Shutterfly Announces Fourth Quarter and Full Year 2012 Financial Results

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.