Shutterfly 2015 Annual Report Download - page 25

this risk. To date, we have experienced minimal losses from credit card fraud, but we continue to face the risk of
significant losses from this type of fraud. Our failure to adequately control fraudulent credit card transactions and
use of confidential information would damage our reputation and brands, and substantially harm our business and
result of operations.
If we are unable to adequately control the costs associated with operating our business, our results of
operations will suffer.
The primary costs in operating our business are related to producing and shipping products, acquiring
customers, compensating our personnel, acquiring equipment and technology, and leasing facilities. Controlling
our business costs is challenging because many of the factors that impact these costs are beyond our control. For
example, the costs to produce prints, such as the costs of photographic print paper, could increase due to a
shortage of silver or an increase in worldwide energy prices. In addition, we may become subject to increased
costs by the third-party shippers that deliver our products to our customers, and we may be unable to pass along
any increases in shipping costs to our customers. The costs of online advertising and keyword search could also
increase significantly due to increased competition, which would increase our customer acquisition costs. If we
are unable to keep the costs associated with operating our business aligned with the level of revenues that we
generate, our results of operations would be adversely affected.
If the third-party vendors who we depend upon to produce many of our products or those that deliver our
product experience delays or interruptions in service, our customer experience will suffer, which would
substantially harm our business, reputation and results of operations.
Our ability to provide a high-quality customer experience depends, in large part, on external factors over
which we may have little or no control, including the reliability and performance of our suppliers, third-party
product providers and shipping partners. For example, some of our products, such as select photo-based
merchandise, are produced and shipped to customers by our third-party vendors, and we rely on these vendors to
properly inspect and ship these products. In addition, we rely on third-party shippers, including the U.S. Postal
Service and UPS to deliver our products to customers. Strikes, furloughs, reduced operations, increased shipping
delays particularly during the holiday shopping season, or other service interruptions affecting these shippers
could impair our ability to deliver merchandise on a timely basis. Our failure to provide customers with high-
quality products in a timely manner for any reason could substantially harm our reputation and our efforts to
develop trusted brands, which would substantially harm our business and results of operations.
We may have difficulty managing our growth and expanding our operations successfully.
We have website operations, offices and customer support centers in Redwood City, California, Santa Clara,
California, and Tempe, Arizona and production facilities in Fort Mill, South Carolina; Shakopee, Minnesota and
a new facility in Tempe, Arizona which became operational in the second quarter of 2015. Our growth has
placed, and will continue to place, a strain on our administrative and operational infrastructure. Our ability to
manage our operations and growth will require us to continue to refine our operational, financial and
management controls, human resource policies and reporting systems.
If we are unable to manage future expansion, we may not be able to implement improvements to our
controls, policies and systems in an efficient or timely manner and may discover deficiencies in existing systems
and controls. Our ability to provide a high-quality customer experience could be compromised, which would
damage our reputation and brands and substantially harm our business and results of operations.
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