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 second quarter ended June 30, 2019.
Second Quarter 2019 Financial Highlights
Net revenue was $473 million. Shutterfly Consumer segment net revenue totaled $170 million, a 3% year-over-year increase. Lifetouch segment GAAP net revenue was $254 million, an 11% year-over-year increase. Shutterfly Business Solutions segment net revenue remained relatively flat at $50 million. Operating loss totaled $7.9 million. Net loss was $13 million or a loss of $0.37 per share.
Lifetouch segment non-GAAP net revenue was $254 million, a 3% year-over-year decrease.
Normalized operating income, excluding restructuring and executive transition and strategic review charges was $3.5 million. Normalized net loss was $8.0 million. Adjusted EBITDA was $57 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.”
Shutterfly Acquisition by Apollo
Shutterfly announced in June 2019 that it has entered into a definitive agreement (the "Merger Agreement") with the affiliates of certain funds (the “Apollo Funds”), managed by affiliates of Apollo Global Management, LLC (together with its consolidated subsidiaries, “Apollo”) (NYSE: APO), a leading global alternative investment manager, pursuant to which affiliates of Apollo Funds will acquire all the outstanding shares of Shutterfly for $51.00 per share in cash. The transaction is expected to close by early fourth quarter 2019, pending approval by Shutterfly stockholders and satisfaction of certain other closing conditions. Early termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 was granted on July 17, 2019, effective immediately.
Due to the pending acquisition by affiliates of the Apollo Funds, Shutterfly does not plan to host an earnings conference call nor provide forward-looking guidance.
Notes to the Second Quarter 2019 Financial Results and Operating Metrics
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.
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), non-GAAP operating margin, 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), operating margin, 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.
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 timing of the expected closing of our pending acquisition by the Apollo Funds. 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, the parties' inability to consummate the acquisition due to failure to satisfy conditions to the completion of the transaction, including the receipt of stockholder approval, which may not be obtained on the anticipated schedule or at all, and the outcome of lawsuits that may be brought by certain purported stockholders seeking to rescind the Merger Agreement or enjoin the consummation of the acquisition. 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.
Additional Information and Where to Find It
In connection with the proposed acquisition of Shutterfly by certain affiliates of the Apollo Funds, Shutterfly has filed and will continue to file relevant materials with the SEC, including a preliminary and definitive proxy statement. Promptly after filing the definitive proxy statement, Shutterfly will mail the definitive proxy statement and a proxy card to the stockholders of Shutterfly. SHUTTERFLY STOCKHOLDERS ARE URGED TO READ THE DEFINITIVE PROXY STATEMENT (INCLUDING ANY AMENDMENTS OR SUPPLEMENTS THERETO) CAREFULLY WHEN IT BECOMES AVAILABLE BEFORE MAKING ANY VOTING OR INVESTMENT DECISION WITH RESPECT TO THE PROPOSED TRANSACTION BECAUSE IT WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION AND THE PARTIES TO THE PROPOSED TRANSACTION. Stockholders of Shutterfly will be able to obtain a free copy of these documents, when they become available, at the website maintained by the SEC at www.sec.gov or free of charge at www.shutterflyinc.com.
Additionally, Shutterfly will file other relevant materials in connection with the proposed acquisition of Shutterfly by certain affiliates of the Apollo Funds pursuant to the terms of the Merger Agreement by and such affiliates of the Apollo Funds and Shutterfly. Shutterfly and its directors, executive officers and other members of its management and employees, under SEC rules, may be deemed to be participants in the solicitation of proxies of Shutterfly stockholders in connection with the proposed transaction. Information concerning the interests of Shutterfly’s participants in the solicitation, which may, in some cases, be different than those of Shutterfly’s stockholders generally, are available in Shutterfly’s proxy statement for its 2019 annual meeting of stockholders, which was filed with the SEC on April 8, 2019. To the extent holdings of securities by Shutterfly’s directors or executive officers have changed since the amounts disclosed in its proxy statement, such changes have been or will be reflected on Statements of Change in Ownership on Form 4 filed with the SEC. Additional information regarding these persons and their interests in the proposed transaction will be set forth in the definitive proxy statement relating to the proposed transaction when it becomes available. These documents are available free of charge at the SEC’s web site at www.sec.gov or by going to Shutterfly’s website at www.shutterflyinc.com.
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 | Six Months Ended | ||||||||||
June 30, | June 30, | ||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||
Net revenue | $ | 473,416 | $ | 443,372 | $ | 798,097 | $ | 643,097 | |||
Cost of net revenue | 240,513 | 233,228 | 450,912 | 359,275 | |||||||
Gross profit | 232,903 | 210,144 | 347,185 | 283,822 | |||||||
Operating expenses: | |||||||||||
Technology and development | 49,606 | 44,420 | 97,939 | 82,924 | |||||||
Sales and marketing | 135,468 | 130,643 | 254,837 | 168,363 | |||||||
General and administrative[1] | 52,491 | 55,040 | 100,878 | 86,604 | |||||||
Restructuring[2] | 3,274 | 2,952 | 7,247 | 2,952 | |||||||
Total operating expenses | 240,839 | 233,055 | 460,901 | 340,843 | |||||||
Loss from operations | (7,936) | (22,911) | (113,716) | (57,021) | |||||||
Interest expense | (13,312) | (17,769) | (31,566) | (27,402) | |||||||
Interest and other income, net | 1,088 | 1,561 | 2,266 | 3,310 | |||||||
Loss before income taxes | (20,160) | (39,119) | (143,016) | (81,113) | |||||||
Benefit from income taxes | 7,428 | 12,607 | 46,665 | 27,436 | |||||||
Net loss | $ | (12,732) | $ | (26,512) | $ | (96,351) | $ | (53,677) | |||
Net loss per share - basic and diluted | $ | (0.37) | $ | (0.80) | $ | (2.83) | $ | (1.63) | |||
Weighted-average shares outstanding - basic and diluted | 34,254 | 33,234 | 34,089 | 32,970 | |||||||
Stock-based compensation is allocated as follows: | |||||||||||
Cost of net revenue | $ | 844 | $ | 943 | $ | 1,736 | $ | 1,942 | |||
Technology and development | 2,268 | 2,571 | 4,566 | 5,001 | |||||||
Sales and marketing | 3,574 | 2,941 | 7,039 | 6,445 | |||||||
General and administrative | 4,821 | 5,242 | 10,204 | 10,001 | |||||||
$ | 11,507 | $ | 11,697 | $ | 23,545 | $ | 23,389 | ||||
Depreciation and amortization is allocated as follows: | |||||||||||
Cost of net revenue | $ | 24,566 | $ | 21,944 | $ | 48,853 | $ | 37,386 | |||
Technology and development | 6,344 | 7,418 | 12,814 | 13,715 | |||||||
Sales and marketing | 9,893 | 9,530 | 19,759 | 11,571 | |||||||
General and administrative | 1,625 | 1,485 | 3,161 | 2,603 | |||||||
Restructuring | 937 | — | 2,232 | — | |||||||
$ | 43,365 | $ | 40,377 | $ | 86,819 | $ | 65,275 | ||||
[1] The General and administrative expenses of $52.5 million and $100.9 million for the three and six months ended June 30, 2019, respectively, include $7.5 million and $9.7 million, respectively, of costs related to executive transition and the strategic review. The General and administrative expenses of $55.0 million and $86.6 million for the three and six months ended June 30, 2018, respectively, include $8.0 million and $12.6 million, respectively, of acquisition-related charges. |
[2] The restructuring plan approved in the fourth quarter of 2018 to close four Lifetouch facilities resulted in restructuring charges of $3.3 million and $7.2 million for the three and six months ended June 30, 2019, respectively. The exit of iMemories business in the second quarter of 2018 resulted in restructuring charges of $3.0 million for the three and six months ended June 30, 2018. |
Appendix 1.2 | |||||
Shutterfly, Inc. | |||||
Consolidated Balance Sheets - GAAP | |||||
(In thousands, except par value amounts) | |||||
(Unaudited) | |||||
June 30, 2019 | December 31, 2018 | ||||
ASSETS | |||||
Current assets: | |||||
Cash and cash equivalents | $ | 105,338 | $ | 521,567 | |
Short-term investments | 19,013 | 34,011 | |||
Accounts receivable, net | 60,433 | 87,023 | |||
Inventories | 20,916 | 18,015 | |||
Assets held for sale | 9,142 | 1,000 | |||
Prepaid expenses and other current assets | 114,776 | 65,961 | |||
Total current assets | 329,618 | 727,577 | |||
Long-term investments | 4,872 | 10,808 | |||
Property and equipment, net | 336,655 | 381,018 | |||
Intangible assets, net | 291,459 | 316,154 | |||
Goodwill | 843,698 | 843,607 | |||
Other assets | 84,872 | 23,045 | |||
Total assets | $ | 1,891,174 | $ | 2,302,209 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||
Current liabilities: | |||||
Current portion of long-term debt | $ | 5,234 | $ | 14,203 | |
Accounts payable | 45,129 | 105,407 | |||
Accrued liabilities | 142,836 | 226,445 | |||
Operating lease liabilities, current portion | 21,045 | — | |||
Deferred revenue, current portion | 38,350 | 57,319 | |||
Total current liabilities | 252,594 | 403,374 | |||
Long-term debt | 897,985 | 1,090,442 | |||
Operating lease liabilities | 59,301 | — | |||
Other liabilities | 84,707 | 134,027 | |||
Total liabilities | 1,294,587 | 1,627,843 | |||
Stockholders’ equity: | |||||
Common stock, $0.0001 par value; 100,000 shares authorized; 34,382 and 33,673 shares issued and outstanding on June 30, 2019 and December 31, 2018, respectively | 3 | 3 | |||
Additional paid-in capital | 1,090,694 | 1,065,531 | |||
Accumulated other comprehensive (loss) income | (1,027) | 1,592 | |||
Accumulated deficit | (493,083) | (392,760) | |||
Total stockholders' equity | 596,587 | 674,366 | |||
Total liabilities and stockholders' equity | $ | 1,891,174 | $ | 2,302,209 | |
Appendix 1.3 | |||||
Shutterfly, Inc. | |||||
Consolidated Statements of Cash Flows - GAAP | |||||
(In thousands) | |||||
(Unaudited) | |||||
Six Months Ended | |||||
June 30, | |||||
2019 | 2018 | ||||
Cash flows from operating activities: | |||||
Net loss | $ | (96,351) | $ | (53,677) | |
Adjustments to reconcile net loss to net cash used in operating activities: | |||||
Depreciation and amortization | 58,967 | 50,111 | |||
Amortization of intangible assets | 25,620 | 15,164 | |||
Amortization of debt discount and issuance costs | 5,533 | 7,009 | |||
Amortization of operating lease assets | 11,150 | — | |||
Repayment of convertible senior notes attributable to debt discount[1] | — | (63,510) | |||
Stock-based compensation | 23,545 | 23,389 | |||
(Gain) loss on disposal of property and equipment | (426) | 154 | |||
Deferred income taxes | 3,808 | 17,571 | |||
Restructuring | 2,301 | 752 | |||
Other | (57) | (272) | |||
Changes in operating assets and liabilities, net of acquisition: | |||||
Accounts receivable | 26,605 | 30,767 | |||
Inventories | (2,959) | 15,607 | |||
Prepaid expenses and other assets | (48,994) | (42,795) | |||
Accounts payable | (60,267) | (69,708) | |||
Accrued and other liabilities | (114,092) | (130,127) | |||
Net cash used in operating activities | (165,617) | (199,565) | |||
Cash flows from investing activities: | |||||
Acquisition of business, net of cash acquired | — | (890,052) | |||
Purchases of property and equipment | (27,129) | (17,692) | |||
Capitalization of software and website development costs | (30,642) | (21,392) | |||
Purchases of investments | — | (9,523) | |||
Proceeds from maturities of investments | 21,184 | 174,329 | |||
Proceeds from sales of investments | — | 45,106 | |||
Proceeds from sales of property and equipment | 1,136 | 1,132 | |||
Net cash used in investing activities | (35,451) | (718,092) | |||
Cash flows from financing activities: | |||||
Proceeds from issuance of common stock upon exercise of stock options | 1,007 | 16,577 | |||
Principal payments of borrowings[1] | (207,292) | (239,098) | |||
Principal payments of finance lease liabilities and financing obligations | (9,587) | (9,396) | |||
Proceeds from borrowings, net of issuance costs | — | 806,652 | |||
Net cash (used in) provided by financing activities | (215,872) | 574,735 | |||
Effect of exchange rate changes on cash and cash equivalents | 711 | (271) | |||
Net decrease in cash and cash equivalents | (416,229) | (343,193) | |||
Cash and cash equivalents, beginning of period | 521,567 | 489,894 | |||
Cash and cash equivalents, end of period | $ | 105,338 | $ | 146,701 | |
Supplemental schedule of non-cash investing / financing activities: | |||||
Net decrease in accrued purchases of property and equipment | $ | (1,915) | $ | (1,200) | |
Net increase in accrued capitalized software and website development costs | 2,532 | 1,119 | |||
Stock-based compensation capitalized with software and website development costs | 612 | 697 | |||
Leased assets obtained in exchange for finance lease liabilities | 2,973 | 2,969 | |||
[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 $63.5 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 six months ended June 30, 2018 above has been revised to reflect the appropriate classification of such repayment between financing and operating activities. |
Appendix 1.4 | ||||
Shutterfly, Inc. | ||||
Shutterfly Consumer Metrics Disclosure | ||||
(Unaudited) | ||||
Three Months Ended | ||||
June 30, | ||||
2019 | 2018 | |||
Shutterfly Consumer Metrics | ||||
Customers [1] | 3,034,584 | 3,140,246 | ||
year-over-year change | (3) | % | ||
Orders | 4,410,299 | 4,788,564 | ||
year-over-year change | (8) | % | ||
Average order value [2] | $38.45 | $34.46 | ||
year-over-year change | 12 | % | ||
[1] An active customer is defined as one that has transacted in the last trailing-twelve months. |
[2] Average order value is calculated using solely Shutterfly Consumer revenue. |
Appendix 1.5 | ||||||||||||||||||||
Shutterfly, Inc. | ||||||||||||||||||||
Shutterfly Consumer Net Revenue by Brand | ||||||||||||||||||||
(In thousands) | ||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||
Three Months Ended | ||||||||||||||||||||
Mar. 31, | Jun. 30, | Sep. 30, | Dec. 31, | Mar. 31, | Jun. 30, | Dec. 31, | ||||||||||||||
2018 | 2018 | 2018 | 2018 | 2019 | 2019 | 2018 | ||||||||||||||
Shutterfly Consumer net revenue[1] | ||||||||||||||||||||
Shutterfly Brand Core | $ | 111,668 | $ | 116,041 | $ | 85,502 | $ | 369,016 | $ | 105,076 | $ | 115,583 | $ | 682,228 | ||||||
Shutterfly Brand Personalized Gifts and Home Décor | 30,965 | 38,163 | 30,006 | 110,173 | 34,585 | 44,171 | 209,307 | |||||||||||||
Tiny Prints Boutique | 2,134 | 1,374 | 1,446 | 39,910 | 1,695 | 1,067 | 44,864 | |||||||||||||
Other | 7,292 | 9,425 | 9,934 | 8,779 | 7,491 | 8,763 | 35,430 | |||||||||||||
Total | $ | 152,059 | $ | 165,003 | $ | 126,888 | $ | 527,878 | $ | 148,847 | $ | 169,584 | $ | 971,829 | ||||||
[1] 2018 quarterly net revenue by brand 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 charges, executive transition and strategic review charges, and purchase accounting adjustments. | |||||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Shutterfly Consumer: | |||||||||||||||
Net revenue | $ | 169,584 | $ | 165,003 | $ | 318,432 | $ | 317,062 | |||||||
Cost of net revenue[1] | 95,261 | 86,065 | 185,667 | 170,909 | |||||||||||
Technology and development | 34,373 | 29,830 | 67,896 | 61,959 | |||||||||||
Sales and marketing | 31,739 | 29,956 | 60,863 | 60,681 | |||||||||||
Credit card fees | 4,346 | 4,349 | 8,501 | 8,548 | |||||||||||
Margin[1][2] | $ | 3,865 | $ | 14,803 | $ | (4,495) | $ | 14,965 | |||||||
Margin % | 2.3 | % | 9.0 | % | (1.4) | % | 4.7 | % | |||||||
Lifetouch[3]: | |||||||||||||||
Net revenue[4] | $ | 254,174 | $ | 261,911 | $ | 384,126 | $ | 261,911 | |||||||
Cost of net revenue[5] | 98,844 | 91,148 | 177,172 | 91,148 | |||||||||||
Technology and development | 8,021 | 7,109 | 15,994 | 7,109 | |||||||||||
Sales and marketing | 89,847 | 86,960 | 166,141 | 86,960 | |||||||||||
Credit card fees | 2,693 | 1,165 | 4,920 | 1,165 | |||||||||||
Margin[2] | $ | 54,769 | $ | 75,529 | $ | 19,899 | $ | 75,529 | |||||||
Margin % | 21.5 | % | 28.8 | % | 5.2 | % | 28.8 | % | |||||||
Shutterfly Business Solutions: | |||||||||||||||
Net revenue | $ | 49,658 | $ | 49,809 | $ | 96,184 | $ | 97,475 | |||||||
Cost of net revenue | 42,941 | 41,610 | 81,092 | 81,519 | |||||||||||
Technology and development | 3,700 | 3,049 | 6,992 | 6,994 | |||||||||||
Sales and marketing | 1,107 | 1,619 | 2,515 | 3,069 | |||||||||||
Margin[2] | $ | 1,910 | $ | 3,531 | $ | 5,585 | $ | 5,893 | |||||||
Margin % | 3.8 | % | 7.1 | % | 5.8 | % | 6.0 | % | |||||||
Consolidated Segments: | |||||||||||||||
Net revenue[4] | $ | 473,416 | $ | 476,723 | $ | 798,742 | $ | 676,448 | |||||||
Cost of net revenue[1][5] | 237,046 | 218,823 | 443,931 | 343,576 | |||||||||||
Technology and development | 46,094 | 39,988 | 90,882 | 76,062 | |||||||||||
Sales and marketing | 122,693 | 118,535 | 229,519 | 150,710 | |||||||||||
Credit card fees | 7,039 | 5,514 | 13,421 | 9,713 | |||||||||||
Margin[1][2] | $ | 60,544 | $ | 93,863 | $ | 20,989 | $ | 96,387 | |||||||
Margin % | 12.8 | % | 19.7 | % | 2.6 | % | 14.2 | % | |||||||
[1] The six months ended June 30, 2019 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 purchase accounting adjustments, 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 six months ended June 30, 2019 and the three and six months ended June 30, 2018 due to business combination accounting requirements. |
[5] Business combination accounting principles require the Company to measure acquired inventory at fair value. The fair value of inventory reflects Lifetouch'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 for the three and six months ended June 30, 2018. |
The following table reconciles Total segment margin to operating loss, Total segment net revenue to Net revenue, and Total segment cost of net revenue to Cost of net revenue:
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Total segment margin | $ | 60,544 | $ | 93,863 | $ | 20,989 | $ | 96,387 | |||||||
Purchase accounting deferred revenue adjustment[1] | — | (33,351) | (645) | (33,351) | |||||||||||
Purchase accounting inventory adjustment[2] | — | (10,931) | — | (10,931) | |||||||||||
Corporate expenses[3] | (32,459) | (37,012) | (67,549) | (55,036) | |||||||||||
Amortization of intangible assets | (12,795) | (12,831) | (25,620) | (15,164) | |||||||||||
Stock-based compensation expense | (11,507) | (11,697) | (23,545) | (23,389) | |||||||||||
Restructuring | (3,274) | (2,952) | (7,247) | (2,952) | |||||||||||
Executive transition and strategic review charges | (8,445) | — | (10,099) | — | |||||||||||
Acquisition-related charges | — | (8,000) | — | (12,585) | |||||||||||
Operating loss | $ | (7,936) | $ | (22,911) | $ | (113,716) | $ | (57,021) | |||||||
Operating margin | (1.7) | % | (5.2) | % | (14.2) | % | (8.9) | % | |||||||
Total segment net revenue | $ | 473,416 | $ | 476,723 | $ | 798,742 | $ | 676,448 | |||||||
Purchase accounting deferred revenue adjustment[1] | — | (33,351) | (645) | (33,351) | |||||||||||
Net revenue | $ | 473,416 | $ | 443,372 | $ | 798,097 | $ | 643,097 | |||||||
Total segment cost of net revenue | $ | 237,046 | $ | 218,823 | $ | 443,931 | $ | 343,576 | |||||||
Purchase accounting inventory adjustment[2] | — | 10,931 | — | 10,931 | |||||||||||
Stock-based compensation for cost of net revenue | 844 | 943 | 1,736 | 1,942 | |||||||||||
Amortization of intangible assets for cost of net revenue | 2,623 | 2,531 | 5,245 | 2,826 | |||||||||||
Cost of net revenue | $ | 240,513 | $ | 233,228 | $ | 450,912 | $ | 359,275 | |||||||
[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 due to business combination accounting requirements. |
[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. Management 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. |
Appendix 3.1 | |||||||||
Shutterfly, Inc. | |||||||||
Reconciliation of Non-GAAP Financial Measures | |||||||||
(In thousands) | |||||||||
(Unaudited) | |||||||||
Three Months Ended | Three Months Ended | ||||||||
June 30, 2019 | June 30, 2019 | ||||||||
GAAP Income | Normalized | ||||||||
Statement | Adjustments | Non-GAAP | |||||||
Net revenue: | |||||||||
Shutterfly Consumer | $ | 169,584 | $ | 169,584 | |||||
Lifetouch | 254,174 | 254,174 | |||||||
Shutterfly Business Solutions | 49,658 | 49,658 | |||||||
Total net revenue | 473,416 | 473,416 | |||||||
Cost of net revenue | 240,513 | 240,513 | |||||||
Gross profit | 232,903 | 232,903 | |||||||
Gross profit margin | 49.2 | % | 49.2 | % | |||||
Operating expenses: | |||||||||
Technology and development | 49,606 | 49,606 | |||||||
Sales and marketing | 135,468 | (651) | [1] | 134,817 | |||||
General and administrative | 52,491 | (7,518) | [1] | 44,973 | |||||
Restructuring | 3,274 | (3,274) | [2] | — | |||||
Total operating expenses | 240,839 | (11,443) | 229,396 | ||||||
Operating (loss) income | (7,936) | 11,443 | 3,507 | ||||||
Operating margin | (1.7) | % | 0.7 | % | |||||
Interest expense | (13,312) | (13,312) | |||||||
Interest and other income, net | 1,088 | 1,088 | |||||||
Loss before income taxes | (20,160) | 11,443 | (8,717) | ||||||
Benefit from income taxes | 7,428 | 766 | |||||||
Net loss | $ | (12,732) | $ | (7,951) | |||||
Net loss per share - basic and diluted | $ | (0.37) | $ | (0.23) | |||||
Weighted-average shares outstanding - basic and diluted | 34,254 | 34,254 | |||||||
Operating loss | $ | (7,936) | $ | 3,507 | |||||
Stock-based compensation | 11,507 | 11,507 | |||||||
Amortization of intangible assets | 12,795 | 12,795 | |||||||
Depreciation | 30,570 | (937) | [2] | 29,633 | |||||
Adjusted EBITDA | $ | 57,442 | |||||||
Adjusted EBITDA margin | 12.1 | % | |||||||
The GAAP and Non-GAAP amounts presented below for the six months ended June 30, 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.
Six Months Ended | Six Months Ended | ||||||||
June 30, 2019 | June 30, 2019 | ||||||||
GAAP Income | Normalized | ||||||||
Statement | Adjustments | Non-GAAP | |||||||
Net revenue: | |||||||||
Shutterfly Consumer | $ | 318,432 | $ | 318,432 | |||||
Lifetouch | 383,481 | 645 | [4] | 384,126 | |||||
Shutterfly Business Solutions | 96,184 | 96,184 | |||||||
Total net revenue | 798,097 | 645 | 798,742 | ||||||
Cost of net revenue | 450,912 | [3] | 450,912 | ||||||
Gross profit | 347,185 | [3] | 645 | 347,830 | |||||
Gross profit margin | 43.5 | % | [3] | 43.5 | % | ||||
Operating expenses: | |||||||||
Technology and development | 97,939 | 97,939 | |||||||
Sales and marketing | 254,837 | (1,030) | [1] | 253,807 | |||||
General and administrative | 100,878 | (9,704) | [1] | 91,174 | |||||
Restructuring | 7,247 | (7,247) | [2] | — | |||||
Total operating expenses | 460,901 | (17,981) | 442,920 | ||||||
Operating loss | (113,716) | [3] | 18,626 | (95,090) | |||||
Operating margin | (14.2) | % | [3] | (11.9) | % | ||||
Interest expense | (31,566) | 3,886 | [5] | (27,680) | |||||
Interest and other income, net | 2,266 | 2,266 | |||||||
Loss before income taxes | (143,016) | [3] | 22,512 | (120,504) | |||||
Benefit from income taxes | 46,665 | [3] | 29,835 | ||||||
Net loss | $ | (96,351) | [3] | $ | (90,669) | ||||
Net loss per share - basic and diluted | $ | (2.83) | [3] | $ | (2.66) | ||||
Weighted-average shares outstanding - basic and diluted | 34,089 | 34,089 | |||||||
Operating loss | $ | (113,716) | $ | (95,090) | |||||
Stock-based compensation | 23,545 | (911) | [1] | 22,634 | |||||
Amortization of intangible assets | 25,620 | 25,620 | |||||||
Depreciation | 61,199 | (2,232) | [2] | 58,967 | |||||
Adjusted EBITDA | $ | 12,131 | |||||||
Adjusted EBITDA margin | 1.5 | % | |||||||
[1] Charges related to executive transition and strategic review. $0.9 million of the charges was related to stock-based compensation expense for the six months ended June 30, 2019. |
[2] Restructuring charges related to the planned closure of four Lifetouch facilities of which $0.9 million and $2.2 million was related to depreciation expense for the three and six months ended June 30, 2019, respectively. |
[3] The six months ended June 30, 2019, 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. |
[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 six months ended June 30, 2019 due to business combination accounting requirements. |
[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, | Jun. 30, | Dec. 31, | ||||||||||||||
2018 | 2018 | 2018 | 2018 | 2019 | 2019 | 2018 | ||||||||||||||
Net income (loss) | $ | (27,165) | $ | (26,512) | $ | (73,543) | $ | 177,616 | $ | (83,619) | $ | (12,732) | $ | 50,396 | ||||||
Restructuring | — | 2,952 | — | 1,667 | 3,973 | 3,274 | 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 | 8,169 | — | |||||||||||||
Debt repayment impact | — | — | — | — | 3,886 | — | — | |||||||||||||
Tax benefit impact of adjustments | (1,185) | (15,171) | (3,603) | 5,050 | (10,168) | (6,662) | (14,910) | |||||||||||||
Non-GAAP net income (loss) | $ | (23,765) | $ | 13,551 | $ | (70,796) | $ | 187,203 | $ | (82,718) | $ | (7,951) | $ | 106,191 | ||||||
Diluted shares outstanding | 32,702 | 33,234 | 33,470 | 34,218 | 33,918 | 34,254 | 34,832 | |||||||||||||
Non-GAAP diluted shares outstanding | 32,702 | 35,775 | 33,470 | 34,218 | 33,918 | 34,254 | 34,832 | |||||||||||||
Net income (loss) per share | $ | (0.83) | $ | (0.80) | $ | (2.20) | $ | 5.19 | $ | (2.47) | $ | (0.37) | $ | 1.45 | ||||||
Non-GAAP net income (loss) per share | $ | (0.73) | $ | 0.38 | $ | (2.12) | $ | 5.47 | $ | (2.44) | $ | (0.23) | $ | 3.05 | ||||||
Appendix 4.2 | ||||||||||||||||||||
Shutterfly, Inc. | ||||||||||||||||||||
Reconciliation of Net Income (Loss) to Adjusted EBITDA | ||||||||||||||||||||
(In thousands) | ||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||
Three Months Ended | Year Ended | |||||||||||||||||||
Mar. 31, | Jun. 30, | Sep. 30, | Dec. 31, | Mar. 31, | Jun. 30, | Dec. 31, | ||||||||||||||
2018 | 2018 | 2018 | 2018 | 2019 | 2019 | 2018 | ||||||||||||||
Net income (loss) | $ | (27,165) | $ | (26,512) | $ | (73,543) | $ | 177,616 | $ | (83,619) | $ | (12,732) | $ | 50,396 | ||||||
Interest expense | 9,633 | 17,769 | 16,660 | 17,176 | 18,253 | 13,312 | 61,239 | |||||||||||||
Interest and other income, net | (1,749) | (1,561) | (856) | (1,278) | (1,178) | (1,088) | (5,444) | |||||||||||||
Tax (benefit) provision | (14,829) | (12,607) | (28,797) | 65,496 | (39,237) | (7,428) | 9,262 | |||||||||||||
Depreciation and amortization | 24,898 | 40,377 | 41,970 | 43,883 | 42,158 | 42,428 | 151,127 | |||||||||||||
Stock-based compensation | 11,692 | 11,697 | 11,931 | 12,400 | 11,128 | 11,507 | 47,721 | |||||||||||||
Restructuring | — | 2,952 | — | 1,667 | 3,973 | 3,274 | 4,618 | |||||||||||||
Executive transition and strategic review charges | — | — | — | — | 2,565 | 8,169 | — | |||||||||||||
Acquisition-related charges | 4,585 | 8,000 | 2,392 | 572 | — | — | 15,549 | |||||||||||||
Purchase accounting adjustments | — | 44,282 | 3,958 | 2,298 | 645 | — | 50,538 | |||||||||||||
Adjusted EBITDA | $ | 7,065 | $ | 84,397 | $ | (26,285) | $ | 319,830 | $ | (45,312) | $ | 57,442 | $ | 385,006 | ||||||
Appendix 4.3 | ||||||||||||||||||||
Shutterfly, Inc. | ||||||||||||||||||||
Reconciliation of Cash Flow from Operating Activities to Adjusted EBITDA | ||||||||||||||||||||
(In thousands) | ||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||
Three Months Ended | Year Ended | |||||||||||||||||||
Mar. 31, | Jun. 30, | Sep. 30, | Dec. 31, | Mar. 31, | Jun. 30, | Dec. 31, | ||||||||||||||
2018 | 2018[1] | 2018 | 2018 | 2019 | 2019 | 2018 | ||||||||||||||
Net cash (used in) provided by operating activities | $ | (124,332) | $ | (75,233) | $ | 27,041 | $ | 374,450 | $ | (144,115) | (21,502) | $ | 201,926 | |||||||
Interest expense | 9,633 | 17,769 | 16,660 | 17,176 | 18,253 | 13,312 | 61,239 | |||||||||||||
Interest and other income, net | (1,749) | (1,561) | (856) | (1,278) | (1,178) | (1,088) | (5,444) | |||||||||||||
Tax (benefit) provision | (14,829) | (12,607) | (28,797) | 65,496 | (39,237) | (7,428) | 9,262 | |||||||||||||
Changes in operating assets and liabilities | 142,368 | 53,888 | (45,554) | (150,834) | 128,121 | 71,586 | (132) | |||||||||||||
Other adjustments | (8,611) | 47,659 | (1,129) | 11,950 | (12,081) | (7,927) | 49,868 | |||||||||||||
Cash restructuring | — | 2,200 | — | — | 2,626 | 2,320 | 2,200 | |||||||||||||
Cash executive transition and strategic review charges | — | — | — | — | 1,654 | 8,169 | — | |||||||||||||
Acquisition-related charges | 4,585 | 8,000 | 2,392 | 572 | — | — | 15,549 | |||||||||||||
Purchase accounting adjustments | — | 44,282 | 3,958 | 2,298 | 645 | — | 50,538 | |||||||||||||
Adjusted EBITDA | $ | 7,065 | $ | 84,397 | $ | (26,285) | $ | 319,830 | $ | (45,312) | $ | 57,442 | $ | 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 $63.5 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. |
View source version on businesswire.com: https://www.businesswire.com/news/home/20190807005706/en/
Contacts:
Shawn Tabak, 650-610-6026
stabak@shutterfly.com
