10-Q 1 sstk-20220331.htm 10-Q sstk-20220331
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Table of Contents                            
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 __________________________________________________________________________________________________ 
FORM 10-Q
 ___________________________________________________________________________________________________ 
(Mark One)
   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
For the quarterly period ended March 31, 2022
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)
 ________________________________________________________
Delaware80-0812659
(State or other jurisdiction of incorporation or organization)(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)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
 ______________________________________________________________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par value per shareSSTKNew York Stock Exchange
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 Accelerated filer 
Non-accelerated filerSmaller 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of April 22, 2022, 36,237,291 shares of the registrant’s common stock, $0.01 par value per share, were outstanding.

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Table of Contents                            
Shutterstock, Inc.
FORM 10-Q
Table of Contents 

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Table of Contents                            
FORWARD-LOOKING STATEMENTS
 
This Quarterly Report on Form 10-Q 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 discussion under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All statements other than statements of historical fact, are forward-looking. Examples of forward-looking statements include, but are not limited to, statements regarding guidance, industry prospects, future business, future results of operations or financial condition, future dividends, future stock performance, our ability to consummate acquisitions and integrate the businesses we have acquired or may acquire into our existing operations, new or planned features, products or services, management strategies and our competitive position. You can identify many forward-looking statements by words such as “may,” “will,” “would,” “should,” “could,” “expects,” “aims,” “anticipates,” “believes,” “estimates,” “intends,” “plans,” “predicts,” “projects,” “seeks,” “potential,” “opportunities” and other similar expressions and the negatives of such expressions. However, not all forward-looking statements contain these words. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause our actual results to differ materially from those expressed or implied by the forward-looking statements. Such risks and uncertainties include, among others, those discussed under the caption “Risk Factors” in our most recently filed Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission (the “SEC”) on February 10, 2022 (our “2021 Form 10-K”), and in our consolidated financial statements, related notes, and the other information appearing elsewhere in the 2021 Form 10-K, this Quarterly Report on Form 10-Q and our other filings with the SEC. Given these risks and uncertainties, you should not place undue reliance on any forward-looking statements. The forward-looking statements contained in this Quarterly Report on Form 10-Q are made only as of the date hereof, and we do not intend, and, except as required by law, we undertake no obligation to update any forward-looking statements contained herein after the date of this report to reflect actual results or future events or circumstances.
Unless the context otherwise indicates, references in this Quarterly Report on Form 10-Q to the terms “Shutterstock,” “the Company,” “we,” “our” and “us” refer to Shutterstock, Inc. and its subsidiaries. “Shutterstock,” “Shutterstock Editorial,” “Asset Assurance,” “Offset,” “Bigstock,” “Rex Features,” “PremiumBeat,” “TurboSquid,” “PicMonkey,” “Pattern89,” “Shotzr,” “Shutterstock Studios” 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 Quarterly Report on Form 10-Q are the property of their respective owners.
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PART I.     FINANCIAL INFORMATION
Item 1.        Financial Statements.
Shutterstock, Inc.
Consolidated Balance Sheets
(In thousands, except par value amount)
(unaudited)
March 31,December 31,
20222021
ASSETS
Current assets:
Cash and cash equivalents$258,112 $314,017 
Accounts receivable, net of allowance of $2,125 and $1,910
44,774 47,707 
Prepaid expenses and other current assets36,833 26,491 
Total current assets339,719 388,215 
Property and equipment, net50,206 48,074 
Right-of-use assets32,935 34,570 
Intangible assets, net116,859 123,822 
Goodwill219,176 219,816 
Deferred tax assets, net11,559 10,512 
Other assets25,524 26,701 
Total assets$795,978 $851,710 
LIABILITIES AND STOCKHOLDERSEQUITY
Current liabilities:
Accounts payable$7,208 $10,092 
Accrued expenses74,131 99,529 
Contributor royalties payable29,816 29,004 
Deferred revenue178,734 180,979 
Other current liabilities13,997 14,180 
Total current liabilities303,886 333,784 
Deferred tax liability, net2,517 2,781 
Lease liabilities35,857 36,966 
Other non-current liabilities9,295 9,697 
Total liabilities351,555 383,228 
Commitments and contingencies (Note 13)
Stockholders’ equity:
Common stock, $0.01 par value; 200,000 shares authorized; 39,352 and 39,209 shares issued and 36,138 and 36,417 shares outstanding as of March 31, 2022 and December 31, 2021, respectively
394 392 
Treasury stock, at cost; 3,214 and 2,792 shares as of March 31, 2022 and December 31, 2021, respectively
(165,465)(127,196)
Additional paid-in capital373,765 376,537 
Accumulated comprehensive loss(11,674)(10,788)
Retained earnings247,403 229,537 
Total stockholders’ equity444,423 468,482 
Total liabilities and stockholders’ equity$795,978 $851,710 
See Notes to Unaudited Consolidated Financial Statements.
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Table of Contents                            
Shutterstock, Inc.
Consolidated Statements of Operations
(In thousands, except for per share data)
(unaudited)
 Three Months Ended
March 31,
 20222021
Revenue$199,132 $183,281 
Operating expenses:
Cost of revenue69,451 61,832 
Sales and marketing53,329 41,921 
Product development13,626 10,731 
General and administrative30,808 30,679 
Total operating expenses167,214 145,163 
Income from operations31,918 38,118 
Other income / (expense), net758 (2,462)
Income before income taxes32,676 35,656 
Provision for income taxes6,104 6,142 
Net income$26,572 $29,514 
Earnings per share:
Basic$0.73 $0.81 
Diluted$0.71 $0.79 
Weighted average common shares outstanding:
Basic36,30336,336
Diluted37,20437,249
See Notes to Unaudited Consolidated Financial Statements.
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Table of Contents                            
Shutterstock, Inc.
Consolidated Statements of Comprehensive Income
(In thousands)
(unaudited)
 Three Months Ended
March 31,
 20222021
Net income$26,572 $29,514 
Foreign currency translation (loss) / gain(886)226 
Other comprehensive (loss) / income(886)226 
Comprehensive income$25,686 $29,740 
 
See Notes to Unaudited Consolidated Financial Statements.
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Table of Contents                            
Shutterstock, Inc.
Consolidated Statements of Stockholders’ Equity
(In thousands)
(unaudited)
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income / (Loss)
Retained
Earnings
Common StockTreasury Stock
Three Months Ended March 31, 2022SharesAmountSharesAmountTotal
Balance at December 31, 202139,209 $392 2,792 $(127,196)$376,537 $(10,788)$229,537 $468,482 
Equity-based compensation— — — — 7,826 — — 7,826 
Issuance of common stock in connection with employee stock option exercises and RSU vesting261 3 — — (3)— —  
Common shares withheld for settlement of taxes in connection with equity-based compensation(118)(1)— — (10,595)— — (10,596)
Repurchase of treasury shares— — 422 (38,269)— — — (38,269)
Cash dividends paid— — — — — — (8,706)(8,706)
Other comprehensive loss— — — — — (886)— (886)
Net income— — — — — — 26,572 26,572 
Balance at March 31, 202239,352 $394 3,214 $(165,465)$373,765 $(11,674)$247,403 $444,423 
Three Months Ended March 31, 2021
Balance at December 31, 202038,803 $389 2,558 $(100,027)$360,939 $(7,681)$168,305 $421,925 
Equity-based compensation— — — — 8,210 — — 8,210 
Issuance of common stock in connection with employee stock option exercises and RSU vesting357 4 — — 1,305 — — 1,309 
Common shares withheld for settlement of taxes in connection with equity-based compensation(150)(2)— — (13,032)— — (13,034)
Cash dividends paid— — — — — — (7,646)(7,646)
Other comprehensive income— — — — — 226 — 226 
Net income— — — — — — 29,514 29,514 
Balance at March 31, 202139,010 $391 2,558 $(100,027)$357,422 $(7,455)$190,173 $440,504 
See Notes to Unaudited Consolidated Financial Statements.
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Table of Contents                            
Shutterstock, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
 Three Months Ended
March 31,
 20222021
CASH FLOWS FROM OPERATING ACTIVITIES  
Net income$26,572 $29,514 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization15,065 10,091 
Deferred taxes(1,242)(433)
Non-cash equity-based compensation7,826 8,210 
Bad debt expense361 526 
Changes in operating assets and liabilities:
Accounts receivable2,366 (5,892)
Prepaid expenses and other current and non-current assets(1,376)(9,306)
Accounts payable and other current and non-current liabilities(26,717)(72)
Contributor royalties payable1,030 (369)
Deferred revenue(1,162)3,559 
Net cash provided by operating activities$22,723 $35,828 
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures(11,775)(8,548)
Business combination, net of cash acquired (72,165)
Acquisition of content(734)(489)
Security deposit payment(16)(11)
Net cash used in investing activities$(12,525)$(81,213)
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchase of treasury shares(38,372) 
Proceeds from exercise of stock options 1,309 
Cash paid related to settlement of employee taxes related to RSU vesting(18,496)(13,034)
Payment of cash dividend(8,706)(7,646)
Net cash used in financing activities$(65,574)$(19,371)
Effect of foreign exchange rate changes on cash(529)108 
Net decrease in cash and cash equivalents(55,905)(64,648)
Cash and cash equivalents, beginning of period314,017 428,574 
Cash and cash equivalents, end of period$258,112 $363,926 
Supplemental Disclosure of Cash Information:
Cash paid for income taxes $1,666 $3,363 
See Notes to Unaudited Consolidated Financial Statements.
8

Shutterstock, Inc.
Notes to Consolidated Financial Statements 
(unaudited)




(1) Summary of Operations and Significant Accounting Policies
Summary of Operations
Shutterstock, Inc. (the “Company” or “Shutterstock”) is the leading global creative platform for transformative brands 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. Contributors upload their content to the Company’s web properties in exchange for royalty payments based on customer download activity.
The Company’s 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.
3 Dimensional (“3D”) Models - consisting of 3D models, used in a variety of industries such as advertising, media and video production, gaming, retail, education, design and architecture. This offering became available upon the Company’s acquisition of TurboSquid, Inc. on February 1, 2021.
Creative Design Software - consisting of the Company’s online graphic design and image editing platform. This offering became available after the Company completed the acquisition of substantially all of the assets and assumption of certain liabilities from PicMonkey, LLC on September 3, 2021.
Basis of Presentation
The unaudited condensed consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not include all information and footnotes required by GAAP for complete financial statements.
The interim Consolidated Balance Sheet as of March 31, 2022, and the Consolidated Statements of Operations, Comprehensive Income, Stockholders’ Equity and Cash Flows for the three months ended March 31, 2022 and 2021 are unaudited. The Consolidated Balance Sheet as of December 31, 2021, included herein, was derived from the audited financial statements as of that date, but does not include all disclosures required by GAAP. These unaudited interim financial statements have been prepared on a basis consistent with the Company’s annual financial statements and, in the opinion of management, reflect all adjustments, which include all normal recurring adjustments necessary to fairly state the Company’s financial position as of March 31, 2022, and its consolidated results of operations, comprehensive income, stockholders’ equity and cash flows for the three months ended March 31, 2022 and 2021. The financial data and the other financial information disclosed in the notes to the financial statements related to these periods are also unaudited. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2022 or for any other future annual or interim period.
These financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K, which was filed with the SEC on February 10, 2022. The unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Certain immaterial changes in presentation have been made to conform the prior period presentation to current period reporting.
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Shutterstock, Inc.
Notes to Consolidated Financial Statements 
(unaudited)



Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements. Actual results could differ from those estimates. Such estimates include, but are not limited to, the determination of the allowance for doubtful accounts, the volume of expected unused licenses for our subscription-based products, the assessment of recoverability of property and equipment, the fair value of acquired goodwill and intangible assets, the amount of non-cash equity-based compensation, the assessment of recoverability of deferred tax assets, the measurement of income tax and contingent non-income tax liabilities and the determination of the incremental borrowing rate used to calculate the lease liability.
Cash and Cash Equivalents
The Company’s cash and cash equivalents consist primarily of bank deposits and money market funds.
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.
During the three months ended March 31, 2022, the Company recorded bad debt expense of $0.4 million. As of March 31, 2022 and December 31, 2021, the Company’s allowance for doubtful accounts was approximately $2.1 million and $1.9 million, respectively. The allowance for doubtful accounts is included as a reduction of accounts receivable on the Consolidated Balance Sheets.
Chargeback and Sales Refund Allowance
The Company establishes a chargeback allowance and sales refund reserve allowance based on factors surrounding historical credit card chargeback trends, historical sales refund trends and other information. As of March 31, 2022 and December 31, 2021, the Company’s combined allowance for chargebacks and sales refunds was $0.4 million, which was included as a component of other current liabilities on the Consolidated Balance Sheets.
Revenue Recognition
The majority of the Company’s revenue is earned from the license of content. Content licenses are generally purchased on a monthly or annual basis, whereby a customer pays for a predetermined quantity of content that may be downloaded over a specific period of time, or, on a transactional basis, whereby a customer pays for individual content licenses at the time of download. Subsequent to the acquisition of PicMonkey, the Company also generates revenue from the license of creative editing tools.
The Company recognizes revenue upon the satisfaction of performance obligations, which generally occurs when content is downloaded by a customer. The Company recognizes revenue on both its subscription-based and transaction-based products when content is downloaded, at which time the license is provided. In addition, the Company estimates expected unused licenses for subscription-based products and recognizes the revenue associated with the unused licenses as digital content is downloaded and licenses are obtained for such content by the customer during the subscription period. The estimate of unused licenses is based on historical download activity, and future changes in the estimate could impact the timing of revenue recognition of the Company’s subscription products. For revenue associated with the Company’s creative editing tools, revenue is recognized on a straight-line basis over the subscription period. The Company expenses contract acquisition costs as incurred, to the extent that the amortization period would otherwise be one year or less.
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
10

Shutterstock, Inc.
Notes to Consolidated Financial Statements 
(unaudited)



Company’s products directly to customers as the principal in those transactions. Accordingly, the Company recognizes revenue net of costs paid to resellers.

(2) Fair Value Measurements and Long-term Investments
Fair Value Measurements
The Company had no assets or liabilities requiring fair value hierarchy disclosures as of March 31, 2022 or December 31, 2021, except as noted below.
Cash Equivalents
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 March 31, 2022 and December 31, 2021, the Company had cash equivalent balances of $145.1 million and $195.1 million, respectively.
Other Fair Value Measurements
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value because of the short-term nature of these instruments. The Company’s non-financial assets, which include property and equipment, intangible assets and goodwill, are not required to be measured at fair value on a recurring basis. However, if the Company is required to evaluate a non-financial asset for impairment, whether due to certain triggering events or because annual impairment testing is required, a resulting asset impairment would require that the non-financial asset be recorded at fair value.
Long-term Investments
As of March 31, 2022 and December 31, 2021, the Company’s long-term investments were in equity securities with no readily determinable fair value, totaled $20.0 million, and were reported within other assets on the Consolidated Balance Sheets. The Company uses the measurement alternative for these equity investments and their carrying value is 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 general market conditions. As of March 31, 2022, 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.

(3) Acquisition
TurboSquid, Inc.
On February 1, 2021, the Company completed its acquisition of all of the outstanding shares of TurboSquid, Inc. (“TurboSquid”), for approximately $77.3 million. The total purchase price was paid with existing cash on hand in the three months ended March 31, 2021. In connection with the acquisition, the Company incurred approximately $1.6 million of transaction costs, which is included in general and administrative expenses on the Consolidated Statements of Operations.
TurboSquid is a Louisiana-based company that operates a marketplace offering more than one million 3D models, a marketplace for 2D images derived from 3D objects and a digital asset management solution. The Company believes this acquisition establishes Shutterstock as the premium destination for 3D models as well as 3D models in an easy-to-use 2D format.
The identifiable intangible assets, which include customer relationships, developed technology, trade names and contributor content, have weighted average useful lives of approximately 12 years, 4.7 years, 10 years and 4 years, respectively. The goodwill arising from the transaction is primarily attributable to expected operational synergies and is not deductible for income tax purposes.
The TurboSquid transaction was accounted for using the acquisition method and, accordingly, the results of the acquired business have been included in the Company’s results of operations from the acquisition date. The fair value of consideration transferred in this business combination has been allocated to the intangible and tangible assets acquired and liabilities assumed at the acquisition date, with the remaining unallocated amount recorded as goodwill. The identifiable intangible assets of this
11

Shutterstock, Inc.
Notes to Consolidated Financial Statements 
(unaudited)



acquisition are being amortized on a straight-line basis. The fair value of the customer relationships was determined using a variation of the income approach known as the multiple-period excess earnings method. The fair value of the trade names and developed technology were determined using the relief-from-royalty method, and the fair value of the contributor content was determined using the cost-to-recreate method.
The aggregate purchase price for this acquisition has been allocated to the assets acquired and liabilities assumed as follows (in thousands):
Assets acquired and liabilities assumed (in thousands):TurboSquid
Cash and cash equivalents$5,165 
Other assets1,553 
Property and equipment472 
Intangible assets:
Customer relationships9,000 
Trade name2,200 
Developed technology7,800 
Contributor content2,500 
Intangible assets21,500 
Goodwill59,491 
Total assets acquired$88,181 
Accounts payable, accrued expenses and other liabilities(4,685)
Contributor royalties payable(2,243)
Deferred tax liability(3,923)
Total liabilities assumed(10,851)
Net assets acquired$77,330 

The following unaudited pro forma consolidated financial information (in thousands) reflects the results of operations of the Company for the three months ended March 31, 2021 as if the TurboSquid acquisition had been completed on January 1, 2020, after giving effect to certain purchase accounting adjustments, primarily related to intangible assets and transaction costs. These pro forma results have been prepared for comparative purposes only and are not necessarily indicative of what the Company’s operating results would have been, had the acquisitions actually taken place at the beginning of the previous annual period:
Three Months Ended March 31,
2021
Revenue
As Reported$183,281 
Pro Forma185,344 
Income before income taxes
As Reported$35,656 
Pro Forma36,957 

12

Shutterstock, Inc.
Notes to Consolidated Financial Statements 
(unaudited)



(4) Property and Equipment
Property and equipment is summarized as follows (in thousands):
 As of March 31, 2022As of December 31, 2021
Computer equipment and software$231,231 $221,429 
Furniture and fixtures10,241 10,238 
Leasehold improvements19,432 19,453 
Property and equipment260,904 251,120 
Less accumulated depreciation(210,698)(203,046)
Property and equipment, net$50,206 $48,074 
Depreciation and amortization expense related to property and equipment was $8.0 million for the three months ended March 31, 2022 and 2021. Of these amounts, $7.2 million and $7.1 million are included in cost of revenue for the three months ended March 31, 2022 and 2021, respectively, and $0.8 million and $0.9 million are included in general and administrative expense for the three months ended March 31, 2022 and 2021, respectively.
Depreciation and amortization expense is included in cost of revenue and general and administrative expense in the Consolidated Statements of Operations based on the nature of the asset being depreciated.
Capitalized Internal-Use Software
The Company capitalized costs related to the development of internal-use software of $9.5 million and $7.0 million for the three months ended March 31, 2022 and 2021, respectively. Capitalized amounts are included as a component of property and equipment under computer equipment and software on the Consolidated Balance Sheets.
The portion of total depreciation expense related to capitalized internal-use software was $6.9 million and $6.7 million for the three months ended March 31, 2022 and 2021, respectively. Depreciation expense related to capitalized internal-use software is included in cost of revenue in the Consolidated Statements of Operations.
As of March 31, 2022 and December 31, 2021, the Company had capitalized internal-use software of $41.6 million and $39.0 million, respectively, net of accumulated depreciation, which was included in property and equipment, net.

(5) Goodwill and Intangible Assets
Goodwill
The Company’s goodwill balance is attributable to its Content reporting unit and is tested for impairment annually on October 1 or upon a triggering event. No triggering events were identified during the three months ended March 31, 2022.
The following table summarizes the changes in the carrying value of the Company’s goodwill balance during the three months ended March 31, 2022 (in thousands):
 Goodwill
Balance as of December 31, 2021$219,816 
Foreign currency translation adjustment(640)
Balance as of March 31, 2022$219,176 

13

Shutterstock, Inc.
Notes to Consolidated Financial Statements 
(unaudited)



Intangible Assets
Intangible assets, all of which are subject to amortization, consisted of the following as of March 31, 2022 and December 31, 2021 (in thousands):
 As of March 31, 2022As of December 31, 2021
 Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Weighted
Average Life
(Years)
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Amortizing intangible assets:   
Customer relationships$55,109 $(14,821)$40,288 11$55,542 $(13,906)$41,636 
Trade name11,656 (6,835)4,821 811,787 (6,805)4,982 
Developed technology67,438 (18,657)48,781 467,940 (14,214)53,726 
Contributor content38,593 (15,747)22,846 837,984 (14,632)23,352 
Patents259 (136)123 18259 (133)126 
Total$173,055 $(56,196)$116,859  $173,512 $(49,690)$123,822 
Amortization expense was $7.1 million and $2.1 million for the three months ended March 31, 2022 and 2021, respectively. Of these amounts, $6.5 million and $1.2 million are included in cost of revenue for the three months ended March 31, 2022 and 2021, respectively, and $0.6 million and $0.9 million are included in general and administrative expense for the three months ended March 31, 2022 and 2021, respectively.
The Company determined that there was no indication of impairment of the intangible assets for any period presented. Estimated amortization expense is: $21.2 million for the remaining nine months of 2022, $27.9 million in 2023, $20.9 million in 2024, $10.3 million in 2025, $8.3 million in 2026, $6.1 million in 2027 and $22.2 million thereafter.

(6) Accrued Expenses 
Accrued expenses consisted of the following (in thousands):
As of March 31, 2022As of December 31, 2021
Compensation$23,444 $43,529 
Non-income taxes20,557 21,488 
Website hosting and marketing fees14,977 18,314 
Other expenses15,153 16,198 
Total accrued expenses$74,131 $99,529 


(7) Stockholders’ Equity and Equity-Based Compensation
Stockholders’ Equity
Common Stock
The Company issued approximately 143,000 and 207,000 shares of common stock during the three months ended March 31, 2022 and 2021, respectively, related to the exercise of stock options and the vesting of Restricted Stock Units.
Treasury Stock
In October 2015, the Company’s Board of Directors approved a share repurchase program, authorizing the Company to purchase up to $100 million of its common stock. In February 2017, the Company’s Board of Directors approved an increase to the share repurchase program, authorizing the Company to repurchase up to an additional $100 million of its outstanding common stock.
14

Shutterstock, Inc.
Notes to Consolidated Financial Statements 
(unaudited)



The Company expects to fund future repurchases, if any, through a combination of cash on hand, cash generated by operations and future financing transactions, if appropriate. Accordingly, the share repurchase program is subject to the Company having available cash to fund repurchases. Under the share repurchase program, management is authorized to purchase shares of the Company’s common stock from time to time through open market purchases or privately negotiated transactions at prevailing prices as permitted by securities laws and other legal requirements, and subject to market conditions and other factors.
During the three months ended March 31, 2022, the Company repurchased approximately 422,000 shares of its common stock at an average per share cost of $90.69. During the three months ended March 31, 2021, the Company did not repurchase any shares of its common stock under the share repurchase program. As of March 31, 2022, the Company had $34.6 million of remaining authorization for purchases under the share repurchase program.
Dividends
The Company declared and paid cash dividends of $0.24 per share of common stock, or $8.7 million, during the three months ended March 31, 2022, and $0.21 per share of common stock, or $7.6 million, during the three months ended March 31, 2021.
On April 19, 2022, the Company’s Board of Directors declared a quarterly cash dividend of $0.24 per share of outstanding common stock payable on June 16, 2022 to stockholders of record at the close of business on June 2, 2022. Future declarations of dividends are subject to the final determination of the Board of Directors, and will depend on, among other things, the Company’s future financial condition, results of operations, capital requirements, capital expenditure requirements, contractual restrictions, anticipated cash needs, business prospects, provisions of applicable law and other factors the Board of Directors may deem relevant.
Equity-Based Compensation
The Company recognizes stock-based compensation expense for all equity-based compensation awards, including employee Restricted Stock Units and Performance-based Restricted Stock Units (“PRSUs” and, collectively with Restricted Stock Units, “RSUs”) and stock options granted under the Company’s Amended and Restated 2012 Omnibus Equity Incentive Plan (the “2012 Plan”), based on the fair value of each award on the grant date.
15

Shutterstock, Inc.
Notes to Consolidated Financial Statements 
(unaudited)



The following table summarizes non-cash equity-based compensation expense, net of forfeitures, by financial statement line item included in the accompanying Consolidated Statements of Operations for the three months ended March 31, 2022 and 2021 (in thousands): 
 Three Months Ended March 31,
 20222021
Cost of revenue$78 $164 
Sales and marketing928 467 
Product development1,781 1,229 
General and administrative5,039 6,350 
Total$7,826 $8,210 
The following table summarizes non-cash equity-based compensation expense, net of forfeitures, by award type included in the accompanying Consolidated Statements of Operations for the three months ended March 31, 2022 and 2021 (in thousands):
 Three Months Ended March 31,
 20222021
Stock options$175 $175 
RSUs7,651 8,035 
Total$7,826 $8,210 
Stock Option Awards
During the three months ended March 31, 2022, no options to purchase shares of its common stock were granted. As of March 31, 2022, there were approximately 333,000 options vested and exercisable with a weighted average exercise price of $34.68. As of March 31, 2022, the total unrecognized compensation expense related to non-vested options was approximately $0.7 million, which is expected to be recognized through 2023.
Restricted Stock Unit Awards
During the three months ended March 31, 2022, the Company had RSU grants, net of forfeitures, of approximately 116,000. As of March 31, 2022, there are approximately 1,035,000 non-vested RSUs outstanding with a weighted average grant-date fair value of $66.61. As of March 31, 2022, the total unrecognized non-cash equity-based compensation expense related to the non-vested RSUs was approximately $36.0 million, which is expected to be recognized through 2025.
During the three months ended March 31, 2022 and 2021, shares of common stock with an aggregate value of $10.6 million and $13.0 million were withheld upon vesting of RSUs and paid in connection with related remittance of employee withholding taxes to taxing authorities.
On April 1, 2022, the Company granted approximately 591,000 RSUs with a grant date fair value of $54.1 million.

(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 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.
16

Shutterstock, Inc.
Notes to Consolidated Financial Statements 
(unaudited)



The Company’s revenues by distribution channel for the three months ended March 31, 2022 and 2021 are as follows (in thousands):
 Three Months Ended March 31,
 20222021
E-commerce$127,070 $118,400 
Enterprise72,062 64,881 
Total Revenues$199,132 $183,281 
The March 31, 2022 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. $82.6 million of total revenue recognized for the three months ended March 31, 2022 was reflected in deferred revenue as of December 31, 2021.

(9) Other Income / (Expense), net
The following table presents a summary of the Company’s other income and expense activity included in the accompanying Consolidated Statements of Operations for the three months ended March 31, 2022 and 2021 (in thousands):
 Three Months Ended March 31,
 20222021
Foreign currency gain / (loss)$734 $(2,510)
Interest income, net24 48 
Total other income / (expense)$758 $(2,462)

(10) Income Taxes
The Company’s effective tax rates were 18.7% and 17.2% for the three months ended March 31, 2022 and 2021, respectively. For the three months ended March 31, 2022, the net effect of discrete items decreased the effective tax rate by 0.2%. Excluding these items, the Company’s effective tax rate would have been 18.9% for the three months ended March 31, 2022.
For the three months ended March 31, 2021, the net effect of discrete items decreased the effective tax rate by 1.8%. Excluding these items, the Company’s effective tax rate would have been 19.0% for the three months ended March 31, 2021.
The Company has computed the provision for income taxes based on the estimated annual effective tax rate excluding loss jurisdictions with no tax benefit and the application of discrete items, if any, in the applicable period.
During the three months ended March 31, 2022 and 2021, uncertain tax positions recorded by the Company were not material. To the extent the remaining uncertain tax positions are ultimately recognized, the Company’s effective tax rate may be impacted in future periods.
The Company recognizes interest expense and tax penalties related to unrecognized tax benefits in income tax expense in the Consolidated Statements of Operations. The Company’s accrual for interest and penalties related to unrecognized tax benefits was not material for the three months ended March 31, 2022 and 2021.
During the three months ended March 31, 2022 and 2021, the Company paid net cash taxes of $1.7 million and $3.4 million, respectively.

17

Shutterstock, Inc.
Notes to Consolidated Financial Statements 
(unaudited)



(11) Net Income Per Share
Basic net income per share is computed using the weighted average number of shares of common stock outstanding for the period, excluding unvested RSUs and stock options. Diluted net income per share is based upon the weighted average shares of common stock outstanding for the period plus dilutive potential shares of common stock, including unvested RSUs and stock options using the treasury stock method.
The following table sets forth the computation of basic and diluted net income per share for the three months ended March 31, 2022 and 2021 (in thousands):
Three Months Ended March 31,
20222021
Net income$26,572 $29,514 
Shares used to compute basic net income per share36,303 36,336 
Dilutive potential common shares
Stock options233 224 
Unvested restricted stock awards668 689 
Shares used to compute diluted net income per share37,204 37,249 
Basic net income per share$0.73 $0.81 
Diluted net income per share$0.71 $0.79 
Dilutive shares included in the calculation1,409 1,436 
Anti-dilutive shares excluded from the calculation56 18 

(12) Geographic Information
The following table presents the Company’s revenue based on customer location (in thousands): 
 Three Months Ended March 31,
 20222021
North America$79,943 $64,309 
Europe62,553 62,277 
Rest of the world56,636 56,695 
Total revenue$199,132 $183,281 
The United States, included in North America in the above table, accounted for 37% and 32% of consolidated revenue for the three months ended March 31, 2022 and 2021, respectively. No other country accounts for more than 10% of the Company’s revenue in any period presented.
The Company’s long-lived tangible assets were located as follows (in thousands):
As of March 31,As of December 31,
20222021
North America$41,946 $40,465 
Europe8,142 7,460 
Rest of the world118 149 
Total long-lived tangible assets$50,206 $48,074 
The United States, included in North America in the above table, accounted for 76% of total long-lived tangible assets as of March 31, 2022 and December 31, 2021. Ireland, included in Europe in the above table, accounted for 12% and 11% of total long-lived tangible assets as of March 31, 2022 and December 31, 2021, respectively. No other country accounts for more than 10% of the Company’s long-lived tangible assets in any period presented.

18

Shutterstock, Inc.
Notes to Consolidated Financial Statements 
(unaudited)



(13) Commitments and Contingencies
Unconditional purchase obligations and other obligations
As of March 31, 2022, the Company had total other non-lease obligations in the amount of approximately $110.3 million, which consisted primarily of minimum royalty guarantees and unconditional purchase obligations related to contracts for infrastructure and other business services. As of March 31, 2022, the Company’s other obligations for the remainder of 2022 and for the years ending December 31, 2023, 2024, 2025 and 2026 were approximately $44.3 million, $35.4 million, $26.3 million, $4.0 million and $0.3 million, respectively.
Legal Matters
From time to time, the Company may become party to litigation in the ordinary course of business, including direct claims brought by or against the Company with respect to intellectual property, contracts, employment and other matters, as well as claims brought against the Company’s customers for whom the Company has a contractual indemnification obligation. The Company assesses the likelihood of any adverse judgments or outcomes with respect to these matters and determines loss contingency assessments on a gross basis after assessing the probability of incurrence of a loss and whether a loss is reasonably estimable. In addition, the Company considers other relevant factors that could impact its ability to reasonably estimate a loss. A determination of the amount of reserves required, if any, for these contingencies is made after analyzing each matter. The Company reviews reserves, if any, at least quarterly and may change the amount of any such reserve in the future due to new developments or changes in strategy in handling these matters. Although the results of litigation and threats of litigation, investigations and claims cannot be predicted with certainty, the Company currently believes that the final outcome of these matters will not have a material adverse effect on its business, consolidated financial position, results of operations, or cash flows. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors. The Company currently has no material active litigation matters and, accordingly, no material reserves related to litigation.
Indemnification and Employment Agreements
In the ordinary course of business, the Company enters into contractual arrangements under which it agrees to provide indemnification of varying scope and terms to customers with respect to certain matters, including, but not limited to, losses arising out of the breach of the Company’s intellectual property warranties for damages to the customer directly attributable to the Company’s breach. The Company is not responsible for any damages, costs, or losses to the extent such damages, costs or losses arise as a result of 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 March 31, 2022, the Company had recorded no material 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.
Pursuant to the Company’s charter documents and separate written indemnification agreements, the Company has certain indemnification obligations to its executive officers, certain employees and directors, as well as certain former officers and directors.
The Company has 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.

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Table of Contents                            
Item 2.         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 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 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.
3 Dimensional (“3D”) Models - consisting of 3D models, used in a variety of industries such as advertising, media and video production, gaming, retail, education, design and architecture. This offering became available upon our acquisition of TurboSquid, Inc. (“TurboSquid”) on February 1, 2021.
Creative Design Software - consisting of our online graphic design and image editing platform. This offering became available after we completed the acquisition of substantially all of the assets and assumption of certain liabilities from PicMonkey, LLC (“PicMonkey”) on September 3, 2021.
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 March 31, 2022. As of March 31, 2022, more than 2.1 million approved contributors made their images, footage and music tracks available in our collection, which has grown to more than 405 million images and more than 25 million footage clips as of March 31, 2022. This makes our collection of content one of the largest of its kind, and we delivered 44.6 million paid downloads to our customers across all of our brands during the three months ended March 31, 2022.
Through our platform, we generate revenue by licensing content to our customers. During the three months ended March 31, 2022, 64% 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
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Table of Contents                            
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 36% of our revenue for the three months ended March 31, 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.

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Key Operating 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 three months ended March 31, 2022 and 2021:
Three Months Ended March 31,
 20222021
 
Subscribers (end of period)1
359,000 306,000 
Subscriber revenue (in millions)1
$85.4 $76.5 
Average revenue per customer (last twelve months)1
$355 $342 
Paid downloads (in millions)44.6 45.8 
Revenue per download$4.22 $3.96 
Content in our collection (end of period, in millions):
Images405 370 
Footage clips25 21 
___________________________________________________
1 For the quarter ended March 31, 2021, Subscribers, Subscriber Revenue and Average Revenue Per Download exclude customers and revenue related to our acquisitions of TurboSquid and PicMonkey. For the quarter ended March 31, 2022, Subscribers, Subscriber Revenue and Average Revenue Per Download exclude customers and revenue related to PicMonkey.

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 periods ending on or prior to December 31, 2021, Subscribers excludes customers related to our acquisitions of TurboSquid and PicMonkey. For the three months ended March 31, 2022, subscribers excludes customers related to PicMonkey. 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 periods ending on or prior to December 31, 2021, subscriber revenue excludes revenues related to our acquisitions of TurboSquid and PicMonkey. For the three months ended March 31, 2022, subscriber revenue excludes revenues related to PicMonkey. 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 periods ending on or prior to December 31, 2021, average revenue per customer excludes revenues and customers related to our acquisitions of TurboSquid and PicMonkey. For the three months ended March 31, 2022, average revenue per customer excludes revenues and customers related to PicMonkey. 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.
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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.
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.

Critical 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 appears 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 to our Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for a full description of the impact of the adoption of new accounting standards on our financial statements. There have been no material changes to our critical accounting policies and estimates as compared to our critical accounting policies and estimates included in our 2021 Form 10-K.

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Key Components of Our Results of Operations
Revenue
We distribute our content offerings through two primary channels:
E-commerce: The majority of our customers license content 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.
The Company’s revenues by distribution channel for the three months ended March 31, 2022 and 2021 are as follows (in thousands):
 Three Months Ended
March 31,
 20222021
E-commerce$127,070 $118,400 
Enterprise72,062 64,881 
Total Revenues$199,132 $183,281 

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 / (Expense), Net. Other income / (expense), net consists of non-operating costs such as foreign currency transaction gains and losses in addition to interest income.
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.
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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.
 Three Months Ended March 31,
 20222021
 (in thousands)
Consolidated Statements of Operations:  
Revenue$199,132 $183,281 
Operating expenses:
Cost of revenue69,451 61,832 
Sales and marketing53,329 41,921 
Product development13,626 10,731 
General and administrative30,808 30,679 
Total operating expenses167,214 145,163 
Income from operations31,918 38,118 
Other income / (expense), net758 (2,462)
Income before income taxes32,676 35,656 
Provision for income taxes6,104 6,142 
Net income$26,572 $29,514 

The following table presents the components of our results of operations for the periods indicated as a percentage of revenue:
 Three Months Ended March 31,
 20222021
Consolidated Statements of Operations:  
Revenue100 %100 %
Operating expenses:
Cost of revenue35 %34 %
Sales and marketing27 %23 %
Product development%%
General and administrative15 %17 %
Total operating expenses84 %79 %
Income from operations16 %21 %
Other income / (expense), net— %(1)%
Income before income taxes16 %19 %
Provision for income taxes%%
Net income13 %16 %
__________________________________
Note: Due to rounding, percentages may not sum to totals.
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Comparison of the Three Months Ended March 31, 2022 and 2021
The following table presents our results of operations for the periods indicated:
 Three Months Ended March 31,
 20222021$ Change% Change
 (in thousands) 
Consolidated Statements of Operations:    
Revenue$199,132 $183,281 $15,851 %
Operating expenses:  
Cost of revenue69,451 61,832 7,619 12 
Sales and marketing53,329 41,921 11,408 27 
Product development13,626 10,731 2,895 27 
General and administrative30,808 30,679 129 — 
Total operating expenses167,214 145,163 22,051 15 
Income from operations31,918 38,118 (6,200)(16)
Other income / (expense), net758 (2,462)3,220 (131)
Income before income taxes32,676 35,656 (2,980)(8)
Provision for income taxes6,104 6,142 (38)(1)
Net income$26,572 $29,514 $(2,942)(10)%

Revenue
Revenue increased by $15.9 million, or 9%, to $199.1 million in the three months ended March 31, 2022 compared to the same period in 2021. On a constant currency basis, revenue increased approximately 11% in the three months ended March 31, 2022, compared to the same period in 2021.
The Company’s E-commerce revenues increased by 7%, to $127.1 million in the three months ended March 31, 2022, compared to the same period in 2021. On a constant currency basis, E-commerce revenues increased by 9% in the three months ended March 31, 2022, compared to the same period in 2021. During the three months ended March 31, 2022, growth in our E-commerce sales channel was driven by higher subscriber revenue and also benefited from our acquisitions of TurboSquid and PicMonkey, which were completed on February 1, 2021 and September 3, 2021, respectively.
The Company’s Enterprise revenues increased by 11%, to $72.1 million in the three months ended March 31, 2022, compared to the same period in 2021. On a constant currency basis, the Company’s Enterprise revenues increased by 13% in the three months ended March 31, 2022, compared to the same period in 2021. Enterprise revenue growth was driven by our multi-asset product offerings and continued momentum in Shutterstock Studios and Shutterstock Editorial.
In the three months ended March 31, 2022 and 2021, we delivered 44.6 million and 45.8 million paid downloads, respectively, and our revenue per download was $4.22 and $3.96 for the three months ended March 31, 2022 and 2021, respectively. During the three months ended March 31, 2022, the increase in revenue per download was primarily due to changes in product mix.
Changes in our revenue by region were as follows: revenue from North America increased by $15.6 million, or 24%, to $79.9 million, revenue from Europe increased by $0.3 million, to $62.6 million and revenue from outside Europe and North America decreased by $0.1 million, to $56.6 million, in the three months ended March 31, 2022 compared to the same period in 2021.

Costs and Expenses
Cost of Revenue. Cost of revenue increased by $7.6 million, or 12% to $69.5 million in the three months ended March 31, 2022 compared to the same period in 2021. This increase was primarily driven by increased depreciation and amortization expense driven by our recent acquisitions, in addition to higher royalty expense. We expect that our cost of revenue will continue to fluctuate in line with changes in revenue and paid downloads.
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Sales and Marketing. Sales and marketing expenses increased by $11.4 million, or 27%, to $53.3 million in the three months ended March 31, 2022 compared to the same period in 2021. As a percent of revenue, sales and marketing expenses increased to 27% for the three months ended March 31, 2022, from 23% for the same period in 2021. This was primarily driven by (i) $6.4 million in increased marketing spend, and (ii) $3.4 million in higher employee-related costs. We expect sales and marketing expenses to continue to fluctuate as we optimize our sales channels and invest in new customer acquisition, products and geographies.
Product Development. Product development expenses increased by $2.9 million, or 27%, to $13.6 million in the three months ended March 31, 2022 compared to the same period in 2021. This increase was driven by $2.5 million in higher employee and third-party contractor related costs, net of capitalized labor, for the three months ended March 31, 2022, as compared to the same period in the prior year. 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 remained flat, increasing by $0.1 million, to $30.8 million in the three months ended March 31, 2022 compared to the same period in 2021. During the three months ended March 31, 2022, general and administrative expenses included expense of $1 million related to a donation to provide direct assistance to Shutterstock’s contributors in Ukraine. This increase was offset by lower personnel costs and non-cash compensation expense.
Other Income / (Expense), Net. In the three months ended March 31, 2022, other income / (expense), net substantially consisted of $0.7 million of favorable foreign currency fluctuations. During the three months ended March 31, 2021, other income / (expense), net substantially consisted of $2.5 million of unfavorable 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 remained flat at $6.1 million for the three months ended March 31, 2022 and 2021. Our effective tax rates were 18.7% and 17.2% for the three months ended March 31, 2022 and 2021, respectively.
For the three months ended March 31, 2022, the net effect of discrete items decreased the effective tax rate by 0.2%. Excluding discrete items, our effective tax rate would have been 18.9% for the three months ended March 31, 2022.
For the three months ended March 31, 2021, the net effect of discrete items decreased the effective tax rate by 1.8%. Excluding these items, our effective tax rate would have been 19.0% for the three months ended March 31, 2021.
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.

Quarterly Trends
Our operating results may fluctuate from quarter to quarter as a result of a variety of factors, including the effects of some seasonal trends in customer behavior. 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.
See “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 Part I, Item 1A, “Risk Factors” in our 2021 Form 10-K for further discussion of the possible impact of the COVID-19 pandemic on our business.

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Liquidity and Capital Resources
As of March 31, 2022, we had cash and cash equivalents totaling $258.1 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 acquisitions, business combinations and asset acquisitions 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. Since our results of operations are sensitive to the level of competition we face, increased competition could adversely affect our liquidity and capital resources.
Dividends
We declared and paid cash dividends of $0.24 per share of common stock, or $8.7 million during the three months ended March 31, 2022.
On April 19, 2022, our Board of Directors declared a quarterly cash dividend of $0.24 per share of outstanding common stock payable on June 16, 2022 to stockholders of record at the close of business on June 2, 2022. 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.
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 March 31, 2022, we have repurchased approximately 3.2 million shares of our common stock under the share repurchase program at an average per-share cost of $51.48. During the three months ended March 31, 2022, we repurchased approximately 422,000 shares of our common stock at an average per share cost of $90.69. As of March 31, 2022, we had $34.6 million of remaining authorization for purchases under the share repurchase program.
Equity-Based Compensation
Upon the vesting of restricted stock units (“RSUs”), the Company has a practice of net share settlement, 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 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 equity-based compensation programs on stockholders.
During the three months ended March 31, 2022, the Company paid $18.5 million related to employee taxes on RSU vestings.
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 could 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 13 to our Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for information regarding our existing capital commitments as of March 31, 2022.
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Cash Flows 
The following table summarizes our cash flow data for the three months ended March 31, 2022 and 2021 (in thousands).
 Three Months Ended March 31,
 20222021
Net cash provided by operating activities$22,723 $35,828 
Net cash used in investing activities$(12,525)$(81,213)
Net cash used in financing activities$(65,574)$(19,371)
Operating Activities
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 $22.7 million for the three months ended March 31, 2022, compared to $35.8 million for the three months ended March 31, 2021. In the three months ended March 31, 2022, operating cash flows were unfavorably impacted from a reduction in operating income and changes in the timing of payments pertaining to operating expenses, which can cause operating cash flow to fluctuate from period to period.
Investing Activities
Cash used in investing activities for the three months ended March 31, 2022 was $12.5 million, consisting primarily of (i) capital expenditures of $11.8 million for internal-use software and website development costs and purchases of software and equipment, and (ii) $0.7 million paid to acquire the rights to distribute certain digital content into perpetuity.
Cash used in investing activities in the three months ended March 31, 2021 was $81.2 million, consisting primarily of cash used in the acquisition of TurboSquid of $72.2 million, net of cash acquired and capital expenditures of $8.5 million for internal-use software and website development costs and purchases of software and equipment.
Financing Activities
Cash used in financing activities in the three months ended March 31, 2022 was $65.6 million, consisting of (i) $38.4 million in connection with the repurchase of common stock under our share repurchase program; (ii) $18.5 million paid in settlement of tax withholding obligations related to employee stock-based compensation awards, and $8.7 million, related to the payment of the quarterly cash dividend.
Cash used in financing activities in the three months ended March 31, 2021 was $19.4 million, consisting primarily of $13.0 million, paid in settlement of tax withholding obligations related to employee stock-based compensation awards and $7.6 million, related to the payment of the quarterly cash dividend. These amounts were partially offset by approximately $1.3 million received from the issuance of common stock in connection with the exercise of stock options.

Contractual Obligations and Commitments
We lease real estate under operating lease agreements that expire on various dates during the period from 2022 through 2029. We do not have any material finance lease obligations and our property, equipment and software have been purchased primarily with cash. We do not anticipate any difficulties in renewing those leases and co-location agreements that expire within the next several years and that we currently plan to renew, or in leasing other space or hosting facilities, if required. 
On March 21, 2013, we entered into an operating lease agreement to lease our headquarters in New York City, which was amended in 2016. The aggregate undiscounted future minimum lease payments under the lease, as amended, are approximately $49.0 million. We are also party to a letter of credit as a security deposit for this leased facility in the amount of $1.7 million.
Additionally, as of March 31, 2022, aggregate undiscounted future minimum lease payments under other operating leases are approximately $4.8 million.
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. As of March 31, 2022, our guaranteed royalty payments and unconditional purchase obligations for the remainder of 2022 and for the fiscal years ending December 31, 2023, 2024, 2025 and 2026 were approximately $44.3 million, $35.4 million, $26.3 million, $4.0 million and $0.3 million, respectively.