Shutterstock Inc
For the period ended Jun 30, 2024. Filed Aug 6, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 6, 2024
SSTK$2.97-3.3%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-02.
0001549346-24-000012
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-08-06.
0001549346-24-000034
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 143 previous paragraphs and 175 current paragraphs.
95 unchanged; 38 reworded; 34 added; 10 removed; 0 previous and 8 current paragraphs rearranged.
Tables are not compared: 11 previous and 12 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (34)
Current report
On February 1, 2024, the Company completed its acquisition of all of the outstanding shares of Backgrid USA, Inc. and Backgrid London LTD, (collectively, “Backgrid”), for approximately $20 million, subject to customary working capital adjustments. The total purchase price was paid with existing cash on hand. Backgrid supplies media organizations with real-time celebrity content. The Company believes this acquisition expands Shutterstock Editorial’s Newsroom offering of editorial images and footage across celebrity, red carpet and live-events.
Current report
On July 22, 2024, the Company completed its previously announced acquisition of Envato Pty Ltd. (“Envato”) pursuant to a Share Purchase Agreement (the “Purchase Agreement”) entered into on May 1, 2024, pursuant to which the Company purchased all of the issued and outstanding capital stock of Envato. The aggregate consideration paid by the Company, after customary working capital and other adjustments in accordance with the terms of the Purchase Agreement, was $250 million. We are currently in the process of valuing the assets acquired and liabilities assumed in the acquisition.
Current report
The addition of Envato:
Current report
•Complements Shutterstock’s existing offering with Envato Elements, a leading unlimited multi-asset subscription offering,
Current report
•Expands Shutterstock’s reach within faster growing audiences such as freelancers, hobbyists, small businesses and agencies,
Current report
•Increases Shutterstock’s Content revenue from video, audio, graphics, fonts and templates,
Current report
•Bolsters Shutterstock’s content library with 10 million images, 6 million videos, 1 million audio clips, 0.5 million templates and 0.2 million graphics & fonts, and
Current report
•Further diversifies Shutterstock into new content types including code & web themes, product mock-ups, fonts and templates (e.g. Slides, PowerPoint, Keynote, WordPress, video, designs for social posts, gaming, podcasts and print-on-demand).
Current report
Bargain Purchase Gain. A bargain purchase gain is recognized subsequent to an acquisition, if the fair value of the net assets acquired and liabilities assumed exceeds the net consideration.
Current report
Revenue increased by $11.2 million, or 5%, to $220.1 million for the three months ended June 30, 2024, compared to the same period in 2023. On a constant currency basis, revenue increased approximately 6% in the three months ended June 30, 2024, compared to the same period in 2023.
Current report
General and Administrative. General and administrative expenses decreased by $1.7 million to $36.4 million in the three months ended June 30, 2024 compared to the same period in 2023. This decrease was driven by a $3.4 million decrease in employee-related costs (of which there was a $0.4 million increase from recurring Giphy Retention Compensation expenses and a $2.0 million decrease from non-recurring Giphy Retention Compensation expenses), offset by a $1.0 million increase in professional fees. In the second quarter of 2024, our transaction related acquisition costs were $3.1 million, compared to transaction related acquisition costs of $3.0 million in the second quarter of 2023.
Current report
Bargain Purchase Gain. In the three months ended June 30, 2023, we recognized a bargain purchase gain of $41.9 million related to the acquisition of Giphy, which represents the excess of the fair value of the net assets acquired in addition to the net negative purchase price.
Current report
For the three months ended June 30, 2024, the net effect of discrete items increased the effective tax rate by 59.7%. The discrete items for the three months ended June 30, 2024 relate to shortfalls on equity award vestings and a one-time charge of $6.3 million related to the reversal of a deferred tax asset resulting from the expiration of equity awards granted to the Company’s Founder and Executive Chairman. Excluding discrete items, our effective tax rate would have been 18.4% for the three months ended June 30, 2024.
Current report
For the three months ended June 30, 2023, the net effect of discrete items decreased the effective tax rate by 13.6%. The discrete items for the three months ended June 30, 2023 relate to the non-taxable bargain purchase gain associated with the acquisition of Giphy. Excluding discrete items, our effective tax rate would have been 16.3% for the three months ended June 30, 2023.
Current report
Comparison of the Six Months Ended June 30, 2024 and 2023
Current report
*Not meaningful
Current report
Revenue
Current report
Revenue increased by $10.2 million, or 2%, to $434.4 million in the six months ended June 30, 2024 compared to the same period in 2023. On a constant currency basis, revenue increased approximately 3% in the six months ended June 30, 2024, compared to the same period in 2023.
Current report
The Company’s Content revenues decreased by 10%, to $343.8 million in the six months ended June 30, 2024, compared to the same period in 2023. On a constant currency basis, revenue decreased approximately 9% in the six months ended June 30, 2024, compared to the same period in 2023. The decline in our Content revenues was driven by weakness in new customer acquisition.
Current report
The Company’s Data, Distribution, and Services revenues increased by 110%, to $90.6 million in the six months ended June 30, 2024, compared to the same period in 2023. Foreign currency fluctuations did not have a significant impact on the Company’s Data, Distribution, and Services revenues in the six months ended June 30, 2024. The increase in Data, Distribution, and Services revenues was driven by growth in our data offering, which grew 96% in the six months ended June 30, 2024.
Current report
Sales and Marketing. Sales and marketing expenses increased by $12.2 million, or 13%, to $108.1 million in the six months ended June 30, 2024 compared to the same period in 2023. As a percent of revenue, sales and marketing expenses increased to 25% for the six months ended June 30, 2024, from 23% for the same period in 2023. This increase was driven by a $6.4 million increase in employee-related costs (of which there was a $2.3 million increase from recurring Giphy Retention Compensation expenses and a $0.3 million decrease from non-recurring Giphy Retention Compensation expenses), and a $4.0 million increase in performance marketing spend. 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.
Current report
General and Administrative. General and administrative expenses decreased by $3.4 million, or 5%, to $68.5 million in the six months ended June 30, 2024 compared to the same period in 2023. This decrease was driven by a $2.0 million decrease in employee-related costs (of which there was a $0.9 million increase from recurring Giphy Retention Compensation expenses and a $0.4 million decrease from non-recurring Giphy Retention Compensation expenses), a $2.8 million decrease in bad debt expense, and a $1.5 million decrease in other expenses, related to severance expenses incurred in 2023. The decrease was partially offset by a $3.3 million increase in professional fees. In the six months ended June 30, 2024, our transaction related acquisition costs were $4.9 million, compared to transaction related acquisition costs of $3.0 million in the six months ended June 30, 2023.
Current report
Bargain Purchase Gain. In the six months ended June 30, 2023, we recognized a bargain purchase gain of $41.9 million related to the acquisition of Giphy, which represents the excess of the fair value of the net assets acquired in addition to the net negative purchase price.
Current report
Income Taxes. Income tax expense increased by $7.3 million for the six months ended June 30, 2024 as compared to the same period in 2023. Our effective tax rates for the six months ended June 30, 2024 and 2023 were 46.6% and 10.7%, respectively.
Current report
For the six months ended June 30, 2024, the net effect of discrete items increased the effective tax rate by 27.6%. The discrete items for the six months ended June 30, 2024 relate to shortfalls on equity award vestings and a one-time charge of $6.3 million related to the reversal of a deferred tax asset resulting from the expiration of equity awards granted to the Company’s Founder and Executive Chairman. Excluding discrete items, our effective tax rate would have been 19.0% for the six months ended June 30, 2024.
Current report
For the six months ended June 30, 2023, the net effect of discrete items decreased the effective tax rate by 7.1%. The discrete items for the six months ended June 30, 2023 relate to the non-taxable bargain purchase gain associated with the acquisition of Giphy. Excluding discrete items, our effective tax rate would have been 17.8% for the six months ended June 30, 2023.
Current report
Amended and Restated Credit Facility
Current report
The Envato acquisition was funded through an amended and restated credit agreement (the “A&R Credit Agreement”), which was entered into among the Company, as borrower, certain direct and indirect subsidiaries of the Company as guarantors, the lenders party thereto, and Bank of America, N.A., as Administrative Agent for the lenders. The A&R Credit Agreement provides for a five-year (i) senior unsecured term loan facility (the “Term Loan”) in an aggregate principal amount of $125.0 million and (ii) senior unsecured revolving credit facility (the “Revolver”) in an aggregate principal amount of $250.0 million. The A&R Credit Agreement provides for a letter of credit subfacility and a swingline facility.
Current report
On July 22, 2024, the Company borrowed $280 million under the A&R Credit Agreement, of which $125 million was funded from the Term Loan and $155 million funded from the Revolver.
Current report
The A&R Credit Agreement contains customary affirmative and negative covenants, including, without limitation, covenants limiting the ability of the Company and its subsidiaries to, among other things, incur debt, grant liens, undergo certain fundamental changes, make investments, make certain restricted payments, dispose of assets, enter into transactions with affiliates, and enter into burdensome agreements, in each case, subject to limitations and exceptions set forth in the A&R Credit Agreement. The Company is also required to maintain compliance with a consolidated leverage ratio and a consolidated interest coverage ratio, in each case, determined in accordance with the terms of the A&R Credit Agreement
Current report
The A&R Credit Agreement also contains customary events of default that include, among other things, certain payment defaults, cross defaults to other indebtedness, inaccuracy of representations and warranties, covenant defaults, change of control defaults, judgment defaults, and bankruptcy and insolvency defaults. If an event of default exists, the Administrative Agent on behalf of the lenders may require immediate payment of all obligations under the A&R Credit Agreement and may exercise certain other rights and remedies provided for under the A&R Credit Agreement, the other loan documents and applicable law. Under certain circumstances, a default interest rate will apply to certain obligations during the existence of an event of default under the A&R Credit Agreement at a per annum rate equal to 2.00% above the applicable interest rate.
Current report
(1) The amount for the six months ended June 30, 2024 is updated to correct an error in the calculation of adjusted net income previously presented for the three months ended March 31, 2024.
Current report
(2)The tax effect of non-cash equity-based compensation includes a $6.3 million add-back for the reduction of deferred tax assets associated with the expiration of performance-based stock options and restricted stock units granted the Company’s Founder and Executive Chairman in 2014. The performance-based metrics were not met, the awards were not exercisable, and the Company recognized a non-cash tax expense for the change in deferred taxes.
Current report
(4)The amount for the six months ended June 30, 2024 is updated to correct an error in the calculation of adjusted net income previously presented for the three months ended March 31, 2024. Other consists of unrealized gains and losses on investments and severance costs associated with strategic workforce optimizations.
Removed paragraphs (10)
Previous report
Share Purchase Agreement
Previous report
On May 1, 2024, the Company entered into a Share Purchase Agreement (the “Purchase Agreement”) to acquire all of the outstanding shares (the “Acquisition”) of Envato Pty Ltd. (“Envato”). The consideration payable for the Acquisition, after customary working capital and other adjustments, will be approximately $245 million. The purchase price will be funded through a newly established credit facility. Envato is an Australian based company that provides an on-line marketplace for creative digital assets. The Company believes the Acquisition will expand its offerings across customers and products. The acquisition is anticipated to close in the third quarter, subject to regulatory approvals and other customary closing conditions.
Previous report
Debt Commitment Letter
Previous report
On May 1, 2024, in connection with the execution of the Purchase Agreement, the Company entered into a commitment letter (the “Debt Commitment Letter”) with Bank of America, N.A., BofA Securities, Inc., Citibank, N.A., Wells Fargo Bank, N.A. and Citizens Bank, N.A. (collectively, the “Commitment Parties”). The Debt Commitment Letter provides that the Commitment Parties have agreed to provide the Company with debt financing in connection with the Acquisition comprised of (i) a senior unsecured term loan facility in an aggregate principal amount of $125.0 million and (ii) a senior unsecured revolving credit facility in an aggregate principal amount of $250.0 million. The funding of the debt financing pursuant to the Debt Commitment Letter is contingent on the satisfaction of certain conditions set forth therein, including negotiation and execution of the definitive debt financing agreement contemplated by the Debt Commitment Letter and the Acquisition being consummated substantially contemporaneously with the initial funding of the debt financing. The proceeds from the debt financing will be used by the Company: (i) to finance the consideration, and related transaction costs, due in connection with the Acquisition, (ii) to repay certain existing indebtedness and (iii) for general corporate purposes of the Company and its subsidiaries.
Previous report
Costs and Expenses
Previous report
Revenue for the three months ended March 31, 2024 was in-line with revenue for the three months ended March 31, 2023, declining by $1.0 million. Revenue was not impacted on a constant currency basis in the three months ended March 31, 2024, compared to the same period in 2023.
Previous report
Costs and Expenses
Previous report
For the three months ended March 31, 2024, the net effect of discrete items increased the effective tax rate by 1.5%. Excluding discrete items, our effective tax rate would have been 19.4% for the three months ended March 31, 2024.
Previous report
For the three months ended March 31, 2023, the net effect of discrete items increased the effective tax rate by 0.9%. Excluding discrete items, our effective tax rate would have been 19.8% for the three months ended March 31, 2023.
Previous report
(1)Other adjustments, net includes unrealized foreign currency transaction gains and losses, severance costs associated with strategic workforce optimizations, unrealized gains on investments, and interest income and expense.
Reworded paragraphs (38)
Previous wording
Over 2.1 million active, paying customers contributed to our revenue for the twelve-month period ended March 31, 2024.
Current wording
Over 1.9 million active, paying customers contributed to our revenue for the twelve-month period ended June 30, 2024.
Previous wording
General and Administrative. General and administrative expenses decreased by $1.7 million, or 5%, to $32.1 million in the three months ended March 31, 2024 compared to the same period in 2023. This decrease was driven primarily by reductions in compensation related expenses and a recovery in bad debt expense, offset by increases in professional fees associated with the acquisition of Backgrid and Envato, and Giphy employee-related expenses. The recurring Giphy Retention Compensation was $0.6 million and the non-recurring Giphy Retention Compensation was $1.6 million for the three months ended March 31, 2024.
Current wording
Acquisition of Backgrid USA, Inc. and Backgrid London LTD
Previous wording
The following table summarizes our key operating metrics, which are unaudited, for the three months ended March 31, 2024 and 2023:
Current wording
The following table summarizes our key operating metrics, which are unaudited, for the three and six months ended June 30, 2024 and 2023:
Previous wording
The Company’s revenues by distribution channel for the three months ended March 31, 2024 and 2023 are as follows (in thousands):
Current wording
The Company’s revenues by distribution channel for the three and six months ended June 30, 2024 and 2023 are as follows (in thousands):
Previous wording
Other Income, Net. Other income, net consists of non-operating costs such as foreign currency transaction gains and losses, in addition to unrealized gains and losses on investments and interest income and expense.
Current wording
Other (Expense) / Income, Net. Other (expense) / income, net consists of non-operating costs such as foreign currency transaction gains and losses, in addition to unrealized gains and losses on investments and interest income and expense.
Previous wording
The Company’s Content revenues decreased by 10%, to $173.8 million in the three months ended March 31, 2024, compared to the same period in 2023. The decline in our Content revenues was primarily driven by weakness in new customer acquisition.
Current wording
The Company’s Content revenues decreased by 9%, to $170.0 million in the three months ended June 30, 2024, compared to the same period in 2023. The decline in our Content revenues was driven by weakness in new customer acquisition.
Previous wording
In the three months ended March 31, 2024 and 2023, we delivered 35.0 million and 42.7 million paid downloads, respectively, and our revenue per download was $4.97 and $4.41 for the three months ended March 31, 2024 and 2023, respectively. During the three months ended March 31, 2024, the decline in paid downloads is attributed to the decline in the Content business.
Current wording
In the three months ended June 30, 2024 and 2023, we delivered 33.4 million and 38.5 million paid downloads, respectively, and our revenue per download was $5.09 and $4.71 for the three months ended June 30, 2024 and 2023, respectively. During the three months ended June 30, 2024, the decline in paid downloads is attributed to the decline in the Content business.
Previous wording
The Company’s Data, Distribution, and Services revenues increased by 90%, to $40.5 million in the three months ended March 31, 2024, compared to the same period in 2023. The increase in Data, Distribution, and Services revenues was primarily driven by growth in our data offering, which grew 73% in the three months ended March 31, 2024 compared to the same period in 2023.
Current wording
The Company’s Data, Distribution, and Services revenues increased by 129%, to $50.1 million in the three months ended June 30, 2024, compared to the same period in 2023. The increase in Data, Distribution, and Services revenues was driven by growth in our data offering, which grew 119% in the three months ended June 30, 2024 compared to the same period in 2023.
Previous wording
Changes in our revenue by region were as follows: revenue from North America increased by $11.3 million, or 11%, to $110.4 million, revenue from Europe decreased by $3.6 million, or 6%, to $55.4 million and revenue from outside Europe and North America decreased by $8.6 million, or 15%, to $48.5 million, in the three months ended March 31, 2024 compared to the same period in 2023.
Current wording
Changes in our revenue by region were as follows: revenue from North America increased by $23.9 million, or 25%, to $120.1 million, revenue from Europe decreased by $5.0 million, or 9%, to $53.4 million and revenue from outside Europe and North America decreased by $7.7 million, or 14%, to $46.6 million, in the three months ended June 30, 2024 compared to the same period in 2023.
Previous wording
Sales and Marketing. Sales and marketing expenses increased by $8.7 million, or 18%, to $56.2 million in the three months ended March 31, 2024 compared to the same period in 2023. As a percentage of revenue, sales and marketing expenses increased to 26% for the three months ended March 31, 2024, from 22% for the same period in 2023. This was primarily driven by $5.5 million increase in marketing spend for brand and performance-based marketing. In addition, for the three months ended March 31, 2024, sales and marketing expenses included higher commissions and bonus related expenses. 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.
Current wording
Sales and Marketing. Sales and marketing expenses increased by $3.5 million, or 7%, to $51.9 million in the three months ended June 30, 2024 compared to the same period in 2023. As a percentage of revenue, sales and marketing expenses increased to 24% for the three months ended June 30, 2024, from 23% for the same period in 2023. This was driven by a $3.2 million increase in employee-related costs (of which there was a $1.1 million increase from recurring Giphy Retention Compensation expenses and a $0.5 million decrease from non-recurring Giphy Retention Compensation expenses), and a $0.5 million increase in outside consultant expenses, partially offset by a $1.5 million decrease in marketing spend for brand and performance-based marketing. 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.
Previous wording
Product Development. Product development expenses increased by $5.6 million, or 37%, to $21.1 million in the three months ended March 31, 2024 compared to the same period in 2023. The increase in product development was primarily driven by Giphy employee-related costs comprised of $2.7 million of recurring Giphy Retention Compensation and $4.3 million of non-recurring Giphy Retention Compensation, offset by declines in software and outside consultant expenses. 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.
Current wording
Product Development. Product development expenses decreased by $9.4 million to $19.9 million in the three months ended June 30, 2024 compared to the same period in 2023. The decrease in product development was driven by an $8.6 million decrease in employee-related costs (of which there was a $1.2 million increase from recurring Giphy Retention Compensation expenses and a $7.8 million decrease from non-recurring Giphy Retention Compensation expenses), and a $0.9 million decrease in outside consultant expenses. 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.
Previous wording
Other Income, Net. In the three months ended March 31, 2024, other income, net was primarily driven by $3.8 million of unrealized gains related to our investment in Meitu, Inc. In the first quarter of 2024, we exchanged our investment in ZCool Technologies Limited with Meitu, Inc. for $18.4 million of Meitu common shares, resulting in an investment carrying value increase of $3.4 million, which is recorded in Other income, net in the Consolidated Statement of Operations. In addition, other income, net had $1.0 million of interest income, $0.6 million of unfavorable unrealized foreign currency losses and $0.6 million of interest expense related to our credit facility. During the three months ended March 31, 2023, other income, net substantially consisted of $1.1 million of favorable unrealized foreign currency fluctuations. As we increase the volume of business transacted in foreign currencies resulting from international expansion and as currency rates fluctuate, we expect foreign currency gains and losses to continue to fluctuate.
Current wording
Other (Expense) / Income, Net. In the three months ended June 30, 2024, other (expense) / income, net was driven by $3.6 million of unrealized losses related to our investment in Meitu, Inc. In addition, other (expense) / income, net had $1.3 million of interest income, $1.3 million of unfavorable unrealized foreign currency losses and $0.6 million of interest expense related to our credit facility. During the three months ended June 30, 2023, other (expense) / income, net substantially consisted of $0.7 million of interest income and $0.6 million of favorable unrealized foreign currency fluctuations, partially offset by $0.5 million of interest expense related to our credit facility. 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.
Previous wording
Income Taxes. Income tax expense decreased by $4.3 million for the three months ended March 31, 2024, compared to the same period in 2023. Our effective tax rates were 20.9% and 20.7% for the three months ended March 31, 2024 and 2023, respectively.
Current wording
Income Taxes. Income tax expense increased by $11.6 million for the three months ended June 30, 2024, compared to the same period in 2023. Our effective tax rates were 78.1% and 2.7% for the three months ended June 30, 2024 and 2023, respectively.
Previous wording
Cost of Revenue. Cost of revenue increased by $10.0 million, or 13% to $88.2 million in the three months ended March 31, 2024 compared to the same period in 2023. This increase was primarily driven by: (i) higher costs associated with website hosting, hardware and software licenses; (ii) higher employee-related costs, and; (iii) increased depreciation and amortization expense. These increases relate to expenses associated with the Giphy and Backgrid acquisitions, which are not in the first quarter 2023 expenses. The Giphy employee-related costs were comprised of $2.5 million of recurring Giphy Retention Compensation and $0.7 million of non-recurring Giphy Retention Compensation. We expect that our cost of revenue will continue to fluctuate in-line with changes in revenue.
Current wording
Cost of Revenue. Cost of revenue increased by $16.9 million, or 10%, to $179.5 million in the six months ended June 30, 2024 compared to the same period in 2023. This increase was driven by: (i) increased depreciation and amortization expense driven by our recent acquisitions; (ii) increased royalty and content costs; (iii) higher costs associated with website hosting, hardware and software licenses; and (iv) a net increase in Giphy Retention Compensation, recurring and non-recurring expenses. We expect that our cost of revenue will continue to fluctuate in line with changes in revenue.
Previous wording
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, timing of acquisitions and the timing of revenue recognition associated with data deal partnerships. 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.
Current wording
Our operating results have in the past fluctuated from quarter to quarter as a result of a variety of factors, including the effects of some seasonal trends in customer behavior, timing of acquisitions and the timing of revenue recognition associated with data deal partnerships. For example, for the Content business, 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.
Previous wording
As of March 31, 2024, we had cash and cash equivalents totaling $71.8 million which consisted primarily of bank balances. Since inception, we have financed our operations primarily through cash flows generated from operations. In addition, if necessary, we have the ability to draw on our credit facility, which was obtained on May 6, 2022.
Current wording
As of June 30, 2024, we had cash and cash equivalents totaling $74.9 million which consisted primarily of bank balances. Since inception, we have financed our operations primarily through cash flows generated from operations. In addition, if necessary, we have the ability to draw on our credit facility, which was obtained on May 6, 2022.
Previous wording
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 programs. We plan to finance our operations, capital expenditures and corporate actions largely through cash generated by our operations and our credit facility. Since our results of operations are sensitive to the level of competition we face, increased competition could adversely affect our liquidity and capital resources.
Current wording
Historically, our principal uses of cash have included funding our operations, capital expenditures, and content acquisitions. In addition,our capital allocation strategies also include funding business combinations and asset acquisitions that enhance our strategic position, cash dividend payments, principle and interest payments under our credit facilities and share purchases under our share repurchase programs. We plan to finance our operations, capital expenditures and corporate actions largely through cash generated by our operations and our credit facility. Since our results of operations are sensitive to the level of competition we face, increased competition could adversely affect our liquidity and capital resources.
Previous wording
We declared and paid cash dividends of $0.30 per share of common stock, or $10.7 million during the three months ended March 31, 2024.
Current wording
We declared and paid cash dividends of $0.60 per share of common stock, or $21.3 million during the six months ended June 30, 2024.
Previous wording
As of March 31, 2024, we have repurchased approximately 4.4 million shares of our common stock under the 2023 Share Repurchase Program at an average per-share cost of $51.74. During the three months ended March 31, 2024, we did not repurchase shares of our common stock. As of March 31, 2024, we had $71.8 million of remaining authorization for repurchases under the 2023 Share Repurchase Program.
Current wording
As of June 30, 2024, we have repurchased approximately 4.9 million shares of our common stock under the 2023 Share Repurchase Program at an average per-share cost of $50.49. During the six months ended June 30, 2024, we repurchased approximately 517,000 shares of our common stock at an average cost of $39.83. During the three and six months ended June 30, 2023, we repurchased approximately 80,400 shares of common stock at an average cost of $49.78 under the 2023 Share Repurchase Program. As of June 30, 2024, we had $51 million of remaining authorization for repurchases under the 2023 Share Repurchase Program.
Previous wording
As of March 31, 2024 and December 31, 2023, we had $30 million of outstanding borrowings under the Credit Facility. As of March 31, 2024, we had a remaining borrowing capacity of $67 million, net of standby letters of credit. For the three months ended March 31, 2024, cash interest paid was not significant.
Current wording
As of June 30, 2024 and December 31, 2023, we had $30 million of outstanding borrowings under the Credit Facility. As of June 30, 2024, we had a remaining borrowing capacity of $68 million, net of standby letters of credit.
Previous wording
As of March 31, 2024, we had approximately $74 million in unconditional cash obligations, consisting primarily of purchase obligations related to contracts for cloud-based services, infrastructure and other business services as well as minimum royalty guarantees in connection with certain content licenses, of which the majority is due to be paid within the next two years. In addition, as of March 31, 2024, we had approximately $45 million in operating lease obligations with lease payments extending through 2029.
Current wording
As of June 30, 2024, we had approximately $69 million in unconditional cash obligations, consisting primarily of purchase obligations related to contracts for cloud-based services, infrastructure and other business services as well as minimum royalty guarantees in connection with certain content licenses, of which the majority is due to be paid within the next two years. In addition, as of June 30, 2024, we had approximately $42 million in operating lease obligations with lease payments extending through 2029.
Previous wording
The following table summarizes our cash flow data for the three months ended March 31, 2024 and 2023 (in thousands):
Current wording
The following table summarizes our cash flow data for the six months ended June 30, 2024 and 2023 (in thousands):
Previous wording
Net cash provided by operating activities was $8.3 million for the three months ended March 31, 2024, compared to Net cash provided by operating activities of $66.8 million for the three months ended March 31, 2023. In the three months ended March 31, 2024, operating cash flows were unfavorably impacted from payments of year-end bonuses and commissions, which are typical first quarter cash outflows. In addition, operating cash flows for the three months ended March 31, 2024 were unfavorably impacted by the recurring and non-recurring payments made to the Giphy workforce, the reimbursement of which is reflected in Investing Activities on the Statement of Cash Flows.
Current wording
Net cash provided by operating activities was $36.3 million for the six months ended June 30, 2024, compared to Net cash provided by operating activities of $96.6 million for the six months ended June 30, 2023. In the six months ended June 30, 2024, operating cash flows included the recurring and non-recurring payments made to the Giphy workforce, the reimbursement of which is reflected in Investing Activities on the Statement of Cash Flows.
Previous wording
Operating cash flows for the three months ended March 31, 2023 were favorably impacted from an increase in operating income and changes in the timing of cash collections from data deal customers, which had large receivable balances at the end of 2022, and lower payments pertaining to operating expenses, which can cause operating cash flow to fluctuate from period to period.
Current wording
Operating cash flows for the six months ended June 30, 2023 were favorably impacted from an increase in operating income and changes in the timing of cash collections from data deal customers, which had large receivable balances at the end of 2022, and lower payments pertaining to operating expenses, which can cause operating cash flow to fluctuate from period to period. In addition, operating cash flows for the six months ended June 30, 2023 were unfavorably impacted by the recurring and non-recurring payments made to the Giphy workforce, the reimbursement of which is reflected in Investing Activities on the Statement of Cash Flows.
Previous wording
Cash used in investing activities for the three months ended March 31, 2024 was $16.5 million, consisting primarily of (i) $19.5 million used in the acquisition of Backgrid, net of cash acquired, (ii) capital expenditures of $14.5 million for internal-use software and website development costs and purchases of software and equipment, and (iii) $1.0 million paid to acquire the rights to distribute certain digital content into perpetuity. These cash outflows were partially offset by (i) $18.4 million of Giphy Retention Compensation, as reimbursed by the Giphy seller.
Current wording
Cash used in investing activities for the six months ended June 30, 2024 was $8.2 million, consisting primarily of (i) capital expenditures of $23.5 million for internal-use software and website development costs and purchases of software and equipment, (ii) $19.5 million used in the acquisition of Backgrid, net of cash acquired, and (iii) $1.8 million paid to acquire the rights to distribute certain digital content into perpetuity. These cash outflows were partially offset by (i) $36.5 million of Giphy Retention Compensation, as reimbursed by the Giphy seller.
Previous wording
Cash used in investing activities in the three months ended March 31, 2023 was $15.9 million, consisting primarily of (i) capital expenditures of $12.4 million for internal-use software and website development costs and purchases of software and equipment, and (ii) $3.5 million paid to acquire the rights to distribute certain digital content in perpetuity.
Current wording
Cash used in investing activities in the six months ended June 30, 2023 was $66.1 million, consisting primarily of (i) $53.7 million used in the acquisition of Giphy, net of cash acquired, (ii) capital expenditures of $22.9 million for internal-use software and website development costs and purchases of software and equipment, and (iii) $5.3 million paid to acquire the rights to distribute certain digital content in perpetuity. These cash outflows were partially offset by (i) $15.8 million of Giphy Retention Compensation, as reimbursed by the Giphy seller.
Previous wording
Cash used in financing activities in the three months ended March 31, 2023 was $70.7 million, consisting of (i) $50.0 million used for the repayment of our Credit Facility; (ii) $9.7 million related to the payment of the quarterly cash dividend; and (iii) $11.0 million paid in settlement of tax withholding obligations related to employee stock-based compensation awards.
Current wording
Cash used in financing activities for the six months ended June 30, 2024 was $50.8 million, consisting of (i) $21.3 million, related to the payment of the quarterly cash dividend; (ii) $20.6 million paid in connection with the repurchase of common stock under our 2023 Share Repurchase Program; and (iii) $8.9 million paid in the settlement of tax withholding obligations related to employee stock-based compensation awards.
Previous wording
Cash used in financing activities in the three months ended March 31, 2024 was $18.6 million, consisting of (i) $10.7 million, related to the payment of the quarterly cash dividend, and (ii) $8.0 million paid in settlement of tax withholding obligations related to employee stock-based compensation awards.
Current wording
Cash used in financing activities in the six months ended June 30, 2023 was $57.9 million, consisting of (i) $50.0 million used for the repayment of our Credit Facility; (ii) $19.4 million related to the payment of the quarterly cash dividend; (iii) $14.5 million paid in settlement of tax withholding obligations related to employee stock-based compensation awards; and (iv) $4.0 million paid in connection with the repurchase of common stock under the 2023 Share Repurchase Program. These amounts were partially offset by $30.0 million proceeds received from our Credit Facility.
Previous wording
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 product offering) on a constant currency basis (expressed as a percentage), and adjusted 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.
Current wording
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 net income, adjusted net income per diluted common share, adjusted EBITDA, adjusted EBITDA margin, revenue growth (including by product offering) on a constant currency basis (expressed as a percentage), and adjusted 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.
Previous wording
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 common share, revenue growth (including by product offering) on a constant currency basis (expressed as a percentage) and adjusted free cash flow should not be construed as indicators of our operating performance, liquidity or cash flows generated by operating, investing and financing activities, as there may be significant factors or trends that they fail to address. We caution investors that non-GAAP financial information, by its nature, departs from traditional accounting conventions; accordingly, its use can make it difficult to compare our current results with our results from other reporting periods and with the results of other companies.
Current wording
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 net income, adjusted net income per diluted common share, adjusted EBITDA, adjusted EBITDA margin, revenue growth (including by product offering) on a constant currency basis (expressed as a percentage) and adjusted free cash flow should not be construed as indicators of our operating performance, liquidity or cash flows generated by operating, investing and financing activities, as there may be significant factors or trends that they fail to address. We caution investors that non-GAAP financial information, by its nature, departs from traditional accounting conventions; accordingly, its use can make it difficult to compare our current results with our results from other reporting periods and with the results of other companies.
Previous wording
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.
Current wording
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; (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.
Previous wording
Management believes that adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted net income per diluted common share, revenue growth (including by product offering) on a constant currency basis (expressed as a percentage) and adjusted free cash flow are useful to investors because these measures enable investors to analyze Shutterstock’s 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 Shutterstock’s underlying operating performance and revenue growth (including by product offering) on a constant currency basis (expressed as a percentage), provides useful information to investors by eliminating the effect of foreign currency fluctuations that are not directly attributable to Shutterstock’s operating performance. Management also believes that providing these non-GAAP financial measures enhances the comparability for investors in assessing Shutterstock’s financial reporting. Management believes that adjusted 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 internal-use software and website development costs to support the Company’s ongoing business operations and provides them with the same measures that management uses as the basis for making resource allocation decisions.
Current wording
Management believes that adjusted net income, adjusted net income per diluted common share, adjusted EBITDA, adjusted EBITDA margin, revenue growth (including by product offering) on a constant currency basis (expressed as a percentage) and adjusted free cash flow are useful to investors because these measures enable investors to analyze Shutterstock’s operating results on the same basis as that used by management. Additionally, management believes that adjusted net income, adjusted net income per diluted common share, adjusted EBITDA and adjusted EBITDA margin 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 Shutterstock’s underlying operating performance and revenue growth (including by product offering) on a constant currency basis (expressed as a percentage), provides useful information to investors by eliminating the effect of foreign currency fluctuations that are not directly attributable to Shutterstock’s operating performance. Management also believes that providing these non-GAAP financial measures enhances the comparability for investors in assessing Shutterstock’s financial reporting. Management believes that adjusted 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 internal-use software and website development costs to support the Company’s ongoing business operations and provides them with the same measures that management uses as the basis for making resource allocation decisions.
Previous wording
Our method for calculating adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted net income per diluted common share, revenue growth (including by product offering) on a constant currency basis (expressed as a percentage) and adjusted free cash flow, as well as a reconciliation of the differences between adjusted EBITDA, adjusted net income, revenue growth (including by product offering) on a constant currency basis (expressed as a percentage) and adjusted free cash flow, and the most comparable financial measures calculated and presented in accordance with GAAP, is presented below.
Current wording
Our method for calculating adjusted net income, adjusted net income per diluted common share, adjusted EBITDA, adjusted EBITDA margin, revenue growth (including by product offering) on a constant currency basis (expressed as a percentage) and adjusted free cash flow, as well as a reconciliation of the differences between each of our non-GAAP financial measures (adjusted EBITDA, adjusted net income, revenue growth (including by product offering) on a constant currency basis (expressed as a percentage) and adjusted free cash flow), and each measure’s most directly comparable financial measure calculated and presented in accordance with GAAP, is presented below.
Previous wording
The expense associated with the Giphy Retention Compensation related to (i) the one-time employment inducement bonuses and (ii) the vesting of the cash value of unvested Meta equity awards held by the employees prior to closing, which are reflected in operating expenses (together, the “Giphy Retention Compensation Expense - non-recurring”), are required payments in accordance with the terms of the acquisition. Meta’s sale of Giphy was directed by the CMA and accordingly, the terms of the acquisition were subject to CMA preapproval. Management considers the operating expense associated with these required payments to be unusual and non-recurring in nature. The Giphy Retention Compensation Expense - non-recurring is not considered ongoing expense necessary to operate the Company’s business. Therefore, such expenses have been included in the below adjustments for calculating adjusted EBITDA, adjusted EBITDA margin, adjusted net income and adjusted net income per diluted common share. For the three months ended March 31, 2024, the Company also incurred $7.1 million, of Giphy Retention Compensation expense related to recurring employee costs, which is included in operating expenses, and are not included in the below adjustments for calculating adjusted EBITDA, adjusted EBITDA margin, adjusted net income and adjusted net income per diluted common share.
Current wording
The expense associated with the Giphy Retention Compensation related to (i) the one-time employment inducement bonuses and (ii) the vesting of the cash value of unvested Meta equity awards held by the employees prior to closing, which are reflected in operating expenses (together, the “Giphy Retention Compensation Expense - non-recurring”), are required payments in accordance with the terms of the acquisition. Meta’s sale of Giphy was directed by the CMA and accordingly, the terms of the acquisition were subject to CMA preapproval. Management considers the operating expense associated with these required payments to be unusual and non-recurring in nature. The Giphy Retention Compensation Expense - non-recurring is not considered ongoing expense necessary to operate the Company’s business. Therefore, such expenses have been included in the below adjustments for calculating adjusted EBITDA, adjusted EBITDA margin, adjusted net income and adjusted net income per diluted common share. For the three months ended June 30, 2024, the Company also incurred $5.1 million, of Giphy Retention Compensation expense related to recurring employee costs, which is included in operating expenses, and are not included in the below adjustments for calculating adjusted EBITDA, adjusted EBITDA margin, adjusted net income and adjusted net income per diluted common share.
Previous wording
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, Giphy Retention Compensation Expense - non-recurring, unrealized gains on investments, 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.
Current wording
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, Giphy Retention Compensation Expense - non-recurring, unrealized gains and losses on investments, severance costs associated with strategic workforce optimizations, and the estimated tax impact of such adjustments. We define adjusted net income per diluted common share as adjusted net income divided by weighted average diluted shares.
Previous wording
(2)Of these amounts, $8.2 million and $7.5 million are included in cost of revenue for the three months ended March 31, 2024 and 2023, respectively. The remainder of acquisition-related amortization expense is included in general and administrative expense in the Statement of Operations.
Current wording
(3)Of these amounts, $8.2 million and $7.7 million are included in cost of revenue for the three months ended June 30, 2024 and 2023, respectively, and $16.4 million and $15.3 million are included in cost of revenue for the six months ended June 30, 2024 and 2023, respectively. The remainder of acquisition-related amortization expense is included in general and administrative expense in the Statement of Operations.
Previous wording
We define adjusted EBITDA as net income adjusted for depreciation and amortization, non-cash equity-based compensation, bargain purchase gain related to the acquisition of Giphy, Giphy Retention Compensation Expense - non-recurring, foreign currency transaction gains and losses, severance costs associated with strategic workforce optimizations, unrealized gains on investments, interest income and expense and income taxes. We define adjusted EBITDA margin as the ratio of adjusted EBITDA to revenue.
Current wording
We define adjusted EBITDA as net income adjusted for depreciation and amortization, non-cash equity-based compensation, bargain purchase gain related to the acquisition of Giphy, Giphy Retention Compensation Expense - non-recurring, foreign currency transaction gains and losses, severance costs associated with strategic workforce optimizations, unrealized gains and losses on investments, interest income and expense and income taxes. We define adjusted EBITDA margin as the ratio of adjusted EBITDA to revenue.
Previous wording
We define adjusted free cash flow as our cash provided by operating activities, adjusted for capital expenditures, content acquisition and cash received related to Giphy Retention Compensation in connection with the acquisition of Giphy.
Current wording
We define adjusted free cash flow as our net cash provided by operating activities, adjusted for capital expenditures, content acquisition and cash received related to Giphy Retention Compensation in connection with the acquisition of Giphy.
Rearranged current paragraphs (8)
Current report — wording carried from elsewhere
Cost of Revenue. Cost of revenue increased by $6.8 million to $91.3 million in the three months ended June 30, 2024 compared to the same period in 2023. This increase was driven by: (i) higher costs associated with website hosting, hardware and software licenses; (ii) increased depreciation and amortization expense driven by our recent acquisitions; and (iii) increased royalty and content costs. We expect that our cost of revenue will continue to fluctuate in-line with changes in revenue.
Current report — wording carried from elsewhere
The following table presents our results of operations for the periods indicated:
Current report — wording carried from elsewhere
In the six months ended June 30, 2024 and 2023, we delivered 68.4 million and 81.2 million paid downloads, respectively, and our revenue per download was $5.03 and $4.56 for the six months ended June 30, 2024 and 2023, respectively. During the six months ended June 30, 2024, the decline in paid downloads is attributed to the decline in the Content business.
Current report — wording carried from elsewhere
Changes in our revenue by region were as follows: revenue from North America increased by $35.2 million, or 18%, to $230.5 million, revenue from Europe decreased by $8.7 million, or 7%, to $108.8 million and revenue from outside Europe and North America decreased by $16.3 million, or 15%, to $95.0 million, in the six months ended June 30, 2024 compared to the same period in 2023.
Current report — wording carried from elsewhere
Product Development. Product development expenses decreased by $3.7 million, or 8%, to $40.9 million in the six months ended June 30, 2024 as compared to the same period in 2023. This decrease in product development was driven by a $3.5 million decrease in employee-related costs (of which there was a $3.9 million increase from recurring Giphy Retention Compensation expenses and a $3.4 million decrease from non-recurring Giphy Retention Compensation expenses) for the six months ended June 30, 2024 compared to the same period in 2023. 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.
Current report — wording carried from elsewhere
Other (Expense) / Income, Net. During the six months ended June 30, 2024, other (expense) / income, net substantially consisted of $1.9 million of unfavorable unrealized foreign currency fluctuations and $1.1 million of interest expense related to our credit facility, partially offset by $2.4 million of interest income. During the six months ended June 30, 2023 other (expense) / income, net consisted of $1.7 million of favorable unrealized foreign currency fluctuations and $0.8 million of interest income, partially offset by $0.7 million of interest expense related to our credit facility. 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.
Current report — wording carried from elsewhere
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.
Current report — wording carried from elsewhere
At the Company’s option, loans under the A&R Credit Agreement accrue interest at a per annum rate based on either (i) the base rate plus a margin ranging from 0.375% to 0.750%, determined based on the Company’s consolidated net leverage ratio or (ii) the Term SOFR rate (for interest periods of 1, 3 or 6 months) plus a margin ranging from 1.375% to 1.750%, determined based on the Company’s consolidated net leverage ratio, plus a credit spread adjustment of 0.100%.