UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K | |
CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
Date of Report (Date of earliest event reported): | October 30, 2018 |
Shutterstock, Inc. (Exact name of registrant as specified in its charter) | |
Delaware | 001-35669 | 80-0812659 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) | ||
350 Fifth Avenue, 21st Floor New York, New York 10118 (Address of principal executive offices) | 10118 (Zip Code) |
(646) 710-3417 (Registrant’s telephone number, including area code) Not Applicable (Former name or former address, if changed since last report) | |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). | |
Emerging growth company o | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o | |
Item 2.02 | Results of Operations and Financial Condition. |
On October 30, 2018, Shutterstock, Inc. (the “Company”) issued a press release announcing its financial results for the fiscal period ended September 30, 2018. A copy of the press release is furnished as Exhibit 99.1 to this current report and is incorporated herein by reference. In addition, a copy of the presentation slides which will be referenced on the Company’s earnings call at 8:30 a.m. Eastern Time on Tuesday, October 30, 2018 is furnished as Exhibit 99.2 to this current report and incorporated herein by reference.
In accordance with General Instruction B.2 of Form 8-K, the information in this Current Report on Form 8-K, including Exhibits 99.1 and 99.2 attached hereto, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Item 7.01 | Regulation FD Disclosure. |
The information provided above in “Item 2.02 Results of Operations and Financial Condition” is incorporated by reference in this Item 7.01.
Item 9.01 | Financial Statements and Exhibits. |
(d) Exhibits.
99.1Press release dated October 30, 2018
99.2Presentation slides referenced on the earnings call held by Shutterstock, Inc. on October 30, 2018
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EXHIBIT INDEX
Exhibit No. | Exhibit Description | |
99.1 | ||
99.2 | ||
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
SHUTTERSTOCK, INC. | ||
Dated: October 30, 2018 | By: | /s/ Steven Berns |
Steven Berns | ||
Chief Operating Officer and Chief Financial Officer | ||
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EXHIBIT 99.1
Shutterstock Reports Third Quarter 2018 Financial Results
New York, NY - October 30, 2018 - Shutterstock, Inc. (NYSE: SSTK) (the “Company”), a leading global technology company offering high-quality assets, tools and services through its creative platform, today announced financial results for the third quarter ended September 30, 2018.
Commenting on the Company’s performance, founder and CEO Jon Oringer said “We achieved another solid quarter, delivering continued organic revenue growth year-over-year, as customers continue to use Shutterstock’s creative platform for their content and design needs. In addition to the growth in the business, we’re realizing the benefits of successfully managing our costs and achieving operational efficiencies across the Company, as evidenced by strong cash flow generation and improving margins.
“We remain confident in a strong finish to 2018 and will continue to make smart, critical investments that aim to maximize the efficiency of our operations, improve customer experience and drive profitable revenue growth.”
Highlights of Third Quarter 2018 compared to Third Quarter 2017:
Key Operating Metrics
• | Paid downloads increased 4.9% to 43.9 million. |
• | Revenue per download increased 5.3% to $3.40. |
• | Image collection expanded 42% to approximately 221 million images. |
• | Video collection expanded 44% to approximately 12 million clips. |
Financial Highlights
• | Revenue increased 7.5% to $151.6 million. Excluding revenue from Webdam (which was sold in the first quarter of 2018), revenue increased 10.7%. |
• | Income from operations increased 20.3% to $6.7 million. |
• | Net income increased 48.9% to $7.4 million. |
• | Adjusted EBITDA increased 8.1% to $25.1 million. |
• | Diluted EPS increased 50.0% to $0.21 per share. |
THIRD QUARTER RESULTS
Revenue
Revenue of $151.6 million for the third quarter of 2018 increased $10.5 million, or 7.5%, as compared to the third quarter of 2017, driven by positive year-over-year growth in both our e-commerce and enterprise channels. Excluding the impact from Webdam, which we sold in the first quarter of 2018, revenue growth was approximately 10.7% in the third quarter of 2018, as compared to the third quarter of 2017. Revenue growth on a constant currency basis was approximately 8.0% and revenue growth excluding the impact from Webdam on a constant currency basis was approximately 11.3%, in the third quarter of 2018, as compared to the third quarter of 2017. Our revenue growth and expansion of our product offerings drove a 5.3% increase in revenue per download.
Revenue generated through our e-commerce platform increased approximately 8.5% as compared to the third quarter of 2017, to $88.7 million, representing 58.5% of total revenue in the third quarter of 2018. Revenue from enterprise customers increased approximately 14.1% as compared to 2017, to $62.9 million, representing 41.5% of total revenue in the third quarter of 2018.
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Income from Operations
Income from operations of $6.7 million increased $1.1 million, or 20%, as compared to the third quarter of 2017, driven primarily by growth in revenues, which outpaced growth in operating expenses for the second consecutive quarter. Operating expenses increased $9.4 million, or 7%, primarily as a result of increased expenditures for sales and marketing, royalties and costs associated with our product development enhancements, including depreciation.
Net Income
Net income of $7.4 million, or $0.21 per diluted share, increased 49% for the third quarter of 2018 as compared with $5.0 million, or $0.14 per diluted share, for the third quarter of 2017, primarily driven by the growth in income from operations, and a reduction in effective tax rate in the current period.
Adjusted EBITDA
Adjusted EBITDA of $25.1 million for the third quarter of 2018 increased $1.9 million, or 8%, as compared to the third quarter of 2017, driven primarily by growth in revenues and cost management improvements. We define adjusted EBITDA as net income adjusted for foreign currency transaction gains and losses, expenses related to long-term incentives and contingent consideration related to acquisitions, impairment charges related to our long-term investment in SilverHub Media Limited (“SHM”), interest income and expense, income taxes, depreciation, amortization, non-cash equity-based compensation, and the gain on Sale of Webdam.
Adjusted Net Income
Adjusted net income was $13.4 million, or $0.38 per diluted share, for the third quarter of 2018 as compared to $10.9 million, or $0.31 per diluted share, in the third quarter of 2017, an increase of $0.07 per diluted share, or 23%. We define adjusted net income as net income excluding the impact of one-time tax charges related to the enactment of the Tax Cuts and Jobs Act (“TCJA”), non-cash equity-based compensation, amortization of acquisition-related intangible assets, expenses related to long-term incentives and contingent consideration related to acquisitions, charges related to the impairment of our long-term investment in SHM, the gain on Sale of Webdam, and the estimated tax impact of such adjustments.
LIQUIDITY
Our cash and cash equivalents decreased by $47.0 million to $206.4 million at September 30, 2018, as compared with $253.4 million at December 31, 2017. This decrease primarily reflects $104.9 million of cash paid for a special non-recurring dividend in August 2018, $29.5 million of capital expenditures and a $15.0 million long-term investment in ZCool Network Technology Limited, our exclusive distributor of creative content in China. These cash expenditures were partially offset by $68.5 million of net cash generated by our operations and approximately $41.8 million of net proceeds to date from the Sale of Webdam, excluding $2.5 million of escrowed funds.
We paid net cash taxes of $0.4 million in the nine months ended September 30, 2018, compared to $4.1 million paid in the 2017 period.
Free cash flow was $22.4 million in the third quarter of 2018, an increase of $4.2 million from the third quarter of 2017. This change was primarily driven by lower cash used for capital expenditures and content acquisition, partially offset by a slight decrease in cash provided by operations. Free cash flow is defined as cash provided by operating activities adjusted for capital expenditures and content acquisition.
STOCK REPURCHASE PROGRAM
During the third quarter of 2018, we did not repurchase shares of our stock pursuant to our existing stock repurchase program. From the inception of this program through September 30, 2018, we have repurchased 2.6 million shares of our stock for a total of $100 million under the stock repurchase program at an average per-share price of $39.09. As of September 30, 2018, there remains $100 million authorized for purchases under our stock repurchase program.
The stock repurchase program, which commenced in November 2015, authorizes the Company to purchase shares of our stock from time to time through open market purchases or privately negotiated transactions at prevailing prices as permitted by securities laws and other legal requirements. The timing and amount of any future share repurchases will be determined by our management based on its evaluation of market conditions and other factors. The repurchase program may be modified, suspended or discontinued at any time.
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OPERATING METRICS
Three Months Ended September 30, | ||||||
2018 | 2017 | |||||
(in millions, except revenue per download) | ||||||
Number of paid downloads | 43.9 | 41.9 | ||||
Revenue per download (1) | $3.40 | $3.23 | ||||
Content in our collection (end of period)(2): | ||||||
Images | 221.3 | 155.8 | ||||
Videos | 12.0 | 8.3 | ||||
(1) Revenue per download metric excludes the impact of revenue not associated with stock content downloads.
(2) Represents images (photographs, vectors and illustrations) and video clips available on shutterstock.com at the end of the period. We exclude certain content available to customers, including custom content and content that may be licensed for editorial use only.
FINANCIAL OUTLOOK
For the full year 2018, excluding the impact of Webdam, the Company has tightened guidance with respect to Revenue, Adjusted EBITDA, and Income from operations and has improved guidance for Non-cash equity-based compensation expense, Capital expenditures and Effective tax rate as follows:
• | Revenue of $625 - $630 million, representing growth of approximately 15% - 15.9%, tightening the range from the previous guidance of $625 - $635 million. |
• | Adjusted EBITDA of approximately $105 million, representing growth of approximately 19.3%, tightening from the previous guidance of $105 - $110 million. |
• | Income from operations of $30 - $32 million, tightening the range from the previous guidance of $30 - $35 million. |
• | Non-cash equity-based compensation expense of approximately $25 million, reduced from prior guidance of $28 million. |
• | Capital expenditures, including capitalized labor, of approximately $42 million, reduced from prior guidance of $48 million. |
• | Effective tax rate in low 20’s%, reduced slightly from prior guidance. |
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NON-GAAP FINANCIAL MEASURES
In addition to reporting results in accordance with United States generally accepted accounting principles (GAAP), Shutterstock also refers to adjusted EBITDA, adjusted net income, revenue growth on a constant currency basis, revenue excluding the impact of Webdam, adjusted EBITDA margin and free cash flow. Shutterstock defines adjusted EBITDA as net income adjusted for foreign currency transaction gains and losses, expenses related to long-term incentives and contingent consideration related to acquisitions, interest income and expense, income taxes, depreciation, amortization, disposals, non-cash equity-based compensation, impairment charges related to long-term investments and the gain on the Sale of Webdam; adjusted net income as net income excluding the impact of one-time tax charges related to the enactment of the TCJA, the impact of non-cash equity-based compensation, the amortization of acquisition-related intangible assets, impairment charges related to long-term investments, the gain on the Sale of Webdam and expenses related to long-term incentives and contingent consideration related to acquisitions and the estimated tax impact of such adjustments; revenue growth on a constant currency basis (expressed as a percentage) as the increase in current period revenues over prior period revenues, utilizing fixed exchange rates for translating foreign currency revenues for both periods; revenue excluding the impact of Webdam as total Company revenue for each period presented, less the amount of revenue generated by the Webdam business during that period; adjusted EBITDA margin (expressed as a percentage) as the ratio of adjusted EBITDA to revenue; and free cash flow as cash provided by operating activities adjusted for capital expenditures and content acquisition. These figures have not been calculated in accordance with GAAP and should be considered in addition to results prepared in accordance with GAAP and should not be considered as a substitute for, or superior to, GAAP results. We caution investors that non-GAAP financial measures are not based on any standardized methodology prescribed by GAAP and are not necessarily comparable to similarly-titled measures presented by other companies.
Management believes that adjusted EBITDA, adjusted net income, revenue excluding the impact of Webdam, revenue growth on a constant currency basis and adjusted EBITDA margin are useful to investors to provide them with disclosures of Shutterstock’s operating results on the same basis as that used by management. Additionally, management believes that adjusted EBITDA and adjusted net income provide useful information to investors about the performance of the Company’s overall business because such measures eliminate the effects of unusual or other infrequent charges that are not directly attributable to Shutterstock’s underlying operating performance; with respect to revenue growth on a constant currency basis, this provides useful information to investors by eliminating the effect of foreign currency fluctuations that are not directly attributable to Shutterstock’s business; and with respect to revenue excluding the impact of Webdam, provides useful information to investors by eliminating the impact of a historical revenue source that is not part of our current business. Additionally, management believes that providing these non-GAAP financial measures enhances the comparability for investors in assessing Shutterstock’s financial reporting. Management believes that free cash flow is useful for investors because it provides them with an important perspective on the cash available for strategic measures, after making necessary capital investments in property and equipment to support the Company’s ongoing business operations, and provides them with the same measures that management uses as the basis for making resource allocation decisions.
Shutterstock’s management also uses the non-GAAP financial measures adjusted EBITDA, adjusted net income, revenue excluding the impact of Webdam, revenue growth on a constant currency basis, adjusted EBITDA margin and free cash flow, in conjunction with GAAP financial measures, as an integral part of managing the business and to: (i) monitor and evaluate the performance of Shutterstock’s business operations, financial performance and overall liquidity; (ii) facilitate management’s internal comparisons of the historical operating performance of its business operations; (iii) facilitate management’s external comparisons of the results of its overall business to the historical operating performance of other companies that may have different capital structures and debt levels; (iv) review and assess the operating performance of Shutterstock’s management team and, together with other operational objectives, as a measure in evaluating employee compensation and bonuses; (v) analyze and evaluate financial and strategic planning decisions regarding future operating investments; and (vi) plan for and prepare future annual operating budgets and determine appropriate levels of operating investments.
A reconciliation of the differences between adjusted EBITDA, adjusted net income, revenue excluding the impact of Webdam and free cash flow, and the most comparable financial measure calculated and presented in accordance with GAAP, is presented under the heading “Reconciliation of Non-GAAP Financial Information to GAAP” immediately following the Consolidated Balance Sheets. We do not provide a reconciliation of adjusted EBITDA guidance to net income guidance, as the impact of net non-operating foreign currency exchange gains or losses which are excluded from adjusted EBITDA is inherently uncertain and difficult to estimate and is unavailable without unreasonable efforts. In addition, we believe such reconciliations would imply a degree of precision that would be confusing or misleading to investors.
EARNINGS TELECONFERENCE INFORMATION
The Company will discuss its third quarter financial results during a teleconference today, October 30, 2018, at 8:30 AM ET. The conference call can be accessed in the U.S. at (844) 634-1442 or outside the U.S. at (615) 247-0239 with the conference ID# 4398563. A live audio webcast of the call will also be available simultaneously at http://investor.shutterstock.com.
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Following completion of the call, a recorded replay of the webcast will be available in the investor relations section of Shutterstock’s website. A telephone replay of the call will also be available until November 6, 2018 in the U.S. at (855) 859-2056 or outside the U.S. at (404) 537-3406 with the conference ID# 4398563.
Additional investor information can be accessed at http://investor.shutterstock.com.
ABOUT SHUTTERSTOCK
Shutterstock, Inc. (NYSE: SSTK), directly and through its group subsidiaries, is a leading global provider of high-quality licensed photographs, vectors, illustrations, videos and music to businesses, marketing agencies and media organizations around the world. Working with its growing community of over 550,000 contributors, Shutterstock adds hundreds of thousands of images each week, and currently has more than 225 million images and more than 12 million video clips available.
Headquartered in New York City, Shutterstock has offices around the world and customers in more than 150 countries. The company’s brands also include Bigstock, a value-oriented stock image offering; Shutterstock Custom, a custom content creation platform; Offset, a high-end image collection; PremiumBeat, a curated royalty-free music library and Rex Features, a premier source of editorial images for the world’s media.
For more information, please visit www.shutterstock.com and follow Shutterstock on Twitter and on Facebook.
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FORWARD-LOOKING STATEMENTS
Statements in this press release regarding management’s future expectations, predictions, beliefs, goals, intentions, plans, prospects or strategies, including statements regarding Shutterstock’s future financial and operating performance on both a GAAP and non-GAAP basis and statements regarding Shutterstock’s future growth, profitability and cash flow such as Shutterstock’s expectations regarding financial outlook, future growth and profitability may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to known and unknown risks, uncertainties and other factors including risks related to any unforeseen changes to or the effects on liabilities, financial condition, future capital expenditures, revenue, expenses, net income or loss, synergies and future prospects; our inability to continue to attract and retain customers and contributors to our online marketplace for creative content; competitive factors; our inability to innovate technologically or develop, market and offer new products and services; unforeseen costs related to infringement claims, indemnification claims and the inability to prevent misuse of our digital content; our inability to increase market awareness of Shutterstock and our products and services; our inability to effectively manage our growth; our inability to grow at historic growth rates or at all; technological interruptions that impair access to our websites; assertions by third parties of infringement of intellectual property rights by Shutterstock, our inability to effectively manage risks associated with operating internationally; our exposure to foreign exchange rate risk; our inability to address risks associated with sales to large corporate customers; government regulation of the internet; increasing regulation related to the handling of personal data; actions by governments to restrict access to our products and services; our inability to effectively expand our operations into new products, services and technologies; our inability to protect the confidential information of customers; increased tax liabilities associated with our worldwide operations, including our exposure to withholding, sales and transaction tax liabilities; the effect of the TCJA; general economic and political conditions worldwide; our inability to successfully integrate acquisitions and the associated technology and achieve operational efficiencies; and other factors and risks discussed under the heading “Risk Factors” in our most recent Annual Report on Form 10-K, as well as in other documents that may be filed by Shutterstock from time to time with the Securities and Exchange Commission. As a result of such risks, uncertainties and factors, Shutterstock’s actual results may differ materially from any future results, performance or achievements discussed in or implied by the forward-looking statements contained herein. The forward-looking statements contained in this press release are made only as of this date and Shutterstock assumes no obligation to update the information included in this press release or revise any forward-looking statements, whether as a result of new information, future developments or otherwise, except as required by law.
Media Contact: | Investor Contact: |
Siobhan Aalders | Amy Behrman |
917-563-4991 | 832-414-4929 |
press@shutterstock.com | ir@shutterstock.com |
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Shutterstock, Inc.
Consolidated Statements of Operations
(In thousands, except for per share data)
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Revenue | $ | 151,575 | $ | 141,063 | $ | 461,178 | $ | 405,282 | ||||||||
Operating expenses: | ||||||||||||||||
Cost of revenue | 66,461 | 58,812 | 198,842 | 168,512 | ||||||||||||
Sales and marketing | 41,028 | 36,008 | 123,414 | 105,620 | ||||||||||||
Product development | 14,032 | 13,340 | 47,208 | 37,276 | ||||||||||||
General and administrative | 23,355 | 27,333 | 74,901 | 74,716 | ||||||||||||
Total operating expenses | 144,876 | 135,493 | 444,365 | 386,124 | ||||||||||||
Income from operations | 6,699 | 5,570 | 16,813 | 19,158 | ||||||||||||
Gain on Sale of Webdam | — | — | 38,613 | — | ||||||||||||
Other income (expense), net | 217 | 130 | (6,000 | ) | 2,095 | |||||||||||
Income before income taxes | 6,916 | 5,700 | 49,426 | 21,253 | ||||||||||||
(Benefit)/provision for income taxes | (531 | ) | 698 | 9,652 | 6,582 | |||||||||||
Net income | $ | 7,447 | $ | 5,002 | $ | 39,774 | $ | 14,671 | ||||||||
Earnings per share | ||||||||||||||||
Basic | $ | 0.21 | $ | 0.14 | $ | 1.14 | $ | 0.42 | ||||||||
Diluted | $ | 0.21 | $ | 0.14 | $ | 1.12 | $ | 0.42 | ||||||||
Weighted average common shares outstanding: | ||||||||||||||||
Basic | 34,991 | 34,643 | 34,897 | 34,607 | ||||||||||||
Diluted | 35,570 | 35,177 | 35,420 | 35,339 | ||||||||||||
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Shutterstock, Inc.
Consolidated Balance Sheets
(In thousands, except par value amount)
(Unaudited)
September 30, 2018 | December 31, 2017 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 206,409 | $ | 253,428 | ||||
Accounts receivable, net | 45,850 | 49,932 | ||||||
Prepaid expenses and other current assets | 28,331 | 37,109 | ||||||
Total current assets | 280,590 | 340,469 | ||||||
Property and equipment, net | 81,183 | 85,698 | ||||||
Intangibles assets, net | 30,611 | 34,197 | ||||||
Goodwill | 88,802 | 98,654 | ||||||
Deferred tax assets, net | 13,966 | 9,761 | ||||||
Other assets | 18,068 | 8,997 | ||||||
Total assets | $ | 513,220 | $ | 577,776 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 4,022 | $ | 7,160 | ||||
Accrued expenses | 55,202 | 58,734 | ||||||
Contributor royalties payable | 23,334 | 20,088 | ||||||
Deferred revenue | 141,412 | 157,803 | ||||||
Other liabilities | 2,679 | 1,957 | ||||||
Total current liabilities | 226,649 | 245,742 | ||||||
Deferred tax liability, net | — | 1,486 | ||||||
Other non-current liabilities | 17,973 | 15,963 | ||||||
Total liabilities | 244,622 | 263,191 | ||||||
Commitment and contingencies | ||||||||
Stockholders’ equity: | ||||||||
Common stock, $0.01 par value; 200,000 shares authorized; 37,573 and 37,270 shares issued and 35,015 and 34,712 shares outstanding as of September 30, 2018 and December 31, 2017, respectively | 376 | 373 | ||||||
Treasury stock, at cost; 2,558 shares as of September 30, 2018 and December 31, 2017 | (100,027 | ) | (100,027 | ) | ||||
Additional paid-in capital | 287,017 | 272,657 | ||||||
Accumulated other comprehensive loss | (4,939 | ) | (3,557 | ) | ||||
Retained earnings | 86,171 | 145,139 | ||||||
Total stockholders’ equity | 268,598 | 314,585 | ||||||
Total liabilities and stockholders’ equity | $ | 513,220 | $ | 577,776 | ||||
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Shutterstock, Inc.
Reconciliation of Non-GAAP Financial Information to GAAP
(In thousands, except per share information)
(Unaudited)
Adjusted EBITDA, adjusted net income and free cash flow are not financial measures under United States generally accepted accounting principles (GAAP). Such non-GAAP financial measures should not be construed as alternatives to any other measures of performance determined in accordance with GAAP. We caution investors that non-GAAP financial measures are not based on any standardized methodology prescribed by GAAP and are not necessarily comparable to similarly-titled measures presented by other companies.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Net income | $ | 7,447 | $ | 5,002 | $ | 39,774 | $ | 14,671 | ||||||||
Add/(less): | ||||||||||||||||
Depreciation and amortization | 11,707 | 10,227 | 33,934 | 24,948 | ||||||||||||
Non-cash equity-based compensation | 5,959 | 6,885 | 17,994 | 20,128 | ||||||||||||
Other adjustments, net (1) | 485 | 384 | 8,439 | (1,581 | ) | |||||||||||
(Benefit)/Provision for income taxes | (531 | ) | 698 | 9,652 | 6,582 | |||||||||||
Gain on Sale of Webdam | $ | — | $ | — | $ | (38,613 | ) | $ | — | |||||||
Adjusted EBITDA | $ | 25,067 | $ | 23,196 | $ | 71,180 | $ | 64,748 | ||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Net income | $ | 7,447 | $ | 5,002 | $ | 39,774 | $ | 14,671 | ||||||||
Add/(less): | ||||||||||||||||
Non-cash equity-based compensation | 5,959 | 6,885 | 17,994 | 20,128 | ||||||||||||
Tax effect of non-cash equity-based compensation (2) | (1,356 | ) | (2,531 | ) | (4,096 | ) | (7,399 | ) | ||||||||
Acquisition-related amortization expense | 917 | 1,900 | 2,935 | 3,976 | ||||||||||||
Tax effect of acquisition-related amortization expense (2) | (209 | ) | (699 | ) | (668 | ) | (1,463 | ) | ||||||||
Acquisition-related long-term incentives and contingent consideration | 702 | 514 | 2,439 | 514 | ||||||||||||
Tax effect of acquisition-related long-term incentives and contingent consideration | (160 | ) | (189 | ) | (594 | ) | (189 | ) | ||||||||
Gain on Sale of Webdam | — | — | (38,613 | ) | — | |||||||||||
Tax effect of gain on Sale of Webdam | — | — | 10,733 | — | ||||||||||||
Impairment of long-term investment asset | — | — | 5,881 | — | ||||||||||||
Tax effect of impairment of long-term investment asset | 118 | — | (999 | ) | — | |||||||||||
Adjusted net income | $ | 13,418 | $ | 10,882 | $ | 34,786 | $ | 30,238 | ||||||||
Adjusted net income per diluted common share | $ | 0.38 | $ | 0.31 | $ | 0.98 | $ | 0.86 | ||||||||
Weighted average diluted shares | 35,570 | 35,177 | 35,420 | 35,339 | ||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Net cash provided by operating activities | $ | 30,494 | $ | 31,105 | $ | 68,517 | $ | 71,510 | ||||||||
Capital expenditures | (6,495 | ) | (11,857 | ) | (29,546 | ) | (37,626 | ) | ||||||||
Content acquisition | (1,580 | ) | (1,017 | ) | (2,822 | ) | (2,568 | ) | ||||||||
Free cash flow | $ | 22,419 | $ | 18,231 | $ | 36,149 | $ | 31,316 | ||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Total Revenues | $ | 151,575 | $ | 141,063 | $ | 461,178 | $ | 405,282 | ||||||||
Less: Revenue from the Webdam business(3) | — | (4,165 | ) | (2,711 | ) | (11,361 | ) | |||||||||
Revenue excluding the impact of Webdam | $ | 151,575 | $ | 136,898 | $ | 458,467 | $ | 393,921 | ||||||||
_______________________________________________________________________________________________________________________
(1) | Included in Other adjustments, net is foreign currency transaction gains and losses, impairment of long-term investments, expenses related to long-term incentives and contingent consideration related to acquisitions, and interest income and expense. |
(2) | Estimated tax effect of adjusted net income adjustments reflects the consolidated blended tax rate as applied to the taxable portion of the adjustment. |
(3) | On February 26, 2018, the Company completed a sale transaction, pursuant to which the buyer in the transaction acquired certain assets and assumed certain contracts and liabilities which constituted the Company’s digital asset management business (the “Sale of Webdam”). 2018 amounts include revenue earned during the period from January 1, 2018 through February 26, 2018. |
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Shutterstock, Inc.
Supplemental Financial Data
(Unaudited)
Historical Operating Metrics
Three Months Ended | ||||||||||||||||||||||||||||||||||||
9/30/18 | 6/30/18 | 3/31/18 | 12/31/17 | 9/30/17 | 6/30/17 | 3/31/17 | 12/31/16 | 9/30/16 | ||||||||||||||||||||||||||||
(in millions, except revenue per download) | ||||||||||||||||||||||||||||||||||||
Number of paid downloads | 43.9 | 45.2 | 43.7 | 43.9 | 41.9 | 42.7 | 43.5 | 42.1 | 41.2 | |||||||||||||||||||||||||||
Revenue per download (1) | $ | 3.40 | $ | 3.41 | $ | 3.40 | $ | 3.33 | $ | 3.23 | $ | 3.05 | $ | 2.91 | $ | 3.01 | $ | 2.91 | ||||||||||||||||||
Content in collection (end of period): (2) | ||||||||||||||||||||||||||||||||||||
Images | 221.3 | 204.2 | 186.9 | 170.1 | 155.8 | 144.7 | 132.0 | 116.2 | 102.7 | |||||||||||||||||||||||||||
Videos | 12.0 | 10.9 | 9.9 | 9.1 | 8.3 | 7.6 | 6.9 | 6.2 | 5.4 | |||||||||||||||||||||||||||
Historical Revenue by Sales Channel(3)(4)
Three Months Ended | ||||||||||||||||||||||||||||||||||||
9/30/18 | 6/30/18 | 3/31/18 | 12/31/17 | 9/30/17 | 6/30/17 | 3/31/17 | 12/31/16 | 9/30/16 | ||||||||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||||||||||
E-Commerce | $ | 88.7 | $ | 91.7 | $ | 89.7 | $ | 87.8 | $ | 81.8 | $ | 82.2 | $ | 80.6 | $ | 81.4 | $ | 78.1 | ||||||||||||||||||
Enterprise | 62.9 | 64.9 | 60.6 | 59.3 | 55.1 | 48.1 | 46.2 | 45.4 | 42.1 | |||||||||||||||||||||||||||
Webdam(5) | — | — | 2.7 | 4.7 | 4.2 | 3.7 | 3.5 | 3.3 | 2.9 | |||||||||||||||||||||||||||
Total Revenue | $ | 151.6 | $ | 156.6 | $ | 153.0 | $ | 151.8 | $ | 141.1 | $ | 134.0 | $ | 130.2 | $ | 130.2 | $ | 123.1 | ||||||||||||||||||
_______________________________________________________________________________________________________________________
(1) | Revenue per download metric excludes the impact of revenue not associated with stock content downloads. |
(2) | Images (photographs, vectors and illustrations) and video clips available on shutterstock.com at the end of the period. We exclude certain content available to customers, including custom content and content that may be licensed for editorial use only. |
(3) | Effective January 1, 2018 we adopted Accounting Standard Update 2014-09 using the modified retrospective approach. Historical revenue totals reflect those previously reported and have not been restated. |
(4) | Certain amounts in the table may not foot due to rounding. |
(5) | On February 26, 2018, the Company completed the Sale of Webdam. 2018 amounts include revenue earned during the period from January 1, 2018 through February 26, 2018. |
10
Third Quarter 2018 October 30, 2018 Please remember this information is confidential.
Forward-Looking Statements This presentation contains “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on our management’s beliefs and assumptions and on information currently available to management. Forward-looking statements include information concerning Shutterstock, Inc.’s (the “Company’s”) current expectations and guidance for the full year 2018. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “guidance,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “seeks,” “should,” “will,” “would” or similar expressions and the negatives of those terms. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Forward- looking statements represent our management’s beliefs and assumptions only as of the date made, and readers are cautioned not to place undue reliance on such statements. You should read our public filings with the Securities and Exchange Commission, including the Risk Factors set forth therein, for additional information regarding factors that may cause actual results to materially differ. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in the forward-looking statements, even if new information becomes available in the future. 2
Non-GAAP Financial Measures In addition to reporting financial results in accordance with accounting principles generally accepted in the United States (GAAP), we also refer to adjusted EBITDA, adjusted net income, revenue growth on a constant currency basis, revenue excluding the impact of Webdam, adjusted EBITDA margin, and free cash flow. We define adjusted EBITDA as net income adjusted for foreign currency transaction gains and losses, expenses related to long-term incentives and contingent consideration related to acquisitions, the gain on the Sale of Webdam, impairment charges related to long-term investments, interest income and expense, income taxes, depreciation, amortization, disposals and non-cash equity-based compensation; adjusted net income as net income excluding the impact of one-time tax charges related to the enactment of the Tax Cuts and Jobs Act (TCJA), the impact of non-cash equity-based compensation, the amortization of acquisition-related intangible assets, the gain on the Sale of Webdam, impairment charges related to long-term investments and expenses related to long-term incentives and contingent consideration related to acquisitions and the estimated tax impact of such adjustments; revenue growth on a constant currency basis (expressed as a percentage) as the increase in current period revenues over prior period revenues, utilizing fixed exchange rates for translating foreign currency revenues for both periods; revenue excluding the impact of Webdam as total Company revenue for each period presented, less the amount of revenue generated by the Webdam business during that period; adjusted EBITDA margin (expressed as a percentage) as the ratio of adjusted EBITDA to revenue; and free cash flow as cash provided by operating activities adjusted for capital expenditures and content acquisition. These figures have not been calculated in accordance with GAAP and should be considered in addition to results prepared in accordance with GAAP, and should not be considered as a substitute for, or superior to, GAAP results. We caution investors that non-GAAP financial measures are not based on any standardized methodology prescribed by GAAP and are not necessarily comparable to similarly-titled measures presented by other companies. We believe that adjusted EBITDA, adjusted net income, revenue excluding the impact of Webdam, revenue growth on a constant currency basis and adjusted EBITDA margin are useful to investors to provide them with disclosures of our operating results on the same basis as that used by management. Additionally, we believe that adjusted EBITDA and adjusted net income provide useful information to investors about the performance of the Company’s overall business because such measures eliminate the effects of unusual or other infrequent charges that are not directly attributable to our underlying operating performance; with respect to revenue growth on a constant currency basis, provide useful information to investors by eliminating the effect of foreign currency fluctuations that are not directly attributable to Shutterstock’s business; and with respect to revenue excluding the impact of Webdam, provide useful information to investors by eliminating the impact of a historical revenue source that is not part of our current business. Additionally, we believe that providing these non-GAAP financial measures enhances the comparability for investors in assessing our financial reporting. We believe that free cash flow is useful for investors because it provides them with an important perspective on the cash available for strategic measures, after making necessary capital investments in property and equipment to support the Company’s ongoing business operations, and provides them with the same measures that we use as the basis for making resource allocation decisions. We also use the non-GAAP financial measures adjusted EBITDA, adjusted net income, revenue excluding the impact of Webdam, revenue growth on a constant currency basis, adjusted EBITDA margin, and free cash flow, in conjunction with GAAP financial measures, as an integral part of managing the business and to: (i) monitor and evaluate the performance of Shutterstock’s business operations, financial performance and overall liquidity; (ii) facilitate management’s internal comparisons of the historical operating performance of its business operations; (iii) facilitate management’s external comparisons of the results of its overall business to the historical operating performance of other companies that may have different capital structures and debt levels; (iv) review and assess the operating performance of Shutterstock’s management team and, together with other operational objectives, as a measure in evaluating employee compensation and bonuses; (v) analyze and evaluate financial and strategic planning decisions regarding future operating investments; and (vi) plan for and prepare future annual operating budgets and determine appropriate levels of operating investments. Please refer to the reconciliation of the differences between adjusted EBITDA, adjusted net income, revenue excluding the impact of Webdam and free cash flow, and the most comparable financial measure calculated and presented in accordance with GAAP, presented under the heading “Reconciliation of Non-GAAP Financial Information to GAAP” immediately following the Consolidated Balance Sheets in today’s earnings release, which is available in the Investor Relations section of our website. We do not provide a reconciliation of adjusted EBITDA guidance to net income guidance, as the impact of net non-operating foreign currency exchange gains or losses which are excluded from adjusted EBITDA is inherently uncertain and difficult to estimate and is unavailable without unreasonable efforts. In addition, we believe such reconciliations would imply a degree of precision that would be confusing or misleading to investors. 3
Third Quarter 2018 Financial Highlights Compared to Third Quarter 2017: • Revenue increased 7.5% to $151.6 million primarily driven by growth in new customers across our enterprise and e-commerce channels and an increase in paid download activity. • Revenue increased 8.0% on a constant currency basis. • Revenue increased 10.7% excluding the impact of Webdam. • Revenue increased 11.3% excluding the impact of Webdam and on a constant currency basis. • Income from Operations increased 20.3% to $6.7 million. • Net income increased 48.9% to $7.4 million. • Adjusted net income increased 23.3% to $13.4 million. • Adjusted EBITDA increased 8.1% to $25.1 million. • Free cash flow was $22.4 million in 2018 compared to $18.2 million in 2017. 4
Third Quarter 2018 Operating Highlights Compared to Third Quarter 2017: • Paid downloads of 43.9 million, up 4.9%. • Image library expanded to approximately 221 million images, up 42%. • Video library expanded to approximately 12 million video clips, up 44%. • More than 550,000 contributors made their images, video clips & music tracks available on Shutterstock’s platform. • Nearly 1.9 million customers contributed to revenue over past 12 months, an increase of 5.1%. 5
Liquidity and Capital Allocation • Cash and Cash Equivalents of $206.4 million as of September 30, 2018, compared to $253.4 million as of December 31, 2017. • In the nine months ended September 30, 2018: ◦ Cash generated by operations of $68.5 million. ◦ Proceeds from the Sale of Webdam of $41.8 million. ◦ Net cash taxes paid of $0.4 million in 2018 compared to $4.1 million in 2017. ◦ Paid special non-recurring cash dividend of $104.9 million in August 2018. ◦ Free cash flow of $36.1 million in 2018, an increase of 15% from 2017. 6
Historical Revenue Detail by Sales Channel ($ in millions) 2018 2017(1) 2016(1) Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 E-commerce $ 88.7 $ 91.7 $ 89.7 $ 87.8 $ 81.8 $ 82.2 $ 80.6 $ 81.4 $ 78.1 Enterprise 62.9 64.9 60.6 59.3 55.1 48.1 46.2 45.4 42.1 Digital Asset Management(2) (Webdam) — — 2.7 4.7 4.2 3.7 3.5 3.3 2.9 Total Revenue $ 151.6 $ 156.6 $ 153.0 $ 151.8 $ 141.1 $ 134.0 $ 130.2 $ 130.2 $ 123.1 Less: Webdam Revenue — — (2.7) (4.7) (4.2) (3.7) (3.5) (3.3) (2.9) Revenue excluding the impact of Webdam $ 151.6 $ 156.6 $ 150.3 $ 147.1 $ 136.9 $ 130.3 $ 126.7 $ 126.9 $ 120.2 (1) Effective January 1, 2018 we adopted new revenue recognition accounting guidance using a modified retrospective approach. Historical revenue totals reflect those previously reported and have not been restated. Historical presentation of the allocation of revenue by sales channel for periods prior to January 1, 2018 has been adjusted to conform to current presentation. (2) On February 26, 2018, the Company completed a sale transaction, pursuant to which the buyer in the transaction acquired certain assets and assumed certain contracts and liabilities which constituted the Company’s digital asset management business (the “Sale of Webdam”). 2018 amounts include revenue earned during the period from January 1, 2018 through February 26, 2018. 7
Historical Deferred Revenue ($ in millions) 09/30/2018 06/30/2018 03/31/2018 12/31/2017 09/30/2017 Reported Deferred Revenue(a) $ 141.4 $ 139.9 $ 139.5 $ 157.8 $ 146.4 (b) Webdam Deferred Revenue (10.2) (d) Impact of Adoption of ASC 606 (Revenue Recognition)(c) (9.9) (d) $ 137.7 (a) Represents deferred revenue reported by the Company as of the periods presented. Source: Forms 10-Q and 10-K previously filed, as reported in the Company's Consolidated Balance Sheets as of the periods presented. (b) Represents Webdam deferred revenue. The Sale of Webdam took place on February 26, 2018. Source: Forms 10-Q previously filed, as reported in Footnote 9 in the Company's Condensed Consolidated Financial Statements for the periods ended 9/30/2018, 6/30/2018 and 3/31/2018. (c) Represents reduction to deferred revenue as part of the cumulative-effect adjustment made in connection with the adoption of the new revenue recognition guidance included in ASC 606 on January 1, 2018. Source: Forms 10-Q previously filed, as reported in Footnote 1 and Footnote 9 in the Company's Condensed Consolidated Financial Statements for the periods ended 9/30/2018, 6/30/2018 and 3/31/2018. (d) Reported amounts of deferred revenue as of 12/31/2017 and 9/30/2017 are (i) inclusive of deferred revenue from the Webdam business, which was included in the reported balance through 12/31/2017; and (ii) calculated under the revenue guidance in effect (ASC 605) prior to January 1, 2018, the date of the Company's adoption of ASC 606. 8
Adjusted EBITDA ($ in millions) Three Months Ended September 30, 2018 2017 % Δ Total Revenues $ 151.6 $ 141.1 7 % Total Expenses 144.2 136.1 6 % Net Income 7.4 5.0 NM Plus: Depreciation & Amortization 11.7 10.2 15 % Plus: Equity-Based Compensation 6.0 6.9 (13)% Plus: Other Adjustments (1) 0.5 0.4 NM Plus: Provision for Income Taxes (0.5) 0.7 NM Adjusted EBITDA $ 25.1 $ 23.2 8 % Adjusted EBITDA Margin 16.5% 16.4% Capitalized Labor $ 6.4 $ 11.2 (43)% (1) Other adjustments include foreign currency translation gains and losses, interest income, expenses related to long-term incentives and contingent consideration related to acquisitions and impairment charges related to the long-term investment in SHM. 9
Free Cash Flow ($ in millions) Three Months Ended September 30, 2018 2017 Net Cash From Operations $ 30.5 $ 31.1 Less: Capital Expenditures (6.5) (11.9) Less: Content Acquisitions (1.6) (1.0) Free Cash Flow $ 22.4 $ 18.2 10
Adjusted Net Income (in millions, except per share data) Three Months Ended September 30, 2018 2017 Net Income $ 7.4 $ 5.0 Add: Non-Cash Equity-Based Comp 6.0 6.9 Add: Acquisition-Related Amortization 0.9 1.9 Add: Acquisition-Related Long-Term Incentives and Contingent Consideration 0.7 0.5 Add: Impairment of Long-Term Investment in SHM — — Add: Tax Effect of Adjustments (1.6) (3.4) Adjusted Net Income $ 13.4 $ 10.9 Diluted Shares Outstanding 35.6 35.2 Adjusted Net Income per Diluted Share $ 0.38 $ 0.31 11
2018 Guidance For the full year 2018, excluding the impact of Webdam, the Company has tightened guidance with respect to Revenue, Adjusted EBITDA, and Income from Operations and has improved guidance for Non-cash equity-based compensation expense, Capital expenditures and Effective tax rate as follows: Previously Announced 2018 Revised Guidance 2018 Guidance Revenue $625 - $630 million $625 - $635 million YOY Growth vs. 2017 15.0% - 15.9% Adjusted EBITDA ~$105 million $105 - $110 million YOY Growth vs. 2017 19.3% Income from Operations $30 - $32 million $30 - $35 million Non-Cash Equity Based Comp. $25 million $28 million Capital Expenditures $42 million $48 million Effective Tax Rate Low 20’s% Mid 20’s% 12
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