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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 June 30, 2023

☐ 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)

________________________________________________________


Delaware						80-0812659
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

350 Fifth Avenue, 20th 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 class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	SSTK	New 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 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 filer

☐

Smaller 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

☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of July 28, 2023, 36,078,720 shares of the registrant’s common stock, $0.01 par value per share, were outstanding.

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Shutterstock, Inc.

FORM 10-Q

Table of Contents

For the Quarterly Period Ended June 30, 2023


		Page No.

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	4
	Consolidated Balance Sheets	4
	Consolidated Statements of Operations	5
	Consolidated Statements of Comprehensive Income	6
	Consolidated Statements of Stockholders’ Equity	7
	Consolidated Statements of Cash Flows	8
	Notes to Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	41

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	42
Item 1A.	Risk Factors	42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 5.	Other Information	42
Item 6.	Exhibits	42

Signatures		44

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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 are forward-looking. Examples of forward-looking statements include, but are not limited to, statements regarding guidance, industry prospects, future business, future results of operations or financial condition, future dividends, future stock performance, our ability to consummate acquisitions and integrate the businesses we have acquired or may acquire into our existing operations, new or planned features, products or services, management strategies and our competitive position. You can identify many forward-looking statements by words such as “may,” “will,” “would,” “should,” “could,” “expects,” “aims,” “anticipates,” “believes,” “estimates,” “intends,” “plans,” “predicts,” “projects,” “seeks,” “potential,” “opportunities” and other similar expressions and the negatives of such expressions. However, not all forward-looking statements contain these words. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause our actual results to differ materially from those expressed or implied by the forward-looking statements. Such risks and uncertainties include, among others, risks related to the Giphy, Inc. transaction, such as potential litigation; potential business disruption; the impact of transaction costs; our ability to achieve the benefits of the transaction, including monetization; our ability to effectively integrate the acquired operations into our operations; our ability to retain and hire key target personnel; and the effects of any unknown liabilities; as well as those risks 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 (the “SEC”) on February 14, 2023 (our “2022 Form 10-K”) and in our consolidated financial statements, related notes, and the other information appearing elsewhere in the 2022 Form 10-K, 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 any forward-looking statements. The forward-looking statements contained in this Quarterly Report on Form 10-Q are made only as of the date hereof, and we do not intend, and, except as required by law, we undertake no obligation to update any forward-looking statements contained herein 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,” “Asset Assurance,” “Offset,” “Bigstock,” “Rex Features,” “PremiumBeat,” “TurboSquid,” “PicMonkey,” “Pattern89,” “Shotzr,” “Pond5,” “Splash News,” “Giphy,” “Shutterstock Studios” 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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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Shutterstock, Inc.

Consolidated Balance Sheets

(In thousands, except par value amount)

(unaudited)


	June 30,		December 31,
	2023		2022

ASSETS
Current assets:
Cash and cash equivalents	$	87,146	$	115,154


Accounts receivable, net of allowance of $5,641 and $5,830	61,715		67,249
Prepaid expenses and other current assets	124,554		33,268


Total current assets	273,415		215,671
Property and equipment, net	59,434		54,548
Right-of-use assets	17,233		17,593
Intangible assets, net	202,090		173,087
Goodwill	383,045		381,920
Deferred tax assets, net	1,609		16,533
Other assets	67,435		21,832
Total assets	$	1,004,261	$	881,184
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	6,095	$	7,183
Accrued expenses	112,231		89,387
Contributor royalties payable	40,561		38,649

Deferred revenue	207,483		187,070
Debt	30,000		50,000
Other current liabilities	11,195		11,445
Total current liabilities	407,565		383,734
Deferred tax liability, net	17,255		4,465

Lease liabilities	33,382		35,611
Other non-current liabilities	26,552		9,892
Total liabilities	484,754		433,702
Commitments and contingencies (Note 14)

Stockholders’ equity:

Common stock, $0.01 par value; 200,000 shares authorized; 39,884 and 39,605 shares issued and 36,028 and 35,829 shares outstanding as of June 30, 2023 and December 31, 2022, respectively	398		396
Treasury stock, at cost; 3,856 and 3,776 shares as of June 30, 2023 and December 31, 2022, respectively	(204,008)		(200,008)
Additional paid-in capital	402,728		391,482
Accumulated comprehensive loss	(14,131)		(15,439)
Retained earnings	334,520		271,051
Total stockholders’ equity	519,507		447,482
Total liabilities and stockholders’ equity	$	1,004,261	$	881,184

See Notes to Unaudited Consolidated Financial Statements.

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Shutterstock, Inc.

Consolidated Statements of Operations

(In thousands, except for per share data)

(unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022

Revenue	$	208,840	$	206,872	$	424,120	$	406,004

Operating expenses:
Cost of revenue	84,416		77,019		162,579		146,470
Sales and marketing	48,392		54,229		95,919		107,558
Product development	29,218		17,162		44,624		30,788
General and administrative	38,099		33,088		71,914		63,896
Total operating expenses	200,125		181,498		375,036		348,712
Income from operations	8,715		25,374		49,084		57,292
Bargain purchase gain	41,940		—		41,940		—

Other income / (expense), net	726		(2,661)		1,771		(1,903)
Income before income taxes	51,381		22,713		92,795		55,389
Provision for income taxes	1,368		3,268		9,939		9,372
Net income	$	50,013	$	19,445	$	82,856	$	46,017





Earnings per share:
Basic	$	1.39	$	0.54	$	2.31	$	1.27
Diluted	$	1.37	$	0.53	$	2.27	$	1.25

Weighted average common shares outstanding:
Basic	36,047		36,123		35,952		36,213
Diluted	36,406		36,578		36,490		36,890

See Notes to Unaudited Consolidated Financial Statements.

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Shutterstock, Inc.

Consolidated Statements of Comprehensive Income

(In thousands)

(unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022

Net income	$	50,013	$	19,445	$	82,856	$	46,017
Foreign currency translation gain / (loss)	(111)		(4,945)		1,308		(5,831)

Other comprehensive income / (loss)	(111)		(4,945)		1,308		(5,831)
Comprehensive income	$	49,902	$	14,500	$	84,164	$	40,186

See Notes to Unaudited Consolidated Financial Statements.

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Shutterstock, Inc.

Consolidated Statements of Stockholders’ Equity

(In thousands)

(unaudited)


											Additional Paid-in Capital		Accumulated Other Comprehensive Income / (Loss)		Retained Earnings
	Common Stock					Treasury Stock
Three Months Ended June 30, 2023	Shares		Amount			Shares		Amount									Total
Balance at March 31, 2023		39,690		$	396		3,776		$	(200,008)	$	395,934	$	(14,020)	$	294,232		$	476,534




Equity-based compensation		—		—			—		—		14,943		—		—			14,943



Issuance of common stock in connection with employee stock option exercises and RSU vesting		317		3			—		—		(3)		—		—			—
Common shares withheld for settlement of taxes in connection with equity-based compensation		(123)		(1)			—		—		(8,146)		—		—			(8,147)



Repurchase of treasury shares		—		—			80		(4,000)		—		—		—			(4,000)
Cash dividends paid		—		—			—		—		—		—		(9,725)			(9,725)
Other comprehensive income		—		—			—		—		—		(111)		—			(111)
Net income		—		—			—		—		—		—		50,013			50,013
Balance at June 30, 2023		39,884		$	398		3,856		$	(204,008)	$	402,728	$	(14,131)	$	334,520		$	519,507

Three Months Ended June 30, 2022
Balance at March 31, 2022		39,352		$	394		3,214		$	(165,465)	$	373,765	$	(11,674)	$	247,403		$	444,423




Equity-based compensation		—		—			—		—		7,044		—		—			7,044



Issuance of common stock in connection with employee stock option exercises and RSU vesting		242		2			—		—		566		—		—			568
Common shares withheld for settlement of taxes in connection with equity-based compensation		(112)		(1)			—		—		(10,441)		—		—			(10,442)




Repurchase of treasury shares		—		—			287		(18,335)		—		—		—			(18,335)
Cash dividends paid		—		—			—		—		—		—		(8,665)			(8,665)
Other comprehensive loss		—		—			—		—		—		(4,945)		—			(4,945)
Net income		—		—			—		—		—		—		19,445			19,445
Balance at June 30, 2022		39,482		$	395		3,501		$	(183,800)	$	370,934	$	(16,619)	$	258,183		$	429,093

Six Months Ended June 30, 2023


Balance at January 1, 2023		39,605		$	396		3,776		$	(200,008)	$	391,482	$	(15,439)	$	271,051		$	447,482


Equity-based compensation		—		—			—		—		23,586		—		—			23,586



Issuance of common stock in connection with employee stock option exercises and RSU vesting		461		4			—		—		(2)		—		—			2
Common shares withheld for settlement of taxes in connection with equity-based compensation		(182)		(2)			—		—		(12,338)		—		—			(12,340)



Repurchase of treasury shares		—		—			80		(4,000)		—		—		—			(4,000)
Cash dividends paid		—		—			—		—		—		—		(19,387)			(19,387)
Other comprehensive loss		—		—			—		—		—		1,308		—			1,308
Net income		—		—			—		—		—		—		82,856			82,856
Balance at June 30, 2023		39,884		$	398		3,856		$	(204,008)	$	402,728	$	(14,131)	$	334,520		$	519,507

Six Months Ended June 30, 2022


Balance at January 1, 2022		39,209		$	392		2,792		$	(127,196)	$	376,537	$	(10,788)	$	229,537		$	468,482


Equity-based compensation		—		—			—		—		14,870		—		—			14,870



Issuance of common stock in connection with employee stock option exercises and RSU vesting		503		5			—		—		563		—		—			568
Common shares withheld for settlement of taxes in connection with equity-based compensation		(230)		(2)			—		—		(21,036)		—		—			(21,038)



Repurchase of treasury shares		—		—			709		(56,604)		—		—		—			(56,604)
Cash dividends paid		—		—			—		—		—		—		(17,371)			(17,371)
Other comprehensive loss		—		—			—		—		—		(5,831)		—			(5,831)
Net income		—		—			—		—		—		—		46,017			46,017
Balance at June 30, 2022		39,482		$	395		3,501		$	(183,800)	$	370,934	$	(16,619)	$	258,183		$	429,093

See Notes to Unaudited Consolidated Financial Statements.

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Shutterstock, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(unaudited)


	Six Months Ended June 30,
	2023		2022

CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	82,856	$	46,017
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	38,102		31,575

Deferred taxes	(146)		(3,602)
Non-cash equity-based compensation	23,586		14,869






Bad debt expense	1,025		620
Bargain purchase gain	(41,940)		—


Changes in operating assets and liabilities:

Accounts receivable	5,709		(762)
Prepaid expenses and other current and non-current assets	(29,834)		(1,207)

Accounts payable and other current and non-current liabilities	(4,144)		(28,980)

Contributor royalties payable	1,822		3,713

Deferred revenue	19,553		(2,669)
Net cash provided by operating activities	$	96,589	$	59,574

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(22,870)		(20,797)


Business combination, net of cash acquired	(53,721)		(212,096)
Cash received related to Giphy Retention Compensation	15,752		—

Asset acquisitions	—		(150)


Acquisition of content	(5,252)		(6,999)

Security deposit payment	(37)		(281)
Net cash used in investing activities	$	(66,128)	$	(240,323)

CASH FLOWS FROM FINANCING ACTIVITIES


Repurchase of treasury shares	(4,000)		(56,937)
Proceeds from exercise of stock options	3		568

Cash paid related to settlement of employee taxes related to RSU vesting	(14,545)		(21,038)
Payment of cash dividend	(19,387)		(17,371)


Proceeds from credit facility	30,000		50,000
Repayment of credit facility	(50,000)		—
Payment of debt issuance costs	—		(619)


Net cash used in financing activities	$	(57,929)	$	(45,397)

Effect of foreign exchange rate changes on cash	(540)		(3,825)
Net decrease in cash and cash equivalents	(28,008)		(229,971)

Cash and cash equivalents, beginning of period	115,154		314,017
Cash and cash equivalents, end of period	$	87,146	$	84,046

Supplemental Disclosure of Cash Information:
Cash paid for income taxes	$	6,795	$	12,700
Cash paid for interest	429		90

See Notes to Unaudited Consolidated Financial Statements.

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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 premier partner for transformative brands, digital media and marketing 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. Contributors upload their content to the Company’s web properties in exchange for royalty payments based on customer download activity. Beyond content, customers also leverage the Company’s platform to assist with the entire creative process from ideation through creative execution.

The Company’s key content offerings include:

•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.

•3 Dimensional (“3D”) Models - consisting of 3D models, used in a variety of industries such as advertising, media and video production, gaming, retail, education, design and architecture.

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 June 30, 2023, and the Consolidated Statements of Operations, Comprehensive Income and Stockholders’ Equity for the three and six months ended June 30, 2023 and 2022, and the Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022 are unaudited. The Consolidated Balance Sheet as of December 31, 2022, 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 June 30, 2023, and its consolidated results of operations, comprehensive income, stockholders’ equity and cash flows for the three and six months ended June 30, 2023 and 2022. 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 six months ended June 30, 2023 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2023 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, 2022 included in the Company’s Annual Report on Form 10-K, which was filed with the SEC on February 14, 2023. 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.

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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 bank deposits.

Accounts Receivable and 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 and credit losses 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 six months ended June 30, 2023, the Company recorded bad debt expense of $1.0 million. As of June 30, 2023 and December 31, 2022, the Company’s allowance for doubtful accounts was approximately $5.6 million and $5.8 million, respectively. The allowance for doubtful accounts is included as a reduction of accounts receivable on the Consolidated Balance Sheets.

The Company has certain customer arrangements that contain financing elements. Interest income earned from these financing receivables is recorded on the effective interest method and is included within interest income on the Consolidated Statements of Operations. As of June 30, 2023, approximately $14.6 million of financing receivables were included in Accounts receivable on the Consolidated Balance Sheets.

In addition, as of June 30, 2023 and December 31, 2022, one customer accounted for approximately 15% and 22% of the accounts receivable balance, respectively. No other customers accounted for or exceeded 10% of the accounts receivable balance at these dates.

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 June 30, 2023 and December 31, 2022, the Company’s combined allowance for chargebacks and sales refunds was $0.4 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 also generates revenue from tools made available through the Company’s platform.

For contracts that contain multiple performance obligations, the Company allocates the transaction price to each performance obligation based on a relative standalone selling price. The standalone selling price is determined based on the price at which the performance obligation is sold separately, or if not observable through past transactions, is estimated taking into account available information including internally approved pricing guidelines and pricing information of comparable products.

The Company recognizes revenue upon the satisfaction of performance obligations. The Company recognizes revenue on both its subscription-based and transaction-based products when content is downloaded by a customer, at which time the license is provided. In addition, the Company estimates expected unused licenses for subscription-based products and recognizes the 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. For revenue associated with tools available through the Company’s platform, revenue is recognized on a straight-line basis over the

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Shutterstock, Inc.

Notes to Consolidated Financial Statements

(unaudited)

subscription period. The Company expenses contract acquisition costs as incurred, to the extent that the amortization period would otherwise be one year or less.

Collectability is probable at the time the electronic order or contract is entered. A significant portion of the Company’s customers purchase products by making electronic payments with a credit card at the time of the 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.

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.

(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 June 30, 2023 or December 31, 2022, except as noted below.

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. Debt consists of principal amounts outstanding under our credit facility, which approximates fair value as underlying interest rates are reset regularly based on current market rates and is classified as Level 2. The Company’s non-financial assets, which include long-lived assets, 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 June 30, 2023 and December 31, 2022, the Company’s long-term investments were in equity securities with no readily determinable fair value, totaled $20.0 million, and were 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 June 30, 2023, 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.

(3) Acquisitions

Giphy, Inc.

On May 22, 2023, the Company entered into a Stock Purchase Agreement with Meta Platforms, Inc. (“Meta”) dated May 22, 2023 (the “Purchase Agreement”). On June 23, 2023, the Company completed its acquisition of all of the outstanding shares of Giphy, Inc. (“Giphy”) from Meta. The consideration payable by the Company pursuant to the Purchase Agreement is $53 million in net cash, in addition to cash acquired, assumed debt and other working capital adjustments. The consideration was paid with existing cash on hand. Giphy is a New York-based company that operates a collection of GIFs and stickers that supplies casual conversational content. The Company believes its acquisition of Giphy extends Shutterstock’s audience touchpoints beyond primarily professional marketing and advertising use cases and expands into casual conversations.

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Shutterstock, Inc.

Notes to Consolidated Financial Statements

(unaudited)

In January 2023, the United Kingdom Competition and Markets Authority (the “CMA”) issued its final order requiring Meta to divest its ownership of Giphy, which Meta acquired in 2020. In connection with the closing of the acquisition, whose terms were preapproved by the CMA, the Company and Meta entered into a transitional services agreement (the “TSA”) pursuant to which Meta is responsible for certain costs related to retention of Giphy employees, including (i) recurring salary, bonus, and benefits through August 2024, which would be $35.6 million if all employees are retained through August 2024, and (ii) nonrecurring items, totaling $87.9 million, comprised of one-time employment inducement bonuses and the cash value of unvested Meta equity awards (the “Giphy Retention Compensation”).

The Giphy Retention Compensation will be paid to the individuals for being employees of the Company subsequent to the completion of the acquisition. Accordingly, it was determined that the payments by the Company are for future service requirements and will be reflected as operating expenses, less any amounts earned by the employees prior to the acquisition, in the Company’s Statements of Operations as incurred. The Giphy Retention Compensation is reflected as a reduction of the purchase price and has been funded into an escrow account.

The Giphy purchase price will result in net cash to be received by the Company, is as follows:


	Purchase Price
Purchase price	$	53,000
Cash acquired and other working capital adjustments	4,750
Cash paid on closing	$	57,750

Fair value of Giphy Retention Compensation contingent consideration1	(98,723)
Fair value of consideration attributable to pre-combination service2	34,972

Net purchase price	$	(6,001)

1 - This amount consists of $123.5 million of Giphy Retention Compensation, adjusted for $18.9 million of income tax obligations associated with the receipt of the Giphy Retention Compensation and $5.9 million for the time value of money.

2 - Relates to the cash value of replaced unvested Meta equity awards attributable to pre-combination services.

Upon closing of the acquisition, the Company also entered into an agreement with Meta whereby the Company will provide Meta with Giphy content through API services for a period of two years. The Company allocated and deferred $30 million of the business combination proceeds to this agreement, which will be recognized as revenue as services are provided.

The identifiable intangible assets, which include developed technology and the trade name have weighted average useful lives of approximately 4.0 years and 15.0 years, respectively. The fair value of the developed technology was determined using the cost to recreate method, and the fair value of the trade name was determined using the relief-from-royalty method.

The Giphy transaction was accounted for using the acquisition method and, accordingly, the results of the acquired business has been included in the Company’s results of operations from the acquisition date. The fair value of consideration transferred in this business combination has been allocated to the intangible and tangible assets acquired and liabilities assumed at the acquisition date, with the excess of the fair value of the net assets acquired over the net consideration received recorded as a bargain purchase gain. The identifiable intangible assets of these acquisitions are being amortized on a straight-line basis.

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Shutterstock, Inc.

Notes to Consolidated Financial Statements

(unaudited)

The aggregate purchase price for this acquisition has been allocated to the assets acquired and liabilities assumed as follows (in thousands):


Assets acquired and liabilities assumed:	Giphy1
Cash and cash equivalents	$	4,030

Prepaid expenses and other current assets	1,416

Right of use assets	1,243
Intangible assets:

Trade name	21,000
Developed technology	21,500

Intangible assets	42,500


Other assets	1,647
Total assets acquired	$	50,836

Accounts payable, accrued expenses and other liabilities	(4,949)


Deferred tax liability	(8,858)
Lease liability	(1,090)
Total liabilities assumed	(14,897)
Net assets acquired	$	35,939
Net purchase price	(6,001)
Bargain purchase gain	$	41,940

1 - The measurement and allocation of the purchase price is preliminary and will be finalized within the allowable measurement period once the Company finalizes its assessment of fair value of intangible assets, income tax balances and other assets acquired and liabilities assumed.

The Company recognized a non-taxable bargain purchase gain of $41.9 million, representing the excess of the fair value of the net assets acquired in addition to the net consideration to be received from Meta. The bargain purchase gain is the result of the CMA’s regulatory order requiring Meta’s divestiture of Giphy and the Giphy Retention Compensation payments. In connection with the acquisition, the Company incurred approximately $3.0 million of transaction costs, which is included in general and administrative expenses on the Consolidated Statements of Operations.

As of June 30, 2023, Shutterstock’s receivable of $101.9 million, is against an escrow fully funded by Meta. $71.7 million and $30.2 million are included within Prepaid expenses and other current assets and Other assets, respectively, on the Consolidated Balance Sheet.

2022 Acquisitions

Pond5, Inc.

On May 11, 2022, the Company completed its acquisition of all of the outstanding shares of Pond5, for approximately $218.0 million. The total purchase price was paid with existing cash on hand as well as a $50 million drawdown on the Company’s revolving credit facility. In connection with the acquisition, the Company incurred approximately $4.0 million of transaction costs, which is included in general and administrative expenses on the Consolidated Statements of Operations.

Pond5 is a New York based company that operates a video-first content marketplace for royalty-free and editorial video. The Company believes its acquisition of this video-first content marketplace provides expanded offerings across footage, image and music.

The identifiable intangible assets, which include customer relationships, developed technology and trade names have weighted average useful lives of approximately 14.2 years, 5 years and 10 years, respectively. The goodwill arising from the transaction is primarily attributable to expected operational synergies and is not deductible for income tax purposes.

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Shutterstock, Inc.

Notes to Consolidated Financial Statements

(unaudited)

Splash News

On May 28, 2022, the Company completed its acquisition of all of the outstanding shares of Splash News, for approximately $6.3 million. The total purchase price was paid with existing cash on hand. In connection with the acquisition, the Company incurred approximately $0.3 million of transaction costs, which is included in general and administrative expenses on the Consolidated Statements of Operations.

Splash News is a United Kingdom based entertainment news network and is a source for image and video content across celebrity, red carpet and live events. The Company believes this acquisition expands Shutterstock Editorial’s Newsroom offering for access to premium exclusive content.

The identifiable intangible asset, developed technology, has a useful life of approximately 4 years. The goodwill arising from the transaction is primarily attributable to expected operational synergies and is not deductible for income tax purposes.

The Pond5 and Splash News transactions were accounted for using the acquisition method and, accordingly, the results of the acquired businesses have been included in the Company’s results of operations from the respective acquisition dates. The fair value of consideration transferred in these business combinations has been allocated to the intangible and tangible assets acquired and liabilities assumed at the acquisition date, with the remaining unallocated amount recorded as goodwill. The identifiable intangible assets of these acquisitions 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 name was determined using the relief-from-royalty method, and the fair value of the developed technology was determined using the relief-from-royalty and the cost to recreate methods.

The aggregate purchase price for these acquisitions has been allocated to the assets acquired and liabilities assumed as follows (in thousands):


Assets acquired and liabilities assumed:	Pond51		Splash News		Total
Cash and cash equivalents	$	11,675	$	180	$	11,855
Accounts receivable	1,273		500		$	1,773
Other assets	1,102		525		1,627

Right of use asset	1,674		—		1,674
Intangible assets:
Customer relationships	34,900		—		34,900
Trade name	5,300		—		5,300
Developed technology	27,600		1,263		28,863

Intangible assets	67,800		1,263		69,063
Goodwill	158,957		5,565		164,522

Total assets acquired	$	242,481	$	8,033	$	250,514
					—
Accounts payable, accrued expenses and other liabilities	(9,304)		(1,528)		(10,832)
Contributor royalties payable	(3,039)				(3,039)

Deferred revenue	(3,705)		—		(3,705)
Deferred tax liability	(6,381)		(189)		(6,570)
Lease liability	(2,038)		—		(2,038)
Total liabilities assumed	(24,467)		(1,717)		(26,184)
Net assets acquired	$	218,014	$	6,316	$	224,330

____________________________________________________

1 During the three months ended September 30, 2022, the Company updated its preliminary allocation of the Pond5 purchase price to the assets acquired and liabilities assumed. This resulted in a (i) $4.0 million increase to goodwill, (ii) a $4.1 million decrease to intangible assets, including a $7.0 million decrease to the value of customer relationships, partially offset by a $2.3 million increase to the value of the developed technology, and (iii) other immaterial adjustments.

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Shutterstock, Inc.

Notes to Consolidated Financial Statements

(unaudited)

Pro-Forma Financial Information (unaudited)

The following unaudited pro forma consolidated financial information (in thousands) reflects the results of operations of the Company for the three and six months ended June 30, 2023 and 2022, respectively, as if the Giphy acquisition had been completed on January 1, 2022 and as if the Pond5 and Splash News acquisitions had been completed on January 1, 2021, after giving effect to certain purchase accounting adjustments, primarily related to bargain purchase gain, Giphy Retention Compensation - non-recurring, intangible assets and transaction costs. These pro forma results have been prepared for comparative purposes only and are based on estimates and assumptions that have been made solely for purposes of developing such pro forma information 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 June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Revenue
As Reported	$	208,840	$	206,872	$	424,120	$	406,004
Pro Forma	213,840		218,452		434,120		436,287
Income before income taxes
As Reported	$	51,381	$	22,713	$	92,795	$	55,389
Pro Forma	15,511		9,318		42,137		48,686

(4) Property and Equipment

Property and equipment is summarized as follows (in thousands):


	As of June 30, 2023		As of December 31, 2022
Computer equipment and software	$	284,099	$	261,067
Furniture and fixtures	10,637		10,328
Leasehold improvements	18,921		18,635
Property and equipment	313,657		290,030
Less accumulated depreciation	(254,223)		(235,482)
Property and equipment, net	$	59,434	$	54,548

Depreciation expense related to property and equipment was $9.1 million and $8.3 million for the three months ended June 30, 2023 and 2022, respectively, and $18.2 million and $16.3 million for the six months ended June 30, 2023 and 2022, respectively. Cost of revenues included depreciation expense of $8.7 million and $7.5 million for the three months ended June 30, 2023 and 2022, respectively, and $17.3 million and $14.7 million for the six months ended June 30, 2023 and 2022, respectively. General and administrative expense included depreciation expense of $0.4 million and $0.8 million for the three months ended June 30, 2023 and 2022, respectively, and $0.9 million and $1.6 million for the six months ended June 30, 2023 and 2022, respectively.

Capitalized Internal-Use Software

The Company capitalized costs related to the development of internal-use software of $11.3 million and $10.6 million for the three months ended June 30, 2023 and 2022, respectively, and $21.6 million and $20.1 million for the six months ended June 30, 2023 and 2022, 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 $8.4 million and $7.2 million for the three months ended June 30, 2023 and 2022, respectively, and $16.8 million and $14.0 million for the six months ended June 30, 2023 and 2022, respectively. Depreciation expense related to capitalized internal-use software is included in cost of revenue in the Consolidated Statements of Operations.

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Shutterstock, Inc.

Notes to Consolidated Financial Statements

(unaudited)

As of June 30, 2023 and December 31, 2022, the Company had capitalized internal-use software of $54.9 million and $50.1 million, respectively, net of accumulated depreciation, which was included in property and equipment, net.

(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 six months ended June 30, 2023.

The following table summarizes the changes in the Company’s goodwill balance during the six months ended June 30, 2023 (in thousands):


	Goodwill
Balance as of December 31, 2022	$	381,920

Foreign currency translation adjustment	1,125

Balance as of June 30, 2023	$	383,045

Intangible Assets

Intangible assets consisted of the following as of June 30, 2023 and December 31, 2022 (in thousands):


	As of June 30, 2023							As of December 31, 2022
	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	$	89,952	$	(23,262)	$	66,690	12	$	88,996	$	(19,168)	$	69,828
Trade name	37,864		(8,014)		29,850		12	16,588		(7,209)		9,379
Developed technology	117,561		(47,945)		69,616		4	94,872		(35,288)		59,584
Contributor content	59,747		(23,916)		35,831		8	54,284		(20,098)		34,186

Patents	259		(156)		103		18	259		(149)		110

Total	$	305,383	$	(103,293)	$	202,090		$	254,999	$	(81,912)	$	173,087

Amortization expense was $10.1 million and $8.2 million for the three months ended June 30, 2023 and 2022, respectively, and $19.9 million and $15.3 million for the six months ended June 30, 2023 and 2022, respectively. Cost of revenue included amortization expense of $9.4 million and $7.6 million for the three months ended June 30, 2023 and 2022, respectively, and $18.6 million and $14.2 million for the six months ended June 30, 2023 and 2022, respectively. General and administrative expense included amortization expense of $0.7 million and $0.6 million for the three months ended June 30, 2023 and 2022, respectively, and $1.3 million and $1.1 million for the six months ended June 30, 2023 and 2022, respectively.

The Company determined that there was no indication of impairment of the intangible assets for any period presented. Estimated amortization expense is: $23.2 million for the remaining six months of 2023, $39.6 million in 2024, $29.1 million in 2025, $26.8 million in 2026, $17.9 million in 2027, $12.6 million in 2028 and $53.0 million thereafter.

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Shutterstock, Inc.

Notes to Consolidated Financial Statements

(unaudited)

(6) Accrued Expenses

Accrued expenses consisted of the following (in thousands):


	As of June 30, 2023		As of December 31, 2022
Compensation	$	58,246	$	40,314
Non-income taxes	22,411		24,390

Website hosting and marketing fees	8,507		6,608



Other expenses	23,067		18,075
Total accrued expenses	$	112,231	$	89,387

(7) Debt

On May 6, 2022, the Company entered into a five-year $100 million unsecured revolving loan facility (the “Credit Facility”) with Bank of America, N.A., as Administrative Agent and other lenders. The Credit Facility includes a letter of credit sub-facility and a swingline facility and it also permits, subject to the satisfaction of certain conditions, up to $100 million of additional revolving loan commitments with the consent of the Administrative Agent.

At the Company’s option, revolving loans accrue interest at a per annum rate based on either (i) the base rate plus a margin ranging from 0.125% to 0.500%, determined based on the Company’s consolidated leverage ratio or (ii) the Term Secured Overnight Financing Rate (“SOFR”) (for interest periods of 1, 3 or 6 months) plus a margin ranging from 1.125% to 1.5%, determined based on the Company’s consolidated leverage ratio. The Company is also required to pay an unused commitment fee ranging from 0.150% to 0.225%, determined based on the Company’s consolidated leverage ratio. In connection with the execution of this agreement, the Company paid debt issuance costs of approximately $0.6 million.

As of June 30, 2023 and December 31, 2022, the Company had $30 million and $50 million, respectively, of outstanding borrowings under the Credit Facility. As of June 30, 2023, the Company had a remaining borrowing capacity of $68 million, net of standby letters of credit. For the three and six months ended June 30, 2023, the Company recognized interest expense of $0.5 million and $0.7 million, respectively.

The Credit Facility contains financial covenants and requirements restricting certain of the Company’s activities, which are usual and customary for this type of credit facility. The Company is also required to maintain compliance with a consolidated leverage ratio and a consolidated interest coverage ratio, in each case, determined in accordance with the terms of the Credit Facility. As of June 30, 2023, the Company was in compliance with these covenants.

(8) Stockholders’ Equity and Equity-Based Compensation

Stockholders’ Equity

Common Stock

The Company issued approximately 194,000 and 130,000 shares of common stock during the three months ended June 30, 2023 and 2022, 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 (the “2015 Share Repurchase Program”), authorizing the Company to repurchase 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. As of December 31, 2022, the Company had fully utilized its authorization for repurchases under the 2015 Share Repurchase Program.

In June 2023, the Company’s Board of Directors approved a share repurchase program (the “2023 Share Repurchase Program”), authorizing the Company to purchase up to $100 million of its common stock.

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Shutterstock, Inc.

Notes to Consolidated Financial Statements

(unaudited)

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.

During the three and six months ended June 30, 2023, the Company repurchased approximately 80,400 shares of its common stock at an average cost of $49.78 under the 2023 Share Repurchase Program. During the three and six months ended June 30, 2022, the Company repurchased approximately 286,700 and 708,700 shares of its common stock at an average cost of $63.95 and $79.87, respectively, under the 2015 Share Repurchase Program.

Dividends

The Company declared and paid cash dividends of $0.27 and $0.54 per share of common stock, or $9.7 million and $19.4 million during the three and six months ended June 30, 2023, respectively, and $0.24 and $0.48 per share of common stock, or $8.7 million and $17.4 million, during the three and six months ended June 30, 2022, respectively.

On July 17, 2023, the Company’s Board of Directors declared a quarterly cash dividend of $0.27 per share of outstanding common stock payable on September 14, 2023 to stockholders of record at the close of business on August 31, 2023. 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 compensation awards, including employee Restricted Stock Units and Performance-based Restricted Stock Units (“PRSUs” and, collectively with Restricted Stock Units, “RSUs”) and stock options, based on the fair value of each award on the grant date. Awards granted prior to June 1, 2022 were granted under the Company’s Amended and Restated 2012 Omnibus Equity Incentive Plan (the “2012 Plan”). At the Annual Meeting held on June 2, 2022, the Company’s stockholders approved the 2022 Omnibus Equity Incentive Plan (the “2022 Plan”). Awards granted subsequent to June 2, 2022 were granted under the 2022 Plan.

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 and six months ended June 30, 2023 and 2022 (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Cost of revenue	$	306	$	156	$	490	$	234
Sales and marketing	2,487		1,629		3,091		2,557
Product development	4,221		2,557		6,669		4,338
General and administrative	7,929		2,701		13,336		7,740
Total	$	14,943	$	7,043	$	23,586	$	14,869

For the three and six months ended June 30, 2023 and 2022, substantially all of the Company’s non-cash equity-based compensation expense related to RSUs.

Stock Option Awards

During the six months ended June 30, 2023, no options to purchase shares of its common stock were granted. As of June 30, 2023, there were approximately 303,000 options vested and exercisable with a weighted average exercise price of $34.54.

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Shutterstock, Inc.

Notes to Consolidated Financial Statements

(unaudited)

Restricted Stock Unit Awards

During the six months ended June 30, 2023, the Company had RSU grants, net of forfeitures, of approximately 965,000. As of June 30, 2023, there are approximately 2,225,000 non-vested RSUs outstanding with a weighted average grant-date fair value of $69.87. As of June 30, 2023, the total unrecognized non-cash equity-based compensation expense related to the non-vested RSUs was approximately $116.5 million, which is expected to be recognized through 2027.

During the six months ended June 30, 2023 and 2022, shares of common stock with an aggregate value of $12.3 million and $21.0 million were withheld upon vesting of RSUs and paid in connection with related remittance of employee withholding taxes to taxing authorities.

(9) Revenue

The Company distributes its products 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 subscription-based plans that are paid on a monthly or annual basis. Customer are also able 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.

The Company’s revenues by distribution channel for the three and six months ended June 30, 2023 and 2022 are as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
E-commerce	$	111,903	$	127,388	$	231,657	$	254,458
Enterprise	96,937		79,484		192,463		151,546

Total Revenue	$	208,840	$	206,872	$	424,120	$	406,004

Deferred revenue reported on the balance sheet represents unfulfilled performance obligations for which the Company has either received payment or has outstanding receivables. The June 30, 2023 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. $126.5 million of total revenue recognized for the six months ended June 30, 2023 was reflected in deferred revenue as of December 31, 2022. In addition, as of June 30, 2023, the Company has approximately $74.5 million of contracted but unsatisfied performance obligations relating primarily to our computer vision offering, which are not included as a component of deferred revenue and that the Company expects to recognize over a five year period.

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Shutterstock, Inc.

Notes to Consolidated Financial Statements

(unaudited)

(10) Other Income / (Expense), 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 and six months ended June 30, 2023 and 2022 (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Foreign currency gain	$	551	$	(2,495)	$	1,662	$	(1,761)



Interest expense	(493)		(205)		(724)		(205)
Interest income and other	668		39		833		63
Total other income / (expense)	$	726	$	(2,661)	$	1,771	$	(1,903)

(11) Income Taxes

The Company’s effective tax rates yielded a net expense of 2.7% and 14.4% for the three months ended June 30, 2023 and 2022, respectively, and a net expense of 10.7% and 16.9% for the six months ended June 30, 2023 and 2022, respectively.

During the three months ended June 30, 2023, the net effect of discrete items decreased the effective tax rate by 13.6%. For the six months ended June 30, 2023, the net effect of discrete items decreased the effective tax rate by 7.1%. The discrete items for the three and six months ended June 30, 2023, primarily relate to the non-taxable bargain purchase gain associated with the acquisition of Giphy. Excluding discrete items, the Company’s effective tax rate would have been 16.3% and 17.8% for the three and six months ended June 30, 2023, respectively.

During the three months ended June 30, 2022, the net effect of discrete items decreased the effective tax rate by 4.9%. For the six months ended June 30, 2022, the net effect of discrete items decreased the effective tax rate by 2.2%. The discrete items for the three and six ended June 30, 2022, primarily relate to windfall tax benefits associated with equity-based compensation. Excluding discrete items, the Company’s effective tax rate would have been 19.3% and 19.1% for the three and six months ended June 30, 2022, respectively.

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 and six months ended June 30, 2023 and 2022, uncertain tax positions recorded by the Company were not significant. 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 significant for the three and six months ended June 30, 2023 and 2022.

During the six months ended June 30, 2023 and 2022, the Company paid net cash taxes of $6.8 million and $12.7 million, respectively.

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Shutterstock, Inc.

Notes to Consolidated Financial Statements

(unaudited)

(12) 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 and six months ended June 30, 2023 and 2022 (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Net income	$	50,013	$	19,445	$	82,856	$	46,017
Shares used to compute basic net income per share	36,047		36,123		35,952		36,213
Dilutive potential common shares
Stock options	119		169		136		201
Unvested restricted stock awards	240		286		402		476

Shares used to compute diluted net income per share	36,406		36,578		36,490		36,890
Basic net income per share	$	1.39	$	0.54	$	2.31	$	1.27
Diluted net income per share	$	1.37	$	0.53	$	2.27	$	1.25

Dilutive shares included in the calculation	1,112		836		1,400		1,121
Anti-dilutive shares excluded from the calculation	1,041		590		611		325

(13) Geographic Information

The following table presents the Company’s revenue based on customer location (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
North America	$	96,202	$	85,896	$	195,342	$	165,839
Europe	58,413		62,931		117,447		125,484
Rest of the world	54,225		58,045		111,331		114,681
Total revenue	$	208,840	$	206,872	$	424,120	$	406,004

The United States, included in North America in the above table, accounted for 43% and 38% of consolidated revenue for the six months ended June 30, 2023 and 2022, respectively. 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 June 30,		As of December 31,
	2023		2022
North America	$	43,931	$	42,266
Europe	15,435		12,079
Rest of the world	68		203
Total long-lived tangible assets	$	59,434	$	54,548

The United States, included in North America in the above table, accounted for 70% and 73% of total long-lived tangible assets as of June 30, 2023 and December 31, 2022, respectively. Ireland, included in Europe in the above table, accounted for 20% and 17% of total long-lived tangible assets as of June 30, 2023 and December 31, 2022, respectively. No other country accounts for more than 10% of the Company’s long-lived tangible assets in any period presented.

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Shutterstock, Inc.

Notes to Consolidated Financial Statements

(unaudited)

(14) Commitments and Contingencies

As of June 30, 2023, the Company had total non-lease obligations in the amount of approximately $78.1 million, which consisted primarily of minimum royalty guarantees and unconditional purchase obligations related to contracts for infrastructure and other business services. As of June 30, 2023, the Company’s non-lease obligations for the remainder of 2023 and for the years ending December 31, 2024, 2025, 2026, 2027 and 2028 were approximately $30.6 million, $35.0 million, $10.6 million, $1.3 million, $0.4 million and $0.2 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 June 30, 2023, 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 or in the event of a change in control or otherwise, with or without cause.

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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 in conjunction with our interim unaudited consolidated 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 2022 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 2022 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.

Overview and Recent Developments

Shutterstock, Inc. (referred to herein as the “Company”, “we,” “our,” and “us”) is a premier partner for transformative brands, digital media and marketing 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. Contributors upload their content to the Company’s web properties in exchange for royalty payments based on customer download activity. Beyond content, customers also leverage the Company’s platform to assist with the entire creative process from ideation through creative execution.

Our key content offerings include:

•Music - consisting of high-quality music tracks and sound effects, which are often used to complement images and footage.

•3 Dimensional (“3D”) Models - consisting of 3D models, used in a variety of industries such as advertising, media and video production, gaming, retail, education, design and architecture.

Our offerings are distributed to customers under the following brands: Shutterstock; Pond5; Giphy; TurboSquid; Offset; PremiumBeat; Bigstock; PicMonkey; and Splash News.

Shutterstock, our flagship brand, includes various content types such as image, footage, music and editorial. For customers seeking specialized solutions, Shutterstock Studios extends our offerings by providing custom, high-quality content matched with production tools and services at scale. In addition, our collection of images, footage clips, music tracks and 3D models is also distributed through our computer vision offering which is used by large technology companies to train AI models.

Pond5 is a video-first content marketplace which expands the Company’s content offerings across footage, image and music. PicMonkey is a leading online graphic design and image editing platform. TurboSquid operates a marketplace that offers more than one million 3D models and a 2 dimensional (“2D”) marketplace derived from 3D objects. Our Offset brand provides authentic and exceptional content for high-impact use cases that require extraordinary images, featuring work from top assignment photographers and illustrators from around the world. PremiumBeat offers exclusive high-quality music tracks and provides producers, filmmakers and marketers the ability to search handpicked production music from the world’s leading composers. Bigstock maintains a separate content library tailored for creators seeking to incorporate cost-effective imagery into their projects.

Over 2.2 million active, paying customers contributed to our revenue for the twelve-month period ended June 30, 2023. As of June 30, 2023, more than 2.7 million approved contributors made their images, footage and music tracks available in our collection, which has grown to more than 734 million images and more than 50 million footage clips as of June 30, 2023. This

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makes our collection of content one of the largest of its kind, and we delivered 81.2 million paid downloads to our customers across all of our brands during the six months ended June 30, 2023.

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.

In October 2022, Shutterstock announced our strategic partnership with OpenAI, an AI research and deployment company. In 2023, Shutterstock integrated Dall-E 2, OpenAI’s tool for AI-generated content into the Shutterstock platform to enable our customers to input keywords and generate unique images based on their specific criteria.

Through our platform, we generate revenue by licensing content to our customers. During the six months ended June 30, 2023, 55% 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. 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 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 access to (i) Shutterstock Editorial, which includes our library of editorial images and videos, (ii) Shutterstock Studios, our offering which provides custom, high-quality content matched with production tools and services at scale, and (iii) computer vision, our data partnerships offering which provides metadata associated with our content collection, used to train AI models. Our range of solutions, including the depth of our API platform integrations, appeals to a broad and diverse customer base and enables us to adapt and evolve with the needs of our more high touch clients to deliver capabilities that embed deep within their workflows. Our Enterprise sales channel provided approximately 45% of our revenue for the six months ended June 30, 2023.

Acquisition of Giphy, Inc.

On May 22, 2023, we entered into a Stock Purchase Agreement with Meta Platforms, Inc. (“Meta”) dated May 22, 2023 (the “Purchase Agreement”). On June 23, 2023, we completed its acquisition of all of the outstanding shares of Giphy, Inc. (“Giphy”) from Meta. The consideration payable, pursuant to the Purchase Agreement, is $53 million in net cash, in addition to cash acquired, assumed debt and other working capital adjustments. The consideration was paid with existing cash on hand. Giphy is a New York-based company that operates a collection of GIFs and stickers that supplies casual conversational content. The Company believes its acquisition of Giphy extends Shutterstock’s audience touchpoints beyond primarily professional marketing and advertising use cases and expands into casual conversations.

In January 2023, the United Kingdom Competition and Markets Authority (the “CMA”) issued its final order requiring Meta to divest its ownership of Giphy, which Meta acquired in 2020. In connection with the closing of the acquisition, whose terms were preapproved by the CMA, Shutterstock and Meta entered into a transitional services agreement (the “TSA”) pursuant to which Meta is responsible for certain costs related to retention of Giphy employees, including (i) recurring salary, bonus, and benefits through August 2024, which would be $35.6 million if all employees are retained through August 2024, and (ii) nonrecurring items, totaling $87.9 million, comprised of one-time employment inducement bonuses and the cash value of unvested Meta equity awards (the “Giphy Retention Compensation”).

The Giphy Retention Compensation will be paid to the individuals for being employees of the Company subsequent to the completion of the acquisition. Accordingly, we determined that the payments are for future service requirements and will be reflected as operating expenses, less any amounts earned by the employees prior to the acquisition, in our Statements of Operations as incurred. The Giphy Retention Compensation is reflected as a reduction of the purchase price and has been funded into an escrow account.

Upon closing of the acquisition, the Company also entered into an agreement with Meta whereby the Company will provide Meta with Giphy content through API services for a period of two years.

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Key Operating Metrics

In addition to key financial metrics, we regularly review a number of key operating metrics to evaluate our business, determine the allocation of resources and make decisions regarding business strategies. We believe that these metrics can be useful for understanding the underlying trends in our business.

Subscribers, subscriber revenue and average revenue per customer from acquisitions are included in these metrics beginning twelve months after the closing of the respective business combination. Accordingly, the metrics include Subscribers, Subscriber revenue, and Average revenue per customer from TurboSquid beginning February 2022, from PicMonkey beginning September 2022, and from Pond5 and Splash News beginning May 2023. These metrics exclude the respective counts and revenues from Giphy.

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. 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 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 and transactional products as well as 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 content related to our Studios business, downloads of content that are offered to customers for no charge (including our free trials), and downloads associated with our computer vision offering. Measuring the number of paid downloads that our customers make in a given period is important because it is a measure of customer engagement on our platform and triggers the recognition of 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 our Studios business, revenue that is not derived from or associated with content licenses and revenue associated with our computer vision offering. 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 and sales channel 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 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, content from our Studios business and AI generated content. Prior to December 31, 2022, this metric only included approved images and footage clips in our library on shutterstock.com at the end of the period. We believe that our large selection of high-quality content enables us to attract and retain customers and drives our network effect.

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The following table summarizes our key operating metrics, which are unaudited, for the three and six months ended June 30, 2023 and 2022:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022

Subscribers (end of period)1	556,000		368,000		556,000		368,000
Subscriber revenue (in millions)1	$	87.4	$	84.7	$	178.0	$	170.1

Average revenue per customer (last twelve months)1	$	374	$	359	$	374	$	359
Paid downloads (in millions)	38.5		43.4		81.2		88.0
Revenue per download	$	4.71	$	4.46	$	4.56	$	4.34
Content in our collection (end of period, in millions):
Images	734		511		734		511


Footage clips	50		27		50		27

___________________________________________________

1 Subscribers, Subscriber Revenue and Average Revenue Per Customer from acquisitions are included in these metrics beginning twelve months after the closing of the respective business combination. Accordingly, the metrics include Subscribers, Subscriber revenue, and Average revenue per customer from TurboSquid beginning February 2022, from PicMonkey beginning September 2022, and from Pond5 and Splash News beginning May 2023. These metrics exclude the respective counts and revenues from our acquisition of Giphy.

Critical Accounting 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. Therefore, we consider these to be our critical accounting estimates. Actual results could differ from those estimates.

A description of our critical accounting policies that involve significant management judgments appears in our 2022 Form 10-K, under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting 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 estimates as compared to our critical accounting policies and estimates included in our 2022 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, 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 and six months ended June 30, 2023 and 2022 are as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
E-commerce	$	111,903	$	127,388	$	231,657	$	254,458
Enterprise	96,937		79,484		192,463		151,546

Total Revenues	$	208,840	$	206,872	$	424,120	$	406,004

Costs and Expenses