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Shutterfly Announces Fourth Quarter and Full Year 2012 Financial Results
[February 05, 2013]

Shutterfly Announces Fourth Quarter and Full Year 2012 Financial Results

REDWOOD CITY, Calif. --(Business Wire)--

Shutterfly, Inc. (NASDAQ:SFLY), the leading manufacturer and digital retailer of high-quality personalized products and services offered through a family of lifestyle brands, today announced financial results for the fourth quarter and full year-ended December 31, 2012.

"Our unwavering commitment to innovation, outstanding product quality, stylish designs, exceptional customer service and overall value, combined with our focus on strong execution led to another year of record revenues, adjusted EBITDA, and free cash flows," said President and Chief Executive Officer Jeffrey Housenbold. "Our singular focus on addressing the ever increasing challenges that consumers face as they try to do more with their photos and memories, has enabled Shutterfly to emerge as the market leader. We remain confident in our strategy and in the early and large markets in which we operate."

Fourth Quarter 2012 Financial Highlights

  • Net revenues totaled $351.8 million, a 33% year-over-year increase, and the 48th consecutive quarter of year-over-year net revenue growth.
  • Consumer net revenues totaled $343.5 million, a 33% year-over-year increase.
  • Enterprise net revenues totaled $8.3 million, a 79% year-over-year increase.
  • Gross profit margin was 60.5% of net revenues, compared to 58.9% in the fourth quarter of 2011.
  • Operating expenses, excluding $9.4 million of stock-based compensation, totaled $102.0 million.
  • GAAP net income was $53.0 million, compared to $35.4 million in the fourth quarter of 2011.
  • GAAP net income per diluted share was $1.40, compared to $0.97 in the fourth quarter of 2011.
  • Adjusted EBITDA was $127.2 million, compared to $89.3 million in the fourth quarter of 2011.
  • At December 31, 2012, cash and cash equivalents totaled $245.1 million.

Full Year 2012 Financial Highlights

  • Net revenues totaled $640.6 million, a 35% year-over-year increase.
  • Consumer net revenues totaled $613.4 million, a 33% year-over-year increase.
  • Enterprise net revenues totaled $27.2 million, a 101% year-over-year increase.
  • Gross profit margin was 54.0% of net revenues, compared to 53.6% in 2011.
  • Operating expenses, excluding $35.6 million of stock-based compensation, totaled $269.4 million.
  • GAAP net income was $23.0 million, compared to $14.0 million in 2011.
  • GAAP net income per diluted share was $0.61, compared to $0.40 in 2011.
  • Adjusted EBITDA was $128.1 million, compared to $83.7 million in 2011.

Fourth Quarter 2012 Consumer Metrics

  • Transacting customers totaled 4.2 million, a 30% year-over-year increase.
  • Orders totaled 6.9 million, a 33% year-over-year increase.
  • Average order value was $49.80, flat compared to the fourth quarter 2011.

Full Year 2012 Consumer Metrics

  • Transacting customers totaled 7.1 million, a 31% year-over-year increase.
  • Orders totaled 16.3 million, a 29% year-over-year increase.
  • Average order value was $37.58, a decrease of 2% year-over-year.

Business Outlook

First Quarter 2013:

  • Net revenues to range from $107.2 million to $110.0 million, a year-over-year increase of 17.4% to 20.5%.
  • GAAP gross profit margin to range from 43.0% to 44.0% of net revenues.
  • Non-GAAP gross profit margin to range from 44.8% to 45.8% of net revenues.
  • GAAP operating loss to range from ($26.8) million to ($27.8) million.
  • Non-GAAP operating loss to range from ($9.4) million to ($10.4) million.
  • GAAP effective tax rate to range from 45% to 46%.
  • GAAP net loss per diluted share to range from ($0.39) to ($0.42).
  • Weighted average diluted shares of approximately 36.8 million.
  • Adjusted EBITDA loss to range from ($2.5) million to ($3.5) million.

Full Year 2013:

  • Net revenues to range from $739.7 million to $746.0 million, a year-over-year increase of 15.5% to 16.5%.
  • GAAP gross profit margin to range from 52.0% to 53.0% of net revenues.
  • Non-GAAP gross profit margin to range from 53.3% to 54.3% of net revenues.
  • GAAP operating income to range from $25.0 million to $35.0 million.
  • Non-GAAP operating income to range from $91.7 million to $101.7 million.
  • GAAP effective tax rate to range from 40% to 42%.
  • GAAP net income per diluted share to range from $0.38 to $0.51.
  • Weighted average diluted shares of approximately 38.4 million.
  • Adjusted EBITDA to range from $133.1 million to $141.7 million, or 18% to 19% of net revenues.
  • Capital expenditures to range from 9.4% to 10.4% of net revenues.

Notes to the Fourth Quarter 2012 and Full Year 2012 Financial Results and Business Outlook

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

Free cash flow 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 category includes net revenues from stationery and greeting cards, photo books, calendars and photo-based merchandise, photo prints, and the related shipping revenues. Consumer also includes net revenues from advertising and sponsorship programs.

Enterprise category 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 Enterprise) 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.

Fourth Quarter and Full Year 2012 Conference Call

Management will review the fourth quarter and full year 2012 financial results and its expectations for the first quarter and full year 2013 on a conference call on Tuesday, February 5, 2013 at 2:00 p.m. Pacific Daylight 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 970-315-0490. 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 Tuesday, February 19, 2013. To hear the replay, please dial (404) 537-3406, replay passcode 88660359.

Non-GAAP Financial Information

This press release contains certain non-GAAP financial measures. Tables are provided at the end of this 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, adjusted EBITDA and free cash flow. For more information, please see Shutterfly's SEC Filings.

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

Notice Regarding Forward-Looking Statements

This media release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which involve risks and uncertainties. These forward-looking statements include all statements regarding the Company's financial expectations for the first quarter and full year 2013 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, increase sales to existing customers and meet production requirements; our ability to successfully integrate acquired assets; our ability to retain and hire necessary employees 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; consumer acceptance of our 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-Q for the quarter ended September 30, 2012, 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, Inc.

Shutterfly, Inc. is the leading manufacturer and digital retailer of high-quality personalized products and services offered through a family of lifestyle brands. Founded in 1999, the Shutterfly, Inc. family of brands includes: Shutterfly, where your photos come to life in photo books, cards and gifts; Tiny Prints, premium cards and stationery for all life's occasions; Wedding Paper Divas, wedding invitations and stationery for every step of the planning process; and Treat, personalized greeting cards that really stand out. For more information about Shutterfly, Inc. (NASDAQ:SFLY), visit www.shutterfly-inc.com.



Shutterfly, Inc.        
Consolidated Statement of Income
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Twelve Months Ended
December 31, December 31,
2012 2011 2012 2011
 
Net revenues $ 351,777 $ 263,754 $ 640,624 $ 473,270
Cost of net revenues   138,965     108,468     294,857     219,542  
Gross profit   212,812     155,286     345,767     253,728  
Operating expenses:
Technology and development 24,770 17,485 85,746 65,675
Sales and marketing 62,191 49,505 148,806 113,952
General and administrative   24,527     15,687     70,502     58,710  
Total operating expenses   111,488     82,677     305,054     238,337  
Income from operations 101,324 72,609 40,713 15,391
Interest expense (141 ) (64 ) (597 ) (64 )
Interest and other income, net   12     10     42     35  
Income before income taxes 101,195 72,555 40,158 15,362
Provision for income taxes   (48,168 )   (37,144 )   (17,160 )   (1,314 )
Net income $ 53,027   $ 35,411   $ 22,998   $ 14,048  
 
 
Net income per share
Basic $ 1.46   $ 1.02   $ 0.64   $ 0.43  
Diluted $ 1.40   $ 0.97   $ 0.61   $ 0.40  
 
Weighted-average shares outstanding:
Basic   36,232     34,743     35,826     32,788  
Diluted   37,764     36,490     37,432     35,007  
 
Stock-based compensation is allocated as follows:
 
Cost of net revenues $ 367 $ 625 $ 1,696 $ 2,138
Technology and development 2,170 2,182 8,635 8,201
Sales and marketing 3,051 2,574 11,559 11,350
General and administrative   4,226     1,333     15,432     12,181  
$ 9,814   $ 6,714   $ 37,322   $ 33,870  
 
Shutterfly, Inc.    
Consolidated Balance Sheet
(In thousands, except par value amounts)
(Unaudited)
 
December 31, December 31,
2012 2011
 
ASSETS
Current assets:
Cash and cash equivalents $ 245,088 $ 179,915
Accounts receivable, net 13,574 12,997
Inventories 5,032 3,726
Deferred tax asset, current portion 7,713 598
Prepaid expenses and other current assets   15,044   13,870
Total current assets 286,451 211,106
Property and equipment, net 92,667 54,123
Intangible assets, net 122,269 95,016
Goodwill 358,349 340,408
Deferred tax asset, net of current portion 854 3,785
Other assets   4,534   5,448
Total assets $ 865,124 $ 709,886
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 31,503 $ 9,470
Accrued liabilities 88,472 59,271
Deferred revenue   17,845   12,106
Total current liabilities 137,820 80,847
Deferred tax liability 24,298 13,948
Other liabilities   11,720   6,094
Total liabilities   173,838   100,889
 
Stockholders' equity

Common stock, $0.0001 par value; 100,000 shares authorized; 36,358 and 34,839 shares issued and outstanding at December 31, 2012 and December 31, 2011, respectively

4 4
Additional paid-in-capital 652,110 589,067
Accumulated earnings   39,172   19,926
Total stockholders' equity   691,286   608,997
Total liabilities and stockholders' equity $ 865,124 $ 709,886
 
Shutterfly, Inc.    
Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)
Twelve Months Ended
December 31,
2012 2011
 
Cash flows from operating activities:
Net income $ 22,998 $ 14,048
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization 29,424 22,316
Amortization of intangible assets 20,685 12,136
Stock-based compensation, net of forfeitures 37,322 33,870
Gain on disposal of property and equipment (861 ) (301 )
Deferred income taxes 54 (5,766 )
Tax benefit from stock-based compensation 14,619 8,391
Excess tax benefits from stock-based compensation (16,622 ) (8,380 )
Changes in operating assets and liabilities:
Accounts receivable, net (577 ) (7,205 )
Inventories (1,306 ) 766
Prepaid expenses and other current assets (1,155 ) (5,667 )
Other assets (32 ) (1,402 )
Accounts payable 15,230 (16,458 )
Accrued and other liabilities 26,610 12,255
Deferred revenue 5,739 1,870
Other non-current liabilities   (747 )   2,775  
Net cash provided by operating activities   151,381     63,248  
 
Cash flows from investing activities:
Acquisition of business and intangibles, net of cash acquired (57,212 ) (133,705 )
Purchases of property and equipment (40,535 ) (23,149 )
Capitalization of software and website development costs (12,528 ) (10,050 )
Proceeds from sale of equipment   986     676  

Net cash used in investing activities

  (109,289 )   (166,228 )
 
Cash flows from financing activities:
Principal payments of capital lease obligations - (6 )
Proceeds from issuance of common stock upon exercise of stock options 10,211 22,277
Repurchases of common stock (3,752 ) -
Excess tax benefits from stock-based compensation   16,622     8,380  
Net cash provided by financing activities   23,081     30,651  
 
Net increase/(decrease) in cash and cash equivalents 65,173 (72,329 )
Cash and cash equivalents, beginning of period   179,915     252,244  
Cash and cash equivalents, end of period $ 245,088   $ 179,915  
 
Supplemental schedule of non-cash activities
Net change in accrued purchases of property and equipment $ 7,694 $ 412
Fair market value of building under build-to-suit lease 6,372 -
Amount due for acquisition of business 963 -
 
Shutterfly, Inc.        
User Metrics Disclosure
 
Three Months Ended Twelve Months Ended
December 31, December 31,
2012 2011 2012 2011
 
User Metrics
 
Customers 4,227,247 3,246,117 7,062,001 5,388,402
year-over-year growth 30% 31%
 
Orders 6,897,969 5,189,943 16,321,828 12,676,455
year-over-year growth 33% 29%
 
Average order value* $49.80 $49.93 $37.58 $38.30
year-over-year growth 0% -2%
 
Average orders per customer 1.6x 1.6x 2.3x 2.4x
 
* Average order value excludes Enterprise revenue.
 
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 March 31, 2013
 
Net revenues $107.2 $110.0 - - $107.2 $110.0
Gross profit margin 43.0% 44.0% 1.8% 1.8% [a] 44.8% 45.8%
Operating loss ($27.8) ($26.8) $17.4 $17.4 [b] ($10.4) ($9.4)
Operating margin (26%) (24%) 16% 15% [b] (10%) (9%)
 
Stock-based compensation $10.8 $10.8 $10.8 $10.8 - -
Amortization of intangible assets $6.5 $6.5 $6.5 $6.5 - -
 
Adjusted EBITDA* ($3.5) ($2.5)
 
Diluted loss per share ($0.42) ($0.39)
Diluted shares 36.8 36.8
Effective tax rate 45% 46%
 
 
Twelve Months Ending December 31, 2013
 
Net revenues $739.7 $746.0 - - $739.7 $746.0
Gross profit margin 52.0% 53.0% 1.3% 1.3% [c] 53.3% 54.3%
Operating income $25.0 $35.0 $66.7 $66.7 [d] $91.7 $101.7
Operating margin 3% 5% 9% 9% [d] 12% 14%
 
Stock-based compensation $41.7 $41.7 $41.7 $41.7 - -
Amortization of intangible assets $25.0 $25.0 $25.0 $25.0 - -
 
Adjusted EBITDA* $133.1 $141.7
Adjusted EBITDA* margin 18.0% 19.0%
 
Diluted earnings per share $0.38 $0.51
Diluted shares 38.4 38.4
Effective tax rate 40% 42%
 
Capital expenditures - % of net revenues 9.4% 10.4%
 
*  

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 $500K and amortization of purchased intangible assets of approximately $1.5 million.

[b]

Reflects estimated adjustments for stock-based compensation expense of approximately $10.8 million and amortization of purchased intangible assets of approximately $6.5 million

[c]

Reflects estimated adjustments for stock-based compensation expense of approximately $1.8 million and amortization of purchased intangible assets of approximately $7.8 million.

[d]

Reflects estimated adjustments for stock-based compensation expense of approximately $41.7 million and amortization of purchased intangible assets of approximately $25.0 million.

 

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, Sep. 30, Dec. 31, Mar. 31, Jun. 30, Sep. 30 Dec. 31, Dec. 31, Dec. 31,
2011 2011 2011 2011 2012 2012 2012 2012 2011 2012
 
GAAP gross profit $ 27,683 $ 35,883 $ 34,876 $ 155,286 $ 41,238 $ 48,310 $ 43,407 $ 212,812 $ 253,728 $ 345,767
Stock-based compensation 175 754 584 625 462 443 424 367 2,138 1,696
Amortization of intangible assets 611 1,345 1,417 1,425 1,454 1,516 1,570 1,856 4,798 6,396
                   
Non-GAAP gross profit $ 28,469   $ 37,982   $ 36,877   $ 157,336   $ 43,154   $ 50,269   $ 45,401   $ 215,035   $ 260,664   $ 353,859  
 
Non-GAAP gross profit margin   50 %   50 %   48 %   60 %   47 %   51 %   46 %   61 %   55 %   55 %
 
Shutterfly, Inc.
Reconciliation of GAAP Operating Margin to Non-GAAP Operating Margin
(In thousands)
(Unaudited)
Three Months Ended Year Ended
Mar. 31, Jun. 30, Sep. 30, Dec. 31, Mar. 31, Jun. 30, Sep. 30 Dec. 31, Dec. 31, Dec. 31,
2011 2011 2011 2011 2012 2012 2012 2012 2011 2012
 
GAAP operating income (loss) $ (12,986 ) $ (21,540 ) $ (22,692 ) $ 72,609 $ (19,080 ) $ (17,786 ) $ (23,745 ) $ 101,324 $ 15,391 $ 40,713
Stock-based compensation 5,235 12,099 9,822 6,714 9,617 9,526 8,365 9,814 33,870 $ 37,322
Amortization of intangible assets 719 3,487 3,961 3,969 4,013 5,090 5,658 5,924 12,136 $ 20,685
                   
Non-GAAP operating income (loss) $ (7,032 ) $ (5,954 ) $ (8,909 ) $ 83,292   $ (5,450 ) $ (3,170 ) $ (9,722 ) $ 117,062   $ 61,397   $ 98,720  
 
Non-GAAP operating margin   (12 %)   (8 %)   (12 %)   32 %   (6 %)   (3 %)   (10 %)   33 %   13 %   15 %
 
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, Dec. 31, Dec. 31,
2011 2011 2011 2011 2012 2012 2012 2012 2011 2012
 
GAAP net income (loss) $ (7,760 ) $ (3,650 ) $ (9,953 ) $ 35,411 $ (10,040 ) $ (9,511 ) $ (10,478 ) $ 53,027 $ 14,048 $ 22,998
Interest expense - - - 64 152 156 148 141 64 597
Interest and other income, net (14 ) (6 ) (5 ) (10 ) (7 ) (9 ) (14 ) (12 ) (35 ) (42 )
Tax benefit (provision) (5,212 ) (17,884 ) (12,734 ) 37,144 (9,185 ) (8,422 ) (13,401 ) 48,168 1,314 17,160
Depreciation and amortization 5,833 9,159 9,534 9,926 10,024 11,820 12,244 16,021 34,452 50,109
Stock-based compensation 5,235 12,099 9,822 6,714 9,617 9,526 8,365 9,814 33,870 37,322
                   
Non-GAAP Adjusted EBITDA $ (1,918 ) $ (282 ) $ (3,336 ) $ 89,249   $ 561   $ 3,560   $ (3,136 ) $ 127,159   $ 83,713   $ 128,144  
 
Shutterfly, Inc.
Reconciliation of Cash Flow from Operating Activities to Non-GAAP Adjusted EBITDA and Free Cash Flow
(In thousands)
(Unaudited)
Three Months Ended Year Ended
Mar. 31, Jun. 30, Sep. 30, Dec. 31, Mar. 31, Jun. 30, Sep. 30, Dec. 31, Dec. 31, Dec. 31,
2011 2011 2011 2011 2012 2012 2012 2012 2011 2012
 
Net cash provided by (used in) operating activities $ (52,849 ) $ (5,165 ) $ (1,577 ) $ 122,839 $ (47,961 ) $ 9,339 $ (3,568 ) $ 193,571 $ 63,248 $ 151,381
Interest expense - - - 64 152 156 148 141 64 597
Interest and other income, net (14 ) (6 ) (5 ) (10 ) (7 ) (9 ) (14 ) (12 ) (35 ) (42 )
Tax benefit (provision) (5,212 ) (17,884 ) (12,734 ) 37,144 (9,185 ) (8,422 ) (13,401 ) 48,168 1,314 17,160
Changes in operating assets and liabilities 55,702 23,217 8,962 (74,815 ) 55,912 739 11,482 (111,895 ) 13,066 (43,762 )
Other adjustments   455     (444 )   2,018     4,027     1,650     1,757     2,217     (2,814 )   6,056     2,810  
Non-GAAP Adjusted EBITDA   (1,918 )   (282 )   (3,336 )   89,249     561     3,560     (3,136 )   127,159     83,713     128,144  
Less: Purchases of property and equipment (5,446 ) (3,811 ) (9,310 ) (4,994 ) (6,499 ) (12,264 ) (16,628 ) (12,838 ) (23,561 ) (48,229 )
Less: Capitalized technology & development costs (2,318 ) (2,726 ) (2,833 ) (2,173 ) (3,072 ) (2,801 ) (3,730 ) (2,925 ) (10,050 ) (12,528 )
                   
Free cash flow $ (9,682 ) $ (6,819 ) $ (15,479 ) $ 82,082   $ (9,010 ) $ (11,505 ) $ (23,494 ) $ 111,396   $ 50,102   $ 67,387  


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