SHUTTERSTOCK, INC. Management report and analysis of the financial situation and operating results. (Form 10-Q)

The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our interim unaudited consolidated
financial statements and related notes contained elsewhere in this Quarterly
Report on Form 10-Q and with information contained in our other filings,
including the audited consolidated financial statements included in our 2021
Form 10-K.

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" disclosures contained in our 2021 Form 10-K and this Quarterly
Report on Form 10-Q 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.

Overview and recent developments

Shutterstock, Inc. (referred to herein as the "Company", "we," "our," and "us")
is the leading global creative platform for transformative brands 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.

Our key offerings include:

•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.

•Three-dimensional (“3D”) models – consisting of 3D models, used in a variety of industries such as advertising, multimedia and video production, gaming, retail, education, design and architecture . This offer became available when we acquired TurboSquid, Inc. (“TurboSquid”) on February 1, 2021.

• Creative design software – consisting of our online graphic design and image editing platform. This investment became available after we completed the acquisition of substantially all of the assets and the assumption of certain liabilities of PicMonkey, LLC (“PicMonkey”) on September 3, 2021.

On May 11, 2022, we completed our acquisition of Pond5, Inc. ("Pond5"), a
video-first content marketplace which expands our content offerings across
footage, image and music. On May 28, 2022, we acquired SCP 2020 Limited ("Splash
News"), an entertainment news network for newsrooms and media companies, which
offers image and video content across celebrity, red carpet and live events.

For customers seeking specialized solutions, Shutterstock Studios extends our
offerings by providing custom, high-quality content matched with production
tools and services at scale. Shutterstock Studios delivers end-to-end custom
creative services providing data-driven content strategy and full-scale
production for our customers. Shutterstock Editorial provides imagery and video
content for the latest news, sports and entertainment, and Shutterstock
Editorial also offers the Newsroom, for global breaking news, exclusives and
archival content.

In addition, in July of 2021, through our newly formed entity Shutterstock.AI,
Inc. ("Shutterstock.AI"), we acquired Pattern89, Inc., Datasine Limited, and
assets from Shotzr, Inc., three artificial intelligence entities that provide
data driven insights through their artificial intelligence platforms.
Shutterstock.AI will commercialize data assets within our content library and
enable companies to grow their capabilities in computer vision and content
insights. The artificial intelligence tools obtained from these acquisitions
will enable us to help customers make more data-informed content decisions.

Over 2.1 million active, paying customers contributed to our revenue for the
twelve-month period ended June 30, 2022. As of June 30, 2022, more than 2.2
million approved contributors made their images, footage and music tracks
available in our collection, which has grown to more than 415 million images and
more than 26 million footage clips as of June 30, 2022. This makes our
collection of content one of the largest of its kind, and we delivered 88.0
million paid downloads to our customers across all of our brands during the six
months ended June 30, 2022.

                                       24

————————————————– ——————————

Contents

Through our platform, we generate revenue as our customers make purchases of
content licenses and tools. During the six months ended June 30, 2022, 63% 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,
premiumbeat.com and turbosquid.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, which provides data-driven content
strategy, brand storytelling and full scale production services. Our Enterprise
sales channel provided approximately 37% of our revenue for the six months ended
June 30, 2022.

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, including
our suite of multi-asset subscriptions, launched in 2021. These multi-asset
products are credit-based and enable customers to license images, footage and
music in a single subscription. Our subscriptions provide for either a fixed
number of content licenses or credits that may be used to download content
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.


                                       25

————————————————– ——————————

Contents

Main operating parameters

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 three and six months ended
June 30, 2022 and 2021:

                                                    Three Months Ended June 30,                  Six Months Ended June 30,
                                                      2022                  2021                  2022                 2021

Subscribers (end of period)1                           368,000             321,000                368,000             321,000
Subscriber revenue (in millions)1              $          84.7          $   

78.1 $170.1 $154.6

Average revenue per customer (last twelve
months)1                                       $           359          $      356          $         359          $      356
Paid downloads (in millions)                              43.4                44.9                   88.0                90.7
Revenue per download                           $          4.46          $     4.17          $        4.34          $     4.07
Content in our collection (end of period, in
millions):
Images                                                     415                 380                    415                 380
Footage clips                                               26                  22                     26                  22

___________________________________________________

1 For the three and six months ended June 30, 2021, Subscribers, Subscriber
Revenue and Average Revenue Per Customer exclude customers and revenue related
to our acquisitions of TurboSquid, PicMonkey, Pond5 and Splash News. For the
three and six months ended June 30, 2022, Subscribers, Subscriber Revenue and
Average Revenue Per Download exclude customers and revenue related to PicMonkey,
Pond5 and Splash News.


Subscribers

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. For the three and six months ended June 30,
2021, Subscribers excludes customers related to our acquisitions of TurboSquid,
PicMonkey, Pond5 and Splash News. For the three and six months ended June 30,
2022, subscribers excludes customers related to PicMonkey, Pond5 and Splash
News. 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. For the three and six months ended June 30, 2021, subscriber revenue
excludes revenues related to our acquisitions of TurboSquid, PicMonkey, Pond5
and Splash News. For the three and six months ended June 30, 2022, subscriber
revenue excludes revenues related to PicMonkey, Pond5 and Splash News. 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
last twelve-month period by customers. We define customers as total active,
paying customers that contributed to total revenue over the last twelve-month
period. For three and six months ended June 30, 2021, average revenue per
customer excludes revenues and customers related to our acquisitions of
TurboSquid, PicMonkey, Pond5 and Splash News. For the three and six months ended
June 30, 2022, average revenue per customer excludes revenues and customers
related to PicMonkey, Pond5 and Splash News. 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 content related to custom
content, downloads of content that are offered to customers for no charge,
including our free image of the week, and downloads associated with our computer
vision offering. 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.

                                       26

————————————————– ——————————

Contents

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, revenue that is not derived from or associated with content
licenses and revenue associated with our computer vision offering. 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.

Contents of 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.


Significant Accounting Policies and Estimates

Our financial statements are prepared in accordance with 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, the fair value of acquired goodwill and intangible assets 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.

We believe that the policies, assumptions and estimates associated with our
revenue recognition, allowance for doubtful accounts, goodwill and intangible
assets 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.

A description of our critical accounting policies that involve significant management judgments can be found in our 2021 Form 10-K, under “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates”. .

See Note 1 of our unaudited consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for a complete description of the impact of the adoption of the new accounting standards on our financial statements. There have been no material changes in our critical accounting policies and estimates from our critical accounting policies and estimates included in our 2021 Form 10-K.

                                       27

————————————————– ——————————

Contents

Key elements of our operating results

Revenue

We distribute our content offerings through two main channels:

E-commerce: The majority of our customers make purchases of content licenses and
tools directly through our 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 our 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: We also have a base of 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 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.

Company revenue by distribution channel for the three and six months ended June 30, 2022 and 2021 are as follows (in thousands):

                     Three Months Ended             Six Months Ended
                          June 30,                      June 30,
                    2022           2021           2022           2021
E-commerce       $ 127,388      $ 120,715      $ 254,458      $ 239,115
Enterprise          79,484         69,197        151,546        134,078

Total Revenues   $ 206,872      $ 189,912      $ 406,004      $ 373,193



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, purchased content and acquisition-related 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 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 / (expenses), net. Other income/(expense), net, includes non-operating costs such as gains and losses on foreign currency transactions, in addition to interest income and expense.

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.

                                       28

————————————————– ——————————

Contents

© Edgar Online, source Previews

Comments are closed.