(Mark
One)
|
|
R
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
|
For
the fiscal year ended December 31, 2007
|
|
or
|
|
£
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
|
For
the transition period from
to
|
Delaware
|
94-3330068
|
(State
or Other Jurisdiction of Incorporation or Organization)
|
(I.R.S.
Employer Identification No.)
|
2800
Bridge Parkway, Suite 101
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94065
|
Redwood
City, California
(Address
of Principal Executive Offices)
|
(Zip
Code)
|
Title of Each Class
|
Name of Each Exchange on Which
Registered
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Common
Stock, $0.0001 Par Value Per Share
|
Nasdaq
Global Market
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Class
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Outstanding at February 29,
2008
|
Common
stock, $0.0001 par value per share
|
25,001,631 shares
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Page
Number
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||
PART I
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||
ITEM 1.
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Business
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3
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ITEM 1A.
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Risk
Factors
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10
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ITEM 1B.
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Unresolved
Staff
Comments
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18
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ITEM 2.
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Properties
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18
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ITEM 3.
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Legal
Proceedings
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18
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ITEM 4.
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Submission
of Matters to a Vote of Security
Holders
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18
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PART II
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||
ITEM 5.
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Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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19
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ITEM 6.
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Selected
Financial
Data
|
20
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ITEM 7.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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21
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ITEM 7A.
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Quantitative
and Qualitative Disclosures about Market
Risk
|
27
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ITEM 8.
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Financial
Statements and Supplementary
Data
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28
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ITEM 9.
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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47
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ITEM 9A.
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Controls
and
Procedures
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47
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ITEM 9B.
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Other
Information
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47
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PART III
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||
ITEM 10.
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Directors,
Executive Officers and Corporate
Governance
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48
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ITEM 11.
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Executive
Compensation
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48
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ITEM 12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholders Matters
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48
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ITEM 13.
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Certain
Relationships and Related Transactions, and Director
Independence
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48
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ITEM 14.
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Principal
Accountant Fees and
Services
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48
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PART IV
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||
ITEM 15.
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Exhibits
and Financial Statement
Schedules
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48
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|
•
|
Proliferation of digital
cameras and penetration of high-speed
connectivity. The growing use of digital cameras,
largely driven by price decreases, has increased the demand for online
photo-printing services. High-bandwidth, high-speed Internet access has
spurred the integration of the Internet into daily life and provides
consumers with improved performance and speed for sharing information,
especially large files sizes such as digital images. Industry sources
estimate that in 2007, U.S. digital camera unit sales reached
approximately 25 million units. Industry
sources also estimate that 70% of all U.S. households will have
broadband by 2012, with nearly 36 million new broadband subscribers
emerging over the next five years. According to Industry Resources, 61.7%
or approximately 71.4 million U.S. households have both a digital
camera(s) and Internet access.
|
|
•
|
Increasing convenience and
quality of online photo services. Online
photo services provide multiple advantages over at-home printing. Although
at-home photo printing is instantaneous, it requires an investment in a
printer, photo paper and ink, resulting in a much higher cost per print
and is time consuming. The quality rendered from at-home printers is
usually inferior compared to commercially produced prints. In addition,
at-home printers are less capable of producing products that require
binding and / or finishing, such as photo books, calendars and folded
greeting cards.
|
|
In
contrast, online photo services conveniently provide a wide variety of
customized, high-quality photo-based products delivered directly to
consumers’ doorsteps.
|
|
•
|
Growing consumer desire to
find easy, convenient ways to generate personalized
content. Consumers are interested in creating highly
customized and personalized photo-based products and merchandise to
preserve their precious memories, express their creativity and make gift
giving more personal and thoughtful. Improvements in software and photo
editing tools have enabled consumers to modify their photos quickly and
easily using a personal computer. Consumers are now able to create digital
compilations of memories that were previously only possible through a
physical and more time-consuming
process.
|
|
•
|
Participation in online
communities. Consumers have become increasingly
comfortable with using the Internet as a forum for sharing and publishing
information in open or permission-based networks. Many of the most popular
online communities include user-generated, rich-media content such as
photos and videos because of visual content’s inherent ability to
communicate more powerfully than the written
word.
|
|
•
|
Greeting cards and
stationery. According to the Greeting Card Association’s
website, U.S. consumers purchase approximately 7 billion
greeting cards each year, generating nearly $7.5 billion in retail
sales. More than 90 percent of all U.S. households buy greeting
cards, with the average household purchasing 30 individual cards per
year. The Greeting Card Association also reports that nine out of ten
Americans say they look forward to receiving personal letters and greeting
cards because cards allow them to keep in touch with friends and family
and make them feel they are important to someone
else.
|
|
•
|
Scrapbooks. According
to a 2007 survey by Creating Keepsakes, the addressable markets for the US
scrapbook industry was approximately $2.87 billion in 2007 up from $2.55
billion in 2004. Additionally, approximately 82% of scrapbookers
have at least a college degree and spend almost four hours a week
assembling their memories into
scrapbooks.
|
|
•
|
Calendars. A
2002 guide published by the Calendar Marketing Association estimated that
500 million calendars are produced annually in the United States and that
approximately 98% of American households have at least one
calendar.
|
|
•
|
Photo
prints. Industry sources estimate that the number of
digital images printed in the U.S. in 2006 reached 15 billion. Total
U.S. digital revenue reached approximately $9 billion in 2007, growing to
approximately $12 billion in
2011.
|
|
•
|
Photo-based
merchandise. Photo-based merchandise is a substantial
market opportunity that includes any product that can be customized with
the imprint of a digital image. Photo-based merchandise includes, but is
not limited to, photo calendars, photo greeting cards and photo
books. Industry sources estimate that U.S. revenue from photo-based
merchandise reached approximately $560 million in 2007, growing to
approximately $1.5 billion in 2012.
|
|
•
|
sharing
and preserving memories for family, friends and
themselves;
|
|
•
|
organizing
all of their photos in a safe and easily accessible
location;
|
|
•
|
maintaining
emotional connections with friends and family, despite being
time-constrained, through thoughtful and personal photo-based
communications and gifts; and
|
|
•
|
achieving
satisfaction and self-expression through creativity and telling stories
via photos and personalized photo-based products and
services.
|
|
•
|
greater
consistency and quality of output;
|
|
•
|
increased
ability to control and optimize costs for raw materials and
production;
|
|
•
|
fully
automated image processing and print
scheduling;
|
|
•
|
more
flexibility to provide rapid, responsive order fulfillment and
processing;
|
|
•
|
assured
high-quality capacity, even during peak demand such as the fourth quarter
holiday season;
|
|
•
|
additional
insights into new and existing photo products and production
processes;
|
|
•
|
rapid
prototyping, testing and refinement of new products and
services; and
|
|
•
|
the
ability to address customer inquiries
quickly.
|
|
•
|
an
easy-to-use search capability for our customers to find products and
services;
|
|
•
|
new
adventure books featuring Dora the Explorer and Sesame
Street;
|
|
•
|
designer
cards from popular designers;
|
|
•
|
additional
photo gift products such as photo
ornaments;
|
|
•
|
dozens
of collage formats on calendars and poster prints;
and
|
|
•
|
partnership
with Target for pick up at Target retail
stores.
|
|
•
|
a
significantly expanded product offering, with many form factors and design
choices including personalized photo covers with printing on the spine,
8x8 Story Books and 12x12 Memory
Books;
|
|
•
|
a
wide variety of background designs including numerous pre-set style
templates organized across popular categories such as Wedding, Travel,
Birthday, Baby, Kids, Class Year Book, Recipe Book, Portfolio and
Journal;
|
|
•
|
dozens
of collage formats on our greeting-cards and
calendars;
|
|
•
|
licensed
content from Martha Stewart, Dora the Explorer, Go Diego Go, Sesame
Street, Clifford the Big Red Dog, Thomas and Friends, and Angelina
Ballerina; and
|
|
•
|
digi-scrap
capabilities which allow for customers to upload their digi-scrap designs
onto photo book pages or covers.
|
|
•
|
online
digital photography services companies such as Kodak EasyShare Gallery
(formerly known as Ofoto), Snapfish, which is a service of
Hewlett-Packard, American Greetings’ Photoworks and Webshots brands, and
others;
|
|
•
|
“Big
Box” retailers such as Wal-Mart, Costco and others that are seeking to
offer low cost digital photography products and services. These
competitors provide in-store fulfillment and self-service kiosks for
printing, which may, among other strategies, offer their customers heavily
discounted in-store products and services that compete directly with our
offerings;
|
|
•
|
drug
stores such as Walgreens, CVS and others that offer in-store pick-up from
Internet orders;
|
|
•
|
regional
photography companies such as Wolf Camera and Ritz Camera that have
established brands and customer bases in existing photography
markets;
|
|
•
|
Internet
portals and search engines such as Yahoo!, AOL, and Google that offer
broad-reaching digital photography and related products and services to
their large user bases;
|
|
•
|
home
printing service providers such as Hewlett-Packard, Epson and Canon, that
are seeking to expand their printer and ink businesses by gaining market
share in the emerging digital photography
marketplace; and
|
|
•
|
photo-related
software companies such as Adobe, Apple, Microsoft, Corel and
others.
|
|
We
believe the primary competitive factors in attracting and retaining
customers are:
|
|
•
|
brand
recognition and trust;
|
|
•
|
quality
of products and services;
|
|
•
|
breadth
of products and services;
|
|
•
|
user
affinity and loyalty;
|
|
•
|
customer
service;
|
|
•
|
ease
of use;
|
|
•
|
convenience; and
|
|
•
|
price.
|
|
•
|
The
CAN-SPAM Act of 2003 and similar laws adopted by a number of states. These
laws are intended to regulate unsolicited commercial e-mails, create
criminal penalties for unmarked sexually-oriented material and e-mails
containing fraudulent headers and control other abusive online marketing
practices.
|
|
•
|
The
Communications Decency Act, which gives statutory protection to online
service providers who distribute third-party
content.
|
|
•
|
The
Digital Millennium Copyright Act, which is intended to reduce the
liability of online service providers for listing or linking to
third-party websites that include materials that infringe copyrights or
other rights of others.
|
|
•
|
The
Children’s Online Privacy Protection Act and the Prosecutorial Remedies
and Other Tools to End Exploitation of Children Today Act of 2003, which
are intended to restrict the distribution of certain materials deemed
harmful to children and impose additional restrictions on the ability of
online services to collect user information from minors. In addition, the
Protection of Children From Sexual Predators Act of 1998 requires online
service providers to report evidence of violations of federal child
pornography laws under certain
circumstances.
|
|
•
|
Statutes
adopted in the State of California require online services to report
certain breaches of the security of personal data, and to report to
California consumers when their personal data might be disclosed to direct
marketers.
|
•
|
demand
for our products and services, including seasonal
demand;
|
•
|
our
pricing and marketing strategies and those of our
competitors;
|
•
|
our
ability to attract visitors to our website and convert those visitors into
customers;
|
•
|
our
ability to retain customers and encourage repeat
purchases;
|
our
ability to sustain our profit margins, and our ability to diversify our
product offerings and sell to consumers photo-based products such as photo
books, calendars and cards;
|
•
|
the
costs of customer acquisition;
|
•
|
our
ability to manage our production and fulfillment
operations;
|
•
|
the
costs to produce our prints and photo-based products and merchandise and
to provide our services;
|
•
|
the
costs of expanding or enhancing our technology or
website;
|
•
|
a
significant increase in returns and credits, beyond our estimated
allowances, for customers who are not satisfied with our
products;
|
•
|
declines
or disruptions to the travel
industry;
|
•
|
variations
in weather, particularly heavy rain and snow which tend to depress travel
and picture taking;
|
•
|
the
timing of holidays;
|
•
|
volatility
in our stock price, which may lead to higher stock-based compensation
expense;
|
•
|
consumer
preferences for digital photography services;
and
|
•
|
improvements
to the quality, cost and convenience of desktop printing of digital
pictures and products.
|
•
|
maintain
and increase the size of our customer
base;
|
maintain
and enhance our brand;
|
•
|
maintain
and grow our website and customer
operations;
|
•
|
enhance
and expand our products and
services;
|
•
|
successfully
execute our business and marketing
strategy;
|
•
|
continue
to develop and upgrade our technology and information processing
systems;
|
•
|
continue
to enhance our service to meet the needs of a changing
market;
|
•
|
provide
superior customer service;
|
•
|
respond
to competitive developments; and
|
•
|
attract,
integrate, retain and motivate qualified
personnel.
|
•
|
Online
digital photography services companies such as Kodak EasyShare Gallery
(formerly known as Ofoto), Snapfish, which is a service of
Hewlett-Packard, American Greetings’ Photoworks and Webshots brands, and
others;
|
•
|
“Big
Box” retailers such as Wal-Mart, Costco and others that are seeking to
offer low cost digital photography products and services, such as in-store
fulfillment and self-service kiosks for printing; these competitors may,
among other strategies, offer their customers heavily discounted in-store
products and services that compete directly with our
offerings;
|
•
|
Drug
stores such as Walgreens, CVS and others that offer in-store pick-up from
Internet orders;
|
•
|
Regional
photography companies such as Wolf Camera and Ritz Camera that have
established brands and customer bases in existing photography
markets;
|
•
|
Internet
portals and search engines such as Yahoo!, AOL, Google that offer
broad-reaching digital photography and related products and services to
their large user bases;
|
•
|
Home
printing service providers such as Hewlett-Packard, Epson and Canon, that
are seeking to expand their printer and ink businesses by gaining market
share in the emerging digital photography marketplace;
and
|
•
|
Photo-related
software companies such as Adobe, Apple, Microsoft, Corel and
others.
|
•
|
the
inability to physically handle and examine product
samples;
|
•
|
delivery
time associated with Internet
orders;
|
•
|
concerns
about the security of online transactions and the privacy of personal
information;
|
•
|
delayed
shipments or shipments of incorrect or damaged products;
and
|
•
|
inconvenience
associated with returning or exchanging purchased
items.
|
•
|
price
and volume fluctuations in the overall stock
market;
|
•
|
changes
in operating performance and stock market valuations of other technology
companies generally, or those in our industry in
particular;
|
•
|
the
financial projections we may provide to the public, any changes in these
projections or our failure to meet these
projections;
|
•
|
changes
in financial estimates by any securities analysts who follow our company,
our failure to meet these estimates or failure of those analysts to
initiate or maintain coverage of our
stock;
|
•
|
ratings
downgrades by any securities analysts who follow our
company;
|
•
|
the
public’s response to our press releases or other public announcements,
including our filings with the SEC;
|
|
•
|
announcements
by us or our competitors of significant technical innovations,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
|
•
|
introduction
of technologies or product enhancements that reduce the need for our
products;
|
•
|
market
conditions or trends in our industry or the macro-economy as a
whole;
|
•
|
impairment
or loss in value of our investments in auction rate
securities;
|
•
|
the
loss of key personnel;
|
•
|
lawsuits
threatened or filed against us;
|
•
|
future
sales of our common stock by our executive officers, directors and
significant stockholders; and
|
•
|
other
events or factors, including those resulting from war, incidents of
terrorism or responses to these
events.
|
•
|
our
board is classified into three classes of directors, each with staggered
three-year terms;
|
•
|
only
our chairman, our chief executive officer, our president, or a majority of
our board of directors is authorized to call a special meeting of
stockholders;
|
•
|
our
stockholders may take action only at a meeting of stockholders and not by
written consent;
|
•
|
vacancies
on our board of directors may be filled only by our board of directors and
not by stockholders;
|
•
|
our
certificate of incorporation authorizes undesignated preferred stock, the
terms of which may be established and shares of which may be issued
without stockholder approval; and
|
•
|
advance
notice procedures apply for stockholders to nominate candidates for
election as directors or to bring matters before an annual meeting of
stockholders.
|
Year Ended December 31,
2006
|
High
|
Low
|
Third
Quarter
|
$16.73
|
$15.01
|
Fourth
Quarter
|
$16.29
|
$12.05
|
Year Ended December 31,
2007
|
High
|
Low
|
First
Quarter
|
$18.53
|
$13.38
|
Second
Quarter
|
$22.92
|
$15.92
|
Third
Quarter
|
$32.46
|
$21.80
|
Fourth
Quarter
|
$36.40
|
$25.59
|
|
•
|
Underwriting
discounts and commissions —
$6,090,000
|
|
•
|
Other
expenses — $2,442,000
|
|
•
|
Total
expenses — $8,533,000
|
Year Ended
December 31,
|
|||||
2007
|
2006
|
2005
|
2004
|
2003
|
|
(In
thousands, except per share amounts)
|
|||||
Consolidated
Income Statement Data:
|
|||||
Net
revenues
|
$186,727
|
$123,353
|
$83,902
|
$54,499
|
$31,395
|
Cost
of net revenues(1)
|
84,111
|
55,491
|
36,941
|
24,878
|
14,310
|
Gross
profit
|
102,616
|
67,862
|
46,961
|
29,621
|
17,085
|
Operating
expenses:
|
|||||
Technology
and development(1)
|
28,635
|
19,087
|
13,152
|
7,433
|
4,970
|
Sales
and marketing(1)
|
33,363
|
21,940
|
15,252
|
7,705
|
3,991
|
General
and administrative(1)
|
29,557
|
19,216
|
13,657
|
10,126
|
5,629
|
Total
operating expense
|
91,555
|
60,243
|
42,061
|
25,264
|
14,590
|
Income
from operations
|
11,061
|
7,619
|
4,900
|
4,357
|
2,495
|
Interest
expense
|
(179)
|
(266)
|
(367)
|
(471)
|
(392)
|
Other
income (expense) net
|
5,515
|
2,387
|
(103)
|
81
|
9
|
Income
before income taxes and cumulative
effect
of change in accounting principle
|
16,397
|
9,740
|
4,430
|
3,967
|
2,112
|
(Provision)
/ benefit for income taxes(2)
|
(6,302)
|
(3,942)
|
24,060
|
(258)
|
(68)
|
Net
income before cumulative effect
of
change in accounting principle(2)
|
10,095
|
5,798
|
28,490
|
3,709
|
2,044
|
Cumulative
effect of change in accounting principle
|
—
|
—
|
442
|
—
|
—
|
Net
income (2)
|
$10,095
|
$5,798
|
$28,932
|
$3,709
|
$2,044
|
Net
income per share:
|
|||||
Basic
|
$ 0.42
|
$ 0.67
|
$ 1.45
|
$ —
|
$ —
|
Diluted
|
$ 0.38
|
$ 0.56
|
$ 1.02
|
$ —
|
$ —
|
Weighted
Average Shares
|
|||||
Basic
|
24,295
|
8,622
|
3,255
|
2,231
|
1,574
|
Diluted
|
26,273
|
10,331
|
4,609
|
2,231
|
1,574
|
(1)
|
Includes
stock-based compensation as
follows:
|
Year Ended
December 31,
|
|||||
2007
|
2006
|
2005
|
2004
|
2003
|
|
(In
thousands)
|
|||||
Cost
of net revenues
|
$189
|
$ 96
|
$ 28
|
$ 21
|
$ 3
|
Technology
and development
|
880
|
736
|
826
|
263
|
32
|
Sales
and marketing
|
877
|
521
|
239
|
117
|
11
|
General
and administration
|
2,055
|
947
|
2,217
|
1,790
|
124
|
$4,001
|
$2,300
|
$3,310
|
$2,191
|
$ 170
|
(2)
|
See
“Management’s Discussion and Analysis of Financial Condition and Results
of Operations — Critical Accounting Policies and Estimates —
Income Taxes” for a discussion of the uncertainty related to our deferred
tax asset.
|
December 31,
|
|||||
2007
|
2006
|
2005
|
2004
|
2003
|
|
(In
thousands)
|
|||||
Consolidated
Balance Sheet Data:
|
|||||
Cash,
cash equivalents, and short term investments
|
$125,584
|
$119,051
|
$39,153
|
$13,781
|
$10,670
|
Property
and equipment, net
|
48,416
|
30,919
|
20,761
|
11,723
|
5,140
|
Working
capital
|
104,025
|
102,165
|
22,687
|
690
|
2,002
|
Total
assets
|
208,770
|
180,160
|
89,552
|
29,865
|
17,754
|
Capital
lease obligations, less current portion
|
107
|
1,742
|
3,646
|
2,709
|
1,314
|
Preferred
stock warrant liability
|
—
|
—
|
1,535
|
—
|
—
|
Redeemable
convertible preferred stock
|
—
|
—
|
89,652
|
69,822
|
69,668
|
Total
stockholders’ equity (deficit)
|
170,566
|
151,326
|
(27,262)
|
(59,568)
|
(65,333)
|
Year Ended
December 31,
|
|||
2007
|
2006
|
2005
|
|
Net
revenues
|
100%
|
100%
|
100%
|
Cost
of revenues
|
45%
|
45%
|
44%
|
Gross
profit
|
55%
|
55%
|
56%
|
Operating
expenses:
|
|||
Technology
and development
|
15%
|
15%
|
16%
|
Sales
and marketing
|
18%
|
18%
|
18%
|
General
and administrative
|
16%
|
16%
|
16%
|
Income
from operations
|
6%
|
6%
|
6%
|
Interest
expense
|
0%
|
0%
|
0%
|
Other
income, net
|
2%
|
2%
|
0%
|
Income
before income taxes
|
8%
|
8%
|
6%
|
Benefit
(provision) for income taxes
|
(3)%
|
(3)%
|
29%
|
Net
income
|
5%
|
5%
|
35%
|
Year Ended
December 31,
|
||||
2007
|
2006
|
$ Change
|
% Change
|
|
(In
thousands)
|
||||
Net
revenues
|
$186,727
|
$
123,353
|
$ 63,374
|
51%
|
Cost
of net revenues
|
$84,111
|
$ 55,491
|
$ 28,620
|
52%
|
Percentage of net
revenues
|
45%
|
45%
|
-
|
-
|
Gross
profit
|
$102,616
|
$ 67,862
|
$ 34,754
|
51%
|
Year Ended December 31, | ||||
2007
|
2006
|
Change
|
%
Change
|
|
(In
thousands, except AOV amounts)
|
||||
Customers
|
2,357
|
1,725
|
632
|
37%
|
Orders
|
7,062
|
5,105
|
1,957
|
38%
|
Average
order
value
|
$26.44
|
$24.16
|
$2.28
|
9%
|
Year Ended
December 31,
|
||||
2007
|
2006
|
$ Change
|
% Change
|
|
(In
thousands)
|
||||
Technology
and development
|
$28,635
|
$19,087
|
$ 9,548
|
50%
|
Percentage of net
revenues
|
15%
|
15%
|
-
|
-
|
Sales
and marketing
|
$33,363
|
$21,940
|
$
11,423
|
52%
|
Percentage of net
revenues
|
18%
|
18%
|
-
|
-
|
General
and administrative
|
$29,557
|
$19,216
|
$
10,341
|
54%
|
Percentage of net
revenues
|
16%
|
16%
|
-
|
-
|
Year Ended
December 31,
|
|||
2007
|
2006
|
Change
|
|
(In
thousands)
|
|||
Interest
Expense
|
$(179)
|
$(266)
|
$ 87
|
Other
income, net
|
$5,515
|
$2,387
|
$3,128
|
Year Ended
December 31,
|
||
2007
|
2006
|
|
(In
thousands)
|
||
Income
tax provision
|
$(6,302)
|
$(3,942)
|
Effective
tax rate
|
38%
|
40%
|
Year Ended
December 31,
|
|||||
2007
|
2006
|
$ Change
|
% Change
|
||
(In
thousands)
|
|||||
Income
before income taxes
|
$16,397
|
$9,740
|
$ 6,657
|
68%
|
|
Net
income
|
$10,095
|
$5,798
|
$ 4,297
|
74%
|
|
Percentage of net
revenues
|
5%
|
5%
|
-
|
-
|
Year Ended
December 31,
|
||||
2006
|
2005
|
$ Change
|
% Change
|
|
(In
thousands)
|
||||
Net
revenues
|
$123,353
|
$83,902
|
$ 39,451
|
47%
|
Cost
of net revenues
|
$55,491
|
$36,941
|
$ 18,550
|
50%
|
Percentage of net
revenues
|
45%
|
44%
|
-
|
-
|
Gross
profit
|
67,862
|
46,961
|
20,901
|
45%
|
Year Ended
December 31,
|
||||
2006
|
2005
|
Change
|
%
Change
|
|
(In
thousands, except AOV amounts)
|
||||
Customers
|
1,725
|
1,219
|
506
|
42%
|
Orders
|
5,105
|
3,650
|
1,455
|
40%
|
Average
order
value
|
$24.16
|
$22.99
|
$1.17
|
5%
|
Year Ended
December 31,
|
||||
2006
|
2005
|
$ Change
|
% Change
|
|
(In
thousands)
|
||||
Technology
and development
|
$19,087
|
$13,152
|
$ 5,935
|
45%
|
Percentage of net
revenues
|
15%
|
16%
|
-
|
-
|
Sales
and marketing
|
$21,940
|
$15,252
|
$ 6,688
|
44%
|
Percentage of net
revenues
|
18%
|
18%
|
-
|
-
|
General
and administrative
|
$19,216
|
$13,657
|
$ 5,559
|
41%
|
Percentage of net
revenues
|
16%
|
16%
|
-
|
-
|
Year Ended
December 31,
|
|||
2006
|
2005
|
Change
|
|
(in
thousands)
|
|||
Interest
expense
|
$(266)
|
$(367)
|
$ 101
|
Other
income (expense), net
|
$2,387
|
$(103)
|
$2,490
|
Year Ended
December 31
|
||
2006
|
2005
|
|
(In
thousands)
|
||
Income
tax benefit (provision)
|
$(3,942)
|
$24,060
|
Effective
tax rate
|
40%
|
494%
|
Year Ended
December 31,
|
||||
2006
|
2005
|
$ Change
|
% Change
|
|
(In
thousands)
|
||||
Income
before income taxes and cumulative effect of change in accounting
principle
|
$9,740
|
$4,430
|
$ 5,310
|
120%
|
Net
income
|
$5,798
|
$ 28,932
|
$(23,134)
|
(80%)
|
Percentage of net
revenue
|
5%
|
35%
|
-
|
-
|
Year Ended
December 31,
|
|||
2007
|
2006
|
2005
|
|
(In
thousands)
|
|||
Consolidated
Statement of Cash Flows Data:
|
|||
Capital
expenditures
|
$34,993
|
$20,681
|
$10,858
|
Acquisition
of business and intangibles, net of cash acquired
|
2,858
|
-
|
(239)
|
Depreciation
and amortization
|
17,796
|
10,747
|
6,522
|
Cash
flows from operating activities
|
42,219
|
23,485
|
18,606
|
Cash
flows from investing activities
|
(40,823)
|
(20,681)
|
(10,613)
|
Cash
flows from financing activities
|
2,135
|
77,094
|
17,379
|
Total
|
Less
Than
1 Year
|
1-3 Years
|
3-5 Years
|
More
Than
5 Years
|
|
(In
thousands)
|
|||||
Contractual
Obligations
|
|||||
Capital
lease obligations
|
$ 975
|
$864
|
$111
|
$ —
|
$ —
|
Operating
lease obligations
|
9,391
|
2,548
|
4,766
|
2,077
|
—
|
Purchase
obligations(1)
|
2,821
|
2,620
|
201
|
—
|
—
|
Total
contractual obligations
|
$13,187
|
$6,032
|
$5,078
|
$2,077
|
$___
---
|
(1)
|
Purchase
obligations include commitments under non-cancelable marketing agreements,
license agreements, and third-party hosting
services.
|
Report
of Independent Registered Public Accounting Firm
|
29
|
Consolidated
Balance Sheets
|
30
|
Consolidated
Statements of Income
|
31
|
Consolidated
Statements of Redeemable Convertible Preferred Stock and Stockholders’
Equity (Deficit)
|
32
|
Consolidated
Statements of Cash Flows
|
35
|
Notes
to Consolidated Financial Statements
|
36
|
Schedule
II – Valuation and Qualifying Accounts
|
47
|
December 31,
|
||||||||
2007
|
2006
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 122,582 | $ | 119,051 | ||||
Short-term
investments
|
3,002 | — | ||||||
Accounts
receivable, net
|
4,480 | 2,164 | ||||||
Inventories
|
4,788 | 2,493 | ||||||
Deferred
tax asset, current portion
|
1,677 | 2,129 | ||||||
Prepaid
expenses and other current assets
|
4,510 | 2,760 | ||||||
Total
current assets
|
141,039 | 128,597 | ||||||
Property
and equipment, net
|
48,416 | 30,919 | ||||||
Goodwill
and intangible assets, net
|
3,859 | 1,396 | ||||||
Deferred
tax asset, net of current portion
|
13,294 | 18,754 | ||||||
Other
assets
|
2,162 | 494 | ||||||
Total
assets
|
$ | 208,770 | $ | 180,160 | ||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$ | 8,783 | $ | 9,385 | ||||
Accrued
liabilities
|
18,724 | 8,808 | ||||||
Deferred
revenue
|
8,699 | 6,278 | ||||||
Current
portion of capital lease obligations
|
808 | 1,961 | ||||||
Total
current liabilities
|
37,014 | 26,432 | ||||||
Other
liabilities
|
1,083 | 660 | ||||||
Capital
lease obligations, less current portion
|
107 | 1,742 | ||||||
Total
liabilities
|
38,204 | 28,834 | ||||||
Commitments
and contingencies (Note 6)
|
||||||||
Stockholders’
equity:
|
||||||||
Undesignated
preferred stock, $0.0001 par value; 5,000 shares authorized at
December 31, 2007 and 2006, respectively; no shares issued and
outstanding
|
— | — | ||||||
Common
stock, $0.0001 par value; 100,000 shares authorized; 24,805 and
23,705 shares issued and outstanding at December 31, 2007 and
December 31, 2006, respectively
|
2 | 2 | ||||||
Additional
paid-in capital
|
190,849 | 181,890 | ||||||
Accumulated
other comprehensive loss
|
(12 | ) | (35 | ) | ||||
Deferred
stock-based compensation
|
(28 | ) | (191 | ) | ||||
Accumulated
deficit
|
(20,245 | ) | (30,340 | ) | ||||
Total
stockholders’ equity
|
170,566 | 151,326 | ||||||
Total
liabilities and stockholders’ equity
|
$ | 208,770 | $ | 180,160 |
December 31,
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
Net
revenues
|
$ | 186,727 | $ | 123,353 | $ | 83,902 | ||||||
Cost
of net revenues(1)
|
84,111 | 55,491 | 36,941 | |||||||||
Gross
profit
|
102,616 | 67,862 | 46,961 | |||||||||
Operating
expenses(1):
|
||||||||||||
Technology
and development
|
28,635 | 19,087 | 13,152 | |||||||||
Sales
and marketing
|
33,363 | 21,940 | 15,252 | |||||||||
General
and administrative
|
29,557 | 19,216 | 13,657 | |||||||||
91,555 | 60,243 | 42,061 | ||||||||||
Income
from operations
|
11,061 | 7,619 | 4,900 | |||||||||
Interest
expense
|
(179 | ) | (266 | ) | (367 | ) | ||||||
Other
income (expense), net
|
5,515 | 2,387 | (103 | ) | ||||||||
Income
before income taxes and cumulative effect of change in accounting
principle
|
16,397 | 9,740 | 4,430 | |||||||||
(Provision)
benefit for income taxes
|
(6,302 | ) | (3,942 | ) | 24,060 | |||||||
Net
income before cumulative effect of change in accounting
principle
|
10,095 | 5,798 | 28,490 | |||||||||
Cumulative
effect of change in accounting principle, net of tax
benefit
|
— | — | 442 | |||||||||
Net
income
|
$ | 10,095 | $ | 5,798 | $ | 28,932 | ||||||
Net
income per share — basic and diluted:
|
||||||||||||
Before
cumulative effect of change in accounting principle
|
$ | 0.42 | $ | 0.67 | $ | 1.31 | ||||||
Cumulative
effect of change in accounting principle, net of tax
benefit
|
— | — | 0.14 | |||||||||
Basic
|
$ | 0.42 | $ | 0.67 | $ | 1.45 | ||||||
Diluted
|
$ | 0.38 | $ | 0.56 | $ | 1.02 | ||||||
Weighted
average shares:
|
||||||||||||
Basic
|
24,295 | 8,622 | 3,255 | |||||||||
Diluted
|
26,273 | 10,331 | 4,609 | |||||||||
______________
|
||||||||||||
(1) Stock-based
compensation is allocated as follows (Notes 2 and 7):
|
||||||||||||
Cost
of net revenues
|
$ | 189 | $ | 96 | $ | 28 | ||||||
Technology
and development
|
880 | 736 | 826 | |||||||||
Sales
and marketing
|
877 | 521 | 239 | |||||||||
General
and administrative
|
2,055 | 947 | 2,217 |
Redeemable
|
Accumulated
|
||||||||
Convertible
|
Additional
|
Deferred
|
|
Other
|
Total
|
||||
Preferred Stock
|
Common Stock
|
Paid-In
|
Stock-Based
|
Accumulated
|
Comprehensive
|
Stockholders’
|
|||
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Compensation
|
Deficit
|
Loss
|
Equity (Deficit)
|
|
Balances,
December 31, 2004
|
12,448
|
$69,822
|
2,827
|
$—
|
$ 7,505
|
$(2,003)
|
$(65,070)
|
$ —
|
$(59,568)
|
Issuance
of common stock upon exercise of options, net of
repurchases
|
—
|
—
|
750
|
—
|
205
|
—
|
—
|
—
|
205
|
Issuance
of Series F preferred stock, net of issuance cost of
$131
|
1,354
|
19,830
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
Stock-based
compensation expense in connection with option
modifications
|
—
|
—
|
—
|
—
|
—
|
1,100
|
—
|
——
|
1,100
|
Shares
issued in connection with a settlement agreement with a former
employee
|
—
|
—
|
65
|
—
|
352
|
—
|
—
|
—
|
352
|
Vested
shares issued upon acquisition
|
—
|
—
|
109
|
—
|
656
|
—
|
—
|
—
|
656
|
Restricted
shares issued upon acquisition
|
—
|
—
|
—
|
—
|
671
|
(671)
|
—
|
—
|
—
|
Vesting
of restricted
shares
|
—
|
—
|
39
|
—
|
—
|
500
|
—
|
—
|
500
|
Deferred
stock-based compensation, net of cancellations
|
—
|
—
|
—
|
—
|
2,261
|
(2,261)
|
—
|
—
|
—
|
Tax
benefit of stock
options
|
—
|
—
|
—
|
—
|
365
|
—
|
—
|
—
|
365
|
Amortization
of deferred stock-based compensation, net of cancellations
|
—
|
—
|
—
|
—
|
—
|
1,710
|
—
|
—
|
1,710
|
Reclassification
of preferred stock warrants to liability
|
—
|
—
|
—
|
—
|
(1,514)
|
—
|
—
|
—
|
(1,514)
|
Comprehensive
income:
|
|||||||||
Net
income
|
—
|
—
|
—
|
—
|
—
|
—
|
28,932
|
—
|
28,932
|
Total
comprehensive income
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
28,932
|
Balances,
December 31, 2005
|
13,802
|
$89,652
|
3,790
|
$—
|
$10,501
|
$(1,625)
|
$(36,138)
|
$ —
|
$(27,262)
|
Redeemable
|
Accumulated
|
||||||||
Convertible
|
Additional
|
Deferred
|
|
Other
|
Total
|
||||
Preferred
Stock
|
Common
Stock
|
Paid-In
|
Stock-Based
|
Accumulated
|
Comprehensive
|
Stockholders’
|
|||
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Compensation
|
Deficit
|
Loss
|
Equity (Deficit)
|
|
Balances,
December 31, 2005
|
13,802
|
$89,652
|
3,790
|
$—
|
$10,501
|
$(1,625)
|
$(36,138)
|
$ —
|
$(27,262)
|
Issuance
of common stock upon exercise of options, net of
repurchases
|
—
|
—
|
127
|
—
|
101
|
—
|
—
|
—
|
101
|
Issuance
of common stock upon effective date of initial public offering (“IPO”),
net of underwriting fees of $6,090 and other expenses of
$2,442
|
—
|
—
|
5,800
|
1
|
78,467
|
—
|
—
|
—
|
78,468
|
Issuance
of Series A preferred stock upon net exercise of
warrants
|
61
|
143
|
—
|
—
|
(143)
|
—
|
—
|
—
|
(143)
|
Transfer
of preferred stock warrant liability related to Series A preferred
stock
|
—
|
—
|
—
|
—
|
871
|
—
|
—
|
—
|
871
|
Automatic
conversion of preferred stock to common stock upon effective date of
IPO
|
(13,863)
|
(89,795)
|
13,863
|
1
|
89,794
|
—
|
—
|
—
|
89,795
|
Transfer
of preferred stock warrant liability upon conversion of preferred stock
warrants into common stock warrants
|
—
|
—
|
—
|
—
|
510
|
—
|
—
|
—
|
510
|
Reversal
of unearned stock based compensation upon modification of
options
|
—
|
—
|
—
|
—
|
(526)
|
526
|
—
|
—
|
—
|
Vesting
of restricted
shares
|
—
|
—
|
60
|
—
|
—
|
94
|
—
|
—
|
94
|
Cancellation
of common stock options and restricted shares
|
—
|
—
|
—
|
—
|
(249)
|
249
|
—
|
—
|
—
|
Amortization
of deferred stock-based compensation, net of cancellations
|
—
|
—
|
—
|
—
|
—
|
565
|
—
|
—
|
565
|
Employees
stock-based compensation expense recognized under SFAS No. 123R,
net of estimated forfeiture
|
—
|
—
|
—
|
—
|
1,641
|
—
|
—
|
—
|
1,641
|
Donation
of common stock to a charitable foundation
|
—
|
—
|
65
|
—
|
923
|
—
|
—
|
—
|
923
|
Change
in unrealized loss in investments, net of tax
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(35)
|
(35)
|
Net
income
|
—
|
—
|
—
|
—
|
—
|
—
|
5,798
|
—
|
5,798
|
Total
comprehensive income
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
5,763
|
Balances,
December 31, 2006
|
—
|
—
|
23,705
|
$ 2
|
$181,890
|
$(191)
|
$(30,340)
|
$(35)
|
$151,326
|
Redeemable
|
Accumulated
|
||||||||
Convertible
|
Additional
|
Deferred
|
|
Other
|
Total
|
||||
Preferred Stock
|
Common Stock
|
Paid-In
|
Stock-Based
|
Accumulated
|
Comprehensive
|
Stockholders’
|
|||
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Compensation
|
Deficit
|
Loss
|
Equity(Deficit)
|
|
Balances,
December 31, 2006
|
—
|
—
|
23,705
|
$ 2
|
$181,890
|
$(191)
|
$(30,340)
|
$(35)
|
$151,326
|
Issuance
of common stock upon net exercise of warrants
|
—
|
—
|
27
|
—
|
—
|
—
|
—
|
—
|
—
|
Issuance
of common stock upon exercise of options, net of
repurchases
|
—
|
—
|
1,073
|
—
|
4,983
|
—
|
—
|
—
|
4,983
|
Cancellation
of common stock options and restricted shares
|
—
|
—
|
—
|
—
|
(162)
|
162
|
—
|
—
|
—
|
Amortization
of deferred stock-based compensation, net of cancellations
|
—
|
—
|
—
|
—
|
—
|
1
|
—
|
—
|
1
|
Employees
stock-based compensation expense recognized under SFAS No. 123R,
net of estimated forfeiture
|
—
|
—
|
—
|
—
|
4,111
|
—
|
—
|
—
|
4,111
|
Tax
benefit of stock options
|
—
|
—
|
—
|
—
|
27
|
—
|
—
|
—
|
27
|
Change
in unrealized loss in investments, net of tax
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
23
|
23
|
Net
income
|
—
|
—
|
—
|
—
|
—
|
—
|
10,095
|
—
|
10,095
|
Total
comprehensive income
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
10,118
|
Balances,
December 31, 2007
|
—
|
—
|
24,805
|
$ 2
|
$190,849
|
$ (28)
|
$(20,245)
|
$(12)
|
$170,566
|
Year Ended
December 31,
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
Cash
flows from operating activities:
|
||||||||||||
Net
income
|
$ | 10,095 | $ | 5,798 | $ | 28,932 | ||||||
Adjustments
to reconcile net income to net cash provided by operating
activities
|
||||||||||||
Depreciation
and amortization
|
17,384 | 10,525 | 6,246 | |||||||||
Amortization
of intangible assets
|
412 | 222 | 276 | |||||||||
Amortization
of deferred stock-based compensation, net of cancellations
|
4,001 | 2,300 | 3,310 | |||||||||
Charitable
contribution expense for shares issued to charitable
foundation
|
— | 923 | — | |||||||||
Change
in carrying value of preferred stock warrant liability
|
— | (152 | ) | 21 | ||||||||
Loss/(gain)
on disposal of property and equipment
|
262 | (29 | ) | 207 | ||||||||
Deferred
income taxes
|
5,880 | 3,199 | (23,833 | ) | ||||||||
Changes
in operating assets and liabilities, net of effects of
acquisition
|
||||||||||||
Accounts
receivable, net
|
(2,316 | ) | (1,215 | ) | (547 | ) | ||||||
Inventories
|
(2,290 | ) | (1,419 | ) | (253 | ) | ||||||
Prepaid
expenses and other current assets
|
(1,750 | ) | (1,171 | ) | (398 | ) | ||||||
Other
assets
|
(1,668 | ) | (121 | ) | (40 | ) | ||||||
Accounts
payable
|
(602 | ) | 5,514 | (434 | ) | |||||||
Accrued
and other liabilities
|
10,390 | (2,603 | ) | 4,550 | ||||||||
Deferred
revenue
|
2,421 | 1,714 | 569 | |||||||||
Net
cash provided by operating activities
|
42,219 | 23,485 | 18,606 | |||||||||
Cash
flows from investing activities:
|
||||||||||||
Purchases
of property and equipment
|
(34,993 | ) | (20,681 | ) | (10,858 | ) | ||||||
Acquisition
of business and intangible assets, net of cash acquired
|
(2,858 | ) | — | 239 | ||||||||
Purchases
of short term investments
|
(3,000 | ) | — | — | ||||||||
Proceeds
from sale of property and equipment
|
28 | — | 6 | |||||||||
Net
cash used in investing activities
|
(40,823 | ) | (20,681 | ) | (10,613 | ) | ||||||
Cash
flows from financing activities:
|
||||||||||||
Principal
payments of capital lease obligations
|
(2,840 | ) | (1,446 | ) | (2,379 | ) | ||||||
Proceeds
from IPO shares issued, net of issuance costs
|
— | 78,468 | — | |||||||||
Proceeds
from term loan
|
— | — | 2,571 | |||||||||
Repayment
of term loan
|
— | — | (2,571 | ) | ||||||||
Principal
payment of note payable obligation
|
— | — | (192 | ) | ||||||||
Proceeds
from issuance of redeemable convertible preferred stock, net of issuance
costs
|
— | — | 19,830 | |||||||||
Proceeds
from issuance of common stock upon exercise of stock
options
|
4,975 | 83 | 134 | |||||||||
Repurchases
of common stock
|
— | (11 | ) | (14 | ) | |||||||
Net
cash provided by financing activities
|
2,135 | 77,094 | 17,379 | |||||||||
Net
increase in cash and cash equivalents
|
3,531 | 79,898 | 25,372 | |||||||||
Cash
and cash equivalents, beginning of period
|
119,051 | 39,153 | 13,781 | |||||||||
Cash
and cash equivalents, end of period
|
$ | 122,582 | $ | 119,051 | $ | 39,153 | ||||||
Supplemental
disclosures of cash flow information
|
||||||||||||
Cash
paid during the period for interest
|
$ | 198 | $ | 205 | $ | 410 | ||||||
Cash
paid during the period for income taxes
|
812 | — | 70 | |||||||||
Supplemental
schedule of non-cash investing and financing activities
|
||||||||||||
Additions
to property and equipment acquired under capital lease obligations and
notes payable
|
— | — | 3,516 | |||||||||
Net
non-cash assets acquired upon acquisition
|
— | — | 551 | |||||||||
Vested
shares issued upon acquisition
|
— | — | 656 | |||||||||
Restricted
shares issued upon acquisition
|
— | — | 724 | |||||||||
Reclassification
of preferred stock warrants to liability
|
— | — | 1,514 | |||||||||
Deferred
stock-based compensation, net of cancellations
|
— | — | 1,225 | |||||||||
Deferred
stock-based compensation in connection with option
modifications
|
— | — | 1,100 | |||||||||
Tax
benefit of stock options recorded in additional paid-in
capital
|
27 | — | 365 | |||||||||
Conversion
of preferred stock
|
— | 89,795 | — | |||||||||
Conversion
of preferred stock warrant liability into APIC
|
— | 1,381 | — | |||||||||
Preferred
stock warrants exercised on net basis
|
— | 143 | — |
Year Ended
December 31,
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
Historical
net income per share:
|
In
thousands, except per share amounts
|
|||||||||||
Numerator
|
||||||||||||
Net
income before cumulative effect of change in accounting
principle
|
$ | 10,095 | $ | 5,798 | $ | 28,490 | ||||||
Cumulative
effect of change in accounting principle
|
— | — | 442 | |||||||||
Net
income
|
10,095 | 5,798 | 28,932 | |||||||||
Income
allocable to preferred stockholders
|
— | — | (24,212 | ) | ||||||||
Net
income allocable to common stockholders
|
$ | 10,095 | $ | 5,798 | $ | 4,720 | ||||||
Denominator
|
||||||||||||
Weighted-average
common shares outstanding
|
24,309 | 8,729 | 3,619 | |||||||||
Less:
Weighted-average unvested common shares subject to
repurchase
|
(14 | ) | (107 | ) | (364 | ) | ||||||
Denominator
for basic net income per share
|
24,295 | 8,622 | 3,255 | |||||||||
Dilutive
effect of stock options and shares subject to repurchase
|
1,978 | 1,709 | 1,307 | |||||||||
Dilutive
effect of outstanding preferred stock warrants
|
— | — | 47 | |||||||||
Denominator
for diluted net income per share
|
26,273 | 10,331 | 4,609 | |||||||||
Net
income per share — basic and diluted
|
||||||||||||
Before
cumulative effect of change in accounting principle
|
$ | 0.42 | $ | 0.67 | $ | 1.31 | ||||||
Cumulative
effect of change in accounting principle
|
— | — | 0.14 | |||||||||
Net
income per share — basic
|
$ | 0.42 | $ | 0.67 | $ | 1.45 | ||||||
Net
income per share — diluted
|
$ | 0.38 | $ | 0.56 | $ | 1.02 |
Year Ended
December 31,
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
In
thousands
|
||||||||||||
Options
to purchase common stock
|
385 | 1,367 | 153 | |||||||||
Convertible
preferred stock (as converted basis)
|
— | 10,509 | 12,633 |
Year Ended
December 31,
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
Unrealized
income (loss) in investments, net of tax of $13 and $19
|
$ | 23 | $ | (35 | ) | $ | — | |||||
Net
income
|
10,095 | 5,798 | 28,932 | |||||||||
Total
comprehensive income
|
$ | 10,118 | $ | 5,763 | $ | 28,932 |
December
31, 2007
|
December
31, 2006
|
|||||||||||||||||||||||
Book
Value
|
Gross
Unrealized Gains/(Losses)
|
Fair
Value
|
Book
Value
|
Gross
Unrealized Gains/(Losses)
|
Fair
Value
|
|||||||||||||||||||
In
thousands
|
In
thousands
|
|||||||||||||||||||||||
Cash
|
$ | 15,955 | $ | - | $ | 15,955 | $ | 9,154 | $ | - | $ | 9,154 | ||||||||||||
Cash
Equivalents
|
||||||||||||||||||||||||
Money
Market Funds
|
22,363 | - | 22,363 | 17,829 | - | 17,829 | ||||||||||||||||||
Commercial
Paper
|
84,284 | (20 | ) | 84,264 | 92,123 | (54 | ) | 92,068 | ||||||||||||||||
Total
Cash Equivalents
|
106,647 | (20 | ) | 106,627 | 109,952 | (54 | ) | 109,897 | ||||||||||||||||
US
Government Agency Securities
|
3,000 | 2 | 3,002 | - | - | - | ||||||||||||||||||
Total
Cash, Cash Equivalents, and
Short
Term Investments
|
$ | 125,602 | $ | (18 | ) | $ | 125,584 | $ | 119,106 | $ | (54 | ) | $ | 119,051 |
December 31,
|
||||||||
2007
|
2006
|
|||||||
In
thousands
|
||||||||
Computer
and other equipment
|
$ | 66,663 | $ | 41,880 | ||||
Software
|
12,745 | 8,791 | ||||||
Leasehold
improvements
|
7,952 | 4,903 | ||||||
Furniture
and fixtures
|
2,282 | 1,348 | ||||||
89,642 | 56,922 | |||||||
Less:
Accumulated depreciation and amortization
|
(41,226 | ) | (26,003 | ) | ||||
Net
property and equipment
|
$ | 48,416 | $ | 30,919 |
Weighted Average
|
December 31,
|
||||||||
Useful Life
|
2007
|
2006
|
|||||||
|
In
thousands
|
||||||||
Purchased
technology
|
12
Years
|
$ | 3,350 | $ | 2,030 | ||||
Less:
accumulated amortization
|
(905) | (634) | |||||||
2,445 | 1,396 | ||||||||
Customer
relationships
|
3
Years
|
990 | — | ||||||
Less:
accumulated amortization
|
(110) | --- | |||||||
880 | --- | ||||||||
Licenses
and other
|
3
Years
|
186 | — | ||||||
Less: accumulated amortization | (31) | --- | |||||||
155 | --- | ||||||||
Acquired
workforce
|
1
Year
|
279 | 279 | ||||||
Less: accumulated amortization | (279) | (279) | |||||||
Total
|
$ | 3,480 | $ | 1,396 |
Year
Ending:
|
||||
2008
|
$ | 783 | ||
2009
|
783 | |||
2010
|
643 | |||
2011
|
395 | |||
2012
|
251 | |||
Thereafter
|
625 | |||
$ | 3,480 |
December 31,
|
||||||||
2007
|
2006
|
|||||||
In
thousands
|
||||||||
Accrued
marketing expenses
|
$ | 4,101 | $ | 1,822 | ||||
Accrued
compensation
|
3,053 | 1,201 | ||||||
Accrued
purchases
|
1,414 | 483 | ||||||
Accrued
income and sales taxes
|
3,682 | 1,235 | ||||||
Accrued
consultant expenses
|
1,516 | 884 | ||||||
Accrued
production facility expenses
|
3,283 | 1,784 | ||||||
Accrued
other
|
1,675 | 1,399 | ||||||
$ | 18,724 | $ | 8,808 |
Operating
Leases
|
Capital Leases
|
|||||||
Year
Ending:
|
In
thousands
|
|||||||
2008
|
$ | 2,548 | $ | 864 | ||||
2009
|
2,508 | 93 | ||||||
2010
|
1,537 | 12 | ||||||
2011
|
721 | 6 | ||||||
2012
|
742 | — | ||||||
Thereafter
|
1,335 | — | ||||||
Total
minimum lease payments
|
$ | 9,391 | $ | 975 | ||||
Less:
amount representing interest
|
(60 | ) | ||||||
Present
value of future minimum lease payments
|
915 | |||||||
Less:
current portion
|
(808 | ) | ||||||
Non-current
portion of capital lease obligations
|
$ | 107 |
Shares
Available
for
Grant
|
Number
of
Options
Outstanding
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Contractual
Term (Years)
|
Aggregate
Intrinsic
Value
|
||||||||||
Balances,
December 31, 2004
|
510 | 1,336 | 0.40 | |||||||||||
Additional
authorized
|
2,720 | — | — | |||||||||||
Granted
|
(2,372 | ) | 2,372 | 5.12 | ||||||||||
Exercised
|
— | (315 | ) | 0.35 | ||||||||||
Forfeited,
cancelled or expired
|
501 | (375 | ) | 2.89 | ||||||||||
Balances,
December 31, 2005
|
1,359 | 3,018 | 3.91 | |||||||||||
Additional
authorized
|
2,055 | — | — | |||||||||||
Granted
|
(2,269 | ) | 2,269 | 11.11 | ||||||||||
Exercised
|
— | (52 | ) | 1.61 | ||||||||||
Forfeited,
cancelled or expired
|
233 | (201 | ) | 6.10 | ||||||||||
Balances,
December 31, 2006
|
1,378 | 5,034 | 7.28 | |||||||||||
Additional
authorized (inducement grants)
|
380 | — | — | |||||||||||
Granted
|
(2,217 | ) | 2,217 | 22.17 | ||||||||||
Exercised
|
— | (1,049 | ) | 4.75 | ||||||||||
Forfeited,
cancelled or expired
|
560 | (560 | ) | 9.36 | ||||||||||
Balances,
December 31, 2007
|
101 | 5,642 | $ | 13.39 |
8.1
|
$71,253
|
||||||||
Options
vested and expected to vest at December 31, 2007
|
5,165 | $ | 12.92 |
8.0
|
$67,468
|
|||||||||
Options
vested at December 31, 2007
|
1,917 | $ | 7.05 |
6.9
|
$35,610
|
Options
Granted
|
Weighted
Average
Fair Value
|
Weighted
Average
Exercise Price
|
||||||||||
Options
with exercise price less than reassessed market price on the grant
date
|
255 | $ | 4.43 | $ | 10.00 | |||||||
Options
with exercise price equal to reassessed market price on the grant
date
|
2,014 | $ | 5.06 | $ | 11.25 | |||||||
Total
|
2,269 | $ | 4.99 | $ | 11.11 |
Year Ended
December 31,
2007
|
Year Ended
December 31,
2006
|
|||||||
Dividend
yield
|
— | — | ||||||
Annual
risk free rate of return
|
4.1 | % | 5.0 | % | ||||
Expected
volatility
|
45.0 | % | 45.8 | % | ||||
Expected
term (years)
|
4.4 | 4.6 |
December 31,
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
Federal:
|
||||||||||||
Current
|
$ | 206 | $ | 610 | $ | (187 | ) | |||||
Deferred
|
5,146 | 2,809 | (20,230 | ) | ||||||||
$ | 5,352 | $ | 3,419 | $ | (20,417 | ) | ||||||
State:
|
||||||||||||
Current
|
$ | 216 | $ | 133 | $ | (40 | ) | |||||
Deferred
|
734 | 390 | (3,603 | ) | ||||||||
$ | 950 | $ | 523 | $ | (3,643 | ) | ||||||
Total
income tax expense (benefit):
|
||||||||||||
Current
|
$ | 422 | $ | 743 | $ | (227 | ) | |||||
Deferred
|
5,880 | 3,199 | (23,833 | ) | ||||||||
$ | 6,302 | $ | 3,942 | $ | (24,060 | ) |
December 31,
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
Income
tax expense at statutory rate
|
34.0 | % | 34.0 | % | 34.0 | % | ||||||
State
income taxes
|
4.5 | % | 5.8 | % | 5.8 | % | ||||||
Stock-based
compensation
|
2.0 | % | 4.3 | % | 10.7 | % | ||||||
Non-qualified
deductions
|
— | — | (13.1 | )% | ||||||||
Change
in valuation allowance
|
— | — | (527.7 | )% | ||||||||
Other
|
(2.1 | )% | (3.7 | )% | (3.5 | )% | ||||||
38.4 | % | 40.4 | % | (493.8 | )% |
December 31,
|
||||||||
2007
|
2006
|
|||||||
Deferred
tax assets:
|
||||||||
Net
operating loss carryforwards
|
$ | 7,481 | $ | 17,028 | ||||
Reserves
and other tax benefits
|
3,485 | 2,111 | ||||||
Tax
credits
|
2,715 | 1,800 | ||||||
Depreciation
and amortization
|
1,196 | 32 | ||||||
Other
|
94 | 19 | ||||||
Deferred
tax assets
|
14,971 | 20,990 | ||||||
Deferred
tax liabilities:
|
||||||||
Other
deferred tax liabilities
|
— | (107 | ) | |||||
Deferred
tax liabilities
|
— | (107 | ) | |||||
Valuation
allowance
|
— | — | ||||||
Net
deferred tax assets
|
$ | 14,971 | $ | 20,883 |
Balance
of unrecognized tax benefits at January 1, 2007
|
$ | 1,200 | ||
Additions
for tax positions of prior years
|
— | |||
Additions
for tax positions related to 2007
|
259 | |||
Reductions
for tax positions of prior years
|
(607 | ) | ||
Settlement
of franchise tax audit
|
(96 | ) | ||
Lapses
in statutes of limitations
|
— | |||
Balance
of unrecognized tax benefits at December 31, 2007
|
$ | 756 |
Year Ended December 31,
2007
|
||||||||||||||||
First Quarter
|
Second Quarter
|
Third Quarter
|
Fourth Quarter
|
|||||||||||||
Net
Revenues
|
$ | 26,705 | $ | 29,877 | $ | 32,602 | $ | 97,543 | ||||||||
Gross
Profit
|
13,671 | 15,045 | 15,362 | 58,538 | ||||||||||||
Net
income (loss)
|
$ | (1,060 | ) | $ | (2,439 | ) | $ | (3,314 | ) | $ | 16,909 | |||||
Net
income (loss) per common share:
|
||||||||||||||||
Basic
|
$ | (0.04 | ) | $ | (0.10 | ) | $ | (0.14 | ) | $ | 0.68 | |||||
Diluted
|
$ | (0.04 | ) | $ | (0.10 | ) | $ | (0.14 | ) | $ | 0.63 | |||||
Year Ended December 31,
2006
|
||||||||||||||||
First Quarter
|
Second Quarter
|
Third Quarter
|
Fourth Quarter
|
|||||||||||||
Net
Revenues
|
$ | 16,883 | $ | 19,637 | $ | 21,155 | $ | 65,678 | ||||||||
Gross
Profit
|
8,134 | 9,881 | 10,289 | 39,558 | ||||||||||||
Net
income (loss)
|
$ | (1,565 | ) | $ | (2,093 | ) | $ | (2,747 | ) | $ | 12,203 | |||||
Net
income (loss) allocable to common shareholders
|
$ | (1,565 | ) | $ | (2,093 | ) | $ | (2,747 | ) | $ | 12,203 | |||||
Net
income (loss) per common share:
|
||||||||||||||||
Basic
|
$ | (0.41 | ) | $ | (0.54 | ) | $ | (0.70 | ) | $ | 0.53 | |||||
Diluted
|
$ | (0.41 | ) | $ | (0.54 | ) | $ | (0.70 | ) | $ | 0.50 |
Balance
at
|
Additions
|
Balance at
|
||||||||||||||||||
Beginning
|
Charged
to Costs
|
Charged
to Other
|
End
of
|
|||||||||||||||||
of Period
|
and Expenses
|
Accounts
|
Deductions
|
Period
|
||||||||||||||||
In
thousands
|
||||||||||||||||||||
Allowance
for Doubtful Accounts Receivable
|
||||||||||||||||||||
Year
ended December 31, 2005
|
$ | — | $ | 37 | $ | — | $ | (16 | ) | $ | 21 | |||||||||
Year
ended December 31, 2006
|
$ | 21 | — | — | (21 | ) | — | |||||||||||||
Year
ended December 31, 2007
|
— | — | — | — | — | |||||||||||||||
Deferred
tax valuation allowance
|
||||||||||||||||||||
Year
ended December 31, 2005
|
$ | 25,008 | $ | — | $ | (230 | )(1) | $ | (24,778 | )(2) | $ | — | ||||||||
Year
ended December 31, 2006
|
— | — | — | — | — | |||||||||||||||
Year
ended December 31, 2007
|
— | — | — | — | — |
(1)
|
Reflects
amounts related to items with no income statement
effect.
|
(2)
|
Decrease
in the Valuation allowance is due to the reversal of the valuation
allowance in the fourth quarter of
2005.
|
Incorporated by Reference
|
||||||
Exhibit
Number
|
Exhibit Description
|
Form
|
File No.
|
Date
of
First Filing
|
Exhibit
Number
|
Provided
Herewith
|
3.01
|
Registrants’
Restated Certificate of Incorporation.
|
S-1
|
333-135426
|
June 29,
2006
|
3.03
|
|
3.02
|
Registrant’s
Restated Bylaws.
|
S-1
|
333-135426
|
June 29,
2006
|
3.05
|
|
4.01
|
Form
of Registrant’s common stock certificate.
|
S-1
|
333-135426
|
June 29,
2006
|
4.01
|
|
4.02
|
Fifth
Amended and Restated Investors’ Rights Agreement, dated as of
November 11, 2005, by and among the Registrant and certain investors
of Registrant.
|
S-1
|
333-135426
|
June 29,
2006
|
4.02
|
|
10.01
|
Form
of Indemnity Agreement.
|
S-1
|
333-135426
|
June 29,
2006
|
10.01
|
|
10.02
|
1999
Stock Plan and forms of stock option agreement and a stock option exercise
agreement.*
|
S-1
|
333-135426
|
June 29,
2006
|
10.02
|
|
10.03
|
2006
Equity Incentive Plan and forms of stock option agreement, stock option
exercise agreement, restricted stock agreement, restricted stock unit
agreement, stock appreciation right agreement and stock bonus
agreement.*
|
S-1/A
|
333-135426
|
June 29,
2006
|
10.03
|
|
10.04
|
Lease
Agreement, as amended, dated July 5, 1999, by and between the
Registrant and Westport Joint Venture, as amended to date.
|
S-1
|
333-135426
|
June 29,
2006
|
10.04
|
|
10.05
|
Agreement
of Lease, dated as of August 1, 2005, by and between the Registrant
and DCT-CA 2004 RN Portfolio L, LP, as amended to date
|
S-1
|
333-135426
|
June 29,
2006
|
10.05
|
|
10.06
|
Lease,
dated as of March 7, 2000, by and between the Registrant and 3168
Corporate Place Associates, LLC, as amended to date.
|
S-1
|
333-135426
|
June 29,
2006
|
10.06
|
|
10.07
|
Lease,
dated as of April 6, 2000, by and between the Registrant and 3168
Corporate Place Associates, LLC, as amended to date
|
S-1
|
333-135426
|
June 29,
2006
|
10.07
|
|
10.08
|
Offer
letter dated January 5, 2005 for Jeffrey T.
Housenbold.*
|
S-1
|
333-135426
|
June 29,
2006
|
10.08
|
|
10.09
|
Offer
letter dated June 23, 2004 for Stephen E. Recht.*
|
S-1
|
333-135426
|
June 29,
2006
|
10.09
|
|
10.10
|
Offer
letter dated July 22, 2001 for Jeannine M. Smith
Thomas.*
|
S-1
|
333-135426
|
June 29,
2006
|
10.10
|
|
10.11
|
Offer
letter dated July 12, 2001 for Andrew F. Young.*
|
S-1
|
333-135426
|
June 29,
2006
|
10.11
|
|
10.12
|
Offer
letter dated March 25, 2005 for Douglas J. Galen.*
|
S-1
|
333-135426
|
June 29,
2006
|
10.12
|
|
10.13
|
Offer
letter dated April 3, 2006 for Stanford S. Au.*
|
S-1
|
333-135426
|
June 29,
2006
|
10.13
|
|
10.14
|
Supply
agreement, dated as of September 15, 2005, by and between Registrant
and Fuji Photo Film U.S.A., Inc.**
|
S-1
|
333-135426
|
June 29,
2006
|
10.14
|
|
10.15
|
Offer
letter dated January 17, 2007 for Dwayne Black.*
|
10-K
|
001-33031
|
March
20, 2007
|
10.15
|
|
10.16
|
Confidential
Separation Agreement and General Release of Claims, dated January 23,
2007, by and between the Registrant and Jeannine M. Smith
Thomas.*
|
10-K
|
001-33031
|
March
20, 2007
|
10.16
|
|
10.17
|
Confidential
Separation Agreement and General Release of Claims, dated January 19,
2007, by and between the Registrant and
Andrew F. Young.*
|
10-K
|
001-33031
|
March
20, 2007
|
10.17
|
|
10.18
|
Supply Agreement, dated as of April 20, 2007, by and between the Registrant and FujiFilm U.S.A., Inc. ** |
10-Q
|
001-33031
|
August
1, 2007
|
10.18
|
|
10.19
|
Offer Letter dated May 17, 2007 for Kathryn E. Olson.* |
|
X
|
|||
10.20
|
Offer letter dated November 27, 2007 for Mark J. Rubash. * |
X
|
||||
10.21
|
Confidential Separation Agreement and General Release of Claims, dated December 10, 2007, by and between the Registrant and Stephen E. Recht.* |
X
|
||||
10.22
|
Lease Agreement, as amended, dated as of December 22, 2006, by and between the Registrant and 3915 Shopton Road, LLC, as amended to date. |
X
|
||||
10.23
|
First Amendment to Lease (Expansion), dated as of April 30, 2007, by and between the Registrant and Westport Office Park, LLC, as amended to date. |
X
|
||||
21.01
|
Subsidiaries
of the Registrant
|
X
|
||||
23.01
|
Consent
of Independent Registered Public Accounting Firm
|
X
|
||||
24.01
|
Power
of Attorney. (See page 79 of this Form 10-K)
|
X
|
||||
31.01
|
Certification
of Chief Executive Officer Pursuant to Securities Exchange Act
Rule 13a-14(a)
|
X
|
||||
31.02
|
Certification
of Chief Financial Officer Pursuant to Securities Exchange Act
Rule 13a-14(a)
|
X
|
||||
32.01
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
and Securities Exchange Act Rule 13a-14(b).***
|
X
|
||||
32.02
|
Certification
of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
and Securities Exchange Act Rule 13a-14(b).***
|
X
|
||||
*
|
Represents
a management contract or compensatory plan.
|
**
|
Confidential
treatment has been granted for certain portions of this document pursuant
to an application for confidential treatment sent to the Securities and
Exchange Commission. Such portions are omitted from this filing and were
filed separately with the Securities and Exchange
Commission.
|
***
|
This
certification is not deemed “filed” for purposes of Section 18 of the
Securities Exchange Act, or otherwise subject to the liability of that
section. Such certification will not be deemed to be incorporated by
reference into any filing under the Securities Act of 1933 or the
Securities Exchange Act of 1934, except to the extent that Shutterfly
specifically incorporates it by
reference.
|
|
By:
|
/s/ Mark J.
Rubash
|
|
Mark
J. Rubash
|
|
Sr.
Vice President and Chief Financial
Officer
|
Signature
|
Title
|
Date
|
/s/ Jeffrey T.
Housenbold
Jeffrey
T. Housenbold
|
President,
Chief Executive Officer and
Director
(Principal
Executive Officer)
|
March
10, 2008
|
/s/ Mark J.
Rubash
Mark
J. Rubash
|
Sr.
Vice President and Chief Financial Officer
(Principal
Financial Officer)
|
March
10, 2008
|
/s/ Philip A.
Marineau
Philip
A. Marineau
|
Chairman
of the Board of Directors
|
March
10, 2008
|
/s/ Patricia A.
House
Patricia
A. House
|
Director
|
March
10, 2008
|
/s/ Eric J. Keller
Eric
J. Keller
|
Director
|
March
10, 2008
|
/s/ Nancy J.
Schoendorf
Nancy
J. Schoendorf
|
Director
|
March
10, 2008
|
/s/ James N. White
James
N. White
|
Director
|
March
10, 2008
|
/s/ Stephen J.
Killeen
Stephen
J. Killeen
|
Director
|
March
10, 2008
|