2020 Annual Report
Our North Star
Shutterstock will become an intelligent
creative platform where our customers
ideate, publish, distribute and measure
the performance of their creative.
Our principles
One team
They guide us in everything we do -
from how we engage with each other
every day, to how we make decisions
for our company.
We win when we collaborate.
We operate with a common mindset
and we are obsessed with
working together to progress.
Action and impact
We set a high bar for achievement,
holding ourselves and each other
accountable for delivering results.
Challenge the status quo
Innovation is in our DNA. We have
a collective mindset to question
everything, take calculated risks,
and never be afraid to fail.
Seek diversity
We are proud of our rich mix
of backgrounds and know
that different perspectives
create the best experiences
for our customers.
Lead the way
We inspire and motivate
employees to do their best
by proactively advocating
for their development.
Productive communication
Commit and move forward
We communicate openly and
transparently—and always
with respect.
Business is a team sport that requires
us all to row in the same direction.
We make decisions, commit,
and move forward.
Differentiated Content
• We are committed to continuous innovation to deliver fresh
and relevant content across various areas of the business,
including The Vault, our archive of over 50 million assets
across photo and video, Editorial partnerships, such as
Condé Nast, The SAG Awards, and our sporting partnerships
with West Ham and Rangers FC, the creation of Shutterstock
Studios for custom content production, as well as
investments that provide fi nancial and professional support
for diverse artists, namely The Create Fund.
•
Additionally, Shutterstock acquired Amper Music in
November, an AI-driven music platform, and in February
2021, the Company acquired TurboSquid, one of the world’s
largest marketplaces for 3D models, which has a strong
presence across marketing and advertising, gaming, retail
and visual effects.
Leveraging Data
• We remain focused on utilizing data to generate insights
that ultimately drive performance, fulfi lling our aspiration for
building on our intelligent creative platform.
Looking To 2021
As vaccinations are rolled out and the world starts to reopen,
the future looks bright. We are emerging from this period of
uncertainty and disruption stronger and more determined than
ever before. We will continue to democratize our diverse library of
world-class content, making our unparalleled offering accessible
to our customers and our communities -- wherever they may be.
Our commitment to innovation and ingenuity is unwavering,
and we remain focused on delivering consistent value to our
shareholders by diversifying our offerings, driving effi ciencies,
and leveraging key insights to capture opportunities that will
elevate our customer experience.
To our Shutterstock teams, customers and communities from all
around the world: thank you. Thank you for your grit, your resolve,
and your partnership during one of the most challenging times I
believe we will endure.
2021 marks a period of transformation at Shutterstock, and I look
forward to continuing this journey with you.
Stan Pavlovsky
Chief Executive Offi cer
Dear Shareholders,
As I write this letter, it is important to recognize that we are living
in an exceptionally different world than we were one year ago.
From a deadly global pandemic, to the most devastating bushfi re
season Australia has ever seen, and a worldwide movement
advocating for racial and social justice, we witnessed these
challenges impact families, communities and businesses from
every corner of the globe.
Despite these extraordinary and historically signifi cant events,
the underlying message throughout 2020 was one of hope.
The disruption to the way we work affected us all -- from small
businesses such as cafés and corner stores, to Fortune 500s.
As we move forward towards a new “normal,” I am proud of the
way Shutterstock’s teams globally displayed agility, strength
and resilience during this diffi cult time. Our customers and
communities remained at the forefront of our commitment to
providing world-class content and tools, and to pivot with them
when their business needs changed.
Business Overview
Despite a highly uncertain environment in 2020, eCommerce
grew, driven by strong growth in the second half of the year
following a challenging fi rst half of the year. While the Enterprise
channel declined for the full year in 2020, we ended the year
strong with growth in the second half of the year as a result of a
revised go-to-market strategy, product innovation, and investment
in our platform solutions offering. We have seen strong growth
in our monthly subscriptions due to the acceleration of digital,
as customers seek to transform their businesses to meet the
current climate, as well as consumer demand. Our Small Footage
Subscription introduced in August 2020, allows small businesses
to access video content for a low fee per month. Subscription
models like these meet the changing needs of business owners,
and we believe that subscription products will drive growth in the
years ahead.
Our cash generation during 2020 increased in-line with our
profi tability. Coupled with our capital raise in the third-quarter, we
ended the year with a strong balance sheet, positioning us well
for opportunities in 2021.
Throughout the year that was, we maintained focus on three
strategic pillars that are core to our business strategy:
Workfl ow Innovation
• We continued to drive workfl ow innovation, whether in
the form of API integrations to enable easy access to our
content and tools within our customers’ native workfl ows, or
within the beta launch of our collaborative workspaces for
teams.
• We launched a new, enhanced Shutterstock Editor, to help
small business owners, entrepreneurs, and merchants
create professional brand designs, regardless of technical or
artistic expertise. This new and improved offering is free, and
houses ready-to-use templates for website banners, ads, and
social media posts with simplifi ed editing capabilities.
Our business
Our creative platform supports effi cient
content discovery and creation for
customers globally.
Content
IMAGE
FOOTAGE
MUSIC
EDITORIAL
Contributors
1.6 MILLION
CONTRIBUTORS
Tools
EDITOR
PLUG-INS
COLLECTIONS
Customers
2 MILLION
CUSTOMERS
Services
GLOBAL CUSTOMER CARE
SHUTTERSTOCK
STUDIOS
The numbers
We made signifi cant progress across
many of our key metrics in 2020.
40%
Subscriber Revenue as a %
of Total (LTM)
23%
Adj. EBITDA Margin (LTM)
281,000
Total Subscribers
$333
Revenue per Customer (LTM)
2.0M+
Customers
1.6M+
Contributors
360M+
Images
21M+
Video clips
6+
Images downloaded
per second
Note: as of December 31, 2020
In November, Shutterstock released its 2020
Color Trends report. By analyzing billions of pixel
data points from images downloaded, this annual
report reveals which colors had the greatest
growth between 2019 and 2020. Because our
customers are working on projects months in
advance, their download choices help to forecast
trends in the year ahead.
Set Sail Champagne
Fortuna Gold
Tidewater Green
[THIS PAGE INTENTIONALLY LEFT BLANK]
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________________________________________________________________________________________
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___
Commission File Number: 001-35669
__________________________________________________________________________________________________________________________________
Shutterstock, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
80-0812659
(I.R.S. Employer
Identification No.)
350 Fifth Avenue, 21st Floor
New York, NY 10118
(Address of principal executive offices, including zip code)
646 710-3417
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.01 par value per share
SSTK
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
______________________________________________________________________________________________________________
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☒
☐
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of June 30, 2020, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of its voting and non-voting common
stock held by non-affiliates was $683,773,306, based on the last reported sale price of the registrant’s common stock on that date. This calculation excludes the shares of common
stock held by executive officers, directors and stockholders whose ownership exceeded 10% of the outstanding common stock of the registrant at June 30, 2020. This calculation does
not reflect a determination that such persons are affiliates for any other purposes.
On February 5, 2021, 36,256,136 shares of the registrant’s common stock were outstanding.
____________________________________________________________________________
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this Annual Report on Form 10-K, to the extent not set forth herein, is incorporated herein by reference from the registrant’s definitive
proxy statement relating to the Annual Meeting of Stockholders to be held in 2021, which definitive proxy statement shall be filed with the Securities and Exchange Commission
within 120 days after the end of the fiscal year to which this Annual Report on Form 10-K relates. Except as expressly incorporated by reference, the registrant’s proxy statement shall
not be deemed to be part of this report.
Form 10-K
For the Fiscal Year Ended December 31, 2020
TABLE OF CONTENTS
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Part I
Part II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Part III
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions and Director Independence
Principal Accounting Fees and Services
Part IV
Exhibits, Financial Statement Schedules
Form 10-K Summary
Page
4
14
38
38
38
38
39
40
46
61
62
63
63
63
64
64
64
64
64
F-1
2 PART I
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended,
or the Exchange Act, particularly in the discussions under the captions “Business,” “Risk Factors” and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations.” All statements other than statements of historical
fact, including statements regarding guidance, industry prospects or future results of operations or financial position, are
forward-looking. Examples of forward-looking statements include, but are not limited to, statements regarding future business,
future dividends, new or planned features, products or services, management strategies and the COVID-19 pandemic. You can
identify many forward-looking statements by words such as “may,” “will,” “would,” “should,” “could,” “expects,”
“anticipates,” “believes,” “estimates,” “intends,” “plans” and other similar expressions. However, not all forward-looking
statements contain these words. Forward-looking statements involve risks and uncertainties that could cause our actual results
to differ materially from those expressed or implied in the forward-looking statements. Such risks and uncertainties include,
among others, those discussed under the caption “Risk Factors” of this Annual Report on Form 10-K, as well as in our
consolidated financial statements, related notes, and the other information appearing elsewhere in this report and our other
filings with the Securities and Exchange Commission, or the SEC. Given these risks and uncertainties, you should not place
undue reliance on these forward-looking statements. We do not intend, and, except as required by law, we undertake no
obligation, to update any of our forward-looking statements after the date of this report to reflect actual results or future events
or circumstances.
Unless the context otherwise indicates, references in this Annual Report on Form 10-K to the terms “Shutterstock,”
“the Company,” “we,” “our” and “us” refer to Shutterstock, Inc. and its subsidiaries. “Shutterstock,” “Shutterstock
Editorial,” “Shutterstock Select,” “Asset Assurance,” “Offset,” “Bigstock,” “Rex Features,” “PremiumBeat” and
“Shutterstock Editor” and their logos are registered trademarks and are the property of Shutterstock, Inc. or one of our
subsidiaries. All other trademarks, service marks and trade names appearing in this Annual Report on Form 10-K are the
property of their respective owners.
3 Item 1. Business.
Overview
Shutterstock, Inc. is a leading global creative platform offering full-service solutions, high-quality content, and tools for
brands, businesses and media companies. Our platform brings together users and contributors of content by providing readily-
searchable content that our customers pay to license and by compensating contributors as their content is licensed.
The content licensed by our 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.
3D Models - following our acquisition of TurboSquid, Inc. on February 1, 2021, we now offer 3D models, used in
industries such as advertising, media & video production, gaming, retail, education, design and architecture.
For customers seeking specialized solutions, we also create custom, on-brand content by matching our global contributor
network to the unique needs of our customers. This solution allows us to offer customers a fast and scalable way to produce
cost-effective content that is in line with the visual footprint of their brand. We typically offer a royalty-free non-exclusive
license and the processes we maintain to properly license content and the indemnification protections we provide, allow
individuals and businesses of all sizes, including media agencies, publishers, production companies and creative service
providers, to confidently utilize such content for their unique commercial or editorial needs.
We believe that we benefit from scale and network effects between customers and contributors. We have managed to
build a world class library of images, footage clips and music, sourced from our vast network of contributors. Our extensive
content library and contributor network enables us to attract a global and diverse customer base representing businesses of all
sizes and from all major industries. Our robust content and rich database continue to attract more customers and draw more
contributors, which enhances our network effects and global reach. We believe the success of this network effect is facilitated
by the trust that users place in Shutterstock to maintain the quality and integrity of our branded marketplace, and our
commitment to seamless integration into users’ creative workflows.
We believe that our licensing model and creative platform drive a high volume of download activity that in turn provides
a high volume of search, download and other customer behavioral data that enables us to continuously improve the quality and
accuracy of our proprietary search algorithms, including keyword, search localization and similar image identification, and
encourages the creation and contribution of new content to meet our customers’ needs. We enable users to search and discover
content to meet their unique needs by searching our collection and previewing our content at no cost prior to licensing. We also
leverage, to the greatest extent possible, the global nature of our user interfaces and marketing efforts, including local
languages, currencies and payment methods, and our effective use of current and emerging technology and marketing channels
to attract and retain customers and contributors.
Our high-quality content is distributed to customers under the following brands: Shutterstock, our flagship brand,
Bigstock, Offset and PremiumBeat. Our Shutterstock brand includes various content types and offerings such as image,
footage, editorial, music and studios. Bigstock maintains a separate content library tailored for creators seeking to incorporate
cost-effective imagery into their projects. Our Offset brand provides authentic and exceptional content for high-impact use
cases that require extraordinary images, featuring work from top assignment photographers and illustrators from around the
world. PremiumBeat’s library of exclusive high-quality music tracks provides producers, filmmakers and marketers the ability
to search handpicked production music from the world’s leading composers.
4 Our tools are provided to enhance our customers’ project management needs and to enable efficient search capabilities.
These include:
•
•
Our robust search engine, with highly sophisticated search capabilities, leverages our artificial intelligence (“AI”)
based search algorithms to enhance the speed and curation of images, footage and audio files. We obtain a high
volume of data generated from these user searches and content downloads, which enables us to continuously
improve our search algorithms. Our behavioral and keyword data, along with our investments in technology and
our experience in developing AI-based search algorithms, enable us to deliver a rich user experience by increasing
the chances that our users can efficiently find the content they require.
Shutterstock Editor and Editor Pro are feature-filled cloud-based workflow tools that provide a robust solution for
creators to quickly size, edit and enhance images for immediate use in presentations, social media posts or
advertisements. These tools are designed to simplify the process of editing Shutterstock’s millions of photos and
illustrations into compelling presentations.
Also, our Application Programming Interface (API) driven infrastructure further enhances and streamlines our customers’
workflow and project management needs by allowing businesses to gain access to our content without leaving their platform.
Through our API, content can be integrated into the platforms of our Enterprise sales channel customers and can also be
distributed to end users through our partnerships with several social media, software and marketing technology platforms
including Microsoft Audience Network, Facebook Ads, Hubspot, Google Ads and Wix. In addition, we have developed plug-
ins that our customers can use to seamlessly access our content directly from Apple’s Final Cut Pro® X video editing
application, several Microsoft applications, Adobe Creative Cloud® desktop applications and Google SlidesTM.
Sales and Distribution Channels
Our online platform provides a freely searchable collection of content that our users can license, download and
incorporate into their work. We encourage all our customers to take advantage of our creative platform’s comprehensive search
capabilities, our credit card-based payment options and the immediate digital delivery of licensed content. We strive to offer
simple, transparent purchase options designed to cater to customers’ specific needs. We believe the ability to search for, select,
license, download and customize content on our creative platform offers our users a streamlined workflow, convenience and
speed, and enables us to achieve greater economies of scale. We also have contractual arrangements with third-party resellers
and affiliates to license content to customers in markets where we may not have a significant sales and marketing presence.
Certain third-party resellers and affiliates sell our products directly to end-users and remit amounts to us based on the type of
product sold.
Customer sales are diversified across the following channels:
•
•
•
E-commerce: The majority of our customers license content directly through our self-service web properties,
including our Shutterstock.com, bigstock.com and premiumbeat.com websites. We offer a variety of subscription
plans across images, footage and music content. Customers in our e-commerce sales channel have the ability to
purchase plans that are paid on either a monthly or annual basis or to license content on a transactional basis.
Customers in our e-commerce sales channel generally license content under our standard or enhanced licenses,
with additional licensing options available to meet customers’ individual needs.
Enterprise: We offer tailored and turnkey solutions to customers with unique content, licensing and workflow
needs. These customers benefit from communication with our dedicated sales, service and research teams which
provide a number of personalized 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 our e-commerce platform. Customers in
our enterprise sales channel may also benefit from our API platform as well as access to Shutterstock Editorial,
which includes our library of editorial images and videos and Shutterstock Studios, our offering which provides
custom, high-quality content matched with production tools and services. Our range of solutions, including the
depth of our API integration, appeals to a broad and diverse customer base and enables us to adapt and evolve
with the needs of our more high touch clients to deliver capabilities that embed deep within their workflows.
Other: Our Other sales channel historically included revenue from Webdam’s digital asset management offerings
which were made available through annual software-as-a-service subscription plans. On February 26, 2018, we
completed a sale transaction of our digital asset management business (the “Sale of Webdam”) for an aggregate
purchase price of $49.1 million.
5 Revenues generated from each of the sales channels are as follows (in thousands):
E-commerce
Enterprise
Other
Total Revenue (1)
Year Ended December 31,
2020
2019
2018
2017
2016
$
$
412,521 $
392,241 $
365,730 $
332,376 $
254,165
—
258,282
—
254,809
2,711
208,713
16,022
666,686 $
650,523 $
623,250 $
557,111 $
318,916
164,384
11,017
494,317
(1) Effective January 1, 2018 we adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU
2014-09”) using the modified retrospective approach. Historical revenue totals reflect those previously reported and have not been restated. The historical
presentation of the allocation of revenue by sales channel for the periods prior to January 1, 2018 have been adjusted to conform to current presentation.
Our Customers
We serve a diverse array of customers across a variety of industries, organizational sizes and geographies. For the year
ended December 31, 2020, over 2.0 million customers in more than 150 countries licensed revenue-generating content, with
approximately 35%, 33% and 31% of revenue coming from customers in North America, Europe and the rest of the world,
respectively. Our top 25 customers in the aggregate accounted for less than 7% of our revenue in 2020. Our customers are
typically classified among three categories, as follows:
•
•
•
Corporate Professionals and Organizations. Marketing and communications professionals incorporate licensed
content in the work they produce for their organizational or clients’ business communications. Whether providing
graphic design, web design, interactive design, advertising, public relations, communications or marketing
materials, these professional users and teams support organizations of various sizes including the largest global
agencies, large not-for-profit organizations and Fortune 500 companies.
Media and Broadcast Companies. Media organizations and professionals incorporate licensed content into their
work, which includes digital publications, newspapers, books, magazines, television and film, as well as to market
their products effectively. Our media and broadcast users range from independent bloggers to multi-national
publishing, broadcast and production organizations.
Small and Medium-Sized Businesses and Individual Creators. Organizations of all sizes utilize creative
content for a wide range of internal- and external-use communications such as websites, print and digital
advertisements, merchandise, brochures, employee communications, newsletters, social media, email marketing
campaigns and other presentations. These organizations and users vary in size and type of organization and
include prosumers ranging from sole proprietors to social media influencers.
As the use cases for our creative solutions expand, we believe our customers are seeking alternative means to consume
our offerings. As a result, we have seen strong growth in customers purchasing monthly subscription products. Our
subscriptions provide for a fixed number of content licenses that may be downloaded during the month. Our subscription-based
pricing model makes the creative process easier because customers can download content in our collection for use in their
creative process without incremental costs, which provides greater creative freedom and helps improve work product.
Customers may also purchase licenses through other contractual plans where the customer commits to buy a predetermined
quantity of content licenses that may be downloaded over a period of time, generally between one month to one year. For users
who need less content, individual content licenses may also be purchased on a transactional basis, paid for at the time of
download.
6 Customers that purchase one of our monthly recurring products for a continuous period of at least three months are
considered subscribers. Our number of subscribers and our subscriber revenue have grown by 45% and 12%, respectively, as of
December 31, 2020 compared to December 31, 2019. Subscriber growth has outpaced subscriber revenue growth due to the
popularity and expansion of our smaller subscription plans. Our quarterly number of subscribers and subscriber revenue are as
follows:
Content Contributors and Content Review Process
Our collection of content is provided by a community of contributors from around the world and is vetted through our
proprietary technology and by a specialized team of reviewers to ensure that it meets our standards of quality and licensability.
Whether photographers, videographers, illustrators, designers or musicians, our community of more than 1.6 million approved
contributors as of December 31, 2020 ranges from part-time enthusiasts to full-time professionals, and all content from our
contributors is reviewed to ensure it meets our quality standards. The content contributed by our five highest-earning
contributors was together responsible for less than 5% of downloads in 2020, demonstrating the breadth and depth of our
contributor population.
The breadth and quality of our content offerings are critical to our success, and we have created an easy-to-use online and
mobile account creation process, where we enable contributors to create an account, become verified, submit content, and once
approved for submission, upload content onto our platform for licensing. Our contributor website and mobile application
operate in 21 languages and contributors can register and upload content directly within the mobile application.
We use proprietary computer vision technology along with a trained team of reviewers to complete a comprehensive
evaluation of all content submissions. Our content review process is highly efficient, and our content review team generally
evaluates and processes images and footage within 24 hours of submission to make them available for license on our sites,
while working to continually improve our process to reduce review time.
Contributors are required to add a descriptive title and up to 50 keywords to each image and footage submission. We
guide our contributors to provide terms that not only describe literally the objects in the image or clip, but also what is
conveyed conceptually and thematically. We provide technical keywording assistance to contributors through our suggested
keyword tools, which include a tool that leverages our proprietary computer vision technology to automatically suggest
keywords based on visually similar images. We have compiled a vast amount of data relating to the content in our collection,
including keywords and aggregated customer behavioral data, which combined with our proprietary computer vision and
artificial intelligence technology, drives discovery of content through our search algorithms and search engine optimization
(SEO), therefore empowering customers to discover the content best suited for their needs.
We evaluate submissions based on certain technical and legal criteria to ensure we maintain the quality and integrity of
our content library, including whether applicable releases have been obtained, whether third-party intellectual property is
excluded and seeking to minimize other technical concerns such as excess noise or focus issues. As of December 31, 2020, over
575 million images and footage clips have been submitted from verified contributor accounts. For each content submission that
is not approved during the review process, we notify the contributor by email with an explanation why the image was not
published, including guidance on our standards and insight into customers’ expectations. We believe that this feedback is
valuable to contributors and enhances the quality of future content submissions as well as our customers’ experience.
Total Subscribers(in thousands)161173184194209223255281Q12019Q22019Q32019Q42019Q12020Q22020Q32020Q42020—100200300Subscriber Revenue(in millions)$58$58$60$61$64$63$68$71Q12019Q22019Q32019Q42019Q12020Q22020Q32020Q42020$—$25$50$757 Content accepted into our collection is added to our web properties where it is available for search, selection, license and
download. Contributors are paid based on how many times their content has been licensed in the previous month. Contributors
may choose to remove their content from our collection, subject to the terms of service that govern our contributor
relationships.
We provide valuable tools and insights to our contributors. Our contributors can monitor download activity by content
type and geography, as well as by self-defined imagery themes. We also provide data on search trends, allowing content
creators to see which images and subjects are popular on our site, and to plan new content themes accordingly. We operate a
forum for the photographers, videographers, illustrators and composers that make up our contributor community, allowing them
to share tips with one another and to showcase their work. Our rigorous acceptance standards for new submissions provide
contributors with a sense of challenge, accomplishment and exclusivity that makes our forums more useful and valuable.
Contributors of content typically earn a royalty each time their work is licensed. Contributors earn royalties based on our
published earnings schedule that is based on annual licensing volume, which determines the contributor’s earnings tier and the
purchase option under which the content was licensed.
In addition to content sourced through direct submission to our e-commerce platform, we also obtain all types of content
through exclusive distribution agreements with strategic partners or through the direct acquisition of content, content libraries
or archives. In certain cases, we enter into arrangements with contributors or strategic partners whereby we guarantee a
minimum royalty, in exchange for exclusive rights to distribute content when we believe such exclusivity provides us with a
distinct competitive advantage. When we license content that has been obtained through direct acquisition, we pay no royalties.
We continuously enhance our collection through the direct acquisition of content and by entering into other strategic
agreements and partnerships and we continue to seek opportunities for direct acquisition and strategic partnerships to enhance
our collection and provide customers with relevant and high-quality content.
Technology and Infrastructure
Our technology is critical to our business and we have developed proprietary technology to power our products and
services. We believe that delivering intuitive, fast and effective user experiences, supported by scalable technology platforms, is
critical to our success. We employ technology to support both our public-facing web properties and our back-office systems. In
developing, improving and enhancing these sites and systems, we focus our internal development efforts on creating and
enhancing specialized proprietary software that is unique to our business and we leverage commercially available and open
source technologies for our more generalized needs.
Our customer-facing software enables users to search the millions of images, vectors, illustrations, footage and music
tracks available in our collection or request custom branded content and then select, organize, pay for, license and download the
content that suits their individual needs. Our search platform evolves automatically based on behavioral data, with each search
and download that a user performs on our platform providing our search engine with additional information to improve search
results in subsequent queries. We consider the data that we have collected and the search technology that it powers to be an
important proprietary asset and competitive advantage that allows us to provide exceptional service to our customers and enable
our business. We continuously invest in the localization of our creative platform across many countries and regions, allowing
customers to search and make purchases in a variety of languages and currencies.
Further, we have continued to build and launch innovations to the customer experience. Over the last few years, we have
launched additional tools on our platform, such as our image editing tools, Shutterstock Editor and our Shutterstock Editor
software development kit (SDK), as well as integrations with third party creative tools, content management systems (CMS)
and workflow platforms to further improve the customer’s workflow and eliminate time-consuming steps in the creative
process. We continued to improve the features, functionality and availability of these tools during 2020. We also maintain an
API driven infrastructure, enabling integration of our content platform with various other software tools and services, which
enables businesses, and their customers, to gain access to our content without leaving their platform.
We have developed contributor-facing web properties, which operate in 21 languages and enable individuals and creative
professionals to become contributors, upload and tag content, receive feedback on their submissions from our review team, see
reports on earnings and payouts, and participate in online discussion forums with other contributors, among other activities. We
have also developed proprietary tools to enable our contributors to improve their success on our web properties, including our
keyword trends tool that allows contributors to see what terms customers are searching for and how those search terms are
trending over time, which, in turn, allows contributors to anticipate demand and generate content that customers may want to
license. Our contributor-facing web properties are powered by proprietary technology which supports a content review system
that allows our review team to efficiently and effectively review content submissions. Our combination of proprietary
technology and large-scale datasets allows us to deliver value to our users and enhances their experience on our platform, which
drives growth on our marketplace.
8 We use a combination of internally-developed software and third-party applications that enable customer and contributor
support, intellectual property rights and license tracking, centralized invoicing and sales order processing, customer database
management, language translation and global contributor payouts, in addition to supporting the compliance, finance and
accounting functions. We continually improve upon these internal tools to enable business growth and drive efficiency.
Our systems infrastructure is hosted primarily by third-party cloud hosting providers that we believe offer scalable,
reliable and secure global infrastructure. We also continue to invest in our infrastructure to improve the resiliency of our sites
and systems.
By using cloud services providers, we believe we are able to dedicate an increasing proportion of our technology
resources to scaling our business, better serving our rapidly growing collection of content and meeting global customer demand.
We believe continued use of third-party cloud hosting, along with improvements to our platform, allow us to further diversify
our product offerings, reach new customers and contributors around the world and enable our developers to rapidly deploy new
products, features and functionality.
We have expanded our use of content delivery network solutions to help enable our customers around the world to have
sustained and reliable high-speed access to our platform. As we continue to grow our business, our technological needs
continue to expand and therefore, we continually invest in our technology to enhance existing products and services and
develop new products and services. We view our investments in technology as integral to our long-term success and we intend
to continue to investigate, develop and make capital investments in technology and operational systems that support our current
business and new areas of potential business expansion.
Marketing
We market to new customers through a diverse set of performance and brand marketing channels including paid search,
online display advertising, print advertising, trade shows, email marketing, direct mail, affiliate marketing, public relations,
social media and partnerships. We also use customer relationship management (CRM) marketing to grow the lifetime value of
our existing customers. Our marketing activities aim to raise awareness of our brands and attract paying customers to our
websites and our direct sales organization by promoting the key value propositions of our offerings: diverse and high-quality
content, intuitive and efficient interfaces and economical content options.
As our marketing efforts attract additional paying customers and generate more revenue for us, our contributors are also
able to receive increased earnings from us. Increasing contributor earnings helps attract more content submissions, which in
turn helps Shutterstock convert and retain even more paying customers. We believe the high degree of satisfaction that
customers have with our product drives word-of-mouth recommendations, which helps our marketing efforts attract an even
broader and more diverse audience than we reach directly. Therefore, we believe our marketing efforts have a self-reinforcing
network effect, which powers the growth and success of our marketplace.
Customer Support
In addition to outbound sales and marketing activities, our customer service teams assist users worldwide via email, chat
and phone in over 20 languages and 150 countries. We have customer service teams in a variety of locations including
Singapore, Berlin and New York.
Product Rights and Intellectual Property
Product Rights and Indemnification
All of the content that we make available to customers on our websites is offered under perpetual, royalty-free licenses,
with the exception of certain custom, editorial, music, and other content with specific licensing requirements. Royalty-free
means that once a customer has licensed content from us, that customer may use the associated content in accordance with the
license terms in perpetuity without having to pay any ongoing royalties to us. Typically, content from our library is licensed on
a non-exclusive basis, meaning that multiple customers can license the same image, footage clip or music track under the
applicable Shutterstock license agreement. Custom content is one-of-a-kind branded content and is licensed on an exclusive
basis to our customers to fulfill their specific use-cases. We do not typically require that contributors of content to our library
provide their content to us on an exclusive basis, with the exception of custom content and certain editorial, music and other
content to which we have exclusive distribution rights. However, once a contributor’s content is licensed through our platform,
such content is perpetually subject to the customer’s license even if the contributor removes the image from our marketplace,
except in periodic circumstances where content is removed due to concerns about third-party intellectual property rights.
Under our various license agreements, we expressly represent and warrant that unaltered content downloaded and used in
compliance with our license agreements and applicable law will not infringe any copyright, trademark or other intellectual
property right, violate any third-party’s rights of privacy or publicity, violate any U.S. law, be defamatory or libelous, or be
9 pornographic or obscene. Provided that a customer has not breached the license agreement or any other agreement with us, we
will defend, indemnify, and hold a customer harmless from direct damages attributable to breaches of the express
representations and warranties provided in our license agreements. From time to time, we agree to customize our license
agreements with non-standard indemnification terms. Regardless of customization, indemnification only applies to claims for
damages attributable to our breach of the express representations and warranties provided in our license agreement and is
generally conditioned on our timely receipt of an indemnification claim and our right to assume the defense of such claim. Our
license agreements generally cap our indemnification obligations at amounts ranging from $10,000 to $250,000, with
exceptions for certain products for which our indemnification obligations may be uncapped. We maintain commercially
reasonable insurance intended to protect against the costs of intellectual property litigation and our indemnification obligations
under our license agreements.
Intellectual Property
We protect our intellectual property through a combination of patent, trademark, copyright and domain name
registrations, as well as trade secret protections.
We own a portfolio of trademarks, including “Shutterstock,” “Offset,” “Bigstock,” “Rex Features,” “PremiumBeat,”
“Shutterstock Editorial,” “Shutterstock Select” and “Shutterstock Editor” and associated logos. We will pursue additional
trademark registrations to the extent that we create any additional material and registrable trademarks or logos. We are the
registered owner of a variety of the shutterstock.com, bigstock.com, offset.com, premiumbeat.com, and rexfeatures.com
internet domain names and various other related domain names. We have successfully recovered infringing domain names in
the past and intend to continue to enforce our rights in the future. We also own copyrights, including certain content on our web
properties, publications and designs, as well as patents, including with respect to our display systems and search capabilities.
These intellectual property rights are important to our business and marketing efforts. The duration of the protection afforded to
our intellectual property depends on the type of property in question, the laws and regulations of the relevant jurisdiction and
the terms of our license agreements with others. With respect to our trademarks, trade names and patents, laws and rights are
generally territorial in scope and limited to those countries where a mark has been registered or protected. While trademark
registrations may generally be maintained in effect for as long as the mark is in use in the respective jurisdictions, there may be
occasions where a mark or title is not registrable or protectable or cannot be used in a particular country. In addition, a
trademark registration may be canceled or invalidated if challenged by others based on certain use requirements or other limited
grounds. We believe the duration of our patents is adequate, relative to the expected lives of our products.
We protect our intellectual property rights by relying on federal, state, and common law rights, including registration, in
the United States and applicable foreign jurisdictions, as well as contractual restrictions. We enforce and protect our intellectual
property rights through litigation from time to time, and by controlling access to our intellectual property and proprietary
technology, in part, by entering into confidentiality and proprietary rights agreements with our employees, consultants,
contractors, and vendors. In this way, we have historically chosen to protect our software and other technological intellectual
property as trade secrets. We further control the use of our proprietary technology and intellectual property through provisions
in our websites’ terms of use and license agreements.
Government Regulation
We are subject to a number of U.S. federal and state and foreign laws and regulations that affect companies conducting
business on the internet as well as companies that provide access to content. Many of these laws and regulations are still
evolving and are being tested in courts, and the manner in which existing laws and regulations will be applied to the internet
and online content in general, and how the foregoing will relate to our business in particular, is still unclear in many cases.
These laws and regulations may involve privacy, data management and protection (including with respect to personal
information), cybersecurity, content regulation, intellectual property ownership and infringement, defamation, publicity rights,
advertising, marketing, employment, taxation, e-commerce, subscription-based billing, quality of products and services, internet
neutrality, antitrust, outsourcing, securities law compliance, and online payment services. Additionally, because we operate
internationally, we need to comply with various laws associated with doing business outside of the United States, including data
privacy and security, anti-money laundering, sanctions, anti-corruption and export control laws. A number of U.S. federal and
state and foreign laws that could have an impact on our business practices and e-commerce generally have already been
adopted, including, for example:
•
•
The Digital Millennium Copyright Act (the “DMCA”), which regulates digital material and created updated
copyright laws to address the unique challenges of regulating the use of digital content.
The Directive on Copyright in the Digital Single Market, which governs a marketplace for copyright in the
European Union.
10 •
•
•
•
•
The Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 and similar laws adopted
by a number of states, which regulate the format, functionality and distribution of commercial solicitation e-mails,
create criminal penalties for unmarked sexually-oriented material, and control other online marketing practices.
The Children’s Online Privacy Protection Act and the Prosecutorial Remedies and Other Tools to End
Exploitation of Children Today Act of 2003, which regulate the collection or use of information, and restrict the
distribution of certain materials, as related to certain protected age groups. In addition, the Protection of Children
From Sexual Predators Act of 1998 provides for reporting and other obligations by online service providers in the
area of child pornography.
The Federal Trade Commission Act and numerous state “mini-FTC” acts, which bar “deceptive” and “unfair”
trade practices, including in the contexts of online advertising and representations made in privacy policies and
other online representations.
The European Union General Data Protection Regulation (“GDPR”), which governs how we can collect and
process the personal data of, primarily, European Union residents.
The California Consumer Privacy Act of 2018 (“CCPA”), which governs how we can collect and process the
personal data of California residents.
In particular, we are subject to U.S. federal and state, and foreign laws regarding privacy and data protection as well as
foreign, federal and state regulation. Foreign data protection, privacy, content regulation, consumer protection, and other laws
and regulations can be more restrictive than those in the United States and often have extraterritorial application, and the
interpretation and application of these laws are continuously evolving, still uncertain and remain in flux. For example, the
GDPR, which took effect on May 25, 2018, includes more stringent operational requirements for entities using, processing, and
transferring personal information and significant penalties for non-compliance. Several other foreign jurisdictions, such as
Brazil and India, have adopted, are considering adopting, or have updated comprehensive privacy legislation to offer additional
data privacy protections for individuals. In the U.S., data protection legislation is also becoming increasingly common at both
the federal and state level. There are a number of legislative proposals pending before the U.S. Congress and various state
legislative bodies concerning privacy, security, content regulation, data protection and other consumer issues that could affect
us. For example, the State of California has enacted the CCPA, which became effective in January 2020. The CCPA, among
other things, requires companies that collect personal information about California residents to make disclosures to those
residents about data collection, use and sharing practices, allows residents to opt out of certain data sharing with third parties
and provides a new cause of action for data breaches. Moreover, a new privacy law passed in California, the California Privacy
Rights Act (“CPRA”), which is scheduled to take effect on January 1, 2023 (with a lookback to January 1, 2022), will
significantly modify the CCPA, and will impose additional data protection obligations on companies such as ours doing
business in California.
In addition, from a taxation perspective, there are applicable and potential government regulatory matters that may impact
us. In particular, certain provisions of the Tax Cuts and Jobs Act of 2017 (the “TCJA”) have had and will continue to have a
significant impact on our financial position and results of operations. The TCJA continues to be subject to further regulatory
interpretation and technical corrections by the U.S. Treasury Department and the I.R.S. and therefore, the full impact of the
TCJA on our tax provision may continue to evolve. Further, we continue to remain subject to uncertainty related to foreign
jurisdictions’ potential reactions to the TCJA, as well as evolving regulatory views and legislation regarding taxation of e-
commerce businesses such as the Organization for Economic Cooperation and Development (OECD) Base Erosion and Profit
Shifting (BEPS) proposals and other country specific digital tax initiatives. As these and other tax laws and related regulations
continue to evolve, our financial results could prospectively be materially impacted.
The application, interpretation, and enforcement of these U.S. and foreign laws and regulations are often uncertain,
particularly in the rapidly evolving industry in which we operate, and may be interpreted and applied inconsistently from
country to country and inconsistently with our current policies and practices. Any existing or new legislation applicable to our
operations could expose us to substantial liability, including significant expenses necessary to comply with such laws and
regulations, to respond to regulatory inquiries or investigations, and to defend individual or class litigation. These events could
dampen growth in the use of the internet in general, and cause Shutterstock to divert significant resources and funds to
addressing these issues, and possibly require us to change our business practices.
11 Competition
We seek to be an integral component of the creative process for our customers based on a number of factors including the
quality, relevance and breadth of content; ability to source new content; accessibility of content; distribution capabilities; ease
and speed of search and fulfillment; content pricing models and practices; content licensing options and the degree to which
users are protected from legal risk; brand recognition and reputation; the effective use of current and emerging technology; the
global nature of our interfaces and marketing efforts, including the degree of localization; and customer service. We also
compete for contributors on the basis of several similar factors including ease and speed of the upload and content review
process; the volume of customers who license their submitted content; contributor commission models and practices; the degree
to which contributors are protected from legal risk; brand recognition and reputation; the effective use of technology; the global
nature of our interfaces; and customer service.
The industry in which we operate is extremely competitive and rapidly evolving, with low barriers to entry. Some of our
currently and potentially significant competitors include:
•
•
•
•
•
•
•
•
other online platforms that feature marketplaces for stock content or creative workflow tools such as Getty Images
and its iStockphoto offering, AdobeStock, VimeoStock, Canva and Pond5;
specialized visual content companies that are established in local, content or product-specific market segments,
such as Visual China Group;
providers of commercially licensable music such as Universal Music Publishing Group, Sony/ATV Music
Publishing and Warner/Chappell Music;
websites focused on image search and discovery such as Google Images;
websites for image hosting, art and related products such as Flickr;
providers of free images, photography, music, footage and related tools;
social networking and social media services; and
commissioned photographers and photography agencies.
In addition, we compete with the alternative of creating one’s own content or choosing not to consume licensed content
due to price considerations or because the user is not aware of how to access licensed content.
Human Capital
The Company and its consolidated subsidiaries have 967 full-time employees as of December 31, 2020, as compared to
1,116 as of December 31, 2019. Approximately 64% of our global workforce is located in North America and 29% are located
in Europe with the remainder located in the rest of the world. None of our employees in the United States are covered by
collective bargaining arrangements. In several foreign jurisdictions, including Italy, Canada, France, and Brazil, our employees
may be subject to national collective bargaining agreements that set minimum salaries, benefits, working conditions and / or
termination requirements. We consider our employee relations to be satisfactory. Competition for qualified personnel in our
industry is intense, particularly for software engineers, computer scientists and other technical staff.
Our people are critical to our success. We have implemented certain strategies with respect to our employees, to provide a
safe, rewarding and respectful workplace. We adhere to our Code of Business Conduct and Ethics, which sets forth a
commitment to our stakeholders, including our employees, to operate with integrity and mutual respect. We also incorporate
safety principles into every aspect of our business. We have well-developed health and safety programs, which are reinforced
through policies, education and engagement of our employees.
We strive to create an outstanding employee experience by creating a culture aligned with our principles by providing our
employees access to the programs and initiatives that promote their career growth and development, recognize and reward their
performance and support their overall well-being. Our Total Rewards program focuses on developing and implementing
policies and programs that support our business goals, maintain competitiveness, promote shared fiscal responsibility among
the Company and our employees, strategically align talent within our organization and reward performance, while also
managing the costs of such policies and programs. Through our Total Rewards program, we provide our employees with
competitive fixed and/or variable pay, and for eligible employees we currently provide access to medical, dental and life
insurance benefits, disability coverage, a 401(k) plan, equity-based compensation and employee assistance programs, among
other benefits. We encourage employee engagement through regular employee events, productive communication, our global
recognition program and by creating a culture of belonging. Our Diversity, Equity and Inclusion (“DEI”) mission is supported
by the work of our employee resource groups, our DEI Council, senior leadership and our employees across the globe.
12 During the COVID-19 pandemic, our commitment to our employees has been put into action. One of the principles that
has guided and continues to guide our decision-making during the COVID-19 pandemic is to safeguard the health of our
employees. We are following all local and national government guidance in implementing mandatory work-from-home policies
and in March 2020, our global workforce effectively transitioned to working remotely. While we re-opened certain office
spaces by the end of 2020, in order to ensure the safety of our employees, our voluntary work-from-home program has been
extended through June 2021, and a one-time stipend was paid in December 2020 to employees who are below the level of Vice
President, to offset any remote working expenses. For those employees who voluntarily elect to work from the office (where
local law and public health authorities permit offices to operate), we have taken steps to ensure their safety, including providing
training, deep cleaning our facilities on a regular basis, installing hand sanitizer stations, providing face masks, installing plexi-
glass where appropriate, encouraging hygiene practices advised by health authorities, implementing social distancing policies
and restricting business travel and site visitors. We continue to enhance our practices to remain aligned with federal, state, local
and international regulations and guidelines.
Seasonality
Our operating results may fluctuate from quarter to quarter as a result of a variety of factors. Our quarterly and annual
results may reflect the effects of intra-period trends in customer behavior. For example, we expect that certain customers’ usage
may decrease at times during the third quarter of each calendar year due to the summer vacation season and may increase at
times during the fourth quarter of each calendar year as demand is generally higher to support marketing campaigns in advance
of the fourth quarter holiday season. While we believe seasonal trends have affected and will continue to affect our quarterly
results, our growth trajectory may have overshadowed these effects to date. Additionally, because a significant portion of our
revenue is derived from repeat customers who have purchased subscription plans, our revenues have historically been less
volatile than if we had no subscription-based customers.
In addition, expenditures on content by customers tend to be discretionary in nature, reflecting overall economic
conditions, the economic prospects of specific industries, budgeting constraints, buying patterns and a variety of other factors,
many of which are outside our control, including any impacts from COVID-19. As a result of these and other factors, the results
of any prior quarterly or annual periods should not be relied upon as indicators of our future operating performance.
Corporate and Available Information
We launched our platform in 2003, and on October 5, 2012, we reorganized as Shutterstock, Inc., a Delaware corporation,
from Shutterstock Images LLC, a New York limited liability company. We completed our initial public offering, in October
2012, and completed a follow-on offering in September 2013. Our common stock is listed on the New York Stock Exchange
under the symbol “SSTK”.
Our corporate headquarters and principal executive offices are located at 350 Fifth Avenue, 21st Floor, New York, NY
10118, and our telephone number is (646) 710-3417. We maintain a website at investor.shutterstock.com, where our Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports are
available without charge, as soon as reasonably practicable following the time they are electronically filed with or furnished to
the SEC. The information on or accessible through our websites is not incorporated by reference into this Annual Report on
Form 10-K. In addition, the SEC maintains a website, www.sec.gov, that includes filings of and information about issuers that
file electronically with the SEC.
13 Item 1A. Risk Factors.
You should carefully consider the risks and uncertainties described below, together with the financial and other
information contained in this Annual Report on Form 10-K. Our business may also be adversely affected by risks and
uncertainties not presently known to us or that we currently believe to be immaterial. If any of the following risks, such other
risks or the risks described elsewhere in this Annual Report on Form 10-K, including in the section entitled “Management’s
Discussion and Analysis of Financial Condition and Results of Operations”, actually occur, our business, financial condition,
operating results, cash flow and prospects could be materially adversely affected. This could cause the trading price of our
common stock to decline.
Risk Factors Summary
Risks Related to the Coronavirus (COVID-19) Pandemic
•
The effect of the COVID-19 pandemic on our operations, and the operations of our customers, partners and suppliers,
could have a material adverse effect on our business, financial condition, cash flows and results of operations.
Risks Related to Industry Dynamics and Competition
•
The success of our business depends on our ability to continue to attract and retain customers of, and contributors to, our
creative platform. If customers reduce or cease their spending with us, or if content contributors reduce or end their
participation on our platform, our business will be harmed.
The industry in which we operate is highly competitive with low barriers to entry and if we do not compete effectively,
our operating results could suffer.
Our marketing efforts to acquire new, and retain existing, customers may not be effective or cost-efficient, and may be
affected by external factors beyond our control.
If we cannot continue to innovate technologically or develop, market and offer new products and services, or enhance
existing technology and products and services to meet customer requirements, our ability to grow our revenue could be
impaired.
Unless we increase market awareness of our brand and our existing and new products and services, our revenue may not
continue to grow.
In order to continue to attract large corporate customers, we may encounter greater pricing pressure, and increased service,
indemnification and working capital requirements, each of which could increase our costs and harm our business and
operating results.
Expansion of our operations into new products, services and technologies, including content categories, is inherently risky
and may subject us to additional business, legal, financial and competitive risks.
The impact of worldwide economic, political and social conditions, including effects on advertising and marketing
budgets, may adversely affect our business and operating results.
•
•
•
•
•
•
•
Risks Related to Operating our Business
• We may not continue to grow our revenues at historical rates.
•
If we do not effectively expand, train, manage changes to, and retain our sales force, we may be unable to add new
customers or increase sales to our existing customers, and our revenue growth and business could be adversely affected.
• We have continued to grow in recent periods and if we fail to effectively manage our growth, our business and operating
•
results may suffer.
If we do not successfully make, integrate and maintain acquisitions and investments, our business could be adversely
impacted.
• We rely on highly skilled personnel and if we are unable to retain and motivate key personnel, attract qualified personnel,
integrate new members of our management team or maintain our corporate culture, we may not be able to grow
effectively.
• We may be exposed to risks related to our use of independent contractors.
•
The non-payment or late payments of amounts due to us from certain customers may negatively impact our financial
condition.
• We are subject to payment-related risks that may result in higher operating costs or the inability to process payments,
either of which could harm our financial condition and results of operations.
If our goodwill or intangible assets become impaired, we may be required to record a significant charge to earnings.
•
• We may need to raise additional capital in the future and may be unable to do so on acceptable terms or at all.
Risks Related to our Intellectual Property and Security Vulnerabilities
• We rely on information technologies and systems to operate our business and maintain our competitiveness, and any
failures in our technology infrastructure could harm our reputation and brand and adversely affect our business.
Technological interruptions that impair access to our web properties or the efficiency of our marketplace could harm our
reputation and brand and adversely affect our business and results of operations.
•
14 • We face risks resulting from the content in our collection such as unforeseen costs related to infringement claims,
potential liability arising from indemnification claims, changes to intellectual property content regulations and laws and
the inability to prevent or monitor misuse.
Assertions by third parties of infringement of intellectual property rights related to our technology could result in
significant costs and substantially harm our business and operating results.
•
• We collect, store, process, transmit and use personally identifiable information and other data, which subjects us to
•
governmental regulation and other legal obligations related to privacy, information security and data protection in many
jurisdictions. Any cybersecurity breaches or our actual or perceived failure to comply with such legal obligations by us, or
by our third-party service providers or partners, could harm our business.
Cybersecurity breaches and improper access to or disclosure of data or confidential information we maintain, or hacking
or phishing attacks on our systems, could expose us to liability, protracted and costly litigation and damage our reputation.
Failure to protect our intellectual property could substantially harm our business and operating results.
•
• Much of the software and technologies used to provide our services incorporate, or have been developed with, “open
source” software, which may restrict how we use or distribute our services or require that we publicly release certain
portions of our source code.
Catastrophic events or other interruptions or failures of our information technology systems could hurt our ability to
effectively provide our products and services, which could harm our reputation and brand and adversely affect our
business and operating results.
•
Risks Related to our International Operations
•
•
Our international operations and our continued expansion internationally expose us to many risks.
The uncertainty caused by the U.K.’s exit from the European Union (Brexit) on January 31, 2020 may negatively impact
our operations.
• We are subject to foreign exchange risk.
Risks Related to Regulatory and Tax Challenges
•
Government regulation of the internet, both in the United States and abroad, is evolving and unfavorable changes could
have a negative impact on our business.
Action by governments to restrict access to, or operation of, our services or the content we distribute in their countries
could substantially harm our reputation, business and financial results.
Our operations may expose us to greater than anticipated income, non-income and transactional tax liabilities, which
could harm our financial condition and results of operations.
•
•
Risks Related to Ownership of Our Common Stock
•
•
•
•
•
•
•
Our operating results may fluctuate, which could cause our results to fall short of expectations and our stock price to
decline.
Our stock price has been and will likely continue to be volatile.
Jonathan Oringer, our founder and Executive Chairman of the Board, owns and controls approximately 36.8% of our
outstanding shares of common stock, and his ownership percentage may increase, including as a result of any share
repurchases pursuant to our share repurchase program. This concentration of ownership may have an effect on matters
requiring the approval of our stockholders, including elections to our board of directors and transactions that are otherwise
favorable to our stockholders.
Purchases of shares of our common stock pursuant to our share repurchase program may affect the value of our common
stock, and there can be no assurance that our share repurchase program will enhance stockholder value.
If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our
market, or if they change their recommendations regarding our stock adversely, our stock price and trading volume could
decline.
Future sales of our common stock in the public market could cause our share price to decline.
Anti-takeover provisions in our charter documents and Delaware law could discourage, delay or prevent a change in
control of our Company and may affect the trading price of our common stock.
There can be no assurance that we will declare dividends in the future.
•
• We have incurred and expect to continue to incur increased costs and our management will continue to face increased
•
demands as a result of continuously improving our operations as a public company.
If we fail to maintain an effective system of internal control over financial reporting, we may not be able to report our
financial results accurately or in a timely fashion, and we may not be able to prevent fraud; in such case, our stockholders
could lose confidence in our financial reporting, which would harm our business and could negatively impact the price of
our stock.
15 Risks Related to the Coronavirus (COVID-19) Pandemic
The effect of the COVID-19 pandemic on our operations, and the operations of our customers, partners and suppliers, could
have a material adverse effect on our business, financial condition, cash flows and results of operations.
In December 2019, a novel coronavirus disease (“COVID-19”) was initially reported and on March 11, 2020, the World
Health Organization characterized COVID-19 as a pandemic. COVID-19 has had a widespread and detrimental effect on the
global economy as a result of the continued increase in the number of cases and affected countries and actions by public health
and governmental authorities, businesses, other organizations and individuals to address the outbreak, including travel bans and
restrictions, quarantines, shelter in place, stay at home or total lock-down orders and business limitations and shutdowns.
Despite recent developments of vaccines, the duration and severity of COVID-19 and possible mutations and the degree of its
impact on our business is uncertain and difficult to predict. The continued spread of the outbreak could result in one or more of
the following conditions that could have a material adverse impact on our business operations and financial condition:
decreased business spending by our customers and prospective customers, reduced demand for our products, lower renewal
rates by our customers; increased customer losses/churn and turnover of talent; increased challenges in or cost of acquiring new
customers and talent; reduction in the amount of content uploaded by our contributors and/or reduction in the number of
contributors on our site because of reduced royalties earned by our contributors; inability of our Custom contributors and
editorial photographers to complete assignments because of travel and in-person event restrictions; increased competition;
increased risk in collectability of accounts receivable; reduced productivity due to remote work arrangements; lost productivity
due to illness and/or illness of family members; inability to hire key roles; adverse effects on our strategic partners’ businesses;
impairment charges; extreme currency exchange-rate fluctuations; inability to recover costs from insurance carriers; business
continuity concerns for us and our third-party vendors; inability of counterparties to perform under their agreements with us;
increased risk of vulnerability to cybersecurity attacks or breaches resulting from a greater number of our employees working
remotely for extended periods of time; and challenges with Internet infrastructure due to high loads. If we are not able to
respond to and manage the potential impact of such events effectively, our business could be harmed.
As we generally recognize revenue from our customers as content is downloaded, the impact to our reported revenue
resulting from recent and near-term changes in our sales activity due to COVID-19 may not be fully apparent until future
periods. Our efforts to help mitigate the negative impact of the outbreak on our business may not be effective, and we may be
affected by a protracted economic downturn. Furthermore, while many governmental authorities around the world have and
continue to enact legislation to address the impact of COVID-19, including measures intended to mitigate some of the more
severe anticipated economic effects of the virus, we may not benefit from such legislation or such legislation may prove to be
ineffective in addressing COVID-19’s impact on our and our customer’s businesses and operations. Even after the COVID-19
outbreak has subsided, we may continue to experience impacts to our business as a result of the coronavirus’ global economic
impact and any recession that has occurred or may occur in the future. Further, as the COVID-19 situation is unprecedented and
continuously evolving, COVID-19 may also affect our operating and financial results in a manner that is not presently known to
us or in a manner that we currently do not consider to present significant risks to our operations.
In addition, the overall uncertainty regarding the economic impact of the COVID-19 pandemic and the impact on our
revenue growth, could impact our cash flows from operations and liquidity. To the extent the COVID-19 pandemic adversely
affects our business and financial results, it may also have the effect of heightening many of the other risks described in this
“Risk Factors” section. Material changes to our cash flows, liquidity and the volatility of the stock market and our stock price
could impact our capital allocation strategy, including our recently introduced quarterly dividend program and our outstanding
authorization under our stock repurchase program.
Risks Related to Industry Dynamics and Competition
The success of our business depends on our ability to continue to attract and retain customers of, and contributors to, our
creative platform. If customers reduce or cease their spending with us, or if content contributors reduce or end their
participation on our platform, our business will be harmed.
The continued use of our creative platform by customers and contributors is critical to our success. Our future
performance largely depends on our ability to attract new, and retain existing, paying customers and contributors. We do not
know whether we will be able to achieve user growth rates in the future similar to our previous results. The majority of our
revenue is derived from customers who have purchased from us in the past, but customers have several options to find content.
If we lose existing customers, or new customers are not as active as our existing customers, our financial performance and
growth could be harmed.
Our ability to attract new customers and contributors, and to incentivize our customers to continue purchasing our
products and our contributors to add new content to our platform depends on several factors, including:
•
the scope of content available for licensing;
16 •
•
•
•
•
•
the effectiveness of our marketing efforts;
the features and functionality of our platform;
competitive pricing of our products;
our current products and services and ability to expand our offerings;
our customers’ and contributors’ experience in using our platform; and
the quality and accuracy of our search algorithms.
Further, our growth strategy relies on network effects: we rely in part on a growing audience of paying users to attract
more content from contributors, thereby increasing our content selection and in turn attracting additional paying customers. For
example, our global strategy relies on enabling easier global access in order to attract new contributions of local content, in turn
attracting more paying customers who have preferences for local content. Any decrease in the attractiveness of our platform
relative to other options available to our customers and contributors could lead to decreased engagement on our platform and
unfavorably impact the network effects of our platform, which could result in loss of revenue.
If we are unable to grow our customer and contributor base, or retain our existing contributors and paying customers, or
are unable to attract paying customers in a cost-effective manner, our financial performance, operating results and business may
be adversely affected.
The industry in which we operate is highly competitive with low barriers to entry and if we do not compete effectively, our
operating results could suffer.
The industry in which we operate is intensely competitive and rapidly evolving, with low barriers to entry. We compete
with a wide and diverse array of companies, from significant media companies to individual content creators. Our current and
potential domestic and international competitors range from large established companies to emerging start-ups across different
industries, including online marketplace and traditional stock content suppliers of current and archival creative and editorial
imagery, photography, footage, and music; specialized visual content companies in specific geographic segments; providers of
commercially licensable music; websites specializing in image search, recognition, discovery and consumption; websites that
host and store images, art and other related products; providers of free images, photography, music, footage and related tools
(including offerings by our partners); social networking and social media services; and commissioned photographers and
photography agencies.
We believe that the principal competitive factors in the content industry include: quality, relevance and breadth of content;
the ability to source new content; content licensing options and the degree to which users are protected from legal risk; the
effective use of current and emerging technology; accessibility of content, distribution capability, and speed and ease of search
and fulfillment; brand recognition and reputation; customer service; availability of additional platform features, such as
workplace tools and ability to engage with additional platform features; and the global nature of a company’s interfaces and
marketing efforts, including local content, languages, currencies, and payment methods. If our competitors use their experience
and resources to provide an offering that is more attractive to customers across these categories, or if our competitors innovate
and provide products faster than we can, we may be unable to compete effectively and our business will be harmed.
Many of our competitors have or may obtain significantly greater financial, marketing or other resources or greater brand
awareness than we have. Some of these competitors may be able to respond more quickly to new or expanding technology and
devote more resources to product development, marketing or content acquisition than we can. Additionally, there has been a
recent trend toward industry consolidation and competitors have acquired, invested in or partnered with other competitors or
leveraged their own content-related competencies to enter our market. We expect this trend toward industry consolidation to
continue as companies attempt to hold or strengthen their market positions in an evolving industry. We believe that industry
consolidation may result in stronger competitors that are better able to compete for customers. This could lead to more
variability in operating results as we compete with larger competitors and could have a material adverse effect on our business,
operating results, and financial condition.
While we believe that there are obstacles to creating a meaningful network effect between customers and contributors, the
barriers to creating a platform that allows for the licensing of content or provides workflow tools are low. If competitors offer
higher royalties or more favorable royalty earning potential, easier submission workflows, or less rigorous vetting processes or
incentivize contributors to distribute their content on an exclusive basis, contributors may choose to stop distributing new
content with us or remove their existing content from our collection. Further, as technology advances or other market dynamics
make creating, sourcing, archiving, indexing, reviewing, searching or delivering content easier or more affordable, our existing
and potential competitors may also seek to develop new products, technologies or capabilities that could render many of the
products, services and content types that we offer obsolete or less competitive. For any of these reasons, we may not be able to
compete successfully against our current and future competitors.
17 In addition, demand for our products and services is sensitive to price. Many external factors, including our technology
and personnel costs and our competitors’ pricing and marketing strategies, could significantly impact our pricing strategies and
we could fail to meet our customers’ pricing expectations. Increased competition and pricing pressures may result in reduced
sales, lower margins, losses or the failure of our product and services to maintain and grow their current market share, any of
which could harm our business.
Our marketing efforts to acquire new, and retain existing, customers may not be effective or cost-efficient, and may be
affected by external factors beyond our control.
Maintaining and promoting awareness of our platform and services is important to our ability to attract and retain
customers. We spend a significant amount on marketing activities to acquire new customers and retain and engage existing
customers. For example, in 2020, 2019 and 2018 our marketing expenses were approximately $81.2 million, $102.3 million and
$91.5 million, respectively, and we expect our marketing expenses to continue to account for a significant portion of our
operating expenses. Our business depends on a high degree of website traffic, which is dependent on many factors, including
the availability of appealing website content, user loyalty and new user generation from search engine portals. Our primary
marketing efforts currently are search engine marketing (“SEM”), search engine optimization (“SEO”), affiliate marketing and
display advertising, as well as, social media and email. The marketing efforts we implement may not succeed for a variety of
reasons, including our inability to execute and implement our plans. External factors beyond our control may also impact the
success of our marketing initiatives.
We obtain a significant number of visits via search engines such as Google and a critical factor in attracting customers to
our websites is how prominently our website is displayed in response to search queries. Search engines frequently update and
change the logic that determines the placement and display of results of a user’s search, such that the purchased or algorithmic
placement of links to our sites can be negatively affected. Moreover, a search engine could, for competitive or other purposes,
alter its search algorithms or results, causing our sites to place lower in search query results. A major search engine could
change its algorithms in a manner that negatively affects our paid or non-paid search ranking, and competitive dynamics could
impact the effectiveness of search engine marketing or search engine optimization. Furthermore, our failure to successfully
manage our search engine optimization could result in a substantial decrease in traffic to our web properties, as well as
increased costs if we were to replace free traffic with paid traffic.
If our marketing activities prove less successful than anticipated in attracting new customers or retaining existing
customers, we may not be able to recover our marketing spend, we may not acquire new customers or our cost to acquire new
customers may increase, and our existing customers may reduce the frequency or size of their purchases from us, any of which
could have a material adverse effect on our business, prospects, results of operations, financial condition or cash flows.
If we cannot continue to innovate technologically or develop, market and offer new products and services, or enhance
existing technology and products and services to meet customer requirements, our ability to grow our revenue could be
impaired.
Our growth largely depends on our ability to innovate and add value to our existing creative platform and to provide our
customers and contributors with a scalable, high-performing technology infrastructure that can efficiently and reliably handle
increased customer and contributor usage globally, as well as the deployment of new features. For example, footage represents
significantly more data as compared to a still image, and if the proportion of our business related to footage licensing and our
footage library continues to grow, we will need to expand and enhance our technological capabilities to ingest, store and search
footage and music tracks in ways that are similar to our management of images. Without improvements to our technology and
infrastructure, our operations might suffer from unanticipated system disruptions, slow website or application performance or
unreliable service levels, any of which could negatively affect our reputation and ability to attract and retain customers and
contributors. We are currently making, and plan to continue making, significant investments to maintain and enhance the
technology and infrastructure supporting our customer and contributor facing web properties and software platforms and to
evolve our information processes and computer systems to more efficiently run our business and remain competitive. For
example, in 2020, 2019 and 2018 our product and development costs (which exclude costs that are capitalized related to
internal-use software development projects), were approximately $46.0 million, $57.2 million and $58.9 million, respectively,
and may continue to increase in the future as we continue to innovate. We may not achieve the anticipated benefits, significant
growth or increased market share from these investments for several years, if at all. If we are unable to manage our investments
successfully or in a cost-efficient manner, our business and results of operations may be harmed.
Our growth also depends, in part, on our ability to identify and develop new products and services and enhance existing
products and services. The process of developing new products and services and enhancing existing products and services and
bringing products or enhancements to market in a timely manner is complex, costly and uncertain and we may not execute
successfully on our vision or strategy because of challenges such as product planning and timing, technical hurdles, or a lack of
resources. The success of our products depends on several factors, including our ability to:
18 •
•
•
•
•
•
anticipate customers’ and contributors’ changing needs or emerging technological trends;
timely develop, complete and introduce innovative new products and enhancements;
differentiate our products from those of our competitors;
effectively market our products and gain market acceptance;
price our products competitively; and
provide timely, effective and accurate support to our customers and contributors.
We may be unable to successfully identify new product opportunities or enhancements, develop and bring new products
to market in a timely manner, or achieve market acceptance of our products. There can be no assurance that products and
technologies developed by others will not render our products or technologies obsolete or less competitive. If we are
unsuccessful in innovating our technology or in identifying new or enhancing our existing product offerings, our ability to
compete in the marketplace, to attract and retain customers and contributors and to grow our revenue could be impaired.
Unless we increase market awareness of our brand and our existing and new products and services, our revenue may not
continue to grow.
We believe that the brand identity that we have developed has significantly contributed to the success of our products and
services and that our ability to attract and retain new customers and contributors depends in large part on our ability to increase
our brand awareness. We have and may continue to expend significant resources on advertising, marketing, and other brand-
building efforts to preserve and enhance customer and contributor awareness of our brand, products and services. We also have
incurred and expect to incur significant costs in developing and marketing new products to obtain user acceptance and we may
not be successful in our efforts to increase awareness and market share of these products. Our competitors may be able to
achieve and maintain brand awareness and market share more quickly and effectively than we can.
Our brand may be adversely affected by a number of factors, including the effectiveness of our marketing campaigns,
disruptions in service due to technology, data privacy and security issues, and exploitation of our trademarks and other
intellectual property by others without our permission. Maintaining and enhancing our brand will depend largely on our ability
to be a leading platform for high-quality content, tools and services for creative professionals and to continue to provide a user
experience that anticipates our customers’ needs. Additionally, our marketing campaigns or other efforts to increase our brand
awareness may not succeed in bringing new visitors to our platform or converting such visitors to paying customers or
contributors and may not be cost-effective. It is possible that, as our industry becomes increasingly competitive, maintaining
and enhancing our brand may become increasingly difficult and expensive and our efforts may not be successful.
In order to continue to attract large corporate customers, we may encounter greater pricing pressure, and increased service,
indemnification and working capital requirements, each of which could increase our costs and harm our business and
operating results.
In order to continue to attract and retain customers, particularly larger corporate customers, we may face greater demands
in terms of greater pricing pressure, increased service requirements, greater indemnification requirements and greater working
capital to accommodate the larger receivables and collections issues that are likely to occur as a result of being paid on credit
terms. If we are unable to adequately address those demands or manage our resources, our ability to grow our business may be
harmed, which may adversely affect our results of operations and future growth. If we address those demands in a way that
expands our risk of indemnification claims, significantly increases our operating costs, reduces our ability to maintain or
increase pricing, or increases our working capital requirements, our business, operating results and financial condition may
suffer.
Expansion of our operations into new products, services and technologies, including content categories, is inherently risky
and may subject us to additional business, legal, financial and competitive risks.
Historically, our operations have been focused on our marketplace for content. Further expansion of our operations and
our marketplace into additional content categories, such as Shutterstock Editorial, or into new products and services, such as
Shutterstock Custom, a provider of custom visual content we acquired in July 2017, or our workflow tools, such as Shutterstock
Editor and Shutterstock Editor Pro, involves numerous risks and challenges, including increased capital requirements, increased
marketing spend to gain brand awareness of these new operations, potential new competitors, and the need to develop new
contributor and strategic relationships. Growth into additional content, product and service areas may require changes to our
existing business model and cost structure and modifications to our infrastructure and may expose us to new regulatory and
legal risks, any of which may require expertise in which we have little or no experience. There is no guarantee that we will be
able to generate sufficient revenue from sales of such content, products and services to offset the costs of developing, acquiring,
managing and monetizing such content, products and services and our business may be adversely affected.
19 The impact of worldwide economic, political and social conditions, including effects on advertising and marketing budgets,
may adversely affect our business and operating results.
Global economic, political and social conditions can affect the business of our customers and the markets they serve, as
well as disrupt the business of our vendors, third-party resellers and strategic partners. Numerous external forces beyond our
control, including generally weak or uncertain economic conditions, negative or uncertain political climates, changes in
government and election results in the United States and other jurisdictions in which we operate and global health epidemics,
could adversely affect our financial condition. Particularly, our financial condition is affected by worldwide economic
conditions and their impact on advertising spending. Expenditures by advertisers generally tend to reflect overall economic
conditions, and to the extent that the economy stagnates as a result of macro conditions, companies may reduce their spending
on advertising and marketing, and thus the use of our platform. This could have a serious adverse impact on our business. To
the extent that overall economic conditions reduce spending on advertising and marketing activities, our ability to retain current
and obtain new customers could be hindered, which could reduce our revenue and negatively impact our business. In addition,
if we are unable to successfully anticipate changing economic, political and social conditions, we may be unable to effectively
plan for and respond to those changes and our business could be negatively affected.
Further, economic, political and social macro developments in the United States, Europe, and Asia could negatively affect
our ability to conduct business in those territories. Financial difficulties experienced by our customers, third-party resellers,
vendors and strategic partners due to economic volatility or unfavorable changes could result in these companies scaling back
operations, exiting businesses, merging with other businesses or filing for bankruptcy protection and potentially ceasing
operations, all of which could adversely affect our business, financial condition and results of operations.
Risks Related to Operating our Business
We may not continue to grow our revenues at historical rates.
Our future profitability will depend in part on our continued ability to grow our revenues; however, we have seen a
deceleration in our growth rate, which may continue, and we may not even be able to grow at all. In future periods, our revenue
could grow more slowly than in recent periods or further decline for many reasons, including any increase in competition,
reduction in demand for our products, inability to introduce new products or enhance our existing product offerings, pricing
pressures, contraction of our overall market or our failure to capitalize on growth opportunities. In addition, while we plan to
manage our growth in a cost-effective manner, we expect expenses to increase in the near term, particularly as we continue to
make significant investments in our technology and operational infrastructure, continue to expand our operations globally and
develop new products and features for, and enhancements of, our existing products. A significant decrease in our historical rate
of growth may adversely impact our results of operations and financial condition. If our growth rate declines further, investors’
perceptions of our business may be adversely affected, and the trading price of our common stock could decline.
If we do not effectively expand, train, manage changes to, and retain our sales force, we may be unable to add new
customers or increase sales to our existing customers, and our revenue growth and business could be adversely affected.
Customers in our Enterprise sales channel provided approximately 38%, 40% and 41% of our revenues in 2020, 2019 and
2018, respectively. These customers have unique content, licensing and workflow needs and we have a dedicated sales, service
and research team to provide a number of enhancements to those customers’ creative workflows including non-standard
licensing rights, multi-seat access, multi-brand licensing packages and content licensed for use-cases outside of those available
for license on our e-commerce platform. We have been optimizing our sales team and refining the manner in which our
products and services are sold through this channel. However, we are continuing to build our sales leadership team and sales
strategy. We also periodically adjust our sales organization as part of our efforts to optimize our sales operation to grow
revenue.
We continue to be substantially dependent on our sales force to effectively obtain new customers and to drive additional
use cases and adoption among our existing customers. We believe that there is significant competition for sales personnel with
the skills and knowledge that we require. Our ability to achieve significant revenue growth will depend, in large part, on our
success in recruiting, training and retaining sufficient numbers of qualified sales personnel to support our growth. Our growth
creates additional challenges and risks with respect to attracting, integrating and retaining qualified employees, particularly
enterprise sales leadership and sales personnel. In addition, we expect that, if we continue to grow, a large percentage of our
sales force at any time will be new to the company and our offerings. New hires require significant training and may take a
significant amount of time before they achieve full productivity. Further, as we develop and evolve our sales and go-to-market
strategies, additional training for new hires and our existing team may be required for our sales force to successfully execute on
those strategies. Our recent hires and planned hires may not become productive as quickly as we expect, and we may be unable
to hire or retain sufficient numbers of qualified individuals in the markets where we do business or plan to do business.
20 If we have not structured our sales organization or compensation for our sales organization properly, if we fail to make
changes in a timely fashion, if we are unable to hire and train a sufficient number of effective sales leadership and personnel, if
our sales personnel are not successful in obtaining new customers or increasing sales to our existing customer base, or if we do
not effectively manage changes in our sales force and sales strategy, our business and results of operations could be adversely
affected.
We have continued to grow in recent periods and if we fail to effectively manage our growth, our business and operating
results may suffer.
In the last several years, we have continued to experience revenue growth and may continue to experience such growth in
the future. For example, our revenues increased from $623.3 million in 2018 to $650.5 million in 2019 and to $666.7 million in
2020. Our continued growth has placed significant demands on our management and our administrative, operational and
financial infrastructure and our success will depend in part on our ability to manage this growth efficiently. Specifically, as our
operations have grown in size, scope and complexity, we have made and expect to continue to make significant expenditures
and allocate valuable management resources to improve and upgrade our technology, customer service, sales and marketing
infrastructure and product offerings, including new product offerings, and to continue developing or acquiring new and relevant
content and product offerings. Growth may also strain our ability to maintain reliable operation of our platform, enhance our
operational, financial and management controls and reporting systems and recruit, train and retain highly skilled personnel. If
we fail to effectively allocate our limited resources within our organization as it grows and do not successfully implement
improved technology and infrastructure, our business, operating results and financial condition may suffer.
Further, as we have a limited history of operations at our current scale and under our current strategy, our ability to
forecast our future operating results and plan for and model future growth is more limited than that of companies with longer
operating histories and is subject to a number of uncertainties. In addition, we have encountered and expect to continue to
encounter risks and uncertainties frequently experienced by growing companies in rapidly changing markets. If our assumptions
regarding these risks and uncertainties are incorrect or change, or if we do not execute on our strategy and manage these risks
and uncertainties successfully, our operating results could differ materially from our expectations and those of securities
analysts and investors, our business could suffer and the trading price of our common stock could decline.
If we do not successfully make, integrate and maintain acquisitions and investments, our business could be adversely
impacted.
We have acquired, invested in and entered into strategic relationships with companies, and we may acquire, invest in or
enter into strategic relationships with additional companies to complement our existing business and the breadth of our
offerings. These transactions are inherently risky and expose us to risks which include:
•
•
•
•
•
•
•
•
•
•
•
disruption of our ongoing business, including diverting management’s attention from existing businesses and
operations;
risks inherent in launching or acquiring new products or extending our existing platform, particularly in
market segments or geographies where we have limited or no experience;
difficulties integrating acquired technology and assets, including content collections, into our systems and
offerings;
risks associated with any acquired liabilities;
difficulties integrating personnel;
information security vulnerabilities;
difficulties integrating accounting, financial reporting, management, infrastructure and information security,
human resources and other administrative and operational systems;
potential impairment resulting from the recording of goodwill and intangible assets that are subject to
impairment testing;
the potential damage to employee, customer, contributor and other supplier relationships;
additional exposure to economic, political and social risks related to geographies where we have limited or no
experience; and
other unknown liabilities.
Future acquisitions or investments could also result in potential dilutive issuances of equity securities, use of significant
cash balances or the incurrence of debt, any of which could adversely affect our stock price, financial condition and results of
operations. Further, our acquisitions or investments could result in significant impairments related to goodwill and amortization
21 expenses related to other intangible assets and exposure to undisclosed or potential liabilities of the acquired companies. To the
extent that the goodwill arising from the acquisitions carried on the financial statements does not pass a goodwill
impairment test, excess goodwill will be impaired and will reduce future earnings.
Additionally, companies with which we have strategic relationships, including those we have invested in, may not be
successful, may have interests that are different from ours which may result in conflicting views as to the conduct of ongoing
business or may pivot or shift their business model. In the event that these companies do not succeed in their operating plans or
shift their priorities, or we have a disagreement as to the management or conduct of the business and/or relationship, which we
cannot resolve, we may lose the value of any investment in these companies and be forced to record impairment charges.
We cannot make assurances that our investments will be successful. If we fail to effectively integrate the companies we
acquire, invest in or enter into strategic relationships with, we may not realize the benefits expected from the transaction and
our business may be harmed.
We rely on highly skilled personnel and if we are unable to retain and motivate key personnel, attract qualified personnel,
integrate new members of our management team or maintain our corporate culture, we may not be able to grow effectively.
We are highly dependent on the continued service and performance of our senior management team as well as key
personnel. We believe that the successful performance of our senior management team and key personnel is critical to
managing our operations and supporting our growth. Further, many of our technologies and systems are custom-made for our
business by our personnel. The loss of any key engineering, product development, marketing or sales personnel and our
inability to implement a succession plan or find suitable replacements for any of these individuals could disrupt our operations
and have an adverse effect on our business.
Our continued and future success is also dependent, in part, on our ability to identify, attract, retain and motivate highly
skilled technical, managerial, product development, marketing, content operations and customer service personnel and to
preserve the key aspects of our corporate culture. Competition for qualified personnel is intense in our industry and we may be
unsuccessful in offering competitive compensation packages to attract and retain personnel. Further, we believe that a critical
contributor to our success and to our recruiting efforts has been our corporate culture, which we believe fosters innovation,
creativity, and teamwork. As we continue to pursue growth and expansion of our operations globally, we may not be able to
maintain our corporate culture, which could impact our ability to attract and retain personnel. Among other factors, we are
limited in our ability to recruit internationally by restrictive domestic immigration laws. Changes to immigration policies in the
U.S. and other key jurisdictions that restrain the flow of technical and professional talent may inhibit our ability to adequately
recruit and retain key employees. The failure to successfully recruit and hire key personnel or the loss of any key personnel
could have a significant impact on our operations and growth.
We may be exposed to risks related to our use of independent contractors.
We rely on independent third parties to provide certain services for our Company. The state of the law regarding
independent contractor status varies from jurisdiction to jurisdiction and is subject to change based on court decisions and
regulation. For example, on April 30, 2018, the California Supreme Court adopted a new standard for determining whether a
company “employs” or is the “employer” for purposes of the California Wage Orders in its decision in the Dynamex Operations
West, Inc. v. Superior Court case. This standard was expanded and codified in California via Assembly Bill 5, which was
signed into law in September 2019 and became effective as of January 1, 2020. The Dynamex decision and Assembly Bill 5
altered the analysis of whether an individual, who is classified by a hiring entity as an independent contractor in California, has
been properly classified as an independent contractor. Under the new test, an individual is considered an employee under the
California Wage Orders unless the hiring entity establishes three criteria: (i) the worker is free from the control and direction of
the hiring entity in connection with the performance of the work, both under the contract for the performance of such work and
in fact; (ii) the worker performs work that is outside the usual course of the hiring entity’s business; and (iii) the worker is
customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed
for the hiring entity. Assembly Bill 5 is subject to ongoing scrutiny and amendments. In addition, independent workers have
been the subject of widespread national discussion and it is possible that other jurisdictions may enact laws similar to Assembly
Bill 5 or that otherwise impact our business and our relationships with independent third parties. As a result, there is significant
uncertainty regarding the future of the worker classification regulatory landscape.
From time to time, we may be involved in lawsuits and claims that assert that certain independent contractors should be
classified as our employees. Adverse determinations regarding the status of any of our independent contractors could, among
other things, entitle such individuals to the reimbursement of certain expenses and to the benefit of wage-and-hour laws, and
could result in the Company being liable for income taxes, employment, social security, and withholding taxes and benefits for
such individuals. Any such adverse determination could result in a material reduction of the number of subcontractors we can
use for our business or significantly increase our costs to serve our customers, which could adversely affect our business,
financial condition and results of operations.
22 The non-payment or late payments of amounts due to us from certain customers may negatively impact our financial
condition.
Our revenue generated through sales to enterprise customers represented approximately 38% of our total revenue for the
year ended December 31, 2020 and approximately 40% of our total revenue for the year ended December 31, 2019. A portion
of these customers typically purchase our products on payment terms, and therefore we assume a credit risk for non-payment in
the ordinary course of business. Further, in certain jurisdictions, we contract with third-party resellers that may collect payment
from customers and remit such payment to us. Therefore, we are subject to the third-party resellers’ ability to collect and remit
payment to us. We evaluate the credit-worthiness of new customers and resellers and perform ongoing financial condition
evaluations of our existing customers and resellers; however, there can be no assurance that our allowances for uncollected
accounts receivable balances will be sufficient. As of December 31, 2020, our allowance for doubtful accounts was $4.9
million. If the volume of sales to enterprise customers grows, we expect to increase our allowance for doubtful accounts
primarily as the result of changes in the volume of sales to customers who pay on payment terms or through resellers.
We are subject to payment-related risks that may result in higher operating costs or the inability to process payments, either
of which could harm our financial condition and results of operations.
We accept payments using a variety of methods, including credit cards and debit cards. As we offer new payment options
to consumers, we may be subject to additional regulations, compliance requirements and fraud. For certain payment methods,
including credit and debit cards, we pay interchange and other fees, which may increase over time and raise our operating costs
and lower profitability. We rely on third parties to provide payment processing services, including the processing of credit cards
and debit cards, and it could disrupt our business if these companies became unwilling or unable to provide these services to us,
including if they were to suffer a cyberattack or security incident. We are also subject to payment card association operating
rules, certification requirements and rules governing electronic funds transfers, which could change or be reinterpreted to make
it difficult or impossible for us to comply. If we fail to comply with these rules or requirements, we may be subject to fines and
higher transaction fees and lose our ability to accept credit and debit card payments from consumers or facilitate other types of
online payments. Under current credit card practices, we are liable for fraudulent credit card transactions because we do not
obtain cardholders’ signatures. We do not currently carry insurance against this risk. Although we have historically experienced
minimal impact to our financial statements from credit card fraud, we may experience expense as a result of our failure to
adequately control fraudulent credit.
We are also subject to, or voluntarily comply with, several other laws and regulations relating to money laundering,
international money transfers, privacy and information security and electronic fund transfers. If we were found to be in
violation of applicable laws or regulations, we could be subject to civil and criminal penalties or forced to cease our operations.
If our goodwill or intangible assets become impaired, we may be required to record a significant charge to earnings.
We review our goodwill for impairment annually as of October 1st, or more frequently if and when events or changes in
circumstances indicate that an impairment may exist, such as a decline in stock price and market capitalization. If such goodwill
or intangible assets are deemed to be impaired, an impairment loss equal to the amount by which the carrying amount exceeds
the fair value of the assets would be recognized. We may be required to record a significant charge in our financial statements
during the period in which any impairment of our goodwill or intangible assets is determined, which would negatively affect
our results of operations.
We may need to raise additional capital in the future and may be unable to do so on acceptable terms or at all.
We evaluate our capital allocation strategy on an ongoing basis and make investments to support our business growth. In
the future, we may require additional funds to respond to business needs, opportunities and challenges, including the need to
develop new features or functions of our platform, improve our operating infrastructure or acquire complementary businesses,
personnel and technologies, or develop and carry out a response to unforeseen circumstances. Our ability to obtain additional
capital, if and when required, will depend on our business plans, investor demand, our operating performance, the condition of
the capital markets, and other factors. If we raise additional funds through the issuance of equity, equity-linked or convertible
debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have
rights, preferences and privileges superior to those of holders of our common stock. Any debt financing we secure in the future
could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which
may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential
acquisitions. If we are unable to obtain additional capital when required, or are unable to obtain additional capital on
satisfactory terms, our ability to continue to support our business growth or to respond to business opportunities, challenges, or
unforeseen circumstances could be adversely affected, and our business may be harmed.
23 Risks Related to our Intellectual Property and Security Vulnerabilities
We rely on information technologies and systems to operate our business and maintain our competitiveness, and any
failures in our technology infrastructure could harm our reputation and brand and adversely affect our business.
We depend on the use of sophisticated information technologies and systems, including technology and systems used for
our platform and apps, customer service, invoicing and billing, communications, fraud detection and administration. As our
operations grow in size, scope and complexity, we will need to continuously improve and upgrade our systems and
infrastructure to offer an increasing number of consumer-enhanced services, features and functionalities, while maintaining and
improving the reliability, security and integrity of our systems and infrastructure.
Our future success also depends on our ability to adapt our services and infrastructure to meet rapidly evolving consumer
trends and demands while continuing to improve our platform’s performance, features and reliability. We may not be able to
maintain our existing systems or replace our current systems or introduce new technologies and systems quickly or cost
effectively. Failure to invest in and adapt to technological developments and industry trends may have a material adverse effect
on our business, results of operations, financial condition and prospects.
We rely upon third-party service providers, such as co-location and cloud service providers, for our data centers and
application hosting, and we are dependent on these third parties to provide continuous power, cooling, internet connectivity and
physical security for our servers, and our reliance on these third-parties can be expected to increase as we expand our
infrastructure in the future. In the event that these third-party providers experience any interruption in operations or cease
business for any reason, or if we are unable to agree on satisfactory terms for continued hosting relationships, our business
could be harmed and we could be forced to enter into a relationship with other service providers or assume hosting
responsibilities ourselves. Although our use of multiple production data centers enables us to provide rapid content delivery to
our customers and is intended to mitigate the risks associated with supporting business continuity in the event of an emergency,
a system disruption at an active data center or third-party hosting service provider could result in a noticeable disruption and
performance degradation to our websites.
Further, our technology infrastructure may be vulnerable to damage or interruption from natural disasters, power loss,
telecommunication failures, terrorist attacks, computer intrusions, vulnerabilities and viruses, software errors, computer denial-
of-service attacks and other events. A significant number of the systems making up this infrastructure are not redundant, and
our disaster recovery planning may not be sufficient for every eventuality. Our technology infrastructure may fail or be
vulnerable to damage or interruption because of actions by third parties or employee error or malfeasance. We may not carry
business interruption insurance sufficient to protect us from any and all losses that may result from interruptions in our services
as a result of technology infrastructure failures or to cover all contingencies. Any interruption in the availability of our websites
and on-line interactions with customers or partners may cause a reduction in customer or partner satisfaction levels, which in
turn could cause additional claims, reduced revenue or loss of customers or partners. Despite any precautions we may take, such
problems could result in, among other consequences, a loss of customers, loss of confidence in the stability and reliability of
our platform, damage to our reputation, and legal liability, all of which may adversely affect our business, financial condition,
operating results and cash flows.
Technological interruptions that impair access to our web properties or the efficiency of our marketplace could harm our
reputation and brand and adversely affect our business and results of operations.
The satisfactory performance, reliability and availability of our web properties and our network infrastructure are critical
to our reputation, our ability to attract and retain customers and contributors to our platform and our ability to maintain
adequate customer service levels. Any system interruptions that result in the unavailability of our websites could result in
negative publicity, damage our reputation and brand or adversely affect our results of operations. We have in the past
experienced, and may in the future experience temporary system interruptions for a variety of reasons, including security
breaches and other security incidents, viruses, telecommunication and other network failures, power failures, programming
errors, undetected bugs, design faults, data corruption, denial-of-service attacks, poor scalability or network overload from an
overwhelming number of visitors trying to reach our websites at the same time. Even a disruption as brief as a few minutes
could have a negative impact on our marketplace activities and could result in a loss of revenue.
Because some of the causes of system interruptions may be outside of our control, we may not be able to remedy such
interruptions in a timely manner, or at all. In addition, we have entered into service level agreements with some of our larger
customers and strategic partners. Technological interruptions could result in a breach of such agreements and subject us to
considerable penalties and could cause our customers to believe our service is unreliable, causing harm to our business,
reputation and financial condition.
We face risks resulting from the content in our collection such as unforeseen costs related to infringement claims, potential
liability arising from indemnification claims, changes to intellectual property content regulations and laws and the inability
to prevent or monitor misuse.
24 Our content is licensed from copyright owners such as photographers, illustrators, videographers and composers who
contribute content to our collection and, subject to our licenses with our contributors, we typically offer customers a perpetual,
royalty-free license to use the content for their editorial or commercial needs. Although we have implemented measures to
review the content that we accept into our collection, we cannot guarantee that each contributor holds the rights or releases he
or she claims or that such rights and releases are adequate, which in turn affects the licenses granted to our customer. As a
result, we and our customers have been, and in the future will likely be, subject to third-party claims, including intellectual
property infringement claims, related to our customers’ use of our content.
Under our license agreements with our contributors, our contributors represent and warrant that they have the right to
license content to us. Under our license agreements with our customers, we expressly represent and warrant that unaltered
content downloaded and used in compliance with our license agreements and applicable law will not infringe any copyright,
trademark or other intellectual property right, violate any third-party’s rights of privacy or publicity, violate any U.S. law, be
defamatory or libelous, or be pornographic or obscene. We offer our customers indemnification at amounts ranging from
$10,000 to $250,000, with exceptions for certain products for which our indemnification obligations are uncapped, for direct
damages attributable to our breach of the express representations and warranties contained in our license agreements. However,
our contractual maximum liability may not be enforceable in all jurisdictions. The aggregate amount of capped indemnification
liability, or the amount of uncapped indemnification liability in individual instances, may be significant. Any customers who
seek indemnification claims from us may also discontinue use of our products and services or encourage other customers to
discontinue using our products and services, which could harm our business and reputation.
We are also subject to many federal, state, and foreign laws and regulations related to rights of publicity, rights of privacy,
content regulation and intellectual property and we rely on common-law frameworks in order to provide content to our
customers. These laws, regulations and frameworks are constantly evolving and may be interpreted, applied, created, or
amended in a manner that could seriously harm our business. These legal frameworks are also subject to uncertain judicial
interpretation and regulatory and legislative amendments. If the rules around these laws, regulations and doctrines change, if
international jurisdictions refuse to apply similar protections, or if a court were to disagree with our application of those rules to
our customers’ use of content, we and our customers could become subject to third-party claims and we could become subject
to significant indemnification liability.
While we maintain insurance policies to cover potential intellectual property disputes and have not historically incurred
any material financial liability as a result of these indemnification obligations individually or in the aggregate, we have
incurred, and will expect to continue to incur, expenses related to such claims and related settlements, which may increase over
time. If a third-party infringement claim or series of claims is brought against us in excess of our insurance coverage or for
uninsured liabilities, our business could suffer. In addition, we may not be able to maintain insurance coverage at a reasonable
cost or in sufficient amounts or scope to protect us against all losses.
Further, unauthorized parties have attempted, and may in the future attempt, to improperly use the content in our
collection and such misuse of our content may result in lost revenue and increase our risk of litigation. While we have
proactively enforced our intellectual property rights, preventing misuse or infringement of our content is inherently difficult and
identifying and policing misuse, whether by contributors or customers, requires exceptional resources and may not always be
effective. We rely on intellectual property laws and contractual restrictions to protect our rights and the content in our
collection. Certain countries may be very lax in enforcing intellectual property laws or have very onerous and time-consuming
requirements to enforce intellectual property rights. Litigation in those countries will likely be costly and ineffective.
Consequently, these intellectual property laws afford us only limited protection. We cannot guarantee that we will be able to
prevent the unauthorized use of our content or that we will be successful in stopping such use once it is detected.
Regardless of their merit, intellectual property and indemnification claims are time-consuming, expensive to litigate or
settle and cause significant diversion of management attention and could severely harm our financial condition and reputation,
and adversely affect our business.
25 Assertions by third parties of infringement of intellectual property rights related to our technology could result in significant
costs and substantially harm our business and operating results.
Internet, technology and media companies are frequently subject to litigation based on allegations of infringement,
misappropriation or other violations of intellectual property rights or rights related to their use of technology. Some internet,
technology and media companies, including some of our competitors, own large numbers of patents, copyrights, trademarks and
trade secrets, which they may use to assert claims against us. Our technology is critical to our business and we have developed
proprietary technology and a robust infrastructure to power our products and services. Third parties may in the future assert that
the technology we have developed infringes, misappropriates or otherwise violates their intellectual property rights, and as we
face increasing competition, the possibility of intellectual property rights claims against us grows. Such litigation may involve
patent holding companies or other adverse patent owners who have no relevant product revenue, and therefore our own issued
and pending patents may provide little or no deterrence to these patent owners in bringing intellectual property rights claims
against us. Existing laws and regulations are evolving and subject to different interpretations, and various federal and state
legislative or regulatory bodies may expand current or enact new laws or regulations. We cannot guarantee that our technology
is not infringing or violating any third-party intellectual property rights or rights related to use of technology.
We cannot predict whether assertions of third-party intellectual property rights or any infringement or misappropriation or
other claims arising from such assertions will substantially harm our business and operating results. If we are forced to defend
against any infringement or misappropriation claims, whether they are with or without merit, are settled out of court, or are
determined in our favor, we may be required to expend significant time and financial resources on the defense of such claims.
Furthermore, an adverse outcome of a dispute may require us to pay damages, potentially including treble damages and
attorneys’ fees, if we are found to have willfully infringed a party’s intellectual property; expend additional development
resources to redesign our technology; enter into potentially unfavorable royalty or license agreements in order to obtain the
right to use necessary technologies, content, or materials; and to indemnify our partners and other third parties. Royalty or
licensing agreements, if required or desirable, may be unavailable on terms acceptable to us, or at all, and may require
significant royalty payments and other expenditures. In addition, any lawsuits regarding intellectual property rights, regardless
of their success, could be expensive to resolve and would divert the time and attention of our management and technical
personnel.
We collect, store, process, transmit and use personally identifiable information and other data, which subjects us to
governmental regulation and other legal obligations related to privacy, information security and data protection in many
jurisdictions. Any cybersecurity breaches or our actual or perceived failure to comply with such legal obligations by us, or by
our third-party service providers or partners, could harm our business.
We currently provide content licensing to customers in more than 150 countries and license content from contributors
located in over 100 countries. In connection with providing content licensing, we collect, store, process and use our customers’
and contributors’ personally identifiable information and other data, and we rely on third parties that are not directly under our
control to do so as well. We also collect, store, process, transmit and use our employees’ personally identifiable information and
other data in connection with their employment. While we take measures intended to protect the security, integrity and
confidentiality of the personal information and other sensitive information we collect, store or transmit, we cannot guarantee
that inadvertent or unauthorized use or disclosure will not occur, or that third parties will not gain unauthorized access to this
information. There have been a number of reported incidents where third-party service providers or partners have used software
to access the personal data of their customers’ or partners’ customers for marketing and other purposes. While our privacy
policies prohibit such activities, our third-party service providers or partners may engage in such activity without our
knowledge or consent. If we or our third-party service providers or partners were to experience a cybersecurity incident, data
breach or disruption, unauthorized access or failure of systems compromising our customers’, contributors’ or employees’ data,
or if one of our third-party service providers or partners were to access our customers’ personal data without authorization, our
brand and reputation could be adversely affected, use of our products could decrease, we could experience business interruption
and we could be exposed to a risk of loss, litigation and regulatory proceedings. Depending on the nature of the information
compromised in a cybersecurity incident, data breach or disruption or unauthorized access or failure of systems compromising
our customers’, contributors’ or employees’ data, we may also have obligations to notify customers, contributors, employees or
governmental bodies about the incident and we may need to provide some form of remedy and compensation for the individuals
affected. Complying with these obligations could cause us to incur substantial costs, including compliance, crisis management
and remediation costs, and receive negative publicity. While we maintain insurance coverage that is designed to address certain
aspects of cyber risks, such insurance coverage may be insufficient to cover all losses or all types of claims that may arise in the
event we experience a cybersecurity incident, data breach, disruption, unauthorized access or failure of systems.
Regulatory scrutiny of privacy, data collection, use of data and data protection continues to intensify both within the
United States and globally. The personal information and other data we collect, store, process and use is increasingly subject to
26 legislation and regulations in numerous jurisdictions around the world, especially in Europe. These laws often develop in ways
we cannot predict and some laws may be in conflict with one another. This may significantly increase our cost of doing
business, particularly as we expand our localization efforts. For example, the GDPR imposes stringent operational requirements
for controllers and processors of personal data of individuals in the European Economic Area (the “EEA”), and noncompliance
can trigger fines of up to the greater of €20 million or 4% of global annual revenues. Further, following the U.K.’s formal exit
from the E.U. in January 2020, we became subject to the GDPR as incorporated into U.K. law. In December 2020, the Brexit
Trade and Cooperation Agreement (“TCA”) established a four- to six-month grace period during which transfers of personal
data from the E.U. to the U.K. can continue without additional safeguards, provided that the U.K. maintains its pre-TCA data
protection laws. The exit creates uncertainty with regard to the regulation of data protection in the U.K. In particular, it is
unclear how data transfers to and from the U.K. will be regulated after the grace period expires and whether or not the U.K. will
receive an adequacy decision from the European Commission permitting cross-border data transfer prior to leaving the E.U.
Additionally, although we are making use of the E.U. Standard Contractual Clauses with regard to the transfer of certain
personal data to countries outside the EEA recent legal developments in Europe have created complexity and regulatory
compliance uncertainty regarding certain transfers of personal information from the EEA to the United States. For example, on
July 16, 2020, the Court of Justice of the European Union (“CJEU”) invalidated the E.U.-U.S. Privacy Shield Framework
(“Privacy Shield”) under which personal information could be transferred from the E.U. to U.S. entities who had self-certified
under the Privacy Shield program. While the CJEU upheld the adequacy of E.U.-specified standard contractual clauses as an
adequate mechanism for cross-border transfers of personal data, it made clear that reliance on them alone may not necessarily
be sufficient in all circumstances and that their use must be assessed on a case-by-case basis taking into account the surveillance
laws in and the right of individuals afforded by, the destination country. The CJEU went on to state that, if the competent
supervisory authority believes that the standard contractual clauses cannot be complied with in the destination country and the
required level of protection cannot be secured by other means, such supervisory authority is under an obligation to suspend or
prohibit that transfer unless the data exporter has already done so itself. We rely on a mixture of mechanisms to transfer
personal data from our E.U. business to the U.S. (having previously relied on Privacy Shield) and are evaluating what
additional mechanisms may be required to establish adequate safeguards for personal information. As supervisory authorities
issue further guidance on personal information export mechanisms, including circumstances where the standard contractual
clauses cannot be used and/or start taking enforcement action, we could suffer additional costs, complaints, and/or regulatory
investigations or fines. Moreover, if we are otherwise unable to transfer personal information between and among countries and
regions in which we operate, it could affect the manner in which we provide our services and could adversely affect our
financial results.
Several other foreign jurisdictions, such as Brazil, where a General Data Privacy Law that imposes detailed rules for the
collection, use, processing and storage of personal data in Brazil was signed into law in August 2018 and took effect in 2020,
with enforcement beginning in August 2021; and India, where in July 2018 a committee formed by the Indian government
issued a report and draft data protection bill that was updated in December 2019 by the Ministry of Electronics and Information
Technology and remains subject to continuing joint parliamentary review, have adopted or are considering adopting new or
updated comprehensive privacy legislation to offer additional data privacy protections for individuals. Similarly, data privacy
laws have been enacted in a number of jurisdictions, including, but not limited to, the European Union, Illinois and California,
which regulate the collection of certain biometric data regarding individuals, including their facial images, and the use of such
data, including in facial recognition systems. Similar laws have also been introduced in several additional states. We have
entered into certain contractual agreements that may implicate or make use of such technology. Such laws may have the effect
of adversely impacting our ability to grow our business in that area. Although we are closely monitoring regulatory
developments in this area, any actual or perceived failure by us to comply with any regulatory requirements or orders or other
domestic or international privacy or consumer protection-related laws and regulations could result in proceedings or actions
against us by governmental entities or others (e.g., class action litigation), subject us to significant penalties and negative
publicity, require us to change our business practices, increase our costs and adversely affect our business.
Data protection legislation is also becoming increasingly common in the United States at both the federal and state level.
For example, in June 2018, the State of California enacted the CCPA, which came into effect on January 1, 2020. The CCPA
requires, among other things, companies that collect personal information about California residents to make new disclosures to
those residents about their data collection, use and sharing practices, allows residents to opt out of certain data sharing with
third parties, and provides a new cause of action for data breaches. However, the California Privacy Rights Act (“CPRA”),
certified by the California Secretary of State to appear as a ballot initiative, was passed by Californians during the November 3,
2020 election. The CPRA, which will come into effect on January 1, 2023 (with a look back to January 2022), amends and
expands the CCPA to add additional disclosure obligations (including an obligation to disclose retention periods or criteria for
categories of personal information), grant consumers additional rights (including rights to correct their data, limit the use and
disclosure of sensitive personal information, and opt out of the sharing of personal information for certain targeted behavioral
advertising purposes), and establishes a privacy enforcement agency known as the California Privacy Protection Agency
(“CPPA”). The CPPA will serve as California’s chief privacy regulator, which will likely result in greater regulatory activity
27 and enforcement in the privacy area. Other states have also considered or are considering privacy laws similar to the CCPA.
Additionally, the Federal Trade Commission and many state attorneys general are interpreting federal and state consumer
protection laws to impose standards for the online collection, use, dissemination and security of data. The scope and
interpretation of data privacy and cybersecurity regulations continues to evolve, and we believe that the adoption of
increasingly restrictive regulations in this area is likely in the near future within the U.S. at both state and federal levels. The
burdens imposed by the CCPA, the CPRA and other similar laws that may be enacted at the federal and state level may require
us to modify our data processing practices and policies and to incur substantial costs in order to investigate, comply and defend
against potential private class-action litigation.
Further, we may be or become subject to data localization laws mandating that data collected in a foreign country be
processed and stored only within that country. Russia adopted such a law in 2014, and, in 2018, India introduced a bill, which
was updated in December 2019, requiring local storage of certain personal data of Indian data principals. Such data localization
requirements may have cost implications for us, impact our ability to utilize the efficiencies and value of our global network,
and could affect our strategy. Further, if other countries in which we have customers were to adopt data localization laws, we
could be required to expand our data storage facilities there or build new ones in order to comply. The expenditure this would
require, as well as costs of ongoing compliance, could harm our financial condition.
Cybersecurity breaches and improper access to or disclosure of data or confidential information we maintain, or hacking or
phishing attacks on our systems, could expose us to liability, protracted and costly litigation and damage our reputation.
As a global technology business, we and our third-party service providers collect and maintain confidential information
and personal data about our employees, customers, contributors and other third parties, in connection with marketplace-related
processes on our websites and, in particular, in connection with processing and remitting payments to and from our customers
and contributors, and we are therefore exposed to security and fraud-related risks, which are likely to become more challenging
as we expand our operations. We also rely heavily on our networks, and on the networks of third-party service providers for the
secure storage, processing and transmission of confidential and other information and generally to conduct our business.
Although we maintain security features on our websites and utilize encryption and authentication technology, our cybersecurity
measures may not detect or prevent all attempts, whether intentional or unintentional, to hack our systems, denial-of-service
attacks, viruses, malicious software, break-ins, phishing attacks, ransomware, other social engineering attacks, cybersecurity
breaches or other attacks and disruptions that may jeopardize our networks and the security of information stored in and
transmitted by our networks and websites.
We use third-party service providers, including payment processors and co-location and cloud service vendors for our data
centers and application hosting, to operate our business, and their security measures may not prevent cybersecurity incidents
and other disruptions that may jeopardize their networks and the security of information stored in and transmitted by their
networks. Some of the software and services that we use to operate our business, including our internal e-mail, payment
processor and customer relationship management software, are also hosted by third parties. It is possible that our security
measures or the security measures of our third-party service providers might be breached due to employee error, inadequate use
of cybersecurity controls by customers, contributors or employees, malfeasance, system errors or vulnerabilities, or otherwise.
Any such breach or unauthorized access could result in the loss of control of confidential or personal information, disruption to
our business operations and significant legal and financial exposure, as well as damage to our reputation, and a loss of
confidence in the security of our products and services that could potentially have an adverse effect on our business. In addition,
a significant cybersecurity breach or cyber-attack could result in payment networks prohibiting us from processing transactions
on their networks.
Although cybersecurity and the continued development and enhancement of the processes, practices and controls that are
designed to protect our systems, computers, software, data and networks from attack, damage, disruption or unauthorized
access are a high priority for us, because the techniques used to attack, damage, disrupt or obtain unauthorized access are
constantly evolving in sophisticated ways to avoid detection and often are not recognized until launched against a target, our
efforts may not be enough to anticipate or prevent a party from circumventing our security measures, or the security measures
of our third-party service providers, and accessing and misusing the confidential or personal information of our employees,
customers and contributors. If an actual or perceived breach of our security occurs, the market perception of the effectiveness of
our security measures could be harmed and we could lose users and customers. We may also be required to expend significant
capital and other resources to protect against such cybersecurity incidents to alleviate problems caused by such incidents. While
we continually work to safeguard our internal network systems and validate the security of our third-party providers, to mitigate
these potential risks, including through information security policies and employee awareness and training, there is no
assurance that such actions will be sufficient to prevent cyber-attacks or cybersecurity breaches. Any actual or perceived breach
or the perceived threat of an attack or breach, could cause our customers, contributors and other third parties to cease doing
business with us, or subject us to lawsuits, regulatory fines, criminal penalties, statutory damages, and other costs, including for
provision of breach notices and credit monitoring to our customers, and other action or liability, and could lead to business
interruption, any of which could harm our reputation, business, financial condition and results of operations.
28 Failure to protect our intellectual property could substantially harm our business and operating results.
We regard our patents, trade secrets, trademarks, copyrights and our other intellectual property rights as critical to our
success. We rely on trademark, copyright and patent law, trade secret protection, and non-disclosure agreements and other
contractual restrictions to protect our proprietary rights. We have registered “Shutterstock”, “Offset”, “Bigstock”,
“PremiumBeat,” “Rex Features” and “Shutterstock Editor” and associated logos and other marks as trademarks in the United
States and other jurisdictions and we are the registered owner of the shutterstock.com, bigstock.com, offset.com,
premiumbeat.com and rexfeatures.com internet domain names and various other related domain names. Effective intellectual
property protection for our trademarks and domain names may not be available or practical in every country in which we
operate or intend to operate.
Despite our efforts to protect our intellectual property rights and trade secrets, unauthorized parties may attempt to copy
aspects of our intellectual property, trade secrets and other confidential information, or adopt domain names, trademarks or
service names confusingly similar to ours. In order to protect our trade secrets and other confidential information, we rely in
part on confidentiality agreements with our employees, consultants and third parties with which we have relationships. These
agreements may not effectively prevent disclosure of trade secrets and other confidential information and may not provide an
adequate remedy in the event of misappropriation of trade secrets or any unauthorized disclosure of trade secrets or other
confidential information.
Policing our intellectual property rights is difficult, costly and may not always be effective. Litigation or proceedings to
enforce our intellectual property rights, to protect our patent rights, copyrights, trademarks, trade secrets and domain names and
to determine the validity and scope of the proprietary rights of others is and will be necessary to enforce our intellectual
property rights. The monitoring and protection of our intellectual property rights may become more difficult, costly and time
consuming as we continue to expand internationally, particularly in certain markets, such as China and certain other developing
countries in Asia, in which legal protection of intellectual property rights is less robust than in the United States and Europe.
Our efforts to enforce or protect our proprietary rights may be ineffective and could result in substantial costs and diversion of
resources and management time, each of which could substantially harm our operating results.
Much of the software and technologies used to provide our services incorporate, or have been developed with, “open source”
software, which may restrict how we use or distribute our services or require that we publicly release certain portions of our
source code.
Much of the software and technologies used to provide our services incorporate, or have been developed with, “open
source” software. Such “open source” software may be subject to third-party licenses that impose restrictions on our software
and services. Examples of “open source” licenses include the GNU General Public License and GNU Lesser General Public
License. Such open source licenses typically require that source code subject to the license be made available to the public and
that any modifications or derivative works to open source software continue to be licensed under open source licenses. Few
courts have interpreted open source licenses, and the way these licenses may be interpreted and enforced is therefore subject to
some uncertainty. If portions of our proprietary technology are determined to be subject to an open source license, we could be
required to publicly release portions of our source code, re-engineer all or a portion of our technologies, or otherwise be limited
in the licensing of our technologies, each of which could reduce or eliminate the value of our services and technologies and
materially and adversely affect our ability to sustain and grow our business. If an author or other third-party that distributes
open source software were to allege that we had not complied with the conditions of one or more of these licenses, we could be
required to incur significant legal expenses defending against such allegations and could be subject to significant damages,
enjoined from the sale of our services that contained the open source software and required to comply with the foregoing
conditions, which could disrupt the distribution and sale of some of our services.
Catastrophic events or other interruptions or failures of our information technology systems could hurt our ability to
effectively provide our products and services, which could harm our reputation and brand and adversely affect our business
and operating results.
Our computers and other technological systems, as well as our data centers and the computers, systems and data centers of
our third-party service providers, could be damaged or interrupted by fire, flood, power loss, telecommunications failure,
earthquakes, acts of war or terrorism, acts of God, computer viruses, physical or electronic break-ins and other similar events or
disruptions. Our principal executive offices are located in New York City, a region that has experienced acts of terrorism in the
past. Any one of these events could cause system interruption, delays and loss of critical data and could prevent our websites, e-
commerce platform and infrastructure from functioning effectively, if at all. Our systems may not be adequately designed with
the necessary reliability and redundancy to avoid performance delays or outages. Any insufficiency in our redundancy or
disaster recovery capabilities could make our products and service offerings less attractive, subject us to liability and could be
harmful to our business. In addition, we may have inadequate insurance coverage to compensate for any related loss. Any of
these events could damage our reputation and cause a material adverse effect on our financial condition.
29 Risks Related to our International Operations
Our international operations and our continued expansion internationally expose us to many risks.
Revenues derived from customers outside of the United States comprise a significant portion of our revenues and we seek
to expand our international operations to attract customers and contributors in countries other than the United States as a critical
element of our business strategy. For each of the years ended December 31, 2020, 2019 and 2018, approximately two-thirds of
our revenue, respectively, was derived from customers located outside of the United States. While a significant portion of our
customers reside outside of the United States, we have limited experience operating as a company outside the United States. We
expect to continue to devote significant resources to international expansion through, for example, the possibility of establishing
additional offices, hiring additional overseas personnel, entering into strategic arrangements with local partners, and exploring
acquisition opportunities. In addition, we expect to increase marketing for our foreign language offerings and to further localize
our collection and user experience for foreign markets. Our ability to expand our business and attract talented employees, as
well as customers and contributors, in an increasing number of international markets requires considerable management
attention and resources and is subject to the challenges of supporting a growing business in an environment of multiple
languages, cultures, customs, legal systems, alternative dispute systems, regulatory systems and commercial infrastructures. If
we fail to deploy, manage or oversee our international operations successfully, our business may suffer.
Additionally, expanding our international focus may subject us to risks that we have not faced before or increase risks that
we currently face, including risks associated with:
• modifying our technology and marketing and localizing our offerings for customers’ and contributors’
preferences, customs and language;
•
•
•
•
•
•
•
•
•
•
•
•
•
•
legal, political or systemic restrictions on the ability of U.S. companies to do business in foreign countries,
including, among others, restrictions imposed by the U.S. Office of Foreign Assets Control (“OFAC”) on the
ability of U.S. companies to do business in certain specified foreign countries or with certain specified
organizations and individuals;
compliance with the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and similar laws in other
jurisdictions;
compliance with foreign laws and regulations, including with respect to disclosure requirements, privacy,
consumer and data protection, marketing restrictions, human rights, rights of publicity, intellectual property,
technology and content;
government regulation of e-commerce and other services and restrictive governmental actions on the
distribution of content, such as filtering or removal of content;
disturbances in a specific country’s or region’s political, economic or military conditions, including potential
sanctions (e.g., civil, political and economic conditions in markets including but not limited to Russia,
Ukraine and the Crimean peninsula);
lower levels of consumer spending in foreign countries or lack of adoption of the internet as a medium of
commerce;
longer payment cycles in some countries, increased credit risk, and higher levels of payment fraud;
reduced protection for our or our contributors’ intellectual property rights in certain countries;
laws that grant rights that may conflict with our business operations;
enhanced difficulties of integrating any foreign acquisitions;
difficulty in staffing, developing, managing and overseeing foreign operations as a result of travel distance,
language and cultural differences as well as infrastructure, human resources and legal compliance costs;
difficulty enforcing contractual rights in our license agreements;
potential adverse global tax consequences, especially those that may result from the expected proactive global
development of greater efforts to identify, capture and subject to income and transactional tax, e-commerce
revenue earned solely via the internet;
currency exchange fluctuations, hyperinflation, or devaluation;
30 •
•
strains on our financial and other systems to properly comply with, and administer, VAT, withholdings, sales
and other taxes; and
higher costs associated with doing business internationally.
These risks may make it impossible or prohibitively expensive to expand to new international markets, delay entry into
such markets, or require us to enter into commercial arrangements with local partners, all of which may affect our ability to
grow our business. As international e-commerce and other online and web services grow, competition is expected to intensify
and local companies may have a substantial competitive advantage because of their greater understanding of, and focus on, the
local customer. If we do not effectively enter new international markets, our competitive advantage may be harmed.
The uncertainty caused by the U.K.’s exit from the European Union (Brexit) on January 31, 2020 may negatively impact our
operations.
On January 31, 2020, the United Kingdom (the “U.K.”) withdrew from the European Union (the “E.U.”), commonly
referred to as “Brexit,” following a July 2016 referendum in which Brexit was approved by U.K. voters. Following a transition
period during which existing trade rules continued to apply through December 31, 2020, the U.K. and the E.U. entered into a
EU-UK trade and cooperation agreement that details the future economic relationship between the U.K. and the E.U. The EU-
UK trade and cooperation agreement went into effect on January 1, 2021, however, there is still uncertainty on the application
and interpretation of many of the provisions, including with respect to the relationship between the Republic of Ireland, where
the Company recently established and maintains significant technology operations, and Northern Ireland that could have
adverse effects on our operations.
In 2020, sales to customers in the U.K. accounted for approximately 8% of our total revenue and sales to customers in
Europe, including the U.K., accounted for approximately 33% of our total revenue. The impact of Brexit on our business will
depend, in part, on the outcome of tariff, trade, regulatory and other negotiations. It is possible that economic activity in the
U.K. and the E.U. will be adversely impacted and that there will be increased regulatory and legal complexities, including those
relating to tax, trade, security and employees. Such changes could be costly and potentially disruptive to our operations and
business relationships in these markets. In addition, Brexit could lead to economic uncertainty and instability, including
significant volatility in global stock markets and currency exchange rates, that may adversely impact our business or that of our
customers. Currency volatility could weaken the British pound, decreasing income from our U.K. operations translated to
dollars as well as decreasing the profitability of our U.K. operations. Any of these effects of Brexit, among others, could
adversely affect our business, financial condition, operating results and cash flows.
We are subject to foreign exchange risk.
As of December 31, 2020, we had operations based in a number of territories outside of the United States and a significant
portion of our business may be transacted in currencies other than the U.S. dollar, including the euro, the British pound, the
Australian dollar and the Japanese yen. Because our financial results are reported in U.S. dollars, fluctuations in the value of the
euro, British pound, Australian dollar, Japanese yen and other currencies against the U.S. dollar have had and will continue to
have a significant effect on our reported financial results. Exchange rates have been volatile in recent years and such volatility
may persist due to economic and political circumstances.
A decline in the value of any of the foreign currencies in which we receive revenues, including the euro, British pound,
Australian dollar and Japanese yen, against the U.S. dollar will tend to reduce our reported revenues and expenses, while an
increase in the value of any such foreign currencies against the U.S. dollar will tend to increase our reported revenues and
expenses. Variations in exchange rates can significantly affect the comparability of our financial results between financial
periods. As we further expand our international operations, our exposure to foreign exchange risk will increase.
At this time, we do not, but we may in the future, enter into derivatives or other financial instruments in order to hedge
our foreign currency exchange risk. It is difficult to predict the impact hedging activities would have on our results of
operations and any future actions we may take with respect to hedging our foreign currency exchange risk may be unsuccessful.
Risks Related to Regulatory and Tax Challenges
Government regulation of the internet, both in the United States and abroad, is evolving and unfavorable changes could
have a negative impact on our business.
The adoption, modification or interpretation of laws or regulations relating to the internet, e-commerce or other areas of
our business could adversely affect how we conduct our business or the overall popularity and growth of internet use. Such
laws and regulations may cover a vast array of activities. For example, automatic contract or subscription renewal, credit card
fraud and processing, sales, advertising, taxation, tariffs, data privacy, management and storage, cybersecurity, pricing, content,
copyrights, distribution, electronic contracts, consumer protection, outsourcing, broadband residential internet access, internet
neutrality and the characteristics and quality of products or services, and intellectual property ownership and infringement are
31 all subject to jurisdictional laws and regulations. In certain countries, including European jurisdictions in particular, certain of
these laws may be more restrictive than in the United States. It is not clear how some existing laws governing issues such as
property ownership, sales and other taxes, data privacy and security apply to the internet and e-commerce as many of these laws
were adopted prior to the advent of the internet and do not contemplate or address the unique issues raised by the internet or e-
commerce.
Those laws that relate to the internet are at various stages of development and are subject to amendment, interpretation or
repeal by the courts and agencies, and thus, the scope and reach of their applicability can be uncertain. For example, in 2010,
California’s Automatic Renewal Law went into effect, requiring companies to adhere to enhanced disclosure requirements
when entering into automatically renewing contracts with consumers. Several other states have adopted, or are considering the
adoption of, consumer protection policies or legal precedents that purport to void or substantially limit the automatic renewal
provisions of consumer contracts or free or discounted trial incentives, as well. Any failure, or perceived failure, by us to
comply with any of these laws or regulations could result in litigation, damage to our reputation, lost business and proceedings
or actions against us by governmental entities or others, which could impact our operating results.
Compliance with new regulations or legislation or new interpretations of existing regulations or legislation could cause us
to incur additional expenses, make it more difficult to renew subscriptions automatically, require us to display specific
disclaimers, require us to obtain consent from users for certain activities, make it more difficult to attract new customers,
require us to implement costly security or other measures before users can utilize our services, or otherwise require us to alter
our business model, or cause us to divert resources and funds to address government or private investigatory or adversarial
proceedings. Further, the law related to the liability of providers of online services for activities of their users is currently
unsettled both within the United States and abroad. Claims may also be threatened against us for aiding and abetting,
defamation, negligence, copyright or trademark infringement, or other reasons based on the nature and content of information
that we collect or use, or to or from which we provide links or that may be posted online. Any of these outcomes could have a
material adverse effect on our business, financial condition or results of operations.
Action by governments to restrict access to, or operation of, our services or the content we distribute in their countries could
substantially harm our reputation, business and financial results.
Foreign governments, or internet service providers acting pursuant to foreign government policies or orders, of one or
more countries may seek to limit content available through our e-commerce platform in their country, restrict access to our
products and services from their country entirely, or impose other restrictions that may affect the accessibility of our services in
their country for an extended period of time or indefinitely if our services, or the content we distribute, are deemed to be in
violation of their local laws and regulations. For example, domestic internet service providers have previously blocked access to
Shutterstock in China and other countries, such as Russia, have previously restricted access to specific content available from
the Shutterstock platform. There are substantial uncertainties regarding interpretation of foreign laws and regulations that may
limit content available through our platform and we may be forced to significantly change or discontinue our operations in such
markets if we were to be found in violation of any new or existing law or regulation. If access to our services is restricted, in
whole or in part, in one or more countries or our competitors can successfully penetrate geographic markets that we cannot
access, our reputation among our customers, contributors and employees may be negatively impacted, our ability to retain or
increase our contributor and customer base may be adversely affected, we may not be able to maintain or grow our revenue as
anticipated, and our financial results could be adversely affected.
Our operations may expose us to greater than anticipated income, non-income and transactional tax liabilities, which could
harm our financial condition and results of operations.
We have operations in various taxing jurisdictions in the United States and foreign countries, and there is a risk that the
fiscal authorities in one or more jurisdictions may contend that our tax liabilities and/or obligation to remit transactional taxes
could be greater relative to prior taxable periods and more than anticipated relative to future taxable periods.
We believe our worldwide provision for taxes is reasonable, but our ultimate tax liability may differ from the amounts
recorded in our financial statements and may materially adversely affect our financial results in the period or periods for which
such determination is made. We have created reserves with respect to such tax liabilities where we believe it to be appropriate.
However, there can be no assurance that our ultimate tax liability will not exceed the reserves that we have created.
In addition, tax law and regulatory changes in the U.S., E.U. and other jurisdictions, including tax law and regulatory
changes that may be enacted by U.S. President Biden’s administration or otherwise enacted as a result of tax policy
recommendations from organizations such as the Organization for Economic Co-operation and Development (the “OECD”)
have and may continue to have an impact on our financial condition and results of operations.
Specifically, the enactment of the TCJA has had a significant impact on our financial statements and we believe may
potentially have a significant ongoing impact on our financial condition and results of operations in future years. Certain
provisions of the TCJA are likely to undergo revisions (in some cases, certain changes are already specifically enumerated in
32 the statute) or by their terms are set to expire on certain specified future dates, unless such provisions are further modified by
subsequent legislation. There continue to be unresolved questions regarding how certain provisions of the TCJA are to be
interpreted and implemented. Potential regulatory and/or legislative action to address questions that have arisen or may arise
because of the TCJA as well as any potential changes in accounting standards for income taxes or related interpretations in
response to the TCJA could cause uncertainty with respect to the ultimate impact of the TCJA on our tax provisions.
In response to the TCJA, several sovereign foreign jurisdictions, as well as administrative bodies such as the E.U. and the
OECD, have expressed reservations and raised concerns about certain provisions, and it is possible that formal challenges or
reactionary regulatory legislation may be instituted by one or more of such foreign authorities that could ultimately adversely
affect us and/or negate or minimize some or all of the favorable impacts that we have or may derive from the TCJA.
There is also heightened scrutiny by fiscal authorities in virtually every sovereign foreign jurisdiction on the potential
taxation of e-commerce businesses. The OECD has issued guidelines, referred to as the Base Erosion and Profit Shifting
project, or BEPS, to its member-nations aimed at encouraging broad-based legislative initiatives intended to prevent perceived
base erosion transactions and income shifting in a tax-advantaged manner. Further, for the past several years, the OECD has
had a specific focus on the taxation implications of e-commerce business, generally referred by the OECD as the “digital
economy.” In the fourth quarter of 2019, the OECD released details on its proposed approach which would, among other
changes, create a new right to tax certain “digital economy” income not necessarily based on traditional nexus concepts nor on
the “arm’s length principle.” Further, in the fall of 2020, the OECD released details on their BEPS Pillars I & II proposals for
comment with implementation delayed until mid-year 2021 at the earliest. At this point, there is a lack of consensus agreement
among the key members, specifically by the U.S., with the latest OECD proposal. The U.S. has expressed that it would
generally support a solution along the lines proposed by the OECD only if the solution was in the form of a “safe-harbor” rather
than a mandatory requirement. A failure to reach full consensus on an executable plan within the tight timeframe under which
the OECD is operating could result in individual jurisdictions legislating digital tax provisions in an uncoordinated and
unilateral manner, and further result in greater or even double taxation that companies may not have sufficient means to
remedy. For example, a number of jurisdictions, including the UK, France and Italy, have already adopted or have formally
proposed legislation to effect the taxation of certain e-commerce business based on differing criteria and metrics. Efforts to
alleviate this increased tax burden will increase the cost of structuring and compliance as well as the cost of doing business
internationally. Any changes to the taxation of our international activities may increase our worldwide effective tax rate and
adversely impact our financial position and results of operations.
Further, the prospective taxation by multiple jurisdictions of e-commerce businesses could subject us to exposure to
withholding, sales, VAT and/or other transaction taxes on our past and future transactions in such jurisdictions where we
currently or in the future may be required to report taxable transactions. A successful assertion by any jurisdiction that we failed
to pay such withholding, sales, VAT or other transaction taxes, or the imposition of new laws requiring the registration for,
collection of, and payment of such taxes, could result in substantial tax liabilities related to past, current and future sales, create
increased administrative burdens and costs, discourage customers from purchasing content from us, or otherwise substantially
harm our business and results of operations. We are currently subject to and in the future may become subject to additional
compliance requirements for certain of these taxes. Where appropriate, we have made accruals for these taxes, which are
reflected in our consolidated financial statements. Changes in the estimates or assumptions underlying these accruals could
have an adverse impact on our financial condition in the future.
Lastly, in June 2018, the Supreme Court of the United States (the “Supreme Court”) issued its decision in the matter of
South Dakota v. Wayfair, Inc. This decision effectively reversed the 25-year-old “physical presence doctrine” previously
established by the Supreme Court in Quill Corp. v. North Dakota, which required a minimum level of physical presence within
a state before the state could impose an obligation to register and remit sales tax on revenue derived within that state. Since the
decision, a number of states have enacted sales tax enabling legislation which has had the effect of significantly expanding the
liability of e-commerce companies to register, collect and remit state sales taxes from customers. We are in the process of
registering for, and collecting sales tax in a number of states. We are in the process of determining how and when our collection
practices will need to change in the relevant states and have already registered for and are collecting sales tax in several states.
We are also evaluating the impact, if any, of the imposition of sales tax on customer demand for our products, or our realized
revenue. However, this decision has, and will continue to, significantly increase the effort, resources and costs associated with
the collection and compliance burden.
33 Risks Related to Ownership of Our Common Stock
Our operating results may fluctuate, which could cause our results to fall short of expectations and our stock price to
decline.
Our revenue and operating results could vary significantly from quarter to quarter and year to year due to a variety of
factors, many of which are outside our control. As a result, comparing our operating results on a period to period basis may not
be meaningful. In addition to other risk factors discussed in this “Risk Factors” section, factors that may contribute to the
variability of our quarterly and annual results include:
•
•
•
•
•
•
•
•
•
•
•
•
our ability to retain our current customers and to attract new customers and contributors;
our ability to provide new and relevant content to our customers;
our ability to effectively manage our growth;
the effects of increased competition on our business;
our ability to keep pace with changes in technology or our competitors;
changes in our pricing policies or the pricing policies of our competitors;
interruptions in service, whether or not we are responsible for such interruptions, and any related impact on
our reputation and brand;
costs associated with litigation or other claims, suits, investigations, audits or proceedings, including those
related to our indemnification of our customers, intellectual property, tax matters, privacy matters, labor and
employment matters, and/or commercial claims;
our ability to pursue, and the timing of, entry into new geographies or markets and, if pursued, our
management of such expansion;
the impact of general economic conditions on our revenue and expenses;
changes in government regulation affecting our business; and
costs related to potential acquisitions of technology or businesses.
Because of these risks and others, it is possible that our future results may be below our expectations and the expectations
of analysts and investors. In such an event, the price of our common stock may decline significantly.
Our stock price has been and will likely continue to be volatile.
The trading price of our common stock has fluctuated and may continue to fluctuate substantially. Since 2015, the
reported high and low sales prices per share of our common stock have ranged from $25.44 to $77.07 through February 5,
2021. These fluctuations could cause our stockholders to lose all or part of their investment in our common stock since they
may be unable to sell their shares at or above the price at which they purchased such shares.
The trading price of our common stock depends on a number of factors, including those described in this “Risk Factors”
section, many of which are beyond our control and may not be related to our operating performance. Factors that could cause
fluctuations in the trading price of our common stock include, but are not limited to, the following:
•
•
•
•
•
•
•
•
changes in projected operational and financial results;
announcements about our share repurchase program, including purchases or the suspension of purchases
under the program;
issuance of new or updated research or reports by securities analysts;
the use by investors or analysts of third-party data regarding our business that may not reflect our actual
performance;
fluctuations in the valuation of companies perceived by investors or analysts to be comparable to us;
the financial guidance we may provide to the public, any changes in such guidance, or our failure to meet
such guidance;
a reduction in the amount of cash dividends on our common stock, the suspension of those dividends or a
failure to meet market expectations regarding dividends;
additions or departures of key senior management;
34 •
•
•
•
our capital allocation strategy;
fluctuations in the trading volume of our common stock;
limited “public float” in the hands of a small number of investors whose sales (or lack of sales) could result in
positive or negative pricing pressure on the market price for our common stock; and
general economic and market conditions.
Furthermore, the stock market has experienced extreme price and volume fluctuations that have affected and continue to
affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or
disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as
general economic, political and market conditions such as recessions, interest rate changes or international currency
fluctuations, may negatively impact the market price of our common stock. In the past, certain companies that have experienced
volatility in the market price of their common stock have been subject to securities class action litigation. We may be the target
of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our
management’s attention from other business concerns, which could seriously harm our business.
Jonathan Oringer, our founder and Executive Chairman of the Board, owns and controls approximately 36.8% of our
outstanding shares of common stock, and his ownership percentage may increase, including as a result of any share
repurchases pursuant to our share repurchase program. This concentration of ownership may have an effect on matters
requiring the approval of our stockholders, including elections to our board of directors and transactions that are otherwise
favorable to our stockholders.
As of February 5, 2021, Jonathan Oringer, our founder, Executive Chairman of the Board, and our largest stockholder,
beneficially owned approximately 36.8% of our outstanding shares of common stock. This concentration of ownership may
delay, deter or prevent a change in control, and may make some transactions more difficult or impossible to complete without
the support of Mr. Oringer, regardless of the impact of such transaction on our other stockholders. Additionally, Mr. Oringer
has significant influence over management and major strategic investments as a result of his position as Executive Chairman of
the Board.
Furthermore, if we purchase additional shares pursuant to our share repurchase program, Mr. Oringer’s ownership
percentage would increase, and, depending on the magnitude of our repurchases and other factors impacting dilution, could
result in his owning a majority of the outstanding shares of our common stock. If Mr. Oringer were to own a majority of the
outstanding shares of our common stock, he would have the ability to control the outcome of certain matters requiring
stockholder approval, including the election and removal of our directors and significant corporate transactions. This could also
trigger certain change in control provisions in our employment agreements and agreements relating to certain outstanding
equity awards.
Purchases of shares of our common stock pursuant to our share repurchase program may affect the value of our common
stock, and there can be no assurance that our share repurchase program will enhance stockholder value.
Pursuant to our share repurchase program which was publicly announced in November 2015, we were authorized to
repurchase up to $100 million of our outstanding common stock. In February 2017, our Board authorized us to repurchase up to
an additional $100 million of our outstanding common stock. We had approximately $100 million of remaining authorization
for purchases under the share repurchase program as of December 31, 2020 and February 5, 2021. The timing and amount of
any share repurchases will be determined based on market conditions, share price and other factors and we may not repurchase
any shares under this authorization. This activity could increase (or reduce the size of any decrease in) the market price of our
common stock at the time of such repurchases. Our board has the right to amend or suspend the share repurchase program at
any time or terminate the share repurchase program upon a determination that termination would be in our best interests.
Additionally, repurchases under our share repurchase program have diminished and would continue to diminish our cash
reserves, which could impact our ability to pursue possible strategic opportunities and acquisitions and could result in lower
overall returns on our cash balances. There can be no assurance that any share repurchases will enhance stockholder value, as
the market price of our common stock may nevertheless decline.
35 If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our
market, or if they change their recommendations regarding our stock adversely, our stock price and trading volume could
decline.
The trading market for our common stock is likely to be influenced by the reports that industry or securities analysts
publish about us, our business, our market or our competitors. If any of the analysts who cover us change their recommendation
regarding our stock adversely, or provide more favorable relative recommendations about our competitors, our stock price
would likely decline. If any analyst who covers us were to cease coverage of us or fail to regularly publish reports on us, we
could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.
Future sales of our common stock in the public market could cause our share price to decline.
Sales of a substantial number of shares of our common stock in the public market, or the perception that such sales could
occur, could adversely affect the market price of our common stock and may make it more difficult for our stockholders to sell
their common stock at a time and price that they deem appropriate.
As of February 5, 2021, we had 36,256,136 shares of common stock outstanding. All shares of our common stock are
freely transferable without restriction or registration under the Securities Act, except for shares held by our “affiliates,” which
remain subject to the restrictions set forth in Rule 144 under the Securities Act.
We filed a registration statement on Form S-8 under the Securities Act covering shares of common stock issuable
pursuant to options and shares reserved for future issuance under our 2012 Omnibus Equity Incentive Plan and our Amended
and Restated 2012 Employee Stock Purchase Plan. Shares issued pursuant to such options and plans can be freely sold in the
public market upon issuance and vesting, subject to the terms of the award agreements delivered under such plans, unless they
are held by “affiliates,” as that term is defined in Rule 144 of the Securities Act.
We may also issue our shares of common stock or securities convertible into our common stock from time to time in
connection with a financing, acquisition, investment or otherwise. Any such issuance could result in substantial dilution to our
existing stockholders and cause the trading price of our common stock to decline.
Anti-takeover provisions in our charter documents and Delaware law could discourage, delay or prevent a change in control
of our Company and may affect the trading price of our common stock.
Our amended and restated certificate of incorporation and bylaws contain provisions that could have the effect of
rendering more difficult or discouraging an acquisition deemed undesirable by our board of directors. Our corporate governance
documents include provisions that:
•
•
•
•
•
•
•
authorize blank check preferred stock, which could be issued with voting, liquidation, dividend and other
rights superior to our common stock;
limit the liability of, and provide indemnification to, our directors and officers;
limit the ability of our stockholders to call and bring business before special meetings and to take action by
written consent in lieu of a meeting;
require advance notice of stockholder proposals and the nomination of candidates for election to our board of
directors;
establish a classified board of directors, as a result of which the successors to the directors whose terms have
expired will be elected to serve from the time of election and qualification until the third annual meeting
following their election;
require that directors only be removed from office for cause; and
limit the determination of the number of directors on our board and the filling of vacancies or newly created
seats on the board to our board of directors then in office.
As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware
General Corporation Law, which prevents some stockholders holding more than 15% of our outstanding common stock from
engaging in certain business combinations without the prior approval of our board of directors and, in certain cases, the vote of
two-thirds of the shares not held by such stockholder.
These provisions of our charter documents and Delaware law, alone or together, could delay or deter hostile takeovers and
changes in control or changes in our management. Any provision of our amended and restated certificate of incorporation or
bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our
stockholders to receive a premium for their shares of our common stock. Even in the absence of a takeover attempt, the
36 existence of these provisions may adversely affect the prevailing market price of our common stock if they are viewed as
discouraging takeover attempts in the future.
There can be no assurance that we will declare dividends in the future.
On February 11, 2020, our Board of Directors approved the initiation of a quarterly dividend policy and declared the
Company’s first quarterly cash dividend of $0.17 per share, which was paid in the first quarter of 2020. On January 12, 2021,
we announced that our Board of Directors approved an increase to the quarterly dividend to $0.21 per share, to be paid in the
first quarter of 2021. We currently expect to declare and pay cash dividends on a quarterly basis in the future. Any future
dividend payments, however, will be within the discretion of our Board of Directors and will depend on, among other things,
our 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 that our Board of
Directors may deem relevant. We may not have sufficient liquidity in the future to pay dividends on our common stock. As a
result, in the future, we may not choose to, or be able to, declare or pay a cash dividend, and we may not achieve an annual
dividend rate in any particular amount. In such event, the return, if any, on any investment in our common stock could depend
solely on an increase, if any, in the market value of our common stock.
The reduction or elimination of our cash dividend program could adversely affect the market price of our common stock.
We have incurred and expect to continue to incur increased costs and our management will continue to face increased
demands as a result of continuously improving our operations as a public company.
We have incurred and expect to continue to incur significant legal, tax, insurance, accounting and other expenses as a
result of conducting our operations as a public company. For example, we have continued to upgrade our financial and business
processing applications to accommodate the increased volume of products and transactions resulting from our growth to date. If
we experience delays or difficulties in implementing these systems, or if we otherwise do not effectively manage our growth,
we may not be able to execute on our business plan, respond to competitive pressures, take advantage of market opportunities,
or satisfy customer requirements, among other things.
In addition, changing laws, regulations and standards relating to corporate governance and public disclosure, including the
Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, the Dodd-Frank Act and related regulations implemented by the SEC
and the stock exchanges are creating uncertainty for public companies, increasing legal and financial compliance costs and
making some activities more time-consuming. We are currently evaluating and monitoring developments with respect to new
and proposed rules and cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.
These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and,
as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies.
Further, there may be uncertainty regarding the implementation of these laws due to changes in the political climate and other
factors. Our compliance with Section 404 of the Sarbanes-Oxley Act has required and will continue to require that we incur
substantial accounting expense and expend significant management efforts. We have incurred and expect to continue to incur
costs to obtain directors’ and officers’ insurance as a result of operating as a public company, as well as additional costs
necessitated by compliance matters and ongoing revisions to disclosure and governance standards.
Also, the TCJA amended Section 162(m) of the U.S. federal income tax code (“Section 162(m)”), which provides that
public companies are not entitled to a tax deduction for individual compensation over $1 million that is paid to certain executive
officers. Prior to the amendment under the TCJA, Section 162(m) provided an exception to the deductibility limitations for
“performance-based compensation” that met certain requirements. As amended, beginning in 2018, except for certain
grandfathered arrangements in place prior to November 2, 2017 under the amendment’s transition rules, Section 162(m) no
longer includes an exception to the limitations for “performance-based compensation” and expands the group of executive
officers covered by the limitation. Regulations were recently proposed to provide additional guidance regarding how the
grandfathering rules are to be implemented. There can be no assurance that the evolving interpretation of the grandfathering
rules will not impact whether certain cash and equity-based compensation awards granted to our executive officers prior to
November 2, 2017 are exempt from the Section 162(m) deduction limitations. In addition, current and future compensation we
provide to our executive officers that is not otherwise covered by the grandfathering rules, will be subject to the deduction
limitation rules of Section 162(m) in 2018 and going forward and will result in an adverse income tax consequence to the
Company.
These and other increased costs associated with operating as a public company may decrease our net income or increase
our net loss and may cause us to reduce costs in other areas of our business or increase the prices of our products or services to
offset the effect of such increased costs. Additionally, if these requirements divert our management’s attention from other
business concerns, they could have a material adverse effect on our business, financial condition and results of operations.
37 If we fail to maintain an effective system of internal control over financial reporting, we may not be able to report our
financial results accurately or in a timely fashion, and we may not be able to prevent fraud; in such case, our stockholders
could lose confidence in our financial reporting, which would harm our business and could negatively impact the price of
our stock.
As a public company, we operate in an increasingly demanding regulatory environment, which requires us to comply with
the Sarbanes-Oxley Act, and the related rules and regulations of the SEC, expanded disclosure requirements, accelerated
reporting requirements and more complex accounting rules. Company responsibilities required by the Sarbanes-Oxley Act
include establishing and maintaining corporate oversight and adequate internal control over financial reporting and disclosure
controls and procedures. Effective internal control is necessary for us to provide reliable, timely financial reports and prevent
fraud.
Our testing of our internal controls, or the testing by our independent registered public accounting firm, may reveal
deficiencies in our internal control over financial reporting that we would be required to remediate in a timely manner to be able
to comply with the requirements of Section 404 of the Sarbanes-Oxley Act each year. If we are not able to comply with the
requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner each year, we could be subject to sanctions or
investigations by the SEC, the New York Stock Exchange or other regulatory authorities which would require additional
financial and management resources and could adversely affect the market price of our common stock. Furthermore, if we
cannot provide reliable financial reports or prevent fraud, our business and results of operations could be harmed and investors
could lose confidence in our reported financial information.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our corporate headquarters and principal office is located in New York, New York, where we lease approximately
103,000 square feet of office space under a lease agreement, as amended, that expires in 2029. Additionally, we have other
office facilities in the United States and abroad related to, among other things, sales and marketing support, technology services
and customer service under operating lease agreements that expire on various dates during the period from 2021 through 2029.
We do not have any material capital lease obligations, and our property, equipment and software have been purchased with
cash.
We believe that our existing facilities are adequate for our current needs and that suitable additional or alternative space
will be available on commercially reasonable terms to meet our future needs.
For additional information regarding obligations under operating leases, see Note 14 of the Notes to Consolidated
Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Item 3. Legal Proceedings.
Although we are not currently a party to any material active litigation, from time to time, third parties assert claims against
us regarding intellectual property rights, employment matters, privacy issues and other matters arising during the ordinary
course of business. Although we cannot be certain of the outcome of any litigation or the disposition of any claims, nor the
amount of damages and exposure, if any, that we could incur, we currently believe that the final disposition of all existing
matters will not have a material adverse effect on our business, results of operations, financial condition or cash flows. In
addition, in the ordinary course of our business, we are also subject to periodic threats of lawsuits, investigations and claims.
Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of
management resources and other factors.
Item 4. Mine Safety Disclosures
Not applicable.
38 PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Market Information
Our common stock is listed on the New York Stock Exchange, or the NYSE, under the symbol “SSTK.”
Stockholders
As of February 5, 2021, there were 4 holders of record of our common stock. Because many of our shares of common
stock are held by brokers and other institutions on behalf of stockholders, this number is not indicative of the total number of
stockholders represented by these stockholders of record.
Unregistered Sales of Equity Securities
We did not sell any unregistered equity securities during the three months ended December 31, 2020.
Dividend Policy
On February 11, 2020, our Board of Directors approved the initiation of a quarterly cash dividend. We currently expect to
continue to pay cash dividends on a quarterly basis in the future. Future declaration of dividends are subject to the final
determination of our Board of Directors, and will depend on, among other things, our 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 our Board of Directors may deem relevant. The dividend policy may
be suspended or canceled at the discretion of our Board of Directors at any time.
Issuer Purchases of Equity Securities
None.
Equity Compensation Plan Information
The information required by this item is incorporated by reference to our Proxy Statement for the 2021 Annual Meeting of
Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended December 31, 2020.
39 Item 6. Selected Financial Data.
We have derived the Consolidated Statements of Operations data for the years ended December 31, 2020, 2019 and 2018
and the Consolidated Balance Sheet data as of December 31, 2020 and 2019 from our audited consolidated financial statements
included elsewhere in this filing. We have derived the Consolidated Statements of Operations data for the years ended
December 31, 2017 and 2016 and the Consolidated Balance Sheet data as of December 31, 2018, 2017 and 2016 from our
audited consolidated financial statements not included in this filing. To obtain further information about our historical results,
including our historical acquisitions, for which results of operations are included in our consolidated financial statements, you
should read the following selected consolidated financial data in conjunction with our consolidated financial statements and
related notes, the information in the section of this filing titled “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” and the other financial information included elsewhere in this filing. Our historical results are not
necessarily indicative of our future results.
Consolidated Statements of Operations Data:
Revenue (1)
Operating expenses:(2)
Cost of revenue
Sales and marketing
Product development
General and administrative
Total operating expenses
Income from operations
Gain on Sale of Webdam
Other income / (expense), net(3)
Income before income taxes
Provision for income taxes(4)
Net income
Net income per common share (basic)
Net income per common share (diluted)
Weighted-average common shares outstanding (basic)
Weighted-average common shares outstanding (diluted)
2020
2019
2018
2017
2016
Year Ended December 31,
(in thousands, except per-share data)
$
666,686 $
650,523 $
623,250 $
557,111 $
494,317
259,573
159,241
46,038
116,568
581,420
85,266
—
4,257
89,523
278,176
181,730
57,216
113,246
630,368
20,155
—
4,761
24,916
267,671
166,448
58,897
97,782
590,798
32,452
38,613
(4,952)
66,113
233,102
146,464
52,486
98,710
530,762
26,349
—
3,732
30,081
$
$
$
17,757
71,766 $
4,808
20,108 $
11,426
54,687 $
13,354
16,727 $
2.00 $
1.97 $
0.57 $
0.57 $
1.57 $
1.54 $
0.48 $
0.47 $
35,844
36,369
35,285
35,581
34,935
35,420
34,627
35,291
203,129
126,626
47,789
70,987
448,531
45,786
—
(1,289)
44,497
11,869
32,628
0.93
0.91
35,114
35,861
_______________________________________________________________________________
(1)
Effective January 1, 2018 we adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic
606) (“ASU 2014-09”) using the modified retrospective approach. Historical revenue totals reflect those previously reported and have not been restated.
(2)
Includes non-cash equity-based compensation of $28.3 million, $22.8 million, $23.9 million, $25.0 million, and $28.1 million for the
years ended December 31, 2020, 2019, 2018, 2017, and 2016, respectively.
(3)
Includes non-operating changes in fair value of contingent consideration related to the PremiumBeat (2016) acquisition; charges related
to the impairment of a long-term investment asset (2018); transaction gains and losses primarily related to cash balances of subsidiaries denominated in a
currency other than the subsidiaries’ functional currencies; and interest income and expense, which is not material in any period presented.
(4)
Included in the 2017 provision for income taxes were provisional amounts for the specific tax effects of the TCJA, as it related to
changes to existing United States tax law which included numerous provisions that affect businesses. These provisional amounts represented the
Company’s reasonable estimates at that time. During 2018, the Company completed its analysis of certain income tax effects of the TCJA and did not
make any significant adjustments to estimates previously recorded.
40 Consolidated Balance Sheet Data:
Cash and cash equivalents
Short term investments (1)
Working capital
Property and equipment, net
Total assets
Deferred revenue
Total liabilities
2020
2019
2018
2017
2016
As of December 31,
(in thousands)
$
428,574 $
303,261 $
230,852 $
253,428 $
224,190
—
232,141
50,906
729,644
149,843
307,719
—
131,086
58,834
630,512
141,922
302,367
—
83,418
76,188
531,488
139,604
244,821
—
94,727
85,698
577,776
157,803
263,191
54,972
136,341
56,101
501,778
122,235
215,082
Total stockholders’ equity
$
421,925 $
328,145 $
286,667 $
314,585 $
286,696
___________________________________________________________________________________________________________________________________
(1)
commercial paper.
During the year ended December 31, 2017, we liquidated our short-term investments, which consisted primarily of short-term
41 Non-GAAP Financial Measures and Key Operating Metrics
To supplement our consolidated financial statements presented in accordance with the accounting principles generally
accepted in the United States, or GAAP, our management considers certain financial measures that are not prepared in
accordance with GAAP, collectively referred to as non-GAAP financial measures, including adjusted EBITDA, adjusted
EBITDA margin, adjusted net income, adjusted net income per diluted common share, revenue growth (including by
distribution channel) on a constant currency basis (expressed as a percentage), and free cash flow, as well as certain key
operating metrics. These non-GAAP financial measures and key operating metrics are included solely to provide investors with
additional information regarding our financial results and are not based on any standardized methodology prescribed by GAAP
and are not necessarily comparable to similarly-titled measures presented by other companies.
Key Operating Metrics
Key Operating Metrics:
Subscribers (end of period)(1)
Subscriber revenue (in millions)(2)
Average revenue per customer (trailing twelve months)(3) $
Paid downloads (in millions)(4)
Revenue per download(5)
Content in our collection (end of period, in millions)(6):
Images
$
Footage
2020
2019
2018
2017
2016
Year Ended December 31,
281,000
194,000
$
265.3
333
180.0
$
$
236.5
330
187.8
*
*
*
*
*
*
*
*
*
179.6
172.0
167.9
3.68
$
3.43
$
3.40
$
3.13
$
2.88
360
21
314
17
242
13
170
9
116
6
_______________________________________________________________________________
(1)
Subscribers is defined as those customers who purchase one or more of our monthly recurring products for a continuous period of at least
three months, measured as of the end of the reporting period. See “Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Key Operating Metrics—Subscribers” for more information as to how we define and calculate subscribers.
(2)
Subscriber revenue is defined as the revenue generated from subscribers during the period. See “Management’s Discussion and Analysis
of Financial Condition and Results of Operations—Key Operating Metrics—Subscriber Revenue” for more information as to how we define and calculate
subscriber revenue.
(3)
Average revenue per customer is calculated by dividing total revenue for the trailing twelve-month period by customers. Customers is
defined as total active, paying customers that contributed to total revenue over the trailing twelve-month period. See “Management’s Discussion and
Analysis of Financial Condition and Results of Operations—Key Operating Metrics—Average Revenue per Customer” for more information as to how
we define and calculate average revenue per customer.
(4)
Paid downloads is the number of downloads that our customers make in a given period of our photographs, vectors, illustrations, footage
or music tracks. Paid downloads exclude custom content and downloads of content that are offered to customers for no charge, including our free image
of the week. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Operating Metrics—Paid Downloads”
for more information as to how we define and calculate paid downloads.
(5)
Revenue per download is the amount of content-related revenue recognized in a given period divided by the number of paid downloads
in that period excluding revenue from custom content and the impact of revenue that is not derived from or associated with content licenses. See
“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Operating Metrics—Revenue per Download” for more
information as to how we define and calculate revenue per download. Effective January 1, 2018 we adopted ASU 2014-09 using the modified
retrospective approach. Historical revenue totals reflect those previously reported and have not been restated.
(6)
Represents approved images (photographs, vectors and illustrations) and footage (in number of clips) in our library on shutterstock.com
at the end of the period. This collection metric excludes content that is not uploaded directly to our site but is available for license by our customers
through an application program interface, custom content and certain content that may be licensed for editorial use only. See “Management’s Discussion
and Analysis of Financial Condition and Results of Operations—Key Operating Metrics—Content in our Collection” for more information as to how we
define and calculate images and footage in our collection.
Information not available
*
Non-GAAP Financial Measures
These non-GAAP financial measures have not been calculated in accordance with GAAP and should be considered only
in addition to results prepared in accordance with GAAP and should not be considered as a substitute for, or superior to, GAAP
measures. In addition, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted net income per diluted
common share, revenue growth (including by distribution channel) on a constant currency basis (expressed as a percentage) and
free cash flow should not be construed as indicators of our operating performance, liquidity or cash flows generated by
operating, investing and financing activities, as there may be significant factors or trends that they fail to address. We caution
investors that non-GAAP financial information, by its nature, departs from traditional accounting conventions; accordingly, its
use can make it difficult to compare our current results with our results from other reporting periods and with the results of
other companies.
42 Shutterstock’s management uses these non-GAAP financial measures, in conjunction with GAAP financial measures, as
an integral part of managing the business and to, among other things: (i) monitor and evaluate the performance of
Shutterstock’s business operations, financial performance and overall liquidity; (ii) facilitate management’s internal
comparisons of the historical operating performance of its business operations; (iii) facilitate management’s external
comparisons of the results of its overall business to the historical operating performance of other companies that may have
different capital structures and debt levels; (iv) review and assess the operating performance of Shutterstock’s management
team and, together with other operational objectives, as a measure in evaluating employee compensation and bonuses; (v)
analyze and evaluate financial and strategic planning decisions regarding future operating investments; and (vi) plan for and
prepare future annual operating budgets and determine appropriate levels of operating investments.
Management believes that adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted net income per
diluted common share, revenue growth (including by distribution channel) on a constant currency basis (expressed as a
percentage) and free cash flow are useful to investors because these measures enable investors to analyze Shutterstock’s
operating results on the same basis as that used by management. Additionally, management believes that adjusted EBITDA,
adjusted EBITDA margin, adjusted net income and adjusted net income per diluted common share provide useful information
to investors about the performance of the Company’s overall business because such measures eliminate the effects of unusual or
other infrequent charges that are not directly attributable to Shutterstock’s underlying operating performance and revenue
growth (including by distribution channel) on a constant currency basis, provides useful information to investors by eliminating
the effect of foreign currency fluctuations that are not directly attributable to Shutterstock’s operating performance.
Management also believes that providing these non-GAAP financial measures enhances the comparability for investors in
assessing Shutterstock’s financial reporting. Management believes that free cash flow is useful for investors because it provides
them with an important perspective on the cash available for strategic measures, after making necessary capital investments in
property and equipment to support the Company’s ongoing business operations and after excluding the impact of nonrecurring
payments associated with long-term incentives related to our 2017 acquisition of Flashstock, and provides them with the same
measures that management uses as the basis for making resource allocation decisions.
Our use of non-GAAP financial measures has limitations as an analytical tool, and these measures should not be
considered in isolation or as a substitute for an analysis of our results as reported under GAAP, as the excluded items may have
significant effects on our operating results and financial condition. Additionally, our methods for measuring non-GAAP
financial measures may differ from other companies’ similarly titled measures. When evaluating our performance, these non-
GAAP financial measures should be considered alongside other financial performance measures, including various cash flow
metrics, net income and our other GAAP results.
Our method for calculating adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted net income per
diluted common share, revenue growth (including by distribution channel) on a constant currency basis and free cash flow, as
well as a reconciliation of the differences between adjusted EBITDA, adjusted net income, revenue growth (including by
distribution channel) on a constant currency basis and free cash flow, and the most comparable financial measures calculated
and presented in accordance with GAAP, is presented below.
Adjusted EBITDA
We define adjusted EBITDA as net income adjusted for depreciation and amortization, non-cash equity-based
compensation, foreign currency transaction gains and losses, charges related to the impairment of a long-term investment asset,
expenses related to long-term incentives and contingent consideration related to acquisitions, interest income and expense,
income taxes and the gain on Sale of Webdam. We define adjusted EBITDA margin as the ratio of adjusted EBITDA to
revenue.
43 The following is a reconciliation of net income to adjusted EBITDA for each of the periods indicated:
Net income
$
71,766
$
20,108
$
54,687
$
16,727
$
32,628
2020
Year Ended December 31,
2018
2017
2019
2016
(in thousands)
Add / (less) Non-GAAP adjustments:
Depreciation and amortization
Non-cash equity-based compensation
Other adjustments, net(1)
Provision for income taxes
Gain on Sale of Webdam
Adjusted EBITDA
Adjusted EBITDA margin
41,359
28,309
(4,257)
17,757
—
49,915
22,815
(1,332)
4,808
45,652
23,869
8,093
11,426
—
(38,613)
35,490
24,958
(2,480)
13,354
—
19,946
28,080
2,940
11,869
—
$ 154,934
$
96,314
$ 105,114
$
88,049
$
95,463
23.2 %
14.8 %
16.9 %
15.8 %
19.3 %
_______________________________________________________________________________
(1)
Included in other adjustments, net is foreign currency transaction gains and losses, charges related to the impairment of a long-term
investment asset, expenses related to long-term incentives and contingent consideration related to acquisitions, and interest income and expense.
Adjusted Net Income
We define adjusted net income as net income adjusted for the impact of non-cash equity-based compensation, the
amortization of acquisition-related intangible assets, expenses related to long-term incentives and contingent consideration
related to acquisitions, the gain on Sale of Webdam, charges related to the impairment of a long-term investment asset, the
estimated tax impact of such adjustments, and a one-time tax expense due to the TCJA. We define adjusted net income per
diluted common share as adjusted net income divided by weighted average diluted shares.
The following is a reconciliation of net income to adjusted net income for each of the periods indicated:
Net income
$
71,766 $
20,108 $
54,687 $
16,727 $
32,628
2020
2019
2018
2017
2016
Year Ended December 31,
(in thousands)
Add / (less) Non-GAAP adjustments:
Non-cash equity-based compensation
Tax effect of non-cash equity-based compensation
Acquisition-related amortization expense
Tax effect of acquisition-related amortization expense
Acquisition-related long-term incentives and contingent
consideration(1)
Tax effect of acquisition-related long-term incentives and
contingent consideration
Gain on Sale of Webdam
Tax effect of gain on Sale of Webdam
Impairment of a long-term investment asset
Tax effect of impairment of long-term investment asset
One-time effect of the Tax Cuts and Jobs Act on the
provision for income taxes(2)
28,309
(6,653)
2,261
(531)
—
—
—
—
—
—
—
22,815
(5,363)
4,691
(1,034)
3,430
(910)
—
—
—
—
—
23,869
(5,434)
3,841
(874)
3,141
(832)
(38,613)
10,996
5,881
(999)
24,958
(9,175)
4,801
(1,766)
28,080
(10,048)
4,309
(1,584)
1,252
2,925
(460)
(1,075)
—
—
—
—
—
—
—
—
—
—
4,507
Adjusted net income
Adjusted net income per diluted common share
$
$
95,152 $
43,737 $
55,663 $
40,844 $
55,235
2.62 $
1.23 $
1.57 $
1.16 $
1.54
Weighted average diluted shares
36,369
35,581
35,420
35,291
35,861
(1)
Represents expenses related to long-term incentives and contingent consideration related to the Webdam, PremiumBeat and Flashstock
acquisitions.
(2)
Represents approximately $3.7 million of non-cash charges related to a remeasurement of deferred tax assets related to the change in
U.S. tax rates from 35% to 21% and approximately $0.8 million of cash charges related to a one-time U.S. transition tax on unrepatriated foreign earnings.
44 Revenue Growth (including by distribution channel) on a Constant Currency Basis
We define revenue growth (including by distribution channel) on a constant currency basis (expressed as a percentage) as
the increase in current period revenues over prior period revenues, utilizing fixed exchange rates for translating foreign
currency revenues for all periods in the comparison.
2020
2019
2018
2017
2016
Year Ended December 31,
Reported revenue (in thousands)(1)
Revenue growth
Revenue growth on a constant currency basis
$ 666,686
$ 650,523
$ 623,250
$ 557,111
$ 494,317
2 %
2 %
4 %
6 %
12 %
11 %
13 %
13 %
16 %
18 %
E-commerce reported revenue (in thousands)
$ 412,521
$ 392,241
$ 365,730
$ 332,376
$ 318,916
E-commerce revenue growth
E-commerce revenue growth on a constant currency basis
5 %
5 %
7 %
9 %
10 %
9 %
4 %
5 %
6 %
7 %
Enterprise reported revenue (in thousands)
$ 254,165
$ 258,282
$ 254,809
$ 208,713
$ 164,384
Enterprise revenue growth
Enterprise revenue growth on a constant currency basis
(2) %
(2) %
1 %
3 %
22 %
21 %
27 %
26 %
39 %
42 %
(1) 2016 - 2018 reported revenue also includes amounts from Webdam, which was sold in February 2018. Webdam revenues are predominantly
denominated in US Dollars.
Free Cash Flow
We define free cash flow as our cash provided by operating activities, adjusted for capital expenditures and content
acquisition, and, with respect to the twelve months ended December 31, 2020, a payment associated with long-term incentives
related to our 2017 acquisition of Flashstock.
The following is a reconciliation of net cash provided by operating activities to free cash flow for each of the periods
indicated:
2020
2019
2018
2017
2016
Year Ended December 31,
(in thousands)
Net cash provided by operating activities
$
165,072 $
102,646 $
102,202 $
108,037 $
100,723
Capital expenditures
Content acquisitions
(25,630)
(26,081)
(34,890)
(55,062)
(39,959)
(2,970)
(3,344)
(3,838)
(2,961)
(8,045)
Payments related to long-term incentives related to
acquisitions
Free Cash Flow(1)
7,759
—
—
—
—
$
144,231 $
73,221 $
63,474 $
50,014 $
52,719
(1) On January 1, 2017, we adopted Accounting Standard Update 2016-09 (“ASU 2016-09”) which changed the way we report the excess tax benefit
related to the exercise and vesting of equity-based compensation awards in the statement of cash flows. As a result of this adoption, we have reclassified
amounts that were reported prior to adoption. As a result of this reclassification, free cash flow reported decreased by $0.4 million for the year ended December
31, 2016, from amounts previously reported.
45 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction
with the consolidated financial statements and related notes included elsewhere in this filing. In addition to historical
consolidated financial information, this discussion contains forward-looking statements including statements about our plans,
estimates and beliefs. These statements involve risks and uncertainties and our actual results could differ materially from those
expressed or implied in forward-looking statements. See “Forward Looking Statements” above. See also the “Risk Factors”
disclosure in Item 1A above for additional discussion of the risks and uncertainties that could cause our actual results to differ
materially from those expressed or implied in our forward-looking statements.
For a discussion as to how COVID-19 has affected our business, see “COVID-19 Update” below.
Overview and Recent Developments
Shutterstock is a leading global creative platform offering full-service solutions, high-quality content, and tools for
brands, businesses and media companies. Our platform brings together users and contributors of content by providing readily-
searchable content that our customers pay to license and by compensating contributors as their content is licensed.
The content licensed by our 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.
•
3D Models - following our acquisition of TurboSquid, Inc. on February 1, 2021, we now offer 3D models, used in
industries such as advertising, media & video production, gaming, retail, education, design and architecture.
For customers seeking specialized solutions, we also create custom, on-brand content by matching our global contributor
network to the unique needs of our customers. This solution allows us to offer customers a fast and scalable way to produce
cost-effective content that is in line with the visual footprint of their brand. We typically offer a royalty-free non-exclusive
license and the processes we maintain to properly license content and the indemnification protections we provide, allow
individuals and businesses of all sizes, including media agencies, publishers, production companies and creative service
providers, to confidently utilize such content for their unique commercial or editorial needs.
Over 2.0 million active, paying customers contributed to our revenue in 2020. As of December 31, 2020, more than 1.6
million approved contributors made their images, footage and music tracks available in our collection, which has grown to more
than 360 million images and more than 21 million footage clips as of December 31, 2020. This makes our collection of content
one of the largest of its kind, and we delivered 180.0 million paid downloads to our customers across all of our brands during
the year ended December 31, 2020.
Through our platform, we generate revenue by licensing content to our customers. During the year ended December 31,
2020, 62% of our revenue and the majority of our content licenses came from our E-commerce sales channel. The majority of
our customers license content directly through our self-service web properties, including our Shutterstock.com, bigstock.com
and premiumbeat.com websites. E-commerce customers have the ability to purchase plans that are paid on either a monthly or
annual basis or to license content on a transactional basis. E-commerce customers generally license content under our standard
or enhanced licenses, with additional licensing options available to meet customers’ individual needs.
Customers in our Enterprise sales channel generally have unique content, licensing and workflow needs. These customers
benefit from communication with our dedicated sales, service and research teams which provide a number of personalized
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 our e-commerce platform. Customers in our enterprise sales channel may also benefit from our API platform as
well as access to Shutterstock Editorial, which includes our library of editorial images and videos and Shutterstock Studios, our
offering which provides custom, high-quality content matched with production tools and services. Our Enterprise sales channel
provided approximately 38% of our revenue in 2020.
46 As the use cases for our creative solutions expand, we believe our customers are seeking alternative means to consume
our offerings. As a result, we have seen strong growth in customers purchasing monthly subscription products. Our monthly
subscriptions provide for a fixed number of content licenses that may be downloaded during the period. Our subscription-based
pricing model makes the creative process easier because customers can download content in our collection for use in their
creative process without incremental costs, which provides greater creative freedom and helps improve work product. In
addition, customers may also purchase licenses through other contractual plans where the customer commits to buy a
predetermined quantity of content licenses that may be downloaded over a period of time, generally between one month to one
year. For users who need less content, individual content licenses may also be purchased on a transactional basis, paid for at the
time of download.
Contributors of content typically earn a royalty each time their work is licensed. Contributors earn royalties based on our
published earnings schedule that is based on annual licensing volume, which determines the contributor’s earnings tier and the
purchase option under which the content was licensed. Royalties represent the largest component of our operating expenses, are
reported within cost of revenue, tend to fluctuate proportionately with revenue and paid downloads and may be impacted by the
mix of products sold.
In addition to content sourced through direct submission to our e-commerce platform, we also obtain all types of content
through exclusive distribution agreements with strategic partners or through the direct acquisition of content, content libraries
or archives. In certain cases, we enter into arrangements with contributors or strategic partners whereby we guarantee a
minimum royalty, in exchange for exclusive rights to distribute content when we believe such exclusivity provides us with a
distinct competitive advantage. When we license content that has been obtained through direct acquisition, we pay no royalties.
In recent years, we have made a number of enhancements to our content libraries through the direct acquisition of content and
through entering into several such agreements and partnerships.
An important driver of our growth is customer acquisition, which we achieve primarily through online marketing efforts
and directly through our sales force. Online marketing includes paid search, online display advertising, print advertising, trade
shows, email marketing, direct mail, affiliate marketing, public relations, social media and partnerships. Over the past several
years, our investments in marketing have represented a significant percentage of revenue. This spend considers, among other
things, the blended average customer lifetime value across our various purchase options so we can manage customer acquisition
costs and aim to achieve targeted returns.
We believe that another important driver of growth is the quality of the user experience we provide on our websites,
especially the efficiency and speed with which our search interfaces and algorithms help customers find and download the
content that they need, the degree to which our websites have been localized for our global user base, the degree to which we
make use of the large quantity of data we collect about image, footage and music and search patterns, and the security of user
information on our platform. To this end, we have invested aggressively in product development and cloud-based hosting
infrastructure, and we intend to continue to invest in these areas, to the extent that we can improve the customer experience and
increase the efficiency with which we deploy new products and features.
We continue to have operating income and positive operating cash flows. In 2020, our net income was $71.8 million and
net cash from operating activities was $165.1 million. In the same period, adjusted EBITDA, adjusted EBITDA margin,
adjusted net income, and free cash flow were $154.9 million, 23.2%, $95.2 million and $144.2 million, respectively.
See Part II, Item 6 of this Annual Report on Form 10-K under the heading “Selected Financial Data—Non-GAAP
Financial Measures.”
COVID-19 Update
In December 2019, a novel coronavirus disease (“COVID-19”) was initially reported and on March 11, 2020, the World
Health Organization characterized COVID-19 as a pandemic. Our operations have been impacted by office closures globally
and restrictions on employee travel and in-person meetings, however, we have generally been able to deliver our services
remotely. The economic uncertainty caused by COVID-19 has had an impact on our customers and their ability to spend
marketing budgets on our products, which has resulted in an unfavorable impact, to varying degrees geographically, on our
revenue growth and number of paid downloads for the twelve months ended December 31, 2020. See Item 1A. Risk Factors for
further discussion of the possible impact of the COVID-19 pandemic on our business.
47 Key Operating Metrics
In addition to key financial metrics, we regularly review a number of key operating metrics to evaluate our business,
determine the allocation of resources and make decisions regarding business strategies. We believe that these metrics can be
useful for understanding the underlying trends in our business. The following table summarizes our key operating metrics,
which are unaudited, for the years ended December 31, 2020, 2019 and 2018:
Subscribers (end of period)
Subscriber revenue (in millions)
Average revenue per customer (trailing twelve months)
Paid downloads (in millions)
Revenue per download
Content in our collection (end of period, in millions)
Images
Footage clips
*
Information not available
Subscribers
Year Ended December 31,
2020
2019
2018
281,000
194,000
265.3 $
236.5
333 $
180.0
330
187.8
3.68 $
3.43 $
$
$
$
360
21
314
17
*
*
*
179.6
3.40
242
13
We define subscribers as those customers who purchase one or more of our monthly recurring products for a continuous
period of at least three months, measured as of the end of the reporting period. We believe the number of subscribers is an
important metric that provides insight into our monthly recurring business and its growth. We believe that an increase in our
number of subscribers is an indicator of engagement in our platform and potential for future growth.
Subscriber Revenue
We define subscriber revenue as the revenue generated from subscribers during the period. We believe subscriber
revenue, together with our number of subscribers, provide insight into the portion of our business and growth driven by our
monthly recurring products.
Average Revenue Per Customer
Average revenue per customer is calculated by dividing total revenue for the trailing twelve month period by customers.
We define customers as total active, paying customers that contributed to total revenue over the trailing twelve month period.
Changes in our average revenue per customer will be driven by changes in the mix of our subscription-based products and the
pricing in our transactional business.
Paid Downloads
We define paid downloads as the number of downloads that our customers make in a given period of our content. Paid
downloads exclude custom content and downloads of content that are offered to customers for no charge, including our free
image of the week. Measuring the number of paid downloads that our customers make in a given period is important because
they are the primary method of delivering licensed content, which drives a significant portion of the Company’s revenue and
contributor royalties.
Revenue per Download
We define revenue per download as the amount of revenue recognized in a given period divided by the number of paid
downloads in that period excluding revenue from custom content and revenue that is not derived from or associated with
content licenses. This metric captures any changes in our pricing, including changes resulting from the impact of competitive
pressures, as well as the mix of licensing options that our customers choose, some of which generate more revenue per
download than others, and the impact that changes in foreign currency rates have on our pricing. Changes in revenue per
download are primarily driven by the introduction of new product offerings, changes in product mix and customer utilization of
our products.
48 Content in our Collection
We define content in our collection as the total number of approved images (photographs, vectors and illustrations) and
footage (in number of clips) in our library on shutterstock.com at the end of the period. We exclude content from this collection
metric that is not uploaded directly to our site but is available for license by our customers through an application program
interface, custom content and certain content that may be licensed for editorial use only. We believe that our large selection of
high-quality content enables us to attract and retain customers and drives our network effect.
Basis of Presentation
Revenue
The majority of our revenue is earned from licensing content. Content licenses are generally purchased by our customers
on a monthly or annual subscription 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. Prior to the Sale of Webdam, we also earned revenue from licensing hosted software services through
Webdam’s cloud-based tools for businesses, which were purchased as part of a subscription.
We recognize revenue upon the satisfaction of performance obligations, which occurs when (i) content is downloaded by
a customer or (ii) hosted software services are provisioned and available to a customer. For content licenses, we recognize
revenue on both our 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 our subscription products. Revenue
associated with hosted software services is recognized ratably over the term of the license. We expense 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 our customers
purchase products by making an electronic payment 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.
We recognize revenue gross of contributor royalties because we are the principal in the transaction as we are the party
responsible for the performance obligation and control the product or service before transferring it to the customer. We also
license content to customers through third-party resellers. Third-party resellers sell our products directly to customers as the
principal in those transactions. Accordingly, we recognize revenue net of costs paid to resellers.
Costs and Expenses
Cost of Revenue. Cost of revenue consists of royalties paid to contributors, credit card processing fees, content review
costs, customer service expenses, infrastructure and hosting costs related to maintaining our creative platform and cloud-based
software platform, depreciation and amortization of capitalized internal-use software, content and technology intangible assets,
allocated facility costs and other supporting overhead costs. Cost of revenue also includes employee compensation, including
non-cash equity-based compensation, bonuses and benefits, associated with the maintenance of our creative platform and cloud-
based software platform.
Sales and Marketing. Sales and marketing expenses include third-party marketing, advertising, branding, public
relations and sales expenses. Sales and marketing expenses also include associated employee compensation, including non-cash
equity-based compensation, bonuses and benefits, and commissions as well as allocated facility and other supporting overhead
costs.
Product Development. Product development expenses consist of employee compensation, including non-cash equity-
based compensation, bonuses and benefits, and expenses related to vendors engaged in product management, design,
development and testing of our websites and products. Product development costs also includes software and other IT
equipment costs, allocated facility expenses and other supporting overhead costs.
General and Administrative. General and administrative expenses include employee compensation, including non-cash
equity-based compensation, bonuses and benefits for executive, finance, accounting, legal, human resources, internal
information technology, internet security, business intelligence and other administrative personnel. In addition, general and
49 administrative expenses include outside legal, tax and accounting services, bad debt expense, insurance, facilities costs, other
supporting overhead costs and depreciation and amortization expense.
Other Income / (Expense), Net. Other income / (expense), net consists of non-operating costs such as foreign currency
transaction gains and losses, interest income and expense and an impairment related to a long-term investment asset.
Income Taxes. We compute income taxes using the asset and liability method, under which deferred tax assets and
liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using
enacted statutory income tax rates in effect for the year in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce net deferred tax assets to the amount expected to be realized.
50 Results of Operations
The following table presents our results of operations for the periods indicated. The period-to-period comparisons of
results are not necessarily indicative of results for future periods.
Consolidated Statements of Operations:
Revenue
Operating expenses:
Cost of revenue
Sales and marketing
Product development
General and administrative
Total operating expenses
Income from operations
Gain on Sale of Webdam
Other income / (expense), net
Income before income taxes
Provision for income taxes
Net income
Year Ended December 31,
2020
2019
2018
(in thousands)
$
666,686 $
650,523 $
623,250
259,573
159,241
46,038
116,568
581,420
85,266
—
4,257
89,523
17,757
278,176
181,730
57,216
113,246
630,368
20,155
—
4,761
24,916
4,808
267,671
166,448
58,897
97,782
590,798
32,452
38,613
(4,952)
66,113
11,426
$
71,766 $
20,108 $
54,687
The following table presents the components of our results of operations for the periods indicated as a percentage of
revenue:
Consolidated Statements of Operations:
Revenue
Operating expenses:
Cost of revenue
Sales and marketing
Product development
General and administrative
Total operating expenses
Income from operations
Gain on Sale of Webdam
Other income / (expense), net
Income before income taxes
Provision for income taxes
Net income
Year Ended December 31,
2020
2019
2018
100 %
100 %
100 %
39 %
24 %
7 %
17 %
87 %
13 %
— %
1 %
13 %
3 %
11 %
43 %
28 %
9 %
17 %
97 %
3 %
— %
1 %
4 %
1 %
3 %
43 %
27 %
9 %
16 %
95 %
5 %
6 %
(1) %
11 %
2 %
9 %
51 Comparison of the Years Ended December 31, 2020 and December 31, 2019
The following table presents our results of operations for the periods indicated:
Consolidated Statements of Operations Data:
Revenue
Operating expenses:
Cost of revenue
Sales and marketing
Product development
General and administrative
Total operating expenses
Income from operations
Other income, net
Income before income taxes
Provision for income taxes
Net income
Revenue
Year Ended December 31,
2020
2019
$ Change
% Change
(in thousands)
$
666,686 $
650,523 $
16,163
2 %
259,573
159,241
46,038
116,568
581,420
85,266
4,257
89,523
17,757
278,176
181,730
57,216
113,246
630,368
20,155
4,761
24,916
4,808
(18,603)
(22,489)
(11,178)
3,322
(48,948)
65,111
(504)
64,607
12,949
(7)
(12)
(20)
3
(8)
323
(11)
259
269
$
71,766 $
20,108 $
51,658
257 %
Revenue increased by $16.2 million, or 2%, to $666.7 million in 2020 as compared to 2019. Foreign currency fluctuations
did not have a significant impact on revenues in 2020, as compared to 2019. Our revenue growth in 2020 is primarily driven by
our subscription business. From 2019 to 2020, subscribers grew by 45% to 281,000 and subscriber revenue grew by 12% to
$265.3 million. During 2020, the majority of our subscriber revenue growth is attributed to our E-commerce sales channel.
E-commerce revenues increased by 5%, to $412.5 million in 2020 as compared to 2019. Foreign currency fluctuations did
not have a significant impact on E-commerce revenues in 2020, as compared to 2019. During 2020, growth in our E-commerce
sales channel was primarily driven by increased subscriber revenue.
Enterprise revenues decreased by 2%, to $254.2 million in 2020 as compared to 2019. Foreign currency fluctuations did
not have a significant impact on Enterprise revenues in 2020, as compared to 2019. During 2020, the Company identified and
implemented certain changes to improve performance, updated product offerings and made further platform investments. We
believe these enhancements impacted our Enterprise sales operations at the end of 2020 and is one of the drivers of the
increased deferred revenue balance as of December 31, 2020.
In addition, we believe our revenue for the year ended December 31, 2020 was unfavorably affected by the global
COVID-19 pandemic and its impact on our customers and their ability to spend marketing budgets on our products.
In the years ended December 31, 2020 and 2019, we delivered 180.0 million and 187.8 million paid downloads,
respectively, and our revenue per download increased to $3.68 for the year ended December 31, 2020, from $3.43 for the year
ended December 31, 2019. During the year ended December 31, 2020, the 4% decrease in the number of paid downloads
compared to 2019, is due to lower customer utilization of our products. We believe that the decline in usage during 2020,
compared to 2019, is partially attributable to COVID-19.
Changes in our revenue by region were as follows: revenue from North America increased by $8.4 million, or 4%, to
$236.6 million, revenue from Europe increased by $3.3 million, or 2%, to $220.7 million and revenue from outside Europe and
North America increased by $4.5 million, or 2%, to $209.4 million, in the year ended December 31, 2020 compared to 2019.
52 Cost and Expenses
Cost of Revenue. Cost of revenue decreased by $18.6 million, or 7%, to $259.6 million in 2020 as compared to 2019,
due to lower royalty expense, content procurement costs and depreciation and amortization expense, partially offset by higher
costs associated with website hosting, hardware and software licenses as well as increased credit card fees. In addition, cost of
revenue includes severance charges of $1.2 million for the year ended December 31, 2020. The reduction in royalty expense
was driven by the 4% decline in paid downloads as well as a modification in the way we compensate contributors. We expect
that our cost of revenue will fluctuate in line with changes in revenue and paid downloads.
Sales and Marketing. Sales and marketing expenses decreased by $22.5 million, or 12%, to $159.2 million in 2020 as
compared to 2019. As a percent of revenue, sales and marketing expenses decreased to 24% for the year ended December 31,
2020, from 28% for 2019. This decrease was primarily driven by a $21.1 million decline in marketing spend as we focused
resources on more efficient customer acquisition and improved marketing return on investment. In addition, travel and related
expense costs declined by $2.2 million due to travel restrictions resulting from COVID-19. These declines were partially offset
by $2.3 million in higher employee-related costs. For the year ended December 31, 2020, sales and marketing expense includes
severance charges of $1.7 million. We expect sales and marketing expenses to fluctuate as we optimize our sales channels and
invest in new customer acquisition, products and geographies.
Product Development. Product development expenses decreased by $11.2 million, or 20%, to $46.0 million in 2020 as
compared to 2019. This decrease was primarily driven by a $7.6 million reduction in software and other IT-related costs for the
year ended December 31, 2020, compared to the prior year. In addition, employee and consulting related expenses decreased by
$1.4 million in 2020 as compared to 2019. For the year ended December 31, 2020, product and development expense includes
severance charges of $1.1 million. We expect product development expenses, of which a portion will be capitalized, to continue
in the foreseeable future, as we pursue opportunities to invest in developing new products and internal tools and enhance the
functionality of our existing products and technologies.
General and Administrative. General and administrative expenses increased by $3.3 million, or 3%, to $116.6 million in
2020 as compared to 2019. This increase was primarily driven by (i) higher non-cash compensation expense of $5.6 million,
attributable to certain performance-based awards; (ii) higher employee-related costs of $4.2 million in 2020 as compared to
2019; and (iii) an increase in bad debt expense of $2.5 million in 2020 compared to 2019. These increases were partially offset
by (i) a reduction in expense of $3.4 million, associated with the 2019 accrual of long-term incentives, related to our 2017
acquisition of Flashstock; (ii) lower depreciation and amortization expense of $3.2 million, driven by the recognition of $1.5
million of accelerated amortization expense in 2019 in conjunction with the Company’s re-branding of its Editorial product, in
addition to lower depreciation driven by assets which became fully depreciated in prior periods; and (iii) lower professional and
consulting fees of $1.6 million in 2020 compared to 2019. For the years ended December 31, 2020 and 2019, general and
administrative expenses include severance charges of $1.4 million and $1.3 million, respectively.
Other income, net. During 2020, $3.1 million of other income related to favorable foreign currency fluctuations, in
addition to $1.2 million of interest income.
During 2019, $4.2 million of other income consisted of interest income, in addition to $0.5 million related to favorable
foreign currency fluctuations. As we increase the volume of business transacted in foreign currencies resulting from
international expansion and as currency rates fluctuate, we expect foreign currency gains and losses to continue to fluctuate.
Income Taxes. Income tax expense increased by $12.9 million, or 269%, to $17.8 million in 2020 as compared to 2019.
The increase in 2020 income tax expense was primarily driven by the increase in pre-tax income from $24.9 million in 2019 to
$89.5 million in 2020. Our effective tax rates for the years ended December 31, 2020 and 2019 were approximately 19.8% and
19.3%, respectively.
The 2020 effective tax rate includes certain discrete items and the net effect of these discrete items increased the effective
tax rate for 2020 by 0.8%. Excluding these discrete items, the effective tax rate would have been 19.0% for 2020.
The 2019 effective tax rate includes discrete items, the most significant of which relate to a discrete tax benefit for the
release of reserves for uncertain tax positions due to a lapse in the statute of limitations, the effects of the foreign-derived
intangible income deduction and the U.S. Research and Development tax credit claimed on the Company’s 2018 tax return,
which was completed in 2019. The net effect of these discrete items decreased our effective tax rate for 2019 by 5.2%.
Excluding these discrete items, the 2019 effective tax rate would have been 24.5%.
As we continue to expand our operations outside of the United States, we have been and may continue to become subject
to taxation in additional non-U.S. jurisdictions and our effective tax rate could fluctuate accordingly.
53 Comparison of the Years Ended December 31, 2019 and December 31, 2018
The following table presents our results of operations for the periods indicated:
Consolidated Statements of Operations Data:
Revenue
Operating expenses:
Cost of revenue
Sales and marketing
Product development
General and administrative
Total operating expenses
Income from operations
Gain on Sale of Webdam
Other income / (expense), net
Income before income taxes
Provision for income taxes
Net income
Year Ended December 31,
2019
2018
$ Change
% Change
(in thousands)
$
650,523 $
623,250 $
27,273
4 %
278,176
181,730
57,216
113,246
630,368
20,155
—
4,761
24,916
4,808
267,671
166,448
58,897
97,782
590,798
32,452
38,613
(4,952)
66,113
11,426
10,505
15,282
(1,681)
15,464
39,570
(12,297)
(38,613)
9,713
(41,197)
(6,618)
$
20,108 $
54,687 $
(34,579)
4
9
(3)
16
7
(38)
*
*
(62)
(58)
(63) %
_______________________________________________________________________________
*
Not meaningful. See “Other (expense) / income, net” and “Gain on Sale of Webdam” below
Revenue
Revenue increased by $27.3 million, or 4%, to $650.5 million in 2019 as compared to 2018. Excluding the impact of
foreign currency fluctuations, revenue increased 6% from 2018 to 2019. The increase was partially offset by the absence of
revenue from Webdam, which contributed $2.7 million for the period from January 1, 2018 through February 26, 2018. The
Company completed the Sale of Webdam in February 2018.
The Company’s E-commerce revenues increased by 7%, to $392.2 million in 2019 as compared to 2018. On a constant
currency basis, the Company’s E-commerce revenues increased by approximately 9% in 2019 as compared to 2018. The
Company’s Enterprise revenues increased by 1%, to $258.3 million in 2019 as compared to 2018. On a constant currency basis,
the Company’s Enterprise revenues increased by approximately 3% in 2019 as compared to 2018. The Company faced
headwinds in its Enterprise sales channel which resulted in the implementation of changes, including sales force optimization
and compensation plan revisions.
During 2019, we continued to grow our customer base and continued with initiatives focused on broadening our product
offerings and adding functionality to our creative platform, enhancing our workflow tools and increasing sales and marketing
efforts to attract more users and promote increased customer engagement across our platform. As a result of these initiatives,
there was a 5% increase in the number of paid downloads compared to 2018. Changes in our product mix drove a 1% increase
in revenue per download as compared to the prior year. In 2019 and 2018, we delivered 188 million and 180 million paid
downloads, respectively, and our revenue per download increased to $3.43 from $3.40, respectively.
Our revenue growth by region is as follows: revenue from outside Europe and North America increased by $20.2 million,
or 11%, to $204.9 million, revenue from Europe increased by $9.8 million, or 5%, to $217.4 million and revenue from North
America increased by $2.7 million, or 1%, to $228.2 million in 2019 compared to 2018.
54 Cost and Expenses
Cost of Revenue. Cost of revenue increased by $10.5 million, or 4%, to $278.2 million in 2019 as compared to 2018.
Royalty expense, which is primarily incurred as content is downloaded, increased $3.8 million, or 2%, as compared to 2018.
Depreciation and amortization expense increased by $4.7 million as compared to 2018, to $40.5 million in 2019, driven
primarily by the depreciation of our capitalized internal-use software. We expect that our cost of revenue will increase in
absolute dollars in the foreseeable future to the extent our revenue grows. We expect that our cost of revenue will fluctuate in
line with changes in revenue and paid downloads.
Sales and Marketing. Sales and marketing expenses increased by $15.3 million, or 9%, to $181.7 million in 2019 as
compared to 2018. Expenses related to brand and performance advertising, the largest component of our sales and marketing
expenses, increased by $10.8 million, or 12%, in 2019 compared to 2018, as a result of increased spending on affiliate, search
advertising and other new channels. Employee-related expenses increased by $2.3 million, as compared to the same period in
the prior year, driven by an increase in sales and marketing headcount to support new initiatives. As a percent of revenue, for
2019, sales and marketing expenses increased slightly from the same period in 2018, primarily driven by the increase in
customer acquisition costs. As we continue to invest in new customer acquisition, products and geographies, we expect sales
and marketing expenses to increase in absolute dollars in the foreseeable future.
Product Development. Product development expenses decreased by $1.7 million, or 3%, to $57.2 million in 2019 as
compared to 2018. This decrease was driven by an approximately $5.5 million reduction in employee related costs, net of
capitalized labor. The decline was partially offset by an increase of $4.0 million in software and other technology used to
support our product development initiatives in 2019, as compared to 2018. We expect product development expenses, of which
a portion will be capitalized, to continue in the foreseeable future, as we pursue opportunities to invest in developing new
products and internal tools and enhancing the functionality of our existing products and technologies.
General and Administrative. General and administrative expenses increased by $15.5 million, or 16%, to $113.2 million
in 2019 as compared to 2018. This increase was driven by (i) higher employee-related costs of $9.9 million in 2019 as
compared to 2018, primarily driven by increased headcount associated with ensuring the stability and security of the
Company’s technology infrastructure; (ii) severance charges of approximately $2.2 million incurred in 2019; (iii) higher
software and other IT-related costs of $5.0 million in 2019, as compared to 2018, related primarily to enhancements to our
corporate and technology infrastructure; and (iv) higher professional and consulting fees of $1.4 million, as compared to 2018.
These increases were partially offset by a $1.1 million reduction in bad debt expense in 2019 as compared to 2018. In addition,
depreciation and amortization expense in 2019 decreased $0.4 million, including the impact of $1.5 million of accelerated
amortization expense recorded in connection with the Company’s re-branding of its Editorial product. We expect to continue to
incur general and administrative expenses to support our global operational growth and enhancements to support our reporting
and planning functions.
Gain on Sale of Webdam. On February 26, 2018, the Company completed the Sale of Webdam, for an aggregate purchase
price of $49.1 million. Total cash received, net of $4.6 million in transaction costs paid, was $44.3 million, inclusive of $2.5
million received during 2019 from the release of escrowed funds. During 2018, management recognized a pre-tax gain on the
sale of approximately $38.6 million, which represents the excess of the net purchase price over the net assets transferred, less
transaction costs.
Other income / (expense), net. During 2019, approximately $4.2 million of other income consisted of interest income, in
addition to $0.5 million of favorable foreign currency fluctuations. During 2018, we recorded a charge of $5.9 million as a
result of the impairment of a long-term investment asset. Additionally, during 2018, we recorded an expense of approximately
$1.8 million related to unfavorable foreign currency fluctuations, offset by approximately $2.7 million of interest income. As
we increase the volume of business transacted in foreign currencies resulting from international expansion and as currency rates
fluctuate, we expect foreign currency gains and losses to continue to fluctuate.
Income Taxes. Income tax expense decreased by $6.6 million to $4.8 million in 2019 as compared to 2018. The decrease
in 2019 income tax expense was primarily driven by the absence of $11.0 million of tax expense associated with the gain on
Sale of Webdam, recorded in 2018, partially offset by $3.1 million of expense related to certain provisions of the TCJA and a
$1.0 million valuation allowance related to certain foreign net operating loss carryforwards. Our effective tax rates for the years
ended December 31, 2019 and 2018 were approximately 19.3% and 17.3%, respectively.
The 2019 effective tax rate includes discrete items, the most significant of which relate to a discrete tax benefit for the
release of reserves for uncertain tax positions due to a lapse in the statute of limitations, the effects of the foreign-derived
intangible income deduction and the U.S. Research and Development tax credit claimed on the Company’s 2018 tax
return,which was completed in 2019. The net effect of these discrete items decreased the effective tax rate for 2019 by 5.2%.
Excluding these discrete items, the effective tax rate would have been 24.5% for 2019.
55 The 2018 effective tax rate includes discrete items, the most significant of which relate to the gain on the Sale of
Webdam, partially offset by discrete tax benefits relating to the impairment of a long-term investment asset, the release of
reserves for uncertain tax positions due to a lapse in the statute of limitations and the effect of the U.S. Research and
Development tax credit claimed on our 2017 tax return, which was completed in 2018. The net effect of these discrete items
increased our effective tax rate for 2018 by 6.2%. Excluding these discrete items, the 2018 effective tax rate would have been
11.1%.
As we continue to expand our operations outside of the United States, we have been and may continue to become subject
to taxation in additional non-U.S. jurisdictions and our effective tax rate could fluctuate accordingly.
Liquidity and Capital Resources
As of December 31, 2020, we had cash and cash equivalents totaling $428.6 million, which primarily consisted of bank
balances and money market funds. Since inception, we have financed our operations primarily through cash flows generated
from operations.
Historically, our principal uses of cash have included funding our operations, capital expenditures, content acquisition,
business combinations that enhance our strategic position, cash dividend payments and share purchases under our share
repurchase program. We plan to finance our operations and capital expenses largely through cash generated by our operations.
Stock Offering
On August 14, 2020, we completed an offering (the “Stock Offering”), whereby 2,580,000 shares of our common stock
were sold to the public at a price to the public of $48.50 per share. We sold 516,000 shares of common stock in the Stock
Offering and our Founder and Executive Chairman of the Board sold 2,064,000 shares of common stock in the Stock Offering.
We received net proceeds from the shares sold, of approximately $23.2 million, after deducting underwriting discounts and
commissions and offering expenses payable. We did not receive any proceeds from the shares sold by the Company’s Founder
and Executive Chairman of the Board.
Dividends
We declared and paid cash dividends of $0.68 per share of common stock, or $24.4 million during the year ended
December 31, 2020.
On January 12, 2021, our Board of Directors declared a quarterly cash dividend of $0.21 per share of outstanding
common stock payable on March 18, 2021 to stockholders of record at the close of business on March 4, 2021. The Company
currently expects to continue to pay comparable cash dividends on a quarterly basis in the future. Future declarations of
dividends are subject to the final determination of our Board of Directors, and will depend on, among other things, our 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 our Board of Directors may deem
relevant.
On August 1, 2018, the Board of Directors declared a Special Dividend of $3.00 per share. The Special Dividend was paid
on August 29, 2018 to stockholders of record at the close of business on August 15, 2018. The aggregate payment made in
connection with this dividend was approximately $104.9 million.
Long-Term Investments
In 2020, we invested $5.0 million in preferred shares of an entity with a creative production and analytics platform. These
preferred shares do not have a readily determinable fair value, and provide us less than a 2% fully diluted ownership interest.
In 2018, we invested $15 million in convertible preferred shares issued by ZCool Technologies Limited (“ZCool”), which
is equivalent to a 25% fully diluted equity ownership interest, to further expand our presence in fast-growing markets. 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 content in
China since 2014.
Sale of Digital Asset Management Business
On February 26, 2018, we completed the Sale of Webdam for an aggregate purchase price of $49.1 million. Total cash
received, net of $4.6 million transaction costs paid, was $44.3 million, inclusive of $2.5 million received during the year ended
December 31, 2019, from the release of funds from escrow. During 2018,we recognized a pre-tax gain on sale of approximately
$38.6 million, which represents the excess of the net purchase price over the net assets transferred, less transaction costs.
56 Share Repurchase Program
In October 2015, our board of directors approved a share repurchase program, authorizing us to repurchase up to $100
million of our common stock and in February 2017, our Board of Directors approved an increase to the share repurchase
program, authorizing us to repurchase up to an additional $100 million of our outstanding common stock. We expect to fund
future repurchases, if any, through a combination of cash on hand, cash generated by operations and future financing
transactions, if appropriate. Accordingly, our share repurchase program is subject to us having available cash to fund
repurchases. Under the share repurchase program, management is authorized to purchase shares of our 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 December 31, 2020, we have repurchased approximately 2,558,000 shares of our common stock under the share
repurchase program at an average per-share cost of $39.09. As of December 31, 2020, we have $100 million of repurchase
capacity remaining under this program. We did not repurchase any shares under the share repurchase program in 2020.
Share-Based Compensation
Effective October 1, 2016, we implemented a practice of net share settlement upon the vesting of restricted stock units
(“RSUs”) to cover any required withholding taxes by retaining the number of shares with a value equal to the amount of the tax
and remitting an equal amount of cash to the appropriate taxing authorities, rather than our previous approach of requiring
employees to sell a portion of the shares that they receive upon vesting to fund the required withholding taxes (“sell-to-cover”).
The net share settlement approach has increased our cash outflows compared to the cash outflows under the sell-to-cover
approach. In addition, as compared to the sell-to-cover approach, net share settlement has resulted in fewer shares being issued
into the market as employees’ RSUs vest, thereby reducing the dilutive impact of our share-based compensation programs on
stockholders.
During the year ended December 31, 2020, shares with an aggregate value of $4.5 million were withheld upon vesting of
RSUs and paid in connection with related remittance to taxing authorities. In addition, $1.2 million of proceeds were received
during 2020 from the issuance of common stock in connection with the exercise of stock options.
Sources and Uses of Funds
We believe, based on our current operating plan, that our cash and cash equivalents, and cash from operations, will be
sufficient to meet our anticipated cash needs for at least the next 12 months. Future capital expenditures will generally relate to
building enhancements to the functionality of our current platform, the acquisition of additional storage, servers, network
connectivity hardware, security apparatus and software, leasehold improvements and furniture and fixtures related to office
expansion and relocation, content and general corporate infrastructure.
See Note 15 of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on
Form 10-K for information regarding our existing capital commitments as of December 31, 2020.
Cash Flows
The following table summarizes our cash flow data for 2020, 2019 and 2018, respectively.
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Operating Activities
Year Ended December 31,
2020
2019
2018
(in thousands)
$
$
$
165,072 $
102,646 $
102,202
(35,310) $
(27,234) $
(12,827)
(4,587) $
(1,696) $
(109,739)
Our primary source of cash from operating activities is cash collections from our customers. The majority of our revenue
is generated from credit card transactions and is typically settled within one to five business days. Our primary uses of cash for
operating activities are for the payment of royalties to content contributors, employee-related expenditures and the payment of
other operating expenses incurred in the ordinary course of business.
Net cash provided by operating activities was $165.1 million for the year ended December 31, 2020, compared to
$102.6 million for the year ended December 31, 2019. In the year ended December 31, 2020, operating cash flows were
favorably impacted from our increased operating income, partially offset by $7.8 million in one-time payments associated with
57 long-term incentives related to our 2017 acquisition of Flashstock, and changes in the timing of payments pertaining to
operating expenses, which can cause operating cash flow to fluctuate from period to period.
Net cash provided by operating activities was $102.6 million in 2019, which remained flat compared to $102.2 million in
2018.
Investing Activities
Our investing activities have consisted primarily of capital expenditures for internal-use software and website
development costs and purchases of software and equipment. Our investing activities have also included content acquisitions, as
well as investments, acquisitions and disposals. Capital expenditures include internal-use software and website development
costs and purchases of software equipment as well as capitalization of leasehold improvements. Capital expenditures are
primarily attributable to investments in internally developed software. We continue to invest significantly in product
development and hosting infrastructure to enhance our customer experience and increase the efficiency with which we deploy
new products and features. Cash used in investing activities totaled $35.3 million, $27.2 million and $12.8 million for the years
ended December 31, 2020, 2019 and 2018, respectively.
Cash used in investing activities for the year ended December 31, 2020 was $35.3 million, consisting primarily of capital
expenditures of $25.6 million for internal-use software and website development costs and purchases of software and
equipment, an investment of $5.0 million in a creative production and analytics platform, $3.0 million paid to acquire the rights
to distribute certain digital content and $1.9 million associated with the acquisition of AI driven music technology.
Cash used in investing activities during 2019, mostly consisted of capital expenditures and content acquisitions of
$26.1 million and $3.3 million, respectively, partially offset by $2.5 million net cash received from escrowed funds related to
the Sale of Webdam.
Cash used in investing activities during 2018 mostly consisted of $34.9 million of capital expenditures and our $15.0
million investment in ZCool, partially offset by $41.8 million net cash received from the Sale of Webdam.
Financing Activities
Our financing activities have consisted primarily of payments associated with cash dividends and cash paid in settlement
of tax withholding obligations related to employee stock-based compensation awards in addition to proceeds from our Stock
Offering and proceeds received in connection with the exercise of stock options. Cash used in financing activities totaled
$4.6 million, $1.7 million and $109.7 million for the years ended December 31, 2020, 2019 and 2018, respectively.
Cash used in financing activities during 2020 primarily consisted of $24.4 million related to the payment of the quarterly
cash dividends and $4.5 million paid in settlement of tax withholding obligations related to employee stock-based
compensation awards. These amounts were partially offset by $23.2 million of proceeds from our Stock Offering, after
deducting underwriting discounts, commissions and offering expenses paid and approximately $1.2 million in proceeds
received in connection with the exercise of stock options.
Cash used in financing activities during 2019 primarily consisted of $7.1 million, paid in settlement of tax withholding
obligations related to employee stock-based compensation awards, partially offset by approximately $5.4 million of proceeds
received in connection with the exercise of stock options.
Cash used in financing activities during 2018 primarily consisted of $104.9 million related to the payment of the Special
Dividend and $7.3 million, paid in settlement of tax withholding obligations related to employee stock-based compensation
awards, partially offset by proceeds of approximately $2.5 million in proceeds received in connection with the exercise of stock
options.
58 Contractual Obligations and Commitments
We lease real estate under operating lease agreements that expire on various dates during the period from 2021 through
2029. We do not have any material capital lease obligations, and our property, equipment and software have been purchased
primarily with cash. We do not anticipate any difficulties in renewing those leases that expire within the next several years or in
leasing other space or hosting facilities, if required. We enter into unconditional purchase obligations related to contracts for
cloud-based services, infrastructure and other business services as well as minimum royalty guarantees in connection with
certain content licenses. Our future minimum payments under non-cancelable operating leases and purchase obligations are as
follows as of December 31, 2020:
Operating lease obligations
Purchase obligations
Total
Payments Due by Period
Total
Less Than
1 Year
1 - 3 Years
3 - 5 Years
More Than
5 Years
(in thousands)
$
64,317 $
9,334 $
14,725 $
14,607 $
25,651
38,637
26,524
12,113
—
—
$
102,954 $
35,858 $
26,838 $
14,607 $
25,651
On March 21, 2013, we entered into an operating lease agreement to lease our headquarters in New York City, which was
amended in January 2016, which we refer to as the ESB Lease. The ESB Lease will expire in 2029, and the aggregate
undiscounted future minimum lease payments, are approximately $56.3 million. We are also party to a letter of credit as a
security deposit for this leased facility, which was reduced from $2.6 million to $1.7 million in February 2020. As of March 31,
2020, the Company is no longer required to provide cash collateral for its letter of credit, and, accordingly, these funds are no
longer restricted.
We also enter into license agreements under which we agree 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 such agreements for
damages directly attributable to a breach by us. We are not responsible for any damages, costs, or losses to the extent such
damages or losses arise as a result of the modifications made by the customer, or the context in which content is used. Our
license agreements entered into with customers limit our indemnification obligations at amounts ranging from $10,000 to
$250,000, with certain exceptions for which our indemnification obligations are uncapped. We have experienced nominal losses
to date as a result of the indemnification we offer and, as such, our reserves for indemnification-related losses are also nominal.
We believe that we have the appropriate insurance coverage in place to adequately cover such indemnification obligations, if
necessary.
Off-Balance Sheet Arrangements
As of December 31, 2020, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of
Regulation S-K, that have or are reasonably likely to have a current or future effect on our financial condition, changes in our
financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is
material to investors.
Critical Accounting Policies and Estimates
Our financial statements are prepared in accordance with generally accepted accounting principles in the United States, or
GAAP. The preparation of the consolidated financial statements in conformity with GAAP requires our management to make a
number of estimates and assumptions relating to the reported amounts of assets and liabilities, the disclosure or inclusion of
contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and
expenses during the period. We evaluate our significant estimates on an ongoing basis, including, but not limited to, estimates
related to allowance for doubtful accounts, the volume of expected unused licenses used in revenue recognition for our
subscription-based products and income tax provisions. We base our estimates on historical experience and on various other
assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments
about carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from
those estimates.
59 We believe that the assumptions and estimates associated with our revenue recognition, allowance for doubtful accounts
and accounting for income taxes have the greatest potential impact on our financial statements. Therefore, we consider these to
be our critical accounting policies and estimates.
Revenue Recognition
The majority of our revenues are 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. Prior to the Sale of Webdam, we also earned revenue from licensing hosted software services through Webdam’s
cloud-based tools for businesses, which were purchased as part of a subscription.
We recognize revenues upon the satisfaction of performance obligations, which generally occurs when (i) content is
downloaded by a customer or (ii) hosted software services are provisioned and available to a customer. For content licenses, we
recognize revenues on both a subscription-based and transaction-based products when content is downloaded, at which time the
license is provided. In addition, we estimate expected unused licenses for subscription-based products and recognize the
estimated revenue associated with 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 our subscription products. Revenue associated
with hosted software services is recognized ratably over the term of the license. We expense 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 our 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.
We recognize revenue gross of contributor royalties because we are the principal in the transaction as we are the party
responsible for the performance obligation and we control the product or service before transferring it to the customer. We also
license content to customers through third-party resellers. Third-party resellers sell our products directly to customers as the
principal in those transactions. Accordingly, we recognize revenue net of costs paid to resellers.
Accounts Receivable and Allowance for Doubtful Accounts
Our accounts receivable consists of customer obligations due under normal trade terms, carried at their fair value less an
allowance for doubtful accounts, if required. We determine our allowance for doubtful accounts based on an evaluation of the
aging of our accounts receivable and on a customer-by-customer basis where appropriate. Our reserve analysis contemplates
our historical loss rate on receivables, specific customer situations and the economic environments in which we operate.
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.
As of December 31, 2020 and 2019, we had an allowance for doubtful accounts of $4.9 million and $3.6 million,
respectively. Fluctuations in our allowance for doubtful accounts are primarily attributable to changes in the aging profile of our
gross accounts receivable balances and specific customer situations arising during the year.
Income Taxes
Our income tax expense includes U.S. (federal and state) and foreign income taxes. Deferred income tax balances reflect
the effects of temporary differences between the carrying amounts of assets and liabilities and their tax basis, and are stated at
enacted tax rates expected to be in effect when taxes are actually paid or recovered.
We account for unrecognized tax benefits using a more-likely-than-not threshold for financial statement recognition and
measurement of tax positions taken or expected to be taken in a tax return. We establish reserves for tax-related uncertainties
based on estimates of whether, and the extent to which, additional taxes may be due. We record an income tax liability for the
difference, if any, between the benefit recognized and measured and the tax position taken or expected to be taken on our tax
returns. To the extent that the assessment of such tax positions changes, the change in estimate is recorded in the period in
which the determination is made. The reserves are adjusted in light of changing facts and circumstances, such as the outcomes
of tax audits or lapses in statutes of limitations. Any reserve for uncertain tax provisions and related penalties and interest is
included in the income tax provision.
60 On a quarterly basis, we assess the realizability of deferred tax assets, based on the available evidence including a history
of taxable income, estimates of future taxable income and planning strategies and a valuation allowance is recorded to the
extent that it is not more likely than not that the deferred tax assets will be realized. Significant management judgment is
required in determining the provision for income taxes and deferred tax assets and liabilities. In the event that actual results
differ from these estimates, we will adjust these estimates in future periods which may result in a change in the effective tax rate
in a future period.
Except as required under U.S. tax laws, we do not provide for U.S. taxes on the undistributed earnings of our foreign
subsidiaries. With the enactment of the TCJA, we are required to treat the undistributed earnings and profits of our foreign
subsidiaries accumulated through a measurement period that should not extend more than one year beyond the date of the
enactment of the TCJA as if they were repatriated to the U.S., and pay a current U.S. tax amount as a result of such “deemed”
repatriation. We do not record provisions for potential deferred U.S. income taxes or foreign withholding taxes that otherwise
may be payable if we were to repatriate such earnings, since we do not intend to repatriate such amounts.
In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income
(“GILTI”) provisions of the TCJA. The GILTI provisions impose a tax on foreign income in excess of a deemed return on
tangible assets of foreign corporations. In the first quarter of 2018, we elected to treat any potential GILTI inclusions as a
period cost. We continue to assess the impacts of the TCJA on future fiscal years and monitor the Internal Revenue Service
guidance intended to interpret the provisions of the TCJA.
Acquisitions
Business combinations are recorded at fair value and allocated to the assets acquired and liabilities assumed in the
transaction. Fair values are based on the exit price (i.e., the price that would be received to sell an asset or transfer a liability in
an orderly transaction between market participants at the measurement date). We evaluate several factors, which may include
market data for similar assets and expected future cash flows discounted at risk adjusted rates and replacement cost for the
assets to determine an appropriate exit price when evaluating the fair value of our assets. Other assets and liabilities acquired in
a business combination are recorded based on the fair value of the assets acquired and liabilities assumed at acquisition date.
Changes to these factors could affect the measurement and allocation of fair value.
Recent Accounting Pronouncements
See Note 1 of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on
Form 10-K for a full description of recent accounting pronouncements, which is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to market risks in the ordinary course of our business, including risks related to foreign currency
exchange rate fluctuation, interest rate fluctuation and inflation.
Foreign Currency Exchange Risk
Our sales to international customers are denominated in multiple currencies, including but not limited to the U.S. dollar,
the euro, the British pound, the Australian dollar and the Japanese yen. Revenue denominated in foreign currencies as a
percentage of total revenue was approximately 36%, 35% and 35% in 2020, 2019 and 2018, respectively. Changes in exchange
rates will affect our revenue and certain operating expenses to the extent that our revenue is generated and expenses are
incurred in currencies other than the U.S. dollar. Royalties earned by and paid to contributors are denominated in the U.S. dollar
and will not be affected by changes in exchange rates. Based on our foreign currency denominated revenue for 2020, we
estimate that a 10% change in the exchange rate of the U.S. dollar against all foreign currency denominated revenues would
impact our revenue by approximately 3%.
We have established foreign subsidiaries in various countries and have concluded that the functional currency of these
entities is generally the local currency. Business transacted in currencies other than each entity’s functional currency results in
transactional gains and losses. The net impacts of foreign currency transactions on our financial statements were gains of
$2.4 million and $0.2 million in 2020 and 2019, respectively, and a loss of $2.2 million in 2018. Translation adjustments
resulting from converting the foreign subsidiaries’ financial statements into U.S. dollars are recorded as a component of
accumulated other comprehensive income (loss) in stockholders’ equity. We do not currently enter into derivatives or other
financial instruments in order to hedge our foreign currency exchange risk, but we may do so in the future.
61 Our historical revenue by currency is as follows (in thousands):
2020
Year Ended December 31,
2019
2018
U.S.
Dollars
Originating
Currency
U.S.
Dollars
Originating
Currency
U.S.
Dollars
Originating
Currency
Euro
$ 138,128 €
122,287 $ 133,341 €
117,852 $ 124,732 €
105,327
British pounds
All other non-U.S. currencies(1)
Total foreign currency
U.S. dollar
Total revenue
49,402 £
38,570
48,307 £
37,658
49,561 £
36,965
49,630
237,160
429,526
$ 666,686
47,471
229,119
421,404
$ 650,523
44,393
218,686
404,564
$ 623,250
(1)
Includes no single currency which exceeded 5% of total revenue for any of the periods presented.
Interest Rate Fluctuation Risk
Our cash and cash equivalents consist of cash and money market accounts. The primary objective of our investment
activities is to preserve principal while maximizing income without significantly increasing risk. The fair value of our cash and
cash equivalents is not particularly sensitive to interest rate changes.
We did not have any long-term borrowings as of December 31, 2020.
Inflation Risk
We do not believe that inflation has had a material effect on our business, financial condition or results of operations. If
our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs
through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.
Item 8. Financial Statements and Supplementary Data.
The information required by this item is incorporated by reference to the consolidated financial statements and
accompanying notes set forth on pages F-2 through F-32 of this Annual Report on Form 10-K.
62 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the
effectiveness of our disclosure controls and procedures as of December 31, 2020. The term “disclosure controls and
procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a
company that are designed to ensure that information required to be disclosed by a company in the reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the
SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is
accumulated and communicated to the company’s management, including its principal executive and principal financial
officers, as appropriate, to allow timely decisions regarding required disclosure. However, any controls and procedures, no
matter how well designed and operated, can provide only reasonable assurance of achieving their objective.
Based on the evaluation of our disclosure controls and procedures as of December 31, 2020, our Chief Executive Officer
and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at a
reasonable assurance level.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our
internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of our financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles.
Management assessed our internal control over financial reporting as of December 31, 2020. Management based its
assessment on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
Based on our assessment, management has concluded that our internal control over financial reporting was effective as of
December 31, 2020.
PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited the consolidated financial
statements included in this Annual Report on Form 10-K and, as part of the audit, has issued a report on the effectiveness of our
internal control over financial reporting as of December 31, 2020, which begins on page F-2 of this Annual Report on Form 10-
K.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting, identified in management’s evaluation pursuant to
Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the three months ended December 31, 2020 that materially affected,
or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Controls
Our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable
assurance of achieving their objectives as specified above. Management does not expect, however, that our disclosure controls
and procedures or our internal control over financial reporting will prevent or detect all error and fraud. The design of a control
system must reflect that there are resource constraints, and the benefits of controls must be considered relative to their costs.
Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only
reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute
assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within
the Company have been detected.
Item 9B. Other Information.
None.
63 PART III
Item 10. Directors, Officers and Corporate Governance
The information required by this item is incorporated by reference to our Proxy Statement for the 2021 Annual Meeting of
Stockholders to be filed with the SEC, within 120 days after the end of the fiscal year ended December 31, 2020.
We have adopted a Code of Business Conduct and Ethics that applies to all of our directors, officers and employees,
including our principal executive officer and our principal financial and accounting officer. The Code of Business Conduct and
Ethics is available on our investor relations website (investor.shutterstock.com) in the “Corporate Governance” section. We will
post any amendments to, or waivers from, a provision of this Code of Business Conduct and Ethics by posting such information
on our website, at the address and location specified above.
Item 11. Executive Compensation
The information required by this item is incorporated by reference to our Proxy Statement for the 2021 Annual Meeting of
Stockholders to be filed with the SEC, within 120 days after the end of the fiscal year ended December 31, 2020.
Item 12. Security Ownership Of Certain Beneficial Owners And Management And Related Stockholder Matters
The information required by this item is incorporated by reference to our Proxy Statement for the 2021 Annual Meeting of
Stockholders to be filed with the SEC, within 120 days after the end of the fiscal year ended December 31, 2020.
Item 13. Certain Relationships And Related Transactions, and Director Independence
The information required by this item is incorporated by reference to our Proxy Statement for the 2021 Annual Meeting of
Stockholders to be filed with the SEC, within 120 days after the end of the fiscal year ended December 31, 2020.
Item 14. Principal Accounting Fees and Services
The information required by this item is incorporated by reference to our Proxy Statement for the 2021 Annual Meeting of
Stockholders to be filed with the SEC, within 120 days after the end of the fiscal year ended December 31, 2020.
64 PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a)
The following documents are included as part of this Annual Report on Form 10-K:
(1) Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
F-2
F-4
F-5
F-6
F-7
F-8
F-9
Financial statement schedules have been omitted because they are not applicable or the required information is included in
the consolidated financial statements or notes thereto.
(3) Exhibits
See the Exhibit Index, which immediately precedes the signature page of this Annual Report on Form 10-K.
Item 16. Form 10-K Summary.
None.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Shutterstock, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Shutterstock, Inc. and its subsidiaries (the “Company”) as of
December 31, 2020 and 2019, and the related consolidated statements of operations, of comprehensive income, of stockholders’
equity and of cash flows for each of the three years in the period ended December 31, 2020, including the related notes
(collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over
financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United
States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013)
issued by the COSO.
Changes in Accounting Principles
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for
leases in 2019 and the manner in which it accounts for revenues from contracts with customers in 2018.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included
in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to
express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial
reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material
respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement
of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the
risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
F-2 Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or
disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition
As described in Notes 1 and 8 to the consolidated financial statements, 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. For the year ended December 31, 2020, the Company’s total revenue was $666.7 million.
The principal considerations for our determination that performing procedures relating to revenue recognition is a critical audit
matter are the significant audit effort in performing procedures and evaluating audit evidence related to content license
arrangements and customer download activity.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall
opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the
revenue recognition process, including controls over the completeness, accuracy and existence of revenue recognized. These
procedures also included, among others, evaluating the completeness, accuracy and existence of revenue recognized on a
sample basis by inspecting content license arrangements and evaluating the appropriateness of the revenue recognized based on
the terms of each arrangement and customer download activity.
/s/ PricewaterhouseCoopers LLP
New York, New York
February 11, 2021
We have served as the Company’s auditor since 2011.
F-3 SHUTTERSTOCK, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value amount)
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, net of allowance of $4,942 and $3,579
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Right-of-use assets
Intangible assets, net
Goodwill
Deferred tax assets, net
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued expenses
Contributor royalties payable
Deferred revenue
Other current liabilities
Total current liabilities
Lease liabilities
Other non-current liabilities
Total liabilities
Commitments and contingencies (Note 16)
Stockholders’ equity:
Common stock, $0.01 par value; 200,000 shares authorized; 38,803 and 38,055 shares issued and 36,245
and 35,497 shares outstanding as of December 31, 2020 and December 31, 2019, respectively
Additional paid-in capital
Treasury stock, at cost; 2,558 shares as of December 31, 2020 and December 31, 2019
Accumulated other comprehensive loss
Retained earnings
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying notes to consolidated financial statements
December 31,
2020
2019
$
428,574 $
303,261
43,846
16,650
47,016
26,703
489,070
376,980
50,906
39,552
25,765
89,413
13,566
21,372
58,834
45,453
26,669
88,974
14,387
19,215
$
729,644 $
630,512
$
2,442 $
6,104
67,909
26,336
149,843
10,399
256,929
41,620
9,170
53,864
25,193
141,922
18,811
245,894
47,313
9,160
307,719
302,367
389
381
360,939
312,824
(100,027)
(100,027)
(7,681)
(6,220)
168,305
421,925
121,187
328,145
$
729,644 $
630,512
F-4 SHUTTERSTOCK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Revenue
Operating expenses:
Cost of revenue
Sales and marketing
Product development
General and administrative
Total operating expenses
Income from operations
Gain on Sale of Webdam
Other income / (expense), net
Income before income taxes
Provision for income taxes
Net income
Earnings per share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
Year Ended December 31,
2020
2019
2018
$
666,686 $
650,523 $
623,250
259,573
278,176
267,671
159,241
181,730
166,448
46,038
57,216
116,568
113,246
58,897
97,782
581,420
630,368
590,798
85,266
20,155
—
4,257
89,523
17,757
—
4,761
24,916
4,808
32,452
38,613
(4,952)
66,113
11,426
$
71,766 $
20,108 $
54,687
$
$
2.00 $
0.57 $
1.97 $
0.57 $
1.57
1.54
35,844
36,369
35,285
35,581
34,935
35,420
See accompanying notes to consolidated financial statements
F-5 SHUTTERSTOCK, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income
Foreign currency translation (loss) / gain
Other comprehensive (loss) / income
Comprehensive income
Year Ended December 31,
2020
2019
2018
$
71,766 $
20,108 $
54,687
(1,461)
(1,461)
251
251
(2,914)
(2,914)
$
70,305 $
20,359 $
51,773
See accompanying notes to consolidated financial statements
F-6 d
e
n
i
a
t
e
R
s
g
n
i
n
r
a
E
d
e
t
a
l
u
m
u
c
c
A
r
e
h
t
O
e
v
i
s
n
e
h
e
r
p
m
o
C
s
s
o
L
l
a
n
o
i
t
i
d
d
A
n
i
-
d
i
a
P
l
a
t
i
p
a
C
k
c
o
t
S
y
r
u
s
a
e
r
T
k
c
o
t
S
n
o
m
m
o
C
t
n
u
o
m
A
s
e
r
a
h
S
t
n
u
o
m
A
s
e
r
a
h
S
.
C
N
I
,
K
C
O
T
S
R
E
T
T
U
H
S
Y
T
I
U
Q
E
’
S
R
E
D
L
O
H
K
C
O
T
S
F
O
S
T
N
E
M
E
T
A
T
S
D
E
T
A
D
I
L
O
S
N
O
C
)
s
d
n
a
s
u
o
h
t
n
I
(
5
2
9
,
1
2
4
$
5
0
3
,
8
6
1
$
)
1
8
6
,
7
(
$
9
3
9
,
0
6
3
$
)
7
2
0
,
0
0
1
(
$
8
5
5
,
2
9
8
3
$
3
0
8
,
8
3
s
t
n
e
m
e
t
a
t
s
l
a
i
c
n
a
n
i
f
d
e
t
a
d
i
l
o
s
n
o
c
o
t
s
e
t
o
n
g
n
i
y
n
a
p
m
o
c
c
a
e
e
S
5
8
5
,
4
1
3
8
7
1
,
6
3
6
7
,
0
2
3
9
6
8
,
3
2
l
a
t
o
T
5
5
4
,
2
)
8
6
2
,
7
(
)
4
1
9
,
2
(
7
8
6
,
4
5
7
6
6
,
6
8
2
5
1
8
,
2
2
5
6
3
,
5
1
5
2
)
1
6
0
,
7
(
8
0
1
,
0
2
5
4
1
,
8
2
3
)
5
2
9
,
4
0
1
(
)
5
2
9
,
4
0
1
(
$
$
8
7
1
,
6
—
9
3
1
,
5
4
1
$
)
7
5
5
,
3
(
7
1
3
,
1
5
1
$
)
7
5
5
,
3
(
$
$
7
5
6
,
2
7
2
$
)
7
2
0
,
0
0
1
(
$
8
5
5
,
2
—
—
—
7
5
6
,
2
7
2
$
)
7
2
0
,
0
0
1
(
$
8
5
5
,
2
—
—
—
—
—
—
—
7
8
6
,
4
5
—
—
)
4
1
9
,
2
(
9
7
0
,
1
0
1
)
1
7
4
,
6
(
—
—
—
—
8
0
1
,
0
2
—
—
—
1
5
2
—
9
6
8
,
3
2
0
5
4
,
2
)
6
6
2
,
7
(
—
—
—
0
1
7
,
1
9
2
5
1
8
,
2
2
9
5
3
,
5
—
—
)
0
6
0
,
7
(
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
)
7
2
0
,
0
0
1
(
8
5
5
,
2
9
0
3
,
8
2
3
5
1
,
3
2
1
7
1
,
1
)
0
1
5
,
4
(
)
1
0
4
,
4
2
(
)
1
6
4
,
1
(
6
6
7
,
1
7
—
—
—
—
—
)
1
0
4
,
4
2
(
—
—
—
—
—
)
1
6
4
,
1
(
6
6
7
,
1
7
—
9
0
3
,
8
2
8
4
1
,
3
2
7
6
1
,
1
)
9
0
5
,
4
(
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
)
7
4
2
(
)
7
4
2
(
—
—
—
—
8
9
8
,
7
2
3
0
4
9
,
0
2
1
)
0
2
2
,
6
(
4
2
8
,
2
1
3
)
7
2
0
,
0
0
1
(
8
5
5
,
2
7
8
1
,
1
2
1
)
0
2
2
,
6
(
4
2
8
,
2
1
3
)
7
2
0
,
0
0
1
(
8
5
5
,
2
3
7
3
—
3
7
3
—
5
)
2
(
—
—
—
6
7
3
—
6
)
1
(
—
—
1
8
3
—
1
8
3
—
5
4
)
1
(
—
—
—
$
$
0
7
2
,
7
3
—
0
7
2
,
7
3
—
8
9
4
)
0
5
1
(
—
—
—
—
1
0
6
)
4
6
1
(
—
—
8
1
6
,
7
3
5
5
0
,
8
3
—
5
5
0
,
8
3
—
6
1
5
1
5
3
)
9
1
1
(
—
—
—
-
y
t
i
u
q
e
h
t
i
w
n
o
i
t
c
e
n
n
o
c
n
i
s
e
x
a
t
f
o
t
n
e
m
e
l
t
t
e
s
r
o
f
d
l
e
h
h
t
i
w
s
e
r
a
h
s
n
o
m
m
o
C
n
o
i
t
p
o
k
c
o
t
s
e
e
y
o
l
p
m
e
h
t
i
w
n
o
i
t
c
e
n
n
o
c
n
i
k
c
o
t
s
n
o
m
m
o
c
f
o
g
n
i
t
s
e
v
U
S
R
d
n
a
e
c
n
a
u
s
s
I
s
e
s
i
c
r
e
x
e
)
1
e
t
o
N
e
e
S
(
e
g
n
a
h
C
g
n
i
t
n
u
o
c
c
A
f
o
t
c
e
f
f
E
e
v
i
t
a
l
u
m
u
C
7
1
0
2
,
1
3
r
e
b
m
e
c
e
D
t
a
e
c
n
a
l
a
B
n
o
i
t
a
s
n
e
p
m
o
c
d
e
s
a
b
-
y
t
i
u
q
E
8
1
0
2
,
1
y
r
a
u
n
a
J
t
a
e
c
n
a
l
a
B
d
n
e
d
i
v
i
D
l
a
i
c
e
p
S
f
o
t
n
e
m
y
a
P
e
m
o
c
n
i
e
v
i
s
n
e
h
e
r
p
m
o
c
r
e
h
t
O
n
o
i
t
a
s
n
e
p
m
o
c
d
e
s
a
b
e
m
o
c
n
i
t
e
N
8
1
0
2
,
1
3
r
e
b
m
e
c
e
D
t
a
e
c
n
a
l
a
B
n
o
i
t
a
s
n
e
p
m
o
c
d
e
s
a
b
-
y
t
i
u
q
E
-
y
t
i
u
q
e
h
t
i
w
n
o
i
t
c
e
n
n
o
c
n
i
s
e
x
a
t
f
o
t
n
e
m
e
l
t
t
e
s
r
o
f
d
l
e
h
h
t
i
w
s
e
r
a
h
s
n
o
m
m
o
C
n
o
i
t
p
o
k
c
o
t
s
e
e
y
o
l
p
m
e
h
t
i
w
n
o
i
t
c
e
n
n
o
c
n
i
k
c
o
t
s
n
o
m
m
o
c
f
o
g
n
i
t
s
e
v
U
S
R
d
n
a
e
c
n
a
u
s
s
I
s
e
s
i
c
r
e
x
e
s
s
o
l
e
v
i
s
n
e
h
e
r
p
m
o
c
r
e
h
t
O
n
o
i
t
a
s
n
e
p
m
o
c
d
e
s
a
b
e
m
o
c
n
i
t
e
N
9
1
0
2
,
1
3
r
e
b
m
e
c
e
D
t
a
e
c
n
a
l
a
B
-
y
t
i
u
q
e
h
t
i
w
n
o
i
t
c
e
n
n
o
c
n
i
s
e
x
a
t
f
o
t
n
e
m
e
l
t
t
e
s
r
o
f
d
l
e
h
h
t
i
w
s
e
r
a
h
s
n
o
m
m
o
C
n
o
i
t
p
o
k
c
o
t
s
e
e
y
o
l
p
m
e
h
t
i
w
n
o
i
t
c
e
n
n
o
c
n
i
k
c
o
t
s
n
o
m
m
o
c
f
o
g
n
i
t
s
e
v
U
S
R
d
n
a
e
c
n
a
u
s
s
I
s
e
s
i
c
r
e
x
e
s
t
s
o
c
e
c
n
a
u
s
s
i
f
o
t
e
n
,
k
c
o
t
s
n
o
m
m
o
c
f
o
e
c
n
a
u
s
s
I
)
1
e
t
o
N
e
e
S
(
e
g
n
a
h
C
g
n
i
t
n
u
o
c
c
A
f
o
t
c
e
f
f
E
e
v
i
t
a
l
u
m
u
C
n
o
i
t
a
s
n
e
p
m
o
c
d
e
s
a
b
-
y
t
i
u
q
E
0
2
0
2
,
1
y
r
a
u
n
a
J
t
a
e
c
n
a
l
a
B
e
m
o
c
n
i
e
v
i
s
n
e
h
e
r
p
m
o
c
r
e
h
t
O
e
m
o
c
n
i
t
e
N
0
2
0
2
,
1
3
r
e
b
m
e
c
e
D
t
a
e
c
n
a
l
a
B
n
o
i
t
a
s
n
e
p
m
o
c
d
e
s
a
b
d
i
a
p
s
d
n
e
d
i
v
i
d
h
s
a
C
F-7
SHUTTERSTOCK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Deferred taxes
Non-cash equity-based compensation
Gain on Sale of Webdam
Loss on impairment of long-term investment
Bad debt expense
Changes in operating assets and liabilities:
Accounts receivable
Prepaid expenses and other current and non-current assets
Accounts payable and other current and non-current liabilities
Long-term incentives related to acquisitions
Contributor royalties payable
Deferred revenue
Year Ended December 31,
2020
2019
2018
$
71,766 $
20,108 $
54,687
41,359
1,019
28,309
—
—
2,580
513
9,775
8,587
(7,759)
1,075
7,848
49,915
(2,025)
22,815
—
—
84
(6,169)
4,246
8,360
—
2,168
3,144
45,652
(6,270)
23,869
(38,613)
5,881
1,175
2,641
113
6,388
—
3,021
3,658
Net cash provided by operating activities
$
165,072 $
102,646 $
102,202
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures
Business and asset acquisitions
Proceeds from Sale of Webdam, net
Long term investments
Acquisition of content
Security deposit release / (payment)
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common stock
Proceeds from exercise of stock options
Cash paid related to settlement of employee taxes related to RSU vesting
Payment of cash dividends
Net cash used in financing activities
Effect of foreign exchange rate changes on cash
Net increase / (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash, beginning of period
Cash, cash equivalents and restricted cash, end of period
Supplemental Disclosure of Cash Information:
Cash paid for income taxes
(25,630)
(1,850)
—
(5,000)
(2,970)
140
(26,081)
—
2,500
—
(3,344)
(309)
(34,890)
(845)
41,804
(15,000)
(3,838)
(58)
$
(35,310) $
(27,234) $
(12,827)
23,153
1,171
(4,510)
(24,401)
—
5,365
(7,061)
—
2,454
(7,268)
—
(104,925)
$
(4,587) $
(1,696) $
(109,739)
(2,475)
122,700
305,874
(1,307)
72,409
233,465
$
428,574 $
305,874 $
(2,212)
(22,576)
256,041
233,465
$
8,751 $
1,902 $
580
See accompanying notes to consolidated financial statements
F-8 SHUTTERSTOCK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Operations and Significant Accounting Policies
Description of Business
Shutterstock (the “Company” or “Shutterstock”) is a leading creative platform offering full-service solutions, high-quality
content, and tools for brands, businesses and media companies. The Company’s platform brings together users and contributors
of content by providing readily-searchable content that our customers pay to license and by compensating contributors as their
content is licensed.
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.
•
3D Models - following the Company’s acquisition of TurboSquid, Inc. on February 1, 2021, Shutterstock now offer
3D models, used in industries such as advertising, media & video production, gaming, retail, education, design and
architecture. See Note 17 Subsequent Events.
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. The Company also offered digital asset management
services through its cloud-based digital asset management platform (“Webdam”). As discussed in Note 3, on February 26,
2018, the Company completed a sale transaction, pursuant to which the buyer in the transaction acquired certain assets and
assumed certain contracts and liabilities which constituted the Company’s digital asset management business (the “Sale of
Webdam”).
Principles of Consolidation and Basis of Presentation
The consolidated financial statements and accompanying notes have been prepared in accordance with accounting
principles generally accepted in the United States of America (“GAAP”) and 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.
F-9 SHUTTERSTOCK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Concentration of Risk
Financial instruments that are exposed to concentration of credit risk consist primarily of cash and cash equivalents and
accounts receivable balances. Cash and cash equivalents are held with financial institutions of high quality. Balances may
exceed the amount of insurance provided on such deposits.
The majority of the Company’s revenues are derived from customers who license content using electronic payments at the
time of a transaction. The Company’s accounts receivable are primarily from enterprise customers who require invoicing. The
Company performs initial and ongoing credit reviews on these customers, which involve consideration of the customers’
financial information, their location, and other factors to assess the customers’ ability to pay. The Company also performs
ongoing financial condition evaluations for its existing customers. As of December 31, 2020 and 2019, no single customer
accounted for or exceeded 10% of accounts receivable.
Additionally, no single customer accounted for or exceeded 10% of revenue for the years ended December 31, 2020, 2019
or 2018.
Cash, Cash Equivalents and Restricted Cash
The following represents the Company’s cash, cash equivalents and restricted cash as of December 31, 2020 and 2019 (in
thousands):
Cash and cash equivalents
Restricted cash
Total cash, cash equivalents and restricted cash
As of December 31, 2020
As of December 31, 2019
$
$
428,574
$
—
428,574
$
303,261
2,613
305,874
The Company’s cash and cash equivalents consist primarily of (i) cash on hand and bank deposits and (ii) money market
accounts.
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. Restricted cash is included as a component of
other assets on the Consolidated Balance Sheets.
Fair Value Measurements
The Company records its financial assets and liabilities at fair value. Fair value is determined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the reporting date.
Fair value is estimated by applying inputs which are classified into the following levels of a three-tier hierarchy as follows:
Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2- inputs other than quoted prices
included within Level 1 that are either directly or indirectly observable; and Level 3 - unobservable inputs in which little or no
market activity exists, therefore requiring an entity to develop its own assumptions regarding what market participants would
use in pricing.
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 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.
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.
F-10 SHUTTERSTOCK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table presents the changes in the Company’s allowance for doubtful accounts (in thousands):
Balance, beginning of period
Add: bad debt expense
Less: write-offs, net of recoveries and other adjustments1
Balance, end of period
Year Ended December 31,
2020
2019
2018
$
3,579 $
4,697 $
2,580
(1,217)
84
(1,202)
4,088
1,175
(566)
$
4,942 $
3,579 $
4,697
1 - Other adjustments includes the adoption of ASU 2016-13, which increased the allowance for doubtful accounts by $0.3M.
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 December 31, 2020 and
December 31, 2019, the Company’s combined allowance for chargebacks and sales refunds was $0.5 million, and $0.3 million,
respectively, which is included as a component of other current liabilities on the Consolidated Balance Sheets.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation and
amortization is calculated using the straight-line method over the estimated useful lives of the related assets. Generally, the
useful lives are as follows:
Equipment
Furniture and fixtures
Software
Leasehold improvements
Capitalized Internal Use Software
3 years
7 years
3 years
Shorter of expected useful life or lease term
The Company capitalizes the qualifying costs of computer software developed for internal use, which are incurred during
the application development stage, and amortizes them over the software’s estimated useful life. Costs incurred in the
preliminary and post-implementation stages of the Company’s products are expensed as incurred. The amounts capitalized
include employee’s payroll and payroll-related costs directly associated with the development activities as well as external
direct costs of services used in developing internal-use software. The Company’s policy is to amortize capitalized costs using
the straight-line method over the estimated useful life, which is currently three years, beginning when the software is
substantially complete and ready for its intended use.
Impairment of Long-Lived Assets
Long-lived assets, inclusive of definite-lived intangible assets, are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of assets to be held and
used is measured by a comparison of the carrying value of an asset to estimated undiscounted future cash flows expected to be
generated by the asset. If the carrying value of an asset exceeds its estimated undiscounted future cash flows, an impairment
charge is recognized in the amount by which the carrying value of the asset exceeds the fair value of the asset. Assets to be
disposed of would be separately presented in the balance sheet and reported at the lower of the carrying value or the fair value
less costs to sell, and are no longer depreciated. The assets and liabilities of a disposed group classified as held for sale would
be presented separately in the appropriate asset and liability sections of the balance sheet. There were no long-lived asset
impairment charges in 2020, 2019 or 2018.
F-11 SHUTTERSTOCK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Goodwill and Intangible Assets
Goodwill and intangible assets acquired in a business combination and determined to have an indefinite useful life are not
amortized, but instead tested for impairment at least annually on October 1 of each fiscal year or more frequently if events
occur or circumstances exist that indicate that the fair value of a reporting unit may be below its carrying value.
In 2020, the Company’s goodwill balance was allocated to a single reporting unit. Since inception through December 31,
2020, the Company has not had any impairment of goodwill.
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. Prior to the Sale of Webdam, the Company also earned revenue from licensing hosted software services through
Webdam’s cloud-based tools for businesses, which were purchased as part of a subscription.
The Company recognizes revenue upon the satisfaction of performance obligations, which generally occurs when (i)
content is downloaded by a customer or (ii) hosted software services are provisioned and available to a customer. For content
licenses, 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, 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. Revenue associated with hosted software services is recognized ratably over the term of the
license. 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 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 adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic
606) (“ASU 2014-09”) on January 1, 2018 using the modified retrospective approach, and prior period amounts were not
restated. The effect of adoption of this guidance on the Consolidated Balance Sheet as of January 1, 2018 was to reduce (i)
prepaid expenses and other current assets by $3.7 million and (ii) deferred revenues by $9.9 million, with an offsetting
$6.2 million increase in 2018 opening retained earnings.
Cost of Revenue
The Company’s cost of revenue includes royalties paid to contributors, credit card processing fees, content reviewer costs,
customer service expenses, infrastructure and hosting costs, content personnel salaries, non-cash equity-based compensation,
amortization of content and technology intangible assets, and depreciation of network equipment, which are the direct costs
related to providing content and service to customers. Additionally, the Company includes an allocation of overhead costs
primarily related to payroll, insurance, and facilities expenses based on headcount.
F-12 SHUTTERSTOCK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Contributor Royalties and Internal Sales Commissions
The Company expenses contributor royalties in the period a customer download occurs and includes the corresponding
contributor royalties in cost of revenue. Contributor royalties are generally paid monthly. The Company advances certain
contributor royalties which are initially deferred and expensed based on the contractual royalty rate at the time of customer
download or when the Company determines future recovery is not probable. For the years ended December 31, 2020, 2019 and
2018, the Company deferred $3.6 million, $8.4 million and $6.2 million, respectively, in royalty advances and amortized
$5.5 million, $9.2 million and $6.1 million, respectively, in royalty advance expense which is included in cost of revenue. As of
December 31, 2020, the balance of deferred contributor royalties was not significant. As of December 31, 2019, the Company
has deferred contributor royalties of $1.9 million, which is included in prepaid expenses and other current assets in the
Consolidated Balance Sheets.
Internal sales commissions are generally paid in the month following collection or invoicing of the commissioned
receivable and is reported in sales and marketing expense on the Consolidated Statements of Operations. The Company
expenses contract acquisition costs, including internal sales commissions, as incurred, to the extent that the amortization period
would otherwise be one year or less.
Product Development
The Company expenses product development costs as incurred, except for costs that are capitalized for certain internal
software development projects. Product development costs are primarily comprised of development personnel salaries, non-
cash equity-based compensation, software and other IT equipment costs as well as allocated facility costs and related overhead.
Advertising Costs
The Company expenses the cost of advertising and promoting its products as incurred. Such costs totaled $81.2 million,
$102.3 million and $91.5 million for the years ended December 31, 2020, 2019 and 2018, respectively, which are included in
sales and marketing expense in the Consolidated Statements of Operations.
Leasing
The Company records rent expense on a straight-line basis over the term of the related lease. In accordance with FASB
ASU 2016-02, Leases (Topic 842), as amended (“ASC 842”), which the Company adopted effective January 1, 2019, the
Company first determines if an arrangement contains a lease and the classification of that lease, if applicable, at inception. This
standard requires the recognition of right-of-use (“ROU”) assets and lease liabilities for the Company’s operating leases. For
contracts with lease and non-lease components, the Company has elected not to allocate the contract consideration, and to
account for the lease and non-lease components as a single lease component. The Company has also elected not to recognize a
lease liability or ROU asset for leases with a term of 12 months or less, and recognize lease payments for those short-term
leases on a straight-line basis over the lease term in the Consolidated Statements of Operations. Operating leases are included in
ROU assets, other current liabilities and lease liabilities (net of current portion) on the Consolidated Balance Sheets.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the
Company’s obligation to make lease payments under the lease. ROU assets and lease liabilities are recognized at the lease
commencement date based on the present value of lease payments over the lease term. The implicit rate within the Company’s
leases is generally not determinable and therefore the incremental borrowing rate at the lease commencement date is utilized to
determine the present value of lease payments. The determination of the incremental borrowing rate requires judgment.
Management determines the incremental borrowing rate for each lease using the Company’s estimated borrowing rate, adjusted
for various factors including level of collateralization, term and currency to align with the terms of the lease. The ROU asset
also includes any lease prepayments, offset by lease incentives. Certain of the Company’s leases include options to extend or
terminate the lease. An option to extend the lease is considered in connection with determining the ROU asset and lease liability
when the Company is reasonably certain that the option will be exercised. An option to terminate is considered unless the
Company is reasonably certain the option will not be exercised.
F-13 SHUTTERSTOCK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Equity-Based Compensation
The Company grants Restricted Stock Units, Performance-based Restricted Stock Units (“PRSUs” and, collectively with
Restricted Stock Units, “RSUs”) and Stock Options to directors and officers and certain other employees of the Company. All
awards are granted pursuant to the 2012 Omnibus Equity Incentive Plan (the “2012 Plan”), which is discussed further in Note 9,
Equity-Based Compensation.
The Company measures and recognizes non-cash equity-based compensation expense for all stock-based awards granted
to employees based on estimated fair values. The value portion of the award that is ultimately expected to vest is recognized as
expense over the requisite service period. Forfeitures are accounted for as they occur. For awards with a change of control
condition, an evaluation is made at the grant date and future periods as to the likelihood of the condition being met.
Compensation expense is adjusted in future periods for subsequent changes in the expected outcome of the change of control
conditions until the vesting date. Compensation expense related to awards with a market condition is recognized over the
requisite service period regardless of the achievement of the market condition. Compensation expense related to awards with a
performance condition is recognized over the requisite service period based on the expected levels of achievement. To the
extent that the expected levels of achievement change, stock-based compensation expense is adjusted and recorded in the
Consolidated Statements of Operations and the remaining unrecognized stock-based compensation is recognized over the
remaining requisite service period.
The Company uses the closing price of the Company’s common stock on the date of grant to determine the fair value of
RSUs. The Company uses the Black Scholes option pricing model, to determine the fair value of stock options on the date of
grant. The Monte Carlo simulation model is used if the award has a market condition.
The determination of the grant date fair value using an option-pricing model and simulation model requires judgment as
well as assumptions regarding a number of other complex and subjective variables. These variables include the Company’s
closing market price at the grant date, the expected stock price volatility over the expected term of the awards, awards’ exercise
and cancellation behaviors, risk-free interest rates, and expected dividends, which are estimated as follows:
• Fair Value of Common Stock. The grant date fair value for stock-based awards is based on the closing price of the
Company’s common stock on the NYSE on the date of grant and fair value for all other purposes related to stock-
based awards shall be the closing price of the Company’s common stock on the NYSE on the relevant date.
• Expected Term. The expected term is estimated using the simplified method allowed under Securities and
Exchange Commission (“SEC”) guidance. In certain cases for market based awards, the Company’s expected term
is based on a combination of historical data and estimates of the period of time the award will be outstanding.
• Volatility. The volatility is estimated based on historical price volatility of the Company’s common stock.
• Risk-free Interest Rate. The risk-free interest rate is based on the yields of U.S. Treasury securities with maturities
similar to the expected term of each award group.
• Dividend Yield. The Company determines the dividend yield based on management’s expectations of future
dividends. The Company has historically used an expected dividend yield of zero for options granted.
If any of the assumptions used in the Black-Scholes pricing model or Monte Carlo simulation model changes
significantly, the fair value for future awards may differ materially compared with the awards granted previously. The awards
granted pursuant to the 2012 Plan are subject to a time-based vesting requirement and certain award grants may also include
market based or performance based vesting conditions. While each PRSU corresponds to one target share of the Company’s
stock, the number of shares that may eventually vest will be between 0% and 150% of a recipient’s target shares, depending on
both the recipient’s continued service with the Company and the extent to which performance goals will have been achieved.
Stock option awards granted under the 2012 Plan vest over three or four years while the majority of the restricted stock units
granted under the 2012 Plan vest over three years.
Employee Benefit Plans
The Company offers a 401(k) defined contribution plan and provides for discretionary employer matching contributions.
All matching contributions are recognized as an expense in the Statement of Operations, as incurred. The Company recorded
employer matching contributions of $3.8 million, $3.7 million and $3.2 million for the years ended December 31, 2020, 2019
and 2018, respectively.
F-14 SHUTTERSTOCK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Income Taxes
The Company’s income tax expense includes U.S. (federal and state) and foreign income taxes. Deferred income tax
balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax basis,
and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered.
The Company accounts for unrecognized tax benefits using a more-likely-than-not threshold for financial statement
recognition and measurement of tax positions taken or expected to be taken in a tax return. The Company establishes reserves
for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes may be due. The Company
records an income tax liability for the difference, if any, between the benefit recognized and measured and the tax position
taken or expected to be taken on the Company’s tax returns. To the extent that the assessment of such tax positions changes, the
change in estimate is recorded in the period in which the determination is made. The reserves are adjusted in light of changing
facts and circumstances, such as the outcomes of tax audits or lapses in statutes of limitations. Any reserve for uncertain tax
provisions and related penalties and interest is included in the income tax provision.
On a quarterly basis, the Company assesses the realizability of deferred tax assets, based on the available evidence
including a history of taxable income, estimates of future taxable income and planning strategies and a valuation allowance is
recorded to the extent that it is not more likely than not that the deferred tax assets will be realized. Significant management
judgment is required in determining the provision for income taxes and deferred tax assets and liabilities. In the event that
actual results differ from these estimates, the Company will adjust these estimates in future periods which may result in a
change in the effective tax rate in a future period.
Except as required under U.S. tax laws, the Company does not provide for U.S. taxes on the undistributed earnings and
profits of its foreign subsidiaries. With the enactment of the TCJA, the Company is required to treat the undistributed earnings
and profits of its foreign subsidiaries accumulated through a measurement period that should not extend more than one year
beyond the date of the enactment of the TCJA as if they were repatriated to the U.S., and pay a current U.S. tax amount as a
result of such “deemed” repatriation. The Company has not recorded any provision for potential deferred U.S. income taxes or
foreign withholding taxes that otherwise may be payable if it were to repatriate such earnings, since the Company does not
intend to repatriate such amounts.
In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income
(“GILTI”) provisions of the TCJA. The GILTI provisions impose a tax on foreign income in excess of a deemed return on
tangible assets of foreign corporations. In the first quarter of 2018, the Company elected to treat any potential GILTI inclusions
as a period cost. The Company continues to assess the impacts of the TCJA on future fiscal years and is monitoring the Internal
Revenue Service guidance intended to interpret the provisions of the TCJA.
Other Non-income Taxes
The Company is subject to certain non-income taxes, including value added taxes, sales taxes and royalty withholding
taxes. Where appropriate, the Company has made accruals for these taxes, which are reflected in the Company’s consolidated
financial statements. These accruals are subject to statute of limitations requirements and review by governmental authorities.
Treasury Stock
The Company accounts for treasury stock under the cost method and is included as a component of stockholders’ equity.
Treasury stock held by the Company may be reissued in the future. The Company’s policy is to account for reissued shares as a
reduction of Treasury stock on a first-in, first-out basis.
Net Income Per Share
Basic net income per share is computed by dividing the net income attributable to common stockholders by the weighted
average number of common shares outstanding during the period. Any potential issuance of common shares, including those
that are contingent and do not participate in dividends, is excluded from basic weighted average number of common shares
outstanding.
Diluted net income per share is computed by dividing the net income attributable to common stockholders by the
weighted average common shares outstanding and all potential common shares, if they are dilutive.
F-15 SHUTTERSTOCK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Reportable Segments
For the year ended December 31, 2020, the Company has identified one operating segment, which has also been
determined to be the Company’s primary reportable business segment. Prior to the Sale of Webdam on February 26, 2018, the
Company had also identified a non-reportable segment which was classified in the Other Category, included the Company’s
digital asset management operating segment and failed to meet the quantitative or qualitative thresholds for separate segment
reporting. Operating segments are defined as components of an enterprise for which separate financial information is available
and is evaluated regularly by the Company’s chief operating decision maker (“CODM”), or decision-making group, in deciding
how to allocate resources and in assessing performance.
Contingent Consideration
The Company records a liability for contingent consideration at the date of a business combination and reassesses the fair
value of the liability each period until it is settled. Upon settlement of these liabilities, the portion of the contingent
consideration payment that is attributable to the initial amount recorded as part of the business combination is classified as a
cash flow from financing activities and the portion of the settlement that is attributable to subsequent changes in the fair value
of the contingent consideration is classified as a cash flow from operating activities in the Consolidated Statement of Cash
Flows.
Foreign Currency
The functional currency of the Company’s foreign subsidiaries is generally the respective local currency. Monetary assets
and liabilities that are denominated in currencies other than each entity’s functional currency are remeasured into the functional
currency at the period-end exchange rates and result in transactional gains and losses. The net impact of foreign currency
transactional gains and losses on the Company’s results of operations were gains of $2.4 million and $0.2 million in 2020 and
2019, respectively, and a loss of $2.2 million in 2018. Translation adjustments resulting from converting the foreign
subsidiaries financial statements into U.S. dollars using the period-end exchange rates for balance sheet accounts and the period
average exchange rate for the Statements of Operations are recorded as a component of accumulated other comprehensive
income / (loss) within stockholders’ equity.
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.
F-16 SHUTTERSTOCK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
Adoption of ASU 2019-12 is not expected to have a material effect on the Company’s consolidated financial statements. The
Company is finalizing its evaluation of the impact of this new standard on the 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 December 31, 2020 and 2019,
except as noted below.
Money Market Accounts
Cash equivalents include money market accounts and are classified as a level 1 measurement based on quoted prices in
active markets for identical assets that the reporting entity can access at the measurement date. As of December 31, 2020, the
Company had a balance of $250.0 million in money market accounts. The Company did not have any money market accounts
as of December 31, 2019.
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
certain triggering events occur, or if an annual impairment test is required and the Company is required to evaluate the non-
financial asset for impairment, a resulting asset impairment would require that the non-financial asset be recorded at the fair
value.
Long-Term Investments
As of December 31, 2020 and 2019, the Company’s Long-Term Investments totaled $20.0 million and $15.0 million,
respectively, which is reported within other assets on the Consolidated Balance Sheets. The Company uses the measurement
alternative for equity investments with no readily determinable fair value and are reported at cost, adjusted for impairments or
any observable price changes in ordinary transactions with identical or similar investments.
On a quarterly basis, the Company evaluates the carrying value of its Long-Term Investments for impairment, which
includes an assessment of revenue growth, earnings performance, working capital and the general market conditions. As of
December 31, 2020, no adjustments to the carrying values of the Company’s Long-Term Investments were identified as a result
of this assessment. Changes in performance negatively impacting operating results and cash flows of these investments could
result in the Company recording an impairment charge in future periods.
Investment in ZCool Technologies Limited (“ZCool”)
In 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 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.
F-17 SHUTTERSTOCK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Other Equity Investments
In 2020, the Company invested $5.0 million in preferred shares of an entity with a creative production and analytics
platform. These preferred shares do not have a readily determinable fair value, and give the Company less than a 2% fully
diluted ownership interest.
Long-term Lending Facility and Note Receivable
In 2016, as amended in 2017, the Company entered into a multi-part investment with SilverHub Media Limited (“SHM”),
an unrelated third-party contributor, which resulted in the Company investing $5.9 million into SHM. During 2018, the
Company determined that its investment in SHM experienced an other-than-temporary impairment and therefore, the Company
recorded a $5.9 million impairment charge in order to reduce the fair value of the Company’s investment in SHM to zero. This
charge was recorded in Other income / (expense), net in the Consolidated Statements of Operations.
(3) Sale of Webdam
Sale of Digital Asset Management Business
On February 26, 2018, the Company completed the Sale of Webdam for an aggregate purchase price of $49.1 million.
Total cash received, net of $4.6 million transaction costs paid, was $44.3 million, inclusive of $2.5 million received during the
year ended December 31, 2019, from the release of escrowed funds. During 2018, the Company recognized a pre-tax gain on
sale of approximately $38.6 million, which represents the excess of the net purchase price over the net assets transferred, less
transaction costs.
(4) Property and Equipment
Property and equipment is summarized as follows (in thousands):
Computer equipment and software
Furniture and fixtures
Leasehold improvements
Property and equipment
Less: accumulated depreciation
Property and equipment, net
December 31,
2020
2019
$
193,141 $
165,950
10,235
19,382
10,199
19,203
222,758
195,352
(171,852)
(136,518)
$
50,906 $
58,834
Depreciation and amortization expense related to property and equipment amounted to $35.6 million, $42.9 million and
$40.1 million, for the years ended December 31, 2020, 2019 and 2018, respectively. Of these amounts, $31.6 million, $38.1
million and $34.0 million are included in cost of revenue for the years ended December 31, 2020, 2019 and 2018, respectively,
and $4.0 million, $4.8 million and $6.1 million are included in general and administrative expense for the years ended
December 31, 2020, 2019 and 2018, respectively.
Depreciation and amortization expense is included in cost of revenue and general and administrative expense based on the
nature of the asset. There was no loss on disposal for the years ended December 31, 2020, 2019 and 2018, respectively.
Capitalized Internal-Use Software
The Company capitalized costs related to the development of internal-use software of $25.1 million, $23.6 million and
$27.7 million for the years ended December 31, 2020, 2019 and 2018, respectively. Capitalized amounts are included as a
component of property and equipment under computer equipment and software. During 2020, 2019 and 2018, the Company
invested significantly in its product development and hosting infrastructure to enhance its customer experience and increase the
efficiency with which management deploys new products and features.
The portion of total depreciation expense related to capitalized internal-use software was $28.9 million, $30.3 million and
$24.9 million for the years ended December 31, 2020, 2019 and 2018, respectively. Depreciation expense related to capitalized
internal-use software is included in cost of revenue in the Consolidated Statement of Operations.
F-18 SHUTTERSTOCK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of December 31, 2020 and 2019, the Company had capitalized internal-use software of $38.0 million and
$41.8 million, respectively, net of accumulated depreciation, which was included in property and equipment, net.
(5) Goodwill and Intangible Assets
Goodwill
The following table summarizes the changes in the Company’s goodwill balance for the year ended December 31, 2020
(in thousands):
Balance as of December 31, 2019
Foreign currency translation adjustment
Balance as of December 31, 2020
Goodwill
88,974
439
89,413
$
$
In 2020, the Company’s goodwill balance was allocated to a single reporting unit. The Company performed its annual
goodwill assessment as of October 1, 2020 and concluded that the fair value of its reporting unit was greater than its carrying
amount, and therefore, no adjustment to the carrying value of goodwill was necessary. The Company utilized a qualitative
assessment of its content business reporting unit to determine whether a quantitative assessment was necessary and determined
there were no indicators of potential impairment.
There were no impairments of goodwill in any of the periods presented in the consolidated financial statements.
Intangible Assets
Intangible assets, all of which are subject to amortization, consist of the following as of December 31, 2020 and 2019 (in
thousands):
As of December 31, 2020
As of December 31, 2019
Customer relationships
$ 18,132 $
(11,032) $ 7,100
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Weighted
Average
Life
(Years)
6,669
6,930
(6,328)
(5,039)
341
1,891
26,669
(10,378)
16,291
259
(117)
142
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
$ 17,729 $
(9,294) $
8,435
6,517
4,841
23,510
259
(5,941)
(4,226)
576
615
(6,626)
16,884
(100)
159
9
7
4
9
18
Trade name
Developed technology
Contributor content
Patents
Total
$ 58,659 $
(32,894) $ 25,765
$ 52,856 $
(26,187) $ 26,669
Amortization expense related to the intangible assets was $5.8 million, $7.0 million and $5.5 million for the years ended
December 31, 2020, 2019 and 2018, respectively. Of these amounts, $3.4 million, $2.3 million and $1.7 million are included in
cost of revenue for the years ended December 31, 2020, 2019 and 2018, respectively, and $2.4 million, $4.7 million and $3.8
million are included in general and administrative expense for the years ended December 31, 2020, 2019 and 2018,
respectively.
The Company determined that there was no indication of impairment for the intangible assets for all periods presented.
Estimated amortization expense for the next five years is: $5.7 million in 2021, $5.4 million in 2022, $5.1 million in 2023,
$3.6 million in 2024, $2.1 million in 2025 and $3.9 million thereafter.
F-19 SHUTTERSTOCK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(6) Accrued Expenses
Accrued expenses consisted of the following (in thousands):
Compensation
Non-income taxes
Website hosting and marketing fees
Other expenses
Total accrued expenses
(7) Stockholders’ Equity
Common Stock
December 31,
2020
2019
$
31,499 $
20,776
17,164
9,991
9,255
15,332
8,657
9,099
$
67,909 $
53,864
The holders of common stock are entitled to one vote for each share held of record on all matters submitted to a vote of
the stockholders. Subject to preferences that may be applicable to any outstanding preferred stock, holders of common stock are
entitled to receive ratably such dividends as may be declared by the Board of Directors out of funds legally available for that
purpose. In the event of liquidation, dissolution or winding up of the Company, the holders of common stock are entitled to
share ratably in all assets remaining after payment of liabilities, subject to the prior distribution rights of any outstanding
preferred stock. The common stock has no preemptive or conversion rights or other subscription rights. The outstanding shares
of common stock are fully paid and non-assessable. Under the amended and restated certificate of incorporation, which became
effective upon completion of the IPO, the Company’s certificate of incorporation authorized 200,000,000 shares of $0.01 per
share par value common stock.
Preferred Stock
Under the amended and restated certificate of incorporation, which became effective upon completion of the IPO, the
Company’s Board of Directors has the authority, without further action by the stockholders, to issue up to 5,000,000 shares of
preferred stock, $0.01 par value, in one or more series. The Board of Directors also has the authority to designate the rights,
preferences, privileges and restrictions of each such series, including dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any series.
The issuance of preferred stock may have the effect of delaying, deferring or preventing a change in control of
Shutterstock without further action by the stockholders. The issuance of preferred stock with voting and conversion rights may
also adversely affect the voting power of the holders of common stock. In certain circumstances, an issuance of preferred stock
could have the effect of decreasing the market price of the common stock. As of December 31, 2020, the Company has not
issued and has no plans to issue any shares of preferred stock.
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 purchase an additional $100 million of its common stock. As of
December 31, 2020, the Company has repurchased approximately 2,558,000 shares of its common stock under the share
repurchase program at an average per-share cost of approximately $39.09. As of December 31, 2020, there is $100 million of
remaining authorization for purchases under the share repurchase program. During 2020, the Company did not repurchase any
shares under the share repurchase program.
The Company expects to fund repurchases 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.
F-20 SHUTTERSTOCK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Stock Offering
On August 14, 2020, the Company completed an offering (the “Stock Offering”), whereby 2,580,000 shares of its
common stock were sold to the public at a price to the public of $48.50 per share. The Company sold 516,000 shares of
common stock in the Stock Offering and the Company’s Founder and Executive Chairman of the Board sold 2,064,000 shares
of common stock in the Stock Offering. The Company received net proceeds from the shares it sold, after deducting
underwriting discounts and commissions and offering expenses payable by the Company, of approximately $23.2 million. The
Company did not receive any proceeds from the shares sold by the Company’s Founder and Executive Chairman of the Board.
Dividends
On February 11, 2020, the Board of Directors approved the initiation of a quarterly cash dividend. The Company declared
and paid cash dividends totaling $0.68 per share of common stock, or $24.4 million, during the year ended December 31, 2020.
On January 12, 2021, the Company’s Board of Directors declared a quarterly cash dividend of $0.21 per share of
outstanding common stock payable on March 18, 2021 to stockholders of record at the close of business on March 4, 2021.
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.
On August 1, 2018, the Company’s Board of Directors declared a special cash dividend of $3.00 per share (the “Special
Dividend”), which was paid on August 29, 2018 to stockholders of record at the close of business on August 15, 2018. The
aggregate payment made in connection with the Special Dividend was $104.9 million.
In connection with the Special Dividend, and in accordance with the terms of the Company’s Amended and Restated 2012
Omnibus Equity Incentive Plan (the “2012 Plan”), the Company adjusted outstanding equity awards in order to prevent dilution
of such awards. Accordingly, the Company prevented dilution from the impact of the Special Dividend by adjusting the number
of outstanding unvested RSUs and outstanding stock options, as well as the exercise price of such outstanding stock options,
using a conversion ratio of 1.055, which was determined using a ratio of the closing and opening stock price of the Company’s
common stock immediately prior to, and on, the ex-dividend date (the “Special Dividend Adjustment”).
(8) 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-based 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.
In addition to the Company’s content offerings, the Company has historically generated revenue through other channels:
Other: The Company’s Other sales channel previously included revenue from Webdam’s digital asset management
offerings which provided tools to help organizations manage, search, distribute and collaborate on creative and other brand-
building activities. Effective February 26, 2018, the Company completed the Sale of Webdam. See Note 3 for further
information on the Sale of Webdam.
F-21 SHUTTERSTOCK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes the Company’s revenue by distribution channel for the years ended December 31, 2020,
2019 and 2018 (in thousands):
E-commerce
Enterprise
Other (1)
Total Revenues
Year Ended December 31,
2020
2019
2018
$
412,521 $
392,241 $
365,730
254,165
258,282
254,809
—
—
2,711
$
666,686 $
650,523 $
623,250
(1)
As previously discussed in Note 3, on February 26, 2018, the Company completed the Sale of Webdam. 2018 amounts include revenue
earned during the period from January 1, 2018 through February 26, 2018.
The December 31, 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. $136.8 million of total
revenue recognized for the year ended December 31, 2020 was reflected in deferred revenue as of January 1, 2020.
(9) Equity-Based Compensation
The Company recognizes stock-based compensation expense for all share-based payment awards including employee
stock options and RSUs granted under the 2012 Plan based on the fair value of each award on the grant date.
The following table summarizes non-cash equity-based compensation expense, net of forfeitures, by line item included in
the Company’s Consolidated Statements of Operations for the years ended December 31, 2020, 2019 and 2018 (in thousands):
Cost of revenue
Sales and marketing
Product development
General and administrative
Total
Year Ended December 31,
2020
2019
2018
$
430 $
220 $
1,887
4,494
1,934
4,737
523
2,218
5,815
21,498
15,924
15,313
$
28,309 $
22,815 $
23,869
F-22 SHUTTERSTOCK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes non-cash equity-based compensation expense, net of forfeitures, by award type included
in the Company’s Consolidated Statements of Operations for the years ended December 31, 2020, 2019 and 2018 (in
thousands):
Stock options
RSUs
Total
2012 Omnibus Equity Incentive Plan
Year Ended December 31,
2020
2019
2018
$
$
2,088 $
5,721 $
6,009
26,221
17,094
17,860
28,309 $
22,815 $
23,869
On October 10, 2012, the Company’s 2012 Plan became effective. The 2012 Plan provides for the grant of incentive stock
options to Company employees, and for the grant of non-statutory stock options, stock appreciation rights, restricted stock,
restricted stock units, performance units and performance shares to employees, directors and consultants. The maximum
aggregate number of shares that may be issued under the 2012 Plan was initially 6,750,000 shares of common stock. The
number of shares available for issuance under the 2012 Plan will be increased annually commencing January 1, 2013 by an
amount equal to the lesser of 1,500,000 shares of common stock, 3% of the outstanding shares of common stock as of the last
day of the immediately preceding fiscal year, or such other amount as determined by the Company’s Board of Directors. Any
awards issued under the 2012 Plan that are forfeited by the participant will become available for future grant under the 2012
Plan. The number of shares of common stock available under the 2012 Plan was automatically increased by approximately
1,065,000 and 1,052,000 shares on January 1, 2020 and 2019, respectively, pursuant to the automatic increase provisions of the
2012 Plan.
Stock Option Awards
The following is a summary of stock option awards and weighted average exercise price per option:
Options outstanding at December 31, 2019
Options granted
Options exercised
Options canceled or expired
Options outstanding at December 31, 2020
Options exercisable at December 31, 2020
Plan
Options
Weighted Average
Exercise Price
989,485 $
53,022
(33,755)
(31,719)
977,033 $
334,199 $
57.45
42.96
34.69
43.70
57.90
34.06
Intrinsic value of stock options is calculated as the excess of market price of the Company’s common stock over the strike
price of the stock options, multiplied by the number of stock options. The intrinsic value of the Company’s stock options is as
follows (in thousands):
Stock options outstanding
Stock options exercisable
Stock options vested and expected to vest
As of December 31,
2020
2019
$
$
$
16,100 $
12,600 $
16,100 $
4,000
3,000
4,000
The intrinsic value of stock options exercised for the years ended December 31, 2020, 2019 and 2018 was approximately
$0.5 million, $1.1 million and $2.0 million, respectively.
F-23 SHUTTERSTOCK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following weighted average assumptions were used in the fair value calculation for the years ended December 31,
2020, 2019 and 2018:
Expected term (in years)
Volatility
Risk-free interest rate
Dividend yield
Valuation Data:
Year Ended December 31,
2020
2019
2018
6.0
43.8 %
1.73 %
—
6.3
45.4 %
1.83 %
—
6.3
47.8 %
2.63 %
—
Weighted average fair value per share granted
$
18.86
$
18.05
$
23.64
On April 24, 2014, the Company granted 500,000 stock options with a market-based condition to its Founder and
Executive Chairman. The stock options have an exercise price of $80.94 per share and will not vest or become exercisable
unless (i) the Founder and Executive Chairman remains continuously employed by the Company until the fifth anniversary of
the date of grant and (ii) the average 90-day closing price of the Company’s common stock equals or exceeds $161.88 per share
for any 90 consecutive calendar days during the period commencing on the fifth anniversary of the date of grant and ending on
the tenth anniversary of the date of grant, inclusive provided that the Founder and Executive Chairman remains continuously
employed by the Company until the date of satisfaction of such condition. The derived requisite service period was determined
to be six years based on a valuation technique. The total fair value of the grant is $21.6 million and is being recognized over the
derived requisite service period. In the event that the market condition remains unsatisfied upon completion of the requisite
service period, no charge will be reversed. In conjunction with the Special Dividend Adjustment, the Company adjusted the
number of stock options to approximately 527,000 from 500,000 and the exercise price of each option to $76.73, from $80.94
pursuant to the anti-dilution provisions of the 2012 Plan. The market-based conditions required for vesting remain unchanged.
As of December 31, 2020, the total unrecognized compensation charge related to 2012 Plan non-vested options is
approximately $1.6 million, which is expected to be recognized through fiscal year 2023.
Restricted Stock Units Awards (including PRSUs)
The following table presents a summary of the Company’s RSUs activity for the year ended December 31, 2020:
Non-vested balance at December 31, 2019
Units granted
Units vested
Units canceled or forfeited
Non-vested balance at December 31, 2020
Plan
RSUs
1,113,679 $
900,422
(317,240)
(288,838)
1,408,023 $
Weighted
Average
Fair Value
45.03
36.42
43.84
40.50
40.72
Non-vested and deferred balance at December 31, 2020
1,452,245 $
40.94
On April 24, 2014, the Company granted 100,000 restricted stock units with a market-based condition to its Founder and
Executive Chairman. The restricted stock units will vest only if (i) the reporting person remains continuously employed by the
Company until the fifth anniversary of the date of grant and (ii) the average 90-day closing price of the Company's common
stock equals or exceeds $161.88 for any 90 consecutive calendar days during the period commencing on the fifth anniversary of
the date of grant and ending on the tenth anniversary of the date of grant, inclusive; provided that the reporting person remains
continuously employed by the Company until the date of satisfaction of such condition. The derived requisite service period
was determined to be six years based on a valuation technique. The total fair value of the grant is $5.8 million and is being
recognized over the derived requisite service period. In the event that the market condition remains unsatisfied upon completion
F-24 SHUTTERSTOCK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
of the requisite service period, no charge will be reversed. In conjunction with the Special Dividend Adjustment, the Company
adjusted the number of restricted stock units to approximately 105,000 from 100,000, pursuant to the anti-dilution provisions of
the 2012 Plan. The market-based conditions required for vesting remain unchanged.
As of December 31, 2020, the total unrecognized compensation charge related to the restricted stock units is
approximately $30.0 million, which is expected to be recognized through fiscal 2023.
(10) Other Income / (Expense), net
The following table presents a summary of the Company’s other income / (expense) activity included in the
accompanying Consolidated Statements of Operations (in thousands):
Foreign currency gain / (loss)
Impairment of a long-term investment asset
Interest income
Other income / (expense), net
(11) Income Taxes
2020
Year Ended December 31,
2019
2018
$
$
3,067 $
540 $
—
1,190
—
4,221
4,257 $
4,761 $
(1,807)
(5,881)
2,736
(4,952)
The Company’s geographical breakdown of its income / (loss) before income taxes is as follows (in thousands):
Domestic
Foreign
Income before income taxes
Year Ended December 31,
2020
2019
2018
$
$
83,255 $
25,549 $
6,268
(633)
89,523 $
24,916 $
68,596
(2,483)
66,113
The following table summarizes the consolidated provision for income taxes (in thousands):
Year Ended December 31,
2020
2019
2018
Current provision:
Federal
State and local
Foreign
Deferred provision (benefit):
Federal
State and local
Foreign
$
11,287 $
2,824 $
2,294
3,158
(1,147)
149
2,016
1,127
2,882
(2,337)
(52)
364
Provision for income taxes
$
17,757 $
4,808 $
7,670
4,800
5,226
(2,901)
(164)
(3,205)
11,426
F-25 SHUTTERSTOCK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The provision for income taxes differs from statutory income tax rate as follows:
U.S. income tax at federal statutory rate
Tax credits
State and local taxes, net of federal benefit
Equity-based compensation
Foreign rate differential
Foreign-derived intangible income deduction
Uncertain tax positions
Valuation allowance
Transition tax related to TCJA
Non-deductible—other
Total provision for income taxes
Year Ended December 31,
2020
2019
2018
21.0 %
(1.7)
1.5
2.4
0.5
(6.0)
1.0
0.9
—
0.2
21.0 %
(12.6)
1.7
2.0
0.3
(12.0)
12.4
3.9
—
2.6
21.0 %
(5.4)
1.9
(0.4)
0.5
(3.7)
3.6
—
(0.3)
0.1
19.8 %
19.3 %
17.3 %
The tax effect of the Company’s temporary differences that give rise to deferred tax assets and liabilities are presented
below (in thousands):
Deferred tax assets:
Non-cash equity-based compensation
Intangible amortization
Non-income tax accruals
Lease liabilities
Other liabilities
Gross deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Right-of-use assets
Depreciation and amortization
Net deferred tax assets
Year Ended
December 31,
2020
2019
$
11,508 $
850
2,499
10,995
5,804
31,656
(1,861)
29,795
(8,557)
(7,672)
$
13,566 $
9,806
2,252
2,647
12,645
6,508
33,858
(965)
32,893
(10,125)
(8,381)
14,387
The non-cash equity-based compensation for the Company includes a deferred tax asset of $6.2 million associated with
the performance-based grant of stock options and restricted stock units to the Company’s Founder and Executive Chairman. In
addition, the $1.9 million valuation allowance relates to certain foreign net operating loss carryforwards, where the Company
has determined that there is sufficient uncertainty regarding the future realization of these net operating losses.
F-26 SHUTTERSTOCK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes changes to the Company’s unrecognized tax benefits as follows (in thousands):
Balance of unrecognized tax benefits at January 1
Gross additions for tax positions for prior years
Gross additions for tax positions for current year
Gross reductions for tax positions of prior years
Gross expirations
Year Ended December 31,
2020
2019
2018
$
8,949 $
5,846 $
2,966
—
724
(81)
—
173
3,842
—
(912)
332
3,476
—
(928)
5,846
Balance of unrecognized tax benefits at December 31
$
9,592 $
8,949 $
The total amount of unrecognized tax benefits as of December 31, 2020, was $8.7 million, which, if recognized, would
impact the Company’s effective tax rate in future periods. Unrecognized tax benefits is included within prepaid expenses and
other current assets and other non-current liabilities on the Consolidated Balance Sheets.
The Company recognizes interest expense and tax penalties related to unrecognized tax benefits as a component of
income tax expense in the Consolidated Statements of Operations. Interest and penalties included in the Company’s provision
for income taxes were not material in all the periods presented.
The Company and its subsidiaries file income tax returns in the U.S. and various foreign jurisdictions. The Company is
currently under examination by the U.S. Internal Revenue Service for tax year 2017 and 2018, Wisconsin for years 2015 - 2018
and New York State for years 2016 - 2018. The Company is no longer subject to U.S. federal tax examinations for years before
2016, or state and local tax examinations by tax authorities for years before 2015. The Company has determined that it is
reasonably possible that there will be a reversal of unrecognized tax benefits by as much as $1.6 million in the next fiscal year
due to the expected resolution of prior year tax matters.
As of December 31, 2020, the Company has $16.5 million in tax net operating loss carryforwards in foreign tax
jurisdictions which are available to reduce future income taxes and the majority of this amount relates to jurisdictions with an
indefinite carryforward period.
As of December 31, 2020, the Company had approximately $12.1 million of undistributed earnings attributable to its
foreign subsidiaries. It is the Company’s practice and intention to indefinitely reinvest the earnings of its foreign subsidiaries in
those operations. The Company has not provided deferred U.S. income taxes or foreign withholding taxes on temporary
differences resulting from the earnings indefinitely reinvested outside the United States. An estimate of the associated
unrecognized deferred tax liability related to these undistributed earnings is not material.
F-27 SHUTTERSTOCK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(12) Net Income Per Share
Basic net income per share is computed using the weighted average number of common shares outstanding for the period,
excluding unvested RSUs and stock options. Diluted net income per share is based upon the weighted average common shares
outstanding for the period plus dilutive potential common shares, 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 fiscal years 2020, 2019 and
2018 (in thousands):
Net income
Shares used to compute basic net income per share
Dilutive potential common shares:
Stock options and employee stock purchase plan shares
Unvested restricted stock awards
Shares used to compute diluted net income per share
Basic net income per share
Diluted net income per share
Potentially dilutive shares included in the calculation
Anti-dilutive shares excluded from the calculation
(13) Segment and Geographic Information
Segment Financial Information
Year Ended December 31,
2020
2019
2018
$
71,766 $
20,108 $
54,687
35,844
35,285
34,935
99
426
83
213
117
368
36,369
35,581
35,420
$
$
2.00 $
1.97 $
0.57 $
0.57 $
1,286
931
917
1,202
1.57
1.54
1,285
1,020
As of December 31, 2020, 2019 and 2018, the Company identified one operating and reportable segment for purposes of
allocating resources and evaluating financial performance. Prior to the Sale of Webdam on February 26, 2018, the Company
also identified a non-reportable segment which was classified in the Other Category, included the Company’s digital asset
management operating segment and failed to meet the quantitative or qualitative thresholds for separate segment reporting.
During the year ended December 31, 2018, which includes the period from January 1 through February 26, 2018, prior to
the Sale of Webdam, Revenue, Operating Expenses and Income from Operations related to the Company’s reportable content
segment were $620.5 million, $491.0 million and $129.6 million, respectively. Revenue, Operating Expense and Loss from
Operations related to Other and Corporate category were $2.7 million, $99.8 million and $97.1 million, respectively. Other and
corporate operating expenses include unallocated corporate expenses of $97.8 million for the year ended December 31, 2018
and primarily relate to shared operational support functions and general and administrative functions of human resources, legal,
finance and information technology.
Asset information on a segment basis is not disclosed as this information is not separately identified or internally reported
to the Company’s CODM.
F-28 SHUTTERSTOCK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Geographic Financial Information
The following represents the Company’s geographic revenue based on customer location (in thousands):
North America
Europe
Rest of the world
Total revenue
Year Ended December 31,
2020
2019
2018
$
236,599 $
228,185 $
220,665
209,422
217,397
204,941
$
666,686 $
650,523 $
230,890
207,634
184,726
623,250
Included in North America is the United States which comprises approximately 33% of total revenue for the year ended
December 31, 2020, and 32% of total revenue for the years ended December 31, 2019 and 2018. Included in Europe is the
United Kingdom which accounts for approximately 8% of total revenue for the year ended December 31, 2020. 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):
North America
Europe
Rest of world
Total long-lived tangible assets
December 31,
2020
2019
$
43,451 $
51,954
7,192
263
6,541
339
$
50,906 $
58,834
Included in North America is the United States, which comprises 75% and 79% of total long-lived tangible assets as of
December 31, 2020 and 2019, respectively.
(14) Leasing
The Company’s leases relate primarily to office facilities that expire on various dates from 2019 through 2029, some of
which include one or more options to renew. All of the Company’s leases are classified as operating leases. Operating lease
costs, including insignificant costs related to short-term leases, were $10.5 million, $11.1 million and $9.2 million for the years
ended December 31, 2020, 2019 and 2018, respectively.
The Company made cash payments for operating leases of $10.0 million for the year ended December 31, 2020, which
were included in cash flows from operating activities within the Consolidated Statements of Cash Flows. In addition, for the
year ended December 31, 2020, the Company also recorded right-of-use assets of $0.2 million obtained in exchange for lease
obligations. The Company’s operating leases have a weighted average remaining lease term of 7.5 years and a weighted
average discount rate of 6.2%.
Balance sheet information for the Company’s leases as of December 31, 2020, is as follows:
(in thousands)
Right-of-use assets
Lease liabilities, current
Lease liabilities, non-current
Total lease liabilities
December 31,
2020
2019
$
$
$
39,552 $
9,097 $
41,620
50,717 $
45,453
9,573
47,313
56,886
F-29 SHUTTERSTOCK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Lease Commitments
Future undiscounted lease payments for the Company’s operating lease liabilities and a reconciliation of these payments
to its lease liabilities at December 31, 2020 are as follows (in thousands):
Reconciliation of future undiscounted lease payments to lease liabilities
Lease Commitments
Year ending December 31,
2020
2021
2022
2023
2024
Thereafter
Total undiscounted lease payments
Less: imputed interest
Total lease liabilities
9,334
8,131
6,594
6,879
7,728
25,651
64,317
(13,600)
50,717
$
The Company’s most significant lease is for its headquarters in New York City, which was entered into in March 2013
and was amended in January 2016 (“ESB Lease”). As amended, the ESB Lease will expire in 2029, and the undiscounted
remaining future minimum lease payments are approximately $56.3 million. The Company is also party to a letter of credit as a
security deposit for this leased facility, which was reduced from $2.6 million to $1.7 million in February 2020. As of March 31,
2020, the Company is no longer required to provide cash collateral for its letter of credit, and, accordingly, these funds are no
longer restricted.
(15) Commitments and Contingencies
Other Non-Lease Obligations
As of December 31, 2020, the Company’s other unconditional cash obligations, consisting primarily of unconditional
purchase obligations related to contracts for cloud-based services, infrastructure and other business services as well as minimum
royalty guarantees in connection with certain content licenses, are as follows:
Year Ending December 31,
Other Obligations
2021
2022
2023
2024
2025
Thereafter
$
26,524
7,988
4,125
—
—
—
Total non-lease unconditional obligations
$
38,637
F-30 SHUTTERSTOCK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
Customer Indemnifications
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 to ten thousand dollars. The
Company offers certain of its customers greater levels of indemnification, including unlimited indemnification. As of
December 31, 2020, the Company has recorded no liabilities related to indemnification for loss contingencies. Additionally, the
Company believes that it has the appropriate insurance coverage in place to adequately cover such indemnification obligations,
if necessary.
Employment Agreements and Indemnification Agreements
The Company has entered into employment arrangements and indemnification agreements with certain executive officers
and with certain employees. The agreements specify various employment-related matters, including annual compensation,
performance incentive bonuses, and severance benefits in the event of termination with or without cause.
F-31 SHUTTERSTOCK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(16) Unaudited Quarterly Financial Data
The following table sets forth, for the periods indicated, the Company’s financial information for the eight most recent
quarters ended December 31, 2020. In the Company’s opinion, this unaudited information has been prepared on a basis
consistent with the annual consolidated financial statements and includes all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the unaudited information for the periods presented.
Dec 31, 2020
Sep 30, 2020
Jun 30, 2020
Mar 31, 2020
Dec 31, 2019
Sep 30, 2019
Jun 30, 2019
Mar 31, 2019
Three Months Ended
(in thousands, except per share data)
Revenue
$ 180,944 $ 165,227 $ 159,230 $ 161,285 $ 166,371 $ 159,079 $ 161,741 $ 163,332
Operating expenses(1):
Cost of revenue
Sales & marketing
Product development
General and administrative
66,308
44,369
9,867
32,807
60,331
36,655
10,617
28,277
63,811
35,557
12,485
24,832
69,123
42,660
13,069
30,652
71,797
47,182
15,103
26,486
68,635
45,614
13,533
28,114
68,526
44,488
13,594
32,063
69,218
44,446
14,986
26,583
Total operating expenses
153,351
135,880
136,685
155,504
160,568
155,896
158,671
155,233
Income from operations
Other income / (expense), net(2)
Income before income taxes
Provision / (Benefit) for income tax
27,593
4,763
32,356
6,477
29,347
(1,168)
28,179
5,597
22,545
149
22,694
3,707
5,781
513
6,294
1,976
5,803
2,816
8,619
4,266
3,183
465
3,648
(1,286)
3,070
584
3,654
355
Net income
$
25,879 $
22,582 $
18,987 $
4,318 $
4,353 $
4,934 $
3,299 $
Net income per common share:
Basic
Diluted
Weighted average common shares
outstanding:
Basic
Diluted
$
$
0.71 $
0.63 $
0.53 $
0.12 $
0.12 $
0.14 $
0.09 $
0.70 $
0.62 $
0.53 $
0.12 $
0.12 $
0.14 $
0.09 $
36,234
37,183
35,962
36,494
35,652
35,906
35,521
35,882
35,478
35,786
35,309
35,541
35,232
35,504
35,114
35,491
____________________________________________________________________________
(1)
(2)
Includes non-cash equity-based compensation of $28,309 and $22,815 for the years ended December 31, 2020 and 2019, respectively.
Includes transaction gains and losses primarily related to cash balances of subsidiaries denominated in a currency other than the
subsidiaries’ functional currencies; and interest income and expense, which is not material in any period presented.
(17) Subsequent Events
On February 1, 2021, the Company completed its acquisition of all of the outstanding shares of TurboSquid, Inc.
(“TurboSquid”), a company that offers a marketplace for 3D models, for approximately $75 million, subject to customary
working capital and other adjustments, paid from existing cash on hand. The purchase accounting is not complete due to the
timing of the availability of information. The Company is currently evaluating the fair values of the consideration transferred,
assets acquired and liabilities assumed and expects to complete its initial purchase price allocation in the first quarter of 2021.
8,099
896
8,995
1,473
7,522
0.21
0.21
F-32 EXHIBIT INDEX
Exhibit Description
Form
File No.
Exhibit
Filing Date
Incorporated by Reference
Agreement and Plan of Merger, dated as of October 5, 2012, between the
Registrant and Shutterstock Images LLC.
Agreement and Plan of Merger, dated as of October 5, 2012, among the
Registrant, Shutterstock Investors II, Inc., Insight Venture Partners
(Cayman) V, L.P., Shutterstock Investors III, Inc. and Insight Venture
Partners V Coinvestment Fund, L.P.
S-1/A
333-181376
2.1
October 5, 2012
S-1/A
333-181376
2.2
October 5, 2012
Amended and Restated Certificate of Incorporation of the Registrant, as
currently in effect.
S-1/A
333-181376
3.2
June 29, 2012
Amended and Restated Bylaws of the Registrant, as currently in effect.
S-1/A
333-181376
3.4 September 27, 2012
Specimen Stock Certificate of the Registrant
S-3ASR
333-243706
Exhibit
Number
2.1
2.2
3.1
3.2
4.1
4.2 §
Description of the Registrant’s Securities
10.1 §
Form of Indemnification Agreement between the Registrant and each of its
Officers and Directors.
10.2 §
2012 Omnibus Equity Incentive Plan and Form of Award Agreements.
10.3 §
2012 Employee Stock Purchase Plan and Form of Subscription Agreement.
10.4 §
Shutterstock, Inc. Short-Term Incentive Plan.
Employment Agreement between Shutterstock Images LLC and Jonathan
Oringer dated September 24, 2012.
Severance and Change in Control Agreement between Shutterstock
Images LLC and Jonathan Oringer dated September 24, 2012.
Summary of Compensatory Arrangements with Jonathan Oringer, dated
April 24, 2014.
Amendment to Employment Agreement, dated February 11, 2020, by and
between Jon Oringer and Shutterstock, Inc.
Amendment to Severance and Change in Control Agreement, dated February
11, 2020, by and between Jon Oringer and Shutterstock, Inc.
Lease Agreement, between Shutterstock, Inc. and Empire State Building
Company LLC, dated March 21, 2013.
First Lease Modification Agreement, by and between Shutterstock, Inc. and
ESRT Empire State Building, L.L.C., dated August 31, 2015.
Second Lease Modification and Extension Agreement, by and between
Shutterstock, Inc. and ESRT Empire State Building, L.L.C., dated January 8,
2016.
10-K
S-1/A
10-K
S-1/A
S-1/A
S-1/A
001-35669
4.1
4.1
August 10, 2020
February 13, 2020
333-181376
10.1
August 30, 2012
001-35669
10.2
February 27, 2015
333-181376
333-181376
10.3
10.7
June 29, 2012
August 30, 2012
333-181376
10.8(a)
September 27, 2012
S-1/A
333-181376
10.8(b)
September 27, 2012
8-K
001-35669
N/A
April 28, 2014
10-K
001-35669
10.5(d)
February 13, 2020
10-K
001-35669
10.5(e)
February 13, 2020
10-Q
001-35669
10.1
May 10, 2013
10-Q
001-35669
10.3
November 6, 2015
8-K
001-35669
10.1
January 13, 2016
Third Lease Modification Agreement, dated July 19, 2016, by and between
Shutterstock, Inc. and ESRT Empire State Building, L.L.C.
10-Q
001-35669
10.10 §
Shutterstock, Inc. Director Compensation Policy
Shutterstock, Inc. Form of 2012 Omnibus Equity Incentive Plan Restricted
Stock Unit Award Agreement
10-K
10-Q
001-35669
001-35669
Shutterstock, Inc. Form of 2012 Omnibus Equity Incentive Plan Restricted
Stock Unit Award Agreement for Canadian Employees
10-Q
001-35669
Shutterstock, Inc. Form of 2012 Omnibus Equity Incentive Plan Deferred
Restricted Stock Unit Award Agreement
10-Q
001-35669
10.14 §
Shutterstock, Inc. Amended and Restated 2012 Omnibus Equity Incentive Plan
10-Q
001-35669
Shutterstock, Inc. 2012 Amended and Restated Omnibus Equity Incentive Plan
Restricted Stock Unit Award Agreement, as amended September 15, 2016
10-Q
001-35669
10.1
10.1
10.5
10.6
10.7
10.4
10.1
August 4, 2016
February 26, 2019
May 4, 2016
May 4, 2016
May 4, 2016
August 4, 2016
November 4, 2016
Shutterstock, Inc. 2012 Amended and Restated Omnibus Equity Incentive Plan
Restricted Stock Unit Award Agreement for Canadian Employees, as amended
September 15, 2016
Shutterstock, Inc. 2012 Amended and Restated Omnibus Equity Incentive Plan
Deferred Restricted Stock Unit Award Agreement, as amended September 15,
2016
10-Q
001-35669
10.2
November 4, 2016
10-Q
001-35669
10.3
November 4, 2016
10.18 §
Shutterstock, Inc. 2012 Amended and Restated Omnibus Equity Incentive Plan
Performance Stock Unit Award Agreement
8-K
001-35669
10.1
February 11, 2020
10.5(a) §
10.5(b) §
10.5(c) §
10.5(d) §
10.5(e) §
10.6
10.7
10.8
10.9
10.11 §
10.12 §
10.13 §
10.15 §
10.16 §
10.17 §
Exhibit
Number
10.19(a) §
Exhibit Description
Employment Agreement, dated August 5, 2019, by and between the Company
and Steven Ciardiello
Incorporated by Reference
Form
File No.
Exhibit
Filing Date
8-K
001-35669
10.1
August 6, 2019
10.19(b) §
Amendment to Employment Agreement, dated November 5, 2019, by and
between the Company and Steven Ciardiello
10-Q
001-35669
10.4
November 5, 2019
10.20 §
Employment Agreement, dated December 7, 2016 between the Company and
Martin Brodbeck
10-Q
001-35669
10.1
April 26, 2018
10.21(a) §
Amended and Restated Employment Agreement, dated November 5, 2019, by
and between the Company and Lisa Nadler
10-Q
001-35669
10.2
November 5, 2019
10.21(b) § Mutual Separation Agreement and General Release, dated February 25, 2020,
10-Q
001-35669
10.1
April 28, 2020
10-Q
001-35669
10.3
November 5, 2019
8-K
001-35669
10.1
April 15, 2020
10-Q
001-35669
10.1
April 25, 2019
10-Q
001-35669
10.1
November 5, 2019
10-K
001-35669
10.25(c)
February 13, 2020
8-K
001-35669
10.1
November 18, 2019
10-Q
001-35669
10.2
July 28, 2020
10.22(a) §
10.22(b) §
10.23(a) §
10.23(b) §
10.23(c) §
10.24 §
10.25 §
between the Company and Lisa Nadler
Amended and Restated Employment Agreement, dated November 5, 2019, by
and between the Company and Louis Weiss
Separation Agreement and General Release, dated March 23, 2020, by and
between Lou Weiss and Shutterstock, Inc.
Employment Agreement, dated March 13, 2019, by and between the Company
and Stan Pavlovsky
Amendment to Employment Agreement, dated November 5, 2019, by and
between the Company and Stan Pavlovsky
Second Amendment to Employment Agreement, dated February 11, 2020, by
and between Stan Pavlovsky and Shutterstock, Inc.
Employment Agreement, dated November 7, 2019, by and between the
Company and Jarrod Yahes
Employment Agreement, dated November 4, 2019, between the Company and
Pietro Silvio
21.1 **
List of Subsidiaries.
23.1 ** Consent of PricewaterhouseCoopers LLP, Independent Registered Public
Accounting Firm.
24.1 **
Power of Attorney (included on signature page of this Annual Report on
Form 10-K).
31.1 ** Certification of Chief Executive Officer pursuant to Exchange Act
Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 ** Certification of Chief Financial Officer pursuant to Exchange Act
Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32 #** Certifications of Chief Executive Officer and Chief Financial Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
101.INS *
XBRL Instance Document.
101.SCH *
XBRL Taxonomy Extension Schema Document.
101.CAL *
XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF *
XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB *
XBRL Taxonomy Extension Label Linkbase Document.
101.PRE *
XBRL Taxonomy Extension Presentation Linkbase Document.
_______________________________________________________________________________
*
XBRL information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities
Exchange Act of 1934, and is not subject to liability under those sections, is not part of any registration statement or prospectus to which it relates and is not
incorporated or deemed to be incorporated by reference into any registration statement, prospectus or other document.
§
#
Management contract or compensatory plan or arrangement.
These certifications are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference in any
filing we make under the Securities Act of 1933 or the Securities Exchange Act of 1934, irrespective of any general incorporation language in any filings.
**
Filed herewith.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: February 11, 2021
By:
/s/ STAN PAVLOVSKY
SHUTTERSTOCK, INC.
Stan Pavlovsky
Chief Executive Officer
Each person whose individual signature appears below hereby authorizes and appoints Stan Pavlovsky and Jarrod Yahes,
and each of them, with full power of substitution and resubstitution and full power to act without the other, as his or her true
and lawful attorney-in-fact and agent to act in his or her name, place and stead and to execute in the name and on behalf of each
person, individually and in each capacity stated below, and to file any and all amendments to this Annual Report on Form 10-K,
and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each
and every act and thing, ratifying and confirming all that said attorneys-in-fact and agents or any of them or their or his or her
substitute or substitutes may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities indicated.
Signature
Title
Date
/s/ JONATHAN ORINGER
Founder and Executive Chairman of the Board
February 11, 2021
Jonathan Oringer
/s/ STAN PAVLOVSKY
Chief Executive Officer and Director (Principal Executive Officer)
February 11, 2021
Stan Pavlovsky
/s/ JARROD YAHES
Chief Financial Officer (Principal Financial Officer)
February 11, 2021
Jarrod Yahes
/s/ STEVEN CIARDIELLO
Chief Accounting Officer (Principal Accounting Officer)
February 11, 2021
Steven Ciardiello
/s/ RACHNA BHASIN
Director
Rachna Bhasin
/s/ DEIRDRE M. BIGLEY
Director
Deirdre M. Bigley
/s/ JEFF EPSTEIN
Director
Jeff Epstein
/s/ THOMAS R. EVANS
Director
Thomas R. Evans
/s/ PAUL J. HENNESSY
Director
Paul J. Hennessy
/s/ ALFONSE UPSHAW
Director
Alfonse Upshaw
February 11, 2021
February 11, 2021
February 11, 2021
February 11, 2021
February 11, 2021
February 11, 2021
[THIS PAGE INTENTIONALLY LEFT BLANK]
The graph below matches Shutterstock, Inc.'s cumulative 5-Year total shareholder return on common stock with the cumulative
total returns of the NYSE Composite index and the S&P Internet Software & Services index. The graph tracks the performance
of a $100 investment in our common stock and in each index (with the reinvestment of all dividends) from 12/31/2015 to
12/31/2020.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Shutterstock, Inc., the NYSE Composite Index
and the S&P Internet Software & Services Index
$300
$250
$200
$150
$100
$50
$0
12/2015
12/2016
12/2017
12/2018
12/2019
12/2020
Shutterstock, Inc.
NYSE Composite
S&P Internet Software & Services
*$100 invested on 12/31/15 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
Copyright© 2021 Standard & Poor's, a division of S&P Global. All rights reserved.
Shutterstock, Inc.
NYSE Composite
S&P Internet Software & Services
100.00
100.00
100.00
146.94
111.94
105.18
133.06
132.90
148.04
117.86
121.01
161.77
140.35
151.87
161.77
238.17
162.49
161.77
12/15
12/16
12/17
12/18
12/19
12/20
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
[THIS PAGE INTENTIONALLY LEFT BLANK]
[THIS PAGE INTENTIONALLY LEFT BLANK]
Board of Directors
Executive Officers
Stockholder Information
Stan Pavlovsky
Chief Executive Officer
Jarrod Yahes
Chief Financial Officer
Peter Silvio
Chief Technology Officer
Jon Oringer
Founder and Executive Chairman
Shutterstock
Stan Pavlovsky
Chief Executive Officer
Shutterstock
Rachna Bhasin
Founder/CEO
EQ Partners
Deirdre Bigley
Chief Marketing Officer
Bloomberg
Jeff Epstein
Operating Partner
Bessemer Venture Partners
Former Executive Vice President Chief Financial Officer
Oracle Corporation
Thomas R. Evans
Former Advisor to the Board
Former President, and Chief Executive Officer
Bankrate, Inc.
Paul J. Hennessy
Chief Executive Officer
Vroom, Inc.
Alfonse Upshaw
Senior Vice President
Corporate Controller & Chief Accounting Officer of
Kaiser Foundation Health Plans and Hospitals (Kaiser Permanente)
Corporate Headquarters
Shutterstock, Inc.
350 Fifth Avenue, 21st Floor
New York, NY 10118
Investor Relations
Copies of our annual report on Form 10-K for the year ended
December 31, 2020 are available free of charge, upon request to:
Shutterstock, Inc.
350 Fifth Avenue, 21st Floor
New York, NY 10118
Attn: Corporate Secretary
Stock Listing
Our common stock is listed on the New York Stock Exchange
under the symbol “SSTK”
Independent Registered Public Accounting Firm
PricewaterhouseCoopers, LLP
300 Madison Avenue
New York, NY 10017
Transfer Agent
American Stock Transfer &
Trust Company
6201 15th Avenue
Brooklyn, NY 11219
Company Information
Current information about Shutterstock, press releases,
and investor information are available on our website
at www.shutterstock.com
Forward Looking Statements
This report contains forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available to management. Forward-looking
statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future
results, performance or achievements expressed or implied by the forward-looking statements. See Shutterstock’s filings with the Securities and Exchange Commission, including its
most recent filings on Forms 10-K and 10-Q, for a discussion of important risk factors that could cause actual events or results to differ materially from what we currently expect.
Board of Directors
Executive Officers
Stockholder Information
Stan Pavlovsky
Chief Executive Officer
Jarrod Yahes
Chief Financial Officer
Peter Silvio
Chief Technology Officer
Jon Oringer
Shutterstock
Founder and Executive Chairman
Stan Pavlovsky
Chief Executive Officer
Shutterstock
Rachna Bhasin
Founder/CEO
EQ Partners
Deirdre Bigley
Chief Marketing Officer
Bloomberg
Jeff Epstein
Operating Partner
Bessemer Venture Partners
Oracle Corporation
Thomas R. Evans
Former Advisor to the Board
Bankrate, Inc.
Paul J. Hennessy
Chief Executive Officer
Vroom, Inc.
Alfonse Upshaw
Senior Vice President
Former Executive Vice President Chief Financial Officer
Former President, and Chief Executive Officer
Corporate Controller & Chief Accounting Officer of
Kaiser Foundation Health Plans and Hospitals (Kaiser Permanente)
Corporate Headquarters
Shutterstock, Inc.
350 Fifth Avenue, 21st Floor
New York, NY 10118
Investor Relations
Copies of our annual report on Form 10-K for the year ended
December 31, 2020 are available free of charge, upon request to:
Shutterstock, Inc.
350 Fifth Avenue, 21st Floor
New York, NY 10118
Attn: Corporate Secretary
Stock Listing
Our common stock is listed on the New York Stock Exchange
under the symbol “SSTK”
Independent Registered Public Accounting Firm
PricewaterhouseCoopers, LLP
300 Madison Avenue
New York, NY 10017
Transfer Agent
American Stock Transfer &
Trust Company
6201 15th Avenue
Brooklyn, NY 11219
Company Information
Current information about Shutterstock, press releases,
and investor information are available on our website
at www.shutterstock.com
Forward Looking Statements
This report contains forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available to management. Forward-looking
statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future
results, performance or achievements expressed or implied by the forward-looking statements. See Shutterstock’s filings with the Securities and Exchange Commission, including its
most recent filings on Forms 10-K and 10-Q, for a discussion of important risk factors that could cause actual events or results to differ materially from what we currently expect.