Shutterstock(SSTK) - 2021 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements Unaudited consolidated financial statements for Q2 2021 show total assets at $795.9 million, stockholders' equity at $465.3 million, and significant growth in H1 2021 revenue and net income Consolidated Balance Sheets Total assets increased to $795.9 million by June 30, 2021, driven by acquisitions, with liabilities at $330.5 million and equity at $465.3 million Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $411,046 | $428,574 | | Goodwill | $149,069 | $89,413 | | Intangible assets, net | $46,409 | $25,765 | | Total assets | $795,852 | $729,644 | | Deferred revenue | $161,935 | $149,843 | | Total liabilities | $330,518 | $307,719 | | Total stockholders' equity | $465,334 | $421,925 | Consolidated Statements of Operations Q2 2021 revenue grew 19% to $189.9 million (net income up 55%), while H1 2021 revenue rose 16% to $373.2 million (net income up 153%) Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Q2 2021 | Q2 2020 | YoY Change | H1 2021 | H1 2020 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | $189,912 | $159,230 | +19.3% | $373,193 | $320,515 | +16.4% | | Income from operations | $33,225 | $22,545 | +47.4% | $71,343 | $28,326 | +151.9% | | Net income | $29,454 | $18,987 | +55.1% | $58,968 | $23,305 | +153.0% | | Diluted EPS | $0.79 | $0.53 | +49.1% | $1.58 | $0.65 | +143.1% | Consolidated Statements of Cash Flows H1 2021 operating cash flow nearly tripled to $107.2 million, investing activities used $91.0 million (TurboSquid acquisition), and financing used $33.7 million Consolidated Statements of Cash Flows Highlights (Six Months Ended June 30, in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $107,216 | $36,343 | | Net cash used in investing activities | $(90,963) | $(15,438) | | Net cash used in financing activities | $(33,745) | $(14,905) | | Net (decrease) / increase in cash | $(17,528) | $5,283 | - The significant increase in cash used for investing activities was driven by a $72.2 million payment for a business combination (TurboSquid)[27] Notes to Consolidated Financial Statements Notes detail the $77.3 million TurboSquid acquisition, E-commerce as the primary revenue channel, $15.3 million H1 2021 dividends, and subsequent $35 million AI platform acquisitions - On February 1, 2021, the Company acquired TurboSquid, Inc. for approximately $77.3 million in cash, establishing Shutterstock as a premium destination for 3D models[54][55] Revenue by Distribution Channel (Six Months Ended June 30, in thousands) | Channel | 2021 | 2020 | | :--- | :--- | :--- | | E-commerce | $239,115 | $197,900 | | Enterprise | $134,078 | $122,615 | | Total Revenues | $373,193 | $320,515 | Revenue by Geography (Six Months Ended June 30, in thousands) | Region | 2021 | 2020 | | :--- | :--- | :--- | | North America | $133,263 | $113,229 | | Europe | $127,055 | $106,003 | | Rest of the world | $112,875 | $101,283 | | Total revenue | $373,193 | $320,515 | - In July 2021, after the quarter ended, the Company acquired Pattern89 Inc., Datasine Limited, and assets from Shotzr, Inc. for aggregate cash consideration of approximately $35 million to bolster its artificial intelligence capabilities[104] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management reports strong Q2 and H1 2021 performance, with E-commerce driving revenue growth, strategic acquisitions (TurboSquid, AI platforms), and robust liquidity of $411.0 million cash Overview and Recent Developments Shutterstock operates a global creative platform with over 2.0 million customers, generating revenue via E-commerce, and acquired TurboSquid and three AI platforms for $35 million to form Shutterstock.AI - As of June 30, 2021, the company had over 2.0 million active paying customers, over 1.8 million approved contributors, and a collection of more than 380 million images and 22 million footage clips[109] - In July 2021, the company acquired three artificial intelligence entities (Pattern89, Inc., DataSine Limited, and assets from Shotzr, Inc.) for approximately $35 million to form Shutterstock.AI, which will commercialize data assets and develop predictive performance capabilities[115][116] Key Operating Metrics Q2 2021 key metrics show subscriber growth to 321,000, subscriber revenue of $78.1 million, and revenue per download increasing to $4.17 due to product mix Key Operating Metrics Comparison | Metric | Q2 2021 | Q2 2020 | | :--- | :--- | :--- | | Subscribers (end of period) | 321,000 | 223,000 | | Subscriber revenue (in millions) | $78.1 | $62.7 | | Average revenue per customer (LTM) | $356 | $326 | | Paid downloads (in millions) | 44.9 | 44.0 | | Revenue per download | $4.17 | $3.61 | Results of Operations Q2 2021 revenue grew 19% to $189.9 million (operations income up 47%), and H1 2021 revenue increased 16% to $373.2 million (operations income up 152%) - Q2 2021 vs Q2 2020: - Revenue increased 19% to $189.9 million[143] - E-commerce revenue grew 23%, driven by increased subscriber revenue and the TurboSquid acquisition[144] - Enterprise revenue grew 13%[145] - Sales and marketing expenses increased 29% due to higher marketing spend and commissions[150] - H1 2021 vs H1 2020: - Revenue increased 16% to $373.2 million[158] - Cost of revenue decreased by 3% to $129.6 million, primarily due to lower royalty expenses from a change in product mix and a modified contributor compensation model[159] - Income from operations increased 152% to $71.3 million[165] Liquidity and Capital Resources As of June 30, 2021, the company had $411.0 million in cash, funding operations, acquisitions, $15.3 million in dividends, and $20.2 million for RSU tax, with $100 million for share repurchases - The company had cash and cash equivalents of $411.0 million as of June 30, 2021[179] - Paid cash dividends of $15.3 million during the six months ended June 30, 2021. A further quarterly dividend of $0.21 per share was declared on July 19, 2021[181][182] - As of June 30, 2021, $100 million of repurchase capacity remained under the share repurchase program. No shares were repurchased in the first six months of 2021[184] - Total non-lease obligations as of June 30, 2021, were approximately $45.4 million, primarily for minimum royalty guarantees and infrastructure contracts[99] Non-GAAP Financial Measures Non-GAAP measures show Q2 2021 Adjusted EBITDA at $53.1 million (27.9% margin) and H1 2021 Adjusted EBITDA at $109.5 million, with H1 2021 Free Cash Flow at $88.5 million Reconciliation of Net Income to Adjusted EBITDA (in thousands) | Metric | Q2 2021 | Q2 2020 | H1 2021 | H1 2020 | | :--- | :--- | :--- | :--- | :--- | | Net income | $29,454 | $18,987 | $58,968 | $23,305 | | Adjusted EBITDA | $53,063 | $37,032 | $109,482 | $59,092 | | Adjusted EBITDA margin | 27.9% | 23.3% | 29.3% | 18.4% | Reconciliation of Net Income to Adjusted Net Income (in thousands) | Metric | Q2 2021 | Q2 2020 | H1 2021 | H1 2020 | | :--- | :--- | :--- | :--- | :--- | | Net income | $29,454 | $18,987 | $58,968 | $23,305 | | Adjusted net income | $37,935 | $22,162 | $74,571 | $31,321 | | Adjusted net income per diluted share | $1.02 | $0.62 | $2.00 | $0.87 | Free Cash Flow Calculation (in thousands) | Metric | H1 2021 | H1 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $107,216 | $36,343 | | Capital expenditures | $(15,337) | $(13,966) | | Content acquisitions | $(3,396) | $(1,577) | | Free Cash Flow | $88,483 | $28,559 | Item 3. Quantitative and Qualitative Disclosures About Market Risk Market risk primarily stems from foreign currency exchange rates, with 36% of H1 2021 revenue in foreign currencies; a 10% USD change could impact total revenue by 3%, while other risks are immaterial - Revenue denominated in foreign currencies was approximately 36% of total revenue for the six months ended June 30, 2021. The company estimates a 10% change in the U.S. dollar exchange rate would result in an approximate 3% impact on total revenue[218] - The company does not currently use derivative financial instruments to hedge foreign currency risk[219] - Interest rate and inflation risks are considered to have no material effect on the business[222][223] Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective as of June 30, 2021, with no material changes to internal control over financial reporting, while integrating the TurboSquid acquisition - As of June 30, 2021, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level[226] - The company is currently integrating the acquired TurboSquid, Inc. business into its overall internal control over financial reporting process[227] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not involved in any material active litigation, and management anticipates no material adverse effect from ordinary course claims - The company is not currently a party to any material active litigation and believes that the outcome of existing ordinary course matters will not have a material adverse effect on its business[229] Item 1A. Risk Factors No material changes occurred to the risk factors previously disclosed in the company's 2020 Form 10-K - During the three months ended June 30, 2021, there were no material changes to the risk factors as described in the company's 2020 Form 10-K[230] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL data files - The exhibits filed with this report include CEO and CFO certifications (Exhibits 31.1, 31.2, 32) and Interactive Data Files (XBRL)[233]