Shutterstock Inc

(1)Summary of Operations and Significant Accounting Policies

Summary of Operations

Shutterstock, Inc. (the “Company” or “Shutterstock”) is a leading global creative platform connecting brands and businesses to high quality content.

The Company’s platform brings together users and contributors of content by providing readily-searchable content that customers pay to license and by compensating contributors as their content is licensed. Contributors upload their content to the Company’s web properties in exchange for royalty payments based on customer download activity. Beyond content, customers also leverage the Company’s platform to assist with the entire creative process from ideation through creative execution.

Digital content licensed to customers for their creative needs includes images, footage, music, and 3D models (the Company’s “Content” offering). Content revenues represent the majority of the Company’s business and are supported by the Company’s searchable creative platform and driven by the Company’s large contributor network.

In addition, customers have needs that are beyond traditional content license products and services. These include (i) licenses to metadata associated with the Company’s images, footage, music tracks and 3D models through the Company’s data offering, (ii) distribution and advertising services from the Company’s Giphy business, which consists of GIFs (graphics interchange format visuals) that serve as a critical ingredient in text- and message- based conversations and in contextual advertising settings, (iii) specialized solutions for high-quality content matched with production tools and services through Shutterstock Studios and (iv) other tailored white-glove services (collectively, the Company’s “Data, Distribution, and Services” offerings).

The Company’s Content offering includes:

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

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

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

•3 Dimensional (“3D”) Models - consisting of 3D models, used in a variety of industries such as advertising, media and video production, gaming, retail, education, design and architecture.

•Generative AI Content - consisting of images generated from algorithms trained with high-quality, ethically sourced content. Customers can generate images by entering a description of their desired content into model prompts.

On February 1, 2024, the Company acquired Backgrid USA, Inc. and Backgrid London, Ltd. (collectively “Backgrid”). Backgrid supplies media organizations with real-time celebrity content. See Note 3 Acquisitions.

Basis of Presentation

The unaudited condensed consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not include all information and footnotes required by GAAP for complete financial statements.

The interim Consolidated Balance Sheet as of June 30, 2024, and the Consolidated Statements of Operations, Comprehensive Income and Stockholders’ Equity for the three and six months ended June 30, 2024 and 2023, and the Consolidated Statements of Cash Flows for the six months ended June 30, 2024 and 2023 are unaudited. The Consolidated Balance Sheet as of December 31, 2023, included herein, was derived from the audited financial statements as of that date, but does not include all disclosures required by GAAP. These unaudited interim financial statements have been prepared on a basis consistent with the Company’s annual financial statements and, in the opinion of management, reflect all adjustments, which include all normal recurring adjustments necessary to fairly state the Company’s financial position as of June 30, 2024, and its consolidated results of operations, comprehensive income, stockholders’ equity and cash flows for the three and six months ended June 30, 2024 and 2023. The financial data and the other financial information disclosed in the notes to the financial statements related to these periods are also unaudited. The results of operations for the six months ended June 30, 2024 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2024 or for any other future annual or interim period.

These financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2023 included in the Company’s Annual Report on Form 10-K, which was filed with the SEC on February 26, 2024. The unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Certain immaterial changes in presentation have been made to conform the prior period presentation to current period reporting.

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements. Actual results could differ from those estimates. Such estimates include, but are not limited to, the determination of the allowance for doubtful accounts, the volume of expected unused licenses for our subscription-based products, the assessment of recoverability of property and equipment, the fair value of acquired goodwill and intangible assets, the amount of non-cash equity-based compensation, the assessment of recoverability of deferred tax assets, the measurement of income tax and contingent non-income tax liabilities and the determination of the incremental borrowing rate used to calculate the lease liability.

Cash and Cash Equivalents

The Company’s cash and cash equivalents consist primarily of bank deposits.

Accounts Receivable and Allowance for Doubtful Accounts

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

For certain Data, Distribution, and Services transactions, the Company has $69.9 million of unbilled receivables of which $38.0 million are recorded in Accounts Receivable and $31.9 million are recorded in Other Assets, as of June 30, 2024.

During the six months ended June 30, 2024, the Company recorded bad debt recovery of $1.8 million. As of June 30, 2024 and December 31, 2023, the Company’s allowance for doubtful accounts was approximately $4.6 million and $6.3 million, respectively. The allowance for doubtful accounts is included as a reduction of accounts receivable on the Consolidated Balance Sheets.

The Company has certain customer arrangements that contain financing elements. Interest income earned from these financing receivables is recorded on the effective interest method and is included within interest income on the Consolidated Statements of Operations. As of June 30, 2024 and December 31, 2023, approximately $12.6 million and $16.0 million of financing receivables, respectively, were included in accounts receivable and other assets on the Consolidated Balance Sheets.

In addition, as of June 30, 2024 and December 31, 2023, two customers accounted for approximately 29% of the accounts receivable balance.

Chargeback and Sales Refund Allowance

The Company establishes a chargeback allowance and sales refund reserve allowance based on factors surrounding historical credit card chargeback trends, historical sales refund trends and other information. As of June 30, 2024 and December 31, 2023, the Company’s combined allowance for chargebacks and sales refunds was $0.4 million, which was included as a component of other current liabilities on the Consolidated Balance Sheets.

Revenue Recognition

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

For contracts that contain multiple performance obligations, the Company allocates the transaction price to each performance obligation based on a relative standalone selling price. The standalone selling price is determined based on the price at which the performance obligation is sold separately, or if not observable through past transactions, is estimated taking into account available information including internally approved pricing guidelines and pricing information of comparable products.

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

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

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

The Company also reports revenue net of return and chargeback allowances. These allowances are based off historical trends when available.

(2)Fair Value Measurements and Long-term Investments

Fair Value Measurements

The Company had no assets or liabilities requiring fair value hierarchy disclosures as of June 30, 2024 or December 31, 2023, except as noted below.

Other Fair Value Measurements

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value because of the short-term nature of these instruments. Debt consists of principal amounts outstanding under our credit facility, which approximates fair value as underlying interest rates are reset regularly based on current market rates and is classified as Level 2. The Company’s non-financial assets, which include long-lived assets, intangible assets and goodwill, are not required to be measured at fair value on a recurring basis. However, if the Company is required to evaluate a non-financial asset for impairment, whether due to certain triggering events or because annual impairment testing is required, a resulting asset impairment would require that the non-financial asset be recorded at fair value.

Long-term Investments

Investment in Meitu, Inc. (“Meitu”)

In 2018, the Company invested $15.0 million in convertible preferred shares issued by ZCool Technologies Limited (“ZCool”) (the “Preferred Shares”). ZCool’s primary business is the operation of an e-commerce platform in the People’s Republic of China (the “PRC”) whereby customers can pay to license content contributed by creative professionals. ZCool and its affiliates have been the exclusive distributor of Shutterstock content in China since 2014. The Company used the measurement alternative and the investment in ZCool was reported at cost, adjusted for impairments or any observable price changes in ordinary transactions with identical or similar investments.

On March 27, 2024, ZCool was acquired by Meitu, and the Company’s Preferred Shares in ZCool were exchanged for $18.4 million of Meitu common shares, resulting in an investment carrying value increase of $3.4 million, which is recorded in Other (expense) / income, net in the Consolidated Statement of Operations. Meitu’s primary business is the provision of online advertising and other internet value added services in the PRC, and its common shares are publicly traded on the Main Board of The Stock Exchange of Hong Kong Limited. This investment is recorded at fair value on a recurring basis, with changes in fair value being recorded in Other (expense) / income, net in the Consolidated Statement of Operations. Its fair value level hierarchy and amount at June 30, 2024 are as follows:

Other Long-Term Investments

In connection with its Data, Distribution, and Services business, the Company may receive equity instruments in addition to cash for revenue contract consideration. As of June 30, 2024, the Company has $23.8 million recorded in Other Assets in the Consolidated Balance Sheet from equity instruments received. There were no customer equity instruments recorded at December 31, 2023. The Company estimated the value of these equity instruments based on issuers’ recent market transactions. The Company will use the measurement alternative for fair value since the equity instruments do not have a readily determinable fair value and will report the instruments at cost, adjusted for impairments or any observable price changes in ordinary transactions with identical or similar investments.

As of June 30, 2024 and December 31, 2023, the Company also had a long-term investment in an equity security with no readily determinable fair value totaling $5.0 million. The Company uses the measurement alternative for fair value and the investment’s carrying value is reported at cost, adjusted for impairments or any observable price changes in ordinary transactions with identical or similar investments.

(3)Acquisitions

Backgrid

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. In connection with the acquisition, the Company incurred approximately $1.5 million of transaction costs in total, which are included in general and administrative expenses on the Consolidated Statements of Operations.

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.

The identifiable intangible assets, trademark and developed technology, have useful lives of approximately 10 years and 5 years, respectively. The goodwill arising from the transaction is primarily attributable to expected operational synergies and is not deductible for income tax purposes.

The Backgrid transaction was accounted for using the acquisition method and, accordingly, the results of the acquired business have been included in the Company’s results of operations from the acquisition date. The fair value of consideration transferred in this business combination has been allocated to the intangible and tangible assets acquired and liabilities assumed at the acquisition date, with the remaining unallocated amount recorded as goodwill. The identifiable intangible assets of this acquisition are being amortized on a straight-line basis. The fair value of the trademark and developed technology was determined using the excess earnings and relief-from-royalty methods.

The aggregate purchase price for this acquisition has been allocated to the assets acquired and liabilities assumed as follows (in thousands):

Giphy, Inc.

On May 22, 2023, the Company entered into a Stock Purchase Agreement with Meta Platforms, Inc. (“Meta”) dated May 22, 2023 (the “Purchase Agreement”). On June 23, 2023, the Company completed its acquisition of all of the outstanding shares of Giphy, Inc. (“Giphy”) from Meta. The consideration paid by the Company pursuant to the Purchase Agreement was $53 million in net cash, in addition to cash acquired, assumed debt and other working capital adjustments. The consideration was paid with existing cash on hand. Giphy is a New York-based company that operates a collection of GIFs and stickers that supplies casual conversational content. The Company believes its acquisition of Giphy extends Shutterstock’s audience touchpoints beyond primarily professional marketing and advertising use cases and expands into casual conversations.

In January 2023, the United Kingdom Competition and Markets Authority (the “CMA”) issued its final order requiring Meta to divest its ownership of Giphy, which Meta acquired in 2020. In connection with the closing of the acquisition, whose terms were preapproved by the CMA, the Company and Meta entered into a transitional services agreement (the “TSA”) pursuant to which Meta is responsible for certain costs related to retention of Giphy employees, including (i) recurring salary, bonus, and benefits through August 2024, which would be $35.6 million if all employees are retained through August 2024, and (ii) nonrecurring items, totaling $87.9 million, comprised of one-time employment inducement bonuses and the cash value of unvested Meta equity awards (collectively, the “Giphy Retention Compensation”) and certain costs related to technology and integration expenses, totaling $30 million to be paid in $1.25 million monthly installments through May 2025.

The Giphy Retention Compensation will be paid to the individuals for being employees of the Company subsequent to the completion of the acquisition. Accordingly, it was determined that the payments by the Company are for future service requirements and will be reflected as operating expenses, less any amounts earned by the employees prior to the acquisition, in the Company’s Statements of Operations as incurred. The Giphy Retention Compensation is reflected as a reduction of the purchase price and has been funded into an escrow account.

The Giphy purchase price was calculated as follows:

1 - This amount consists of $123.5 million of Giphy Retention Compensation, adjusted for $18.9 million of income tax obligations associated with the receipt of the Giphy Retention Compensation and $5.9 million for the time value of money.

2 - Relates to the cash value of replaced unvested Meta equity awards attributable to pre-combination services.

Upon closing of the acquisition, the Company also entered into an agreement with Meta whereby the Company will provide Meta with access to Giphy content that is displayed through an API for a period oftwo years. The Company determined that the API arrangement represents a transaction separate from the business combination and was priced below market. Therefore, the Company allocated $30 million of the purchase price to these services, which represents the step-up to fair market value. This amount has been recognized in deferred revenue and will be recognized as revenue over-time as the API is provided.

The identifiable intangible assets, which include developed technology and the trade name have weighted average useful lives of approximately 7 years and 15 years, respectively. The fair value of the developed technology was determined using the cost to recreate method, and the fair value of the trade name was determined using the relief-from-royalty method.

The Giphy transaction was accounted for using the acquisition method and, accordingly, the results of the acquired business have been included in the Company’s results of operations from the acquisition date. The fair value of consideration transferred in this business combination has been allocated to the intangible and tangible assets acquired and liabilities assumed at the acquisition date, with the excess of the fair value of the net assets acquired over the net consideration received recorded as a bargain purchase gain. The identifiable intangible assets of these acquisitions are being amortized on a straight-line basis.

The aggregate purchase price for this acquisition has been allocated to the assets acquired and liabilities assumed as follows (in thousands):

1 -During the three months ended September 30, 2023, the Company revised its preliminary allocation of the Giphy purchase price to the assets acquired and liabilities assumed by $9.9 million associated with additional information analyzed related to the deferred income tax balances. The measurement and allocation of the purchase price is preliminary and will be finalized within the allowable measurement period once the Company finalizes its assessment of fair value of intangible assets, income tax balances and other assets acquired and liabilities assumed.

2 - During the three months ended December 31, 2023, the Company revised its preliminary allocation of the Giphy purchase price to the assets acquired and liabilities assumed by $1.6 million associated with additional information analyzed related to the valuation of the Developed Technology asset. The measurement and allocation of the purchase price is preliminary and will be finalized within the allowable measurement period once the Company finalizes its assessment of fair value of intangible assets, income tax balances and other assets acquired and liabilities assumed.

The Company recognized a non-taxable bargain purchase gain of $50.3 million, representing the excess of the fair value of the net assets acquired in addition to the net consideration to be received from Meta. The bargain purchase gain is the result of the CMA’s regulatory order requiring Meta’s divestiture of Giphy and the Giphy Retention Compensation payments. In connection with the acquisition, the Company incurred approximately $3.0 million of transaction costs, which are included in general and administrative expenses on the Consolidated Statements of Operations.

As of June 30, 2024, Shutterstock’s receivable of $43.7 million, is against an escrow fully funded by Meta. $31.5 million and $12.2 million are included within Prepaid expenses and other current assets and Other assets, respectively, on the Consolidated Balance Sheet.

Pro-Forma Financial Information (unaudited)

The following unaudited pro forma consolidated financial information (in thousands) reflects the results of operations of the Company for the three and six months ended June 30, 2024 and 2023, respectively, as if the Backgrid acquisition had been completed on January 1, 2023, and as if the Giphy acquisition had been completed on January 1, 2022, after giving effect to certain purchase accounting adjustments, primarily related to Giphy Retention Compensation - non-recurring, intangible assets and transaction costs. These pro forma results have been prepared for comparative purposes only and are based on estimates and assumptions that have been made solely for purposes of developing such pro forma information and are not necessarily indicative of what the Company’s operating results would have been, had the acquisitions actually taken place at the beginning of the previous annual period.

(4)Property and Equipment

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

Depreciation expense related to property and equipment was $10.4 million and $9.1 million for the three months ended June 30, 2024 and 2023, respectively, and $20.7 million and $18.2 million for the six months ended June 30, 2024 and 2023, respectively. Cost of revenues included depreciation expense of $10.0 million and $8.7 million for the three months ended June 30, 2024 and 2023, respectively, and $19.9 million and $17.3 million for the six months ended June 30, 2024 and 2023, respectively. General and administrative expense included depreciation expense of $0.4 million for the three months ended June 30, 2024 and 2023, and $0.8 million and $0.9 million for the six months ended June 30, 2024 and 2023, respectively.

Capitalized Internal-Use Software

The Company capitalized costs related to the development of internal-use software of $9.6 million and $11.3 million for the three months ended June 30, 2024 and 2023, respectively, and $18.6 million and $21.6 million for the six months ended June 30, 2024 and 2023, respectively. Capitalized amounts are included as a component of property and equipment under computer equipment and software on the Consolidated Balance Sheets.

The portion of total depreciation expense related to capitalized internal-use software was $9.8 million and $8.4 million for the three months ended June 30, 2024 and 2023, respectively, and $19.4 million and $16.8 million for the six months ended June 30, 2024 and 2023, respectively. Depreciation expense related to capitalized internal-use software is included in cost of revenue in the Consolidated Statements of Operations.

As of June 30, 2024 and December 31, 2023, the Company had capitalized internal-use software of $59.5 million and $60.3 million, respectively, net of accumulated depreciation, which was included in property and equipment, net.

(5)Goodwill and Intangible Assets

Goodwill

The Company’s goodwill balance is attributable to its Content reporting unit and is tested for impairment annually on October 1 or upon a triggering event. No triggering events were identified during the six months ended June 30, 2024.

The following table summarizes the changes in the carrying value of the Company’s goodwill balance during the six months ended June 30, 2024 (in thousands):

Intangible Assets

Intangible assets, all of which are subject to amortization, consisted of the following as of June 30, 2024 and December 31, 2023 (in thousands):

Amortization expense was $11.0 million and $10.1 million for the three months ended June 30, 2024 and 2023, respectively, and $22.0 million and $19.9 million for the six months ended June 30, 2024 and 2023, respectively. Cost of revenue included amortization expense of $10.0 million and $9.4 million for the three months ended June 30, 2024 and 2023, respectively, and $20.0 million and $18.6 million for the six months ended June 30, 2024 and 2023, respectively. General and administrative expense included amortization expense of $1.0 million and $0.7 million for the three months ended June 30, 2024 and 2023, respectively, and $2.0 million and $1.3 million for the six months ended June 30, 2024 and 2023, respectively.

The Company determined that there was no indication of impairment of the intangible assets for any period presented. Estimated amortization expense is: $16.1 million for the remaining six months of 2024, $27.6 million in 2025, $25.3 million in 2026, $19.1 million in 2027, $16.5 million in 2028, $15.4 million in 2029 and $44.5 million thereafter.

(6)Accrued Expenses

Accrued expenses consisted of the following (in thousands):

As of June 30, 2024 and December 31, 2023, compensation-related accrued expenses included amounts due to Giphy employees for compensation earned pre-acquisition and severance costs associated with workforce optimizations. Approximately $1.2 million and $7.7 million of severance costs associated with workforce optimization is included within accrued expenses as of June 30, 2024 and December 31, 2023, respectively.

(7)Debt

On May 6, 2022, the Company entered into afive-year $100 million unsecured revolving loan facility (the “Credit Facility”) with Bank of America, N.A., as Administrative Agent and other lenders. The Credit Facility includes a letter of credit sub-facility and a swingline facility and it also permits, subject to the satisfaction of certain conditions, up to $100 million of additional revolving loan commitments with the consent of the Administrative Agent.

At the Company’s option, revolving loans accrue interest at a per annum rate based on either (i) the base rate plus a margin ranging from 0.125% to 0.500%, determined based on the Company’s consolidated leverage ratio or (ii) the Term Secured Overnight Financing Rate (“SOFR”) (for interest periods of 1, 3 or 6 months) plus a margin ranging from 1.125% to 1.5%, determined based on the Company’s consolidated leverage ratio. The Company is also required to pay an unused commitment fee ranging from 0.150% to 0.225%, determined based on the Company’s consolidated leverage ratio. In connection with the execution of this agreement, the Company paid debt issuance costs of approximately $0.6 million.

As of June 30, 2024 and December 31, 2023, the Company had $30 million of outstanding borrowings under the Credit Facility. As of June 30, 2024, the Company had a remaining borrowing capacity of $68 million, net of standby letters of credit. For the three and six months ended June 30, 2024, the Company recognized interest expense of $0.6 million and $1.1 million, respectively.

The Credit Facility contains financial covenants and requirements restricting certain of the Company’s activities, which are usual and customary for this type of credit facility. 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 Credit Facility. As of June 30, 2024, the Company was in compliance with these covenants.

(8)Stockholders’ Equity and Equity-Based Compensation

Stockholders’ Equity

Common Stock

The Company issued approximately 273,000 and 194,000 shares of common stock during the three months ended June 30, 2024 and 2023, respectively, related to the exercise of stock options and the vesting of Restricted Stock Units.

Treasury Stock

In June 2023, the Company’s Board of Directors approved a share repurchase program (the “2023 Share Repurchase Program”), providing authorization to repurchase up to $100 million of its common stock.

The Company expects to fund future repurchases, if any, through a combination of cash on hand, cash generated by operations and future financing transactions, if appropriate. Accordingly, the 2023 Share Repurchase Program is subject to the Company having available cash to fund repurchases. Under the 2023 Share Repurchase Program, management is authorized to purchase shares of the Company’s common stock from time to time through open market purchases or privately negotiated transactions at prevailing prices as permitted by securities laws and other legal requirements, and subject to market conditions and other factors.

As of June 30, 2024, the Company has repurchased approximately 4.9 million shares of common stock under the 2023 Share Repurchase Program at an average per-share cost of $50.49. During the three and six months ended June 30, 2024, the Company repurchased approximately 517,000 shares of common stock at an average cost of $39.83 under the 2023 Share Repurchase Program. During the three and six months ended June 30, 2023, the Company repurchased approximately 80,400 shares of its common stock at an average cost of $49.78 under the 2023 Share Repurchase Program. As of June 30, 2024, the Company had $51.2 million of remaining authorization for purchases under the 2023 Share Repurchase Program.

Dividends

The Company declared and paid cash dividends of $0.30 and $0.60 per share of common stock, or $10.7 million and $21.3 million during the three and six months ended June 30, 2024, respectively, and $0.27 and $0.54 per share of common stock, or $9.7 million and $19.4 million, during the three and six months ended June 30, 2023, respectively.

On July 22, 2024, the Company’s Board of Directors declared a quarterly cash dividend of $0.30 per share of outstanding common stock payable on September 12, 2024 to stockholders of record at the close of business on August 29, 2024. Future declarations of dividends are subject to the final determination of the Board of Directors, and will depend on, among other things, the Company’s future financial condition, results of operations, capital requirements, capital expenditure requirements, contractual restrictions, anticipated cash needs, business prospects, provisions of applicable law and other factors the Board of Directors may deem relevant.

Equity-Based Compensation

The Company recognizes stock-based compensation expense for all equity-based compensation awards, including employee Restricted Stock Units and Performance-based Restricted Stock Units (“PRSUs” and, collectively with Restricted Stock Units, “RSUs”) and stock options, based on the fair value of each award on the grant date. Awards granted prior to June 1, 2022 were granted under the Company’s Amended and Restated 2012 Omnibus Equity Incentive Plan (the “2012 Plan”). At the Annual Meeting held on June 2, 2022, the Company’s stockholders approved the 2022 Omnibus Equity Incentive Plan (the “2022 Plan”). Awards granted subsequent to June 2, 2022 were granted under the 2022 Plan. At the Annual Meeting held on June 6, 2024, the Company’s stockholders approved the Amended and Restated 2022 Omnibus Equity Incentive Plan (the “2022 Amended and Restated Plan”). Awards granted subsequent to June 6, 2024 were granted under the 2022 Amended and Restated Plan.

The following table summarizes non-cash equity-based compensation expense, net of forfeitures, by financial statement line item included in the accompanying Consolidated Statements of Operations for the three and six months ended June 30, 2024 and 2023 (in thousands):

For the three and six months ended June 30, 2024 and 2023, substantially all of the Company’s non-cash equity-based compensation expense related to RSUs.

Stock Option Awards

During the six months ended June 30, 2024, no options to purchase shares of its common stock were granted. As of June 30, 2024, there were approximately 299,000 options vested and exercisable with a weighted average exercise price of $34.14.

Restricted Stock Unit Awards

During the six months ended June 30, 2024, the Company had RSU grants, net of forfeitures, of approximately 1,519,000. As of June 30, 2024, there are approximately 2,956,000 non-vested RSUs outstanding with a weighted average grant-date fair value of $53.13. As of June 30, 2024, the total unrecognized non-cash equity-based compensation expense related to the non-vested RSUs was approximately $108.3 million, which is expected to be recognized through 2028.

During the six months ended June 30, 2024 and 2023, shares of common stock with an aggregate value of $8.9 million and $12.3 million were withheld upon vesting of RSUs and paid in connection with related remittance of employee withholding taxes to taxing authorities.

(9)Revenue

The Company distributes its products throughtwo primary offerings:

Content: The majority of the Company’s customers license image, video, music and 3D content for commercial purposes either directly through the Company’s self-service web properties or through the Company’s dedicated sales teams. Content customers have the flexibility to purchase subscription-based plans that are paid on a monthly or annual basis. Customers are also able to license content on a transactional basis. These customers generally license content under the Company’s standard or enhanced licenses, with additional licensing options available to meet customers’ individual needs. Certain content customers also have unique content, licensing and workflow needs. These customers communicate with dedicated sales professionals, service and research teams which provide a number of tailored enhancements to their creative workflows including non-standard licensing rights, multi-seat access, ability to pay on credit terms, multi-brand licensing packages, increased indemnification protection and content licensed for use-cases outside of those available on the e-commerce platform.

Data, Distribution, and Services: The Company’s Data, Distribution, and Services offerings address customer demand for products and services that are beyond the stock image, footage music and 3D model licenses. These offerings include access to the Company’s metadata for machine learning and generative artificial intelligence model training and high-quality production and custom content at scale provided by Shutterstock Studios.

The Company’s revenues by product offering for the three and six months ended June 30, 2024 and 2023 are as follows (in thousands):

Deferred revenue reported on the balance sheet represents unfulfilled performance obligations for which the Company has either received payment or has outstanding receivables. The June 30, 2024 deferred revenue balance will be earned as content is downloaded or upon the expiration of subscription-based products, and nearly all is expected to be earned within the next twelve months. $131.1 million of total revenue recognized for the six months ended June 30, 2024 was reflected in deferred revenue as of December 31, 2023. In addition, as of June 30, 2024, the Company has approximately $91.8 million of contracted but unsatisfied performance obligations relating primarily to our data deal offerings, which are not included as a component of deferred revenue and that the Company expects to recognize over afive year period.

(10)Other (Expense) / Income, net

The following table presents a summary of the Company’s other income and expense activity included in the accompanying Consolidated Statements of Operations for the three and six months ended June 30, 2024 and 2023 (in thousands):

(11)Income Taxes

The Company’s effective tax rates yielded a net expense of 78.1% and 2.7% for the three months ended June 30, 2024 and 2023, respectively, and a net expense of 46.6% and 10.7% for the six months ended June 30, 2024 and 2023, respectively.

During the three and six months ended June 30, 2024, the net effect of discrete items increased the effective tax rate by 59.7% and 27.6%, respectively. The discrete items for the three and 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, the Company’s effective tax rate would have been 18.4% and 19.0% for the three and six months ended June 30, 2024, respectively.

During the three and six months ended June 30, 2023, the net effect of discrete items decreased the effective tax rate by 13.6% and 7.1%, respectively. The discrete items for the three and six months ended June 30, 2023, relate to the non-taxable bargain purchase gain associated with the acquisition of Giphy. Excluding discrete items, the Company’s effective tax rate would have been 16.3% and 17.8% for the three and six months ended June 30, 2023, respectively.

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

During the three and six months ended June 30, 2024 and 2023, uncertain tax positions recorded by the Company were not significant. To the extent the remaining uncertain tax positions are ultimately recognized, the Company’s effective tax rate may be impacted in future periods.

The Company recognizes interest expense and tax penalties related to unrecognized tax benefits in income tax expense in the Consolidated Statements of Operations. The Company’s accrual for interest and penalties related to unrecognized tax benefits was not significant for the three and six months ended June 30, 2024 and 2023.

During the six months ended June 30, 2024 and 2023, the Company paid net cash taxes of $12.6 million and $6.8 million, respectively.

(12)Net Income Per Share

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

The following table sets forth the computation of basic and diluted net income per share for the three and six months ended June 30, 2024 and 2023 (in thousands):

(13)Geographic Information

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

The United States, included in North America in the above table, accounted for 50% and 43% of consolidated revenue for the six months ended June 30, 2024 and 2023, respectively. No other country accounts for more than 10% of the Company’s revenue in any period presented.

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

The United States, included in North America in the above table, accounted for 67% and 68% of total long-lived tangible assets as of June 30, 2024 and December 31, 2023, respectively. Ireland, included in Europe in the above table, accounted for 22% and 21% of total long-lived tangible assets as of June 30, 2024 and December 31, 2023, respectively. No other country accounts for more than 10% of the Company’s long-lived tangible assets in any period presented.

(14)Commitments and Contingencies

As of June 30, 2024, the Company had total non-lease obligations in the amount of approximately $68.7 million, which consisted primarily of minimum royalty guarantees and unconditional purchase obligations related to contracts for infrastructure and other business services. As of June 30, 2024, the Company’s non-lease obligations for the remainder of 2024 and for the years ending December 31, 2025, and 2026 were approximately $28.7 million, $34.3 million, and $5.7 million, respectively.

Legal Matters

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

Indemnification and Employment Agreements

In the ordinary course of business, the Company enters into contractual arrangements under which it agrees to provide indemnification of varying scope and terms to customers with respect to certain matters, including, but not limited to, losses arising out of the breach of the Company’s intellectual property warranties for damages to the customer directly attributable to the Company’s breach. The Company is not responsible for any damages, costs, or losses to the extent such damages, costs or losses arise as a result of the modifications made by the customer, or the context in which an image is used. The standard maximum aggregate obligation and liability to any one customer for all claims is generally limited toten thousand dollars. The Company offers certain of its customers greater levels of indemnification, including unlimited indemnification and believes that it has appropriate insurance coverage in place to adequately cover indemnification claims, if necessary. As of and for the six months ended June 30, 2024, the Company made no material payments for losses on customer indemnification claims and recordedno liabilities related to indemnification for loss contingencies, before considering any insurance recoveries.

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

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

(15)Subsequent Events

Envato Acquisition

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.

Amended and Restated Credit Facility

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 afive-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.

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%.

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.

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.

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.