Shutterfly 2014 Annual Report Download - page 16

If we are unable to meet our production requirements, our net revenues and results of operations would be harmed.
We believe that we must continue to grow our current production capability to meet our projected net
revenue targets. Our capital expenditures were approximately 10%, 10% and 9% of total net revenues for
the years ended December 31, 2014, 2013 and 2012, respectively. We anticipate that total capital
expenditures for the year ending December 31, 2015 will range from 8.6% to 9.2% of 2015 net revenues.
Operational difficulties, such as a significant interruption in the operations of our Fort Mill, South
Carolina, Phoenix, Arizona, or Shakopee, Minnesota production facilities, could delay production or
shipment of our products. In addition, inclement weather, particularly heavy rain and snow could impair
our production capabilities. Our inability to meet our production requirements could lead to customer
dissatisfaction and damage our reputation and brands, which would result in reduced net revenues.
Moreover, if the costs of meeting production requirements, including capital expenditures, were to exceed
our expectations, our results of operations would be harmed.
In addition, we face significant production risks at peak holiday seasons, including the risk of obtaining
sufficient qualified seasonal production personnel. A majority of our workforce during the fourth quarter
of 2014 was seasonal, temporary personnel. We have had difficulties in the past finding a sufficient number
of qualified seasonal employees, and our failure to obtain qualified seasonal production personnel at any
of our production facilities could harm our operations.
Uncertainties in general economic conditions and their impact on consumer spending patterns, particularly in the
personalized products and photofinishing services categories, could adversely impact our operating results.
Our financial performance depends on general economic conditions in the United States and their
impact on levels of consumer spending, particularly spending on personalized products and photofinishing
services. Consumer revenue as a percentage of total revenue was 95% in 2014, 95% in 2013 and 96% in
2012. Some of the macroeconomic conditions that are adversely affecting consumer spending levels in the
United States include high unemployment rates, high consumer debt levels, stock market volatility and its
effect on net worth, uncertainty in real estate markets and home values, fluctuating energy and commodity
costs, limited credit availability and uncertainty about the future economic environment. If general
economic conditions do not improve or continue to improve slowly, customers or potential customers
could delay, reduce or forego their purchases of our products and services, which are often discretionary.
Any decrease in the demand for our products and services could impact our business in a number of ways,
including lower prices for our products and services and reduced sales. In addition, adverse economic
conditions may lead to price increases by our suppliers or increase our operating expenses due to, among
other factors, higher costs of labor, energy, equipment and facilities which could in turn lead to additional
restructuring actions by us and associated expenses. We may not be able to pass these increased costs on to
our customers due to the macroeconomic environment and the resulting increased expenses and/or
reduced income could have a material adverse impact our operating results.
Competitive pricing pressures, particularly with respect to pricing and shipping, may harm our business and results
of operations.
Demand for our products and services is sensitive to price, especially in times of slow or uncertain
economic growth and consumer conservatism. Many external factors, including our production and
personnel costs, consumer sentiment and our competitors’ pricing and marketing strategies, can
significantly impact our pricing strategies. If we fail to meet our customers’ price expectations, we could
lose customers, which would harm our business and results of operations.
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