10-Q 1 sstk-20210930.htm 10-Q sstk-20210930
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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 September 30, 2021
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 October 22, 2021, 36,549,234 shares of the registrant’s common stock, $0.01 par value per share, were outstanding.

1

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

2

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, 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, our competitive position and the COVID-19 pandemic. You can identify many forward-looking statements by words such as “may,” “will,” “would,” “should,” “could,” “expect,” “aim,” “anticipate,” “believe,” “estimate,” “intend,” “plan,” “predict,” “project,” “seek,” “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 contained herein. 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 11, 2021 (our “2020 Form 10-K”), and in our consolidated financial statements, related notes, and the other information appearing elsewhere in the 2020 Form 10-K. such Annual Report, 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” 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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Table of Contents                            
PART I.     FINANCIAL INFORMATION
Item 1.        Financial Statements.
Shutterstock, Inc.
Consolidated Balance Sheets
(In thousands, except par value amount)
(unaudited)
September 30,December 31,
20212020
ASSETS
Current assets:
Cash and cash equivalents$300,579 $428,574 
Accounts receivable, net of allowance of $2,463 and $4,942
45,323 43,846 
Prepaid expenses and other current assets29,774 16,650 
Total current assets375,676 489,070 
Property and equipment, net48,866 50,906 
Right-of-use assets36,194 39,552 
Intangible assets, net130,196 25,765 
Goodwill219,822 89,413 
Deferred tax assets, net8,721 13,566 
Other assets21,702 21,372 
Total assets$841,177 $729,644 
LIABILITIES AND STOCKHOLDERSEQUITY
Current liabilities:
Accounts payable$5,118 $2,442 
Accrued expenses95,043 67,909 
Contributor royalties payable29,516 26,336 
Deferred revenue171,131 149,843 
Other current liabilities14,646 10,399 
Total current liabilities315,454 256,929 
Deferred tax liability, net3,193  
Lease liabilities38,209 41,620 
Other non-current liabilities9,425 9,170 
Total liabilities366,281 307,719 
Commitments and contingencies (Note 13)
Stockholders’ equity:
Common stock, $0.01 par value; 200,000 shares authorized; 39,191 and 38,803 shares issued and 36,591 and 36,245 shares outstanding as of September 30, 2021 and December 31, 2020, respectively
392 389 
Treasury stock, at cost; 2,600 and 2,558 shares as of September 30, 2021 and December 31, 2020, respectively
(104,885)(100,027)
Additional paid-in capital368,320 360,939 
Accumulated comprehensive loss(9,233)(7,681)
Retained earnings220,302 168,305 
Total stockholders’ equity474,896 421,925 
Total liabilities and stockholders’ equity$841,177 $729,644 
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
September 30,
Nine Months Ended
September 30,
 2021202020212020
Revenue$194,439 $165,227 $567,632 $485,742 
Operating expenses:
Cost of revenue69,634 60,331 199,223 193,265 
Sales and marketing54,456 36,655 142,273 114,872 
Product development13,565 10,617 36,289 36,171 
General and administrative34,615 28,277 96,335 83,761 
Total operating expenses172,270 135,880 474,120 428,069 
Income from operations22,169 29,347 93,512 57,673 
Other (expense) / income, net(1,749)(1,168)(2,888)(506)
Income before income taxes20,420 28,179 90,624 57,167 
Provision for income taxes4,391 5,597 15,627 11,280 
Net income$16,029 $22,582 $74,997 $45,887 
Earnings per share:
Basic$0.44 $0.63 $2.05 $1.28 
Diluted$0.43 $0.62 $2.01 $1.27 
Weighted average shares outstanding:
Basic36,62235,96236,51035,713
Diluted37,41736,49437,28536,095
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
September 30,
Nine Months Ended
September 30,
 2021202020212020
Net income$16,029 $22,582 $74,997 $45,887 
Foreign currency translation loss(1,842)(714)(1,552)(2,908)
Other comprehensive loss(1,842)(714)(1,552)(2,908)
Comprehensive income$14,187 $21,868 $73,445 $42,979 
 
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 September 30, 2021SharesAmountSharesAmountTotal
Balance at June 30, 202139,173 $392 2,558 $(100,027)$360,404 $(7,391)$211,956 $465,334 
Equity-based compensation— — — — 8,743 — — 8,743 
Issuance of common stock in connection with employee stock option exercises and RSU vesting28  — — 217 — — 217 
Common shares withheld for settlement of taxes in connection with equity-based compensation(10) — — (1,044)— — (1,044)
Repurchase of treasury shares— — 42 (4,858)— — — (4,858)
Cash dividends paid— — — — — — (7,683)(7,683)
Other comprehensive income— — — — — (1,842)— (1,842)
Net income— — — — — — 16,029 16,029 
Balance at September 30, 202139,191 $392 2,600 $(104,885)$368,320 $(9,233)$220,302 $474,896 
Three Months Ended September 30, 2020
Balance at June 30, 202038,245 $382 2,558 $(100,027)$319,412 $(8,414)$132,147 $343,500 
Equity-based compensation— — — — 8,285 — — 8,285 
Issuance of common stock, net of issuance costs516 5 — — 23,148 — — 23,153 
Issuance of common stock in connection with employee stock option exercises and RSU vesting25 — — — — — — — 
Common shares withheld for settlement of taxes in connection with equity-based compensation(10)— — — (417)— — (417)
Cash dividends paid— — — — — — (6,149)(6,149)
Other comprehensive loss— — — — — (714)— (714)
Net income— — — — — — 22,582 22,582 
Balance at September 30, 202038,776 $387 2,558 $(100,027)$350,428 $(9,128)$148,580 $390,240 
Nine Months Ended September 30, 2021
Balance at December 31, 202038,803 $389 2,558 $(100,027)$360,939 $(7,681)$168,305 $421,925 
Equity-based compensation— — — — 26,639 — — 26,639 
Issuance of common stock in connection with employee stock option exercises and RSU vesting629 6 — — 2,012 — — 2,018 
Common shares withheld for settlement of taxes in connection with equity-based compensation(241)(3)— — (21,270)— — (21,273)
Repurchase of treasury shares— — 42 (4,858)— — — (4,858)
Cash dividends paid— — — — — — (23,000)(23,000)
Other comprehensive loss— — — — — (1,552)— (1,552)
Net income— — — — — — 74,997 74,997 
Balance at September 30, 202139,191 $392 2,600 $(104,885)$368,320 $(9,233)$220,302 $474,896 
Nine Months Ended September 30, 2020
Balance at December 31, 201938,055 $381 2,558 $(100,027)$312,824 $(6,220)$121,187 $328,145 
Cumulative effect of accounting change (Note 1)— — — — — — (247)(247)
Balance at January 1, 202038,055 $381 2,558 $(100,027)$312,824 $(6,220)$120,940 $327,898 
Equity-based compensation— — — — 17,681 — — 17,681 
Issuance of common stock, net of issuance costs516 5 — — 23,148 — — 23,153 
Issuance of common stock in connection with employee stock option exercises and RSU vesting314 3 — — 626 — — 629 
Common shares withheld for settlement of taxes in connection with equity-based compensation(109)(2)— — (3,851)— — (3,853)
Cash dividends paid— — — — — — (18,247)(18,247)
Other comprehensive loss— — — — — (2,908)— (2,908)
Net income— — — — — — 45,887 45,887 
Balance at September 30, 202038,776 $387 2,558 $(100,027)$350,428 $(9,128)$148,580 $390,240 
See Notes to Unaudited Consolidated Financial Statements.
7

Table of Contents                            
Shutterstock, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
 Nine Months Ended
September 30,
 20212020
CASH FLOWS FROM OPERATING ACTIVITIES  
Net income$74,997 $45,887 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization33,731 31,120 
Deferred taxes420 (206)
Non-cash equity-based compensation26,639 17,681 
Bad debt expense182 1,586 
Changes in operating assets and liabilities:
Accounts receivable(1,628)(3,135)
Prepaid expenses and other current and non-current assets(11,469)7,184 
Accounts payable and other current and non-current liabilities24,639 5,297 
Long-term incentives related to acquisitions (7,759)
Contributor royalties payable1,200 (183)
Deferred revenue13,147 2,753 
Net cash provided by operating activities$161,858 $100,225 
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures(21,167)(20,277)
Business combination, net of cash acquired(181,772) 
Asset acquisitions(31,440) 
Acquisition of content(7,890)(2,107)
Security deposit (payment) / release(138)296 
Net cash used in investing activities$(242,407)$(22,088)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common stock 23,153 
Purchase of treasury shares(4,171) 
Proceeds from exercise of stock options2,018 629 
Cash paid related to settlement of employee taxes related to RSU vesting(21,273)(3,861)
Payment of cash dividend(23,000)(18,247)
Net cash (used in) / provided by financing activities$(46,426)$1,674 
Effect of foreign exchange rate changes on cash(1,020)(2,558)
Net (decrease) / increase in cash, cash equivalents and restricted cash(127,995)77,253 
Cash, cash equivalents and restricted cash, beginning of period428,574 305,874 
Cash, cash equivalents and restricted cash, end of period$300,579 $383,127 
Supplemental Disclosure of Cash Information:
Cash paid for income taxes $14,811 $2,767 
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 a leading global creative platform offering full-service solutions, high-quality content, and applications for brands, businesses and media companies. The Company’s platform brings together users and contributors of content by providing readily-searchable content that our customers pay to license and by compensating contributors as their content is licensed. 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.
3D - consisting of 3D models, used in a variety of industries such as advertising, media and video production, gaming, retail, education, design and architecture, following the Company’s acquisition of TurboSquid, Inc. on February 1, 2021. See Note 3 Acquisitions.
Creative Design Software - consisting of the Company’s online graphic design and image editing platform. On September 3, 2021, the Company completed the acquisition of substantially all of the assets and assumption of certain liabilities from PicMonkey, LLC. See Note 3 Acquisitions.
Basis of Presentation
The unaudited condensed consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not include all information and footnotes required by GAAP for complete financial statements.
The interim Consolidated Balance Sheet as of September 30, 2021, and the Consolidated Statements of Operations, Comprehensive Income and Stockholders’ Equity for the three and nine months ended September 30, 2021 and 2020, and the Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020, are unaudited. The Consolidated Balance Sheet as of December 31, 2020, 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 September 30, 2021, and its consolidated results of operations, comprehensive income and stockholders’ equity for the three and nine months ended September 30, 2021 and 2020, and its cash flows for the nine months ended September 30, 2021 and 2020. 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 nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2021 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, 2020 included in the Company’s Annual Report on Form 10-K, which was filed with the SEC on February 11, 2021. 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.
9

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 nine months ended September 30, 2021, the Company recorded bad debt expense of $0.2 million. As of September 30, 2021 and December 31, 2020, the Company’s allowance for doubtful accounts was approximately $2.5 million and $4.9 million, respectively. The allowance for doubtful accounts is included as a reduction of accounts receivable on the Consolidated Balance Sheets.
The Company adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments (“ASU 2016-13”) on January 1, 2020, using the modified retrospective method and recorded a cumulative-effect adjustment of $0.2 million, net of tax, in retained earnings as of January 1, 2020.
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 September 30, 2021 and December 31, 2020, the Company’s combined allowance for chargebacks and sales refunds was $0.5 million, which was included as a component of other current liabilities on the Consolidated Balance Sheets.
Revenue Recognition
The majority of the Company’s revenue is earned from the license of content. Content licenses are generally purchased on a monthly or annual basis, whereby a customer pays for a predetermined quantity of content that may be downloaded over a specific period of time, or, on a transactional basis, whereby a customer pays for individual content licenses at the time of download. 
The Company recognizes revenue upon the satisfaction of performance obligations, which generally occurs when content is downloaded by a customer. The Company recognizes revenue on both its subscription-based and transaction-based products when content is downloaded, at which time the license is provided. In addition, management estimates expected unused licenses for subscription-based products and recognizes the estimated revenue associated with the unused licenses as digital content is downloaded and licenses are obtained for such content by the customer during the subscription period. The estimate of unused licenses is based on historical download activity, and future changes in the estimate could impact the timing of revenue recognition of the Company’s subscription products. The Company expenses contract acquisition costs as incurred, to the extent that the amortization period would otherwise be one year or less.
Collectability is reasonably assured at the time the electronic order or contract is entered. The majority of the Company’s customers purchase products by making an electronic payment with a credit card at the time of a transaction. Customer payments received in advance of revenue recognition are contract liabilities and are recorded as deferred revenue. Customers that do not pay in advance are invoiced and are required to make payments under standard credit terms. Collectability for 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. 
10

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



The Company recognizes revenue gross of contributor royalties because the Company is the principal in the transaction, as it is the party responsible for the performance obligation and it controls the product or service before transferring it to the customer. The Company also licenses content to customers through third-party resellers. Third-party resellers sell the Company’s products directly to customers as the principal in those transactions. Accordingly, the Company recognizes revenue net of costs paid to resellers.
Recently Adopted Accounting Standard Updates
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes (“ASU-2019-12”). ASU 2019-12 eliminates certain exceptions to the guidance in Topic 740 related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes, enacted changes in tax laws or rates and clarifies the accounting transactions that result in a step-up in the tax basis of goodwill. The guidance is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. The Company adopted ASU 2019-12, effective January 1, 2021. The impact of adoption of this standard on the consolidated financial statements, including accounting policies, processes and systems, was not material.

(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 September 30, 2021 or December 31, 2020, except as noted below.
Cash Equivalents
Cash equivalents includes 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 September 30, 2021 and December 31, 2020, the Company had cash equivalent balances of $205.1 million and $250.0 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 September 30, 2021 and December 31, 2020, 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 September 30, 2021, 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.

11

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



(3) Acquisitions
PicMonkey, LLC
On September 3, 2021, the Company completed the acquisition of substantially all of the assets and assumption of certain liabilities from PicMonkey, LLC (“PicMonkey”), for approximately $110 million. The total purchase price was paid with existing cash on hand in the three months ended September 30, 2021. In connection with the acquisition, the Company incurred approximately $2 million of transaction costs, which is included in general and administrative expenses on the Consolidated Statements of Operations.
PicMonkey is a Washington-based company that operates an online graphic design and image editing platform that enables creators of any skill level to design high-quality visual assets. The Company believes this acquisition provides Shutterstock’s global customer community with professional-grade, easy-to-use design tools.
The identifiable intangible assets, which include customer relationships, developed technology and trade names, have a weighted average life of approximately 9.8 years. The goodwill arising from the transaction is primarily attributable to expected operational synergies and is expected to be deductible for income tax purposes. The allocation of the purchase price is preliminary and will be finalized within the allowable measurement period once independent valuations of the fair value of the assets acquired and liabilities assumed are completed.

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 a weighted average life of approximately 8.2 years. The goodwill arising from the transaction is primarily attributable to expected operational synergies and is not deductible for income tax purposes.

The PicMonkey and TurboSquid transactions were accounted for using the acquisition method and, accordingly, the results of the acquired businesses have been included in the Company’s results of operations from the respective acquisition dates. For the three and nine months ended September 30, 2021, revenue of $8.9 million and $20.6 million, respectively, was included in the Consolidated Statements of Operations related to these acquired companies. The fair value of consideration transferred in these business combinations have 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 these acquisitions 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.

12

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



The aggregate purchase price for these acquisitions have been allocated to the assets acquired and liabilities assumed as follows (in thousands):
Assets acquired and liabilities assumed (in thousands):
PicMonkey1
TurboSquidTotal
Cash and cash equivalents$ $5,165 $5,165 
Other assets502 1,553 2,055 
Property and equipment 472 472 
Right of use asset1,420  1,420 
Intangible assets:
Customer relationships28,800 9,000 37,800 
Trademarks3,000 2,200 5,200 
Developed technology12,900 7,800 20,700 
Content library 2,500 2,500 
Intangible assets44,700 21,500 66,200 
Goodwill71,247 59,491 130,738 
Deferred tax asset2,456  2,456 
Total assets acquired$120,325 $88,181 $208,506 
Accounts payable, accrued expenses and other liabilities(747)(4,685)(5,432)
Contributor royalties payable (2,243)(2,243)
Deferred revenue(8,068) (8,068)
Deferred tax liability(533)(3,923)(4,456)
Lease liability(1,420) (1,420)
Total liabilities assumed(10,768)(10,851)(21,619)
Net assets acquired$109,557 $77,330 $186,887 
____________________________________________________
1 The allocation of the purchase price is preliminary and will be finalized within the allowable measurement period once independent valuations of the fair value of the assets acquired and liabilities assumed are completed.

13

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



The following unaudited pro forma consolidated financial information (in thousands) reflects the results of operations of the Company for the three and nine months ended September 30, 2021 and 2020, as if the PicMonkey and TurboSquid acquisitions 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 September 30,Nine Months Ended September 30,
2021202020212020
Revenue
As Reported$194,439 $165,227 $567,632 $485,742 
Pro Forma199,090 178,965 589,715 525,037 
Income before income taxes
As Reported$20,420 $28,179 $90,624 $57,167 
Pro Forma22,884 29,090 95,738 52,983 

Asset Acquisitions
In July 2021, the Company completed the acquisitions of Pattern89, Inc., Datasine Limited and assets from Shotzr, Inc. These three entities provide data driven insights through their artificial intelligence platforms. The aggregate purchase price for these transactions was approximately $35 million, and is subject to customary working capital and other adjustments and was paid from existing cash on hand. Approximately $3.6 million of the total purchase consideration was subject to contractual holdback provisions and is expected to be paid within the next 12 months. The Company has accounted for these transactions as asset acquisitions and has recorded a total of $41 million of developed technology intangible assets, which are being amortized on a straight-line basis over a useful life of three years.

(4) Property and Equipment
Property and equipment is summarized as follows (in thousands):
 As of September 30, 2021As of December 31, 2020
Computer equipment and software$214,571 $193,141 
Furniture and fixtures10,241 10,235 
Leasehold improvements19,356 19,382 
Property and equipment244,168 222,758 
Less accumulated depreciation(195,302)(171,852)
Property and equipment, net$48,866 $50,906 

Depreciation expense related to property and equipment was $7.9 million and $8.4 million for the three months ended September 30, 2021 and 2020, respectively, and $23.8 million and $27.3 million for the nine months ended September 30, 2021 and 2020, respectively. Cost of revenues included depreciation expense of $7.1 million and $7.5 million for the three months ended September 30, 2021 and 2020, respectively, and $21.3 million and $24.3 million for the nine months ended September 30, 2021 and 2020, respectively. General and administrative expense included depreciation expense of $0.8 million and $0.9 million for the three months ended September 30, 2021 and 2020, respectively, and $2.5 million and $3.0 million for the nine months ended September 30, 2021 and 2020, respectively.
Capitalized Internal-Use Software
The Company capitalized costs related to the development of internal-use software of $6.7 million and $6.1 million for the three months ended September 30, 2021 and 2020, respectively, and $20.9 million and $19.3 million for the nine months ended September 30, 2021 and 2020, respectively. Capitalized amounts are included as a component of property and equipment under computer equipment and software on the Consolidated Balance Sheets.
14

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



The portion of total depreciation expense related to capitalized internal-use software was $6.7 million and $7.1 million for the three months ended September 30, 2021 and 2020, respectively, and $20.1 million and $22.0 million for the nine months ended September 30, 2021 and 2020, respectively. Depreciation expense related to capitalized internal-use software is included in cost of revenue in the Consolidated Statements of Operations.
As of September 30, 2021 and December 31, 2020, the Company had capitalized internal-use software of $38.8 million and $38.0 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 nine months ended September 30, 2021.
The following table summarizes the changes in the Company’s goodwill balance during the nine months ended September 30, 2021 (in thousands):
 Goodwill
Balance as of December 31, 2020$89,413 
Goodwill related to acquisitions130,738 
Foreign currency translation adjustment(329)
Balance as of September 30, 2021$219,822 

Intangible Assets
Intangible assets consisted of the following as of September 30, 2021 and December 31, 2020 (in thousands):
 As of September 30, 2021As of December 31, 2020
 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$55,720 $(12,787)$42,933 11$18,132 $(11,032)$7,100 
Trade name11,821 (6,638)5,183 86,669 (6,328)341 
Developed technology68,029 (9,613)58,416 46,930 (5,039)1,891 
Contributor content37,023 (13,490)23,533 826,669 (10,378)16,291 
Patents259 (128)131 18259 (117)142 
Total$172,852 $(42,656)$130,196  $58,659 $(32,894)$25,765 

Amortization expense was $5.6 million and $1.3 million for the three months ended September 30, 2021 and 2020, respectively, and $9.9 million and $3.8 million for the nine months ended September 30, 2021 and 2020, respectively. Cost of revenue included amortization expense of $4.2 million and $0.7 million for the three months ended September 30, 2021 and 2020, respectively, and $6.5 million and $2.0 million for the nine months ended September 30, 2021 and 2020, respectively. General and administrative expense included amortization expense of $1.4 million and $0.6 million for the three months ended September 30, 2021 and 2020, respectively, and $3.4 million and $1.8 million for the nine months ended September 30, 2021 and 2020, respectively.
The Company determined that there was no indication of impairment of the intangible assets for any period presented. Estimated amortization expense is: $7.1 million for the remaining three months of 2021, $28.3 million in 2022, $27.9 million in 2023, $20.8 million in 2024, $10.1 million in 2025, $8.1 million in 2026 and $27.9 million thereafter.

15

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



(6) Accrued Expenses 
Accrued expenses consisted of the following (in thousands):
As of September 30, 2021As of December 31, 2020
Compensation$38,257 $31,499 
Non-income taxes20,784 17,164 
Website hosting and marketing fees16,385 9,991 
Other expenses19,617 9,255 
Total accrued expenses$95,043 $67,909 


(7) Stockholders’ Equity and Equity-Based Compensation
Stockholders’ Equity
Common Stock
The Company issued approximately 18,000 and 15,000 shares of common stock during the three months ended September 30, 2021 and 2020, respectively, and 388,000 and 206,000 for the nine months ended September 30, 2021 and 2020, 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.
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 and nine months ended September 30, 2021, the Company repurchased approximately 41,900 shares of its common stock at an average per share cost of $115.95. During the nine months ended September 30, 2020, the Company did not repurchase any shares of its common stock under the share repurchase program. As of September 30, 2021, the Company had $95 million of remaining authorization for purchases under the share repurchase program.
Dividends
The Company declared and paid cash dividends of $0.21 and $0.63 per share of common stock, or $7.7 million and $23.0 million, during the three and nine months ended September 30, 2021, respectively, and $0.17 and $0.51 per share of common stock, or $6.1 million and $18.2 million, during the three and nine months ended September 30, 2020, respectively.
On October 18, 2021, the Company’s Board of Directors declared a quarterly cash dividend of $0.21 per share of outstanding common stock payable on December 16, 2021 to stockholders of record at the close of business on December 2, 2021. 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.
16

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



Equity-Based Compensation
The Company recognizes stock-based compensation expense for all equity-based payment 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.

The following table summarizes non-cash equity-based compensation expense, net of forfeitures, by financial statement line item included in the accompanying Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020 (in thousands): 
 Three Months Ended September 30,Nine Months Ended September 30,
 2021202020212020
Cost of revenue$(49)$125 $309 $275 
Sales and marketing638 467 2,031 1,301 
Product development1,675 1,263 4,703 3,456 
General and administrative6,479 6,430 19,596 12,649 
Total$8,743 $8,285 $26,639 $17,681 
The following table summarizes non-cash equity-based compensation expense, net of forfeitures, by award type included in the accompanying Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020 (in thousands):
 Three Months Ended September 30,Nine Months Ended September 30,
 2021202020212020
Stock options$179 $179 $531 $1,909 
RSUs8,564 8,106 26,108 15,772 
Total$