UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

~~___________________________________________________________~~__________________________________________________________________________________________________

FORM 10-Q

~~___________________________________________________________~~___________________________________________________________________________________________________

(Mark One)

x☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2017~~March 31, 2023

o☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-35669

~~___________________________________________________________~~_____________________________________________________________________

SHUTTERSTOCK, INC.

(Exact name of registrant as specified in its charter)

~~___________________________________________________________~~

________________________________________________________



Delaware						80-0812659
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

~~Shutterstock, Inc.~~

350 Fifth Avenue, ~~21st~~20th Floor

New York, NY 10118

(Address of principal executive offices, including zip code)

~~(646)~~ (646) 710-3417

(Registrant’s telephone number, including area code)

~~__________________________________________________________~~Not applicable

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

______________________________________________________________________________________________________________

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	SSTK	New York Stock Exchange

Indicate by check mark whether ~~registrant:~~the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x☒ Yes o☐ No

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x☒ Yes o☐ No

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

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

~~Large accelerated filer~~ x

~~Accelerated filer~~ o

~~Non-accelerated filer~~ o ~~(Do not check if a smaller reporting company)~~

~~Smaller reporting company~~ o

Emerging growth company o

☐

If an emerging growth company, indicate by check mark if the registrant has elected not ~~elected~~ to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).o

☐

Yesx

☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

~~Class~~

~~Outstanding at October 27, 2017~~

~~Common Stock, $0.01 par value per share~~

~~34,674,947~~

As of April 21, 2023, 36,050,788 shares of the registrant’s common stock, $0.01 par value per share, were outstanding.

Table of Contents

Shutterstock, Inc.

FORM 10-Q

Table of Contents

For the Quarterly Period Ended ~~September 30, 2017~~

Table of Contents

~~SPECIAL NOTE ON~~ FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, particularly in the ~~discussions~~discussion under the caption “Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations”. These~~Operations.” All statements other than statements of historical fact are forward-looking. Examples of forward-looking statements include, but are not limited to, statements ~~that involve expectations, plans or intentions (such as those relating to~~regarding guidance, industry prospects, future business, future results of operations or financial condition, future dividends, future stock performance, our ability to consummate acquisitions and integrate the businesses we have acquired or may acquire into our existing operations, new or planned features, products or services, or management ~~strategies) based on~~strategies and our ~~management’s current beliefs and assumptions. These~~competitive position. You can identify many forward-looking statements ~~can be identified~~ by words such as ~~“may”, “will”, “would”, “should”, “could”, “expect”, “anticipate”, “believe”, “estimate”, “intend”, “plan”~~“may,” “will,” “would,” “should,” “could,” “expects,” “aims,” “anticipates,” “believes,” “estimates,” “intends,” “plans,” “predicts,” “projects,” “seeks,” “potential,” “opportunities” and other similar expressions and the negatives of such expressions. However, not all forward-looking statements contain these words. ~~These forward-looking~~Forward-looking statements ~~involve~~are subject to known and unknown risks, uncertainties and ~~uncertainties~~other factors that could cause our actual results to differ materially from those expressed or implied ~~in our~~by the forward-looking statements. Such risks and uncertainties include, among others, those discussed under the caption “Risk Factors” in our most recently filed Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission ~~or the SEC,~~(the “SEC”) on February ~~27, 2017,~~14, 2023 (our “2022 Form 10-K”) and in our consolidated financial statements, related notes, and the other information appearing elsewhere in ~~such report, as well as information appearing in~~the 2022 Form 10-K, this ~~report~~Quarterly Report on Form 10-Q and our other filings with the SEC. ~~Any~~Given these risks and uncertainties, you should not place undue reliance on any forward-looking ~~statement made by us~~statements. The forward-looking statements contained in this Quarterly Report on Form 10-Q ~~speaks~~are made only as of the date ~~on which it is made. Factors or events that could cause our actual results to differ may occur~~hereof, and ~~it is not possible for us to predict them all. We~~we do not intend, and, except as required by law, we undertake no obligation to update any ~~of our~~ forward-looking statements contained herein after the date of this report to reflect actual results or future events or circumstances. ~~Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.~~

Unless the context otherwise indicates, references in this Quarterly Report on Form 10-Q ~~and our other filings with the SEC~~ to the terms ~~“Shutterstock”,~~“Shutterstock,” “the ~~Company”, “we”,~~Company,” “we,” “our” and “us” refer to Shutterstock, Inc. and its subsidiaries. ~~“Shutterstock”, “Bigstock”, “Offset”, “PremiumBeat”,~~“Shutterstock,” “Shutterstock Editorial,” “Asset Assurance,” “Offset,” “Bigstock,” “Rex ~~Features”~~Features,” “PremiumBeat,” “TurboSquid,” “PicMonkey,” “Pattern89,” “Shotzr,” “Pond5,” “Splash News,” “Shutterstock Studios” and ~~“Webdam”~~“Shutterstock Editor” and their logos are registered trademarks ~~or logos appearing in this Quarterly Report on Form 10-Q~~ and are the property of Shutterstock, Inc. or one of our subsidiaries. All other trademarks, service marks and trade names appearing in this Quarterly Report on Form 10-Q are the property of their respective owners.

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Shutterstock, Inc.

Consolidated Balance Sheets

(In thousands, except par value amount)

(unaudited)

September 30, December 31,
2017 2016

ASSETS
Current assets:
Cash and cash equivalents $ 212,782
$ 224,190
Short-term investments 22,500
54,972
Accounts receivable, net 44,896
38,107
Prepaid expenses and other current assets 35,878
22,569
Total current assets 316,056
339,838
Property and equipment, net 77,770
56,101
Intangible assets, net 43,015
30,157
Goodwill 90,524
49,271
Deferred tax assets, net 18,342
23,013
Other assets 6,842
3,398
Total assets $ 552,549
$ 501,778
LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable $ 10,210
$ 7,305
Accrued expenses 51,989
41,106
Contributor royalties payable 20,072
20,473
Deferred revenue 146,430
122,235
Other liabilities 1,665
12,378
Total current liabilities 230,366
203,497
Deferred tax liability, net 1,664
2,147
Other non-current liabilities 13,139
9,438
Total liabilities 245,169
215,082
Commitments and contingencies (Note 6)

Stockholders’ equity:
Common stock, $0.01 par value; 200,000 shares authorized; 37,219 and 36,926 shares issued and 34,660 and 34,816 shares outstanding as of September 30, 2017 and December 31, 2016, respectively 373
369
Treasury stock, at cost; 2,559 and 2,110 shares as of September 30, 2017 and December 31, 2016, respectively (100,027 ) (77,567 )
Additional paid-in capital 268,565
251,890
Accumulated comprehensive loss (4,601 ) (17,061 )
Retained earnings 143,070
129,065
Total stockholders’ equity 307,380
286,696
Total liabilities and stockholders’ equity $ 552,549
$ 501,778


	March 31,		December 31,
	2023		2022

ASSETS
Current assets:
Cash and cash equivalents	$	95,832	$	115,154


Accounts receivable, net of allowance of $6,566 and $5,830	48,303		67,249
Prepaid expenses and other current assets	34,765		33,268


Total current assets	178,900		215,671
Property and equipment, net	56,604		54,548
Right-of-use assets	16,819		17,593
Intangible assets, net	167,807		173,087
Goodwill	382,640		381,920
Deferred tax assets, net	17,714		16,533
Other assets	22,039		21,832
Total assets	$	842,523	$	881,184
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	7,778	$	7,183
Accrued expenses	72,802		89,387
Contributor royalties payable	41,036		38,649

Deferred revenue	180,698		187,070
Debt	—		50,000
Other current liabilities	11,148		11,445
Total current liabilities	313,462		383,734
Deferred tax liability, net	4,766		4,465

Lease liabilities	34,017		35,611
Other non-current liabilities	13,744		9,892
Total liabilities	365,989		433,702
Commitments and contingencies (Note 14)

Stockholders’ equity:

Common stock, $0.01 par value; 200,000 shares authorized; 39,690 and 39,605 shares issued and 35,914 and 35,829 shares outstanding as of March 31, 2023 and December 31, 2022, respectively	396		396
Treasury stock, at cost; 3,776 shares as of March 31, 2023 and December 31, 2022	(200,008)		(200,008)
Additional paid-in capital	395,934		391,482
Accumulated comprehensive loss	(14,020)		(15,439)
Retained earnings	294,232		271,051
Total stockholders’ equity	476,534		447,482
Total liabilities and stockholders’ equity	$	842,523	$	881,184

See Notes to Unaudited Consolidated Financial Statements.

Table of Contents

Shutterstock, Inc.

Consolidated Statements of Operations

(In thousands, except for per share data)

(unaudited)

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016

Revenue $ 141,063
$ 123,073
$ 405,282
$ 364,144

Operating expenses:
Cost of revenue 58,812
50,184
168,512
150,492
Sales and marketing 36,008
32,977
105,620
91,636
Product development 13,340
11,604
37,276
34,800
General and administrative 27,333
17,020
74,716
54,629
Total operating expenses 135,493
111,785
386,124
331,557
Income from operations 5,570
11,288
19,158
32,587
Other income (expense), net 130
102
2,095
(122 )
Income before income taxes 5,700
11,390
21,253
32,465
Provision for income taxes 698
1,999
6,582
9,692
Net income $ 5,002
$ 9,391
$ 14,671
$ 22,773

Net income per share:
Basic $ 0.14
$ 0.27
$ 0.42
$ 0.65
Diluted $ 0.14
$ 0.26
$ 0.42
$ 0.64

Weighted average shares outstanding:
Basic 34,643
35,036
34,607
35,123
Diluted 35,177
35,824
35,339
35,855


	Three Months Ended March 31,
	2023		2022

Revenue	$	215,280	$	199,132

Operating expenses:
Cost of revenue	78,163		69,451
Sales and marketing	47,527		53,329
Product development	15,406		13,626
General and administrative	33,815		30,808
Total operating expenses	174,911		167,214
Income from operations	40,369		31,918

Other income, net	1,045		758
Income before income taxes	41,414		32,676
Provision for income taxes	8,571		6,104
Net income	$	32,843	$	26,572





Earnings per share:
Basic	$	0.92	$	0.73
Diluted	$	0.90	$	0.71

Weighted average common shares outstanding:
Basic	35,856		36,303
Diluted	36,575		37,204

See Notes to Unaudited Consolidated Financial Statements.

Table of Contents

Shutterstock, Inc.

Consolidated Statements of Comprehensive Income

(In thousands)

(unaudited)


	Three Months Ended March 31,
	2023		2022

Net income	$	32,843	$	26,572
Foreign currency translation gain / (loss)	1,419		(886)

Other comprehensive income / (loss)	1,419		(886)
Comprehensive income	$	34,262	$	25,686

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016

Net income $ 5,002
$ 9,391
$ 14,671
$ 22,773
Foreign currency translation gain (loss) 4,325
(2,236 ) 12,460
(4,641 )
Unrealized gain on investments —
34
—
252
Other comprehensive income (loss) 4,325
(2,202 ) 12,460
(4,389 )
Comprehensive income $ 9,327
$ 7,189
$ 27,131
$ 18,384

See Notes to Unaudited Consolidated Financial Statements.

Table of Contents

Shutterstock, Inc.

Consolidated Statements of Stockholders’ Equity

(In thousands)

(unaudited)


											Additional Paid-in Capital		Accumulated Other Comprehensive Income / (Loss)		Retained Earnings
	Common Stock					Treasury Stock
Three Months Ended March 31, 2023	Shares		Amount			Shares		Amount									Total
Balance at December 31, 2022		39,605		$	396		3,776		$	(200,008)	$	391,482	$	(15,439)	$	271,051		$	447,482




Equity-based compensation		—		—			—		—		8,643		—		—			8,643



Issuance of common stock in connection with employee stock option exercises and RSU vesting		144		1			—		—		1		—		—			2
Common shares withheld for settlement of taxes in connection with equity-based compensation		(59)		(1)			—		—		(4,192)		—		—			(4,193)




Cash dividends paid		—		—			—		—		—		—		(9,662)			(9,662)
Other comprehensive income		—		—			—		—		—		1,419		—			1,419
Net income		—		—			—		—		—		—		32,843			32,843
Balance at March 31, 2023		39,690		$	396		3,776		$	(200,008)	$	395,934	$	(14,020)	$	294,232		$	476,534

Three Months Ended March 31, 2022
Balance at December 31, 2021		39,209		$	392		2,792		$	(127,196)	$	376,537	$	(10,788)	$	229,537		$	468,482




Equity-based compensation		—		—			—		—		7,826		—		—			7,826



Issuance of common stock in connection with employee stock option exercises and RSU vesting		261		3			—		—		(3)		—		—			—
Repurchase of treasury shares		—		—			422		(38,269)		—		—		—			(38,269)
Common shares withheld for settlement of taxes in connection with equity-based compensation		(118)		(1)			—		—		(10,595)		—		—			(10,596)




Cash dividends paid		—		—			—		—		—		—		(8,706)			(8,706)
Other comprehensive loss		—		—			—		—		—		(886)		—			(886)
Net income		—		—			—		—		—		—		26,572			26,572
Balance at March 31, 2022		39,352		$	394		3,214		$	(165,465)	$	373,765	$	(11,674)	$	247,403		$	444,423

See Notes to Unaudited Consolidated Financial Statements.

Table of Contents

Shutterstock, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(unaudited)

Nine Months Ended
September 30,
2017 2016

CASH FLOWS FROM OPERATING ACTIVITIES

Net income $ 14,671
$ 22,773
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 24,948
14,181
Deferred taxes 4,346
(3,453 )
Non-cash equity-based compensation 20,128
21,110
Change in fair value of contingent consideration —
2,600
Settlement of contingent consideration liability in excess of acquisition-date fair value (6,255 ) (1,640 )
Bad debt expense 981
3,338
Chargeback and sales refund reserves —
(15 )
Changes in operating assets and liabilities:
Accounts receivable (5,361 ) (13,565 )
Prepaid expenses and other current and non-current assets (10,551 ) (2,882 )
Accounts payable and other current and non-current liabilities 11,282
12,586
Contributor royalties payable (681 ) 1,702
Deferred revenue 18,002
19,443
Net cash provided by operating activities $ 71,510
$ 76,178

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (37,626 ) (26,747 )
Investment sales (purchases), net 32,786
(5,182 )
Acquisition of business, net of cash acquired (49,512 ) —
Other investments/advances (3,101 ) —
Acquisition of digital content (2,568 ) (6,214 )
Security deposit (payment)/release 30
(799 )
Net cash used in investing activities $ (59,991 ) $ (38,942 )

CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of treasury shares (24,977 ) (44,916 )
Proceeds from exercise of stock options 1,369
8,235
Proceeds from issuance of common stock under 2012 Employee Stock Purchase Plan —
809
Cash paid related to settlement of employee taxes related to RSU vesting (5,791 ) —
Settlement of contingent consideration liability (3,745 ) (2,360 )
Net cash (used in) provided by financing activities $ (33,144 ) $ (38,232 )
Effect of foreign exchange rate changes on cash 10,217
(2,311 )
Net decrease in cash and cash equivalents (11,408 ) (3,307 )
Cash and cash equivalents, beginning of period 224,190
241,304
Cash and cash equivalents, end of period $ 212,782
$ 237,997

Supplemental Disclosure of Cash Information:
Cash paid for income taxes $ 4,137
$ 16,316


	Three Months Ended March 31,
	2023		2022

CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	32,843	$	26,572
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	18,896		15,065

Deferred taxes	(977)		(1,242)
Non-cash equity-based compensation	8,643		7,826






Bad debt expense	790		361


Changes in operating assets and liabilities:

Accounts receivable	19,168		2,366
Prepaid expenses and other current and non-current assets	5,189		(1,376)

Accounts payable and other current and non-current liabilities	(12,716)		(26,717)

Contributor royalties payable	2,246		1,030

Deferred revenue	(7,307)		(1,162)
Net cash provided by operating activities	$	66,775	$	22,723

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(12,380)		(11,775)






Acquisition of content	(3,527)		(734)

Security deposit payment	(30)		(16)
Net cash used in investing activities	$	(15,937)	$	(12,525)

CASH FLOWS FROM FINANCING ACTIVITIES


Repurchase of treasury shares	—		(38,372)
Proceeds from exercise of stock options	3		—

Cash paid related to settlement of employee taxes related to RSU vesting	(11,008)		(18,496)
Payment of cash dividend	(9,662)		(8,706)



Repayment of Credit Facility	(50,000)		—



Net cash used in financing activities	$	(70,667)	$	(65,574)

Effect of foreign exchange rate changes on cash	507		(529)
Net decrease in cash and cash equivalents	(19,322)		(55,905)

Cash and cash equivalents, beginning of period	115,154		314,017
Cash and cash equivalents, end of period	$	95,832	$	258,112

Supplemental Disclosure of Cash Information:
Cash (received) / paid for income taxes	$	(5,150)	$	1,666
Cash paid for interest	428		—

See Notes to Unaudited Consolidated Financial Statements.

Table of Contents

Shutterstock, Inc.

Notes to Consolidated Financial Statements

(unaudited)

(1) Summary of Operations and Significant Accounting Policies

Summary of Operations

Shutterstock, Inc.~~, together with its subsidiaries (collectively, the~~ (the “Company” or “Shutterstock”), is a ~~global technology company~~premier partner for transformative brands, newsrooms and media companies. The Company’s platform brings together users and contributors of content by providing readily-searchable content that ~~has created a two-sided marketplace for creative professionals~~our customers pay to license ~~content.~~ and by compensating contributors as their content is licensed. Contributors upload their content to the Company’s web properties in exchange for royalty payments based on customer download activity. Beyond content, customers also leverage the Company’s platform to assist with the entire creative process from ideation through creative execution.

The Company’s ~~library~~key content offerings include:

•Images - consisting of ~~creative content includes: (a) digital imagery, which consists of licensed~~ photographs, vectors ~~illustrations~~ and ~~video clips that customers use~~illustrations. Images are typically used in ~~their~~ visual communications, such as websites, digital and print marketing materials, corporate communications, books, publications and other similar uses.

•Footage - consisting of video ~~content;~~clips, premium footage filmed by industry experts and ~~(b) commercial music, which consists~~cinema grade video effects, available in HD and 4K formats. Footage is often integrated into websites, social media, marketing campaigns and cinematic productions.

•Music - consisting of high-quality music tracks and sound effects, ~~and is~~which are often used to complement images and footage.

•3 Dimensional (“3D”) Models - consisting of 3D models, used in a variety of industries such as advertising, media and video production, gaming, retail, education, design and architecture.

On May 11, 2022, the ~~digital imagery. The~~ Company ~~licenses creative~~completed its acquisition of Pond5, Inc. (“Pond5”), a video-first content ~~to its customers. Contributors upload their creative~~marketplace which expands Shutterstock’s content ~~to the Company’s websites in exchange~~offerings across footage, image and music. On May 28, 2022, Shutterstock acquired SCP 2020 Limited (“Splash News”), an entertainment news network for ~~royalty payments based on customer download activity. The Company also~~newsrooms and media companies, which offers ~~digital asset management services through its cloud-based digital asset management platform. This service provides tools for customers to better manage creative~~image and video content across celebrity, red carpet and ~~brand management assets.~~live events. See Note 3 Acquisitions.

Basis of Presentation

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

The interim ~~consolidated balance sheet~~Consolidated Balance Sheet as of ~~September 30, 2017, consolidated statements~~March 31, 2023, and the Consolidated Statements of ~~operations~~Operations, Comprehensive Income, Stockholders’ Equity and ~~comprehensive income~~Cash Flows for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2023 and ~~2016, and consolidated statement of cash flows for the nine months ended September 30, 2017 and 2016~~2022, are unaudited. The ~~consolidated balance sheet~~Consolidated Balance Sheet as of December 31, ~~2016,~~2022, 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~~all normal recurring adjustments necessary to fairly state ~~fairly~~ the Company’s financial position as of ~~September 30, 2017~~March 31, 2023, and its consolidated results of operations, comprehensive income, stockholders’ equity and cash flows for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2023 and ~~2016.~~2022. 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, 2017~~March 31, 2023 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, ~~2017~~2023 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, ~~2016~~2022 included in the Company’s Annual Report on Form 10-K, which was filed with the SEC on February ~~27, 2017.~~14, 2023. 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.

~~During the second quarter of 2017, the Company recorded~~ Certain immaterial adjustments to its unaudited condensed consolidated financial statements to: (1) reduce revenue by approximately $0.6 million and (2) increase general and administrative expense by approximately $0.1 million, related to prior periods. During the third quarter of 2017, the Company recorded an immaterial adjustment to its unaudited condensed consolidated financial statements to increase revenue by approximately $0.9 million, related to prior periods. The Company has concluded that the impact of these adjustments is not material to the results of operations or financial position for the periods in which these adjustments were recorded nor any prior quarterly or annual period financial statements.

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

Table of Contents

Shutterstock, Inc.

Notes to Consolidated Financial Statements

(unaudited)

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements. Actual results could differ from those estimates. Such estimates include, but are not limited to, the determination of the allowance for doubtful accounts, the volume of expected unused licenses for our subscription-based products, the assessment of recoverability of property and equipment, the fair value of acquired goodwill and intangible assets, the ~~grant-date fair value~~amount of non-cash equity-based compensation, the assessment of recoverability of deferred tax assets, ~~and~~ the measurement of ~~certain~~income tax and contingent non-income tax ~~liabilities.~~liabilities and the determination of the incremental borrowing rate used to calculate the lease liability.

~~Shutterstock, Inc.~~

~~Notes to Consolidated Financial Statements~~

~~(unaudited)~~

~~Restricted~~ Cash and Cash Equivalents

The Company’s ~~restricted~~ cash ~~relates to security deposits for its office leases. As~~and cash equivalents consist primarily 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.bank deposits.

Allowance for Doubtful Accounts

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

During the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2023, the Company recorded bad debt expense ~~which increased the allowance for doubtful accounts, was $1.0 million, and write-offs and other adjustments, which decreased the allowance for doubtful accounts, were $2.5~~of $0.8 million. As of ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016,~~2022, the Company’s allowance for doubtful accounts was approximately ~~$4.0~~$6.6 million and ~~$5.5~~$5.8 million, ~~respectively, which was~~respectively. The allowance for doubtful accounts is included as a reduction of accounts ~~receivable.~~

~~Deferred Rent~~

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 liabilityreceivable on the Company’s balance sheet. As of September 30, 2017 and December 31, 2016, the Company had deferred rent of $11.1 million and $8.6 million, respectively, which was included in other non-current liabilities.Consolidated Balance Sheets.

Chargeback and Sales Refund Allowance

~~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, 2017~~March 31, 2023 and December 31, ~~2016,~~2022, the Company’s combined allowance for chargebacks and sales refunds was ~~$0.6~~$0.4 million, which was included inas a component of other ~~liabilities.~~current liabilities on the Consolidated Balance Sheets.

~~Recently Adopted Accounting Standard Updates~~Revenue Recognition

~~In March 2016,~~The majority of the ~~Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09,~~ ~~Compensation - Stock Compensation (Topic 718): Improvements to Employees Share-Based Payment Accounting~~ ~~(“ASU 2016-09”). This ASU changes how companies account~~Company’s revenue is earned from the license of content. Content licenses are generally purchased on a monthly or annual basis, whereby a customer pays for ~~certain aspects~~a predetermined quantity of ~~share-based payment awards to employees, including~~content that may be downloaded over a specific period of time, or, on a transactional basis, whereby a customer pays for individual content licenses at the ~~requirement for all income tax effects related to settlements~~time of ~~share-based payment awards be reported in earnings as an increase or decrease to income tax expense, providing~~download. The Company also generates revenue from tools made available through the Company’s platform.

For contracts that contain multiple performance obligations, the Company ~~an accounting policy election~~allocates the transaction price to ~~either recognize forfeitures as they occur~~each performance obligation based on a relative standalone selling price. The standalone selling price is determined based on the price at which the performance obligation is sold separately, or ~~record an estimate,~~if not observable through past transactions, is estimated taking into account available information including internally approved pricing guidelines and ~~requires that all income tax-related cash flows resulting from share-based payments be reported as operating activities in the statement~~pricing information of ~~cash flows.~~comparable products.

The Company ~~adopted ASU 2016-09~~recognizes revenue upon the satisfaction of performance obligations. The Company recognizes revenue on ~~January 1, 2017. All income tax effects related to settlements of share-based payment awards will be reported as an increase or decrease to~~both its subscription-based and transaction-based products when content is downloaded by a customer, at which time the ~~provision for income taxes.~~license is provided. In addition, ~~starting January 1, 2017,~~ the Company ~~will account~~estimates expected unused licenses for ~~forfeitures~~subscription-based products and recognizes the revenue associated with the unused licenses as ~~they occur~~digital content is downloaded and aslicenses are obtained for such content by the customer during the subscription period. The estimate of ~~January 1, 2017, recognized a $0.7 million reduction to retained earnings as~~unused licenses is based on historical download activity and future changes in the ~~cumulative effect~~estimate could impact the timing of the change in accounting principle. The Company adopted the cash flow presentation component of ASU 2016-09 retrospectively, and accordingly, decreased cash flows from operating activities by $0.6 million and increased cash flows from financing activities by $0.6 million for the nine months ended September 30, 2016.

~~Recently Issued Accounting Standard Updates~~

~~In November 2016, the FASB issued ASU 2016-18,~~ ~~Statements of Cash Flows (Topic 230): Restricted Cash,~~ which requires entities to present restricted cash with cash and cash equivalents on the statement of cash flows when reconciling the total beginning and ending amounts for the periods shown on the statement of cash flows. ASU 2016-18 is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. The Company is evaluating the impact of adopting this new accounting standard on its financial statements. The balancerevenue recognition of the Company’s ~~restricted cash was $2.6 million~~subscription products. For revenue associated with tools available through the Company’s platform, revenue is recognized on a straight-line basis over the subscription period. The Company expenses contract acquisition costs as incurred, to the extent that the amortization period would otherwise be one year or less.

Collectability is probable at the time the electronic order or contract is entered. A significant portion of ~~September 30, 2017.~~

~~In June 2016,~~ the ~~FASB issued ASU 2016-13,~~ ~~Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments.~~ ~~ASU 2016-13 replaces the current incurred loss impairment methodology~~Company’s customers purchase products by making electronic payments with a ~~methodology~~credit card at the time of the transaction. Customer payments received in advance of revenue recognition are contract liabilities and are recorded as deferred revenue. Customers that do not pay in advance are invoiced and are required to make payments under standard credit terms. Collectability for

Table of Contents

Shutterstock, Inc.

Notes to Consolidated Financial Statements

(unaudited)

~~that reflects expected~~customers who pay on credit losses. The ASU is intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. Adoption of this guidance is required, prospectively,terms allowing for annual periods beginning after December 15, 2019, with early adoption permitted for annual periods beginning after December 15, 2018. The Company is evaluating the impact of adopting this new accounting standard on its financial statements.

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases (Topic 842)~~. ASU 2016-02 requires that the rights and obligations created by leases with a duration greater than 12 months be recorded as assets and liabilities on the balance sheet of the lessee. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 and can be applied using a modified retrospective approach for all leases entered into before the effective date. Early adoption is permitted. The Company is evaluating the impact of adopting this new accounting standard on its financial statements.

~~In May 2014, the FASB issued ASU 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~. ASU 2014-09, and its related amendments, provides a unified model to determine when and how revenue is recognized and requires certain additional disclosures around the nature, amount, timing, and uncertainty of revenue 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 will be effective for the fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. This new guidance may be applied retrospectively to each prior period (full retrospective) or retrospectively with the cumulative effect recognized as ofpayment beyond the date ~~of initial application (modified retrospective).~~at which service commences, is based on a credit evaluation for certain new customers and transaction history with existing customers.

The Company ~~expects to adopt this guidance~~recognizes revenue gross of contributor royalties because the Company is the principal in the ~~first quarter of fiscal 2018~~transaction as it is the party responsible for the performance obligation and ~~apply~~it controls the ~~modified retrospective approach.~~product or service before transferring it to the customer. The Company ~~is evaluating~~also licenses content to customers through third-party resellers. Third-party resellers sell the ~~impact~~Company’s products directly to customers as the principal in those transactions. Accordingly, the Company recognizes revenue net of adopting this new accounting standard on its financial statements. Management is progressing with its implementation plan and is considering relevant guidance and industry interpretations as it concludes on its performance obligations, variable consideration, and timing of revenue recognition.costs paid to resellers.

(2) Fair Value Measurements and Long-term Investments

Fair Value Measurements

The ~~following tables present the Company’s~~Company had no assets or liabilities requiring fair value hierarchy ~~for its assets and liabilities (in thousands):~~

As of September 30, 2017
Aggregate Fair Value Level 1 Level 2 Level 3
Assets:
Money market accounts $ 33,141
$ 33,141
$ —
$ —
Commercial paper 22,500
—
22,500
—
Total assets measured at fair value $ 55,641
$ 33,141
$ 22,500
$ —

As of December 31, 2016
Aggregate Fair Value Level 1 Level 2 Level 3
Assets:
Money market accounts $ 81,623
$ 81,623
$ —
$ —
Commercial paper $ 54,972
—
54,972
—
Total assets measured at fair value $ 136,595
$ 81,623
$ 54,972
$ —
Liabilities:
Acquisition related contingent consideration $ 10,000
$ —
$ —
$ 10,000
Total liabilities measured at fair value $ 10,000
$ —
$ —
$ 10,000

~~Money Market Accounts~~

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 million and $81.6 milliondisclosures as of ~~September 30, 2017 and~~March 31, 2023 or December 31, ~~2016, respectively.~~

~~Shutterstock, Inc.~~

~~Notes to Consolidated Financial Statements~~

~~(unaudited)~~

~~Commercial Paper~~

~~The Company’s short-term investments consist of commercial paper with original maturities of 90 days or less. Commercial paper is classified~~2022, except as a level 2 measurement based on quoted market prices for identical assets, which are subject to infrequent transactions. The total amount of commercial paper included in short-term investments was $22.5 million and $55.0 million as of September 30, 2017 and December 31, 2016, respectively.

~~Acquisition-Related Contingent Consideration~~

As of December 31, 2016, the settlement amount of the contingent consideration related to the Company’s acquisition of PremiumBeat was determined to be $10.0 million and was included in other liabilities. This contingency was considered a level 3 measurement. No changes in fair value were recorded during the nine months ended September 30, 2017. The contingent consideration of $10.0 million was paid in March 2017, and there was no remaining liability as of September 30, 2017.noted below.

Other Fair Value Measurements

~~Cash,~~The carrying amounts of cash and cash equivalents, accounts receivable, ~~restricted cash,~~ accounts payable and accrued expenses ~~and deferred revenue carrying amounts~~ approximate fair value because of the short-term nature of these instruments. Debt consists of principal amounts outstanding under our credit facility, which approximates fair value as underlying interest rates are reset regularly based on current market rates and is classified as Level 2. The Company’s non-financial assets, which include ~~property and equipment,~~long-lived assets, 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~~a non-financial asset for impairment, whether due to certain triggering events or because annual impairment testing is required, a resulting asset impairment would require that the non-financial ~~assets~~asset be recorded at fair value.

Long-term Investments

As of March 31, 2023 and December 31, 2022, the Company’s long-term investments were in equity securities with no readily determinable fair value, totaled $20.0 million, and were reported within other assets on the Consolidated Balance Sheets. The Company uses the measurement alternative for these equity investments and their carrying value is reported at cost, adjusted for impairments or any observable price changes in ordinary transactions with identical or similar investments.

On a quarterly basis, the Company evaluates the carrying value of its long-term investments for impairment, which includes an assessment of revenue growth, earnings performance, working capital and general market conditions. As of March 31, 2023, no adjustments to the carrying values of the Company’s long-term investments were identified as a result of this assessment. Changes in performance negatively impacting operating results and cash flows of these investments could result in the Company recording an impairment charge in future periods.

(3) ~~Property and Equipment~~Acquisitions

~~Property and equipment is summarized~~Pond5, Inc.

On May 11, 2022, the Company completed its acquisition of all of the outstanding shares of Pond5, for approximately $218.0 million. The total purchase price was paid with existing cash on hand as ~~follows (in thousands):~~

As of September 30, 2017 As of December 31, 2016
Computer equipment and software $ 101,496
$ 63,711
Furniture and fixtures 9,948
3,434
Leasehold improvements 18,280
20,944
Property and equipment 129,724
88,089
Less accumulated depreciation (51,954 ) (31,988 )
Property and equipment, net $ 77,770
$ 56,101

~~Depreciation expense related to property and equipment was $7.9~~well as a $50 million ~~and $3.9~~drawdown on a newly established revolving credit facility (See Note 7). In connection with the acquisition, the Company incurred approximately $4.0 million ~~for the three months ended September 30, 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~~of transaction costs, which is included in ~~cost of revenue and~~ general and administrative ~~expense based~~expenses on the ~~nature~~Consolidated Statements of ~~the asset being depreciated.~~Operations.

~~Capitalized Internal-Use Software~~Pond5 is a New York based company that operates a video-first content marketplace for royalty-free and editorial video. The Company believes its acquisition of this video-first content marketplace provides expanded offerings across footage, image and music.

The ~~Company capitalized costs related~~identifiable intangible assets, which include customer relationships, developed technology and trade names have weighted average useful lives of approximately 14.2 years, 5 years and 10 years, respectively. The goodwill arising from the transaction is primarily attributable to ~~the development~~expected operational synergies and is not deductible for income tax purposes.

Table of internal-use software of $11.2 million and $6.5 million for the three months ended September 30, 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 million and $1.0 million for the three months ended September 30, 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, 2017 and December 31, 2016, the Company had capitalized internal-use software of $37.0 million and $20.3 million, respectively, net of accumulated depreciation, which was included in property and equipment, net.Contents

Shutterstock, Inc.

Notes to Consolidated Financial Statements

(unaudited)

Splash News

~~(4) Goodwill, Intangible Assets and Acquisition Activity~~

~~Goodwill~~

On May 28, 2022, the Company completed its acquisition of all of the outstanding shares of Splash News, for approximately $6.3 million. The ~~Company’s goodwill balance is attributable to its Image (formerly, “Bigstock”), Editorial, Music and Webdam reporting units and is tested for impairment at least annually~~total purchase price was paid with existing cash on ~~October 1 or upon a triggering event. Image, Music and Editorial are included in~~hand. In connection with the ~~Company's “Content Business” reporting segment while Webdam~~acquisition, the Company incurred approximately $0.3 million of transaction costs, which is included in general and administrative expenses on the ~~non-reportable “Other Category”. The following table summarizes the changes in the Company’s goodwill balance by reportable~~Consolidated Statements of Operations.

Splash News is a United Kingdom based entertainment news network and ~~non-reportable segments through September 30, 2017 (in thousands):~~

Consolidated Content Business Other Category
Balance as of December 31, 2016 $ 49,271
$ 40,508
$ 8,763
Goodwill related to acquisitions $ 37,834
37,834
—
Foreign currency translation adjustment 3,419
3,419
—
Balance as of September 30, 2017 $ 90,524
$ 81,761
$ 8,763

~~No triggering events were identified during the nine months ended September 30, 2017.~~

~~Intangible Assets~~

~~Intangible assets consisted of the following as of September 30, 2017~~is a source for image and ~~December 31, 2016 (in thousands):~~

As of September 30, 2017 As of December 31, 2016

Gross
Carrying
Amount

Accumulated
Amortization
Weighted
Average Life
(Years) Gross
Carrying
Amount Accumulated
Amortization
Amortizing intangible assets:

Customer relationships $ 23,314
$ (6,404 ) 9 $ 16,712
$ (4,344 )
Trade name 7,093
(3,000 ) 7 6,677
(2,030 )
Developed technology 11,399
(3,472 ) 3 3,224
(1,934 )
Contributor content 16,452
(2,648 ) 11 12,958
(1,386 )
Patents 259
(64 ) 18 227
(52 )
Domain name 160
(73 ) 12 160
(55 )
Total $ 58,677
$ (15,662 ) $ 39,958
$ (9,801 )

~~Amortization expense was $2.3 million~~video content across celebrity, red carpet and ~~$1.2 million for the three months ended September 30, 2017 and 2016, respectively, and $5.1 million and $3.8 million for the nine months ended September 30, 2017 and 2016, respectively.~~live events. The Company ~~determined that there was no indication~~believes this acquisition expands Shutterstock Editorial’s Newsroom offering for access to premium exclusive content.

The identifiable intangible asset, developed technology, has a useful life of ~~impairment of~~approximately 4 years. The goodwill arising from the ~~intangible assets~~transaction is primarily attributable to expected operational synergies and is not deductible for any period presented. Estimated amortization expense for the next five years is: $2.2 million for the remaining three months of 2017, $7.8 million in 2018, $7.7 million in 2019, $5.5 million in 2020, $3.7 million in 2021, $3.0 million in 2022income tax purposes.

The Pond5 and ~~$13.1 million thereafter.~~

~~Acquisition Activity~~

~~2017 Acquisition Activity~~

~~Flashstock Technology, Inc.~~

~~On July 7, 2017, the Company acquired all of the shares of Flashstock Technology, Inc. (“Flashstock”) pursuant to a stock purchase agreement. The transaction was~~Splash News transactions were accounted for using the acquisition method and, accordingly, the results of the acquired ~~business~~businesses have been included in the Company’s results of operations from the respective acquisition ~~date.~~

Flashstock is a Toronto-based company that enables the creation of custom content through a propriety software platform. The Company believes this acquisition will strengthen the Company’s strategic position and serve as the foundation for the Company to bring a comprehensive custom content offering to market.

dates. The fair value of consideration transferred in ~~this~~these business ~~combination was~~combinations has been allocated to the intangible and tangible assets acquired and liabilities assumed at the acquisition date, with the remaining unallocated amount recorded as goodwill.

The total purchase price was $51.2 million of which $50.9 million was paid with existing cash on hand in the three months ended September 30, 2017 and an estimated $0.3 million is to be paid in the fourth quarter of 2017 for the settlement of

~~Shutterstock, Inc.~~

~~Notes to Consolidated Financial Statements~~

~~(unaudited)~~

working capital adjustments. The unpaid portion of the purchase price is included in accrued expenses as of September 30, 2017. As required by the stock purchase agreement, the Company is in the process of finalizing the working capital adjustments; accordingly, management has used their best estimate in the initial purchase price allocation as of the date of these financial statements.

~~The aggregate purchase price was allocated to the assets acquired and liabilities assumed as follows (in thousands):~~

Assets:
Cash and cash equivalents $ 1,330
Accounts receivable 2,439
Prepaid expenses and other current assets 205
Intangible Assets:
Customer relationships 5,400
Developed technology 8,100
Goodwill 37,834
Total assets acquired 55,308
Liabilities:
Accrued expenses (279 )
Accounts payable (99 )
Deferred tax liability, net (164 )
Deferred revenue (3,540 )
Total liabilities acquired (4,082 )
Net assets acquired $ 51,226

The identifiable intangible assets ~~have a weighted average life~~ of ~~approximately six years and~~these acquisitions are being amortized on a straight-line basis. The fair value of the customer relationships was determined using a variation of the income approach known as the multiple-period excess earnings method. The fair value of the trade name was determined using the relief-from-royalty method, and the fair value of the developed technology was determined using the relief-from-royalty ~~method.~~and the cost to recreate methods.

The ~~goodwill arising from~~aggregate purchase price for these acquisitions has been allocated to the ~~transaction is primarily attributable to expected operational synergies~~assets acquired and ~~approximately 9% will be deductible for income tax purposes.~~liabilities assumed as follows (in thousands):

~~In connection with the acquisition, the Company recorded approximately $0.1 million and $0.8 million of professional fees in~~


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

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

Intangible assets	67,800		1,263		69,063
Goodwill	158,957		5,565		164,522

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

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

1 During the three ~~and nine~~ months ended September 30, ~~2017, respectively. The professional fees are included in general and administrative expense.~~

~~The operations~~2022, the Company updated its preliminary allocation of the Pond5 purchase price to the assets acquired ~~entity have been integrated into~~and liabilities assumed. This resulted in a (i) $4.0 million increase to goodwill, (ii) a $4.1 million decrease to intangible assets, including a $7.0 million decrease to the ~~Company’s operations from~~value of customer relationships, partially offset by a $2.3 million increase to the ~~acquisition date.~~ value of the developed technology, and (iii) other immaterial adjustments.

Table of Contents

Shutterstock, Inc.

Notes to Consolidated Financial Statements

(unaudited)

Pro-Forma Financial Information (unaudited)

The following unaudited pro forma consolidated financial information (in thousands) reflects the results of operations of the Company for the three ~~and nine~~ months ended ~~September 30, 2017 and 2016,~~March 31, 2022, as if the ~~Flashstock acquisition was~~Pond5 and Splash News acquisitions had been completed on January 1, ~~2016,~~2021, after giving effect to certain purchase accounting adjustments, primarily related to intangible assets and ~~deferred revenue.~~transaction costs. These pro forma results have been prepared for comparative purposes only and are not necessarily indicative of what the Company’s operating results would have been, had the acquisitions actually taken place at the beginning of the ~~period~~previous annual period.


	Three Months Ended March 31,
	2022
Revenue
As Reported	$	199,132
Pro Forma	212,835
Income before income taxes
As Reported	$	32,676
Pro Forma	32,412

(4) Property and Equipment

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


	As of March 31, 2023		As of December 31, 2022
Computer equipment and software	$	272,431	$	261,067
Furniture and fixtures	10,491		10,328
Leasehold improvements	18,685		18,635
Property and equipment	301,607		290,030
Less accumulated depreciation	(245,003)		(235,482)
Property and equipment, net	$	56,604	$	54,548

Depreciation and amortization expense related to property and equipment was $9.1 million and $8.0 million for the three months ended March 31, 2023 and 2022, respectively. Of these amounts, $8.7 million and $7.2 million are included in cost of revenue for the three months ended March 31, 2023 and 2022, respectively, and $0.5 million and $0.8 million are included in general and administrative expense for the three months ended March 31, 2023 and 2022, respectively.

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Revenue
As reported $ 141,063
$ 123,073
$ 405,282
$ 364,144
Pro forma 141,888
123,735
409,618
365,720
Income before income taxes
As reported $ 5,700
$ 11,390
$ 21,253
$ 32,465
Pro forma 6,729
10,013
19,105
28,969
Depreciation and amortization expense is included in cost of revenue and general and administrative expense in the Consolidated Statements of Operations based on the nature of the asset being depreciated.

Capitalized Internal-Use Software

The Company ~~has performance-based bonus arrangements with certain Flashstock employees who are now employees~~capitalized costs related to the development of ~~Shutterstock. These employees are entitled to additional compensation if: (i) the custom content business achieves certain financial targets~~internal-use software of $10.3 million and $9.5 million for the ~~2019 calendar year~~three months ended March 31, 2023 and ~~(ii)~~2022, respectively. Capitalized amounts are included as a component of property and equipment under computer equipment and software on the ~~individual~~Consolidated Balance Sheets.

The portion of total depreciation expense related to capitalized internal-use software was $8.4 million and $6.9 million for the three months ended March 31, 2023 and 2022, respectively. Depreciation expense related to capitalized internal-use software is ~~employed by Shutterstock as~~included in cost of revenue in the Consolidated Statements of Operations.

As of March 31, 2023 and December 31, ~~2019. These~~2022, the Company had capitalized internal-use software of $52.0 million and $50.1 million, respectively, net of accumulated depreciation, which was included in property and equipment, net.

Table of Contents

Shutterstock, Inc.

Notes to Consolidated Financial Statements

(unaudited)

(5) Goodwill and Intangible Assets

~~performance-based bonuses will be reported as period expenses within “Other (expense) income, net”~~Goodwill

The Company’s goodwill balance is attributable to its Content reporting unit and is tested for impairment annually on October 1 or upon a triggering event. No triggering events were identified during the three months ended March 31, 2023.

The following table summarizes the changes in the ~~consolidated statements of operations, and are not considered part~~carrying value of the ~~Flashstock purchase price.~~Company’s goodwill balance during the three months ended March 31, 2023 (in thousands):


	Goodwill
Balance as of December 31, 2022	$	381,920

Foreign currency translation adjustment	720

Balance as of March 31, 2023	$	382,640

~~2016 Acquisition Activity~~

Intangible Assets

Intangible assets, all of which are subject to amortization, consisted of the following as of March 31, 2023 and December 31, 2022 (in thousands):


	As of March 31, 2023							As of December 31, 2022
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted Average Life (Years)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Amortizing intangible assets:
Customer relationships	$	89,704	$	(21,231)	$	68,473	12	$	88,996	$	(19,168)	$	69,828
Trade name	16,767		(7,604)		9,163		9	16,588		(7,209)		9,379
Developed technology	95,667		(41,575)		54,092		4	94,872		(35,288)		59,584
Contributor content	57,938		(21,966)		35,972		8	54,284		(20,098)		34,186

Patents	259		(152)		107		18	259		(149)		110

Total	$	260,335	$	(92,528)	$	167,807		$	254,999	$	(81,912)	$	173,087

Amortization expense was $9.8 million and $7.1 million for the three months ended March 31, 2023 and 2022, respectively. Of these amounts, $9.2 million and $6.5 million are included in cost of revenue for the three months ended March 31, 2023 and 2022, respectively, and $0.6 million are included in general and administrative expense for the three months ended March 31, 2023 and 2022.

The ~~Picture Desk~~

~~On September 1, 2016,~~Company determined that there was no indication of impairment of the Company acquired content assets and intellectual property of The Picture Desk Limited, which includes over 700,000 images from two image collections: The Art Archive and The Kobal Collection, pursuant to an asset purchase agreement. The total purchase price consisted of a cash payment of $3.9 million including transaction costs, which has been recorded as an addition to intangible assets for any period presented. Estimated amortization expense is: $29.6 million for the remaining nine months of ~~which $3.6~~2023, $32.7 million ~~has been recorded under contributor content with an estimated useful life of 15 years,~~in 2024, $22.3 million in 2025, $19.8 million in 2026, $13.5 million in 2027, $10.9 million in 2028 and ~~the remainder has been recorded under trade name with an estimated useful life of 7 years.~~$39.0 million thereafter.

~~(5)~~

(6) Accrued Expenses

Accrued expenses consisted of the following (in thousands):


	As of March 31, 2023		As of December 31, 2022
Compensation	$	23,452	$	40,314
Non-income taxes	23,451		24,390

Website hosting and marketing fees	8,301		6,608



Other expenses	17,598		18,075
Total accrued expenses	$	72,802	$	89,387

As of September 30, 2017 As of December 31, 2016
Compensation $ 19,844
$ 13,732
Non-income taxes 6,520
7,383
Royalty tax withholdings 7,587
6,921
Other expenses 18,038
13,070
Total accrued expenses $ 51,989
$ 41,106

~~(6) Commitments and Contingencies~~

The Company leases facilities under agreements accounted for as operating leases. Rental expense for operating leases was $2.3 million and $2.1 million for the three months ended September 30, 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 termTable 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, 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 million.

~~Other Commitments~~

On October 20, 2016, the Company entered into a multi-part transaction with an unrelated third-party contributor (the “Transaction Party”). The transaction included three primary components: (a) a revolving credit facility pursuant to which the Company would be obligated to lend up to $4.6 million under certain conditions (the “Facility”) to the Transaction Party. The Facility has a term of five years and requires the Transaction Party to make quarterly payments of principal to the Company beginning on the fourth anniversary of the Facility. The Facility bears interest at 10.0%, with all interest payments deferred until maturity, and the entire unpaid balance of principal and accrued interest due upon maturity; (b) the Company will be the exclusive distributor of the Transaction Party’s content in certain markets subject to certain limitations; and (c) the Company, at its option, may acquire the Transaction Party at any time after the third anniversary of the Facility or match any third-party acquisition offer with respect to the Transaction Party at any time until the fifth anniversary of the Facility.

On March 27, 2017, the Facility was amended to reduce the maximum lending amount to $3.0 million. The Transaction Party has borrowed $1.3 million under the Facility, all of which remains outstanding as of September 30, 2017. The Company has reported this amount in other non-current assets.

Simultaneously, the Company invested $1.6 million in a convertible note issued by the Transaction Party, which matures on October 20, 2021. The convertible note bears interest at 10%, with all interest payments deferred until maturity, and theContents

Shutterstock, Inc.

Notes to Consolidated Financial Statements

(unaudited)

(7) Debt

~~entire unpaid balance~~On May 6, 2022, the Company entered into a five-year $100 million unsecured revolving loan facility (the “Credit Facility”) with Bank of ~~principal~~America, N.A., as Administrative Agent and ~~accrued~~other lenders. The Credit Facility includes a letter of credit sub-facility and a swingline facility and it also permits, subject to the satisfaction of certain conditions, up to $100 million of additional revolving loan commitments with the consent of the Administrative Agent.

At the Company’s option, revolving loans accrue interest ~~due~~at a per annum rate based on either (i) the base rate plus a margin ranging from 0.125% to 0.500%, determined based on the Company’s consolidated leverage ratio or (ii) the Term Secured Overnight Financing Rate (“SOFR”) (for interest periods of 1, 3 or 6 months) plus a margin ranging from 1.125% to 1.5%, determined based on the Company’s consolidated leverage ratio. The Company is also required to pay an unused commitment fee ranging from 0.150% to 0.225%, determined based on the Company’s consolidated leverage ratio. In connection with the execution of this agreement, the Company paid debt issuance costs of approximately $0.6 million.

On May 9, 2022, the Company borrowed $50 million for use in connection with the acquisition of Pond5, described under Note 3 (“Acquisitions”) and for general corporate purposes. During the three months ended March 31, 2023, the Company repaid the full amount outstanding and as of March 31, 2023, the Company had no outstanding borrowings under the Credit Facility. As of March 31, 2023, the Company had a remaining borrowing capacity of $98 million, net of standby letters of credit. For the three months ended March 31, 2023, the Company recognized interest expense of $0.2 million.

The Credit Facility contains financial covenants and requirements restricting certain of the Company’s activities, which are usual and customary for this type of credit facility. The Company is also required to maintain compliance with a consolidated leverage ratio and a consolidated interest coverage ratio, in each case, determined in accordance with the terms of the Credit Facility. As of March 31, 2023, the Company was in compliance with these covenants.

(8) Stockholders’ Equity and Equity-Based Compensation

Stockholders’ Equity

Common Stock

The Company issued approximately 85,000 and 143,000 shares of common stock during the three months ended March 31, 2023 and 2022, respectively, related to the exercise of stock options and the vesting of Restricted Stock Units.

Treasury Stock

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

The Company expects to fund future repurchases, if any, through a combination of cash on hand, cash generated by operations and future financing transactions, if appropriate. Accordingly, the share repurchase program is subject to the Company having available cash to fund repurchases. Under the share repurchase program, management is authorized to purchase shares of the Company’s common stock from time to time through open market purchases or privately negotiated transactions at prevailing prices as permitted by securities laws and other legal requirements, and subject to market conditions and other factors.

During the three months ended March 31, 2022, the Company repurchased approximately 422,000 shares of its common stock at an average cost of $90.69. As of December 31, 2022, the Company fully utilized its authorization for purchases under the share repurchase program.

Dividends

The Company declared and paid cash dividends of $0.27 and $0.24 per share of common stock or $9.7 million and $8.7 million, during the three months ended March 31, 2023 and 2022, respectively.

On April 17, 2023, the Company’s Board of Directors declared a quarterly cash dividend of $0.27 per share of outstanding common stock payable on June 15, 2023 to stockholders of record at the close of business on June 1, 2023. Future declarations of dividends are subject to the final determination of the Board of Directors, and will depend on, among other things, the Company’s future financial condition, results of operations, capital requirements, capital expenditure requirements,

Table of Contents

Shutterstock, Inc.

Notes to Consolidated Financial Statements

(unaudited)

contractual restrictions, anticipated cash needs, business prospects, provisions of applicable law and other factors the Board of Directors may deem relevant.

Equity-Based Compensation

The Company recognizes stock-based compensation expense for all equity-based compensation awards, including employee Restricted Stock Units and Performance-based Restricted Stock Units (“PRSUs” and, collectively with Restricted Stock Units, “RSUs”) and stock options, based on the fair value of each award on the grant date. Awards granted prior to June 1, 2022 were granted under the Company’s Amended and Restated 2012 Omnibus Equity Incentive Plan (the “2012 Plan”). At the Annual Meeting held on June 2, 2022, the Company’s stockholders approved the 2022 Omnibus Equity Incentive Plan (the “2022 Plan”). Awards granted subsequent to June 2, 2022 were granted under the 2022 Plan.

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 months ended March 31, 2023 and 2022 (in thousands):


	Three Months Ended March 31,
	2023		2022
Cost of revenue	$	184	$	78
Sales and marketing	604		928
Product development	2,448		1,781
General and administrative	5,407		5,039
Total	$	8,643	$	7,826

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 months ended March 31, 2023 and 2022 (in thousands):


	Three Months Ended March 31,
	2023		2022
Stock options	$	—	$	175
RSUs	8,643		7,651



Total	$	8,643	$	7,826

Stock Option Awards

During the three months ended March 31, 2023, no options to purchase shares of its common stock were granted. As of March 31, 2023, there were approximately 303,000 options vested and exercisable with a weighted average exercise price of $34.55.

Restricted Stock Unit Awards

During the three months ended March 31, 2023, the Company had RSU grants, net of forfeitures, of approximately 129,000. As of March 31, 2023, there are approximately 1,703,000 non-vested RSUs outstanding with a weighted average grant-date fair value of $71.08. As of March 31, 2023, the total unrecognized non-cash equity-based compensation expense related to the non-vested RSUs was approximately $74.9 million, which is expected to be recognized through 2027.

During the three months ended March 31, 2023 and 2022, shares of common stock with an aggregate value of $4.2 million and $10.6 million were withheld upon ~~maturity.~~ vesting of RSUs and paid in connection with related remittance of employee withholding taxes to taxing authorities.

On April 3, 2023, the Company granted approximately 822,000 RSUs with a grant date fair value of $58 million.

(9) Revenue

The ~~principal~~Company distributes its products through two primary channels:

E-commerce: The majority of the Company’s customers license content directly through the Company’s self-service web properties. E-commerce customers have the flexibility to purchase subscription-based plans that are paid on a monthly or

Table of Contents

Shutterstock, Inc.

Notes to Consolidated Financial Statements

(unaudited)

annual basis. Customer are also able to license content on a transactional basis. These customers generally license content under the Company’s standard or enhanced licenses, with additional licensing options available to meet customers’ individual needs. E-commerce customers typically pay the full amount of the ~~convertible note~~purchase price in advance or at the time of license, generally with a credit card.

Enterprise: The Company also has a base of customers with unique content, licensing and workflow needs. These customers benefit from communication with dedicated sales professionals, service and research teams which provide a number of tailored enhancements to their creative workflows including non-standard licensing rights, multi-seat access, ability to pay on credit terms, multi-brand licensing packages, increased indemnification protection and content licensed for use-cases outside of those available on the e-commerce platform.

The Company’s revenues by distribution channel for the three months ended March 31, 2023 and 2022 are as follows (in thousands):


	Three Months Ended March 31,
	2023		2022
E-commerce	$	119,754	$	127,070
Enterprise	95,526		72,062

Total Revenues	$	215,280	$	199,132

The March 31, 2023 deferred revenue balance will be earned as content is downloaded or upon the expiration of subscription-based products, and nearly all is expected to be earned within the next twelve months. $80.5 million of total revenue recognized for the three months ended March 31, 2023 was reflected in deferred revenue as of December 31, 2022.

(10) Other Income / (Expense), net

The following table presents a summary of the Company’s other income and expense activity included in the accompanying Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022 (in thousands):


	Three Months Ended March 31,
	2023		2022
Foreign currency gain	$	1,111	$	734



Interest expense	(231)		—
Other	165		24
Total other income	$	1,045	$	758

(11) Income Taxes

The Company’s effective tax rates were 20.7% and 18.7% for the three months ended March 31, 2023 and 2022, respectively. For the three months ended March 31, 2023, the net effect of discrete items increased the effective tax rate by 0.9%. Excluding these items, the Company’s effective tax rate would have been 19.8% for the three months ended March 31, 2023.

For the three months ended March 31, 2022, the net effect of discrete items decreased the effective tax rate by 0.2%. Excluding these items, the Company’s effective tax rate would have been 18.9% for the three months ended March 31, 2022.

The Company has computed the provision for income taxes based on the estimated annual effective tax rate excluding loss jurisdictions with no tax benefit and the application of discrete items, if any, ~~accrued~~ in the applicable period.

During the three months ended March 31, 2023and ~~unpaid interest~~2022, uncertain tax positions recorded by the Company were not material. To the extent the remaining uncertain tax positions are ultimately recognized, the Company’s effective tax rate may be ~~converted into equity~~impacted in future periods.

The Company recognizes interest expense and tax penalties related to unrecognized tax benefits in income tax expense in the Consolidated Statements of Operations. The Company’s accrual for interest and penalties related to unrecognized tax benefits was not material for the three months ended March 31, 2023 and 2022.

During the three months ended March 31, 2023, the Company had net cash taxes refunded of $5.2 million and during the three months ended March 31, 2022, the Company had net cash taxes paid of $1.7 million.

Table of Contents

Shutterstock, Inc.

Notes to Consolidated Financial Statements

(unaudited)

(12) Net Income Per Share

Basic net income per share is computed using the weighted average number of shares of common stock outstanding for the period, excluding unvested RSUs and stock options. Diluted net income per share is based upon the weighted average shares of common stock outstanding for the period plus dilutive potential shares of common stock, including unvested RSUs and stock options using the treasury stock method.

The following table sets forth the computation of basic and diluted net income per share for the three months ended March 31, 2023 and 2022 (in thousands):


	Three Months Ended March 31,
	2023		2022
Net income	$	32,843	$	26,572
Shares used to compute basic net income per share	35,856		36,303
Dilutive potential common shares
Stock options	153		233
Unvested restricted stock awards	566		668

Shares used to compute diluted net income per share	36,575		37,204
Basic net income per share	$	0.92	$	0.73
Diluted net income per share	$	0.90	$	0.71

Dilutive shares included in the calculation	1,691		1,409
Anti-dilutive shares excluded from the calculation	176		56

(13) Geographic Information

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


	Three Months Ended March 31,
	2023		2022
North America	$	99,140	$	79,943
Europe	59,034		62,553
Rest of the world	57,106		56,636
Total revenue	$	215,280	$	199,132

The United States, included in North America in the above table, accounted for 43% and 37% of consolidated revenue for the three months ended March 31, 2023 and 2022, respectively. No other country accounts for more than 10% of the ~~Transaction Party at~~Company’s revenue in any period presented.

The Company’s long-lived tangible assets were located as follows (in thousands):


	As of March 31,		As of December 31,
	2023		2022
North America	$	42,764	$	42,266
Europe	13,585		12,079
Rest of the world	255		203
Total long-lived tangible assets	$	56,604	$	54,548

The United States, included in North America in the above table, accounted for 72% and 73% of total long-lived tangible assets as of March 31, 2023 and December 31, 2022, respectively. Ireland, included in Europe in the above table, accounted for 19% and 17% of total long-lived tangible assets as of March 31, 2023 and December 31, 2022, respectively. No other country accounts for more than 10% of the Company’s ~~option on the maturity date, or earlier upon certain events. The $1.6 million investment~~long-lived tangible assets in ~~the convertible note is reported in other non-current assets.~~any period presented.

~~Other Obligations~~

Table of Contents

Shutterstock, Inc.

Notes to Consolidated Financial Statements

(unaudited)

(14) Commitments and Contingencies

As of ~~September 30, 2017,~~March 31, 2023, the Company had ~~other~~total non-lease obligations in the amount of approximately ~~$42.1~~$73.8 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, 2023, the Company’s ~~other~~non-lease obligations for the remainder of ~~2017~~2023 and for the years ending December 31, ~~2018, 2019~~2024, 2025, 2026, 2027 and ~~2020~~2028 were approximately ~~$5.6~~$35.5 million, ~~$16.2~~$30.1 million, ~~$11.7~~$6.7 million, $0.9 million, $0.4 million and ~~$8.6~~$0.2 million, respectively.

Legal Matters

From time to time, the Company may become party to litigation in the ordinary course of business, including direct claims brought by or against the Company with respect to intellectual property, contracts, employment and other matters, as well as claims brought against the Company’s customers for whom the Company has a contractual indemnification obligation. The Company assesses the likelihood of any adverse judgments or outcomes with respect to these matters and determines loss contingency assessments on a gross basis after assessing the probability of incurrence of a loss and whether a loss is reasonably estimable. In addition, the Company considers other relevant factors that could impact its ability to reasonably estimate a loss. A determination of the amount of reserves required, if any, for these contingencies is made after analyzing each matter. The Company reviews reserves, if any, at least quarterly and may change the amount of any such reserve in the future due to new developments or changes in strategy in handling these matters. Although the results of litigation and threats of litigation, investigations and claims cannot be predicted with certainty, the Company currently believes that the final outcome of these matters will not have a material adverse effect on its business, consolidated financial position, results of operations, or cash flows. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors. The Company currently has no material active litigation matters and, ~~as such,~~accordingly, no material reserves related to ~~litigation~~.litigation.

Indemnification and Employment Agreements

In the ordinary course of business, the Company enters into contractual ~~agreements~~arrangements under which it agrees to provide indemnification of varying scope and terms to customers with respect to certain matters, including, but not limited to, losses arising out of the breach of the Company’s intellectual property warranties for damages to the customer directly attributable to the Company’s breach. The Company is not responsible for any damages, costs, or losses to the extent such damages, costs or losses arise as a result of any modifications made by the customer, or the context in which ~~an image~~content is used. The ~~Company’s license agreements~~standard maximum aggregate obligation and liability to any one customer for any single claim is generally ~~cap indemnification obligations at amounts ranging from $10,000~~limited to ten thousand dollars but can range to $250,000, with certain exceptions for ~~certain products for~~ which ~~the Company’s~~our indemnification ~~obligations~~obligation are uncapped. As of ~~September 30, 2017,~~March 31, 2023, 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's~~Company’s charter documents and separate written indemnification agreements, the Company has certain indemnification obligations to its executive officers, certain employees and directors, as well as certain former officers and directors.

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

~~Shutterstock, Inc.~~

~~Notes to Consolidated Financial Statements~~

~~(unaudited)~~

~~(7) Stockholders’ Equity and Equity-Based Compensation~~

~~Stockholders’ Equity~~

~~Common Stock~~

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

~~Treasury Stock~~

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.

During the nine months ended September 30, 2017, the Company repurchased approximately 449,000 shares of its common stock under the share repurchase program at an average per-share cost of approximately $50.04. As of September 30, 2017, the Company had $100.0 million remaining for purchases under the share repurchase program.

~~Equity-Based Compensation~~

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, 2017 and 2016 (in thousands):

Contents

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Cost of revenue $ 176
$ 498
$ 608
$ 1,552
Sales and marketing 1,092
1,524
3,535
4,072
Product development 1,819
1,580
5,079
5,732
General and administrative 3,798
2,903
10,905
9,754
Total $ 6,885
$ 6,505
$ 20,128
$ 21,110

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, 2017 and 2016 (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Stock options $ 1,663
$ 1,751
$ 5,087
$ 5,379
RSUs 5,222
4,602
15,041
15,254
ESPP shares —
152
—
477
Total $ 6,885
$ 6,505
$ 20,128
$ 21,110

~~Shutterstock, Inc.~~

~~Notes to Consolidated Financial Statements~~

~~(unaudited)~~

~~Stock Option Awards~~

During the nine months ended September 30, 2017, the Company granted options to purchase approximately 86,000 shares of its common stock with a weighted average exercise price of $48.05. As of September 30, 2017, there were approximately 312,000 options vested and exercisable with a weighted average exercise price of $36.27. As of September 30, 2017, the total unrecognized compensation charge related to non-vested options was approximately $15.9 million, which is expected to be recognized through 2021.

~~Restricted Stock Units~~

During the nine months ended September 30, 2017, the Company granted approximately 366,000 RSUs, net of forfeitures. As of September 30, 2017 there are approximately 1,290,000 non-vested RSUs outstanding. As of September 30, 2017, the total unrecognized non-cash equity-based compensation charge related to the non-vested RSUs was approximately $45.0 million, which is expected to be recognized through 2021.

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

~~ESPP Shares~~

In December 2016, the Company’s Board of Directors suspended the 2012 ESPP. During the nine months ended September 30, 2017, no shares of the Company’s common stock were issued under the 2012 ESPP.

~~(8) Employee Benefit Plans~~

The Company has a 401(k) defined contribution 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. The Company recorded expenses related to employer matching contributions of $0.7 million and $0.5 million for the three months ended September 30, 2017 and 2016, respectively, and $1.5 million and $1.5 million for the nine months ended September 30, 2017 and 2016, respectively.

~~(9) Other Expense, Net~~

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

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Foreign currency gain (loss) $ (192 ) $ 192
$ 1,467
$ 739
Change in fair value of contingent consideration —
(130 ) —
(974 )
Interest income 322
40
628
113
Total income (expense) $ 130
$ 102
$ 2,095
$ (122 )

~~(10) Income Taxes~~

The Company’s effective tax rates were 12.2% and 17.6% for the three months ended September 30, 2017 and 2016, respectively, and 31.0% and 29.9% for the nine months ended September 30, 2017 and 2016, respectively. In the three and nine months ended September 30, 2017, the Company incurred a discrete benefit relating primarily to the tax effect of the domestic production activities deduction claimed on the Company’s 2016 tax return, which was substantially completed in the third quarter of 2017. The net effect of discrete items decreased the effective tax rate for the three and nine months ended September 30, 2017 by 17.5% and 2.0%, respectively. In the three and nine months ended September 30, 2016, the Company incurred a discrete tax benefit related primarily to the Company’s completion of a study which determined the amount of the U.S. Research and Development tax credit for the years 2013 to 2015 to which it was entitled. The net effect of discrete items decreased the effective tax rate for the three and nine months ended September 30, 2016 by 22.3% and 10.0%, respectively.

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 increase of income in foreign jurisdictions with lower statutory rates.

During the three and nine months ended September 30, 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

~~Shutterstock, Inc.~~

~~Notes to Consolidated Financial Statements~~

~~(unaudited)~~

September 30, 2016, unrecognized tax benefits recorded by the Company for uncertain tax positions taken in prior years were $1.0 million. During the nine months ended September 30, 2016, the Company’s recognized tax benefits of $1.0 million were offset by a recognized tax benefit of approximately $1.0 million related to the release of a reserve for uncertain tax positions due to a lapse in the statute of limitations, resulting in a net amount recorded that was not material. To the extent the remaining unrecognized tax benefits are ultimately recognized, the Company’s effective tax rate may be impacted in future periods.

The Company recognizes interest expense and tax penalties related to unrecognized tax benefits in income tax expense in the consolidated statements of operations. The Company’s accrual for interest and penalties related to unrecognized tax benefits was not material for the three and nine months ended September 30, 2017 and 2016.

As of September 30, 2017, the Company had approximately $12.8 million 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.

~~(11) Net Income Per Share~~

Basic net income 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 to common stockholders is computed by deducting income allocated to participating securities, if any, including unvested shares for the restricted award holder since these unvested shares have participating rights.

Diluted net income per share is computed by dividing the net income attributable to common stockholders by the weighted average common shares outstanding and all potential common shares, if they are dilutive.

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

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Weighted average shares outstanding:
Basic 34,643
35,036
34,607
35,123
Stock options and ESPP shares 408
473
458
434
Unvested RSUs and restricted stock awards 126
315
274
298
Diluted 35,177
35,824
35,339
35,855

Dilutive securities included in the calculation 1,066
2,097
1,543
1,940
Anti-dilutive securities excluded from the calculation 1,554
856
1,244
1,061

~~(12) Geographic Information~~

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

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
North America $ 55,827
$ 49,221
$ 161,396
$ 145,928
Europe 45,075
39,382
131,712
119,662
Rest of the world 40,161
34,470
112,174
98,554
Total revenue $ 141,063

$ 123,073

$ 405,282

$ 364,144

The United States, included in North America in the above table, accounted for 36% of consolidated revenue for the three months ended September 30, 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.

~~Shutterstock, Inc.~~

~~Notes to Consolidated Financial Statements~~

~~(unaudited)~~

~~The Company’s long-lived tangible assets were located as follows (in thousands):~~

September 30, December 31,
2017 2016
North America $ 75,771
$ 54,913
Europe 1,925
1,141
Rest of the world 74
47
Total long-lived tangible assets $ 77,770
$ 56,101

~~The United States, included in North America in the above table, accounted for 95% of total long-lived tangible assets as of September 30, 2017 and December 31, 2016.~~

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read ~~together~~in conjunction with our interim unaudited consolidated ~~unaudited~~ financial statements and related notes contained elsewhere in this Quarterly Report on Form 10-Q and with information contained in our other filings, including the audited consolidated financial statements included in our ~~Annual Report on~~2022 Form ~~10-K for the fiscal year ended December 31, 2016 filed with the SEC on February 27, 2017.~~10-K.

In addition to historical consolidated financial information, this discussion ~~may contain~~contains forward-looking statements ~~that reflect~~including statements about our plans, estimates and beliefs. These statements involve risks and uncertainties and our actual results could differ materially from those ~~discussed below.~~expressed or implied in forward-looking statements. See ~~the “Special Note on Forward~~“Forward Looking Statements” ~~disclosure included above for a discussion of the uncertainties, risks and assumptions associated with these statements.~~above. See also the “Risk Factors” ~~disclosure of~~disclosures contained in our ~~Annual Report on~~2022 Form 10-K ~~for the fiscal year ended December 31, 2016~~ for additional discussion of ~~such risks.~~the risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements.

Overview and Recent Developments

Shutterstock, Inc. (referred to herein as the “Company”, “we,” “our,” and “us”) is a ~~leading global technology company~~premier partner for transformative brands, newsrooms and media companies. Our platform brings together users and contributors of content by providing readily-searchable content that ~~operates a two-sided marketplace for creative professionals~~our customers pay to license ~~content.~~ and by compensating contributors as their content is licensed. Contributors upload their content to the Company’s web properties in exchange for royalty payments based on customer download activity. Beyond content, customers also leverage the Company’s platform to assist with the entire creative process from ideation through creative execution.

Our ~~library~~key content offerings include:

•Music - consisting of high-quality music tracks and sound effects, ~~and~~ which isare often used to complement ~~the digital imagery. We also offer digital asset management services through Webdam, our cloud-based digital asset management platform, which provides tools for customers to better manage content~~images and ~~brand management assets.~~ footage.

•3 Dimensional (“3D”) Models - consisting of 3D models, used in a variety of industries such as advertising, media and video production, gaming, retail, education, design and architecture.

Our ~~global marketplace brings together users~~offerings are distributed to customers under the following brands: Shutterstock; Pond5; TurboSquid; Offset; PremiumBeat; Bigstock; PicMonkey; and ~~contributors of creative~~Splash News.

Shutterstock, our flagship brand, includes various content types such as image, footage, music and editorial. For customers seeking specialized solutions, Shutterstock Studios extends our offerings by providing ~~a readily-searchable~~custom, high-quality content matched with production tools and services at scale. In addition, our collection of images, footage clips, music tracks and 3D models is also distributed through our computer vision offering which is used by large technology companies to train AI models.

Pond5 is a video-first content marketplace which expands the Company’s content offerings across footage, image and music. PicMonkey is a leading online graphic design and image editing platform. TurboSquid operates a marketplace that ~~our customers can pay~~offers more than one million 3D models and a 2 dimensional (“2D”) marketplace derived from 3D objects. Our Offset brand provides authentic and exceptional content for high-impact use cases that require extraordinary images, featuring work from top assignment photographers and illustrators from around the world. PremiumBeat offers exclusive high-quality music tracks and provides producers, filmmakers and marketers the ability to ~~license and~~search handpicked production music from the world’s leading composers. Bigstock maintains a separate content library tailored for creators seeking to incorporate cost-effective imagery into their ~~work and by compensating contributors as their content is licensed to our customers. More than 1.7~~projects.

Over 2.2 million active, paying customers contributed to our revenue for the twelve-month period ended ~~September 30, 2017.~~March 31, 2023. As of ~~September 30, 2017,~~March 31, 2023, more than ~~300,000~~2.4 million approved contributors made their ~~creative content~~images, footage and music tracks available in our collection, which has grown to more than ~~150~~615 million images and ~~has grown to include~~ more than ~~8.3~~47 million ~~video clips.~~ footage clips as of March 31, 2023.

Table of Contents

This makes our collection of ~~creative~~ content one of the largest of its kind, and we delivered ~~more than 128~~42.7 million paid downloads to our customers across all of our brands during the ~~nine~~three months ended ~~September 30, 2017. We believe~~March 31, 2023.

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

In October 2022, Shutterstock announced our strategic partnership with OpenAI, an AI research and deployment company. In 2023, Shutterstock integrated Dall-E 2, OpenAI’s tool for AI-generated content into the Shutterstock platform to enable our customers to input keywords and generate unique images based on their specific criteria.

Through our platform, we ~~delivered the highest volume of commercial image downloads in this period of any single brand in~~generate revenue by licensing content to our ~~industry during that period.~~

customers. During the three months ended September 30, 2017, in addition to the increase in creative content provided by our contributors, we also launched several new and improved product features, including enhanced product offerings as follows:

In July 2017, we completed our acquisition of Flashstock Technologies, Inc. (“Flashstock”) for a total purchase price of $51.2 million. Flashstock is a Toronto-based company that enables the creation of custom content through a proprietary software platform, and will serve as the foundation for Shutterstock Custom, which was launched in September 2017.

In September 2017, we unveiled a number of enhancements to our suite of plugins for the Adobe Creative Cloud® desktop applications. These enhancements add compatibility directly within the Adobe Premiere Pro®, Adobe Illustrator®, and Adobe InDesign® applications, marking the first time that we have made our high-quality video collection available through a plugin. In addition to added compatibility, the plugins provide feature enhancements such as streamlined workflow, design previews, content curation, and simple licensing within the applications.

~~Table of Contents~~

In September 2017, we launched direct integration in the Google Slides application, allowing users to search our image library and edit any visual content within their presentations using Shutterstock Editor.

Through our two-sided marketplace, 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. During the nine months ended September 30, 2017, 63%March 31, 2023, 56% of our revenue and the majority of our content licenses came from ~~users~~our E-commerce sales channel. The majority of our ~~e-commerce platform.~~customers license content directly through our self-service web properties. E-commerce customers have the ~~flexibility of choosing content subscription~~ability to purchase plans that ~~provide~~are paid on either a ~~large volume of~~monthly or annual basis or to license content ~~for their creative process without concern for the incremental cost of each~~on a transactional basis. E-commerce customers generally license content under our standard or ~~for customers~~enhanced licenses, with ~~other content needs, we offer simple, affordable, a la carte content licenses. For larger organizations or those with~~additional licensing options available to meet customers’ individual needs.

Customers in our Enterprise sales channel generally have unique content, licensing and workflow ~~needs,~~needs. These customers benefit from communication with our dedicated ~~enterprise~~ sales, service and research teams ~~are able to~~which provide a number of personalized enhancements to their creative workflows ~~beyond the~~including non-standard licensing rights, multi-seat access, ability to pay on credit terms, multi-brand licensing packages, increased indemnification protection and content licensed for use-cases outside of those available on our e-commerce platform.

~~Each time an image, video clip or music track is delivered~~ Customers in our enterprise sales channel may also benefit from access to (i) Shutterstock Editorial, which includes our library of editorial images and videos, (ii) Shutterstock Studios, our offering which provides custom, high-quality content matched with production tools and services at scale, and (iii) computer vision, our data partnerships offering which provides metadata associated with our content collection, used to train AI models. Our range of solutions, including the depth of our API platform integrations, appeals to a broad and diverse customer ~~for use, we record a royalty expense~~base and enables us to adapt and evolve with the needs of our more high touch clients to deliver capabilities that embed deep within their workflows. Our Enterprise sales channel provided approximately 44% of our revenue for the ~~amount due to~~three months ended March 31, 2023.

As the associated contributor. Royalties are calculated using either a fixed dollar amount or a fixed percentage of revenue, and are typically paid to contributors on a monthly basis, subject to withholding taxes and certain payout minimums. Royalties represent the largest component ofuse cases for our operating expenses (and are reported within cost of revenue) and tend to 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 whencreative solutions expand, we believe ~~such exclusivity provides us with a distinct competitive advantage. In recent years, we have made a number of enhancements~~our customers are seeking alternative means to consume our ~~content libraries through the direct acquisition of content and through entering into several such agreements and partnerships.~~

Our cost of revenue is substantially similar as a percentage of revenue for our e-commerce and enterprise customers. While contributors earn a fixed amount per download for some of our plans, we have set the per-download amount paid to our contributors for each of our purchase options so that contributors earn more per download from plans where we collect higher revenue per download. In other words, we strive to deliver a similar percentage of revenue to contributors regardless of which purchase option a customer chooses. We expect that shifts in the relative popularity of these two purchase options will not materially impact our cost of revenue.

~~As a provider of digital asset management technology, we also generate revenue by licensing the use of our Webdam platform to customers on a contract basis, which is typically twelve months.~~

We manage customer acquisition costs based on the expected blended customer lifetime value across our purchase options so that we are able to manage our marketing expenses to achieve certain desired growth targets.offerings. As a result, we ~~do not believe~~have seen continued demand for our monthly subscription products, including our suite of multi-asset subscriptions. These multi-asset products are credit-based and enable customers to license images, footage and music in a single subscription. Our monthly subscriptions provide for either a fixed number of content licenses or credits that ~~shifts in~~may be used to download content during the ~~mix between e-commerce and enterprise sales channels will materially impact our operating margins.~~

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 been a significant percentage of revenue. Since we believe the market for creative content is at an early stage, 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 findperiod. Our subscription-based pricing model makes the creative process easier because customers can download content ~~that they need, the degree to~~in our collection for use in their creative process without incremental costs, which ~~we make use of the large quantity of data we collect about images, videos~~provides greater creative freedom and music and search patterns, and the degree to which our websites have been localized for international audiences. 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 canhelps improve work product. In addition, customers may also purchase licenses through other contractual plans where the customer ~~experience and increase the efficiency with which we deploy new products and features. Finally, the quality and~~commits to buy a predetermined quantity of content licenses that ~~we make available in our collection is another key driver~~may be downloaded over a period of ~~our growth. Approved and licensable high-quality~~time, generally between one month to one year. For users who need less content, inindividual content licenses may also be purchased on a transactional basis, paid for at the ~~Shutterstock collection exceeded 150 million images and 8.3 million video clips as~~time of ~~September 30, 2017, making it one~~download.

Table of ~~the largest libraries of its kind.~~Contents

Key Operating Metrics

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~~

Subscribers, subscriber revenue and average revenue per customer from acquisitions are included in these metrics beginning twelve months after the closing of the respective business combination. Accordingly, the metrics include Subscribers, Subscriber revenue, and Average revenue per customer from TurboSquid beginning February 2022 and from PicMonkey beginning September 2022. These metrics exclude the respective counts and revenues from our ~~key operating metrics, which are unaudited,~~acquisitions of Pond5 and Splash News.

Subscribers

We define subscribers as those customers who purchase one or more of our monthly recurring products for a continuous period of at least three months, measured as of the ~~three and nine months ended September 30, 2017 and 2016:~~

~~Table~~end of ~~Contents~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(in millions, except revenue per download)
Paid downloads (during the period) 41.9
41.2
128.1
125.8
Revenue per download (during the period) $ 3.23
$ 2.91
$ 3.06
$ 2.83
Content in Our Collection (end of period):
Images 155.8
102.7
155.8
102.7
Video Clips 8.3
5.4
8.3
5.4

~~Paid Downloads~~

~~Measuring~~the reporting period. We believe the number of ~~paid downloads~~subscribers is an important metric that provides insight into our ~~customers make~~monthly recurring business. We believe that an increase in ~~any given period~~our number of subscribers is ~~important because downloads are~~an indicator of engagement in our platform and potential for future growth.

Subscriber Revenue

We define subscriber revenue as the ~~primary method~~revenue generated from subscribers during the period. We believe subscriber revenue, together with our number of ~~delivering licensed content, which drives a significant~~subscribers, provide insight into the portion of our business driven by our monthly recurring products.

Average Revenue Per Customer

Average revenue ~~and contributor royalties. For~~per customer is calculated by dividing total revenue for the last twelve-month period by customers. We define customers as total active, paying customers that ~~choose~~contributed to ~~purchase content à la carte, each incremental content license results~~total revenue over the last twelve-month period. Changes in ~~incremental recognition~~our average revenue per customer will be driven by changes in the mix of ~~revenue. For customers that choose~~ our subscription purchase options, we do not recognize revenue from each incremental content license, but we believe that download activity is an important measure of the value that a customer is getting from a subscription. subscription-based and transactional products as well as pricing in our transactional business.

Paid Downloads

We define paid downloads as the number of downloads that our customers make in a given period of our ~~photographs, vectors, illustrations, video clips or music tracks, excluding custom~~content. Paid downloads exclude content ~~re-downloads of content that a customer has downloaded in the past (which do not generate incremental revenue or contributor royalty expense) and~~related to our Studios business, downloads of content that isare offered to customers for no charge, including our free ~~image~~trials, and downloads associated with our computer vision offering. Measuring the number of paid downloads that our customers make in a given period is important because it is a measure of customer engagement on our platform and triggers the ~~week~~recognition of revenue and ~~content made available through our Freestock product (which we make available as a means of acquiring new customers and attracting existing customers to return to our websites more frequently).~~contributor royalties.

Revenue per Download

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

Content in our Collection

We define content in our collection as the total number of ~~(a)~~approved images (photographs, vectors and illustrations) and ~~(b) video clips available to customers for commercial license on shutterstock.com~~footage (in number of clips) in our library at ~~any point in time.~~the end of the period. We exclude content from this collection metric that is not uploaded directly to our site but is available tofor license by our customers through an application program interface, ~~custom~~ content from our Studios business and ~~certain content that may be licensed for~~ editorial ~~use only. We record~~content. Prior to December 31, 2022, this metric ~~as of~~only included approved images and footage clips in our library on shutterstock.com at the end of athe period. ~~Offering a~~We believe that our large selection of high-quality content ~~allows~~enables us to ~~acquire~~attract and retain customers and ~~therefore, we believe that broadening~~drives our ~~selection of high-quality content is an important driver of our revenue growth.~~

~~Non-GAAP Financial Measures~~

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, non-GAAP financialnetwork effect.

Table of Contents

The following table summarizes our key operating metrics, which are unaudited, for the three months ended March 31, 2023 and 2022:

~~information, by its nature, departs~~


	Three Months Ended March 31,
	2023		2022

Subscribers (end of period)1	559,000		359,000
Subscriber revenue (in millions)1	$	90.6	$	85.4

Average revenue per customer (last twelve months)1	$	356	$	355
Paid downloads (in millions)	42.7		44.6
Revenue per download	$	4.41	$	4.22
Content in our collection (end of period, in millions):
Images	615		405
Footage clips	47		25

1 Subscribers, Subscriber Revenue and Average Revenue Per Customer from ~~traditional accounting conventions; accordingly, its use can make it difficult to compare~~acquisitions are included in these metrics beginning twelve months after the closing of the respective business combination. Accordingly, the metrics include Subscribers, Subscriber revenue, and Average revenue per customer from TurboSquid beginning February 2022 and from PicMonkey beginning September 2022. These metrics exclude the respective counts and revenues from our ~~current results with our results from other reporting periods~~acquisitions of Pond5 and ~~with the results of other companies.~~Splash News.

Critical Accounting ~~Policies and~~ Estimates

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

We believe that the policies, assumptions and estimates associated with our revenue recognition, allowance for doubtful accounts, ~~chargeback and sales refund reserve, stock-based compensation, self-insurance accruals, accounting for non-income and income taxes,~~ goodwill and intangible assets and ~~advertising costs~~accounting for income taxes have the greatest potential impact on our financial statements. Therefore, we consider these to be our critical accounting policies and estimates.

A description of our critical accounting policies that involve significant management judgments appears in our ~~Annual Report on Form 10-K for the fiscal year ended December 31, 2016 that we filed with the SEC on February 27, 2017, or the 2016~~2022 Form 10-K, under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting ~~Policies and~~ Estimates.”

~~During the first quarter of 2017, we adopted the Financial Accounting Standards Board’s~~ ~~Accounting Standards Update 2016-09: Compensation - Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting~~, which simplified the accounting for stock-based compensation in a number of areas, including the accounting for awards expected to be forfeited and the accounting for the tax effects of stock-based compensation. 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 ~~this~~new accounting ~~standard~~standards on our financial statements. ~~Apart from the item described above, there~~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 2016~~our 2022 Form 10-K.

Table of Contents

Key Components of Our Results of Operations

Revenue

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

E-commerce: The majority of our ~~revenue is generated through the licensing of creative~~customers license content ~~and the majority of our licensing revenue is generated by sales~~directly through our ~~e-commerce platform.~~

~~We generate revenue through our e-commerce platform from the sale of subscriptions that provide~~self-service web properties. E-commerce customers have the flexibility ~~of high-volume~~to purchase a subscription-based plan that is paid on a monthly or annual basis or to license content ~~subscriptions as well as~~on a ~~variety of other purchase options. Our subscriptions typically vary in length from one month to one year. In addition to sales through~~transactional basis. These customers generally license content under our ~~e-commerce platform, we offer~~standard or enhanced licenses, with additional ~~purchase~~licensing options ~~to enterprise customers that can be tailored~~available to meet ~~our~~ customers’ ~~specific~~individual needs.

We E-commerce customers typically ~~receive~~pay the full amount of ~~e-commerce purchases~~the purchase price in advance or at the time of ~~sale; however, revenue is recognized ratably over the course~~license, generally with a credit card.

Enterprise: We also have a base of customers with unique content, licensing and workflow needs. These customers benefit from communication with our dedicated sales, service and research teams which provide a ~~subscription period or as content is downloaded. Some~~number of ~~our larger custom and enterprise accounts are invoiced and~~tailored enhancements to their creative workflows including non-standard licensing rights, multi-seat access, ability to pay us on credit ~~terms. For certain~~terms, multi-brand licensing packages, increased indemnification protection and content licensed for use-cases outside of ~~these accounts, we receive payment in installments over~~those available on the ~~course of an annual commitment.~~e-commerce platform.

~~We also generate revenue through Webdam, which licenses digital asset management software services to marketing~~The Company’s revenues by distribution channel for the three months ended March 31, 2023 and creative teams and enterprise organizations through its cloud-based software platform. Software licensing fees are recognized ratably as revenue over the course of the contractual term, which is typically one year.

Our deferred revenue consists of amounts paid by customers for which revenue recognition criteria have not been met. For content revenue, deferred revenue is recognized as revenue when content is licensed or when the right to license content expires, and all other revenue recognition criteria have been met. For Webdam, deferred revenue is recognized as revenue through passage of time and when all other revenue recognition criteria have been met.

~~Table of Contents~~

~~Revenues generated from each of the sales channels~~2022 are as follows (in thousands):


	Three Months Ended March 31,
	2023		2022
E-commerce	$	119,754	$	127,070
Enterprise	95,526		72,062

Total Revenues	$	215,280	$	199,132

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
E-Commerce $ 85,910
$ 80,803
$ 255,613
$ 244,190
Enterprise 49,322
38,175
134,129
108,683
Other 5,831
4,095
15,540
11,271
Total Revenue $ 141,063
$ 123,073
$ 405,282
$ 364,144

Costs and Expenses

Cost of Revenue. Cost of revenue consists of royalties paid to contributors, credit card processing fees, content review costs, customer service expenses, ~~the~~ infrastructure and hosting costs related to maintaining our ~~e-commerce~~creative platform and cloud-based software platform, depreciation and ~~associated employee compensation, including non-cash equity-based compensation, bonuses and benefits,~~ amortization of capitalized internal-use software, purchased content and ~~technology~~acquisition-related intangible assets, allocated facility costs and other supporting overhead costs. ~~We expect that our cost~~Cost of revenue ~~will increase in absolute dollars in~~also includes employee compensation, including non-cash equity-based compensation, bonuses and benefits associated with the ~~foreseeable future as~~maintenance of our ~~revenue grows.~~creative platform and cloud-based software platform.

Sales and Marketing. Sales and marketing expenses include third-party marketing, advertising, branding, public relations and sales expenses. Sales and marketing expenses also include associated employee compensation, including non-cash equity-based compensation, bonuses and benefits, and commissions as well as allocated facility and other supporting overhead costs. ~~We expect sales and marketing expenses to increase in absolute dollars in the foreseeable future as we continue to invest in new customer acquisition.~~

Product Development. Product development expenses consist of employee compensation, including non-cash equity-based compensation, bonuses and benefits, and expenses related to ~~contractors~~vendors engaged in product management, design, development and testing of our websites and products. Product development costs also ~~include~~includes software and other IT equipment costs, allocated facility expenses and other supporting overhead costs. We expense product development expenses as incurred, except for costs that are capitalized for internal-use software development projects and subsequently depreciated over the expected useful life of the developed software. We expect product development expenses, of which a portion will be capitalized, to increase in absolute dollars in the foreseeable future as we continue to invest in developing new products and internal tools and enhancing the functionality of our existing products and technology.

General and Administrative. General and administrative expenses include employee compensation, including non-cash equity-based compensation, bonuses and benefits for executive, finance, ~~business development,~~ accounting, legal, human resources, internal information technology, internet security, business intelligence and other administrative personnel. In addition, general and administrative expenses include outside legal, tax and accounting services, bad debt expense, insurance, facilities costs, ~~and~~ other supporting overhead ~~costs. We expect to incur incremental general~~costs and ~~administrative expenses to support our global operational growth~~depreciation and ~~enhancements to support our reporting and planning functions.~~amortization expense.

Other ~~Expense,~~Income, Net. Other ~~expense~~income, net consists of non-operating costs such as foreign currency transaction gains and losses in addition to interest income and expense and prior to 2017, changes in the fair value of contingent consideration related to acquisitions. As we increase the volume of business transacted in foreign currencies resulting from international expansion and as currency rates fluctuate, we expect foreign currency gains and losses to continue to fluctuate.expense.

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

Table of Contents

Results of Operations

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


	Three Months Ended March 31,
	2023		2022
	(in thousands)
Consolidated Statements of Operations:
Revenue	$	215,280	$	199,132
Operating expenses:
Cost of revenue	78,163		69,451
Sales and marketing	47,527		53,329
Product development	15,406		13,626
General and administrative	33,815		30,808
Total operating expenses	174,911		167,214
Income from operations	40,369		31,918

Other income, net	1,045		758
Income before income taxes	41,414		32,676
Provision for income taxes	8,571		6,104
Net income	$	32,843	$	26,572

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


	Three Months Ended March 31,
	2023		2022
Consolidated Statements of Operations:
Revenue	100	%	100	%
Operating expenses:
Cost of revenue	36	%	35	%
Sales and marketing	22	%	27	%
Product development	7	%	7	%
General and administrative	16	%	15	%
Total operating expenses	81	%	84	%
Income from operations	19	%	16	%

Other income, net	—	%	—	%
Income before income taxes	19	%	16	%
Provision for income taxes	4	%	3	%
Net income	15	%	13	%

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

Table of Contents

Comparison of the Three Months Ended March 31, 2023 and 2022

The following table presents our results of operations for the periods indicated (in thousands):


	Three Months Ended March 31,
	2023		2022		$ Change		% Change

Consolidated Statements of Operations:
Revenue	$	215,280	$	199,132	$	16,148	8	%
Operating expenses:
Cost of revenue	78,163		69,451		8,712		13
Sales and marketing	47,527		53,329		(5,802)		(11)
Product development	15,406		13,626		1,780		13
General and administrative	33,815		30,808		3,007		10
Total operating expenses	174,911		167,214		7,697		5
Income from operations	40,369		31,918		8,451		26

Other income, net	1,045		758		287		38
Income before income taxes	41,414		32,676		8,738		27
Provision for income taxes	8,571		6,104		2,467		40
Net income	$	32,843	$	26,572	$	6,271	24	%

Revenue

Revenue increased by $16.1 million, or 8%, to $215.3 million in the three months ended March 31, 2023 compared to the same period in 2022. On a constant currency basis, revenue increased approximately 10% in the three months ended March 31, 2023, compared to the same period in 2022.

The Company’s E-commerce revenues decreased by 6%, to $119.8 million in the three months ended March 31, 2023, compared to the same period in 2022. On a constant currency basis, E-commerce revenues decreased by 4% in the three months ended March 31, 2023, compared to the same period in 2022. The decline in our E-commerce revenues was driven by continued weakness in new customer acquisition in Europe and Rest of World, partially offset by revenues generated from our acquisition of Pond5, which was completed on May 11, 2022.

The Company’s Enterprise revenues increased by 33%, to $95.5 million in the three months ended March 31, 2023, compared to the same period in 2022. On a constant currency basis, the Company’s Enterprise revenues increased by 35% in the three months ended March 31, 2023, compared to the same period in 2022. The increase in Enterprise revenues was primarily driven by growth in our computer vision data partnerships and Studios business, in addition to revenue generated from our acquisitions of Pond5 and Splash News, which were completed on May 11, 2022 and May 28, 2022, respectively.

In the three months ended March 31, 2023 and 2022, we delivered 42.7 million and 44.6 million paid downloads, respectively, and our revenue per download was $4.41 and $4.22 for the three months ended March 31, 2023 and 2022, respectively. During the three months ended March 31, 2023, the decline in paid downloads is attributed to the decline in the E-commerce business, and the increase in revenue per download was primarily due to changes in sales channel mix.

Changes in our revenue by region were as follows: revenue from North America increased by $19.2 million, or 24%, to $99.1 million, revenue from Europe decreased by $3.5 million, or 6%, to $59.0 million and revenue from outside Europe and North America increased by $0.5 million, or 1%, to $57.1 million, in the three months ended March 31, 2023 compared to the same period in 2022.

Costs and Expenses

Cost of Revenue. Cost of revenue increased by $8.7 million, or 13% to $78.2 million in the three months ended March 31, 2023 compared to the same period in 2022. This increase was primarily driven by: (i) increased depreciation and amortization expense driven by our recent acquisitions; (ii) increased royalty, content and reviewer costs; and (iii) higher costs associated with website hosting, hardware and software licenses. We expect that our cost of revenue will continue to fluctuate in-line with changes in revenue.

Table of Contents

Sales and Marketing. Sales and marketing expenses decreased by $5.8 million, or 11%, to $47.5 million in the three months ended March 31, 2023 compared to the same period in 2022. As a percent of ~~September 30, 2017,~~revenue, sales and marketing expenses decreased to 22% for the three months ended March 31, 2023, from 27% for the same period in 2022. This was primarily driven by $7.0 million in decreased performance marketing spend, partially offset by higher employee-related costs. We expect sales and marketing expenses to continue to fluctuate as we optimize our sales channels and invest in new customer acquisition, products and geographies.

Product Development. Product development expenses increased by $1.8 million, or 13%, to $15.4 million in the three months ended March 31, 2023 compared to the same period in 2022. This increase was driven by $1.8 million in higher employee and third-party contractor related costs, net of capitalized labor, for the three months ended March 31, 2023, as compared to the same period in the prior year. We expect product development expenses, of which a portion will be capitalized, to continue in the foreseeable future, as we pursue opportunities to invest in developing new products and internal tools and enhance the functionality of our existing products and technologies.

General and Administrative. General and administrative expenses increased by $3.0 million, or 10%, to $33.8 million in the three months ended March 31, 2023 compared to the same period in 2022. This increase was driven by $2.4 million in higher employee-related costs and $1.9 million in severance costs associated with strategic workforce optimizations, partially offset by $0.8 million in lower professional fees.

Other Income, Net. In the three months ended March 31, 2023, other income, net substantially consisted of $1.1 million of favorable unrealized foreign currency fluctuations. During the three months ended March 31, 2022, other income, net substantially consisted of $0.7 million of favorable unrealized foreign currency fluctuations. As we increase the volume of business transacted in foreign currencies resulting from international expansion and as currency rates fluctuate, we expect foreign currency gains and losses to continue to fluctuate.

Income Taxes. Income tax expense increased by $2.5 million for the three months ended March 31, 2023, compared to the same period in 2022. Our effective tax rates were 20.7% and 18.7% for the three months ended March 31, 2023 and 2022, respectively.

For the three months ended March 31, 2023, the net effect of discrete items increased the effective tax rate by 0.9%. Excluding discrete items, our effective tax rate would have ~~not recorded any such valuation allowances.~~been 19.8% for the three months ended March 31, 2023.

For the three months ended March 31, 2022, the net effect of discrete items decreased the effective tax rate by 0.2%. Excluding discrete items, our effective tax rate would have been 18.9% for the three months ended March 31, 2022.

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

~~Table of Contents~~

~~Results of Operations~~

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

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(in thousands)
Consolidated Statements of Operations:

Revenue $ 141,063
$ 123,073
$ 405,282
$ 364,144
Operating expenses:
Cost of revenue 58,812
50,184
168,512
150,492
Sales and marketing 36,008
32,977
105,620
91,636
Product development 13,340
11,604
37,276
34,800
General and administrative 27,333
17,020
74,716
54,629
Total operating expenses 135,493
111,785
386,124
331,557
Income from operations 5,570
11,288
19,158
32,587
Other income (expense), net 130
102
2,095
(122 )
Income before income taxes 5,700
11,390
21,253
32,465
Provision for income taxes 698
1,999
6,582
9,692
Net income $ 5,002
$ 9,391
$ 14,671
$ 22,773

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

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Consolidated Statements of Operations:

Revenue 100 % 100 % 100 % 100 %
Operating expenses:
Cost of revenue 42 % 41 % 42 % 41 %
Sales and marketing 26 % 27 % 26 % 25 %
Product development 9 % 9 % 9 % 10 %
General and administrative 19 % 14 % 18 % 15 %
Total operating expenses 96 % 91 % 95 % 91 %
Income from operations 4 % 9 % 5 % 9 %
Other income (expense), net — % — % 1 % — %
Income before income taxes 4 % 9 % 5 % 9 %
Provision for income taxes — % 2 % 2 % 3 %
Net income 4 % 8 % 4 % 6 %

~~Note: Percent totals may not sum exactly, due to rounding~~

~~Table of Contents~~

~~Comparison of the Three Months Ended September 30, 2017 and 2016~~

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

Three Months Ended September 30,
2017 2016 $ Change % Change
(in thousands)
Consolidated Statements of Operations:

Revenue $ 141,063
$ 123,073
$ 17,990
15 %
Operating expenses:

Cost of revenue 58,812
50,184
8,628
17
Sales and marketing 36,008
32,977
3,031
9
Product development 13,340
11,604
1,736
15
General and administrative 27,333
17,020
10,313
61
Total operating expenses 135,493
111,785
23,708
21
Income from operations 5,570
11,288
(5,718 ) (51 )
Other income (expense), net 130
102
28
*
Income before income taxes 5,700
11,390
(5,690 ) (50 )
Provision for income taxes 698
1,999
(1,301 ) *
Net income $ 5,002
$ 9,391
$ (4,389 ) (47 )%

* Not meaningful

~~Revenue~~

Revenue increased by $18.0 million, or 15%, to $141.1 million in the three months ended September 30, 2017 compared to the same period in 2016. Excluding the impact of foreign currency fluctuations, revenue increased 14% in the three months ended September 30, 2017 compared to the same period in 2016. Increased activity by our enterprise customers was the primary driver of our revenue growth during the period, which in turn drove an 11% increase in revenue per download as compared to the prior year. In addition, we continued to grow our e-commerce customer base and undertake initiatives focused on broadening our subscription product offerings, giving customers a greater choice of content plans to meet their needs. We believe these offerings will lead to sustained customer engagement over longer periods. In the three months ended September 30, 2017 and 2016, we delivered 41.9 million and 41.2 million paid downloads, respectively, and our revenue per download increased to $3.23 for the three months ended September 30, 2017 from $2.91 for the three months ended September 30, 2016.

In addition, revenue from North America increased by $6.6 million, or 13%, to $55.8 million in the three months ended September 30, 2017 compared to the same period in 2016, revenue from Europe increased by $5.7 million, or 14%, to $45.1 million in the three months ended September 30, 2017 compared to the same period in 2016, and revenue from the rest of the world increased by $5.7 million, or 17%, to $40.2 million in the three months ended September 30, 2017 compared to the same period in 2016.

~~Costs and Expenses~~

~~Cost of Revenue~~. Cost of revenue increased by $8.6 million, or 17%, to $58.8 million in the three months ended September 30, 2017 compared to the same period in 2016. Royalties increased $3.0 million, or 9%, which is attributable to the increase in revenue during the period. We anticipate royalties will continue growing in absolute dollars as revenue grows, although royalties as a percentage of revenue may vary somewhat from period to period primarily due to customer usage and product mix and to a lesser extent due to the contributors’ achievement of royalty target thresholds. Costs associated with website hosting and depreciation and amortization increased by $5.9 million to $9.9 million for the three months ended September 30, 2017 compared to the same period in 2016, related primarily to increased costs associated with technology and infrastructure enhancements.

~~Sales and Marketing.~~ Sales and marketing expenses increased by $3.0 million, or 9%, to $36.0 million in the three months ended September 30, 2017 compared to the same period in 2016. Employee-related expenses increased by $5.1 million as a result of increased headcount, which was offset by a number of cost reductions, the largest of which was a $0.8 million decrease in advertising costs in the three months ended September 30, 2017 compared to the same period in 2016. We anticipate that our global sales and marketing spend will continue to increase in absolute dollars for the foreseeable future as we continue to pursue growth through new products and geographies as well as growth from new customers.

~~Table of Contents~~

~~Product Development~~. Product development expenses increased by $1.7 million, or 15%, from $11.6 million for the three months ended September 30, 2016 to $13.3 million for the three months ended September 30, 2017. The most significant component of this increase relates to employee-related expenses and consulting costs, which increased by $2.0 million, net of capitalized amounts. We continue to increase our investment in product, engineering and quality assurance to support the increasing number of product development initiatives for our websites, including ongoing efforts to improve our search capabilities. A significant portion of this investment is capitalized as internal-use software. We anticipate product development expenses to increase in the foreseeable future, of which a portion will continue to be capitalized, as we continue to invest in developing new products and internal tools and enhancing the functionality of our existing products and technology.

~~General and Administrative~~. General and administrative expenses increased by $10.3 million, or 61%, to $27.3 million in the three months ended September 30, 2017 compared to the same period in 2016. The most significant component of this increase is related to employee-related expenses which increased by $5.8 million, or 75%, to $13.5 million in the three months ended September 30, 2017 due to increases in our workforce to support our growth and improved efficiency and effectiveness of our infrastructure. In addition, in the three months ended September 30, 2017, we recorded $0.5 million of expense related to ongoing long-term performance-based bonus arrangements that were entered into concurrently with the acquisition of Flashstock and are expected to be paid in 2020. The remaining change in general and administrative expenses is attributable to various operating expenses associated with the overall growth in our business.

~~Other Income (Expense), Net~~. Other expenses generally include foreign currency gains and losses and changes in the fair value of contingent consideration related to the passage of time. During the three months ended September 30, 2017, the $0.1 million of other income related to interest income, offset by the remeasurement of our non-functional currency assets and liabilities. During the three months ended September 30, 2016, we incurred expense related to the change in the fair value of contingent consideration, which was mostly offset by foreign currency gains and interest income. Foreign currency transaction gains and losses could fluctuate in future periods as we continue to expand our international operations and increase the volume of business transacted in currencies other than the U.S. dollar.

~~Income Taxes~~. Income tax expense decreased by $1.3 million to $0.7 million in the three months ended September 30, 2017 compared to the same period in 2016. Our effective tax rate for the three months ended September 30, 2017 and 2016 was 12.2% and 17.6%, respectively. During the three months ended September 30, 2017, we incurred a net discrete tax benefit related primarily to the tax effect the domestic production activities deduction claimed on the Company’s 2016 tax return that was substantially completed in the third quarter of 2017, which decreased our effective tax rate by 17.5%. During the three months ended September 30, 2016, we incurred a net discrete tax benefit related to the U.S. Research and Development credit claimed for the years 2013-2015, which decreased our effective tax rate by 22.3%. Excluding these discrete items, our effective tax rate would have been 29.7% and 39.9% for the three months ended September 30, 2017 and 2016, respectively. The decrease in the effective tax rate excluding discrete items for the three months ended September 30, 2017 resulted from benefits relating to the 2017 U.S. Research & Development tax credit and an increase of income in foreign jurisdictions with lower statutory rates.

~~Table of Contents~~

~~Comparison of the Nine Months Ended September 30, 2017 and 2016~~

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

Nine Months Ended September 30,
2017 2016 $ Change % Change
(in thousands)
Consolidated Statements of Operations Data:

Revenue $ 405,282
$ 364,144
$ 41,138
11 %
Operating expenses:

Cost of revenue 168,512
150,492
18,020
12 %
Sales and marketing 105,620
91,636
13,984
15 %
Product development 37,276
34,800
2,476
7 %
General and administrative 74,716
54,629
20,087
37 %
Total operating expenses 386,124
331,557
54,567
16 %
Income from operations 19,158
32,587
(13,429 ) (41 )%
Other expense, net 2,095
(122 ) 2,217
*
Income before income taxes 21,253
32,465
(11,212 ) (35 )%
Provision for income taxes 6,582
9,692
(3,110 ) *
Net income $ 14,671
$ 22,773
$ (8,102 ) (36 )%

* Not meaningful

~~Revenue~~

Revenue increased by $41.1 million, or 11%, to $405.3 million in the nine months ended September 30, 2017 compared to the same period in 2016. Excluding the impact of foreign currency fluctuations, revenue for the nine months ended September 30, 2017 increased 12% as compared to the same period in the prior year. We continue to grow our customer base and undertake initiatives focused on broadening our subscription product offerings, giving customers a greater choice of content plans to meet their needs. We believe these offerings will lead to sustained customer engagement over longer periods. As a result of these initiatives, the increase in revenue was primarily attributable to a 2% increase in the number of paid downloads, the acquisition of new customers and increased activity by our enterprise customers, driving an 8% increase in revenue per download. In the nine months ended September 30, 2017 and 2016, we delivered 128.1 million and 125.8 million paid downloads, respectively, and our average revenue per download during these periods was $3.06 and $2.83, respectively.

In addition, revenue from North America increased by $15.5 million, or 11%, to $161.4 million in the nine months ended September 30, 2017 compared to the same period in 2016, revenue from Europe increased by $12.1 million, or 10%, to $131.7 million in the nine months ended September 30, 2017 compared to the same period in 2016, and revenue from the rest of the world increased by $13.6 million, or 14%, to $112.2 million in the nine months ended September 30, 2017 compared to the same period in 2016.

~~Cost and Expenses~~

~~Cost of Revenue.~~ Cost of revenue increased by $18.0 million, or 12%, to $168.5 million in the nine months ended September 30, 2017 compared to the same period in 2016. Royalties increased $5.2 million, or 5%, which was attributable to the increases in revenue and paid downloads during the period. We anticipate royalties will continue growing in absolute dollars as revenue grows, although royalties as a percentage of revenue may vary somewhat from period to period primarily due to customer usage and product mix and to a lesser extent due to the contributors’ achievement of royalty target thresholds. Costs associated with website hosting and depreciation and amortization increased by $14.5 million to $26.0 million in the nine months ended September 30, 2017 compared to the same period in 2016, related primarily to increased costs associated with technology and infrastructure enhancements, which were partly offset by a decline in various other costs related to revenue.

~~Sales and Marketing.~~ Sales and marketing expenses increased by $14.0 million, or 15%, to $105.6 million in the nine months ended September 30, 2017 compared to the same period in 2016. Expenses related to brand and performance advertising, the largest component of our sales and marketing expenses, increased by $8.2 million, or 18%, for the nine months ended September 30, 2017 compared to the same period in 2016 as a result of increased spending on affiliate, 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 continue to pursue growth through new products and geographies as well as growth from new customers.

~~Table of Contents~~

~~Product Development.~~ Product development expenses increased by $2.5 million, or 7%, to $37.3 million for the nine months ended September 30, 2017 as compared to $34.8 million for the same period in 2016. The increase was driven by a $1.4 million increase in employee-related expenses, excluding compensation, and a $1.1 million increase in employee compensation and consulting costs, net of capitalized amounts. We continue to increase our investment in product, engineering and quality assurance to support the increasing number of product development initiatives for our websites, including ongoing efforts to improve our search capabilities. A significant portion of this investment is capitalized as internal use software. We anticipate product development expenses to increase in the foreseeable future, of which a portion will continue to be capitalized, as we continue to invest in developing new products and internal tools and enhancing the functionality of our existing products and technology.

~~General and Administrative.~~ General and administrative expenses increased by $20.1 million, or 37%, to $74.7 million in the nine months ended September 30, 2017 compared to the same period in 2016. The most significant component of this increase is related to employee-related expenses, which increased by $11.6 million, or 46%, to $36.9 million in the nine months ended September 30, 2017 due to increases in our workforce to support our growth and improved efficiency and effectiveness of our infrastructure. Additionally, professional service fees increased $6.0 million as compared to the nine months ended September 30, 2016, primarily related to specialized services pertaining to the implementation of several large-scale business solutions aimed at increasing internal efficiency and functionality to best support our organizational growth. In the nine months ended September 30, 2017, we also recorded $0.5 million of expense related to ongoing long-term performance-based bonus arrangements that were entered into concurrently with the acquisition of Flashstock and are expected to be paid in 2020. The remaining growth in general and administrative expenses is attributable to various operating expenses associated with the overall growth in our business.

~~Other Income/(Expense), Net.~~ Other expenses generally include foreign currency gains and losses and changes in the fair value of contingent consideration related to the passage of time. During the nine months ended September 30, 2017, $2.1 million of other income related to the remeasurement of our non-functional currency assets and liabilities and interest income. During the nine months ended September 30, 2016, we incurred expense related to the change in the fair value of contingent consideration, which was mostly offset by foreign currency gains. Foreign currency transaction gains and losses could fluctuate in future periods as we continue to expand our international operations and increase the volume of business transacted in currencies other than the U.S. dollar.

~~Income Taxes.~~ Income tax expense decreased by $3.1 million to $6.6 million in the nine months ended September 30, 2017 compared to the same period in 2016. Our effective tax rate for the nine months ended September 30, 2017 and 2016 was 31.0% and 29.9%, respectively. During the nine months ended September 30, 2017, we incurred a net discrete tax benefit relating primarily to the tax effect of the domestic production activities deduction claimed on the Company’s 2016 tax return that was substantially completed in the third quarter of 2017, which decreased our effective tax rate by 2.0%. During the nine months ended September 30, 2016, we incurred a net discrete tax benefit related primarily to the U.S. Research and Development tax credit for the years 2013 to 2015, which decreased our effective tax rate by 10.0%. Excluding these discrete items, the effective tax rate would have been 33.0% and 39.9% during the nine months ended September 30, 2017 and 2016, respectively. The decrease in the effective tax rate excluding discrete items for the nine months ended September 30, 2017 resulted from benefits relating to the 2017 U.S. Research & Development tax credit and an increase of income in foreign jurisdictions with lower statutory rates.

Quarterly Trends

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

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

~~Table of Contents~~

Liquidity and Capital Resources

As of ~~September 30, 2017,~~March 31, 2023, we had cash and cash equivalents ~~and short-term investments~~ totaling ~~$235.3 million. Cash and cash equivalents,~~$95.8 million which ~~consist~~consisted primarily of ~~money market mutual funds and checking account balances, were $212.8 million. Our short-term investments, all of which mature in 90 days or less, were $22.5 million.~~bank balances. Since inception, we have financed our operations primarily through cash flows generated from operations. In addition, if necessary, we have the ability to draw on our credit facility, which was obtained on May 6, 2022.

Historically, our principal uses of cash have ~~been~~included funding our operations, capital expenditures, content ~~acquisition,~~acquisitions, business combinations and asset acquisitions that enhance our strategic position, cash dividend payments and share purchases

Table of Contents

under our share repurchase program. We plan to finance our operations, capital expenditures and ~~capital expenses~~corporate actions largely through cash generated by our ~~operations.~~operations and our credit facility. Since our results of operations are sensitive to the level of competition we face, increased competition could adversely affect our liquidity and capital resources.

~~Acquisition~~Dividends

We declared and paid cash dividends of ~~Flashstock Technology, Inc.~~

~~On July 7, 2017, we completed our acquisition~~$0.27 per share of ~~Flashstock Technology, Inc. (“Flashstock”) for approximately $51.2~~common stock, or $9.7 million ~~pursuant to a definitive agreement dated June 27, 2017. The total purchase price consists of cash payments of $50.9 million paid from existing cash on hand~~ during the three months ended ~~September 30, 2017,~~March 31, 2023.

On April 17, 2023, our Board of Directors declared a quarterly cash dividend of $0.27 per share of outstanding common stock payable on June 15, 2023 to stockholders of record at the close of business on June 1, 2023. Future declarations of dividends are subject to the final determination of our Board of Directors, and ~~an additional estimated~~will depend on, among other things, our future financial condition, results of operations, capital requirements, capital expenditure requirements, contractual restrictions, anticipated cash ~~payment~~needs, business prospects, provisions of ~~$0.3 million is expected to be paid for the settlement~~applicable law and other factors our Board of ~~working capital adjustments in the fourth quarter of 2017.~~ Directors may deem relevant.

Share Repurchase Program

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

As of ~~September 30, 2017,~~March 31, 2023, we have repurchased approximately ~~2,558,000~~3.8 million shares of our common stock under the share repurchase program at an average per-share cost of ~~$39.09.~~$52.97. As of ~~September 30, 2017,~~December 31, 2022, we have fully utilized our authorization for purchases under the share repurchase program.

Revolving Credit Facility

On May 6, 2022, we entered into a five-year $100 million unsecured revolving loan facility (the “Credit Facility”) with Bank of America, N.A., as Administrative Agent and other lenders. The Credit Facility includes a letter of credit sub-facility and a swingline facility and it also permits, subject to the satisfaction of certain conditions, up to $100 million of additional revolving loan commitments with the consent of the Administrative Agent.

At our option, revolving loans accrue interest at a per annum rate based on either (i) the base rate plus a margin ranging from 0.125% to 0.500%, determined based on the Company’s consolidated leverage ratio or (ii) the Term Secured Overnight Financing Rate (“SOFR”) (for interest periods of 1, 3 or 6 months) plus a margin ranging from 1.125% to 1.5%, determined based on our consolidated leverage ratio. We are also required to pay an unused commitment fee ranging from 0.150% to 0.225%, determined based on the Company’s consolidated leverage ratio. In connection with the execution of this agreement, we paid debt issuance costs of approximately $0.6 million.

On May 9, 2022, we borrowed $50 million for use in connection with the acquisition of Pond5 and for general corporate purposes. During the three months ended March 31, 2023, we repaid the full amount and had no outstanding borrowings under the Credit Facility. As of March 31, 2023, we had ~~$100.0~~a remaining borrowing capacity of $98 million, ~~remaining~~net of standby letters of credit. For the three months ended March 31, 2023, we paid cash interest totaling $0.4 million.

The Credit Facility contains financial covenants and requirements restricting certain of our activities, which are usual and customary for ~~share repurchases under~~ this ~~program.~~type of loan. We are also required to maintain compliance with a consolidated leverage ratio and a consolidated interest coverage ratio, in each case, determined in accordance with the terms of the Credit Facility. As of March 31, 2023, we are in compliance with these covenants.

Sources and Uses of Funds

We believe, based on our current operating plan, that our cash and cash equivalents, and cash from operations, will be sufficient to meet our anticipated cash needs for at least the next 12 months. ~~Consistent with previous periods, we expect that~~Our longer-term liquidity is contingent upon future operating performance. Future capital expenditures will ~~primarily~~generally relate to ~~acquiring additional servers and network connectivity hardware and software,~~building enhancements to the functionality of our current platform, the acquisition of additional storage, servers, network connectivity hardware, security apparatus and software, leasehold improvements and furniture and fixtures related to office expansion and relocation, ~~digital~~ content and general corporate infrastructure.

Table of Contents

As of March 31, 2023, we had approximately $74 million in unconditional cash obligations, consisting primarily of purchase obligations related to contracts for cloud-based services, infrastructure and other business services as well as minimum royalty guarantees in connection with certain content licenses, of which the majority is due to be paid within the next two years. In addition, as of March ~~2017,~~31, 2023, we ~~paid the full amount of the contingent purchase price for PremiumBeat of~~had approximately ~~$10.0 million.~~ $49 million in operating lease obligations with lease payments extending through 2029.

See Note 614 to our Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for information regarding our existing capital commitments as of ~~September 30, 2017.~~March 31, 2023.

Cash Flows

The following table summarizes our cash flow data for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2023 and ~~2016~~2022 (in thousands).

Nine Months Ended September 30,
2017 2016
Net cash provided by operating activities $ 71,510
$ 76,178
Net cash used in investing activities $ (59,991 ) $ (38,942 )
Net cash used in financing activities⁽¹⁾
$ (33,144 ) $ (38,232 )


~~(1)~~	Includes repurchase of common stock under the share repurchase program for the nine months ended September 30, 2017 and 2016. No distributions or dividends have been paid during the periods presented.

~~Table of Contents~~


	Three Months Ended March 31,
	2023		2022
Net cash provided by operating activities	$	66,775	$	22,723
Net cash used in investing activities	$	(15,937)	$	(12,525)
Net cash used in financing activities	$	(70,667)	$	(65,574)

Operating Activities

Our primary source of cash from operating activities is cash collections from our customers. The majority of our revenue is generated from credit card transactions and is typically settled within one to five business days. Our primary uses of cash for operating activities are for the payment of royalties to content contributors, employee-related expenditures and the payment of other operating expenses incurred in the ordinary course of business.

Net cash provided by operating activities was ~~$71.5~~$66.8 million for the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2023, compared to ~~$76.2~~$22.7 million for the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2022. In the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2023, operating cash flows were favorably impacted ~~favorably by~~from an increase in operating income and changes in the timing of cash collections from our computer vision customers and payments pertaining to operating expenses, which can cause operating cash flow to fluctuate from period to period. ~~The impact of these changes~~In addition, operating cash flows for the three months ended March 31, 2022 were ~~partly offset~~unfavorably impacted by ~~the March 2017 payment of the contingent consideration related to the PremiumBeat acquisition.~~several large accounts payables and accrued expense items from 2021 that were paid in 2022.

Investing Activities

Cash used in investing activities infor the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2023 was ~~$60.0~~$15.9 million, consisting primarily of ~~cash used in the acquisition of Flashstock of $49.5 million, net of cash acquired,~~(i) capital expenditures of ~~$37.6~~$12.4 million ~~to purchase~~for internal-use software ~~and equipment related to our data centers, capitalization of leasehold improvements~~ and website development costs and ~~$2.6~~purchases of software and equipment, and (ii) $3.5 million paid to acquire the rights to distribute certain digital content into perpetuity.

Cash used in investing activities in the three months ended March 31, 2022 was $12.5 million, consisting primarily of (i) capital expenditures of $11.8 million for internal-use software and website development costs and purchases of software and equipment, and (ii) $0.7 million paid to acquire the rights to distribute certain digital content in perpetuity. ~~In addition, we decreased our position in short-term investments by $32.8 million, net of purchases.~~

Cash used in investing activities in the nine months ended September 30, 2016 was $38.9 million, consisting primarily of capital expenditures of $26.7 million to purchase software and equipment related to our data centers, capitalization of leasehold improvements and website development costs and $6.2 million paid to acquire the rights to distribute certain digital content in perpetuity. Included in these amounts is approximately $3.9 million related to our acquisition of the intellectual property and content assets of The Picture Desk Limited during the third quarter of 2016. In addition, we increased our position in short-term investments by $5.2 million, net of sales.

Financing Activities

Cash used in financing activities in the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2023 was ~~$33.1~~$70.7 million, consisting ~~primarily~~ of ~~$25.0~~(i) $50.0 million ~~paid~~used for ~~share repurchases during~~ the ~~period. Cash used in financing activities also included $3.7~~repayment of our Credit Facility; (ii) $9.7 million, ~~which was paid in settlement of contingent consideration liabilities~~ related to the ~~2015 acquisition~~payment of ~~PremiumBeat~~the quarterly cash dividend, and ~~$5.8~~(iii) $11.0 million ~~which was~~ paid in settlement of tax withholding obligations related to employee stock-based compensation awards. ~~These amounts were partially offset by proceeds of approximately $1.4 million from the issuance of common stock in connection with the exercise of stock options.~~

Cash used in financing activities in the ~~nine~~three months ended ~~September 30, 2016~~March 31, 2022 was ~~$38.2~~$65.6 million, consisting primarily of ~~$44.9~~(i) $38.4 million paid for share repurchases during the period and $2.4 million which was paid to certain former shareholders of Webdam in settlement of the contingent purchase price liability established at the acquisition date, which was partially offset by proceeds of approximately $9.0 million from the issuance of common stock in connection with the ~~exercise~~repurchase of ~~stock options and the sale of~~common stock under our share repurchase program; (ii) $18.5 million paid in settlement of tax withholding obligations related to employee ~~stock purchase plan.~~

~~Contractual Obligations~~stock-based compensation awards; and ~~Commitments~~

We lease office facilities under operating lease agreements that expire on various dates through 2029. We do not have any material capital lease obligations and our property, equipment and software have been purchased primarily with cash. We anticipate expanding our office and co-location facilities as our revenue and customer base continue(iii) $8.7 million related to ~~grow and diversify. We do not anticipate any difficulties in renewing those leases and co-location agreements that expire within~~ the ~~next several years and that we currently plan to renew, or in leasing other space or hosting facilities, if required.~~

On March 21, 2013, we entered into an operating lease agreement to lease our headquarters in New York City, which was amended in 2016. The aggregate future minimum lease payments under the lease, as amended, are approximately $79.2 million. We are also party to a letter of credit as a security deposit for this leased facility, which was increased to $2.6 million in January 2016 in connection with an amendmentpayment of the ~~lease. As of September 30, 2017, the letter of credit is collateralized by $2.6 million of~~quarterly cash ~~which is reported as restricted cash on our consolidated balance sheet as of September 30, 2017.~~dividend.

~~Additionally, as of September 30, 2017, aggregate future minimum lease payments under other operating leases are approximately $7.3 million.~~

As of September 30, 2017, our guaranteed royalty payments and unconditional purchase obligations for the remainder of 2017 and for the fiscal years ending December 31, 2018, 2019 and 2020 were approximately $5.6 million, $16.2 million, $11.7 million and $8.6 million, respectively.

Table of Contents

Non-GAAP Financial Measures

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

~~On October 20, 2016, we entered into~~


	Three Months Ended March 31,
	2023			2022
Non-GAAP Financial Measures (in thousands):
Adjusted EBITDA	$	69,764		$	54,809
Adjusted net income	47,134			37,184
Free cash flow	$	50,868		$	10,214
Revenue growth on a constant currency basis	10		%	11		%

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

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

Management believes that adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted net income per diluted common share, revenue growth (including by distribution channel) on a constant currency basis (expressed as a percentage) and free cash flow are useful to investors because these measures enable investors to analyze our operating results on the same basis as that used by management. Additionally, management believes that adjusted EBITDA, adjusted EBITDA margin, adjusted net income and adjusted net income per diluted common share provide useful information to investors about the performance of the Company’s overall business because such measures eliminate the effects of unusual or other infrequent charges that are not directly attributable to our underlying operating performance, and that revenue growth (including by distribution channel) on a constant currency basis, provides useful information to investors by eliminating the effect of foreign currency fluctuations that are not directly attributable to our operating performance. Management also believes that providing these non-GAAP financial measures enhances the comparability for investors in assessing our financial reporting. Management believes that free cash flow is useful for investors because it provides them with an unrelated third-party contributor (the “Transaction Party”). The transaction included three primary components: (a) a revolving credit facility pursuant to which we would be obligated to lend up to $4.6 million under certain conditions, (the “Facility”) to the Transaction Party. The Facility has a term of five years and requires the Transaction Party to make quarterly payments of principal to us beginningimportant perspective on the ~~fourth anniversary~~cash available for strategic measures, after making necessary capital investments in property and equipment to support the Company’s ongoing business operations and provides them with the same measures that management uses as the basis for making resource allocation decisions.

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

Table of Contents

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

Our method for calculating adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted net income per diluted common share, revenue growth (including by distribution channel) on a constant currency basis and free cash flow, as well as a reconciliation of the ~~Facility. The Facility bears interest at 10.0%, with all interest payments deferred until maturity,~~differences between adjusted EBITDA, adjusted net income, revenue growth (including by distribution channel) on a constant currency basis and free cash flow, and the ~~entire unpaid balance~~most comparable financial measures calculated and presented in accordance with GAAP, are presented below.

Adjusted EBITDA and Adjusted EBITDA Margin

We define adjusted EBITDA as net income adjusted for depreciation and amortization, non-cash equity-based compensation, foreign currency transaction gains and losses, severance costs associated with strategic workforce optimizations, interest income and expense and income taxes. We define adjusted EBITDA margin as the ratio of ~~principal and accrued interest due upon maturity; (b) we will be the exclusive distributor~~adjusted EBITDA to revenue.

The following is a reconciliation of net income to adjusted EBITDA for each of the ~~Transaction Party’s content in certain markets subject~~periods indicated (in thousands):


	Three Months Ended March 31,
	2023			2022


Net income	$	32,843		$	26,572
Add / (less) Non-GAAP adjustments:
Depreciation and amortization	18,896			15,065

Non-cash equity-based compensation	8,643			7,826
Other adjustments, net(1)	811			(758)
Provision for income taxes	8,571			6,104

Adjusted EBITDA	$	69,764		$	54,809
Adjusted EBITDA margin	32.4		%	27.5		%

(1)Other adjustments, net includes unrealized foreign currency transaction gains and losses, severance associated with strategic workforce optimizations and interest income and expense.

Table of Contents

Adjusted Net Income and Adjusted Net Income Per Diluted Common Share

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

The following is a reconciliation of net income to ~~certain limitations; and (c) we may, at our option, may acquire the Transaction Party at any time after the third anniversary~~adjusted net income for each of the ~~Facility or match any third-party acquisition offer with respect~~periods indicated (in thousands, except per share data):


	Three Months Ended March 31,
	2023		2022


Net income	$	32,843	$	26,572
Add / (less) Non-GAAP adjustments:
Non-cash equity-based compensation	8,643		7,826
Tax effect of non-cash equity-based compensation(1)	(2,031)		(1,838)
Acquisition-related amortization expense	8,158		6,045
Tax effect of acquisition-related amortization expense(1)	(1,917)		(1,421)









Other	1,856		—
Tax effect of other(1)	(418)		—
Adjusted net income	$	47,134	$	37,184


Adjusted net income per diluted common share	$	1.29	$	1.00

(1)Statutory tax rates are used to calculate the ~~Transaction Party at any time until the fifth anniversary~~tax effect of the ~~Facility.~~ adjustments.

~~On March 27, 2017,~~Revenue Growth (including by distribution channel) on a Constant Currency Basis

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


	Three Months Ended March 31,
	2023			2022


Reported revenue (in thousands)	$	215,280		$	199,132
Revenue growth	8		%	9		%
Revenue growth on a constant currency basis	10		%	11		%

E-commerce reported revenue (in thousands)	$	119,754		$	127,070
E-commerce revenue growth	(6)		%	7		%
E-commerce revenue growth on a constant currency basis	(4)		%	9		%

Enterprise reported revenue (in thousands)	$	95,526		$	72,062
Enterprise revenue growth	33		%	11		%
Enterprise revenue growth on a constant currency basis	35		%	13		%

Table of Contents

Free Cash Flow

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

The following is a reconciliation of net cash provided by operating activities to reduce the maximum lending amount to $3.0 million. As of September 30, 2017, the Transaction Party has borrowed $1.3 million under the Facility. The Company has reported this amount in other non-current assets.

Simultaneously, we invested $1.6 million in a convertible note issued by the Transaction Party, which matures on October 20, 2021. The convertible note bears interest at 10.0%, with all interest payments deferred until maturity, and the entire unpaid balance of principal and accrued interest due upon maturity. The principal amountfree cash flow for each of the ~~convertible note and any accrued and unpaid interest may be converted into equity~~periods indicated (in thousands):


	Three Months Ended March 31,
	2023		2022


Net cash provided by operating activities	$	66,775	$	22,723
Capital expenditures	(12,380)		(11,775)
Content acquisitions	(3,527)		(734)

Free Cash Flow	$	50,868	$	10,214

Table of ~~the Transaction Party at our option on the maturity date, or earlier upon certain events.~~Contents

~~Off-Balance Sheet Arrangements~~

As of September 30, 2017, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K, that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

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

~~Interest Rate Fluctuation Risk~~

Our investments include cash and cash equivalents, which consist of cash, commercial paper and money market accounts. The primary objective of our investment activities is to preserve principal while maximizing income without significantly increasing risk. Because our cash and cash equivalents have a maximum term of 90 days, our portfolio’s fair value is not particularly sensitive to interest rate changes.

~~We did not have any long-term borrowings as of September 30, 2017.~~

Foreign Currency Exchange Risk

Our sales to international customers are denominated in multiple currencies, including but not limited to the U.S. dollar, the euro, the British pound, the Australian dollar and the Japanese yen. Revenue denominated in foreign currencies as a percentage of total revenue was approximately ~~34%~~30% and ~~32%~~33% for the three months ended ~~September 30, 2017~~March 31, 2023 and ~~2016,~~2022, respectively. ~~We have foreign currency exchange risks related to non-U.S. dollar denominated revenues. All amounts earned by and paid to our foreign contributors are denominated in the U.S. dollar. However, changes~~Changes in exchange rates will affect our revenue and certain operating expenses to the extent that our revenue is generated and expenses are incurred in currencies other than the U.S. dollar. Royalties earned by and paid to contributors are denominated in the U.S. dollar and will not be affected by changes in exchange rates. Based on our foreign currency denominated revenue for the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2023, we estimate that a 10% change in the exchange rate of the U.S. dollar against all foreign currency denominated revenues would result in an approximately 3% impact on our revenue.

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

~~Table of Contents~~

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


	Three Months Ended March 31,
	2023				2022
	U.S. Dollars		Originating Currency		U.S. Dollars		Originating Currency
Euro	$	35,975	€	33,634	$	37,618	€	33,015
British pounds	14,068		£	11,437	13,465		£	9,993
All other non-U.S. currencies(1)	14,371				14,186
Total foreign currency	64,414				65,269

U.S. dollar	150,866				133,863
Total revenue	$	215,280			$	199,132

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

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
U.S. Dollars Originating Currency U.S. Dollars Originating Currency U.S. Dollars Originating Currency U.S. Dollars Originating Currency
Euro $ 25,663
€ 21,852
$ 19,734
€ 17,688
$ 72,847
€ 65,454
$ 58,941
€ 52,804
British pounds 12,676
£ 9,689
11,097
£ 8,450
35,451
£ 27,802
34,633
£ 24,863
All other non-U.S. currencies⁽¹⁾
10,199
8,941
28,363
24,897

Total foreign currency 48,538
39,772
136,661
118,471

U.S. dollar 92,525
83,301
268,621
245,673

Total revenue $ 141,063
$ 123,073
$ 405,282
$ 364,144

Interest Rate Fluctuation Risk


~~(1)~~	~~Includes no single currency which was greater than 5% of total revenue for any of the periods presented~~

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

Amounts borrowed under our Credit Facility accrue interest at a per annum rate based on either (i) the base rate plus a margin ranging from 0.125% to 0.500%, determined based on our consolidated leverage ratio or (ii) the Term Secured Overnight Financing Rate (for interest periods of 1, 3 or 6 months) plus a margin ranging from 1.125% to 1.5%, determined based on our consolidated leverage ratio. A hypothetical 10% change in interest rates would not have a material impact on our interest expense as of March 31, 2023.

Inflation Risk

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

Table of Contents

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of ~~September 30, 2017.~~March 31, 2023. 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~~However, 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.~~objective.

Based on the evaluation of our disclosure controls and procedures as of ~~September 30, 2017,~~March 31, 2023, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

Our management is in the process of reviewing the operations of Flashstock, which we acquired in July 2017, and implementing our internal control structure over the operations of the recently acquired entity. Except for the preceding change, thereThere were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

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

Item 1A. Risk Factors.

We operate in a rapidly changing environment that involves a number of risks that could materially affect our business, financial condition or future results, some of which are beyond our control. In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our ~~2016~~2022 Form 10-K, which could materially affect our business, financial condition or future results. During the three months ended ~~September 30, 2017,~~March 31, 2023, there were no material changes to ~~the~~these risk factors as described in our ~~2016~~2022 Form 10-K.

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

We did not sell any unregistered equity securities during the three months ended March 31, 2023.

Item 6. Exhibits.

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

Table of Contents

EXHIBIT INDEX


Exhibit
Number						Exhibit Description
10.1						Employment Agreement by and between John Caine and Shutterstock, Inc., dated January 12, 2023
31.1#						Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2#						Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32#						Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS						XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH						XBRL Taxonomy Extension Schema Document
101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF						XBRL Taxonomy Extension Definition Linkbase Document
101.LAB						XBRL Taxonomy Extension Label Linkbase Document
101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document
104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

______________________________________

# Filed herewith.

Table of Contents

SIGNATURES

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


			SHUTTERSTOCK, INC.

Dated: April 25, 2023			By:	/s/ Jarrod Yahes
				Jarrod Yahes
				Chief Financial Officer
				(Principal Financial Officer)

Dated: April 25, 2023			By:	/s/ Steven Ciardiello
				Steven Ciardiello
				Chief Accounting Officer
				(Principal Accounting Officer)

	~~SHUTTERSTOCK, INC.~~

~~Dated: October 31, 2017~~	~~By:~~	~~/s/ Steven Berns~~
		~~Steven Berns~~
		~~Chief Operating Officer and Chief Financial Officer~~
		~~(Principal Financial Officer)~~

~~Dated: October 31, 2017~~	~~By:~~	~~/s/ Steven Ciardiello~~
		~~Steven Ciardiello~~
		~~Chief Accounting Officer~~
		~~(Principal Accounting Officer)~~

~~Table of Contents~~

~~EXHIBIT INDEX~~



~~Exhibit~~
~~Number~~		~~Exhibit Description~~
~~10.1~~		Transition Agreement and General Release, dated August 3, 2017 between the Company and David Giambruno (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed August 4, 2017 (File No. 001-35669))
~~31.1#~~		~~Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~
~~31.2#~~		~~Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~
~~32#~~		~~Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~
~~101.INS~~		~~XBRL Instance Document~~
~~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~~

~~______________________________________~~

~~# Filed herewith.~~



		Page No.

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	4
	Consolidated Balance Sheets	4
	Consolidated Statements of Operations	5
	Consolidated Statements of Comprehensive Income	6
	Consolidated Statements of Stockholders’ Equity	7
	Consolidated Statements of Cash Flows	78
	Notes to Consolidated Financial Statements	89
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1920
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3133
Item 4.	Controls and Procedures	3235

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	3336
Item 1A.	Risk Factors	3336

Item 6.	Exhibits	3336

Signatures		3438



	September 30,			December 31,
	2017			2016

ASSETS
Current assets:
Cash and cash equivalents	$	212,782		$	224,190
Short-term investments	22,500			54,972
Accounts receivable, net	44,896			38,107
Prepaid expenses and other current assets	35,878			22,569
Total current assets	316,056			339,838
Property and equipment, net	77,770			56,101
Intangible assets, net	43,015			30,157
Goodwill	90,524			49,271
Deferred tax assets, net	18,342			23,013
Other assets	6,842			3,398
Total assets	$	552,549		$	501,778
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	10,210		$	7,305
Accrued expenses	51,989			41,106
Contributor royalties payable	20,072			20,473
Deferred revenue	146,430			122,235
Other liabilities	1,665			12,378
Total current liabilities	230,366			203,497
Deferred tax liability, net	1,664			2,147
Other non-current liabilities	13,139			9,438
Total liabilities	245,169			215,082
Commitments and contingencies (Note 6)
Stockholders’ equity:
Common stock, $0.01 par value; 200,000 shares authorized; 37,219 and 36,926 shares issued and 34,660 and 34,816 shares outstanding as of September 30, 2017 and December 31, 2016, respectively	373			369
Treasury stock, at cost; 2,559 and 2,110 shares as of September 30, 2017 and December 31, 2016, respectively	(100,027		)	(77,567		)
Additional paid-in capital	268,565			251,890
Accumulated comprehensive loss	(4,601		)	(17,061		)
Retained earnings	143,070			129,065
Total stockholders’ equity	307,380			286,696
Total liabilities and stockholders’ equity	$	552,549		$	501,778



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016

Revenue	$	141,063	$	123,073	$	405,282	$	364,144

Operating expenses:
Cost of revenue	58,812		50,184		168,512		150,492
Sales and marketing	36,008		32,977		105,620		91,636
Product development	13,340		11,604		37,276		34,800
General and administrative	27,333		17,020		74,716		54,629
Total operating expenses	135,493		111,785		386,124		331,557
Income from operations	5,570		11,288		19,158		32,587
Other income (expense), net	130		102		2,095		(122		)
Income before income taxes	5,700		11,390		21,253		32,465
Provision for income taxes	698		1,999		6,582		9,692
Net income	$	5,002	$	9,391	$	14,671	$	22,773

Net income per share:
Basic	$	0.14	$	0.27	$	0.42	$	0.65
Diluted	$	0.14	$	0.26	$	0.42	$	0.64

Weighted average shares outstanding:
Basic	34,643		35,036		34,607		35,123
Diluted	35,177		35,824		35,339		35,855



	As of September 30, 2017
	Aggregate Fair Value		Level 1		Level 2		Level 3
Assets:
Money market accounts	$	33,141	$	33,141	$	—	$	—
Commercial paper	22,500		—		22,500		—
Total assets measured at fair value	$	55,641	$	33,141	$	22,500	$	—



	As of December 31, 2016
	Aggregate Fair Value		Level 1		Level 2		Level 3
Assets:
Money market accounts	$	81,623	$	81,623	$	—	$	—
Commercial paper	$	54,972	—		54,972		—
Total assets measured at fair value	$	136,595	$	81,623	$	54,972	$	—
Liabilities:
Acquisition related contingent consideration	$	10,000	$	—	$	—	$	10,000
Total liabilities measured at fair value	$	10,000	$	—	$	—	$	10,000



	Consolidated		Content Business		Other Category
Balance as of December 31, 2016	$	49,271	$	40,508	$	8,763
Goodwill related to acquisitions	$	37,834	37,834		—
Foreign currency translation adjustment	3,419		3,419		—
Balance as of September 30, 2017	$	90,524	$	81,761	$	8,763



Assets:
Cash and cash equivalents	$	1,330
Accounts receivable	2,439
Prepaid expenses and other current assets	205
Intangible Assets:
Customer relationships	5,400
Developed technology	8,100
Goodwill	37,834
Total assets acquired	55,308
Liabilities:
Accrued expenses	(279		)
Accounts payable	(99		)
Deferred tax liability, net	(164		)
Deferred revenue	(3,540		)
Total liabilities acquired	(4,082		)
Net assets acquired	$	51,226



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Revenue
As reported	$	141,063	$	123,073	$	405,282	$	364,144
Pro forma	141,888		123,735		409,618		365,720
Income before income taxes
As reported	$	5,700	$	11,390	$	21,253	$	32,465
Pro forma	6,729		10,013		19,105		28,969