Financial Information

S-1/A
SHUTTERSTOCK, INC. filed this Form S-1/A on 10/09/2012
Entire Document
 

Table of Contents

As filed with the Securities and Exchange Commission on October 9, 2012

Registration No. 333-181376

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



Amendment No. 6 to
FORM S-1

REGISTRATION STATEMENT
Under
The Securities Act of 1933



Shutterstock, Inc.
(Exact name of Registrant as specified in its charter)



Delaware   7389   80-0812659
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)

60 Broad Street, 30th Floor
New York, NY 10004
(646) 419-4452

(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)

Jonathan Oringer
Chief Executive Officer
Shutterstock, Inc.
60 Broad Street, 30th Floor
New York, NY 10004
(646) 419-4452
(Name, address including zip code, and telephone number including area code, of agent for service)



Copies to:

Brian B. Margolis, Esq.
David M. Ruff, Esq.
Orrick, Herrington & Sutcliffe LLP
51 West 52nd Street
New York, NY 10019
(212) 506-5000
  Gregory B. Astrachan, Esq.
Willkie Farr & Gallagher LLP
787 Seventh Avenue
New York, NY 10019
(212) 728-8000

Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.



         If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. o

         If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

         If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

         If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

         Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o   Accelerated filer o   Non-accelerated filer ý
(Do not check if a
smaller reporting company)
  Smaller reporting company o

         The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

   


Table of Contents

PROSPECTUS (Subject to Completion)
Issued October 9, 2012

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted.

4,500,000 Shares

GRAPHIC

COMMON STOCK



Shutterstock, Inc. is offering 4,500,000 shares of its common stock. This is our initial public offering and no public market currently exists for our shares. We anticipate that the initial public offering price of our common stock will be between $13.00 and $15.00 per share.



Our common stock has been approved for listing on the New York Stock Exchange under the symbol "SSTK".



We are an "emerging growth company" under applicable Securities and Exchange Commission rules and, as such, will be subject to reduced public company reporting requirements. Investing in our common stock involves risks. See "Risk Factors" section beginning on page 14.



PRICE $              A SHARE



 
 
Price to
Public
 
Underwriting
Discounts and
Commissions
 
Proceeds to
Shutterstock

Per Share

  $            $            $         

Total

  $                     $                     $                  

We have granted the underwriters the right to purchase up to 675,000 additional shares of common stock to cover over-allotments.

The Securities and Exchange Commission and state securities regulators have not approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares of common stock to purchasers on                           , 2012.



MORGAN STANLEY   DEUTSCHE BANK SECURITIES   JEFFERIES

RBC CAPITAL MARKETS

 

STIFEL NICOLAUS WEISEL

 

WILLIAM BLAIR

   

                        , 2012


GRAPHIC


GRAPHIC


GRAPHIC


TABLE OF CONTENTS

 
  Page

Prospectus Summary

  1

Summary Consolidated Historical and Unaudited Pro Forma Financial Data

  9

Risk Factors

  14

Special Note Regarding Forward-Looking Statements

  35

Industry and Market Data

  36

Use of Proceeds

  37

Dividend Policy

  37

Reorganization

  38

Capitalization

  39

Dilution

  41

Unaudited Pro Forma and Pro Forma As Adjusted Consolidated Financial Statements

  43

Selected Consolidated Financial Data

  52

Management's Discussion and Analysis of Financial Condition and Results of Operations

  56

Business

  87

Management

  104

Executive Compensation

  110

Certain Relationships and Related Transactions

  122

Principal Stockholders

  124

Description of Capital Stock

  126

Shares Eligible for Future Sale

  131

Material U.S. Federal Income Tax and Estate Tax Consequences to Non-U.S. Holders

  133

Underwriting

  137

Legal Matters

  142

Experts

  142

Where You Can Find More Information

  142

Index to Consolidated Financial Statements

  F-1



        You should rely only on the information contained in this prospectus or contained in any free writing prospectus filed with the Securities and Exchange Commission. Neither we nor the underwriters have authorized anyone to provide you with information that is different from that contained in this prospectus. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date.

        Until                        , 2012 (25 days after the commencement of this offering), all dealers that effect transactions in our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

        For investors outside the United States: neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus outside of the United States.


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PROSPECTUS SUMMARY

        The following summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our common stock, you should carefully read this entire prospectus, including our consolidated financial statements and the related notes and the information set forth in the sections of this prospectus titled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Some of the statements in this prospectus constitute forward-looking statements. See the section of this prospectus titled "Special Note Regarding Forward-Looking Statements" for more information.


SHUTTERSTOCK, INC.

Overview

        Shutterstock operates an industry-leading global marketplace for commercial digital imagery. Commercial digital imagery consists of licensed photographs, illustrations and videos that companies use in their visual communications, such as websites, digital and print marketing materials, corporate communications, books, publications and video content. Demand for commercial digital imagery comes primarily from businesses, marketing agencies and media organizations. We estimate that the market for pre-shot commercial digital imagery will grow from approximately $4 billion in 2011 to approximately $6 billion in 2016, based on a study conducted on our behalf by L.E.K. Consulting LLC. There has been a significant increase in the demand for commercial digital imagery as rapid technological advances have reduced the cost and effort required to create, license and use images. Our global online marketplace brings together users of commercial digital imagery with image creators from around the world. More than 550,000 active, paying users contributed to revenue in 2011, representing an increase of 71% compared to the prior year. More than 35,000 approved contributors make their images available in our library, which currently consists of more than 20 million images. This makes our library one of the largest of its kind, and, in the twelve months ended December 31, 2011, we delivered more than 58 million paid downloads to our customers.

        Our online marketplace provides a freely searchable library of commercial digital images that our users can pay to license, download and incorporate into their work. We compensate image contributors for each of their images that is downloaded. This marketplace model allows us to offer a disruptive, low-cost and easy-to-use alternative to the time-consuming and expensive traditional methods of obtaining commercial imagery. It enables millions of small and medium-sized businesses, or SMBs, to affordably access commercial digital images, and allows larger enterprises and media agencies to more easily and efficiently satisfy their increasing image needs.

        We are the beneficiaries of significant network effects. As we have grown, our broadening audience of paying users has attracted more images from contributors. This increased selection of images has in turn helped to attract more paying users. The success of this network effect is facilitated by the trust that users place in Shutterstock to maintain the integrity of our branded marketplace. Every contributor in our marketplace and every image we make available must pass our proprietary screening process and meet our standards of quality. In addition, and unlike the significant majority of free images available online, our rigorous vetting process enables us to provide confidence and indemnification to our users that the images in our library have been appropriately licensed for commercial or editorial use.

        We make image licensing affordable, simple and easy in order to encourage a high volume of purchases and downloads. Our customers' average cost per image is approximately $2.00. We are a pioneer of the subscription-based usage model in our industry, whereby subscribers can download and use a large number of images in their creative process without concern for the incremental cost of each download. A significant majority of our downloads come from subscription-based users, who currently contribute

 

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approximately half of our revenue. We also offer simple and easy-to-use On Demand purchase options for users with less consistent needs. As a result of our simple and affordable licensing models, we believe that we achieved the highest volume of commercial image downloads of any single brand in our industry in 2011. In addition to driving revenue, this high volume of download activity allows us to continually improve the quality and accuracy of our search algorithms, as well as to encourage the creation of new content to meet our users' needs.

        Our revenue is diversified and predictable. More than 550,000 customers from more than 150 countries contributed to our revenue in 2011, with our top 25 customers in the aggregate accounting for less than 2% of our revenue. We have historically benefitted from a high degree of revenue retention from both subscription-based and On Demand customers. For example, in 2009, 2010 and 2011, we experienced year-to-year revenue retention of 82%, 96%, and 102%, respectively. This means that customers that contributed to our revenue in 2010 contributed, in the aggregate, 102% as much revenue in 2011 as they did in 2010. Customers typically pay us upfront and then use their downloads in a predictable pattern over time, which results in favorable cash flow characteristics and has historically added predictability and stability to our financial performance.

        We have achieved significant growth since our marketplace was launched in 2003. In 2010 and 2011, we generated revenue of $83.0 million and $120.3 million, respectively, representing period-over-period growth of 35.8% and 45.0%, respectively. In 2010 and 2011, we generated Adjusted EBITDA of $21.8 million and $26.5 million, respectively, and Free Cash Flow of $27.6 million and $36.1 million, respectively. See "Summary Consolidated Historical and Unaudited Pro Forma Financial Data—Non-GAAP Financial Measures." In 2010 and 2011, our net income was $18.9 million and $21.9 million, respectively. We are a global business; in 2011, 34% of our revenue came from North America, and 66% came from the rest of the world.

Industry Overview: Commercial Digital Imagery

        From the smallest start-ups to the largest multinationals, companies pay to license photographs, videos and illustrations for use in print and digital marketing materials, corporate communications, external and internal websites, social networking sites, mobile applications, games and videos. Imagery is also widely used in publishing books, eBooks, magazines and news articles. The demand for paid imagery in a commercial context comes primarily from:

    Businesses:  Large corporations, small and medium-sized businesses and sole proprietorships that have marketing, communications and design needs;

    Marketing Agencies:  Creative service providers such as advertising agencies, media agencies, graphic design firms, web design firms and freelance design professionals; and

    Media Organizations:  Creators of print and digital content, from large publishers and broadcast companies to professional bloggers.

        These businesses require that the images they use be of high quality and that they fulfill the licensing obligations necessary for use in a commercial context. These requirements were historically fulfilled by commissioning images for specific purposes, or licensing pre-shot images from a catalog or database. This typically cost hundreds or thousands of dollars per image, which made licensing imagery affordable only for larger companies with significant marketing or creative budgets.

        Rapid technological changes have caused a significant shift in the economics of demand and supply for commercial digital imagery. The rise of digital marketing and increases in the type and frequency of visual communications employed by businesses has caused a dramatic increase in demand for licensed imagery. At the same time, affordable, high-quality cameras and video cameras, as well as high

 

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performance photo and video-editing software, are enabling millions of people around the world to create commercial-quality digital imagery at very low cost. Online marketplaces use the disruptive power of the internet to bring these highly fragmented groups together so that businesses of all sizes can quickly search for, find, and download affordable visual content to enhance their communications.

        We estimate that the market for pre-shot commercial imagery was approximately $4 billion in 2011 and that it will grow to approximately $6 billion by 2016, based on a study conducted on our behalf in August 2012 by L.E.K. Consulting LLC, or L.E.K. Within this market, the "traditional stock photography" segment, which has historically served larger businesses, is expected to remain stable at approximately $2.3 billion between 2011 and 2016. The stock photography marketplace segment along with the market for all other commercial digital imagery (i.e., stock illustrations, vectors, video, templates and fonts) is expected to grow 15-20% annually during that same period to a total of more than $3.5 billion in 2016.

Challenges in the Market for Commercial Digital Imagery

        Even with the advent of websites capable of sourcing and providing commercial digital imagery, significant challenges remain for users of many online marketplaces, including limited selection, difficulties in finding images quickly, high or complex pricing, poor image quality, and a lack of appropriate licensing and legal protection. At the same time, the creators of commercial digital imagery face obstacles to easily upload, market and distribute their images to a large audience. They also lack tools for discovering the kinds of content that customers demand.

The Shutterstock Solution

Key Benefits for Our Users

  Millions of commercial-quality images   We currently provide a licensable digital content library of more than 20 million images and video clips, one of the largest libraries of its kind. We source our content from over 35,000 approved image contributors in more than 125 countries.


 

Superior search results

 

We consider our proprietary search interface and algorithms to be intuitive and efficient, allowing users with widely ranging search queries to quickly find the most suitable image for their needs. We believe that, with one of the highest volumes of downloads of commercial images in 2011, we have the data to power the best search experience in our industry.


 

Low cost of images

 

Across our pricing plans, customers pay an average of approximately $2.00 per image. We believe that our disruptive pricing models increase the number of businesses that can participate in the market for commercial imagery, and the volume of images that they use.


 

Creative freedom through simple pricing

 

Our subscription-based pricing model makes the creative process easier. Subscription users can download any image in our library at any resolution we offer for use in their creative process without worrying about incremental cost. For users who need fewer images, we offer simple, affordable, On Demand pricing, which is presented as a flat rate across all images and sizes that we offer.

 

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  100% vetted, commercial-quality images   Each of our images has been vetted by a member of our review team for standards of quality and relevance. We also leverage proprietary review technology to pre-filter images and enhance the productivity of our reviewers.


 

Appropriately licensed images

 

Our review process is designed to ensure that every image is appropriately licensed for its intended use. The strength of our review process enables us to offer $10,000 of indemnification protection to every customer to cover legal costs or damages that may arise from their use of a Shutterstock image. In certain cases, we offer even greater indemnification through custom contracts.

Key Benefits for Our Contributors

  Distribution to the largest, global audience   In 2011, shutterstock.com received an average of more than 7 million monthly unique visitors and more than 43 million monthly page views according to comScore Media Metrix, and we delivered more than 58 million paid downloads. According to industry surveys, contributors who have images available on our site generate more income through Shutterstock than through any other sites with which they are registered.


 

Global ecommerce capabilities

 

Our global ecommerce platform allows us to process payments from across the world in eight currencies, and our users can currently transact on our flagship website in ten languages.


 

Efficient uploading, tagging and review process

 

Based on user feedback and competitive benchmarking, we believe that we have the most efficient upload, tagging and review process of all of the major competitors in our industry.


 

Robust feedback, tools and information

 

Our contributors can monitor download activity by image and geography, as well as by self-defined image themes. We also provide data on search trends, allowing content creators to see which images and subjects are popular on our site, and to plan new content themes accordingly.


 

Specialized community

 

We operate a forum for the photographers, videographers and illustrators that make up our contributor community, allowing them to share tips with one another and to showcase their work.

Shutterstock's Competitive Strengths

        In addition to the compelling value propositions that we offer to users and contributors, we believe that the following competitive advantages separate us from our competitors:

        A Leading Global Marketplace with Strong Network Effects.    Our content library is currently one of the largest in the commercial digital imagery industry, with over 20 million photographs and illustrations and more than 550,000 video clips, from more than 35,000 contributors. We believe that the growth of our content library and the growth in our site traffic support one another through a strong network effect—a broader selection of images from our contributors attracts more image users; this larger audience of paying

 

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users increases the amount spent in our marketplace and attracts more content submissions from a greater number of contributors.

        Extensive Data and Superior Search.    We believe that we have achieved one of the highest volumes of commercial image downloads of any company in our industry. In 2011 alone, we delivered more than 58 million paid downloads and the number of contributor-generated image tags in our library grew to more than 550 million. This user-generated data, coupled with our investments in technology and our many years of experience in developing search algorithms for our industry, have enabled us to create what we believe is the best search experience available.

        Simple, Flexible and Low-Cost Pricing.    Our customers' average cost per image is approximately $2.00. Our subscription plans, which we pioneered in the industry, generate an important sense of creative freedom for our professional users. Additionally, we offer simple and cost-effective On Demand purchase options for less frequent users. The simplicity and affordability of these plans have allowed us to broaden our existing and potential user base, and deliver a high volume of paid downloads for our contributors.

        Trusted, Actively Managed Marketplace.    We are committed to providing a trusted online marketplace for appropriately licensed, high-quality commercial imagery. Our rigorous review process for new images ensures the integrity and quality of content in our library. Each image is individually examined by our team of trained reviewers to meet our high standards of quality and commercial viability. This review process is designed to minimize the legal risk to our users from inappropriately licensed imagery.

Shutterstock's Growth Strategies

        Acquire More Users and Contributors.    Our active user base of SMBs currently represents a very small fraction of the global total of SMBs. We view this as a marketing opportunity. Much of our growth to date has been driven by word of mouth recommendations; we plan to continue to foster word of mouth by continuing to grow our library and deliver exceptional service. Additionally, we expect to increase our investments in online and offline marketing to help raise awareness in our core customer and contributor communities as well as in additional market segments and geographies.

        Lead Innovation in User and Contributor Experience.    With one of the largest collections of images in the industry, and one of the highest volumes of site traffic and commercial image downloads, we believe that we have more information on marketplace and user needs than any of our competitors. We intend to use this advantage to continue to improve the quality of our search algorithms and user experience. We also plan to enhance the tools we offer contributors to help them easily establish their portfolio on our site, track their performance and explore opportunities to create content that customers need. Furthermore, we intend to roll out new product offerings and product extensions that we believe will create deeper relationships with our core communities and attract new users to our sites.

        Increase Localization.    We are a global company, with contributors and users in more than 150 countries and a website that is available in ten languages. We plan to deepen our global penetration among users and contributors by improving the quality of the Shutterstock experience, regardless of language or location. There is significant unmet demand for localized content, such as images with locally relevant themes, objects and ethnicities. We plan to increase the geographical diversity of our contributor community so that we can provide the images demanded by our increasingly global user base.

        Increase Our Penetration of Media Agencies and Large Enterprises.    To date, the majority of our revenue has been generated from small and medium-sized businesses purchasing online. Currently, less than 10% of our revenue is generated through direct sales to large organizations. We believe that we have a strong value proposition for large media agencies and enterprises, which have historically purchased commercial

 

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imagery via sales-driven relationships. We are working to increase our revenue from these companies through a direct sales approach and by offering tailored purchase options.

        Pursue Emerging Content Types.    Alternative content types such as video footage represent significant opportunities for growth. Given the convergence of photography and video tools, we believe that our network effects in still image licensing will help propel our efforts in the video market. In addition to video, we see opportunities in other emerging digital content areas that may be relevant to our customers.

Risks Associated with Our Business

        Our business is subject to a number of risks of which you should be aware before making an investment decision. These risks are discussed more fully in the section of this prospectus titled "Risk Factors," and include but are not limited to:

    our ability to identify, attract and retain customers and contributors to our online marketplace;

    our ability to maintain repeat purchase and subscription revenue;

    our new and rapidly changing market;

    the competitive nature of and anticipated growth in our markets;

    our ability to maintain our competitive position in a highly competitive industry;

    our ability to protect our intellectual property and protect against infringement claims made by third parties; and

    our ability to successfully navigate the risks related to our international operations and expansion.

Company Information

        Our principal office is located at 60 Broad Street, 30th Floor, New York, New York 10004, and our telephone number is (646) 419-4452. Our corporate website address is www.shutterstock.com. We do not incorporate the information contained on, or accessible through, our corporate website into this prospectus, and you should not consider it part of this prospectus. After launching our marketplace in 2003, we organized in the State of New York as Shutterstock, Inc. in December 2004, and we became Shutterstock Images LLC in June 2007. Prior to the effectiveness of the registration statement of which this prospectus is a part, we will reorganize from Shutterstock Images LLC, a New York limited liability company, or the LLC, to Shutterstock, Inc., a Delaware corporation, referred to as the "Reorganization." In this prospectus, "we," "us," "our," "Company" and "Shutterstock" refer to Shutterstock, Inc. and its subsidiaries.

        "Shutterstock," "Bigstock" and "Big Stock Photo" are registered trademarks or logos appearing in this prospectus and are the property of Shutterstock, Inc. or one of our subsidiaries. All other trademarks, service marks and trade names appearing in this prospectus are the property of their respective owners.

 

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THE OFFERING

Common stock offered by Shutterstock

   

4,500,000 shares

Common stock to be outstanding after this offering

  32,838,281 shares (33,513,281 shares if the over-allotment option is exercised in full)

Use of proceeds

 

We estimate that the net proceeds to us from this offering will be approximately $54.2 million, assuming an initial public offering price of $14.00 per share, which is the midpoint of the range on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. The principal purposes of this offering are to increase our capitalization and financial flexibility, increase our visibility in the marketplace and create a public market for our common stock. We intend to use the net proceeds from this offering primarily for general corporate purposes, including working capital and capital expenditures. We may also use a portion of the net proceeds to repay all or a portion of the term loan facility that we entered into on September 21, 2012. Additionally, we may use a portion of the net proceeds to acquire or invest in complementary companies, products or technologies, although we currently do not have any acquisitions or investments planned. See "Use of Proceeds" for additional information.

Risk factors

 

See "Risk Factors" and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our common stock.

Proposed NYSE symbol

 

"SSTK"

        The number of shares of our common stock to be outstanding following this offering is based on 28,338,281 shares of our common stock outstanding as of September 25, 2012, after giving effect to our reorganization from a New York limited liability company to a Delaware corporation, as described more fully under "Reorganization," and excludes:

    1,661,719 shares of our common stock issuable upon the exercise of value appreciation rights outstanding as of September 25, 2012 at a weighted average exercise price of $15.79 per share, which value appreciation rights will be exchanged for options to purchase shares of our common stock as discussed below;

    6,750,000 shares of our common stock reserved for future grant or issuance under our 2012 Omnibus Equity Incentive Plan, which will become effective on or prior to the completion of this offering, a portion of which will be used to grant stock options in replacement of the value appreciation rights outstanding as of the Reorganization; and

    2,000,000 shares of our common stock reserved for future issuance under our 2012 Employee Stock Purchase Plan, which will become effective upon the completion of this offering.

 

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        Except as otherwise indicated, information in this prospectus reflects or assumes the following:

    our reorganization from a New York limited liability company to a Delaware corporation, which will occur prior to the effectiveness of the registration statement of which this prospectus is a part, the concurrent exchange of all outstanding value appreciation rights for an equivalent number of options to purchase shares of common stock and the exchange of all outstanding membership interests, including any interests that will vest upon the Reorganization, for shares of common stock, each as more fully described under "Reorganization";

    a final cash distribution to the LLC members constituting approximately all of the cash generated from the LLC's operations since the last distribution to the LLC members and any other cash and cash equivalents on hand at the time of the distribution, other than any amounts received under the term loan facility, as described below, which will take place immediately prior to the Reorganization, as more fully described under "Reorganization";

    no exercise of value appreciation rights outstanding as of September 25, 2012;

    no exercise by the underwriters of their option to purchase additional shares of our common stock; and

    that our amended and restated certificate of incorporation, which we will file in connection with the completion of this offering, is in effect.

        As discussed in greater detail under "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Financing Transactions" below, we recently entered into a term loan facility. Following the final distribution to members described above, the borrowings from the term loan facility will be used to fund the short-term capital needs of our operations until we generate additional cash flow from operations following this offering.

 

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SUMMARY CONSOLIDATED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA

        The following tables summarize our consolidated financial and other data for the periods ended and as of the dates indicated. We derived the consolidated statements of operations data for each of the years ended December 31, 2009, 2010 and 2011 and the consolidated balance sheet data as of December 31, 2011 from our audited consolidated financial statements and related notes included elsewhere in this prospectus. We derived the consolidated statements of operations data for each of the six months ended June 30, 2011 and 2012 and the consolidated balance sheet data as of June 30, 2012 from our unaudited consolidated financial statements and related notes included elsewhere in this prospectus. Our historic results are not necessarily indicative of the results that may be expected in the future. You should read this data together with our consolidated financial statements and related notes, "Capitalization," "Unaudited Pro Forma Consolidated Financial Statements," "Selected Consolidated Financial Data," and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus.

        We derived the unaudited pro forma data and the unaudited pro forma as adjusted data for the year ended December 31, 2011, for the six months ended June 30, 2012 and as of June 30, 2012 from the pro forma data and the pro forma as adjusted data provided in "Unaudited Pro Forma Consolidated Financial Statements" included elsewhere in this prospectus. The pro forma and the pro forma as adjusted unaudited consolidated statements of operations data and the pro forma and the pro forma as adjusted unaudited balance sheet data were prepared as if the reorganization transactions described in "Reorganization" and this offering had taken place on January 1, 2011 and June 30, 2012, respectively.

        The adjustments to the pro forma statements of operations data and the pro forma balance sheet data give effect to our corporate reorganization and related transactions as described in "Reorganization," including:

    the reclassification of the balances of all common and preferred members' interests to common stock;

    the reclassification of an executive officer's profits interest award from other non-current liabilities to common stock;

    the recognition of deferred tax assets and liabilities at an assumed combined federal, state and city income tax rate of 39.4%;

    the recognition of the term loan facility entered into on September 21, 2012;

    the distributions to be made to members prior to the Reorganization;

    the recognition of a balance sheet adjustment associated with the vesting of equity awards; and

    a provision for income taxes as a corporation at an assumed combined federal, state and city income tax rate of 39.4% of our pre-tax net income for the year ended December 31, 2011 and for the six months ended June 30, 2012. The actual combined tax rate will depend on many factors and may be higher or lower than this assumed rate.

        The adjustments to the pro forma as adjusted statements of operations data and the pro forma as adjusted balance sheet data give effect to our pro forma adjustments as described above for the Reorganization and the effect of this offering based on an assumed initial public offering price of $14.00 per share (the midpoint of the price range set forth on the cover page of this prospectus), including:

    the sale of 4,500,000 shares of common stock by us in this offering at an assumed initial public offering price of $14.00 per share (the midpoint of the price range set forth on the cover page of this prospectus), after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us in connection with this offering;

 

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    a balance sheet adjustment associated with the accelerated vesting of 50% of the unvested portion of a profits interest award granted to an executive officer; and

    the reclassification of deferred offering costs of $2.6 million to additional paid-in capital in connection with this offering.

        The pro forma as adjusted balance sheet data gives effect to the net assumed proceeds of $54.2 million in this offering while the pro forma as adjusted net income per share calculation includes 1,433,571 incremental shares necessary to pay the distributions in excess of earnings for the previous twelve months, and 857,143 incremental shares necessary to repay the new term loan facility. The remaining 2,209,286 shares issued in this offering are excluded from the pro forma as adjusted net income per share calculation since the proceeds will be used for general corporate and working capital purposes.

 
  Year Ended December 31,   Six Months
Ended June 30,
 
 
  2009   2010   2011   2011
Pro forma
  2011 Pro
forma as
adjusted
  2011   2012   2012
Pro forma
  2012 Pro
forma as
adjusted
 
 
  (in thousands, except share and per share data)
 

Consolidated Statements of Operations Data:

                                                       

Revenue

  $ 61,099   $ 82,973   $ 120,271   $ 120,271   $ 120,271   $ 54,387   $ 78,199   $ 78,199   $ 78,199  

Operating expenses:

                                                       

Cost of revenue

    21,826     32,353     45,504     45,504     45,504     21,156     30,103     30,103     30,103  

Sales and marketing

    10,949     17,820     31,929     31,929     31,929     13,836     23,127     23,127     23,127  

Research and development

    2,361     4,591     9,777     9,777     9,777     4,255     7,070     7,070     7,070  

General and administrative(1)

    6,217     8,414     10,171     9,706     9,706     4,297     7,895     7,223     7,223  
                                       

Total operating expenses

    41,353     63,178     97,381     96,916     96,916     43,544     68,195     67,523     67,523  
                                       

Income from operations

    19,746     19,795     22,890     23,355     23,355     10,843     10,004     10,676     10,676  

Interest income

    5     19     10     10     10     7     5     5     5  
                                       

Income before income taxes

    19,751     19,814     22,900     23,365     23,365     10,850     10,009     10,681     10,681  

Provision for income taxes(2)

    909     876     1,036     10,005     10,005     462     227     4,662     4,662  
                                       

Net income

  $ 18,842   $ 18,938   $ 21,864   $ 13,360   $ 13,360   $ 10,388   $ 9,782   $ 6,019   $ 6,019  
                                       

Pro forma as adjusted net income per share of common stock(3):

                                                       

Basic (unaudited)

                          $ 0.44                     $ 0.20  

Diluted (unaudited)

                          $ 0.44                     $ 0.20  

Weighted average shares outstanding used to compute pro forma as adjusted net income per share of common stock(3):

                                                       

Basic (unaudited)

                            30,480,415                       30,497,718  

Diluted (unaudited)

                            30,480,415                       30,516,888  

(1)
Includes non-cash equity-based compensation of $1,833, $1,114, $2,122, $1,657 and $1,657 for the years ended December 31, 2009, 2010, 2011, 2011 pro forma and 2011 pro forma as adjusted and $791, $2,157, $1,485 and $1,485 for the six months ended June 30, 2011, 2012, 2012 pro forma and 2012 pro forma as adjusted, respectively. See pro forma notes (h) and (i) on page 49 for a description of the pro forma non-cash equity compensation adjustments.

(2)
For the years ended December 31, 2009, 2010 and 2011, and for the six months ended June 30, 2011 and 2012, we operated as a New York limited liability company for federal and state income tax purposes, taxed as a partnership, and therefore were not subject to federal and state income taxes. Following the Reorganization, we will become subject to income taxes. The pro forma and pro forma as adjusted provision for income taxes for the year ended December 31, 2011 and for the six months ended June 30, 2012 assumes a combined federal, state and city income tax rate of 39.4%. The actual combined tax rate will depend on many factors and may be higher or lower than the assumed rate.

 

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(3)
See pro forma note (n) on pages 50 to 51 for a description and reconciliation of the pro forma weighted average shares outstanding.

 
  Year Ended December 31,   Six Months
Ended June 30,
 
 
  2009   2010   2011   2011   2012  

Other Financial and Operational Data:

                               

Adjusted EBITDA (in thousands)(1)

  $ 21,983   $ 21,783   $ 26,532   $ 12,258   $ 13,321  

Free cash flow (in thousands)(2)

  $ 26,399   $ 27,591   $ 36,095   $ 18,377   $ 16,053  

Paid downloads (in millions) (during period)(3)

   
34.0
   
44.1
   
58.6
   
27.7
   
35.9
 

Revenue per download (during period)(4)

  $ 1.80   $ 1.88   $ 2.05   $ 1.97   $ 2.18  

Images in our library (in millions) (end of period)(5)

    8.9     13.3     17.4     15.2     20.2  

(1)
See "—Non-GAAP Financial Measures" below as to how we define and calculate Adjusted EBITDA and for a reconciliation between Adjusted EBITDA and net income, the most directly comparable GAAP financial measure and a discussion about the limitations of Adjusted EBITDA.

(2)
See "—Non-GAAP Financial Measures" below as to how we define and calculate Free Cash Flow and for a reconciliation between Free Cash Flow and net cash provided by operating activities, the most directly comparable GAAP financial measure and a discussion about the limitations of Free Cash Flow.

(3)
Paid downloads is the number of paid image downloads that our customers make during a given period. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Key Operating Metrics—Paid Downloads" for more information as to how we define and calculate paid downloads.

(4)
Revenue per download is the amount of revenue recognized in a given period divided by the number of paid downloads in that period. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Key Operating Metrics—Revenue per Download" for more information as to how we define and calculate paid revenue per download.

(5)
Images in our library is the total number of photographs, vectors and illustrations available on shutterstock.com to customers at the end of the period. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Key Operating Metrics—Images in our Library" for more information as to how we define and calculate paid images in our library.

 

 
  As of June 30, 2012  
 
  Actual   Pro forma(1)   Pro forma
as adjusted(2)
 
 
  (in thousands)
(unaudited)

 

Consolidated Balance Sheet Data:

                   

Cash and cash equivalents

  $ 15,042   $ 9,592   $ 54,349  

Working capital (deficit)

    (33,432 )   (36,151 )   18,039  

Property and equipment, net

    5,479     5,479     5,479  

Total assets

    30,229     39,409     81,599  

Deferred revenue

    33,626     33,626     33,626  

Term loan facility

        12,000      

Total liabilities

    59,801     67,924     55,924  

Redeemable preferred members' interest

    29,937          

Common members' interest

    5,699          

Total members' interest (deficit)

    (59,509 )        

Total stockholders' equity

        (28,515 )   25,675  

(1)
Presented on a pro forma basis to give effect to: (i) the reclassification of all common and preferred members' interests to shares of common stock; (ii) the reclassification of an executive officer's profits interest award from other non-current liabilities to common stock; (iii) deferred tax assets and liabilities at an assumed combined federal, state, and city tax rate of 39.4%; (iv) recognition of the term loan facility we entered into on September 21, 2012; (v) distributions to be made to members prior to the Reorganization; and (vi) a balance sheet adjustment associated with the vesting of equity awards.

 

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(2)
Presented on a pro forma as adjusted basis to give effect to: (i) the adjustments described in note (1) above; (ii) the sale of 4,500,000 shares of common stock by us in this offering at an assumed initial public offering price of $14.00 per share, the midpoint of the price range set forth on the cover of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us in connection with this offering; (iii) the accelerated vesting of 50% of the unvested profits interest award granted to the executive officer in connection with this offering; (iv) reclassification of deferred offering costs from working capital and total assets to additional paid-in capital; and (v) reflects repayment of the term loan facility we entered into on September 21, 2012.

Non-GAAP Financial Measures

Adjusted EBITDA

        To provide investors with additional information regarding our financial results, we have disclosed within this prospectus Adjusted EBITDA, a non-GAAP financial measure. We define Adjusted EBITDA as income from operations before depreciation and amortization, non-cash equity-based compensation, interest and taxes. We believe Adjusted EBITDA is an important measure of operating performance because it allows management, investors and others to evaluate and compare our core operating results from period to period by removing the impact of our asset base (depreciation and amortization), non-cash equity-based compensation, interest and taxes.

        Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider this measure in isolation or as a substitute for analysis of our results as reported under GAAP as the excluded items may have significant effects on our operating results and financial condition. When evaluating our performance, you should consider Adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, net income and our other GAAP results. Additionally, our Adjusted EBITDA measure may differ from other companies' Adjusted EBITDA as it is a non-GAAP disclosure.

        The following is a reconciliation of Adjusted EBITDA to net income, the most directly comparable GAAP measure:

 
  Year Ended December 31,   Six Months
Ended June 30,
 
 
  2009   2010   2011   2011   2012  
 
  (in thousands)
   
   
 

Net income

  $ 18,842   $ 18,938   $ 21,864   $ 10,388   $ 9,782  

Non-GAAP adjustments:

                               

Depreciation and amortization

    404     874     1,520     624     1,160  

Non-cash equity-based compensation

    1,833     1,114     2,122     791     2,157  

Interest (income)

    (5 )   (19 )   (10 )   (7 )   (5 )

Provision for income taxes

    909     876     1,036     462     227  
                       

Adjusted EBITDA

  $ 21,983   $ 21,783   $ 26,532   $ 12,258   $ 13,321  
                       

Free Cash Flow

        To provide investors with additional information regarding our financial results, we have disclosed within this prospectus Free Cash Flow, a non-GAAP financial measure. We define Free Cash Flow as our cash provided by operating activities, adjusted to exclude cash interest income, and subtracting capital expenditures. We believe that Free Cash Flow is an important measure of liquidity because it allows management, investors and others to evaluate the cash that we generate after the financing of projects required to maintain or expand our asset base. When evaluating our performance, you should consider Free Cash Flow alongside other financial performance measures, including various cash flow metrics, net income and our other GAAP results. Additionally, our Free Cash Flow measure may differ from other companies' Free Cash Flow as it is a non-GAAP disclosure.

 

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        The following is a reconciliation of Free Cash Flow to net cash provided by operating activities, the most directly comparable GAAP measure:

 
  Year Ended December 31,   Six Months
Ended June 30,
 
 
  2009   2010   2011   2011   2012  
 
  (in thousands)
   
   
 

Net cash provided by operating activities

  $ 27,151   $ 28,726   $ 39,547   $ 19,938   $ 18,922  

Interest income

    5     19     10     7     5  

Capital expenditures

    (747 )   (1,116 )   (3,442 )   (1,554 )   (2,864 )
                       

Free cash flow

  $ 26,399   $ 27,591   $ 36,095   $ 18,377   $ 16,053  
                       

 

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RISK FACTORS

        This offering and an investment in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with the financial and other information contained in this prospectus, before deciding whether to invest in shares of our common stock. If any of the following risks actually occur, our business, financial condition or operating results could be materially adversely affected. This could cause the trading price of our common stock to decline, and you may lose part or all of your investment.

Risks Relating to Our Business and Industry

The success of our business depends on our ability to continue to attract customers and contributors to our online marketplace for commercial digital imagery.

        The success of our business and our future growth depends significantly on our ability to continue to attract and retain new customers and contributors to our online marketplace for commercial digital imagery. To maintain and increase our revenue, we must regularly add new customers and retain our existing customers. An increase in paying customers has generally attracted more images from contributors, which increases our content selection and in turn attracts additional paying customers. To attract new customers and contributors and retain existing customers and contributors, we rely heavily on the effectiveness of our marketing efforts, the size and content of our image library and the functionality and features of our marketplace. Our marketing efforts may be unsuccessful, our image library may fail to grow as anticipated and new technologies may render the systems and features of our marketplace obsolete, any of which would adversely affect our results of operations and future growth prospects.

Our business depends in large part on repeat customer purchases from both our subscription-based and our On Demand purchase options. If customers reduce or cease their spending with us, or if content contributors reduce or end their participation in our marketplace, our business will be harmed.

        The majority of our revenue is derived from customers who have purchased with us in the past. As a result, our future performance largely depends on our ability to motivate our customers to continue to purchase from us. A key factor in creating such an incentive is our ability to provide customers with the images they seek and to refresh and grow our library of digital imagery based on current and future trends. We seek to achieve these goals by attracting new contributors to our marketplace and by retaining our existing contributors. If we are unable to attract new contributors, retain existing contributors or add new imagery to our online marketplace, or if we fail to do so in a timely manner, customers requiring new and up-to-date content may reduce their spending with us. Another key factor in retaining our existing customers is our ability to deliver a user experience that continues to meet customers' needs, including the quality and accuracy of our search algorithms. If we are unable to maintain or improve upon the user experience that we deliver customers in a way that motivates our customers to continue to purchase from us, our business would be harmed. Furthermore, although historically the gross margins and revenue retention rates from our subscription-based and our On Demand purchase options have been substantially similar, there can be no assurance that this will continue in future periods. To the extent that revenue from our On Demand purchases continues to increase as a percentage of our total revenue, we will become more dependent upon such purchase options.

We operate in a new and rapidly changing market, which makes it difficult to evaluate our future prospects and may increase the risk that we will not be successful.

        The market for commercial digital imagery is a relatively new and rapidly changing market that may not develop as expected. Our business strategy and projections rely on a number of assumptions about the market for commercial digital imagery, including the size and projected growth of the market over the next several years. Some or all of these assumptions may be incorrect. The market for online commercial digital

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imagery may not develop as we expect or as third party analysts have forecasted or we may fail to address the needs of this market.

        The limited history of the market in which we operate makes it difficult to effectively assess our future prospects, and you should consider our business and prospects in light of the risks and difficulties we encounter in this evolving market. These risks and difficulties include our ability to:

    attract new customers and retain existing customers;

    offer customers the kinds of images they are seeking;

    successfully compete with other companies that are currently in, or may in the future enter, the commercial digital imagery marketplace;

    protect against the misuse of our imagery;

    raise awareness of our online community and brand name;

    successfully expand our business;

    develop a scalable, high-performance technology infrastructure that can efficiently and reliably handle increased customer and contributor usage globally, as well as the deployment of new features and services; and

    avoid interruptions or disruptions in our services.

        We may not be able to successfully address these risks and difficulties or others, including those described elsewhere in these risk factors. We cannot accurately predict whether our products and services will achieve significant acceptance by potential customers in significantly larger numbers than at present. You should therefore not rely on our historic growth rates as an indication of future growth.

Our business is highly competitive. Competition presents an ongoing threat to the success of our business.

        The commercial digital imagery industry is intensely competitive. Competition may result in loss of market share, pricing pressures or reduced profit margins, any of which could substantially harm our business and results of operations. We compete with a wide array of companies, from significant media companies to individual imagery creators, to provide commercial digital imagery to users of such imagery. These competitors include:

    other online marketplaces for imagery such as iStockphoto, Fotolia and Dreamstime;

    traditional stock content providers such as Getty Images and Corbis Corporation;

    specialized visual content companies that are established in local, content or product-specific market segments such as Reuters Group PLC, the Associated Press and Thought Equity Motion;

    websites focused on image search and discovery such as Google Images;

    websites for image hosting, art and related products such as Flickr;

    social networking and social media services such as Facebook; and

    commissioned photographers and photography agencies.

        We believe that the principal competitive factors in the commercial digital imagery industry are: brand awareness; company reputation; the quality, relevance and diversity of images; the ability to source new imagery; the licensability of images and the degree to which image users are protected from legal risk; the effective use of current and emerging technology; the accessibility of imagery, distribution capability, and speed and ease of search and fulfillment; customer service; and the global nature of a company's interfaces and marketing efforts, including local languages, currencies, and payment methods. In addition, demand

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for our services is sensitive to price. Many external factors, including our technology and personnel costs and our competitors' pricing and marketing strategies, could significantly impact our pricing strategies. If we fail to meet our customers' price expectations, we could lose customers. A drop in our prices without a corresponding increase in volume would negatively impact our revenues.

        Some of our existing and potential competitors have or may obtain significantly greater financial, marketing or other resources or greater brand awareness than we have. Some of these competitors may be able to respond more quickly to new or expanding technology and devote more resources to product development, marketing or content acquisition than we can. If competitors offer higher royalties, easier contribution workflows, less selective vetting processes or convince contributors to distribute their content on an exclusive basis, contributors may choose to stop distributing new content with us or remove their existing content from our library. Competitors may also seek to develop new products, technologies or capabilities that could render obsolete or less competitive many of the products, services and content types that we offer. If we are unable to compete successfully against our competitors, our growth prospects and results of operations may be adversely affected.

New competitors could enter our market and we may be unsuccessful in competing with these new entrants.

        New competitors may enter our market, particularly if technological advances or other market dynamics make creating, sourcing, archiving, indexing, reviewing, searching or delivering commercial digital images easier or more affordable. While we believe that there are obstacles to creating a meaningful network effect between customers and contributors, the barriers to creating a website that allows for the sale of digital content are low, which could result in greater competition. Our contributors, for example, may freely offer the images they provide to us to our competitors and may remove their images at any time. New entrants may raise significant amounts of capital and they may choose to prioritize increasing their market share and brand awareness over profitability, including, for example, by offering higher royalties for exclusivity. Additionally, larger, more established and better capitalized entities may acquire, invest in or partner with our competitors or leverage their own image-related competencies to enter our market. If we are unable to compete successfully against new entrants, our growth prospects and results of operations may be adversely affected.

We may not be able to prevent the misuse of our imagery and we may be subject to infringement claims.

        We rely on intellectual property laws and contractual restrictions to protect our rights and the imagery in our library. Certain countries are very lax in enforcing intellectual property laws. Litigation in those countries will likely be costly and ineffective. Consequently, these intellectual property laws afford us only limited protection. Unauthorized parties have attempted, and may attempt, to improperly use our licensed digital imagery. We cannot guarantee that we will be able to prevent the unauthorized use of our digital imagery or that we will be successful in stopping such use once it is detected.

        We have been subject to a variety of third-party infringement claims in the past and will likely be subject to similar claims in the future. We license all of our digital imagery from photographers, illustrators and videographers, and, although we have staff committed to reviewing each image that we accept into our library, we cannot guarantee that each contributor holds the rights or releases he or she claims or that such rights and releases are adequate. As a result, we may be subject to infringement claims or other claims by third parties. Furthermore, we offer our customers indemnification of up to $10,000 for legal costs and direct damages arising from the use of an image or video footage licensed through us. We also offer some of our customers custom contracts that either provide for larger indemnification amounts or unlimited indemnification. However, our contractual maximum liability may not be enforceable in all jurisdictions. We maintain insurance policies to cover potential intellectual property disputes. Since 2009, we have received approximately 30 customer claims for indemnification. Following investigation of such claims, less than one-third resulted in our making a cash payment to settle such claims. Aggregate amounts paid to date to settle customer indemnification claims have not been material. Although we have insurance to

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cover indemnification claims, and although, to date, these claims have not resulted in any material liability to us, we have incurred, and will continue to incur, expenses related to such claims and related settlements, which may increase over time.

        If a third-party infringement claim or series of claims is brought against us for uninsured liabilities or in excess of our insurance coverage, our business could suffer. In addition, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts or scope to protect us against all losses. Any claims against us, regardless of their merit, could severely harm our financial condition and reputation, strain our management and financial resources, and adversely affect our business.

Assertions by third parties of infringement or other violations by us of intellectual property rights could result in significant costs and substantially harm our business and operating results.

        Internet, technology and media companies are frequently subject to litigation based on allegations of infringement, misappropriation or other violations of intellectual property rights or rights related to their use of technology. Some internet, technology and media companies, including some of our competitors, own large numbers of patents, copyrights, trademarks and trade secrets, which they may use to assert claims against us. Third parties may in the future assert that we have infringed, misappropriated or otherwise violated their intellectual property rights, and as we face increasing competition, the possibility of intellectual property rights claims against us grows. Such litigation may involve patent holding companies or other adverse patent owners who have no relevant product revenue, and therefore our own issued and pending patents may provide little or no deterrence to these patent owners in bringing intellectual property rights claims against us. Existing laws and regulations are evolving and subject to different interpretations, and various federal and state legislative or regulatory bodies may expand current or enact new laws or regulations. We cannot assure you that we are not infringing or violating any third-party intellectual property rights or rights related to use of technology.

        We cannot predict whether assertions of third-party intellectual property rights or any infringement or misappropriation or other claims arising from such assertions will substantially harm our business and operating results. If we are forced to defend against any infringement or misappropriation claims, whether they are with or without merit, are settled out of court, or are determined in our favor, we may be required to expend significant time and financial resources on the defense of such claims. Furthermore, an adverse outcome of a dispute may require us to pay damages, potentially including treble damages and attorneys' fees, if we are found to have willfully infringed a party's intellectual property; cease making, licensing or using content that is alleged to infringe or misappropriate the intellectual property of others; expend additional development resources to redesign our technology; enter into potentially unfavorable royalty or license agreements in order to obtain the right to use necessary technologies, content, or materials; and to indemnify our partners and other third parties. Royalty or licensing agreements, if required or desirable, may be unavailable on terms acceptable to us, or at all, and may require significant royalty payments and other expenditures. In addition, any lawsuits regarding intellectual property rights, regardless of their success, could be expensive to resolve and would divert the time and attention of our management and technical personnel.

Unless we increase market awareness of our company and our services, our revenue may not continue to grow.

        We believe that our ability to attract and retain new customers and contributors depends in large part on our ability to increase our brand awareness within our industry. In order to increase the number of our customers and contributors, we may be required to expend greater resources on advertising, marketing, and other brand-building efforts to preserve and enhance customer and contributor awareness of our brand. Currently, a significant portion of our marketing spending consists of search engine marketing, which exposes us to risk in the event that one or more large search engines were to reconfigure their algorithms in such a way that would result in less business for us.

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        Our marketing campaigns or other efforts to increase our brand awareness may not succeed in bringing new visitors to our online marketplace or converting such visitors to paying customers or contributors and may not be cost-effective. Our brand may be impaired by a number of other factors, including disruptions in service due to technology issues, data privacy and security issues, and exploitation of our trademarks and other intellectual property by others without our permission.

We have experienced rapid growth in recent periods. If we fail to effectively manage our growth, our business and operating results may suffer.

        We have experienced, and expect to continue to experience, significant growth, which has placed, and will continue to place, significant demands on our management and our operational and financial infrastructure. We expect that our growth strategy will require us to commit substantial financial, operational and technical resources. Continued growth could also strain our ability to maintain reliable operation of our online marketplaces for our customers and contributors, develop and improve our operational, financial and management controls, enhance our reporting systems and procedures and recruit, train and retain highly skilled personnel. As our operations grow in size, scope and complexity, we will need to improve and upgrade our systems and infrastructure, which will require significant expenditures and allocation of valuable management resources. If we fail to allocate limited resources effectively in our organization as it grows, our business, operating results and financial condition will suffer.

One of our strategic goals is to generate a larger percentage of our revenue from larger companies, which may place greater demands on us in terms of increased service, indemnification or working capital requirements, any of which could increase our costs or substantially harm our business and operating results.

        One of our strategic goals is to increase the percentage of our revenues that come from larger companies, in addition to the small and medium-size companies from whom we have generated the majority of our revenue historically. In order to win the business of larger companies, we may face greater demands in terms of increased service requirements, greater indemnification requirements, greater pricing pressure, and greater working capital to accommodate the larger receivables and collections issues that are likely to occur as a result of being paid on credit terms. If we are unable to adequately address those demands, it may affect our ability to grow our business in this segment, which may adversely affect our results of operations and future growth. If we address those demands in a way that expands our risk of infringement claims, significantly increases our operating costs, reduces our ability to maintain or increase pricing, or increases our working capital requirements, our business, operating results and financial condition may suffer.

Continuing expansion into international markets is important for our growth, and as we continue to expand internationally, we face additional business, political, regulatory, operational, financial and economic risks, any of which could increase our costs or otherwise limit our growth.

        Continuing to expand our business to attract customers and contributors in countries other than the United States is a critical element of our business strategy. In 2011, approximately 66% of our revenue was derived from customers located outside of North America. While a significant portion of our customers reside outside of the United States, we have a limited operating history as a company outside the United States. We expect to continue to devote significant resources to international expansion through establishing additional offices, hiring additional overseas personnel and exploring acquisition opportunities. In addition, we expect to increase marketing for our foreign language offerings and to further localize our library and user experience for foreign markets. Our ability to expand our business and to attract talented employees, and customers and contributors in an increasing number of international markets requires considerable management attention and resources and is subject to the particular challenges of supporting a rapidly growing business in an environment of multiple languages, cultures,

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customs, legal systems, alternative dispute systems, regulatory systems and commercial infrastructures. Expanding our international focus may subject us to risks that we have not faced before or increase risks that we currently face, including risks associated with:

    modifying our technology and marketing our offerings for customers and contributors beyond the 10 languages we currently offer;

    localizing our content to foreign customers' preferences and customs;

    legal, political or systemic restrictions on the ability of U.S. companies to do business in foreign countries, including, among others, restrictions imposed by the U.S. Office of Foreign Assets Control (OFAC) on the ability of U.S. companies to do business in certain specified foreign countries or with certain specified organizations and individuals;

    compliance with foreign laws and regulations, including disclosure requirements, privacy laws, rights of publicity, technology laws and laws relating to content;

    protecting and enforcing our intellectual property rights;

    recruiting and retaining talented and capable management and employees in foreign countries;

    potential adverse foreign tax consequences;

    strains on our financial and other systems to properly administer VAT, withholdings and other taxes;

    currency exchange fluctuations;

    remedying the material weakness in our internal control over financial reporting relating to tax compliance; and

    higher costs associated with doing business internationally.

        These risks may make it impossible or prohibitively expensive to expand to new international markets, or delay entry into such markets, which may affect our ability to grow our business.

Following our Reorganization, we will be subject to entity-level taxation, which will result in significantly greater income tax expense than we have incurred historically.

        Historically, we have operated as a New York limited liability company. As a limited liability company, we recognize no federal and state income taxes, as the members of the LLC, and not the entity itself, are subject to income tax on their allocated share of our earnings. Prior to the effectiveness of the registration statement of which this prospectus is a part, we will reorganize as a Delaware corporation. Consequently, on a going-forward basis, we will be subject to entity-level taxation even though historically Shutterstock Images LLC has not had to pay U.S. federal or state income taxes. As a result, our corporate income tax rate will increase significantly as we become subject to federal, state and additional city income taxes.

Our operations may expose us to greater than anticipated income tax liabilities, which could harm our financial condition and results of operations.

        We plan to structure our activities in a manner so as to minimize our tax liabilities. However, we have operations in various taxing jurisdictions in the United States and foreign countries, and there is a risk that our tax liabilities in one or more jurisdictions could be more than reported relative to prior taxable periods and more than anticipated relative to future taxable periods.

        In addition, the determination of our worldwide provision for income taxes, tax withholdings and other tax liabilities requires significant judgment and there are many transactions and calculations for which the ultimate tax determination is uncertain. Although we believe our estimates are reasonable, our ultimate tax liability may differ from the amounts recorded in our financial statements and may materially

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adversely affect our financial results in the period or periods for which such determination is made. We have created reserves with respect to such tax liabilities where we believe it to be appropriate. However, there can be no assurance that our ultimate tax liability will not exceed the reserves that we have created.

        Furthermore, the current administration of the U.S. federal government has made public statements indicating that it has made international tax reform a priority, and key members of the U.S. Congress have conducted hearings and proposed changes to U.S. tax laws. Recent changes to U.S. tax laws, including limitations on the ability of taxpayers to claim and utilize foreign tax credits and the deferral of certain tax deductions until earnings outside of the United States are repatriated to the United States, as well as other changes to U.S. tax laws that may be enacted in the future, could impact the tax treatment of our foreign earnings. Due to the large and expanding scale of our international business activities, any changes in the U.S. taxation of such activities may increase our worldwide effective tax rate and harm our financial position and results of operations.

We currently have a material weakness in our internal control over financial reporting relating to compliance with certain tax regulations, that, if not properly remediated, could impair our ability to comply with the accounting and reporting requirements applicable to public companies.

        In connection with the audit of our financial statements as of and for the year ended December 31, 2011, we and our independent registered public accounting firm identified a material weakness in internal control over financial reporting with respect to our tax compliance process. Specifically, it was determined that we did not have adequate procedures and controls to appropriately comply with, and account for, certain non-income tax regulations. These non-income tax issues related to underpayment of international consumption tax, sales and use tax and royalty withholdings compliance. A material weakness is defined as a significant deficiency, or a combination of significant deficiencies, that results in a reasonable possibility that a material misstatement of our financial statements will not be prevented by our internal control over financial reporting. A significant deficiency means a control deficiency, or a combination of control deficiencies, that adversely affects our ability to initiate, record, process or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of our financial statements that is more than inconsequential will not be prevented or detected by our internal control over financial reporting.

        We are working to remediate the material weakness. We have begun taking numerous steps and plan to take additional steps to remediate the underlying causes of the material weakness, primarily through a search for a tax specialist and updating our systems in order to collect the necessary data and taxes to comply with our required tax compliance processes. We intend to hire a tax specialist with the appropriate knowledge and ability to fulfill our obligations to comply with the accounting and reporting requirements applicable to public companies. The actions that we are taking are subject to ongoing senior management review, as well as audit committee oversight. Although we plan to complete this remediation process as quickly as possible, we cannot at this time estimate how long it will take, and our initiatives may not prove to be successful in remediating this material weakness. If we are unable to successfully remediate this material weakness, it could harm our operating results, cause us to fail to meet our SEC reporting obligations or applicable stock exchange listing requirements on a timely basis, cause our stock price to be adversely affected or result in inaccurate financial reporting or material misstatements in our annual or interim financial statements.

Our operations may expose us to greater than anticipated sales and transaction tax liabilities, including VAT, which could harm our financial condition and results of operations.

        We may have exposure to sales or other transaction taxes (including VAT) on our past and future transactions. A successful assertion by any state or local jurisdiction or country that we failed to pay such sales or other transaction taxes, or the imposition of new laws requiring the payment of such taxes, could result in substantial tax liabilities related to past sales, create increased administrative burdens or costs,

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discourage customers from purchasing images from us, or otherwise substantially harm our business and results of operations. See also "—Risks Related to This Offering and Ownership of Our Common Stock—We currently have a material weakness in our internal control over financial reporting relating to compliance with certain tax regulations that, if not properly remediated, could impair our ability to comply with the accounting and reporting requirements applicable to public companies."

If we do not respond to technological changes or upgrade our website and technology systems, our growth prospects and results of operations could be adversely affected.

        To remain competitive, we must continue to enhance and improve the functionality and features of our websites in addition to our infrastructure. Although we currently do not have specific plans for any infrastructure upgrades that would require significant capital investment outside of the normal course of business, in the future we will need to improve and upgrade our technology, database systems and network infrastructure in order to allow our business to grow in both size and scope. Without such improvements, our operations might suffer from unanticipated system disruptions, slow application performance or unreliable service levels, any of which could negatively affect our reputation and ability to attract and retain customers and contributors. Furthermore, in order to continue to attract and retain new customers, we are likely to incur expenses in connection with continuously updating and improving our user interface and experience. We may face significant delays in introducing new services, products and enhancements. If competitors introduce new products and services using new technologies or if new industry standards and practices emerge, our existing websites and our proprietary technology and systems may become obsolete or less competitive, and our business may be harmed. In addition, the expansion and improvement of our systems and infrastructure may require us to commit substantial financial, operational and technical resources, with no assurance that our business will improve.

Technological interruptions that impair access to our websites or the efficiency of our marketplace would damage our reputation and brand and adversely affect our results of operations.

        The satisfactory performance, reliability and availability of our websites and our network infrastructure are critical to our reputation, our ability to attract and retain both customers and contributors to our online marketplace and our ability to maintain adequate customer service levels. Any system interruptions that result in the unavailability of our websites could result in negative publicity, damage our reputation and brand or adversely affect our results of operations. We may experience temporary system interruptions for a variety of reasons, including security breaches and other security incidents, viruses, telecommunication and other network failures, power failures, software errors, data corruption or an overwhelming number of visitors trying to reach our websites during periods of strong demand. We rely upon third-party service providers, such as co-location and cloud service providers, for our data centers and application hosting, and we are dependent on these third parties to provide continuous power, cooling, internet connectivity and physical security for our servers. In the event that these third-party providers experience any interruption in operations or cease business for any reason, or if we are unable to agree on satisfactory terms for continued hosting relationships, our business could be harmed and we could be forced to enter into a relationship with other service providers or assume hosting responsibilities ourselves. Although we operate two data centers in an active/standby configuration for geographic and vendor redundancy and even though we maintain a third disaster recovery facility to back up our content library, a system disruption at the active data center could result in a noticeable disruption to our websites until all website traffic is redirected to the standby data center. Even a disruption as brief as a few minutes could have a negative impact on marketplace activities and could therefore result in a loss of revenue. Because some of the causes of system interruptions may be outside of our control, we may not be able to remedy such interruptions in a timely manner, or at all. In addition, we have entered into service level agreements with some of our larger customers. Technological interruptions could result in a breach of such agreements and subject us to considerable penalties.

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Failure to protect our intellectual property could substantially harm our business and operating results.

        The success of our business depends on our ability to protect and enforce our patents, trade secrets, trademarks, copyright and all of our other intellectual property rights, including our intellectual property rights underlying our online marketplace and search algorithms. We attempt to protect our intellectual property under trade secret, trademark, copyright and patent law, and through a combination of employee and third-party nondisclosure agreements, other contractual restrictions, and other methods. These afford only limited protection. Despite our efforts to protect our intellectual property rights and trade secrets, unauthorized parties may attempt to copy aspects of our intellectual property and use our trade secrets and other confidential information. Moreover, policing our intellectual property rights is difficult, costly and may not always be effective. To the extent these unauthorized parties, which may include our competitors, are successful in copying aspects of our search algorithms and our trade secrets, our business could be harmed.

        We have registered "Shutterstock," "Bigstock" and other marks as trademarks in the United States. Nevertheless, competitors may adopt service names similar to ours, or purchase our trademarks and confusingly similar terms as keywords in internet search engine advertising programs, thereby impeding our ability to build brand identity and possibly leading to confusion among our customers. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of the term Shutterstock or our other trademarks. Any claims or customer confusion related to our trademarks could damage our reputation and brand and substantially harm our business and operating results.

        We currently own the www.shutterstock.com internet domain name and various other related domain names. Domain names are generally regulated by internet regulatory bodies. If we lose the ability to use a domain name in a particular country, we would be forced either to incur significant additional expenses to market our products within that country or to elect not to sell products in that country. Either result could harm our business and operating results. The regulation of domain names in the United States and in foreign countries is subject to change. Regulatory bodies could establish additional top-level domains, appoint additional domain name registrars or modify the requirements for holding domain names. As a result, we may not be able to acquire or maintain the domain names that utilize our brand names in the United States or other countries in which we conduct business or in which we may conduct business in the future.

        In order to protect our trade secrets and other confidential information, we rely in part on confidentiality agreements with our employees, consultants and third parties with whom we have relationships. These agreements may not effectively prevent disclosure of trade secrets and other confidential information and may not provide an adequate remedy in the event of misappropriation of trade secrets or any unauthorized disclosure of trade secrets and other confidential information. In addition, others may independently discover our trade secrets and confidential information, and in such cases we could not assert any trade secret rights against such parties. Costly and time-consuming litigation could be necessary to enforce or determine the scope of our trade secret rights and related confidentiality and nondisclosure provisions. Failure to obtain or maintain trade secret protection, or our competitors' acquisition of our trade secrets or independent development of unpatented technology similar to ours or competing technologies, could adversely affect our competitive business position.

        Litigation or proceedings before the U.S. Patent and Trademark Office or other governmental authorities and administrative bodies in the United States and foreign countries may be necessary in the future to enforce our intellectual property rights, to protect our patent rights, trademarks, trade secrets and domain names and to determine the validity and scope of the proprietary rights of others. Furthermore, the monitoring and protection of our intellectual property rights may become more difficult, costly and time consuming as we continue to expand internationally, particularly in those markets, such as China and certain other developing countries in Asia, in which legal protection of intellectual property

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rights is less robust than in the United States and in Europe. Our efforts to enforce or protect our proprietary rights may be ineffective and could result in substantial costs and diversion of resources and management time, each of which could substantially harm our operating results.

Much of the software and technologies used to provide our services incorporate, or have been developed with, "open source" software, which may restrict how we use or distribute our services or require that we publicly release certain portions of our source code.

        Much of the software and technologies used to provide our services incorporate, or have been developed with, "open source" software. Such "open source" software may be subject to third party licenses that impose restrictions on our software and services. Examples of "open source" licenses include the GNU General Public License and GNU Lesser General Public License. Such open source licenses typically require that source code subject to the license be made available to the public and that any modifications or derivative works to open source software continue to be licensed under open source licenses. Few courts have interpreted open source licenses, and the manner in which these licenses may be interpreted and enforced is therefore subject to some uncertainty. We rely on multiple software engineers to design our proprietary technologies, and we do not exercise complete control over the development efforts of our engineers. In the event that portions of our proprietary technology are determined to be subject to an open source license, we could be required to publicly release portions of our source code, re-engineer all or a portion of our technologies, or otherwise be limited in the licensing of our technologies, each of which could reduce or eliminate the value of our services and technologies and materially and adversely affect our ability to sustain and grow our business.

Our operating results may fluctuate, which could cause our results to fall short of expectations and our stock price to decline.

        Our revenue and operating results could vary significantly from quarter to quarter and year to year due to a variety of factors, many of which are outside our control. As a result, comparing our operating results on a period to period basis may not be meaningful. In addition to other risk factors discussed in this "Risk Factors" section, factors that may contribute to the variability of our quarterly and annual results include:

    our ability to retain our current customers and to attract new customers and contributors;

    our ability to provide new and relevant imagery to our customers;

    our ability to effectively manage our growth;

    the effects of increased competition on our business;

    our ability to keep pace with changes in technology or our competitors;

    changes in our pricing policies or the pricing policies of our competitors;

    interruptions in service, whether or not we are responsible for such interruptions, and any related impact on our reputation and brand;

    costs associated with defending any litigation or other claims, including those related to our indemnification of our customers;

    our ability to pursue, and the timing of, entry into new geographies or markets and, if pursued, our management of this expansion;

    the impact of general economic conditions on our revenue and expenses;

    seasonality;

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    changes in government regulation affecting our business; and

    costs related to potential acquisitions of technology or businesses.

        Because of these risks and others, it is possible that our future results may be below our expectations and the expectations of analysts and investors. In such an event, the price of our common stock may decline significantly.

Our failure to protect the confidential information of our customers and our networks against security breaches and the risks associated with credit card fraud could expose us to liability, protracted and costly litigation and damage our reputation.

        We collect limited confidential information in connection with registering customers and contributors and other marketplace-related processes on our websites and, in particular, in connection with processing and remitting payments to and from our customers and contributors. Although we maintain security features on our websites, our security measures may not detect or prevent all attempts to hack our systems, denial-of-service attacks, viruses, malicious software, break-ins, phishing attacks, social engineering, security breaches or other attacks and similar disruptions that may jeopardize the security of information stored in and transmitted by our websites. We rely on encryption and authentication technology licensed from third parties to provide the security and authentication to effectively secure transmission of the confidential information that we process for our customers, and such technology may fail to function properly or may be compromised or breached. Additionally, as described above, we use third-party co-location and cloud service vendors for our data centers and application hosting, and their security measures may not prevent security breaches and other disruptions that may jeopardize the security of information stored in and transmitted through their systems. A party that is able to circumvent our security measures could misappropriate proprietary information, cause interruption in our operations, damage or misuse our websites, distribute or delete content owned by our contributors, and misuse the information that they misappropriate. Additionally, our systems may be breached by third parties without our being aware that our systems or data have been compromised. We may be required to expend significant capital and other resources to protect against such security breaches or to alleviate problems caused by such breaches. In addition, a significant cybersecurity breach could result in payment networks prohibiting us from processing transactions on their networks. Security and fraud-related issues are likely to become more challenging as we expand our operations.

        Furthermore, some of the software and services that we use to operate our business, including our internal email and customer relationship management software, are hosted by third parties. If these services were to be interrupted or were to cause us to lose control of confidential information, our business operations could be disrupted and we could be exposed to liability and costly litigation.

        Under current credit card practices, we are liable for fraudulent credit card transactions because we do not obtain a cardholder's signature. We do not currently carry insurance against 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.

        If any compromise of our security were to occur, we may lose customers and our reputation, business, financial condition and operating results could be harmed. Any compromise of security may result in us being out of compliance with U.S. federal and state, and international laws and we may be subject to lawsuits, fines, criminal penalties, statutory damages, and other costs. Any failure, or perceived failure, by us to comply with our posted privacy policies or with any regulatory requirements or orders or other federal, state, or international privacy or consumer protection-related laws and regulations, could result in proceedings or actions against us by governmental entities or others, subject us to significant penalties and negative publicity, and adversely affect our results of operations. In addition, our failure to adequately control fraudulent credit card transactions could damage our reputation and brand and substantially harm our business and results of operations.

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Government regulation of the internet, both in the United States and abroad, is evolving and unfavorable changes could have a negative impact on our business.

        The adoption, modification or interpretation of laws or regulations relating to the internet or other areas of our business could adversely affect the manner in which we conduct our business or the overall popularity or growth in use of the internet. Such laws and regulations may cover automatic contract or subscription renewal, credit card processing procedures, sales and other procedures, tariffs, user privacy, data protection, pricing, content, copyrights, distribution, electronic contracts, consumer protection, broadband residential internet access and the characteristics and quality of services. In certain countries, such as those in Europe, such laws may be more restrictive than in the United States. It is not clear how existing laws governing issues such as property ownership, sales and other taxes, and personal privacy apply to the internet and ecommerce as the vast majority of these laws were adopted prior to the advent of the internet and do not contemplate or address the unique issues raised by the internet or ecommerce. Those laws that do reference the internet are only beginning to be interpreted by the courts and their applicability and reach are therefore uncertain. For example, the Children's Online Privacy Protection Act imposes additional restrictions on the ability of online services to collect user information from minors. If we are required to comply with new regulations or legislation or new interpretations of existing regulations or legislation, this compliance could cause us to incur additional expenses, make it more difficult to renew subscriptions automatically, make it more difficult to attract new subscribers or otherwise alter our business model. Any of these outcomes could have a material adverse effect on our business, financial condition or results of operations.

        We currently operate in more than 150 countries. The privacy, data protection, censorship and liability standards and regulations, and different intellectual property laws that apply in each of those foreign countries, may be different than those that apply to companies operating solely within the United States. To the extent that we are not in compliance with applicable local laws and regulations, our business may be harmed.

Expansion of our operations into additional content categories may subject us to additional business, legal, financial and competitive risks.

        Currently, our operations are focused in significant part on digital still images. Further expansion of our operations and our marketplace into video footage or additional content categories involves numerous risks and challenges, including increased capital requirements, potential new competitors and the need to develop new contributor and strategic relationships. Growth into additional content areas may require changes to our existing business model and cost structure and modifications to our infrastructure and may expose us to new regulatory and legal risks, any of which may require expertise in which we have little or no experience. There is no guarantee that we will be able to generate sufficient revenue from sales of such content to offset the costs of acquiring such content.

The impact of worldwide economic conditions, including effects on advertising and marketing budgets, may adversely affect our business and operating results.

        Our financial condition is affected by worldwide economic conditions and their impact on advertising spending. Expenditures by advertisers generally tend to reflect overall economic conditions, and to the extent that the economy stagnates, companies may reduce their spending on advertising and marketing, and thus the use of our online marketplace. This could have a serious adverse impact on our business. To the extent that overall economic conditions reduce spending on advertising and marketing activities, our ability to retain current and obtain new customers could be hindered, which could reduce our revenue and negatively impact our business.

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Our loan agreement contains operating and financial covenants that may restrict our business and financing activities.

        We are party to a loan and security agreement relating to our term loan facility with Silicon Valley Bank. The term loan made under this loan and security agreement is secured by substantially all of our assets, not including our intellectual property. Our loan and security agreement restricts our ability to:

    incur additional indebtedness, other than in certain specified cases;

    create subordinated indebtedness, other than under certain specified conditions;

    create liens on our assets, other than in certain specified cases;

    enter into transactions with affiliates, other than ordinary course, arm's length transactions;

    make investments or distributions, other than in certain specified cases (including the payment of a distribution to our members prior to completion of the offering);

    sell assets, other than in certain specified cases;

    make material changes in our business or management;

    pay dividends, other than dividends paid solely in shares of our common stock, or make distributions on and, in certain cases, repurchase our stock; or

    consolidate or merge with other entities, other than the contemplated Reorganization.

        In addition, the loan and security agreement provides that we satisfy certain financial covenants including minimum earnings and liquidity requirements. The operating and financial restrictions and covenants in the loan and security agreement, as well as any future financing agreements that we may enter into, may restrict our ability to finance our operations, engage in business activities or expand or fully pursue our business strategies. Our ability to comply with these covenants may be affected by events beyond our control, and we may not be able to meet those covenants. A breach of any of these covenants could result in a default under the loan and security agreement, which could cause all of the outstanding indebtedness under both facilities to become immediately due and payable and terminate all commitments to extend further credit.

        If we are unable to generate sufficient cash available to repay our debt obligations when they become due and payable, either when they mature or in the event of a default, we may not be able to obtain additional debt or equity financing on favorable terms, if at all, which may negatively affect our ability to continue as a going concern.

The loss of key personnel, an inability to attract and retain additional personnel or difficulties in the integration of new members of our management team into our company could affect our ability to successfully grow our business.

        Our future success will depend upon our ability to identify, attract, retain and motivate highly skilled technical, managerial, product development, marketing, content operations and customer service employees. Competition for qualified personnel is intense in our industry. We cannot guarantee that we will be successful in our efforts to attract such personnel.

        We are highly dependent on the continued service and performance of our senior management team, as well as key technical and marketing personnel. Our inability to find suitable replacements for any of the members of our senior management team and our key technical and marketing personnel, should they leave our employ, would adversely impair our ability to implement our business strategy and could have a material adverse effect on our business and results of operations. Several members of our senior management team joined us in 2010 and 2011. These individuals are currently becoming integrated with the rest of our team. We believe the successful integration of our management team is critical to managing our operations effectively and to supporting our growth.

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If we cannot maintain our corporate culture as we grow, we could lose the innovation, teamwork and focus that contribute crucially to our business.

        We believe that a critical component of our success is our corporate culture, which we believe fosters innovation, encourages teamwork, cultivates creativity and promotes a focus on execution. We have invested substantial time, energy and resources in building a highly collaborative team that works together effectively in a non-hierarchical environment designed to promote openness, honesty, mutual respect and pursuit of common goals. As we develop the infrastructure of a public company and continue to grow, we may find it difficult to maintain these valuable aspects of our corporate culture. Any failure to preserve our culture could negatively impact our future success, including our ability to attract and retain employees, encourage innovation and teamwork and effectively focus on and pursue our corporate objectives.

If we do not successfully integrate past or potential future acquisitions, our business could be adversely impacted.

        We have in the past pursued, and we may in the future pursue, acquisitions that are complementary to our existing business and that may expand our employee base and the breadth of our offerings. Future acquisitions or investments could result in potential dilutive issuances of equity securities, use of significant cash balances or the incurrence of debt, contingent liabilities or amortization expenses related to goodwill and other intangible assets, any of which could adversely affect our financial condition and results of operations. The benefits of an acquisition or investment may also take considerable time to develop, and we cannot be certain that any particular acquisition or investment will produce the intended benefits.

        Integration of a new company's operations, assets and personnel into ours will require significant attention from our management. The diversion of our management's attention away from our business and any difficulties encountered in the integration process could harm our ability to manage our business. Future acquisitions will also expose us to potential risks, including risks associated with any acquired liabilities, the integration of new operations, technologies and personnel, unforeseen or hidden liabilities, information security vulnerabilities, the diversion of resources from our existing businesses, sites and technologies, the inability to generate sufficient revenue to offset the costs and expenses of acquisitions, and potential loss of, or harm to, our relationships with employees, customers, contributors and other suppliers as a result of integration of new businesses.

We may need to raise additional capital in the future and may be unable to do so on acceptable terms or at all.

        We intend to continue to make investments to support our business growth and may require additional funds to respond to business challenges, including the need to develop new features or functions of our online marketplace, improve our operating infrastructure or acquire complementary businesses, personnel and technologies. Accordingly, we may need to engage in equity or debt financings to secure additional capital. If we raise additional funds through future issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. Any debt financing we secure in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. We may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly impaired, and our business may be harmed.

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We are subject to payments-related risks that may result in higher operating costs or the inability to process payments, either of which could harm our financial condition and results of operations.

        We accept payments using a variety of methods, including credit cards and debit cards. As we offer new payment options to consumers, we may be subject to additional regulations, compliance requirements and fraud. For certain payment methods, including credit and debit cards, we pay interchange and other fees, which may increase over time and raise our operating costs and lower profitability. We rely on third parties to provide payment processing services, including the processing of credit cards and debit cards, and it could disrupt our business if these companies became unwilling or unable to provide these services to us. We are also subject to payment card association operating rules, certification requirements and rules governing electronic funds transfers, which could change or be reinterpreted to make it difficult or impossible for us to comply. If we fail to comply with these rules or requirements, we may be subject to fines and higher transaction fees and lose our ability to accept credit and debit card payments from consumers or facilitate other types of online payments.

        We are also subject to or voluntarily comply with a number of other laws and regulations relating to money laundering, international money transfers, privacy and information security and electronic fund transfers. If we were found to be in violation of applicable laws or regulations, we could be subject to civil and criminal penalties or forced to cease our operations.

We are exposed to fluctuations in currency exchange rates, which could adversely affect our results.

        Because we conduct a growing portion of our business outside of the United States but report our financial results in U.S. Dollars, we face exposure to adverse movements in currency exchange rates. Our foreign operations are exposed to foreign exchange rate fluctuations as the financial results are translated from the local currency into U.S. Dollars upon consolidation. If the U.S. Dollar weakens against foreign currencies, the translation of these foreign currency denominated transactions will result in increased revenue, operating expenses and net income. Similarly, if the U.S. Dollar strengthens against foreign currencies, the translation of these foreign currency denominated transaction will result in decreased revenue, operating expenses and net income. As exchange rates vary, sales and other operating results, when translated, may differ materially from expectations.

        We have foreign currency risks related to foreign-currency denominated revenues. All amounts owed and paid to our foreign contributors are denominated and paid in U.S. Dollars. In general, we are a net receiver of currencies other than the U.S. Dollar. Accordingly, changes in exchange rates, and in particular a strengthening of the U.S. Dollar, will negatively affect our revenue and other operating results as expressed in U.S. Dollars.

        Because we have determined our functional currency to be the U.S. Dollar, we have not experienced material fluctuations in our net income as a result of translation gains or losses. During 2009, 2010 and 2011, our foreign currency transaction gains and losses were immaterial. At this time we do not, but we may in the future, enter into derivatives or other financial instruments in order to hedge our foreign currency exchange risk. It is difficult to predict the impact hedging activities would have on our results of operations.

We depend on the continued growth of online commerce and the continued adoption of digital imagery. If these trends do not continue, our growth prospects and results of operations could be adversely impacted.

        The business of selling goods and services over the internet is dynamic and relatively new. Concerns about fraud, privacy and other problems may discourage additional consumers from adopting the internet as a medium of commerce. In countries such as the U.S. and the United Kingdom, where our services and online commerce generally have been available for some time and the level of market penetration of our services is higher than in other countries, acquiring new customers may be more difficult and costly than it has been in the past. In order to expand our customer base, we may need to appeal to and acquire

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customers who historically have used traditional means of commerce to purchase goods and services. If these target customers prove to be less active than our earlier customers our business could be adversely impacted.

        In addition, our growth is highly dependent upon the continued demand for imagery. The commercial digital imagery market is rapidly evolving, characterized by changing technologies, intense price competition, introduction of new competitors, evolving industry standards, frequent new service announcements and changing consumer demands and behaviors. To the extent that demand for imagery does not continue to grow as expected, our revenue growth will suffer.

Our business depends on the development and maintenance of the internet infrastructure. If the internet infrastructure experiences outages or delays our business could be adversely impacted.

        The success of our services will depend largely on the development and maintenance of the internet infrastructure. This includes maintenance of a reliable network backbone with the necessary speed, data capacity and security, as well as the timely development of complementary products, for providing reliable internet access and services. The internet has experienced, and is likely to continue to experience, significant growth in the number of users and amount of traffic. The internet infrastructure may be unable to support such demands. In addition, increasing numbers of users, increasing bandwidth requirements or problems caused by viruses, worms, malware and similar programs may harm the performance of the internet. The backbone network of the internet has been the target of such programs. The internet has experienced a variety of outages and other delays as a result of damage to portions of its infrastructure, and it could face outages and delays in the future. These outages and delays could reduce the level of internet usage generally as well as the level of usage of our services, which could adversely impact our business.

Our business is subject to the risks of earthquakes, fires, floods and other natural catastrophic events and to interruption by man-made problems such as terrorism or computer viruses.

        Our systems and operations are vulnerable to damage or interruption from earthquakes, fires, floods, power losses, telecommunications failures, terrorist attacks, acts of war, human errors, break-ins or similar events. For example, a significant natural disaster, such as an earthquake, fire or flood, could have a material adverse impact on our business, operating results and financial condition, and our insurance coverage may be insufficient to compensate us for losses that may occur. In addition, acts of terrorism could cause disruptions in our business or the economy as a whole. Our principal executive offices are located in New York City, a region that has experienced acts of terrorism in the past. Our servers may also be vulnerable to computer viruses, break-ins and similar disruptions from unauthorized tampering with our computer systems, which could lead to interruptions, delays, loss of critical data or the unauthorized disclosure of confidential customer data. Although we have disaster recovery capabilities, there can be no assurance that we will not suffer from business interruption as a result of any such events. As we rely heavily on our servers, computer and communications systems and the internet to conduct our business and provide high quality service to our customers and contributors, such disruptions could negatively impact our ability to run our business, result in loss of existing or potential customers and contributors and increased maintenance costs, which would adversely affect our operating results and financial condition.

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Risks Related to This Offering and Ownership of Our Common Stock

Our share price may be volatile and you may be unable to sell your shares at or above the initial public offering price.

        The initial public offering price for our shares will be determined by negotiations between us and representatives of the underwriters and may not be indicative of prices that will prevail in the trading market. The market price of our common stock could be subject to wide fluctuations in response to many risk factors listed in this section, both within and outside of our control, including, but not limited to, the following:

    changes in projected operational and financial results;

    issuance of new or updated research or reports by securities analysts;

    the use by investors or analysts of third-party data regarding our business that may not reflect our actual performance;

    fluctuations in the valuation of companies perceived by investors to be comparable to us;

    fluctuations in the trading volume of our shares, or the size of our public float; and

    general economic and market conditions.

        Furthermore, the stock market has experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, interest rate changes or international currency fluctuations, may negatively impact the market price of our common stock. If the market price of our common stock after this offering does not exceed the initial public offering price, you may not realize any return on your investment in us and may lose some or all of your investment. In the past, certain companies that have experienced volatility in the market price of their common stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management's attention from other business concerns, which could seriously harm our business.

There has been no prior market for our common stock and an active trading market may not develop.

        Prior to this offering, there has been no public market for our common stock. An active trading market may not develop following the closing of this offering or, if developed, may not be sustained. The lack of an active market may impair your ability to sell your shares of common stock at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market may also reduce the fair market value and increase the volatility of your shares of common stock. An inactive market may also impair our ability to raise capital by selling shares of common stock and may impair our ability to acquire other companies or technologies by using our shares of common stock as consideration.

Future sales of our common stock in the public market could cause our share price to decline.

        Sales of a substantial number of shares of our common stock in the public market following our initial public offering, or the perception that such sales could occur, could adversely affect the market price of our common stock and may make it more difficult for you to sell your common stock at a time and price that you deem appropriate. Based on the number of shares outstanding as of September 25, 2012, we will have 32,838,281 shares of our common stock outstanding upon the closing of this offering (or 33,513,281 shares of our common stock if the underwriters exercise in full their over-allotment option).

        All of the shares of common stock sold in this offering will be freely tradable without restrictions or further registration under the Securities Act of 1933, as amended, or the Securities Act, except for any

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shares held by our affiliates as defined in Rule 144 under the Securities Act. The remaining 28,338,281 shares of common stock outstanding after this offering, based on shares outstanding as of September 25, 2012, will be restricted as a result of securities laws, lock-up agreements or other contractual restrictions that restrict transfers for at least 180 days after the date of this prospectus, subject to certain extensions.

        Morgan Stanley & Co. LLC and Deutsche Bank Securities Inc. may, at their discretion, release all or some portion of the shares subject to lock-up agreements prior to expiration of the lock-up period.

        After this offering, the holders of 28,338,281 shares of common stock will be entitled to rights with respect to registration of these shares under the Securities Act pursuant to an investors' rights agreement. We also intend to file a registration statement on Form S-8 under the Securities Act covering all of the shares of common stock subject to outstanding VAR grants, as well as options and shares reserved for future issuance, under our 2012 Omnibus Equity Incentive Plan and our 2012 Employee Stock Purchase Plan. Once we register these shares, they can be freely sold in the public market upon issuance and vesting, subject to the lock-up agreements described in the section of this prospectus captioned "Underwriting" and contained in the terms of such plans, or unless they are held by "affiliates," as that term is defined in Rule 144 of the Securities Act.

        We may also issue our shares of common stock or securities convertible into our common stock from time to time in connection with a financing, acquisition, investment or otherwise. Any such issuance could result in substantial dilution to our existing stockholders and cause the trading price of our common stock to decline.

Jonathan Oringer, our founder, and other significant investors will control approximately 56.6% of our outstanding shares of common stock after this offering, and this concentration of ownership may have an effect on transactions that are otherwise favorable to our shareholders.

        Upon completion of this offering, Jonathan Oringer, our founder and largest stockholder, will beneficially own approximately 56.6% of our outstanding shares of common stock, or approximately 55.5% if the underwriters exercise their overallotment option in full. In addition, certain funds affiliated with Insight Venture Partners, or Insight, will beneficially own approximately 21.3% of our outstanding shares of common stock, or approximately 20.8% if the underwriters exercise their overallotment option in full. As a result, Mr. Oringer and Insight will collectively control the outcome of matters submitted to our stockholders for approval, including the election of directors. This concentration of ownership may also delay, deter or prevent a change in control, and may make some transactions more difficult or impossible to complete without the support of these shareholders, regardless of the impact of this transaction on our other shareholders.

We will incur increased costs and our management will face increased demands as a result of operating as a public company.

        As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, our administrative staff will be required to perform additional tasks. For example, in anticipation of becoming a public company, we will need to adopt additional internal controls and disclosure controls and procedures and bear all of the internal and external costs of preparing and distributing periodic public reports in compliance with our obligations under applicable securities laws.

        In addition, changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act, the Dodd-Frank Act and related regulations implemented by the Securities and Exchange Commission, or the SEC, and the stock exchanges are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time-consuming. We are currently evaluating and monitoring developments with respect to new and proposed rules and cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new

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guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management's time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory authorities may initiate legal proceedings against us and our business may be harmed. We also expect that being a public company and these new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee, and attract and retain qualified executive officers.

        The increased costs associated with operating as a public company may decrease our net income or increase our net loss, and may cause us to reduce costs in other areas of our business or increase the prices of our products or services to offset the effect of such increased costs. Additionally, if these requirements divert our management's attention from other business concerns, they could have a material adverse effect on our business, financial condition and results of operations.

The recently enacted JOBS Act will allow us to postpone the date by which we must comply with certain laws and regulations and to reduce the amount of information provided in reports filed with the SEC. We cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.

        We are and we will remain an "emerging growth company" until the earliest to occur of (i) the last day of the fiscal year during which our total annual revenues equal or exceed $1 billion (subject to adjustment for inflation), (ii) the last day of the fiscal year following the fifth anniversary of our initial public offering, (iii) the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt, or (iv) the date on which we are deemed a "large accelerated filer" under the Securities and Exchange Act of 1934, as amended, or the Exchange Act. For so long as we remain an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not "emerging growth companies" including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we will rely on some or all of these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. If we avail ourselves of certain exemptions from various reporting requirements, our reduced disclosure may make it more difficult for investors and securities analysts to evaluate us and may result in less investor confidence.

If we fail to maintain an effective system of internal controls, we may not be able to report our financial results accurately or in a timely fashion, and we may not be able to prevent fraud; in such case, our stockholders could lose confidence in our financial reporting, which would harm our business and could negatively impact the price of our stock.

        Effective internal controls are necessary for us to provide reliable, timely financial reports and prevent fraud. In addition, Section 404 of the Sarbanes-Oxley Act of 2002 will require us to evaluate and report on our internal control over financial reporting beginning with our Annual Report on Form 10-K for the year ending December 31, 2013. The process of implementing our internal controls and complying with

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Section 404 will be expensive and time-consuming, and will require significant attention of management. We cannot be certain that these measures will ensure that we implement and maintain adequate controls over our financial processes and reporting in the future. Even if we conclude that our internal control over financial reporting provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, because of its inherent limitations, internal control over financial reporting may not prevent or detect fraud or misstatements. Failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our results of operations or cause us to fail to meet our reporting obligations. If we discover a material weakness, the disclosure of that fact, even if quickly remedied, could reduce the market's confidence in our financial statements and harm our stock price.

        Our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over financial reporting until we are no longer an "emerging growth company," as described above. At such time that an attestation is required, our independent registered public accounting firm may issue a report that is adverse in the event that it is not satisfied with the level at which our controls are documented, designed or operating. Our remediation efforts may not enable us to avoid a material weakness in the future.

Anti-takeover provisions in our charter documents and Delaware law could discourage, delay or prevent a change in control of our company and may affect the trading price of our common stock.

        Our amended and restated certificate of incorporation and bylaws to be effective upon the closing of this offering will contain provisions that could have the effect of rendering more difficult or discouraging an acquisition deemed undesirable by our board of directors. Our corporate governance documents will include provisions that:

    authorize blank check preferred stock, which could be issued with voting, liquidation, dividend and other rights superior to our common stock;

    limit the liability of, and provide indemnification to, our directors and officers;

    limit the ability of our stockholders to call and bring business before special meetings and to take action by written consent in lieu of a meeting;

    require advance notice of stockholder proposals and the nomination of candidates for election to our board of directors;

    establish a classified board of directors, as a result of which the successors to the directors whose terms have expired will be elected to serve from the time of election and qualification until the third annual meeting following their election;

    require that directors only be removed from office for cause; and

    limit the determination of the number of directors on our board and the filling of vacancies or newly created seats on the board to our board of directors then in office.

        As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation Law, which prevents some stockholders holding more than 15% of our outstanding common stock from engaging in certain business combinations without the prior approval of our board of directors or the holders of substantially all of our outstanding common stock.

        These provisions of our charter documents and Delaware law, alone or together, could delay or deter hostile takeovers and changes in control or changes in our management. Any provision of our amended and restated certificate of incorporation or bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock. Even in the absence of a takeover attempt, the existence of these

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provisions may adversely affect the prevailing market price of our common stock if they are viewed as discouraging takeover attempts in the future.

Purchasers in this offering will experience immediate and substantial dilution in the book value of their investment.

        The initial public offering price of our common stock is substantially higher than the net tangible book value per share of our common stock immediately after this offering. Therefore, if you purchase shares of our common stock in this offering, you will experience immediate and substantial dilution of your investment. Based upon the issuance and sale of 4,500,000 shares of common stock by us at an assumed initial public offering price of $14.00 per share (the midpoint of the price range set forth on the cover of this prospectus), you will incur immediate dilution of approximately $13.29 in the pro forma net tangible book value per share if you purchase shares of our common stock in this offering. For a further description of the dilution that you will experience immediately after this offering, see the section captioned "Dilution." Furthermore, investors purchasing shares of our common stock in this offering will only own approximately 13.7% of our outstanding shares of common stock, after completion of this offering, even though their aggregate investment will represent 100.0% of the total consideration received by us in connection with all initial sales of 28,379,000 shares of our capital stock outstanding as of June 30, 2012, after giving effect to the issuance of shares of our common stock in this offering. To the extent outstanding options to purchase our common stock are exercised, investors purchasing our common stock in this offering will experience further dilution.

If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they change their recommendations regarding our stock adversely, our stock price and trading volume could decline.

        The trading market for our common stock will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors. If any of the analysts who may cover us change their recommendation regarding our stock adversely, or provide more favorable relative recommendations about our competitors, our stock price would likely decline. If any analyst who may cover us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

Our management will have broad discretion over the use of the proceeds we receive in this offering and might not apply the proceeds in ways that increase the value of your investment.

        Our management will have broad discretion over the use of the net proceeds from this offering and you will be relying on their judgment in applying these proceeds. Our management might not apply our net proceeds in ways that ultimately increase the value of your investment. We expect to use the net proceeds from this offering for general corporate purposes, including working capital and capital expenditures, which may in the future include investments in, or acquisitions of, complementary businesses, services or technologies. Our management might not be able to yield a significant return, if any, on any investment of these net proceeds. You will not have the opportunity to influence our decisions on how to use our net proceeds from this offering.

After the completion of this offering, we do not expect to declare any dividends in the foreseeable future.

        After the completion of this offering, we do not anticipate declaring any cash dividends to holders of our common stock in the foreseeable future. Consequently, investors may need to rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. Investors seeking cash dividends should not purchase our common stock.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

        This prospectus includes forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends affecting the financial condition of our business. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time those statements are made and/or management's good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to:

    our ability to identify, attract and retain customers and contributors to our online marketplace;

    our ability to maintain repeat purchase and subscription revenue;

    our new and rapidly changing market;

    the competitive nature of and anticipated growth in our markets;

    our ability to maintain our competitive position in a highly competitive industry;

    our ability to protect our intellectual property and protect against infringement claims made by third parties;

    our ability to increase our brand awareness within the industry;

    our ability to effectively manage our rapid growth in recent periods;

    our ability to generate a larger percentage of our revenue from larger companies and satisfy related demands;

    our ability to successfully navigate the risks related to our international operations and expansion;

    the degree to which our operations expose us to greater than anticipated tax liabilities;

    our ability to respond to technological changes or upgrade our websites and technological systems;

    the attraction and retention of qualified employees and key personnel;

    fluctuations in our annual and quarterly results of operations;

    the impact of and our ability to successfully integrate past and future business acquisitions;

    our ability to remedy the material weakness in our internal control over financial reporting relating to compliance with certain tax regulations; and

    other risk factors included under "Risk Factors" in this prospectus.

        In addition, in this prospectus, the words "believe," "may," "estimate," "continue," "anticipate," "intend," "expect," "predict," "potential" and similar expressions, as they relate to our company, our business and our management, are intended to identify forward-looking statements. In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this prospectus may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statements.

        Forward-looking statements speak only as of the date of this prospectus. You should not put undue reliance on any forward-looking statements. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except to the extent required by applicable laws. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

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INDUSTRY AND MARKET DATA

        Unless otherwise indicated, information contained in this prospectus concerning our industry and the markets in which we operate, including our general expectations and market position, market opportunity and market size, is based on information from various sources, on assumptions that we have made that are based on those data and other similar sources and on our knowledge of the markets for our products. These sources include industry publications, reports, surveys and forecasts prepared by IDC, BIA/Kelsey, Cisco, IBISWorld, Netcraft, comScore and MagnaGlobal, as well as a report commissioned by us and prepared by L.E.K. Consulting LLC. These data from such sources involve a number of assumptions and limitations, and contain projections and estimates based on various assumptions of the future performance of the industry in which we operate, and you are cautioned not to give undue weight to such estimates. While we believe the market position, market opportunity and market size information included in this prospectus to be generally reliable, such information is inherently imprecise and we cannot give you any assurance that any of the projected results will be achieved. In addition, projections, assumptions and estimates of our future performance and the future performance of the industry in which we operate is necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in "Risk Factors" and elsewhere in this prospectus. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties set forth above and by us.

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USE OF PROCEEDS

        We estimate that we will receive net proceeds from this offering of approximately $54.2 million from the sale of our shares of common stock in this offering, or approximately $63.0 million if the underwriters exercise their option to purchase additional shares of common stock to cover over-allotments in full, based on an assumed initial public offering price of $14.00 per share (the midpoint of the price range set forth on the cover of this prospectus) and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

        The principal purposes of this offering are to increase our capitalization and financial flexibility, improve our visibility in the marketplace and create a public market for our common stock. We currently intend to use the net proceeds from this offering primarily for general corporate purposes, including working capital and capital expenditures. We anticipate capital expenditures of approximately $3 million for the second half of 2012 relating to the acquisition of additional servers and network connectivity hardware and software and other costs associated with scaling our operations, technology and infrastructure to support our growth.

        We may also use a portion of the net proceeds to repay all or a portion of the term loan facility that we entered into on September 21, 2012 to fund our working capital needs following the final cash distribution to the members of Shutterstock Images LLC prior to our Reorganization. See "Reorganization." We have outstanding borrowings of $12.0 million under the term loan facility and expect to have outstanding borrowings of $12.0 million under the term loan facility as of the effective date of the registration statement of which this prospectus is a part. The term loan facility provides for interest on the term loan, at our option, at the prime rate as published in the Wall Street Journal minus 0.75%, or a LIBOR-based rate plus a margin of 2.00% and matures on the earlier of (i) September 21, 2013 and (ii) the date on which such facility is accelerated following the occurrence of an event of default. We selected the one-month LIBOR-based rate and can select a new interest rate option after the month expires.

        In addition, we may use a portion of the net proceeds to acquire or invest in complementary companies, products or technologies, although we currently do not have any acquisitions or investments planned. Based on our historical cash from operations, as well as borrowings under our term loan facility, we do not expect that we will have to utilize any of the net proceeds to us from this offering to fund our operations during the next 12 months. Therefore, we will have broad discretion over the uses of the net proceeds received in this offering. Pending such uses, we intend to invest the net proceeds from this offering in interest-bearing, investment grade securities.


DIVIDEND POLICY

        We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any cash dividends on our common stock in the foreseeable future. Any future determination relating to our dividend policy will be made at the discretion of our board of directors, based upon on our financial condition, results of operations, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant.

        Historically, we have made monthly cash distributions to members of Shutterstock Images LLC with respect to their membership interests. For the years ended December 31, 2009, 2010 and 2011, and the six months ended June 30, 2011 and 2012, distributions to the members of Shutterstock Images LLC were $20.5 million, $25.9 million, $28.6 million, $19.5 million and $15.2 million, respectively. Additionally, since July 1, 2012, we have distributed $5.7 million to the members of Shutterstock Images LLC. Furthermore, the LLC will make a final cash distribution to its members in the aggregate amount of $11.8 million immediately prior to our Reorganization. See "Reorganization."

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REORGANIZATION

        Shutterstock Images LLC was originally formed as a New York limited liability company in 2007. Prior to the effectiveness of the registration statement of which this prospectus is a part, we will reorganize from Shutterstock Images LLC, a New York limited liability company, or the LLC, to Shutterstock, Inc., a Delaware corporation, by way of a merger of the LLC with and into Shutterstock, Inc., which prior to the Reorganization was a wholly-owned subsidiary of the LLC. In this "Reorganization":

    the membership interests in the LLC, including any interests that will vest upon the Reorganization, will be exchanged for shares of our common stock; and

    the value appreciation rights, or VARs, of the LLC granted and outstanding will be exchanged for options to purchase shares of our common stock pursuant to our 2012 Omnibus Equity Incentive Plan with substantially similar exercise prices and vesting terms as the exchanged VARs.

        See "Description of Capital Stock" for additional information regarding the terms of our common stock following the Reorganization and the terms of our certificate of incorporation and bylaws as will be in effect upon closing of this offering. Concurrently with the consummation of the Reorganization, the operating agreement of the LLC will be terminated. After the Reorganization, Shutterstock, Inc., which is the issuer of the shares of common stock offered by this prospectus, will be the parent company of all of our subsidiaries, and will own the assets and conduct the business described in this prospectus.

        As part of the Reorganization, two entities affiliated with Insight Venture Partners that currently own membership interests in the LLC, or the Insight Entities, will merge with and into Shutterstock, Inc. In this merger, the shareholders of the Insight Entities will receive shares of common stock of Shutterstock, Inc. In the merger agreement, the companies that will be merged into us will represent and warrant that they do not have any liabilities that will be assumed by us in the mergers. The merger agreement pursuant to which the Insight Entities will merge with and into Shutterstock, Inc. will also provide for certain customary representations and warranties.

        Pursuant to the operating agreement, the LLC has historically made monthly cash distributions to its members, including those affiliated with our directors, executive officers or beneficial holders of more than 5% of our capital stock. The members of the LLC affiliated with Jonathan Oringer, Insight Venture Partners and Adam Riggs received aggregate distributions of $49.9 million, $18.7 million and $6.4 million, respectively, for the three years ended December 31, 2011. From January 1, 2012 through the date of this prospectus, such members of the LLC have received aggregate distributions of $13.8 million, $5.2 million and $1.8 million, respectively.

        Immediately prior to the Reorganization, the LLC will make a final distribution of cash generated from operations and any cash and cash equivalents on hand, in each case at the time of the distribution, to each of its members. The members of the LLC affiliated with Jonathan Oringer, Insight Venture Partners and Adam Riggs will receive a final cash distribution of $7.8 million, $3.0 million and $1.0 million, respectively, which constitutes approximately all remaining cash and cash equivalents of the LLC at the time of the distribution. Following the Reorganization, no further distributions to members will be made.

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CAPITALIZATION

        The following table summarizes our cash and cash equivalents, and capitalization as of June 30, 2012:

    on an actual basis;

    on a pro forma basis to give effect to our reorganization from a New York limited liability company to a Delaware corporation, as described more fully under "Reorganization":

    (i)
    the reclassification of the balances of all common and preferred members' interests to common stock;

    (ii)
    the reclassification of an executive officer's profits interest award from other non-current liabilities to common stock;

    (iii)
    the recognition of deferred tax assets and liabilities at an assumed combined federal, state and city income tax rate of 39.4%;

    (iv)
    the recognition of the term loan facility entered into on September 21, 2012;

    (v)
    the distributions to be made to members prior to the Reorganization;

    (vi)
    a balance sheet adjustment associated with the vesting of equity awards; and

    on a pro forma as adjusted basis to give effect to this offering, including:

    (i)
    the sale of 4,500,000 shares of common stock by us in this offering at an assumed initial public offering price of $14.00 per share, the midpoint of the price range set forth on the cover of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us in connection with this offering;

    (ii)
    a balance sheet adjustment associated with the accelerated vesting of 50% of the unvested profits interest award; and

    (iii)
    the reclassification of deferred offering costs of $2.6 million to additional paid-in capital in connection with this offering.

        You should read this table in conjunction with "Unaudited Pro Forma Consolidated Financial Statements," "Selected Consolidated Financial Data," "Management's Discussion and Analysis of

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Financial Condition and Results of Operations," and our consolidated financial statements and related notes included elsewhere in this prospectus.

 
  As of June 30, 2012  
 
  Actual   Pro forma   Pro forma
as adjusted
 
 
  (unaudited)
(in thousands)

 
 
   
   
  (unaudited)
 

Cash and cash equivalents

  $ 15,042   $ 9,592   $ 54,349  
               

Redeemable preferred members' interest

    29,937          

Members' deficit and Stockholders' equity:

                   

Common members' interest

    5,699          

Common stock, $0.01 par value; no shares authorized, issued and outstanding, actual; 30,000,000 shares authorized, 28,379,000 issued and outstanding, pro forma; 200,000,000 shares authorized, 32,879,000 shares issued and outstanding, pro forma as adjusted

        284     332  

Preferred stock, $0.01 par value; no shares authorized, issued and outstanding, actual or pro forma; and 5,000,000 shares authorized, no shares issued and outstanding, pro forma as adjusted

             

Additional paid-in capital (deficit)

        (25,727 )   32,177  

Retained earnings (deficit)

        (3,072 )   (6,834 )

Accumulated deficit

    (65,208 )        
               

Total members' deficit

    (59,509 )        

Total stockholders' equity

        (28,515 )   25,675  
               

Total capitalization

  $ (29,572 ) $ (28,515 ) $ 25,675  
               

        The number of shares shown as issued and outstanding in the table above gives effect to our Reorganization, which will occur prior to the effectiveness of the registration statement of which this prospectus is a part, as described under "Reorganization," and this offering and excludes:

    1,621,000 shares of our common stock issuable upon the exercise of value appreciation rights outstanding as of June 30, 2012 at a weighted average exercise price of $15.65 per share, which value appreciation rights will be exchanged for options to purchase shares of our common stock as discussed under "Reorganization";

    6,750,000 shares of our common stock reserved for future grant or issuance under our 2012 Omnibus Equity Incentive Plan, which will become effective on or prior to the completion of this offering a portion of which will be used to grant stock options in replacement of the value appreciation rights outstanding as of the Reorganization; and

    2,000,000 shares of our common stock reserved for future issuance under our 2012 Employee Stock Purchase Plan, which will become effective upon the completion of this offering.

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DILUTION

        If you invest in our common stock, your interest will be diluted immediately to the extent of the difference between the public offering price per share of our common stock and the pro forma net tangible book value per share of our common stock immediately after this offering.

        As of June 30, 2012, our pro forma net tangible book value deficit was approximately $(31.0) million or $(1.10) per share of common stock. Pro forma net tangible book value per share represents the amount of our total tangible assets less our total liabilities divided by the total number of shares of common stock outstanding as of June 30, 2012, after giving effect to our reorganization from a New York limited liability company to a Delaware corporation, as described more fully under "Reorganization." Dilution is determined by subtracting net tangible book value per share from the assumed initial public offering price per share. After giving effect to the sale of 4,500,000 shares of common stock offered by us at an assumed initial public offering price of $14.00 per share (the midpoint of the price range set forth on the cover of this prospectus), and the adjustments set forth above, our pro forma as adjusted net tangible book value as of June 30, 2012 would have been $23.2 million or $0.71 per share of common stock. This represents an immediate increase in net tangible book value of $1.81 per share to existing stockholders and an immediate dilution of $13.29 per share to new investors purchasing common stock in this offering. The following table illustrates this per share dilution on a per share basis to new investors:

Assumed initial public offering price per share

        $ 14.00  

Pro forma net tangible book value deficit per share as of June 30, 2012

  $ (1.10 )      

Increase attributable to new investors as a result of this offering

    1.81        
             

Pro forma as adjusted net tangible book value after this offering

          0.71  
             

Dilution per share to new investors

        $ 13.29  
             

        A $1.00 increase or decrease in the assumed initial public offering price of $14.00 per share (the midpoint of the price range set forth on the cover of this prospectus) would increase or decrease our pro forma as adjusted net tangible book value by approximately $4.5 million, or $0.14 per share of common stock, and the pro forma as adjusted dilution per share to new investors in this offering by approximately $0.85, assuming no change to the number of shares of common stock offered by us as set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses.

        The following table summarizes on a pro forma as adjusted basis, as of June 30, 2012, the differences between the existing stockholders and new investors with respect to the number of shares of common stock purchased from us, the total consideration paid to us and the average price per share paid. The number of shares purchased from us by existing stockholders, and the per share calculations derived from such number of shares, in this "Dilution" section are based on our common stock outstanding as of June 30, 2012, after giving effect to our Reorganization from a New York limited liability company to a Delaware corporation, as described more fully under "Reorganization." The calculation below is based on an assumed initial public offering price of $14.00 per share (the midpoint of the price range set forth on the cover of this prospectus), before deducting the estimated underwriting discounts and commissions and estimated offering expenses.

 
  Shares purchased   Total consideration    
 
 
  Average
price
per share
 
 
  Number   Percent   Amount   Percent  

Existing stockholders

    28,379,000     86.3 % $     0.0 % $ 0.00  

New investors

    4,500,000     13.7     63,000,000     100.0     14.00  
                         

Totals

    32,879,000     100.0 % $ 63,000,000     100.0 %      
                         

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        A $1.00 increase or decrease in the assumed initial public offering price of $14.00 per share would increase or decrease the total consideration paid by new investors by $4.5 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same.

        If the underwriters' over-allotment option is exercised in full, the number of shares held by the existing stockholders after this offering would be 28,379,000, or 84.6% of the total number of shares of our common stock outstanding after this offering, and the number of shares held by new investors would be 5,175,000, or 15.4% of the total number of shares of our common stock outstanding after this offering.

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UNAUDITED PRO FORMA AND PRO FORMA AS ADJUSTED CONSOLIDATED FINANCIAL STATEMENTS

        The following are the unaudited pro forma and pro forma as adjusted consolidated financial statements of Shutterstock Images LLC. The unaudited pro forma consolidated statements of operations information for the year ended December 31, 2011 and for the six months ended June 30, 2012 was prepared as if the transactions described under "Reorganization" and this offering had taken place on January 1, 2011. The unaudited pro forma and pro forma as adjusted consolidated balance sheet information as of June 30, 2012 was prepared as if the Reorganization and this offering had taken place on June 30, 2012. See "Reorganization."

        Prior to the Reorganization, we were organized as a limited liability company. As a limited liability company, we were not subject to U.S. federal or state income taxes and our earnings did not reflect the taxes we will pay as a corporation. In order to reflect our operating expenses, and our tax and capital structure as if we were organized as a corporation, the unaudited pro forma consolidated financial statements give effect to our corporate reorganization and related transactions as described in "Reorganization," including:

    the reclassification of the balances of all common and preferred members' interests to common stock;

    the reclassification of an executive officer's profits interest award from other non-current liabilities to common stock;

    the exchange of our VAR grants into options to purchase shares of our common stock;

    the recognition of deferred tax assets and liabilities at an assumed combined federal, state and city income tax rate of 39.4%;

    the recognition of the term loan facility entered into on September 21, 2012;

    the distributions to be made to members prior to the Reorganization;

    the balance sheet adjustments associated with the vesting of equity awards; and

    a provision for income taxes as a corporation at an assumed combined federal, state and city income tax rate of 39.4% of our pre-tax net income for the year ended December 31, 2011 and for the six months ended June 30, 2012. The actual combined tax rate will depend on many factors and may be higher or lower than this assumed rate.

        The adjustments to the pro forma as adjusted statements of operations data and the pro forma as adjusted balance sheet data give effect to our pro forma adjustments as described above for the Reorganization and the effect of this offering based on an assumed initial public offering price of $14.00 per share (the midpoint of the price range set forth on the cover page of this prospectus), including:

    the sale of 4,500,000 shares of common stock by us in this offering at an assumed initial public offering price of $14.00 per share (the midpoint of the price range set forth on the cover page of this prospectus), after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us in connection with this offering;

    a balance sheet adjustment associated with the accelerated vesting of 50% of the unvested portion of a profits interest award granted to an executive officer; and

    the reclassification of deferred offering costs of $2.6 million to additional paid-in capital in connection with this offering.

        The pro forma as adjusted balance sheet data gives effect to the net assumed proceeds of $54.2 million in this offering while the pro forma as adjusted net income per share calculation includes 1,433,571

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incremental shares necessary to pay the distributions in excess of earnings for the previous twelve months, and 857,143 incremental shares necessary to repay the term loan facility we entered into on September 21, 2012. The remaining 2,209,286 shares issued in this offering are excluded from the pro forma as adjusted net income per share calculation since the proceeds will be used for general corporate and working capital purposes.

        The pro forma and pro forma as adjusted adjustments above are based upon available information and certain assumptions that management believes are reasonable, factually supportable, directly attributable to either the Reorganization or this offering, and, in connection with pro forma and pro forma as adjusted adjustments related to the statement of operations, expected to have a continuing impact on our results of operations. Adjustments that are based on fair value of the shares are calculated using the assumed initial public offering price of $14.00 per share (the midpoint of the price range set forth on the cover of this prospectus).

        We believe that the pro forma and pro forma as adjusted consolidated financial statements provide a helpful perspective to better understand our results of operations and our financial position. The unaudited pro forma and pro forma as adjusted consolidated financial statements and accompanying notes should be read together with our consolidated financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus.

        The unaudited pro forma and pro forma as adjusted consolidated financial statements presented are based upon available information and certain assumptions that we believe are reasonable under the circumstances. The unaudited pro forma and pro forma as adjusted consolidated financial statements do not purport to represent what our results of operations or financial position would have been had the Reorganization or this offering actually occurred on the date or as of the date specified, nor do they purport to project our results of operations for any future period.

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SHUTTERSTOCK IMAGES LLC
UNAUDITED PRO FORMA AND PRO FORMA AS ADJUSTED CONSOLIDATED BALANCE SHEET
As of June 30, 2012
(in thousands, except share and per share data)

 
  Actual   Pro forma
adjustments
for the
Reorganization
  Pro forma
before Offering
adjustments
  Pro forma
adjustments
for the
Offering
  Pro forma
as adjusted
 

ASSETS

                               

Current assets:

                               

Cash and cash equivalents

  $ 15,042   $
(17,450
12,000
)(f)
(k)
$ 9,592   $
56,757
(12,000
(g)
)(l)
$ 54,349  

Credit card receivables

    1,488           1,488           1,488  

Accounts receivable, net

    823           823           823  

Prepaid expenses and other current assets

    3,592           3,592     (2,567) (g)   1,025  

Deferred tax assets

    756     14,731 (e)   15,487           15,487  

Due from related party

                         
                       

Total current assets

    21,701           30,982           73,172  

Property and equipment, net

    5,479           5,479           5,479  

Intangible assets, net

    1,098           1,098           1,098  

Goodwill

    1,423           1,423           1,423  

Deferred tax assets

    101     (101) (e)              

Other assets

    427           427           427  
                       

Total assets

  $ 30,229         $ 39,409         $ 81,599  
                       

LIABILITIES, REDEEMABLE PREFERRED MEMBERS' INTEREST, MEMBERS' DEFICIT AND STOCKHOLDERS' EQUITY

                               

Current liabilities:

                               

Accounts payable

  $ 2,624         $ 2,624         $ 2,624  

Accrued expenses

    12,472           12,472           12,472  

Contributor royalties payable

    6,321           6,321           6,321  

Income taxes payable

                         

Deferred revenue

    33,626           33,626           33,626  

Term loan facility

      $ 12,000 (k)   12,000   $ (12,000 )(l)    

Other liabilities

    90           90           90  
                       

Total current liabilities

    55,133           67,133           55,133  

Deferred tax liabilities, net

        600 (e)   600           600  

Other non-current liabilities

    4,668     (4,477) (b)   191           191  
                       

Total liabilities

    59,801           67,924           55,924  

Commitment and contingencies

                               

Redeemable preferred members' interest

    29,937     (29,937) (a)              

Members' deficit:

                               

Common members' interest

    5,699     (5,699) (a)              

Accumulated deficit

    (65,208 )   65,208 (a)              
                       

Total members' deficit

    (59,509 )                    

Stockholders' equity:

                               

Common stock

        281
3
(a)
(b)
  284     45
3
(g)
(j)
  332  

Additional paid-in capital

        (29,853)
1,788
509
1,829
(a)
(b)
(c)
(d)
  (25,727 )   54,145
3,759
(g)
(j)
  32,177  

Retained earnings (deficit)

        2,686
(509
(1,829
14,030
(17,450
(b)
)(c)
)(d)
(e)
)(f)
  (3,072 )   (3,762) (j)   (6,834 )
                       

Total stockholders' equity

              (28,515 )         25,675  
                       

Total liabilities, redeemable preferred members' interest, members' deficit and stockholders' equity

  $ 30,229       $ 39,409       $ 81,599  
                       

   

See Notes to Unaudited Pro Forma and Pro Forma As Adjusted Consolidated Financial Statements.

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SHUTTERSTOCK IMAGES LLC
UNAUDITED PRO FORMA AND PRO FORMA AS ADJUSTED CONSOLIDATED
STATEMENT OF OPERATIONS
For the year ended December 31, 2011
(in thousands, except share and per share data)

 
  Actual   Pro forma
adjustments
for the
Reorganization
  Pro forma
before Offering
adjustments
  Pro forma
adjustments
for the
Offering
  Pro forma
as adjusted
 

Revenue

  $ 120,271         $ 120,271         $ 120,271  

Operating expenses:

                               

Cost of revenue

    45,504           45,504           45,504  

Sales and marketing

    31,929           31,929           31,929  

Research and development

    9,777           9,777           9,777  

General and administrative

    10,171   $
780
(1,245)
(h)
(i)
  9,706           9,706  
                       

Total operating expenses

    97,381           96,916           96,916  
                       

Income from operations

    22,890           23,355           23,355  

Interest income

    10           10           10  
                       

Income before income taxes

    22,900           23,365           23,365  

Provision for income taxes

    1,036     8,969 (m)   10,005           10,005  
                       

Net income

  $ 21,864         $ 13,360         $ 13,360  
                       

Pro forma as adjusted net income
per share of common stock(n):

       

Basic

                          $ 0.44  

Diluted

                          $ 0.44  

Weighted average shares outstanding used to compute pro forma as adjusted net income per share of common stock:

                               

Basic

                            30,480,415  

Diluted

                            30,480,415  

See Notes to Unaudited Pro Forma and Pro Forma As Adjusted Consolidated Financial Statements.

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SHUTTERSTOCK IMAGES LLC
UNAUDITED PRO FORMA AND PRO FORMA AS ADJUSTED CONSOLIDATED
STATEMENT OF OPERATIONS
For the six months ended June 30, 2012
(in thousands, except share and per share data)

 
  Actual   Pro forma
adjustments
for the
Reorganization
  Pro forma
before Offering
adjustments
  Pro forma
adjustments
for the
Offering
  Pro forma
as adjusted
 

Revenue

  $ 78,199         $ 78,199         $ 78,199  

Operating expenses:

                               

Cost of revenue

    30,103           30,103           30,103  

Sales and marketing

    23,127           23,127           23,127  

Research and development

    7,070           7,070           7,070  

General and administrative

    7,895   $
1,048
(1,720
(h)
)(i)
  7,223           7,223  
                       

Total operating expenses

    68,195           67,523           67,523  
                       

Income from operations

    10,004           10,676           10,676  

Interest income

    5           5           5  
                       

Income before income taxes

    10,009           10,681           10,681  

Provision for income taxes

    227     4,435 (m)   4,662           4,662  
                       

Net income

  $ 9,782         $ 6,019         $ 6,019  
                       

Pro forma as adjusted net income per share of common stock(n):

                               

Basic

                          $ 0.20  

Diluted

                          $ 0.20  

Weighted average shares outstanding used to compute pro forma as adjusted net income per share of common stock:

                               

Basic

                            30,497,718  

Diluted

                            30,516,888  

See Notes to Unaudited Pro Forma and Pro Forma As Adjusted Consolidated Financial Statements.

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(a)
Represents the reclassification of the balances of all common members' in the amount of $5,699 and preferred members' interests in the amount of $29,937 to common stock in the amount of $281 and additional paid-in capital in the amount of $29,853 upon the Reorganization from a New York limited liability company to a Delaware corporation and recognition of a difference of $67,810 between the book value of the redeemable preferred interests in the amount of $29,937 and the fair value of shares issued in the amount of $97,747 as an adjustment to additional paid-in capital in connection with the Reorganization. The additional paid-in capital net adjustment of $29,853 consists of the following:

Decrease for accumulated deficit reclassification

  $ (65,208 )

Decrease for recognition of redeemable preferred interest

    (67,810 )

Increase for common members' interest reclassification

    5,699  

Increase for recognition of shares issued at $14 per share to settle redeemable preferred interest

    97,747  

Decrease for recognition of common shares at par value

    (281 )
       

  $ (29,853 )
(b)
Represents the reclassification of an executive officer's profits interest award classified as a liability from other non-current liabilities in the amount of $4,477 to common stock in the amount of $3 and additional paid-in capital in the amount of $1,788 and recognition of the difference of $2,686 between the carrying value of the liability and the fair value of the stock issued as an adjustment to retained earnings (deficit) as a result of the exchange of this membership interest in the LLC for shares of the Company's stock in connection with the Reorganization. See Note 12 to our Consolidated Financial Statements included elsewhere in this prospectus.

(c)
Represents a balance sheet adjustment in the amount of $509 to retained earnings (deficit) and additional paid-in capital related to the vesting of an equity award granted to one of our key employees based on the grant date fair value as a result of the exchange of this membership interest in the LLC for shares of the Company's stock in connection with the Reorganization. See Note 11 to our Consolidated Financial Statements included elsewhere in this prospectus.

(d)
Represents a balance sheet adjustment in the amount of $1,829 to retained earnings (deficit) and additional paid-in capital related to the time-based vesting of grants under our VAR Plan that convert, pursuant to the Reorganization, into options to purchase shares of our common stock that are no longer subject to the change of control condition and vest going forward based on a service condition only, based on the grant date fair value of these awards. See Note 10 to our Consolidated Financial Statements included elsewhere in this prospectus for further description of the VAR Plan.

(e)
We will reorganize from a limited liability company to a Delaware C-corporation prior to the effectiveness of the registration statement of which this prospectus is a part. Prior to the Reorganization, the LLC was treated as a partnership and paid only city unincorporated business income tax. As a corporation, we will be responsible for the payment of all federal and state corporate income taxes in addition to city income tax. As a result, we recorded a net adjustment of $14,030 to retained earnings (deficit) in connection with current deferred tax assets of $15,487 and net long-term deferred tax liabilities of $600 based on an assumed combined federal, state and city income tax rate of 39.4% in connection with the Reorganization.

(f)
Represents a balance sheet adjustment of $17,450 to retained earnings (deficit) and cash and cash equivalents to reflect distributions declared and paid after June 30, 2012 and prior to the Reorganization.

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(g)
Represents the sale of 4,500,000 shares of our common stock by us in this offering at an assumed initial public offering price of $14.00 per share (the midpoint of the price range set forth on the cover of this prospectus), after deducting the estimated underwriting discounts and commissions in the amount of $4,410 and estimated offering expenses in the amount of $4,400 in connection with this offering of which $2,567 has been paid prior to June 30, 2012 and is reflected as a reclassification of deferred offering costs from working capital and total assets to additional paid-in capital.

(h)
In the periods subsequent to the Reorganization, we will begin to incur compensation expense related to the vesting of grants made under our VAR Plan. The recurring compensation expense associated with the VAR Plan is $780 and $1,048 for the year ended December 31, 2011 and for the six months ended June 30, 2012, respectively. See Note 10 to our Consolidated Financial Statements included elsewhere in this prospectus.

(i)
Represents an adjustment to the historical compensation expense of $1,245 and $1,720 for the year ended December 31, 2011 and for the six months ended June 30, 2012, respectively, associated with the recurring portion of the expense for the restricted stock award received by an executive officer in exchange for the executive officer's profits interest award that had previously been classified as a liability. Due to the exclusion from the pro forma compensation expense of the non-recurring portion of the restricted stock award expense resulting from the 50% acceleration of the award, there is a credit to pro forma adjustments of $1,245 and $1,720 for the respective periods. See Note 12 to our Consolidated Financial Statements included elsewhere in this prospectus.

(j)
Represents an adjustment in the amount of $3,762 to retained earnings (deficit) and additional paid-in capital related to the accelerated vesting of 50% of the unvested portion of a profits interest award granted to an executive officer and the related issuance of shares of the Company's common stock in connection with this offering based on the exchange date fair value. See Note 12 to our Consolidated Financial Statements included elsewhere in this prospectus.

(k)
Represents a balance sheet adjustment in the amount of $12,000 to increase cash and cash equivalents and term loan facility to reflect the term loan facility entered into on September 21, 2012. Because the reorganization and the offering are assumed to have occurred at the same time for the purpose of the pro forma income statement, no interest expense is recognized, as the term loan facility is deemed to be repaid from the offering proceeds.

(l)
Represents a balance sheet adjustment in the amount of $12,000 to decrease term loan facility and cash and cash equivalents to reflect the repayment of the term loan facility from offering proceeds. Because the reorganization and the offering are assumed to have occurred at the same time for the purpose of the pro forma income statement, no interest expense is recognized, as the term loan facility is deemed to be repaid from the offering proceeds.

(m)
Represents the following in connection with our Reorganization: (i) the tax effect of our reorganization from a limited liability company to a Delaware C-corporation, which will result in an incremental provision for income taxes as a corporation at an assumed combined federal, state and city income tax rate of 39.4% for the year ended December 31, 2011 and for the six months ended June 30, 2012; and (ii) the tax effect of the pro forma adjustments described above on the statement of operations.

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(n)
For the purposes of the pro forma as adjusted basic net income per share of common stock calculations, we have assumed that the Reorganization and this offering took place as of January 1, 2011.


Pro forma as adjusted basic net income per share of common stock is computed by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Pro forma as adjusted diluted net income per share of common stock is computed by dividing net income available to common stockholders by the sum of the weighted average shares of common stock outstanding plus dilutive shares of common stock for the period. Pro forma as adjusted basic and diluted shares of common stock also include an incremental number of shares representing the share equivalent of the dollar amount of the distributions declared and paid from July 1, 2011 through the date of the Reorganization, to the extent such distributions are in excess of earnings for the previous twelve months.


The basic and diluted pro forma as adjusted per share of common stock calculations are presented below (in thousands, except share and per share data). The diluted pro forma as adjusted per share of common stock calculation also assumes the conversion, exercise or issuance of all potential shares of common stock, unless the effect of inclusion would be anti-dilutive.

 
  Year Ended
December 31,
2011
  Six Months
Ended
June 30,
2012
 

Basic and Diluted pro forma as adjusted net income per share of common stock

             

Numerator:

             

Net income

  $ 13,360   $ 6,019  

Denominator:

             

Weighted average shares of common stock outstanding—basic before addition for incremental shares related to the Reorganization and this offering

    27,913,623     27,913,623  

Add: Incremental shares representing the reclassification of the vested portion of the executive's profits interest award

    34,050     34,050  

Add: Incremental shares representing the accelerated vesting of 50% of the unvested profits interests award

    121,120     121,120  

Add: Incremental shares representing the reclassification of the vested portion of a key employee's profits interest award

    112,240     112,240  

Add: Incremental shares representing the vested portion of the executive's restricted stock award

        23,071  

Add: Incremental shares representing the vesting of the restricted stock on a weighted average basis

    8,668     2,900  

Add: Incremental shares representing the share equivalent of the dollar amount of distributions that exceeded earnings for the previous twelve months

    1,433,571     1,433,571  

Add: Incremental shares representing the share equivalent of the dollar amount of proceeds used to repay the term loan facility

    857,143     857,143  

Weighted average shares of common stock outstanding—basic

    30,480,415     30,497,718  

Add: Additional shares arising from the assumed exercise of options and issuance of potentially dilutive unvested restricted shares of common stock

        19,170  
           

Weighted average shares of common stock outstanding—diluted

    30,480,415     30,516,888  

Pro forma as adjusted net income per share of common stock—basic

 
$

0.44
 
$

0.20
 
           

Pro forma as adjusted net income per share of common stock—diluted

  $ 0.44   $ 0.20  
           

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    For the year ended December 31, 2011, the pro forma as adjusted basic net income per share of common stock reflects (i) 27,913,623 shares of common stock resulting from the reclassification of all common and preferred members' interests to shares of common stock, (ii) 34,050 shares of common stock upon the reclassification of the vested portion of an executive officer's profits interest award in connection with the Reorganization and the issuance of 121,120 shares of common stock resulting from the accelerated vesting of 50% of such executive officer's unvested profits interest award in connection with this offering, (iii) the issuance of 112,240 shares of common stock resulting from the vesting of equity awards to one of our key employees in connection with the Reorganization, (iv) 8,668 additional shares of common stock, which represents the vesting of restricted stock on a weighted average basis, (v) 1,433,571 additional shares of common stock, which represents the share equivalent of the dollar amount of the distributions declared and paid from July 1, 2011 through the date of the Reorganization, to the extent such distributions are in excess of earnings for the previous twelve months and (vi) 857,143 additional shares of common stock, which represents the share equivalent of the dollar amount of the proceeds necessary to repay the term loan facility we entered into on September 21, 2012. The pro forma as adjusted diluted net income per share of common stock reflects the dilution caused by the assumed exercise of stock options related to the VAR Plan and the issuance of potentially dilutive unvested restricted shares of common stock related to equity grants resulting from the exchange of the profits interest award granted to an executive officer. The pro forma as adjusted basic and diluted income per share of common stock reflects assumed additional shares of 2,290,714 issued in the offering and described in subsections (v) and (vi) above. The remaining 2,209,286 shares issued in this offering are excluded from the pro forma as adjusted net income per share calculations since the proceeds will be used for general corporate and working capital purposes.

    For the six months ended June 30, 2012, the pro forma as adjusted basic net income per share of common stock reflects (i) 27,913,623 shares of common stock resulting from the reclassification of all common and preferred members' interests to shares of common stock, (ii) 34,050 shares of common stock upon the reclassification of the vested portion of an executive officer's profits interest award in connection with the Reorganization and the issuance of 121,120 shares of common stock resulting from the accelerated vesting of 50% of such executive officer's unvested profits interest award in connection with this offering and the issuance of 23,071 shares of common stock resulting from the vesting of restricted equity awards post-Reorganization, (iii) the issuance of 112,240 shares of common stock resulting from the vesting of equity awards to one of our key employees in connection with the Reorganization, (iv) 2,900 additional shares of common stock, which represents the vesting of restricted stock on a weighted average basis, (v) 1,433,571 additional shares of common stock, which represents the share equivalent of the dollar amount of the distributions declared and paid from July 1, 2011 through the date of the Reorganization, to the extent such distributions are in excess of earnings for the previous twelve months and (vi) 857,143 additional shares of common stock, which represents the share equivalent of the dollar amount of the proceeds necessary to repay the term loan facility we entered into on September 21, 2012. The pro forma as adjusted diluted net income per share of common stock reflects the dilution caused by the assumed exercise of stock options related to the VAR Plan and the issuance of potentially dilutive unvested restricted shares of common stock related to equity grants resulting from the exchange of the profits interest award granted to an executive officer. The pro forma as adjusted basic and diluted income per share of common stock reflects assumed additional shares of 2,290,714 issued in the offering and described in subsections (v) and (vi) above. The remaining 2,209,286 shares issued in this offering are excluded from the pro forma as adjusted net income per share calculations since the proceeds will be used for general corporate and working capital purposes.

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SELECTED CONSOLIDATED FINANCIAL DATA

        The following tables set forth our selected consolidated financial and other data. We derived the selected consolidated statement of operations data for the years ended December 31, 2009, 2010 and 2011 and the selected consolidated balance sheet data as of December 31, 2010 and 2011, from our audited consolidated financial statements that are included elsewhere in this prospectus. We derived the selected consolidated statement of operations data for the six months ended June 30, 2011 and 2012 and the selected consolidated balance sheet data as of June 30, 2012, from our unaudited consolidated financial statements that are included elsewhere in this prospectus. We derived the consolidated statements of operations data for the years ended December 31, 2007 and 2008 and the balance sheet data as of December 31, 2007, 2008 and 2009 from our audited consolidated financial statements not included in this prospectus.

        The adjustments to the pro forma and the pro forma as adjusted statements of operations data give effect to our corporate reorganization and related transactions as described in "Reorganization," and to this offering based on an assumed initial public offering price of $14.00 per share (the midpoint of the price range set forth on the cover page of this prospectus).

        You should read the following selected consolidated financial data in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," and our consolidated financial statements and related notes included elsewhere in this prospectus. Our historic results are not necessarily indicative of the results that may be expected in the future.

 
  Year Ended December 31,   Six Months Ended June 30,  
 
  2007   2008   2009   2010   2011   2011
Pro forma
(unaudited)
  2011
Pro forma
as adjusted
(unaudited)
  2011   2012   2012
Pro forma
  2011
Pro forma
as adjusted
 
 
  (in thousands, except share and per share amounts)
   
  (unaudited)
 

Consolidated Statements of Operations Data:

                                                                   

Revenue

  $ 30,006   $ 52,744   $ 61,099   $ 82,973   $ 120,271   $ 120,271   $ 120,271   $ 54,387   $ 78,199   $ 78,199   $ 78,199  

Operating expenses:

                                                                   

Cost of revenue

    9,158     16,903     21,826     32,353     45,504     45,504     45,504     21,156     30,103     30,103     30,103  

Sales and marketing

    6,860     9,308     10,949     17,820     31,929     31,929     31,929     13,836     23,127     23,127     23,127  

Research and development

    1,023     1,120     2,361     4,591     9,777     9,777     9,777     4,255     7,070     7,070     7,070  

General and administrative(1)

    12,373     4,844     6,217     8,414     10,171     9,706     9,706     4,297     7,895     7,223     7,223  
                                               

Total operating expenses

    29,414     32,175     41,353     63,178     97,381     96,916     96,916     43,544     68,195     67,523     67,523  
                                               

Income from operations

    592     20,569     19,746     19,795     22,890     23,355     23,355     10,843     10,004     10,676     10,676  

Interest income

    1     18     5     19     10     10     10     7     5     5     5  
                                               

Income before income taxes

    593     20,587     19,751     19,814     22,900     23,365     23,365     10,850     10,009     10,681     10,681  

Provision for income taxes(2)

    402     942     909     876     1,036     10,005     10,005     462     227     4,662     4,662  
                                               

Net income

  $ 191   $ 19,645   $ 18,842   $ 18,938   $ 21,864   $ 13,360   $ 13,360   $ 10,388   $ 9,782   $ 6,019   $ 6,019  
                                               

Pro forma as adjusted net income per share of common stock(3):

                                                                   

Basic (unaudited)

                                      $ 0.44                     $ 0.20  

Diluted (unaudited)

                                      $ 0.44                     $ 0.20  

Pro forma as adjusted weighted average shares used in computing net income per share of common stock(3):

                                                                   

Basic (unaudited)

                                        30,480,415                       30,497,718  

Diluted (unaudited)

                                        30,480,415                       30,516,888  

(1)
Includes non-cash compensation of $917, $2,032, $1,833, $1,114, $2,122, $1,657 and $1,657 for the years ended December 31, 2007, 2008, 2009, 2010, 2011, 2011 pro forma and 2011 pro forma as adjusted and $791, $2,157, $1,485 and $1,485 for the six

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    months ended June 30, 2011, 2012, 2012 pro forma and 2012 pro forma as adjusted, respectively. See pro forma notes (h) and (i) on page 49 for a description of the pro forma non-cash equity compensation adjustments.

(2)
For 2009, 2010 and 2011, and the six months ended June 30, 2011 and 2012, we operated as a New York limited liability company for federal and state income tax purposes, taxed as a partnership, and therefore were not subject to federal and state income taxes. Following the Reorganization, we will become subject to income taxes at an assumed combined federal, state and city tax rate of 39.4% for the year ended December 31, 2011 and for the six months ended June 30, 2012, respectively. Such actual combined tax rate will depend on many factors and may be higher or lower than the assumed rate.

(3)
See pro forma note (n) on pages 50 to 51 for a description and reconciliation of the pro forma weighted average shares outstanding.

 
  Year Ended December 31,   Six Months
Ended June 30,
 
 
  2007   2008   2009   2010   2011   2011   2012  

Other Financial and Operational Data:

                                           

Adjusted EBITDA (in thousands)(1)

  $ 1,617   $ 22,782   $ 21,983   $ 21,783   $ 26,532   $ 12,258   $ 13,321  

Free cash flow (in thousands)(2)

  $ 11,298   $ 28,665   $ 26,399   $ 27,591   $ 36,095   $ 18,377   $ 16,053  

Paid downloads (in millions) (during period)(3)

   
22.6
   
34.0
   
34.0
   
44.1
   
58.6
   
27.7
   
35.9
 

Revenue per download (during period)(4)

  $ 1.33   $ 1.55   $ 1.80   $ 1.88   $ 2.05   $ 1.97   $ 2.18  

Images in our library (in millions) (end of period)(5)

    2.6     5.1     8.9     13.3     17.4     15.2     20.2  

(1)
See "—Non-GAAP Financial Measures" below as to how we define and calculate Adjusted EBITDA and for a reconciliation between Adjusted EBITDA and net income, the most directly comparable GAAP financial measure and a discussion about the limitations of Adjusted EBITDA.

(2)
See "—Non-GAAP Financial Measures" below as to how we define and calculate Free Cash Flow and for a reconciliation between Free Cash Flow and net cash provided by operating activities, the most directly comparable GAAP financial measure and a discussion about the limitations of Free Cash Flow.

(3)
Paid downloads is the number of paid image downloads that our customers make during a given period. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Key Operating Metrics—Paid Downloads" for more information as to how we define and calculate paid downloads.

(4)
Revenue per download is the amount of revenue recognized in a given period divided by the number of paid downloads in that period. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Key Operating Metrics—Revenue per Download" for more information as to how we define and calculate paid revenue per download.

(5)
Images in our library is the total number of photographs, vectors and illustrations available to customers on shutterstock.com at the end of the period. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Key Operating Metrics—Images in our Library" for more information as to how we define and calculate paid images in our library.

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  As of December 31,   As of June 30,  
 
  2007   2008   2009   2010   2011   2012  
 
   
   
   
   
   
  (unaudited)
 

Consolidated Balance Sheet Data:

                                     

Cash and cash equivalents

  $ 1,257   $ 975   $ 4,937   $ 6,544   $ 14,097   $ 15,042  

Working capital (deficit)

    (5,379 )   (12,858 )   (15,813 )   (21,909 )   (28,435 )   (33,432 )

Property and equipment, net

    616     816     1,219     1,703     3,844     5,479  

Total assets

    2,773     3,404     11,067     13,863     24,855     30,229  

Deferred revenue

    5,202     9,723     14,259     19,631     28,451     33,626  

Total liabilities

    7,472     15,026     22,514     31,355     49,057     59,801  

Redeemable preferred members' interest

    32,758     34,539     36,218     36,811     33,725     29,937  

Common members' interest

    917     2,949     4,782     5,699     5,699     5,699  

Total members' (deficit)

    (37,457 )   (46,161 )   (47,665 )   (54,303 )   (57,927 )   (59,509 )

Non-GAAP Financial Measures

Adjusted EBITDA

        To provide investors with additional information regarding our financial results, we have disclosed within this prospectus Adjusted EBITDA, a non-GAAP financial measure. We define Adjusted EBITDA as income from operations before depreciation and amortization, non-cash equity-based compensation, interest and taxes.

        We believe Adjusted EBITDA is an important measure of operating performance because it allows management, investors and others to evaluate and compare our core operating results from period to period by removing the impact of our asset base (depreciation and amortization), non-cash equity-based compensation, interest and taxes.

        Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider this measure in isolation or as a substitute for analysis of our results as reported under GAAP as the excluded items may have significant effects on our operating results and financial condition. When evaluating our performance, you should consider Adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, net income and our other GAAP results. Additionally, our Adjusted EBITDA measure may differ from other companies' Adjusted EBITDA as it is a non-GAAP disclosure.

        The following is a reconciliation of Adjusted EBITDA to net income for each of the periods indicated:

 
  Year Ended December 31,   Six Months
Ended June 30,
 
 
  2007   2008   2009   2010   2011   2011   2012  
 
  (in thousands)
   
   
 

Net Income

  $ 191   $ 19,645   $ 18,842   $ 18,938   $ 21,864   $ 10,388   $ 9,782  

Non-GAAP adjustments:

                                           

Depreciation and amortization

    108     181     404     874     1,520     624     1,160  

Non-cash equity-based compensation

    917     2,032     1,833     1,114     2,122     791     2,157  

Interest (income)

    (1 )   (18 )   (5 )   (19 )   (10 )   (7 )   (5 )

Provision for income taxes

    402     942     909     876     1,036     462     227  
                               

Adjusted EBITDA

  $ 1,617   $ 22,782   $ 21,983   $ 21,783   $ 26,532   $ 12,258   $ 13,321  
                               

Free Cash Flow

        To provide investors with additional information regarding our financial results, we have disclosed within this prospectus Free Cash Flow, a non-GAAP financial measure. We define Free Cash Flow as our

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cash provided by operating activities, adjusted for cash interest income, and subtracting capital expenditures. We believe that Free Cash Flow is an important measure of operating performance because it allows management, investors and others to evaluate the cash that we generate after the financing of projects required to maintain or expand our asset base. When evaluating our performance, you should consider Free Cash Flow alongside other financial performance measures, including various cash flow metrics, net income and our other GAAP results. Additionally, our Free Cash Flow measure may differ from other companies' Free Cash Flow as it is a non-GAAP disclosure.

        The following is a reconciliation of Free Cash Flow to net cash provided by operating activities for each of the periods indicated:

 
  Year Ended December 31,   Six Months
Ended June 30,
 
 
  2007   2008   2009   2010   2011   2011   2012  
 
  (in thousands)
   
   
 

Net cash provided by operating activities

  $ 11,655   $ 29,064   $ 27,151   $ 28,726   $ 39,547   $ 19,938   $ 18,922  

Interest income

    1     18     5     19     10     7     5  

Capital expenditures

    (356 )   (381 )   (747 )   (1,116 )   (3,442 )   (1,554 )   (2,864 )
                               

Free cash flow

  $ 11,298   $ 28,665   $ 26,399   $ 27,591   $ 36,095   $ 18,377   $ 16,053  
                               

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        The following discussion of our financial condition and results of operations should be read together with the consolidated financial statements and related notes that are included elsewhere in this prospectus. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under "Risk Factors" or in other parts of this prospectus.

Overview

        Shutterstock operates an industry-leading global marketplace for commercial digital imagery. Commercial digital imagery consists of licensed photographs, illustrations and videos that companies use in their visual communications, such as websites, digital and print marketing materials, corporate communications, books, publications and video content. Demand for commercial digital imagery comes primarily from businesses, marketing agencies and media organizations. We estimate that the market for pre-shot commercial digital imagery will grow to approximately $6 billion in 2016, based on a study conducted on our behalf by L.E.K. Consulting LLC, or L.E.K.

        Our global online marketplace brings together users of commercial digital imagery with image creators from around the world. More than 550,000 active, paying users contributed to revenue in 2011, representing an increase of 71% compared to the prior year. We have historically benefitted from a high degree of revenue retention from both subscription-based and On Demand customers. For example, in 2009, 2010 and 2011, we experienced year-to-year revenue retention of 82%, 96%, and 102%, respectively. This means that customers that contributed to revenue in 2010 contributed, in the aggregate, 102% as much revenue in 2011 as they did in 2010. More than 35,000 approved contributors make their images available in our library, which has grown to more than 20 million images. This makes our library one of the largest of its kind and, in the twelve months ended December 31, 2011, we delivered more than 58 million paid downloads (including both commercial and editorial images) to our customers. We believe that we delivered the highest volume of commercial image downloads in this period of any single brand in our industry.

        In 2003, we launched the initial version of our website and became one of the first companies in our industry to offer a simple subscription-based payment model. Since then, we have continually enhanced our platform, achieving key product development and business milestones that have driven our revenue and traffic growth:

    In November 2005, we launched our first foreign language website, in Japanese. We currently make our website available in a total of ten languages and transact in eight currencies on shutterstock.com, including U.S. Dollars, Euros, British Pounds and Yen.

    In February 2006, we began offering video footage in addition to our collection of still images.

    In June 2007, we launched Shutterstock On The Red Carpet, a program that facilitates the acquisition of press passes for Shutterstock contributors so that they can photograph newsworthy events.

    In August 2008, we launched an On Demand purchase option to better meet the needs of lower-volume image users.

    In September 2009, we acquired certain assets and liabilities of Bigstockphoto, Inc., or Bigstock, for approximately $3.3 million in cash. Bigstock offers its customers the option of purchasing "credits," which are redeemed as images are downloaded. In 2011, Bigstock also began offering a Pay As You Go purchase option that allows customers to pay a fixed price as and when they download images.

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    In October 2009, we began offering each of our customers indemnification of up to $10,000 to cover legal costs or damages that may arise from their use of a Shutterstock image and to signal to customers that they can trust the quality and legal integrity of content they license through our marketplace. We subsequently began offering larger indemnification amounts or unlimited indemnification to certain of our customers.

    In November 2011, we launched Shutterstock for iPad, an application enabling visitors to search, browse and organize images using an iPad.

        As an online marketplace, we generate revenue by selling image licenses and we pay royalties to contributors for each of their images that is downloaded. Approximately half of our revenue and the vast majority of our downloads come from subscription-based users. These customers can download and use a large number of images in their creative process without concern for the incremental cost of each image download. For users who need fewer images, we offer simple, affordable, On Demand pricing, which is presented as a flat rate across all images and sizes. Since the launch of our On Demand purchase options in 2008, revenue from our On Demand purchase options has increased as a percentage of our overall revenue and we expect that this trend will continue.

        Each time an image or video is downloaded, we record a royalty expense for the amount due to the associated contributor. Royalties are calculated using either a fixed dollar amount or a fixed percentage of revenue as described on our websites. Royalties are paid to contributors on a monthly basis subject to certain payout minimums. Royalties represent the largest component of our operating expenses and tend to increase proportionally with revenue.

        Our cost of revenue is substantially similar as a percentage of revenue for our On Demand and subscription-based purchase options. While contributors earn a fixed amount per download for some of our plans, we have set the per-download amount paid to our contributors for each of our purchase options in such a way that contributors earn more per download from plans where we collect higher revenue per download. In other words, we strive to deliver a similar percentage to contributors regardless of which purchase option a customer chooses. Cost of revenue for our On Demand purchase options has been slightly lower than that of our subscription-based options; however, this difference has historically represented less than 5% of revenue. As a result, we expect that any shifts in the relative popularity of these two purchase options will not substantially impact our cost of revenue.

        We manage customer acquisition costs based on the blended customer lifetime value across our purchase options and so we are able to control our marketing expenses as a percentage of revenue. As a result, we do not believe that shifts in the mix between On Demand or subscription-based purchase options will materially impact our operating margins. In addition, the repeat revenue characteristics of customers whose first purchase was a subscription-based purchase option are substantially similar to those whose first purchase was an On Demand purchase option.

        We have achieved significant growth in the last three years. Our total revenue has grown from $61.1 million in 2009 to $83.0 million in 2010 and $120.3 million in 2011, representing a compound annual growth rate of 40.3% since 2009. As our revenue has grown, so have our operating expenses, from $41.4 million in 2009 to $63.2 million in 2010 and $97.4 million in 2011, principally as a result of increased royalties, marketing costs and payroll expenses.

        An important driver of our growth is customer acquisition, which we achieve primarily through online marketing efforts including paid search, organic search, online display advertising, email marketing, affiliate marketing, social media and strategic partnerships. In 2010, 2011 and the six months ended June 30, 2012, we increased our investments in marketing as a percentage of revenue. Since we believe the market for commercial digital imagery is at an early stage, we plan to continue to invest aggressively in customer acquisition to achieve revenue and market share growth. We believe that another important driver of growth is the quality of the user experience we provide on our websites, especially the efficiency

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with which our search interfaces and algorithms help customers find the images that they need, the degree to which we make use of the large quantity of data we collect about images and search patterns, and the degree to which our websites have been localized for international audiences. To this end, we have also invested aggressively in product development and we plan to continue to invest in this area. Finally, the quality and quantity of content that we make available in our library is another key driver of our growth. In the last three calendar years, the number of approved and licensable images in the Shutterstock library has grown from 9 million to over 20 million images to date, making it one of the largest libraries of its kind.

        Even as we have invested in our key growth drivers of customer acquisition, customer experience improvement and content acquisition, we have delivered strong profitability. In 2011, our net income was $21.9 million and net cash from operating activities was $39.5 million. In the same period, Adjusted EBITDA and Free Cash Flow was $26.5 million and $36.1 million, respectively. See "Selected Consolidated Financial Data—Non-GAAP Financial Measures."

Key Operating Metrics

        In addition to key financial metrics, we regularly review a number of key operating metrics to evaluate our business, determine the allocation of resources and make decisions regarding business strategies. We believe that these metrics are useful for understanding the underlying trends in our business. The following table summarizes our key operating metrics, which are unaudited, for the years ended December 31, 2009, 2010 and 2011 and for the six months ended June 30, 2011 and 2012:

 
  Year Ended December 31,   Six Months Ended June 30,  
 
  2009   2010   2011   2011   2012  
 
  (in millions, except revenue per download)
 

Paid downloads (during period)

    34.0     44.1     58.6     27.7     35.9  

Revenue per download (during period)

  $ 1.80   $ 1.88   $ 2.05   $ 1.97   $ 2.18  

Images in our library (end of period)

    8.9     13.3     17.4     15.2     20.2  

Paid Downloads

        Measuring the number of paid downloads that our customers make in any given period is important because our revenue and contributor royalties are driven by paid download activity. For customers that choose our On Demand purchase options, each incremental download results in incremental recognition of revenue. For customers that choose our subscription purchase options, we do not recognize revenue from each incremental download, but we believe that download activity is an important measure of the value that a customer is getting from a subscription and the likelihood that he or she will renew. We define paid downloads as the number of downloads that our customers make in a given period of our photographs, vectors, illustrations or videos, excluding re-downloads of images that a customer has downloaded in the past (which do not generate contributor royalty expense) and downloads of our free image of the week (which we make available as a means of acquiring new customers and attracting existing customers to return to our websites more frequently).

Revenue per Download

        We define revenue per download as the amount of revenue recognized in a given period divided by the number of paid downloads in that period. This metric captures both changes in our pricing as well as the mix of purchase options that our customers choose, some of which generate more revenue per download than others. For example, when a customer pays $49.00 for five On Demand images, we earn more revenue per download ($9.80) than when a customer purchases a one-month subscription for $249.00 and downloads 100 images during the month ($2.49). Over the last three years, revenue from each of our purchase options has grown, however our fastest growing purchase options have been those that generate

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more revenue per download, most notably our On Demand purchase options. Due to this change in product mix, our revenue per download has increased steadily over the last three years.

Images in our Library

        We define images in our library as the total number of photographs, vectors and illustrations available to customers on shutterstock.com at any point in time. We record this metric as of the end of a period. Offering a large selection of images allows us to acquire and retain customers and, therefore, we believe that broadening our selection of high-quality images is an important driver of our revenue growth.

Basis of Presentation

Revenue

        We generate revenue by licensing commercial digital imagery. The significant majority of our revenue is generated via either subscription or On Demand purchase options. We generate subscription revenue through the sale of subscriptions varying in length from 30 days to 1 year. Our most popular subscription offering allows up to 25 image downloads per day for a flat monthly fee. In substantially all cases, we receive the full amount of the subscription payment by credit card at the time of sale; however, subscription revenue is recognized on a straight-line basis over the subscription period. We generate On Demand revenue through the sale of fixed packages of downloads varying in quantity from 1 image to 25 images. We also generate On Demand revenue through Bigstock via the sale of both credits plans (which enable a customer to purchase a fixed number of credits which can then be utilized to download images anytime within one year) and Pay As You Go pricing (which provides for simple cash pricing of individual images). We typically receive the full amount of the purchase at the time of sale; however, revenue is recognized as images are downloaded or when the right to download images expires (typically 365 days after purchase). We provide a number of other purchase options which together represented less than 8% of our revenue in 2011 and approximately 11% of our revenue for the six months ended June 30, 2012. These purchase options include custom accounts (for customers that need multi-seat access, invoicing, higher or unlimited indemnification or a higher volume of images) and video footage (which are sold both individually and in fixed packages). We typically receive the full amount of the purchase at the time of sale; however, revenue is recognized as images or videos are downloaded or when the right to download expires, typically 365 days after purchase. Some of our larger custom accounts are invoiced at or after the time of sale and pay us on credit terms. Some custom accounts pay in quarterly installments over the course of an annual commitment.

        Our deferred revenue consists of paid but unrecognized subscription revenue, On Demand revenue, and other revenue. Deferred revenue is recognized as revenue when images or videos are downloaded (On Demand), through the passage of time (subscriptions) or when credits or the right to download images or videos expire, and when all other revenue recognition criteria have been met.

Costs and Expenses

        Cost of Revenue.    Cost of revenue consists of royalties paid to contributors, credit card processing fees, image and video review costs, customer service expenses, the infrastructure costs related to maintaining our websites and associated employee compensation, facility costs and other supporting overhead costs. We expect that our cost of revenue will increase in absolute dollars in the foreseeable future as our revenue grows.

        Sales and Marketing.    Sales and marketing expenses include third-party marketing, advertising, branding, public relations and sales expenses. Sales and marketing expenses also include associated employee compensation, commissions and benefits as well as facility and other supporting overhead costs. We expect sales and marketing expenses to increase in absolute dollars in the foreseeable future as we continue to invest in new customer acquisition.

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        Research and Development.    Research and development expenses consist of headcount expenses, including salaries, benefits and bonuses for salaried employees and contractors engaged in product management, design, development and testing of our websites and products. Research and development costs also include facility and other supporting overhead costs. We expense research and development expenses as incurred. We expect research and development expenses to increase in absolute dollars in the foreseeable future as we continue to invest in developing new products and enhancing the functionality of our existing products.

        General and Administrative.    General and administrative expenses include employee salaries and benefits for executive, finance, business development, accounting, legal, human resources, internal information technology and other administrative personnel. In addition, general and administrative expenses include non-cash stock compensation expense, outside legal and accounting services, facilities costs and other supporting overhead costs. We expect to incur incremental general and administrative expenses to support our growth and to support operating as a public company.

        Provision for Income Taxes.    Historically, we filed our income tax return as a New York limited liability company, for federal and state income tax purposes. As a limited liability company, we recognized no federal and state income taxes, as the members of the LLC, and not the entity itself, are subject to income tax on their allocated share of our earnings. Historically, we generally made monthly distributions to our members under the terms of the LLC's operating agreement, and subject to our operating cash needs. Once we reorganize from a limited liability company to a Delaware corporation prior to the effectiveness of the registration statement of which this prospectus is a part, our corporate income tax rate will increase significantly as we become subject to federal, state and additional city income tax. See Note 7 to our Consolidated Financial Statements and "Unaudited Pro Forma Consolidated Financial Statements" included elsewhere in this prospectus.

        We are subject to taxation on allocable portions of our net income and other taxes based on various methodologies employed by taxing authorities in certain localities.

        As we expand our operations outside of the United States, we may become subject to taxation based on the foreign statutory rates and our effective tax rate could fluctuate accordingly.

        Our U.S. GAAP income taxes are computed using the asset and liability method, under which deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted statutory income tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce net deferred tax assets to the amount expected to be realized.

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Results of Operations

        The following table presents our results of operations for the periods indicated. The period-to-period comparisons of results are not necessarily indicative of results for future periods.

 
  Year Ended December 31,   Six Months Ended
June 30,
 
 
  2009   2010   2011   2011   2012  
 
  (in thousands)
 

Consolidated Statement of Operations:

                               

Revenue

  $ 61,099   $ 82,973   $ 120,271   $ 54,387   $ 78,199  

Operating expenses:

                               

Cost of revenue

    21,826     32,353     45,504     21,156     30,103  

Sales and marketing

    10,949     17,820     31,929     13,836     23,127  

Research and development

    2,361     4,591     9,777     4,255     7,070  

General and administrative

    6,217     8,414     10,171     4,297     7,895  
                       

Total operating expenses

    41,353     63,178     97,381     43,544     68,195  
                       

Income from operations

    19,746     19,795     22,890     10,843     10,004  

Interest income

    5     19     10     7     5  
                       

Income before income taxes

    19,751     19,814     22,900     10,850     10,009  

Provision for income taxes

    909     876     1,036     462     227  
                       

Net income

  $ 18,842   $ 18,938   $ 21,864   $ 10,388   $ 9,782  
                       

        The following table presents the components of our results of operations for the periods indicated as a percentage of revenue:

 
  Year Ended December 31,   Six Months Ended
June 30,
 
 
  2009   2010   2011   2011   2012  

Consolidated Statement of Operations as a Percentage of Revenue:

                               

Revenue

    100 %   100 %   100 %   100 %   100 %

Operating expenses:

                               

Cost of revenue

    36     39     38     39     38  

Sales and marketing

    18     21     27     25     30  

Research and development

    4     6     8     8     9  

General and administrative

    10     10     8     8     10  
                       

Total operating expenses

    68     76     81     80     87  
                       

Income from operations

    32     24     19     20     13  

Interest income

    0     0     0     0     0  
                       

Income before income taxes

    32     24     19     20     13  

Provision for income taxes

    1     1     1     1     0  
                       

Net income

    31 %   23 %   18 %   19 %   13 %
                       

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Comparison of the Six Months Ended June 30, 2011 and June 30, 2012

        The following table presents our results of operations for the periods indicated:

 
  Six Months Ended June 30,  
 
  2011   2012   $ Change   % Change  
 
  (in thousands)
   
 

Consolidated Statements of Operations Data:

                         

Revenue

  $ 54,387   $ 78,199   $ 23,812     44 %

Operating expenses:

                         

Cost of revenue

    21,156     30,103     8,947     42  

Sales and marketing

    13,836     23,127     9,291     67  

Research and development

    4,255     7,070     2,815     66  

General and administrative

    4,297     7,895     3,598     84  
                   

Total operating expenses

    43,544     68,195     24,651     57  
                   

Income from operations

    10,843     10,004     (839 )   (8 )

Interest income

    7     5     (2 )   (29 )
                   

Income before income taxes

    10,850     10,009     (841 )   (8 )

Provision for income taxes

    462     227     (235 )   (51 )
                   

Net income

  $ 10,388   $ 9,782   $ (606 )   (6 )%
                   

Revenue

        Revenue increased by $23.8 million, or 44%, to $78.2 million in the six months ended June 30, 2012 compared to the same period in 2011. This increase in revenue was primarily attributable to growth in paid downloads and an increase in revenue per download. In the six months ended June 30, 2011 and 2012, respectively, we delivered 27.7 million and 35.9 million paid downloads, and our average revenue per download increased from $1.97 to $2.18. Paid downloads increased primarily due to the acquisition of new customers from our marketing strategies. Revenue per download increased primarily due to growth in our On Demand offerings, which capture a higher effective price per image. In the six months ended June 30, 2011 compared to the same period in 2012, revenue from North America increased from 33% to 35% while revenue from Europe decreased from 41% to 38% and revenue from the rest of the world increased from 26% to 27%.

Cost and Expenses

        Cost of Revenue.    Cost of revenue increased by $8.9 million, or 42%, to $30.1 million in the six months ended June 30, 2012 compared to the same period in 2011. Royalties increased $7.0 million, or 46%, driven by an increase in downloads from existing and new customers. We anticipate royalties growing in line with revenues for the remainder of 2012 and beyond, although royalties as a percentage of revenue may vary somewhat from period to period. Credit card charges remained flat as increasing card volume in the six months ended June 30, 2012 was offset by significantly lower credit card processing fees per transaction as we switched the majority of our credit card processing to a new vendor in May 2011. We anticipate credit card charges increasing for the remainder of 2012 and beyond as credit card transaction volume increases. Employee-related costs increased $0.7 million, or 56%, driven by increased headcount in customer service, content and website operations from 37 employees in the six months ended June 30, 2011 to 48 employees in the six months ended June 30, 2012 to support increased customer volume and a more robust website infrastructure.

        Sales and Marketing.    Sales and marketing expenses increased by $9.3 million, or 67%, to $23.1 million in the six months ended June 30, 2012 compared to the same period in 2011. Advertising

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expenses, the largest component of our sales and marketing expenses, accounted for approximately 78% of that increase, as such expenses increased by $7.2 million, or 65% as compared to the prior period, as a result of increased spending on both online and offline advertising, including spending on both search and display advertising globally. We anticipate that our global advertising spend will continue to increase significantly in absolute dollars for the remainder of 2012 and beyond, provided that we continue to acquire customers cost effectively. Employee-related expenses increased by $1.7 million, or 86%, driven by increases in sales and marketing headcount from 35 employees in the six months ended June 30, 2011 to 66 employees in the six months ended June 30, 2012 and increased sales commissions as a result of growing revenue from direct sales.

        Research and Development.    Research and development expenses increased by $2.8 million, or 66%, to $7.1 million in the six months ended June 30, 2012 compared to the same period in 2011. Employee-related costs increased by $1.7 million, or 57%, driven by headcount increases in product, engineering and quality assurance from 54 employees in the six months ended June 30, 2011 to 78 employees in the six months ended June 30, 2012. The increased headcount costs were driven by an increasing number of research and development initiatives for our websites, including significant and ongoing efforts to improve our search capabilities. We anticipate increases in personnel costs as we continue to innovate and offer new products and features, although we expect the rate of increase will decline as we expand our operations. In addition, consulting costs increased by $0.4 million primarily due to costs associated with quality assurance services.

        General and Administrative.    General and administrative expenses increased by $3.6 million, or 84%, to $7.9 million in the six months ended June 30, 2012 compared to the same period in 2011. Employee-related expenses increased by $0.5 million, or 31%, as we increased finance, legal, human resources, internal information technology and business intelligence personnel from 22 employees in the six months ended June 30, 2011 to 32 employees in the six months ended June 30, 2012 to support the growth in our revenue and the infrastructure necessary to operate as a public company. We anticipate headcount will increase for the remainder of 2012 and beyond but we expect that the rate of growth will moderate as we expand our operations. Professional fees increased by $1.0 million, or 304%, because of additional expenses associated with our preparation of this offering. Non-cash equity-based compensation expense increased by $1.4 million, or 173%, due to the ongoing vesting of a common member's ownership interest, as more fully described in Note 12 to our Consolidated Financial Statements included elsewhere in this prospectus.

        Income Taxes.    Income tax expense decreased by $0.2 million, or 51%, to $0.2 million in the six months ended June 30, 2012 compared to the same period in 2011 due to decreased New York City unincorporated business tax resulting from decreased taxable income.

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Comparison of the Years Ended December 31, 2010 and December 31, 2011

        The following table presents our results of operations for the periods indicated:

 
  Year Ended December 31,  
 
  2010   2011   $ Change   % Change  
 
  (in thousands)
   
 

Consolidated Statements of Operations Data:

                         

Revenue

  $ 82,973   $ 120,271   $ 37,298     45 %

Operating expenses:

                         

Cost of revenue

    32,353     45,504     13,151     41  

Sales and marketing

    17,820     31,929     14,109     79  

Research and development

    4,591     9,777     5,186     113  

General and administrative

    8,414     10,171     1,757     21  
                   

Total operating expenses

    63,178     97,381     34,203     54  
                   

Income from operations

    19,795     22,890     3,095     16  

Interest income

    19     10     (9 )   (47 )
                   

Income before income taxes

    19,814     22,900     3,086     16  

Provision for income taxes

    876     1,036     160     18  
                   

Net income

  $ 18,938   $ 21,864   $ 2,926     15 %
                   

Revenue

        Revenue increased by $37.3 million, or 45%, to $120.3 million in 2011 compared to 2010. This increase in revenue was primarily attributable to growth in paid downloads and an increase in revenue per download. In 2010 and 2011, respectively, we delivered 44.1 million and 58.6 million paid downloads, and our average revenue per download increased from $1.88 to $2.05. Paid downloads increased primarily due to the acquisition of new customers. Revenue per download increased primarily due to growth in our On Demand offerings, which capture a higher effective price per image. From 2010 to 2011, revenue from North America remained unchanged at 34% while revenue from Europe decreased from 41% to 40% and revenue from the rest of the world increased from 25% to 26%.

Cost and Expenses

        Cost of Revenue.    Cost of revenue increased by $13.2 million, or 41%, to $45.5 million in 2011 compared to 2010. Royalties increased $10.8 million, or 47%, driven by an increase in downloads from existing and new customers. Credit card charges remained substantially unchanged at $5.1 million as increasing card volume in 2011 was offset by significantly lower credit card processing fees per transaction as we switched the majority of our credit card processing to a new vendor in 2011. Employee-related costs increased $1.1 million, or 60%, driven by increased headcount in customer service, content and website operations from 31 employees at year-end 2010 to 37 employees at year-end 2011 to support increased customer volume and a more robust website infrastructure.

        Sales and Marketing.    Sales and marketing expenses increased by $14.1 million, or 79%, to $31.9 million in 2011 compared to 2010. Advertising expenses, the largest component of our sales and marketing expenses, accounted for approximately 86% of that increase, as such expenses increased by $12.1 million, or 89%, as compared to the prior period, as a result of increased spending on both online and offline advertising, including spending on both search and display advertising globally. Employee-related expenses increased by $1.4 million, or 41%, driven by increases in sales and marketing headcount from 36 employees at year-end 2010 to 40 employees at year-end 2011 and increased sales commissions as a result of growing revenue from direct sales. These cost increases were partially offset by the closure of our telesales call center in Saratoga Springs, New York, which had expenses of $0.9 million in 2010.

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        Research and Development.    Research and development expenses increased by $5.2 million, or 113%, to $9.8 million in 2011 compared to 2010. Employee-related costs increased by $3.3 million or 94%, driven by headcount increases in product, engineering and quality assurance from 33 employees at year-end 2010 to 63 employees at year-end 2011. The increased headcount costs were driven by an increasing number of research and development initiatives for our websites, including significant and ongoing efforts to improve our search capabilities. In addition, recruiting expenses increased by $0.6 million, and consulting costs increased by $0.5 million primarily due to costs associated with outsourced development and quality assurance services.

        General and Administrative.    General and administrative expenses increased by $1.8 million, or 21%, to $10.2 million in 2011 compared to 2010. Employee-related expenses increased by $1.3 million, or 67%, as we increased finance, legal, human resources, internal information technology and business intelligence personnel from 19 employees at year-end 2010 to 29 employees at year-end 2011 to support the growth in our revenue and the infrastructure necessary to operate as a public company. Non-cash equity-based compensation expense increased by $1.0 million, or 91%, due to the ongoing vesting of a common member's ownership interest, as more fully described in Note 11 to our Consolidated Financial Statements included elsewhere in this prospectus. In 2011, post-acquisition service compensation related to a former employee of Bigstock decreased by $0.6 million.

        Income Taxes.    Income tax expense increased by $0.2 million, or 18%, to $1.0 million in 2011 compared to 2010 due to increased New York City unincorporated business tax resulting from increased taxable income.

Comparison of the Years Ended December 31, 2009 and December 31, 2010

        The following table presents our results of operations for the periods indicated:

 
  Year Ended December 31,  
 
  2009   2010   $ Change   % Change  
 
  (in thousands)
   
 

Consolidated Statements of Operations Data:

                         

Revenue

  $ 61,099   $ 82,973   $ 21,874     36 %

Operating expenses:

                         

Cost of revenue

    21,826     32,353     10,527     48  

Sales and marketing

    10,949     17,820     6,871     63  

Research and development

    2,361     4,591     2,230     94  

General and administrative

    6,217     8,414     2,197     35  
                   

Total operating expenses

    41,353     63,178     21,825     53  
                   

Income from operations

    19,746     19,795     49     0  

Interest income

    5     19     14     280  
                   

Income before income taxes

    19,751     19,814     63     0  

Provision for income taxes

    909     876     (33 )   (4 )
                   

Net income

  $ 18,842   $ 18,938   $ 96     1 %
                   

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Revenue

        Revenue increased by $21.9 million, or 36%, to $83.0 million in 2010 as compared to 2009. This increase in revenue was primarily attributable to growth in paid downloads and an increase in revenue per download. In 2009 and 2010, respectively, we delivered 34.0 million and 44.1 million paid downloads, and our average revenue per download increased from $1.80 to $1.88. Paid downloads increased primarily due to the acquisition of new customers. Revenue per download increased due to more rapid growth in our On Demand offerings, which have a higher effective price per image.

        From 2009 to 2010, the proportion of our revenue derived from North America decreased from 36% to 34%, while revenue derived from Europe decreased from 42% to 41%, and revenue derived from the rest of the world increased from 22% to 25%.

Cost and Expenses

        Cost of Revenue.    Cost of revenue in 2010 increased by $10.5 million, or 48%, to $32.4 million in 2010 as compared to 2009. This increase was primarily driven by an increase in downloads (with a corresponding increase in contributor royalties), an increase in transactions (with a corresponding increase in credit card processing fees) and an increase in employee-related costs. Contributor royalties increased by $6.7 million, or 41%, driven by an increase in image downloads. Credit card processing fees increased by $2.2 million, or 77%, driven by an increase in credit card sales and by foreign currency conversion fees as we implemented a new foreign credit card processor in early 2010 to enable settlement in foreign currencies. Employee-related costs increased by $0.8 million, or 82%, driven by increases in customer service, content and website operations headcount from 18 employees at year-end 2009 to 31. During 2010, we significantly expanded our focus on improving customer service response times, increasing capacity in content operations and improving our website operations for increased speed and improved reliability.

        Sales and Marketing.    Sales and marketing expenses increased by $6.9 million, or 63%, to $17.8 million in 2010 compared to 2009 due to a $5.3 million increase in advertising expenses and $1.5 million increase in employee-related costs driven by increases in marketing and sales headcount from 27 employees at year-end 2009 to 36 employees at year-end 2010. We increased our advertising investment by expanding our spending on online search engine marketing and banner advertising, which resulted in increased traffic to the site and increased customer purchases. We also increased the size and expertise of our marketing staff to improve our marketing strategy, online marketing, graphic design and copywriting.

        Research and Development.    Research and development expenses increased by $2.2 million, or 94%, to $4.6 million in 2010 compared to 2009 due primarily to a $2.0 million or 136% increase in employee-related costs, driven by increases in product, engineering and quality assurance headcount from 25 employees at year-end 2009 to 33 employees at year-end 2010. Beginning in the second half of 2009 and onwards, headcount began to increase significantly as we formed dedicated cross-functional teams for the various customer and contributor-facing website areas. The formation of these teams enabled us to significantly expand our research and development efforts, enabling improvements in areas such as site search, usability, conversion and retention.

        General and Administrative.    General and administrative expenses in 2010 increased by $2.2 million, or 35%, to $8.4 million in 2010 as compared to 2009 due primarily to a $1.4 million increase in employee-related expenses, driven by increases in finance, legal, human resource and internal information technology headcount from 10 employees at year-end 2009 to 19 employees at year-end 2010. We expanded our general and administrative staff significantly in 2010 as we expanded our finance and accounting department and added management, legal and human resource personnel to support the growth of our business.

        Income Taxes.    Income tax expense remained unchanged from 2009 to 2010, at $0.9 million, as New York City taxable income remained largely unchanged.

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Quarterly Results of Operations

        The following tables set forth selected unaudited quarterly statements of operations data for the last ten fiscal quarters. The information for each of these quarters has been prepared on the same basis as the audited financial statements included elsewhere in this prospectus and, in the opinion of management, includes all adjustments, consisting solely of normal recurring adjustments, necessary for the fair presentation of the results of operations for these periods. This data should be read in conjunction with the audited financial statements and accompanying notes included elsewhere in this prospectus. These quarterly operating results are not necessarily indicative of our operating results for any future period.

 
  Three Months Ended  
 
  Mar 31,
2010
  Jun 30,
2010
  Sep 30,
2010
  Dec 31,
2010
  Mar 31,
2011
  Jun 30,
2011
  Sep 30,
2011
  Dec 31,
2011
  Mar 31,
2012
  Jun 30,
2012
 
 
  (in thousands)
 

Consolidated Statement of Operations Data:

                                                             

Revenue

  $ 18,610   $ 19,580   $ 20,920   $ 23,863   $ 25,475   $ 28,912   $ 31,156   $ 34,728   $ 37,574   $ 40,625  

Operating expenses:

                                                             

Cost of revenue

    7,163     7,687     8,244     9,259     10,179     10,977     11,373     12,975     14,531     15,572  

Sales and marketing

    3,445     4,004     5,231     5,140     6,961     6,875     8,493     9,600     12,140     10,987  

Research and development

    914     1,121     1,199     1,357     1,887     2,368     2,811     2,711     3,520     3,550  

General and administrative

    2,024     2,261     1,933     2,196     2,012     2,285     2,539     3,335     3,589     4,306  
                                           

Total operating expenses

    13,546     15,073     16,607     17,952     21,039     22,505     25,216     28,621     33,780     34,415  
                                           

Income from operations

    5,064     4,507     4,313     5,911     4,436     6,407     5,940     6,107     3,794     6,210  

Interest income

    1     4     4     10     6     1     1     2     3     2  
                                           

Income before income taxes

    5,065     4,511     4,317     5,921     4,442     6,408     5,941     6,109     3,797     6,212  

Provision for income taxes

    224     199     191     262     189     273     253     321     86     141  
                                           

Net income

  $ 4,841   $ 4,312   $ 4,126   $ 5,659   $ 4,253   $ 6,135   $ 5,688   $ 5,788     3,711     6,071  
                                           

Non-GAAP Financial Data:

                                                             

Adjusted EBITDA(1)

  $ 5,712   $ 5,168   $ 4,534   $ 6,369   $ 5,053   $ 7,205   $ 6,945   $ 7,329   $ 4,986   $ 8,335  

Free cash flow(2)

  $ 8,114   $ 5,877   $ 6,403   $ 7,197   $ 9,556   $ 8,819   $ 8,303   $ 9,416   $ 8,306   $ 7,747  

(1)
See "Selected Consolidated Financial Data—Non-GAAP Financial Measures" as to how we define and calculate Adjusted EBITDA and a discussion about the limitations of Adjusted EBITDA, and see below for a reconciliation between Adjusted EBITDA and net income, the most directly comparable GAAP financial measure.

(2)
See "Selected Consolidated Financial Data—Non-GAAP Financial Measures" as to how we define and calculate Free Cash Flow and a discussion about the limitations of Free Cash Flow, and see below for a reconciliation between Free Cash Flow and net cash provided by operating activities, the most directly comparable GAAP financial measure.

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        The following table presents the unaudited quarterly results of operations as a percentage of revenue:

 
  Three Months Ended  
 
  Mar 31,
2010
  Jun 30,
2010
  Sep 30,
2010
  Dec 31,
2010
  Mar 31,
2011
  Jun 30,
2011
  Sep 30,
2011
  Dec 31,
2011
  Mar 31,
2012
  Jun 30,
2012
 
 
  (as a percentage of revenue)
 

Consolidated Statement of Operations Data as a percentage of revenue:

                                                             

Revenue

    100 %   100 %   100 %   100 %   100 %   100 %   100 %   100 %   100 %   100 %

Operating expenses:

                                                             

Cost of revenue

    38     39     39     39     40     38     37     37     39     38  

Sales and marketing

    19     20     25     22     27     24     27     28     32     27  

Research and development

    5     6     6     6     7     8     9     8     9     9  

General and administrative

    11     12     9     9     8     8     8     10     10     11