Shutterfly 2014 Annual Report Download - page 61

Our technology and development expense increased $24.6 million, or 23%, in 2014, compared to 2013.
As a percentage of net revenues, technology and development expense remained flat at 14% in 2014 and
2013. The increase in technology and development expense was primarily due to an increase of
$10.6 million in personnel and related costs, reflecting additional hires during 2014. There was also an
increase of $9.3 million in depreciation expense primarily related to equipment for our new co-location
facility, an increase of $5.8 million in professional fees, and an increase of $3.1 million in facility costs
primarily from co-location services. These factors were partially offset by an increase of $4.8 million in
software and website development costs capitalized and a decrease in stock based compensation of
$0.4 million in the current period compared to the same period in the prior year.
During 2014, headcount in technology and development increased by 11% compared to 2013,
reflecting our strategic focus to increase the rate of innovation in our product and services offerings, to
generate greater differentiation from our competitors, and improve our long-term operating efficiency. In
2014, we capitalized $20.1 million in eligible salary and consultant costs, including $1.5 million of stock-
based compensation, associated with software developed or obtained for internal use, compared to
$15.3 million, which included $1.7 million of stock-based compensation capitalized in 2013.
Our sales and marketing expense increased $26.1 million, or 14%, in 2014 compared to 2013. As a
percentage of net revenues, total sales and marketing expense decreased to 23% in 2014 from 24% in 2013.
The increase in sales and marketing expense was primarily due to an increase of $16.1 million related to
direct response, expanded online and performance marketing campaigns. The increase is also attributable
to an increase of $5.0 million in personnel and related costs associated with the expansion of our internal
marketing team, an increase of $2.9 million in stock-based compensation, and an increase of $1.5 million in
intangible asset amortization primarily from intangibles acquired in the 2013 acquisitions of MyPublisher
and BorrowLenses.
Our general and administrative expense increased $19.9 million, or 21%, in 2014 compared to 2013. As
a percentage of net revenues, general and administrative expense remained flat at 12% in 2014 as
compared to 2013. The increase in general and administrative expense is primarily due to an increase in
stock-based compensation of $4.4 million and an increase in personnel related costs of $4.2 million as a
result of increased headcount. There was also an increase in credit card fees of $3.5 million which was
driven by the increase in Consumer net revenues as compared to the prior year, an increase in depreciation
and amortization of $3.4 million, an increase in professional fees of $2.5 million, and an increase in facility
costs of $1.9 million, offset by proceeds from intellectual property license agreements of $0.6 million.
Year Ended December 31,
2014 2013 Change
(in thousands)
Interest expense .................................. $ (16,732) $ (9,446) $ (7,286)
Interest and other income, net ........................ 508 308 200
Interest expense consists of interest on our convertible senior notes arising from amortization of debt
discount, amortization of debt issuance costs, and our 0.25% coupon, issuance costs associated with our
credit facility, capital leases, and our financing obligations associated with our Fort Mill, South Carolina
and our Shakopee, Minnesota production facilities. Interest expense was $16.7 million for the year ended
December 31, 2014 compared to $9.4 million during 2013. The increase in interest expense is primarily due
to an increase of $5.5 million associated with our May 2013 issuance of $300.0 million of 0.25% convertible
senior notes, an increase of $1.2 million related to our build-to-suit leases from our Fort Mill and
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