Shutterfly Reports Strong First Quarter Financial Results

REDWOOD CITY, CA—Apr 28, 2010—Shutterfly, Inc., the leading Internet-based social expression and personal publishing service, today announced financial results for the three months ended March 31, 2010.

"Consistent execution against our key strategic initiatives and relentless focus on innovation and the customer drove a 27% year-over-year increase in revenue for the first quarter of 2010," said President and CEO Jeffrey Housenbold. "Our strong performance was fueled by continued growth in our line of personalized products and services which grew 43% over Q1 2009."

First Quarter 2010 Financial Highlights

- Net revenues totaled $45.7 million, a 27% year-over-year increase.

- First quarter 2010 represents the 37th consecutive quarter of year-over-year net revenue growth.

- Personalized Products & Services net revenues totaled $30.5 million, a 43% year-over-year increase.

- Personalized Products & Services net revenues represented 67% of total net revenues.

- Net revenues from prints declined 2% year-over-year, to $13.7 million.

- Commercial print net revenues totaled $1.5 million.

- Gross profit margin was 51% of net revenues, compared to 45% in the first quarter of 2009.

- Operating expenses, excluding $4.2 million of stock-based compensation, totaled $26.9 million.

- GAAP net loss was ($4.7) million, compared to a net loss of ($6.2) million in the first quarter of 2009.

- GAAP net loss per diluted share was ($0.18), compared to ($0.25) in the first quarter of 2009.

- Adjusted EBITDA was $3.4 million, compared to $0.1 million in the first quarter of 2009.

- At March 31, 2010, the Company had $156.8 million of cash, cash equivalents and short-term investments.

First Quarter 2010 Operating Metrics

- Transacting customers totaled 1.1 million, a 21% increase over the first quarter of 2009.

- Orders totaled 1.7 million, a 14% increase over the first quarter of 2009.

- Average order value was $26.43, a 10% increase over the first quarter of 2009.

Business Outlook

The Company's current financial expectations for the second quarter and the full year 2010 are as follows:

Second Quarter 2010:

- Net revenues to range from $43.5 million to $45.5 million, a year-over-year change of 12% to 17%.

- GAAP gross profit margins to range from 45% to 47% of net revenues.

- Non-GAAP gross profit margins to range from 47% to 49% of net revenues.

- GAAP operating loss to range from ($13) million to ($14) million.

- Non-GAAP operating loss to range from ($8) million to ($9) million.

Full Year 2010:

- Net revenues to range from $275 million to $285 million, a year-over-year change of 12% to 16%.

- GAAP gross profit margins to range from 53% to 55% of net revenues.

- Non-GAAP gross profit margins to range from 54% to 56% of net revenues.

- GAAP operating income to range from $8 million to $13 million.

- Non-GAAP operating income to range from $28 million to $33 million.

Notes to the First Quarter 2010 Financial Results, and Business Outlook

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

Free cash flow is a non-GAAP financial measure that the Company defines as Adjusted EBITDA minus purchases of property, plant, and equipment, and capitalization of software and website development costs.

Print revenues consist of photo prints in wallet, 2x6, 4x6, 5x7, 8x10, photocards, and large format sizes.

Personalized Products and Services ("PPS") revenues primarily include photo books, stationery and folded greeting cards, calendars, and photo-based merchandise. PPS also includes revenue from advertising and sponsorship programs and referral fees.

Commercial printing revenues are a separate component of net revenues and are excluded from prints and PPS revenues.

Average order value is defined as total net revenues, excluding commercial printing revenue, divided by total orders.

The foregoing financial guidance replaces any of the Company's previously issued guidance and all such previous guidance should no longer be relied upon.

First Quarter 2010 Conference Call

Management will review the first quarter 2010 financial results and its expectations for the second quarter and full year 2010 on a conference call on Wednesday, April 28, 2010 at 2:00 p.m. Pacific Daylight Time (5:00 p.m. Eastern Daylight Time). To listen to the call and view the accompanying slides, please visit http://www.shutterfly.com. In the Investor Relations area, found in the "About Us" section, click on the link provided for the webcast, or dial 970-315-0490. The webcast, as well as a podcast, will be archived and available at http://www.shutterfly.com. A replay of the conference call will be available through Thursday, May 13, 2010. To hear the replay, please dial 706-645-9291, replay passcode 64578117.

About Non-GAAP Financial Information

This press release contains certain non-GAAP financial measures. Tables are provided at the end of this press release that reconcile the non-GAAP financial measures to the most directly comparable financial measures prepared in accordance with Generally Accepted Accounting Principles (GAAP). These non-GAAP financial measures include non-GAAP gross margins, non-GAAP operating income (loss) and the related operating income (loss) margins, non-GAAP income (loss) per share, adjusted EBITDA and free cash flow. For more information, please see Shutterfly's SEC Filings.

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

About Shutterfly
Founded in 1999, Shutterfly, Inc. is an Internet-based social expression and personal publishing service. Shutterfly provides high quality products and world class services that make it easy, convenient and fun for consumers to preserve their digital photos in a creative and thoughtful manner. Shutterfly's flagship product is its award-winning photo book line, which helps consumers celebrate memories and tell their stories in professionally bound coffee table books. More information about Shutterfly is available at www.shutterfly.com.