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| 8-K - SHUTTERFLY INC | sfly-09302018x8k.htm |
Shutterfly Announces Third Quarter 2018 Financial Results
REDWOOD CITY, California, October 30, 2018 -- 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 third quarter ended September 30, 2018.
“With the closing of the Lifetouch acquisition earlier this year, Shutterfly, Inc. now encompasses a portfolio of large, industry-leading businesses with loyal customers and significant cash flow,” said Christopher North, President and Chief Executive Officer. “Thanks to the Lifetouch acquisition, our non-GAAP net revenues increased 91% year-over-year. We have large opportunities to create shareholder value through organic growth, by realizing key synergies between Lifetouch and Shutterfly, through M&A that leverages our manufacturing and technology platforms, as well as through return of capital.”
“Our results in the third quarter were mixed, with strong performance in Lifetouch and solid results in SBS offset by disappointing performance in Shutterfly Consumer. Coming out of the quarter, we’ve identified clear opportunities to improve the consistency of our results in Shutterfly Consumer. At the same time, we made good progress against key initiatives including a good start to the Lifetouch Fall picture day peak season. Across Shutterfly Consumer, we launched new categories and products, rolled out significant new mobile app features and simplified product creation experiences, and put in place strong preparations for Q4.”
Third Quarter 2018 Financial Highlights
GAAP net revenue was $369 million. Shutterfly Consumer segment net revenue totaled $127 million, a 6% year-over-year decrease. Lifetouch segment net revenue was $183 million. Shutterfly Business Solutions segment net revenue totaled $59 million, a 2% year-over-year decrease. GAAP operating loss totaled $87 million. Net loss was $74 million, or a loss of $2.20 per share.
Non-GAAP net revenue, excluding purchase accounting adjustments related to the deferred revenue write-down, was $373 million, a 91% year-over-year increase driven by the Lifetouch acquisition. Non-GAAP Lifetouch segment net revenue was $187 million. Normalized operating loss, excluding acquisition-related charges and purchase accounting adjustments related to the deferred revenue write-down, was $80 million. Normalized net loss was $71 million. Adjusted EBITDA loss was $26 million.
Today the Company announced it will be closing two Lifetouch facilities in 2019; Loves Park, Illinois and Bloomington, Minnesota, and will consolidate this volume into existing Shutterfly facilities. Given the adjacent peak periods in its Shutterfly Consumer and Lifetouch divisions, the Company expects these facility closures to reduce its reliance on temporary labor while improving the utilization of its existing assets.
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Business Outlook[1][2]
The Company is revising its guidance on net revenue and adjusted EBITDA, and is updating non-GAAP quarterly target for the fourth quarter of 2018 to the following (in millions, except per share amounts):
Prior Non-GAAP Midpoint Target as of August 7, 2018 | Updated Non-GAAP Midpoint Target | ||||||||||||||||
| Three Months Ending December 31, 2018 | Change | Three Months Ending December 31, 2018 | |||||||||||||||
| Net revenue | $982 | ($13) | $970 | ||||||||||||||
| Shutterfly Consumer net revenue | $563 | ($13) | $550 | ||||||||||||||
| Lifetouch net revenue | $348 | $3 | $351 | ||||||||||||||
| SBS net revenue | $72 | ($3) | $69 | ||||||||||||||
Gross profit margin | 61.4% | 61.6% | |||||||||||||||
| Operating income | $294 | ($21) | $273 | ||||||||||||||
| Adjusted EBITDA | $354 | ($19) | $335 | ||||||||||||||
| Earnings per share | $5.89 | ($0.53) | $5.36 | ||||||||||||||
[1] Excludes restructuring, acquisition-related charges and purchase accounting adjustments related to the deferred revenue write-down and inventory write-up.
[2] Excludes any severance or retention related to facility closures.
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Notes to the Third Quarter 2018 Financial Results and Operating Metrics and 2018 Business Outlook
Adjusted EBITDA is a non-GAAP financial measure that the Company defines as earnings before interest, taxes, depreciation, amortization, stock-based compensation, capital lease termination, restructuring and acquisition-related costs.
The Company expanded segment reporting in the second quarter of 2018, which now includes segment margin. Segment reporting continues to report net revenue and cost of net revenue, consistent with previous reporting, but now it also includes technology and development, sales and marketing, and credit card fees, arriving at a margin for the segment. The margin of the Company's three segments compares to non-GAAP operating income by adding corporate expenses, amortization of intangible assets, stock-based compensation, and other non-recurring items including restructuring and acquisition-related 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. 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 (excluding Lifetouch and SBS) 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.
Third Quarter Conference Call
Management will review the third quarter 2018 financial results and its expectations for the fourth quarter and full year 2018 on a conference call on Tuesday, October 30, 2018 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 Tuesday, November 13, 2018. To hear the replay, please dial (877) 344-7529 or (412) 317-0088 and enter access code 10125033.
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Non-GAAP Financial Information
This press release contains non-GAAP financial measures. Tables are provided at the end of this press release that reconcile the non-GAAP financial measures that the Company uses to the most directly comparable financial measures prepared in accordance with Generally Accepted Accounting Principles (GAAP). These non-GAAP financial measures include non-GAAP net revenue, operating income (loss), net income (loss), 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.
To supplement the Company's consolidated financial statements presented on a GAAP basis, 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, operating income (loss), net income (loss), or net income (loss) per share determined in accordance with GAAP. For more information, please see Shutterfly's SEC Filings, including the most recent Form 10-K and Form 10-Q, which are available on the Securities and Exchange Commission's website at www.sec.gov.
Notice Regarding Forward-Looking Statements
This media release contains "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties. These forward-looking statements include statements regarding expected cash flow generation in each of the Company's three segments; the Company's expectations of opportunities to create shareholder value through organic growth through realizing synergies, M&A, and return of capital; the Company's expectations about improving the consistency of results in Shutterfly Consumer; the Company’s expectations around the performance of the Lifetouch Fall picture day peak season; expectations around the impact of facility closures on reducing reliance on temporary labor and improving utilization of existing assets; and the Company's business outlook for the full year 2018. You can identify these statements by the use of terminology such as “guidance”, “believe”, “expect”, “will”, “should”, “could”, “estimate”, “anticipate” or similar forward-looking terms. You should not rely on these forward-looking statements as they involve risks and uncertainties that may cause actual results to vary materially from the forward-looking statements. Factors that might contribute to such differences include, among others, decreased consumer discretionary spending as a result of general economic conditions; the Company's ability to expand its customer base and increase sales to existing customers; the Company's ability to meet production requirements; the Company's ability to retain and hire necessary employees, including seasonal personnel, and appropriately staff its operations; the impact of seasonality on the Company's business; the Company's ability to develop innovative, new products and services on a timely and cost-effective basis; failure to realize the anticipated benefits of the Company's 2017 restructuring activities or of the Lifetouch acquisition; consumer acceptance of the Company's products and services; the Company's ability to develop additional adjacent lines of business; unforeseen changes in expense levels; refining our promotional strategies; competition and the pricing strategies of the Company's competitors, which could lead to pricing
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pressure; the retention of Lifetouch employees and the Company's ability to successfully integrate the Lifetouch businesses; risks inherent in the achievement of anticipated synergies and the timing thereof; 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 Securities and Exchange Commission (“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.
Contacts Investor Relations: Shawn Tabak, 650-610-6026 stabak@shutterfly.com | Media Relations: Sondra Harding, 650-610-5129 sharding@shutterfly.com | ||||
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Appendix 1.1
Shutterfly, Inc.
Consolidated Statements of Operations - GAAP
(In thousands, except per share amounts)
(Unaudited)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||||
| Net revenue | $ | 368,757 | $ | 195,443 | $ | 1,011,853 | $ | 596,447 | |||||||||||||||
| Cost of net revenue | 224,738 | 131,108 | 584,012 | 365,432 | |||||||||||||||||||
| Restructuring | — | 39 | — | 1,475 | |||||||||||||||||||
Gross profit | 144,019 | 64,296 | 427,841 | 229,540 | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
Technology and development | 44,735 | 39,614 | 127,659 | 124,968 | |||||||||||||||||||
| Sales and marketing | 135,375 | 33,331 | 303,737 | 119,205 | |||||||||||||||||||
General and administrative[1] | 50,445 | 23,894 | 137,050 | 79,200 | |||||||||||||||||||
| Capital lease termination | — | — | — | 8,098 | |||||||||||||||||||
Restructuring[2] | — | 3,278 | 2,952 | 15,491 | |||||||||||||||||||
| Total operating expenses | 230,555 | 100,117 | 571,398 | 346,962 | |||||||||||||||||||
| Loss from operations | (86,536) | (35,821) | (143,557) | (117,422) | |||||||||||||||||||
| Interest expense | (16,660) | (6,699) | (44,063) | (18,617) | |||||||||||||||||||
| Interest and other income, net | 856 | 253 | 4,166 | 687 | |||||||||||||||||||
| Loss before income taxes | (102,340) | (42,267) | (183,454) | (135,352) | |||||||||||||||||||
| Benefit from income taxes | 28,797 | 16,660 | 56,234 | 53,713 | |||||||||||||||||||
| Net loss | $ | (73,543) | $ | (25,607) | $ | (127,220) | $ | (81,639) | |||||||||||||||
| Net loss per share - basic and diluted | $ | (2.20) | $ | (0.78) | $ | (3.84) | $ | (2.45) | |||||||||||||||
| Weighted-average shares outstanding - basic and diluted | 33,470 | 32,878 | 33,139 | 33,363 | |||||||||||||||||||
| Stock-based compensation is allocated as follows: | |||||||||||||||||||||||
Cost of net revenue | $ | 909 | $ | 1,041 | $ | 2,851 | $ | 3,284 | |||||||||||||||
| Technology and development | 2,545 | 2,512 | 7,546 | 7,388 | |||||||||||||||||||
| Sales and marketing | 3,057 | 2,864 | 9,502 | 9,017 | |||||||||||||||||||
| General and administrative | 5,420 | 4,319 | 15,422 | 13,021 | |||||||||||||||||||
| Restructuring | — | — | — | 814 | |||||||||||||||||||
| $ | 11,931 | $ | 10,736 | $ | 35,321 | $ | 33,524 | ||||||||||||||||
| Depreciation and amortization is allocated as follows: | |||||||||||||||||||||||
Cost of net revenue | $ | 24,533 | $ | 14,681 | $ | 61,918 | $ | 44,733 | |||||||||||||||
| Technology and development | 6,125 | 6,634 | 19,841 | 21,522 | |||||||||||||||||||
| Sales and marketing | 9,645 | 2,484 | 21,215 | 8,271 | |||||||||||||||||||
| General and administrative | 1,667 | 1,016 | 4,271 | 3,611 | |||||||||||||||||||
| Restructuring | — | 665 | — | 5,999 | |||||||||||||||||||
| $ | 41,970 | $ | 25,480 | $ | 107,245 | $ | 84,136 | ||||||||||||||||
[1] The General and administrative expenses of $50 million and $137 million for the three and nine months ended September 30, 2018, respectively, include $2.4 million and $15 million, respectively, of acquisition-related charges.
[2] The exit of iMemories business resulted in restructuring charges of $3.0 million for the nine months ended September 30, 2018.
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Appendix 1.2
Shutterfly, Inc.
Consolidated Balance Sheets - GAAP
(In thousands, except par value amounts)
(Unaudited)
| September 30, 2018 | December 31, 2017 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 165,929 | $ | 489,894 | |||||||
| Short-term investments | 38,915 | 178,021 | |||||||||
| Accounts receivable, net | 75,224 | 82,317 | |||||||||
| Inventories | 18,081 | 11,019 | |||||||||
| Prepaid expenses and other current assets | 144,853 | 41,383 | |||||||||
| Total current assets | 443,002 | 802,634 | |||||||||
| Long-term investments | 18,626 | 9,242 | |||||||||
| Property and equipment, net | 388,862 | 266,860 | |||||||||
| Intangible assets, net | 328,756 | 29,671 | |||||||||
| Goodwill | 842,917 | 408,975 | |||||||||
| Other assets | 24,253 | 17,418 | |||||||||
| Total assets | $ | 2,046,416 | $ | 1,534,800 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Current portion of long-term debt | $ | 14,407 | $ | 297,054 | |||||||
| Accounts payable | 33,271 | 91,473 | |||||||||
| Accrued liabilities | 159,783 | 159,248 | |||||||||
| Deferred revenue | 110,736 | 24,649 | |||||||||
| Total current liabilities | 318,197 | 572,424 | |||||||||
| Long-term debt | 1,092,084 | 292,457 | |||||||||
| Other liabilities | 148,932 | 119,195 | |||||||||
| Total liabilities | 1,559,213 | 984,076 | |||||||||
| Stockholders’ equity: | |||||||||||
| Common stock, $0.0001 par value; 100,000 shares authorized; 33,534 and 32,297 shares issued and outstanding on September 30, 2018 and December 31, 2017, respectively | 3 | 3 | |||||||||
| Additional paid-in capital | 1,052,383 | 996,301 | |||||||||
| Accumulated other comprehensive income | 5,193 | 1,778 | |||||||||
| Accumulated deficit | (570,376) | (447,358) | |||||||||
| Total stockholders' equity | 487,203 | 550,724 | |||||||||
| Total liabilities and stockholders' equity | $ | 2,046,416 | $ | 1,534,800 | |||||||
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Appendix 1.3
Shutterfly, Inc.
Consolidated Statements of Cash Flows - GAAP
(In thousands)
(Unaudited)
| Nine Months Ended | |||||||||||
| September 30, | |||||||||||
| 2018 | 2017 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net loss | $ | (127,220) | $ | (81,639) | |||||||
| Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||||
| Depreciation and amortization | 79,522 | 66,367 | |||||||||
| Amortization of intangible assets | 27,723 | 11,770 | |||||||||
| Amortization of debt discount and issuance costs | 7,901 | 11,365 | |||||||||
Repayment of convertible senior notes attributable to debt discount[1] | (63,510) | — | |||||||||
| Stock-based compensation | 35,321 | 32,710 | |||||||||
| (Gain) loss on disposal of property and equipment | (175) | 705 | |||||||||
| Deferred income taxes | 17,656 | (8,607) | |||||||||
| Restructuring | 752 | 11,636 | |||||||||
| Other | 208 | — | |||||||||
| Changes in operating assets and liabilities, net of acquisition: | |||||||||||
| Accounts receivable | 14,121 | (4,103) | |||||||||
| Inventories | 12,795 | (1,782) | |||||||||
| Prepaid expenses and other assets | (73,462) | (34,064) | |||||||||
| Accounts payable | (68,060) | (35,819) | |||||||||
| Accrued and other liabilities | (36,096) | (49,198) | |||||||||
| Net cash used in operating activities | (172,524) | (80,659) | |||||||||
| Cash flows from investing activities: | |||||||||||
| Acquisition of business, net of cash acquired | (889,587) | — | |||||||||
| Purchases of property and equipment | (28,984) | (22,960) | |||||||||
| Capitalization of software and website development costs | (34,602) | (25,977) | |||||||||
| Purchases of investments | (9,523) | (44,381) | |||||||||
| Proceeds from the maturities of investments | 193,399 | 28,456 | |||||||||
| Proceeds from the sales of investments | 46,879 | — | |||||||||
| Proceeds from sale of property and equipment | 2,088 | 21,232 | |||||||||
| Net cash used in investing activities | (720,330) | (43,630) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from issuance of common stock upon exercise of stock options | 19,698 | 626 | |||||||||
| Repurchases of common stock | — | (80,000) | |||||||||
Principal payments of borrowings[1] | (243,018) | — | |||||||||
| Principal payments of capital lease and financing obligations | (14,222) | (24,813) | |||||||||
| Payment of debt issuance costs | — | (4,789) | |||||||||
| Proceeds from borrowings, net of issuance costs | 806,652 | — | |||||||||
| Net cash provided by (used in) financing activities | 569,110 | (108,976) | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | (221) | — | |||||||||
| Net decrease in cash and cash equivalents | (323,965) | (233,265) | |||||||||
| Cash and cash equivalents, beginning of period | 489,894 | 289,224 | |||||||||
| Cash and cash equivalents, end of period | $ | 165,929 | $ | 55,959 | |||||||
| Supplemental schedule of non-cash investing / financing activities: | |||||||||||
| Net (decrease) increase in accrued purchases of property and equipment | $ | (1,450) | $ | 4,263 | |||||||
| Net increase (decrease) in accrued capitalized software and website development costs | 241 | (161) | |||||||||
| Stock-based compensation capitalized with software and website development costs | 1,065 | 1,084 | |||||||||
| Property and equipment acquired under capital leases | 5,611 | 18,224 | |||||||||
[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 should have been classified as cash used in operating activities instead of cash used in financing activities. Such error resulted in a $64 million understatement of net cash used in operating activities with a corresponding understatement of cash provided by financing activities in the statement of cash flows for the six months ended June 30, 2018. The statement of cash flows for the nine months ended September 30, 2018 reflects the appropriate classification of such repayment between financing and operating activities.
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Appendix 1.4
Shutterfly, Inc.
Shutterfly Consumer Metrics Disclosure
(Unaudited)
| Three Months Ended | |||||||||||
| September 30, | |||||||||||
| 2018 | 2017 | ||||||||||
Shutterfly Consumer Metrics | |||||||||||
Customers [1] | 2,776,523 | 2,969,451 | |||||||||
year-over-year change | (6) | % | |||||||||
Orders | 4,274,418 | 4,861,262 | |||||||||
year-over-year change | (12) | % | |||||||||
Average order value [2] | $29.69 | $27.86 | |||||||||
year-over-year change | 7 | % | |||||||||
[1] An active customer is defined as one that has transacted in the last trailing twelve months.
[2] Average order value excludes Lifetouch and SBS 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, | Jun. 30, | Sep. 30, | Dec. 31, | ||||||||||||||||||||||||||||||||||||||||
| 2017 | 2017 | 2017 | 2017 | 2018 | 2018 | 2018 | 2017 | ||||||||||||||||||||||||||||||||||||||||
Shutterfly Consumer net revenue | |||||||||||||||||||||||||||||||||||||||||||||||
| Shutterfly brand | $ | 123,903 | $ | 139,908 | $ | 115,883 | $ | 464,547 | $ | 142,664 | $ | 154,181 | $ | 115,464 | $ | 844,242 | |||||||||||||||||||||||||||||||
| Tiny Prints Boutique | — | — | 1,942 | 48,932 | 2,103 | 1,397 | 1,490 | 50,874 | |||||||||||||||||||||||||||||||||||||||
Tiny Prints [1] | 10,465 | 12,917 | — | — | — | — | — | 23,382 | |||||||||||||||||||||||||||||||||||||||
Wedding Paper Divas [2] | 14,290 | 11,365 | 8,523 | — | — | — | — | 34,178 | |||||||||||||||||||||||||||||||||||||||
MyPublisher [3] | 4,936 | 6,056 | — | — | — | — | — | 10,992 | |||||||||||||||||||||||||||||||||||||||
| Other | 7,051 | 8,844 | 9,070 | 8,330 | 7,292 | 9,425 | 9,934 | 33,295 | |||||||||||||||||||||||||||||||||||||||
Total | $ | 160,645 | $ | 179,090 | $ | 135,418 | $ | 521,809 | $ | 152,059 | $ | 165,003 | $ | 126,888 | $ | 996,963 | |||||||||||||||||||||||||||||||
[1] Tiny Prints website shut down on June 28, 2017.
[2] Wedding Paper Divas website shut down on September 13, 2017.
[3] MyPublisher website shut down on May 15, 2017.
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Appendix 2.1
Shutterfly, Inc.
Segment Disclosure
(In thousands)
(Unaudited)
The Company expanded segment reporting, which now includes segment margin. Segment reporting continues to report net revenue and cost of net revenue, consistent with previous reporting, but now it also includes technology and development, sales and marketing, and credit card fees, arriving at a margin for the segment. The margin of the Company's three segments compares to non-GAAP operating income by adding corporate expenses, amortization of intangible assets, stock-based compensation, and other non-recurring items including restructuring and acquisition-related charges.
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||||
| Shutterfly Consumer: | |||||||||||||||||||||||
| Net revenue | $ | 126,888 | $ | 135,418 | $ | 443,950 | $ | 475,153 | |||||||||||||||
| Cost of net revenue | 81,031 | 81,439 | 251,940 | 263,345 | |||||||||||||||||||
| Technology and development | 29,971 | 32,712 | 91,930 | 104,679 | |||||||||||||||||||
| Sales and marketing | 28,819 | 26,811 | 89,500 | 98,955 | |||||||||||||||||||
| Credit card fees | 3,527 | 3,766 | 12,075 | 12,709 | |||||||||||||||||||
Margin[1] | $ | (16,460) | $ | (9,310) | $ | (1,495) | $ | (4,535) | |||||||||||||||
| Margin % | (13.0) | % | (6.9) | % | (0.3) | % | (1.0) | % | |||||||||||||||
Lifetouch[2]: | |||||||||||||||||||||||
Net revenue[3] | $ | 187,071 | $ | — | $ | 448,982 | $ | — | |||||||||||||||
Cost of net revenue[4] | 94,188 | — | 185,336 | — | |||||||||||||||||||
| Technology and development | 7,142 | — | 14,251 | — | |||||||||||||||||||
| Sales and marketing | 92,693 | — | 179,653 | — | |||||||||||||||||||
| Credit card fees | 3,316 | — | 4,481 | — | |||||||||||||||||||
Margin[1] | $ | (10,268) | $ | — | $ | 65,261 | $ | — | |||||||||||||||
| Margin % | (5.5) | % | — | % | 14.5 | % | — | % | |||||||||||||||
| Shutterfly Business Solutions: | |||||||||||||||||||||||
| Net revenue | $ | 58,756 | $ | 60,025 | $ | 156,230 | $ | 121,294 | |||||||||||||||
| Cost of net revenue | 45,973 | 47,520 | 127,493 | 95,256 | |||||||||||||||||||
| Technology and development | 3,190 | 4,390 | 10,184 | 12,901 | |||||||||||||||||||
| Sales and marketing | 1,473 | 1,193 | 4,542 | 3,032 | |||||||||||||||||||
Margin[1] | $ | 8,120 | $ | 6,922 | $ | 14,011 | $ | 10,105 | |||||||||||||||
| Margin % | 13.8 | % | 11.5 | % | 9.0 | % | 8.3 | % | |||||||||||||||
| Consolidated Segments: | |||||||||||||||||||||||
Net revenue[3] | $ | 372,715 | $ | 195,443 | $ | 1,049,162 | $ | 596,447 | |||||||||||||||
Cost of net revenue[4] | 221,192 | 128,959 | 564,769 | 358,601 | |||||||||||||||||||
| Technology and development | 40,303 | 37,102 | 116,365 | 117,580 | |||||||||||||||||||
| Sales and marketing | 122,985 | 28,004 | 273,695 | 101,987 | |||||||||||||||||||
| Credit card fees | 6,843 | 3,766 | 16,556 | 12,709 | |||||||||||||||||||
Margin[1] | $ | (18,608) | $ | (2,388) | $ | 77,777 | $ | 5,570 | |||||||||||||||
| Margin % | (5.0) | % | (1.2) | % | 7.4 | % | 0.9 | % | |||||||||||||||
[1] 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 and other non-recurring charges.
[2] The Company acquired Lifetouch on April 2, 2018.
[3] Yearbook sales and collections for the Lifetouch segment are made throughout the school year, whereas yearbooks are typically delivered toward the end of the school year in the second quarter of the fiscal year. Business combination accounting principles require the Company to record the assumed deferred revenue at fair value on the acquisition date measured based on the cost to manufacture and deliver the yearbooks, plus a profit margin. Segment reporting includes this purchase accounting adjustment which primarily relates to yearbook sales in net revenue for the Lifetouch segment.
[4] Business combination accounting principles require the Company to measure acquired inventory at fair value. The fair value of inventory reflects the acquired company’s cost of manufacturing plus a portion of the expected profit margin. Segment reporting excludes this purchase accounting adjustment from cost of net revenue for the Lifetouch segment.
10
The following table reconciles operating segment margin to total operating loss, operating segment net revenue to total net revenue, and operating segment cost of net revenue to total cost of net revenue:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||||
| Total margin for operating segments | $ | (18,608) | $ | (2,388) | $ | 77,777 | $ | 5,570 | |||||||||||||||
Purchase accounting deferred revenue adjustment[1] | (3,958) | — | (37,309) | — | |||||||||||||||||||
Purchase accounting inventory adjustment[2] | — | — | (10,931) | — | |||||||||||||||||||
Corporate expenses[3] | (37,088) | (15,810) | (92,121) | (52,634) | |||||||||||||||||||
| Amortization of intangible assets | (12,559) | (3,570) | (27,723) | (11,770) | |||||||||||||||||||
| Stock-based compensation for operating segments | (11,931) | (10,736) | (35,321) | (33,524) | |||||||||||||||||||
| Restructuring | — | (3,317) | (2,952) | (16,966) | |||||||||||||||||||
| Acquisition-related charges | (2,392) | — | (14,977) | — | |||||||||||||||||||
| Capital lease termination | — | — | — | (8,098) | |||||||||||||||||||
| Operating loss | $ | (86,536) | $ | (35,821) | $ | (143,557) | $ | (117,422) | |||||||||||||||
| Operating margin | (23.2) | % | (18.3) | % | (13.7) | % | (19.7) | % | |||||||||||||||
| Total net revenue for all operating segments | $ | 372,715 | $ | 195,443 | $ | 1,049,162 | $ | 596,447 | |||||||||||||||
Purchase accounting deferred revenue adjustment[1] | (3,958) | — | (37,309) | — | |||||||||||||||||||
| Total net revenue | $ | 368,757 | $ | 195,443 | $ | 1,011,853 | $ | 596,447 | |||||||||||||||
| Total cost of net revenue for all operating segments | $ | 221,192 | $ | 128,959 | $ | 564,769 | $ | 358,601 | |||||||||||||||
Purchase accounting inventory adjustment[2] | — | — | 10,931 | — | |||||||||||||||||||
| Stock-based compensation for cost of net revenue | 909 | 1,041 | 2,851 | 3,284 | |||||||||||||||||||
| Amortization of intangible assets for cost of net revenue | 2,637 | 1,108 | 5,461 | 3,547 | |||||||||||||||||||
Total cost of net revenue | $ | 224,738 | $ | 131,108 | $ | 584,012 | $ | 365,432 | |||||||||||||||
[1] Yearbook sales and collections for the Lifetouch segment are made throughout the school year, whereas yearbooks are typically delivered toward the end of the school year in the second quarter of the fiscal year. Business combination accounting principles require the Company to record the assumed deferred revenue at fair value on the acquisition date measured based on the cost to manufacture and deliver the yearbooks, plus a profit margin. Segment reporting includes this purchase accounting adjustment which primarily relates to yearbook sales in net revenue for the Lifetouch segment.
[2] Business combination accounting principles require the Company to measure acquired inventory at fair value. The fair value of inventory reflects the acquired company’s cost of manufacturing plus a portion of the expected profit margin. Segment reporting excludes this purchase accounting adjustment from cost of net revenue for the Lifetouch segment.
[3] 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.
11
Appendix 3.1
Shutterfly, Inc.
Reconciliation of Non-GAAP Financial Measures
(In thousands)
(Unaudited)
| Three Months Ended | Three Months Ended | ||||||||||||||||||||||
| September 30, 2018 | September 30, 2018 | ||||||||||||||||||||||
| GAAP Income | Non-GAAP | Non-recurring | Normalized | ||||||||||||||||||||
| Statement | Adjustments | Adjustments | Non-GAAP | ||||||||||||||||||||
| Net revenue: | |||||||||||||||||||||||
| Shutterfly consumer | $ | 126,888 | $ | 126,888 | |||||||||||||||||||
| Lifetouch | 183,113 | 3,958 | [1] | 187,071 | |||||||||||||||||||
| Shutterfly business solutions | 58,756 | 58,756 | |||||||||||||||||||||
| Total net revenue | 368,757 | 3,958 | 372,715 | ||||||||||||||||||||
| Cost of net revenue | 224,738 | 224,738 | |||||||||||||||||||||
| Gross profit | 144,019 | 3,958 | 147,977 | ||||||||||||||||||||
| Gross profit margin | 39.1 | % | 39.7 | % | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Technology and development | 44,735 | 44,735 | |||||||||||||||||||||
| Sales and marketing | 135,375 | 135,375 | |||||||||||||||||||||
| General and administrative | 50,445 | (2,392) | [3] | 48,053 | |||||||||||||||||||
| Total operating expenses | 230,555 | (2,392) | 228,163 | ||||||||||||||||||||
| Operating loss | (86,536) | (80,186) | |||||||||||||||||||||
| Operating margin | (23.5) | % | (21.5) | % | |||||||||||||||||||
| Interest expense | (16,660) | (16,660) | |||||||||||||||||||||
| Interest and other income, net | 856 | 856 | |||||||||||||||||||||
| Loss before income taxes | (102,340) | 3,958 | 2,392 | (95,990) | |||||||||||||||||||
| Benefit from income taxes | 28,797 | 25,194 | |||||||||||||||||||||
| Net loss | $ | (73,543) | $ | (70,796) | |||||||||||||||||||
| Net loss per share - basic and diluted | $ | (2.20) | $ | (2.12) | |||||||||||||||||||
| Weighted-average shares outstanding - basic and diluted | 33,470 | 33,470 | |||||||||||||||||||||
| Operating loss | (80,186) | ||||||||||||||||||||||
| Stock-based compensation | 11,931 | ||||||||||||||||||||||
| Amortization of intangible assets | 12,559 | ||||||||||||||||||||||
| Depreciation | 29,411 | ||||||||||||||||||||||
| Adjusted EBITDA | $ | (26,285) | |||||||||||||||||||||
| Adjusted EBITDA margin | (7.1) | % | |||||||||||||||||||||
12
| Nine Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2018 | September 30, 2018 | ||||||||||||||||||||||
| GAAP Income | Non-GAAP | Non-recurring | Normalized | ||||||||||||||||||||
| Statement | Adjustments | Adjustments | Non-GAAP | ||||||||||||||||||||
| Net revenue: | |||||||||||||||||||||||
| Shutterfly consumer | $ | 443,950 | $ | 443,950 | |||||||||||||||||||
| Lifetouch | 411,673 | 37,309 | [1] | 448,982 | |||||||||||||||||||
| Shutterfly business solutions | 156,230 | 156,230 | |||||||||||||||||||||
| Total net revenue | 1,011,853 | 37,309 | 1,049,162 | ||||||||||||||||||||
| Cost of net revenue | 584,012 | (10,931) | [2] | 573,081 | |||||||||||||||||||
| Gross profit | 427,841 | 48,240 | 476,081 | ||||||||||||||||||||
| Gross profit margin | 42.3 | % | 45.4 | % | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Technology and development | 127,659 | 127,659 | |||||||||||||||||||||
| Sales and marketing | 303,737 | 303,737 | |||||||||||||||||||||
| General and administrative | 137,050 | (14,977) | [3] | 122,073 | |||||||||||||||||||
| Restructuring | 2,952 | (2,952) | [4] | — | |||||||||||||||||||
| Total operating expenses | 571,398 | (17,929) | 553,469 | ||||||||||||||||||||
| Operating loss | (143,557) | (77,388) | |||||||||||||||||||||
| Operating margin | (14.2) | % | (7.4) | % | |||||||||||||||||||
| Interest expense | (44,063) | (44,063) | |||||||||||||||||||||
| Interest and other income, net | 4,166 | 4,166 | |||||||||||||||||||||
| Loss before income taxes | (183,454) | 48,240 | 17,929 | (117,285) | |||||||||||||||||||
| Benefit from income taxes | 56,234 | 36,274 | |||||||||||||||||||||
| Net loss | $ | (127,220) | $ | (81,011) | |||||||||||||||||||
| Net loss per share - basic and diluted | $ | (3.84) | $ | (2.44) | |||||||||||||||||||
| Weighted-average shares outstanding - basic and diluted | 33,139 | 33,139 | |||||||||||||||||||||
| Operating loss | (77,388) | ||||||||||||||||||||||
| Stock-based compensation | 35,321 | ||||||||||||||||||||||
| Amortization of intangible assets | 27,723 | ||||||||||||||||||||||
| Depreciation | 79,522 | ||||||||||||||||||||||
| Adjusted EBITDA | $ | 65,178 | |||||||||||||||||||||
| Adjusted EBITDA margin | 6.2 | % | |||||||||||||||||||||
[1] Yearbook sales and collections for the Lifetouch segment are made throughout the school year, whereas yearbooks are typically delivered toward the end of the school year in the second quarter of the fiscal year. Business combination accounting principles require the Company to record the assumed deferred revenue at fair value on the acquisition date measured based on the cost to manufacture and deliver the yearbooks, plus a profit margin. Segment reporting includes this purchase accounting adjustment which primarily relates to yearbook sales in net revenue for the Lifetouch segment.
[2] Business combination accounting principles require the Company to measure acquired inventory at fair value. The fair value of inventory reflects the acquired company’s cost of manufacturing plus a portion of the expected profit margin. Segment reporting excludes this purchase accounting adjustment from cost of net revenue for the Lifetouch segment.
[3] Acquisition-related charges for Lifetouch acquisition.
[4] Restructuring charge related to the exit of iMemories.
13
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, | Jun. 30, | Sep. 30, | Dec. 31, | ||||||||||||||||||||||||||||||||||||||||
| 2017 | 2017 | 2017 | 2017 | 2018 | 2018 | 2018 | 2017 | ||||||||||||||||||||||||||||||||||||||||
GAAP net income (loss) | $ | (33,194) | $ | (22,838) | $ | (25,607) | $ | 111,724 | $ | (27,165) | $ | (26,512) | $ | (73,543) | $ | 30,085 | |||||||||||||||||||||||||||||||
| Capital lease termination | — | 8,098 | — | — | — | — | — | 8,098 | |||||||||||||||||||||||||||||||||||||||
| Restructuring | 8,976 | 4,673 | 3,317 | — | — | 2,952 | — | 16,966 | |||||||||||||||||||||||||||||||||||||||
| Acquisition-related charges | — | — | — | — | 4,585 | 8,000 | 2,392 | — | |||||||||||||||||||||||||||||||||||||||
| Purchase accounting adjustments | — | — | — | — | — | 44,282 | 3,958 | — | |||||||||||||||||||||||||||||||||||||||
| Tax benefit impact of non-recurring items | (3,948) | (4,829) | (1,669) | — | (1,185) | (15,171) | (3,603) | (10,446) | |||||||||||||||||||||||||||||||||||||||
| Benefit from 2017 tax reform legislation | — | — | — | (8,875) | — | — | — | (8,875) | |||||||||||||||||||||||||||||||||||||||
Non-GAAP net income (loss) | $ | (28,166) | $ | (14,896) | $ | (23,959) | $ | 102,849 | $ | (23,765) | $ | 13,551 | $ | (70,796) | $ | 35,828 | |||||||||||||||||||||||||||||||
GAAP diluted shares outstanding | 33,712 | 33,579 | 32,878 | 33,114 | 32,702 | 33,234 | 33,470 | 34,106 | |||||||||||||||||||||||||||||||||||||||
Non-GAAP diluted shares outstanding | 33,712 | 33,579 | 32,878 | 33,114 | 32,702 | 35,775 | 33,470 | 34,106 | |||||||||||||||||||||||||||||||||||||||
GAAP net income (loss) per share | $ | (0.98) | $ | (0.68) | $ | (0.78) | $ | 3.37 | $ | (0.83) | $ | (0.80) | $ | (2.20) | $ | 0.88 | |||||||||||||||||||||||||||||||
Non-GAAP net income (loss) per share | $ | (0.84) | $ | (0.44) | $ | (0.73) | $ | 3.11 | $ | (0.73) | $ | 0.38 | $ | (2.12) | $ | 1.05 | |||||||||||||||||||||||||||||||
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, | Jun. 30, | Sep. 30, | Dec. 31, | ||||||||||||||||||||||||||||||||||||||||
| 2017 | 2017 | 2017 | 2017 | 2018 | 2018 | 2018 | 2017 | ||||||||||||||||||||||||||||||||||||||||
GAAP net income (loss) | $ | (33,194) | $ | (22,838) | $ | (25,607) | $ | 111,724 | $ | (27,165) | $ | (26,512) | $ | (73,543) | $ | 30,085 | |||||||||||||||||||||||||||||||
| Interest expense | 5,964 | 5,955 | 6,699 | 9,219 | 9,633 | 17,769 | 16,660 | 27,836 | |||||||||||||||||||||||||||||||||||||||
| Interest and other income, net | (189) | (244) | (253) | (794) | (1,749) | (1,561) | (856) | (1,481) | |||||||||||||||||||||||||||||||||||||||
| Tax (benefit) provision | (22,341) | (14,713) | (16,660) | 58,873 | (14,829) | (12,607) | (28,797) | 5,160 | |||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 27,364 | 25,957 | 24,815 | 25,724 | 24,898 | 40,377 | 41,970 | 103,862 | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | 11,505 | 10,469 | 10,736 | 10,863 | 11,692 | 11,697 | 11,931 | 43,573 | |||||||||||||||||||||||||||||||||||||||
| Capital lease termination | — | 8,098 | — | — | — | — | — | 8,098 | |||||||||||||||||||||||||||||||||||||||
| Restructuring | 8,976 | 4,673 | 3,317 | — | — | 2,952 | — | 16,966 | |||||||||||||||||||||||||||||||||||||||
| Acquisition-related charges | — | — | — | — | 4,585 | 8,000 | 2,392 | — | |||||||||||||||||||||||||||||||||||||||
| Purchase accounting adjustments | — | — | — | — | — | 44,282 | 3,958 | — | |||||||||||||||||||||||||||||||||||||||
Non-GAAP Adjusted EBITDA | $ | (1,915) | $ | 17,357 | $ | 3,047 | $ | 215,609 | $ | 7,065 | $ | 84,397 | $ | (26,285) | $ | 234,099 | |||||||||||||||||||||||||||||||
14
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, | Jun. 30, | Sep. 30, | Dec. 31, | ||||||||||||||||||||||||||||||||||||||||
| 2017 | 2017 | 2017 | 2017 | 2018 | 2018 [1] | 2018 | 2017 | ||||||||||||||||||||||||||||||||||||||||
| Net cash provided by (used in) operating activities | $ | (72,386) | $ | 13,672 | $ | (21,945) | $ | 320,183 | $ | (124,332) | $ | (75,233) | $ | 27,041 | $ | 239,524 | |||||||||||||||||||||||||||||||
Interest expense | 5,964 | 5,955 | 6,699 | 9,219 | 9,633 | 17,769 | 16,660 | 27,836 | |||||||||||||||||||||||||||||||||||||||
Interest and other income, net | (189) | (244) | (253) | (794) | (1,749) | (1,561) | (856) | (1,481) | |||||||||||||||||||||||||||||||||||||||
Tax (benefit) provision | (22,341) | (14,713) | (16,660) | 58,873 | (14,829) | (12,607) | (28,797) | 5,160 | |||||||||||||||||||||||||||||||||||||||
Changes in operating assets and liabilities | 92,194 | (2,565) | 35,336 | (159,600) | 142,368 | 53,888 | (45,554) | (34,634) | |||||||||||||||||||||||||||||||||||||||
Other adjustments | (6,265) | 5,377 | (2,575) | (13,026) | (8,611) | 47,659 | (1,129) | (16,488) | |||||||||||||||||||||||||||||||||||||||
Cash restructuring | 1,108 | 1,777 | 2,445 | 754 | — | 2,200 | — | 6,084 | |||||||||||||||||||||||||||||||||||||||
Capital lease termination | — | 8,098 | — | — | — | — | — | 8,098 | |||||||||||||||||||||||||||||||||||||||
Acquisition-related charges | — | — | — | — | 4,585 | 8,000 | 2,392 | — | |||||||||||||||||||||||||||||||||||||||
Purchase accounting adjustments | — | — | — | — | — | 44,282 | 3,958 | — | |||||||||||||||||||||||||||||||||||||||
| Non-GAAP Adjusted EBITDA | $ | (1,915) | $ | 17,357 | $ | 3,047 | $ | 215,609 | $ | 7,065 | $ | 84,397 | $ | (26,285) | $ | 234,099 | |||||||||||||||||||||||||||||||
[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.
15
Appendix 5.1
Shutterfly, Inc.
Reconciliation of Forward-Looking Guidance for Non-GAAP Financial Measures
(In millions, except per share amounts)
(Unaudited)
Forward-Looking Guidance [1] | |||||||||||||||||||||||||||||
| GAAP | Non-GAAP | ||||||||||||||||||||||||||||
| Three Months Ending December 31, 2018 | Non-GAAP Adjustment | Three Months Ending December 31, 2018 | |||||||||||||||||||||||||||
| Low | High | Low | High | ||||||||||||||||||||||||||
| Net revenue | $943 | $993 | $2 | [2] | $945 | $995 | |||||||||||||||||||||||
| Shutterfly Consumer net revenue | $540 | $560 | $540 | $560 | |||||||||||||||||||||||||
| Lifetouch net revenue | $339 | $359 | $2 | [2] | $341 | $361 | |||||||||||||||||||||||
| SBS net revenue | $64 | $74 | $64 | $74 | |||||||||||||||||||||||||
| Cost of net revenue | $363 | $382 | $363 | $382 | |||||||||||||||||||||||||
| Gross profit | $580 | $611 | $2 | [2] | $582 | $613 | |||||||||||||||||||||||
| Gross profit margin | 61.5 | % | 61.5 | % | 61.6 | % | 61.6 | % | |||||||||||||||||||||
| Operating income | $261 | $281 | $2 | [2] | $263 | $283 | |||||||||||||||||||||||
Operating margin | 27.6 | % | 28.3 | % | 27.8 | % | 28.4 | % | |||||||||||||||||||||
| Operating income | $261 | $281 | $2 | [2] | $263 | $283 | |||||||||||||||||||||||
| Stock-based compensation | $16 | $16 | |||||||||||||||||||||||||||
| Amortization of intangible assets | $11 | $11 | |||||||||||||||||||||||||||
| Depreciation | $35 | $35 | |||||||||||||||||||||||||||
| Adjusted EBITDA | $325 | $345 | |||||||||||||||||||||||||||
| Adjusted EBITDA margin | 34.4 | % | 34.7 | % | |||||||||||||||||||||||||
Tax rate [4] | 26.1 | % | 25.7 | % | 26.1 | % | 25.7 | % | |||||||||||||||||||||
| Net income per share | |||||||||||||||||||||||||||||
| Basic and Diluted | $5.09 | $5.54 | $0.05 | $5.14 | $5.59 | ||||||||||||||||||||||||
| Weighted average shares | |||||||||||||||||||||||||||||
| Basic and Diluted | 34.8 | 34.8 | 34.8 | 34.8 | |||||||||||||||||||||||||
16
Forward-Looking Guidance [1] | |||||||||||||||||||||||||||||
| GAAP | Non-GAAP | ||||||||||||||||||||||||||||
| Twelve Months Ending December 31, 2018 | Non-GAAP Adjustment | Twelve Months Ending December 31, 2018 | |||||||||||||||||||||||||||
| Low | High | Low | High | ||||||||||||||||||||||||||
| Net revenue | $1,954 | $2,004 | $40 | [2] | $1,994 | $2,044 | |||||||||||||||||||||||
| Shutterfly Consumer net revenue | $984 | $1,004 | $984 | $1,004 | |||||||||||||||||||||||||
| Lifetouch net revenue | $750 | $770 | $40 | [2] | $790 | $810 | |||||||||||||||||||||||
| SBS net revenue | $220 | $230 | $220 | $230 | |||||||||||||||||||||||||
| Cost of net revenue | $947 | $966 | ($11) | [3] | $936 | $955 | |||||||||||||||||||||||
| Gross profit | $1,007 | $1,038 | $51 | [2][3] | $1,058 | $1,089 | |||||||||||||||||||||||
| Gross profit margin | 51.5 | % | 51.8 | % | 53.1 | % | 53.3 | % | |||||||||||||||||||||
| Operating income | $135 | $155 | $51 | [2][3] | $185 | $205 | |||||||||||||||||||||||
Operating margin | 6.9 | % | 7.7 | % | 9.3 | % | 10.1 | % | |||||||||||||||||||||
| Operating income | $135 | $155 | $51 | [2][3] | $185 | $205 | |||||||||||||||||||||||
| Stock-based compensation | $51 | $51 | |||||||||||||||||||||||||||
| Amortization of intangible assets | $39 | $39 | |||||||||||||||||||||||||||
| Depreciation | $114 | $114 | |||||||||||||||||||||||||||
| Adjusted EBITDA | $390 | $410 | |||||||||||||||||||||||||||
| Adjusted EBITDA margin | 19.6 | % | 20.1 | % | |||||||||||||||||||||||||
| Capital expenditures | $100 | $100 | $100 | $100 | |||||||||||||||||||||||||
| Capital expenditures as % of net revenue | 5.1 | % | 5.0 | % | 5.0 | % | 4.9 | % | |||||||||||||||||||||
Tax rate [4] | 21.5 | % | 21.5 | % | 21.5 | % | 21.5 | % | |||||||||||||||||||||
| Net income per share | |||||||||||||||||||||||||||||
| Basic and Diluted | $1.66 | $2.11 | $1.14 | $2.80 | $3.25 | ||||||||||||||||||||||||
| Weighted average shares | |||||||||||||||||||||||||||||
| Basic and Diluted | 35.0 | 35.0 | 35.0 | 35.0 | |||||||||||||||||||||||||
[1] Excludes restructuring, acquisition-related charges, and any severance or retention related to facility closures.
[2] Yearbook sales and collections for the Lifetouch segment are made throughout the school year, whereas yearbooks are typically delivered toward the end of the school year in the second quarter of the fiscal year. Business combination accounting principles require the Company to record the assumed deferred revenue at fair value on the acquisition date measured based on the cost to manufacture and deliver the yearbooks, plus a profit margin. Management reporting includes this purchase accounting adjustment which primarily relates to yearbook sales in net revenue for the Lifetouch segment.
[3] Business combination accounting principles require the Company to measure acquired inventory at fair value. The fair value of inventory reflects the acquired company’s cost of manufacturing plus a portion of the expected profit margin. Management reporting excludes this purchase accounting adjustment from cost of net revenue for the Lifetouch segment.
[4] Effective tax rate assumes windfall from stock-based compensation for shares expected to vest for the remainder of 2018, based on the Company’s average stock price over the last three months.
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Appendix 5.2
Shutterfly, Inc.
Supplemental Information on Forward-Looking Guidance
(In millions, except per share amounts)
(Unaudited)
| Actual | Non-GAAP Quarterly Midpoint Target[1] | ||||||||||||||||||||||||||||
| Three Months Ended | Three Months Ending | Twelve Months Ending | |||||||||||||||||||||||||||
| March 31, 2018 | June 30, 2018 | September 30, 2018 | December 31, 2018 | December 31, 2018 | |||||||||||||||||||||||||
| Net revenue | $200 | $477 | $373 | $970 | $2,019 | ||||||||||||||||||||||||
| Shutterfly Consumer net revenue | $152 | $165 | $127 | $550 | $994 | ||||||||||||||||||||||||
| Lifetouch net revenue | — | $262 | $187 | $351 | $800 | ||||||||||||||||||||||||
| SBS net revenue | $48 | $50 | $59 | $69 | $225 | ||||||||||||||||||||||||
| Gross profit | $74 | $254 | $148 | $597 | $1,074 | ||||||||||||||||||||||||
| Gross profit margin | 36.9 | % | 53.4 | % | 39.7 | % | 61.6 | % | 53.2 | % | |||||||||||||||||||
| Operating income (loss) | ($30) | $32 | ($80) | $273 | $195 | ||||||||||||||||||||||||
| Operating margin | (14.8) | % | 6.8 | % | (21.5) | % | 28.1 | % | 9.7 | % | |||||||||||||||||||
| Operating income (loss) | ($30) | $32 | ($80) | $273 | $195 | ||||||||||||||||||||||||
| Stock-based compensation | $12 | $12 | $12 | $16 | $51 | ||||||||||||||||||||||||
| Amortization of intangible assets | $2 | $13 | $13 | $11 | $39 | ||||||||||||||||||||||||
| Depreciation | $23 | $28 | $29 | $35 | $114 | ||||||||||||||||||||||||
| Adjusted EBITDA | $7 | $84 | ($26) | $335 | $400 | ||||||||||||||||||||||||
| Adjusted EBITDA margin | 3.5 | % | 17.7 | % | (7.1) | % | 34.5 | % | 19.8 | % | |||||||||||||||||||
| Tax rate | 36.5 | % | 15.9 | % | 26.2 | % | 25.9 | % | 21.5 | % | |||||||||||||||||||
| Net income (loss) per share | |||||||||||||||||||||||||||||
| Basic | ($0.73) | — | ($2.12) | — | — | ||||||||||||||||||||||||
| Diluted | — | $0.38 | — | $5.36 | $3.02 | ||||||||||||||||||||||||
| Weighted average shares | |||||||||||||||||||||||||||||
| Basic | 32.7 | — | 33.5 | — | — | ||||||||||||||||||||||||
| Diluted | — | 35.8 | — | 34.8 | 35.0 | ||||||||||||||||||||||||
[1] Sum of quarterly targets equal the mid-point of 2018 annual non-GAAP guidance. Excludes restructuring, acquisition-related charges, and any severance or retention related to facility closures.
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