What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2021-02-11 compared with 2020-02-13 · 363 added, 384 removed, 765 unchanged (49% of the section changed)

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PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited the consolidated financial statements included in this Annual Report on Form 10-K and, as part of the audit, has issued a report on the effectiveness of our internal control over financial reporting as of December 31, 2020, which begins on page F-2 of this Annual Report on Form 10-K.

Remediation of Previously Disclosed Material Weakness

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company's annual or interim financial statements will not be prevented or detected on a timely basis.

During the third quarter of 2018, management identified a material weakness in our internal control over financial reporting related to the accuracy, cut-off and completeness of sales transactions related to certain enterprise license arrangements.

Specifically, as our business strategy related to enterprise license arrangements changed during 2018, we did not design and maintain effective controls to assess the risks of misstatement, and therefore the appropriateness of revenue recognition, associated with product offerings outside of our standard product catalog.

The control deficiencies resulted in immaterial errors in recorded revenue, accounts receivable, deferred revenue and related disclosures for the years ended December 31, 2018 and 2017 and the interim periods ended June 30, 2018 and September 30, 2018 and did not result in a material misstatement of our interim or annual consolidated financial statements or disclosures for any historical periods.

In response to the identified material weakness, management, with the oversight of the Audit Committee of the Board of Directors, has taken comprehensive actions to remediate the material weakness in internal control over financial reporting.

These actions included the:

(1) creation of a project team to identify the population of enterprise product offerings outside of our standard product catalog;

and (2) development and implementation of an enhanced process, focused on the accuracy, cut-off and completeness of the remaining enterprise product offerings.

Based on the results of our testing of the enhanced controls, we have determined that the updated controls and procedures are effective as of December 31, 2019.

As a result, we believe this material weakness has been remediated.

Changes in Internal Control Over Financial Reporting

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Exhibits, Financial Statement Schedules.

The following documents are included as part of this Annual Report on Form 10-K:

(a) The following documents are included as part of this Annual Report on Form 10-K:

(1) Financial Statements

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We have audited the accompanying consolidated balance sheets of Shutterstock, Inc.

and its subsidiaries (the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2019, including the related notes (collectively referred to as the “consolidated financial statements”).

and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations, of comprehensive income, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2020, including the related notes (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

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The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Goodwill Impairment Assessment - Editorial reporting unit

As described in Notes 1 and 6 to the consolidated financial statements, the Company’s consolidated goodwill balance was $89 million as of December 31, 2019.

Goodwill is reviewed for impairment at least annually on October 1 of each fiscal year or more frequently if events occur or circumstances exist that indicate that the fair value of a reporting unit may be below its carrying value.

During the second quarter of 2019, management concluded that the Company operates with a single reporting unit.

The Company’s goodwill balance prior to this change was allocated to its Bigstock, Editorial, Images and Music reporting units and management evaluated goodwill for impairment immediately prior to the change in reporting units.

For its Editorial reporting unit, management performed a quantitative goodwill impairment assessment utilizing a discounted cash flow analysis which incorporated various estimates and assumptions.

The most significant of these assumptions were projected revenue growth rates, future royalty rates, the discount rate, and the terminal growth rate.

These estimates were based on the Company’s historical experience and projections of future activity, factoring in customer demand and a cost structure necessary to achieve related revenue.

The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment of the Editorial reporting unit is a critical audit matter are there was significant judgment by management when developing the fair value estimate of the reporting unit, which in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures to evaluate management’s discounted cash flow analysis and significant assumptions, including revenue growth rates, future royalty rates, the discount rate, and the terminal growth rate.

In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained from these procedures.

Revenue Recognition

As described in Notes 1 and 8 to the consolidated financial statements, the majority of the Company’s revenue is earned from the license of content.

Content licenses are generally purchased on a monthly or annual basis, whereby a customer pays for a predetermined quantity of content that may be downloaded over a specific period of time, or, on a transactional basis, whereby a customer pays for individual content licenses at the time of download.

The Company recognizes revenue upon the satisfaction of performance obligations, which generally occurs when content is downloaded by a customer.

The Company recognizes revenue on both its subscription-based and transaction-based products when content is downloaded, at which time the license is provided.

For the year ended December 31, 2020, the Company’s total revenue was $666.7 million.

The principal considerations for our determination that performing procedures relating to revenue recognition is a critical audit matter are the significant audit effort in performing procedures and evaluating audit evidence related to content license arrangements and customer download activity.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment, including controls over the determination of the fair value of the Editorial reporting unit.

These procedures also included, among others, testing management’s process for developing the fair value estimate;

evaluating the appropriateness of the discounted cash flow analysis;

testing the completeness, accuracy, and relevance of underlying data used in the analysis;

and evaluating the reasonableness of significant assumptions used by management, including revenue growth rates, future royalty rates, the discount rate, and the terminal growth rate.

Evaluating management’s assumptions related to revenue growth rates, future royalty rates, the discount rate, and the terminal growth rate involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the reporting unit, (ii) the consistency with external market and industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit.

Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s discounted cash flow analysis and certain significant assumptions, including the discount rate and terminal growth rate.

These procedures included testing the effectiveness of controls relating to the revenue recognition process, including controls over the completeness, accuracy and existence of revenue recognized.

These procedures also included, among others, evaluating the completeness, accuracy and existence of revenue recognized on a sample basis by inspecting content license arrangements and evaluating the appropriateness of the revenue recognized based on the terms of each arrangement and customer download activity.

/s/ PricewaterhouseCoopers LLP

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Cash and cash equivalents $ 428,574 $ 303,261

Accounts receivable, net

Accounts receivable, net of allowance of $ 4,942 and $ 3,579

43,846 47,016

Prepaid expenses and other current assets 16,650 26,703

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Intangible assets, net 25,765 26,669

Goodwill 89,413 88,974

Deferred tax assets, net 13,566 14,387

Other assets 21,372 19,215

Total assets $ 729,644 $ 630,512

LIABILITIES AND STOCKHOLDERS’ EQUITY

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Deferred revenue 149,843 141,922

Other liabilities

Other current liabilities 10,399 18,811

Total current liabilities 256,929 245,894

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2,558 shares as of December 31, 2020 and December 31, 2019

( 100,027 ) ( 100,027 )

Accumulated other comprehensive loss ( 7,681 ) ( 6,220 )

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Year Ended December 31,

2020 2019 2018

Revenue $ 666,686 $ 650,523 $ 623,250

Operating expenses:

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Provision for income taxes 17,757 4,808 11,426

Net income $ 71,766 $ 20,108 $ 54,687

Earnings per share:

Basic $ 2.00 $ 0.57 $ 1.57

Diluted $ 1.97 $ 0.57 $ 1.54

Weighted average shares outstanding:

Basic 35,844 35,285 34,935

Diluted 36,369 35,581 35,420

See accompanying notes to consolidated financial statements

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Year Ended December 31,

Foreign currency translation gain / (loss)

Other comprehensive income / (loss)

2020 2019 2018

Net income $ 71,766 $ 20,108 $ 54,687

Foreign currency translation (loss) / gain ( 1,461 ) 251 ( 2,914 )

Other comprehensive (loss) / income ( 1,461 ) 251 ( 2,914 )

Comprehensive income $ 70,305 $ 20,359 $ 51,773

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(In thousands)

Capital Accumulated

Comprehensive

Treasury Stock

Loss Retained

Common Stock Treasury Stock

Shares Amount Shares Amount Total

Balance at December 31, 2017 37,270 $ 373 2,558 $ ( 100,027 ) $ 272,657 $ ( 3,557 ) $ 145,139 $ 314,585

Cumulative Effect of Accounting Change (See Note 1) — — — — — — 6,178 6,178

Balance at January 1, 2018 37,270 $ 373 2,558 $ ( 100,027 ) $ 272,657 $ ( 3,557 ) $ 151,317 $ 320,763

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Common shares withheld for settlement of taxes in connection with equity-based compensation ( 150 ) ( 2 ) — — ( 7,266 ) — — ( 7,268 )

Repurchase of Treasury Shares

Payment of Special Dividend — — — — — — ( 104,925 ) ( 104,925 )

Other comprehensive income — — — — — ( 2,914 ) — ( 2,914 )

Net income — — — — — — 54,687 54,687

Balance at December 31, 2018 37,618 376 2,558 ( 100,027 ) 291,710 ( 6,471 ) 101,079 286,667

Cumulative Effect of Accounting Change (See Note 1)

Balance at January 1, 2018

Equity-based compensation — — — — 22,815 — — 22,815

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Common shares withheld for settlement of taxes in connection with equity-based compensation ( 164 ) ( 1 ) — — ( 7,060 ) — — ( 7,061 )

Payment of Special Dividend

Other comprehensive loss — — — — — 251 — 251

Net income — — — — — — 20,108 20,108

Balance at December 31, 2019 38,055 381 2,558 ( 100,027 ) 312,824 ( 6,220 ) 121,187 328,145

Cumulative Effect of Accounting Change (See Note 1) — — — — — — ( 247 ) ( 247 )

Balance at January 1, 2020 38,055 381 2,558 ( 100,027 ) 312,824 ( 6,220 ) 120,940 327,898

Equity-based compensation — — — — 28,309 — — 28,309

Issuance of common stock, net of issuance costs 516 5 — — 23,148 — — 23,153

Issuance of common stock in connection with employee stock option exercises and RSU vesting 351 4 — — 1,167 — — 1,171

Common shares withheld for settlement of taxes in connection with equity-based compensation ( 119 ) ( 1 ) — — ( 4,509 ) — — ( 4,510 )

Cash dividends paid — — — — — — ( 24,401 ) ( 24,401 )

Other comprehensive income — — — — — ( 1,461 ) — ( 1,461 )

Net income — — — — — — 71,766 71,766

Balance at December 31, 2020 38,803 $ 389 2,558 $ ( 100,027 ) $ 360,939 $ ( 7,681 ) $ 168,305 $ 421,925

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Year Ended December 31,

2020 2019 2018

CASH FLOWS FROM OPERATING ACTIVITIES

Net income $ 71,766 $ 20,108 $ 54,687

Adjustments to reconcile net income to net cash provided by operating activities:

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Non-cash equity-based compensation 28,309 22,815 23,869

Settlement of contingent consideration liability in excess of acquisition-date fair value

Gain on Sale of Webdam — — ( 38,613 )

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Accounts payable and other current and non-current liabilities 8,587 8,360 6,388

Long-term incentives related to acquisitions ( 7,759 ) — —

Contributor royalties payable 1,075 2,168 3,021

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Capital expenditures ( 25,630 ) ( 26,081 ) ( 34,890 )

Investment sales, net

Acquisitions of businesses, net of cash acquired

Business and asset acquisitions ( 1,850 ) — ( 845 )

Proceeds from Sale of Webdam, net — 2,500 41,804

Other investments / advances

Long term investments ( 5,000 ) — ( 15,000 )

Acquisition of content ( 2,970 ) ( 3,344 ) ( 3,838 )

Security deposit (payment) / release

Security deposit release / (payment) 140 ( 309 ) ( 58 )

Net cash used in investing activities $ ( 35,310 ) $ ( 27,234 ) $ ( 12,827 )

CASH FLOWS FROM FINANCING ACTIVITIES

Net proceeds from issuance of common stock 23,153 — —

Proceeds from exercise of stock options 1,171 5,365 2,454

Cash paid related to settlement of employee taxes related to RSU vesting ( 4,510 ) ( 7,061 ) ( 7,268 )

Cash paid for Special Dividend

Settlement of contingent consideration liability

Repurchase of treasury shares

Payment of cash dividends ( 24,401 ) — ( 104,925 )

Net cash used in financing activities $ ( 4,587 ) $ ( 1,696 ) $ ( 109,739 )

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Description of Business

Shutterstock (the “Company” or “Shutterstock”) is a global technology company offering a creative platform, which provides high-quality content, tools and services to creative professionals.

Shutterstock (the “Company” or “Shutterstock”) is a leading creative platform offering full-service solutions, high-quality content, and tools for brands, businesses and media companies.

The Company’s platform brings together users and contributors of content by providing readily-searchable content that our customers pay to license and by compensating contributors as their content is licensed.

The content licensed by the Company’s customers includes:

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• Music - consisting of high-quality music tracks and sound effects, which are often used to complement images and footage.

• 3D Models - following the Company’s acquisition of TurboSquid, Inc.

on February 1, 2021, Shutterstock now offer 3D models, used in industries such as advertising, media & video production, gaming, retail, education, design and architecture.

See Note 17 Subsequent Events.

The Company licenses content to its customers.

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Actual results could differ from those estimates.

Such estimates include, but are not limited to, the determination of the allowance for doubtful accounts, the volume of expected unused licenses for our subscription-based products, the assessment of recoverability of property and equipment, the fair value of acquired goodwill and intangible assets, the grant-date fair value of non-cash equity-based compensation, the assessment of recoverability of deferred tax assets, the measurement of income tax and contingent non-income tax liabilities and the determination of the incremental borrowing rate used to calculate the lease liability.

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.

SHUTTERSTOCK, INC.

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The following represents the Company’s cash, cash equivalents and restricted cash as of December 31, 2020 and 2019 (in thousands):

As of December 31, 2019

As of December 31, 2018

As of December 31, 2020 As of December 31, 2019

Cash and cash equivalents $ 428,574 $ 303,261

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Total cash, cash equivalents and restricted cash $ 428,574 $ 305,874

The Company’s cash and cash equivalents consist primarily of (i) cash on hand and bank deposits and (ii) money market accounts, which are stated at cost, which approximates fair value.

The Company’s restricted cash relates to security deposits related to the lease for its headquarters in New York City, which expires in 2029 .

The carrying value of restricted cash approximates fair value.

The Company’s cash and cash equivalents consist primarily of (i) cash on hand and bank deposits and (ii) money market accounts.

As of March 31, 2020, the Company was no longer required to provide cash collateral for its letter of credit for its New York City headquarters, and, accordingly, these funds are no longer restricted.

Restricted cash is included as a component of other assets on the Consolidated Balance Sheets.

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The Company’s accounts receivable consists of customer obligations due under normal trade terms, carried at their face value less an allowance for doubtful accounts, if required.

The Company determines its allowance for doubtful accounts based on an evaluation of the aging of its accounts receivable and on a customer-by-customer basis where appropriate.

The Company’s reserve analysis contemplates the Company’s historical loss rate on receivables, specific customer situations and the economic environments in which the Company operates.

The following table presents the changes in the Company’s allowance for doubtful accounts (in thousands):

The Company determines its allowance for doubtful accounts based on an evaluation of (i) the aging of its accounts receivable considering historical receivables loss rates, (ii) on a customer-by-customer basis, where appropriate, and (iii) the economic environments in which the Company operates.

Historically, the Company used an incurred loss model to calculate its allowance for doubtful accounts.

Upon the adoption of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses of Financial Instruments (“ASU 2016-13”) on January 1, 2020, the Company shifted to a current expected credit loss model.

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table presents the changes in the Company’s allowance for doubtful accounts (in thousands):

Year Ended December 31,

2020 2019 2018

Balance, beginning of period $ 3,579 $ 4,697 $ 4,088

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write-offs, net of recoveries and other adjustments 1

( 1,217 ) ( 1,202 ) ( 566 )

Balance, end of period $ 4,942 $ 3,579 $ 4,697

1 - Other adjustments includes the adoption of ASU 2016-13, which increased the allowance for doubtful accounts by $ 0.3 M.

Chargeback and Sales Refund Allowance

The Company establishes a chargeback allowance and sales refund reserve allowance based on factors surrounding historical credit card chargeback trends, historical sales refund trends and other information.

As of December 31, 2019 and December 31, 2018 , the Company’s combined allowance for chargebacks and sales refunds was $ 0.3 million , which was included as a component of other current liabilities on the Consolidated Balance Sheets.

As of December 31, 2020 and December 31, 2019, the Company’s combined allowance for chargebacks and sales refunds was $ 0.5 million, and $ 0.3 million, respectively, which is included as a component of other current liabilities on the Consolidated Balance Sheets.

Property and Equipment

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Generally, the useful lives are as follows:

Furniture and fixtures

Leasehold improvements

Shorter of expected useful life or lease term

Equipment 3 years

Furniture and fixtures 7 years

Software 3 years

Leasehold improvements Shorter of expected useful life or lease term

Capitalized Internal Use Software

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Goodwill and intangible assets acquired in a business combination and determined to have an indefinite useful life are not amortized, but instead tested for impairment at least annually on October 1 of each fiscal year or more frequently if events occur or circumstances exist that indicate that the fair value of a reporting unit may be below its carrying value.

In 2018, the Company’s goodwill balance was allocated to four reporting units:

Bigstock, Editorial, Images and Music.

During the second quarter of 2019, due to changes in the Company’s reporting structure, which resulted in a change in the way management monitors the business, as well as key milestones achieved in the continued integration of the Company’s operations and technology platform, management concluded that the Company now operates with a single reporting unit.

The Company evaluated its goodwill immediately prior and subsequent to the change in reporting units and concluded that no adjustment to the carrying value of goodwill was necessary.

The aggregate goodwill for the legacy reporting units was assigned to the single content business reporting unit.

Since inception through December 31, 2019 , the Company has not had any goodwill or indefinite lived intangible asset impairment.

In 2020, the Company’s goodwill balance was allocated to a single reporting unit.

Since inception through December 31, 2020, the Company has not had any impairment of goodwill.

Revenue Recognition

The majority of the Company’s revenue is earned from the license of content.

Content licenses are generally purchased on a monthly or annual subscription basis, whereby a customer pays for a predetermined quantity of content that may be downloaded over a specific period of time, or, on a transactional basis, whereby a customer pays for individual content licenses at the time of download.

Prior to the Sale of Webdam, the Company also earned revenue from licensing hosted software services through Webdam’s cloud-based tools for businesses, which were purchased as part of a subscription.

Prior to the adoption of Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”) on January 1, 2018, and reflected in the reported revenue amounts for the year ended December 31, 2017, the Company recognized revenue when all of the following basic criteria were met:

there was persuasive evidence of an arrangement, performance or delivery of services had occurred, the sales price was fixed or determinable, and collectability was reasonably assured.

The Company considered persuasive evidence of an arrangement to be an electronic order form, or a signed contract, which contained the fixed pricing terms.

Performance or delivery for content licenses was considered to have occurred upon the download of the licensed content.

Subscription revenue was recognized upon each download using an effective per-license rate and revenue associated with any unused licenses was recognized at the subscription expiration.

Revenue attributable to the hosted software services was recognized ratably during the license subscription.

Effective January 1, 2018, subsequent to the adoption of ASU 2014-09, the Company recognizes revenue upon the satisfaction of performance obligations, which occurs when (i) content is downloaded by a customer or (ii) hosted software services are provisioned and available to a customer.

For content licenses, the Company recognizes revenue on both its subscription-based and transaction-based sales 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 revenue associated with the unused licenses throughout the subscription period.

The Company recognizes revenue upon the satisfaction of performance obligations, which generally occurs when (i) content is downloaded by a customer or (ii) hosted software services are provisioned and available to a customer.

For content licenses, the Company recognizes revenue on both its subscription-based and transaction-based products when content is downloaded, at which time the license is provided.

In addition, the Company estimates expected unused licenses for subscription-based products and recognizes the revenue associated with the unused licenses as digital content is downloaded and licenses are obtained for such content by the customer during the subscription period.

The estimate of unused licenses is based on historical download activity and future changes in the estimate could impact the timing of revenue recognition of the Company’s subscription products.

Revenue associated with hosted software services is recognized ratably over the term of the license.

ASU 2014-09 has resulted in a change in the timing of recognizing revenue on the Company’s content license subscription products.

ASU 2014-09 did not impact revenue recognition on content licenses sold on a transactional basis or license revenue associated with hosted software services.

Prior to the adoption of ASU 2014-09, the Company deferred certain acquisition costs that were then amortized over a period of less than one year.

Effective January 1, 2018, the Company expenses contract acquisition costs as incurred, to the extent that the amortization period would otherwise be one year or less.

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 at the time of the transaction with a credit card.

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.

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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

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company also licenses content to customers through third-party resellers.

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Accordingly, the Company recognizes revenue net of costs paid to resellers.

The Company adopted ASU 2014-09 on January 1, 2018 using the modified retrospective approach, and prior period amounts were not restated.

The Company adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”) on January 1, 2018 using the modified retrospective approach, and prior period amounts were not restated.

The effect of adoption of this guidance on the Consolidated Balance Sheet as of January 1, 2018 was to reduce (i) prepaid expenses and other current assets by $ 3.7 million and (ii) deferred revenues by $ 9.9 million, with an offsetting $ 6.2 million increase in 2018 opening retained earnings.

Cost of Revenue

The Company’s cost of revenue includes contributor royalties, credit card processing fees, content reviewer expenses, hosting and bandwidth expenses, content personnel salaries, non-cash equity-based compensation, amortization of content and technology intangible assets, and depreciation of network equipment, which are the direct costs related to providing content and service to customers.

The Company’s cost of revenue includes royalties paid to contributors, credit card processing fees, content reviewer costs, customer service expenses, infrastructure and hosting costs, content personnel salaries, non-cash equity-based compensation, amortization of content and technology intangible assets, and depreciation of network equipment, which are the direct costs related to providing content and service to customers.

Additionally, the Company includes an allocation of overhead costs primarily related to payroll, insurance, and facilities expenses based on headcount.

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Contributor Royalties and Internal Sales Commissions

The Company expenses contributor royalties in the period a customer download occurs and includes the corresponding contributor royalties in cost of revenue.

Contributor royalties are generally paid weekly or monthly.

Contributor royalties are generally paid monthly.

The Company advances certain contributor royalties which are initially deferred and expensed based on the contractual royalty rate at the time of customer download or when the Company determines future recovery is not probable.

For the years ended December 31, 2020, 2019 and 2018, the Company deferred $ 3.6 million, $ 8.4 million and $ 6.2 million, respectively, in royalty advances and amortized $ 5.5 million, $ 9.2 million and $ 6.1 million, respectively, in royalty advance expense which is included in cost of revenue.

As of December 31, 2019 and 2018 , the Company has deferred contributor royalties of $ 1.9 million and $ 2.6 million , respectively, which is included in prepaid expenses and other current assets in the Consolidated Balance Sheets.

Internal sales commissions are generally paid in the month following collection or invoicing of the commissioned receivable and is reported in sales and marketing expense.

Effective January 1, 2018, upon the adoption of ASU 2014-09, the Company expenses contract acquisition costs, including internal sales commissions as incurred, to the extent that the amortization period would otherwise be one year or less.

Prior to the adoption of ASU 2014-09, i nternal sales commissions were deferred and recognized over the expected future revenue stream which was generally up to 12 months .

For the year ended December 31, 2017 , the Company deferred $ 5.5 million , and amortized $ 5.0 million , in internal sales commission expense which was included in sales and marketing expense on the Consolidated Statements of Operations.

As of December 31, 2020, the balance of deferred contributor royalties was not significant.

As of December 31, 2019, the Company has deferred contributor royalties of $ 1.9 million, which is included in prepaid expenses and other current assets in the Consolidated Balance Sheets.

Internal sales commissions are generally paid in the month following collection or invoicing of the commissioned receivable and is reported in sales and marketing expense on the Consolidated Statements of Operations.

The Company expenses contract acquisition costs, including internal sales commissions, as incurred, to the extent that the amortization period would otherwise be one year or less.

Product Development

The Company expenses product development costs as incurred, except for costs that are capitalized for certain internal software development projects.

Product development costs are primarily comprised of development personnel salaries, non-cash equity-based compensation, equipment costs as well as allocated occupancy costs and related overhead.

Product development costs are primarily comprised of development personnel salaries, non-cash equity-based compensation, software and other IT equipment costs as well as allocated facility costs and related overhead.

Advertising Costs

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The Company records rent expense on a straight-line basis over the term of the related lease.

Prior to the adoption of FASB ASU 2016-02, Leases (Topic 842) , as amended (“ASC 842”), the difference between the rent expense recognized and the actual payments made in accordance with the operating lease agreement was recognized as a deferred rent liability on the Company’s Consolidated Balance Sheets.

As of December 31, 2018 , the Company had deferred rent of $ 11.3 million , which is included in other non-current liabilities on the Consolidated Balance Sheet.

Effective January 1, 2019, the Company adopted ASC 842.

In accordance with ASC 842, the Company first determines if an arrangement contains a lease and the classification of that lease, if applicable, at inception.

This standard requires the

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

recognition of right-of-use (“ROU”) assets and lease liabilities for the Company’s operating leases.

In accordance with FASB ASU 2016-02, Leases (Topic 842), as amended (“ASC 842”), which the Company adopted effective January 1, 2019, the Company first determines if an arrangement contains a lease and the classification of that lease, if applicable, at inception.

This standard requires the recognition of right-of-use (“ROU”) assets and lease liabilities for the Company’s operating leases.

For contracts with lease and non-lease components, the Company has elected not to allocate the contract consideration, and to account for the lease and non-lease components as a single lease component.

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An option to terminate is considered unless the Company is reasonably certain the option will not be exercised.

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Equity-Based Compensation

The Company grants Restricted Stock Units, Performance-based Restricted Stock Units (“PRSUs” and, collectively with Restricted Stock Units, “RSUs”) and Stock Options to directors and officers and certain other employees of the Company.

All awards are granted pursuant to the 2012 Omnibus Equity Incentive Plan (the “2012 Plan”), which is discussed further in Note 9, Equity-Based Compensation.

The Company measures and recognizes non-cash equity-based compensation expense for all stock-based awards granted to employees based on estimated fair values.

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Compensation expense is adjusted in future periods for subsequent changes in the expected outcome of the change of control conditions until the vesting date.

Compensation expense related to awards with a market condition is recognized ratably over the requisite service period regardless of the achievement of the market condition.

Compensation expense related to awards with a performance condition is recognized ratably over the requisite service period based on the expected levels of achievement.

Compensation expense related to awards with a market condition is recognized over the requisite service period regardless of the achievement of the market condition.

Compensation expense related to awards with a performance condition is recognized over the requisite service period based on the expected levels of achievement.

To the extent that the expected levels of achievement change, stock-based compensation expense is adjusted and recorded in the Consolidated Statements of Operations and the remaining unrecognized stock-based compensation is recognized over the remaining requisite service period.

The Company uses the closing price of the Company’s common stock on the date of grant to determine the fair value of restricted stock units (“RSUs”) including performance-based restricted stock units (“PRSUs”).

The Company uses the closing price of the Company’s common stock on the date of grant to determine the fair value of RSUs.

The Company uses the Black Scholes option pricing model, to determine the fair value of stock options on the date of grant.

The Monte Carlo simulation model is used if the award has a market condition.

All awards are granted pursuant to the 2012 Omnibus Equity Incentive Plan (the “2012 Plan”), which is discussed further in Note 10, Equity-Based Compensation.

The determination of the grant date fair value using an option-pricing model and simulation model requires judgment as well as assumptions regarding a number of other complex and subjective variables.

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In certain cases for market based awards, the Company’s expected term is based on a combination of historical data and estimates of the period of time the award will be outstanding.

• Volatility.

The volatility is estimated based on historical price volatility of the Company’s common stock.

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Treasury securities with maturities similar to the expected term of each award group.

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

• Dividend Yield.

The Company determines the dividend yield based on management’s expectations of future dividends.

The Company used an expected dividend yield of zero for options granted through 2019.

The Company has historically used an expected dividend yield of zero for options granted.

If any of the assumptions used in the Black-Scholes pricing model or Monte Carlo simulation model changes significantly, the fair value for future awards may differ materially compared with the awards granted previously.

The awards granted pursuant to the 2012 Plan are subject to a time-based vesting requirement and certain award grants may also include market based or performance based vesting conditions.

While each PRSU corresponds to one target share of the Company’s stock, the number of shares that may eventually vest will be between 0 % and 150 % of a recipient’s target shares, depending on both the recipient’s continued service with the Company and the extent to which performance goals will have been achieved.

Stock option awards granted under the 2012 Plan vest over three or four years while the majority of the restricted stock units granted under the 2012 Plan vest over three years .

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The Company recorded employer matching contributions of $ 3.8 million, $ 3.7 million and $ 3.2 million for the years ended December 31, 2020, 2019 and 2018, respectively.

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company’s income tax expense includes U.S.

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Any reserve for uncertain tax provisions and related penalties and interest is included in the income tax provision.

The Company assessed the realizability of deferred tax assets and determined, based on the available evidence including a history of taxable income, estimates of future taxable income and planning strategies, that it is more likely than not that the deferred tax assets will be realized.

The Company will continue to evaluate its ability to realize deferred tax assets on a quarterly basis.

On a quarterly basis, the Company assesses the realizability of deferred tax assets, based on the available evidence including a history of taxable income, estimates of future taxable income and planning strategies and a valuation allowance is recorded to the extent that it is not more likely than not that the deferred tax assets will be realized.

Significant management judgment is required in determining the provision for income taxes and deferred tax assets and liabilities.

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tax amount as a result of such “deemed” repatriation.

The Company’s tax expense for the year ended December 31, 2017 included provisional amounts for such taxes.

The Company has not recorded any provision for potential deferred U.S.

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In the first quarter of 2018, the Company elected to treat any potential GILTI inclusions as a period cost.

During 2017, the Company recorded provisional estimates for the accounting impacts of the TCJA, including the transition tax, deferred tax re-measurements, and other items, due to the uncertainty regarding how these provisions were to be implemented and additional anticipated forthcoming guidance.

Management completed its analysis of the TCJA during 2018, and has not made any significant adjustments to estimates previously recorded.

The Company continues to assess the impacts of the TCJA on future fiscal years and is monitoring the Internal Revenue Service guidance intended to interpret the provisions of the TCJA.

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Other Non-income Taxes

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Basic net income per share is computed by dividing the net income attributable to common stockholders by the weighted average number of common shares outstanding during the period.

Any potential issuance of common shares, including those that are contingent and do not participate in dividends, is excluded from weighted average number of common shares outstanding.

Income available to common stockholders is computed by deducting income allocated to participating securities, if any, including unvested shares for the restricted award holder since these unvested shares have participating rights.

Any potential issuance of common shares, including those that are contingent and do not participate in dividends, is excluded from basic weighted average number of common shares outstanding.

Diluted net income per share is computed by dividing the net income attributable to common stockholders by the weighted average common shares outstanding and all potential common shares, if they are dilutive.

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Reportable Segments

For the year ended December 31, 2020, the Company has identified one operating segment, which has also been determined to be the Company’s primary reportable business segment.

Prior to the Sale of Webdam on February 26, 2018, the Company had also identified a non-reportable segment which was classified in the Other Category, included the Company’s digital asset management operating segment and failed to meet the quantitative or qualitative thresholds for separate segment reporting.

Operating segments are defined as components of an enterprise for which separate financial information is available and is evaluated regularly by the Company’s chief operating decision maker (“CODM”), or decision-making group, in deciding how to allocate resources and in assessing performance.

The non-reportable segment classified in the Other Category previously included the Company’s digital asset management operating segment, which fails to meet the quantitative or qualitative thresholds for separate segment reporting and was sold on February 26, 2018.

Contingent Consideration

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Recently Adopted Accounting Standard Updates

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) .

ASU 2016-02 requires that the rights and obligations created by leases with a duration greater than 12 months be recorded as assets and liabilities on the balance sheet of the lessee.

This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.

The Company has adopted this standard as of January 1, 2019 using the modified retrospective approach for all leases entered into before the effective date.

The Company has also elected the option, as permitted in ASU 2018-11, Leases (Topic

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Targeted Improvements , whereby initial application of the new lease standard would occur at the adoption date and a cumulative-effect adjustment, if any, would be recognized to the opening balance of retained earnings in the period of adoption.

For comparability purposes, the Company will continue to comply with previous disclosure requirements in accordance with existing lease guidance for all periods presented in the year of adoption.

The Company has elected the practical expedients permitted under the transition guidance which enabled the Company:

(1) to carry forward the historical lease classification;

(2) not to reassess whether expired or existing contracts are or contain leases;

and (3) not to reassess the treatment of initial direct costs for existing leases.

In addition, the Company has made an accounting policy election to keep leases with an initial term of 12 months or less off the balance sheet.

Upon adoption of this standard on January 1, 2019, the Company recognized a total lease liability in the amount of $ 58.0 million , representing the present value of the minimum rental payments remaining as of the adoption date and a right-of-use asset in the amount of $ 46.7 million .

Recently Issued Accounting Standard Updates

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses of Financial Instruments (“ASU 2016-13”) .

ASU 2016-13 replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses.

In June 2016, the FASB issued ASU 2016-13, which as amended, replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses.

The ASU is intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date.

Adoption of this guidance is required, prospectively, for annual periods beginning after December 15, 2019, with early adoption permitted for annual periods beginning after December 15, 2018.

Effective January 1, 2020, the Company will adopt ASU 2016-13 on a prospective basis.

Adoption of ASU 2016-13 is not expected to have a material effect on the Company’s consolidated financial statements.

The Company is finalizing its evaluation of the impact of this new standard on its financial statements.

Adoption of this guidance was required, prospectively, for annual periods beginning after December 15, 2019, with early adoption permitted for annual periods beginning after December 15, 2018.

The Company adopted ASU 2016-13, as amended, effective January 1, 2020 using the modified retrospective method and recorded a cumulative-effect adjustment of $ 0.2 million, net of tax, in retained earnings as of January 1, 2020.

In August 2018, the FASB issued ASU 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurements (“ASU 2018-13”), which eliminates, adds and modifies certain disclosure requirements for fair value measurements as part of the FASB’s disclosure framework project.

Adoption of this guidance is required for fiscal years and interim periods within those fiscal years, beginning after December 15, 2019.

Adoption of ASU 2018-13 is not expected to have an impact on the Company’s consolidated financial statements.

The Company is finalizing its evaluation of the impact of this new standard on its financial statements.

Adoption of this guidance was required for fiscal years and interim periods within those fiscal years, beginning after December 15, 2019.

The Company adopted ASU 2018-13, effective January 1, 2020.

The impact of adoption of this standard on the consolidated financial statements, including accounting policies, processes and systems, was not material.

In August 2018, the FASB issued ASU 2018-15, Customer’s Accounting For Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”), which aligns the requirements for capitalizing implementation costs in a cloud computing arrangement with the requirements for capitalizing implementation costs incurred for an internal-use software license.

Adoption of this guidance is required for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years and early adoption is permitted.

Adoption of this guidance was required for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years and early adoption is permitted.

Entities are permitted to choose to adopt the new guidance (1) prospectively for eligible costs incurred on or after the date this guidance is first applied or (2) retrospectively.

Effective January 1, 2020, the Company will adopt ASU 2018-15 on a prospective basis.

The Company adopted ASU 2018-15 on a prospective basis, effective January 1, 2020.

The adoption of this standard is not expected to have a significant impact on our consolidated financial statements.

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Recently Issued Accounting Standard Updates

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes (“ASU-2019-12”).

ASU 2019-12 eliminates certain exceptions to the guidance in Topic 740 related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.

The new guidance also simplifies aspects of the accounting for franchise taxes, enacted changes in tax laws or rates and clarifies the accounting transactions that result in a step-up in the tax basis of goodwill.

The guidance is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years.

Adoption of ASU 2019-12 is not expected to have a material effect on the Company’s consolidated financial statements.

The Company is finalizing its evaluation of the impact of this new standard on its financial statements.

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740) (“ASU 2019-12”), which removes certain exceptions to the general principles in Topic 740 and improves consistent application of and simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance.

This ASU is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years, with early adoption permitted.

The Company is evaluating the impact of this new standard on its financial statements.

The Company is finalizing its evaluation of the impact of this new standard on the consolidated financial statements.

(2) Fair Value Measurements and Other Long-term Investments

Fair Value Measurements

The Company had no assets or liabilities requiring fair value hierarchy disclosures as of December 31, 2019 and 2018 .

The Company had no assets or liabilities requiring fair value hierarchy disclosures as of December 31, 2020 and 2019, except as noted below.

Money Market Accounts

Cash equivalents include money market accounts and are classified as a level 1 measurement based on quoted prices in active markets for identical assets that the reporting entity can access at the measurement date.

As of December 31, 2020, the Company had a balance of $ 250.0 million in money market accounts.

The Company did no t have any money market accounts as of December 31, 2019.

Other Fair Value Measurements

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Cash, accounts receivable, restricted cash, accounts payable and accrued expenses carrying amounts approximate fair value because of the short-term nature of these instruments.

The carrying amounts of cash, accounts receivable, restricted cash, accounts payable and accrued expenses approximate fair value because of the short-term nature of these instruments.

The Company’s non-financial assets, which include property and equipment, intangible assets and goodwill, are not required to be measured at fair value on a recurring basis.

However, if certain triggering events occur, or if an annual impairment test is required and the Company is required to evaluate the non-financial asset for impairment, a resulting asset impairment would require that the non-financial asset be recorded at the fair value.

Other Long-term Investments

Long-term Lending Facility and Note Receivable

On October 20, 2016, the Company entered into a multi-part transaction, as amended in March 2017, with SilverHub Media Limited (“SHM”), an unrelated third-party contributor.

The amended transaction included the following components:

(a) a revolving credit facility pursuant to which the Company would be obligated to lend up to $ 3.3 million under certain conditions, (the “Facility”) to SHM, which was fully drawn as of November 2017;

(b) a $ 1.6 million investment in a convertible note issued by SHM, which had a maturity date of October 20, 2021;

(c) a distribution agreement, under which the Company is the exclusive distributor of SHM’s content in certain markets subject to certain limitations;

and (d) an option to acquire SHM at any time after the third anniversary of the Facility or to match any third-party acquisition offer with respect to SHM at any time until the fifth anniversary of the Facility.

In June 2018, SHM breached certain provisions of the distribution agreement, which constituted an event of default under the Facility.

As a result of the occurrence of one or more events of default, the Company provided notice to SHM to demand immediate payment of all outstanding borrowings under the Facility and the convertible note, including accrued interest.

SHM was unable to pay the outstanding borrowings and accrued interest and therefore, an administrator was appointed and SHM entered into United Kingdom administration (bankruptcy) proceedings.

The Company has determined that its investments in SHM, including the Facility, the convertible note, accrued interest and a minor equity investment, experienced an other-than-temporary impairment and therefore, the Company recorded a $ 5.9 million impairment charge during the three months ended June 30, 2018 in order to reduce the fair value of the Company’s investment in SHM to zero .

This charge was recorded in Other income / (expense), net in the Consolidated Statements of Operations.

The investment was previously reported within Other assets on the Consolidated Balance Sheet.

Long-Term Investments

As of December 31, 2020 and 2019, the Company’s Long-Term Investments totaled $ 20.0 million and $ 15.0 million, respectively, which is reported within other assets on the Consolidated Balance Sheets.

The Company uses the measurement alternative for equity investments with no readily determinable fair value and are reported at cost, adjusted for impairments or any observable price changes in ordinary transactions with identical or similar investments.

On a quarterly basis, the Company evaluates the carrying value of its Long-Term Investments for impairment, which includes an assessment of revenue growth, earnings performance, working capital and the general market conditions.

As of December 31, 2020, no adjustments to the carrying values of the Company’s Long-Term Investments were identified as a result of this assessment.

Changes in performance negatively impacting operating results and cash flows of these investments could result in the Company recording an impairment charge in future periods.

Investment in ZCool Technologies Limited (“ZCool”)

On January 4, 2018, the Company invested $ 15.0 million in convertible preferred shares issued by ZCool (the “Preferred Shares”), which is equivalent to a 25 % fully diluted equity ownership interest.

In 2018, the Company invested $ 15.0 million in convertible preferred shares issued by ZCool (the “Preferred Shares”), which is equivalent to a 25 % fully diluted equity ownership interest.

ZCool’s primary business is the operation of an e-commerce platform in China whereby customers can pay to license content contributed by creative professionals.

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ZCool is a variable interest entity that is not consolidated because the Company is not the primary beneficiary.

The Preferred Shares are not deemed to be in-substance common stock and will be accounted for using the measurement alternative for equity investments with no readily determinable fair value.

The Preferred Shares will be reported at cost, adjusted for impairments or any observable price changes in ordinary transactions with identical or similar investments issued by ZCool.

As of December 31, 2018, the Company’s total investment in ZCool is approximately $ 15 million , which is reported within Other assets on the Consolidated Balance Sheet.

(3) Acquisition Activity

Acquisition Activity in 2017

Flashstock Technology, Inc.

On July 7, 2017, the Company acquired all of the shares of Flashstock Technology, Inc.

(“Flashstock”) pursuant to a stock purchase agreement.

The 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 commencing from the acquisition date.

Flashstock is a Toronto-based company that enables the creation of custom content through a propriety software platform.

The Company believes this acquisition will strengthen its strategic position and facilitate a comprehensive custom content offering in the market.

The fair value of consideration transferred in this business combination was allocated to the intangible and tangible assets acquired and liabilities assumed at the acquisition date, with the remaining unallocated amount recorded as goodwill.

The Company considered the intangible assets acquired in the transaction, and determined customer relationships and acquired developed technology meet the separability criteria.

The total purchase price was $ 51.7 million of which $ 50.9 million was paid with existing cash on hand during the year ended December 31, 2017, and $ 0.8 million which was paid in the first quarter of 2018 for the settlement of working capital adjustments.

The unpaid portion of the purchase price was included in accrued expenses as of December 31, 2017.

The aggregate purchase price was allocated to the assets acquired and liabilities assumed as follows (in thousands):

Cash and cash equivalents

Accounts receivable

Prepaid expenses and other current assets

Intangible Assets:

Customer relationships

Developed technology

Total assets acquired

Accrued expenses

Accounts payable

Deferred tax liability, net

Deferred revenue

Total liabilities acquired

Net assets acquired

Fair value adjustments relating to this acquisition were finalized as of December 31, 2017, which were within the allowable measurement period.

The identifiable intangible assets have a weighted average life of approximately seven years and 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 developed technology was determined using the relief-from-royalty method.

The goodwill arising from the transaction is primarily attributable to assembled workforce, future growth opportunities in the custom content market, potential economies of scale arising from the combined entity’s ability to leverage the Company’s existing global sales and marketing reach, and potential synergies arising from the addition of custom content offerings for the Company’s existing customer base.

Approximately 26 % of goodwill will be deductible for income tax purposes.

In connection with the acquisition, the Company recorded approximately $ 0.8 million of professional fees in the year ended December 31, 2017.

The professional fees are included in general and administrative expense in the Statement of Operations.

The Company has performance-based bonus arrangements with certain Flashstock employees who are now employees of Shutterstock.

These employees are entitled to additional compensation if:

(i) the custom content business achieves certain financial targets for the 2019 calendar year and (ii) the individual is employed by Shutterstock as of December 31, 2019.

Expense recorded related to these performance-based bonuses amounted to $ 3.4 million , $ 3.1 million and $ 1.3 million for the years ended December 31, 2019 , 2018 and 2017 , respectively.

These items are reported as period expenses within general and administrative expenses in the Consolidated Statements of Operations and are expected to be paid in 2020.

These expenses are not considered part of the Flashstock purchase price.

The Preferred Shares are not deemed to be in-substance common stock and are accounted for using the measurement alternative for equity investments with no readily determinable fair value.

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Other Equity Investments

In 2020, the Company invested $ 5.0 million in preferred shares of an entity with a creative production and analytics platform.

These preferred shares do not have a readily determinable fair value, and give the Company less than a 2 % fully diluted ownership interest.

Long-term Lending Facility and Note Receivable

In 2016, as amended in 2017, the Company entered into a multi-part investment with SilverHub Media Limited (“SHM”), an unrelated third-party contributor, which resulted in the Company investing $ 5.9 million into SHM.

During 2018, the Company determined that its investment in SHM experienced an other-than-temporary impairment and therefore, the Company recorded a $ 5.9 million impairment charge in order to reduce the fair value of the Company’s investment in SHM to zero .

This charge was recorded in Other income / (expense), net in the Consolidated Statements of Operations.

(3) Sale of Webdam

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On February 26, 2018, the Company completed the Sale of Webdam for an aggregate purchase price of $ 49.1 million.

Total cash received, net of $ 4.6 million transaction costs paid, was $ 44.3 million , inclusive of $ 2.5 million received during the year ended December 31, 2019 , from the release of funds from escrow.

Total cash received, net of $ 4.6 million transaction costs paid, was $ 44.3 million, inclusive of $ 2.5 million received during the year ended December 31, 2019, from the release of escrowed funds.

During 2018, the Company recognized a pre-tax gain on sale of approximately $ 38.6 million, which represents the excess of the net purchase price over the net assets transferred, less transaction costs.

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The portion of total depreciation expense related to capitalized internal-use software was $ 28.9 million, $ 30.3 million and $ 24.9 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Depreciation expense related to capitalized internal-use software is included in cost of revenue and general and administrative expense based on the nature of the asset.

As of December 31, 2019 and 2018 , the Company had capitalized internal-use software of $ 41.8 million and $ 48.5 million , respectively, net of accumulated depreciation, which was included in property and equipment, net.

(6) Goodwill and Intangible Assets

In 2018, the Company’s goodwill balance was allocated to four reporting units:

Bigstock, Editorial, Images and Music.

During the second quarter of 2019, due to changes in the Company’s reporting structure and the achievement of key milestones in the continued integration of the Company’s operations and technology platform, management changed the way it monitors the business and concluded that the Company operates with a single reporting unit.

As a result of the change in reporting units, in the second quarter of 2019, the Company evaluated its goodwill for impairment immediately prior and subsequent to the change in reporting units.

The evaluation utilized a qualitative assessment of its Bigstock, Images and Music reporting units to determine whether a quantitative assessment was necessary and determined

Depreciation expense related to capitalized internal-use software is included in cost of revenue in the Consolidated Statement of Operations.

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

there were no indicators of potential impairment.

For its Editorial reporting unit, which represented approximately $ 12.9 million of the goodwill balance at the assessment date, management performed a quantitative goodwill impairment assessment which included a discounted cash flow analysis and incorporated various estimates and assumptions.

The most significant of these assumptions were projected revenue growth rates, future royalty rates, a discount rate of 14.5 % and a terminal growth rate of 3 % .

These estimates were based on the Company’s historical experience and projections of future activity, factoring in customer demand and a cost structure necessary to achieve related revenue.

Management concluded that, at the time of the change in reporting units, no adjustment to the carrying value of the goodwill balance was necessary, and the aggregate goodwill for the legacy reporting units was assigned to the single content business reporting unit.

The following table summarizes the changes in the Company’s goodwill balance by reportable and non-reportable segments for the year ended December 31, 2019 (in thousands):

As of December 31, 2020 and 2019, the Company had capitalized internal-use software of $ 38.0 million and $ 41.8 million, respectively, net of accumulated depreciation, which was included in property and equipment, net.

(5) Goodwill and Intangible Assets

The following table summarizes the changes in the Company’s goodwill balance for the year ended December 31, 2020 (in thousands):

Balance as of December 31, 2019 $ 88,974

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Balance as of December 31, 2020 $ 89,413

In 2020, the Company’s goodwill balance was allocated to a single reporting unit.

The Company performed its annual goodwill assessment as of October 1, 2020 and concluded that the fair value of its reporting unit was greater than its carrying amount, and therefore, no adjustment to the carrying value of goodwill was necessary.

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Intangible assets, all of which are subject to amortization, consist of the following as of December 31, 2020 and 2019 (in thousands):

As of December 31, 2019

As of December 31, 2018

As of December 31, 2020 As of December 31, 2019

Amount Accumulated

Amortization Net

Amount Weighted

(Years) Gross

Amount Accumulated

Amortization Net

Customer relationships $ 18,132 $ ( 11,032 ) $ 7,100 9 $ 17,729 $ ( 9,294 ) $ 8,435

Trade name 6,669 ( 6,328 ) 341 7 6,517 ( 5,941 ) 576

Developed technology 6,930 ( 5,039 ) 1,891 4 4,841 ( 4,226 ) 615

Contributor content 26,669 ( 10,378 ) 16,291 9 23,510 ( 6,626 ) 16,884

Patents 259 ( 117 ) 142 18 259 ( 100 ) 159

Total $ 58,659 $ ( 32,894 ) $ 25,765 $ 52,856 $ ( 26,187 ) $ 26,669

Amortization expense related to the intangible assets was $ 5.8 million, $ 7.0 million and $ 5.5 million for the years ended December 31, 2020, 2019 and 2018, respectively.

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Accrued expenses consisted of the following (in thousands):

Compensation $ 31,499 $ 20,776

Non-income taxes 17,164 15,332

Royalty tax withholdings

Website hosting and marketing fees 9,991 8,657

Other expenses 9,255 9,099

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(7) Stockholders’ Equity

On August 1, 2018, the Company’s Board of Directors declared a special cash dividend of $ 3.00 per share (the “Special Dividend”), which was paid on August 29, 2018 to stockholders of record at the close of business on August 15, 2018.

The aggregate payment made in connection with the Special Dividend was $ 104.9 million .

In connection with the Special Dividend, and in accordance with the terms of the Company’s Amended and Restated 2012 Omnibus Equity Incentive Plan (the “2012 Plan”), the Company adjusted outstanding equity awards in order to prevent dilution of such awards.

Accordingly, the Company prevented dilution from the impact of the Special Dividend by adjusting the number of outstanding unvested RSUs and outstanding stock options, as well as the exercise price of such outstanding stock options, using a conversion ratio of 1.055 , which was determined using a ratio of the closing and opening stock price of the Company’s common stock immediately prior to, and on, the ex-dividend date (the “Special Dividend Adjustment”).

On February 11, 2020 , the Company’s Board of Directors declared a quarterly cash dividend of $ 0.17 per share of outstanding common stock payable on March 19, 2020 to stockholders of record at the close of business on March 5, 2020 .

The Company currently expects to continue to pay comparable cash dividends on a quarterly basis in the future.

Future declaration of dividends are subject to the final determination of the Board of Directors, and will be based on 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.

The holders of common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders.

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In certain circumstances, an issuance of preferred stock could have the effect of decreasing the market price of the common stock.

As of December 31, 2019 , the Company has not issued and has no plans to issue any shares of preferred stock.

As of December 31, 2020, the Company has no t issued and has no plans to issue any shares of preferred stock.

Treasury Stock

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As of December 31, 2020, there is $ 100 million of remaining authorization for purchases under the share repurchase program.

During 2019 , the Company did not repurchase any shares under the share repurchase program.

During 2020, the Company did no t repurchase any shares under the share repurchase program.

The Company expects to fund repurchases through a combination of cash on hand, cash generated by operations and future financing transactions, if appropriate.

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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.

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Stock Offering

On August 14, 2020, the Company completed an offering (the “Stock Offering”), whereby 2,580,000 shares of its common stock were sold to the public at a price to the public of $ 48.50 per share.

The Company sold 516,000 shares of common stock in the Stock Offering and the Company’s Founder and Executive Chairman of the Board sold 2,064,000 shares of common stock in the Stock Offering.

The Company received net proceeds from the shares it sold, after deducting underwriting discounts and commissions and offering expenses payable by the Company, of approximately $ 23.2 million.

The Company did not receive any proceeds from the shares sold by the Company’s Founder and Executive Chairman of the Board.

On February 11, 2020, the Board of Directors approved the initiation of a quarterly cash dividend.

The Company declared and paid cash dividends totaling $ 0.68 per share of common stock, or $ 24.4 million, during the year ended December 31, 2020.

On January 12, 2021, the Company’s Board of Directors declared a quarterly cash dividend of $ 0.21 per share of outstanding common stock payable on March 18, 2021 to stockholders of record at the close of business on March 4, 2021.

Future declaration of dividends are subject to the final determination of the Board of Directors, and will depend on, among other things, the Company’s future financial condition, results of operations, capital requirements, capital expenditure requirements, contractual restrictions, anticipated cash needs, business prospects, provisions of applicable law and other factors the Board of Directors may deem relevant.

The aggregate payment made in connection with the Special Dividend was $ 104.9 million.

The Company distributes its content offerings through two primary channels:

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See Note 3 for further information on the Sale of Webdam.

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table summarizes the Company’s revenue by distribution channel for the years ended December 31, 2020, 2019 and 2018 (in thousands):

Year Ended December 31,

2020 2019 2018

E-commerce $ 412,521 $ 392,241 $ 365,730

Enterprise 254,165 258,282 254,809

Total Revenues $ 666,686 $ 650,523 $ 623,250

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2018 amounts include revenue earned during the period from January 1, 2018 through February 26, 2018.

(2) As previously discussed in Note 1, the Company adopted ASU 2014-09 effective January 1, 2018 using the modified retrospective approach.

Historical revenue amounts reflect those previously reported and have not been restated.

The December 31, 2020 deferred revenue balance will be earned as content is downloaded or upon the expiration of subscription-based products, and nearly all is expected to be earned within the next twelve months.

4 unchanged sentences

Year Ended December 31,

2020 2019 2018

Cost of revenue $ 430 $ 220 $ 523

2 unchanged sentences

General and administrative 21,498 15,924 15,313

Total $ 28,309 $ 22,815 $ 23,869

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table summarizes non-cash equity-based compensation expense, net of forfeitures, by award type included in the Company’s Consolidated Statements of Operations for the years ended December 31, 2020, 2019 and 2018 (in thousands):

Year Ended December 31,

2020 2019 2018

Stock options $ 2,088 $ 5,721 $ 6,009

Restricted stock units

RSUs 26,221 17,094 17,860

Total $ 28,309 $ 22,815 $ 23,869

2012 Omnibus Equity Incentive Plan

7 unchanged sentences

The following is a summary of stock option awards and weighted average exercise price per option:

Weighted Average

Options Weighted Average

Exercise Price

12 unchanged sentences

The intrinsic value of stock options exercised for the years ended December 31, 2020, 2019 and 2018 was approximately $ 0.5 million, $ 1.1 million and $ 2.0 million, respectively.

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following weighted average assumptions were used in the fair value calculation for the years ended December 31, 2020, 2019 and 2018:

Year Ended Year Ended December 31,

Year Ended December 31,

2020 2019 2018

Expected term (in years) 6.0 6.3 6.3

Volatility 43.8 % 45.4 % 47.8 %

Risk-free interest rate 1.73 % 1.83 % 2.63 %

2 unchanged sentences

Weighted average fair value per share granted $ 18.86 $ 18.05 $ 23.64

On April 24, 2014, the Company granted 500,000 stock options with a market-based condition to its Chief Executive Officer (“CEO”).

The stock options have an exercise price of $ 80.94 per share and will not vest or become exercisable unless (i) the CEO remains continuously employed by the Company until the fifth anniversary of the date of grant and (ii) the average 90-day closing price of the Company’s common stock equals or exceeds $ 161.88 per share for any 90 consecutive calendar days during the period commencing on the fifth anniversary of the date of grant and ending on the tenth anniversary of the date of grant, inclusive provided that the CEO remains continuously employed by the Company until the date of satisfaction of such condition.

On April 24, 2014, the Company granted 500,000 stock options with a market-based condition to its Founder and Executive Chairman.

The stock options have an exercise price of $ 80.94 per share and will not vest or become exercisable unless (i) the Founder and Executive Chairman remains continuously employed by the Company until the fifth anniversary of the date of grant and (ii) the average 90-day closing price of the Company’s common stock equals or exceeds $ 161.88 per share for any 90 consecutive calendar days during the period commencing on the fifth anniversary of the date of grant and ending on the tenth anniversary of the date of grant, inclusive provided that the Founder and Executive Chairman remains continuously employed by the Company until the date of satisfaction of such condition.

The derived requisite service period was determined to be six years based on a valuation technique.

5 unchanged sentences

Restricted Stock Units Awards (including PRSUs)

On March 26, 2019, the Compensation Committee of the Board of Directors (the “Compensation Committee”) of the Company approved a PRSU under the 2012 Plan.

On April 1, 2019, the Company awarded approximately 202,000 PRSUs, each with a grant date fair value of $ 46.69 and corresponding to one target share, to certain of the Company’s officers.

The number of shares that may eventually vest will be between 0 % and 150 % of a recipient’s target shares, depending on both the recipient’s continued service with the Company and the extent to which performance goals will have been achieved.

The following table presents a summary of the Company’s RSUs activity (including PRSUs) for the year ended December 31, 2019 :

Weighted Average

The following table presents a summary of the Company’s RSUs activity for the year ended December 31, 2020:

RSUs Weighted Average

Non-vested balance at December 31, 2019 1,113,679 $ 45.03

Units granted 900,422 36.42

Units vested ( 317,240 ) 43.84

Units canceled or forfeited ( 288,838 ) 40.50

1 unchanged sentence

Non-vested and deferred balance at December 31, 2020 1,452,245 $ 40.94

On April 24, 2014, the Company granted 100,000 restricted stock units with a market-based condition to its CEO.

On April 24, 2014, the Company granted 100,000 restricted stock units with a market-based condition to its Founder and Executive Chairman.

The restricted stock units will vest only if (i) the reporting person remains continuously employed by the Company until the fifth anniversary of the date of grant and (ii) the average 90-day closing price of the Company's common stock equals or exceeds $ 161.88 for any 90 consecutive calendar days during the period commencing on the fifth anniversary of the date of grant and ending on the tenth anniversary of the date of grant, inclusive;

2 unchanged sentences

The total fair value of the grant is $ 5.8 million and is being recognized over the derived requisite service period.

In the event that the market condition remains unsatisfied upon completion of the requisite

service period, no charge will be reversed.

In the event that the market condition remains unsatisfied upon completion

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

of the requisite service period, no charge will be reversed.

In conjunction with the Special Dividend Adjustment, the Company adjusted the number of restricted stock units to approximately 105,000 from 100,000 , pursuant to the anti-dilution provisions of the 2012 Plan.

4 unchanged sentences

Year Ended December 31,

2020 2019 2018

Foreign currency gain / (loss) $ 3,067 $ 540 $ ( 1,807 )

5 unchanged sentences

Year Ended December 31,

2020 2019 2018

Domestic $ 83,255 $ 25,549 $ 68,596

Foreign 6,268 ( 633 ) ( 2,483 )

Income before income taxes $ 89,523 $ 24,916 $ 66,113

1 unchanged sentence

Year Ended December 31,

Current provision (benefit):

2020 2019 2018

Current provision:

Federal $ 11,287 $ 2,824 $ 7,670

State and local 2,294 1,127 4,800

Foreign 3,158 2,882 5,226

Deferred provision (benefit):

Federal ( 1,147 ) ( 2,337 ) ( 2,901 )

State and local 149 ( 52 ) ( 164 )

Foreign 2,016 364 ( 3,205 )

Provision for income taxes $ 17,757 $ 4,808 $ 11,426

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The provision for income taxes differs from statutory income tax rate as follows:

Year Ended December 31,

2020 2019 2018

income tax at federal statutory rate 21.0 % 21.0 % 21.0 %

Tax credits ( 1.7 ) ( 12.6 ) ( 5.4 )

State and local taxes, net of federal benefit 1.5 1.7 1.9

5 unchanged sentences

Transition tax related to TCJA — — ( 0.3 )

Federal rate change related to TCJA

Domestic production activities deduction

Non-deductible—other 0.2 2.6 0.1

Total provision for income taxes 19.8 % 19.3 % 17.3 %

On December 22, 2017, the U.S.

enacted the TCJA, which lowered the Company’s U.S.

statutory federal income tax rate from 35% to 21% effective January 1, 2018, while also imposing a one-time “transition tax” on undistributed earnings of foreign subsidiaries.

The Company’s effective tax rate for the year ended December 31, 2017 includes an expense of $ 3.7 million related to the impact of remeasuring the Company’s deferred tax balances to reflect the new tax rate and an expense of $ 0.8 million for the transition tax.

The tax effect of the Company’s temporary differences that give rise to deferred tax assets and liabilities are presented below (in thousands):

4 unchanged sentences

Lease liabilities 10,995 12,645

Deferred rent

Other liabilities 5,804 6,508

6 unchanged sentences

Net deferred tax assets $ 13,566 $ 14,387

The non-cash equity-based compensation for the Company includes a deferred tax asset of $ 5.9 million associated with the performance-based grant of stock options and restricted stock units to the Company’s Chief Executive Officer.

The non-cash equity-based compensation for the Company includes a deferred tax asset of $ 6.2 million associated with the performance-based grant of stock options and restricted stock units to the Company’s Founder and Executive Chairman.

In addition, the $ 1.9 million valuation allowance relates to certain foreign net operating loss carryforwards, where the Company has determined that there is sufficient uncertainty regarding the future realization of these net operating losses.

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table summarizes changes to the Company’s unrecognized tax benefits as follows (in thousands):

Year Ended December 31,

2020 2019 2018

Balance of unrecognized tax benefits at January 1 $ 8,949 $ 5,846 $ 2,966

1 unchanged sentence

Gross additions for tax positions for current year 724 3,842 3,476

Gross reductions for tax positions of prior years ( 81 ) — —

Gross expirations — ( 912 ) ( 928 )

Balance of unrecognized tax benefits at December 31 $ 9,592 $ 8,949 $ 5,846

The total amount of gross unrecognized tax benefits as of December 31, 2019 , was $ 8.5 million , which, if recognized, would impact the Company’s effective tax rate in future periods.

The liability for unrecognized tax benefits is included in other non-current liabilities on the Consolidated Balance Sheets.

The total amount of unrecognized tax benefits as of December 31, 2020, was $ 8.7 million, which, if recognized, would impact the Company’s effective tax rate in future periods.

Unrecognized tax benefits is included within prepaid expenses and other current assets and other non-current liabilities on the Consolidated Balance Sheets.

The Company recognizes interest expense and tax penalties related to unrecognized tax benefits as a component of income tax expense in the Consolidated Statements of Operations.

3 unchanged sentences

The Company is currently under examination by the U.S.

Internal Revenue Service for tax year 2017, the German Tax Office for years 2013 - 2015, New York City for years 2015 - 2017 and Illinois for years 2015 and 2016.

Internal Revenue Service for tax year 2017 and 2018, Wisconsin for years 2015 - 2018 and New York State for years 2016 - 2018.

The Company is no longer subject to U.S.

federal tax examinations for years before 2016, or state and local tax examinations by tax authorities for years before 2015.

The Company anticipates that the total unrecognized tax benefits to reverse in the next fiscal year will not be material.

The Company has determined that it is reasonably possible that there will be a reversal of unrecognized tax benefits by as much as $ 1.6 million in the next fiscal year due to the expected resolution of prior year tax matters.

As of December 31, 2020, the Company has $ 16.5 million in tax net operating loss carryforwards in foreign tax jurisdictions which are available to reduce future income taxes and the majority of this amount relates to jurisdictions with an indefinite carryforward period.

4 unchanged sentences

An estimate of the associated unrecognized deferred tax liability related to these undistributed earnings is not material.

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(12) Net Income Per Share

3 unchanged sentences

Year Ended December 31,

2020 2019 2018

Net income $ 71,766 $ 20,108 $ 54,687

Shares used to compute basic net income per share 35,844 35,285 34,935

9 unchanged sentences

Segment Financial Information

The following table summarizes segment information for the years ended December 31, 2019 , 2018 and 2017 (in thousands):

Other and Corporate

December 31, 2019

Operating Expenses (2)

Income from Operations

December 31, 2018

Operating Expenses (2)

Income from Operations

December 31, 2017

Operating Expenses (2)

Income from Operations

Effective January 1, 2018 the Company adopted ASU 2014-09 using the modified retrospective approach.

Historical revenue totals reflect those previously reported and have not been restated.

Other and corporate operating expenses include unallocated corporate expenses of approximately $ 113.2 million , $ 97.8 million and $ 96.5 million for the years ended December 31, 2019 , 2018 , and 2017 , respectively.

Unallocated corporate expenses primarily relate to shared operational support functions and general and administrative functions of human resources, legal, finance and information technology.

As of December 31, 2020, 2019 and 2018, the Company identified one operating and reportable segment for purposes of allocating resources and evaluating financial performance.

Prior to the Sale of Webdam on February 26, 2018, the Company also identified a non-reportable segment which was classified in the Other Category, included the Company’s digital asset management operating segment and failed to meet the quantitative or qualitative thresholds for separate segment reporting.

During the year ended December 31, 2018, which includes the period from January 1 through February 26, 2018, prior to the Sale of Webdam, Revenue, Operating Expenses and Income from Operations related to the Company’s reportable content segment were $ 620.5 million, $ 491.0 million and $ 129.6 million, respectively.

Revenue, Operating Expense and Loss from Operations related to Other and Corporate category were $ 2.7 million, $ 99.8 million and $ 97.1 million, respectively.

Other and corporate operating expenses include unallocated corporate expenses of $ 97.8 million for the year ended December 31, 2018 and primarily relate to shared operational support functions and general and administrative functions of human resources, legal, finance and information technology.

Asset information on a segment basis is not disclosed as this information is not separately identified or internally reported to the Company’s CODM.

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Geographic Financial Information

1 unchanged sentence

Year Ended December 31,

2020 2019 2018

North America $ 236,599 $ 228,185 $ 230,890

Europe 220,665 217,397 207,634

Rest of the world 209,422 204,941 184,726

5 unchanged sentences

North America $ 43,451 $ 51,954

Europe 7,192 6,541

Rest of world 263 339

13 unchanged sentences

Total lease liabilities $ 50,717 $ 56,886

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Lease Commitments

Future undiscounted lease payments for the Company’s operating lease liabilities and a reconciliation of these payments to its lease liabilities at December 31, 2020 are as follows (in thousands):

Reconciliation of future undiscounted lease payments to lease liabilities

Lease Commitments

Reconciliation of future undiscounted lease payments to lease liabilities Lease Commitments

Year ending December 31,

Thereafter 25,651

Total undiscounted lease payments 64,317

3 unchanged sentences

As amended, the ESB Lease will expire in 2029, and the undiscounted remaining future minimum lease payments are approximately $ 56.3 million.

The Company is also party to a $ 2.6 million letter of credit, as a security deposit for the ESB Lease, which is collateralized by an equivalent amount of cash, and is reported as restricted cash within other assets on the Consolidated Balance Sheets as of December 31, 2019 and 2018 .

Fiscal year 2018 lease commitments in accordance with prior guidance

Future minimum lease payments under non-cancelable operating leases as of December 31, 2018 were as follows (in thousands):

Year Ending December 31,

Total minimum lease payments

The Company is also party to a letter of credit as a security deposit for this leased facility, which was reduced from $ 2.6 million to $ 1.7 million in February 2020.

As of March 31, 2020, the Company is no longer required to provide cash collateral for its letter of credit, and, accordingly, these funds are no longer restricted.

(15) Commitments and Contingencies

1 unchanged sentence

As of December 31, 2020, the Company’s other unconditional cash obligations, consisting primarily of unconditional purchase obligations related to contracts for cloud-based services, infrastructure and other business services as well as minimum royalty guarantees in connection with certain content licenses, are as follows:

Year Ending December 31,

Other Obligations

Year Ending December 31, Other Obligations

2021 $ 26,524

Total non-lease unconditional obligations $ 38,637

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Legal Matters

17 unchanged sentences

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.

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(16) Unaudited Quarterly Financial Data

2 unchanged sentences

Three Months Ended

Dec 31, 2020 Sep 30, 2020 Jun 30, 2020 Mar 31, 2020 Dec 31, 2019 Sep 30, 2019 Jun 30, 2019 Mar 31, 2019

(in thousands, except per share data)

7 unchanged sentences

Income from operations 27,593 29,347 22,545 5,781 5,803 3,183 3,070 8,099

Gain on Sale of Webdam

Other income / (expense), net (2)

Income / (Loss) before income taxes

4,763 ( 1,168 ) 149 513 2,816 465 584 896

Income before income taxes 32,356 28,179 22,694 6,294 8,619 3,648 3,654 8,995

Provision / (Benefit) for income tax 6,477 5,597 3,707 1,976 4,266 ( 1,286 ) 355 1,473

Net income $ 25,879 $ 22,582 $ 18,987 $ 4,318 $ 4,353 $ 4,934 $ 3,299 $ 7,522

Net income per common share:

Basic $ 0.71 $ 0.63 $ 0.53 $ 0.12 $ 0.12 $ 0.14 $ 0.09 $ 0.21

Diluted $ 0.70 $ 0.62 $ 0.53 $ 0.12 $ 0.12 $ 0.14 $ 0.09 $ 0.21

Weighted average common shares outstanding:

Basic 36,234 35,962 35,652 35,521 35,478 35,309 35,232 35,114

Diluted 37,183 36,494 35,906 35,882 35,786 35,541 35,504 35,491

____________________________________________________________________________

The Company has recorded certain immaterial adjustments to its unaudited consolidated financial statements for the correction of errors related to prior periods, as follows:

(i) During the third quarter of 2018, to decrease enterprise revenue by approximately $ 0.8 million ;

and (ii) During the second quarter of 2018 to increase enterprise revenue by approximately $ 0.4 million and to increase general and administrative expense by approximately $ 0.8 million .

The Company has concluded that the impact of the adjustments recorded during 2018 but related to prior years is not material to the results of operations or financial position for the periods in which these adjustments were recorded nor any prior period financial statements.

Effective January 1, 2018 the Company adopted ASU 2014-09 using the modified retrospective approach.

Historical revenue totals reflect those previously reported and have not been restated.

(1) Includes non-cash equity-based compensation of $ 28,309 and $ 22,815 for the years ended December 31, 2020 and 2019, respectively.

Includes charges related to the impairment of a long-term investment asset;

transaction gains and losses primarily related to cash balances of subsidiaries denominated in a currency other than the subsidiaries’ functional currencies;

(2) Includes transaction gains and losses primarily related to cash balances of subsidiaries denominated in a currency other than the subsidiaries’ functional currencies;

and interest income and expense, which is not material in any period presented.

Included in the provision for income taxes for the three months ended December 31, 2017 is approximately $ 3.7 million of non-cash charges related to a remeasurement of deferred tax assets related to the change in U.S.

tax rates from 35% to 21% and approximately 0.8 million of cash charges related to a one-time U.S.

cash tax for unrepatriated foreign earnings related to the TCJA.

(17) Subsequent Events

On February 1, 2021, the Company completed its acquisition of all of the outstanding shares of TurboSquid, Inc.

(“TurboSquid”), a company that offers a marketplace for 3D models, for approximately $ 75 million, subject to customary working capital and other adjustments, paid from existing cash on hand.

The purchase accounting is not complete due to the timing of the availability of information.

The Company is currently evaluating the fair values of the consideration transferred, assets acquired and liabilities assumed and expects to complete its initial purchase price allocation in the first quarter of 2021.

EXHIBIT INDEX

Incorporated by Reference

Exhibit Description

Number Incorporated by Reference

Exhibit Description Form File No.

Exhibit Filing Date

2.1 Agreement and Plan of Merger, dated as of October 5, 2012, between the Registrant and Shutterstock Images LLC.

October 5, 2012

S-1/A 333-181376 2.1 October 5, 2012

2.2 Agreement and Plan of Merger, dated as of October 5, 2012, among the Registrant, Shutterstock Investors II, Inc., Insight Venture Partners (Cayman) V, L.P., Shutterstock Investors III, Inc.

and Insight Venture Partners V Coinvestment Fund, L.P.

October 5, 2012

S-1/A 333-181376 2.2 October 5, 2012

3.1 Amended and Restated Certificate of Incorporation of the Registrant, as currently in effect.

June 29, 2012

S-1/A 333-181376 3.2 June 29, 2012

3.2 Amended and Restated Bylaws of the Registrant, as currently in effect.

September 27, 2012

S-1/A 333-181376 3.4 September 27, 2012

4.1 Specimen Stock Certificate of the Registrant

S-3ASR 333-243706 4.1 August 10, 2020

4.2 § Description of the Registrant’s Securities

10-K 001-35669 4.1 February 13, 2020

10.1 § Form of Indemnification Agreement between the Registrant and each of its Officers and Directors.

August 30, 2012

S-1/A 333-181376 10.1 August 30, 2012

10.2 § 2012 Omnibus Equity Incentive Plan and Form of Award Agreements.

February 27, 2015

10-K 001-35669 10.2 February 27, 2015

10.3 § 2012 Employee Stock Purchase Plan and Form of Subscription Agreement.

June 29, 2012

S-1/A 333-181376 10.3 June 29, 2012

10.4 § Shutterstock, Inc.

Short-Term Incentive Plan.

August 30, 2012

Employment Agreement between Shutterstock Images LLC and Jonathan Oringer dated September 24, 2012.

September 27, 2012

Severance and Change in Control Agreement between Shutterstock Images LLC and Jonathan Oringer dated September 24, 2012.

September 27, 2012

Summary of Compensatory Arrangements with Jonathan Oringer, dated April 24, 2014.

April 28, 2014

Amendment to Employment Agreement, dated February 11, 2020, by and between Jon Oringer and Shutterstock, Inc.

Amendment to Severance and Change in Control Agreement, dated February 11, 2020, by and between Jon Oringer and Shutterstock, Inc.

Employment Agreement by and between Shutterstock, Inc.

and Steven Berns dated August 5, 2015.

August 6, 2015

Amendment to Employment Agreement by and between Shutterstock, Inc.

and Steven Berns, effective March 1, 2017.

February 27, 2017

Separation Agreement and General Release, dated June 22, 2019, between Shutterstock, Inc.

and Steven Berns

S-1/A 333-181376 10.7 August 30, 2012

10.5(a) § Employment Agreement between Shutterstock Images LLC and Jonathan Oringer dated September 24, 2012.

S-1/A 333-181376 10.8(a) September 27, 2012

10.5(b) § Severance and Change in Control Agreement between Shutterstock Images LLC and Jonathan Oringer dated September 24, 2012.

S-1/A 333-181376 10.8(b) September 27, 2012

10.5(c) § Summary of Compensatory Arrangements with Jonathan Oringer, dated April 24, 2014.

8-K 001-35669 N/A April 28, 2014

10.5(d) § Amendment to Employment Agreement, dated February 11, 2020, by and between Jon Oringer and Shutterstock, Inc.

10-K 001-35669 10.5(d) February 13, 2020

10.5(e) § Amendment to Severance and Change in Control Agreement, dated February 11, 2020, by and between Jon Oringer and Shutterstock, Inc.

10-K 001-35669 10.5(e) February 13, 2020

10.6 Lease Agreement, between Shutterstock, Inc.

and Empire State Building Company LLC, dated March 21, 2013.

10-Q 001-35669 10.1 May 10, 2013

10.7 First Lease Modification Agreement, by and between Shutterstock, Inc.

and ESRT Empire State Building, L.L.C., dated August 31, 2015.

November 6, 2015

10-Q 001-35669 10.3 November 6, 2015

10.8 Second Lease Modification and Extension Agreement, by and between Shutterstock, Inc.

and ESRT Empire State Building, L.L.C., dated January 8, 2016.

January 13, 2016

8-K 001-35669 10.1 January 13, 2016

10.9 Third Lease Modification Agreement, dated July 19, 2016, by and between Shutterstock, Inc.

and ESRT Empire State Building, L.L.C.

August 4, 2016

10-Q 001-35669 10.1 August 4, 2016

10.10 § Shutterstock, Inc.

Director Compensation Policy

February 26, 2019

10-K 001-35669 10.1 February 26, 2019

10.11 § Shutterstock, Inc.

Form of 2012 Omnibus Equity Incentive Plan Restricted Stock Unit Award Agreement

10-Q 001-35669 10.5 May 4, 2016

10.12 § Shutterstock, Inc.

Form of 2012 Omnibus Equity Incentive Plan Restricted Stock Unit Award Agreement for Canadian Employees

10-Q 001-35669 10.6 May 4, 2016

10.13 § Shutterstock, Inc.

Form of 2012 Omnibus Equity Incentive Plan Deferred Restricted Stock Unit Award Agreement

10-Q 001-35669 10.7 May 4, 2016

10.14 § Shutterstock, Inc.

Amended and Restated 2012 Omnibus Equity Incentive Plan

August 4, 2016

10-Q 001-35669 10.4 August 4, 2016

10.15 § Shutterstock, Inc.

2012 Amended and Restated Omnibus Equity Incentive Plan Restricted Stock Unit Award Agreement, as amended September 15, 2016

November 4, 2016

10-Q 001-35669 10.1 November 4, 2016

10.16 § Shutterstock, Inc.

2012 Amended and Restated Omnibus Equity Incentive Plan Restricted Stock Unit Award Agreement for Canadian Employees, as amended September 15, 2016

November 4, 2016

10-Q 001-35669 10.2 November 4, 2016

10.17 § Shutterstock, Inc.

2012 Amended and Restated Omnibus Equity Incentive Plan Deferred Restricted Stock Unit Award Agreement, as amended September 15, 2016

November 4, 2016

10-Q 001-35669 10.3 November 4, 2016

10.18 § Shutterstock, Inc.

2012 Amended and Restated Omnibus Equity Incentive Plan Performance Stock Unit Award Agreement

March 27, 2019

Incorporated by Reference

Exhibit Description

Employment Agreement, dated August 5, 2019, by and between the Company and Steven Ciardiello

August 6, 2019

Amendment to Employment Agreement, dated November 5, 2019, by and between the Company and Steven Ciardiello

November 5, 2019

8-K 001-35669 10.1 February 11, 2020

Number Incorporated by Reference

Exhibit Description Form File No.

Exhibit Filing Date

10.19(a) § Employment Agreement, dated August 5, 2019, by and between the Company and Steven Ciardiello

8-K 001-35669 10.1 August 6, 2019

10.19(b) § Amendment to Employment Agreement, dated November 5, 2019, by and between the Company and Steven Ciardiello

10-Q 001-35669 10.4 November 5, 2019

10.20 § Employment Agreement, dated December 7, 2016 between the Company and Martin Brodbeck

April 26, 2018

Amended and Restated Employment Agreement, dated November 5, 2019, by and between the Company and Lisa Nadler

November 5, 2019

Amended and Restated Employment Agreement, dated November 5, 2019, by and between the Company and Louis Weiss

November 5, 2019

Employment Agreement, dated March 13, 2019, by and between the Company and Stan Pavlovsky

April 25, 2019

Amendment to Employment Agreement, dated November 5, 2019, by and between the Company and Stan Pavlovsky

November 5, 2019

Second Amendment to Employment Agreement, dated February 11, 2020, by and between Stan Pavlovsky and Shutterstock, Inc.

10-Q 001-35669 10.1 April 26, 2018

10.21(a) § Amended and Restated Employment Agreement, dated November 5, 2019, by and between the Company and Lisa Nadler

10-Q 001-35669 10.2 November 5, 2019

10.21(b) § Mutual Separation Agreement and General Release, dated February 25, 2020, between the Company and Lisa Nadler

10-Q 001-35669 10.1 April 28, 2020

10.22(a) § Amended and Restated Employment Agreement, dated November 5, 2019, by and between the Company and Louis Weiss

10-Q 001-35669 10.3 November 5, 2019

10.22(b) § Separation Agreement and General Release, dated March 23, 2020, by and between Lou Weiss and Shutterstock, Inc.

8-K 001-35669 10.1 April 15, 2020

10.23(a) § Employment Agreement, dated March 13, 2019, by and between the Company and Stan Pavlovsky

10-Q 001-35669 10.1 April 25, 2019

10.23(b) § Amendment to Employment Agreement, dated November 5, 2019, by and between the Company and Stan Pavlovsky

10-Q 001-35669 10.1 November 5, 2019

10.23(c) § Second Amendment to Employment Agreement, dated February 11, 2020, by and between Stan Pavlovsky and Shutterstock, Inc.

10-K 001-35669 10.25(c) February 13, 2020

10.24 § Employment Agreement, dated November 7, 2019, by and between the Company and Jarrod Yahes

November 18, 2019

8-K 001-35669 10.1 November 18, 2019

10.25 § Employment Agreement, dated November 4, 2019, between the Company and Pietro Silvio

10-Q 001-35669 10.2 July 28, 2020

21.1 ** List of Subsidiaries.

5 unchanged sentences

Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

XBRL Instance Document.

XBRL Taxonomy Extension Schema Document.

XBRL Taxonomy Extension Calculation Linkbase Document.

XBRL Taxonomy Extension Definition Linkbase Document.

XBRL Taxonomy Extension Label Linkbase Document.

XBRL Taxonomy Extension Presentation Linkbase Document.

101.INS * XBRL Instance Document.

101.SCH * XBRL Taxonomy Extension Schema Document.

101.CAL * XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF * XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB * XBRL Taxonomy Extension Label Linkbase Document.

101.PRE * XBRL Taxonomy Extension Presentation Linkbase Document.

_______________________________________________________________________________

5 unchanged sentences

SHUTTERSTOCK, INC.

February 13, 2020

/s/ JONATHAN ORINGER

Jonathan Oringer

Chairman of the Board and Chief Executive Officer

Each person whose individual signature appears below hereby authorizes and appoints Jonathan Oringer, Jarrod Yahes and Heidi Garfield, and each of them, with full power of substitution and resubstitution and full power to act without the other, as his or her true and lawful attorney-in-fact and agent to act in his or her name, place and stead and to execute in the name and on behalf of each person, individually and in each capacity stated below, and to file any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing, ratifying and confirming all that said attorneys-in-fact and agents or any of them or their or his or her substitute or substitutes may lawfully do or cause to be done by virtue thereof.

February 11, 2021 By:

/s/ STAN PAVLOVSKY

Stan Pavlovsky

Chief Executive Officer

Each person whose individual signature appears below hereby authorizes and appoints Stan Pavlovsky and Jarrod Yahes, and each of them, with full power of substitution and resubstitution and full power to act without the other, as his or her true and lawful attorney-in-fact and agent to act in his or her name, place and stead and to execute in the name and on behalf of each person, individually and in each capacity stated below, and to file any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing, ratifying and confirming all that said attorneys-in-fact and agents or any of them or their or his or her substitute or substitutes may lawfully do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated.

/s/ JONATHAN ORINGER

Chairman of the Board, Chief Executive Officer and Director (Principal Executive Officer)

February 13, 2020

Signature Title Date

/s/ JONATHAN ORINGER Founder and Executive Chairman of the Board February 11, 2021

Jonathan Oringer

/s/ JARROD YAHES

Chief Financial Officer (Principal Financial Officer)

February 13, 2020

/s/ STEVEN CIARDIELLO

Chief Accounting Officer (Principal Accounting Officer)

February 13, 2020

/s/ STAN PAVLOVSKY Chief Executive Officer and Director (Principal Executive Officer) February 11, 2021

Stan Pavlovsky

/s/ JARROD YAHES Chief Financial Officer (Principal Financial Officer) February 11, 2021

/s/ STEVEN CIARDIELLO Chief Accounting Officer (Principal Accounting Officer) February 11, 2021

Steven Ciardiello

/s/ RACHNA BHASIN

February 13, 2020

/s/ RACHNA BHASIN Director February 11, 2021

Rachna Bhasin

/s/ DEIRDRE M.

February 13, 2020

/s/ JEFF EPSTEIN

February 13, 2020

BIGLEY Director February 11, 2021

/s/ JEFF EPSTEIN Director February 11, 2021

/s/ THOMAS R.

February 13, 2020

EVANS Director February 11, 2021

HENNESSY Director February 11, 2021

/s/ ALFONSE UPSHAW Director February 11, 2021

Alfonse Upshaw

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures