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Table of Contents                            

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 __________________________________________________________________________________________________ 
FORM 10-Q
 ___________________________________________________________________________________________________ 
(Mark One)
   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
For the quarterly period ended March 31, 2021
or
         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from          to         
Commission File Number: 001-35669
 _____________________________________________________________________
SHUTTERSTOCK, INC.
(Exact name of registrant as specified in its charter)
 ________________________________________________________
Delaware80-0812659
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
350 Fifth Avenue, 21st Floor
New York, NY 10118
(Address of principal executive offices, including zip code)
(646) 710-3417
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
 ______________________________________________________________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par value per shareSSTKNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes    No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes    No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer 
Non-accelerated filerSmaller reporting company 
Emerging growth company 
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.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of April 23, 2021, 36,555,123 shares of the registrant’s common stock, $0.01 par value per share, were outstanding.

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Table of Contents                            
Shutterstock, Inc.
FORM 10-Q
Table of Contents 
For the Quarterly Period Ended March 31, 2021
 Page No.
 
 
 
 
 
 
 

2

Table of Contents                            
FORWARD-LOOKING STATEMENTS
 
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, particularly in the discussion under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All statements other than statements of historical fact, including statements regarding guidance, industry prospects or future results of operations or financial position, are forward-looking. Examples of forward-looking statements include, but are not limited to, statements regarding future business, future results of operations or financial condition, future dividends, new or planned features, products or services, management strategies and the COVID-19 pandemic. You can identify many forward-looking statements by words such as “may,” “will,” “would,” “should,” “could,” “expect,” “aim,” “anticipate,” “believe,” “estimate,” “intend,” “plan” and other similar expressions. However, not all forward-looking statements contain these words. Forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in the forward-looking statements. Such risks and uncertainties include, among others, those discussed under the caption “Risk Factors” in our most recently filed Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission, or the SEC, on February 11, 2021 (our “2020 Form 10-K”), under the caption “Risk Factors” and in our consolidated financial statements, related notes, and the other information appearing elsewhere in such Annual Report, this Quarterly Report on Form 10-Q and our other filings with the SEC. Given these risks and uncertainties, you should not place undue reliance on these forward-looking statements. We do not intend, and, except as required by law, we undertake no obligation, to update any of our forward-looking statements after the date of this report to reflect actual results or future events or circumstances.
Unless the context otherwise indicates, references in this Quarterly Report on Form 10-Q to the terms “Shutterstock,” “the Company,” “we,” “our” and “us” refer to Shutterstock, Inc. and its subsidiaries. “Shutterstock,” Shutterstock Editorial,” “Shutterstock Select,” “Asset Assurance,” “Offset,” “Bigstock,” “Rex Features,” “PremiumBeat,” “TurboSquid” and “Shutterstock Editor” and their logos are registered trademarks and are the property of Shutterstock, Inc. or one of our subsidiaries. All other trademarks, service marks and trade names appearing in this Quarterly Report on Form 10-Q are the property of their respective owners.
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Table of Contents                            
PART I.     FINANCIAL INFORMATION
Item 1.        Financial Statements.
Shutterstock, Inc.
Consolidated Balance Sheets
(In thousands, except par value amount)
(unaudited)
March 31,December 31,
20212020
ASSETS
Current assets:
Cash and cash equivalents$363,926 $428,574 
Accounts receivable, net of allowance of $5,487 and $4,942
49,261 43,846 
Prepaid expenses and other current assets27,401 16,650 
Total current assets440,588 489,070 
Property and equipment, net50,366 50,906 
Right-of-use assets37,908 39,552 
Intangible assets, net45,762 25,765 
Goodwill149,040 89,413 
Deferred tax assets, net10,156 13,566 
Other assets21,324 21,372 
Total assets$755,144 $729,644 
LIABILITIES AND STOCKHOLDERSEQUITY
Current liabilities:
Accounts payable$6,088 $2,442 
Accrued expenses65,453 67,909 
Contributor royalties payable28,228 26,336 
Deferred revenue153,630 149,843 
Other current liabilities11,924 10,399 
Total current liabilities265,323 256,929 
Lease liabilities40,062 41,620 
Other non-current liabilities9,255 9,170 
Total liabilities314,640 307,719 
Commitments and contingencies (Note 13)
Stockholders’ equity:
Common stock, $0.01 par value; 200,000 shares authorized; 39,010 and 38,803 shares issued and 36,452 and 36,245 shares outstanding as of March 31, 2021 and December 31, 2020, respectively
391 389 
Treasury stock, at cost; 2,558 shares as of March 31, 2021 and December 31, 2020
(100,027)(100,027)
Additional paid-in capital357,422 360,939 
Accumulated comprehensive loss(7,455)(7,681)
Retained earnings190,173 168,305 
Total stockholders’ equity440,504 421,925 
Total liabilities and stockholders’ equity$755,144 $729,644 
See Notes to Unaudited Consolidated Financial Statements.
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Table of Contents                            
Shutterstock, Inc.
Consolidated Statements of Operations
(In thousands, except for per share data)
(unaudited)
 Three Months Ended
March 31,
 20212020
Revenue$183,281 $161,285 
Operating expenses:
Cost of revenue61,832 69,123 
Sales and marketing41,921 42,660 
Product development10,731 13,069 
General and administrative30,679 30,652 
Total operating expenses145,163 155,504 
Income from operations38,118 5,781 
Other (expense) / income, net(2,462)513 
Income before income taxes35,656 6,294 
Provision for income taxes6,142 1,976 
Net income$29,514 $4,318 
Earnings per share:
Basic$0.81 $0.12 
Diluted$0.79 $0.12 
Weighted average shares outstanding:
Basic36,33635,521
Diluted37,24935,882
See Notes to Unaudited Consolidated Financial Statements.
5

Table of Contents                            
Shutterstock, Inc.
Consolidated Statements of Comprehensive Income
(In thousands)
(unaudited)
 Three Months Ended
March 31,
 20212020
Net income$29,514 $4,318 
Foreign currency translation gain / (loss)226 (2,448)
Other comprehensive gain / (loss)226 (2,448)
Comprehensive income$29,740 $1,870 
 
See Notes to Unaudited Consolidated Financial Statements.
6

Table of Contents                            
Shutterstock, Inc.
Consolidated Statements of Stockholders’ Equity
(In thousands)
(unaudited)
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income / (Loss)
Retained
Earnings
Common StockTreasury Stock
Three Months Ended March 31, 2021SharesAmountSharesAmountTotal
Balance at December 31, 202038,803 $389 2,558 $(100,027)$360,939 $(7,681)$168,305 $421,925 
Equity-based compensation— — — — 8,210 — — 8,210 
Issuance of common stock in connection with employee stock option exercises and RSU vesting357 4 — — 1,305 — — 1,309 
Common shares withheld for settlement of taxes in connection with equity-based compensation(150)(2)— — (13,032)— — (13,034)
Cash dividends paid— — — — — — (7,646)(7,646)
Other comprehensive income— — — — — 226 — 226 
Net income— — — — — — 29,514 29,514 
Balance at March 31, 202139,010 $391 2,558 $(100,027)$357,422 $(7,455)$190,173 $440,504 
Three Months Ended March 31, 2020
Balance at December 31, 201938,055 $381 2,558 $(100,027)$312,824 $(6,220)$121,187 $328,145 
Cumulative effect of accounting change (Note 1)— — — — — — (247)(247)
Balance at January 1, 202038,055 $381 2,558 $(100,027)$312,824 $(6,220)$120,940 $327,898 
Equity-based compensation— — — — 5,760 — — 5,760 
Issuance of common stock in connection with employee stock option exercises and RSU vesting109 1 — — (1)— —  
Common shares withheld for settlement of taxes in connection with equity-based compensation(45)(1)— — (1,760)— — (1,761)
Cash dividends paid— — — — — — (6,040)(6,040)
Other comprehensive loss— — — — — (2,448)— (2,448)
Net income— — — — — — 4,318 4,318 
Balance at March 31, 202038,119 $381 2,558 $(100,027)$316,823 $(8,668)$119,218 $327,727 
See Notes to Unaudited Consolidated Financial Statements.
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Table of Contents                            
Shutterstock, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
 Three Months Ended
March 31,
 20212020
CASH FLOWS FROM OPERATING ACTIVITIES  
Net income$29,514 $4,318 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization10,091 10,519 
Deferred taxes(433)(386)
Non-cash equity-based compensation8,210 5,760 
Bad debt expense526 658 
Changes in operating assets and liabilities:
Accounts receivable(5,892)673 
Prepaid expenses and other current and non-current assets(9,306)(2,207)
Accounts payable and other current and non-current liabilities(72)(2,286)
Long-term incentives related to acquisitions (7,759)
Contributor royalties payable(369)551 
Deferred revenue3,559 (2,982)
Net cash provided by operating activities$35,828 $6,859 
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures(8,548)(7,719)
Business combination, net of cash acquired(72,165) 
Acquisition of content(489)(723)
Security deposit (payment) / release(11)31 
Net cash used in investing activities$(81,213)$(8,411)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options1,309  
Cash paid related to settlement of employee taxes related to RSU vesting(13,034)(1,761)
Payment of cash dividend(7,646)(6,040)
Net cash used in financing activities$(19,371)$(7,801)
Effect of foreign exchange rate changes on cash108 (810)
Net decrease in cash, cash equivalents and restricted cash(64,648)(10,163)
Cash, cash equivalents and restricted cash, beginning of period428,574 305,874 
Cash, cash equivalents and restricted cash, end of period$363,926 $295,711 
Supplemental Disclosure of Cash Information:
Cash paid for income taxes $3,363 $494 
See Notes to Unaudited Consolidated Financial Statements.
8

Shutterstock, Inc.
Notes to Consolidated Financial Statements 
(unaudited)




(1) Summary of Operations and Significant Accounting Policies
Summary of Operations
Shutterstock, Inc. (the “Company” or “Shutterstock”) is a leading creative platform offering full-service solutions, high-quality content, and tools for brands, businesses and media companies. The Company’s platform brings together users and contributors of content by providing readily-searchable content that our customers pay to license and by compensating contributors as their content is licensed.
The content licensed by the Company’s customers includes:
Images - consisting of photographs, vectors and illustrations. Images are typically used in visual communications, such as websites, digital and print marketing materials, corporate communications, books, publications and other similar uses.
Footage - consisting of video clips, premium footage filmed by industry experts and cinema grade video effects, available in HD and 4K formats. Footage is often integrated into websites, social media, marketing campaigns and cinematic productions.
Music - consisting of high-quality music tracks and sound effects, which are often used to complement images and footage.
3D Models - following the Company’s acquisition of TurboSquid, Inc. on February 1, 2021, Shutterstock now offers 3D models, used in industries such as advertising, media & video production, gaming, retail, education, design and architecture. See Note 3 Acquisition.
The Company licenses content to its customers. Contributors upload their content to the Company’s web properties in exchange for royalty payments based on customer download activity.
Basis of Presentation
The unaudited condensed consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not include all information and footnotes required by GAAP for complete financial statements.
The interim Consolidated Balance Sheet as of March 31, 2021, and the Consolidated Statements of Operations, Comprehensive Income, Stockholders’ Equity and Cash Flows for the three months ended March 31, 2021 and 2020, are unaudited. The Consolidated Balance Sheet as of December 31, 2020, included herein, was derived from the audited financial statements as of that date, but does not include all disclosures required by GAAP. These unaudited interim financial statements have been prepared on a basis consistent with the Company’s annual financial statements and, in the opinion of management, reflect all adjustments, which include all normal recurring adjustments necessary to fairly state the Company’s financial position as of March 31, 2021, and its consolidated results of operations, comprehensive income, stockholders’ equity and cash flows for the three months ended March 31, 2021 and 2020. The financial data and the other financial information disclosed in the notes to the financial statements related to these periods are also unaudited. The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2021 or for any other future annual or interim period.
These financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K, which was filed with the SEC on February 11, 2021. The unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Certain immaterial changes in presentation have been made to conform the prior period presentation to current period reporting.
9

Shutterstock, Inc.
Notes to Consolidated Financial Statements 
(unaudited)



Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements. Actual results could differ from those estimates. Such estimates include, but are not limited to, the determination of the allowance for doubtful accounts, the volume of expected unused licenses for our subscription-based products, the assessment of recoverability of property and equipment, the fair value of acquired goodwill and intangible assets, the amount of non-cash equity-based compensation, the assessment of recoverability of deferred tax assets, the measurement of income tax and contingent non-income tax liabilities and the determination of the incremental borrowing rate used to calculate the lease liability.
Cash and Cash Equivalents
The Company’s cash and cash equivalents consist primarily of cash on hand, bank deposits, money market funds and commercial paper.
Allowance for Doubtful Accounts
The Company’s accounts receivable consists of customer obligations due under normal trade terms, carried at their face value less an allowance for doubtful accounts, if required. The Company determines its allowance for doubtful accounts based on an evaluation of (i) the aging of its accounts receivable considering historical receivables loss rates, (ii) on a customer-by-customer basis, where appropriate, and (iii) the economic environments in which the Company operates.
During the three months ended March 31, 2021, the Company recorded bad debt expense of $0.5 million. As of March 31, 2021 and December 31, 2020, the Company’s allowance for doubtful accounts was approximately $5.5 million and $4.9 million, respectively. The allowance for doubtful accounts is included as a reduction of accounts receivable on the Consolidated Balance Sheets.
The Company adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments (“ASU 2016-13”) on January 1, 2020, using the modified retrospective method and recorded a cumulative-effect adjustment of $0.2 million, net of tax, in retained earnings as of January 1, 2020.
Chargeback and Sales Refund Allowance
The Company establishes a chargeback allowance and sales refund reserve allowance based on factors surrounding historical credit card chargeback trends, historical sales refund trends and other information. As of March 31, 2021 and December 31, 2020, the Company’s combined allowance for chargebacks and sales refunds was $0.5 million, which was included as a component of other current liabilities on the Consolidated Balance Sheets.
Revenue Recognition
The majority of the Company’s revenue is earned from the license of content. Content licenses are generally purchased on a monthly or annual basis, whereby a customer pays for a predetermined quantity of content that may be downloaded over a specific period of time, or, on a transactional basis, whereby a customer pays for individual content licenses at the time of download. 
The Company recognizes revenue upon the satisfaction of performance obligations, which generally occurs when content is downloaded by a customer. The Company recognizes revenue on both its subscription-based and transaction-based products when content is downloaded, at which time the license is provided. In addition, management estimates expected unused licenses for subscription-based products and recognizes the estimated revenue associated with the unused licenses as digital content is downloaded and licenses are obtained for such content by the customer during the subscription period. The estimate of unused licenses is based on historical download activity and future changes in the estimate could impact the timing of revenue recognition of the Company’s subscription products. The Company expenses contract acquisition costs as incurred, to the extent that the amortization period would otherwise be one year or less.
Collectability is reasonably assured at the time the electronic order or contract is entered. The majority of the Company’s customers purchase products by making an electronic payment with a credit card at the time of a transaction. Customer payments received in advance of revenue recognition are contract liabilities and are recorded as deferred revenue. Customers that do not pay in advance are invoiced and are required to make payments under standard credit terms. Collectability for customers who pay on credit terms allowing for payment beyond the date at which service commences is based on a credit evaluation for certain new customers and transaction history with existing customers. 
10

Shutterstock, Inc.
Notes to Consolidated Financial Statements 
(unaudited)



The Company recognizes revenue gross of contributor royalties because the Company is the principal in the transaction as it is the party responsible for the performance obligation and it controls the product or service before transferring it to the customer. The Company also licenses content to customers through third-party resellers. Third-party resellers sell the Company’s products directly to customers as the principal in those transactions. Accordingly, the Company recognizes revenue net of costs paid to resellers.
Recently Adopted Accounting Standard Updates
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes (“ASU-2019-12”). ASU 2019-12 eliminates certain exceptions to the guidance in Topic 740 related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes, enacted changes in tax laws or rates and clarifies the accounting transactions that result in a step-up in the tax basis of goodwill. The guidance is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. The Company adopted ASU 2019-12, effective January 1, 2021. The impact of adoption of this standard on the consolidated financial statements, including accounting policies, processes and systems, was not material.

(2) Fair Value Measurements and Long-term Investments
Fair Value Measurements
The Company had no assets or liabilities requiring fair value hierarchy disclosures as of March 31, 2021 or December 31, 2020, except as noted below.
Cash Equivalents
Cash equivalents include money market accounts and short-term commercial paper and are classified as a level 1 measurement based on quoted prices in active markets for identical assets that the reporting entity can access at the measurement date. As of March 31, 2021 and December 31, 2020, the Company had cash equivalent balances of $255.0 million and $250.0 million, respectively.
Other Fair Value Measurements
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value because of the short-term nature of these instruments. The Company’s non-financial assets, which include property and equipment, intangible assets and goodwill, are not required to be measured at fair value on a recurring basis. However, if the Company is required to evaluate a non-financial asset for impairment, whether due to certain triggering events or because annual impairment testing is required, a resulting asset impairment would require that the non-financial asset be recorded at fair value.
Long-term Investments
As of March 31, 2021 and December 31, 2020, the Company’s long-term investments are in equity securities with no readily determinable fair value, totaled $20.0 million, and is reported within other assets on the Consolidated Balance Sheets. The Company uses the measurement alternative for these equity investments and their carrying value is reported at cost, adjusted for impairments or any observable price changes in ordinary transactions with identical or similar investments.
On a quarterly basis, the Company evaluates the carrying value of its long-term investments for impairment, which includes an assessment of revenue growth, earnings performance, working capital and general market conditions. As of March 31, 2021, no adjustments to the carrying values of the Company’s long-term investments were identified as a result of this assessment. Changes in performance negatively impacting operating results and cash flows of these investments could result in the Company recording an impairment charge in future periods.

11

Shutterstock, Inc.
Notes to Consolidated Financial Statements 
(unaudited)



(3) Acquisition
TurboSquid, Inc.
On February 1, 2021, the Company completed its acquisition of all of the outstanding shares of TurboSquid, Inc. (“TurboSquid”), for approximately $77.3 million, subject to customary working capital adjustments. The transaction was accounted for using the acquisition method and, accordingly, the results of the acquired business have been included in the Company’s results of operations from the acquisition date. In connection with the acquisition, the Company incurred approximately $1.6 million of transaction costs.
TurboSquid is a Louisiana-based company that operates a marketplace offering more than one million 3D models, a marketplace for 2D images derived from 3D objects and a digital asset management solution. The Company believes this acquisition establishes Shutterstock as the premium destination for 3D models as well as 3D models in an easy-to-use 2D format.
The fair value of consideration transferred in this business combination was allocated to the intangible and tangible assets acquired and liabilities assumed at the acquisition date, with the remaining unallocated amount recorded as goodwill.
The total purchase price was paid with existing cash on hand in the three months ended March 31, 2021, subject to working capital adjustments which are expected to be settled during the second quarter of 2021. The Company is in the process of finalizing the working capital adjustments. Accordingly, management has used their best estimate in the initial purchase price allocation as of the date of these financial statements.
The aggregate purchase price was allocated to the assets acquired and liabilities assumed as follows (in thousands):

Assets acquired and liabilities assumed:Fair Value at Acquisition Date
Cash and cash equivalents$5,165 
Other assets1,553 
Property and equipment472 
Intangible assets21,500 
Goodwill59,491 
Total assets acquired$88,181 
Accounts payable, accrued expenses and other liabilities(4,685)
Contributor royalties payable(2,243)
Deferred tax liability(3,923)
Total liabilities assumed(10,851)
Net assets acquired$77,330 

The identifiable intangible assets, which include customer relationships, developed technology, trade names and contributor content, have a weighted average life of approximately 8.2 years and are being amortized on a straight-line basis. The fair value of the customer relationships was determined using a variation of the income approach known as the multiple-period excess earnings method. The fair value of the trade names and developed technology were determined using the relief-from-royalty method and the fair value of the contributor content was determined using the cost-to-recreate method.
The goodwill arising from the transaction is primarily attributable to expected operational synergies and is not deductible for income tax purposes.
12

Shutterstock, Inc.
Notes to Consolidated Financial Statements 
(unaudited)



The following unaudited pro forma consolidated financial information (in thousands) reflects the results of operations of the Company for the three months ended March 31, 2021 and 2020, as if the TurboSquid acquisition had been completed on January 1, 2020, after giving effect to certain purchase accounting adjustments, primarily related to intangible assets. These pro forma results have been prepared for comparative purposes only and are not necessarily indicative of what the Company’s operating results would have been, had the acquisitions actually taken place at the beginning of the previous annual period:
Three Months Ended March 31,
20212020
Revenue
As Reported$183,281 $161,285 
Pro Forma185,344 166,723 
Income before income taxes
As Reported$35,656 $6,294 
Pro Forma36,957 4,841 

(4) Property and Equipment
Property and equipment is summarized as follows (in thousands):
 As of March 31, 2021As of December 31, 2020
Computer equipment and software$200,493 $193,141 
Furniture and fixtures10,245 10,235 
Leasehold improvements19,368 19,382 
Property and equipment230,106 222,758 
Less accumulated depreciation(179,740)(171,852)
Property and equipment, net$50,366 $50,906 
Depreciation and amortization expense related to property and equipment was $8.0 million and $9.3 million for the three months ended March 31, 2021 and 2020, respectively. Of these amounts, $7.1 million and $8.2 million are included in cost of revenue for the three months ended March 31, 2021 and 2020, respectively, and $0.9 million and $1.1 million are included in general and administrative expense for the three months ended March 31, 2021 and 2020, respectively.
Depreciation and amortization expense is included in cost of revenue and general and administrative expense in the Consolidated Statements of Operations based on the nature of the asset being depreciated.
Capitalized Internal-Use Software
The Company capitalized costs related to the development of internal-use software of $7.0 million and $6.6 million for the three months ended March 31, 2021 and 2020, respectively. Capitalized amounts are included as a component of property and equipment under computer equipment and software on the Consolidated Balance Sheets.
The portion of total depreciation expense related to capitalized internal-use software was $6.7 million and $7.2 million for the three months ended March 31, 2021 and 2020, respectively. Depreciation expense related to capitalized internal-use software is included in cost of revenue and general and administrative expense in the Consolidated Statements of Operations based on the nature of the asset.
As of March 31, 2021 and December 31, 2020, the Company had capitalized internal-use software of $38.3 million and $38.0 million, respectively, net of accumulated depreciation, which was included in property and equipment, net.

13

Shutterstock, Inc.
Notes to Consolidated Financial Statements 
(unaudited)



(5) Goodwill and Intangible Assets
Goodwill
The Company’s goodwill balance is attributable to its Content reporting unit and is tested for impairment annually on October 1 or upon a triggering event. No triggering events were identified during the three months ended March 31, 2021.
The following table summarizes the changes in the carrying value of the Company’s goodwill balance during the three months ended March 31, 2021 (in thousands):
 Goodwill
Balance as of December 31, 2020$89,413 
Goodwill related to acquisitions$59,491 
Foreign currency translation adjustment136 
Balance as of March 31, 2021$149,040 

Intangible Assets
Intangible assets, all of which are subject to amortization, consisted of the following as of March 31, 2021 and December 31, 2020 (in thousands):
 As of March 31, 2021As of December 31, 2020
 Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Weighted
Average Life
(Years)
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Amortizing intangible assets:   
Customer relationships$27,258 $(11,601)$15,657 9$18,132 $(11,032)$7,100 
Trade name8,917 (6,469)2,448 86,669 (6,328)341 
Developed technology14,757 (5,519)9,238 46,930 (5,039)1,891 
Contributor content29,706 (11,426)18,280 826,669 (10,378)16,291 
Patents259 (120)139 18259 (117)142 
Total$80,897 $(35,135)$45,762  $58,659 $(32,894)$25,765 
Amortization expense was $2.1 million and $1.2 million for the three months ended March 31, 2021 and 2020, respectively. Of these amounts, $1.2 million and $0.6 million are included in cost of revenue for the three months ended March 31, 2021 and 2020, respectively, and $0.9 million and $0.6 million are included in general and administrative expense for the three months ended March 31, 2021 and 2020, respectively.
The Company determined that there was no indication of impairment of the intangible assets for any period presented. Estimated amortization expense is: $6.6 million for the remaining nine months of 2021, $8.6 million in 2022, $8.2 million in 2023, $7.3 million in 2024, $3.9 million in 2025, $2.8 million in 2026 and $8.4 million thereafter.

(6) Accrued Expenses 
Accrued expenses consisted of the following (in thousands):
As of March 31, 2021As of December 31, 2020
Compensation$21,311 $31,499 
Non-income taxes20,630 17,164 
Website hosting and marketing fees12,484 9,991 
Other expenses11,028 9,255 
Total accrued expenses$65,453 $67,909 


14

Shutterstock, Inc.
Notes to Consolidated Financial Statements 
(unaudited)



(7) Stockholders’ Equity and Equity-Based Compensation
Stockholders’ Equity
Common Stock
The Company issued approximately 207,000 and 64,000 shares of common stock during the three months ended March 31, 2021 and 2020, respectively, related to the exercise of stock options and the vesting of Restricted Stock Units.
Treasury Stock
In October 2015, the Company’s Board of Directors approved a share repurchase program, authorizing the Company to purchase up to $100 million of its common stock. In February 2017, the Company’s Board of Directors approved an increase to the share repurchase program, authorizing the Company to repurchase up to an additional $100 million of its outstanding common stock. During the three months ended March 31, 2021 and 2020, the Company did not repurchase any shares of its common stock under the share repurchase program. As of March 31, 2021, the Company had $100 million of remaining authorization for purchases under the share repurchase program.
The Company expects to fund future repurchases, if any, through a combination of cash on hand, cash generated by operations and future financing transactions, if appropriate. Accordingly, the share repurchase program is subject to the Company having available cash to fund repurchases. Under the share repurchase program, management is authorized to purchase shares of the Company’s common 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, and subject to market conditions and other factors.
Dividends
The Company declared and paid cash dividends of $0.21 per share of common stock, or $7.6 million, during the three months ended March 31, 2021.
On April 19, 2021, the Company’s Board of Directors declared a quarterly cash dividend of $0.21 per share of outstanding common stock payable on June 17, 2021 to stockholders of record at the close of business on June 3, 2021. Future declarations of dividends are subject to the final determination of the Board of Directors, and will depend on, among other things, the Company’s future financial condition, results of operations, capital requirements, capital expenditure requirements, contractual restrictions, anticipated cash needs, business prospects, provisions of applicable law and other factors the Board of Directors may deem relevant.
Equity-Based Compensation
The Company recognizes stock-based compensation expense for all equity-based payment awards, including employee Restricted Stock Units and Performance-based Restricted Stock Units (“PRSUs” and, collectively with Restricted Stock Units, “RSUs”) and stock options granted under the Company’s Amended and Restated 2012 Omnibus Equity Incentive Plan (the “2012 Plan”), based on the fair value of each award on the grant date.
15

Shutterstock, Inc.
Notes to Consolidated Financial Statements 
(unaudited)



The following table summarizes non-cash equity-based compensation expense, net of forfeitures, by financial statement line item included in the accompanying Consolidated Statements of Operations for the three months ended March 31, 2021 and 2020 (in thousands): 
 Three Months Ended March 31,
 20212020
Cost of revenue$164 $51 
Sales and marketing467 460 
Product development1,229 1,125 
General and administrative6,350 4,124 
Total$8,210 $5,760 
The following table summarizes non-cash equity-based compensation expense, net of forfeitures, by award type included in the accompanying Consolidated Statements of Operations for the three months ended March 31, 2021 and 2020 (in thousands):
 Three Months Ended March 31,
 20212020
Stock options$175 $1,316 
RSUs8,035 4,444 
Total$8,210 $5,760 
Stock Option Awards
During the three months ended March 31, 2021, no options to purchase shares of its common stock were granted. As of March 31, 2021, there were approximately 325,000 options vested and exercisable with a weighted average exercise price of $33.29. As of March 31, 2021, the total unrecognized compensation charge related to non-vested options was approximately $1.4 million, which is expected to be recognized through 2023.
Restricted Stock Unit Awards
During the three months ended March 31, 2021, the Company had RSU grants, net of forfeitures, of approximately 92,000. As of March 31, 2021, there are approximately 1,169,000 non-vested RSUs outstanding with a weighted average grant-date fair value of $42.70. As of March 31, 2021, the total unrecognized non-cash equity-based compensation charge related to the non-vested RSUs was approximately $30.4 million, which is expected to be recognized through 2024.
During the three months ended March 31, 2021, shares of common stock with an aggregate value of $13.0 million were withheld upon vesting of RSUs and paid in connection with related remittance of employee withholding taxes to taxing authorities.
On April 1, 2021, the Company granted approximately 350,000 RSUs with a grant date fair value of $31.4 million.

(8) Revenue
The Company distributes its content offerings through two primary channels:
E-commerce: The majority of the Company’s customers license content directly through the Company’s self-service web properties. E-commerce customers have the flexibility to purchase a subscription plan that is paid on a monthly or annual basis or to license content on a transactional basis. These customers generally license content under the Company’s standard or enhanced licenses, with additional licensing options available to meet customers’ individual needs. E-commerce customers typically pay the full amount of the purchase price in advance or at the time of license, generally with a credit card.
Enterprise: The Company also has a base of customers with unique content, licensing and workflow needs. These customers benefit from communication with dedicated sales professionals, service and research teams which provide a number of tailored enhancements to their creative workflows including non-standard licensing rights, multi-seat access, ability to pay on credit terms, multi-brand licensing packages, increased indemnification protection and content licensed for use-cases outside of those available on the E-commerce platform.
16

Shutterstock, Inc.
Notes to Consolidated Financial Statements 
(unaudited)



The Company’s revenues by distribution channel for the three months ended March 31, 2021 and 2020 are as follows (in thousands):
 Three Months Ended March 31,
 20212020
E-commerce$118,400 $99,736 
Enterprise64,881 61,549 
Total Revenues$183,281 $161,285 
The March 31, 2021 deferred revenue balance will be earned as content is downloaded or upon the expiration of subscription-based products, and nearly all is expected to be earned within the next twelve months. $64.4 million of total revenue recognized for the three months ended March 31, 2021 was reflected in deferred revenue as of December 31, 2020.

(9) Other (Loss) / Income, net
The following table presents a summary of the Company’s other income and expense activity included in the accompanying Consolidated Statements of Operations for the three months ended March 31, 2021 and 2020 (in thousands):
 Three Months Ended March 31,
 20212020
Foreign currency loss$(2,510)$(598)
Interest income, net48 1,111 
Total other (loss) / income$(2,462)$513 


(10) Income Taxes
The Company’s effective tax rates yielded a net expense of 17.2% and 31.4% for the three months ended March 31, 2021 and 2020, respectively. For the three months ended March 31, 2021, net effect of discrete items decreased the effective tax rate by 1.8%. Excluding these items, the Company’s effective tax rate would have been 19.0% for the three months ended March 31, 2021.
For the three months ended March 31, 2020, the effective tax rate increased by 9.9%, primarily as a result of a loss jurisdiction with no tax benefit. Excluding these items, the Company’s effective tax rate would have been 21.5% for the three months ended March 31, 2020.
The Company has computed the provision for income taxes based on the estimated annual effective tax rate excluding a loss jurisdiction with no tax benefit and the application of discrete items, if any, in the applicable period.
During the three months ended March 31, 2021 and 2020, uncertain tax positions recorded by the Company were not material. To the extent the remaining uncertain tax positions are ultimately recognized, the Company’s effective tax rate may be impacted in future periods.
The Company recognizes interest expense and tax penalties related to unrecognized tax benefits in income tax expense in the Consolidated Statements of Operations. The Company’s accrual for interest and penalties related to unrecognized tax benefits was not material for the three months ended March 31, 2021 and 2020.
During the three months ended March 31, 2021 and 2020, the Company paid net cash taxes of $3.4 million and $0.5 million, respectively.

17

Shutterstock, Inc.
Notes to Consolidated Financial Statements 
(unaudited)



(11) Net Income Per Share
Basic net income per share is computed using the weighted average number of shares of common stock outstanding for the period, excluding unvested RSUs and stock options. Diluted net income per share is based upon the weighted average shares of common stock outstanding for the period plus dilutive potential shares of common stock, including unvested RSUs and stock options using the treasury stock method.
The following table sets forth the computation of basic and diluted net income per share for the three months ended March 31, 2021 and 2020 (in thousands):
Three Months Ended March 31,
20212020
Net income$29,514 $4,318 
Shares used to compute basic net income per share36,336 35,521 
Dilutive potential common shares
Stock options224 67 
Unvested restricted stock awards689 294 
Shares used to compute diluted net income per share37,249 35,882 
Basic net income per share$0.81 $0.12 
Diluted net income per share$0.79 $0.12 
Dilutive shares included in the calculation1,436 856 
Anti-dilutive shares excluded from the calculation18 1,144 


(12) Geographic Information
The following table presents the Company’s revenue based on customer location (in thousands): 
 Three Months Ended March 31,
 20212020
North America$64,309 $57,018 
Europe62,277 53,796 
Rest of the world56,695 50,471 
Total revenue$183,281 $161,285 
 The United States, included in North America in the above table, accounted for 32% of consolidated revenue for the three months ended March 31, 2021 and 2020. No other country accounts for more than 10% of the Company’s revenue in any period presented.
The Company’s long-lived tangible assets were located as follows (in thousands):
As of March 31,As of December 31,
20212020
North America$43,010 $43,451 
Europe7,132 7,192 
Rest of the world224 263 
Total long-lived tangible assets$50,366 $50,906 
The United States, included in North America in the above table, accounted for 76% and 75% of total long-lived tangible assets as of March 31, 2021 and December 31, 2020, respectively. No other country accounts for more than 10% of the Company’s long-lived tangible assets in any period presented.

18

Shutterstock, Inc.
Notes to Consolidated Financial Statements 
(unaudited)



(13) Commitments and Contingencies
As of March 31, 2021, the Company had total non-lease obligations in the amount of approximately $48.8 million, which consisted primarily of minimum royalty guarantees and unconditional purchase obligations related to contracts for infrastructure and other business services. As of March 31, 2021, the Company’s non-lease obligations for the remainder of 2021 and for the years ending December 31, 2022, 2023, 2024 and 2025 were approximately $24.3 million, $12.5 million, $8.0 million, $3.2 million and $0.8 million, respectively.
Legal Matters
From time to time, the Company may become party to litigation in the ordinary course of business, including direct claims brought by or against the Company with respect to intellectual property, contracts, employment and other matters, as well as claims brought against the Company’s customers for whom the Company has a contractual indemnification obligation. The Company assesses the likelihood of any adverse judgments or outcomes with respect to these matters and determines loss contingency assessments on a gross basis after assessing the probability of incurrence of a loss and whether a loss is reasonably estimable. In addition, the Company considers other relevant factors that could impact its ability to reasonably estimate a loss. A determination of the amount of reserves required, if any, for these contingencies is made after analyzing each matter. The Company reviews reserves, if any, at least quarterly and may change the amount of any such reserve in the future due to new developments or changes in strategy in handling these matters. Although the results of litigation and threats of litigation, investigations and claims cannot be predicted with certainty, the Company currently believes that the final outcome of these matters will not have a material adverse effect on its business, consolidated financial position, results of operations, or cash flows. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors. The Company currently has no material active litigation matters and, accordingly, no material reserves related to litigation.
Indemnification and Employment Agreements
In the ordinary course of business, the Company enters into contractual arrangements under which it agrees to provide indemnification of varying scope and terms to customers with respect to certain matters, including, but not limited to, losses arising out of the breach of the Company’s intellectual property warranties for damages to the customer directly attributable to the Company’s breach. The Company is not responsible for any damages, costs, or losses to the extent such damages, costs or losses arise as a result of any modifications made by the customer, or the context in which content is used. The standard maximum aggregate obligation and liability to any one customer for any single claim is generally limited to ten thousand dollars but can range to $250,000, with certain exceptions for which our indemnification obligation are uncapped. As of March 31, 2021, the Company had recorded no material liabilities related to indemnification obligations for loss contingencies. Additionally, the Company believes that it has the appropriate insurance coverage in place to adequately cover such indemnification obligations, if necessary.
Pursuant to the Company’s charter documents and separate written indemnification agreements, the Company has certain indemnification obligations to its executive officers, certain employees and directors, as well as certain former officers and directors.
The Company has also entered into employment agreements with its executive officers and certain employees. These agreements specify various employment-related matters, including annual compensation, performance incentive bonuses, and severance benefits in the event of termination in the event of a change in control or otherwise, with or without cause.


19

Table of Contents                            
Item 2.         Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read together with our interim consolidated unaudited financial statements and related notes contained elsewhere in this Quarterly Report on Form 10-Q and with information contained in our other filings, including the audited consolidated financial statements included in our 2020 Form 10-K.
In addition to historical consolidated financial information, this discussion contains forward-looking statements including statements about our plans, estimates and beliefs. These statements involve risks and uncertainties and our actual results could differ materially from those expressed or implied in forward-looking statements. See “Forward Looking Statements” above. See also the “Risk Factors” disclosures contained in our 2020 Form 10-K for additional discussion of the risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements.
For a discussion as to how COVID-19 has affected our business, see “COVID-19 Update” below.
Overview and Recent Developments
Shutterstock is a leading global creative platform offering full-service solutions, high-quality content, and tools for brands, businesses and media companies. Our platform brings together users and contributors of content by providing readily-searchable content that our customers pay to license and by compensating contributors as their content is licensed.
The content licensed by our customers includes:
Images - consisting of photographs, vectors and illustrations. Images are typically used in visual communications, such as websites, digital and print marketing materials, corporate communications, books, publications and other similar uses.
Footage - consisting of video clips, premium footage filmed by industry experts and cinema grade video effects, available in HD and 4K formats. Footage is often integrated into websites, social media, marketing campaigns and cinematic productions.
Music - consisting of high-quality music tracks and sound effects, which are often used to complement images and footage.
3D Models - following our acquisition of TurboSquid, Inc. (“TurboSquid”) on February 1, 2021, we now offer 3D models, used in industries such as advertising, media & video production, gaming, retail, education, design and architecture.
For customers seeking specialized solutions, we also create custom, on-brand content by matching our global contributor network to the unique needs of our customers. This solution allows us to offer customers a fast and scalable way to produce cost-effective content that is in line with the visual footprint of their brand. We typically offer a royalty-free non-exclusive license and the processes we maintain to properly license content and the indemnification protections we provide, allow individuals and businesses of all sizes, including media agencies, publishers, production companies and creative service providers, to confidently utilize such content for their unique commercial or editorial needs.
Over 2.0 million active, paying customers contributed to our revenue for the twelve-month period ended March 31, 2021. As of March 31, 2021, more than 1.7 million approved contributors made their images, footage and music tracks available in our collection, which has grown to more than 370 million images and more than 21 million footage clips as of March 31, 2021. This makes our collection of content one of the largest of its kind, and we delivered 45.8 million paid downloads to our customers across all of our brands during the three months ended March 31, 2021.
Through our platform, we generate revenue by licensing content to our customers. During the three months ended March 31, 2021, 65% of our revenue and the majority of our content licenses came from our E-commerce sales channel. The majority of our customers license content directly through our self-service web properties, including our Shutterstock.com, bigstock.com, premiumbeat.com and turbosquid.com websites. E-commerce customers have the ability to purchase plans that are paid on either a monthly or annual basis or to license content on a transactional basis. E-commerce customers generally license content under our standard or enhanced licenses, with additional licensing options available to meet customers’ individual needs.
Customers in our Enterprise sales channel generally have unique content, licensing and workflow needs. These customers benefit from communication with our dedicated sales, service and research teams which provide a number of personalized enhancements to their creative workflows including non-standard licensing rights, multi-seat access, ability to pay on credit
20

Table of Contents                            
terms, multi-brand licensing packages, increased indemnification protection and content licensed for use-cases outside of those available on our e-commerce platform. Customers in our enterprise sales channel may also benefit from our API platform as well as access to Shutterstock Editorial, which includes our library of editorial images and videos and Shutterstock Studios, our offering which provides custom, high-quality content matched with production tools and services. Our Enterprise sales channel provided approximately 35% of our revenue for the three months ended March 31, 2021.
As the use cases for our creative solutions expand, we believe our customers are seeking alternative means to consume our offerings. As a result, we have seen strong growth in customers purchasing monthly subscription products. Our monthly subscriptions provide for a fixed number of content licenses that may be downloaded during the period. Our subscription-based pricing model makes the creative process easier because customers can download content in our collection for use in their creative process without incremental costs, which provides greater creative freedom and helps improve work product. In addition, customers may also purchase licenses through other contractual plans where the customer commits to buy a predetermined quantity of content licenses that may be downloaded over a period of time, generally between one month to one year. For users who need less content, individual content licenses may also be purchased on a transactional basis, paid for at the time of download.
Contributors of content typically earn a royalty each time their work is licensed. Contributors earn royalties based on our published earnings schedule that is based on annual licensing volume, which determines the contributor’s earnings tier and the purchase option under which the content was licensed. Royalties represent the largest component of our operating expenses, are reported within cost of revenue, tend to fluctuate proportionately with revenue and paid downloads and may be impacted by the mix of products sold.
COVID-19 Update
In December 2019, a novel coronavirus disease (“COVID-19”) was initially reported and on March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic. Our operations have been impacted by office closures globally and restrictions on employee travel and in-person meetings, however, we have generally been able to deliver our services remotely. We believe the economic uncertainty caused by COVID-19 has had an impact on our customers and their ability to spend marketing budgets on our products, which we believe has resulted in an unfavorable impact, to varying degrees geographically, on our revenue growth and number of paid downloads for the three months ended March 31, 2021. See Item 1A. Risk Factors in our 2020 Form 10-K for further discussion of the possible impact of the COVID-19 pandemic on our business.

Key Operating 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 can be useful for understanding the underlying trends in our business. The following table summarizes our key operating metrics, which are unaudited, for the three months ended March 31, 2021 and 2020:

Three Months Ended March 31,
 20212020
 
Subscribers (end of period)306,000 209,000 
Subscriber revenue (in millions)$76.5 $63.9 
Average revenue per customer (last twelve months)$342 $329 
Paid downloads (in millions)45.8 46.8 
Revenue per download$3.96 $3.42 
Content in our collection (end of period, in millions):
Images370 330 
Footage clips21 18 
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Subscribers
We define subscribers as those customers who purchase one or more of our monthly recurring products for a continuous period of at least three months, measured as of the end of the reporting period. We believe the number of subscribers is an important metric that provides insight into our monthly recurring business and its growth. We believe that an increase in our number of subscribers is an indicator of engagement in our platform and potential for future growth.
Subscriber Revenue
We define subscriber revenue as the revenue generated from subscribers during the period. We believe subscriber revenue, together with our number of subscribers, provide insight into the portion of our business and growth driven by our monthly recurring products.
Average Revenue Per Customer
Average revenue per customer is calculated by dividing total revenue for the last twelve month period by customers. We define customers as total active, paying customers that contributed to total revenue over the last twelve month period. Changes in our average revenue per customer will be driven by changes in the mix of our subscription-based products and the pricing in our transactional business.
Paid Downloads
We define paid downloads as the number of downloads that our customers make in a given period of our content. Paid downloads exclude custom content and downloads of content that are offered to customers for no charge, including our free image of the week. Measuring the number of paid downloads that our customers make in a given period is important because they are the primary method of delivering licensed content, which drives a significant portion of the Company’s revenue and contributor royalties.
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 excluding revenue from custom content and revenue that is not derived from or associated with content licenses. This metric captures any changes in our pricing, including changes resulting from the impact of competitive pressures, as well as the mix of licensing options that our customers choose, some of which generate more revenue per download than others, and the impact that changes in foreign currency rates have on our pricing. Changes in revenue per download are primarily driven by the introduction of new product offerings, changes in product mix and customer utilization of our products.
Content in our Collection
We define content in our collection as the total number of approved images (photographs, vectors and illustrations) and footage (in number of clips) in our library on shutterstock.com at the end of the period. We exclude content from this collection metric that is not uploaded directly to our site but is available for license by our customers through an application program interface, custom content and certain content that may be licensed for editorial use only. We believe that our large selection of high-quality content enables us to attract and retain customers and drives our network effect.

Critical Accounting Policies and Estimates
Our financial statements are prepared in accordance with GAAP. The preparation of the consolidated financial statements in conformity with GAAP requires our management to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities, the disclosure or inclusion of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the period. We evaluate our significant estimates on an ongoing basis, including, but not limited to, estimates related to allowance for doubtful accounts, the volume of expected unused licenses used in revenue recognition for our subscription-based products, the fair value of acquired goodwill and intangible assets and income tax provisions. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.
We believe that the policies, assumptions and estimates associated with our revenue recognition, allowance for doubtful accounts, goodwill and intangible assets and accounting for income taxes have the greatest potential impact on our financial statements. Therefore, we consider these to be our critical accounting policies and estimates.
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A description of our critical accounting policies that involve significant management judgments appears in our 2020 Form 10-K, under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates.”
See Note 1 to our Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for a full description of the impact of the adoption of new accounting standards on our financial statements. There have been no material changes to our critical accounting policies and estimates as compared to our critical accounting policies and estimates included in our 2020 Form 10-K.

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Key Components of Our Results of Operations
Revenue
We distribute our content offerings through two primary channels:
E-commerce: The majority of our customers license content directly through our self-service web properties. E-commerce customers have the flexibility to purchase a subscription-based plan that is paid on a monthly or annual basis or to license content on a transactional basis. These customers generally license content under our standard or enhanced licenses, with additional licensing options available to meet customers’ individual needs. E-commerce customers typically pay the full amount of the purchase price in advance or at the time of license, generally with a credit card.
Enterprise: We also have a base of customers with unique content, licensing and workflow needs. These customers benefit from communication with our dedicated sales professionals, service and research teams which provide a number of tailored enhancements to their creative workflows including non-standard licensing rights, multi-seat access, ability to pay on credit terms, multi-brand licensing packages, increased indemnification protection and content licensed for use-cases outside of those available on the e-commerce platform.
The Company’s revenues by distribution channel for the three months ended March 31, 2021 and 2020 are as follows (in thousands):
 Three Months Ended
March 31,
 20212020
E-commerce$118,400 $99,736 
Enterprise64,881 61,549 
Total Revenues$183,281 $161,285 

Costs and Expenses
Cost of Revenue. Cost of revenue consists of royalties paid to contributors, credit card processing fees, content review costs, customer service expenses, infrastructure and hosting costs related to maintaining our creative platform and cloud-based software platform, depreciation and amortization of capitalized internal-use software, content and technology intangible assets, allocated facility costs and other supporting overhead costs. Cost of revenue also includes employee compensation, including non-cash equity-based compensation, bonuses and benefits associated with the maintenance of our creative platform and cloud-based software platform.
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, including non-cash equity-based compensation, bonuses and benefits, and commissions as well as allocated facility and other supporting overhead costs.
Product Development. Product development expenses consist of employee compensation, including non-cash equity-based compensation, bonuses and benefits, and expenses related to vendors engaged in product management, design, development and testing of our websites and products. Product development costs also includes software and other IT equipment costs, allocated facility expenses and other supporting overhead costs.
General and Administrative. General and administrative expenses include employee compensation, including non-cash equity-based compensation, bonuses and benefits for executive, finance, accounting, legal, human resources, internal information technology, internet security, business intelligence and other administrative personnel. In addition, general and administrative expenses include outside legal, tax and accounting services, bad debt expense, insurance, facilities costs, other supporting overhead costs and depreciation and amortization expense.
Other (Expense) / Income, Net. Other (expense) / income, net consists of non-operating costs such as foreign currency transaction gains and losses in addition to interest income.
Income Taxes. We compute income taxes 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.
 Three Months Ended March 31,
 20212020
 (in thousands)
Consolidated Statements of Operations:  
Revenue$183,281 $161,285 
Operating expenses:
Cost of revenue61,832 69,123 
Sales and marketing41,921 42,660 
Product development10,731 13,069 
General and administrative30,679 30,652 
Total operating expenses145,163 155,504 
Income from operations38,118 5,781 
Other (expense) / income, net(2,462)513 
Income before income taxes35,656 6,294 
Provision for income taxes6,142 1,976 
Net income$29,514 $4,318 

The following table presents the components of our results of operations for the periods indicated as a percentage of revenue:
 Three Months Ended March 31,
 20212020
Consolidated Statements of Operations:  
Revenue100 %100 %
Operating expenses:
Cost of revenue34 %43 %
Sales and marketing23 %26 %
Product development%%
General and administrative17 %19 %
Total operating expenses79 %96 %
Income from operations21 %%
Other (expense) / income, net(1)%— %
Income before income taxes19 %%
Provision for income taxes%%
Net income16 %%
__________________________________
Note: Due to rounding, percentages may not sum to totals.
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Comparison of the Three Months Ended March 31, 2021 and 2020
The following table presents our results of operations for the periods indicated:
 Three Months Ended March 31,
 20212020$ Change% Change
 (in thousands) 
Consolidated Statements of Operations:    
Revenue$183,281 $161,285 $21,996 14 %
Operating expenses:  
Cost of revenue61,832 69,123 (7,291)(11)
Sales and marketing41,921 42,660 (739)(2)
Product development10,731 13,069 (2,338)(18)
General and administrative30,679 30,652 27 — 
Total operating expenses145,163 155,504 (10,341)(7)
Income from operations38,118 5,781 32,337 559 
Other (expense) / income, net(2,462)513 (2,975)*
Income before income taxes35,656 6,294 29,362 467 
Provision for income taxes6,142 1,976 4,166 211 
Net income$29,514 $4,318 $25,196 584 %
__________________________________
*    Percentage change is not meaningful
Revenue
Revenue increased by $22.0 million, or 14%, to $183.3 million in the three months ended March 31, 2021 compared to the same period in 2020. On a constant currency basis, revenue increased approximately 11%, in the three months ended March 31, 2021, compared to the same period in 2020.
The Company’s E-commerce revenues increased by 19%, to $118.4 million in the three months ended March 31, 2021, compared to the same period in 2020. On a constant currency basis, the Company’s E-commerce revenues increased by 16% in the three months ended March 31, 2021, compared to the same period in 2020. During the three months ended March 31, 2021, growth in our E-commerce sales channel was primarily driven by increased subscriber revenue. E-commerce revenues also benefited from our acquisition of TurboSquid on February 1, 2021.
The Company’s Enterprise revenues increased by 5%, to $64.9 million in the three months ended March 31, 2021, compared to the same period in 2020. On a constant currency basis, the Company’s Enterprise revenues increased by 3% in the three months ended March 31, 2021, compared to the same period in 2020. During the quarter, the Company has continued to identify and implement changes to respond to market trends including making updates to product offerings and continuously improving our platform. We believe these enhancements impacted our Enterprise sales operations during the period and is one of the drivers of the increased deferred revenue balance as of March 31, 2021.
In addition, we believe our revenue growth for the three months ended March 31, 2021 was unfavorably affected by the global COVID-19 pandemic and its impact on our customers and their ability to spend marketing budgets on our products.
In the three months ended March 31, 2021 and 2020, we delivered 45.8 million and 46.8 million paid downloads, respectively, and our revenue per download was $3.96 and $3.42 for the three months ended March 31, 2021 and 2020, respectively. During the three months ended March 31, 2021, the 2% decrease in the number of paid downloads compared to the same period in 2020, is due to lower customer utilization of our products. We believe that the decline in usage during the quarter is partially attributable to COVID-19.
Changes in our revenue by region were as follows: revenue from North America increased by $7.3 million, or 13%, to $64.3 million, revenue from Europe increased by $8.5 million, or 16%, to $62.3 million and revenue from outside Europe and North America increased by $6.2 million, or 12%, to $56.7 million, in the three months ended March 31, 2021 compared to the same period in 2020.
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Costs and Expenses
Cost of Revenue. Cost of revenue decreased by $7.3 million, or 11% to $61.8 million in the three months ended March 31, 2021 compared to the same period in 2020, due to lower royalty expense, content procurement costs and depreciation and amortization expense, partially offset by higher costs associated with hardware and software licenses as well as increased credit card fees. In addition, for the three months ended March 31, 2020, cost of revenue includes severance charges of $1.1 million. The reduction in royalty expense was driven by the 2% decline in paid downloads as well as a modification in the way we compensate contributors. We expect that our cost of revenue will fluctuate in line with changes in revenue and paid downloads.
Sales and Marketing. Sales and marketing expenses decreased by $0.7 million, or 2%, to $41.9 million in the three months ended March 31, 2021 compared to the same period in 2020. As a percent of revenue, sales and marketing expenses decreased to 23% for the three months ended March 31, 2021, from 26% for the same period in 2020. This decrease was primarily driven by a $1.7 million decline in marketing spend as we focused resources on more efficient customer acquisition and improved marketing return on investment. In addition, travel and related expense costs declined by $0.5 million due to travel restrictions resulting from COVID-19. These declines were partially offset by $1.3 million in higher employee-related costs. We expect sales and marketing expenses to fluctuate as we optimize our sales channels and invest in new customer acquisition, products and geographies.
Product Development. Product development expenses decreased by $2.3 million, or 18%, to $10.7 million in the three months ended March 31, 2021 compared to the same period in 2020. This decrease was driven by (i) lower employee and third-party contractor related costs, net of capitalized labor, and (ii) a reduction in software and other IT-related costs, for the three months ended March 31, 2021, as compared to the same period in the prior year. We expect product development expenses, of which a portion will be capitalized, to continue in the foreseeable future, as we pursue opportunities to invest in developing new products and internal tools and enhance the functionality of our existing products and technologies.
General and Administrative. General and administrative expenses remained flat at $30.7 million in the three months ended March 31, 2021 compared to the same period in 2020. During the three months ended March 31, 2021, general and administrative expenses included higher non-cash compensation expense of $2.1 million, attributable to certain performance-based awards, partially offset by a $1.4 million reduction in employee-related costs and other reductions resulting from our ongoing vendor management initiatives. For the three months ended March 31, 2020, general and administrative expenses includes severance charges of $0.7 million.
Other (Expense) / Income, Net. In the three months ended March 31, 2021, other (expense) / income, net substantially consisted of $2.5 million of unfavorable foreign currency fluctuations.
During the three months ended March 31, 2020, approximately $1.1 million of other (expense) / income, net consisted of interest income which was partially offset by $0.6 million of unfavorable foreign currency fluctuations. As we increase the volume of business transacted in foreign currencies resulting from international expansion and as currency rates fluctuate, we expect foreign currency gains and losses to continue to fluctuate.
Income Taxes. Income tax expense increased by $4.2 million for the three months ended March 31, 2021 as compared to the same period in 2020. Our effective tax rates yielded a net expense of 17.2% and 31.4% for the three months ended March 31, 2021 and 2020, respectively.
For the three months ended March 31, 2021, the net effect of discrete items decreased the effective tax rate by 1.8%. Excluding these items, our effective tax rate would have been 19.0% for the three months ended March 31, 2021.
For the three months ended March 31, 2020, the effective tax rate increased by 9.9%, primarily as a result of a loss jurisdiction with no tax benefit. Excluding these items, our effective tax rate would have been 21.5% for the three months ended March 31, 2020.
As we continue to expand our operations outside of the United States, we have been and may continue to become subject to taxation in additional non-U.S. jurisdictions and our effective tax rate could fluctuate accordingly.

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Quarterly Trends
Our operating results may fluctuate from quarter to quarter as a result of a variety of factors, including the effects of some seasonal trends in customer behavior. For example, we expect that certain customers’ usage may decrease at times during the third quarter of each calendar year due to the summer vacation season and may increase at times during the fourth quarter of each calendar year as demand is generally higher to support marketing campaigns in advance of the fourth quarter holiday season. While we believe seasonal trends have affected and will continue to affect our quarterly results, our growth trajectory may have overshadowed these effects to date. Additionally, because a significant portion of our revenue is derived from repeat customers who have purchased subscription plans, our revenues have historically been less volatile than if we had no subscription-based customers.
In addition, expenditures on content by customers tend to be discretionary in nature, reflecting overall economic conditions, the economic prospects of specific industries, budgeting constraints, buying patterns and a variety of other factors, many of which are outside our control, including any impacts from COVID-19. As a result of these and other factors, the results of any prior quarterly or annual periods should not be relied upon as indicators of our future operating performance.
See “Risks Related to the Coronavirus (COVID-19) Pandemic, The effect of the COVID-19 pandemic on our operations, and the operations of our customers, partners and suppliers, could have a material adverse effect on our business, financial condition, cash flows and results of operations” in Part I, Item 1A, “Risk Factors” in our 2020 Form 10-K for further discussion of the possible impact of the COVID-19 pandemic on our business.

Liquidity and Capital Resources
As of March 31, 2021, we had cash and cash equivalents totaling $363.9 million which primarily consisted of bank balances, money market funds and commercial paper. Since inception, we have financed our operations primarily through cash flows generated from operations.
Historically, our principal uses of cash have included funding our operations, capital expenditures, content acquisitions, business combinations that enhance our strategic position, cash dividend payments and share purchases under our share repurchase program. We plan to finance our operations and capital expenses largely through cash generated by our operations. Since our results of operations are sensitive to the level of competition we face, increased competition could adversely affect our liquidity and capital resources.
Dividends
We declared and paid cash dividends of $0.21 per share of common stock, or $7.6 million during the three months ended March 31, 2021.
On April 19, 2021, our Board of Directors declared a quarterly cash dividend of $0.21 per share of outstanding common stock payable on June 17, 2021 to stockholders of record at the close of business on June 3, 2021. Future declarations of dividends are subject to the final determination of our Board of Directors, and will depend on, among other things, our future financial condition, results of operations, capital requirements, capital expenditure requirements, contractual restrictions, anticipated cash needs, business prospects, provisions of applicable law and other factors our Board of Directors may deem relevant.
Share Repurchase Program
In October 2015, our Board of Directors approved a share repurchase program, authorizing us to repurchase up to $100 million of our common stock, and in February 2017, our Board of Directors approved an increase to the share repurchase program, authorizing us to repurchase up to an additional $100 million of our outstanding common stock. We expect to fund future repurchases, if any, through a combination of cash on hand, cash generated by operations and future financing transactions, if appropriate. Accordingly, our share repurchase program is subject to us having available cash to fund repurchases. Under the share repurchase program, management is authorized to purchase shares of our common 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, and subject to market conditions and other factors.
As of March 31, 2021, we have repurchased approximately 2,558,000 shares of our common stock under the share repurchase program at an average per-share cost of $39.09. During the three months ended March 31, 2021, we did not repurchase any shares of our common stock under the share repurchase program. As of March 31, 2021, we had $100 million of repurchase capacity remaining under the share repurchase program.
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Equity-Based Compensation
Upon the vesting of restricted stock units (“RSUs”), the Company has a practice of net share settlement, to cover any required withholding taxes by retaining the number of shares with a value equal to the amount of the tax and remitting an equal amount of cash to the appropriate taxing authorities, rather than requiring employees to sell a portion of the shares that they receive upon vesting to fund the required withholding taxes (“sell-to-cover”). The net share settlement approach has increased our cash outflows compared to the cash outflows under the sell-to-cover approach. In addition, as compared to the sell-to-cover approach, net share settlement has resulted in fewer shares being issued into the market as employees’ RSUs vest, thereby reducing the dilutive impact of our equity-based compensation programs on stockholders.
During the three months ended March 31, 2021, shares with an aggregate value of $13.0 million were withheld upon vesting of RSUs and paid in connection with related remittance to taxing authorities.
Sources and Uses of Funds
We believe, based on our current operating plan, that our cash and cash equivalents, and cash from operations, will be sufficient to meet our anticipated cash needs for at least the next 12 months. Future capital expenditures could relate to building enhancements to the functionality of our current platform, the acquisition of additional storage, servers, network connectivity hardware, security apparatus and software, leasehold improvements and furniture and fixtures related to office expansion and relocation, content and general corporate infrastructure. See Note 13 to our Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for information regarding our existing capital commitments as of March 31, 2021.
Cash Flows 
The following table summarizes our cash flow data for the three months ended March 31, 2021 and 2020 (in thousands).
 Three Months Ended March 31,
 20212020
Net cash provided by operating activities$35,828 $6,859 
Net cash used in investing activities$(81,213)$(8,411)
Net cash used in financing activities$(19,371)$(7,801)
Operating Activities
Our primary source of cash from operating activities is cash collections from our customers. The majority of our revenue is generated from credit card transactions and is typically settled within one to five business days. Our primary uses of cash for operating activities are for the payment of royalties to content contributors, employee-related expenditures and the payment of other operating expenses incurred in the ordinary course of business.
Net cash provided by operating activities was $35.8 million for the three months ended March 31, 2021, compared to $6.9 million for the three months ended March 31, 2020. In the three months ended March 31, 2021, operating cash flows were favorably impacted from our increased operating income and changes in the timing of payments pertaining to operating expenses, which can cause operating cash flow to fluctuate from period to period. In addition, the three months ended March 31, 2020 were impacted by $7.8 million in one-time payments associated with long-term incentives related to our 2017 acquisition of Flashstock.
Investing Activities
Cash used in investing activities for the three months ended March 31, 2021 was $81.2 million, consisting primarily of cash used in the acquisition of TurboSquid of $72.2 million, net of cash acquired and capital expenditures of $8.5 million for internal-use software and website development costs and purchases of software and equipment.
Cash used in investing activities in the three months ended March 31, 2020 was $8.4 million, consisting primarily of capital expenditures of $7.7 million for internal-use software and website development costs and purchases of software and equipment, and $0.7 million paid to acquire the rights to distribute certain digital content into perpetuity.
Financing Activities
Cash used in financing activities in the three months ended March 31, 2021 was $19.4 million, consisting primarily of $13.0 million, paid in settlement of tax withholding obligations related to employee stock-based compensation awards and $7.6 million, related to the payment of the quarterly cash dividend. These amounts were partially offset by approximately $1.3 million received from the issuance of common stock in connection with the exercise of stock options.
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Cash used in financing activities in the three months ended March 31, 2020 was $7.8 million, consisting primarily of $6.0 million related to the payment of the quarterly cash dividend and $1.8 million, which was paid in settlement of tax withholding obligations related to employee stock-based compensation awards.

Contractual Obligations and Commitments
We lease real estate under operating lease agreements that expire on various dates during the period from 2021 through 2029. We do not have any material finance lease obligations and our property, equipment and software have been purchased primarily with cash. We do not anticipate any difficulties in renewing those leases and co-location agreements that expire within the next several years and that we currently plan to renew, or in leasing other space or hosting facilities, if required. 
On March 21, 2013, we entered into an operating lease agreement to lease our headquarters in New York City, which was amended in 2016. The aggregate undiscounted future minimum lease payments under the lease, as amended, are approximately $54.9 million. We are also party to a letter of credit as a security deposit for this leased facility in the amount of $1.7 million. As of March 31, 2020, the Company is no longer required to provide cash collateral for its letter of credit, and, accordingly, these funds are no longer restricted.
Additionally, as of March 31, 2021, aggregate undiscounted future minimum lease payments under other operating leases are approximately $6.9 million.
We enter into unconditional purchase obligations related to contracts for cloud-based services, infrastructure and other business services as well as minimum royalty guarantees in connection with certain content licenses. As of March 31, 2021, our guaranteed royalty payments and unconditional purchase obligations for the remainder of 2021 and for the fiscal years ending December 31, 2022, 2023, 2024 and 2025 were approximately $24.3 million, $12.5 million, $8.0 million, $3.2 million and $0.8 million, respectively.

Non-GAAP Financial Measures
To supplement our consolidated financial statements presented in accordance with the accounting principles generally accepted in the United States, or GAAP, our management considers certain financial measures that are not prepared in accordance with GAAP, collectively referred to as non-GAAP financial measures, including adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted net income per diluted common share, revenue growth (including by distribution channel) on a constant currency basis (expressed as a percentage), and free cash flow. These non-GAAP financial measures are included solely to provide investors with additional information regarding our financial results and 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 March 31,
20212020
Non-GAAP Financial Measures:(in thousands)
Adjusted EBITDA$56,419 $22,060 
Adjusted net income36,636 9,159 
Free cash flow$26,791 $6,176 
Revenue growth on a constant currency basis11 %(1)%

These non-GAAP financial measures have not been calculated in accordance with GAAP, should be considered only in addition to results prepared in accordance with GAAP and should not be considered as a substitute for, or superior to, GAAP measures. In addition, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted net income per diluted common share, revenue growth (including by distribution channel) on a constant currency basis (expressed as a percentage) and free cash flow should not be construed as indicators of our operating performance, liquidity or cash flows generated by operating, investing and financing activities, as there may be significant factors or trends that they fail to address. We caution investors that non-GAAP financial information, by its nature, departs from traditional accounting conventions; accordingly, its use can make it difficult to compare our current results with our results from other reporting peri