Shutterstock, Inc., together with its subsidiaries (collectively, the “Company” or “Shutterstock”), is a global technology company that has created a two-sided marketplaceoffers an e-commerce platform for high-quality digital content, tools and services to creative professionals to license content.professionals. The digital content licensed by the Company’s library of creative contentcustomers includes: (a) digital imagery, which consistsconsisting of licensed photographs, vectors, illustrations and video clips that customers use in their visual communications, such as websites, digital and print marketing materials, corporate communications, books, publications and video content; and (b) commercial music, which consistsconsisting of high-quality music tracks and sound effects, andwhich is often used to complement the digital imagery. The Company licenses creative content to its customers. Contributors upload their creative content to the Company’s websites in exchange for royalty payments based on customer download activity. The Company also offersoffered digital asset management services through its cloud-based digital asset management platform. This service provides tools for customersplatform (“Webdam”). As discussed in Note 4, on February 26, 2018, the Company completed a sale transaction, pursuant to better manage creative contentwhich the buyer in the transaction acquired certain assets and brandassumed certain contracts and liabilities which constituted the Company’s digital asset management assets.business (the “Sale of Webdam”).

The unaudited condensed consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not include all information and footnotes required by GAAP for complete financial statements.

The interim consolidated balance sheet as of September 30, 2017,March 31, 2018, consolidated statements of operations and comprehensive income for the three and nine months ended September 30,March 31, 2018 and 2017, and 2016, and consolidated statementstatements of cash flows for the ninethree months ended September 30,March 31, 2018 and 2017 and 2016 are unaudited. The consolidated balance sheet as of December 31, 2016,2017, included herein, was derived from the audited financial statements as of that date, but does not include all disclosures required by GAAP. These unaudited interim financial statements have been prepared on a basis consistent with the Company’s annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments necessary to state fairly the Company’s financial position as of September 30, 2017March 31, 2018 and its consolidated results of operations, comprehensive income and cash flows for the three and nine months ended September 30, 2017March 31, 2018 and 2016.2017. The financial data and the other financial information disclosed in the notes to the financial statements related to these periods are also unaudited. The results of operations for the three and nine months ended September 30, 2017March 31, 2018 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 20172018 or for any other future annual or interim period.

These financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto as of and for the year ended December 31, 20162017 included in the Company’s Annual Report on Form 10-K, which was filed with the SEC on February 27, 2017.22, 2018. The unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

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

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates. Such estimates include, but are not limited to, the determination of the allowance for doubtful accounts, the assessment of recoverability of property and equipment, the fair value of acquired goodwill and intangible assets, the grant-date fair value of non-cash equity-based compensation, the assessment of recoverability of deferred tax assets and the measurement of certain contingent non-income tax liabilities.

The Company’s restricted cash relates to security deposits for its office leases. As of September 30, 2017 and December 31, 2016, the Company had restricted cash of approximately $2.6 million in other assets that related to the lease for its headquarters in New York City, which expires in 2029. The carrying value of restricted cash approximates fair value.

The Company’s accounts receivable consist of customer obligations due under normal trade terms, carried at their face value less an allowance for doubtful accounts, if required. The Company determines its allowance for doubtful accounts based on an evaluation of the aging of its accounts receivable and on a customer-by-customer basis where appropriate. The Company’s reserve analysis contemplates the Company’s historical loss rate on receivables, specific customer situations and the economic environments in which the Company operates. During the ninethree months ended September 30, 2017,March 31, 2018, bad debt expense, which increased the allowance for doubtful accounts, was $1.0$0.2 million, and write-offs and other adjustments, which decreased the allowance for doubtful accounts, were $2.5$0.2 million. As of September 30, 2017March 31, 2018 and December 31, 2016,2017, the Company’s allowance for doubtful accounts was approximately $4.0$4.1 million, and $5.5 million, respectively, which was included as a reduction of accounts receivable.

The Company records rent expense on a straight-line basis over the term of the related lease. The difference between the rent expense recognized and the actual payments made in accordance with the lease agreement is recognized as a deferred rent liability on the Company’s balance sheet. As of September 30, 2017March 31, 2018 and December 31, 2016,2017, the Company had deferred rent of $11.4 million and $11.1 million, respectively, of which $11.1 million and $8.6$11.0 million, respectively, which was included in other non-current liabilities, and $0.3 million and $0.1 million, respectively, was included in accrued expenses and other current liabilities.

The majority of the Company’s customers purchase products by making an electronic payment with a credit card at the time of a transaction. The Company establishes a chargeback allowance and sales refund reserve allowance based on factors surrounding historical credit card chargeback trends, historical sales refund trends and other information. As of September 30, 2017March 31, 2018 and December 31, 2016,2017, the Company’s combined allowance for chargebacks and sales refunds was $0.6$0.4 million, which was included in other liabilities.

In May 2014, the FASB issued ASU 2014-09. ASU 2014-09, together with its related amendments, provides a unified model to determine when and how revenue is evaluatingrecognized and requires certain additional disclosures around the impactnature, amount, timing, and uncertainty of adoptingrevenue and cash flows arising from customers. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires deferral of incremental costs associated with the cost of acquiring a customer contract, such as sales commissions, and amortization of such amounts over the contract term. However, as a practical expedient, if the amortization period of the deferred cost would be one year or less, the entity is permitted to expense these costs as incurred.

The effect of adoption of this new accounting standardguidance on its financial statements. the consolidated balance sheet as of January 1, 2018 was to reduce prepaid expenses and other current assets and to reduce deferred revenues, with an offsetting increase in 2018 opening retained earnings, as follows (in thousands):

The balanceeffect of adoption of this new guidance on the Company’s restricted cash was $2.6 millionreported balance sheet and statement of operations is as of September 30, 2017.follows (in thousands):

Cash equivalents include money market accounts which are classified as a level 1 measurement based on quoted prices in active markets for identical assets that the Company can access at the measurement date. The total amount of money market accounts included in cash and cash equivalents was $33.1$55.9 million and $81.6$55.8 million as of September 30, 2017March 31, 2018 and December 31, 2016,2017, respectively.

Cash, accounts receivable, restricted cash, accounts payable, accrued expenses and deferred revenue carrying amounts approximate fair value because of the short-term nature 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 non-financial assets be recorded at fair value.

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

Depreciation expense related to property and equipment was $7.9$9.5 million and $3.9$5.6 million for the three months ended September 30,March 31, 2018 and 2017, and 2016, respectively, and $19.9 million and $10.4 million for the nine months ended September 30, 2017 and 2016, respectively. Depreciation expense is included in cost of revenue and general and administrative expense based on the nature of the asset being depreciated.

The Company capitalized costs related to the development of internal-use software of $11.2$9.6 million and $6.5$6.7 million for the three months ended September 30,March 31, 2018 and 2017, and 2016, respectively, and $25.8 million and $12.8 million for the nine months ended September 30, 2017 and 2016, respectively. Capitalized amounts are included as a component of property and equipment under computer equipment and software.

The portion of total depreciation expense related to capitalized internal-use software was $4.1$5.4 million and $1.0$2.1 million for the three months ended September 30,March 31, 2018 and 2017, and 2016, respectively, and $9.2 million and $2.1 million for the nine months ended September 30, 2017 and 2016, respectively. Depreciation expense related to capitalized internal-use software is included in cost of revenue and general and administrative expense.

As of September 30, 2017March 31, 2018 and December 31, 2016,2017, the Company had capitalized internal-use software of $37.0$49.6 million and $20.3$45.4 million, respectively, net of accumulated depreciation, which was included in property and equipment, net.

The Company’s goodwill balance is attributable to its Image (formerly, “Bigstock”),Bigstock, Editorial, Images, Music and Webdam reporting units and is tested for impairment at least annually on October 1 or upon a triggering event. Image,Bigstock, Editorial, Images and Music and Editorial are included in the Company's “Content Business” reportingreportable segment while Webdam is included in the non-reportable “Other Category”. as of December 31, 2017. During the first quarter of 2018, the Company disposed of its Webdam business. The following table summarizes the changes in the Company’s goodwill balance by reportable and non-reportable segments through September 30, 2017March 31, 2018 (in thousands):

No triggering events were identified during the ninethree months ended September 30, 2017.March 31, 2018.

Intangible assets consisted of the following as of September 30, 2017March 31, 2018 and December 31, 20162017 (in thousands):

Amortization expense was $2.3$1.5 million and $1.2$1.3 million for the three months ended September 30,March 31, 2018 and 2017, and 2016, respectively, and $5.1 million and $3.8 million for the nine months ended September 30, 2017 and 2016, respectively. The Company 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: $2.2$4.3 million for the remaining threenine months of 2017, $7.8 million in 2018, $7.7$5.6 million in 2019, $5.5$5.0 million in 2020, $3.7$4.1 million in 2021, $3.0$3.2 million in 2022, $2.9 million in 2023 and $13.1$7.0 million thereafter.

The Company leases facilities under agreements accounted for as operating leases. Rental expense for operating leases was $2.3$2.4 million and $2.1 million for the three months ended September 30,March 31, 2018 and 2017, and 2016, respectively, and $6.5 million and $5.0 million for the nine months ended September 30, 2017 and 2016, 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. In addition to contractual rent amounts, the Company’s lease payments are also subject to adjustments in real estate taxes and operating expenses.

In 2016, the Company’s lease for its office facility in New York City was amended to, among other things, provide for the lease of approximately 25,000 square feet of additional office space and extend the term of the lease. In connection with the underlying lease agreement, the Company entered into a letter of credit as a security deposit for the leased facilities, which was increased to $2.6 million in connection with the 2016 amendment. The letter of credit was collateralized by $2.6 million of cash as of September 30, 2017,March 31, 2018, which is recorded as restricted cash and is included in other assets in the consolidated balance sheet. As amended, the lease is scheduled to expire in 2029 and aggregate future minimum payments under the amended lease are approximately $79.2$76.5 million.

As of September 30, 2017,March 31, 2018, the Company had other obligations in the amount of approximately $42.1$42.9 million, which consisted primarily of minimum royalty guarantees and unconditional purchase obligations related to contracts for infrastructure and other business services. As of September 30, 2017,March 31, 2018, the Company’s other obligations for the remainder of 20172018 and for the years ending December 31, 2018, 2019 and 2020 were approximately $5.6$18.9 million, $16.2$14.0 million, $11.7 million and $8.6$10.0 million, respectively.

In the ordinary course of business, the Company enters into contractual agreementsarrangements under which it agrees to provide indemnification of varying scope and terms to customers with respect to certain matters, including, but not limited to, losses arising out of the breach of the Company’s intellectual property warranties for damages to the customer directly attributable to the Company’s breach. The Company is not responsible for any damages, costs, or losses to the extent such damages, costs or losses arise as a result of any modifications made by the customer, or the context in which an image is used. The Company’s license agreementsstandard maximum aggregate obligation and liability to any one customer for all claims is generally caplimited to ten thousand dollars. The Company offers certain of its customers greater levels of indemnification, obligations at amounts ranging from $10,000 to $250,000, with exceptions for certain products for which the Company’s indemnification obligations are uncapped.including unlimited indemnification. As of September 30, 2017,March 31, 2018, 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.

Pursuant to the Company'sCompany’s charter documents and separate written indemnification agreements, the Company has certain indemnification obligations to its executive officers, certain employees and directors, as well as certain former officers and directors.

The Company has also entered into employment agreements with its executive officers and certain employees. These agreements specify various employment-related matters, including annual compensation, performance incentive bonuses, and severance benefits in the event of termination with or without cause and in the event of a change in control.

During the ninethree months ended September 30, 2017,March 31, 2018, the Company issued approximately 293,000169,000 shares of common stock, primarily related to the exercise of stock options and the vesting of restricted stock units (“RSUs”).

In October 2015, the Company’s Board of Directors approved a share repurchase program, pursuant to which the Company is authorized to purchase up to $100 million of its common stock. In February 2017, the Company’s Board of Directors approved an increase to the share repurchase program, pursuant to which the Company is authorized to repurchase up to an additional $100 million of its outstanding common stock. The Company expects to fund future repurchases through a combination of cash on hand, cash generated by operations and future financing transactions, if needed. Accordingly, the Company’s share repurchase program is subject to the Company having available cash to fund repurchases. Under the program, the Company 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 other legal requirements, and subject to market conditions and other factors.

The Company recognizes stock-based compensation expense for all share-based payment awards, including employee stock options and RSUs granted under the 2012 Omnibus Equity Incentive Plan, and sales of shares of common stock under the 2012 Employee Stock Purchase Plan (the “2012 ESPP”), based on the fair value of each award on the grant date.

The following table summarizes non-cash equity-based compensation expense, net of forfeitures, by financial statement line item included in the accompanying consolidated statements of operations for the three and nine months ended September 30,March 31, 2018 and 2017 and 2016 (in thousands): 

The following table summarizes non-cash equity-based compensation expense, net of forfeitures, by award type included in the accompanying consolidated statements of operations for the three and nine months ended September 30,March 31, 2018 and 2017 and 2016 (in thousands):

During the ninethree months ended September 30, 2017,March 31, 2018, the Company granteddid not grant options to purchase approximately 86,000 shares of its common stock with a weighted average exercise price of $48.05.stock. As of September 30, 2017,March 31, 2018, there were approximately 312,000346,000 options vested and exercisable with a weighted average exercise price of $36.27.$35.10. As of September 30, 2017,March 31, 2018, the total unrecognized compensation charge related to non-vested options was approximately $15.9$12.0 million, which is expected to be recognized through 2021.

During the ninethree months ended September 30, 2017,March 31, 2018, the Company granted approximately 366,000248,000 RSUs, net of forfeitures. As of September 30, 2017March 31, 2018 there are approximately 1,290,0001,225,000 non-vested RSUs outstanding. As of September 30, 2017,March 31, 2018, the total unrecognized non-cash equity-based compensation charge related to the non-vested RSUs was approximately $45.0$44.3 million, which is expected to be recognized through 2021.2022.

During the ninethree months ended September 30, 2017,March 31, 2018, shares with an aggregate value of $5.8$4.0 million were withheld upon vesting of RSUs and in connection with related remittance to taxing authorities.

In December 2016,addition to the Company’s Boarddigital content offerings, the Company has historically generated revenue through other channels:

The Company’s revenue by distribution channel for the 2012 ESPP. During the ninethree months ended September 30,March 31, 2018 and 2017 no sharesare as follows (in thousands):

The Company’s deferred revenue balance decreased from $157.8 million at December 31, 2017 to $139.5 million at March 31, 2018. This decrease was primarily the result of (i) the adoption of ASC 2014-09 which reduced deferred revenue by $9.9 million on January 1, 2018, and (ii) $10.2 million resulting from the sale of Webdam, offset by increase due to the ongoing operations of the Company’s common stock were issued underCompany. The March 31, 2018 deferred revenue balance will be earned as digital content is downloaded or upon the 2012 ESPP.expiration of the subscription-based products, and nearly all will be earned within the next twelve months. $57.1 million of total revenue recognized for the three months ended March 31, 2018 was reflected in deferred revenue as of January 1, 2018.

The Company has a 401(k) defined contribution plan and, providesprior to January 1, 2018, provided for annual discretionary employer matching contributions not to exceed 3% of employees’ annual base compensationsalary per year. Effective January 1, 2018 the Company will provide discretionary employer matching of 50% of employees’ eligible contributions. Matching contributions are fully vested and non-forfeitable at all times.

The Company recorded expenses related to employer matching contributions of $0.7$0.9 million and $0.5$0.4 million for the three months ended September 30,March 31, 2018 and 2017, and 2016, respectively, and $1.5 million and $1.5 million for the nine months ended September 30, 2017 and 2016, respectively.

The following table presents a summary of the Company’s other income and expense activity included in the accompanying consolidated statements of operations for the three and nine months ended September 30,March 31, 2018 and 2017 and 2016 (in thousands):

The Company has computed the provision for income taxes based on the estimated annual effective tax rate and the application of discrete items, if any, in the applicable period. The estimated annual effective tax rate differs from the statutory tax rate due primarily to an increasethe international provisions enacted as part of income in foreign jurisdictions with lower statutory rates.the TCJA.

During the three and nine months ended September 30,March 31, 2018 and 2017, and 2016, unrecognized tax benefits recorded by the Company for uncertain tax positions taken in prior years increased by $0.3 million. During the three months ended

The Company recognizes interest expense and tax penalties related to unrecognized tax benefits in income tax expense in the consolidated statements of operations. The Company’s accrual for interest and penalties related to unrecognized tax benefits was not material for the three and nine months ended September 30, 2017March 31, 2018 and 2016.2017.

AsDuring the three months ended March 31, 2018, the Company received net cash tax refunds of September 30,$1.8 million and during the three months ended March 31, 2017, the Company had approximately $12.8 millionpaid net cash taxes of undistributed earnings attributable to its foreign subsidiaries. It is the Company’s practice and intention to indefinitely reinvest the earnings of its foreign subsidiaries in those operations. The Company has not provided deferred U.S. income taxes or foreign withholding taxes on temporary differences resulting from the earnings indefinitely reinvested outside the United States. It is currently not practicable for the Company to calculate the associated unrecognized deferred tax liability.$2.1 million.

Basic net incomeearnings per share is computed by dividing the net income attributable to common stockholders by the weighted average number of common shares outstanding during the period. Any potential issuance of common shares, including those that are contingent and do not participate in dividends, is excluded from weighted average number of common shares outstanding. Income available

A reconciliation of assumed exercised shares used in calculating basic and diluted net incomeearnings per share follows (in thousands):

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

The United States, included in North America in the above table, accounted for 34% and 36% of consolidated revenue for the three months ended September 30,March 31, 2018 and 2017, and 2016, and 36% of total revenue for the nine months ended September 30, 2017 and 2016. The United Kingdom, included in Europe in the above table, accounted for 9% of total revenue for the three months ended September 30, 2017 and 2016, and 9% and 10% of total revenue for the nine months ended September 30, 2017 and 2016, respectively. No other country accounts for more than 10% of the Company’s revenue in any period presented.

The United States, included in North America in the above table, accounted for 95%90% and 92% of total long-lived tangible assets as of September 30, 2017March 31, 2018 and December 31, 2016.2017, respectively.

Through our two-sided marketplace,platform, we generate revenue by licensing creative content to our customers, which is offset by paying royalties to contributors each time their content is delivered to a customer for use.customers. During the ninethree months ended September 30, 2017, 63%March 31, 2018, 59% of our revenue and the majority of our content licenses came from users of our e-commerce platform. E-commerce customers have the flexibility of choosing content subscription plans that provide a large volume of content for their creative process without concern for the incremental cost of each license, or forlicense. For customers with other content needs, we also offer simple, affordable, a la cartesmaller subscriptions and those where customers have an option to pay for individual content licenses. Forlicenses at the time of delivery. Enterprise customers are generally larger organizations or those with unique content, licensing and workflow needs, and our dedicated enterprise sales, service and research teams are able to provide a number of enhancements to their creative workflows beyond the use-cases available on our e-commerce platform.platform including the creation of custom branded content, an offering that launched in 2017. Our enterprise customers provided approximately 40% of our revenue in 2018.

increase proportionally with revenue. In addition to content sourced through direct submission through our web properties, content may also be obtained through exclusive distribution agreements with strategic partners or through the direct acquisition of a content library or archive. In certain cases, we will enter into arrangements with contributors whereby we guarantee a minimum royalty to a contributor or strategic partner, usually paid up-front, in exchange for exclusive rights to distribute content when we believe such exclusivity provides us with a distinct competitive advantage. In recent years we have made a number of enhancements to our content libraries through the direct acquisition of content and through entering into several such agreements and partnerships. We have also enhanced our collections and content acquisition capabilities through our acquisitions of PremiumBeat, Rex Features, The Picture Desk Limited, and Flashstock Technology.

An important driver of our growth is customer acquisition, which we achieve primarily through online marketing efforts, including paid search, organic search, online display advertising, email marketing, affiliate marketing, social media and strategic partnerships. Over the past several years, our investments in marketing have beenrepresented a significant percentage of revenue. Since we believe the market for creative content is at an early stage,multi-faceted and continually expanding, we plan to continue to invest aggressively in customer acquisition to achieve revenue and market share growth. We believe that another important driver of growth is the quality of the user experience we provide on our websites, especially the efficiency with which our search interfaces and algorithms help customers find the creative content that they need, the degree to which we make use of the large quantity of data we collect about images, videosimage, video and music and search patterns, and the degree to which our websites have been localized for international audiences.our global user base. To this end, we have invested aggressively in product development and hosting infrastructure, and we intend to continue to invest in these areas, to the extent that we can improve the customer experience and increase the efficiency with which we deploy new products and features. Finally, the quality and quantity of content that we make available in our collection is another key driver of our growth. ApprovedThe number of approved and licensable high-quality contentimages in the Shutterstock collection exceeded 150180 million images and 8.39.9 million video clips as of September 30, 2017,March 31, 2018, making it one of the largest libraries of its kind.

In addition to key financial metrics, we regularly review a number of key operating metrics to evaluate our business, determine the allocation of resources and make decisions regarding business strategies. We believe that these metrics can be useful for understanding the underlying trends in our business. The following table summarizes our key operating metrics, which are unaudited, for the three and nine months ended September 30, 2017March 31, 2018 and 2016:

Measuring the number of paid downloads that our customers make in any given period is important because downloads are the primary method of delivering licensed content, which drives a significant portion of our revenue and contributor royalties. For customers that choose to purchase content à la carte,on a transactional basis, each incremental content license results in

We define revenue per download as the amount of revenue recognized in a given period divided by the number of paid downloads in that period excluding the impact of revenue that is not derived from or associated with paid downloads. This metric captures any changes in our pricing, as well as the mix of purchase options that our customers choose, some of which generate more revenue per download than others, and the impact that changes in foreign currency rates have on our pricing. For example, when a customer pays $49 for five images, we earn more revenue per download ($9.80 per download) than when a customer purchases a one-month subscription for $249 and downloads 100 images during the month ($2.49 per download). Revenue per download has increased over the last three years, almost entirely due to the change in product mix. During this period, pricing has remained relatively constant.

We define content in our collection as the total number of (a) images (photographs, vectors and illustrations) and (b) video clips available to customers for commercial license on shutterstock.com at any point in time. We exclude content from this collection metric that is not uploaded directly to our site but is available to our customers through an application program interface, custom content and certain content that may be licensed for editorial use only. We record this metric as of the end of a period. Offering a large selection of content allows us to acquire and retain customers and, therefore, we believe that broadening our selection of high-quality content is an important driver of our revenue growth.

This Quarterly Report on Form 10-Q, including this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains a calculation of period-over-period revenue growth on a constant-currency basis, which is a financial measure that has not been calculated in accordance with GAAP, and should be considered in addition to our results prepared in accordance with GAAP and should not be considered as a substitute for, or superior to, our results prepared in accordance with GAAP.

Revenue growth on a constant-currency basis (expressed as a percentage) is calculated by determining the increase in current period revenues over prior period revenues, utilizing fixed exchange rates for translating foreign currency revenues for both periods.

Our management uses this non-GAAP financial measure, in conjunction with GAAP financial measures, as an operating measure to help evaluate our business and in making financial and operational decisions. Management believes that providing a measure of period-over-period revenue growth on a constant-currency basis is useful to investors to provide them with disclosures of our revenue trends and overall business on the same basis as that which is used by management and because this metric eliminates the effect of foreign currency fluctuations that are not directly attributable to our underlying operating performance and are outside management’s control. Additionally, management believes that providing this non-GAAP financial measure enhances the comparability for investors in assessing our financial reporting. However, we caution investors that non-GAAP financial

A description of our critical accounting policies that involve significant management judgments appears in our Annual Report on Form 10-K for the fiscal year ended December 31, 20162017 that we filed with the SEC on February 27, 2017,22, 2018, or the 20162017 Form 10-K, under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates.”

ASU 2014-09 represents a change in the accounting for stock-based compensation in a number of areas, including the accounting for awards expected to be forfeited and the accountingmodel utilized for the tax effectsrecognition of stock-based compensation. revenue and certain expenses arising from contracts with customers. We adopted ASU 2014-09 using a “modified retrospective” approach and, as such, revenue and expense totals for all periods before January 1, 2018 reflect those previously reported under the then-effective accounting model and have not been restated.

See Note 1 to our Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for a full description of the impact of the adoption of thisnew accounting standardstandards on our financial statements. Apart from the itemitems described above, there have been no material changes to our critical accounting policies and estimates as compared to our critical accounting policies and estimates included in the 20162017 Form 10-K.

We record revenue net of credit card chargebacks and refunds.distribute our digital content offerings through two primary channels:

In addition to our digital content offerings, we receive payment in installments over the course of an annual commitment.

The Company’s revenue overby distribution channel for the course of the contractual term, which is typically one year.

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

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

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