2007 ANNUAL REPORT LETTER to STOCKHOLDERS 1 Compensation, and Aone-Time, Non-Cash Charitablecontribution of $923,000 In2006
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Dear Shutterfly Stockholder: We are pleased to report performance for 2007. Founded in 1999, Shutterfly leads the markets for social expression and personal publishing with a growing product and services assortment, and an increasing base of highly satisfied customers. Our premium-quality products enable customers to “tell their stories” in unique and memorable ways – through innovative, personalized greeting cards, photo books, designer social stationery, calendars and other photo-based merchandise. Our customer-friendly website and archive policies make it easy for people to upload, share and preserve their memories securely, while our expanding array of collaboration services enables customers to celebrate life events and connect with their social networks of family and friends. 2007: Rapid Growth and Significant Accomplishments 2007 was a record year of strong execution, and rapid, profitable growth for Shutterfly. Net revenues and annual Adjusted EBITDA1 increased 51% and 52%, respectively, over 2006. We expanded our award-winning photo book line-up to include new occasion-based design templates (such as Wedding and Baby), new holiday themes (such as Valentine’s Day and Halloween) and we introduced new Sesame Street™ and Dora the Explorer™ books. We also added new holiday card form factors and styles, collage posters and collage calendars, and we enhanced our already broad selection of photo-related merchandise. 2007 revenues from personal products and services increased 69% over 2006, comprising 56% of total revenues. Product innovations will continue in 2008, with a premium line of designer social stationery for birth announcements, invitations, thank you cards and additional new products. We extended awareness of Shutterfly’s premium lifestyle brand as the place to “Tell Your Story,” a tagline introduced with an all-new advertising campaign featuring real customers using Shutterfly to stay connected to family and friends. Strong growth in new customers resulted from targeted marketing and a loyal base of existing customers who evangelize the Shutterfly brand. In 2007, 2.4 million customers transacted with Shutterfly, a 37% increase over 2006, with approximately 74% of revenues coming from existing customers. Their enthusiastic word-of-mouth referrals – along with strategic partnerships with leading retailers and complementary brands, unique advertising and results-driven marketing, and outstanding media coverage by leading consumer publications and television news programs – contributed to Shutterfly’s impressive 2007 results. 2008: Becoming a More Meaningful Part of Our Customers’ Lives While still early, we believe that the markets for social expression and personal publishing present an enormous opportunity for Shutterfly. We intend to expand awareness of this category, and to further delight our customers while connecting the Shutterfly brand more meaningfully to their lives. We believe we can achieve our goals by innovating with value-added products and services and a sustained commitment to our corporate objectives. We also intend to increase awareness and trial of Shutterfly by supporting our viral and enthusiastic customer base, and by continuing focused advertising and marketing programs that convey consistent, actionable and compelling messages. In 2008 our investments in innovation will focus on services that enhance our customers’ experience at Shutterfly. We continue to evolve our website to enhance customers’ ability to discover new ways of sharing and preserving their memories. For example, newly-launched Shutterfly Gallery showcases our customers’ amazing photo book creations, and inspires people to tell their stories using our photo books, while simplifying the product creation process and stimulating product sales through our “make one like this” feature. Another example is our 2008 acquisition of Nexo Systems, Inc., a simple but sophisticated technology platform for online sharing and collaboration among members of social networks – including school groups, church groups, sports teams and many others. Shutterfly will also continue to drive manufacturing innovations. In 2007, we opened a second production facility in Charlotte, NC and it is performing very well. We believe we continue to benefit from many cost, quality and delivery ANNUAL REPORT advantages by controlling our manufacturing processes and technology. Shutterfly is well-positioned for 2008 and beyond. Our target markets are large and expanding, and we have a lengthening track BBC eBP - File Name: 31983_WO4_F39180_Cvrs.pdf Apr 12, 2008 Page: 1 of 2 record of strong execution in revenue growth, customer acquisition and retention, and increasing profits. We continue to innovate with new products and services to bind our customers more closely to our premium brand, while we successfully expand overall market awareness, market share and competitive differentiation. In conclusion, I want to extend heartfelt thanks to our employees (and their families) for their enthusiastic commitment to our customers, their tireless energy and their exceptional results. I thank our customers for their passionate evangelism of Shutterfly. On behalf of the entire team at Shutterfly, I thank our stockholders for their continued support of our Company. LETTER TO STOCKHOLDERS Sincerely, 2007 www.shutterfly.com Jeff Housenbold, CEO 2800 Bridge Parkway Redwood City, CA 94065 Shutterfly, Inc. 1Adjusted EBITDA is a non-GAAP financial measure defined as earnings before interest, taxes, depreciation, amortization, cumulative change in accounting principle, stock-based compensation, and a one-time, non-cash charitable contribution of $923,000 in 2006. For complete definitions and reconciliations, please refer to Shutterfly’s SEC filings. Dear Shutterfly Stockholder: We are pleased to report performance for 2007. Founded in 1999, Shutterfly leads the markets for social expression and personal publishing with a growing product and services assortment, and an increasing base of highly satisfied customers. Our premium-quality products enable customers to “tell their stories” in unique and memorable ways – through innovative, personalized greeting cards, photo books, designer social stationery, calendars and other photo-based merchandise. Our customer-friendly website and archive policies make it easy for people to upload, share and preserve their memories securely, while our expanding array of collaboration services enables customers to celebrate life events and connect with their social networks of family and friends. 2007: Rapid Growth and Significant Accomplishments 2007 was a record year of strong execution, and rapid, profitable growth for Shutterfly. Net revenues and annual Adjusted EBITDA1 increased 51% and 52%, respectively, over 2006. We expanded our award-winning photo book line-up to include new occasion-based design templates (such as Wedding and Baby), new holiday themes (such as Valentine’s Day and Halloween) and we introduced new Sesame Street™ and Dora the Explorer™ books. We also added new holiday card form factors and styles, collage posters and collage calendars, and we enhanced our already broad selection of photo-related merchandise. 2007 revenues from personal products and services increased 69% over 2006, comprising 56% of total revenues. Product innovations will continue in 2008, with a premium line of designer social stationery for birth announcements, invitations, thank you cards and additional new products. We extended awareness of Shutterfly’s premium lifestyle brand as the place to “Tell Your Story,” a tagline introduced with an all-new advertising campaign featuring real customers using Shutterfly to stay connected to family and friends. Strong growth in new customers resulted from targeted marketing and a loyal base of existing customers who evangelize the Shutterfly brand. In 2007, 2.4 million customers transacted with Shutterfly, a 37% increase over 2006, with approximately 74% of revenues coming from existing customers. Their enthusiastic word-of-mouth referrals – along with strategic partnerships with leading retailers and complementary brands, unique advertising and results-driven marketing, and outstanding media coverage by leading consumer publications and television news programs – contributed to Shutterfly’s impressive 2007 results. 2008: Becoming a More Meaningful Part of Our Customers’ Lives While still early, we believe that the markets for social expression and personal publishing present an enormous opportunity for Shutterfly. We intend to expand awareness of this category, and to further delight our customers while connecting the Shutterfly brand more meaningfully to their lives. We believe we can achieve our goals by innovating with value-added products and services and a sustained commitment to our corporate objectives. We also intend to increase awareness and trial of Shutterfly by supporting our viral and enthusiastic customer base, and by continuing focused advertising and marketing programs that convey consistent, actionable and compelling messages. In 2008 our investments in innovation will focus on services that enhance our customers’ experience at Shutterfly. We continue to evolve our website to enhance customers’ ability to discover new ways of sharing and preserving their memories. For example, newly-launched Shutterfly Gallery showcases our customers’ amazing photo book creations, and inspires people to tell their stories using our photo books, while simplifying the product creation process and stimulating product