(Do not check if a smaller reporting company) Common Stock, $0.01 par value per share Certifications June 30, December 31, 2015 2014 ASSETS Current assets: Cash and cash equivalents $ 211,479 $ 233,453 Short-term investments 54,891 54,844 Credit card receivables 3,791 2,451 Accounts receivable, net 23,735 15,251 Prepaid expenses and other current assets 13,987 12,141 Deferred tax assets, net 5,507 5,390 Total current assets 313,390 323,530 Property and equipment, net 28,964 26,744 Intangible assets, net 32,159 4,934 Goodwill 54,740 10,186 Deferred tax assets, net 18,132 16,484 Other assets 1,974 1,899 Total assets $ 449,359 $ 383,777 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 9,298 $ 5,334 Accrued expenses 26,301 25,073 Contributor royalties payable 17,435 11,933 Income taxes payable 1,171 — Deferred revenue 89,279 75,789 Other liabilities 4,226 2,198 Total current liabilities 147,710 120,327 Deferred tax liability, net 4,338 — Other non-current liabilities 13,689 12,017 Total liabilities 165,737 132,344 Commitments and contingencies (Note 8) Stockholders’ equity: Common stock, $0.01 par value; 200,000 shares authorized; 35,981 and 35,603 shares outstanding as of June 30, 2015 and December 31, 2014, respectively 360 356 Additional paid-in capital 198,029 174,821 Accumulated comprehensive loss (232 ) (629 ) Retained earnings 85,465 76,885 Total stockholders’ equity 283,622 251,433 Total liabilities and stockholders’ equity $ 449,359 $ 383,777 Three Months Ended Six Months Ended 2015 2014 2015 2014 Revenue $ 104,365 $ 80,238 $ 201,887 $ 153,016 Operating expenses: Cost of revenue 42,545 32,047 82,070 61,159 Sales and marketing 27,429 20,492 52,534 39,768 Product development 10,189 9,275 20,873 17,052 General and administrative 14,536 10,013 28,508 17,552 Total operating expenses 94,699 71,827 183,985 135,531 Income from operations 9,666 8,411 17,902 17,485 Other (expense) income, net (57 ) — (2,619 ) 46 Income before income taxes 9,609 8,411 15,283 17,531 Provision for income taxes 4,272 3,550 6,703 7,753 Net income $ 5,337 $ 4,861 $ 8,580 $ 9,778 Less: Undistributed earnings to participating stockholder — 10 2 21 Net income available to common stockholders $ 5,337 $ 4,851 $ 8,578 $ 9,757 Net income per basic share available to common stockholders: Undistributed $ 0.15 $ 0.14 $ 0.24 $ 0.28 Basic $ 0.15 $ 0.14 $ 0.24 $ 0.28 Net income per diluted share available to common stockholders: Undistributed $ 0.15 $ 0.14 $ 0.24 $ 0.27 Diluted $ 0.15 $ 0.14 $ 0.24 $ 0.27 Weighted average shares outstanding: Basic 35,864,051 35,148,876 35,750,077 35,089,254 Diluted 36,339,517 35,874,789 36,266,989 35,857,899 Three Months Ended Six Months Ended 2015 2014 2015 2014 Net income $ 5,337 $ 4,861 $ 8,580 $ 9,778 Foreign currency translation gain 3,478 18 380 19 Unrealized gain on investments 9 15 17 16 Other comprehensive income 3,487 33 397 35 Comprehensive income $ 8,824 $ 4,894 $ 8,977 $ 9,813 Six Months Ended 2015 2014 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 8,580 $ 9,778 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,494 3,632 Write-off of property and equipment — 367 Deferred taxes (1,825 ) (2,474 ) Non-cash equity-based compensation 15,088 9,393 Change in fair value of contingent consideration 900 40 Excess tax benefit from the exercise of stock options (1,700 ) (8,721 ) Bad debt reserve 814 189 Chargeback and sales refund reserves 20 105 Changes in operating assets and liabilities: Credit card receivables (1,356 ) (815 ) Accounts receivable (6,202 ) (5,227 ) Prepaid expenses and other current and non-current assets 3,056 8,963 Accounts payable and other current and non-current liabilities 1,669 6,638 Contributor royalties payable 2,288 1,665 Income taxes payable (1,203 ) — Deferred revenue 13,476 13,254 Net cash provided by operating activities $ 40,099 $ 36,787 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (6,084 ) (14,780 ) Purchase of investments (130,982 ) (141,788 ) Sale and maturities of investments 130,953 141,235 Acquisition of businesses, net of cash (62,379 ) (10,056 ) Acquisition of digital content (1,473 ) — Security deposit payment (71 ) (76 ) Net cash used in investing activities $ (70,036 ) $ (25,465 ) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from exercise of stock options 5,697 4,486 Proceeds from issuance of common stock under 2012 Employee Stock Purchase Plan 1,052 945 Excess tax benefit from the exercise of stock options 1,700 8,721 Net cash provided by financing activities $ 8,449 $ 14,152 Effect of foreign exchange rate changes on cash (486 ) 22 Net (decrease) increase in cash and cash equivalents (21,974 ) 25,496 Cash and cash equivalents—Beginning 233,453 155,355 Cash and cash equivalents—Ending $ 211,479 $ 180,851 Supplemental Disclosure of Cash Information: Cash paid for: Income taxes $ 7,807 $ 159 Supplemental Disclosure of Non-Cash Investing and Financing Activities: Capital expenditures in accounts payable and other liabilities $ — $ 936 Silicon Valley. Forma Consolidated Financial Information Three Months Ended June 30, Six Months Ended June 30, 2015 2014 2015 2014 Revenue $ 104,365 $ 86,365 $ 203,159 $ 164,899 Net income $ 5,337 $ 4,956 $ 8,584 $ 10,130 future periods as to the likelihood of the condition being met. Compensation expense is adjusted in subsequent periods for changes, if any, in the expected outcome of the change of control conditions until the vesting date. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Compensation expense related to awards with a market condition is recognized ratably over the requisite service period regardless of the achievement of the market condition. rights). Three Months Ended June 30, Six Months Ended June 30, 2015 2014 2015 2014 Basic 35,864,051 35,148,876 35,750,077 35,089,254 Stock options and employee stock purchase plan shares 362,986 625,273 390,460 665,628 Unvested restricted stock awards 112,480 100,640 126,452 103,017 Diluted 36,339,517 35,874,789 36,266,989 35,857,899 The Company is evaluating the impact, if any, of adopting this new accounting standard on its financial statements. As of June 30, 2015 Amortized Unrealized Unrealized Estimated Commercial paper $ 54,895 $ — $ (4 ) $ 54,891 Total $ 54,895 $ — $ (4 ) $ 54,891 As of December 31, 2014 Amortized Unrealized Unrealized Estimated Commercial paper $ 54,848 $ — $ (4 ) $ 54,844 Total $ 54,848 $ — $ (4 ) $ 54,844 As of June 30, 2015 Aggregate Fair Level 1 Level 2 Level 3 Assets: Money market accounts $ 81,276 $ 81,276 $ — $ — Commercial paper 54,891 — 54,891 — Total assets measured at fair value $ 136,167 $ 81,276 $ 54,891 $ — Liabilities: Acquisition related contingent consideration $ 7,105 $ — $ — $ 7,105 Total liabilities measured at fair value $ 7,105 $ — $ — $ 7,105 As of December 31, 2014 Aggregate Fair Level 1 Level 2 Level 3 Assets: Money market accounts $ 81,244 $ 81,244 $ — $ — Commercial paper 54,844 — 54,844 — Total assets measured at fair value $ 136,088 $ 81,244 $ 54,844 $ — Liabilities: Acquisition related contingent consideration $ 2,560 $ — $ — $ 2,560 Total liabilities measured at fair value $ 2,560 $ — $ — $ 2,560 Three Months Ended Six Months Ended 2015 2014 2015 2014 North America $ 41,189 $ 29,212 $ 78,695 $ 55,777 Europe 34,944 28,596 69,046 55,212 Rest of the world 28,232 22,430 54,146 42,027 Total revenue $ 104,365 $ 80,238 $ 201,887 $ 153,016 period presented. June 30, December 31, 2015 2014 North America $ 28,568 $ 26,651 Europe 396 93 Rest of the world — — Total long-lived tangible assets $ 28,964 $ 26,744 Content Business Other Category Foreign Currency Consolidated Balance as of December 31, 2014 $ 1,423 $ 8,763 $ — $ 10,186 Goodwill related to acquisitions 44,767 — (213 ) 44,554 Balance as of June 30, 2015 $ 46,190 $ 8,763 $ (213 ) $ 54,740 As of June 30, 2015 Gross Accumulated Net Contractual Amortizing intangible assets: Customer relationship $ 20,630 $ (2,004 ) $ 18,626 9 Trade name 7,438 (703 ) 6,735 7 Developed technology 3,916 (594 ) 3,322 4 Contributor content 3,569 (326 ) 3,243 9 Patents 193 (35 ) 158 17 Domain name 97 (22 ) 75 14 Total $ 35,843 $ (3,684 ) $ 32,159 As of December 31, 2014 Gross Accumulated Net Weighted Amortizing intangible assets: Customer relationship $ 3,400 $ (921 ) $ 2,479 6 Trade name 900 (230 ) 670 9 Developed technology 600 (68 ) 532 7 Contributor content 450 (159 ) 291 15 Patents 193 (30 ) 163 17 Domain name 97 (19 ) 78 14 Total (1) $ 5,640 $ (1,427 ) $ 4,213 June 30, December 31, Computer equipment and software $ 28,848 $ 24,179 Furniture and fixtures 2,761 2,336 Leasehold improvements 14,420 13,954 Property and equipment 46,029 40,469 Less accumulated depreciation (17,065 ) (13,725 ) Property and equipment, net $ 28,964 $ 26,744 June 30, December 31, 2015 2014 Royalty tax withholdings $ 6,506 $ 5,987 Compensation 6,346 8,312 Non-income taxes 5,627 4,670 Payroll tax withholdings 3,011 478 Professional fees 1,042 1,708 Marketing expenses 307 794 Other expenses 3,462 3,124 Total accrued expenses $ 26,301 $ 25,073 respectively. $34,900. Plan Weighted Average Options outstanding at December 31, 2014 1,771,440 $ 41.61 Options granted 1,250 17.00 Options exercised (236,033 ) 19.94 Options cancelled or forfeited (87,164 ) 45.80 Options outstanding at June 30, 2015 1,449,493 $ 44.99 Vested and exercisable at June 30, 2015 558,773 $ 25.06 follows: Three Months Six Months 2015 2014 2015 2014 Expected term (in years) — 10 2 6.3 Volatility — % 49 % 48 % 49 % Risk-free interest rate — % 2.8 % 0.7 % 2.1-2.8 % Dividend yield — % — % — % — % Plan Weighted Average Non-vested balance at December 31, 2014 652,897 $ 81.45 Units granted 669,814 58.88 Units vested (158,467 ) 79.37 Units cancelled or forfeited (156,668 ) 80.25 Non-vested balance at June 30, 2015 1,007,576 $ 66.96 Three Months Ended June 30, Six Months Ended June 30, 2015 2014 2015 2014 Cost of revenue $ 466 $ 368 $ 948 $ 617 Sales and marketing 1,428 968 2,746 1,870 Product development 1,751 1,775 4,120 2,724 General and administrative 3,935 3,145 7,274 4,182 Total $ 7,580 $ 6,256 $ 15,088 $ 9,393 subject to market conditions and other factors. Three Months Ended June 30, Six Months Ended June 30, 2015 2014 2015 2014 Foreign currency gain (loss) $ 313 $ 19 $ (1,761 ) $ 44 Change in fair value of contingent consideration (385 ) (40 ) (900 ) (40 ) Interest income 15 21 42 42 Total (expense) income $ (57 ) $ — $ (2,619 ) $ 46 Technology Officer. Three Months Ended Six Months Ended June 30, June 30, 2015 2014 2015 2014 (in millions, except revenue per download) (in millions, except revenue per download) Paid downloads (during the period) 35.9 31.5 69.3 61.2 Revenue per download (during the period) $ 2.85 $ 2.52 $ 2.86 $ 2.49 Images in collection (end of period) 57.2 38.8 57.2 38.8 consistent. continue to fluctuate. Three Months Ended June 30, Six Months Ended June 30, 2015 2014 2015 2014 (in thousands) (in thousands) Consolidated Statements of Operations: Revenue $ 104,365 $ 80,238 $ 201,887 $ 153,016 Operating expenses: Cost of revenue 42,545 32,047 82,070 61,159 Sales and marketing 27,429 20,492 52,534 39,768 Product development 10,189 9,275 20,873 17,052 General and administrative 14,536 10,013 28,508 17,552 Total operating expenses 94,699 71,827 183,985 135,531 Income from operations 9,666 8,411 17,902 17,485 Other (expense) income, net (57 ) — (2,619 ) 46 Income before income taxes 9,609 8,411 15,283 17,531 Provision for income taxes 4,272 3,550 6,703 7,753 Net income $ 5,337 $ 4,861 $ 8,580 $ 9,778 Three Months Ended June 30, Six Months Ended June 30, 2015 2014 2015 2014 Consolidated Statements of Operations: Revenue 100 % 100 % 100 % 100 % Operating expenses: Cost of revenue 41 40 41 40 Sales and marketing 26 26 26 26 Product development 10 12 10 11 General and administrative 14 12 14 11 Total operating expenses 91 90 91 88 Income from operations 9 10 9 12 Other (expense) income, net 0 0 (1 ) 0 Income before income taxes 9 10 8 12 Provision for income taxes 4 4 3 5 Net income 5 % 6 % 5 % 7 % Three Months Ended June 30, 2015 2014 $ Change % Change (in thousands) Consolidated Statements of Operations Data: Revenue $ 104,365 $ 80,238 $ 24,127 30 % Operating expenses: Cost of revenue 42,545 32,047 10,498 33 Sales and marketing 27,429 20,492 6,937 34 Product development 10,189 9,275 914 10 General and administrative 14,536 10,013 4,523 45 Total operating expenses 94,699 71,827 22,872 32 Income from operations 9,666 8,411 1,255 15 Other (expense) income, net (57 ) — (57 ) (100 ) Income before income taxes 9,609 8,411 1,198 14 Provision for income taxes 4,272 3,550 722 20 Net income $ 5,337 $ 4,861 $ 476 10 % services and the result of amortization of intangible assets associated with recent acquisitions. operations and increase the volume of business transacted in currencies other than the U.S. dollar. Six Months Ended June 30, 2015 2014 $ Change % Change (in thousands) Consolidated Statements of Operations Data: Revenue $ 201,887 $ 153,016 $ 48,871 32 % Operating expenses: Cost of revenue 82,070 61,159 20,911 34 Sales and marketing 52,534 39,768 12,766 32 Product development 20,873 17,052 3,821 22 General and administrative 28,508 17,552 10,956 62 Total operating expenses 183,985 135,531 48,454 36 Income from operations 17,902 17,485 417 2 Other income (expense), net (2,619 ) 46 (2,665 ) * Income before income taxes 15,283 17,531 (2,248 ) (13 ) Provision for income taxes 6,703 7,753 (1,050 ) (14 ) Net income $ 8,580 $ 9,778 $ (1,198 ) (12 )% * Not meaningful services and the result of amortization of intangible assets associated with recent acquisitions. operations and increase the volume of business transacted in currencies other than the U.S. dollar. 2015 and 2014, respectively. customers; accordingly, as our product mix shifts over time, this impact may vary in the future. By: /s/ Jonathan Oringer Jonathan Oringer Chief Executive Officer (Principal Executive Officer) Dated: By: /s/ Chief Financial Officer (Principal Financial and Accounting Officer) 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 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Certification of 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* 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*
___________________________________________________________ xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934JuneSeptember 30, 2015
___________________________________________________________
___________________________________________________________Delaware80-0812659Delaware 80-0812659 Jonathan OringerChief Executive Officer
___________________________________________________________xý Yes o Noxý Yes o Noxý NoClassClass Outstanding at August 5,November 4, 201536,047,792Page No.Page No. 243637383838383940 September 30, December 31, 2015 2014 ASSETS Current assets: Cash and cash equivalents $ 229,607 $ 233,453 Short-term investments 52,491 54,844 Credit card receivables 3,941 2,451 Accounts receivable, net 25,631 15,251 Prepaid expenses and other current assets 12,355 12,141 Deferred tax assets, net 6,213 5,390 Total current assets 330,238 323,530 Property and equipment, net 29,877 26,744 Intangible assets, net 30,818 4,934 Goodwill 52,170 10,186 Deferred tax assets, net 19,991 16,484 Other assets 1,913 1,899 Total assets $ 465,007 $ 383,777 Current liabilities: Accounts payable $ 9,045 $ 5,334 Accrued expenses 27,962 24,982 Contributor royalties payable 17,614 11,933 Income taxes payable 993 91 Deferred revenue 94,314 75,789 Other liabilities 4,920 2,198 Total current liabilities 154,848 120,327 Deferred tax liability, net 4,025 — Other non-current liabilities 13,234 12,017 Total liabilities 172,107 132,344 Commitments and contingencies (Note 8) Stockholders’ equity: Common stock, $0.01 par value; 200,000 shares authorized; 36,076 and 35,603 shares outstanding as of September 30, 2015 and December 31, 2014, respectively 360 356 Additional paid-in capital 206,811 174,821 Accumulated comprehensive loss (3,839 ) (629 ) Retained earnings 89,568 76,885 Total stockholders’ equity 292,900 251,433 Total liabilities and stockholders’ equity $ 465,007 $ 383,777
June 30,
June 30, Three Months Ended
September 30, Nine Months Ended
September 30, 2015 2014 2015 2014 Revenue $ 107,260 $ 83,730 $ 309,147 $ 236,745 Operating expenses: Cost of revenue 44,512 33,260 126,582 94,419 Sales and marketing 27,393 21,122 79,927 60,890 Product development 10,827 9,870 31,700 26,922 General and administrative 16,441 10,265 44,949 27,816 Total operating expenses 99,173 74,517 283,158 210,047 Income from operations 8,087 9,213 25,989 26,698 Other expense, net (767 ) (373 ) (3,386 ) (327 ) Income before income taxes 7,320 8,840 22,603 26,371 Provision for income taxes 3,217 3,562 9,920 11,315 Net income $ 4,103 $ 5,278 $ 12,683 $ 15,056 Less: Undistributed earnings to participating stockholder — 9 2 30 Net income available to common stockholders $ 4,103 $ 5,269 $ 12,681 $ 15,026 Net income per share available to common stockholders: Basic $ 0.11 $ 0.15 $ 0.35 $ 0.43 Diluted $ 0.11 $ 0.15 $ 0.35 $ 0.42 Weighted average shares outstanding: Basic 36,039,907 35,304,066 35,847,748 35,161,644 Diluted 36,270,044 35,931,454 36,269,067 35,883,202
June 30,
June 30,See Notes to Unaudited Consolidated Financial StatementsShutterstock, Inc.Consolidated Statements of Cash Flows(In thousands)(unaudited)
June 30, Three Months Ended
September 30, Nine Months Ended
September 30, 2015 2014 2015 2014 Net income $ 4,103 $ 5,278 $ 12,683 $ 15,056 Foreign currency translation loss (3,620 ) (117 ) (3,240 ) (105 ) Unrealized gain on investments 13 2 30 24 Other comprehensive loss (3,607 ) (115 ) (3,210 ) (81 ) Comprehensive income $ 496 $ 5,163 $ 9,473 $ 14,975 Nine Months Ended
September 30, 2015 2014 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 12,683 $ 15,056 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 10,363 5,757 Write-off of property and equipment — 367 Deferred taxes (4,587 ) (4,181 ) Non-cash equity-based compensation 22,771 15,728 Change in fair value of contingent consideration 1,440 110 Tax benefit from exercise/vesting of equity awards, net (1,741 ) (10,224 ) Bad debt reserve 1,165 516 Chargeback and sales refund reserves (215 ) 170 Changes in operating assets and liabilities: Credit card receivables (1,501 ) (1,704 ) Accounts receivable (8,574 ) (7,374 ) Prepaid expenses and other current and non-current assets 1,521 15,574 Accounts payable and other current and non-current liabilities 3,680 7,978 Contributor royalties payable 2,589 3,059 Income taxes payable 1,365 — Deferred revenue 18,490 18,667 Net cash provided by operating activities $ 59,449 $ 59,499 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (9,873 ) (16,334 ) Purchase of investments (203,469 ) (214,506 ) Sale and maturities of investments 205,851 219,239 Acquisition of business (62,379 ) (10,056 ) Acquisition of digital content (2,192 ) (331 ) Security deposit receipt 93 145 Net cash used in investing activities $ (71,969 ) $ (21,843 ) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from exercise of stock options 6,881 6,673 Proceeds from issuance of common stock under Employee Stock Purchase Plan 1,052 945 Tax benefit from exercise/vesting of equity awards, net 1,741 10,224 Net cash provided by financing activities $ 9,674 $ 17,842 Effect of foreign exchange rate changes on cash (1,000 ) (93 ) Net increase in cash and cash equivalents (3,846 ) 55,405 Cash and cash equivalents, beginning of period 233,453 155,355 Cash and cash equivalents, end of period $ 229,607 $ 210,760 Supplemental Disclosure of Cash Information: Cash paid for income taxes $ 11,737 $ 235 Supplemental Disclosure of Non-Cash Investing and Financing Activities: Capital expenditures in accounts payable and other liabilities $ — $ 4,436 websitewebsites in exchange for a royalty payment based on customer download or usage activity. The Company is headquartered in New York City with offices in Amsterdam, Berlin, Chicago, Dallas, Denver, London, Los Angeles, Montreal, Paris, San Francisco and San Francisco.JuneSeptember 30, 2015, the consolidated statements of operations and comprehensive income for the three and sixnine months ended JuneSeptember 30, 2015 and 2014 and the consolidated statements of cash flows for the sixnine months ended JuneSeptember 30, 2015 and 2014 are unaudited. The 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 only normal recurring adjustments necessary to state fairly the Company’s financial position as of JuneSeptember 30, 2015 and its results of consolidated operations, comprehensive income and cash flows for the three and sixnine months ended JuneSeptember 30, 2015 and 2014. The financial data and the other financial information disclosed in thesethe notes to the financial statements related to these periods are also unaudited. The results of operations for the three and sixnine months ended JuneSeptember 30, 2015 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2015 or for any other future annual or interim period.market place,marketplace, the Company believes that this acquisition will strengthen its strategic position and bring a comprehensive offering to market across both editorial and commercial content.Assets: Cash $ 1,525 Accounts receivables 2,908 Other assets 356 Fixed assets 92 Intangible Assets: Customer relationships 13,768 Trade name 4,993 Developed technology 3,026 Photo library 484 Goodwill 14,918 Total assets acquired $ 42,070 Liabilities: Accounts payable $ (253 ) Contributor payable (2,249 ) Accrued expenses (2,387 ) Deferred tax liability (4,454 ) Total liabilities assumed $ (9,343 ) Total $ 32,727 $13 and $143 respectively, of professional fees forin the nine months ended September 30, 2015. There were no professional fees related to the acquisition in the three and six months ended JuneSeptember 30, 2015, which is2015. The professional fees are included in general and administrative expense.Assets: Other assets $ 963 Fixed assets 205 Intangible Assets: Customer relationships 3,000 Trade name 1,400 Music catalog 584 Developed technology 178 Goodwill 29,849 Deferred tax asset 229 Total assets acquired $ 36,408 Liabilities: Contributor payable $ (896 ) Accrued expenses (44 ) Deferred revenue (23 ) Total liabilities assumed $ (963 ) Total $ 35,445 $14 and $244 respectively, of professional fees forin the nine months ended September 30, 2015. There were no professional fees related to the acquisition in the three and six months ended JuneSeptember 30, 2015, which is2015. The professional fees are included in general and administrative expense.forma consolidated financial informationsixnine months ended JuneSeptember 30, 2015 and 2014, as if the Rex Features and PremiumBeat acquisitions completed during fiscal 2015 had closed on January 1, 2014, after giving effect to certain purchase accounting adjustments. These pro forma results 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 period. Three Months Ended September 30, Nine Months Ended September 30, 2015 2014 2015 2014 Revenue $ 107,260 $ 89,971 $ 310,419 $ 254,690 Net income $ 4,103 $ 5,041 $ 12,687 $ 15,197 Assets: Other assets $ 836 Intangible assets: Trade name 500 Customer relationships 2,800 Developed technology 600 Goodwill 8,763 Total assets acquired $ 13,499 Total liabilities assumed (1,083 ) Total $ 12,416 forin the sixnine months ended JuneSeptember 30, 2014. There were no professional fees related to the deal fortransaction in the three months ended JuneSeptember 30, 2014. The professional fees are included in general and administrative expense. June 30, 2015 and December 31, 2014, the Company had $182 of restricted cash recorded in prepaid expenses and other current assets that related to a leased office location that expires inwas fully released as of September 30, 2015. As of September 30, 2015 and December 31, 2014, the next twelve months andCompany had $1,829 of restricted cash recorded in other assets that related to a leased office location that expires in 2024. The carrying value of restricted cash approximates fair value.JuneSeptember 30, 2015, the Company recorded a deferred rent balance of $7,845,$8,201, of which $231$704 is included in other liabilities and $7,614$7,497 is included in other non-current liabilities. As of December 31, 2014, the Company recorded deferred rent of $8,036, of which $693 was included in other liabilities and $7,343 was included in other non-current liabilities.mostthe majority of the Company’s customers purchase products by making electronic payments at the time of a transaction with a credit card. The Company establishes a chargeback allowance and sales refund reserve allowance based on factors surrounding historical credit card chargeback trends, historical sales refund trends and other information. As of JuneSeptember 30, 2015 and December 31, 2014, the Company recorded a combined chargeback allowance and sales refund allowance of $680 and $660, respectively, which is included in other liabilities. Collectability is assessed for customers who pay on credit based on a credit evaluation for new customers, when necessary, and transaction history with existing customers. Any cash received in advance of revenue recognition is recorded as deferred revenue.Any value addedRevenue from any value-added professional services areis recognized upon substantial completion.·Fair Value of Common Membership Unit. Prior to completion of the IPO, the Company’s fair value of common ownership interest was estimated internally and approved by the Board of Managers (“BOM”) because the Company was not publicly traded. The Company’s intention upon granting VAR Plan awards was for the granted award to have an exercisable price per unit that was not less than the per unit fair value of the Company’s common equity on the date of grant. The valuations of the Company’s common equity unit were prepared in accordance with the American Institute of Certified Public Accountants Statement on Standards for Valuation Services 1: Valuation of a Business, Business Ownership Interest, Security, or Intangible Asset. The assumptions used in the valuation model were based on future expectations combined with the Company’s judgment. In the absence of a public trading market, the Company exercised significant judgment and considered numerous objective and subjective factors to determine the fair value of the common equity unit as of the date of each VAR Plan award grant. Some but not all of these factors included operating and financial performance, current business conditions and projections, the hiring of key personnel,·Expected Term. The expected term is estimated using the simplified method allowed under SEC guidance.·Volatility.Volatility. As the Company does not have a trading history for its common ownership interest pre-IPO, the expected price volatility for the common ownership interest and common stock was estimated by taking the average historic price volatility for industry peers based on daily price observations over a period equivalent to the expected term of the VAR Plan awards and stock options granted post-IPO. Industry peers consist of several public companies similar in size, stage of life cycle and financial leverage. The Company did not rely on implied volatilities of traded options in the industry peers’ common stock because the volume of activity was relatively low. The Company intends to continue to consistently apply this process using the same or similar public companies until a sufficient amount of historical information regarding the volatility of the Company’s own common stock becomes available, or unless circumstances change such that the identified companies are no longer similar to the Company, in which case, more suitable companies whose share prices are publicly available would be utilized in the calculation.·Risk-free Interest Rate. The risk-free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected term of each award group.·Dividend Yield. Prior to October 5, 2012, the date aton which the Company reorganized from Shutterstock Images LLC, a New York limited liability company (the “LLC”), to Shutterstock, Inc., a Delaware corporation (the “Reorganization”), the Company had historically paid cash dividends or distributions to its members. Following the Reorganization, the Company has not paid cash distributions to its stockholders and it does not intend to do so for the foreseeable future. As a result, the Company used an expected dividend yield of zero.the awards granted previously. The awards granted pursuant to the VAR Plan, the 2012 Plan, and the 2012 ESPP are subject to a time-based vesting requirement and for certain award grantsawards granted under the 2012 Plan are also based on a market condition. The majority of stock option awards granted under the 2012 Plan vest over four years while the majority of the restricted stock units granted under the 2012 Plan vest over three years. The 2012 ESPP provides for purchase periods approximately every six months and a participant must be employed on the purchase date to participate. The VAR Plan awards had a condition that a change of control (as defined in the VAR Plan) must occur for a payment to trigger with respect to the VAR Plan awards. In connection with the Reorganization, all of the VAR Plan awards were exchanged for options to purchase shares of the Company's common stock of Shutterstock, Inc.stock. As a result of the completion of the IPO in October 2012, the Company began recording equity-based compensation expense using the accelerated attribution method, net of forfeitures, based on the grant date fair value of the VAR Plan awards that were exchanged for options to purchase shares of the Company's common stock of Shutterstock, Inc. as part of the Reorganization.membersmembers' shares lessand (3) income allocated to participating securities including unvested shares for the restricted award holder sinceholders (as these unvested shares have participating rights. See Note 10, Equity-Based Compensation, for further discussion.Diluted net income available to common stockholders for the three and six months ended June 30, 2015 includes the effect of 1,927,657 and 1,966,932 shares, respectively, while 685,998 and 687,506 shares, respectively, were excluded since they were anti-dilutive. Diluted net income available to common stockholders for the three and six months ended June 30, 2014 includes the effect of 2,258,623 and 2,173,402 shares, respectively, while 621,799 and 400,842 shares, respectively, were excluded since they were anti-dilutive. Three Months Ended September 30, Nine Months Ended September 30, 2015 2014 2015 2014 Basic 36,039,907 35,304,066 35,847,748 35,161,644 Stock options and employee stock purchase plan shares 230,137 552,282 337,018 627,845 Unvested restricted stock awards and RSUs — 75,106 84,301 93,713 Diluted 36,270,044 35,931,454 36,269,067 35,883,202 Dilutive securities included in the calculation 681,292 2,136,637 1,538,384 2,161,146 Anti-dilutive securities excluded from the calculation 1,793,106 617,250 1,056,039 472,977
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Value
Cost
Gains
Losses
Fair Market
Value As of September 30, 2015 Amortized
Cost Unrealized
Gains Unrealized
Losses Estimated
Fair Market
ValueCommercial paper $ 52,493 $ — $ (2 ) $ 52,491 Total $ 52,493 $ — $ (2 ) $ 52,491 As of December 31, 2014 Commercial paper $ 54,848 $ — $ (4 ) $ 54,844 Total $ 54,848 $ — $ (4 ) $ 54,844
Value
Value As of September 30, 2015 Level 1 Level 2 Level 3 Assets: Money market accounts $ 83,710 $ 83,710 $ — $ — Commercial paper 52,491 — 52,491 — Total assets measured at fair value $ 136,201 $ 83,710 $ 52,491 $ — Liabilities: Acquisition related contingent consideration $ 7,331 $ — $ — $ 7,331 Total liabilities measured at fair value $ 7,331 $ — $ — $ 7,331 As of December 31, 2014 Level 1 Level 2 Level 3 Assets: Money market accounts $ 81,244 $ 81,244 $ — $ — Commercial paper 54,844 — 54,844 — Total assets measured at fair value $ 136,088 $ 81,244 $ 54,844 $ — Liabilities: Acquisition related contingent consideration $ 2,560 $ — $ — $ 2,560 Total liabilities measured at fair value $ 2,560 $ — $ — $ 2,560 $385$540 and $900$1,440 during the three and sixnine months ended JuneSeptember 30, 2015, respectively, and recorded changes in the fair value of the contingent consideration in the amount of $40$70 and $40$110 during the three and sixnine months ended JuneSeptember 30, 2014.2014, respectively. The Company records changes in the fair value of the contingent consideration in other (expense) income, net. As of JuneSeptember 30, 2015, the fair value of the contingent consideration increased to $7,105$7,331 based on its current fair value, of which $2,760$2,850 related to the WebDAM acquisition is included in other liabilities and $4,345$4,481 related to the PremiumBeat acquisition is included in other non-current liabilities.maturitynature of these instruments. The Company’s non-financial assets, which include property and equipment, intangible assets and goodwill, are not required to be measured at fair value on a recurring basis. However, if certain triggering events occur, or if an annual impairment test is required and the Company is required to evaluate the non-financial asset for impairment, a resulting asset impairment would require that the non-financial asset be recorded at the fair value.
June 30,
June 30, Three Months Ended
September 30, Nine Months Ended
September 30, 2015 2014 2015 2014 North America $ 42,153 $ 32,119 $ 120,848 $ 87,896 Europe 35,453 28,240 104,499 83,452 Rest of the world 29,654 23,371 83,800 65,397 Total revenue $ 107,260 $ 83,730 $ 309,147 $ 236,745 JuneSeptember 30, 2015 and 2014, respectively, and 34% and 32% of total revenue for the six months ended June 30, 2015 and 2014, respectively.2014. Included in Europe is the United Kingdom which comprised 10% and 11% of total revenue for the three and sixnine months ended JuneSeptember 30, 2015. For the three and sixnine months ended JuneSeptember 30, 2014, the United Kingdom revenue was less than 10% of total revenue. No other country accounts for more than 10% of the Company’s revenue in any period. September 30, December 31, 2015 2014 North America $ 29,473 $ 26,651 Europe 404 93 Total long-lived tangible assets $ 29,877 $ 26,744 WebDAM,Editorial (which includes goodwill related to Rex FeaturesFeatures), Music (which includes goodwill related to PremiumBeat) and PremiumBeatWebDAM reporting units and is tested for impairment at least annually on October 1 or upon a triggering event. The following table summarizes the changes in the Company’s goodwill balance through JuneSeptember 30, 2015: Consolidated Content Business Other Category Balance as of December 31, 2014 $ 10,186 $ 1,423 $ 8,763 Goodwill related to acquisitions $ 44,767 44,767 — Foreign currency translation adjustment $ (2,783 ) (2,783 ) — Balance as of September 30, 2015 $ 52,170 $ 43,407 $ 8,763
Translation
AdjustmentJuneSeptember 30, 2015 and December 31, 2014:
Carrying
Amount
Amortization
Carrying
Amount
Weighted
Average Life
(Years)
Carrying
Amount
Amortization
Carrying
Amount
Average Life
(Years) As of September 30, 2015 Amortizing intangible assets: Customer relationship $ 19,921 $ (2,546 ) $ 17,375 9 Trade name 7,261 (952 ) 6,309 7 Developed technology 3,806 (867 ) 2,939 4 Contributor content 4,403 (437 ) 3,966 9 Patents 193 (38 ) 155 17 Domain name 97 (23 ) 74 14 Total $ 35,681 $ (4,863 ) $ 30,818 As of December 31, 2014 Amortizing intangible assets: Customer relationship $ 3,400 $ (921 ) $ 2,479 6 Trade name 900 (230 ) 670 9 Developed technology 600 (68 ) 532 7 Contributor content 450 (159 ) 291 15 Patents 193 (30 ) 163 17 Domain name 97 (19 ) 78 14 Total (1) $ 5,640 $ (1,427 ) $ 4,213 $1,263$1,269 and $167 for the three months ended JuneSeptember 30, 2015 and 2014, respectively, and $2,206$3,475 and $218$385 for the sixnine months ended JuneSeptember 30, 2015 and 2014, respectively. The Company also determined that there was no indication of impairment of the intangible assets for any period presented. Estimated amortization expense for the next five years is: $2,559$1,264 for the remaining sixthree months of 2015, $5,067$5,056 in 2016, $5,067$5,056 in 2017, $4,032$4,055 in 2018, $3,879$3,722 in 2019 and $11,555$11,665 thereafter.
2015
2014 September 30, December 31, 2015 2014 Computer equipment and software $ 32,163 $ 24,179 Furniture and fixtures 2,851 2,336 Leasehold improvements 14,472 13,954 Property and equipment 49,486 40,469 Less accumulated depreciation (19,609 ) (13,725 ) Property and equipment, net $ 29,877 $ 26,744 $2,235$2,600 and $1,914$1,958 for the three months ended JuneSeptember 30, 2015 and 2014, respectively, and $4,288$6,888 and $3,414$5,372 for the sixnine months ended JuneSeptember 30, 2015 and 2014, respectively. Depreciation September 30, December 31, 2015 2014 Compensation $ 8,649 $ 8,312 Royalty tax withholdings 6,699 5,987 Non-income taxes 6,107 4,670 Payroll tax withholdings 611 478 Professional fees 916 1,708 Marketing expenses 460 794 Other expenses 4,520 3,033 Total accrued expenses $ 27,962 $ 24,982 JuneSeptember 30, 2015 and 2014 are 44.5%39.2% and 42.1%40.3%, respectively. The Company’s effective tax rates for the sixnine months ended JuneSeptember 30, 2015 and 2014 are 43.9%41.9% and 44.2%42.9%, respectively. The Company's effective tax rate excludes losses from jurisdictions for which no tax benefit can be recognized. For the three and nine months ended September 30, 2015, the inclusion of these losses would increase the effective tax rate by 4.8% and 2.0%, respectively. The Company incurred discrete tax expenses primarily relating to a change in its state apportionment percentage duringitems, the three and six months ended June 30, 2015. The net effect of all the Company’s discrete tax expenses increasedwhich decreased the effective tax rate by 1.4% and 2.2%increased the effective tax rate by 0.6% for the three and sixnine months ended JuneSeptember 30, 2015, respectively. The Company has computed the provision for income taxes based on the estimated annual effective tax rates and the application of discrete items, if any, in the applicable period. The effective tax rate differs from the statutory tax rate due primarily to non-deductible expenses related to non-cash equity-based compensation and meals and entertainment.sixnine months ended JuneSeptember 30, 2015, and 2014, the Company recorded unrecognized tax benefits in the amount of $0 and $11 for uncertain tax positions taken in prior years. During the three and sixnine months ended JuneSeptember 30, 2014, the Company did not record additional unrecognized tax benefits. During the three and nine months ended September 30, 2015, the Company recognized a tax benefit in the amount of $491 related to the release of the reserve for a prior year's uncertain tax position due to a lapse in the statute of limitations. To the extent thesethe remaining unrecognized tax benefits are ultimately recognized, the Company’s effective tax rate may be impacted in future periods.in the amount of $27 and $25 related to unrecognized tax benefits in the amount of $16 and $25 for the three months ended JuneSeptember 30, 2015 and 2014, respectively, and during$70 and $72 for the sixnine months ended JuneSeptember 30, 2015 and 2014, the Company accrued interest and penalties in the amount of $64 and $47, respectively, related to unrecognized tax benefits.JuneSeptember 30, 2015, the excess of the amount for financial reporting over the tax basis of investment in these foreign subsidiaries is insignificant and the unrecognized deferred tax liability is not material.JuneSeptember 30, 2015 and 2014 was $1,187$1,229 and $976,$999, respectively, and for the sixnine months ended JuneSeptember 30, 2015 and 2014 was $2,325$3,555 and $2,167,$3,167, respectively. Some leases have defined escalating rent provisions, which are expensed over the term of the related lease on a straight-line basis commencing with the date of possession. Any rent allowance or abatement is netted in this calculation. All leases require payment of real estate taxes and operating expense increases.JuneSeptember 30, 2015 and December 31, 2014, and as such, is considered to be restricted cash and is included in other assets in the consolidated balance sheet. The lease term is eleven years from the commencement date and aggregate future minimum payments under the lease, paymentsas amended, are approximately $35,900.JuneSeptember 30, 2015, the Company had no significant purchase commitments related to capital expenditures. As of December 31, 2014, the Company had committed to purchase approximately $1,400 of data server equipment related to expansion of the existing business.Unconditional PurchaseJuneSeptember 30, 2015 and December 31, 2014, the Company had unconditional purchaseother obligations in the amount of approximately $8,500$26,000 and $9,400, respectively, which consisted primarily of contractsminimum royalty guarantees and unconditional purchase obligations related to contracts for infrastructure services.JuneSeptember 30, 2015, the Company’s unconditional purchaseother obligations for the remainder of 2015 and for the years ending December 31, 2016, 2017, 2018, 2019 and 20182020 were approximately $3,200, $3,900, $1,300$7,800, $5,100, $2,700, $3,000 and $100,$3,500 respectively. As of December 31, 2014, the Company’s unconditional purchase obligations for the years ending December 31, 2015, 2016 and 2017 were approximately $5,800, $3,200 and $400, respectively.arising out of thewhich are directly attributable to a breach of Company’s warranties covering third party intellectual property, warranties for damages to the customer directly attributable to the Company’s breach.publicity and privacy rights. The Company is not responsible for any damages, costs, or losses to the extent such damages, costs or losses arise as a result of the modifications made by the customer, or the context in which an image is used. The maximum aggregate obligation and liability for all claims related to a single downloaded image, or video clip or music track ranges from $10the purchase price of such downloaded content to unlimited indemnification. As of JuneSeptember 30, 2015 and December 31, 2014, the Company had recorded no material liabilities related to indemnification obligations in accordance with the authoritative guidance for loss contingencies. Additionally, the Company believes that it has the appropriate insurance coverage in place to adequately cover such indemnification obligations, if necessary.arrangementsagreements and indemnification agreements with certain executive officers and with certain employees. The agreements specify various employment-related matters, including annual compensation, performance incentive bonuses, and severance benefits in the event of termination with or without cause. (“401(k) Plan”) and provides for annual discretionary employer matching contributions not to exceed 3% of employees’ base compensation per year. Matching contributions are fully vested and non-forfeitable at all times.$353$372 and $237$264 for the three months ended JuneSeptember 30, 2015 and 2014, respectively, and $677$1,049 and $445$710 for the sixnine months ended JuneSeptember 30, 2015 and 2014, respectively. Three Months Ended September 30, Nine Months Ended September 30, 2015 2014 2015 2014 Cost of revenue $ 496 $ 336 $ 1,444 $ 953 Sales and marketing 1,364 819 4,110 2,689 Product development 1,743 1,805 5,863 4,529 General and administrative 4,080 3,375 11,354 7,557 Total $ 7,683 $ 6,335 $ 22,771 $ 15,728 Three Months Ended September 30, Nine Months Ended September 30, 2015 2014 2015 2014 Stock options $ 2,663 $ 2,197 $ 6,486 $ 5,926 Restricted stock units 4,724 3,234 15,244 7,516 ESPP shares 169 225 589 598 Restricted stock units related to the acquisition of WebDAM 127 420 452 911 Restricted stock awards — 259 — 777 Total $ 7,683 $ 6,335 $ 22,771 $ 15,728 sixnine months ended JuneSeptember 30, 2015:
Options
Exercise Price Options outstanding at December 31, 2014 1,771,440 $ 41.61 Options granted 1,250 17.00 Options exercised (312,330 ) 18.87 Options cancelled or forfeited (105,779 ) 43.14 Options outstanding at September 30, 2015 1,354,581 $ 46.71 Vested and exercisable at September 30, 2015 541,048 $ 26.77 JuneSeptember 30, 2015 and at December 31, 2014 was approximately $19,800 and $48,700, respectively. The intrinsic value of the total stock options exercisable at June 30, 2015 and at December 31, 2014 was approximately $18,800 and $29,800, respectively. The intrinsic value of the total stock options vested and expected to vestis as of June 30, 2015 and at December 31, 2014 was approximately $19,500 and $50,600, respectively. September 30, December 31, 2015 2014 Total options outstanding $ 7,400 $ 48,700 Total options exercisable $ 5,500 $ 29,800 Total options vested and expected to vest $ 7,400 $ 50,600 three and sixnine months ended June 30, 2015:
Ended June 30,
Ended June 30,The Company recognized non-cash equity-based compensation expense of $1,777 and $2,043, net of forfeitures, in connection with the vesting of stock options during the three months ended JuneSeptember 30, 2015 and 2014, respectively. The Company recognized non-cash equity-based compensation expense of $3,823 and $3,729, net of forfeitures, in connection with the vesting of stock options during the six months ended June 30, 2015 and 2014. 2014: Nine Months Ended September 30, 2015 2014 Expected term (in years) 2 6.3 - 10 Volatility 48 % 49 % Risk-free interest rate 0.7 % 2.1% - 2.8% Dividend yield — — JuneSeptember 30, 2015, the total unrecognized compensation charge related to 2012 Plan non-vested options was approximately $23,500,$21,500, which was expected to be recognized through the fiscal year ending December 31, 2020.RSUsRSU activity for the sixnine months ended JuneSeptember 30, 2015:
Options
Fair ValueThe Company recognized non-cash stock-based compensation expense of $5,484 and $3,381, net of estimated forfeitures, in connection with the vesting of RSUs during the three months ended June 30, 2015 and 2014, respectively. The Company recognized non-cash stock-based compensation expense of $10,520 and $4,282, net of estimated forfeitures, in connection with the vesting of RSUs during the six months ended June 30, 2015 and 2014, respectively. Non-vested balance at December 31, 2014 652,897 $ 81.45 Units granted 761,564 57.60 Units vested (177,191 ) 78.96 Units cancelled or forfeited (223,710 ) 78.02 Non-vested balance at September 30, 2015 1,013,560 $ 64.72 award’sawards' restrictions will be removed. The Company recognized non-cash equity-based compensation expense of $259 and $518, in connection with the normal vesting ofCharges related to restricted stock during the three and six months ended June 30, 2014, respectively. There was no expense during the three and six months ended June 30, 2015. The restricted stock charge isawards are included in general and administrative expense. The Company recognized non-cash stock-based compensation expense of $98 and $414, in connection with the vesting of these obligations during the three months ended June 30, 2015 and 2014, respectively. The Company recognized non-cash stock-based compensation expense of $325 and $491, in connection with the vesting of these obligations during the six months ended June 30, 2015 and 2014, respectively.JuneSeptember 30, 2015, the total unrecognized non-cash equity-based compensation charge related to the 2012 Plan non-vested restricted stock and RSUs was approximately $59,000,$53,400, which is expected to be recognized through fiscal year 2020.On October 10, 2012, the Company’s 2012 ESPP became effective. The Company recognized non-cash stock-based compensation expense of $221 and $159, net of estimated forfeitures, for the three months ended June 30, 2015 and 2014, respectively. The Company recognized non-cash stock-based compensation expense of $420 and $373, net of estimated forfeitures, for the six months ended June 30, 2015 and 2014. JuneSeptember 30, 2015, 153,133 shares of the Company’s common stock hadhave been issued under the 2012 ESPP.following table summarizes non-cash equity-based compensation expense included inCompany expects to fund repurchases through a combination of cash on hand, cash generated by operations and future financing transactions, if needed. Accordingly, the accompanying consolidated statements of operations forCompany's stock repurchase program is subject to the threeCompany having available cash to fund repurchases. Under the program, management is authorized to purchase shares from time to time through open market purchases or privately negotiated transactions at prevailing prices as permitted by securities laws and six months ended June 30, 2015other legal requirements, and 2014:(Expense) Income,Expense, Net net activity included in the accompanying consolidated statements of operations for the three and sixnine months ended JuneSeptember 30, 2015 and 2014: Three Months Ended September 30, Nine Months Ended September 30, 2015 2014 2015 2014 Foreign currency loss $ (244 ) $ (323 ) $ (1,951 ) $ (279 ) Change in fair value of contingent consideration (540 ) (70 ) (1,440 ) (110 ) Interest income 17 20 5 62 Total expense $ (767 ) $ (373 ) $ (3,386 ) $ (327 ) 1.31.4 million active, paying users contributed to our revenue through JuneSeptember 30, 2015. We have historically benefittedbenefited from a high degree of revenue retention from both subscription-based and usage-based customers. For example, in 2014, 2013 and 2012, we experienced year-to-year revenue retention of 100%, 99%, and 100%, respectively. This means that customers that contributed to revenue in 2013 contributed, in the aggregate, 100% as much revenue in 2014 as they did in 2013. More than 75,00080,000 approved contributors make their images available in our collection, which had grown to more than 5560 million images and more than 23 million video clips as of JuneSeptember 30, 2015. This makes our collection one of the largest of its kind and, during the year ended December 31, 2014, we delivered more than 125 million paid downloads (including both commercial and editorial images) to our customers. We believe that we delivered the highest volume of commercial image downloads in this period of any single brand in our industry.hashave been included in our results of operations from the acquisition date. Rex Features is a photographic press agency in Europe which offers media companies and advertisers images and videos, including a live feed of edited celebrity, entertainment, sports and news images and videos, along with access to a multi-decade archive of iconic images. With Rex Features’ editorial expertise and position in the market place,marketplace, we believe that this acquisition will strengthen our strategic position and bring a comprehensive offering to market across both editorial and commercial content.June 2015, we announced an alliance with Penske Media Corporation to create and license entertainment and fashion images and videos to media, publishing and creative companies.On August 1, 2015, Timothy E. Bixby notified us of his intention to resign as our Chief Financial Officer and Treasurer so that he can pursue other opportunities. The effective date of his resignation has not yet been determined but is not expected to be later than September 30, 2015. Mr. Bixby has agreed to make himself available to us after the effective date of his resignation in order to assist us and his successor with this transition.On August 3, 2015, Steven Berns notified us of his intention to resign as a member of our Board of Directors and all committees of our Board of Directors on which he served, effective immediately. On August 5,October 2015, we entered into an exclusive distribution agreement with Red Bull Media House, or Red Bull, to market and license Red Bull's video collection. This exclusive distribution arrangement will begin in 2016.agreement to hire and retain Steven Bernswith us as our Chief Financial Officer and Treasurer. Pursuant to the terms of his employment agreement, Mr. Berns’ employment with us will begin no later than September 30, 2015, and he will be employed on an at-will basis.5560 million images as of JuneSeptember 30, 2015, making it one of the largest libraries of its kind.arecan 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 sixnine months ended JuneSeptember 30, 2015 and 2014: Three Months Ended
September 30, Nine Months Ended
September 30, 2015 2014 2015 2014 Paid downloads (during the period) 38.1 31.2 107.4 92.4 $2.76 $2.65 $2.83 $2.54 Images in collection (end of period) 63.7 42.7 63.7 42.7 constant.(Expense) Income,Expense, Net. Other (expense) income, netexpense consists of non-operating costs such as foreign currency transaction gains and losses, changes in fair value of contingent consideration related to acquisitions and interest income and expense. We expect to incur incremental expense related to changes in fair value of contingent consideration related to our acquisitions as we reach each measurement date. Additionally, as we increase the volume of business transacted in foreign currencies as a result of international expansion and as currency rates fluctuate, we expect foreign currency gains and losses to fluctuate in a similar pattern. Three Months Ended September 30, Nine Months Ended September 30, 2015 2014 2015 2014 (in thousands) Consolidated Statements of Operations: Revenue $ 107,260 $ 83,730 $ 309,147 $ 236,745 Operating expenses: Cost of revenue 44,512 33,260 126,582 94,419 Sales and marketing 27,393 21,122 79,927 60,890 Product development 10,827 9,870 31,700 26,922 General and administrative 16,441 10,265 44,949 27,816 Total operating expenses 99,173 74,517 283,158 210,047 Income from operations 8,087 9,213 25,989 26,698 Other expense, net (767 ) (373 ) (3,386 ) (327 ) Income before income taxes 7,320 8,840 22,603 26,371 Provision for income taxes 3,217 3,562 9,920 11,315 Net income $ 4,103 $ 5,278 $ 12,683 $ 15,056 Three Months Ended September 30, Nine Months Ended September 30, 2015 2014 2015 2014 Consolidated Statements of Operations: Revenue 100 % 100 % 100 % 100 % Operating expenses: Cost of revenue 41 40 41 40 Sales and marketing 26 25 26 26 Product development 10 12 10 11 General and administrative 15 12 15 12 Total operating expenses 92 89 92 89 Income from operations 8 11 8 11 Other expense, net (1 ) — (1 ) — Income before income taxes 7 11 7 11 Provision for income taxes 3 4 3 5 Net income 4 % 7 % 4 % 6 % JuneSeptember 30, 2015 and 2014 Three Months Ended September 30, 2015 2014 $ Change % Change (in thousands) Consolidated Statements of Operations Data: Revenue $ 107,260 $ 83,730 $ 23,530 28 % Operating expenses: Cost of revenue 44,512 33,260 11,252 34 Sales and marketing 27,393 21,122 6,271 30 Product development 10,827 9,870 957 10 General and administrative 16,441 10,265 6,176 60 Total operating expenses 99,173 74,517 24,656 33 Income from operations 8,087 9,213 (1,126 ) (12 ) Other expense, net (767 ) (373 ) (394 ) * Income before income taxes 7,320 8,840 (1,520 ) (17 ) Provision for income taxes 3,217 3,562 (345 ) (10 ) Net income $ 4,103 $ 5,278 $ (1,175 ) (22 )% $24.1$23.5 million, or 30%28%, to $104.4$107.3 million in the three months ended JuneSeptember 30, 2015 compared to the same period in 2014. This increase in revenue was primarily attributable to growththe increase in the number of paid downloads and anthe increase in revenue per download. In the three months ended JuneSeptember 30, 2015 and 2014, we delivered 35.938.1 million and 31.531.2 million paid downloads, respectively, and our average revenue per download during these periods increased to $2.85$2.76 from $2.52.$2.65. Paid downloads increased primarily due to the acquisition of new customers. Revenue per download increased primarily due to growth in our On Demand offerings and our enterprise business which captures a higher effective price per content download and, to a lesser extent, to revenue from our 2015 acquisitions. In the three months ended JuneSeptember 30, 2015 compared to the same period in 2014, revenue from North America increased to 39% from 36%38% while revenue from Europe decreased to 33% from 36%34% and revenue from the rest of the world decreased to 27% fromremained flat at 28%.$10.5$11.3 million, or 33%34%, to $42.5$44.5 million in the three months ended JuneSeptember 30, 2015 compared to the same period in 2014. Royalties increased $7.9$8.1 million, or 35%, driven by an increase in the number of downloads from existing and new customers. We anticipate royalties growing in line with revenues for the remainder of 2015 and beyond, although royalties as a percentage of revenue may vary somewhat from period to period primarily due to customer usage, product mix and to a lesser extent due to the contributor’scontributors' achievement level of royalty target thresholds. Credit card charges increased by $0.3$0.4 million, or 12%13%, to $3.0$3.1 million as a result of increased credit card volume in the three months ended JuneSeptember 30, 2015. Employee-related expenses increased $1.1 million, or 41%38%, driven by an increase in headcount in customer service, content and website operations to support increased customer volume and a more robust hosting infrastructure, and to a lesser extent an increase in headcount as a result of the 2015 acquisitions. Other costs associated with website hosting, content consulting and allocated depreciation and amortization expense increased by $1.1$1.4 million, or 37%45%, to $4.0$4.4 million in the three months ended JuneSeptember 30, 2015 compared to the same period in 2014.$6.9$6.3 million, or 34%30%, to $27.4 million in the three months ended JuneSeptember 30, 2015 compared to the same period in 2014. Advertising expenses, the largest component of our sales and marketing expenses, increased by $2.9$2.4 million, or 25%22%, compared to the same period in 2014 as a result of increased spending on affiliate, and search advertising and other new channels. We anticipate that our global advertising spend will continue to increase in absolute dollars for the foreseeable future, as we further our international expansion. Employee-related expenses,42%40%, driven by an increase in sales and marketing headcount to support our expansion into new markets and increased sales commissions as a result of growing revenue from our direct sales.$10.2$10.8 million in the three months ended JuneSeptember 30, 2015 compared to the same period in 2014. Employee-related expenses increased by $0.8$0.3 million, or 11%4%, driven by an increase in headcount in product, engineering and quality assurance to support our increasing number of product development initiatives for our websites, as well as ongoing efforts to improve our search capabilities. The increase in employee-related expenses was partially offset by a decreasean increase in consulting-relatedcapitalized labor costs for internal use software development projects. Consulting-related expenses of $0.1increased by $0.2 million, or 21%30%, primarily due to reducedincreased costs associated with outsourced quality assurance services. We anticipate product development expenses to increase in absolute dollars for the foreseeable future, as we continue to invest in developing new products.$4.5$6.2 million, or 45%60%, to $14.5$16.4 million in the three months ended JuneSeptember 30, 2015 compared to the same period in 2014. Employee-related expenses, excluding non-cash equity basedequity-based compensation, increased by $1.4$2.1 million, or 50%72%, driven by an increase in headcount in finance, legal, human resources, internal information technology and business intelligence personnel to support the growth in our business and the infrastructure necessary to operate as a public company. Non-cash equity-based compensation increased by $0.8$0.7 million to $3.9$4.1 million primarily due to equity awards granted as a result of our 2015 acquisitions and to equity awards to both new and existing employees. The increase in employee-related expenses and non-cash equity-based compensation also included severance and equity acceleration costs associated with executive management. Professional fees and allocated depreciation and amortization expense increased by $1.4 million primarily due to increased outside and transactional services.(Expense) Income,Expense, Net. Other (expense) income, net was flat in We incurred other expenses of $0.8 million and $0.4 million for the three months ended JuneSeptember 30, 2015 compared to the same period in 2014. Other (expense) income, net includesand 2014, respectively, which include foreign currency expenses and to a lesser extent, changes in the fair value of the contingent consideration related to the acquisition of PremiumBeat for 2015 and the acquisition of WebDAM and PremiumBeat acquisitions.for both periods. We expect foreign currency transaction gains and losses to continue to fluctuate as we continue to expand our international operations.increaseddecreased by $0.7$0.3 million, or 20%10%, to $4.3$3.2 million in the three months ended JuneSeptember 30, 2015 compared to the same period in 2014. Our effective tax rate for the three months ended JuneSeptember 30, 2015 and 2014 was 44.5%39.2% and 42.2%40.3%, respectively. During the three months ended JuneSeptember 30, 2015, we incurred a net discrete tax expensesbenefit related primarily to the release of a change in our state apportionment percentage.reserve for an uncertain tax position. The net effect of all of our discrete tax expenses increaseditems decreased our effective tax rate by 1.4%. Excluding these discrete expenses,items, the effective rate would have been 43.1%40.6% for the three months ended JuneSeptember 30, 2015. During the three months ended JuneSeptember 30, 2014, we incurred a discrete tax expense related primarily to interest on uncertain tax positions increasing our effective tax rate by 0.3%0.1%. Excluding this discrete item, the effective tax rate would have been 41.9%40.2% during the three months ended JuneSeptember 30, 2014.SixNine Months Ended JuneSeptember 30, 2015 and 2014 Nine Months Ended September 30, 2015 2014 $ Change % Change (in thousands) Consolidated Statements of Operations Data: Revenue $ 309,147 $ 236,745 $ 72,402 31 % Operating expenses: Cost of revenue 126,582 94,419 32,163 34 % Sales and marketing 79,927 60,890 19,037 31 % Product development 31,700 26,922 4,778 18 % General and administrative 44,949 27,816 17,133 62 % Total operating expenses 283,158 210,047 73,111 35 % Income from operations 25,989 26,698 (709 ) (3 )% Other expense, net (3,386 ) (327 ) (3,059 ) * Income before income taxes 22,603 26,371 (3,768 ) (14 )% Provision for income taxes 9,920 11,315 (1,395 ) (12 )% Net income $ 12,683 $ 15,056 $ (2,373 ) (16 )% $48.9$72.4 million, or 32%31%, to $201.9$309.1 million in the sixnine months ended JuneSeptember 30, 2015 compared to the same period in 2014. This increase in revenue was primarily attributable to growththe increase in the number of paid downloads and anthe increase in revenue per download. In the sixnine months ended JuneSeptember 30, 2015 and 2014, we delivered 69.3107.4 million and 61.292.4 million paid downloads, respectively, and our average revenue per download during these periods increased to $2.86$2.83 from $2.49.$2.54. Paid downloads increased primarily due to the acquisition of new customers. Revenue per download increased primarily due to growth in our On Demand offerings and our enterprise business which captures a higher effective price per content download and, to a lesser extent, to revenue from our 2015 acquisitions. In the sixnine months ended JuneSeptember 30, 2015 compared to the same period in 2014, revenue from North America increased to 39% from 37% while revenue from Europe decreased to 34% from 36%35% and revenue from the rest of the world remained flat at 27%28%.$20.9$32.2 million, or 34%, to $82.1$126.6 million in the sixnine months ended JuneSeptember 30, 2015 compared to the same period in 2014. Royalties increased $15.2$23.3 million, or 35%, driven by an increase in the number of downloads from existing and new customers. We anticipate royalties growing in line with revenues for the remainder of 2015 and beyond, although royalties as a percentage of revenue may vary somewhat from period to period primarily due to customer usage, product mix and to a lesser extent due to the contributor’s achievement level of royalty target thresholds. Credit card charges increased by $0.5$0.9 million, or 10%11%, to $5.9$8.9 million as a result of increased credit card volume in the sixnine months ended JuneSeptember 30, 2015. Employee-related expenses increased by $2.7$3.9 million, or 54%48%, driven by an increase in headcount in customer service, content and website operations to support increased customer volume and a more robust hosting infrastructure, and to a lesser extent an increase in headcount as a result of our 2015 acquisitions. Other costs associated with website hosting, content consulting and allocated depreciation and amortization expense increased by $2.4$3.8 million, or 44%45%, to $7.8$12.2 million in the sixnine months ended JuneSeptember 30, 2015 compared to the same period in 2014.$12.8$19.0 million, or 32%31%, to $52.5$79.9 million in the sixnine months ended JuneSeptember 30, 2015 compared to the same period in 2014. Advertising expenses, the largest component of our sales and marketing expenses, increased by $4.6$7.1 million, or 21%, compared to the same period in 2014 as a result of increased spending on affiliate, and search advertising and other new channels. We anticipate that our global advertising spend will continue to increase in absolute dollars for the foreseeable future, as we further our international expansion. Employee-related expenses, including travel and entertainment, increased by $6.6$9.8 million, or 47%44%, driven by an increase in sales and marketing headcount$3.8$4.8 million, or 22%18%, to $20.9$31.7 million in the sixnine months ended JuneSeptember 30, 2015 compared to the same period in 2014. Employee-related expenses increased by $4.1$4.4 million, or 33%22%, driven by an increase in headcount in product, engineering and quality assurance to support our increasing number of product development initiatives for our websites, as well as ongoing efforts to improve our search capabilities. The increase in employee-related expenses was partially offset by an increase in capitalized costs for internal use software development projects and a decrease in consulting-related expenses of $0.4$0.2 million, or 29%11%, primarily due to reduced costs associated with outsourced quality assurance services. We anticipate product development expenses to increase in absolute dollars for the foreseeable future, as we continue to invest in developing new products.$11.0$17.1 million, or 62%, to $28.6$44.9 million in the sixnine months ended JuneSeptember 30, 2015 compared to the same period in 2014. Employee-related expenses, excluding non-cash equity based compensation, increased by $3.7$5.9 million, or 77%75%, driven by an increase in headcount in finance, legal, human resources, internal information technology and business intelligence personnel to support the growth in our business and the infrastructure necessary to operate as a public company. Non-cash equity-based compensation increased by $3.1$3.8 million to $7.3$11.4 million primarily due to equity awards granted as a result of our 2015 acquisitions and to equity awards to both new and existing employees. The increase in employee-related expenses and non-cash equity-based compensation also included severance and equity acceleration costs associated with executive management. Professional fees and allocated depreciation and amortization expense increased by $2.6$4.0 million primarily due to increased outside and transactional services.(Expense) Income,Expense, Net. Other (expense) income, net increased by $2.7 We incurred other expenses of $3.4 million to $2.6and $0.3 million primarily due tofor the nine months ended September 30, 2015 and 2014, respectively, which include foreign currency expenses and to a lesser extent, to changes in the fair value of the contingent consideration related to the acquisition of PremiumBeat for 2015 and the acquisition of WebDAM and PremiumBeat acquisitions in the six months ended June 30, 2015 as compared to the same period in 2014.for both periods. We expect foreign currency transaction gains and losses to continue to fluctuate as we continue to expand our international operations.$1.1$1.4 million, or 14%12%, to $6.7$9.9 million in the sixnine months ended JuneSeptember 30, 2015 compared to the same period in 2014. Our effective tax rate for the sixnine months ended JuneSeptember 30, 2015 and 2014 was 43.9%41.9% and 44.2%42.9%, respectively. During the sixnine months ended JuneSeptember 30, 2015 we incurred net discrete tax expenses related primarily to a change in our state apportionment percentage. The net effect of all of our discrete tax expenses increased our effective tax rate by 2.2%. Excluding these discrete expenses, the effective rate would have been 41.7% for the six months ended June 30, 2015. During the six months ended June 30,and 2014, we incurred a discrete tax expense related primarily to a change in state tax rates and our state apportionment percentage, increasing our effective tax rate by 3.4%.0.6% and 2.3%, respectively. Excluding thisthese discrete item,items, the effective tax rate would have been 40.8%41.3% and 40.6% during the sixnine months ended JuneSeptember 30, 2014.customers.JuneSeptember 30, 2015, we had cash and cash equivalents of $211.5$229.6 million, which consisted primarily of money market mutual funds and checking accounts balances. Additionally, we held short-term investments in the amount of $54.9$52.5 million all of which mature in 90 days or less. Since inception, we have financed our operations primarily through cash flowflows generated from operations. Historically, our principal uses of cash have been funding our operations, capital expenditures, business acquisitions, and, prior to October 5, 2012, distributions to members of Shutterstock Images LLC.$11$6.0 million for the remainder of 2015. See Note 8 to our Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for information regarding capital expenditures for the three and sixnine months ended JuneSeptember 30, 2015 and 2014.sixnine months ended JuneSeptember 30, 2015, net cash provided by operating activities was $40.1$59.4 million, including net income of $8.6$12.7 million and non-cash equity-based compensation of $15.1$22.8 million. Cash inflows from changes in operating assets and liabilities included an increase in deferred revenue of $13.5$18.5 million, primarily related to an increase in purchasespayments for both subscription and On Demand products.products for which revenue has not been recognized. Accounts payable and other operating liabilities increased by $1.8$3.7 million as trade payables grew in volume and payroll costs increased due to headcount expansion. Contributor royalties payable increased by $2.3$2.6 million due to increased royalty expenses as the result of increased customer download activity.sixnine months ended JuneSeptember 30, 2015 was $70.0$72.0 million, consisting of cash paid for our 2015 acquisitions in the amount of approximately $62.4 million and capital expenditures to purchase software and equipment related to our data centers, as well as capitalization of leasehold improvements and website development costs in the amount of $6.1$9.9 million. We also paid $1.5$2.2 million to acquire the non-exclusive licensing rights to distribute certain digital content in perpetuity.sixnine months ended JuneSeptember 30, 2015 was $8.4$9.7 million, consisting primarily of proceeds in the amount of $6.7$7.9 million from the issuance of common stock in connection with the exercise of stock options and purchasethe sale of common stock pursuant to our 2012 Employee Stock Purchase Plan.$35.9$34.9 million. We also entered into a letter of credit in the amount of $1.8 million as a security deposit for the leased facility. The letter of credit is collateralized by $1.8 million of cash as of JuneSeptember 30, 2015, and as such is reported as restricted cash on the consolidated balance sheet as of JuneSeptember 30, 2015.JuneSeptember 30, 2015, our guaranteed royalty payments and unconditional purchase obligations for the remainder of 2015 and for the fiscal years ending December 31, 2015, 2016, 2017, 2018, 2019 and 20182020 were approximately $3.2 million, $3.9 million, $1.3$7.8 million, $5.1 million, $2.7 million, $3.0 million and $0.1$3.5 million, respectively.JuneSeptember 30, 2015, we did not have any off-balance sheet arrangements.JuneSeptember 30, 2015.64%62% for the three months ended JuneSeptember 30, 2015 and 2014, respectively, and 61% and 63% for the sixnine months ended JuneSeptember 30, 2015 and 2014, respectively. Our sales to international customers are denominated in multiple currencies, including the U.S. Dollar, the Euro, the British Pound, the Australian Dollar and the Yen. Revenue denominated in foreign currencies as a percentage of total revenue was 34%30% and 32% for the three and nine months ended September 30, 2015, respectively, and 32% and 33% for the three and sixnine months ended June 30, 2015, respectively, and 33% and 34% for the three and six months ended JuneSeptember 30, 2014, respectively. We have foreign currency exchange risks related to non-U.S. Dollar denominated revenue. All amounts earned by and paid to our foreign contributors are denominated in the U.S. Dollar and therefore do not create foreign currency exchange risk. However, changes in exchange rates will affect our revenue and certain operating expenses, primarily employee-related expenses for our non-U.S. employees. Based on our foreign currency denominated revenue for the three and sixnine months ended JuneSeptember 30, 2015, a 10% change in the exchange rate of the U.S. Dollar against all foreign currency denominated revenue would result in an approximately 3% impact on our revenue.JuneSeptember 30, 2015, our foreign currency transaction gainloss was $0.3$0.6 million, as a result of maintaining lower foreign currency holdings as compared to previous quarters. During the sixnine months ended JuneSeptember 30,expenseloss was $1.8$2.5 million, as a result of the volume of our business transacted in foreign currency holdings were higher thanand the changes in previous quarters andstrength of the U.S. Dollar was stronger versusagainst foreign currencies, specifically the Euro. During the three and sixnine months ended JuneSeptember 30, 2014, our foreign currency transaction gains and losses were immaterial.not material. We may experience fluctuations in future quarters as a result of currency exchange gains and losses. At this time we do not, but we may in the future, enter into derivatives or other financial instruments in order to hedge our foreign currency exchange risk. It is difficult to predict the impact hedging activities would have on our results of operations.JuneSeptember 30, 2015. 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. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of JuneSeptember 30, 2015, 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.DuringThe risk factor set forth below is the risk factor containing changes from the risk factors previously disclosed in our 2014 Form 10-K. Other than this risk factor, during the three months ended JuneSeptember 30, 2015, there were no material changes to the risk factors described in our 2014 Form 10-K.Item 2.Unregistered SalesEquity Securitiesthe internet, both in the United States and Useabroad, is evolving and unfavorable changes could have a negative impact on our business.Proceeds.We effectedlaws or regulations relating to the IPOinternet, ecommerce or other areas of our common stock throughbusiness could adversely affect the manner in which we conduct our business or the overall popularity or growth in use of the internet. Such laws and regulations may cover a Registration Statement on Form S-1 (File No. 333-181376) that was declared effectivevast array of activities, for example, automatic contract or subscription renewal, credit card fraud and processing, sales, advertising and other procedures, taxation, tariffs, data privacy, data management and storage, and cyber-security, pricing, content, copyrights, distribution, electronic contracts, consumer protection, outsourcing, broadband residential internet access, internet neutrality and the characteristics and quality of products or services, and intellectual property ownership and infringement. In certain countries, such as those in Europe, such laws may be more restrictive than in the United States. It is not clear how existing laws governing issues such as property ownership, sales and other taxes, data privacy and security apply to the internet and ecommerce as the vast majority of these laws were adopted prior to the advent of the internet and do not contemplate or address the unique issues raised by the Securitiesinternet or ecommerce. Those laws that relate to the internet are at various stages of development and Exchange Commission on October 10, 2012. Asinterpretation by the courts and agencies, and thus, the scope and reach of June 30, 2015, we had used all oftheir applicability can be uncertain. For example, the net proceeds from the IPO for general corporate purposes, including working capital and capital expenditures, funding acquisitions and repayment of debt. There was no material change in our planned use of proceeds from the IPO from that describedChildren's Online Privacy Protection Act in the final prospectus filedU.S. regulates the ability of online services to collect or use certain information from children under the age of thirteen. If we are required to comply with new regulations or legislation or new interpretations of existing regulations or legislation, this compliance could cause us to incur additional expenses, make it more difficult to renew subscriptions automatically, make it more difficult to attract new customers or otherwise alter our business model, or cause us to divert resources and funds to address government or private investigatory or adversarial proceedings. Any of these outcomes could have a material adverse effect on our business, financial condition or results of operations.SecuritiesUnited States. To the extent that any local laws or regulations apply to our company or operations and Exchange Commission pursuantwe are deemed to Rule 424(b)not be in compliance with them, our business may be harmed. For example, the Russian government recently passed a law effective September 1, 2015 requiring companies that collect personal data of Russian citizens to process and store that data on October 11, 2012.servers located in Russia. In addition, the European Court of Justice recently invalidated the U.S.-EU Safe Harbor regime on which we depended to legitimize some of our data flows from Europe to the United States. As a result, we are in the process of implementing alternative mechanisms to comply with Russian data localization laws and European Union privacy laws. However, there can be no assurance that we will be able to successfully comply with these laws, and therefore we may be in violation of all or some of these laws.SHUTTERSTOCK, INC.SHUTTERSTOCK, INC. Dated: August 7,November 6, 2015August 7,November 6, 2015Timothy E. BixbyTimothy E. BixbyNumberExhibit Description31.1Number Exhibit Description 10.1 Employment Agreement, dated August 5, 2015, between the Company and Steven Berns (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed August 6, 2015 (File No. 001-35669)). 10.2 Severance and Release Agreement, dated October 5, 2015, by and between the Company and Timothy E. Bixby (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed October 8, 2015 (File No. 001-35669)). 10.3# First Lease Modification Agreement, dated August 31, 2015, between the Company and ESRT Empire State Building, L.L.C. 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 31.232.132.2
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