| Acquisitions | Acquisitions 2024 Acquisitions Envato On July 22, 2024, the Company completed its acquisition of Envato Pty Ltd. (“Envato”) pursuant to a Share Purchase Agreement (the “Purchase Agreement”) entered into on May 1, 2024, to acquire all of the issued and outstanding capital stock of Envato. The aggregate amount paid by the Company, after customary working capital and other adjustments in accordance with the terms of the Purchase Agreement, was $250.2 million. The consideration was sourced with cash obtained through the A&R Credit Agreement. See Note 7 Debt for more information. In connection with the acquisition, the Company incurred approximately $7.6 million of transaction costs in total, which are included in general and administrative expenses on the Consolidated Statements of Operations. Envato offers digital creative assets and templates, including Envato Elements, a creative subscription providing unlimited downloads of a diverse array of assets, templates, and more. The Company believes this acquisition complements Shutterstock’s existing offerings and expands its reach with faster growing audiences such as freelancers, hobbyists, small businesses and agencies. The purchased assets included identifiable intangible assets, comprised of trademarks, developed technology and customer relationships, which have weighted average useful lives of approximately 10 years, 5 years and 6 years, respectively. The fair values of the trademark and developed technology were determined using the relief-from-royalty method, and the fair value of the customer relationships was determined using the excess of earnings method. The goodwill arising from the transaction is primarily attributable to expected operational synergies and is not deductible for income tax purposes. Backgrid On February 1, 2024, the Company completed its acquisition of all of the outstanding shares of Backgrid USA, Inc. and Backgrid London LTD, (collectively, “Backgrid”), for approximately $20 million, subject to customary working capital adjustments. The total purchase price was paid with existing cash on hand. In connection with the acquisition, the Company incurred approximately $1.5 million of transaction costs in total, which are included in general and administrative expenses on the Consolidated Statements of Operations. Backgrid supplies media organizations with real-time celebrity content. The Company believes this acquisition expands Shutterstock Editorial’s Newsroom offering of editorial images and footage across celebrity, red carpet and live-events. The identifiable intangible assets, trademark and developed technology, have useful lives of approximately 10 years and 5 years, respectively.The fair values of the trademark and developed technology were determined using the excess earnings and relief-from-royalty methods, respectively. The goodwill arising from the transaction is primarily attributable to expected operational synergies and is not deductible for income tax purposes. The Envato and Backgrid 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 have 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 aggregate purchase price for the Envato and Backgrid acquisitions have been allocated to the assets acquired and liabilities assumed as follows (in thousands): Assets acquired and liabilities assumed: Envato Backgrid Total Cash and cash equivalents 1 $ 90,591 $ 1,718 $ 92,309 Accounts receivable 6,818 732 7,550 Other assets 5,404 77 5,481 Right of use asset 273 — 273 Fixed assets 895 — 895 Intangible assets: Trade name 31,000 300 31,300 Developed technology 47,000 900 47,900 Customer relationships 12,400 — 12,400 Intangible assets 90,400 1,200 91,600 Goodwill 202,932 19,843 222,775 Deferred tax asset 17,790 — 17,790 Total assets acquired $ 415,103 $ 23,570 $ 438,673 Accounts payable (4,173) — (4,173) Contributor royalties payable (11,917) (849) (12,766) Accrued expenses (34,066) (1,302) (35,368) Deferred revenue (46,888) — (46,888) Deferred tax liability — (271) (271) Other liabilities 1 (67,654) — (67,654) Lease liability (190) — (190) Total liabilities assumed (164,888) (2,422) (167,310) Net assets acquired $ 250,215 $ 21,148 $ 271,363 1 Envato’s cash includes $63.4 million for the funding of Envato obligations that were triggered upon the closing of the acquisition (the “Envato Seller Obligations”). These obligations are also reported as assumed liabilities within Other liabilities. $45.7 million of the Envato Seller Obligations were paid during the three months ended September 30, 2024, and as of September 30, 2024, $17.7 million continues to be reported in Other liabilities. 2023 Acquisition Giphy, Inc. On May 22, 2023, the Company entered into a Stock Purchase Agreement with Meta Platforms, Inc. (“Meta”) dated May 22, 2023 (the “Purchase Agreement”). On June 23, 2023, the Company completed its acquisition of all of the outstanding shares of Giphy, Inc. (“Giphy”) from Meta. The consideration paid by the Company pursuant to the Purchase Agreement was $53 million in net cash, in addition to cash acquired, assumed debt and other working capital adjustments. The consideration was paid with existing cash on hand. Giphy is a New York-based company that operates a collection of GIFs and stickers that supplies casual conversational content. The Company believes its acquisition of Giphy extends Shutterstock’s audience touchpoints beyond primarily professional marketing and advertising use cases and expands into casual conversations. In January 2023, the United Kingdom Competition and Markets Authority (the “CMA”) issued its final order requiring Meta to divest its ownership of Giphy, which Meta acquired in 2020. In connection with the closing of the acquisition, whose terms were preapproved by the CMA, the Company and Meta entered into a transitional services agreement (the “TSA”) pursuant to which Meta is responsible for certain costs related to retention of Giphy employees, including (i) recurring salary, bonus, and benefits through August 2024, which would be $35.6 million if all employees are retained through August 2024, and (ii) nonrecurring items, totaling $87.9 million, comprised of one-time employment inducement bonuses and the cash value of unvested Meta equity awards (collectively, the “Giphy Retention Compensation”) and certain costs related to technology and integration expenses, totaling $30 million to be paid in $1.25 million monthly installments through May 2025. The Giphy Retention Compensation will be paid to the individuals for being employees of the Company subsequent to the completion of the acquisition. Accordingly, it was determined that the payments by the Company are for future service requirements and will be reflected as operating expenses, less any amounts earned by the employees prior to the acquisition, in the Company’s Statements of Operations as incurred. The Giphy Retention Compensation is reflected as a reduction of the purchase price and has been funded into an escrow account. The Giphy purchase price was calculated as follows: Purchase Price Purchase price $ 53,000 Cash acquired and other working capital adjustments 4,750 Cash paid on closing $ 57,750 Fair value of Giphy Retention Compensation contingent consideration 1 (98,723) Fair value of consideration attributable to pre-combination service 2 34,972 Net purchase price $ (6,001) 1 - This amount consists of $123.5 million of Giphy Retention Compensation, adjusted for $18.9 million of income tax obligations associated with the receipt of the Giphy Retention Compensation and $5.9 million for the time value of money. 2 - Relates to the cash value of replaced unvested Meta equity awards attributable to pre-combination services. Upon closing of the acquisition, the Company also entered into an agreement with Meta whereby the Company will provide Meta with access to Giphy content that is displayed through an API for a period of two years. The Company determined that the API arrangement represents a transaction separate from the business combination and was priced below market. Therefore, the Company allocated $30 million of the purchase price to these services, which represents the step-up to fair market value. This amount has been recognized in deferred revenue and will be recognized as revenue over-time as the API is provided. The identifiable intangible assets, which include developed technology and the trade name have weighted average useful lives of approximately 7 years and 15 years, respectively. The fair value of the developed technology was determined using the cost to recreate method, and the fair value of the trade name was determined using the relief-from-royalty method. The Giphy transaction was accounted for using the acquisition method and, accordingly, the results of the acquired business have been included in the Company’s results of operations from the acquisition date. The fair value of consideration transferred in this business combination has been allocated to the intangible and tangible assets acquired and liabilities assumed at the acquisition date, with the excess of the fair value of the net assets acquired over the net consideration received recorded as a bargain purchase gain. The identifiable intangible assets of these acquisitions are being amortized on a straight-line basis. The aggregate purchase price for this acquisition has been allocated to the assets acquired and liabilities assumed as follows (in thousands): Assets acquired and liabilities assumed: Giphy Cash and cash equivalents $ 4,030 Prepaid expenses and other current assets 1,416 Right of use assets 1,243 Intangible assets: Trade name 21,000 Developed technology 19,500 Intangible assets 40,500 Deferred tax asset 1,463 Other assets 1,647 Total assets acquired $ 50,299 Accounts payable, accrued expenses and other liabilities (4,949) Lease liability (1,090) Total liabilities assumed (6,039) Net assets acquired $ 44,260 Net purchase price (6,001) Bargain purchase gain $ 50,261 The Company recognized a non-taxable bargain purchase gain of $50.3 million, representing the excess of the fair value of the net assets acquired in addition to the net consideration to be received from Meta. The bargain purchase gain is the result of the CMA’s regulatory order requiring Meta’s divestiture of Giphy and the Giphy Retention Compensation payments. In connection with the acquisition, the Company incurred approximately $3.0 million of transaction costs, which are included in general and administrative expenses on the Consolidated Statements of Operations. As of September 30, 2024, Shutterstock’s receivable of $13.8 million, is against an escrow fully funded by Meta. $12.0 million and $1.8 million are included within Prepaid expenses and other current assets and Other assets, respectively, on the Consolidated Balance Sheet. 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 nine months ended September 30, 2024 and 2023, respectively, as if the Envato and Backgrid acquisitions had been completed on January 1, 2023, and as if the Giphy acquisition had been completed on January 1, 2022, after giving effect to certain purchase accounting adjustments, primarily related to Giphy Retention Compensation - non-recurring, intangible assets and transaction costs. These pro forma results have been prepared for comparative purposes only and are based on estimates and assumptions that have been made solely for purposes of developing such pro forma information and are not necessarily indicative of what the Company’s operating results would have been, had the acquisitions actually taken place at the beginning of the previous annual period. Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Revenue As Reported $ 250,588 $ 233,248 $ 684,956 $ 657,368 Pro Forma 261,610 286,487 795,085 827,085 Income before income taxes As Reported $ 17,527 $ 27,613 $ 54,477 $ 120,408 Pro Forma 21,499 22,909 70,920 57,248 |
