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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________________________________________________________________________________________

FORM 10-Q

___________________________________________________________________________________________________

(Mark One)

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

For the quarterly period ended ~~June~~September 30, 2021

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

For the transition period from to

Commission File Number: 001-35669

_____________________________________________________________________

SHUTTERSTOCK, INC.

(Exact name of registrant as specified in its charter)

________________________________________________________


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

350 Fifth Avenue, 21st Floor

New York, NY 10118

(Address of principal executive offices, including zip code)

(646) 710-3417

(Registrant’s telephone number, including area code)

Not applicable

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

______________________________________________________________________________________________________________

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


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

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

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

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

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

☐

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

☐

Yes

☒

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

As of ~~July 23,~~October 22, 2021, ~~36,622,833~~36,549,234 shares of the registrant’s common stock, $0.01 par value per share, were outstanding.

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Shutterstock, Inc.

FORM 10-Q

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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, particularly in the discussion under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All statements other than statements of historical fact, are forward-looking. Examples of forward-looking statements include, but are not limited to, statements regarding guidance, industry prospects, future business, future results of operations or financial condition, future dividends, our ability to consummate acquisitions and integrate the businesses we have acquired or may acquire into our existing operations, new or planned features, products or services, management strategies, our competitive position and the COVID-19 pandemic. You can identify many forward-looking statements by words such as “may,” “will,” “would,” “should,” “could,” “expect,” “aim,” “anticipate,” “believe,” “estimate,” “intend,” “plan,” “predict,” “project,” “seek,” “potential,” “opportunities” and other similar expressions and the negatives of such expressions. However, not all forward-looking statements contain these words. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause our actual results to differ materially from those expressed or implied by the forward-looking statements contained herein. Such risks and uncertainties include, among others, those discussed under the caption “Risk Factors” in our most recently filed Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission (the “SEC”) on February 11, 2021 (our “2020 Form 10-K”), and in our consolidated financial statements, related notes, and the other information appearing elsewhere in the 2020 Form 10-K. such Annual Report, this Quarterly Report on Form 10-Q and our other filings with the SEC. Given these risks and uncertainties, you should not place undue reliance on any forward-looking statements. The forward-looking statements contained in this Quarterly Report on Form 10-Q are made only as of the date hereof, and we do not intend, and, except as required by law, we undertake no obligation to update any forward-looking statements contained herein after the date of this report to reflect actual results or future events or circumstances.

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

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Shutterstock, Inc.

Consolidated Balance Sheets

(In thousands, except par value amount)

(unaudited)


		June 30,		December 31,			September 30,		December 31,
		2021		2020			2021		2020

ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	411,046	$	428,574	Cash and cash equivalents	$	300,579	$	428,574

Accounts receivable, net of allowance of $2,425 and $4,942		49,756		43,846
Accounts receivable, net of allowance of $2,463 and $4,942						Accounts receivable, net of allowance of $2,463 and $4,942	45,323		43,846
Prepaid expenses and other current assets	Prepaid expenses and other current assets	23,615		16,650		Prepaid expenses and other current assets	29,774		16,650

Total current assets	Total current assets	484,417		489,070		Total current assets	375,676		489,070
Property and equipment, net	Property and equipment, net	49,990		50,906		Property and equipment, net	48,866		50,906
Right-of-use assets	Right-of-use assets	36,336		39,552		Right-of-use assets	36,194		39,552
Intangible assets, net	Intangible assets, net	46,409		25,765		Intangible assets, net	130,196		25,765
Goodwill	Goodwill	149,069		89,413		Goodwill	219,822		89,413
Deferred tax assets, net	Deferred tax assets, net	7,867		13,566		Deferred tax assets, net	8,721		13,566
Other assets	Other assets	21,764		21,372		Other assets	21,702		21,372
Total assets	Total assets	$	795,852	$	729,644	Total assets	$	841,177	$	729,644
LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	5,402	$	2,442	Accounts payable	$	5,118	$	2,442
Accrued expenses	Accrued expenses	73,889		67,909		Accrued expenses	95,043		67,909
Contributor royalties payable	Contributor royalties payable	30,317		26,336		Contributor royalties payable	29,516		26,336

Deferred revenue	Deferred revenue	161,935		149,843		Deferred revenue	171,131		149,843

Other current liabilities	Other current liabilities	10,993		10,399		Other current liabilities	14,646		10,399
Total current liabilities	Total current liabilities	282,536		256,929		Total current liabilities	315,454		256,929

Deferred tax liability, net						Deferred tax liability, net	3,193		—
Lease liabilities	Lease liabilities	38,678		41,620		Lease liabilities	38,209		41,620
Other non-current liabilities	Other non-current liabilities	9,304		9,170		Other non-current liabilities	9,425		9,170
Total liabilities	Total liabilities	330,518		307,719		Total liabilities	366,281		307,719
Commitments and contingencies (Note 13)	Commitments and contingencies (Note 13)	0		0		Commitments and contingencies (Note 13)	0		0

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

Common stock, $0.01 par value; 200,000 shares authorized; 39,173 and 38,803 shares issued and 36,615 and 36,245 shares outstanding as of June 30, 2021 and December 31, 2020, respectively		392		389
Treasury stock, at cost; 2,558 shares as of June 30, 2021 and December 31, 2020		(100,027)		(100,027)
Common stock, $0.01 par value; 200,000 shares authorized; 39,191 and 38,803 shares issued and 36,591 and 36,245 shares outstanding as of September 30, 2021 and December 31, 2020, respectively						Common stock, $0.01 par value; 200,000 shares authorized; 39,191 and 38,803 shares issued and 36,591 and 36,245 shares outstanding as of September 30, 2021 and December 31, 2020, respectively	392		389
Treasury stock, at cost; 2,600 and 2,558 shares as of September 30, 2021 and December 31, 2020, respectively						Treasury stock, at cost; 2,600 and 2,558 shares as of September 30, 2021 and December 31, 2020, respectively	(104,885)		(100,027)
Additional paid-in capital	Additional paid-in capital	360,404		360,939		Additional paid-in capital	368,320		360,939
Accumulated comprehensive loss	Accumulated comprehensive loss	(7,391)		(7,681)		Accumulated comprehensive loss	(9,233)		(7,681)
Retained earnings	Retained earnings	211,956		168,305		Retained earnings	220,302		168,305
Total stockholders’ equity	Total stockholders’ equity	465,334		421,925		Total stockholders’ equity	474,896		421,925
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	795,852	$	729,644	Total liabilities and stockholders’ equity	$	841,177	$	729,644

See Notes to Unaudited Consolidated Financial Statements.

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Shutterstock, Inc.

Consolidated Statements of Operations

(In thousands, except for per share data)

(unaudited)


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			2021		2020		2021		2020

Revenue	Revenue	$	189,912	$	159,230	$	373,193	$	320,515	Revenue	$	194,439	$	165,227	$	567,632	$	485,742

Operating expenses:	Operating expenses:									Operating expenses:
Cost of revenue	Cost of revenue	67,757		63,811		129,589		132,934		Cost of revenue	69,634		60,331		199,223		193,265
Sales and marketing	Sales and marketing	45,896		35,557		87,817		78,217		Sales and marketing	54,456		36,655		142,273		114,872
Product development	Product development	11,993		12,485		22,724		25,554		Product development	13,565		10,617		36,289		36,171
General and administrative	General and administrative	31,041		24,832		61,720		55,484		General and administrative	34,615		28,277		96,335		83,761
Total operating expenses	Total operating expenses	156,687		136,685		301,850		292,189		Total operating expenses	172,270		135,880		474,120		428,069
Income from operations	Income from operations	33,225		22,545		71,343		28,326		Income from operations	22,169		29,347		93,512		57,673

Other income / (expense), net		1,323		149		(1,139)		662
Other (expense) / income, net										Other (expense) / income, net	(1,749)		(1,168)		(2,888)		(506)
Income before income taxes	Income before income taxes	34,548		22,694		70,204		28,988		Income before income taxes	20,420		28,179		90,624		57,167
Provision for income taxes	Provision for income taxes	5,094		3,707		11,236		5,683		Provision for income taxes	4,391		5,597		15,627		11,280
Net income	Net income	$	29,454	$	18,987	$	58,968	$	23,305	Net income	$	16,029	$	22,582	$	74,997	$	45,887

Earnings per share:	Earnings per share:									Earnings per share:
Basic	Basic	$	0.81	$	0.53	$	1.62	$	0.65	Basic	$	0.44	$	0.63	$	2.05	$	1.28
Diluted	Diluted	$	0.79	$	0.53	$	1.58	$	0.65	Diluted	$	0.43	$	0.62	$	2.01	$	1.27

Weighted average shares outstanding:	Weighted average shares outstanding:									Weighted average shares outstanding:
Basic	Basic	36,570		35,652		36,453		35,587		Basic	36,622		35,962		36,510		35,713
Diluted	Diluted	37,189		35,906		37,218		35,894		Diluted	37,417		36,494		37,285		36,095

See Notes to Unaudited Consolidated Financial Statements.

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Shutterstock, Inc.

Consolidated Statements of Comprehensive Income

(In thousands)

(unaudited)


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			2021		2020		2021		2020

Net income	Net income	$	29,454	$	18,987	$	58,968	$	23,305	Net income	$	16,029	$	22,582	$	74,997	$	45,887
Foreign currency translation gain / (loss)		64		254		290		(2,194)
Foreign currency translation loss										Foreign currency translation loss	(1,842)		(714)		(1,552)		(2,908)

Other comprehensive gain / (loss)		64		254		290		(2,194)
Other comprehensive loss										Other comprehensive loss	(1,842)		(714)		(1,552)		(2,908)
Comprehensive income	Comprehensive income	$	29,518	$	19,241	$	59,258	$	21,111	Comprehensive income	$	14,187	$	21,868	$	73,445	$	42,979

See Notes to Unaudited Consolidated Financial Statements.

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Shutterstock, Inc.

Consolidated Statements of Stockholders’ Equity

(In thousands)

(unaudited)


												Additional Paid-in Capital				Accumulated Other Comprehensive Income / (Loss)			Retained Earnings																								Additional Paid-in Capital				Accumulated Other Comprehensive Income / (Loss)			Retained Earnings
		Common Stock					Treasury Stock															Common Stock							Treasury Stock							Additional Paid-in Capital		Accumulated Other Comprehensive Income / (Loss)		Retained Earnings
Three Months Ended June 30, 2021		Shares		Amount			Shares		Amount									Total
Balance at March 31, 2021			39,010		$	391		2,558		$	(100,027)			$	357,422						$	(7,455)			$	190,173		$	440,504
Three Months Ended September 30, 2021																										Three Months Ended September 30, 2021		Shares			Amount			Shares								Amount						Additional Paid-in Capital			Accumulated Other Comprehensive Income / (Loss)				Retained Earnings	Total
Balance at June 30, 2021																										Balance at June 30, 2021				39,173		$	392		2,558									$	(100,027)							$	465,334

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

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

Repurchase of treasury shares																										Repurchase of treasury shares				—		—			42				(4,858)				—				—			—				(4,858)
Cash dividends paid	Cash dividends paid		—		—			—		—		—				—			(7,671)				(7,671)			Cash dividends paid				—		—			—				—				—				—			(7,683)				(7,683)
Other comprehensive income	Other comprehensive income		—		—			—		—		—				64			—				64			Other comprehensive income				—		—			—				—				—				(1,842)			—				(1,842)
Net income	Net income		—		—			—		—		—				—			29,454				29,454			Net income				—		—			—				—				—				—			16,029				16,029
Balance at June 30, 2021			39,173		$	392		2,558		$	(100,027)	$	360,404			$	(7,391)		$	211,956			$	465,334
Balance at September 30, 2021																										Balance at September 30, 2021				39,191		$	392		2,600				$	(104,885)			$	368,320			$	(9,233)		$	220,302			$	474,896

Three Months Ended June 30, 2020
Balance at March 31, 2020			38,119		$	381		2,558		$	(100,027)	$	316,823			$	(8,668)		$	119,218			$	327,727
Three Months Ended September 30, 2020																										Three Months Ended September 30, 2020
Balance at June 30, 2020																										Balance at June 30, 2020				38,245		$	382		2,558				$	(100,027)			$	319,412			$	(8,414)		$	132,147			$	343,500

Equity-based compensation	Equity-based compensation		—		—			—		—		3,636				—			—				3,636			Equity-based compensation				—		—			—				—				8,285				—			—				8,285

Issuance of common stock, net of issuance costs																										Issuance of common stock, net of issuance costs				516		5			—				—				23,148				—			—				23,153
Issuance of common stock in connection with employee stock option exercises and RSU vesting	Issuance of common stock in connection with employee stock option exercises and RSU vesting		180		2			—		—		627				—			—				629			Issuance of common stock in connection with employee stock option exercises and RSU vesting				25		—			—				—				—				—			—				—
Common shares withheld for settlement of taxes in connection with equity-based compensation	Common shares withheld for settlement of taxes in connection with equity-based compensation		(54)		(1)			—		—		(1,674)				—			—				(1,675)			Common shares withheld for settlement of taxes in connection with equity-based compensation				(10)		—			—				—				(417)				—			—				(417)

Cash dividends paid	Cash dividends paid		—		—			—		—		—				—			(6,058)				(6,058)			Cash dividends paid				—		—			—				—				—				—			(6,149)				(6,149)
Other comprehensive loss	Other comprehensive loss		—		—			—		—		—				254			—				254			Other comprehensive loss				—		—			—				—				—				(714)			—				(714)
Net income	Net income		—		—			—		—		—				—			18,987				18,987			Net income				—		—			—				—				—				—			22,582				22,582
Balance at June 30, 2020			38,245		$	382		2,558		$	(100,027)	$	319,412			$	(8,414)		$	132,147			$	343,500
Balance at September 30, 2020																										Balance at September 30, 2020				38,776		$	387		2,558				$	(100,027)			$	350,428			$	(9,128)		$	148,580			$	390,240

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

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

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

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

Six Months Ended June 30, 2020
Nine Months Ended September 30, 2020																										Nine Months Ended September 30, 2020
Balance at December 31, 2019	Balance at December 31, 2019		38,055		$	381		2,558		$	(100,027)	$	312,824			$	(6,220)		$	121,187			$	328,145		Balance at December 31, 2019				38,055		$	381		2,558				$	(100,027)			$	312,824			$	(6,220)		$	121,187			$	328,145
Cumulative effect of accounting change (Note 1)	Cumulative effect of accounting change (Note 1)		—		—			—		—		—				—			(247)				(247)			Cumulative effect of accounting change (Note 1)				—		—			—				—				—				—			(247)				(247)
Balance at January 1, 2020	Balance at January 1, 2020		38,055		$	381		2,558		$	(100,027)	$	312,824			$	(6,220)		$	120,940			$	327,898		Balance at January 1, 2020				38,055		$	381		2,558				$	(100,027)			$	312,824			$	(6,220)		$	120,940			$	327,898

Equity-based compensation	Equity-based compensation		—		—			—		—		9,396				—			—				9,396			Equity-based compensation				—		—			—				—				17,681				—			—				17,681

Issuance of common stock, net of issuance costs																										Issuance of common stock, net of issuance costs				516		5			—				—				23,148				—			—				23,153
Issuance of common stock in connection with employee stock option exercises and RSU vesting	Issuance of common stock in connection with employee stock option exercises and RSU vesting		289		3			—		—		626				—			—				629			Issuance of common stock in connection with employee stock option exercises and RSU vesting				314		3			—				—				626				—			—				629
Common shares withheld for settlement of taxes in connection with equity-based compensation	Common shares withheld for settlement of taxes in connection with equity-based compensation		(99)		(2)			—		—		(3,434)				—			—				(3,436)			Common shares withheld for settlement of taxes in connection with equity-based compensation				(109)		(2)			—				—				(3,851)				—			—				(3,853)

Cash dividends paid	Cash dividends paid		—		—			—		—		—				—			(12,098)				(12,098)			Cash dividends paid				—		—			—				—				—				—			(18,247)				(18,247)
Other comprehensive loss	Other comprehensive loss		—		—			—		—		—				(2,194)			—				(2,194)			Other comprehensive loss				—		—			—				—				—				(2,908)			—				(2,908)
Net income	Net income		—		—			—		—		—				—			23,305				23,305			Net income				—		—			—				—				—				—			45,887				45,887
Balance at June 30, 2020			38,245		$	382		2,558		$	(100,027)	$	319,412			$	(8,414)		$	132,147			$	343,500
Balance at September 30, 2020																										Balance at September 30, 2020				38,776		$	387		2,558				$	(100,027)			$	350,428			$	(9,128)		$	148,580			$	390,240

See Notes to Unaudited Consolidated Financial Statements.

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Shutterstock, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(unaudited)


		Six Months Ended June 30,					Nine Months Ended September 30,
		2021		2020			2021		2020

CASH FLOWS FROM OPERATING ACTIVITIES	CASH FLOWS FROM OPERATING ACTIVITIES					CASH FLOWS FROM OPERATING ACTIVITIES
Net income	Net income	$	58,968	$	23,305	Net income	$	74,997	$	45,887
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	20,243		21,370		Depreciation and amortization	33,731		31,120

Deferred taxes	Deferred taxes	1,782		693		Deferred taxes	420		(206)
Non-cash equity-based compensation	Non-cash equity-based compensation	17,896		9,396		Non-cash equity-based compensation	26,639		17,681

Bad debt expense	Bad debt expense	213		1,086		Bad debt expense	182		1,586

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

Accounts receivable	Accounts receivable	(6,056)		(3,279)		Accounts receivable	(1,628)		(3,135)
Prepaid expenses and other current and non-current assets	Prepaid expenses and other current and non-current assets	(5,892)		49		Prepaid expenses and other current and non-current assets	(11,469)		7,184

Accounts payable and other current and non-current liabilities	Accounts payable and other current and non-current liabilities	6,359		(4,045)		Accounts payable and other current and non-current liabilities	24,639		5,297
Long-term incentives related to acquisitions	Long-term incentives related to acquisitions	0		(7,759)		Long-term incentives related to acquisitions	—		(7,759)
Contributor royalties payable	Contributor royalties payable	1,750		(840)		Contributor royalties payable	1,200		(183)

Deferred revenue	Deferred revenue	11,953		(3,633)		Deferred revenue	13,147		2,753
Net cash provided by operating activities	Net cash provided by operating activities	$	107,216	$	36,343	Net cash provided by operating activities	$	161,858	$	100,225

CASH FLOWS FROM INVESTING ACTIVITIES	CASH FLOWS FROM INVESTING ACTIVITIES					CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	Capital expenditures	(15,337)		(13,966)		Capital expenditures	(21,167)		(20,277)

Business combination, net of cash acquired	Business combination, net of cash acquired	(72,165)		0		Business combination, net of cash acquired	(181,772)		—
Asset acquisitions						Asset acquisitions	(31,440)		—

Acquisition of content	Acquisition of content	(3,396)		(1,577)		Acquisition of content	(7,890)		(2,107)

Security deposit (payment) / release	Security deposit (payment) / release	(65)		105		Security deposit (payment) / release	(138)		296
Net cash used in investing activities	Net cash used in investing activities	$	(90,963)	$	(15,438)	Net cash used in investing activities	$	(242,407)	$	(22,088)

CASH FLOWS FROM FINANCING ACTIVITIES	CASH FLOWS FROM FINANCING ACTIVITIES					CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common stock						Net proceeds from issuance of common stock	—		23,153

Purchase of treasury shares						Purchase of treasury shares	(4,171)		—
Proceeds from exercise of stock options	Proceeds from exercise of stock options	1,801		629		Proceeds from exercise of stock options	2,018		629

Cash paid related to settlement of employee taxes related to RSU vesting	Cash paid related to settlement of employee taxes related to RSU vesting	(20,229)		(3,436)		Cash paid related to settlement of employee taxes related to RSU vesting	(21,273)		(3,861)
Payment of cash dividend	Payment of cash dividend	(15,317)		(12,098)		Payment of cash dividend	(23,000)		(18,247)

Net cash used in financing activities		$	(33,745)	$	(14,905)
Net cash (used in) / provided by financing activities						Net cash (used in) / provided by financing activities	$	(46,426)	$	1,674

Effect of foreign exchange rate changes on cash	Effect of foreign exchange rate changes on cash	(36)		(717)		Effect of foreign exchange rate changes on cash	(1,020)		(2,558)
Net (decrease) / increase in cash, cash equivalents and restricted cash	Net (decrease) / increase in cash, cash equivalents and restricted cash	(17,528)		5,283		Net (decrease) / increase in cash, cash equivalents and restricted cash	(127,995)		77,253

Cash, cash equivalents and restricted cash, beginning of period	Cash, cash equivalents and restricted cash, beginning of period	428,574		305,874		Cash, cash equivalents and restricted cash, beginning of period	428,574		305,874
Cash, cash equivalents and restricted cash, end of period	Cash, cash equivalents and restricted cash, end of period	$	411,046	$	311,157	Cash, cash equivalents and restricted cash, end of period	$	300,579	$	383,127

Supplemental Disclosure of Cash Information:	Supplemental Disclosure of Cash Information:					Supplemental Disclosure of Cash Information:
Cash paid for income taxes	Cash paid for income taxes	$	9,495	$	927	Cash paid for income taxes	$	14,811	$	2,767

See Notes to Unaudited Consolidated Financial Statements.

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Shutterstock, Inc.

Notes to Consolidated Financial Statements

(unaudited)

(1) Summary of Operations and Significant Accounting Policies

Summary of Operations

Shutterstock, Inc. (the “Company” or “Shutterstock”) is a leading global creative platform offering full-service solutions, high-quality content, and ~~tools~~applications for brands, businesses and media companies. The Company’s platform brings together users and contributors of content by providing readily-searchable content that our customers pay to license and by compensating contributors as their content is licensed. Contributors upload their content to the Company’s web properties in exchange for royalty payments based on customer download activity.

The ~~content licensed by the~~ Company’s ~~customers includes:~~key offerings include:

•Images - consisting of photographs, vectors and illustrations. Images are typically used in visual communications, such as websites, digital and print marketing materials, corporate communications, books, publications and other similar uses.

•Footage - consisting of video clips, premium footage filmed by industry experts and cinema grade video effects, available in HD and 4K formats. Footage is often integrated into websites, social media, marketing campaigns and cinematic productions.

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

•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, following the Company’s acquisition of TurboSquid, Inc. on February 1, ~~2021, Shutterstock now offers 3D models, used in industries such as advertising, media & video production, gaming, retail, education, design and architecture.~~2021. See Note 3 ~~Acquisition.~~Acquisitions.

~~The Company licenses content to its customers. Contributors upload their content to~~•Creative Design Software - consisting of the Company’s ~~web properties in exchange for royalty payments based on customer download activity.~~online graphic design and image editing platform. On September 3, 2021, the Company completed the acquisition of substantially all of the assets and assumption of certain liabilities from PicMonkey, LLC. 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 as of ~~June~~September 30, 2021, and the Consolidated Statements of Operations, Comprehensive Income and Stockholders’ Equity for the three and ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, and the Consolidated Statements of Cash Flows for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, are unaudited. The Consolidated Balance Sheet as of December 31, 2020, included herein, was derived from the audited financial statements as of that date, but does not include all disclosures required by GAAP. These unaudited interim financial statements have been prepared on a basis consistent with the Company’s annual financial statements and, in the opinion of management, reflect all adjustments, which include all normal recurring adjustments necessary to fairly state the Company’s financial position as of ~~June~~September 30, 2021, and its consolidated results of operations, comprehensive income and stockholders’ equity for the three and ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, and its cash flows for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020. The financial data and the other financial information disclosed in the notes to the financial statements related to these periods are also unaudited. The results of operations for the ~~six~~nine months ended ~~June~~September 30, 2021 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2021 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, 2020 included in the Company’s Annual Report on Form 10-K, which was filed with the SEC on February 11, 2021. The unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Certain immaterial changes in presentation have been made to conform the prior period presentation to current period reporting.

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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 amount of non-cash equity-based compensation, the assessment of recoverability of deferred tax assets, the measurement of income tax and contingent non-income tax liabilities and the determination of the incremental borrowing rate used to calculate the lease liability.

Cash and Cash Equivalents

The Company’s cash and cash equivalents consist primarily of ~~cash on hand,~~ bank deposits and money market ~~funds and commercial paper.~~funds.

Allowance for Doubtful Accounts

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

During the ~~six~~nine months ended ~~June~~September 30, 2021, the Company recorded bad debt expense of $0.2 million. As of ~~June~~September 30, 2021 and December 31, 2020, the Company’s allowance for doubtful accounts was approximately ~~$2.4~~$2.5 million and $4.9 million, respectively. The allowance for doubtful accounts is included as a reduction of accounts receivable on the Consolidated Balance Sheets.

The Company adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments (“ASU 2016-13”) on January 1, 2020, using the modified retrospective method and recorded a cumulative-effect adjustment of $0.2 million, net of tax, in retained earnings as of January 1, 2020.

Chargeback and Sales Refund Allowance

The Company establishes a chargeback allowance and sales refund reserve allowance based on factors surrounding historical credit card chargeback trends, historical sales refund trends and other information. As of ~~June~~September 30, 2021 and December 31, 2020, the Company’s combined allowance for chargebacks and sales refunds was $0.5 million, which was included as a component of other current liabilities on the Consolidated Balance Sheets.

Revenue Recognition

The majority of the Company’s revenue is earned from the license of content. Content licenses are generally purchased on a monthly or annual basis, whereby a customer pays for a predetermined quantity of content that may be downloaded over a specific period of time, or, on a transactional basis, whereby a customer pays for individual content licenses at the time of download.

The Company recognizes revenue upon the satisfaction of performance obligations, which generally occurs when content is downloaded by a customer. The Company recognizes revenue on both its subscription-based and transaction-based products when content is downloaded, at which time the license is provided. In addition, management estimates expected unused licenses for subscription-based products and recognizes the estimated revenue associated with the unused licenses as digital content is downloaded and licenses are obtained for such content by the customer during the subscription period. The estimate of unused licenses is based on historical download activity, and future changes in the estimate could impact the timing of revenue recognition of the Company’s subscription products. The Company expenses contract acquisition costs as incurred, to the extent that the amortization period would otherwise be one year or less.

Collectability is reasonably assured at the time the electronic order or contract is entered. The majority of the Company’s customers purchase products by making an electronic payment with a credit card at the time of a transaction. Customer payments received in advance of revenue recognition are contract liabilities and are recorded as deferred revenue. Customers that do not pay in advance are invoiced and are required to make payments under standard credit terms. Collectability for customers who pay on credit terms allowing for payment beyond the date at which service commences is based on a credit evaluation for certain new customers and transaction history with existing customers.

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Shutterstock, Inc.

Notes to Consolidated Financial Statements

(unaudited)

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

Recently Adopted Accounting Standard Updates

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes (“ASU-2019-12”). ASU 2019-12 eliminates certain exceptions to the guidance in Topic 740 related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes, enacted changes in tax laws or rates and clarifies the accounting transactions that result in a step-up in the tax basis of goodwill. The guidance is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. The Company adopted ASU 2019-12, effective January 1, 2021. The impact of adoption of this standard on the consolidated financial statements, including accounting policies, processes and systems, was not material.

(2) Fair Value Measurements and Long-term Investments

Fair Value Measurements

The Company had no assets or liabilities requiring fair value hierarchy disclosures as of ~~June~~September 30, 2021 or December 31, 2020, except as noted below.

Cash Equivalents

Cash equivalents includes money market accounts and are classified as a level 1 measurement based on quoted prices in active markets for identical assets that the reporting entity can access at the measurement date. As of ~~June~~September 30, 2021 and December 31, 2020, the Company had cash equivalent balances of ~~$280.1~~$205.1 million and $250.0 million, respectively.

Other Fair Value Measurements

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value because of the short-term nature of these instruments. The Company’s non-financial assets, which include property and equipment, intangible assets and goodwill, are not required to be measured at fair value on a recurring basis. However, if the Company is required to evaluate a non-financial asset for impairment, whether due to certain triggering events or because annual impairment testing is required, a resulting asset impairment would require that the non-financial asset be recorded at fair value.

Long-term Investments

As of ~~June~~September 30, 2021 and December 31, 2020, the Company’s long-term investments were in equity securities with no readily determinable fair value, totaled $20.0 million, and were reported within other assets on the Consolidated Balance Sheets. The Company uses the measurement alternative for these equity investments and their carrying value is reported at cost, adjusted for impairments or any observable price changes in ordinary transactions with identical or similar investments.

On a quarterly basis, the Company evaluates the carrying value of its long-term investments for impairment, which includes an assessment of revenue growth, earnings performance, working capital and general market conditions. As of ~~June~~September 30, 2021, 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.

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Shutterstock, Inc.

Notes to Consolidated Financial Statements

(unaudited)

(3) ~~Acquisition~~Acquisitions

PicMonkey, LLC

On September 3, 2021, the Company completed the acquisition of substantially all of the assets and assumption of certain liabilities from PicMonkey, LLC (“PicMonkey”), for approximately $110 million. The total purchase price was paid with existing cash on hand in the three months ended September 30, 2021. In connection with the acquisition, the Company incurred approximately $2 million of transaction costs, which is included in general and administrative expenses on the Consolidated Statements of Operations.

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

The identifiable intangible assets, which include customer relationships, developed technology and trade names, have a weighted average life of approximately 9.8 years. The goodwill arising from the transaction is primarily attributable to expected operational synergies and is expected to be deductible for income tax purposes. The allocation of the purchase price is preliminary and will be finalized within the allowable measurement period once independent valuations of the fair value of the assets acquired and liabilities assumed are completed.

TurboSquid, Inc.

On February 1, 2021, the Company completed its acquisition of all of the outstanding shares of TurboSquid, Inc. (“TurboSquid”), for approximately $77.3 million. The total purchase price was paid with existing cash on hand in the three months ended March 31, 2021. The transaction was accounted for using the acquisition method and, accordingly, the results of the acquired business have been included in the Company’s results of operations from the acquisition date. In connection with the acquisition, the Company incurred approximately $1.6 million of transaction ~~costs.~~costs, which is included in general and administrative expenses on the Consolidated Statements of Operations.

TurboSquid is a Louisiana-based company that operates a marketplace offering more than one million 3D models, a marketplace for 2D images derived from 3D objects and a digital asset management solution. The Company believes this acquisition establishes Shutterstock as the premium destination for 3D models as well as 3D models in an easy-to-use 2D format.

The identifiable intangible assets, which include customer relationships, developed technology, trade names and contributor content, have a weighted average life of approximately 8.2 years. The goodwill arising from the transaction is primarily attributable to expected operational synergies and is not deductible for income tax purposes.

The PicMonkey and TurboSquid transactions were accounted for using the acquisition method and, accordingly, the results of the acquired businesses have been included in the Company’s results of operations from the respective acquisition dates. For the three and nine months ended September 30, 2021, revenue of $8.9 million and $20.6 million, respectively, was included in the Consolidated Statements of Operations related to these acquired companies. The fair value of consideration transferred in ~~this~~these business ~~combination was~~combinations have been allocated to the intangible and tangible assets acquired and liabilities assumed at the acquisition date, with the remaining unallocated amount recorded as goodwill.

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


~~Assets acquired and liabilities assumed:~~	~~Fair Value at Acquisition Date~~
~~Cash and cash equivalents~~	$	~~5,165~~

~~Other assets~~	~~1,553~~
~~Property and equipment~~	~~472~~





~~Intangible assets~~	~~21,500~~
~~Goodwill~~	~~59,491~~
~~Total assets acquired~~	$	~~88,181~~

~~Accounts payable, accrued expenses and other liabilities~~	~~(4,685)~~
~~Contributor royalties payable~~	~~(2,243)~~


~~Deferred tax liability~~	~~(3,923)~~
~~Total liabilities assumed~~	~~(10,851)~~
~~Net assets acquired~~	$	~~77,330~~

The identifiable intangible assets ~~which include customer relationships, developed technology, trade names and contributor content, have a weighted average life~~ of ~~approximately 8.2 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 names and developed technology were determined using the relief-from-royalty method, and the fair value of the contributor content was determined using the cost-to-recreate method.

~~The goodwill arising from the transaction is primarily attributable to expected operational synergies and is not deductible for income tax purposes.~~

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Shutterstock, Inc.

Notes to Consolidated Financial Statements

(unaudited)

The aggregate purchase price for these acquisitions have been allocated to the assets acquired and liabilities assumed as follows (in thousands):


Assets acquired and liabilities assumed (in thousands):	PicMonkey1		TurboSquid		Total
Cash and cash equivalents	$	—	$	5,165	$	5,165

Other assets	502		1,553		2,055
Property and equipment	—		472		472
Right of use asset	1,420		—		1,420
Intangible assets:
Customer relationships	28,800		9,000		37,800
Trademarks	3,000		2,200		5,200
Developed technology	12,900		7,800		20,700
Content library	—		2,500		2,500
Intangible assets	44,700		21,500		66,200
Goodwill	71,247		59,491		130,738
Deferred tax asset	2,456		—		2,456
Total assets acquired	$	120,325	$	88,181	$	208,506

Accounts payable, accrued expenses and other liabilities	(747)		(4,685)		(5,432)
Contributor royalties payable	—		(2,243)		(2,243)

Deferred revenue	(8,068)		—		(8,068)
Deferred tax liability	(533)		(3,923)		(4,456)
Lease liability	(1,420)		—		(1,420)
Total liabilities assumed	(10,768)		(10,851)		(21,619)
Net assets acquired	$	109,557	$	77,330	$	186,887

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

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Shutterstock, Inc.

Notes to Consolidated Financial Statements

(unaudited)

The following unaudited pro forma consolidated financial information (in thousands) reflects the results of operations of the Company for the three and ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, as if the PicMonkey and TurboSquid ~~acquisition~~acquisitions had been completed on January 1, 2020, after giving effect to certain purchase accounting adjustments, primarily related to intangible ~~assets.~~assets and transaction costs. These pro forma results have been prepared for comparative purposes only and are not necessarily indicative of what the Company’s operating results would have been, had the acquisitions actually taken place at the beginning of the previous annual period:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			2021		2020		2021		2020
Revenue	Revenue									Revenue
As Reported	As Reported	$	189,912	$	159,230	$	373,193	$	320,515	As Reported	$	194,439	$	165,227	$	567,632	$	485,742
Pro Forma	Pro Forma	189,912		164,762		375,256		331,485		Pro Forma	199,090		178,965		589,715		525,037
Income before income taxes	Income before income taxes									Income before income taxes
As Reported	As Reported	$	34,548	$	22,694	$	70,204	$	28,988	As Reported	$	20,420	$	28,179	$	90,624	$	57,167
Pro Forma	Pro Forma	34,548		22,728		71,505		27,569		Pro Forma	22,884		29,090		95,738		52,983

Asset Acquisitions

In July 2021, the Company completed the acquisitions of Pattern89, Inc., Datasine Limited and assets from Shotzr, Inc. These 3 entities provide data driven insights through their artificial intelligence platforms. The aggregate purchase price for these transactions was approximately $35 million, and is subject to customary working capital and other adjustments and was paid from existing cash on hand. Approximately $3.6 million of the total purchase consideration was subject to contractual holdback provisions and is expected to be paid within the next 12 months. The Company has accounted for these transactions as asset acquisitions and has recorded a total of $41 million of developed technology intangible assets, which are being amortized on a straight-line basis over a useful life of three years.

(4) Property and Equipment

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


		As of June 30, 2021		As of December 31, 2020			As of September 30, 2021		As of December 31, 2020
Computer equipment and software	Computer equipment and software	$	208,018	$	193,141	Computer equipment and software	$	214,571	$	193,141
Furniture and fixtures	Furniture and fixtures	10,246		10,235		Furniture and fixtures	10,241		10,235
Leasehold improvements	Leasehold improvements	19,380		19,382		Leasehold improvements	19,356		19,382
Property and equipment	Property and equipment	237,644		222,758		Property and equipment	244,168		222,758
Less accumulated depreciation	Less accumulated depreciation	(187,654)		(171,852)		Less accumulated depreciation	(195,302)		(171,852)
Property and equipment, net	Property and equipment, net	$	49,990	$	50,906	Property and equipment, net	$	48,866	$	50,906

Depreciation expense related to property and equipment was $7.9 million and ~~$9.6~~$8.4 million for the three months ended ~~June~~September 30, 2021 and 2020, respectively, and ~~$15.9~~$23.8 million and ~~$18.9~~$27.3 million for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, respectively. Cost of revenues included depreciation expense of $7.1 million and ~~$8.6~~$7.5 million for the three months ended ~~June~~September 30, 2021 and 2020, respectively, and ~~$14.2~~$21.3 million and ~~$16.8~~$24.3 million for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, respectively. General and administrative expense included depreciation expense of $0.8 million and ~~$1.0~~$0.9 million for the three months ended ~~June~~September 30, 2021 and 2020, respectively, and ~~$1.7~~$2.5 million and ~~$2.1~~$3.0 million for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, respectively.

Capitalized Internal-Use Software

The Company capitalized costs related to the development of internal-use software of ~~$7.2~~$6.7 million and ~~$6.5~~$6.1 million for the three months ended ~~June~~September 30, 2021 and 2020, respectively, and ~~$14.2~~$20.9 million and ~~$13.1~~$19.3 million for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, respectively. Capitalized amounts are included as a component of property and equipment under computer equipment and software on the Consolidated Balance Sheets.

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Shutterstock, Inc.

Notes to Consolidated Financial Statements

(unaudited)

The portion of total depreciation expense related to capitalized internal-use software was ~~$6.6~~$6.7 million and ~~$7.8~~$7.1 million for the three months ended ~~June~~September 30, 2021 and 2020, respectively, and ~~$13.3~~$20.1 million and ~~$14.9~~$22.0 million for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, respectively. Depreciation expense related to capitalized internal-use software is included in cost of revenue in the Consolidated Statements of Operations.

As of ~~June~~September 30, 2021 and December 31, 2020, the Company had capitalized internal-use software of ~~$38.9~~$38.8 million and $38.0 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

Goodwill

The Company’s goodwill balance is attributable to its Content reporting unit and is tested for impairment annually on October 1 or upon a triggering event. No triggering events were identified during the ~~six~~nine months ended ~~June~~September 30, 2021.

The following table summarizes the changes in the Company’s goodwill balance during the ~~six~~nine months ended ~~June~~September 30, 2021 (in thousands):

Goodwill

Balance as of December 31, 2020

89,413

Goodwill related to acquisitions

~~59,491~~130,738

Foreign currency translation adjustment

~~165~~ (329)

Balance as of ~~June~~September 30, 2021

~~149,069~~219,822

Intangible Assets

Intangible assets consisted of the following as of ~~June~~September 30, 2021 and December 31, 2020 (in thousands):


		As of June 30, 2021							As of December 31, 2020							As of September 30, 2021							As of December 31, 2020
		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted Average Life (Years)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount			Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted Average Life (Years)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Amortizing intangible assets:	Amortizing intangible assets:														Amortizing intangible assets:
Customer relationships	Customer relationships	$	27,282	$	(12,181)	$	15,101	10	$	18,132	$	(11,032)	$	7,100	Customer relationships	$	55,720	$	(12,787)	$	42,933	11	$	18,132	$	(11,032)	$	7,100
Trade name	Trade name	8,926		(6,592)		2,334		8	6,669		(6,328)		341		Trade name	11,821		(6,638)		5,183		8	6,669		(6,328)		341
Developed technology	Developed technology	14,763		(6,131)		8,632		4	6,930		(5,039)		1,891		Developed technology	68,029		(9,613)		58,416		4	6,930		(5,039)		1,891
Contributor content	Contributor content	32,623		(12,416)		20,207		8	26,669		(10,378)		16,291		Contributor content	37,023		(13,490)		23,533		8	26,669		(10,378)		16,291

Patents	Patents	259		(124)		135		18	259		(117)		142		Patents	259		(128)		131		18	259		(117)		142

Total	Total	$	83,853	$	(37,444)	$	46,409		$	58,659	$	(32,894)	$	25,765	Total	$	172,852	$	(42,656)	$	130,196		$	58,659	$	(32,894)	$	25,765

Amortization expense was ~~$2.3~~$5.6 million and ~~$1.2~~$1.3 million for the three months ended ~~June~~September 30, 2021 and 2020, respectively, and ~~$4.4~~$9.9 million and ~~$2.5~~$3.8 million for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, respectively. Cost of revenue included amortization expense of ~~$1.2~~$4.2 million and $0.7 million for the three months ended ~~June~~September 30, 2021 and 2020, respectively, and ~~$2.3~~$6.5 million and ~~$1.3~~$2.0 million for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, respectively. General and administrative expense included amortization expense of ~~$1.1~~$1.4 million and ~~$0.5~~$0.6 million for the three months ended ~~June~~September 30, 2021 and 2020, respectively, and ~~$2.0~~$3.4 million and ~~$1.2~~$1.8 million for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, respectively.

The Company determined that there was no indication of impairment of the intangible assets for any period presented. Estimated amortization expense is: ~~$4.6~~$7.1 million for the remaining ~~six~~three months of 2021, ~~$8.9~~$28.3 million in 2022, ~~$8.6~~$27.9 million in 2023, ~~$7.6~~$20.8 million in 2024, ~~$4.3~~$10.1 million in 2025, ~~$3.2~~$8.1 million in 2026 and ~~$9.2~~$27.9 million thereafter.

~~(6) Accrued Expenses~~

~~Accrued expenses consisted of the following (in thousands):~~
As of June 30, 2021 As of December 31, 2020
Compensation $ 27,016 $ 31,499
Non-income taxes 20,937 17,164
Website hosting and marketing fees 12,831 9,991
Other expenses 13,105 9,255
Total accrued expenses $ 73,889 $ 67,909

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Shutterstock, Inc.

Notes to Consolidated Financial Statements

(unaudited)

(6) Accrued Expenses

Accrued expenses consisted of the following (in thousands):


	As of September 30, 2021		As of December 31, 2020
Compensation	$	38,257	$	31,499
Non-income taxes	20,784		17,164

Website hosting and marketing fees	16,385		9,991



Other expenses	19,617		9,255
Total accrued expenses	$	95,043	$	67,909

(7) Stockholders’ Equity and Equity-Based Compensation

Stockholders’ Equity

Common Stock

The Company issued approximately ~~163,000~~18,000 and ~~126,000~~15,000 shares of common stock during the three months ended ~~June~~September 30, 2021 and 2020, respectively, and ~~370,000~~388,000 and ~~190,000~~206,000 for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, 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. During the six months ended June 30, 2021 and 2020, the Company did 0t repurchase any shares of its common stock under the share repurchase program. As of June 30, 2021, the Company had $100 million of remaining authorization for purchases under the share repurchase program.

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

During the three and nine months ended September 30, 2021, the Company repurchased approximately 41,900 shares of its common stock at an average per share cost of $115.95. During the nine months ended September 30, 2020, the Company did not repurchase any shares of its common stock under the share repurchase program. As of September 30, 2021, the Company had $95 million of remaining authorization for purchases under the share repurchase program.

Dividends

The Company declared and paid cash dividends of $0.21 and ~~$0.42~~$0.63 per share of common stock, or $7.7 million and ~~$15.3~~$23.0 million, during the three and ~~six~~nine months ended ~~June~~September 30, 2021, respectively, and $0.17 and ~~$0.34~~$0.51 per share of common stock, or $6.1 million and ~~$12.1~~$18.2 million, during the three and ~~six~~nine months ended ~~June~~September 30, 2020, respectively.

On ~~July 19,~~October 18, 2021, the Company’s Board of Directors declared a quarterly cash dividend of $0.21 per share of outstanding common stock payable on ~~September~~December 16, 2021 to stockholders of record at the close of business on ~~September~~December 2, 2021. Future declarations of dividends are subject to the final determination of the Board of Directors, and will depend on, among other things, the Company’s future financial condition, results of operations, capital requirements, capital expenditure requirements, contractual restrictions, anticipated cash needs, business prospects, provisions of applicable law and other factors the Board of Directors may deem relevant.

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Shutterstock, Inc.

Notes to Consolidated Financial Statements

(unaudited)

Equity-Based Compensation

The Company recognizes stock-based compensation expense for all equity-based payment awards, including employee Restricted Stock Units and Performance-based Restricted Stock Units (“PRSUs” and, collectively with Restricted Stock Units, “RSUs”) and stock options granted under the Company’s Amended and Restated 2012 Omnibus Equity Incentive Plan (the “2012 Plan”), based on the fair value of each award on the grant date.

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~~Shutterstock, Inc.~~

~~Notes to Consolidated Financial Statements~~

~~(unaudited)~~

The following table summarizes non-cash equity-based compensation expense, net of forfeitures, by financial statement line item included in the accompanying Consolidated Statements of Operations for the three and ~~six~~nine months ended ~~June~~September 30, 2021 and 2020 (in thousands):


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			2021		2020		2021		2020
Cost of revenue	Cost of revenue	$	194	$	99	$	358	$	150	Cost of revenue	$	(49)	$	125	$	309	$	275
Sales and marketing	Sales and marketing	926		374		1,393		834		Sales and marketing	638		467		2,031		1,301
Product development	Product development	1,799		1,068		3,028		2,193		Product development	1,675		1,263		4,703		3,456
General and administrative	General and administrative	6,767		2,095		13,117		6,219		General and administrative	6,479		6,430		19,596		12,649
Total	Total	$	9,686	$	3,636	$	17,896	$	9,396	Total	$	8,743	$	8,285	$	26,639	$	17,681

The following table summarizes non-cash equity-based compensation expense, net of forfeitures, by award type included in the accompanying Consolidated Statements of Operations for the three and ~~six~~nine months ended ~~June~~September 30, 2021 and 2020 (in thousands):


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			2021		2020		2021		2020
Stock options	Stock options	$	177	$	414	$	352	$	1,730	Stock options	$	179	$	179	$	531	$	1,909
RSUs	RSUs	9,509		3,222		17,544		7,666		RSUs	8,564		8,106		26,108		15,772

Total	Total	$	9,686	$	3,636	$	17,896	$	9,396	Total	$	8,743	$	8,285	$	26,639	$	17,681

Stock Option Awards

During the ~~six~~nine months ended ~~June~~September 30, 2021, no options to purchase shares of its common stock were granted. As of ~~June~~September 30, 2021, there were approximately ~~300,000~~318,000 options vested and exercisable with a weighted average exercise price of ~~$34.43.~~$34.38. As of ~~June~~September 30, 2021, the total unrecognized compensation charge related to non-vested options was approximately ~~$1.3~~$1.1 million, which is expected to be recognized through 2023.

Restricted Stock Unit Awards

During the ~~six~~nine months ended ~~June~~September 30, 2021, the Company had RSU grants, net of forfeitures, of approximately ~~382,000.~~367,000. As of ~~June~~September 30, 2021, there are approximately ~~1,242,000~~1,203,000 non-vested RSUs outstanding with a weighted average grant-date fair value of ~~$56.89.~~$59.37. As of ~~June~~September 30, 2021, the total unrecognized non-cash equity-based compensation charge related to the non-vested RSUs was approximately ~~$56.7~~$49.8 million, which is expected to be recognized through 2024.

During the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, shares of common stock with an aggregate value of ~~$20.2~~$21.3 million and ~~$3.4~~$3.9 million were withheld upon vesting of RSUs and paid in connection with related remittance of employee withholding taxes to taxing authorities.

(8) Revenue

The Company distributes its content offerings through ~~two~~2 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 a subscription plan that is paid on a monthly or annual basis or to license content on a transactional basis. These customers generally license content under the Company’s standard or enhanced licenses, with additional licensing options available to meet customers’ individual needs. E-commerce customers typically pay the full amount of the purchase price in advance or at the time of license, generally with a credit card.

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Shutterstock, Inc.

Notes to Consolidated Financial Statements

(unaudited)

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.

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~~Shutterstock, Inc.~~

~~Notes to Consolidated Financial Statements~~

~~(unaudited)~~

The Company’s revenues by distribution channel for the three and ~~six~~nine months ended ~~June~~September 30, 2021 and 2020 are as follows (in thousands):


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			2021		2020		2021		2020
E-commerce	E-commerce	$	120,715	$	98,164	$	239,115	$	197,900	E-commerce	$	121,707	$	102,816	$	360,822	$	300,716
Enterprise	Enterprise	69,197		61,066		134,078		122,615		Enterprise	72,732		62,411		206,810		185,026

Total Revenues	Total Revenues	$	189,912	$	159,230	$	373,193	$	320,515	Total Revenues	$	194,439	$	165,227	$	567,632	$	485,742

The ~~June~~September 30, 2021 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. ~~$99.2~~$125.5 million of total revenue recognized for the ~~six~~nine months ended ~~June~~September 30, 2021 was reflected in deferred revenue as of December 31, 2020.

(9) Other ~~Income~~(Expense) / ~~(Loss),~~Income, net

The following table presents a summary of the Company’s other income and expense activity included in the accompanying Consolidated Statements of Operations for the three and ~~six~~nine months ended ~~June~~September 30, 2021 and 2020 (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Foreign currency gain / (loss) $ 1,277 $ 132 $ (1,233) $ (466)
Interest income, net 46 17 94 1,128
Total other income / (loss) $ 1,323 $ 149 $ (1,139) $ 662


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Foreign currency (loss) / gain	$	(1,761)	$	(1,170)	$	(2,994)	$	(1,636)



Interest income, net	12		2		106		1,130
Total other (expense) / income	$	(1,749)	$	(1,168)	$	(2,888)	$	(506)

(10) Income Taxes

The Company’s effective tax rates yielded a net expense of ~~14.7%~~21.5% and ~~16.3%~~19.9% for the three months ended ~~June~~September 30, 2021 and 2020, respectively, and a net expense of ~~16.0%~~17.2% and ~~19.6%~~19.7% for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, respectively.

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

During the three months ended ~~June~~September 30, 2020, the net effect of discrete items ~~decreased~~increased the effective tax rate by ~~0.3%~~2.9%. For the ~~six~~nine months ended ~~June~~September 30, 2020, the effective tax rate increased by ~~1.6%~~0.9% as a result of a loss jurisdiction with no tax benefit. Discrete items further increased the effective tax rate by ~~1.4%~~1.8%. Excluding the discrete items, the Company’s effective tax rate would have been ~~16.6%~~17.0% for the three and ~~six~~nine months ended ~~June~~September 30, 2020.

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

During the three and ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, uncertain tax positions recorded by the Company were not significant. To the extent the remaining uncertain tax positions are ultimately recognized, the Company’s effective tax rate may be impacted in future periods.

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Shutterstock, Inc.

Notes to Consolidated Financial Statements

(unaudited)

The Company recognizes interest expense and tax penalties related to unrecognized tax benefits in income tax expense in the Consolidated Statements of Operations. The Company’s accrual for interest and penalties related to unrecognized tax benefits was not significant for the three and ~~six~~nine months ended ~~June~~September 30, 2021 and 2020.

During the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, the Company paid net cash taxes of ~~$9.5~~$14.8 million and ~~$0.9~~$2.8 million, respectively.

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~~Shutterstock, Inc.~~

~~Notes to Consolidated Financial Statements~~

~~(unaudited)~~

(11) Net Income Per Share

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

The following table sets forth the computation of basic and diluted net income per share for the three and ~~six~~nine months ended ~~June~~September 30, 2021 and 2020 (in thousands):


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			2021		2020		2021		2020
Net income	Net income	$	29,454	$	18,987	$	58,968	$	23,305	Net income	$	16,029	$	22,582	$	74,997	$	45,887
Shares used to compute basic net income per share	Shares used to compute basic net income per share	36,570		35,652		36,453		35,587		Shares used to compute basic net income per share	36,622		35,962		36,510		35,713
Dilutive potential common shares	Dilutive potential common shares									Dilutive potential common shares
Stock options	Stock options	242		39		233		53		Stock options	255		104		240		70
Unvested restricted stock awards	Unvested restricted stock awards	377		215		532		254		Unvested restricted stock awards	540		428		535		312

Shares used to compute diluted net income per share	Shares used to compute diluted net income per share	37,189		35,906		37,218		35,894		Shares used to compute diluted net income per share	37,417		36,494		37,285		36,095
Basic net income per share	Basic net income per share	$	0.81	$	0.53	$	1.62	$	0.65	Basic net income per share	$	0.44	$	0.63	$	2.05	$	1.28
Diluted net income per share	Diluted net income per share	$	0.79	$	0.53	$	1.58	$	0.65	Diluted net income per share	$	0.43	$	0.62	$	2.01	$	1.27

Dilutive shares included in the calculation	Dilutive shares included in the calculation	1,221		1,304		1,328		1,080		Dilutive shares included in the calculation	1,279		1,385		1,312		1,182
Anti-dilutive shares excluded from the calculation	Anti-dilutive shares excluded from the calculation	2		1,152		10		1,148		Anti-dilutive shares excluded from the calculation	4		778		8		1,024

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Shutterstock, Inc.

Notes to Consolidated Financial Statements

(unaudited)

(12) Geographic Information

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


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			2021		2020		2021		2020
North America	North America	$	68,954	$	56,211	$	133,263	$	113,229	North America	$	77,264	$	59,252	$	210,527	$	172,481
Europe	Europe	64,778		52,207		127,055		106,003		Europe	60,301		53,291		187,356		159,294
Rest of the world	Rest of the world	56,180		50,812		112,875		101,283		Rest of the world	56,874		52,684		169,749		153,967
Total revenue	Total revenue	$	189,912	$	159,230	$	373,193	$	320,515	Total revenue	$	194,439	$	165,227	$	567,632	$	485,742

The United States, included in North America in the above table, accounted for ~~31%~~33% and 32% of consolidated revenue for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, respectively. No other country accounts for more than 10% of the Company’s revenue in any period presented.

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


		As of June 30,		As of December 31,			As of September 30,		As of December 31,
		2021		2020			2021		2020
North America	North America	$	42,324	$	43,451	North America	$	41,260	$	43,451
Europe	Europe	7,470		7,192		Europe	7,424		7,192
Rest of the world	Rest of the world	196		263		Rest of the world	182		263
Total long-lived tangible assets	Total long-lived tangible assets	$	49,990	$	50,906	Total long-lived tangible assets	$	48,866	$	50,906

The United States, included in North America in the above table, accounted for 76% and 75% of total long-lived tangible assets as of ~~June~~September 30, 2021 and December 31, ~~2020.~~2020, respectively. Ireland, included in Europe in the above table, accounted for 11% of total long-lived tangible assets as of September 30, 2021. No other country accounts for more than 10% of the Company’s long-lived tangible assets in any period presented.

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~~Shutterstock, Inc.~~

~~Notes to Consolidated Financial Statements~~

~~(unaudited)~~

(13) Commitments and Contingencies

As of ~~June~~September 30, 2021, the Company had total non-lease obligations in the amount of approximately ~~$45.4~~$59.0 million, which consisted primarily of minimum royalty guarantees and unconditional purchase obligations related to contracts for infrastructure and other business services. As of ~~June~~September 30, 2021, the Company’s non-lease obligations for the remainder of 2021 and for the years ending December 31, 2022, 2023, 2024, 2025 and ~~2025~~2026 were approximately ~~$14.2~~$21.5 million, ~~$14.2~~$17.7 million, ~~$9.9~~$12.7 million, $4.7 million, $2.1 million and ~~$2.1~~$0.3 million, respectively.

Legal Matters

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

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Shutterstock, Inc.

Notes to Consolidated Financial Statements

(unaudited)

Indemnification and Employment Agreements

In the ordinary course of business, the Company enters into contractual arrangements under which it agrees to provide indemnification of varying scope and terms to customers with respect to certain matters, including, but not limited to, losses arising out of the breach of the Company’s intellectual property warranties for damages to the customer directly attributable to the Company’s breach. The Company is not responsible for any damages, costs, or losses to the extent such damages, costs or losses arise as a result of any modifications made by the customer, or the context in which content is used. The standard maximum aggregate obligation and liability to any one customer for any single claim is generally limited to 10000 dollars but can range to $250,000, with certain exceptions for which our indemnification obligation are uncapped. As of ~~June~~September 30, 2021, the Company had recorded no material liabilities related to indemnification obligations for loss contingencies. Additionally, the Company believes that it has the appropriate insurance coverage in place to adequately cover such indemnification obligations, if necessary.

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

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

~~(14) Subsequent Events~~

In July 2021, the Company acquired Pattern89 Inc., Datasine Limited and assets from Shotzr, Inc. The aggregate cash consideration was approximately $35 million, and is subject to customary working capital and other adjustments, paid from existing cash on hand. These three entities provide data driven insights through their artificial intelligence platforms. The Company is currently evaluating the accounting model for these transactions.

1921

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

The following discussion and analysis of our financial condition and results of operations should be read together with our interim 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 2020 Form 10-K.

In addition to historical consolidated financial information, this discussion contains forward-looking statements including statements about our plans, estimates and beliefs. These statements involve risks and uncertainties and our actual results could differ materially from those expressed or implied in forward-looking statements. See “Forward Looking Statements” above. See also the “Risk Factors” disclosures contained in our 2020 Form 10-K for additional discussion of the risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements.

For a discussion as to how COVID-19 has affected our business, see “COVID-19 Update” below.

Overview and Recent Developments

Shutterstock is a leading global creative platform offering full-service solutions, high-quality content, and ~~tools~~applications for brands, businesses and media companies. Our platform brings together users and contributors of content by providing readily-searchable content that our customers pay to license and by compensating contributors as their content is licensed.

The ~~content licensed by our customers includes:~~Company’s key offerings include:

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

•Creative Design Software - consisting of our online graphic design and image editing platform. On September 3, 2021, we ~~now offer 3D models, used in industries such as advertising, media & video production, gaming, retail, education, design~~completed the acquisition of substantially all of the assets and ~~architecture.~~assumption of certain liabilities from PicMonkey, LLC (“PicMonkey”).

For customers seeking specialized solutions, we also create custom, on-brand content by matching our global contributor network to the unique needs of our customers. This solution allows us to offer customers a fast and scalable way to produce cost-effective content that is in line with the visual footprint of their brand. We typically offer a royalty-free, non-exclusive license, and the processes we maintain to properly license content and the indemnification protections we provide allow individuals and businesses of all sizes, including media agencies, publishers, production companies and creative service providers, to confidently utilize such content for their unique commercial or editorial needs.

In addition, in July of 2021, through our newly formed entity Shutterstock.AI, Inc. (“Shutterstock.AI”), we acquired Pattern89, Inc., Datasine Limited, and assets from Shotzr, Inc., three artificial intelligence entities that provide data driven insights through their artificial intelligence platforms.

Shutterstock.AI will commercialize data assets within our content library and enable companies to grow their capabilities in computer vision and content insights. In addition, with artificial intelligence tools obtained from these acquisitions, we plan to develop predictive performance capabilities to help customers make more data-informed content decisions.

Over 2.0 million active, paying customers contributed to our revenue for the twelve-month period ended ~~June~~September 30, 2021. As of ~~June~~September 30, 2021, more than ~~1.8~~1.9 million approved contributors made their images, footage and music tracks available in our collection, which has grown to more than ~~380~~390 million images and more than 2223 million footage clips as of ~~June~~September 30, 2021. This makes our collection of content one of the largest of its kind, and we delivered ~~90.7~~135.0 million paid downloads to our customers across all of our brands during the ~~six~~nine months ended ~~June~~September 30, 2021.

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Through our platform, we generate revenue by licensing content to our customers. During the ~~six~~nine months ended ~~June~~September 30, 2021, 64% of our revenue and the majority of our content licenses came from our E-commerce sales channel. The majority of our customers license content directly through our self-service web properties, including our ~~Shutterstock.com,~~shutterstock.com, bigstock.com, premiumbeat.com and turbosquid.com websites. E-commerce customers have the ability to purchase plans that are paid on either a monthly or annual basis or to license content on a transactional basis. E-commerce customers generally license content under our standard or enhanced licenses, with additional licensing options available to meet customers’ individual needs.

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

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available on our E-commerce platform. Customers in our enterprise sales channel may also benefit from our API platform as well as access to Shutterstock Editorial, which includes our library of editorial images and videos and Shutterstock Studios, our offering that provides custom, high-quality content matched with production tools and services. Our Enterprise sales channel provided approximately 36% of our revenue for the ~~six~~nine months ended ~~June~~September 30, 2021.

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

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

In July of 2021, through its newly formed entity Shutterstock.AI, Inc. (“Shutterstock.AI”), the Company acquired Pattern89, Inc., DataSine Limited, and assets from Shotzr, Inc., three artificial intelligence entities that provide data driven insights through their artificial intelligence platforms. The aggregate purchase price was approximately $35 million.

Shutterstock.AI will commercialize data assets within Shutterstock’s content library and enable companies to grow their capabilities in computer vision and content insights. In addition, with artificial intelligence tools obtained from the acquisitions, the Company will develop predictive performance capabilities to help customers make more data-informed content decisions.

COVID-19 Update

In December 2019, a novel coronavirus disease (“COVID-19”) was initially reported and on March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic. Our operations have been impacted by office closures globally and restrictions on employee travel and in-person meetings, however, we have generally been able to deliver our services remotely. We believe the economic uncertainty caused by COVID-19 has had an impact on our customers and their ability to spend marketing budgets on our products, in varying degrees during 2020 and into 2021. See Item 1A. Risk Factors in our 2020 Form 10-K for further discussion of the possible impact of the COVID-19 pandemic on our business.

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Key Operating Metrics

We regularly review a number of key operating metrics to evaluate our business, determine the allocation of resources and make decisions regarding business strategies. We believe that these metrics can be useful for understanding the underlying trends in our business. The following table summarizes our key operating metrics, which are unaudited, for the three and ~~six~~nine months ended ~~June~~September 30, 2021 and 2020:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			2021		2020		2021		2020

Subscribers (end of period)		321,000		223,000		321,000		223,000
Subscriber revenue (in millions)		$	78.1	$	62.7	$	154.6	$	126.6
Subscribers (end of period)1										Subscribers (end of period)1	336,000		255,000		336,000		255,000
Subscriber revenue (in millions)1										Subscriber revenue (in millions)1	$	81.5	$	67.6	$	236.1	$	194.2

Average revenue per customer (last twelve months)		$	356	$	326	$	356	$	326
Average revenue per customer (last twelve months)1										Average revenue per customer (last twelve months)1	$	361	$	328	$	361	$	328
Paid downloads (in millions)	Paid downloads (in millions)	44.9		44.0		90.7		90.8		Paid downloads (in millions)	44.3		43.4		135.0		134.2
Revenue per download	Revenue per download	$	4.17	$	3.61	$	4.07	$	3.51	Revenue per download	$	4.20	$	3.79	$	4.11	$	3.60
Content in our collection (end of period, in millions):	Content in our collection (end of period, in millions):									Content in our collection (end of period, in millions):
Images	Images	380		340		380		340		Images	390		350		390		350
Footage clips	Footage clips	22		19		22		19		Footage clips	23		20		23		20

1 Subscribers, subscriber revenue and average revenue per customer exclude customers and revenue related to our acquisitions of TurboSquid and PicMonkey.

Subscribers

We define subscribers as those customers who purchase one or more of our monthly recurring products for a continuous period of at least three months, measured as of the end of the reporting ~~period.~~period excluding customers from our acquisitions of TurboSquid and PicMonkey. We believe the number of subscribers is an important metric that provides insight into our monthly recurring business and its growth. We believe that an increase in our number of subscribers is an indicator of engagement in our platform and potential for future growth.

Subscriber Revenue

We define subscriber revenue as the revenue generated from subscribers during the ~~period.~~period excluding revenues from our acquisitions of TurboSquid and PicMonkey. We believe subscriber revenue, together with our number of subscribers, provide insight into the portion of our business and growth driven by our monthly recurring products.

Average Revenue Per Customer

Average revenue per customer is calculated by dividing total revenue for the last ~~twelve month~~twelve-month period by ~~customers.~~customers, excluding revenues from our recent acquisitions of TurboSquid and PicMonkey. We define customers as total active, paying customers that contributed to total revenue over the last ~~twelve month period.~~twelve-month period, excluding customers from our recent acquisitions of TurboSquid and PicMonkey. Changes in our average revenue per customer will be driven by changes in the mix of our subscription-based products and the pricing in our transactional business.

Paid Downloads

We define paid downloads as the number of downloads that our customers make in a given period of our content. Paid downloads exclude content related to custom content, ~~and~~ downloads of content that are offered to customers for no charge, including our free image of the ~~week.~~week, 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 they are the primary method of delivering licensed content, which drives a significant portion of the Company’s revenue and contributor royalties.

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Revenue per Download

We define revenue per download as the amount of revenue recognized in a given period divided by the number of paid downloads in that period excluding revenue from custom content, ~~and~~ revenue that is not derived from or associated with content ~~licenses.~~licenses and revenue associated with our computer vision offering. This metric captures any changes in our pricing, including changes resulting from the impact of competitive pressures, as well as the mix of licensing options that our customers choose, some of which generate more revenue per download than others, and the impact that changes in foreign currency rates have on our pricing. Changes in revenue per download are primarily driven by the introduction of new product offerings, changes in product mix and customer utilization of our products.

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Content in our Collection

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

Critical Accounting Policies and Estimates

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

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

A description of our critical accounting policies that involve significant management judgments appears in our 2020 Form 10-K, under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates.”

See Note 1 to our Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for a full description of the impact of the adoption of new accounting standards on our financial statements. There have been no material changes to our critical accounting policies and estimates as compared to our critical accounting policies and estimates included in our 2020 Form 10-K.

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Key Components of Our Results of Operations

Revenue

We distribute our content offerings through two primary channels:

E-commerce: The majority of our customers license content directly through our self-service web properties. E-commerce customers have the flexibility to purchase a subscription-based plan that is paid on a monthly or annual basis or to license content on a transactional basis. These customers generally license content under our standard or enhanced licenses, with additional licensing options available to meet customers’ individual needs. E-commerce customers typically pay the full amount of the purchase price in advance or at the time of license, generally with a credit card.

Enterprise: We also have a base of customers with unique content, licensing and workflow needs. These customers benefit from communication with our dedicated sales 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 and ~~six~~nine months ended ~~June~~September 30, 2021 and 2020 are as follows (in thousands):


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			2021		2020		2021		2020
E-commerce	E-commerce	$	120,715	$	98,164	$	239,115	$	197,900	E-commerce	$	121,707	$	102,816	$	360,822	$	300,716
Enterprise	Enterprise	69,197		61,066		134,078		122,615		Enterprise	72,732		62,411		206,810		185,026

Total Revenues	Total Revenues	$	189,912	$	159,230	$	373,193	$	320,515	Total Revenues	$	194,439	$	165,227	$	567,632	$	485,742

Costs and Expenses

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

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

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

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

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

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

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Results of Operations

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


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			2021		2020		2021		2020
		(in thousands)									(in thousands)
Consolidated Statements of Operations:	Consolidated Statements of Operations:									Consolidated Statements of Operations:
Revenue	Revenue	$	189,912	$	159,230	$	373,193	$	320,515	Revenue	$	194,439	$	165,227	$	567,632	$	485,742
Operating expenses:	Operating expenses:									Operating expenses:
Cost of revenue	Cost of revenue	67,757		63,811		129,589		132,934		Cost of revenue	69,634		60,331		199,223		193,265
Sales and marketing	Sales and marketing	45,896		35,557		87,817		78,217		Sales and marketing	54,456		36,655		142,273		114,872
Product development	Product development	11,993		12,485		22,724		25,554		Product development	13,565		10,617		36,289		36,171
General and administrative	General and administrative	31,041		24,832		61,720		55,484		General and administrative	34,615		28,277		96,335		83,761
Total operating expenses	Total operating expenses	156,687		136,685		301,850		292,189		Total operating expenses	172,270		135,880		474,120		428,069
Income from operations	Income from operations	33,225		22,545		71,343		28,326		Income from operations	22,169		29,347		93,512		57,673

Other income / (expense), net		1,323		149		(1,139)		662
Other (expense) / income, net										Other (expense) / income, net	(1,749)		(1,168)		(2,888)		(506)
Income before income taxes	Income before income taxes	34,548		22,694		70,204		28,988		Income before income taxes	20,420		28,179		90,624		57,167
Provision for income taxes	Provision for income taxes	5,094		3,707		11,236		5,683		Provision for income taxes	4,391		5,597		15,627		11,280
Net income	Net income	$	29,454	$	18,987	$	58,968	$	23,305	Net income	$	16,029	$	22,582	$	74,997	$	45,887

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


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			2021		2020		2021		2020
Consolidated Statements of Operations:	Consolidated Statements of Operations:									Consolidated Statements of Operations:
Revenue	Revenue	100	%	100	%	100	%	100	%	Revenue	100	%	100	%	100	%	100	%
Operating expenses:	Operating expenses:									Operating expenses:
Cost of revenue	Cost of revenue	36	%	40	%	35	%	41	%	Cost of revenue	36	%	37	%	35	%	40	%
Sales and marketing	Sales and marketing	24	%	22	%	24	%	24	%	Sales and marketing	28	%	22	%	25	%	24	%
Product development	Product development	6	%	8	%	6	%	8	%	Product development	7	%	6	%	6	%	7	%
General and administrative	General and administrative	16	%	16	%	17	%	17	%	General and administrative	18	%	17	%	17	%	17	%
Total operating expenses	Total operating expenses	83	%	86	%	81	%	91	%	Total operating expenses	89	%	82	%	84	%	88	%
Income from operations	Income from operations	17	%	14	%	19	%	9	%	Income from operations	11	%	18	%	16	%	12	%

Other income / (expense), net		1	%	—	%	—	%	—	%
Other (expense) / income, net										Other (expense) / income, net	(1)	%	(1)	%	(1)	%	—	%
Income before income taxes	Income before income taxes	18	%	14	%	19	%	9	%	Income before income taxes	11	%	17	%	16	%	12	%
Provision for income taxes	Provision for income taxes	3	%	2	%	3	%	2	%	Provision for income taxes	2	%	3	%	3	%	2	%
Net income	Net income	16	%	12	%	16	%	7	%	Net income	8	%	14	%	13	%	9	%

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

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Comparison of the Three Months Ended ~~June~~September 30, 2021 and 2020

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


		Three Months Ended June 30,									Three Months Ended September 30,
		2021		2020		$ Change		% Change			2021		2020		$ Change		% Change
		(in thousands)									(in thousands)
Consolidated Statements of Operations:	Consolidated Statements of Operations:									Consolidated Statements of Operations:
Revenue	Revenue	$	189,912	$	159,230	$	30,682	19	%	Revenue	$	194,439	$	165,227	$	29,212	18	%
Operating expenses:	Operating expenses:									Operating expenses:
Cost of revenue	Cost of revenue	67,757		63,811		3,946		6		Cost of revenue	69,634		60,331		9,303		15
Sales and marketing	Sales and marketing	45,896		35,557		10,339		29		Sales and marketing	54,456		36,655		17,801		49
Product development	Product development	11,993		12,485		(492)		(4)		Product development	13,565		10,617		2,948		28
General and administrative	General and administrative	31,041		24,832		6,209		25		General and administrative	34,615		28,277		6,338		22
Total operating expenses	Total operating expenses	156,687		136,685		20,002		15		Total operating expenses	172,270		135,880		36,390		27
Income from operations	Income from operations	33,225		22,545		10,680		47		Income from operations	22,169		29,347		(7,178)		(24)

Other income / (expense), net		1,323		149		1,174		*
Other (expense) / income, net										Other (expense) / income, net	(1,749)		(1,168)		(581)		50
Income before income taxes	Income before income taxes	34,548		22,694		11,854		52		Income before income taxes	20,420		28,179		(7,759)		(28)
Provision for income taxes	Provision for income taxes	5,094		3,707		1,387		37		Provision for income taxes	4,391		5,597		(1,206)		(22)
Net income	Net income	$	29,454	$	18,987	$	10,467	55	%	Net income	$	16,029	$	22,582	$	(6,553)	(29)	%

* Percentage change is not meaningful

Revenue

Revenue increased by ~~$30.7~~$29.2 million, or ~~19%~~18%, to ~~$189.9~~$194.4 million in the three months ended ~~June~~September 30, 2021 compared to the same period in 2020. On a constant currency basis, revenue increased approximately ~~16%~~17% in the three months ended ~~June~~September 30, 2021, compared to the same period in 2020.

The Company’s E-commerce revenues increased by ~~23%~~18%, to ~~$120.7~~$121.7 million in the three months ended ~~June~~September 30, 2021, compared to the same period in 2020. OnForeign currency fluctuations did not have a ~~constant currency basis, the Company’s~~significant impact on E-commerce revenues ~~increased by 20%~~ in the three months ended ~~June~~September 30, 2021, compared to the same period in 2020. During the three months ended ~~June~~September 30, 2021, growth in our E-commerce sales channel was primarily driven by increased subscriber ~~revenue. E-commerce revenues also benefited~~revenue and revenue generated from our ~~acquisition~~acquisitions of TurboSquid and PicMonkey, which were completed on February 1, ~~2021.~~2021 and September 3, 2021, respectively.

The Company’s Enterprise revenues increased by ~~13%~~17%, to ~~$69.2~~$72.7 million in the three months ended ~~June~~September 30, 2021, compared to the same period in 2020. On a constant currency basis, the Company’s Enterprise revenues increased by 9%15% in the three months ended ~~June~~September 30, 2021, compared to the same period in 2020. The Company has continued to execute on its strategy to respond to market trends including making updates to product offerings and continuously improving our platform. We believe these enhancements impacted our Enterprise sales operations during the period and is one of the drivers of the increased deferred revenue balance as of ~~June~~September 30, 2021.

In the three months ended ~~June~~September 30, 2021 and 2020, we delivered ~~44.9~~44.3 million and ~~44.0~~43.4 million paid downloads, respectively, and our revenue per download was ~~$4.17~~$4.20 and ~~$3.61~~$3.79 for the three months ended ~~June~~September 30, 2021 and 2020, respectively. During the three months ended ~~June~~September 30, 2021, the increase in revenue per download was primarily due to changes in product mix.

Changes in our revenue by region were as follows: revenue from North America increased by ~~$12.7~~$18.0 million, or ~~23%~~30%, to ~~$69.0~~$77.3 million, revenue from Europe increased by ~~$12.6~~$7.0 million, or ~~24%~~13%, to ~~$64.8~~$60.3 million and revenue from outside Europe and North America increased by ~~$5.4~~$4.2 million, or ~~11%~~8%, to ~~$56.2~~$56.9 million, in the three months ended ~~June~~September 30, 2021 compared to the same period in 2020.

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Costs and Expenses

Cost of Revenue. Cost of revenue increased by ~~$3.9~~$9.3 million, or 6%15% to ~~$67.8~~$69.6 million in the three months ended ~~June~~September 30, 2021 compared to the same period in ~~2020, due to~~2020. This increase was primarily driven by: (i) higher royalty expense, ~~and credit card fees,~~ which is in line with the increase in revenue and paid ~~downloads. These amounts are partially offset by lower content procurement costs and~~downloads; (ii) increased depreciation and amortization ~~expense.~~expense driven by our recent acquisitions, and (iii) higher content procurement costs. We expect that our cost of revenue will continue to fluctuate in line with changes in revenue and paid downloads.

Sales and Marketing. Sales and marketing expenses increased by ~~$10.3~~$17.8 million, or ~~29%~~49%, to ~~$45.9~~$54.5 million in the three months ended ~~June~~September 30, 2021 compared to the same period in 2020. As a percent of revenue, sales and marketing expenses increased to ~~24%~~28% for the three months ended ~~June~~September 30, 2021, from 22% for the same period in 2020. This was primarily driven by a (i) ~~$5.7~~$13.0 million increase in marketing spend, and (ii) ~~$3.9~~$3.8 million in higher employee-related costs, primarily related to commissions associated with increased enterprise billings. ~~For the three months ended June 30, 2020, sales and marketing expenses included severance charges of $1.5 million.~~ 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 ~~decreased~~increased by ~~$0.5~~$2.9 million, or 4%28%, to ~~$12.0~~$13.6 million in the three months ended ~~June~~September 30, 2021 compared to the same period in 2020. This ~~decrease~~increase was driven by ~~(i) lower~~$3.0 million in higher employee and third-party contractor related costs, net of capitalized labor, ~~and (ii) a reduction in software and other IT-related costs,~~ for the three months ended ~~June~~September 30, 2021, as compared to the same period in the prior year. ~~These declines were partially offset by higher non-cash compensation expense, attributable to certain performance-based awards.~~ 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 ~~$6.2~~$6.3 million, or ~~25%~~22%, to ~~$31.0~~$34.6 million in the three months ended ~~June~~September 30, 2021 compared to the same period in 2020. During the three months ended ~~June~~September 30, 2021, general and administrative expenses included ~~higher non-cash compensation expense of $4.7 million, attributable to certain performance-based awards, and $1.6~~$3.1 million in higher employee-related ~~costs. In addition, during the three months ended June 30, 2021, increases~~costs and $2.5 million in higher professional fees ~~and depreciation and amortization expense were offset by reductions in bad debt expense. For the three months ended June 30, 2020, general and administrative expenses included severance charges~~primarily related to our acquisition of ~~$0.7 million.~~PicMonkey.

Other ~~Income~~(Expense) / ~~(Expense),~~Income, Net. In the three months ended ~~June~~September 30, 2021, other ~~income~~(expense) / ~~(expense),~~income, net substantially consisted of ~~$1.3~~$1.8 million of ~~favorable~~unfavorable foreign currency fluctuations.

During the three months ended ~~June~~September 30, 2020, other ~~income~~(expense) / ~~(expense),~~income, net substantially consisted of ~~$0.1~~$1.2 million of ~~favorable~~unfavorable foreign currency fluctuations. As we increase the volume of business transacted in foreign currencies resulting from international expansion and as currency rates fluctuate, we expect foreign currency gains and losses to continue to fluctuate.

Income Taxes. Income tax expense ~~increased~~decreased by ~~$1.4~~$1.2 million for the three months ended ~~June~~September 30, 2021 as compared to the same period in 2020. Our effective tax rates yielded a net expense of ~~14.7%~~21.5% and ~~16.3%~~19.9% for the three months ended ~~June~~September 30, 2021 and 2020, respectively.

For the three months ended ~~June~~September 30, 2021, the net effect of discrete items increased the effective tax rate ~~decreased~~ by ~~5.3% related primarily to windfall tax benefits associated with equity-based compensation.~~1.3%. Excluding discrete items, our effective tax rate would have been ~~20.0%~~20.2% for the three months ended ~~June~~September 30, 2021.

For the three months ended ~~June~~September 30, 2020, the net effect of discrete items ~~decreased~~increased the effective tax rate by ~~0.3%~~2.9%. Excluding these items, our effective tax rate would have been ~~16.6%~~17.0% for the three months ended ~~June~~September 30, 2020.

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

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Comparison of the ~~Six~~Nine Months Ended ~~June~~September 30, 2021 and 2020

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


		Six Months Ended June 30,									Nine Months Ended September 30,
		2021		2020		$ Change		% Change			2021		2020		$ Change		% Change
		(in thousands)									(in thousands)
Consolidated Statements of Operations Data:	Consolidated Statements of Operations Data:									Consolidated Statements of Operations Data:
Revenue	Revenue	$	373,193	$	320,515	$	52,678	16	%	Revenue	$	567,632	$	485,742	$	81,890	17	%
Operating expenses:	Operating expenses:									Operating expenses:
Cost of revenue	Cost of revenue	129,589		132,934		(3,345)		(3)	%	Cost of revenue	199,223		193,265		5,958		3	%
Sales and marketing	Sales and marketing	87,817		78,217		9,600		12	%	Sales and marketing	142,273		114,872		27,401		24	%
Product development	Product development	22,724		25,554		(2,830)		(11)	%	Product development	36,289		36,171		118		—	%
General and administrative	General and administrative	61,720		55,484		6,236		11	%	General and administrative	96,335		83,761		12,574		15	%
Total operating expenses	Total operating expenses	301,850		292,189		9,661		3	%	Total operating expenses	474,120		428,069		46,051		11	%
Income from operations	Income from operations	71,343		28,326		43,017		152	%	Income from operations	93,512		57,673		35,839		62	%

Other (expense) / income, net	Other (expense) / income, net	(1,139)		662		(1,801)		*		Other (expense) / income, net	(2,888)		(506)		(2,382)		*
Income before income taxes	Income before income taxes	70,204		28,988		41,216		142	%	Income before income taxes	90,624		57,167		33,457		59	%
Provision for income taxes	Provision for income taxes	11,236		5,683		5,553		98	%	Provision for income taxes	15,627		11,280		4,347		39	%
Net income	Net income	$	58,968	$	23,305	$	35,663	153	%	Net income	$	74,997	$	45,887	$	29,110	63	%

* Not meaningful

Revenue

Revenue increased by ~~$52.7~~$81.9 million, or ~~16%~~17%, to ~~$373.2~~$567.6 million in the ~~six~~nine months ended ~~June~~September 30, 2021 compared to the same period in 2020. On a constant currency basis, revenue increased approximately ~~13%~~15% in the ~~six~~nine months ended ~~June~~September 30, 2021, compared to the same period in 2020.

The Company’s E-commerce revenues increased by ~~21%~~20%, to ~~$239.1~~$360.8 million in the ~~six~~nine months ended ~~June~~September 30, 2021, compared to the same period in 2020. On a constant currency basis, the Company’s E-commerce revenues increased by 18% in the ~~six~~nine months ended ~~June~~September 30, 2021, compared to the same period in 2020. During the ~~six~~nine months ended ~~June~~September 30, 2021, growth in our E-commerce sales channel was ~~primarily~~ driven by increased subscriber ~~revenue. E-commerce revenues also benefited from~~revenue and revenue generated by our ~~acquisition~~acquisitions of TurboSquid and PicMonkey, which were completed on February 1, ~~2021.~~2021 and September 3, 2021, respectively.

The Company’s Enterprise revenues increased by 9%12%, to ~~$134.1~~$206.8 million in the ~~six~~nine months ended ~~June~~September 30, 2021, compared to the same period in 2020. On a constant currency basis, the Company’s Enterprise revenues increased by 6%9% in the ~~six~~nine months ended ~~June~~September 30, 2021, compared to the same period in 2020. The Company has continued to execute on its strategy to respond to market trends including making updates to product offerings and continuously improving our platform. We believe these enhancements impacted our Enterprise sales operations during the period and were one of the drivers of the increased deferred revenue balance as of ~~June~~September 30, 2021.

In the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, we delivered ~~90.7~~135.0 million and ~~90.8~~134.2 million paid downloads, respectively, and our revenue per download was ~~$4.07~~$4.11 and ~~$3.51~~$3.60 for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, respectively. During the ~~six~~nine months ended ~~June~~September 30, 2021, the increase in revenue per download was primarily due to changes in product mix.

Changes in our revenue by region were as follows: revenue from North America increased by ~~$20.0~~$38.0 million, or ~~18%~~22%, to ~~$133.3~~$210.5 million, revenue from Europe increased by ~~$21.1~~$28.1 million, or ~~20%~~18%, to ~~$127.1~~$187.4 million and revenue from outside Europe and North America increased by ~~$11.6~~$15.8 million, or ~~11%~~10%, to ~~$112.9~~$169.7 million, in the ~~six~~nine months ended ~~June~~September 30, 2021 compared to the same period in 2020.

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Costs and Expenses

Cost of Revenue. Cost of revenue ~~decreased~~increased by ~~$3.3~~$6.0 million, or 3%, to ~~$129.6~~$199.2 million in the ~~six~~nine months ended ~~June~~September 30, 2021 compared to the same period in ~~2020, due to lower~~2020. This increase was primarily driven by: (i) higher royalty expense ~~content procurement costs~~ and credit card fees, which are in line with the increase in revenue and paid downloads, and (ii) increased depreciation and amortization expense ~~partially offset~~driven by ~~increased credit card fees.~~our recent acquisitions. In addition, for the ~~six~~nine months ended ~~June~~September 30, 2020, cost of revenue includes severance charges of $1.2 million. ~~The reduction in royalty expense was driven by a change in product mix as well as a modification in the way we compensate contributors.~~ We expect that our cost of revenue will continue to fluctuate in line with changes in revenue and paid downloads.

Sales and Marketing. Sales and marketing expenses increased by ~~$9.6~~$27.4 million, or ~~12%~~24%, to ~~$87.8~~$142.3 million in the ~~six~~nine months ended ~~June~~September 30, 2021 compared to the same period in 2020. As a percent of revenue, sales and marketing expenses ~~remained flat at~~increased to 25% for the nine months ended September 30, 2021, from 24% for ~~the six months ended June 30, 2021, compared to~~ the same period in 2020. The increase in sales and marketing expenses was primarily driven by (i) ~~$5.3~~$17.0 million in higher marketing spend, and (ii) $9.1 million in higher employee-related costs, primarily related to commissions associated with increased enterprise ~~billings, and (ii) $4.0 million in higher marketing spend.~~billings. In addition, for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, sales and marketing includes severance charges of ~~$1.6 million.~~$1.3 million and $1.7 million, respectively. 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 ~~decreased~~increased by ~~$2.8~~$0.1 million, ~~or 11%,~~ to ~~$22.7~~$36.3 million in the ~~six~~nine months ended ~~June~~September 30, 2021 as compared to ~~$25.6 million for~~ the same period in 2020. This ~~decrease~~increase was primarily driven by ~~(i) lower employee and third-party contractor related costs, net of capitalized labor, and (ii)~~higher non-cash compensation expense, attributable to certain performance-based awards, partially offset by a reduction in software and other IT-related costs, for the ~~six~~nine months ended ~~June~~September 30, 2021, as compared to the same period in the prior year. ~~These declines were partially offset by higher non-cash compensation expense, attributable to certain performance-based awards.~~ 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 ~~$6.2~~$12.6 million, or ~~11%~~15%, to ~~$61.7~~$96.3 million in the ~~six~~nine months ended ~~June~~September 30, 2021 compared to the same period in 2020. This increase was primarily driven by: (i) ~~$6.8~~$6.9 million in higher non-cash compensation expense, attributable to certain performance-based ~~awards, and~~awards; (ii) ~~$1.7~~$4.2 million in higher professional fees, ~~primarily associated with~~which were impacted by transaction costs associated with our ~~acquisition~~acquisitions of ~~TurboSquid.~~TurboSquid and PicMonkey, and (iii) $3.3 million in higher employee-related costs. These increases were partially offset by a ~~$0.9~~$1.4 million decline in bad debt expense, and other reductions associated with ongoing vendor management initiatives.

Other ~~Income~~(Expense) / ~~(Expense),~~Income, Net. During the ~~six~~nine months ended ~~June~~September 30, 2021, other ~~income~~(expense) / ~~(expense),~~income, net substantially consisted of ~~$1.2~~$3.0 million of unfavorable foreign currency fluctuations.

During the ~~six~~nine months ended ~~June~~September 30, 2020, approximately ~~$1.1~~$1.6 million of other ~~income~~(expense) / ~~(expense),~~income, net consisted ~~of interest income~~unfavorable foreign currency fluctuations, which was partially offset by ~~$0.5~~$1.1 million of ~~unfavorable foreign currency fluctuations.~~interest income. 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 ~~$5.6~~$4.3 million for the ~~six~~nine months ended ~~June~~September 30, 2021 as compared to the same period in 2020. Our effective tax rates for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020 were ~~16.0%~~17.2% and ~~19.6%~~19.7%, respectively.

For the ~~six~~nine months ended ~~June~~September 30, 2021, the effective tax rate decreased by ~~4.0%~~3.0% related primarily to windfall tax benefits associated with equity-based compensation. Excluding discrete items, our effective tax rate would have been ~~20.0%~~20.2% for the ~~six~~nine months ended ~~June~~September 30, 2021.

For the ~~six~~nine months ended ~~June~~September 30, 2020, the effective tax rate increased by ~~1.6%~~0.9% as a result of a loss jurisdiction with no tax benefit. Discrete item further increased the effective tax rate by ~~1.4%~~1.8%. Excluding these items, our effective tax rate would have been ~~16.6%~~17.0% for the ~~six~~nine months ended ~~June~~September 30, 2020.

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

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Quarterly Trends

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

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

See “Risks Related to the Coronavirus ~~(COVID-19)~~(“COVID-19”) Pandemic, The effect of the COVID-19 pandemic on our operations, and the operations of our customers, partners and suppliers, could have a material adverse effect on our business, financial condition, cash flows and results of operations” in Part I, Item 1A, “Risk Factors” in our 2020 Form 10-K for further discussion of the possible impact of the COVID-19 pandemic on our business.

Liquidity and Capital Resources

As of ~~June~~September 30, 2021, we had cash and cash equivalents totaling ~~$411.0~~$300.6 million which primarily consisted of bank balances and money market funds. Since inception, we have financed our operations primarily through cash flows generated from operations.

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

Dividends

We declared and paid cash dividends of ~~$0.42~~$0.63 per share of common stock, or ~~$15.3~~$23.0 million during the ~~six~~nine months ended ~~June~~September 30, 2021.

On ~~July 19,~~October 18, 2021, our Board of Directors declared a quarterly cash dividend of $0.21 per share of outstanding common stock payable on ~~September~~December 16, 2021 to stockholders of record at the close of business on ~~September~~December 2, 2021. Future declarations of dividends are subject to the final determination of our Board of Directors, and will depend on, among other things, our future financial condition, results of operations, capital requirements, capital expenditure requirements, contractual restrictions, anticipated cash needs, business prospects, provisions of applicable law and other factors our Board of Directors may deem relevant.

Share Repurchase Program

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

As of ~~June~~September 30, 2021, we have repurchased approximately ~~2,558,000~~2.6 million shares of our common stock under the share repurchase program at an average per-share cost of ~~$39.09.~~$40.33. During the ~~six~~nine months ended ~~June~~September 30, 2021, we ~~did not repurchase any~~repurchased approximately 41,900 shares of our common stock ~~under the~~at an average per share ~~repurchase program.~~cost of $115.95. As of ~~June~~September 30, 2021, we had ~~$100~~$95 million of ~~repurchase capacity~~ remaining authorization for purchases under the share repurchase program.

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Equity-Based Compensation

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

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

~~Acquisition of Three Artificial Intelligence Platforms~~

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. Future capital expenditures could relate to building enhancements to the functionality of our current platform, the acquisition of additional storage, servers, network connectivity hardware, security apparatus and software, leasehold improvements and furniture and fixtures related to office expansion and relocation, content and general corporate infrastructure. See Note 13 to our Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for information regarding our existing capital commitments as of ~~June~~September 30, 2021.

Cash Flows

The following table summarizes our cash flow data for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020 (in thousands).


		Six Months Ended June 30,					Nine Months Ended September 30,
		2021		2020			2021		2020
Net cash provided by operating activities	Net cash provided by operating activities	$	107,216	$	36,343	Net cash provided by operating activities	$	161,858	$	100,225
Net cash used in investing activities	Net cash used in investing activities	$	(90,963)	$	(15,438)	Net cash used in investing activities	$	(242,407)	$	(22,088)
Net cash used in financing activities		$	(33,745)	$	(14,905)
Net cash (used in) / provided by financing activities						Net cash (used in) / provided by financing activities	$	(46,426)	$	1,674

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 ~~$107.2~~$161.9 million for the ~~six~~nine months ended ~~June~~September 30, 2021, compared to ~~$36.3~~$100.2 million for the ~~six~~nine months ended ~~June~~September 30, 2020. In the ~~six~~nine months ended ~~June~~September 30, 2021, operating cash flows were favorably impacted from our increased operating income and changes in the timing of payments pertaining to operating expenses, which can cause operating cash flow to fluctuate from period to period. In addition, the ~~six~~nine months ended ~~June~~September 30, 2020 were impacted by $7.8 million in one-time payments associated with long-term incentives related to our 2017 acquisition of Flashstock.

Investing Activities

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

Cash used in investing activities in the ~~six~~nine months ended ~~June~~September 30, 2020 was ~~$15.4~~$22.1 million, consisting primarily of capital expenditures of ~~$14.0~~$20.3 million for internal-use software and website development costs and purchases of software and equipment, and ~~$1.6~~$2.1 million paid to acquire the rights to distribute certain digital content ~~into~~in perpetuity.

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Financing Activities

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

Cash ~~used in~~provided by financing activities in the ~~six~~nine months ended ~~June~~September 30, 2020 was ~~$14.9~~$1.7 million, consisting primarily of ~~$12.1~~$23.2 million of proceeds from our stock offering on August 14, 2020, after deducting underwriting discounts, commissions and offering expenses paid, and approximately $0.6 million received from the issuance of common stock in connection with the exercise of stock options. These amounts were partially offset by $18.2 million, related to the payment of the quarterly cash dividend, and ~~$3.4~~$3.9 million, ~~which was~~ paid in settlement of tax withholding obligations related to employee stock-based compensation awards.

Contractual Obligations and Commitments

We lease real estate under operating lease agreements that expire on various dates during the period from 2021 through 2029. We do not have any material finance lease obligations and our property, equipment and software have been purchased primarily with cash. We do not anticipate any difficulties in renewing those leases and co-location agreements that expire within the next several years and that we currently plan to renew, or in leasing other space or hosting facilities, if required.

On March 21, 2013, we entered into an operating lease agreement to lease our headquarters in New York City, which was amended in 2016. The aggregate undiscounted future minimum lease payments under the lease, as amended, are approximately ~~$53.3~~$51.8 million. We are also party to a letter of credit as a security deposit for this leased facility in the amount of $1.7 million. As of March 31, 2020, the Company is no longer required to provide cash collateral for its letter of credit, and, accordingly, these funds are no longer restricted.

Additionally, as of ~~June~~September 30, 2021, aggregate undiscounted future minimum lease payments under other operating leases are approximately ~~$6.2~~$6.8 million.

We enter into unconditional purchase obligations related to contracts for cloud-based services, infrastructure and other business services as well as minimum royalty guarantees in connection with certain content licenses. As of ~~June~~September 30, 2021, our guaranteed royalty payments and unconditional purchase obligations for the remainder of 2021 and for the fiscal years ending December 31, 2022, 2023, 2024, 2025 and 2026 were approximately ~~$14.2~~$21.5 million, ~~$14.2~~$17.7 million, ~~$9.9~~$12.7 million, $4.7 million, $2.1 million and $0.3 million, respectively.

Non-GAAP Financial Measures

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


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,						Nine Months Ended September 30,
		2021			2020			2021			2020				2021			2020			2021			2020
Non-GAAP Financial Measures:	Non-GAAP Financial Measures:	(in thousands)												Non-GAAP Financial Measures:	(in thousands)
Adjusted EBITDA	Adjusted EBITDA	$	53,063		$	37,032		$	109,482		$	59,092		Adjusted EBITDA	$	44,400		$	47,382		$	153,882		$	106,474
Adjusted net income	Adjusted net income	37,935			22,162			74,571			31,321			Adjusted net income	26,354			29,326			100,925			60,647
Free cash flow	Free cash flow	$	61,692		$	22,383		$	88,483		$	28,559		Free cash flow	$	44,318		$	57,041		$	132,801		$	85,600
Revenue growth on a constant currency basis	Revenue growth on a constant currency basis	16		%	(1)		%	13		%	(1)		%	Revenue growth on a constant currency basis	17		%	3		%	15		%	1		%

These non-GAAP financial measures have not been calculated in accordance with GAAP, should be considered only in addition to results prepared in accordance with GAAP and should not be considered as a substitute for, or superior to, GAAP measures. In addition, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted net income per diluted

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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

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use can make it difficult to compare our current results with our results from other reporting periods and with the results of other companies.

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

Management believes that adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted net income per diluted common share, revenue growth (including by distribution channel) on a constant currency basis (expressed as a percentage) and free cash flow are useful to investors because these measures enable investors to analyze our operating results on the same basis as that used by management. Additionally, management believes that adjusted EBITDA, adjusted EBITDA margin, adjusted net income and adjusted net income per diluted common share provide useful information to investors about the performance of the Company’s overall business because such measures eliminate the effects of unusual or other infrequent charges that are not directly attributable to our underlying operating performance, and that revenue growth (including by distribution channel) on a constant currency basis, provides useful information to investors by eliminating the effect of foreign currency fluctuations that are not directly attributable to our operating performance. Management also believes that providing these non-GAAP financial measures enhances the comparability for investors in assessing our financial reporting. Management believes that free cash flow is useful for investors because it provides them with an important perspective on the cash available for strategic measures, after making necessary capital investments in property and equipment to support the Company’s ongoing business operations and after excluding the impact of nonrecurring payments associated with long-term incentives related to our 2017 acquisition of Flashstock, 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-GAAP financial measures should be considered in addition to other financial performance measures, including various cash flow metrics, net income and our other GAAP results.

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

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Adjusted EBITDA and Adjusted EBITDA Margin

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

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


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,						Nine Months Ended September 30,
		2021			2020			2021			2020				2021			2020			2021			2020
		(in thousands)													(in thousands)

Net income	Net income	$	29,454		$	18,987		$	58,968		$	23,305		Net income	$	16,029		$	22,582		$	74,997		$	45,887
Add / (less) Non-GAAP adjustments:	Add / (less) Non-GAAP adjustments:													Add / (less) Non-GAAP adjustments:
Depreciation and amortization	Depreciation and amortization	10,152			10,851			20,243			21,370			Depreciation and amortization	13,488			9,750			33,731			31,120

Non-cash equity-based compensation	Non-cash equity-based compensation	9,686			3,636			17,896			9,396			Non-cash equity-based compensation	8,743			8,285			26,639			17,681
Other adjustments, net(1)	Other adjustments, net(1)	(1,323)			(149)			1,139			(662)			Other adjustments, net(1)	1,749			1,168			2,888			506
Provision for income taxes	Provision for income taxes	5,094			3,707			11,236			5,683			Provision for income taxes	4,391			5,597			15,627			11,280

Adjusted EBITDA	Adjusted EBITDA	$	53,063		$	37,032		$	109,482		$	59,092		Adjusted EBITDA	$	44,400		$	47,382		$	153,882		$	106,474
Adjusted EBITDA margin	Adjusted EBITDA margin	27.9		%	23.3		%	29.3		%	18.4		%	Adjusted EBITDA margin	22.8		%	28.7		%	27.1		%	21.9		%

(1)Included in other adjustments, net are foreign currency transaction gains and losses and interest income and expense.

Adjusted Net Income and Adjusted Net Income Per Diluted Common Share

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

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


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			2021		2020		2021		2020
		(in thousands)									(in thousands)

Net income	Net income	$	29,454	$	18,987	$	58,968	$	23,305	Net income	$	16,029	$	22,582	$	74,997	$	45,887
Add / (less) Non-GAAP adjustments:	Add / (less) Non-GAAP adjustments:									Add / (less) Non-GAAP adjustments:
Non-cash equity-based compensation	Non-cash equity-based compensation	9,686		3,636		17,896		9,396		Non-cash equity-based compensation	8,743		8,285		26,639		17,681
Tax effect of non-cash equity-based compensation(1)	Tax effect of non-cash equity-based compensation(1)	(2,276)		(854)		(4,205)		(2,208)		Tax effect of non-cash equity-based compensation(1)	(2,055)		(1,947)		(6,260)		(4,155)
Acquisition-related amortization expense	Acquisition-related amortization expense	1,400		514		2,499		1,082		Acquisition-related amortization expense	4,754		531		7,253		1,613
Tax effect of acquisition-related amortization expense(1)	Tax effect of acquisition-related amortization expense(1)	(329)		(121)		(587)		(254)		Tax effect of acquisition-related amortization expense(1)	(1,117)		(125)		(1,704)		(379)

Adjusted net income	Adjusted net income	$	37,935	$	22,162	$	74,571	$	31,321	Adjusted net income	$	26,354	$	29,326	$	100,925	$	60,647

Adjusted net income per diluted common share	Adjusted net income per diluted common share	$	1.02	$	0.62	$	2.00	$	0.87	Adjusted net income per diluted common share	$	0.70	$	0.80	$	2.71	$	1.68

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

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

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


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,						Nine Months Ended September 30,
		2021			2020			2021			2020				2021			2020			2021			2020
		(in thousands)													(in thousands)

Reported revenue (in thousands)	Reported revenue (in thousands)	$	189,912		$	159,230		$	373,193		$	320,515		Reported revenue (in thousands)	$	194,439		$	165,227		$	567,632		$	485,742
Revenue growth	Revenue growth	19		%	(2)		%	16		%	(1)		%	Revenue growth	18		%	4		%	17		%	—		%
Revenue growth on a constant currency basis	Revenue growth on a constant currency basis	16		%	(1)		%	13		%	(1)		%	Revenue growth on a constant currency basis	17		%	3		%	15		%	1		%

E-commerce reported revenue (in thousands)	E-commerce reported revenue (in thousands)	$	120,715		$	98,164		$	239,115		$	197,900		E-commerce reported revenue (in thousands)	$	121,707		$	102,816		$	360,822		$	300,716
E-commerce revenue growth	E-commerce revenue growth	23		%	1		%	21		%	1		%	E-commerce revenue growth	18		%	7		%	20		%	3		%
E-commerce revenue growth on a constant currency basis	E-commerce revenue growth on a constant currency basis	20		%	2		%	18		%	2		%	E-commerce revenue growth on a constant currency basis	18		%	6		%	18		%	3		%

Enterprise reported revenue (in thousands)	Enterprise reported revenue (in thousands)	$	69,197		$	61,066		$	134,078		$	122,615		Enterprise reported revenue (in thousands)	$	72,732		$	62,411		$	206,810		$	185,026
Enterprise revenue growth	Enterprise revenue growth	13		%	(6)		%	9		%	(6)		%	Enterprise revenue growth	17		%	(1)		%	12		%	(4)		%
Enterprise revenue growth on a constant currency basis	Enterprise revenue growth on a constant currency basis	9		%	(5)		%	6		%	(5)		%	Enterprise revenue growth on a constant currency basis	15		%	(1)		%	9		%	(4)		%

Free Cash Flow

We define free cash flow as our cash provided by operating activities, adjusted for capital expenditures and content acquisition, and, with respect to the three months ended March 31, 2020, a payment associated with long-term incentives related to our 2017 acquisition of Flashstock.

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


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			2021		2020		2021		2020
		(in thousands)									(in thousands)

Net cash provided by operating activities	Net cash provided by operating activities	$	71,388	$	29,484	$	107,216	$	36,343	Net cash provided by operating activities	$	54,642	$	63,882	$	161,858	$	100,225
Capital expenditures	Capital expenditures	(6,789)		(6,247)		(15,337)		(13,966)		Capital expenditures	(5,830)		(6,311)		(21,167)		(20,277)
Content acquisitions	Content acquisitions	(2,907)		(854)		(3,396)		(1,577)		Content acquisitions	(4,494)		(530)		(7,890)		(2,107)
Payments related to long-term incentives related to acquisitions	Payments related to long-term incentives related to acquisitions	—		—		—		7,759		Payments related to long-term incentives related to acquisitions	—		—		—		7,759
Free Cash Flow	Free Cash Flow	$	61,692	$	22,383	$	88,483	$	28,559	Free Cash Flow	$	44,318	$	57,041	$	132,801	$	85,600

Off-Balance Sheet Arrangements

As of ~~June~~September 30, 2021, 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.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

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

Foreign Currency Exchange Risk

Our sales to international customers are denominated in multiple currencies, including but not limited to the U.S. dollar, the euro, the British pound, the Australian dollar and the Japanese yen. Revenue denominated in foreign currencies as a percentage of total revenue was approximately ~~36% and~~ 35% for the ~~six~~nine months ended ~~June~~September 30, 2021 and ~~2020, respectively.~~2020. Changes in exchange rates will affect our revenue and certain operating expenses to the extent that our revenue is generated and expenses are incurred in currencies other than the U.S. dollar. Royalties earned by and paid to contributors are denominated in the U.S. dollar and will not be affected by changes in exchange rates. Based on our foreign currency denominated revenue for the ~~six~~nine months ended ~~June~~September 30, 2021, we estimate that a 10% change in the exchange rate of the U.S. dollar against all foreign currency denominated revenues would result in an approximately 3% impact on our revenue.

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

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


		Three Months Ended June 30,								Six Months Ended June 30,									Three Months Ended September 30,								Nine Months Ended September 30,
		2021				2020				2021				2020					2021				2020				2021				2020
		U.S. Dollars		Originating Currency		U.S. Dollars		Originating Currency		U.S. Dollars		Originating Currency		U.S. Dollars		Originating Currency			U.S. Dollars		Originating Currency		U.S. Dollars		Originating Currency		U.S. Dollars		Originating Currency		U.S. Dollars		Originating Currency
Euro	Euro	$	38,753	€	32,588	$	32,756	€	29,717	$	76,643	€	64,543	$	66,448	€	60,095	Euro	$	35,930	€	30,333	$	32,949	€	28,940	$	112,573	€	94,876	$	99,397	€	60,095
British pounds	British pounds	14,915		£	10,806	11,274		£	9,039	28,909		£	21,122	23,477		£	18,509	British pounds	14,678		£	10,681	12,439		£	9,743	43,587		£	31,802	35,916		£	18,509
All other non-U.S. currencies(1)	All other non-U.S. currencies(1)	14,083				11,408				28,029				23,203				All other non-U.S. currencies(1)	14,261				12,567				42,290				35,770
Total foreign currency	Total foreign currency	67,751				55,438				133,581				113,128				Total foreign currency	64,869				57,955				198,450				171,083

U.S. dollar	U.S. dollar	122,161				103,792				239,612				207,387				U.S. dollar	129,570				107,272				369,182				314,659
Total revenue	Total revenue	$	189,912			$	159,230			$	373,193			$	320,515			Total revenue	$	194,439			$	165,227			$	567,632			$	485,742

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

Interest Rate Fluctuation Risk

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

We did not have any long-term borrowings as of ~~June~~September 30, 2021.

Inflation Risk

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

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Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of ~~June~~September 30, 2021. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. However, any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objective.

Based on the evaluation of our disclosure controls and procedures as of ~~June~~September 30, 2021, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

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

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

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

Item 1A. Risk Factors.

We operate in a rapidly changing environment that involves a number of risks that could materially affect our business, financial condition or future results, some of which are beyond our control. In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our 2020 Form 10-K, which could materially affect our business, financial condition or future results. During the three months ended ~~June~~September 30, 2021, there were no material changes to these risk factors as described in our 2020 Form 10-K.

Item 6. Exhibits.

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

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EXHIBIT INDEX


Exhibit
Number						Exhibit Description




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

______________________________________

# Filed herewith.

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SIGNATURES

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


	SHUTTERSTOCK, INC.

Dated: ~~July 27,~~October 26, 2021	By:	/s/ Jarrod Yahes
		Jarrod Yahes
		Chief Financial Officer
		(Principal Financial Officer)

Dated: ~~July 27,~~October 26, 2021	By:	/s/ Steven Ciardiello
		Steven Ciardiello
		Chief Accounting Officer
		(Principal Accounting Officer)

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		Page No.

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	4
	Consolidated Balance Sheets	4
	Consolidated Statements of Operations	5
	Consolidated Statements of Comprehensive Income	6
	Consolidated Statements of Stockholders’ Equity	7
	Consolidated Statements of Cash Flows	8
	Notes to Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2022
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3537
Item 4.	Controls and Procedures	3739

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	3840
Item 1A.	Risk Factors	3840

Item 6.	Exhibits	3840

Signatures		4042