Shutterstock(SSTK) - 2021 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section covers unaudited financial statements, management's analysis, market risk, and internal controls Item 1. Financial Statements (Unaudited) This section presents Shutterstock's unaudited consolidated financial statements, including balance sheets, income statements, cash flows, and notes Consolidated Balance Sheets As of September 30, 2021, total assets increased to $841.2 million from $729.6 million at the end of 2020, primarily driven by Goodwill and Intangible Assets from acquisitions, while total liabilities rose to $366.3 million and total stockholders' equity grew to $474.9 million Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $375,676 | $489,070 | | Goodwill | $219,822 | $89,413 | | Intangible assets, net | $130,196 | $25,765 | | Total Assets | $841,177 | $729,644 | | Total Current Liabilities | $315,454 | $256,929 | | Total Liabilities | $366,281 | $307,719 | | Total Stockholders' Equity | $474,896 | $421,925 | Consolidated Statements of Operations For Q3 2021, revenue increased 17.7% year-over-year to $194.4 million, but net income declined to $16.0 million due to higher operating expenses, while for the nine-month period, revenue grew 16.9% to $567.6 million and net income increased 63.4% to $75.0 million Statement of Operations Summary (in thousands, except EPS) | Metric | Q3 2021 | Q3 2020 | 9 Months 2021 | 9 Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $194,439 | $165,227 | $567,632 | $485,742 | | Income from Operations | $22,169 | $29,347 | $93,512 | $57,673 | | Net Income | $16,029 | $22,582 | $74,997 | $45,887 | | Diluted EPS | $0.43 | $0.62 | $2.01 | $1.27 | Consolidated Statements of Cash Flows For the nine months ended September 30, 2021, net cash from operating activities significantly increased to $161.9 million, while cash used in investing activities surged to $242.4 million due to acquisitions, and financing activities used $46.4 million, resulting in a net decrease in cash to $300.6 million Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $161,858 | $100,225 | | Net cash used in investing activities | $(242,407) | $(22,088) | | Net cash (used in) / provided by financing activities | $(46,426) | $1,674 | | Net (decrease) / increase in cash | $(127,995) | $77,253 | Note 3: Acquisitions In 2021, the company made several strategic acquisitions, including PicMonkey for approximately $110 million, TurboSquid for approximately $77.3 million, and three AI-focused entities for about $35 million, to expand its offerings and data capabilities - Completed the acquisition of PicMonkey, an online graphic design and image editing platform, for approximately $110 million in cash[51] - Acquired TurboSquid, a marketplace for 3D models, for approximately $77.3 million in cash[54] - Completed asset acquisitions of three AI entities (Pattern89, Inc., Datasine Limited, and assets from Shotzr, Inc.) for an aggregate purchase price of approximately $35 million[65] Note 8: Revenue Revenue is generated through E-commerce and Enterprise channels, with E-commerce revenue growing 20% to $360.8 million and Enterprise revenue growing 12% to $206.8 million for the nine months ended September 30, 2021 Revenue by Distribution Channel (in thousands) | Channel | Q3 2021 | Q3 2020 | 9 Months 2021 | 9 Months 2020 | | :--- | :--- | :--- | :--- | :--- | | E-commerce | $121,707 | $102,816 | $360,822 | $300,716 | | Enterprise | $72,732 | $62,411 | $206,810 | $185,026 | | Total Revenues | $194,439 | $165,227 | $567,632 | $485,742 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, strategic acquisitions, key operating metrics, and liquidity, highlighting revenue and net income trends Overview and Recent Developments Shutterstock is expanding its platform beyond traditional stock content through strategic acquisitions like TurboSquid for 3D models and PicMonkey for creative design software, and by forming Shutterstock.AI to commercialize its data library and develop predictive tools - The company's content collection has grown to over 390 million images and 23 million footage clips as of September 30, 2021, serving over 2.0 million active paying customers in the last twelve months[117] - Launched Shutterstock.AI after acquiring Pattern89, Datasine, and assets from Shotzr to commercialize data assets and develop predictive performance capabilities using artificial intelligence[115][116] Key Operating Metrics The company's key operating metrics showed positive trends in Q3 2021, with subscribers increasing 31.8% year-over-year to 336,000, average revenue per customer rising to $361, and revenue per download increasing to $4.20, indicating higher value transactions Key Operating Metrics Comparison | Metric | Q3 2021 | Q3 2020 | | :--- | :--- | :--- | | Subscribers (end of period) | 336,000 | 255,000 | | Subscriber revenue (in millions) | $81.5 | $67.6 | | Average revenue per customer (LTM) | $361 | $328 | | Paid downloads (in millions) | 44.3 | 43.4 | | Revenue per download | $4.20 | $3.79 | Results of Operations In Q3 2021, revenue grew 18% year-over-year to $194.4 million, but income from operations fell 24% to $22.2 million due to a 49% increase in sales and marketing expenses, while for the nine-month period, revenue grew 17% to $567.6 million and income from operations increased 62% to $93.5 million - Q3 2021 revenue increased 18% YoY, with E-commerce revenue growing 18% and Enterprise revenue growing 17%[148][149][150] - Q3 2021 sales and marketing expenses increased by $17.8 million, or 49%, primarily due to a $13.0 million increase in marketing spend and higher commissions[155] - For the nine months ended Sep 30, 2021, income from operations increased 62% to $93.5 million, and net income increased 63% to $75.0 million compared to the prior year period[163] Liquidity and Capital Resources The company ended Q3 2021 with $300.6 million in cash and cash equivalents, having used cash for strategic acquisitions totaling $213.2 million, $23.0 million in dividends, and $4.2 million in share repurchases during the first nine months of 2021, with management confident in sufficient liquidity for the next 12 months - Cash and cash equivalents totaled $300.6 million as of September 30, 2021[183] - During the nine months ended Sep 30, 2021, the company paid $23.0 million in dividends and repurchased approximately 41,900 shares for $4.2 million; $95 million remains available under the share repurchase program[185][188][198] - Net cash used in investing activities for the first nine months of 2021 was $242.4 million, primarily consisting of $181.8 million for business combinations and $31.4 million for asset acquisitions[196] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is foreign currency exchange rate fluctuation, as approximately 35% of its revenue for the first nine months of 2021 was foreign currency denominated, with a hypothetical 10% U.S. dollar exchange rate change impacting total revenue by approximately 3% - Revenue denominated in foreign currencies was approximately 35% of total revenue for the nine months ended September 30, 2021[221] - A hypothetical 10% change in the exchange rate of the U.S. dollar against all foreign currencies would result in an approximate 3% impact on total revenue[221] Item 4. Controls and Procedures As of September 30, 2021, the company's CEO and CFO concluded that disclosure controls and procedures were effective at a reasonable assurance level, and the company is integrating the internal controls of its recently acquired businesses - Management concluded that as of September 30, 2021, the company's disclosure controls and procedures were effective at the reasonable assurance level[229] - The company is in the process of integrating the acquired businesses from 2021 into its overall internal control over financial reporting process[230] PART II. OTHER INFORMATION This section includes information on legal proceedings, risk factors, and exhibits Item 1. Legal Proceedings The company is not currently a party to any material active litigation, and management does not believe that the final disposition of any existing matters will have a material adverse effect on its financial condition or operations - The company is not currently a party to any material active litigation and does not expect existing matters to have a material adverse effect on the business[232] Item 1A. Risk Factors There have been no material changes to the risk factors affecting the company during the three months ended September 30, 2021, as compared to those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2020 - During the three months ended September 30, 2021, there were no material changes to the risk factors as described in the company's 2020 Form 10-K[233] Item 6. Exhibits This section provides an index of the exhibits filed with the Form 10-Q, including CEO and CFO certifications required by the Sarbanes-Oxley Act and the company's interactive data files (XBRL) - The Exhibit Index lists required filings, including CEO/CFO certifications under Sarbanes-Oxley Sections 302 and 906, and XBRL data files[236]