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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~~September 30, 2022

☐ 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, 21st Floor

New York, NY 10118

(Address of principal executive offices, including zip code)

(646) 710-3417

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

______________________________________________________________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each 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 ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No

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

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated 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 22,~~October 21, 2022, ~~35,968,440~~35,815,050 shares of the registrant’s common stock, $0.01 par value per share, were outstanding.

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Shutterstock, Inc.

FORM 10-Q

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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, those discussed under the caption “Risk Factors” in our most recently filed Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission (the “SEC”) on February 10, 2022 (our “2021 Form 10-K”), under the caption “Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, which was filed with the SEC on July 26, 2022, and in our consolidated financial statements, related notes, and the other information appearing elsewhere in the 2021 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,” “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,			September 30,		December 31,
		2022		2021			2022		2021

ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	84,046	$	314,017	Cash and cash equivalents	$	76,244	$	314,017

Accounts receivable, net of allowance of $2,990 and $1,910		48,816		47,707
Accounts receivable, net of allowance of $3,498 and $1,910						Accounts receivable, net of allowance of $3,498 and $1,910	52,713		47,707
Prepaid expenses and other current assets	Prepaid expenses and other current assets	30,394		26,491		Prepaid expenses and other current assets	32,095		26,491

Total current assets	Total current assets	163,256		388,215		Total current assets	161,052		388,215
Property and equipment, net	Property and equipment, net	52,549		48,074		Property and equipment, net	55,141		48,074
Right-of-use assets	Right-of-use assets	34,293		34,570		Right-of-use assets	32,946		34,570
Intangible assets, net	Intangible assets, net	185,860		123,822		Intangible assets, net	172,916		123,822
Goodwill	Goodwill	377,654		219,816		Goodwill	379,505		219,816
Deferred tax assets, net	Deferred tax assets, net	8,709		10,512		Deferred tax assets, net	12,391		10,512
Other assets	Other assets	26,247		26,701		Other assets	26,229		26,701
Total assets	Total assets	$	848,568	$	851,710	Total assets	$	840,180	$	851,710
LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	5,889	$	10,092	Accounts payable	$	6,467	$	10,092
Accrued expenses	Accrued expenses	84,547		99,529		Accrued expenses	80,699		99,529
Contributor royalties payable	Contributor royalties payable	34,853		29,004		Contributor royalties payable	35,974		29,004

Deferred revenue	Deferred revenue	178,353		180,979		Deferred revenue	174,384		180,979
Debt	Debt	50,000		—		Debt	50,000		—
Other current liabilities	Other current liabilities	14,309		14,180		Other current liabilities	12,549		14,180
Total current liabilities	Total current liabilities	367,951		333,784		Total current liabilities	360,073		333,784
Deferred tax liability, net	Deferred tax liability, net	4,592		2,781		Deferred tax liability, net	3,495		2,781

Lease liabilities	Lease liabilities	37,397		36,966		Lease liabilities	35,871		36,966
Other non-current liabilities	Other non-current liabilities	9,535		9,697		Other non-current liabilities	10,158		9,697
Total liabilities	Total liabilities	419,475		383,228		Total liabilities	409,597		383,228
Commitments and contingencies (Note 14)	Commitments and contingencies (Note 14)	0		0		Commitments and contingencies (Note 14)

Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:

Common stock, $0.01 par value; 200,000 shares authorized; 39,482 and 39,209 shares issued and 35,981 and 36,417 shares outstanding as of June 30, 2022 and December 31, 2021, respectively		395		392
Treasury stock, at cost; 3,501 and 2,792 shares as of June 30, 2022 and December 31, 2021, respectively		(183,800)		(127,196)
Common stock, $0.01 par value; 200,000 shares authorized; 39,585 and 39,209 shares issued and 35,809 and 36,417 shares outstanding as of September 30, 2022 and December 31, 2021, respectively						Common stock, $0.01 par value; 200,000 shares authorized; 39,585 and 39,209 shares issued and 35,809 and 36,417 shares outstanding as of September 30, 2022 and December 31, 2021, respectively	396		392
Treasury stock, at cost; 3,776 and 2,792 shares as of September 30, 2022 and December 31, 2021, respectively						Treasury stock, at cost; 3,776 and 2,792 shares as of September 30, 2022 and December 31, 2021, respectively	(200,008)		(127,196)
Additional paid-in capital	Additional paid-in capital	370,934		376,537		Additional paid-in capital	380,325		376,537
Accumulated comprehensive loss	Accumulated comprehensive loss	(16,619)		(10,788)		Accumulated comprehensive loss	(22,720)		(10,788)
Retained earnings	Retained earnings	258,183		229,537		Retained earnings	272,590		229,537
Total stockholders’ equity	Total stockholders’ equity	429,093		468,482		Total stockholders’ equity	430,583		468,482
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	848,568	$	851,710	Total liabilities and stockholders’ equity	$	840,180	$	851,710

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,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021

Revenue	Revenue	$	206,872	$	189,912	$	406,004	$	373,193	Revenue	$	204,096	$	194,439	$	610,100	$	567,632

Operating expenses:	Operating expenses:									Operating expenses:
Cost of revenue	Cost of revenue	77,019		67,757		146,470		129,589		Cost of revenue	79,911		69,634		226,381		199,223
Sales and marketing	Sales and marketing	54,229		45,896		107,558		87,817		Sales and marketing	47,777		54,456		155,335		142,273
Product development	Product development	17,162		11,993		30,788		22,724		Product development	17,534		13,565		48,322		36,289
General and administrative	General and administrative	33,088		31,041		63,896		61,720		General and administrative	30,189		34,615		94,085		96,335
Total operating expenses	Total operating expenses	181,498		156,687		348,712		301,850		Total operating expenses	175,411		172,270		524,123		474,120
Income from operations	Income from operations	25,374		33,225		57,292		71,343		Income from operations	28,685		22,169		85,977		93,512

Other (expense) / income, net		(2,661)		1,323		(1,903)		(1,139)
Other expense, net										Other expense, net	(1,546)		(1,749)		(3,449)		(2,888)
Income before income taxes	Income before income taxes	22,713		34,548		55,389		70,204		Income before income taxes	27,139		20,420		82,528		90,624
Provision for income taxes	Provision for income taxes	3,268		5,094		9,372		11,236		Provision for income taxes	4,099		4,391		13,471		15,627
Net income	Net income	$	19,445	$	29,454	$	46,017	$	58,968	Net income	$	23,040	$	16,029	$	69,057	$	74,997

Earnings per share:	Earnings per share:									Earnings per share:
Basic	Basic	$	0.54	$	0.81	$	1.27	$	1.62	Basic	$	0.64	$	0.44	$	1.91	$	2.05
Diluted	Diluted	$	0.53	$	0.79	$	1.25	$	1.58	Diluted	$	0.64	$	0.43	$	1.88	$	2.01

Weighted average common shares outstanding:	Weighted average common shares outstanding:									Weighted average common shares outstanding:
Basic	Basic	36,123		36,570		36,213		36,453		Basic	35,929		36,622		36,117		36,510
Diluted	Diluted	36,578		37,189		36,890		37,218		Diluted	36,269		37,417		36,681		37,285

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,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021

Net income	Net income	$	19,445	$	29,454	$	46,017	$	58,968	Net income	$	23,040	$	16,029	$	69,057	$	74,997
Foreign currency translation (loss) / gain		(4,945)		64		(5,831)		290
Foreign currency translation loss										Foreign currency translation loss	(6,101)		(1,842)		(11,932)		(1,552)

Other comprehensive (loss) / income		(4,945)		64		(5,831)		290
Other comprehensive loss										Other comprehensive loss	(6,101)		(1,842)		(11,932)		(1,552)
Comprehensive income	Comprehensive income	$	14,500	$	29,518	$	40,186	$	59,258	Comprehensive income	$	16,939	$	14,187	$	57,125	$	73,445

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																								Additional Paid-in Capital					Accumulated Other Comprehensive Income / (Loss)			Retained Earnings
		Common Stock					Treasury Stock															Common Stock							Treasury Stock							Additional Paid-in Capital		Accumulated Other Comprehensive Income / (Loss)		Retained Earnings
Three Months Ended June 30, 2022		Shares		Amount			Shares		Amount									Total
Balance at March 31, 2022			39,352		$	394		3,214		$	(165,465)			$	373,765						$	(11,674)			$	247,403		$	444,423
Three Months Ended September 30, 2022																										Three Months Ended September 30, 2022		Shares			Amount			Shares								Amount								Additional Paid-in Capital				Accumulated Other Comprehensive Income / (Loss)				Retained Earnings	Total
Balance at June 30, 2022																										Balance at June 30, 2022				39,482		$	395		3,501										$	(183,800)									$	429,093

Equity-based compensation	Equity-based compensation		—		—			—		—				7,044				—				—				7,044	Equity-based compensation				—			—			—				—						9,088				—								—	9,088

Issuance of common stock in connection with employee stock option exercises and RSU vesting	Issuance of common stock in connection with employee stock option exercises and RSU vesting		242		2			—		—		566				—			—				568			Issuance of common stock in connection with employee stock option exercises and RSU vesting				120		2			—				—				1,240					—					—				1,242
Common shares withheld for settlement of taxes in connection with equity-based compensation	Common shares withheld for settlement of taxes in connection with equity-based compensation		(112)		(1)			—		—		(10,441)				—			—				(10,442)			Common shares withheld for settlement of taxes in connection with equity-based compensation				(17)		(1)			—				—				(937)					—			—				(938)

Repurchase of treasury shares	Repurchase of treasury shares		—		—			287		(18,335)		—				—			—				(18,335)			Repurchase of treasury shares				—		—			275				(16,208)				—					—			—				(16,208)
Cash dividends paid	Cash dividends paid		—		—			—		—		—				—			(8,665)				(8,665)			Cash dividends paid				—		—			—				—				—					—			(8,633)				(8,633)
Other comprehensive loss	Other comprehensive loss		—		—			—		—		—				(4,945)			—				(4,945)			Other comprehensive loss				—		—			—				—				—					(6,101)			—				(6,101)
Net income	Net income		—		—			—		—		—				—			19,445				19,445			Net income				—		—			—				—				—					—			23,040				23,040
Balance at June 30, 2022			39,482		$	395		3,501		$	(183,800)	$	370,934			$	(16,619)		$	258,183			$	429,093
Balance at September 30, 2022																										Balance at September 30, 2022				39,585		$	396		3,776				$	(200,008)			$	380,325				$	(22,720)		$	272,590			$	430,583

Three Months Ended June 30, 2021
Balance at March 31, 2021			39,010		$	391		2,558		$	(100,027)	$	357,422			$	(7,455)		$	190,173			$	440,504
Three Months Ended September 30, 2021																										Three Months Ended September 30, 2021
Balance at June 30, 2021																										Balance at June 30, 2021				39,173		$	392		2,558				$	(100,027)			$	360,404				$	(7,391)		$	211,956			$	465,334

Equity-based compensation	Equity-based compensation		—		—			—		—		9,686				—			—				9,686			Equity-based compensation				—		—			—				—				8,743					—			—				8,743

Issuance of common stock in connection with employee stock option exercises and RSU vesting	Issuance of common stock in connection with employee stock option exercises and RSU vesting		244		2			—		—		490				—			—				492			Issuance of common stock in connection with employee stock option exercises and RSU vesting				28		—			—				—				217					—			—				217
Repurchase of treasury shares																										Repurchase of treasury shares				—		—			42				(4,858)				—					—			—				(4,858)
Common shares withheld for settlement of taxes in connection with equity-based compensation	Common shares withheld for settlement of taxes in connection with equity-based compensation		(81)		(1)			—		—		(7,194)				—			—				(7,195)			Common shares withheld for settlement of taxes in connection with equity-based compensation				(10)		—			—				—				(1,044)					—			—				(1,044)

Cash dividends paid	Cash dividends paid		—		—			—		—		—				—			(7,671)				(7,671)			Cash dividends paid				—		—			—				—				—					—			(7,683)				(7,683)
Other comprehensive income			—		—			—		—		—				64			—				64
Other comprehensive loss																										Other comprehensive loss				—		—			—				—				—					(1,842)			—				(1,842)
Net income	Net income		—		—			—		—		—				—			29,454				29,454			Net income				—		—			—				—				—					—			16,029				16,029
Balance at June 30, 2021			39,173		$	392		2,558		$	(100,027)	$	360,404			$	(7,391)		$	211,956			$	465,334
Balance at September 30, 2021																										Balance at September 30, 2021				39,191		$	392		2,600				$	(104,885)			$	368,320				$	(9,233)		$	220,302			$	474,896

Six Months Ended June 30, 2022
Nine Months Ended September 30, 2022																										Nine Months Ended September 30, 2022
Balance at December 31, 2021	Balance at December 31, 2021		39,209		$	392		2,792		$	(127,196)	$	376,537			$	(10,788)		$	229,537			$	468,482		Balance at December 31, 2021				39,209		$	392		2,792				$	(127,196)			$	376,537				$	(10,788)		$	229,537			$	468,482

Equity-based compensation	Equity-based compensation		—		—			—		—		14,870				—			—				14,870			Equity-based compensation				—		—			—				—				23,958					—			—				23,958

Issuance of common stock in connection with employee stock option exercises and RSU vesting	Issuance of common stock in connection with employee stock option exercises and RSU vesting		503		5			—		—		563				—			—				568			Issuance of common stock in connection with employee stock option exercises and RSU vesting				623		7			—				—				1,803					—			—				1,810
Common shares withheld for settlement of taxes in connection with equity-based compensation	Common shares withheld for settlement of taxes in connection with equity-based compensation		(230)		(2)			—		—		(21,036)				—			—				(21,038)			Common shares withheld for settlement of taxes in connection with equity-based compensation				(247)		(3)			—				—				(21,973)					—			—				(21,976)

Repurchase of treasury shares	Repurchase of treasury shares		—		—			709		(56,604)		—				—			—				(56,604)			Repurchase of treasury shares				—		—			984				(72,812)				—					—			—				(72,812)
Cash dividends paid	Cash dividends paid		—		—			—		—		—				—			(17,371)				(17,371)			Cash dividends paid				—		—			—				—				—					—			(26,004)				(26,004)
Other comprehensive loss	Other comprehensive loss		—		—			—		—		—				(5,831)			—				(5,831)			Other comprehensive loss				—		—			—				—				—					(11,932)			—				(11,932)
Net income	Net income		—		—			—		—		—				—			46,017				46,017			Net income				—		—			—				—				—					—			69,057				69,057
Balance at June 30, 2022			39,482		$	395		3,501		$	(183,800)	$	370,934			$	(16,619)		$	258,183			$	429,093
Balance at September 30, 2022																										Balance at September 30, 2022				39,585		$	396		3,776				$	(200,008)			$	380,325				$	(22,720)		$	272,590			$	430,583

Six Months Ended June 30, 2021
Nine Months Ended September 30, 2021																										Nine Months Ended September 30, 2021
Balance at December 31, 2020	Balance at December 31, 2020		38,803		$	389		2,558		$	(100,027)	$	360,939			$	(7,681)		$	168,305			$	421,925		Balance at December 31, 2020				38,803		$	389		2,558				$	(100,027)			$	360,939				$	(7,681)		$	168,305			$	421,925

Equity-based compensation	Equity-based compensation		—		—			—		—		17,896				—			—				17,896			Equity-based compensation				—		—			—				—				26,639					—			—				26,639

Issuance of common stock in connection with employee stock option exercises and RSU vesting	Issuance of common stock in connection with employee stock option exercises and RSU vesting		601		6			—		—		1,795				—			—				1,801			Issuance of common stock in connection with employee stock option exercises and RSU vesting				629		6			—				—				2,012					—			—				2,018
Common shares withheld for settlement of taxes in connection with equity-based compensation	Common shares withheld for settlement of taxes in connection with equity-based compensation		(231)		(3)			—		—		(20,226)				—			—				(20,229)			Common shares withheld for settlement of taxes in connection with equity-based compensation				(241)		(3)			—				—				(21,270)					—			—				(21,273)

Repurchase of treasury shares																										Repurchase of treasury shares				—		—			42				(4,858)				—					—			—				(4,858)
Cash dividends paid	Cash dividends paid		—		—			—		—		—				—			(15,317)				(15,317)			Cash dividends paid				—		—			—				—				—					—			(23,000)				(23,000)
Other comprehensive income			—		—			—		—		—				290			—				290
Other comprehensive loss																										Other comprehensive loss				—		—			—				—				—					(1,552)			—				(1,552)
Net income	Net income		—		—			—		—		—				—			58,968				58,968			Net income				—		—			—				—				—					—			74,997				74,997
Balance at June 30, 2021			39,173		$	392		2,558		$	(100,027)	$	360,404			$	(7,391)		$	211,956			$	465,334
Balance at September 30, 2021																										Balance at September 30, 2021				39,191		$	392		2,600				$	(104,885)			$	368,320				$	(9,233)		$	220,302			$	474,896

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,					Nine Months Ended September 30,
		2022		2021			2022		2021

CASH FLOWS FROM OPERATING ACTIVITIES	CASH FLOWS FROM OPERATING ACTIVITIES					CASH FLOWS FROM OPERATING ACTIVITIES
Net income	Net income	$	46,017	$	58,968	Net income	$	69,057	$	74,997
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	31,575		20,243		Depreciation and amortization	49,834		33,731

Deferred taxes	Deferred taxes	(3,602)		1,782		Deferred taxes	(6,874)		420
Non-cash equity-based compensation	Non-cash equity-based compensation	14,869		17,896		Non-cash equity-based compensation	23,958		26,639

Bad debt expense	Bad debt expense	620		213		Bad debt expense	993		182

Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:

Accounts receivable	Accounts receivable	(762)		(6,056)		Accounts receivable	(5,541)		(1,628)
Prepaid expenses and other current and non-current assets	Prepaid expenses and other current and non-current assets	(1,207)		(5,892)		Prepaid expenses and other current and non-current assets	(3,157)		(11,469)

Accounts payable and other current and non-current liabilities	Accounts payable and other current and non-current liabilities	(28,980)		6,359		Accounts payable and other current and non-current liabilities	(32,927)		24,639

Contributor royalties payable	Contributor royalties payable	3,713		1,750		Contributor royalties payable	5,236		1,200

Deferred revenue	Deferred revenue	(2,669)		11,953		Deferred revenue	(3,290)		13,147
Net cash provided by operating activities	Net cash provided by operating activities	$	59,574	$	107,216	Net cash provided by operating activities	$	97,289	$	161,858

CASH FLOWS FROM INVESTING ACTIVITIES	CASH FLOWS FROM INVESTING ACTIVITIES					CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	Capital expenditures	(20,797)		(15,337)		Capital expenditures	(32,922)		(21,167)

Business combination, net of cash acquired	Business combination, net of cash acquired	(212,096)		(72,165)		Business combination, net of cash acquired	(211,843)		(181,772)
Asset acquisitions	Asset acquisitions	(150)		—		Asset acquisitions	(1,667)		(31,440)

Acquisition of content	Acquisition of content	(6,999)		(3,396)		Acquisition of content	(11,191)		(7,890)

Security deposit payment	Security deposit payment	(281)		(65)		Security deposit payment	(282)		(138)
Net cash used in investing activities	Net cash used in investing activities	$	(240,323)	$	(90,963)	Net cash used in investing activities	$	(257,905)	$	(242,407)

CASH FLOWS FROM FINANCING ACTIVITIES	CASH FLOWS FROM FINANCING ACTIVITIES					CASH FLOWS FROM FINANCING ACTIVITIES

Repurchase of treasury shares	Repurchase of treasury shares	(56,937)		—		Repurchase of treasury shares	(73,488)		(4,171)
Proceeds from exercise of stock options	Proceeds from exercise of stock options	568		1,801		Proceeds from exercise of stock options	1,810		2,018

Cash paid related to settlement of employee taxes related to RSU vesting	Cash paid related to settlement of employee taxes related to RSU vesting	(21,038)		(20,229)		Cash paid related to settlement of employee taxes related to RSU vesting	(21,976)		(21,273)
Payment of cash dividend	Payment of cash dividend	(17,371)		(15,317)		Payment of cash dividend	(26,004)		(23,000)

Proceeds from credit facility	Proceeds from credit facility	50,000		—		Proceeds from credit facility	50,000		—

Payment of debt issuance costs	Payment of debt issuance costs	(619)		—		Payment of debt issuance costs	(619)		—

Net cash used in financing activities	Net cash used in financing activities	$	(45,397)	$	(33,745)	Net cash used in financing activities	$	(70,277)	$	(46,426)

Effect of foreign exchange rate changes on cash	Effect of foreign exchange rate changes on cash	(3,825)		(36)		Effect of foreign exchange rate changes on cash	(6,880)		(1,020)
Net decrease in cash and cash equivalents	Net decrease in cash and cash equivalents	(229,971)		(17,528)		Net decrease in cash and cash equivalents	(237,773)		(127,995)

Cash and cash equivalents, beginning of period	Cash and cash equivalents, beginning of period	314,017		428,574		Cash and cash equivalents, beginning of period	314,017		428,574
Cash and cash equivalents, end of period	Cash and cash equivalents, end of period	$	84,046	$	411,046	Cash and cash equivalents, end of period	$	76,244	$	300,579

Supplemental Disclosure of Cash Information:	Supplemental Disclosure of Cash Information:					Supplemental Disclosure of Cash Information:
Cash paid for income taxes	Cash paid for income taxes	$	12,700	$	9,495	Cash paid for income taxes	$	19,476	$	14,811
Cash paid for interest	Cash paid for interest	90		—		Cash paid for interest	474		—

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 the leading global creative platform for transformative brands and media companies. The Company’s platform brings together users and contributors of content by providing readily-searchable content that our customers pay to license and by compensating contributors as their content is licensed. Contributors upload their content to the Company’s web properties in exchange for royalty payments based on customer download activity.

The Company’s key 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. This offering became available upon the Company’s acquisition of TurboSquid, Inc. on February 1, 2021.

•Creative Design Software - consisting of the Company’s online graphic design and image editing platform. This offering became available after the Company completed the acquisition of substantially all of the assets and assumption of certain liabilities from PicMonkey, LLC (“PicMonkey”) on September 3, 2021.

On May 11, 2022, the Company completed its acquisition of Pond5, Inc. (“Pond5”), a video-first content marketplace which expands Shutterstock’s content offerings across footage, image and music. On May 28, 2022, Shutterstock acquired SCP 2020 Limited (“Splash News”), an entertainment news network for newsrooms and media companies, which offers image and video content across celebrity, red carpet and live events.

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~~September 30, 2022, and the Consolidated Statements of Operations, Comprehensive Income and Stockholders’ Equity for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, and the Consolidated Statements of Cash Flows for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, are unaudited. The Consolidated Balance Sheet as of December 31, 2021, 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~~September 30, 2022, and its consolidated results of operations, comprehensive income, stockholders’ equity and cash flows for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021. 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~~nine months ended ~~June~~September 30, 2022 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2022 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, 2021 included in the Company’s Annual Report on Form 10-K, which was filed with the SEC on February 10, 2022. 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

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Shutterstock, Inc.

Notes to Consolidated Financial Statements

(unaudited)

consolidation. Certain immaterial changes in presentation have been made to conform the prior period presentation to current period reporting.

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 and money market funds.

Allowance for Doubtful Accounts

The Company’s accounts receivable consists of customer obligations due under normal trade terms, carried at their face value less an allowance for doubtful accounts, if required. The Company determines its allowance for doubtful accounts based on an evaluation of (i) the aging of its accounts receivable considering historical receivables loss rates, (ii) on a customer-by-customer basis, where appropriate, and (iii) the economic environments in which the Company operates.

During the ~~six~~nine months ended ~~June~~September 30, 2022, the Company recorded bad debt expense of ~~$0.6~~$1.0 million. As of ~~June~~September 30, 2022 and December 31, 2021, the Company’s allowance for doubtful accounts was approximately ~~$3.0~~$3.5 million and $1.9 million, respectively. The allowance for doubtful accounts is included as a reduction of accounts receivable on the Consolidated Balance Sheets.

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~~September 30, 2022 and December 31, 2021, 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. Subsequent to the acquisition of PicMonkey, the Company also generates revenue from tools made available through the Company’s platform.

The Company recognizes revenue upon the satisfaction of performance obligations. For content licenses, 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 made available through the Company’s platform, revenue is recognized on a straight-line basis over the 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 reasonably assured at the time the electronic order or contract is entered. The majority 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.

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Shutterstock, Inc.

Notes to Consolidated Financial Statements

(unaudited)

The Company recognizes revenue gross of contributor royalties because the Company is the principal in the transaction, as it is the party responsible for the performance obligation and it controls the product or service before transferring it to the customer. The Company also licenses content to customers through third-party resellers. Third-party resellers sell the Company’s products directly to customers as the principal in those transactions. Accordingly, the Company recognizes revenue net of costs paid to resellers.

Interest expense

Interest expense is comprised of borrowing costs on debt. In addition, interest expense includes amortization of debt issuance costs and unused commitment fees associated with the Company’s credit facility.

Debt issuance costs are recorded in prepaid expenses and other current assets and other assets in the Consolidated Balance Sheets and are amortized over the term of the credit facility.

(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~~September 30, 2022 or December 31, 2021, except as noted below.

Cash Equivalents

Cash equivalents include money market accounts and are classified as a level 1 measurement based on quoted prices in active markets for identical assets that the reporting entity can access at the measurement date. As of December 31, 2021, the Company had cash equivalent balances of $195.1 million. As of ~~June~~September 30, 2022, the Company did not have any cash equivalent balances.

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 property and equipment, intangible assets and goodwill, are not required to be measured at fair value on a recurring basis. However, if the Company is required to evaluate a non-financial asset for impairment, whether due to certain triggering events or because annual impairment testing is required, a resulting asset impairment would require that the non-financial asset be recorded at fair value.

Long-term Investments

As of ~~June~~September 30, 2022 and December 31, 2021, 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~~September 30, 2022, 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

Pond5, Inc.

On May 11, 2022, the Company completed its acquisition of Pond5, for approximately ~~$218.3 million, subject to customary working capital adjustments.~~$218.0 million. The total purchase price was paid with existing cash on hand as well as a $50 million drawdown on a newly established revolving credit facility (See Note 7). In connection with the acquisition, the Company incurred approximately $3.6 million of transaction costs, which is included in general and administrative expenses on the Consolidated Statements of Operations.

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Shutterstock, Inc.

Notes to Consolidated Financial Statements

(unaudited)

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 ~~12.2~~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.

Splash News

On May 28, 2022, the Company completed its acquisition of Splash News, for approximately $6.3 million. The total purchase price was paid with existing cash on hand in the three months ended June 30, 2022. 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. For the three and nine months ended ~~June~~September 30, 2022, revenue of ~~$7.2~~$13.1 million and $20.3 million, respectively, was included in the Consolidated Statements of Operations related to these acquired companies. 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.

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Shutterstock, Inc.

Notes to Consolidated Financial Statements

(unaudited)

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 (in thousands):	Assets acquired and liabilities assumed (in thousands):	Pond51		Splash News1		Total		Assets acquired and liabilities assumed (in thousands):	Pond51		Splash News1		Total
Cash and cash equivalents	Cash and cash equivalents	$	11,675	$	180	$	11,855	Cash and cash equivalents	$	11,675	$	180	$	11,855
Accounts receivable	Accounts receivable	1,273		500		$	1,773	Accounts receivable	1,273		500		$	1,773
Other assets	Other assets	1,102		525		1,627		Other assets	1,102		525		1,627

Right of use asset	Right of use asset	1,674		—		1,674		Right of use asset	1,674		—		1,674
Intangible assets:	Intangible assets:					—		Intangible assets:
Customer relationships	Customer relationships	41,900		—		41,900		Customer relationships	34,900		—		34,900
Trade name	Trade name	4,700		—		4,700		Trade name	5,300		—		5,300
Developed technology	Developed technology	25,300		1,263		26,563		Developed technology	27,600		1,263		28,863

Intangible assets	Intangible assets	71,900		1,263		73,163		Intangible assets	67,800		1,263		69,063
Goodwill	Goodwill	154,949		5,565		160,514		Goodwill	158,957		5,565		164,522
Deferred tax asset		—		—		—

Total assets acquired	Total assets acquired	$	242,573	$	8,033	$	250,606	Total assets acquired	$	242,481	$	8,033	$	250,514
						—							—
Accounts payable, accrued expenses and other liabilities	Accounts payable, accrued expenses and other liabilities	(8,090)		(1,528)		(9,618)		Accounts payable, accrued expenses and other liabilities	(9,304)		(1,528)		(10,832)
Contributor royalties payable	Contributor royalties payable	(3,039)		0		(3,039)		Contributor royalties payable	(3,039)				(3,039)

Deferred revenue	Deferred revenue	(3,705)		—		(3,705)		Deferred revenue	(3,705)		—		(3,705)
Deferred tax liability	Deferred tax liability	(7,434)		(189)		(7,623)		Deferred tax liability	(6,381)		(189)		(6,570)
Lease liability	Lease liability	(2,038)		—		(2,038)		Lease liability	(2,038)		—		(2,038)
Total liabilities assumed	Total liabilities assumed	(24,306)		(1,717)		(26,023)		Total liabilities assumed	(24,467)		(1,717)		(26,184)
Net assets acquired	Net assets acquired	$	218,267	$	6,316	$	224,583	Net assets acquired	$	218,014	$	6,316	$	224,330

1 The allocation of the purchase price is preliminary and will be finalized within the allowable measurement period once independent valuations of the fair value of the assets acquired and liabilities assumed are completed. 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.

2021 Acquisitions

PicMonkey, LLC

On September 3, 2021, the Company completed the acquisition of substantially all of the assets and assumption of certain liabilities from PicMonkey, for approximately $109.4 million. The total purchase price was paid with existing cash on hand in the three months ended September 30, 2021. In connection with the acquisition, the Company incurred approximately $2 million of transaction costs, which is included in general and administrative expenses on the Consolidated Statements of Operations.

PicMonkey is a Washington-based company that operates an online graphic design and image editing platform that enables creators of any skill level to design high-quality visual assets. The Company believes this acquisition provides Shutterstock’s global customer community with professional-grade, easy-to-use design tools.

The identifiable intangible assets, which include customer relationships, developed technology and trade names, have weighted average lives of approximately 12 years, 5 years and 10 years, respectively. The goodwill arising from the transaction is primarily attributable to expected operational synergies and is expected to be deductible for income tax purposes.

TurboSquid, Inc.

On February 1, 2021, the Company completed its acquisition of TurboSquid, Inc. (“TurboSquid”), for approximately $77.3 million. The total purchase price was paid with existing cash on hand in the three months ended March 31, 2021. In connection with the acquisition, the Company incurred approximately $1.6 million of transaction costs, which is included in general and administrative expenses on the Consolidated Statements of Operations.

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Shutterstock, Inc.

Notes to Consolidated Financial Statements

(unaudited)

TurboSquid is a Louisiana-based company that operates a marketplace offering more than one million 3D models, a marketplace for 2D images derived from 3D objects and a digital asset management solution. The Company believes this

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~~Shutterstock, Inc.~~

~~Notes to Consolidated Financial Statements~~

~~(unaudited)~~

acquisition establishes Shutterstock as the premium destination for 3D models as well as 3D models in an easy-to-use 2D format.

The identifiable intangible assets, which include customer relationships, developed technology, trade names and contributor content, have weighted average useful lives of approximately 12 years, 4.7 years, 10 years and 4 years, respectively. The goodwill arising from the transaction is primarily attributable to expected operational synergies and is not deductible for income tax purposes.

The PicMonkey and TurboSquid 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 names and developed technology were determined using the relief-from-royalty method, and the fair value of the contributor content was determined using the cost-to-recreate method.

The 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 (in thousands):	Assets acquired and liabilities assumed (in thousands):	PicMonkey		TurboSquid		Total		Assets acquired and liabilities assumed (in thousands):	PicMonkey		TurboSquid		Total
Cash and cash equivalents	Cash and cash equivalents	$	—	$	5,165	$	5,165	Cash and cash equivalents	$	—	$	5,165	$	5,165

Other assets	Other assets	502		1,553		2,055		Other assets	502		1,553		2,055
Property and equipment	Property and equipment	—		472		472		Property and equipment	—		472		472
Right of use asset	Right of use asset	1,420		—		1,420		Right of use asset	1,420		—		1,420
Intangible assets:	Intangible assets:					—		Intangible assets:
Customer relationships	Customer relationships	28,800		9,000		37,800		Customer relationships	28,800		9,000		37,800
Trade name	Trade name	3,000		2,200		5,200		Trade name	3,000		2,200		5,200
Developed technology	Developed technology	12,900		7,800		20,700		Developed technology	12,900		7,800		20,700
Contributor content	Contributor content	—		2,500		2,500		Contributor content	—		2,500		2,500
Intangible assets	Intangible assets	44,700		21,500		66,200		Intangible assets	44,700		21,500		66,200
Goodwill	Goodwill	71,607		59,491		131,098		Goodwill	71,607		59,491		131,098
Deferred tax asset	Deferred tax asset	2,456		—		2,456		Deferred tax asset	2,456		—		2,456
Total assets acquired	Total assets acquired	$	120,685	$	88,181	$	208,866	Total assets acquired	$	120,685	$	88,181	$	208,866

Accounts payable, accrued expenses and other liabilities	Accounts payable, accrued expenses and other liabilities	(780)		(4,685)		(5,465)		Accounts payable, accrued expenses and other liabilities	(780)		(4,685)		(5,465)
Contributor royalties payable	Contributor royalties payable	—		(2,243)		(2,243)		Contributor royalties payable	—		(2,243)		(2,243)

Deferred revenue	Deferred revenue	(8,557)		—		(8,557)		Deferred revenue	(8,557)		—		(8,557)
Deferred tax liability	Deferred tax liability	(533)		(3,923)		(4,456)		Deferred tax liability	(533)		(3,923)		(4,456)
Lease liability	Lease liability	(1,420)		—		(1,420)		Lease liability	(1,420)		—		(1,420)
Total liabilities assumed	Total liabilities assumed	(11,290)		(10,851)		(22,141)		Total liabilities assumed	(11,290)		(10,851)		(22,141)
Net assets acquired	Net assets acquired	$	109,395	$	77,330	$	186,725��	Net assets acquired	$	109,395	$	77,330	$	186,725

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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~~nine months ended ~~June~~September 30, 2022 and 2021, as if the Pond5 and Splash News acquisitions had been completed on January 1, 2021 and as if the TurboSquid and PicMonkey acquisitions had been completed on January 1, 2020, after giving effect to certain purchase accounting adjustments, primarily related to intangible assets and transaction costs. These pro forma results have been prepared for comparative purposes only and are not necessarily indicative of what the Company’s operating results would have been, had the acquisitions actually taken place at the beginning of the previous annual period.


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Revenue	Revenue									Revenue
As Reported	As Reported	$	206,872	$	189,912	$	406,004	$	373,193	As Reported	$	204,096	$	194,439	$	610,100	$	567,632
Pro Forma	Pro Forma	213,452		211,643		426,287		417,316		Pro Forma	204,096		213,350		630,383		630,666
Income before income taxes	Income before income taxes									Income before income taxes
As Reported	As Reported	$	22,713	$	34,548	$	55,389	$	70,204	As Reported	$	27,139	$	20,420	$	82,528	$	90,624
Pro Forma	Pro Forma	26,326		35,978		58,559		68,941		Pro Forma	27,139		23,253		85,956		92,550

(4) Property and Equipment

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


		As of June 30, 2022		As of December 31, 2021			As of September 30, 2022		As of December 31, 2021
Computer equipment and software	Computer equipment and software	$	240,535	$	221,429	Computer equipment and software	$	250,600	$	221,429
Furniture and fixtures	Furniture and fixtures	10,223		10,238		Furniture and fixtures	10,217		10,238
Leasehold improvements	Leasehold improvements	19,746		19,453		Leasehold improvements	19,876		19,453
Property and equipment	Property and equipment	270,504		251,120		Property and equipment	280,693		251,120
Less accumulated depreciation	Less accumulated depreciation	(217,955)		(203,046)		Less accumulated depreciation	(225,552)		(203,046)
Property and equipment, net	Property and equipment, net	$	52,549	$	48,074	Property and equipment, net	$	55,141	$	48,074

Depreciation expense related to property and equipment was ~~$8.3~~$8.7 million and $7.9 million for the three months ended ~~June~~September 30, 2022 and 2021, respectively, and ~~$16.3~~$25.0 million and ~~$15.9~~$23.8 million for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively. Cost of revenues included depreciation expense of ~~$7.5~~$8.0 million and $7.1 million for the three months ended ~~June~~September 30, 2022 and 2021, respectively, and ~~$14.7~~$22.7 million and ~~$14.2~~$21.3 million for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively. General and administrative expense included depreciation expense of $0.8 million and $0.8 million for the three months ended ~~June~~September 30, 2022 and 2021, respectively, and ~~$1.6~~$2.3 million and ~~$1.7~~$2.5 million for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively.

Capitalized Internal-Use Software

The Company capitalized costs related to the development of internal-use software of ~~$10.6~~$10.9 million and ~~$7.2~~$6.7 million for the three months ended ~~June~~September 30, 2022 and 2021, respectively, and ~~$20.1~~$31.1 million and ~~$14.2~~$20.9 million for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, 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 ~~$7.2~~$7.6 million and ~~$6.6~~$6.7 million for the three months ended ~~June~~September 30, 2022 and 2021, respectively, and ~~$14.0~~$21.6 million and ~~$13.3~~$20.1 million for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively. Depreciation expense related to capitalized internal-use software is included in cost of revenue in the Consolidated Statements of Operations.

As of ~~June~~September 30, 2022 and December 31, 2021, the Company had capitalized internal-use software of ~~$45.1~~$48.4 million and $39.0 million, respectively, net of accumulated depreciation, which was included in property and equipment, net.

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Shutterstock, Inc.

Notes to Consolidated Financial Statements

(unaudited)

(5) Goodwill and Intangible Assets

Goodwill

The Company’s goodwill balance is attributable to its Content reporting unit and is tested for impairment annually on October 1 or upon a triggering event. No triggering events were identified during the ~~six~~nine months ended ~~June~~September 30, 2022.

The following table summarizes the changes in the Company’s goodwill balance during the ~~six~~nine months ended ~~June~~September 30, 2022 (in thousands):

Goodwill

Balance as of December 31, 2021

219,816

Goodwill related to acquisitions

~~160,514~~164,522

Foreign currency translation adjustment

~~(2,676)~~(4,833)

Balance as of ~~June~~September 30, 2022

~~377,654~~379,505

Intangible Assets

Intangible assets consisted of the following as of ~~June~~September 30, 2022 and December 31, 2021 (in thousands):


		As of June 30, 2022							As of December 31, 2021							As of September 30, 2022							As of December 31, 2021
		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted Average Life (Years)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount			Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted Average Life (Years)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Amortizing intangible assets:	Amortizing intangible assets:														Amortizing intangible assets:
Customer relationships	Customer relationships	$	95,508	$	(15,556)	$	79,952	12	$	55,542	$	(13,906)	$	41,636	Customer relationships	$	86,362	$	(16,606)	$	69,756	12	$	55,542	$	(13,906)	$	41,636
Trade name	Trade name	15,922		(6,659)		9,263		9	11,787		(6,805)		4,982		Trade name	15,978		(6,587)		9,391		9	11,787		(6,805)		4,982
Developed technology	Developed technology	92,231		(23,327)		68,904		4	67,940		(14,214)		53,726		Developed technology	92,111		(28,562)		63,549		4	67,940		(14,214)		53,726
Contributor content	Contributor content	44,465		(16,843)		27,622		8	37,984		(14,632)		23,352		Contributor content	48,303		(18,197)		30,106		8	37,984		(14,632)		23,352

Patents	Patents	259		(140)		119		18	259		(133)		126		Patents	259		(145)		114		18	259		(133)		126

Total	Total	$	248,385	$	(62,525)	$	185,860		$	173,512	$	(49,690)	$	123,822	Total	$	243,013	$	(70,097)	$	172,916		$	173,512	$	(49,690)	$	123,822

Amortization expense was ~~$8.2~~$9.5 million and ~~$2.3~~$5.6 million for the three months ended ~~June~~September 30, 2022 and 2021, respectively, and ~~$15.3~~$24.8 million and ~~$4.4~~$9.9 million for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively. Cost of revenue included amortization expense of ~~$7.7~~$8.9 million and ~~$1.2~~$4.2 million for the three months ended ~~June~~September 30, 2022 and 2021, respectively, and ~~$14.2~~$23.1 million and ~~$2.3~~$6.5 million for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively. General and administrative expense included amortization expense of $0.6 million and ~~$1.1~~$1.4 million for the three months ended ~~June~~September 30, 2022 and 2021, respectively, and ~~$1.1~~$1.7 million and ~~$2.0~~$3.4 million for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively.

The Company determined that there was no indication of impairment of the intangible assets for any period presented. Estimated amortization expense is: ~~$19.0~~$9.3 million for the remaining ~~six~~three months of 2022, ~~$37.7~~$37.0 million in 2023, ~~$30.8~~$30.3 million in 2024, ~~$20.6~~$20.2 million in 2025, ~~$18.6~~$18.2 million in 2026, ~~$13.1~~$12.2 million in 2027 and ~~$46.1~~$45.8 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, 2022		As of December 31, 2021			As of September 30, 2022		As of December 31, 2021
Compensation	Compensation	$	28,077	$	43,529	Compensation	$	30,321	$	43,529
Non-income taxes	Non-income taxes	24,711		21,488		Non-income taxes	23,702		21,488

Website hosting and marketing fees	Website hosting and marketing fees	9,917		18,314		Website hosting and marketing fees	8,738		18,314

Other expenses	Other expenses	21,842		16,198		Other expenses	17,938		16,198
Total accrued expenses	Total accrued expenses	$	84,547	$	99,529	Total accrued expenses	$	80,699	$	99,529

(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.

On May 9, 2022, the Company borrowed $50 million for use in connection with the acquisition of Pond5, described under Note 3 (“Acquisitions”) and for general corporate purposes. As of ~~June~~September 30, 2022, the Company had outstanding borrowings under the Credit Facility of $50 million and had a remaining borrowing capacity of $48 million, net of standby letters of credit. As of December 31, 2021, the Company had no outstanding debt obligations. For the three and ~~six~~nine months ended ~~June~~September 30, 2022, the Company recognized interest expense of ~~$0.2 million.~~$0.4 million and $0.6 million, respectively. For the three and nine months ended September 30, 2022, the Company’s annualized interest rate was 3.2% and 3.0%, 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~~September 30, 2022, the Company was in compliance with these covenants.

(8) Stockholders’ Equity and Equity-Based Compensation

Stockholders’ Equity

Common Stock

The Company issued approximately ~~130,000~~103,000 and ~~163,000~~18,000 shares of common stock during the three months ended ~~June~~September 30, 2022 and 2021, respectively, related to the exercise of stock options and the vesting of Restricted Stock Units.

Treasury Stock

In October 2015, the Company’s Board of Directors approved a share repurchase program, authorizing the Company to purchase up to $100 million of its common stock. In February 2017, the Company’s Board of Directors approved an increase to the share repurchase program, authorizing the Company to repurchase up to an additional $100 million of its outstanding common stock.

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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~~nine months ended ~~June~~September 30, 2022, the Company repurchased approximately ~~286,700~~275,000 and ~~708,700~~984,000 shares of its common stock at an average per share cost of ~~$63.95~~$58.94 and ~~$79.87,~~$74.02, respectively. During the ~~six~~three and nine months ended ~~June~~September 30, 2021, the Company ~~did not repurchase any~~repurchased approximately 41,900 shares of its common stock ~~under the share repurchase program.~~at an average cost of $115.95. As of ~~June~~September 30, 2022, the Company ~~had $16.2 million of remaining~~fully utilized its authorization for purchases under the share repurchase program.

Dividends

The Company declared and paid cash dividends of $0.24 and ~~$0.48~~$0.72 per share of common stock, or ~~$8.7~~$8.6 million and ~~$17.4~~$26.0 million, during the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively, and $0.21 and ~~$0.42~~$0.63 per share of common stock, or $7.7 million and ~~$15.3~~$23.0 million, during the three and ~~six~~nine months ended ~~June~~September 30, 2021, respectively.

On ~~July 18,~~October 17, 2022, the Company’s Board of Directors declared a quarterly cash dividend of $0.24 per share of outstanding common stock payable on ~~September~~December 15, 2022 to stockholders of record at the close of business on ~~September~~December 1, 2022. 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.

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Shutterstock, Inc.

Notes to Consolidated Financial Statements

(unaudited)

The following table summarizes non-cash equity-based compensation expense, net of forfeitures, by financial statement line item included in the accompanying Consolidated Statements of Operations for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 (in thousands):


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Cost of revenue	Cost of revenue	$	156	$	194	$	234	$	358	Cost of revenue	$	173	$	(49)	$	407	$	309
Sales and marketing	Sales and marketing	1,629		926		2,557		1,393		Sales and marketing	1,503		638		4,060		2,031
Product development	Product development	2,557		1,799		4,338		3,028		Product development	2,957		1,675		7,295		4,703
General and administrative	General and administrative	2,701		6,767		7,740		13,117		General and administrative	4,455		6,479		12,196		19,596
Total	Total	$	7,043	$	9,686	$	14,869	$	17,896	Total	$	9,088	$	8,743	$	23,958	$	26,639

The following table summarizes non-cash equity-based compensation expense, net of forfeitures, by award type included in the accompanying Consolidated Statements of Operations for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 (in thousands):


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Stock options	Stock options	$	(197)	$	177	$	(22)	$	352	Stock options	$	84	$	179	$	62	$	531
RSUs	RSUs	7,240		9,509		14,891		17,544		RSUs	9,004		8,564		23,896		26,108

Total	Total	$	7,043	$	9,686	$	14,869	$	17,896	Total	$	9,088	$	8,743	$	23,958	$	26,639

Stock Option Awards

During the ~~six~~nine months ended ~~June~~September 30, 2022, no options to purchase shares of its common stock were granted. As of ~~June~~September 30, 2022, there were approximately ~~319,000~~286,000 options vested and exercisable with a weighted average exercise price of ~~$34.46.~~$34.03. As of ~~June~~September 30, 2022, the total unrecognized compensation expense related to non-vested options was approximately ~~$0.2~~$0.1 million, which is expected to be recognized through 2023.

Restricted Stock Unit Awards

During the ~~six~~nine months ended ~~June~~September 30, 2022, the Company had RSU grants, net of forfeitures, of approximately ~~745,000.~~1,122,000. As of ~~June~~September 30, 2022, there are approximately ~~1,393,000~~1,730,000 non-vested RSUs outstanding with a weighted average grant-date fair value of ~~$76.22.~~$71.59. As of ~~June~~September 30, 2022, the total unrecognized non-cash equity-based compensation expense related to the non-vested RSUs was approximately ~~$81.3~~$84.9 million, which is expected to be recognized through 2026.

During the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, shares of common stock with an aggregate value of ~~$21.0~~$22.0 million and ~~$20.2~~$21.3 million were withheld upon vesting of RSUs and paid in connection with related remittance of employee withholding taxes to taxing authorities.

During the ~~three~~nine months ended ~~June~~September 30, 2022, the Company had approximately $3 million in forfeitures associated with the resignation of its former Chief Executive Officer. On July 1, 2022, the Company awarded RSUs with a value of $30 million to its newly appointed Chief Executive Officer, which vest over a three-year service period. $15 million of these awards are subject to performance metrics.

(9) Revenue

The Company distributes its products through 2two primary channels:

E-commerce: The majority of the Company’s customers make purchases of content licenses and tools 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

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Shutterstock, Inc.

Notes to Consolidated Financial Statements

(unaudited)

~~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~~nine months ended ~~June~~September 30, 2022 and 2021 are as follows (in thousands):


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
E-commerce	E-commerce	$	127,388	$	120,715	$	254,458	$	239,115	E-commerce	$	124,594	$	121,707	$	379,052	$	360,822
Enterprise	Enterprise	79,484		69,197		151,546		134,078		Enterprise	79,502		72,732		231,048		206,810

Total Revenues	Total Revenues	$	206,872	$	189,912	$	406,004	$	373,193	Total Revenues	$	204,096	$	194,439	$	610,100	$	567,632

The ~~June~~September 30, 2022 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. ~~$120.5~~$152.7 million of total revenue recognized for the ~~six~~nine months ended ~~June~~September 30, 2022 was reflected in deferred revenue as of December 31, 2021.

(10) Other ~~(Expense) / 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~~nine months ended ~~June~~September 30, 2022 and 2021 (in thousands):


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Foreign currency (loss) / gain		$	(2,495)	$	1,277	$	(1,761)	$	(1,233)
Foreign currency loss										Foreign currency loss	$	(1,116)	$	(1,761)	$	(2,877)	$	(2,994)

Interest expense	Interest expense	(205)		—		(205)		—		Interest expense	(439)		—		(645)		—
Other	Other	39		46		63		94		Other	9		12		73		106
Total other (expense) / income		$	(2,661)	$	1,323	$	(1,903)	$	(1,139)
Total other expense										Total other expense	$	(1,546)	$	(1,749)	$	(3,449)	$	(2,888)

(11) Income Taxes

The Company’s effective tax rates yielded a net expense of ~~14.4%~~15.1% and ~~14.7%~~21.5% for the three months ended ~~June~~September 30, 2022 and 2021, respectively, and a net expense of ~~16.9%~~16.3% and ~~16.0%~~17.2% for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively.

During the three months ended ~~June~~September 30, 2022, the net effect of discrete items decreased the effective tax rate by ~~4.9%~~3.3%. For the ~~six~~nine months ended ~~June~~September 30, 2022, the net effect of discrete items decreased the effective tax rate by ~~2.2%~~2.5%. The discrete items for the three ~~and six~~ months ended ~~June~~September 30, 2022, primarily relate to the effect of the U.S. Research and Development (“R&D”) tax credit claimed on the Company’s 2021 tax return, which was substantially completed in the third quarter of 2022. The discrete items for the nine months ended September 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%~~18.4% and ~~19.1%~~18.8% for the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively.

During the three months ended ~~June~~September 30, 2021, the net effect of discrete items increased the effective tax rate by 1.3%. For the nine months ended September 30, 2021, the net effect of discrete items decreased the effective tax rate by ~~5.3%. For the six months ended June 30, 2021, the net effect of discrete items decreased the effective tax rate by 4.0%~~3.0%. The discrete items for the ~~three and six~~nine months ended ~~June~~September 30, 2021, primarily relate to windfall tax benefits associated with equity-based compensation. Excluding discrete items, the Company’s effective tax rate would have been ~~20.0%~~20.2% for the three and ~~six~~nine months ended ~~June~~September 30, 2021.

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~~nine months ended ~~June~~September 30, 2022 and 2021, 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.

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Shutterstock, Inc.

Notes to Consolidated Financial Statements

(unaudited)

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~~nine months ended ~~June~~September 30, 2022 and 2021.

During the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, the Company paid net cash taxes of ~~$12.7~~$19.5 million and ~~$9.5~~$14.8 million, respectively.

(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~~nine months ended ~~June~~September 30, 2022 and 2021 (in thousands):


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Net income	Net income	$	19,445	$	29,454	$	46,017	$	58,968	Net income	$	23,040	$	16,029	$	69,057	$	74,997
Shares used to compute basic net income per share	Shares used to compute basic net income per share	36,123		36,570		36,213		36,453		Shares used to compute basic net income per share	35,929		36,622		36,117		36,510
Dilutive potential common shares	Dilutive potential common shares									Dilutive potential common shares
Stock options	Stock options	169		242		201		233		Stock options	120		255		174		240
Unvested restricted stock awards	Unvested restricted stock awards	286		377		476		532		Unvested restricted stock awards	220		540		390		535

Shares used to compute diluted net income per share	Shares used to compute diluted net income per share	36,578		37,189		36,890		37,218		Shares used to compute diluted net income per share	36,269		37,417		36,681		37,285
Basic net income per share	Basic net income per share	$	0.54	$	0.81	$	1.27	$	1.62	Basic net income per share	$	0.64	$	0.44	$	1.91	$	2.05
Diluted net income per share	Diluted net income per share	$	0.53	$	0.79	$	1.25	$	1.58	Diluted net income per share	$	0.64	$	0.43	$	1.88	$	2.01

Dilutive shares included in the calculation	Dilutive shares included in the calculation	836		1,221		1,121		1,328		Dilutive shares included in the calculation	1,208		1,279		1,150		1,312
Anti-dilutive shares excluded from the calculation	Anti-dilutive shares excluded from the calculation	590		2		325		10		Anti-dilutive shares excluded from the calculation	549		4		400		8

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Shutterstock, Inc.

Notes to Consolidated Financial Statements

(unaudited)

(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,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
North America	North America	$	85,896	$	68,954	$	165,839	$	133,263	North America	$	89,061	$	77,264	$	254,900	$	210,527
Europe	Europe	62,931		64,778		125,484		127,055		Europe	57,308		60,301		182,792		187,356
Rest of the world	Rest of the world	58,045		56,180		114,681		112,875		Rest of the world	57,727		56,874		172,408		169,749
Total revenue	Total revenue	$	206,872	$	189,912	$	406,004	$	373,193	Total revenue	$	204,096	$	194,439	$	610,100	$	567,632

The United States, included in North America in the above table, accounted for ~~38%~~39% and ~~31%~~33% of consolidated revenue for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, 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,			As of September 30,		As of December 31,
		2022		2021			2022		2021
North America	North America	$	43,625	$	40,465	North America	$	45,182	$	40,465
Europe	Europe	8,837		7,460		Europe	9,883		7,460
Rest of the world	Rest of the world	87		149		Rest of the world	76		149
Total long-lived tangible assets	Total long-lived tangible assets	$	52,549	$	48,074	Total long-lived tangible assets	$	55,141	$	48,074

The United States, included in North America in the above table, accounted for 77% and 76% of total long-lived tangible assets as of ~~June~~September 30, 2022 and December 31, 2021, respectively. Ireland, included in Europe in the above table, accounted for ~~13%~~14% and 11% of total long-lived tangible assets as of ~~June~~September 30, 2022 and December 31, 2021, respectively. No other country accounts for more than 10% of the Company’s long-lived tangible assets in any period presented.

(14) Commitments and Contingencies

As of ~~June~~September 30, 2022, the Company had total non-lease obligations in the amount of approximately ~~$103.3~~$95.5 million, which consisted primarily of minimum royalty guarantees and unconditional purchase obligations related to contracts for infrastructure and other business services. As of ~~June~~September 30, 2022, the Company’s non-lease obligations for the remainder of 2022 and for the years ending December 31, 2023, 2024, 2025 and 2026 were approximately ~~$30.6~~$20.7 million, ~~$37.3~~$38.9 million, ~~$28.5~~$29.0 million, $6.3 million and $0.6 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.

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Shutterstock, Inc.

Notes to Consolidated Financial Statements

(unaudited)

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 ~~10000~~ten thousand dollars but can range to $250,000, with certain exceptions for which our indemnification obligation are uncapped. As of ~~June~~September 30, 2022, 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 2021 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 2021 Form 10-K and ~~this~~our Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, which was filed with the SEC on July 26, 2022 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 the leading global creative platform for transformative brands and media companies. Our platform brings together users and contributors of content by providing readily-searchable content that our customers pay to license and by compensating contributors as their content is licensed.

Our key 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. This offering became available upon our acquisition of TurboSquid, Inc. (“TurboSquid”) on February 1, 2021.

•Creative Design Software - consisting of our online graphic design and image editing platform. This offering became available after we completed the acquisition of substantially all of the assets and assumption of certain liabilities from PicMonkey, LLC (“PicMonkey”) on September 3, 2021.

On May 11, 2022, we completed our acquisition of Pond5, Inc. (“Pond5”), a video-first content marketplace which expands our content offerings across footage, image and music. On May 28, 2022, we acquired SCP 2020 Limited (“Splash News”), an entertainment news network for newsrooms and media companies, which offers image and video content across celebrity, red carpet and live events.

For customers seeking specialized solutions, Shutterstock Studios extends our offerings by providing custom, high-quality content matched with production tools and services at scale. Shutterstock Studios delivers end-to-end custom creative services providing data-driven content strategy and full-scale production for our customers. Shutterstock Editorial provides imagery and video content for the latest news, sports and entertainment, and Shutterstock Editorial also offers the Newsroom, for global breaking news, exclusives and archival content.

In addition, in July of 2021, through our newly formed entity Shutterstock.AI, Inc. (“Shutterstock.AI”), we acquired Pattern89, Inc., Datasine Limited, and assets from Shotzr, Inc., three artificial intelligence entities that provide data driven insights through their artificial intelligence platforms. Shutterstock.AI will commercialize data assets within our content library and enable companies to grow their capabilities in computer vision and content insights. The artificial intelligence tools obtained from these acquisitions will enable us to help customers make more data-informed content decisions.

Over ~~2.1~~2.4 million active, paying customers contributed to our revenue for the twelve-month period ended ~~June~~September 30, 2022. As of ~~June~~September 30, 2022, more than 2.2 million approved contributors made their images, footage and music tracks available in our collection, which has grown to more than ~~415~~424 million images and more than 2627 million footage clips as of ~~June~~

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September 30, 2022. This makes our collection of content one of the largest of its kind, and we delivered ~~88.0~~130.8 million paid downloads to our customers across all of our brands during the ~~six~~nine months ended ~~June~~September 30, 2022.

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Through our platform, we generate revenue as our customers make purchases of content licenses and tools. During the ~~six~~nine months ended ~~June~~September 30, 2022, ~~63%~~62% of our revenue and the majority of our content licenses came from our E-commerce sales channel. The majority of our customers license content directly through our self-service web ~~properties, including our shutterstock.com, bigstock.com, premiumbeat.com and turbosquid.com websites.~~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 our API platform as well as access to Shutterstock Editorial, which includes our library of editorial images and videos and Shutterstock Studios, which provides data-driven content strategy, brand storytelling and full scale production services. Our Enterprise sales channel provided approximately ~~37%~~38% of our revenue for the ~~six~~nine months ended ~~June~~September 30, 2022.

As the use cases for our creative solutions expand, we believe our customers are seeking alternative means to consume our offerings. As a result, we have seen strong growth in customers purchasing monthly subscription products, including our suite of multi-asset subscriptions, launched in 2021. These multi-asset products are credit-based and enable customers to license images, footage and music in a single subscription. Our subscriptions provide for either a fixed number of content licenses or credits that may be used to download content during the period. Our subscription-based pricing model makes the creative process easier because customers can download content in our collection for use in their creative process without incremental costs, which provides greater creative freedom and helps improve work product. In addition, customers may also purchase licenses through other contractual plans where the customer commits to buy a predetermined quantity of content licenses that may be downloaded over a period of time, generally between one month to one year. For users who need less content, individual content licenses may also be purchased on a transactional basis, paid for at the time of download.

Contributors of content typically earn a royalty each time their work is licensed. Contributors earn royalties based on our published earnings schedule that is based on annual licensing volume, which determines the contributor’s earnings tier and the purchase option under which the content was licensed. Royalties represent the largest component of our operating expenses, are reported within cost of revenue, tend to fluctuate proportionately with revenue and paid downloads and may be impacted by the mix of products sold.

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Key Operating Metrics

We regularly review a number of key operating metrics to evaluate our business, determine the allocation of resources and make decisions regarding business strategies. We believe that these metrics can be useful for understanding the underlying trends in our business. The following table summarizes our key operating metrics, which are unaudited, for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021

Subscribers (end of period)1	Subscribers (end of period)1	368,000		321,000		368,000		321,000		Subscribers (end of period)1	607,000		336,000		607,000		336,000
Subscriber revenue (in millions)1	Subscriber revenue (in millions)1	$	84.7	$	78.1	$	170.1	$	154.6	Subscriber revenue (in millions)1	$	87.7	$	81.5	$	257.8	$	236.1

Average revenue per customer (last twelve months)1	Average revenue per customer (last twelve months)1	$	359	$	356	$	359	$	356	Average revenue per customer (last twelve months)1	$	329	$	361	$	329	$	361
Paid downloads (in millions)	Paid downloads (in millions)	43.4		44.9		88.0		90.7		Paid downloads (in millions)	42.8		44.3		130.8		135.0
Revenue per download	Revenue per download	$	4.46	$	4.17	$	4.34	$	4.07	Revenue per download	$	4.43	$	4.20	$	4.37	$	4.11
Content in our collection (end of period, in millions):	Content in our collection (end of period, in millions):									Content in our collection (end of period, in millions):
Images	Images	415		380		415		380		Images	424		390		424		390
Footage clips	Footage clips	26		22		26		22		Footage clips	27		23		27		23

1 ~~For the three and six months ended June 30, 2021,~~ 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 and from PicMonkey beginning September 2022. These metrics exclude ~~customers~~the respective counts and ~~revenue related to~~revenues from our acquisitions of ~~TurboSquid, PicMonkey,~~ Pond5 and Splash News. ~~For the three and six months ended June 30, 2022,~~

Subscribers, Subscriber Revenue and Average Revenue Per ~~Download~~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 and from PicMonkey beginning September 2022. These metrics exclude ~~customers~~the respective counts and ~~revenue related to PicMonkey,~~revenues from our acquisitions of Pond5 and Splash News.

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. For the three and six months ended June 30, 2021, Subscribers excludes customers related to our acquisitions of TurboSquid, PicMonkey, Pond5 and Splash News. For the three and six months ended June 30, 2022, subscribers excludes customers related to PicMonkey, Pond5 and Splash News. We believe the number of subscribers is an important metric that provides insight into our monthly recurring business and its growth. We believe that an increase in our number of subscribers is an indicator of engagement in our platform and potential for future growth.

Subscriber Revenue

We define subscriber revenue as the revenue generated from subscribers during the period. For the three and six months ended June 30, 2021, subscriber revenue excludes revenues related to our acquisitions of TurboSquid, PicMonkey, Pond5 and Splash News. For the three and six months ended June 30, 2022, subscriber revenue excludes revenues related to PicMonkey, Pond5 and Splash News. We believe subscriber revenue, together with our number of subscribers, provide insight into the portion of our business and growth driven by our monthly recurring products.

Average Revenue Per Customer

Average revenue per customer is calculated by dividing total revenue for the last twelve-month period by customers. We define customers as total active, paying customers that contributed to total revenue over the last twelve-month period. For three and six months ended June 30, 2021, average revenue per customer excludes revenues and customers related to our acquisitions of TurboSquid, PicMonkey, Pond5 and Splash News. For the three and six months ended June 30, 2022, average revenue per customer excludes revenues and customers related to PicMonkey, Pond5 and Splash News. Changes in our average revenue per customer will be driven by changes in the mix of our subscription-based products and the pricing in our transactional business.

Paid Downloads

We define paid downloads as the number of downloads that our customers make in a given period of our content. Paid downloads exclude content related to custom content, downloads of content that are offered to customers for no charge, including our free image of the week, and downloads associated with our computer vision offering. Measuring the number of

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paid downloads that our customers make in a given period is important because they are the primary method of delivering licensed content, which drives a significant portion of the Company’s revenue and contributor royalties.

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Revenue per Download

We define revenue per download as the amount of revenue recognized in a given period divided by the number of paid downloads in that period excluding revenue from custom content, 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 mix and customer utilization of our products.

Content in our Collection

We define content in our collection as the total number of approved images (photographs, vectors and illustrations) and footage (in number of clips) in our library on shutterstock.com at the end of the period. We exclude content from this collection metric that is not uploaded directly to our site but is available for license by our customers through an application program interface, custom content and certain content that may be licensed for editorial use only. We believe that our large selection of high-quality content enables us to attract and retain customers and drives our network effect.

Critical Accounting Policies and Estimates

Our financial statements are prepared in accordance with GAAP. The preparation of the consolidated financial statements in conformity with GAAP requires our management to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities, the disclosure or inclusion of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the period. We evaluate our significant estimates on an ongoing basis, including, but not limited to, estimates related to allowance for doubtful accounts, the volume of expected unused licenses used in revenue recognition for our subscription-based products, the fair value of acquired goodwill and intangible assets and income tax provisions. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.

We believe that the policies, assumptions and estimates associated with our revenue recognition, allowance for doubtful accounts, goodwill and intangible assets and accounting for income taxes have the greatest potential impact on our financial statements. Therefore, we consider these to be our critical accounting policies and estimates.

A description of our critical accounting policies that involve significant management judgments appears in our 2021 Form 10-K, under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates.”

See Note 1 to our Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for a full description of the impact of the adoption of new accounting standards on our financial statements. There have been no material changes to our critical accounting policies and estimates as compared to our critical accounting policies and estimates included in our 2021 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 make purchases of content licenses and tools 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~~nine months ended ~~June~~September 30, 2022 and 2021 are as follows (in thousands):


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
E-commerce	E-commerce	$	127,388	$	120,715	$	254,458	$	239,115	E-commerce	$	124,594	$	121,707	$	379,052	$	360,822
Enterprise	Enterprise	79,484		69,197		151,546		134,078		Enterprise	79,502		72,732		231,048		206,810

Total Revenues	Total Revenues	$	206,872	$	189,912	$	406,004	$	373,193	Total Revenues	$	204,096	$	194,439	$	610,100	$	567,632

Costs and Expenses

Cost of Revenue. Cost of revenue consists of royalties paid to contributors, credit card processing fees, content review costs, customer service expenses, infrastructure and hosting costs related to maintaining our creative platform and cloud-based software platform, depreciation and amortization of capitalized internal-use software, purchased content and acquisition-related intangible assets, allocated facility costs and other supporting overhead costs. Cost of revenue also includes employee compensation, including non-cash equity-based compensation, bonuses and benefits associated with the maintenance of our creative platform and cloud-based software platform.

Sales and Marketing. Sales and marketing expenses include third-party marketing, advertising, branding, public relations and sales expenses. Sales and marketing expenses also include associated employee compensation, including non-cash equity-based compensation, bonuses and benefits, and commissions as well as allocated facility and other supporting overhead costs.

Product Development. Product development expenses consist of employee compensation, including non-cash equity-based compensation, bonuses and benefits, and expenses related to vendors engaged in product management, design, development and testing of our websites and products. Product development costs also includes software and other IT equipment costs, allocated facility expenses and other supporting overhead costs.

General and Administrative. General and administrative expenses include employee compensation, including non-cash equity-based compensation, bonuses and benefits for executive, finance, accounting, legal, human resources, internal information technology, internet security, business intelligence and other administrative personnel. In addition, general and administrative expenses include outside legal, tax and accounting services, bad debt expense, insurance, facilities costs, other supporting overhead costs and depreciation and amortization expense.

Other ~~Income / (Expense),~~Expense, Net. Other ~~income / (expense),~~expense, net consists of non-operating costs such as foreign currency transaction gains and losses in addition to interest income and expense.

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

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Results of Operations

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


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
		(in thousands)									(in thousands)
Consolidated Statements of Operations:	Consolidated Statements of Operations:									Consolidated Statements of Operations:
Revenue	Revenue	$	206,872	$	189,912	$	406,004	$	373,193	Revenue	$	204,096	$	194,439	$	610,100	$	567,632
Operating expenses:	Operating expenses:									Operating expenses:
Cost of revenue	Cost of revenue	77,019		67,757		146,470		129,589		Cost of revenue	79,911		69,634		226,381		199,223
Sales and marketing	Sales and marketing	54,229		45,896		107,558		87,817		Sales and marketing	47,777		54,456		155,335		142,273
Product development	Product development	17,162		11,993		30,788		22,724		Product development	17,534		13,565		48,322		36,289
General and administrative	General and administrative	33,088		31,041		63,896		61,720		General and administrative	30,189		34,615		94,085		96,335
Total operating expenses	Total operating expenses	181,498		156,687		348,712		301,850		Total operating expenses	175,411		172,270		524,123		474,120
Income from operations	Income from operations	25,374		33,225		57,292		71,343		Income from operations	28,685		22,169		85,977		93,512

Other (expense) / income, net		(2,661)		1,323		(1,903)		(1,139)
Other expense, net										Other expense, net	(1,546)		(1,749)		(3,449)		(2,888)
Income before income taxes	Income before income taxes	22,713		34,548		55,389		70,204		Income before income taxes	27,139		20,420		82,528		90,624
Provision for income taxes	Provision for income taxes	3,268		5,094		9,372		11,236		Provision for income taxes	4,099		4,391		13,471		15,627
Net income	Net income	$	19,445	$	29,454	$	46,017	$	58,968	Net income	$	23,040	$	16,029	$	69,057	$	74,997

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


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Consolidated Statements of Operations:	Consolidated Statements of Operations:									Consolidated Statements of Operations:
Revenue	Revenue	100	%	100	%	100	%	100	%	Revenue	100	%	100	%	100	%	100	%
Operating expenses:	Operating expenses:									Operating expenses:
Cost of revenue	Cost of revenue	37	%	36	%	36	%	35	%	Cost of revenue	39	%	36	%	37	%	35	%
Sales and marketing	Sales and marketing	26	%	24	%	26	%	24	%	Sales and marketing	23	%	28	%	25	%	25	%
Product development	Product development	8	%	6	%	8	%	6	%	Product development	9	%	7	%	8	%	6	%
General and administrative	General and administrative	16	%	16	%	16	%	17	%	General and administrative	15	%	18	%	15	%	17	%
Total operating expenses	Total operating expenses	88	%	83	%	86	%	81	%	Total operating expenses	86	%	89	%	86	%	84	%
Income from operations	Income from operations	12	%	17	%	14	%	19	%	Income from operations	14	%	11	%	14	%	16	%

Other (expense) / income, net		(1)	%	1	%	—	%	—	%
Other expense, net										Other expense, net	(1)	%	(1)	%	(1)	%	(1)	%
Income before income taxes	Income before income taxes	11	%	18	%	14	%	19	%	Income before income taxes	13	%	11	%	14	%	16	%
Provision for income taxes	Provision for income taxes	2	%	3	%	2	%	3	%	Provision for income taxes	2	%	2	%	2	%	3	%
Net income	Net income	9	%	16	%	11	%	16	%	Net income	11	%	8	%	11	%	13	%

Note: Due to rounding, percentages may not sum to totals.

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Comparison of the Three Months Ended ~~June~~September 30, 2022 and 2021

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


		Three Months Ended June 30,									Three Months Ended September 30,
		2022		2021		$ Change		% Change			2022		2021		$ Change		% Change
		(in thousands)									(in thousands)
Consolidated Statements of Operations:	Consolidated Statements of Operations:									Consolidated Statements of Operations:
Revenue	Revenue	$	206,872	$	189,912	$	16,960	9	%	Revenue	$	204,096	$	194,439	$	9,657	5	%
Operating expenses:	Operating expenses:									Operating expenses:
Cost of revenue	Cost of revenue	77,019		67,757		9,262		14		Cost of revenue	79,911		69,634		10,277		15
Sales and marketing	Sales and marketing	54,229		45,896		8,333		18		Sales and marketing	47,777		54,456		(6,679)		(12)
Product development	Product development	17,162		11,993		5,169		43		Product development	17,534		13,565		3,969		29
General and administrative	General and administrative	33,088		31,041		2,047		7		General and administrative	30,189		34,615		(4,426)		(13)
Total operating expenses	Total operating expenses	181,498		156,687		24,811		16		Total operating expenses	175,411		172,270		3,141		2
Income from operations	Income from operations	25,374		33,225		(7,851)		(24)		Income from operations	28,685		22,169		6,516		29

Other (expense) / income, net		(2,661)		1,323		(3,984)		(301)
Other expense, net										Other expense, net	(1,546)		(1,749)		203		(12)
Income before income taxes	Income before income taxes	22,713		34,548		(11,835)		(34)		Income before income taxes	27,139		20,420		6,719		33
Provision for income taxes	Provision for income taxes	3,268		5,094		(1,826)		(36)		Provision for income taxes	4,099		4,391		(292)		(7)
Net income	Net income	$	19,445	$	29,454	$	(10,009)	(34)	%	Net income	$	23,040	$	16,029	$	7,011	44	%

Revenue

Revenue increased by ~~$17.0~~$9.7 million, or 9%5%, to ~~$206.9~~$204.1 million in the three months ended ~~June~~September 30, 2022 compared to the same period in 2021. On a constant currency basis, revenue increased approximately ~~13%~~10% in the three months ended ~~June~~September 30, 2022, compared to the same period in 2021. Approximately 17% and 7% of the Company’s revenues were denominated in Euro and Pounds Sterling, respectively. These currencies have depreciated to historically low values compared to the U.S. dollar during the three months ended September 30, 2022. Other currencies we transact in, including the Japanese Yen and Australian Dollar also depreciated significantly during the period.

The Company’s E-commerce revenues increased by 6%2%, to ~~$127.4~~$124.6 million in the three months ended ~~June~~September 30, 2022, compared to the same period in 2021. On a constant currency basis, E-commerce revenues increased by 9%6% in the three months ended ~~June~~September 30, 2022, compared to the same period in 2021. During the three months ended ~~June~~September 30, 2022, growth in our E-commerce sales channel was primarily driven by revenue generated from our acquisitions of PicMonkey and Pond5 which were completed on September 3, 2021 and May 11, 2022, respectively. E-commerce revenue also benefited from higher subscriber revenue, which was offset by a reduction in revenue generated from our transactional products.

The Company’s Enterprise revenues increased by ~~15%~~9%, to $79.5 million in the three months ended ~~June~~September 30, 2022, compared to the same period in 2021. On a constant currency basis, the Company’s Enterprise revenues increased by ~~19%~~15% in the three months ended ~~June~~September 30, 2022, compared to the same period in 2021. Enterprise revenue growth was driven by our multi-asset product offerings and continued momentum in Shutterstock Studios and Shutterstock Editorial. Enterprise revenue growth also benefited from our acquisitions of Pond5 and Splash News, which were completed on May 11, 2022 and May 28, 2022, respectively.

In the three months ended ~~June~~September 30, 2022 and 2021, we delivered ~~43.4~~42.8 million and ~~44.9~~44.3 million paid downloads, respectively, and our revenue per download was ~~$4.46~~$4.43 and ~~$4.17~~$4.20 for the three months ended ~~June~~September 30, 2022 and 2021, respectively. During the three months ended ~~June~~September 30, 2022, the increase in revenue per download was primarily due to changes in product mix.

Changes in our revenue by region were as follows: revenue from North America increased by $11.8 million, or 15%, to $89.1 million, revenue from Europe decreased by $3.0 million, or 5%, to $57.3 million and revenue from outside Europe and North America increased by $0.9 million, or 1%, to $57.7 million, in the three months ended September 30, 2022 compared to the same period in 2021. During the three months ended September 30, 2022, the decline in revenue in Europe was a result of weaker demand and foreign currency pressures.

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Costs and Expenses

Cost of Revenue. Cost of revenue increased by $10.3 million, or 15% to $79.9 million in the three months ended September 30, 2022 compared to the same period in 2021. This increase was primarily driven by: (i) increased depreciation and amortization expense driven by our recent acquisitions; (ii) increased royalty, content and reviewer costs; and (iii) higher costs associated with website hosting, hardware and software licenses. We expect that our cost of revenue will continue to fluctuate in line with changes in revenue and paid downloads.

Sales and Marketing. Sales and marketing expenses decreased by $6.7 million, or 12%, to $47.8 million in the three months ended September 30, 2022 compared to the same period in 2021. As a percent of revenue, sales and marketing expenses decreased to 23% for the three months ended September 30, 2022, from 28% for the same period in 2021. This was primarily driven by $8.4 million in decreased marketing spend, primarily related to a decline in linear television ad spend and brand marketing. We expect sales and marketing expenses to continue to fluctuate as we optimize our sales channels and invest in new customer acquisition, products and geographies.

Product Development. Product development expenses increased by $4.0 million, or 29%, to $17.5 million in the three months ended September 30, 2022 compared to the same period in 2021. This increase was driven by $3.0 million in higher employee and third-party contractor related costs, net of capitalized labor, for the three months ended September 30, 2022, as compared to the same period in the prior year. We expect product development expenses, of which a portion will be capitalized, to continue in the foreseeable future, as we pursue opportunities to invest in developing new products and internal tools and enhance the functionality of our existing products and technologies.

General and Administrative. General and administrative expenses decreased by $4.4 million, or 13%, to $30.2 million in the three months ended September 30, 2022 compared to the same period in 2021. This decrease was driven by (i) $2.3 million in lower professional fees driven by transaction costs associated with the PicMonkey acquisition on September 3, 2021, and (ii) $1.8 million in decreased non-cash compensation expense.

Other Expense, Net. In the three months ended September 30, 2022, other expense, net substantially consisted of $1.1 million of unfavorable unrealized foreign currency fluctuations and $0.4 million of interest expense related to the Credit Facility. During the three months ended September 30, 2021, other expense, net substantially consisted of $1.8 million of unfavorable foreign currency fluctuations. As we increase the volume of business transacted in foreign currencies resulting from international expansion and as currency rates fluctuate, we expect foreign currency gains and losses to continue to fluctuate.

Income Taxes. Income tax expense decreased by $0.3 million for the three months ended September 30, 2022, compared to the same period in 2021. Our effective tax rates were 15.1% and 21.5% for the three months ended September 30, 2022 and 2021, respectively.

For the three months ended September 30, 2022, the effective tax rate decreased by 3.3% related primarily to the effect of the U.S. Research and Development (“R&D”) tax credit claimed on the Company’s 2021 tax return, which was substantially completed in the third quarter of 2022. Excluding discrete items, our effective tax rate would have been 18.4% for the three months ended September 30, 2022.

For the three months ended September 30, 2021, the net effect of discrete items increased the effective tax rate by 1.3%. Excluding discrete items, our effective tax rate would have been 20.2% for the three months ended September 30, 2021.

As we continue to expand our operations outside of the United States, we have been and may continue to become subject to taxation in additional non-U.S. jurisdictions and our effective tax rate could fluctuate accordingly.

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Comparison of the Nine Months Ended September 30, 2022 and 2021

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


	Nine Months Ended September 30,
	2022		2021		$ Change		% Change
	(in thousands)
Consolidated Statements of Operations Data:
Revenue	$	610,100	$	567,632	$	42,468	7	%
Operating expenses:
Cost of revenue	226,381		199,223		27,158		14	%
Sales and marketing	155,335		142,273		13,062		9	%
Product development	48,322		36,289		12,033		33	%
General and administrative	94,085		96,335		(2,250)		(2)	%
Total operating expenses	524,123		474,120		50,003		11	%
Income from operations	85,977		93,512		(7,535)		(8)	%

Other expense, net	(3,449)		(2,888)		(561)		19	%
Income before income taxes	82,528		90,624		(8,096)		(9)	%
Provision for income taxes	13,471		15,627		(2,156)		(14)	%
Net income	$	69,057	$	74,997	$	(5,940)	(8)	%

Revenue

Revenue increased by $42.5 million, or 7%, to $610.1 million in the nine months ended September 30, 2022 compared to the same period in 2021. On a constant currency basis, revenue increased approximately 11% in the nine months ended September 30, 2022, compared to the same period in 2021. Approximately 18% and 7% of the Company’s revenues were denominated in Euro and Pounds Sterling, respectively. These currencies have depreciated to historically low values compared to the U.S. dollar during the nine months ended September 30, 2022. Other currencies we transact in, including the Japanese Yen and Australian Dollar also depreciated significantly during the period.

The Company’s E-commerce revenues increased by 5%, to $379.1 million in the nine months ended September 30, 2022, compared to the same period in 2021. On a constant currency basis, the Company’s E-commerce revenues increased by 8% in the nine months ended September 30, 2022, compared to the same period in 2021. During the nine months ended September 30, 2022, growth in our E-commerce sales channel was primarily driven by revenue generated from our acquisitions of PicMonkey and Pond5, which were completed on September 3, 2021 and May 11, 2022, respectively. E-commerce revenue also benefited from higher subscriber revenue, which was offset by a reduction in revenue generated from our transactional products.

The Company’s Enterprise revenues increased by 12%, to $231.0 million in the nine months ended September 30, 2022, compared to the same period in 2021. On a constant currency basis, the Company’s Enterprise revenues increased by 16% in the nine months ended September 30, 2022, compared to the same period in 2021. Enterprise revenue growth was driven by our multi-asset product offerings and continued momentum in Shutterstock Studios and Shutterstock Editorial. Enterprise revenue growth also benefited from our acquisitions of Pond5 and Splash News, which were completed on May 11, 2022 and May 28, 2022, respectively.

In the nine months ended September 30, 2022 and 2021, we delivered 130.8 million and 135.0 million paid downloads, respectively, and our revenue per download was $4.37 and $4.11 for the nine months ended September 30, 2022 and 2021, respectively. During the nine months ended September 30, 2022, the increase in revenue per download was primarily due to changes in product mix.

Changes in our revenue by region were as follows: revenue from North America increased by ~~$16.9~~$44.4 million, or ~~25%~~21%, to ~~$85.9~~$254.9 million, revenue from Europe decreased by ~~$1.8~~$4.6 million, or 3%2%, to ~~$62.9~~$182.8 million and revenue from outside Europe and North America increased by ~~$1.9~~$2.7 million, or 3%2%, to ~~$58.0~~$172.4 million, in the ~~three~~nine months ended ~~June~~September 30, 2022 compared to the same period in 2021.

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Costs and Expenses

Cost of ~~Revenue~~Revenue.. Cost of revenue increased by ~~$9.3~~$27.2 million, or 14%, to ~~$77.0~~$226.4 million in the ~~three~~nine months ended ~~June~~September 30, 2022 compared to the same period in 2021. This increase was primarily driven by: (i) increased depreciation and amortization expense driven by our recent acquisitions; (ii) increased royalty, content and reviewer costs; and (iii) higher costs associated with website hosting, hardware and software licenses. We expect that our cost of revenue will continue to fluctuate in line with changes in revenue and paid downloads.

Sales and Marketing. Sales and marketing expenses increased by ~~$8.3~~$13.1 million, or ~~18%~~9%, to ~~$54.2~~$155.3 million in the ~~three~~nine months ended ~~June~~September 30, 2022 compared to the same period in 2021. As a percent of revenue, sales and marketing expenses ~~increased to 26%~~remained flat at 25% for the ~~three~~nine months ended ~~June~~September 30, 2022 ~~from 24% for the same period in 2021. This was primarily driven by (i) $4.4 million in increased marketing spend, primarily related to performance marketing,~~ and (ii) $1.3 million in higher employee-related costs. In addition, the Company has incurred additional marketing expenses associated with second quarter live events and festivals. We expect sales and marketing expenses to continue to fluctuate as we optimize our sales channels and invest in new customer acquisition, products and geographies.

~~Product Development~~. Product development expenses increased by $5.2 million, or 43%, to $17.2 million in the three months ended June 30, 2022 compared to the same period in 2021. This increase was driven by $3.8 million in higher employee and third-party contractor related costs, net of capitalized labor, for the three months ended June 30, 2022, as compared to the same period in the prior year. We expect product development expenses, of which a portion will be capitalized, to continue in the foreseeable future, as we pursue opportunities to invest in developing new products and internal tools and enhance the functionality of our existing products and technologies.

~~General and Administrative~~. General and administrative expenses increased by $2.0 million, or 7%, to $33.1 million in the three months ended June 30, 2022 compared to the same period in 2021. During the three months ended June 30, 2022, general and administrative expenses included (i) $4.1 million in higher professional fees primarily related to our acquisitions of Pond5 and Splash News, (ii) $0.7 million related to realized foreign currency losses and (iii) $0.6 million in higher bad debt expense. This was partially offset by a $4.2 million decrease in non-cash compensation expense primarily related to the departure of certain executives of the Company.

~~Other (Expense) / Income, Net.~~ In the three months ended June 30, 2022, other (expense) / income, net substantially consisted of $2.5 million of unfavorable unrealized foreign currency fluctuations and $0.2 million of interest expense related to the Credit Facility. During the three months ended June 30, 2021, other (expense) / income, net substantially consisted of $1.3 million of favorable foreign currency fluctuations. As we increase the volume of business transacted in foreign currencies resulting from international expansion and as currency rates fluctuate, we expect foreign currency gains and losses to continue to fluctuate.

~~Income Taxes~~. Income tax expense decreased by $1.8 million for the three months ended June 30, 2022, compared to the same period in 2021. Our effective tax rates were 14.4% and 14.7% for the three months ended June 30, 2022 and 2021, respectively.

For the three months ended June 30, 2022, the effective tax rate decreased by 4.9% related primarily to windfall tax benefits associated with equity-based compensation. Excluding discrete items, our effective tax rate would have been 19.3% for the three months ended June 30, 2022.

For the three months ended June 30, 2021, the effective tax rate decreased by 5.3% related primarily to windfall tax benefits associated with equity-based compensation. Excluding these items, our effective tax rate would have been 20.0% for the three months ended June 30, 2021.

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~~Comparison of the Six Months Ended June 30, 2022 and 2021~~

~~The following table presents our results of operations for the periods indicated:~~
Six Months Ended June 30,
2022 2021 $ Change % Change
(in thousands)
Consolidated Statements of Operations Data:
Revenue $ 406,004 $ 373,193 $ 32,811 9 %
Operating expenses:
Cost of revenue 146,470 129,589 16,881 13 %
Sales and marketing 107,558 87,817 19,741 22 %
Product development 30,788 22,724 8,064 35 %
General and administrative 63,896 61,720 2,176 4 %
Total operating expenses 348,712 301,850 46,862 16 %
Income from operations 57,292 71,343 (14,051) (20) %
Other (expense) / income, net (1,903) (1,139) (764) *
Income before income taxes 55,389 70,204 (14,815) (21) %
Provision for income taxes 9,372 11,236 (1,864) (17) %
Net income $ 46,017 $ 58,968 $ (12,951) (22) %

* Not meaningful

~~Revenue~~

Revenue increased by $32.8 million, or 9%, to $406.0 million in the six months ended June 30, 2022 compared to the same period in 2021. On a constant currency basis, revenue increased approximately 12% in the six months ended June 30, 2022, compared to the same period in 2021.

The Company’s E-commerce revenues increased by 6%, to $254.5 million in the six months ended June 30, 2022, compared to the same period in 2021. On a constant currency basis, the Company’s E-commerce revenues increased by 9% in the six months ended June 30, 2022, compared to the same period in 2021. During the six months ended June 30, 2022, growth in our E-commerce sales channel was primarily driven by revenue generated from our acquisitions of TurboSquid, PicMonkey and Pond5, which were completed on February 1, 2021, September 3, 2021 and May 11, 2022, respectively. E-commerce revenue also benefited from higher subscriber revenue, which was offset by a reduction in revenue generated from our transactional products.

The Company’s Enterprise revenues increased by 13%, to $151.5 million in the six months ended June 30, 2022, compared to the same period in 2021. On a constant currency basis, the Company’s Enterprise revenues increased by 16% in the six months ended June 30, 2022, compared to the same period in 2021. Enterprise revenue growth was driven by our multi-asset product offerings and continued momentum in Shutterstock Studios and Shutterstock Editorial. Enterprise revenue growth also benefited from our acquisitions of Pond5 and Splash News, which were completed on May 11, 2022 and May 28, 2022, respectively.

In the six months ended June 30, 2022 and 2021, we delivered 88.0 million and 90.7 million paid downloads, respectively, and our revenue per download was $4.34 and $4.07 for the six months ended June 30, 2022 and 2021, respectively. During the six months ended June 30, 2022, the increase in revenue per download was primarily due to changes in product mix.

Changes in our revenue by region were as follows: revenue from North America increased by $32.6 million, or 24%, to $165.8 million, revenue from Europe decreased by $1.6 million, or 1%, to $125.5 million and revenue from outside Europe and North America increased by $1.8 million, or 2%, to $114.7 million, in the six months ended June 30, 2022 compared to the same period in 2021.

~~Table of Contents~~

~~Costs and Expenses~~

~~Cost of Revenue.~~ Cost of revenue increased by $16.9 million, or 13%, to $146.5 million in the six months ended June 30, 2022 compared to the same period in 2021. This increase was primarily driven by: (i) increased depreciation and amortization expense driven by our recent acquisitions; (ii) increased royalty, content and reviewer costs; and (iii) higher costs associated with website hosting, hardware and software licenses. We expect that our cost of revenue will continue to fluctuate in line with changes in revenue and paid downloads.

~~Sales and Marketing.~~ Sales and marketing expenses increased by $19.7 million, or 22%, to $107.6 million in the six months ended June 30, 2022 compared to the same period in 2021. As a percent of revenue, sales and marketing expenses increased to 26% for the six months ended June 30, 2022, from 24% for the same period in 2021. The increase in sales and marketing expenses was primarily driven by (i) ~~$10.8~~$5.1 million in higher employee-related costs and (ii) $2.4 million in higher marketing ~~spend, primarily related to performance marketing, and (ii) $4.7 million in higher employee-related costs.~~spend. In addition, the Company has incurred additional marketing expenses associated with second quarter live events and festivals. We expect sales and marketing expenses to continue to fluctuate as we optimize our sales channels and invest in new customer acquisition, products and geographies.

Product Development. Product development expenses increased by ~~$8.1~~$12.0 million, or ~~35%~~33%, to ~~$30.8~~$48.3 million in the ~~six~~nine months ended ~~June~~September 30, 2022 as compared to the same period in 2021. This increase in product development was primarily driven by ~~$6.3~~(i) $9.2 million in higher employee and third-party contractor related costs, net of capitalized labor for the ~~six~~nine months ended ~~June~~September 30, 2022 and (ii) increased software and other IT-related costs for the nine months ended September 30, 2022. We expect product development expenses, of which a portion will be capitalized, to continue in the foreseeable future, as we pursue opportunities to invest in developing new products and internal tools and enhance the functionality of our existing products and technologies.

General and Administrative. General and administrative expenses ~~increased~~decreased by ~~$2.2~~$2.3 million, or 4%2%, to ~~$63.9~~$94.1 million in the ~~six~~nine months ended ~~June~~September 30, 2022 compared to the same period in 2021. This ~~increase~~decrease was primarily driven by: (i) $4.3 million in higher professional fees primarily related to our acquisitions of Pond5 and Splash News, (ii) $1 million related to a donation to provide direct assistance to Shutterstock’s contributors in Ukraine, (iii) $0.9 million related to realized foreign currency losses, (iv) $0.6 million in higher employee-related costs, and (v) $0.4 million increase in bad debt expense. These increases were partially offset by a ~~$5.6~~$7.4 million decrease in non-cash compensation expense related to the departure of certain executives and expense associated with certain performance based ~~awards.~~awards and $1.8 million in lower depreciation and amortization expense. This was partially offset by (i) $3.9 million in professional fees related to our acquisitions of Pond5 and Splash News, (ii) $2.0 million related to realized foreign currency losses, (iii) $1 million related to a donation to provide direct assistance to Shutterstock’s contributors in Ukraine, and (iv) $0.8 million increase in bad debt expense.

Other ~~(Expense) / Income,~~Expense, Net. During the ~~six~~nine months ended ~~June~~September 30, 2022, other ~~(expense) / income,~~expense, net substantially consisted of ~~$1.8~~$2.9 million of unfavorable foreign currency fluctuations and ~~$0.2~~$0.6 million of interest expense related to the Credit Facility. During the ~~six~~nine months ended ~~June~~September 30, 2021, approximately ~~$1.2~~$3.0 million of other ~~(expense) / income,~~expense, net consisted of unfavorable foreign currency fluctuations. As we increase the volume of business transacted in foreign currencies resulting from international expansion and as currency rates fluctuate, we expect foreign currency gains and losses to continue to fluctuate.

Income Taxes. Income tax expense decreased by ~~$1.9~~$2.2 million for the ~~six~~nine months ended ~~June~~September 30, 2022 as compared to the same period in 2021. Our effective tax rates for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 were ~~16.9%~~16.3% and ~~16.0%~~17.2%, respectively.

For the ~~six~~nine months ended ~~June~~September 30, 2022, the effective tax rate decreased by ~~2.2%~~2.5% related primarily to windfall tax benefits associated with equity-based compensation, as well as the effect of the R&D tax credit and the FDII deduction claimed on the Company’s 2021 tax return, which was substantially completed in the third quarter of 2022. Excluding discrete items, our effective tax rate would have been 18.8% for the nine months ended September 30, 2022.

For the nine months ended September 30, 2021, the effective tax rate decreased by 3.0% related primarily to windfall tax benefits associated with equity-based compensation. Excluding discrete items, our effective tax rate would have been ~~19.1%~~20.2% for the ~~six~~nine months ended ~~June 30, 2022.~~

For the six months ended June 30, 2021, the effective tax rate decreased by 4.0% related primarily to windfall tax benefits associated with equity-based compensation. Excluding discrete items, our effective tax rate would have been 20.0% for the six months ended JuneSeptember 30, 2021.

As we continue to expand our operations outside of the United States, we have been and may continue to become subject to taxation in additional non-U.S. jurisdictions, and our effective tax rate could fluctuate accordingly.

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Quarterly Trends

Our operating results may fluctuate from quarter to quarter as a result of a variety of factors, including the effects of some seasonal trends in customer behavior. For example, we expect that certain customers’ usage may decrease at times during the third quarter of each calendar year due to the summer vacation season and may increase at times during the fourth quarter of each calendar year as demand is generally higher to support marketing campaigns in advance of the fourth quarter holiday season. While we believe seasonal trends have affected and will continue to affect our quarterly results, our growth trajectory may have overshadowed these effects to date. Additionally, because a significant portion of our revenue is derived from repeat customers who have purchased subscription plans, our revenues have historically been less volatile than if we had no subscription-based customers.

In addition, expenditures on content by customers tend to be discretionary in nature, reflecting overall economic conditions, the economic prospects of specific industries, budgeting constraints, buying patterns and a variety of other factors, many of which are outside our control, including any impacts from COVID-19. As a result of these and other factors, the results of any prior quarterly or annual periods should not be relied upon as indicators of our future operating performance.

See “Risks Related to the Coronavirus (“COVID-19”) Pandemic, The effect of the COVID-19 pandemic on our operations, and the operations of our customers, partners and suppliers, could have a material adverse effect on our business, financial condition, cash flows and results of operations” in Part I, Item 1A, “Risk Factors” in our 2021 Form 10-K for further discussion of the possible impact of the COVID-19 pandemic on our business.

Liquidity and Capital Resources

As of ~~June~~September 30, 2022, we had cash and cash equivalents totaling ~~$84.0~~$76.2 million which consisted of bank balances. Since inception, we have financed our operations primarily through cash flows generated from operations. In addition, if necessary, we have the ability to draw on our credit facility, which was obtained on May 6, 2022.

Historically, our principal uses of cash have included funding our operations, capital expenditures, content acquisitions, business combinations and asset acquisitions that enhance our strategic position, cash dividend payments and share purchases under our share repurchase program. We plan to finance our operations, capital expenditures and corporate actions largely through cash generated by our operations and our credit facility. Since our results of operations are sensitive to the level of competition we face, increased competition could adversely affect our liquidity and capital resources.

Dividends

We declared and paid cash dividends of ~~$0.48~~$0.72 per share of common stock, or ~~$17.4~~$26.0 million during the ~~six~~nine months ended ~~June~~September 30, 2022.

On ~~July 18,~~October 17, 2022, our Board of Directors declared a quarterly cash dividend of $0.24 per share of outstanding common stock payable on ~~September~~December 15, 2022 to stockholders of record at the close of business on ~~September~~December 1, 2022. Future declarations of dividends are subject to the final determination of our Board of Directors, and will depend on, among other things, our future financial condition, results of operations, capital requirements, capital expenditure requirements, contractual restrictions, anticipated cash needs, business prospects, provisions of applicable law and other factors our Board of Directors may deem relevant.

Share Repurchase Program

In October 2015, our Board of Directors approved a share repurchase program, authorizing us to repurchase up to $100 million of our common stock and, in February 2017, our Board of Directors approved an increase to the share repurchase program, authorizing us to repurchase up to an additional $100 million of our outstanding common stock. We expect to fund future repurchases, if any, through a combination of cash on hand, cash generated by operations and future financing transactions, if appropriate. Accordingly, our share repurchase program is subject to us having available cash to fund repurchases. Under the share repurchase program, management is authorized to purchase shares of our common stock from time to time through open market purchases or privately negotiated transactions at prevailing prices as permitted by securities laws and other legal requirements, and subject to market conditions and other factors.

As of ~~June~~September 30, 2022, we have repurchased approximately ~~3.5~~3.8 million shares of our common stock under the share repurchase program at an average per-share cost of ~~$52.50.~~$52.97. During the ~~six~~nine months ended ~~June~~September 30, 2022, we repurchased approximately ~~708,700~~984,000 shares of our common stock at an average per share cost of ~~$79.87.~~$74.02. As of ~~June~~September 30, 2022, we ~~had $16.2 million of remaining~~have fully utilized our authorization for purchases under the share repurchase program.

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Equity-Based Compensation

Upon the vesting of restricted stock units (“RSUs”), we have a practice of net share settlement, to cover any required withholding taxes by retaining the number of shares with a value equal to the amount of the tax and remitting an equal amount of cash to the appropriate taxing authorities, rather than requiring employees to sell a portion of the shares that they receive upon vesting to fund the required withholding taxes (“sell-to-cover”). The net share settlement approach has increased our cash outflows compared to the cash outflows under the sell-to-cover approach. In addition, as compared to the sell-to-cover approach, net share settlement has resulted in fewer shares being issued into the market as employees’ RSUs vest, thereby reducing the dilutive impact of our equity-based compensation programs on stockholders.

During the ~~six~~nine months ended ~~June~~September 30, 2022, we paid ~~$21.0~~$22.0 million related to employee taxes on RSU vestings.

Revolving Credit Facility

On May 6, 2022, we 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 our 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 our consolidated leverage ratio. We are 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, we paid debt issuance costs of approximately $0.6 million.

On May 9, 2022, we borrowed $50 million for use in connection with the acquisition of Pond5 and for general corporate purposes. As of ~~June~~September 30, 2022, we had outstanding borrowings under the Credit Facility of $50 million. As of December 31, 2021, we had no outstanding debt obligations. For the three and ~~six~~nine months ended ~~June~~September 30, 2022, the Company paid cash interest totaling ~~$0.1 million.~~$0.4 million and $0.5 million, respectively. For the three and nine months ended September 30, 2022, our annualized interest rate was 3.2% and 3.0%, respectively.

The Credit Facility contains financial covenants and requirements restricting certain of our activities, which are usual and customary for this type of loan. We are 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~~September 30, 2022, we are in compliance with these covenants.

Sources and Uses of Funds

We believe, based on our current operating plan, that our cash and cash equivalents, and cash from operations, will be sufficient to meet our anticipated cash needs for at least the next 12 months and thereafter for the foreseeable future. Future capital expenditures could relate to building enhancements to the functionality of our current platform, the acquisition of additional storage, servers, network connectivity hardware, security apparatus and software, leasehold improvements and furniture and fixtures related to office expansion and relocation, content and general corporate infrastructure. See Note 14 to our Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for information regarding our existing capital commitments as of ~~June~~September 30, 2022.

Cash Flows

The following table summarizes our cash flow data for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 (in thousands).


		Six Months Ended June 30,					Nine Months Ended September 30,
		2022		2021			2022		2021
Net cash provided by operating activities	Net cash provided by operating activities	$	59,574	$	107,216	Net cash provided by operating activities	$	97,289	$	161,858
Net cash used in investing activities	Net cash used in investing activities	$	(240,323)	$	(90,963)	Net cash used in investing activities	$	(257,905)	$	(242,407)
Net cash used in financing activities	Net cash used in financing activities	$	(45,397)	$	(33,745)	Net cash used in financing activities	$	(70,277)	$	(46,426)

Operating Activities

Our primary source of cash from operating activities is cash collections from our customers. The majority of our revenue is generated from credit card transactions and is typically settled within one to five business days. Our primary uses of cash for

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operating activities are for the payment of royalties to content contributors, employee-related expenditures and the payment of other operating expenses incurred in the ordinary course of business.

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Net cash provided by operating activities was ~~$59.6~~$97.3 million for the ~~six~~nine months ended ~~June~~September 30, 2022, compared to ~~$107.2~~$161.9 million for the ~~six~~nine months ended ~~June~~September 30, 2021. In the ~~six~~nine months ended ~~June~~September 30, 2022, operating cash flows were unfavorably impacted from a reduction in operating income and changes in the timing of payments pertaining to operating expenses, which can cause operating cash flow to fluctuate from period to period.

Investing Activities

Cash used in investing activities for the ~~six~~nine months ended ~~June~~September 30, 2022 was ~~$240.3~~$257.9 million, consisting primarily of (i) ~~$212.1~~$211.8 million used in the acquisitions of Pond5 and Splash News, net of cash acquired, (ii) capital expenditures of ~~$20.8~~$32.9 million for internal-use software and website development costs and purchases of software and equipment, and ~~(ii) $7.0~~(iii) $11.2 million paid to acquire the rights to distribute certain digital content into perpetuity.

Cash used in investing activities in the ~~six~~nine months ended ~~June~~September 30, 2021 was ~~$91.0~~$242.4 million, consisting primarily of (i) $181.8 million cash used in the ~~acquisition~~acquisitions of TurboSquid ~~of $72.2 million,~~and PicMonkey, net of cash ~~acquired,~~acquired; (ii) $31.4 million cash used in the asset acquisitions of Pattern89, Inc., Datasine Limited and assets from Shotzr, Inc.; (iii) capital expenditures of ~~$15.3~~$21.2 million for internal-use software and website development costs and purchases of software and equipment, and ~~$3.4~~(iv) $7.9 million paid to acquire the rights to distribute certain digital content in perpetuity.

Financing Activities

Cash used in financing activities in the ~~six~~nine months ended ~~June~~September 30, 2022 was ~~$45.4~~$70.3 million, consisting of (i) ~~$56.9~~$73.5 million in connection with the repurchase of common stock under our share repurchase program; (ii) ~~$21.0~~$26.0 million, related to the payment of the quarterly cash dividend, and (iii) $22.0 million paid in settlement of tax withholding obligations related to employee stock-based compensation ~~awards, and (iii) $17.4 million, related to the payment of the quarterly cash dividend.~~awards. These amounts were partially offset by $50.0 million proceeds received from our Credit Facility.

Cash used in financing activities in the ~~six~~nine months ended ~~June~~September 30, 2021 was ~~$33.7~~$46.4 million, consisting primarily of ~~$20.2~~(i) $23.0 million, related to the payment of the quarterly cash dividend; (ii) $21.3 million, paid in settlement of tax withholding obligations related to employee stock-based compensation awards, and ~~$15.3~~(iii) $4.2 million ~~related to~~in connection with the ~~payment~~repurchase of ~~the quarterly cash dividend.~~common stock under our share repurchase program. These amounts were partially offset by approximately ~~$1.8~~$2.0 million received from the issuance of common stock in connection with the exercise of stock options.

Contractual Obligations and Commitments

We lease real estate under operating lease agreements that expire on various dates during the period from 2022 through 2029. We do not have any material finance lease obligations and our property, equipment and software have been purchased primarily with cash. We do not anticipate any difficulties in renewing those leases and co-location agreements that expire within the next several years and that we currently plan to renew, or in leasing other space or hosting facilities, if required.

On March 21, 2013, we entered into an operating lease agreement to lease our headquarters in New York City, which was amended in 2016. The aggregate undiscounted future minimum lease payments under the lease, as amended, are approximately ~~$47.6~~$46.1 million. We are also party to a letter of credit as a security deposit for this leased facility in the amount of $1.7 million.

Additionally, as of ~~June~~September 30, 2022, aggregate undiscounted future minimum lease payments under other operating leases are approximately ~~$8.3~~$8.1 million.

We enter into unconditional purchase obligations related to contracts for cloud-based services, infrastructure and other business services as well as minimum royalty guarantees in connection with certain content licenses. As of ~~June~~September 30, 2022, our guaranteed royalty payments and unconditional purchase obligations for the remainder of 2022 and for the fiscal years ending December 31, 2023, 2024, 2025 and 2026 were approximately ~~$30.6~~$20.7 million, ~~$37.3~~$38.9 million, ~~$28.5~~$29.0 million, $6.3 million and $0.6 million, respectively.

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Non-GAAP Financial Measures

To supplement our consolidated financial statements presented in accordance with the accounting principles generally accepted in the United States, or GAAP, our management considers certain financial measures that are not prepared in accordance with GAAP, collectively referred to as non-GAAP financial measures, including adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted net income per diluted common share, revenue growth (including by distribution channel) on a constant currency basis (expressed as a percentage), and free cash flow. These non-GAAP financial measures are included solely to provide investors with additional information regarding our financial results and are not based on any standardized methodology prescribed by GAAP and are not necessarily comparable to similarly-titled measures presented by other companies.


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,						Nine Months Ended September 30,
		2022			2021			2022			2021				2022			2021			2022			2021
Non-GAAP Financial Measures:	Non-GAAP Financial Measures:	(in thousands)												Non-GAAP Financial Measures:	(in thousands)
Adjusted EBITDA	Adjusted EBITDA	$	48,927		$	53,063		$	103,736		$	109,482		Adjusted EBITDA	$	56,033		$	44,400		$	159,769		$	153,882
Adjusted net income	Adjusted net income	30,272			37,935			67,456			74,571			Adjusted net income	36,166			26,354			103,622			100,925
Free cash flow	Free cash flow	$	21,564		$	61,692		$	31,778		$	88,483		Free cash flow	$	21,398		$	44,318		$	53,176		$	132,801
Revenue growth on a constant currency basis	Revenue growth on a constant currency basis	13		%	16		%	12		%	13		%	Revenue growth on a constant currency basis	10		%	17		%	11		%	15		%

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

Our management uses these non-GAAP financial measures, in conjunction with GAAP financial measures, as an integral part of managing the business and to, among other things: (i) monitor and evaluate the performance of our business operations, financial performance and overall liquidity; (ii) facilitate management’s internal comparisons of the historical operating performance of its business operations; (iii) facilitate management’s external comparisons of the results of its overall business to the historical operating performance of other companies that may have different capital structures and debt levels; (iv) review and assess the operating performance of our management team and, together with other operational objectives, as a measure in evaluating employee compensation and bonuses; (v) analyze and evaluate financial and strategic planning decisions regarding future operating investments; and (vi) plan for and prepare future annual operating budgets and determine appropriate levels of operating investments.

Management believes that adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted net income per diluted common share, revenue growth (including by distribution channel) on a constant currency basis (expressed as a percentage) and free cash flow are useful to investors because these measures enable investors to analyze our operating results on the same basis as that used by management. Additionally, management believes that adjusted EBITDA, adjusted EBITDA margin, adjusted net income and adjusted net income per diluted common share provide useful information to investors about the performance of the Company’s overall business because such measures eliminate the effects of unusual or other infrequent charges that are not directly attributable to our underlying operating performance, and that revenue growth (including by distribution channel) on a constant currency basis, provides useful information to investors by eliminating the effect of foreign currency fluctuations that are not directly attributable to our operating performance. Management also believes that providing these non-GAAP financial measures enhances the comparability for investors in assessing our financial reporting. Management believes that free cash flow is useful for investors because it provides them with an important perspective on the cash available for strategic measures, after making necessary capital investments in property and equipment to support the Company’s ongoing business operations and provides them with the same measures that management uses as the basis for making resource allocation decisions.

Our use of non-GAAP financial measures has limitations as an analytical tool, and these measures should not be considered in isolation or as a substitute for an analysis of our results as reported under GAAP, as the excluded items may have significant effects on our operating results and financial condition. Additionally, our methods for measuring non-GAAP financial measures may differ from other companies’ similarly titled measures. When evaluating our performance, these non-

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GAAP financial measures should be considered in addition to other financial performance measures, including various cash flow metrics, net income and our other GAAP results.

Our method for calculating adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted net income per diluted common share, revenue growth (including by distribution channel) on a constant currency basis and free cash flow, as well as a reconciliation of the differences between adjusted EBITDA, adjusted net income, revenue growth (including by distribution channel) on a constant currency basis and free cash flow, and the most comparable financial measures calculated and presented in accordance with GAAP, are presented below.

Adjusted EBITDA and Adjusted EBITDA Margin

We define adjusted EBITDA as net income adjusted for depreciation and amortization, non-cash equity-based compensation, foreign currency transaction gains and losses, interest income and expense and income taxes. We define adjusted EBITDA margin as the ratio of adjusted EBITDA to revenue.

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


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,						Nine Months Ended September 30,
		2022			2021			2022			2021				2022			2021			2022			2021
		(in thousands)													(in thousands)

Net income	Net income	$	19,445		$	29,454		$	46,017		$	58,968		Net income	$	23,040		$	16,029		$	69,057		$	74,997
Add / (less) Non-GAAP adjustments:	Add / (less) Non-GAAP adjustments:													Add / (less) Non-GAAP adjustments:
Depreciation and amortization	Depreciation and amortization	16,510			10,152			31,575			20,243			Depreciation and amortization	18,259			13,488			49,834			33,731

Non-cash equity-based compensation	Non-cash equity-based compensation	7,043			9,686			14,869			17,896			Non-cash equity-based compensation	9,088			8,743			23,958			26,639
Other adjustments, net(1)	Other adjustments, net(1)	2,661			(1,323)			1,903			1,139			Other adjustments, net(1)	1,547			1,749			3,449			2,888
Provision for income taxes	Provision for income taxes	3,268			5,094			9,372			11,236			Provision for income taxes	4,099			4,391			13,471			15,627

Adjusted EBITDA	Adjusted EBITDA	$	48,927		$	53,063		$	103,736		$	109,482		Adjusted EBITDA	$	56,033		$	44,400		$	159,769		$	153,882
Adjusted EBITDA margin	Adjusted EBITDA margin	23.7		%	27.9		%	25.6		%	29.3		%	Adjusted EBITDA margin	27.5		%	22.8		%	26.2		%	27.1		%

(1)Other adjustments, net includes unrealized foreign currency transaction gains and losses, and interest income and expense.

Adjusted Net Income and Adjusted Net Income Per Diluted Common Share

We define adjusted net income as net income adjusted for the impact of non-cash equity-based compensation, the amortization of acquisition-related intangible assets and the estimated tax impact of such adjustments. We define adjusted net income per diluted common share as adjusted net income divided by weighted average diluted shares.

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


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
		(in thousands)									(in thousands)

Net income	Net income	$	19,445	$	29,454	$	46,017	$	58,968	Net income	$	23,040	$	16,029	$	69,057	$	74,997
Add / (less) Non-GAAP adjustments:	Add / (less) Non-GAAP adjustments:									Add / (less) Non-GAAP adjustments:
Non-cash equity-based compensation	Non-cash equity-based compensation	7,043		9,686		14,869		17,896		Non-cash equity-based compensation	9,088		8,743		23,958		26,639
Tax effect of non-cash equity-based compensation(1)	Tax effect of non-cash equity-based compensation(1)	(1,655)		(2,276)		(3,493)		(4,205)		Tax effect of non-cash equity-based compensation(1)	(2,135)		(2,055)		(5,629)		(6,260)
Acquisition-related amortization expense	Acquisition-related amortization expense	7,110		1,400		13,155		2,499		Acquisition-related amortization expense	8,069		4,754		21,224		7,253
Tax effect of acquisition-related amortization expense(1)	Tax effect of acquisition-related amortization expense(1)	(1,671)		(329)		(3,092)		(587)		Tax effect of acquisition-related amortization expense(1)	(1,896)		(1,117)		(4,988)		(1,704)

Adjusted net income	Adjusted net income	$	30,272	$	37,935	$	67,456	$	74,571	Adjusted net income	$	36,166	$	26,354	$	103,622	$	100,925

Adjusted net income per diluted common share	Adjusted net income per diluted common share	$	0.83	$	1.02	$	1.83	$	2.00	Adjusted net income per diluted common share	$	1.00	$	0.70	$	2.82	$	2.71

(1)Statutory tax rates are used to calculate the tax effect of the adjustments.

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Revenue Growth (including by distribution channel) on a Constant Currency Basis

We define revenue growth (including by distribution channel) on a constant currency basis (expressed as a percentage) as the increase in current period revenues over prior period revenues, utilizing fixed exchange rates for translating foreign currency revenues for all periods in the comparison.


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,						Nine Months Ended September 30,
		2022			2021			2022			2021				2022			2021			2022			2021
		(in thousands)													(in thousands)

Reported revenue (in thousands)	Reported revenue (in thousands)	$	206,872		$	189,912		$	406,004		$	373,193		Reported revenue (in thousands)	$	204,096		$	194,439		$	610,100		$	567,632
Revenue growth	Revenue growth	9		%	19		%	9		%	16		%	Revenue growth	5		%	18		%	7		%	17		%
Revenue growth on a constant currency basis	Revenue growth on a constant currency basis	13		%	16		%	12		%	13		%	Revenue growth on a constant currency basis	10		%	17		%	11		%	15		%

E-commerce reported revenue (in thousands)	E-commerce reported revenue (in thousands)	$	127,388		$	120,715		$	254,458		$	239,115		E-commerce reported revenue (in thousands)	$	124,594		$	121,707		$	379,052		$	360,822
E-commerce revenue growth	E-commerce revenue growth	6		%	23		%	6		%	21		%	E-commerce revenue growth	2		%	18		%	5		%	20		%
E-commerce revenue growth on a constant currency basis	E-commerce revenue growth on a constant currency basis	9		%	20		%	9		%	18		%	E-commerce revenue growth on a constant currency basis	6		%	18		%	8		%	18		%

Enterprise reported revenue (in thousands)	Enterprise reported revenue (in thousands)	$	79,484		$	69,197		$	151,546		$	134,078		Enterprise reported revenue (in thousands)	$	79,502		$	72,732		$	231,048		$	206,810
Enterprise revenue growth	Enterprise revenue growth	15		%	13		%	13		%	9		%	Enterprise revenue growth	9		%	17		%	12		%	12		%
Enterprise revenue growth on a constant currency basis	Enterprise revenue growth on a constant currency basis	19		%	9		%	16		%	6		%	Enterprise revenue growth on a constant currency basis	15		%	15		%	16		%	9		%

Free Cash Flow

We define free cash flow as our cash provided by operating activities, adjusted for capital expenditures and content acquisition.

The following is a reconciliation of net cash provided by operating activities to free cash flow for each of the periods indicated:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
		(in thousands)									(in thousands)

Net cash provided by operating activities	Net cash provided by operating activities	$	36,851	$	71,388	$	59,574	$	107,216	Net cash provided by operating activities	$	37,715	$	54,642	$	97,289	$	161,858
Capital expenditures	Capital expenditures	(9,022)		(6,789)		(20,797)		(15,337)		Capital expenditures	(12,125)		(5,830)		(32,922)		(21,167)
Content acquisitions	Content acquisitions	(6,265)		(2,907)		(6,999)		(3,396)		Content acquisitions	(4,192)		(4,494)		(11,191)		(7,890)

Free Cash Flow	Free Cash Flow	$	21,564	$	61,692	$	31,778	$	88,483	Free Cash Flow	$	21,398	$	44,318	$	53,176	$	132,801

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to market risks in the ordinary course of our business, including risks related to foreign currency exchange rate fluctuation, interest rate fluctuation and inflation.

Foreign Currency Exchange Risk

Our sales to international customers are denominated in multiple currencies, including but not limited to the U.S. dollar, the euro, the British pound, the Australian dollar and the Japanese yen. Revenue denominated in foreign currencies as a percentage of total revenue was approximately 33% and ~~36%~~35% for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively. Changes in exchange rates will affect our revenue and certain operating expenses to the extent that our revenue is generated and expenses are incurred in currencies other than the U.S. dollar. Royalties earned by and paid to contributors are denominated in the U.S. dollar and will not be affected by changes in exchange rates. Based on our foreign currency denominated revenue for the ~~six~~nine months ended ~~June~~September 30, 2022, we estimate that a 10% change in the exchange rate of the U.S. dollar against all foreign currency denominated revenues would result in an approximately 3% impact on our revenue.

We have established foreign subsidiaries in various countries and have concluded that the functional currency of these entities is generally the local currency. Business transacted in currencies other than each entity’s functional currency results in transactional gains and losses. Translation adjustments resulting from converting the foreign subsidiaries’ financial statements into U.S. dollars are recorded as a component of accumulated other comprehensive loss in stockholders’ equity. We do not currently enter into derivatives or other financial instruments in order to hedge our foreign currency exchange risk, but we may do so in the future.

Our historical revenue by currency is as follows (in thousands):


		Three Months Ended June 30,								Six Months Ended June 30,									Three Months Ended September 30,								Nine Months Ended September 30,
		2022				2021				2022				2021					2022				2021				2022				2021
		U.S. Dollars		Originating Currency		U.S. Dollars		Originating Currency		U.S. Dollars		Originating Currency		U.S. Dollars		Originating Currency			U.S. Dollars		Originating Currency		U.S. Dollars		Originating Currency		U.S. Dollars		Originating Currency		U.S. Dollars		Originating Currency
Euro	Euro	$	40,024	€	36,743	$	38,753	€	32,588	$	77,642	€	69,758	$	76,643	€	64,543	Euro	$	33,993	€	32,868	$	35,930	€	30,333	$	111,635	€	102,626	$	112,573	€	94,876
British pounds	British pounds	14,755		£	11,521	14,915		£	10,806	28,220		£	21,514	28,909		£	21,122	British pounds	14,606		£	12,140	14,678		£	10,681	42,826		£	33,654	43,587		£	31,802
All other non-U.S. currencies(1)	All other non-U.S. currencies(1)	15,095				14,083				29,281				28,029				All other non-U.S. currencies(1)	14,788				14,261				44,069				42,290
Total foreign currency	Total foreign currency	69,874				67,751				135,143				133,581				Total foreign currency	63,387				64,869				198,530				198,450

U.S. dollar	U.S. dollar	136,998				122,161				270,861				239,612				U.S. dollar	140,709				129,570				411,570				369,182
Total revenue	Total revenue	$	206,872			$	189,912			$	406,004			$	373,193			Total revenue	$	204,096			$	194,439			$	610,100			$	567,632

(1)Includes no single currency which exceeded 5% of total revenue for any of the periods presented.

Interest Rate Fluctuation Risk

Our cash and cash equivalents consist of cash and money market accounts. The primary objective of our investment activities is to preserve principal while maximizing income without significantly increasing risk. The fair value of our cash and cash equivalents is not particularly sensitive to interest rate changes.

Amounts borrowed under our Credit Facility 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 our consolidated leverage ratio or (ii) the Term Secured Overnight Financing Rate (for interest periods of 1, 3 or 6 months) plus a margin ranging from 1.125% to 1.5%, determined based on our consolidated leverage ratio. A hypothetical 10% change in interest rates would not have a material impact on our interest expense as of ~~June~~September 30, 2022.

Inflation Risk

We do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.

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Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of ~~June~~September 30, 2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. However, any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objective.

Based on the evaluation of our disclosure controls and procedures as of ~~June~~September 30, 2022, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We completed the acquisitions of Pond5 and Splash News during the second quarter of 2022 and ~~PicMonkey during the third quarter of 2021 and~~ are in the process of integrating the acquired businesses into our overall internal control over financial reporting process.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

Although we are not currently a party to any material active litigation, from time to time, third parties assert claims against us regarding intellectual property rights, employment matters, privacy issues and other matters arising during the ordinary course of business. Although we cannot be certain of the outcome of any litigation or the disposition of any claims, nor the amount of damages and exposure, if any, that we could incur, we currently believe that the final disposition of all existing matters will not have a material adverse effect on our business, results of operations, financial condition or cash flows. In addition, in the ordinary course of our business, we are also subject to periodic threats of lawsuits, investigations and claims. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

Item 1A. Risk Factors.

We operate in a rapidly changing environment that involves a number of risks that could materially affect our business, financial condition or future results, some of which are beyond our control. In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our 2021 Form 10-K, and Part II, “Item 1A. Risk Factors” in our second quarter 2022 Form 10-Q, which could materially affect our business, financial condition or future results. During the three months ended ~~June~~September 30, 2022, there were no material changes to these risk factors as described in our 2021 Form 10-K ~~except as noted below.~~

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

We evaluate our capital allocation strategy on an ongoing basis and make investments to support our business growth. In the future, we may require additional funds to respond to business needs, opportunities and challenges, including the need to develop new features or functions of our platform, improve our operating infrastructure or acquire complementary businesses, personnel and technologies, or develop and carry out a response to unforeseen circumstances. Our ability to obtain additional capital, if and when required, will depend on our business plans, investor demand, our operating performance, the condition of the capital markets, and other factors. If we raise additional funds through the issuance of equity, equity-linked or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. In addition, on May 6,second quarter 2022 we entered into a credit facility (the “Credit Facility”) among the Company, as borrower, certain direct and indirect subsidiaries of the Company as Subsidiary Guarantors, the Lenders party thereto, and Bank of America, N.A., as Administrative Agent for the lenders. The Credit Facility contains customary affirmative and negative covenants, including covenants limiting the ability of the Company and its subsidiaries to, among other things, incur debt, grant liens, undergo certain fundamental changes, make investments, make certain restricted payments, dispose of assets, enter into transactions with affiliates, and enter into burdensome agreements, in each case, subject to limitations and exceptions set forth in the Credit Facility. In addition, the Credit Facility also requires us to comply with certain financial ratio covenants, including a consolidated leverage ratio and a consolidated interest coverage ratio, in each case, determined in accordance with the terms of the Credit Facility. Our ability to comply with these ratios may be affected by events beyond our control. The existence of the Credit Facility, and any additional debt financing we secure in the future that may include restrictive covenants relating to our capital raising activities and other financial and operational matters, may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. If we are unable to obtain additional capital when required, or are unable to obtain additional capital on satisfactory terms, our ability to continue to support our business growth or to respond to business opportunities, challenges, or unforeseen circumstances could be adversely affected, and our business may be harmed.

~~We have incurred debt which could have a negative impact on our financing options and liquidity position, which could in turn adversely affect our business.~~

As of June 30, 2022, we had $50 million in aggregate principal amount of total debt. Additionally, our revolving credit facility has remaining borrowing capacity of $48 million, net of standby letters of credit, as of June 30, 2022. Our overall leverage and the terms of our financing arrangements could:

•limit our ability to obtain additional financing in the future for working capital, capital expenditures or acquisitions, to fund growth or for general corporate purposes, even when necessary to maintain adequate liquidity;

•~~make it more difficult for us to satisfy the terms of our debt obligations;~~

•~~limit our ability to refinance our indebtedness on terms acceptable to us, or at all;~~

~~Table of Contents~~

•~~limit our flexibility to plan for and to adjust to changing business and market conditions and increase our vulnerability to general adverse economic and industry conditions;~~

•require us to dedicate a substantial portion of our cash flow from operations to make interest and principal payments on our debt, thereby limiting the availability of our cash flow to fund future investments, capital expenditures, working capital, business activities and other general corporate requirements; and

•~~increase our vulnerability to adverse economic or industry conditions.~~

Our ability to meet expenses and debt service obligations will depend on our future performance, which could be affected by financial, business, economic and other factors. In addition, a breach of any of the covenants in our outstanding debt agreements or our inability to comply with the required financial ratios could result in a default under our debt instruments, including the Credit Facility. If an event of default occurs, our creditors could elect to declare all borrowings outstanding, together with accrued and unpaid interest, to be immediately due and payable and/or require us to apply all of our available cash to repay borrowings. If we are not able to pay our debt service obligations we may be required to refinance all or part of our debt, sell assets, borrow more money or raise additional equity capital.

Form 10-Q.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

(c)
ISSUER PURCHASES OF EQUITY SECURITIES
Period (a) Total Number of Shares (or Units) Purchased (b) Average Price Paid Per Share (or Unit)
(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs(1)
(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be Purchased Under the Plans or Programs(1)
April 1 - 30, 2022 60,000 $ 83.04 60,000
May 1 - 31, 2022 97,150 61.09 97,150
June 1 - 30, 2022 129,562 57.25 129,562
286,712 $ 63.95 286,712 $ 16,227,150


ISSUER PURCHASES OF EQUITY SECURITIES
Period	(a) Total Number of Shares (or Units) Purchased	(b) Average Price Paid Per Share (or Unit)		(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs(1)	(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be Purchased Under the Plans or Programs(1)
July 1 - 31, 2022	60,000	$	58.82	60,000
August 1 - 31, 2022	143,463	60.48		143,463
September 1 - 30, 2022	71,538	55.95		71,538
	275,001	$	58.94	275,001	$	—

(1)We purchased shares of our common stock in open market purchases pursuant to share repurchases authorized by our Board of Directors. In October 2015, our Board of Directors authorized the repurchase of up to $100 million of our common stock, and in February 2017, our Board of Directors approved an increase to the share repurchase program, authorizing us to repurchase an additional $100 million of our outstanding common stock. As of ~~June~~September 30, 2022, ~~$16.2 million remained available~~we have fully utilized our authorization for ~~purchase~~purchases under this authorization.

Item 6. Exhibits.

See the Exhibit Index, which immediately precedes the signature page of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

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EXHIBIT INDEX


Exhibit
Number						Exhibit Description
~~2.1~~						~~Agreement and Plan of Merger, dated May 10, 2022~~
~~10.1~~						Credit Agreement, dated as of May 6, 2022, by and among Shutterstock, Inc., as borrower, certain subsidiary guarantors, certain financial institutions, as lenders, and Bank of America, N.A., as administrative agent for such lenders
~~10.2~~						~~Employment Agreement between Paul J. Hennessy and Shutterstock, Inc. dated May 8, 2022~~


10.1						Separation Agreement and General Release between the Company and Peter Silvio, dated September 1, 2022
10.2#						2022 Nonqualified Deferred Compensation Plan
31.1#						Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2#						Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32#						Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS						XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH						XBRL Taxonomy Extension Schema Document
101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF						XBRL Taxonomy Extension Definition Linkbase Document
101.LAB						XBRL Taxonomy Extension Label Linkbase Document
101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document
104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

______________________________________

# Filed herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	SHUTTERSTOCK, INC.

Dated: ~~July 26,~~October 25, 2022	By:	/s/ Jarrod Yahes
		Jarrod Yahes
		Chief Financial Officer
		(Principal Financial Officer)

Dated: ~~July 26,~~October 25, 2022	By:	/s/ Steven Ciardiello
		Steven Ciardiello
		Chief Accounting Officer
		(Principal Accounting Officer)

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		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	24
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 6.	Exhibits	4342

Signatures		4544