REDWOOD CITY, Calif.--(BUSINESS WIRE)--Shutterfly, Inc. (NASDAQ:SFLY), the leading retailer and manufacturing platform dedicated to helping capture, preserve, and share life’s important moments, today announced financial results for the first quarter ended March 31, 2019.
“Our first-quarter results were solid across all three divisions, Shutterfly Consumer, Lifetouch, and SBS,” said Christopher North, President and Chief Executive Officer. “We met our expectations on revenue and exceeded our expectations on Adjusted EBITDA in the quarter. In addition, we made good progress against key initiatives across the company, including product range expansion, mobile, and personalized marketing in Shutterfly Consumer, and integration with Lifetouch. We also won a new client in SBS.”
Earlier this year, the Company announced that its Board of Directors had formed a Strategic Review Committee and retained Morgan Stanley as a financial advisor. The Committee continues its ongoing review of strategic alternatives and has no further update at this time. The Board has not set a timetable for the conclusion of its review of strategic alternatives. There can be no assurance that the review of strategic alternatives will result in a transaction or other outcome.
First Quarter 2019 Financial Highlights
GAAP net revenue was $325 million. Shutterfly Consumer segment net revenue totaled $149 million, a 2% year-over-year decrease. Shutterfly Consumer revenue was negatively impacted in the first quarter of 2019 by approximately $6.0 million primarily due to exiting the fourth quarter of 2018 with a lower year-over-year backlog. Lifetouch segment net revenue was $129 million. Shutterfly Business Solutions segment net revenue totaled $47 million, a 2% year-over-year decrease. GAAP operating loss totaled $106 million. Net loss was $84 million or a loss of $2.47 per share.
Non-GAAP net revenue, excluding purchase accounting adjustments related to the deferred revenue write-down, due to the Lifetouch acquisition, was $325 million, a 63% year-over-year increase driven by the Lifetouch acquisition. Non-GAAP Lifetouch segment net revenue was $130 million. Normalized operating loss, excluding restructuring, executive transition and strategic review charges, and purchase accounting adjustment related to the deferred revenue write-down, was $99 million. Normalized net loss was $83 million. Adjusted EBITDA loss was $45 million.
In the first quarter of 2019, the Company had an immaterial out-of-period adjustment for shipping services provided in the fourth quarter of 2018 of $2.8 million, which lowered our Adjusted EBITDA. Excluding this immaterial out-of-period adjustment, Adjusted EBITDA loss would have been $42.5 million.
A reconciliation of GAAP to non-GAAP financial measures has been provided in the financial statement tables included in this press release. An explanation of these measures is also included below under the heading “Non-GAAP Financial Information.”
Business Outlook[1][2]
The Company is revising its guidance on operating income and earnings per share due to a decrease in share-based compensation, and is updating non-GAAP guidance for the year ending December 31, 2019 to the following (in millions, except per share amounts):
|
Prior Non-GAAP Guidance |
Updated Non-GAAP |
|||||||||||||
| Low | High | Change | Low | High | ||||||||||
| Net revenue | $2,130 | $2,210 | $2,130 | $2,210 | ||||||||||
| Shutterfly Consumer net revenue | $975 | $1,025 | $975 | $1,025 | ||||||||||
| Lifetouch net revenue | $915 | $935 | $915 | $935 | ||||||||||
| SBS net revenue | $240 | $250 | $240 | $250 | ||||||||||
| Gross profit margin | 51.4 | % | 51.7 | % | 51.4 | % | 51.7 | % | ||||||
| Operating income | $76 | $101 | $4 | $80 | $105 | |||||||||
| Adjusted EBITDA | $315 | $340 | $315 | $340 | ||||||||||
| Earnings per share | $0.55 | $1.06 | $0.05 | $0.61 | $1.11 | |||||||||
| Capital Expenditures | $125 | $130 | $125 | $130 | ||||||||||
| [1] Excludes any costs related to executive transition, the strategic review and the facility closures in 2019. Also excludes any proceeds from the sale of existing facilities. |
| [2] The Company's business outlook is composed entirely of non-GAAP measures. The Company considers it unreasonably difficult to reconcile its outlook to comparable GAAP measures. For additional information, see "Non-GAAP Information" below. |
Notes to the First Quarter 2019 Financial Results and Operating Metrics and 2019 Business Outlook
Adjusted EBITDA is a non-GAAP financial measure that the Company defines as earnings before interest, taxes, depreciation, amortization, stock-based compensation, restructuring, acquisition-related costs, and executive transition and strategic review charges.
Shutterfly Consumer segment includes sales from the Shutterfly brand, the Tiny Prints boutique and BorrowLenses, and are derived from the sale of a variety of products such as, professionally-bound photo books, cards and stationery, custom home décor products and unique photo gifts, calendars and prints, and the related shipping revenue, as well as rental revenue from the BorrowLenses brand. Shutterfly Consumer also includes revenue from advertising displayed on the Company’s website.
Lifetouch segment includes net revenue from professional photography services for schools, preschools and churches, as well as retail studios operated by Lifetouch under the JCPenney Portrait brand.
Shutterfly Business Solutions ("SBS") segment includes net revenue from personalized direct marketing and other end-consumer communications as well as just-in-time, inventory-free printing for the Company's business customers.
Average Order Value ("AOV") is defined as total net revenue (Shutterfly Consumer revenue only) divided by total orders.
The financial guidance herein replaces any of the Company’s previously issued financial guidance which should no longer be relied upon.
First Quarter Conference Call
Management will review the first quarter 2019 financial results and its expectations for the second quarter and full year 2019 on a conference call on Thursday, April 25, 2019 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 (844) 763-8274 or (412) 717-9224, 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 Thursday, May 9, 2019. To hear the replay, please dial (877) 344-7529 or (412) 317-0088 and enter access code 10130408.
Non-GAAP Financial Information
To supplement the Company’s consolidated financial statements, which are prepared and presented in accordance with U.S. generally accepted accounting principles (GAAP), the Company uses certain 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 GAAP. These non-GAAP financial measures include non-GAAP net revenue, non-GAAP Lifetouch segment net revenue, non-GAAP gross margin, normalized operating income (loss), normalized net income (loss), non-GAAP diluted net income (loss) per share and Adjusted EBITDA. 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.
The Company believes 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 gross margins, net revenue, operating income (loss), net income (loss), or net income (loss) per share determined in accordance with GAAP. For more information, please see Shutterfly's Securities and Exchange Commission (“SEC”) filings, including the most recent Form 10-K and Form 10-Q, which are available on the SEC's website at www.sec.gov.
The Company has provided a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure, where possible, except that the Company has not reconciled its second quarter and full year 2019 guidance to comparable GAAP measures at this stage of the process because it is unreasonably difficult to provide guidance for stock-based compensation expense; capitalization and amortization of internal-use software; costs related to executive transition, the strategic review, the facility closures in 2019 and proceeds from the sale of existing facilities, which are reconciling items between GAAP measures and non-GAAP measures. The factors that may impact future stock-based compensation expense; capitalization and amortization of internal-use software; costs related to executive transition; the strategic review; the facility closures in 2019; and the proceeds from the sale of existing facilities are out of the Company's control and/or cannot be reasonably predicted, and therefore the Company is unable to provide such guidance without unreasonable effort. These factors include the Company's market capitalization and related volatility of its stock price; its inability to project the cost or scope of internally produced software; its inability to estimate the charges related to the facility closures in 2019 and the proceeds from the sale of existing facilities; its ability to attract new management personnel; and the lack of assurance that the review of strategic alternatives will result in a transaction or other outcome.
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 the Company's business outlook for the second quarter of 2019 and full year 2019. 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 spending as a result of general economic conditions; consumer acceptance of the Company’s products and services; the Company’s ability to develop innovative, new products and services on a timely and cost-effective basis; the Company’s ability to expand its customer base and increase sales to existing customers; the Company’s ability to meet production requirements; and general economic conditions and changes in laws and regulations. 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 the Company's business in general, the Company refers you to the “Risk Factors” section of its SEC filings, including the Company's most recent Form 10-K and 10-Q, which are available on the SEC’s website 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 retailer and manufacturing platform for personalized products and communications. Founded in 1999, Shutterfly, Inc. has three divisions: Shutterfly Consumer, Lifetouch, and Shutterfly Business Solutions. Shutterfly Consumer and Lifetouch help consumers capture, preserve, and share life’s important moments through professional and personal photography, and personalized products. The Shutterfly brand brings photos to life in photo books, gifts, home décor, and cards and stationery. Lifetouch is the national leader in school photography, built on the enduring tradition of “Picture Day”, and also serves families through portrait studios and other partnerships. Shutterfly Business Solutions delivers digital printing services that enable efficient and effective customer engagement through personalized communications. For more information about Shutterfly, Inc. (Nasdaq: SFLY), visit www.shutterflyinc.com.
| Appendix 1.1 | ||||||
| Shutterfly, Inc. | ||||||
| Consolidated Statements of Operations - GAAP | ||||||
| (In thousands, except per share amounts) | ||||||
| (Unaudited) | ||||||
| Three Months Ended | ||||||
| March 31, | ||||||
| 2019 | 2018 | |||||
| Net revenue | $ | 324,681 | $ | 199,725 | ||
| Cost of net revenue | 210,399 | 126,046 | ||||
| Gross profit | 114,282 | 73,679 | ||||
| Operating expenses: | ||||||
| Technology and development | 48,332 | 38,504 | ||||
| Sales and marketing[1] | 119,370 | 37,720 | ||||
| General and administrative[2] | 48,388 | 31,565 | ||||
| Restructuring | 3,973 | — | ||||
| Total operating expenses | 220,063 | 107,789 | ||||
| Loss from operations | (105,781) | (34,110) | ||||
| Interest expense | (18,253) | (9,633) | ||||
| Interest and other income, net | 1,178 | 1,749 | ||||
| Loss before income taxes | (122,856) | (41,994) | ||||
| Benefit from income taxes | 39,237 | 14,829 | ||||
| Net loss | $ | (83,619) | $ | (27,165) | ||
| Net loss per share - basic and diluted | $ | (2.47) | $ | (0.83) | ||
| Weighted-average shares outstanding - basic and diluted | 33,918 | 32,702 | ||||
| Stock-based compensation is allocated as follows: | ||||||
| Cost of net revenue | $ | 892 | $ | 999 | ||
| Technology and development | 2,298 | 2,429 | ||||
| Sales and marketing | 3,466 | 3,504 | ||||
| General and administrative | 5,383 | 4,760 | ||||
| $ | 12,039 | $ | 11,692 | |||
| Depreciation and amortization is allocated as follows: | ||||||
| Cost of net revenue | $ | 24,286 | $ | 15,441 | ||
| Technology and development | 6,470 | 6,297 | ||||
| Sales and marketing | 9,865 | 2,041 | ||||
| General and administrative | 1,537 | 1,119 | ||||
| Restructuring | 1,296 | — | ||||
| $ | 43,454 | $ | 24,898 | |||
| [1] The Sales and marketing expenses of $119.4 million for the three months ended March 31, 2019 includes $0.4 million of costs related to executive transition and the strategic review. |
| [2] The General and administrative expenses of $48.4 million for the three months ended March 31, 2019 includes $2.2 million of costs related to executive transition and the strategic review. The General and administrative expenses of $31.6 million for the three months ended March 31, 2018 includes $4.6 million of acquisition-related costs. |
|
Appendix 1.2 |
||||||
| Shutterfly, Inc. | ||||||
| Consolidated Balance Sheets - GAAP | ||||||
| (In thousands, except par value amounts) | ||||||
| (Unaudited) | ||||||
| March 31, 2019 | December 31, 2018 | |||||
| ASSETS | ||||||
| Current assets: | ||||||
| Cash and cash equivalents | $ | 156,337 | $ | 521,567 | ||
| Short-term investments | 24,439 | 34,011 | ||||
| Accounts receivable, net | 56,735 | 87,023 | ||||
| Inventories | 20,932 | 18,015 | ||||
| Prepaid expenses and other current assets | 102,869 | 66,961 | ||||
| Total current assets | 361,312 | 727,577 | ||||
| Long-term investments | 6,082 | 10,808 | ||||
| Property and equipment, net | 342,073 | 381,018 | ||||
| Intangible assets, net | 303,526 | 316,154 | ||||
| Goodwill | 843,628 | 843,607 | ||||
| Other assets | 89,293 | 23,045 | ||||
| Total assets | $ | 1,945,914 | $ | 2,302,209 | ||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||
| Current liabilities: | ||||||
| Current portion of long-term debt | $ | 5,348 | $ | 14,203 | ||
| Accounts payable | 41,569 | 105,407 | ||||
| Accrued liabilities | 137,000 | 226,445 | ||||
| Operating lease liabilities, current portion | 21,564 | — | ||||
| Deferred revenue, current portion | 96,341 | 57,319 | ||||
| Total current liabilities | 301,822 | 403,374 | ||||
| Long-term debt | 900,145 | 1,090,442 | ||||
| Operating lease liabilities | 60,701 | — | ||||
| Other liabilities | 84,619 | 134,027 | ||||
| Total liabilities | 1,347,287 | 1,627,843 | ||||
| Stockholders’ equity: | ||||||
| Common stock, $0.0001 par value; 100,000 shares authorized; 34,181 and 33,673 shares issued and outstanding on March 31, 2019 and December 31, 2018, respectively | 3 | 3 | ||||
| Additional paid-in capital | 1,077,922 | 1,065,531 | ||||
| Accumulated other comprehensive income | 1,053 | 1,592 | ||||
| Accumulated deficit | (480,351) | (392,760) | ||||
|
Total stockholders' equity |
598,627 | 674,366 | ||||
| Total liabilities and stockholders' equity | $ | 1,945,914 | $ | 2,302,209 | ||
| Appendix 1.3 | ||||||
| Shutterfly, Inc. | ||||||
| Consolidated Statements of Cash Flows - GAAP | ||||||
| (In thousands) | ||||||
| (Unaudited) | ||||||
| Three Months Ended March 31, | ||||||
| 2019 | 2018 | |||||
| Cash flows from operating activities: | ||||||
| Net loss | $ | (83,619) | $ | (27,165) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||
| Depreciation and amortization | 29,333 | 22,564 | ||||
| Amortization of intangible assets | 12,825 | 2,334 | ||||
| Amortization of debt discount and issuance costs | 4,660 | 4,122 | ||||
| Stock-based compensation | 12,039 | 11,692 | ||||
| (Gain) loss on disposal of property and equipment | (465) | 225 | ||||
| Deferred income taxes | 2,420 | 4,264 | ||||
| Restructuring | 1,347 | — | ||||
| Other | (37) | — | ||||
| Changes in operating assets and liabilities: | ||||||
| Accounts receivable | 30,294 | 28,174 | ||||
| Inventories | (2,959) | 869 | ||||
| Prepaid expenses and other assets | (31,169) | (15,642) | ||||
| Accounts payable | (65,277) | (73,773) | ||||
| Accrued and other liabilities | (53,507) | (81,996) | ||||
| Net cash used in operating activities | (144,115) | (124,332) | ||||
| Cash flows from investing activities: | ||||||
| Purchases of property and equipment | (13,726) | (8,075) | ||||
| Capitalization of software and website development costs | (13,927) | (8,584) | ||||
| Purchases of investments | — | (9,523) | ||||
| Proceeds from maturities of investments | 14,444 | 72,068 | ||||
| Proceeds from sales of property and equipment | 956 | 649 | ||||
| Net cash (used in) provided by investing activities | (12,253) | 46,535 | ||||
| Cash flows from financing activities: | ||||||
| Proceeds from issuance of common stock upon exercise of stock options | 60 | 13,775 | ||||
| Principal payments of borrowings | (203,891) | (750) | ||||
| Payment of debt issuance costs | — | (1,108) | ||||
| Principal payments of finance lease liabilities | (5,312) | (4,643) | ||||
| Net cash (used in) provided by investing activities | (209,143) | 7,274 | ||||
| Effect of exchange rate changes on cash and cash equivalents | 281 | — | ||||
| Net decrease in cash and cash equivalents | (365,230) | (70,523) | ||||
| Cash and cash equivalents, beginning of period | 521,567 | 489,894 | ||||
| Cash and cash equivalents, end of period | $ | 156,337 | $ | 419,371 | ||
| Supplemental schedule of non-cash investing / financing activities: | ||||||
| Net decrease in accrued purchases of property and equipment | $ | (1,420) | $ | (3,780) | ||
| Net increase in accrued capitalized software and website development costs | 1,920 | 357 | ||||
| Stock-based compensation capitalized with software and website development costs | 292 | 323 | ||||
| Leased assets obtained in exchange for financing lease liabilities | — | 2,969 | ||||
| Appendix 1.4 | |||||
| Shutterfly, Inc. | |||||
| Shutterfly Consumer Metrics Disclosure | |||||
| (Unaudited) | |||||
| Three Months Ended | |||||
| March 31, | |||||
| 2019 | 2018 | ||||
| Shutterfly Consumer Metrics | |||||
| Customers [1] | 2,872,369 | 3,220,881 | |||
| year-over-year change | (11) | % | |||
| Orders | 4,108,645 | 5,076,150 | |||
| year-over-year change | (19) | % | |||
| Average order value [2] | $36.23 | $29.96 | |||
| year-over-year change | 21 | % | |||
| [1] An active customer is defined as one that has transacted in the last trailing-twelve months. |
| [2] Average order value solely includes Shutterfly Consumer revenue. |
| Appendix 1.5 | ||||||||||||||||||
| Shutterfly, Inc. | ||||||||||||||||||
| Shutterfly Consumer Net Revenue by Brand | ||||||||||||||||||
| (In thousands) | ||||||||||||||||||
| (Unaudited) | ||||||||||||||||||
| Three Months Ended | Year Ended | |||||||||||||||||
| Mar. 31, | Jun. 30, | Sep. 30, | Dec. 31, | Mar. 31, | Dec. 31, | |||||||||||||
| 2018 | 2018 | 2018 | 2018 | 2019 | 2018 | |||||||||||||
| Shutterfly Consumer net revenue[1] | ||||||||||||||||||
| Shutterfly Brand Core | $ | 111,668 | $ | 116,041 | $ | 85,502 | $ | 369,016 | $ | 105,076 | $ | 682,228 | ||||||
| Shutterfly Brand PGHD | 30,965 | 38,163 | 30,006 | 110,173 | 34,585 | 209,307 | ||||||||||||
| Tiny Prints Boutique | 2,134 | 1,374 | 1,446 | 39,910 | 1,695 | 44,864 | ||||||||||||
| Other | 7,292 | 9,425 | 9,934 | 8,779 | 7,491 | 35,430 | ||||||||||||
| Total | $ | 152,059 | $ | 165,003 | $ | 126,888 | $ | 527,878 | $ | 148,847 | $ | 971,829 | ||||||
| [1] This 2018 quarterly net revenue by brand table has been updated to allocate order-to-billed adjustments to each brand of Shutterfly Consumer net revenue. |
|
Appendix 2.1 |
|
Shutterfly, Inc. |
|
Segment Disclosure |
|
(In thousands) |
|
(Unaudited) |
| The margin of the Company's three segments compares to non-GAAP operating loss by adding corporate expenses, amortization of intangible assets, stock-based compensation, restructuring, acquisition-related, and executive transition and strategic review charges. |
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2019 | 2018 | |||||||
| Shutterfly Consumer: | ||||||||
| Net revenue | $ | 148,847 | $ | 152,059 | ||||
| Cost of net revenue[1] | 90,406 | 84,845 | ||||||
| Technology and development | 33,523 | 32,129 | ||||||
| Sales and marketing | 29,123 | 30,725 | ||||||
| Credit card fees | 4,156 | 4,199 | ||||||
| Margin[1][2] | $ | (8,361) | $ | 161 | ||||
| Margin % | (5.6) % | 0.1 % | ||||||
| Lifetouch[3]: | ||||||||
| Net revenue[4] | $ | 129,952 | $ | — | ||||
| Cost of net revenue | 78,328 | — | ||||||
| Technology and development | 7,973 | — | ||||||
| Sales and marketing | 76,295 | — | ||||||
| Credit card fees | 2,227 | — | ||||||
| Margin[2] | $ | (34,871) | $ | — | ||||
| Margin % | (26.8) % | — % | ||||||
| Shutterfly Business Solutions: | ||||||||
| Net revenue | $ | 46,527 | $ | 47,666 | ||||
| Cost of net revenue | 38,151 | 39,910 | ||||||
| Technology and development | 3,292 | 3,945 | ||||||
| Sales and marketing | 1,408 | 1,450 | ||||||
| Margin[2] | $ | 3,676 | $ | 2,361 | ||||
| Margin % | 7.9 % | 5.0 % | ||||||
| Consolidated Segments: | ||||||||
| Net revenue[4] | $ | 325,326 | $ | 199,725 | ||||
| Cost of net revenue[1] | 206,885 | 124,755 | ||||||
| Technology and development | 44,788 | 36,074 | ||||||
| Sales and marketing | 106,826 | 32,175 | ||||||
| Credit card fees | 6,383 | 4,199 | ||||||
| Margin[1][2] | $ | (39,556) | $ | 2,522 | ||||
| Margin % | (12.2) % | 1.3 % | ||||||
| [1] Includes an immaterial out-of-period adjustment for shipping services provided in the fourth quarter of 2018 of $2.8 million, which increased cost of net revenue and lowered segment margin. |
| [2] The margins reported reflect only costs that are directly attributable or allocable to a specific segment and exclude corporate expenses, amortization of intangible assets, stock-based compensation, restructuring, acquisition-related, and executive transition and strategic review charges. |
| [3] The Company acquired Lifetouch on April 2, 2018. |
| [4] Lifetouch net revenue presented in management reporting related to certain obligations that would have otherwise been recorded by Lifetouch as an independent entity but were not recognized in our condensed consolidated financial statements for the three months ended March 31, 2019 due to business combination accounting requirements. |
The following table reconciles segment margin to total operating loss, segment net revenue to Net revenue, and segment cost of net revenue to Cost of net revenue:
| Three Months Ended | ||||||
| March 31, | ||||||
| 2019 | 2018 | |||||
| Total segment margin | $ | (39,556) | $ | 2,522 | ||
| Purchase accounting deferred revenue adjustment[1] | (645) | — | ||||
| Corporate expenses[2] | (35,089) | (18,021) | ||||
| Amortization of intangible assets | (12,825) | (2,334) | ||||
| Stock-based compensation expense | (12,039) | (11,692) | ||||
| Restructuring | (3,973) | — | ||||
| Executive transition and strategic review charges | (1,654) | — | ||||
| Acquisition-related charges | — | (4,585) | ||||
| Operating loss | $ | (105,781) | $ | (34,110) | ||
| Operating margin | (32.6) % | (17.1) % | ||||
| Total segment net revenue | $ | 325,326 | $ | 199,725 | ||
| Purchase accounting deferred revenue adjustment[1] | (645) | — | ||||
| Net revenue | $ | 324,681 | $ | 199,725 | ||
| Total segment cost of net revenue | $ | 206,885 | $ | 124,755 | ||
| Stock-based compensation for cost of net revenue | 892 | 999 | ||||
| Amortization of intangible assets for cost of net revenue | 2,622 | 292 | ||||
| Cost of net revenue | $ | 210,399 | $ | 126,046 | ||
| [1] Lifetouch net revenue presented in management reporting related to certain obligations that would have otherwise been recorded by Lifetouch as an independent entity but were not recognized in our condensed consolidated financial statements for the three months ended March 31, 2019 due to business combination accounting requirements. |
| [2] Corporate expenses include activities that are not directly attributable or allocable to a specific segment. This category consists primarily of expenses related to certain functions performed at the corporate level such as non-manufacturing facilities, human resources, finance and accounting, legal, information technology, integration, etc. |
|
Appendix 3.1 |
|
Shutterfly, Inc. |
|
Reconciliation of Non-GAAP Financial Measures |
|
(In thousands) |
|
(Unaudited) |
| The GAAP and Non-GAAP amounts presented below for the three months ended March 31, 2019 are impacted by an immaterial out-of-period adjustment for shipping services provided in the fourth quarter of 2018 of $2.8 million, which increased cost of net revenue and burdened gross margin, operating loss, net loss, and Adjusted EBITDA loss. |
| Three Months Ended | Three Months Ended | ||||||||||||
| March 31, 2019 | March 31, 2019 | ||||||||||||
| GAAP Income | Normalized | ||||||||||||
| Statement | Adjustments | Non-GAAP | |||||||||||
| Net revenue: | |||||||||||||
| Shutterfly Consumer | $ | 148,847 | $ | 148,847 | |||||||||
| Lifetouch | 129,307 | 645 | [2] | 129,952 | |||||||||
| Shutterfly Business Solutions | 46,527 | 46,527 | |||||||||||
| Total net revenue | 324,681 | 645 | 325,326 | ||||||||||
| Cost of net revenue | 210,399 | [1] | 210,399 | ||||||||||
| Gross profit | 114,282 | [1] | 645 | 114,927 | |||||||||
| Gross profit margin | 35.2 % | [1] | 35.3 % | ||||||||||
| Operating expenses: | |||||||||||||
| Technology and development | 48,332 | 48,332 | |||||||||||
| Sales and marketing | 119,370 | (379) | [3] | 118,991 | |||||||||
| General and administrative | 48,388 | (2,186) | [3] | 46,202 | |||||||||
| Restructuring | 3,973 | (3,973) | [4] | — | |||||||||
| Total operating expenses | 220,063 | (6,538) | 213,525 | ||||||||||
| Operating loss | (105,781) | [1] | 7,183 | (98,598) | |||||||||
| Operating margin | (32.6) % | [1] | (30.3) % | ||||||||||
| Interest expense | (18,253) | 3,886 | [5] | (14,367) | |||||||||
| Interest and other income, net | 1,178 | 1,178 | |||||||||||
| Income before income taxes | (122,856) | [1] | 11,069 | (111,787) | |||||||||
| Benefit from income taxes | 39,237 | [1] | 29,069 | ||||||||||
| Net loss | $ | (83,619) | [1] | $ | (82,718) | ||||||||
| Net loss per share - basic and diluted | $ | (2.47) | [1] | $ | (2.44) | ||||||||
| Weighted-average shares outstanding - basic and diluted | 33,918 | 33,918 | |||||||||||
| Operating loss | $ | (105,781) | $ | (98,598) | |||||||||
| Stock-based compensation | 12,039 | (911) | [3] | 11,128 | |||||||||
| Amortization of intangible assets | 12,825 | 12,825 | |||||||||||
| Depreciation | 30,629 | (1,296) | [4] | 29,333 | |||||||||
| Adjusted EBITDA | $ | (45,312) | |||||||||||
|
Adjusted EBITDA margin |
(13.9) % | ||||||||||||
| [1] Includes an immaterial out-of-period adjustment for shipping services provided in the fourth quarter of 2018 of $2.8 million, which increased cost of net revenue, and burdened gross margin, operating loss, net loss, and Adjusted EBITDA loss. |
| [2] Lifetouch net revenue presented in management reporting related to certain obligations that would have otherwise been recorded by Lifetouch as an independent entity but were not recognized in our condensed consolidated financial statements for the three months ended March 31, 2019 due to business combination accounting requirements. |
| [3] Charges related to executive transition and the strategic review of which $0.9 million was related to stock-based compensation expense. |
| [4] Restructuring charge related to the planned closure of four Lifetouch facilities of which $1.3 million was related to depreciation expense. |
| [5] Non-cash charges related to the $200 million debt repayment made in January 2019 that is considered a partial early debt extinguishment. |
| Appendix 4.1 | ||||||||||||||||||
| 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, | Dec. 31, | |||||||||||||
| 2018 | 2018 | 2018 | 2018 | 2019 | 2018 | |||||||||||||
| GAAP net income (loss) | $ | (27,165) | $ | (26,512) | $ | (73,543) | $ | 177,616 | $ | (83,619) | $ | 50,396 | ||||||
| Restructuring | — | 2,952 | — | 1,667 | 3,973 | 4,618 | ||||||||||||
| Acquisition-related charges | 4,585 | 8,000 | 2,392 | 572 | — | 15,549 | ||||||||||||
| Purchase accounting adjustments | — | 44,282 | 3,958 | 2,298 | 645 | 50,538 | ||||||||||||
| Executive transition and strategic review charges | — | — | — | — | 2,565 | — | ||||||||||||
| Debt repayment impact | — | — | — | — | 3,886 | — | ||||||||||||
| Tax benefit impact of adjustments | (1,185) | (15,171) | (3,603) | 5,050 | (10,168) | (14,910) | ||||||||||||
| Non-GAAP net income (loss) | $ | (23,765) | $ | 13,551 | $ | (70,796) | $ | 187,203 | $ | (82,718) | $ | 106,191 | ||||||
| GAAP diluted shares outstanding | 32,702 | 33,234 | 33,470 | 34,218 | 33,918 | 34,832 | ||||||||||||
| Non-GAAP diluted shares outstanding | 32,702 | 35,775 | 33,470 | 34,218 | 33,918 | 34,832 | ||||||||||||
| GAAP net income (loss) per share | $ | (0.83) | $ | (0.80) | $ | (2.20) | $ | 5.19 | $ | (2.47) | $ | 1.45 | ||||||
| Non-GAAP net income (loss) per share | $ | (0.73) | $ | 0.38 | $ | (2.12) | $ | 5.47 | $ | (2.44) | $ | 3.05 | ||||||
| Appendix 4.2 | ||||||||||||||||||
| 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, | Dec. 31, | |||||||||||||
| 2018 | 2018 | 2018 | 2018 | 2019 | 2018 | |||||||||||||
| GAAP net income (loss) | $ | (27,165) | $ | (26,512) | $ | (73,543) | $ | 177,616 | $ | (83,619) | $ | 50,396 | ||||||
| Interest expense | 9,633 | 17,769 | 16,660 | 17,176 | 18,253 | 61,239 | ||||||||||||
| Interest and other income, net | (1,749) | (1,561) | (856) | (1,278) | (1,178) | (5,444) | ||||||||||||
| Tax (benefit) provision | (14,829) | (12,607) | (28,797) | 65,496 | (39,237) | 9,262 | ||||||||||||
| Depreciation and amortization | 24,898 | 40,377 | 41,970 | 43,883 | 42,158 | 151,127 | ||||||||||||
| Stock-based compensation | 11,692 | 11,697 | 11,931 | 12,400 | 11,128 | 47,721 | ||||||||||||
| Restructuring | — | 2,952 | — | 1,667 | 3,973 | 4,618 | ||||||||||||
| Executive transition and strategic review charges | — | — | — | — | 2,565 | — | ||||||||||||
| Acquisition-related charges | 4,585 | 8,000 | 2,392 | 572 | — | 15,549 | ||||||||||||
| Purchase accounting adjustments | — | 44,282 | 3,958 | 2,298 | 645 | 50,538 | ||||||||||||
| Non-GAAP Adjusted EBITDA | $ | 7,065 | $ | 84,397 | $ | (26,285) | $ | 319,830 | $ | (45,312) | $ | 385,006 | ||||||
| Appendix 4.3 | ||||||||||||||||||
| Shutterfly, Inc. | ||||||||||||||||||
| Reconciliation of Cash Flow from Operating Activities to Non-GAAP Adjusted EBITDA | ||||||||||||||||||
| (In thousands) | ||||||||||||||||||
| (Unaudited) | ||||||||||||||||||
| Three Months Ended | Year Ended | |||||||||||||||||
| Mar. 31, | Jun. 30, | Sep. 30, | Dec. 31, | Mar. 31, | Dec. 31, | |||||||||||||
| 2018 | 2018[1] | 2018 | 2018 | 2019 | 2018 | |||||||||||||
| Net cash provided by (used in) operating activities | $ | (124,332) | $ | (75,233) | $ | 27,041 | $ | 374,450 | $ | (144,115) | $ | 201,926 | ||||||
| Interest expense | 9,633 | 17,769 | 16,660 | 17,176 | 18,253 | 61,239 | ||||||||||||
| Interest and other income, net | (1,749) | (1,561) | (856) | (1,278) | (1,178) | (5,444) | ||||||||||||
| Tax (benefit) provision | (14,829) | (12,607) | (28,797) | 65,496 | (39,237) | 9,262 | ||||||||||||
| Changes in operating assets and liabilities | 142,368 | 53,888 | (45,554) | (150,834) | 122,617 | (132) | ||||||||||||
| Other adjustments | (8,611) | 47,659 | (1,129) | 11,950 | (6,577) | 49,868 | ||||||||||||
| Cash restructuring | — | 2,200 | — | — | 2,626 | 2,200 | ||||||||||||
| Cash executive transition and strategic review charges | — | — | — | — | 1,654 | — | ||||||||||||
| Acquisition-related charges | 4,585 | 8,000 | 2,392 | 572 | — | 15,549 | ||||||||||||
| Purchase accounting adjustments | — | 44,282 | 3,958 | 2,298 | 645 | 50,538 | ||||||||||||
| Non-GAAP Adjusted EBITDA | $ | 7,065 | $ | 84,397 | $ | (26,285) | $ | 319,830 | $ | (45,312) | $ | 385,006 | ||||||
| [1] During the third quarter of 2018, the Company identified certain amounts attributable to the repayment of accreted interest on its convertible senior notes that were misclassified within the statement of cash flows. This misclassification resulted in a $64 million understatement of net cash used in operating activities with a corresponding understatement of cash provided by financing activities for the second quarter of 2018. The quarterly amounts in the above table have been revised to appropriately reflect such repayment of accreted interest in cash used in operating activities during the second quarter of 2018. |
|
Appendix 5.1 |
|||||||||||||
| Shutterfly, Inc. | |||||||||||||
| Forward-Looking Guidance for Non-GAAP Financial Measures | |||||||||||||
| (In millions, except per share amounts) | |||||||||||||
| (Unaudited) | |||||||||||||
| Forward-Looking Guidance[1][2] | |||||||||||||
|
Three Months Ending |
Twelve Months Ending |
||||||||||||
| Low | High | Low | High | ||||||||||
| Net revenue | $469 | $479 | $2,130 | $2,210 | |||||||||
| Shutterfly Consumer net revenue | $166 | $170 | $975 | $1,025 | |||||||||
| Lifetouch net revenue | $255 | $258 | $915 | $935 | |||||||||
| SBS net revenue | $48 | $51 | $240 | $250 | |||||||||
| Gross profit | $239 | $244 | $1,095 | $1,143 | |||||||||
| Gross profit margin | 51.0 | % | 51.0 | % | 51.4 | % | 51.7 | % | |||||
| Operating income (loss) | $0 | $5 | $80 | $105 | |||||||||
| Operating margin | — | % | 1.1 | % | 3.8 | % | 4.8 | % | |||||
| Operating income (loss) | $0 | $5 | $80 | $105 | |||||||||
| Stock-based compensation | $13 | $13 | $50 | $50 | |||||||||
| Amortization of intangible assets | $13 | $13 | $51 | $51 | |||||||||
| Depreciation | $33 | $33 | $133 | $133 | |||||||||
| Adjusted EBITDA | $59 | $64 | $315 | $340 | |||||||||
| Adjusted EBITDA margin | 12.6 | % | 13.4 | % | 14.8 | % | 15.4 | % | |||||
| Capital Expenditures | — | — | $125 | $130 | |||||||||
| Capital expenditures as % of net revenue | — | — | 5.9 | % | 5.9 | % | |||||||
| Tax rate | 22.0 | % | 22.0 | % | 30.0 | % | 30.0 | % | |||||
| Net income (loss) per share | |||||||||||||
| Basic |
($0.27) |
($0.17) | — | — | |||||||||
| Diluted | — | — | $0.61 | $1.11 | |||||||||
| Weighted average shares | |||||||||||||
| Basic | 34.5 | 34.5 | — | — | |||||||||
| Diluted | — | — | 34.8 | 34.8 | |||||||||
| [1] Excludes any costs related to executive transition, the strategic review, the facility closures in 2019, and any non-recurring charges related to the $200 million debt repayment made in January 2019. Also excludes any proceeds from the sale of existing facilities. |
| [2] The Company's business outlook is composed entirely of non-GAAP measures. The Company considers it unreasonably difficult to reconcile its outlook to comparable GAAP measures. |