)
 
($12)
 
$4
[b]
($10)
 
($8)
 
   Operating margin
 
(41%)
 
(33%)
 
12%
 
11%
[b]
(29%)
 
(22%)
                           
 
   Stock-based compensation
 
$3.4
 
$3.4
 
$3.4
 
$3.4
 
-
 
-
 
   Amortization of intangible assets
 
$0.6
 
$0.6
 
$0.6
 
$0.6
 
-
 
-
                           
 
   Adjusted EBITDA*
                 
($3.5)
 
($2.0)
                           
 
   Diluted loss per share
 
($0.29)
 
($0.35)
 
($0.01)
 
$0.15
[c]
($0.30)
 
($0.20)
 
   Diluted shares
 
25.4
 
25.4
 
-
 
-
 
25.4
 
25.4
 
   Effective tax rate
 
45%
 
25%
 
(25%)
 
10%
[d]
20%
 
35%
                           
                           
 
Twelve Months Ending December 31, 2009
                   
                           
 
   Net revenues
 
$205.0
 
$220.0
 
-
 
-
 
$205.0
 
$220.0
 
   Gross profit margin
 
51%
 
53%
 
1%
[e]
52%
 
54%
 
   Operating income (loss)
 
($11)
 
$0
 
$15
[f]
$4
 
$15
 
   Operating margin
 
(5%)
 
0%
 
7%
 
7%
[f]
2%
 
7%
                           
 
   Stock-based compensation
 
$12.7
 
$12.7
 
$12.7
 
$12.7
 
-
 
-
 
   Amortization of intangible assets
 
$2.1
 
$2.1
 
$2.1
 
$2.1
 
-
 
-
                           
 
   Adjusted EBITDA*
                 
$29
 
$40
 
   Adjusted EBITDA* margin
                 
14%
 
18%
                           
 
   Diluted earnings (loss) per share
 
($0.21)
 
$0.03
 
$0.35
 
$0.35
[g]
$0.14
 
$0.38
 
   Diluted shares
 
25.4
 
26.7
 
1.3
 
-
 
26.7
 
26.7
 
   Effective tax rate
 
45%
 
25%
 
(25%)
 
10%
[h]
20%
 
35%
                           
 
   Capital expenditures
 
$20.0
 
$22.0
         
$20.0
 
$22.0
                           
                           
*
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 $600k.
[b]
Reflects estimated adjustments for stock-based compensation expense of approximately $3.4 million and amortization of purchased intangible assets of approximately $600k.
[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 $400k and amortization of purchased intangible assets of approximately $2.1 million.
[f]
Reflects estimated adjustments for stock-based compensation expense of approximately $12.7 million and amortization of purchased intangible assets of approximately $2.1 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,
   
Jun. 30,
   
Sept. 30,
   
Dec. 31,
   
Mar. 31,
   
Jun. 30,
   
Dec. 31,
 
   
2008
   
2008
   
2008
   
2008
   
2009
   
2009
   
2008
 
                                           
GAAP gross profit
  $ 16,409     $ 18,067     $ 17,523     $ 65,322     $ 16,340     $ 18,789     $ 117,321  
   Stock-based compensation expense within cost of net revenues
    84       92       88       53       95       82       317  
   Amortization of intangible assets within cost of net revenues
    367       367       367       368       367       394       1,469  
                                                         
Non-GAAP gross profit
  $ 16,860     $ 18,526     $ 17,978     $ 65,743     $ 16,802     $ 19,265     $ 119,107  
                                                         
Non-GAAP gross profit margin
    49 %     52 %     50 %     61 %     47 %     50 %     56 %

  Shutterfly, Inc.                          
Reconciliation of GAAP Operating Margin to Non-GAAP Operating Margin
                         
(In thousands)
                                         
(Unaudited)
 
Three months ended,
   
Year Ended,
 
   
Mar. 31,
   
Jun. 30,
   
Sept. 30,
   
Dec. 31,
   
Mar. 31,
   
Jun. 30,
   
Dec. 31,
 
   
2008
   
2008
   
2008
   
2008
   
2009
   
2009
   
2008
 
                                           
GAAP operating income (loss)
  $ (8,431 )   $ (7,939 )   $ (8,981 )   $ 29,079     $ (9,396 )   $ (9,408 )   $ 3,728  
   Stock-based compensation expense
    1,818       2,088       2,430       2,292       2,803       2,834       8,628  
   Amortization of intangible assets
    457       457       457       456       457       484       1,827  
                                                         
Non-GAAP operating income (loss)
  $ (6,156 )   $ (5,394 )   $ (6,094 )   $ 31,827     $ (6,136 )   $ (6,090 )   $ 14,183  
                                                         
Non-GAAP operating margin
    (18 %)     (15 %)     (17 %)     30 %     (17 %)     (16 %)     7 %
 
 
 

Shutterfly, Inc.
                                         
Reconciliation of GAAP Net Income to Non-GAAP Net Income
                         
(In thousands)
                                         
(Unaudited)
 
Three months ended,
   
Year Ended,
 
   
Mar. 31,
   
Jun. 30,
   
Sept. 30,
   
Dec. 31,
   
Mar. 31,
   
Jun. 30,
   
Dec. 31,
 
   
2008
   
2008
   
2008
   
2008
   
2009
   
2009
   
2008
 
                                           
GAAP net income (loss)
  $ (3,639 )   $ (4,017 )   $ (2,711 )   $ 14,928     $ (6,232 )   $ (5,655 )   $ 4,561  
   Stock-based compensation expense
    1,818       2,088       2,430       2,292       2,803       2,834       8,628  
   Amortization of intangible assets
    457       457       457       456       457       484       1,827  
   Income taxes associated with certain non-GAAP entries
    (1,587 )     (1,419 )     (3,045 )     2,912       (1,168 )     (1,190 )     (3,139 )
                                                         
Non-GAAP net income (loss)
  $ (2,951 )   $ (2,891 )   $ (2,869 )   $ 20,588     $ (4,140 )   $ (3,527 )   $ 11,877  
                                                         
                                                         
Diluted net income per share:
                                                       
   GAAP
  $ (0.15 )   $ (0.16 )   $ (0.11 )   $ 0.59     $ (0.25 )   $ (0.22 )   $ 0.18  
   Non-GAAP
  $ (0.12 )   $ (0.12 )   $ (0.11 )   $ 0.81     $ (0.16 )   $ (0.14 )   $ 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       25,246       25,787  
 
 
 

Shutterfly, Inc.
                             
Reconciliation of GAAP to Non-GAAP Effective Tax Rate
                             
(In thousands)
                                         
(Unaudited)
 
Three months ended,
   
Year Ended
 
   
Mar. 31,
   
Jun. 30,
   
Sept. 30,
   
Dec. 31,
   
Mar. 31,
   
Jun. 30,
   
Dec. 31,
 
   
2008
   
2008
   
2008
   
2008
   
2009
   
2009
   
2008
 
                                           
GAAP benefit (provision) for income taxes
  $ 3,473     $ 3,267     $ 5,915     $ (14,447 )   $ 2,928     $ 3,497     $ (1,792 )
   Income taxes associated with certain non-GAAP entries
    (1,587 )     (1,419 )     (3,045 )     2,912       (1,168 )     (1,190 )     (3,139 )
                                                         
Non-GAAP provision for income taxes
  $ 1,886     $ 1,848     $ 2,870     $ (11,535 )   $ 1,760     $ 2,307     $ (4,931 )
                                                         
GAAP income (loss) before income taxes
  $ (7,112 )   $ (7,284 )   $ (8,626 )   $ 29,375     $ (9,160 )   $ (9,152 )   $ 6,353  
   Stock-based compensation expense
    1,818       2,088       2,430       2,292       2,803       2,834       8,628  
   Amortization of intangible assets
    457       457       457       456       457       484       1,827  
                                                         
Non-GAAP income (loss) before income taxes
  $ (4,837 )   $ (4,739 )   $ (5,739 )   $ 32,123     $ (5,900 )   $ (5,834 )   $ 16,808  
                                                         
GAAP Effective tax rate
    49 %     45 %     69 %     49 %     32 %     38 %     28 %
                                                         
Non-GAAP effective tax rate
    39 %     39 %     50 %     36 %     30 %     40 %     29 %

 
 
 

Shutterfly, Inc.
                                         
Reconciliation of Non-GAAP Adjusted EBITDA
                         
(In thousands)
                                         
(Unaudited)
                                         
   
Three months ended,
   
Year Ended
 
   
Mar. 31,
   
Jun. 30,
   
Sept. 30,
   
Dec. 31,
   
Mar. 31,
   
Jun. 30,
   
Dec. 31,
 
   
2008
   
2008
   
2008
   
2008
   
2009
   
2009
   
2008
 
                                           
Income (loss) from Operations
  $ (8,431 )   $ (7,939 )   $ (8,981 )   $ 29,079     $ (9,396 )   $ (9,408 )   $ 3,728  
Add back:
                                                       
   Depreciation and amortization
    5,885       6,266       6,682       7,205       6,706       6,779       26,038  
   Stock-based compensation expense
    1,818       2,088       2,430       2,292       2,803       2,834       8,628  
                                                         
Non-GAAP Adjusted EBITDA
  $ (728 )   $ 415     $ 131     $ 38,576     $ 113     $ 205     $ 38,394  

Shutterfly, Inc.                                
Reconciliation of Non-GAAP Adjusted EBITDA to Free Cash Flows
                               
(In thousands)
                                         
(Unaudited)
 
Three months ended,
   
Year Ended
 
   
Mar. 31,
   
Jun. 30,
   
Sept. 30,
   
Dec. 31,
   
Mar. 31,
   
Jun. 30,
   
Dec. 31,
 
   
2008
   
2008
   
2008
   
2008
   
2009
   
2009
   
2008
 
                                           
Non-GAAP Adjusted EBITDA
  $ (728 )   $ 415     $ 131     $ 38,576     $ 113     $ 205     $ 38,394  
Less: Purchases of property and equipment
    (7,930 )     (3,840 )     (4,990 )     (1,460 )     (4,158 )     (1,826 )     (18,220 )
Less: Capitalized technology & development costs
    (848 )     (1,410 )     (981 )     (1,288 )     (824 )     (1,114 )     (4,527 )
                                                         
Free cash flows
  $ (9,506 )   $ (4,835 )   $ (5,840 )   $ 35,828     $ (4,869 )   $ (2,735 )   $ 15,647