View Filing Data

Document and Entity Information - shares	9 Months Ended
Document and Entity Information - shares	Sep. 30, 2013	Nov. 06, 2013
Document and Entity Information
Entity Registrant Name	Shutterstock, Inc.
Entity Central Index Key	0001549346
Document Type	10-Q
Document Period End Date	Sep. 30, 2013
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding		35,004,044
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q3

Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2013	Dec. 31, 2012
Current assets:
Cash and cash equivalents	$ 195,519	$ 102,096
Credit card receivables	2,526	1,373
Accounts receivable, net	5,450	1,738
Prepaid expenses and other current assets	25,604	2,008
Deferred tax assets, net	4,347	18,760
Total current assets	233,446	125,975
Property and equipment, net	8,634	5,255
Intangible assets, net	871	1,040
Goodwill	1,423	1,423
Deferred tax assets, net	12,566	13,239
Restricted cash	2,016	182
Total assets	258,956	147,114
Current liabilities:
Accounts payable	5,248	2,606
Accrued expenses	19,664	15,606
Contributor royalties payable	9,002	6,984
Deferred revenue	49,929	37,934
Term loan facility		6,000
Other liabilities	204	161
Total current liabilities	84,047	69,291
Other non-current liabilities	1,709	889
Total liabilities	85,756	70,180
Commitments and contingencies (Note 8)
Stockholders' equity:
Common stock, $0.01 par value; 200,000 shares authorized; 35,004 and 33,513 shares outstanding as of September 30, 2013 and December 31, 2012, respectively	351	335
Additional paid-in capital	125,912	48,282
Retained earnings	46,937	28,317
Total stockholders' equity	173,200	76,934
Total liabilities and stockholders' equity	$ 258,956	$ 147,114

Consolidated Balance Sheets (Parenthetical) - $ / shares shares in Thousands	Sep. 30, 2013	Dec. 31, 2012
Consolidated Balance Sheets
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	200,000	200,000
Common stock, shares outstanding	35,004	33,513

Consolidated Statements of Operations - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Consolidated Statements of Operations
Revenue	$ 59,558	$ 42,260	$ 167,484	$ 120,459
Operating expenses:
Cost of revenue	22,936	16,057	64,525	45,882
Sales and marketing	14,947	9,752	40,240	33,085
Product development	5,685	3,795	15,300	10,655
General and administrative	6,076	3,765	16,590	11,943
Total operating expenses	49,644	33,369	136,655	101,565
Income from operations	9,914	8,891	30,829	18,894
Other income (expense), net	20	(3)	29	3
Income before provision for income taxes	9,934	8,888	30,858	18,897
Provision for income taxes	3,740	146	12,238	374
Net income	6,194	8,742	18,620	18,523
Less:
Preferred interest distributed		2,263		6,051
Undistributed earnings (loss) to participating stockholder/members	18	(77)	59	(1,419)
Net income available to common stockholders/members	$ 6,176	$ 6,556	$ 18,561	$ 13,891
Net income (loss) per basic share available to common stockholders/members:
Distributed (in dollars per share)		$ 0.32		$ 0.87
Undistributed (in dollars per share)	$ 0.18	(0.01)	$ 0.55	(0.20)
Basic (in dollars per share)	0.18	0.31	0.55	0.67
Net income (loss) per diluted share available to common stockholders/members:
Distributed (in dollars per share)		0.32		0.87
Undistributed (in dollars per share)	0.18	(0.01)	0.55	(0.20)
Diluted (in dollars per share)	$ 0.18	$ 0.31	$ 0.55	$ 0.67
Weighted average shares outstanding:
Basic (in shares)	33,692,876	20,849,242	33,522,289	20,849,242
Diluted (in shares)	34,280,656	20,849,242	34,043,573	20,849,242

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$ 18,620	$ 18,523
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	2,738	1,888
Deferred taxes	15,086	(251)
Non-cash equity-based compensation	4,422	2,827
Excess tax benefit from the exercise of stock options	(3,226)
Bad debt reserve	464	131
Chargeback and sales refund reserves	85
Amortization of deferred financing fees	125
Changes in operating assets and liabilities:
Credit card receivable	(1,153)	(1,136)
Accounts receivable	(4,176)	(861)
Prepaid expenses and other current and non-current assets	(20,508)	(3,635)
Due from member		168
Accounts payable and other liabilities	5,971	5,998
Contributors royalties payable	2,018	1,473
Deferred revenue	11,995	7,763
Net cash provided by operating activities	32,461	32,888
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(4,788)	(3,268)
Acquisition of patents		(193)
Security (payment) deposit /receipt	(1,821)	38
Net cash used in investing activities	(6,609)	(3,423)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common stock in follow-on offering	65,895
Proceeds from exercise of stock options	5,068
Excess tax benefit from the exercise of stock options	3,226
(Payment) proceeds of term loan	(6,000)	12,000
Payment of term loan fee		(80)
Payment of offering fees	(618)	(2,489)
Members' distributions		(24,200)
Net cash provided by (used in) financing activities	67,571	(14,769)
Net increase in cash and cash equivalents	93,423	14,696
Cash and cash equivalents-Beginning	102,096	14,097
Cash and cash equivalents-Ending	195,519	28,793
Cash paid for:
Income taxes	14,194	$ 300
Interest	34
Supplemental Disclosure of Non-Cash Investing Activities:
Capital expenditures in accounts payable	$ 1,160

Summary of Operations and Significant Accounting Policies

9 Months Ended

Sep. 30, 2013

Summary of Operations and Significant Accounting Policies

Summary of Operations and Significant Accounting Policies

(1) Summary of Operations and Significant Accounting Policies

Summary of Operations

Shutterstock, Inc. (the “Company” or “Shutterstock”) operates an industry-leading global marketplace for commercial digital imagery. Commercial digital imagery consists of licensed photographs, illustrations and videos that companies use in their visual communications, such as websites, digital and print marketing materials, corporate communications, books, publications and video content. The Company licenses commercial digital imagery to its customers. Contributors upload their digital imagery to the Company’s website in exchange for a royalty payment based on customer download activity. The Company maintains its primary office location in New York City.

Principles of Consolidation

The consolidated financial statements reflect the operations of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Unaudited Interim Financial Statements

The interim consolidated balance sheet as of September 30, 2013, the consolidated statements of operations for the three and nine months ended September 30, 2013 and 2012, and the consolidated statements of cash flows for the nine months ended September 30, 2013 and 2012 are unaudited. The unaudited interim financial statements have been prepared on a basis consistent with the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to state fairly the Company’s financial position as of September 30, 2013, its results of consolidated operations for the three and nine months ended September 30, 2013 and 2012, and its results of consolidated cash flows for the nine months ended September 30, 2013 and 2012. The financial data and the other financial information disclosed in these notes to the financial statements related to these periods are also unaudited. The results of operations for the three and nine months ended September 30, 2013 are not necessarily indicative of the results to be expected for the year ending December 31, 2013 or for any other future annual or interim period.

There have been no changes in the significant accounting policies from those that were disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012 filed on March 1, 2013 with the Securities and Exchange Commission (the “SEC”). These financial statements should also be read in conjunction with the audited Consolidated Financial Statements and Notes thereto for the year ended December 31, 2012. Certain information and note disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) have been omitted pursuant to the rules and regulations of the SEC. The consolidated balance sheet as of December 31, 2012 included herein was derived from the audited financial statements as of that date, but does not include all disclosures required by GAAP.

Reorganization

In May 2012, in connection with the filing of a registration statement for the Company’s initial public offering (the “IPO”), Shutterstock Images LLC, a New York limited liability company (the “LLC”) formed Shutterstock, Inc., a Delaware corporation, as a wholly-owned subsidiary of the LLC. On October 5, 2012, the LLC reorganized, by way of a merger of the LLC with and into Shutterstock, Inc. with Shutterstock, Inc. surviving in the merger (the “Reorganization”). In connection with this Reorganization, the preferred and common membership interests in the LLC, including any interests that vested upon the Reorganization, were exchanged for shares of Shutterstock, Inc. common stock and the outstanding value appreciation rights of the LLC were exchanged for options to purchase shares of common stock of Shutterstock, Inc.

Follow-On Offering

On September 25, 2013, the Company completed a follow-on offering of 5,290,000 shares of its common stock, which included 690,000 shares of common stock sold by the Company and certain stockholders as a result of the underwriters’ exercise of their option to purchase additional shares, at a price of $60.00 per share. The Company sold 1,150,000 shares of common stock in the offering and the selling stockholders sold 4,140,000 shares of common stock in the offering. The aggregate offering price for shares sold by the Company in the offering resulted in net proceeds to the Company of $65,895 after deducting underwriting discounts and commissions, and before deducting total expenses incurred in connection with the offering of approximately $945.

Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company’s management to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the period. The Company evaluates its significant estimates on an ongoing basis, including, but not limited to allowance for doubtful accounts, goodwill, intangibles, non-cash equity-based compensation, income tax provision and for certain non-income tax accruals. The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid securities with original maturities of three months or less when acquired to be cash equivalents. Cash primarily consists of balances in checking, savings and money market accounts. The account balances are recorded at cost, which approximates fair value because of the short-term nature of the accounts, and are considered a Level 1 measurement based on bank reporting.

Revenue Recognition

All revenue, net of chargebacks and refunds, is generated from the license of digital content through subscription or usage based plans. The Company’s four plans are: subscription plans, On Demand plans, Pay As You Go, and credit pack plans. The Company recognizes revenue when the following basic criteria are met: there is persuasive evidence of an arrangement, performance or delivery of services has occurred, the sales price is fixed or determinable, and collectability is reasonably assured. The Company considers persuasive evidence of an arrangement to be an electronic order form, or a signed contract, which contains the fixed pricing terms. Performance or delivery is considered to have occurred upon the ratable passage of time for subscription plans, the download of digital content or the expiration of a contract period for which there are unused downloads or credits. Collectability is reasonably assured since most of the Company’s customers purchase products by making electronic payments at the time of a transaction with a credit card. 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 September 30, 2013 and December 31, 2012, the Company recorded a chargeback and sales refund allowances of $155 and $70, respectively, which is included in other liabilities. Collectability is assessed for customers who pay on credit based on a credit evaluation for new customers and transaction history with existing customers. Any cash received in advance of performance or delivery is recorded as deferred revenue.

Subscription plans range in length from thirty days to one year. Subscription plan revenues are recognized on a straight-line basis using a daily convention method over the plan term. On Demand plans are typically for a one-year term and permit the customer to download up to a fixed amount of digital content. On Demand revenues are recognized at the time the customer downloads the digital content on a per unit basis. Revenue related to unused digital content, if any, is recognized in full at the end of the plan term assuming no further Company obligation remains. Pay As You Go plans provide for individual image download. The Company recognizes Pay As You Go revenue as the customer downloads images. Credit pack plans are generally for a one-year term and enable the customer to purchase a fixed number of credits which can then be utilized to pay for downloaded digital content. The number of credits utilized for each download depends on the digital content size and format. Credit pack revenues are recognized based on customer usage on a per credit basis as digital content is downloaded. Revenue related to unused credits, if any, is recognized in full at the end of the plan term assuming no further Company obligation remains. Most plans automatically renew at the end of the plan term unless the customer elects not to renew. The Company recognizes revenue from its four types of plans on a gross basis in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605-45, “Principal Agent Considerations,” as the Company is the primary obligor in the arrangement, has latitude in establishing the product’s price, performs a detailed review of the digital content before accepting it to its collection to ensure it is of high quality before it may be purchased by its customers, can reject contributor’s images in its sole discretion, and has credit risk.

Customers typically pay in advance (or upon commencement of the term) via credit card, wire or check. Fees paid or invoiced in advance are deferred and recognized as described above. Customers that do not pay in advance are invoiced and are required to make payment under standard credit terms. The Company does not generally offer refunds or the right of return to customers. There are situations in which a customer may receive a refund but the determination is made on a case-by-case basis.

The Company also licenses digital content to customers through third party resellers. The Company contracts with third party resellers around the world to access markets where the Company does not have a significant presence. Third party resellers sell the Company’s products directly to end-user customers and remit a fixed amount to the Company based on the type of plan sold. The terms of the reseller program indicate that the third party reseller is the primary obligor to the end-user customer and bears the risks and rewards as principal in the transaction. In assessing whether the Company’s revenue should be reported on a gross or net basis with respect to our reseller program, the Company follows the authoritative guidance in ASC 605-45, “Principle Agent Considerations.” The Company recognizes revenue net of reseller commission in accordance with the type of plan sold, consistent with the plan descriptions above. The Company generally does not offer refunds or the right of return to resellers.

Equity-Based Compensation

Between June 7, 2007 and October 5, 2012, the Company was organized as a limited liability company. Beginning in 2011, the Company granted equity rights similar to options under its Value Appreciation Rights Plan (“VAR Plan”) in the form of value appreciation rights (the “VAR Plan awards”). Each VAR Plan award had an exercise price, a vesting period and an expiration date, in addition to other terms and conditions similar to typical equity option grant terms and conditions. The VAR Plan awards were subject to a time-based vesting requirement and a condition that a change of control occur in order to trigger a payment with respect to the VAR Plan awards. In connection with the Reorganization, all of the VAR Plan awards were exchanged for options to purchase an aggregate of 1,661,719 shares of common stock of Shutterstock, Inc. with only a time-based vesting requirement, which were granted pursuant to the Company’s 2012 Omnibus Equity Incentive Plan (the “2012 Plan”).

The Company measures and recognizes non-cash equity-based compensation expense for all equity-based payment awards based on estimated fair values at the date awards are granted. The value portion of the award that is ultimately expected to vest is recognized as expense over the requisite service period. For awards with a change of control condition, an evaluation is made at the grant date and future periods as to the likelihood of the condition being met. Compensation expense is adjusted in future periods for subsequent changes in the expected outcome of the change of control conditions until the vesting date. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

The Company uses the Black-Scholes option-pricing model to determine the fair value of stock options and other equity-based awards granted pursuant to the 2012 Plan, stock purchased pursuant to the Employee Stock Purchase Plan (“2012 ESPP”) and the VAR Plan awards, which are discussed further in Note 10, Equity-Based Compensation.

The determination of the grant date fair value using an option-pricing model requires judgment as well as assumptions regarding a number of complex and subjective variables. These variables include the Company’s fair value of the common ownership interest pre-IPO, the Company’s closing market price at the grant date post-IPO, the expected unit price volatility over the expected term of the awards, awards’ exercise and cancellation behaviors, risk-free interest rates, and expected dividends, which are estimated as follows:

· Fair Value of Common Membership Unit. Prior to completion of the IPO, the Company’s fair value of common ownership interest was estimated internally and approved by the Board of Managers (“BOM”) because the Company was not publicly traded. The Company’s intention upon granting VAR Plan awards was for the granted award to have an exercisable price per unit that was not less than the per unit fair value of the Company’s common equity on the date of grant. The valuations of the Company’s common equity unit were prepared in accordance with the American Institute of Certified Public Accountants Statement on Standards for Valuation Services 1: Valuation of a Business, Business Ownership Interest, Security, or Intangible Asset. The assumptions used in the valuation model were based on future expectations combined with the Company’s judgment. In the absence of a public trading market, the Company exercised significant judgment and considered numerous objective and subjective factors to determine the fair value of the common equity unit as of the date of each VAR Plan award grant. Some, but not all of these factors included operating and financial performance, current business conditions and projections, the hiring of key personnel, the Company’s history and introduction of new functionality and services, the Company’s stage of development, the likelihood of achieving a liquidity event for the common ownership interests, any adjustment necessary to recognize a lack of marketability for our common ownership interests, the market performance of comparable publicly traded companies, and U.S. and global capital market conditions. The Company also obtained independent third party valuations on a periodic basis. After October 11, 2012, the date the Company’s common stock began trading on the NYSE, the grant date fair value for equity-based awards is based on the closing price of the Company’s common stock on the NYSE on the date of grant and fair value for all other purposes related to equity-based awards shall be the closing price of the Company’s common stock on the NYSE on the relevant date.

· Expected Term. The expected term was estimated using the simplified method allowed under SEC guidance.

· Volatility. As the Company did not have a trading history for its common ownership interest pre-IPO and does not have a significant trading history for its common stock post-IPO, the expected price volatility for the common ownership interests and common stock was estimated by taking the average historic price volatility for industry peers based on daily price observations over a period equivalent to the expected term of the VAR Plan awards and stock options granted post-IPO. Industry peers consist of several public companies similar in size, stage of life cycle and financial leverage. The Company did not rely on implied volatilities of traded options in the industry peers’ common stock because the volume of activity was relatively low. The Company intends to continue to consistently apply this process using the same or similar public companies until a sufficient amount of historical information regarding the volatility of the Company’s own common stock becomes available, or unless circumstances change such that the identified companies are no longer similar to the Company, in which case, more suitable companies whose share prices are publicly available would be utilized in the calculation.

· Risk-free Interest Rate. The risk-free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected term of each award group.

· Dividend Yield. The Company has historically paid cash dividends or distributions to its members. Post-IPO, the Company does not intend to pay cash dividends or distributions in the foreseeable future. As a result, the Company uses an expected dividend yield of zero.

If any of the assumptions used in the Black-Scholes model changes significantly, the fair value for future awards may differ materially compared with the awards granted previously. The awards granted pursuant to the 2012 Plan, the 2012 ESPP and VAR Plan are subject to a time-based vesting requirement. The majority of stock option awards granted under the 2012 Plan vest over four years. The 2012 ESPP provides for purchase periods approximately every six months and a participant must be employed on the purchase date to participate in the 2012 ESPP. The VAR Plan awards had a condition that a change of control (as defined in the VAR Plan) must occur for a payment to trigger with respect to the VAR Plan awards. In connection with the Company’s Reorganization, all of the VAR Plan awards were exchanged for options to purchase shares of common stock of Shutterstock, Inc. which do not include a change of control condition. As of September 30, 2012, no equity-based compensation expense related to the VAR Plan awards had been recognized because the qualifying event had not occurred. As a result of the completion of the IPO, the Company began recording share-based compensation expense using the accelerated attribution method, net of forfeitures, based on the grant date fair value of the VAR Plan awards that were exchanged for options to purchase shares of common stock of Shutterstock, Inc. as part of the Company’s Reorganization.

For any equity-based awards that qualified for liability classification pre-IPO, the Company elected to use the intrinsic value method to value the common membership interest in accordance with authoritative guidance on stock compensation. See Note 10, Equity-Based Compensation, for further information.

Income Taxes

The Company filed its income tax returns as a limited liability company and was taxed as a “pass through” partnership for federal and state income tax purposes for all periods prior to its Reorganization on October 5, 2012. For all periods prior to the Reorganization, the Company recognized no federal and state income taxes, as the members of the LLC, and not the Company itself, were subject to income tax on their allocated share of the Company’s earnings. However, the Company was subject to taxation on allocable portions of its net income or other taxes based on various methodologies employed by taxing authorities in certain localities. The Company generally made monthly dividend distributions to its members under the terms of the LLC’s operating agreement, subject to the Company’s operating cash needs.

Effective with the Reorganization, the Company became a Delaware corporation, and therefore became subject to federal and state tax expense after October 5, 2012. As a result of this tax status change, the Company recorded an incremental net deferred tax asset and a one-time non-cash tax benefit of approximately $28,811 in the fourth quarter of the fiscal year ended December 31, 2012.

The Company filed tax returns as a partnership for the period from January 1, 2012 through October 5, 2012 and filed tax returns as a corporation for the period from October 6, 2012 through December 31, 2012 and will continue to do so for all periods thereafter. Significant management judgment is required in projecting ordinary income in order to determine the Company’s estimated effective tax rate.

The Company accounts for unrecognized tax benefits using a more-likely-than-not threshold for financial statement recognition and measurement of tax positions, taken or expected to be taken, in a tax return. The Company establishes reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes may be due. The Company records an income tax liability, if any, for the difference between the benefit recognized and measured and the tax position taken or expected to be taken on the Company’s tax returns. To the extent that the assessment of such tax positions changes, the change in estimate is recorded in the period in which the determination is made. The reserves, if any, are adjusted in light of changing facts and circumstances, such as the outcome of a tax audit or lapses in statutes of limitations. Any reserve for uncertain tax positions is included in the income tax provision. Penalties and interest, if any, on uncertain tax positions are included in income tax expense.

The Company assessed the realizability of deferred tax assets and determined that based on the available evidence, including a history of taxable income and estimates of future taxable income, it is more likely than not that the deferred tax assets will be realized. The Company will continue to evaluate its ability to realize deferred tax assets on a quarterly basis. Significant management judgment is required in determining the provision for income taxes and deferred tax assets and liabilities. In the event that actual results differ from these estimates, the Company will adjust these estimates in future periods which may result in a change in the effective tax rate in a future period.

The Company is subject to certain compliance requirements for non-income taxes, including but not limited to payroll, value-added and sales-based taxes. Where appropriate, the Company has made accruals for these matters, which are reflected in the Company’s consolidated financial statements.

Net Income Per Share

Basic net income per share is computed by dividing the net income attributable to common stockholders/members by the weighted average number of common shares outstanding during the period. The Company applies the two-class method for calculating and presenting income per share. Under the two-class method, net income is allocated between shares of common stock and other participating securities based on their contractual participating rights to share in the earnings as if all of the earnings for the period have been distributed. Participating securities are defined as securities that participate in dividends with common stock according to a pre-determined formula or a contractual obligation to share in the income of the entity. Any potential issuance of common shares, including those that are contingent and do not participate in dividends, are excluded from weighted average number of common shares outstanding. Undistributed net income (loss) for a given period is apportioned to participating members based on the weighted average number of each class of securities outstanding during the applicable period as a percentage of the combined weighted average number of these securities outstanding during the period. Income available to common stockholders/members is computed by deducting dividends paid to preferred members, accretion to redemption value on preferred members shares, less income allocated to participating securities including unvested shares for the restricted award holder since these unvested shares have participating rights. See Note 10, Equity-Based Compensation, for further discussion.

Diluted net income per share is computed by dividing the net income available to common stockholders/members adjusted for any changes in income that would result from the assumed conversion of the potential common shares by the weighted average common shares outstanding and all potential common shares, if they are dilutive. For all periods presented, diluted net income available to common stockholders/members includes the effect of 1,589,748 options to purchase common stock while 376,550 options to purchase common stock were excluded since they were anti-dilutive. The Company had no assumed shares available to purchase for the three and nine months ended September 30, 2012.

A reconciliation of assumed exercised shares used in calculating basic and diluted net income (loss) per share available to common stockholders/members follows:

	Three Months Ended September 30,		Nine Months Ended September 30,
	2013	2012	2013	2012
Basic	33,692,876	20,849,242	33,522,289	20,849,242
Stock options and employee stock purchase plan shares	536,741	—	444,556	—
Unvested restricted stock awards	51,039	—	76,728	—
Diluted	34,280,656	20,849,242	34,043,573	20,849,242

Comprehensive Income (Loss)

Comprehensive income (loss) includes certain changes in stockholders’ equity that are excluded from net income (loss) such as cumulative foreign currency translation adjustments and unrealized gains or losses on marketable securities. The Company’s net income equals comprehensive income for the three and nine months ended September 30, 2013 and 2012.

Recently Issued Accounting Standard Updates

None of the recently issued accounting standard updates is expected to have a material impact.

Information About Revenue By Geographic Area

9 Months Ended

Sep. 30, 2013

Information About Revenue By Geographic Area

Information About Revenue By Geographic Area

(2) Information About Revenue By Geographic Area

The following represents our revenue based on customer location:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
North America	$	21,556	$	15,211	$	60,762	$	42,841
Europe	20,746		14,985		59,927		44,553
Rest of the world	17,256		12,064		46,795		33,065
Total revenue	$	59,558	$	42,260	$	167,484	$	120,459

Included in North America is the United States which comprises 32% and 31% of total revenue for the three months ended September 30, 2013 and 2012, respectively, and 32% of total revenue for each of the nine months ended September 30, 2013 and 2012. No other country accounts for more than 10% of the Company’s revenue in any period. All long-lived assets are located in the United States.

Income Taxes	9 Months Ended
Income Taxes	Sep. 30, 2013
Income Taxes
Income Taxes	(6) Income Taxes The Company’s effective tax rates for the three month periods ended September 30, 2013 and 2012 are 37.6% and 1.6%, respectively. The Company’s effective tax rates for the nine month periods ended September 30, 2013 and 2012 are 39.7 % and 2.0%, respectively. The Company incurred a discrete tax expense relating to a change in its state apportionment percentage during the nine months ended September 30, 2013, which increased the effective tax rate by 0.1%. Excluding this discrete expense, the effective rate would be 39.6%. The Company has computed the provision for income taxes based on the estimated annual effective tax rates and the application of discrete items, if any, in the period applicable. Effective with the Reorganization on October 5, 2012, the Company became a Delaware corporation, and therefore became subject to federal and state tax expense. For all periods prior to the Reorganization, the Company filed its income tax returns as a limited liability company and was taxed as a “pass through” partnership for federal and state income tax purposes and recognized no federal and state income taxes, as the members of the LLC, and not the Company itself, were subject to income tax on their allocated share of the Company’s earnings. The effective tax rate differs from the statutory tax rate due primarily to non-deductible expense related to non-cash equity-based compensation, and meals and entertainment. During the three months ended September 30, 2013 and 2012, the Company recorded an unrecognized tax benefit in the amount of $2 and $0, respectively, and during the nine months ended September 30, 2013 and 2012, the Company recorded an unrecognized tax benefit in the amount of $986 and $18, respectively, for uncertain tax positions taken for current and prior years. To the extent these unrecognized tax benefits 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 accrued interest and penalties in the amount of $2 and $13 related to unrecognized tax benefits for the three and nine months ended September 30, 2013. The Company did not accrue any interest or penalties related to unrecognized tax benefits for the three and nine months ended September 30, 2012. The Company filed Form 3115, Application for Change in Method of Accounting, with the Internal Revenue Service (“IRS”) during the third quarter period ended 2013, to change its tax accounting method for revenue from a cash basis to accrual basis for years beginning after December 31, 2012. As a result, the Company will defer revenue on its 2013 and subsequent tax returns until performance or delivery thereby reducing taxable income. The Company will eventually pay taxes with respect to the deferred revenue when the related revenue is performed or delivered in the future. While the change did not impact the net income tax expense, it resulted in a reclassification of approximately $17,300 between current deferred tax assets and prepaid and other current assets in the current quarter.

Term Loan Facility	9 Months Ended
Term Loan Facility	Sep. 30, 2013
Term Loan Facility
Term Loan Facility	(7) Term Loan Facility On September 21, 2012, the Company entered into a Loan and Security Agreement with Silicon Valley Bank providing for a $12,000 term loan facility, which the Company refers to as the term loan facility. On December 24, 2012, the Company paid down $6,000 of the term loan facility. On March 25, 2013, the Company paid off the remaining $6,000 of the loan facility. At September 30, 2013 and December 31, 2012, the Company recorded accrued interest in the amount of $0 and $3, respectively, which is included in accrued expenses. The Company capitalizes costs directly associated with acquiring third party financing. During the three and nine months ended September 30, 2013, the Company accelerated and recognized $0 and $125 as a result of paying off the term loan facility. As of December 31, 2012, deferred financing costs, net of accumulated amortization were $125. The Company was in compliance with the financial covenants and other covenants applicable to it under the term loan facility prior to paying off the term loan facility on March 25, 2013.

Commitments and Contingencies	9 Months Ended
Commitments and Contingencies	Sep. 30, 2013
Commitments and Contingencies
Commitments and Contingencies	(8) Commitments and Contingencies The Company leases facilities under agreements accounted for as operating leases. Rental expense, inclusive of operating leases, for the three months ended September 30, 2013 and 2012 was $801 and $430, respectively, and for the nine months ended September 30, 2013 and 2012 was $1,830 and $1,151, respectively. Some leases have defined escalating rent provisions, which are expensed over the term of the related lease on a straight-line basis commencing with the date of possession. Any rent allowance or abatement is netted in this calculation. All leases require payment of real estate taxes and operating expense. On March 21, 2013, the Company entered into an operating lease agreement to lease new office facilities in New York, New York. The Company took possession of the premises during the third quarter of 2013 and as a result the lease commenced. The Company recorded an expense related to the new office facilities which is included in the rental expenses for the three and nine months ended September 30, 2013. The Company also entered into a letter of credit in the amount of $1,829 as a security deposit for the leased facilities. The letter of credit was collateralized by $1,829 of cash as of September 30, 2013, and as such, is reported as restricted cash on the consolidated balance sheet. The lease term is eleven years from the commencement date and aggregate future minimum lease payments are approximately $42,200. *Capital Expenditures* For the nine months ended September 30, 2013 and 2012, the Company spent approximately $3,429 and $2,505, respectively, for servers and related hardware to accommodate increased business volume. The additions are included in “Assets—Property and equipment, net” on the balance sheet. As of September 30, 2013, the Company had no significant committed purchases related to data server equipment. *Unconditional Purchase Obligations* As of September 30, 2013 and December 31, 2012, the Company had unconditional purchase obligations in the amount of $4,185 and $3,409, which consisted primarily of contracts related to infrastructure services and contractual commitments for marketing services. As of September 30, 2013, the Company’s unconditional purchase obligations for the remainder of 2013 and for the years ending December 31, 2014 and 2015 are $907, $2,445 and $833, respectively. As of December 31, 2012, the Company’s unconditional purchase obligations for the years ending December 31, 2013, 2014 and 2015 are $2,274, $943 and $192, respectively. *Legal Matters* From time to time, the Company may become party to litigation in the ordinary course of business. 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’s reserves may change 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, as such, no material reserves related to litigation. In addition, the Company receives, from time to time, inquiries related to potential intellectual property infringement matters. To date, the outcome of these inquiries has not had a material impact on the Company’s operations or financial results. *Indemnifications* 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 the modifications made by the customer or the context in which an image is used. The standard maximum aggregate obligation and liability to any one customer for all claims is limited to $10. The Company offers certain of its customers greater levels of indemnification, including, in some cases, unlimited indemnification. As of September 30, 2013 and as of December 31, 2012, the Company has recorded no liabilities related to indemnification obligations in accordance with the authoritative guidance for loss contingencies. Additionally, the Company believes that it has the appropriate insurance coverage in place to adequately cover such indemnification obligations, if necessary. *Employment Agreements* The Company has entered into employment and change of control arrangements with certain executive officers and with certain employees. The agreements specify various employment-related matters, including annual compensation, performance incentive bonuses, and severance benefits in the event of termination with or without cause.

Employee Benefit Plans	9 Months Ended
Employee Benefit Plans	Sep. 30, 2013
Employee Benefit Plans
Employee Benefit Plans	(9) Employee Benefit Plans The Company has a 401(k) defined contribution plan (“401(k) Plan”) and provides for annual discretionary employer matching contributions not to exceed 3% of employees’ compensation per year. Matching contributions also are fully vested and non-forfeitable at all times. The Company recorded employer matching contributions of $186 and $129 for the three months ended September 30, 2013 and 2012, respectively, and $503 and $398 for the nine months ended September 30, 2013 and 2012, respectively.

Distributions to Members	9 Months Ended
Distributions to Members	Sep. 30, 2013
Distributions to Members
Distributions to Members	(11) Distributions to Members Prior to the Reorganization and in accordance with the Company’s Amended and Restated Limited Liability Company Agreement, as amended, the LLC made cash distributions to the members based on their respective percentage interest to the extent cash was available as determined by the board. During the nine months ended September 30, 2012, the LLC made $24,200 in cash distributions to the preferred and common members. There have been no distributions made since the Reorganization on October 5, 2012.

Related Parties	9 Months Ended
Related Parties	Sep. 30, 2013
Related Parties
Related Parties	(12) Related Parties In connection with the follow-on offering in September 2013, Pixel Holdings Inc. ("Pixel Holdings"), an entity of which Jonathan Oringer, the Company’s Founder, Chief Executive Officer and Chairman of the Board, was the sole stockholder, merged with and into the Company on September 18, 2013. In this merger, Mr. Oringer received an equivalent number of shares of common stock of the Company as the number that was previously owned by Pixel Holdings such that, following the merger, Mr. Oringer owns his interest in the Company directly rather than through Pixel Holdings. As a result of the merger, the Company assumed $208 in liabilities primarily related to Pixel Holdings’ normal operating activities. The Company paid these liabilities during the third quarter of 2013 and was fully indemnified by Mr. Oringer, as provided for in the merger agreement, as of September 30, 2013. The merger agreement also provided for certain customary representations and warranties.

Summary of Operations and Significant Accounting Policies (Details) $ / shares in Units, $ in Thousands		9 Months Ended
	Sep. 25, 2013 USD ($) $ / shares shares	Sep. 30, 2013 USD ($) item	Dec. 31, 2012 USD ($)
Follow-On Offering
Total shares in follow-on offering	5,290,000
Shares issued upon exercise of underwriters' option to purchase additional share	690,000
Common stock, issue price (in dollars per share) \| $ / shares	$ 60.00
Common stock sold by the entity (in shares)	1,150,000
Common stock sold by shareholders (in shares)	4,140,000
Net proceeds from issuance of common stock \| $	$ 65,895	$ 65,895
Offering expenses \| $	$ 945
Revenue recognition
Number of subscription or usage based plans \| item		4
Chargeback and sales refund allowances \| $		$ 155	$ 70
Subscription plans \| Minimum
Revenue recognition
Plan term		30 days
Subscription plans \| Maximum
Revenue recognition
Plan term		1 year
On Demand plans
Revenue recognition
Plan term		1 year
Credit-pack plans
Revenue recognition
Plan term		1 year

Property and Equipment (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
Property and Equipment (Details) - USD ($) $ in Thousands	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	Dec. 31, 2012
Property and Equipment
Property and equipment	$ 14,630		$ 14,630		$ 10,261
Less accumulated depreciation	(5,996)		(5,996)		(5,006)
Property and equipment, net	8,634		8,634		5,255
Depreciation expense	956	$ 665	2,569	$ 1,701
Computer equipment and software
Property and Equipment
Property and equipment	11,867		11,867		8,971
Furniture and fixtures
Property and Equipment
Property and equipment	1,433		1,433		806
Leasehold improvements
Property and Equipment
Property and equipment	$ 1,330		$ 1,330		$ 484

Accrued Expenses (Details) - USD ($) $ in Thousands	Sep. 30, 2013	Dec. 31, 2012
Accrued Expenses
Royalty tax withholdings	$ 5,122	$ 4,644
Non-income taxes	3,861	3,567
Accrued compensation	4,810	4,246
Accrued marketing	371	588
Professional fees	684	469
Other accrued expenses	4,816	2,092
Total accrued expenses	$ 19,664	$ 15,606

Income Taxes (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
Income Taxes (Details) - USD ($) $ in Thousands	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Income Taxes
Effective tax rate (as a percent)	37.60%	1.60%	39.70%	2.00%
Discrete tax expense relating to a change in state apportionment (as a percent)			0.10%
Effective tax rate before discrete tax expense relating to a change in state apportionment (as a percent)			39.60%
Federal income tax			$ 0
State income tax			0
Unrecognized tax benefits, uncertain tax positions taken in prior years	$ 2	$ 0	986	$ 18
Unrecognized tax benefits, interest and penalties accrued	$ 2		13
Amount of reclassification of between current deferred tax assets and prepaid and other current assets			$ 173,000

Term Loan Facility (Details) - USD ($) $ in Thousands				3 Months Ended	9 Months Ended
Term Loan Facility (Details) - USD ($) $ in Thousands	Mar. 25, 2013	Dec. 24, 2012	Sep. 21, 2012	Sep. 30, 2013	Sep. 30, 2013	Sep. 30, 2012	Dec. 31, 2012
Term Loan Facility
Payment of term loan facility					$ 6,000	$ (12,000)
Amortization of financing costs					125
Term Loan
Term Loan Facility
Amount borrowed			$ 12,000
Payment of term loan facility	$ 6,000	$ 6,000
Accrued interest				$ 0	0		$ 3
Amortization of financing costs				$ 0	$ 125
Deferred financing costs, net of accumulated amortization							$ 125

Employee Benefit Plans (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
Employee Benefit Plans (Details) - USD ($) $ in Thousands	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Employee Benefit Plans
Annual discretionary employer matching contributions (as a percent)			3.00%
Employer matching contributions	$ 186	$ 129	$ 503	$ 398

Equity-Based Compensation (Details 2) - USD ($) $ in Thousands		3 Months Ended		9 Months Ended
	Jun. 03, 2013	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Equity-Based Compensation
Non-cash stock-based compensation expense, net of estimated forfeitures		$ 1,852	$ 670	$ 4,422	$ 2,827
VAR Plan
Equity-Based Compensation
Non-cash stock-based compensation expense, net of estimated forfeitures		1,425		3,169	0
2012 ESPP
Equity-Based Compensation
Non-cash stock-based compensation expense, net of estimated forfeitures		138	0	$ 428	0
Number of shares issued under ESPP				73,717
Restricted stock units
Vesting period of granted award				6 months
2012 Plan
Equity-Based Compensation
Non-cash stock-based compensation expense, net of estimated forfeitures			0		0
Restricted stock units
Vesting period of granted award				4 years
Restricted stock/restricted stock units
Equity-Based Compensation
Non-cash stock-based compensation expense, net of estimated forfeitures		289		$ 825
Unrecognized compensation charge		$ 3,000		3,000
Restricted stock
Equity-Based Compensation
Liability re-classed to equity				$ 5,147
Restricted stock units
Restricted stock units
Percentage of granted award which will vest	25.00%
Remaining percentage of granted award which will vest quarterly	75.00%
Remaining vesting period of granted award	3 years
Vesting period of granted award	4 years
Restricted stock units \| 2012 Plan
Restricted stock units
Awarded (in shares)	10,000
Profits Interest Agreement
Equity-Based Compensation
Non-cash stock-based compensation expense, net of estimated forfeitures			$ 670		$ 2,827
Profits Interest Agreement \| Executive
Equity-Based Compensation
Profit interest grant vesting period				6 years

Distributions to Members (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
Distributions to Members (Details) - USD ($) $ in Thousands	Sep. 30, 2012	Sep. 30, 2013
Distributions to Members
Cash distributions made	$ 24,200	$ 0

Related Parties (Details) $ in Thousands	Sep. 18, 2013 USD ($)
Pixel Holdings Inc.
Related parties
Assumed liability related to related party transaction	$ 208