Shutterstock, Inc.
Consolidated Statements of Operations
(In thousands, except for per share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
159,230
|
|
|
$
|
161,741
|
|
|
$
|
320,515
|
|
|
$
|
325,073
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
Cost of revenue
|
63,811
|
|
|
68,526
|
|
|
132,934
|
|
|
137,744
|
|
Sales and marketing
|
35,557
|
|
|
44,488
|
|
|
78,217
|
|
|
88,934
|
|
Product development
|
12,485
|
|
|
13,594
|
|
|
25,554
|
|
|
28,580
|
|
General and administrative
|
24,832
|
|
|
32,063
|
|
|
55,484
|
|
|
58,646
|
|
Total operating expenses
|
136,685
|
|
|
158,671
|
|
|
292,189
|
|
|
313,904
|
|
Income from operations
|
22,545
|
|
|
3,070
|
|
|
28,326
|
|
|
11,169
|
|
|
|
|
|
|
|
|
|
Other income, net
|
149
|
|
|
584
|
|
|
662
|
|
|
1,480
|
|
Income before income taxes
|
22,694
|
|
|
3,654
|
|
|
28,988
|
|
|
12,649
|
|
Provision for income taxes
|
3,707
|
|
|
355
|
|
|
5,683
|
|
|
1,828
|
|
Net income
|
$
|
18,987
|
|
|
$
|
3,299
|
|
|
$
|
23,305
|
|
|
$
|
10,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
Basic
|
$
|
0.53
|
|
|
$
|
0.09
|
|
|
$
|
0.65
|
|
|
$
|
0.31
|
|
Diluted
|
$
|
0.53
|
|
|
$
|
0.09
|
|
|
$
|
0.65
|
|
|
$
|
0.30
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
Basic
|
35,652
|
|
35,232
|
|
35,587
|
|
35,174
|
Diluted
|
35,906
|
|
35,504
|
|
35,894
|
|
35,499
|
See Notes to Unaudited Consolidated Financial Statements.
Shutterstock, Inc.
Consolidated Statements of Comprehensive Income
(In thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
Net income
|
$
|
18,987
|
|
|
$
|
3,299
|
|
|
$
|
23,305
|
|
|
$
|
10,821
|
|
Foreign currency translation gain / (loss)
|
254
|
|
|
(1,027)
|
|
|
(2,194)
|
|
|
(982)
|
|
|
|
|
|
|
|
|
|
Other comprehensive gain / (loss)
|
254
|
|
|
(1,027)
|
|
|
(2,194)
|
|
|
(982)
|
|
Comprehensive income
|
$
|
19,241
|
|
|
$
|
2,272
|
|
|
$
|
21,111
|
|
|
$
|
9,839
|
|
See Notes to Unaudited Consolidated Financial Statements.
Shutterstock, Inc.
Consolidated Statements of Stockholders’ Equity
(In thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
Paid-in
Capital
|
|
Accumulated
Other
Comprehensive
Loss
|
|
Retained
Earnings
|
|
|
|
|
|
Common Stock
|
|
|
|
Treasury Stock
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2020
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
|
|
|
|
|
Total
|
Balance at March 31, 2020
|
|
|
38,119
|
|
|
$
|
381
|
|
|
2,558
|
|
|
$
|
(100,027)
|
|
|
$
|
316,823
|
|
|
$
|
(8,668)
|
|
|
$
|
119,218
|
|
|
$
|
327,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity-based compensation
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,636
|
|
|
—
|
|
|
—
|
|
|
3,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock in connection with employee stock option exercises and RSU vesting
|
|
|
180
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
627
|
|
|
—
|
|
|
—
|
|
|
629
|
|
Common shares withheld for settlement of taxes in connection with equity-based compensation
|
|
|
(54)
|
|
|
(1)
|
|
|
—
|
|
|
—
|
|
|
(1,674)
|
|
|
—
|
|
|
—
|
|
|
(1,675)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends paid
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,058)
|
|
|
(6,058)
|
|
Other comprehensive loss
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
254
|
|
|
—
|
|
|
254
|
|
Net income
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
18,987
|
|
|
18,987
|
|
Balance at June 30, 2020
|
|
|
38,245
|
|
|
$
|
382
|
|
|
2,558
|
|
|
$
|
(100,027)
|
|
|
$
|
319,412
|
|
|
$
|
(8,414)
|
|
|
$
|
132,147
|
|
|
$
|
343,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2019
|
|
|
37,759
|
|
|
$
|
378
|
|
|
2,558
|
|
|
$
|
(100,027)
|
|
|
$
|
292,458
|
|
|
$
|
(6,426)
|
|
|
$
|
108,601
|
|
|
$
|
294,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity-based compensation
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,751
|
|
|
—
|
|
|
—
|
|
|
7,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock in connection with employee stock option exercises and RSU vesting
|
|
|
83
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
5
|
|
Common shares withheld for settlement of taxes in connection with equity-based compensation
|
|
|
(26)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,091)
|
|
|
—
|
|
|
—
|
|
|
(1,091)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,027)
|
|
|
—
|
|
|
(1,027)
|
|
Net income
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,299
|
|
|
3,299
|
|
Balance at June 30, 2019
|
|
|
37,816
|
|
|
$
|
379
|
|
|
2,558
|
|
|
$
|
(100,027)
|
|
|
$
|
299,122
|
|
|
$
|
(7,453)
|
|
|
$
|
111,900
|
|
|
$
|
303,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019
|
|
|
38,055
|
|
|
$
|
381
|
|
|
2,558
|
|
|
$
|
(100,027)
|
|
|
$
|
312,824
|
|
|
$
|
(6,220)
|
|
|
$
|
121,187
|
|
|
$
|
328,145
|
|
Cumulative effect of accounting change (Note 1)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(247)
|
|
|
(247)
|
|
Balance at January 1, 2020
|
|
|
38,055
|
|
|
$
|
381
|
|
|
2,558
|
|
|
$
|
(100,027)
|
|
|
$
|
312,824
|
|
|
$
|
(6,220)
|
|
|
$
|
120,940
|
|
|
$
|
327,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity-based compensation
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,396
|
|
|
—
|
|
|
—
|
|
|
9,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock in connection with employee stock option exercises and RSU vesting
|
|
|
289
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
626
|
|
|
—
|
|
|
—
|
|
|
629
|
|
Common shares withheld for settlement of taxes in connection with equity-based compensation
|
|
|
(99)
|
|
|
(2)
|
|
|
—
|
|
|
—
|
|
|
(3,434)
|
|
|
—
|
|
|
—
|
|
|
(3,436)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends paid
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12,098)
|
|
|
(12,098)
|
|
Other comprehensive income
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,194)
|
|
|
—
|
|
|
(2,194)
|
|
Net income
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
23,305
|
|
|
23,305
|
|
Balance at June 30, 2020
|
|
|
38,245
|
|
|
$
|
382
|
|
|
2,558
|
|
|
$
|
(100,027)
|
|
|
$
|
319,412
|
|
|
$
|
(8,414)
|
|
|
$
|
132,147
|
|
|
$
|
343,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2018
|
|
|
37,618
|
|
|
$
|
376
|
|
|
2,558
|
|
|
$
|
(100,027)
|
|
|
$
|
291,710
|
|
|
$
|
(6,471)
|
|
|
$
|
101,079
|
|
|
$
|
286,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity-based compensation
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12,375
|
|
|
—
|
|
|
—
|
|
|
12,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock in connection with employee stock option exercises and RSU vesting
|
|
|
312
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
218
|
|
|
—
|
|
|
—
|
|
|
222
|
|
Common shares withheld for settlement of taxes in connection with equity-based compensation
|
|
|
(114)
|
|
|
(1)
|
|
|
—
|
|
|
—
|
|
|
(5,181)
|
|
|
—
|
|
|
—
|
|
|
(5,182)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(982)
|
|
|
—
|
|
|
(982)
|
|
Net income
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10,821
|
|
|
10,821
|
|
Balance at June 30, 2019
|
|
|
37,816
|
|
|
$
|
379
|
|
|
2,558
|
|
|
$
|
(100,027)
|
|
|
$
|
299,122
|
|
|
$
|
(7,453)
|
|
|
$
|
111,900
|
|
|
$
|
303,921
|
|
See Notes to Unaudited Consolidated Financial Statements.
Shutterstock, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
2020
|
|
2019
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
Net income
|
$
|
23,305
|
|
|
$
|
10,821
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
Depreciation and amortization
|
21,370
|
|
|
25,319
|
|
|
|
|
|
Deferred taxes
|
693
|
|
|
(1,312)
|
|
Non-cash equity-based compensation
|
9,396
|
|
|
12,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bad debt expense
|
1,086
|
|
|
(635)
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts receivable
|
(3,279)
|
|
|
(2,746)
|
|
Prepaid expenses and other current and non-current assets
|
49
|
|
|
1,944
|
|
|
|
|
|
Accounts payable and other current and non-current liabilities
|
(4,045)
|
|
|
1,899
|
|
Long-term incentives related to acquisitions
|
(7,759)
|
|
|
—
|
|
Contributor royalties payable
|
(840)
|
|
|
1,059
|
|
|
|
|
|
Deferred revenue
|
(3,633)
|
|
|
(1,981)
|
|
Net cash provided by operating activities
|
$
|
36,343
|
|
|
$
|
46,743
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
Capital expenditures
|
(13,966)
|
|
|
(13,726)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of Webdam, net
|
—
|
|
|
2,500
|
|
|
|
|
|
Acquisition of content
|
(1,577)
|
|
|
(1,277)
|
|
|
|
|
|
Security deposit release
|
105
|
|
|
25
|
|
Net cash used in investing activities
|
$
|
(15,438)
|
|
|
$
|
(12,478)
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
629
|
|
|
218
|
|
|
|
|
|
Cash paid related to settlement of employee taxes related to RSU vesting
|
(3,436)
|
|
|
(5,181)
|
|
Payment of cash dividend
|
(12,098)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
$
|
(14,905)
|
|
|
$
|
(4,963)
|
|
|
|
|
|
Effect of foreign exchange rate changes on cash
|
(717)
|
|
|
(1,085)
|
|
Net increase in cash, cash equivalents and restricted cash
|
5,283
|
|
|
28,217
|
|
|
|
|
|
Cash, cash equivalents and restricted cash, beginning of period
|
305,874
|
|
|
233,465
|
|
Cash, cash equivalents and restricted cash, end of period
|
$
|
311,157
|
|
|
$
|
261,682
|
|
|
|
|
|
Supplemental Disclosure of Cash Information:
|
|
|
|
Cash paid for income taxes
|
$
|
927
|
|
|
$
|
1,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Unaudited Consolidated Financial Statements.
Shutterstock, Inc.
Notes to Consolidated Financial Statements
(unaudited)
(1) Summary of Operations and Significant Accounting Policies
Summary of Operations
Shutterstock (the “Company” or “Shutterstock”) is a global technology company offering a creative platform, which provides high-quality content, tools and services to creative professionals. The content licensed by the Company’s customers 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.
The Company licenses content to its customers. Contributors upload their content to the Company’s web properties in exchange for royalty payments based on customer download activity.
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, 2020, and the Consolidated Statements of Operations, Comprehensive Income and Stockholders’ Equity for the three and six months ended June 30, 2020 and 2019, and the Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019, are unaudited. The Consolidated Balance Sheet as of December 31, 2019, 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, 2020, and its consolidated results of operations, comprehensive income, stockholders’ equity for the three and six months ended June 30, 2020 and 2019, and its cash flows for the six months ended June 30, 2020 and 2019. 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, 2020 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2020 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, 2019 included in the Company’s Annual Report on Form 10-K, which was filed with the SEC on February 13, 2020. 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 grant-date fair value 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.
Shutterstock, Inc.
Notes to Consolidated Financial Statements
(unaudited)
Cash, Cash Equivalents and Restricted Cash
The following represents the Company’s cash and cash equivalents and restricted cash balances as of June 30, 2020 and December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2020
|
|
As of December 31, 2019
|
Cash and cash equivalents
|
$
|
311,157
|
|
|
$
|
303,261
|
|
Restricted cash
|
—
|
|
|
2,613
|
|
Total cash, cash equivalents and restricted cash
|
$
|
311,157
|
|
|
$
|
305,874
|
|
The Company’s cash and cash equivalents consist of cash on hand and bank deposits. These assets are stated at cost, which approximates fair value.
As of March 31, 2020, the Company was no longer required to provide cash collateral for its letter of credit for its New York City headquarters, and, accordingly, these funds are no longer restricted.
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 based on an evaluation of the aging of its accounts receivable and on a customer-by-customer basis where appropriate. The Company’s reserve analysis contemplates the Company’s historical loss rate on receivables, specific customer situations and the economic environments in which the Company operates.
Historically, the Company used an incurred loss model to calculate its allowance for doubtful accounts. Upon the adoption of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments (“ASU 2016-13”) on January 1, 2020, the Company shifted to a current expected credit loss model.
During the six months ended June 30, 2020, the Company recorded bad debt expense of $1.1 million. As of June 30, 2020 and December 31, 2019, the Company’s allowance for doubtful accounts was approximately $3.6 million. The allowance for doubtful accounts is included as a reduction of accounts receivable on the Consolidated Balance Sheets.
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, 2020 and December 31, 2019, 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
The majority 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 recognizes revenue upon the satisfaction of performance obligations, which generally occurs when content is downloaded by a customer. The Company recognizes revenue on both its subscription-based and transaction-based products when content is downloaded, at which time the license is provided. In addition, management estimates expected unused licenses for subscription-based products and recognizes the estimated 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. The Company expenses contract acquisition costs as incurred, to the extent that the amortization period would otherwise be one year or less.
Collectability is reasonably assured at the time the electronic order or contract is entered. The majority of the Company’s customers purchase products by making an electronic payment with a credit card at the time of a 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
Shutterstock, Inc.
Notes to Consolidated Financial Statements
(unaudited)
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.
Recently Adopted Accounting Standard Updates
In June 2016, the FASB issued ASU 2016-13, which as amended, replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses. The ASU is intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. Adoption of this guidance was required, prospectively, for annual periods beginning after December 15, 2019, with early adoption permitted for annual periods beginning after December 15, 2018. The Company adopted ASU 2016-13, as amended, effective January 1, 2020 using the modified retrospective method and recorded a cumulative-effect adjustment of $0.2 million, net of tax, in retained earnings as of January 1, 2020.
In August 2018, the FASB issued ASU 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurements (“ASU 2018-13”), which eliminates, adds and modifies certain disclosure requirements for fair value measurements as part of the FASB’s disclosure framework project. Adoption of this guidance was required for fiscal years and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted ASU 2018-13, effective January 1, 2020. The impact of adoption of this standard on the consolidated financial statements, including accounting policies, processes and systems, was not material.
In August 2018, the FASB issued ASU 2018-15, Customer’s Accounting For Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”), which aligns the requirements for capitalizing implementation costs in a cloud computing arrangement with the requirements for capitalizing implementation costs incurred for an internal-use software license. Adoption of this guidance was required for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years and early adoption is permitted. Entities are permitted to choose to adopt the new guidance (1) prospectively for eligible costs incurred on or after the date this guidance is first applied or (2) retrospectively. The Company adopted ASU 2018-15 on a prospective basis, effective January 1, 2020. The adoption of this standard is not expected to have a significant impact on our consolidated financial statements.
Recently Issued Accounting Standard Updates
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes (“ASU-2019-12”). ASU 2019-12 eliminates certain exceptions to the guidance in Topic 740 related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes, enacted changes in tax laws or rates and clarifies the accounting transactions that result in a step-up in the tax basis of goodwill. The guidance is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. We are currently in the process of evaluating the effect that ASU 2019-12 will have on the Company's Consolidated Financial Statements.
(2) Fair Value Measurements and Other Long-term Investments
Fair Value Measurements
The Company had no assets or liabilities requiring fair value hierarchy disclosures as of June 30, 2020 or December 31, 2019.
Shutterstock, Inc.
Notes to Consolidated Financial Statements
(unaudited)
Other Fair Value Measurements
The carrying amounts of cash, accounts receivable, restricted cash, accounts payable and accrued expenses approximate fair value because of the short-term nature of these instruments. The Company’s non-financial assets, which include property and equipment, 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.
Other Long-term Investments
Investment in ZCool Technologies Limited (“ZCool”)
On January 4, 2018, the Company invested $15.0 million in convertible preferred shares issued by ZCool (the “Preferred Shares”), which is equivalent to a 25% fully diluted equity ownership interest. ZCool’s primary business is the operation of an e-commerce platform in China whereby customers can pay to license content contributed by creative professionals. ZCool and its affiliates have been the exclusive distributor of Shutterstock creative content in China since 2014.
ZCool is a variable interest entity that is not consolidated because the Company is not the primary beneficiary. The Preferred Shares are not deemed to be in-substance common stock and are accounted for using the measurement alternative for equity investments with no readily determinable fair value. The Preferred Shares are reported at cost, adjusted for impairments or any observable price changes in orderly transactions for identical or similar investments issued by ZCool.
On a quarterly basis, the Company evaluates the carrying value of the Preferred Shares for impairment, which includes an assessment of ZCool’s revenue growth, earnings performance, working capital and the general regional market conditions. As of June 30, 2020, no adjustments to the carrying value were identified as a result of this assessment. Changes in performance negatively impacting ZCool’s operating results and cash flows could result in the Company recording an impairment charge on the Preferred Shares in future periods.
As of June 30, 2020 and December 31, 2019, the Company’s total investment in ZCool is $15.0 million, which is reported within other assets on the Consolidated Balance Sheets.
(3) Property and Equipment
Property and equipment is summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2020
|
|
As of December 31, 2019
|
Computer equipment and software
|
$
|
179,580
|
|
|
$
|
165,950
|
|
Furniture and fixtures
|
10,211
|
|
|
10,199
|
|
Leasehold improvements
|
19,260
|
|
|
19,203
|
|
Property and equipment
|
209,051
|
|
|
195,352
|
|
Less accumulated depreciation
|
(154,811)
|
|
|
(136,518)
|
|
Property and equipment, net
|
$
|
54,240
|
|
|
$
|
58,834
|
|
Depreciation expense related to property and equipment was $9.6 million and $10.5 million for the three months ended June 30, 2020 and 2019, respectively, and $18.9 million and $21.1 million for the six months ended June 30, 2020 and 2019, respectively. Cost of revenues includes depreciation expense of $8.6 million and $9.3 million for the three months ended June 30, 2020 and 2019, respectively, and $16.8 million and $18.6 million for the six months ended June 30, 2020 and 2019, respectively. General and administrative expense includes depreciation expense of $1.0 million and $1.2 million for the three months ended June 30, 2020 and 2019, respectively, and $2.1 million and $2.5 million for the six months ended June 30, 2020 and 2019, respectively.
Capitalized Internal-Use Software
The Company capitalized costs related to the development of internal-use software of $6.5 million and $5.8 million for the three months ended June 30, 2020 and 2019, respectively, and $13.1 million and $12.3 million for the six months ended June 30, 2020 and 2019, 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 $7.8 million and $7.5 million for the three months ended June 30, 2020 and 2019, respectively, and $14.9 million and $14.8 million for the six months ended June 30, 2020 and 2019, 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, 2020 and December 31, 2019, the Company had capitalized internal-use software of $39.9 million and $41.8 million, respectively, net of accumulated depreciation, which was included in property and equipment, net.
(4) 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, 2020.
The following table summarizes the changes in the Company’s goodwill balance during the six months ended June 30, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
Balance as of December 31, 2019
|
$
|
88,974
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
(807)
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2020
|
$
|
88,167
|
|
|
|
|
|
Intangible Assets
Intangible assets consisted of the following as of June 30, 2020 and December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2020
|
|
|
|
|
|
As of December 31, 2019
|
|
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Weighted
Average Life
(Years)
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
Amortizing intangible assets:
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
$
|
16,982
|
|
|
$
|
(9,648)
|
|
|
9
|
|
$
|
17,729
|
|
|
$
|
(9,294)
|
|
Trade name
|
6,237
|
|
|
(5,778)
|
|
|
7
|
|
6,517
|
|
|
(5,941)
|
|
Developed technology
|
4,677
|
|
|
(4,368)
|
|
|
4
|
|
4,841
|
|
|
(4,226)
|
|
Contributor content
|
24,812
|
|
|
(7,883)
|
|
|
9
|
|
23,510
|
|
|
(6,626)
|
|
|
|
|
|
|
|
|
|
|
|
Patents
|
259
|
|
|
(108)
|
|
|
18
|
|
259
|
|
|
(100)
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
52,967
|
|
|
$
|
(27,785)
|
|
|
|
|
$
|
52,856
|
|
|
$
|
(26,187)
|
|
Amortization expense was $1.2 million and $2.9 million for the three months ended June 30, 2020 and 2019, respectively, and $2.5 million and $4.2 million for the six months ended June 30, 2020 and 2019, respectively. Cost of revenue includes amortization expense of $0.7 million and $0.5 million for the three months ended June 30, 2020 and 2019, respectively, and $1.3 million and $0.9 million for the six months ended June 30, 2020 and 2019, respectively. General and administrative expense includes amortization expense of $0.5 million and $2.4 million for the three months ended June 30, 2020 and 2019, respectively, and $1.2 million and $3.3 million for the six months ended June 30, 2020 and 2019, respectively.
The Company determined that there was no indication of impairment of the intangible assets for any period presented. Estimated amortization expense is: $2.9 million for the remaining six months of 2020, $5.1 million in 2021, $4.8 million in 2022, $4.1 million in 2023, $3.2 million in 2024, $1.9 million in 2025 and $3.2 million thereafter.
Shutterstock, Inc.
Notes to Consolidated Financial Statements
(unaudited)
(5) Accrued Expenses
Accrued expenses consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2020
|
|
As of December 31, 2019
|
Compensation
|
$
|
18,902
|
|
|
$
|
20,776
|
|
Non-income taxes
|
16,316
|
|
|
15,332
|
|
|
|
|
|
Website hosting and marketing fees
|
8,343
|
|
|
8,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses
|
7,993
|
|
|
9,099
|
|
Total accrued expenses
|
$
|
51,554
|
|
|
$
|
53,864
|
|
(6) Stockholders’ Equity and Equity-Based Compensation
Stockholders’ Equity
Common Stock
The Company issued approximately 126,000 and 57,000 shares of common stock during the three months ended June 30, 2020 and 2019, respectively, and 190,000 and 198,000 for the six months ended June 30, 2020 and 2019, respectively, primarily related to the exercise of stock options and the vesting of Restricted Stock Units (“RSUs”).
Treasury Stock
In October 2015, the Company’s Board of Directors approved a share repurchase program, authorizing the Company to purchase up to $100 million of its common stock. In February 2017, the Company’s Board of Directors approved an increase to the share repurchase program, authorizing the Company to repurchase up to an additional $100 million of its outstanding common stock. During the six months ended June 30, 2020 and 2019, the Company did not repurchase any shares of its common stock under the share repurchase program. As of June 30, 2020, the Company had $100 million of remaining authorization for purchases under the share repurchase program.
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 share repurchase program is subject to the Company having available cash to fund repurchases. Under the 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.
Dividends
The Company declared and paid cash dividends of $0.17 and $0.34 per share of common stock, or $6.1 million and $12.1 million, during the three and six months ended June 30, 2020.
On July 20, 2020, the Company’s Board of Directors declared a quarterly cash dividend of $0.17 per share of outstanding common stock payable on September 17, 2020 to stockholders of record at the close of business on September 3, 2020. Future declaration 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 payment awards, including employee stock options and RSUs granted under the Company’s Amended and Restated 2012 Omnibus Equity Incentive Plan (the “2012 Plan”), based on the fair value of each award on the grant date.
Shutterstock, Inc.
Notes to Consolidated Financial Statements
(unaudited)
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, 2020 and 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Cost of revenue
|
$
|
99
|
|
|
$
|
105
|
|
|
$
|
150
|
|
|
$
|
190
|
|
Sales and marketing
|
374
|
|
|
675
|
|
|
834
|
|
|
1,257
|
|
Product development
|
1,068
|
|
|
1,252
|
|
|
2,193
|
|
|
2,427
|
|
General and administrative
|
2,095
|
|
|
5,719
|
|
|
6,219
|
|
|
8,501
|
|
Total
|
$
|
3,636
|
|
|
$
|
7,751
|
|
|
$
|
9,396
|
|
|
$
|
12,375
|
|
The following table summarizes non-cash equity-based compensation expense, net of forfeitures, by award type included in the accompanying Consolidated Statements of Operations for the three and six months ended June 30, 2020 and 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Stock options
|
$
|
414
|
|
|
$
|
2,176
|
|
|
$
|
1,730
|
|
|
$
|
3,067
|
|
RSUs
|
3,222
|
|
|
5,575
|
|
|
7,666
|
|
|
9,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
3,636
|
|
|
$
|
7,751
|
|
|
$
|
9,396
|
|
|
$
|
12,375
|
|
Stock Option Awards
During the six months ended June 30, 2020, the Company granted 53,000 options to purchase shares of its common stock with a weighted average exercise price of $42.96. As of June 30, 2020, there were approximately 338,000 options vested and exercisable with a weighted average exercise price of $34.59. As of June 30, 2020, the total unrecognized compensation charge related to non-vested options was approximately $2.0 million, which is expected to be recognized through 2023.
Restricted Stock Unit Awards
During the six months ended June 30, 2020, the Company had RSU grants, net of forfeitures, of approximately 292,000. As of June 30, 2020, there are approximately 1,139,000 non-vested RSUs (including performance-based restricted stock units, or PRSUs) outstanding with a weighted average grant-date fair value of $39.83. As of June 30, 2020, the total unrecognized non-cash equity-based compensation charge related to the non-vested RSUs was approximately $26.6 million, which is expected to be recognized through 2023.
During the six months ended June 30, 2020, shares of common stock with an aggregate value of $3.4 million were withheld upon vesting of RSUs and paid in connection with related remittance of employee withholding taxes to taxing authorities.
On July 20, 2020, the Company granted approximately 332,000 PRSUs with a grant date fair value of $12.7 million.
(7) Revenue
The Company distributes its content offerings through two primary channels:
E-commerce: The majority of the Company’s customers license content directly through the Company’s self-service web properties. E-commerce customers have the flexibility to purchase a subscription plan that is paid on a monthly or annual basis or 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. E-commerce customers typically pay the full amount of the purchase price in advance or at the time of license, generally with a credit card.
Enterprise: The Company also has a base of customers with unique content, licensing and workflow needs. These customers benefit from communication 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.
Shutterstock, Inc.
Notes to Consolidated Financial Statements
(unaudited)
The Company’s revenues by distribution channel for the three and six months ended June 30, 2020 and 2019 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
E-commerce
|
$
|
98,164
|
|
|
$
|
96,993
|
|
|
$
|
197,900
|
|
|
$
|
195,106
|
|
Enterprise
|
61,066
|
|
|
64,748
|
|
|
122,615
|
|
|
129,967
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
$
|
159,230
|
|
|
$
|
161,741
|
|
|
$
|
320,515
|
|
|
$
|
325,073
|
|
The June 30, 2020 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. $91.0 million of total revenue recognized for the six months ended June 30, 2020 was reflected in deferred revenue as of December 31, 2019.
(8) Other 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, 2020 and 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Foreign currency gain / (loss)
|
$
|
132
|
|
|
$
|
(569)
|
|
|
$
|
(466)
|
|
|
$
|
(730)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
17
|
|
|
1,153
|
|
|
1,128
|
|
|
2,210
|
|
Total other income
|
$
|
149
|
|
|
$
|
584
|
|
|
$
|
662
|
|
|
$
|
1,480
|
|
|
|
|
|
|
|
|
|
(9) Income Taxes
The Company’s effective tax rates yielded a net expense of 16.3% and 9.7% for the three months ended June 30, 2020 and 2019, respectively, and a net expense of 19.6% and 14.5% for the six months ended June 30, 2020 and 2019, respectively.
During the three months ended June 30, 2020, the net effect of discrete items decreased the effective tax rate by 0.3%. For the six months ended June 30, 2020, the effective tax rate increased by 1.6% as a result of a loss jurisdiction with no tax benefit. Discrete items further increased the effective tax rate by 1.4%. Excluding the discrete items, our effective tax rate would have been 16.6% for the three and six months ended June 30, 2020. In the three and six months ended June 30, 2019, the impact of discrete tax items decreased the effective tax rate by 3.4% and 1.8%, 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. The estimated annual effective tax rate differs from the statutory tax rate due primarily to the effect of the foreign-derived intangible income deduction and the U.S. Research and Development tax credit.
During the three and six months ended June 30, 2020 and during the three months ended June 30, 2019, uncertain tax positions recorded by the Company were not significant. During the six months ended June 30, 2019, uncertain tax positions recorded by the Company resulted in an expense of $1.0 million. 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, 2020 and 2019.
During the six months ended June 30, 2020 and 2019, the Company paid net cash taxes of $0.9 million and $1.5 million, respectively.
Shutterstock, Inc.
Notes to Consolidated Financial Statements
(unaudited)
(10) 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, 2020 and 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Net income
|
$
|
18,987
|
|
|
$
|
3,299
|
|
|
$
|
23,305
|
|
|
$
|
10,821
|
|
Shares used to compute basic net income per share
|
35,652
|
|
|
35,232
|
|
|
35,587
|
|
|
35,174
|
|
Dilutive potential common shares
|
|
|
|
|
|
|
|
Stock options
|
39
|
|
|
102
|
|
|
53
|
|
|
104
|
|
Unvested restricted stock awards
|
215
|
|
|
170
|
|
|
254
|
|
|
221
|
|
|
|
|
|
|
|
|
|
Shares used to compute diluted net income per share
|
35,906
|
|
|
35,504
|
|
|
35,894
|
|
|
35,499
|
|
Basic net income per share
|
$
|
0.53
|
|
|
$
|
0.09
|
|
|
$
|
0.65
|
|
|
$
|
0.31
|
|
Diluted net income per share
|
$
|
0.53
|
|
|
$
|
0.09
|
|
|
$
|
0.65
|
|
|
$
|
0.30
|
|
|
|
|
|
|
|
|
|
Dilutive shares included in the calculation
|
1,304
|
|
|
1,005
|
|
|
1,080
|
|
|
992
|
|
Anti-dilutive shares excluded from the calculation
|
1,152
|
|
|
1,206
|
|
|
1,148
|
|
|
1,171
|
|
(11) Geographic Information
The following table presents the Company’s revenue based on customer location (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
North America
|
$
|
56,211
|
|
|
$
|
57,657
|
|
|
$
|
113,229
|
|
|
$
|
115,171
|
|
Europe
|
52,207
|
|
|
53,647
|
|
|
106,003
|
|
|
109,132
|
|
Rest of the world
|
50,812
|
|
|
50,437
|
|
|
101,283
|
|
|
100,770
|
|
Total revenue
|
$
|
159,230
|
|
|
$
|
161,741
|
|
|
$
|
320,515
|
|
|
$
|
325,073
|
|
The United States, included in North America in the above table, accounted for 32% of consolidated revenue for the six months ended June 30, 2020 and 2019. 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30,
|
|
As of December 31,
|
|
2020
|
|
2019
|
North America
|
$
|
47,361
|
|
|
$
|
51,954
|
|
Europe
|
6,557
|
|
|
6,541
|
|
Rest of the world
|
322
|
|
|
339
|
|
Total long-lived tangible assets
|
$
|
54,240
|
|
|
$
|
58,834
|
|
The United States, included in North America in the above table, accounted for 77% and 79% of total long-lived tangible assets as of June 30, 2020 and December 31, 2019, respectively. No other country accounts for more than 10% of the Company’s long-lived tangible assets in any period presented.
Shutterstock, Inc.
Notes to Consolidated Financial Statements
(unaudited)
(12) Commitments and Contingencies
As of June 30, 2020, the Company had total non-lease obligations in the amount of approximately $39.2 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, 2020, the Company’s non-lease obligations for the remainder of 2020 and for the years ending December 31, 2021 and 2022 were approximately $18.2 million, $16.5 million and $4.4 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 incurrence 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 any modifications made by the customer, or the context in which content is used. The standard maximum aggregate obligation and liability to any one customer for any single claim is generally limited to ten thousand dollars but can range to $250,000, with certain exceptions for which our indemnification obligation are uncapped. As of June 30, 2020, the Company had recorded no material liabilities related to indemnification obligations for loss contingencies. Additionally, the Company believes that it has the appropriate insurance coverage in place to adequately cover such indemnification obligations, if necessary.
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 in the event of a change in control or otherwise, with or without cause.