Workflow
Shutterstock(SSTK) - 2021 Q4 - Annual Report

Part I Business Overview Shutterstock, Inc. is a leading global creative platform providing full-service solutions, high-quality content, and creative workflow tools - Shutterstock is a global creative platform offering full-service solutions, high-quality content, and creative workflow solutions for brands, businesses, and media companies14 - Key offerings include images, footage, music, 3D models (via TurboSquid acquisition in Feb 2021), and creative design software (via PicMonkey acquisition in Sep 2021)18 - In July 2021, Shutterstock.AI acquired Pattern89, Datasine Limited, and assets from Shotzr, Inc. to develop predictive performance capabilities using AI for data-informed content decisions15 - The company benefits from network effects, attracting customers with an extensive content library and contributors with a global customer base, facilitated by trust and seamless workflow integration16 - Sales are diversified across E-commerce (majority, subscription/transactional) and Enterprise (tailored solutions, API integration) channels2526 Revenue by Sales Channel (in thousands) | Year Ended December 31, | 2021 | 2020 | 2019 | | :---------------------- | :-------- | :-------- | :-------- | | E-commerce | $490,212 | $412,521 | $392,241 | | Enterprise | $283,203 | $254,165 | $258,282 | | Total Revenue | $773,415 | $666,686 | $650,523 | - As of December 31, 2021, Shutterstock had over 2.0 million approved contributors and served over 2.0 million customers in more than 150 countries2832 - The content library includes over 400 million images and 24 million footage clips as of December 31, 2021230 - The company protects its intellectual property through patents, trademarks, copyrights, domain name registrations, and trade secret protections, and offers indemnification to customers for licensed content57585956 - The industry is highly competitive with low barriers to entry, facing competitors like Getty Images, AdobeStock, and providers of free content6792 - As of December 31, 2021, Shutterstock had 1,148 full-time employees, with approximately 68% in North America and 27% in Europe69 - Operating results may fluctuate seasonally, with expected decreases in Q3 due to summer vacations and increases in Q4 for holiday marketing campaigns74 Risk Factors The company faces multiple risks in supply chain, regulations, and international trade - The COVID-19 pandemic has had and could continue to have a material adverse effect on operations, customer spending, demand for products, and talent retention, with the extent of future impact remaining uncertain7985 - The success of the business depends on the ability to attract and retain customers and contributors; failure to do so, or if customers reduce spending or contributors reduce participation, would harm the business889091 - The industry is highly competitive with low barriers to entry, and ineffective competition could adversely affect operating results92 - Failure to innovate technologically, develop new products/services, or enhance existing ones to meet customer requirements could impair revenue growth101102103 - Risks related to intellectual property include unforeseen costs from infringement claims, potential liability from indemnification claims, changes in IP regulations, and inability to prevent misuse of content138139140142 - International operations expose the company to risks such as foreign currency fluctuations, legal/political restrictions, compliance with foreign laws, and difficulties in managing global expansion161162166 - Evolving government regulation of the internet, e-commerce, data privacy (e.g., GDPR, CCPA, CPRA), and tax laws (e.g., TCJA, OECD BEPS) could negatively impact the business and increase costs61626364169170174175176 Unresolved Staff Comments There are no unresolved staff comments to report - No unresolved staff comments209 Properties Shutterstock's corporate headquarters is located in New York, New York, where it leases approximately 103,000 square feet of office space until 2029 - Corporate headquarters in New York, NY, with a lease for approximately 103,000 square feet expiring in 2029211 - Other office facilities globally support sales, marketing, technology, and customer service, with leases expiring between 2022 and 2029211 Legal Proceedings Shutterstock is not currently a party to any material active litigation, but may face claims in the ordinary course of business - Not currently a party to any material active litigation213 - Periodically subject to claims regarding intellectual property rights, employment matters, privacy issues, and other ordinary course business matters213 - Management believes the final disposition of existing matters will not have a material adverse effect on business, results of operations, financial condition, or cash flows213 Mine Safety Disclosures This item is not applicable to Shutterstock, Inc - Not applicable214 Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Shutterstock's common stock is listed on the NYSE, with a quarterly cash dividend initiated in 2020 and an active share repurchase program - Common stock is listed on the New York Stock Exchange (NYSE) under the symbol 'SSTK'215 - As of February 4, 2022, there were 3 holders of record of common stock215 - No unregistered equity securities were sold during the year ended December 31, 2021216 - A quarterly cash dividend was initiated on February 11, 2020, and is expected to continue, subject to Board determination217 Issuer Purchases of Equity Securities (Q4 2021) | Period | Total Number of Shares (or Units) Purchased | Average Price Paid Per Share (or Unit) | | :-------------------- | :------------------------------------------ | :------------------------------------- | | October 1 - 31, 2021 | 63,000 | $119.61 | | November 1 - 30, 2021 | 62,800 | $119.30 | | December 1 - 31, 2021 | 66,000 | $110.35 | | Total | 191,800 | $116.32 | - As of December 31, 2021, $72.8 million remained available for purchase under the share repurchase program220 Cumulative 5-Year Total Shareholder Return (12/2016 to 12/2021) | Index | 12/2016 | 12/2017 | 12/2018 | 12/2019 | 12/2020 | 12/2021 | | :---------------------------------- | :------ | :------ | :------ | :------ | :------ | :------ | | Shutterstock, Inc. | 100.00 | 90.55 | 80.21 | 95.52 | 162.09 | 252.80 | | NYSE Composite | 100.00 | 118.73 | 108.10 | 135.68 | 145.16 | 175.18 | | S&P Software & Services Select Industry | 100.00 | 128.04 | 139.67 | 189.86 | 289.96 | 313.09 | Selected Financial Data This item is reserved and contains no information - This item is reserved225 Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides a detailed analysis of Shutterstock's financial condition and results of operations for the fiscal years ended December 31, 2021, 2020, and 2019 Overview and Recent Developments Shutterstock is a global creative platform offering content and workflow solutions, with strategic acquisitions in AI and design software, serving millions of customers and contributors - Shutterstock is a leading global creative platform offering full-service solutions, high-quality content, and creative workflow solutions228 - Key offerings include images, footage, music, 3D models (acquired TurboSquid in Feb 2021), and creative design software (acquired PicMonkey in Sep 2021)228 - In July 2021, Shutterstock.AI acquired Pattern89, Datasine Limited, and assets from Shotzr, Inc. to develop predictive performance capabilities using AI229 - As of December 31, 2021, the content collection included over 400 million images and 24 million footage clips230 - In 2021, 63% of revenue came from the E-commerce channel, and 37% from the Enterprise channel231233 COVID-19 Update The COVID-19 pandemic has impacted Shutterstock's operations through office closures and travel restrictions, though services have generally been delivered remotely - Operations impacted by office closures and travel restrictions, but services generally delivered remotely236 - Economic uncertainty from COVID-19 affected customer marketing budgets in 2020 and 2021236 Key Operating Metrics Shutterstock monitors several key operating metrics to evaluate business performance and guide strategic decisions, including subscribers, revenue per customer, paid downloads, and content library size Key Operating Metrics | Metric | 2021 | 2020 | 2019 | | :-------------------------------------- | :-------- | :-------- | :-------- | | Subscribers (end of period) | 343,000 | 281,000 | 194,000 | | Subscriber revenue (in millions) | $317.5 | $265.3 | $236.5 | | Average revenue per customer (last twelve months) | $368 | $333 | $330 | | Paid downloads (in millions) | 180.0 | 180.0 | 187.8 | | Revenue per download | $4.16 | $3.68 | $3.43 | | Content in our collection (end of period, in millions): | | | | | Images | 400 | 360 | 314 | | Footage clips | 24 | 21 | 17 | - Subscribers are defined as customers purchasing monthly recurring products for at least three continuous months, excluding TurboSquid and PicMonkey acquisitions238 - Paid downloads exclude custom content, free content, and computer vision offerings241 - Content in collection includes approved images and footage on shutterstock.com, excluding API-licensed content, custom content, and editorial-use-only content243 Basis of Presentation Revenue is primarily generated from content licensing and creative editing tools, recognized upon download or over subscription periods, with expenses categorized into cost of revenue, sales, marketing, product development, and general and administrative - Revenue is primarily from content licensing (subscription or transactional) and creative editing tools (post-PicMonkey acquisition)244 - Revenue is recognized upon satisfaction of performance obligations, generally when content is downloaded245 - Cost of revenue includes royalties, credit card fees, content review, customer service, infrastructure, and depreciation/amortization249 - Sales and marketing expenses cover third-party marketing, advertising, branding, PR, and sales force costs250 - Product development expenses include personnel, vendor costs for design/development, and IT equipment251 - General and administrative expenses include executive, finance, legal, HR personnel, professional fees, bad debt, and depreciation252 Results of Operations Shutterstock reported a 16% revenue increase to $773.4 million in 2021, driven by acquisitions and subscription growth, with net income rising 28% to $91.9 million Comparison of the Years Ended December 31, 2021 and December 31, 2020 In 2021, Shutterstock's revenue increased by 16% to $773.4 million, primarily due to acquisitions and growth in the subscription business, with net income rising by 28% to $91.9 million Consolidated Statements of Operations Data (2021 vs 2020, in thousands) | Metric | 2021 | 2020 | $ Change | % Change | | :-------------------------- | :---------- | :---------- | :---------- | :------- | | Revenue | $773,415 | $666,686 | $106,729 | 16 % | | Cost of revenue | $277,659 | $259,573 | $18,086 | 7 % | | Sales and marketing | $204,878 | $159,241 | $45,637 | 29 % | | Product development | $52,014 | $46,038 | $5,976 | 13 % | | General and administrative | $130,758 | $116,568 | $14,190 | 12 % | | Total operating expenses | $665,309 | $581,420 | $83,889 | 14 % | | Income from operations | $108,106 | $85,266 | $22,840 | 27 % | | Other (expense) / income, net | $(3,370) | $4,257 | $(7,627) | (179)% | | Income before income taxes | $104,736 | $89,523 | $15,213 | 17 % | | Provision for income taxes | $12,853 | $17,757 | $(4,904) | (28)% | | Net income | $91,883 | $71,766 | $20,117 | 28 % | - Revenue increased by 16% (15% constant currency) to $773.4 million in 2021, driven by 2021 acquisitions (TurboSquid, PicMonkey) and a 22% growth in subscribers258259 - Revenue per download increased by 13% to $4.16 in 2021, primarily due to changes in product mix261 - Sales and marketing expenses increased by 29% to $204.9 million, mainly due to higher marketing spend ($31.7 million) and employee-related costs ($11.3 million)264 - The effective tax rate decreased to 12.3% in 2021 from 19.8% in 2020, influenced by discrete items like windfall tax benefits from equity-based compensation and a capital loss transaction268269 Comparison of the Years Ended December 31, 2020 and December 31, 2019 In 2020, Shutterstock's revenue increased by 2% to $666.7 million, primarily driven by a 45% growth in subscribers and a 12% increase in subscriber revenue Consolidated Statements of Operations Data (2020 vs 2019, in thousands) | Metric | 2020 | 2019 | $ Change | % Change | | :-------------------------- | :---------- | :---------- | :---------- | :------- | | Revenue | $666,686 | $650,523 | $16,163 | 2 % | | Cost of revenue | $259,573 | $278,176 | $(18,603) | (7)% | | Sales and marketing | $159,241 | $181,730 | $(22,489) | (12)% | | Product development | $46,038 | $57,216 | $(11,178) | (20)% | | General and administrative | $116,568 | $113,246 | $3,322 | 3 % | | Total operating expenses | $581,420 | $630,368 | $(48,948) | (8)% | | Income from operations | $85,266 | $20,155 | $65,111 | 323 % | | Other income, net | $4,257 | $4,761 | $(504) | (11)% | | Income before income taxes | $89,523 | $24,916 | $64,607 | 259 % | | Provision for income taxes | $17,757 | $4,808 | $12,949 | 269 % | | Net income | $71,766 | $20,108 | $51,658 | 257 % | - Revenue increased by 2% to $666.7 million in 2020, primarily driven by a 45% growth in subscribers and 12% growth in subscriber revenue272 - Paid downloads decreased by 4% to 180.0 million in 2020, partially attributed to COVID-19 impact on customer utilization276 - Cost of revenue decreased by 7% to $259.6 million, due to lower royalty expense and content procurement costs, partially offset by higher hosting and credit card fees278 - Sales and marketing expenses decreased by 12% to $159.2 million, driven by a $21.1 million decline in marketing spend and reduced travel costs due to COVID-19279 - The effective tax rate was 19.8% in 2020, up from 19.3% in 2019, primarily due to increased pre-tax income284 Liquidity and Capital Resources As of December 31, 2021, Shutterstock had $314.0 million in cash and cash equivalents, primarily funding operations through cash flow, with significant uses for acquisitions, dividends, and share repurchases - Cash and cash equivalents totaled $314.0 million as of December 31, 2021288 - Primary uses of cash include funding operations, capital expenditures, content acquisitions, business combinations, cash dividends, and share repurchases289 - In August 2020, Shutterstock completed a stock offering, selling 516,000 shares and receiving net proceeds of approximately $23.2 million290 - Declared and paid cash dividends of $0.84 per share, totaling $30.7 million, in 2021291 - As of December 31, 2021, $73 million remained authorized for purchases under the share repurchase program295 - Net share settlement for RSUs resulted in $22.7 million withheld for taxes in 2021, reducing dilutive impact296297 Cash Flows Summary (in thousands) | Cash Flow Activity | 2021 | 2020 | 2019 | | :-------------------------------- | :---------- | :---------- | :---------- | | Net cash provided by operating activities | $216,372 | $165,072 | $102,646 | | Net cash used in investing activities | $(250,438) | $(35,310) | $(27,234) | | Net cash used in financing activities | $(77,722) | $(4,587) | $(1,696) | - Cash used in investing activities in 2021 included $181.6 million for TurboSquid and PicMonkey acquisitions, and $31.6 million for AI asset acquisitions306 - Cash used in financing activities in 2021 primarily for dividends ($30.7 million), share repurchases ($26.5 million), and tax withholding for equity awards ($22.7 million)310 Contractual Obligations and Commitments As of December 31, 2021, Shutterstock had total contractual obligations of $104.3 million, comprising operating lease and purchase obligations, and provides customer indemnifications Future Minimum Payments Under Non-Cancelable Operating Leases and Purchase Obligations (as of Dec 31, 2021, in thousands) | Obligation Type | Total | Less Than 1 Year | 1 - 3 Years | 3 - 5 Years | More Than 5 Years | | :------------------------ | :---------- | :--------------- | :---------- | :---------- | :---------------- | | Operating lease obligations | $56,187 | $8,694 | $14,400 | $14,974 | $18,119 | | Purchase obligations | $48,100 | $28,600 | $17,100 | $2,400 | $0 | | Total | $104,287 | $37,294 | $31,500 | $17,374 | $18,119 | - The ESB Lease for the New York City headquarters expires in 2029, with approximately $50.4 million in undiscounted future minimum lease payments313 - Customer indemnification obligations range from $10,000 to $250,000, with some uncapped exceptions, and are covered by insurance314315 Off-Balance Sheet Arrangements As of December 31, 2021, Shutterstock had no material off-balance sheet arrangements - No material off-balance sheet arrangements as of December 31, 2021316 Non-GAAP Financial Measures Shutterstock uses non-GAAP financial measures, including Adjusted EBITDA and Free Cash Flow, to provide additional insights into its financial results, excluding certain non-recurring or non-operating items to better reflect underlying business performance - Non-GAAP measures include 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 Flow317 - These measures are used by management to monitor performance, facilitate comparisons, evaluate management, analyze planning decisions, and prepare budgets319 Reconciliation of Net Income to Adjusted EBITDA (in thousands) | Metric | 2021 | 2020 | 2019 | | :-------------------------- | :---------- | :---------- | :---------- | | Net income | $91,883 | $71,766 | $20,108 | | Depreciation and amortization | $48,771 | $41,359 | $49,915 | | Non-cash equity-based compensation | $36,179 | $28,309 | $22,815 | | Other adjustments, net | $3,370 | $(4,257) | $(1,332) | | Provision for income taxes | $12,853 | $17,757 | $4,808 | | Adjusted EBITDA | $193,056 | $154,934 | $96,314 | | Adjusted EBITDA margin | 25.0 % | 23.2 % | 14.8 % | Reconciliation of Net Income to Adjusted Net Income (in thousands) | Metric | 2021 | 2020 | 2019 | | :---------------------------------------------- | :---------- | :---------- | :---------- | | Net income | $91,883 | $71,766 | $20,108 | | Non-cash equity-based compensation | $36,179 | $28,309 | $22,815 | | Tax effect of non-cash equity-based compensation | $(8,502) | $(6,653) | $(5,363) | | Acquisition-related amortization expense | $13,334 | $2,261 | $4,691 | | Tax effect of acquisition-related amortization expense | $(3,133) | $(531) | $(1,034) | | Acquisition-related long-term incentives and contingent consideration | $0 | $0 | $3,430 | | Tax effect of acquisition-related long-term incentives and contingent consideration | $0 | $0 | $(910) |\ | Adjusted net income | $129,761 | $95,152 | $43,737 | | Adjusted net income per diluted common share | $3.48 | $2.62 | $1.23 | | Weighted average diluted shares | 37,324 | 36,369 | 35,581 | Revenue Growth on a Constant Currency Basis | Metric | 2021 | 2020 | 2019 | | :-------------------------------------- | :---- | :---- | :---- | | Reported revenue growth | 16 % | 2 % | 4 % | | Revenue growth on a constant currency basis | 15 % | 2 % | 6 % | | E-commerce reported revenue growth | 19 % | 5 % | 7 % | | E-commerce revenue growth on a constant currency basis | 16 % | 5 % | 9 % | | Enterprise reported revenue growth | 11 % | (2)% | 1 % | | Enterprise revenue growth on a constant currency basis | 10 % | (2)% | 3 % | Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow (in thousands) | Metric | 2021 | 2020 | 2019 | | :---------------------------------------------- | :---------- | :---------- | :---------- | | Net cash provided by operating activities | $216,372 | $165,072 | $102,646 | | Capital expenditures | $(28,125) | $(25,630) | $(26,081) | | Content acquisitions | $(8,874) | $(2,970) | $(3,344) | | Payments related to long-term incentives related to acquisitions | $0 | $7,759 | $0 | | Free Cash Flow | $179,373 | $144,231 | $73,221 | Critical Accounting Policies and Estimates Shutterstock's critical accounting policies and estimates involve significant management judgment and assumptions, particularly in revenue recognition, accounts receivable, valuation of acquired goodwill and intangible assets, and income taxes - Critical accounting policies and estimates include revenue recognition, allowance for doubtful accounts, valuation of acquired goodwill and intangible assets, and accounting for income taxes331 - Revenue recognition involves estimating expected unused licenses for subscription-based products, impacting the timing of revenue333 - Allowance for doubtful accounts is determined by evaluating accounts receivable aging, historical loss rates, specific customer situations, and economic environments337 - Valuation of acquired goodwill and intangible assets requires significant judgment and estimates, including future revenue growth, expense adjustments, discount rates, and customer attrition344 - Income tax accounting involves deferred tax assets/liabilities, valuation allowances, and unrecognized tax benefits, requiring significant management judgment340341342 Recent Accounting Pronouncements Shutterstock adopted ASU 2016-13 (Credit Losses) effective January 1, 2020, ASU 2019-12 (Income Taxes) effective January 1, 2021, and early adopted ASU 2021-08 (Business Combinations) effective January 1, 2021 - Adopted ASU 2016-13 (Credit Losses) effective January 1, 2020, resulting in a cumulative-effect adjustment of $0.2 million, net of tax, in retained earnings462 - Adopted ASU 2019-12 (Income Taxes) effective January 1, 2021, with no material impact on consolidated financial statements464 - Early adopted ASU 2021-08 (Business Combinations) effective January 1, 2021, with no material impact465 Quantitative and Qualitative Disclosures About Market Risk Shutterstock is exposed to market risks primarily from foreign currency exchange rate fluctuations, as approximately 35% of its revenue in 2021 was denominated in non-U.S. currencies - Approximately 35% of total revenue in 2021 was denominated in foreign currencies (Euro, British pound, Australian dollar, Japanese yen)347 - A 10% change in the U.S. dollar exchange rate against foreign currencies could impact revenue by approximately 3%347 Historical Revenue by Currency (in thousands) | Currency | 2021 (U.S. Dollars) | 2020 (U.S. Dollars) | 2019 (U.S. Dollars) | | :------------------------ | :------------------ | :------------------ | :------------------ | | Euro | $152,290 | $138,128 | $133,341 | | British pounds | $57,851 | $49,402 | $48,307 | | All other non-U.S. currencies | $57,342 | $49,630 | $47,471 | | Total foreign currency | $267,483 | $237,160 | $229,119 | | U.S. dollar | $505,932 | $429,526 | $421,404 | | Total revenue | $773,415 | $666,686 | $650,523 | - The company does not currently use derivatives to hedge foreign currency exchange risk348 - Interest rate risk is not significant as cash and cash equivalents are primarily bank balances and money market funds, and there were no long-term borrowings as of December 31, 2021350 - Inflation has not had a material effect on the business, financial condition, or results of operations351 Financial Statements and Supplementary Data The consolidated financial statements and accompanying notes are incorporated by reference from pages F-2 through F-32 of this Annual Report on Form 10-K - Consolidated financial statements and accompanying notes are incorporated by reference from pages F-2 through F-32352 Part III Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance, including the Code of Business Conduct and Ethics, is incorporated by reference from the company's definitive proxy statement for the 2022 Annual Meeting of Stockholders - Information is incorporated by reference from the definitive proxy statement for the 2022 Annual Meeting of Stockholders365 - A Code of Business Conduct and Ethics applies to all directors, officers, and employees, available on the investor relations website366 Executive Compensation Information regarding executive compensation is incorporated by reference from the company's definitive proxy statement for the 2022 Annual Meeting of Stockholders - Information is incorporated by reference from the definitive proxy statement for the 2022 Annual Meeting of Stockholders367 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership of certain beneficial owners and management, and related stockholder matters, is incorporated by reference from the company's definitive proxy statement for the 2022 Annual Meeting of Stockholders - Information is incorporated by reference from the definitive proxy statement for the 2022 Annual Meeting of Stockholders368 Certain Relationships And Related Transactions And Director Independence Information regarding certain relationships and related transactions, and director independence, is incorporated by reference from the company's definitive proxy statement for the 2022 Annual Meeting of Stockholders - Information is incorporated by reference from the definitive proxy statement for the 2022 Annual Meeting of Stockholders369 Principal Accounting Fees and Services Information regarding principal accounting fees and services is incorporated by reference from the company's definitive proxy statement for the 2022 Annual Meeting of Stockholders - Information is incorporated by reference from the definitive proxy statement for the 2022 Annual Meeting of Stockholders370 Part IV Exhibits, Financial Statement Schedules This section lists the financial statements, financial statement schedules, and exhibits included as part of this Annual Report on Form 10-K - Includes the Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Statements of Operations, Comprehensive Income, Stockholders' Equity, Cash Flows, and Notes to Consolidated Financial Statements372 - Financial statement schedules have been omitted because the required information is included in the consolidated financial statements or notes372 - An Exhibit Index immediately precedes the signature page373 Form 10-K Summary This item indicates that no Form 10-K Summary is provided - No Form 10-K Summary is provided374