What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2022-02-10 compared with 2021-02-11 · 208 added, 215 removed, 913 unchanged (32% of the section changed)

11 unchanged sentences

Management based its assessment on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In accordance with guidance issued by the SEC, companies are permitted to exclude acquisitions from their final assessment of internal control over financial reporting for the first fiscal year in which the acquisition occurred.

Our management’s evaluation of internal control over financial reporting excluded the internal control activities of PicMonkey, LLC, acquired in September 2021, as discussed in Note 3 to the Consolidated Financial Statements.

The financial results of this acquisition are included in the consolidated financial statements as of and for the year ended December 31, 2021 and represents approximately 1% of total revenues and less than 1% of total assets.

Based on our assessment, management has concluded that our internal control over financial reporting was effective as of December 31, 2021.

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.

PricewaterhouseCoopers LLP, an independent registered public accounting firm (PCAOB ID 238 ), 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, 2021, which begins on page F-2 of this Annual Report on Form 10-K.

Changes in Internal Control Over Financial Reporting

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Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Changes in Accounting Principles

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019 and the manner in which it accounts for revenues from contracts with customers in 2018.

Basis for Opinions

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We believe that our audits provide a reasonable basis for our opinions.

As described in Management’s Report on Internal Control Over Financial Reporting, management has excluded PicMonkey, LLC (“PicMonkey”) from its assessment of internal control over financial reporting as of December 31, 2021 because it was acquired by the Company in a purchase business combination during 2021.

We have also excluded PicMonkey from our audit of internal control over financial reporting.

PicMonkey is a wholly-owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent less than 1% and approximately 1% respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2021.

Definition and Limitations of Internal Control over Financial Reporting

1 unchanged sentence

A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

2 unchanged sentences

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

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

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

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

Revenue Recognition

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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.

Valuation of Customer Relationships in the PicMonkey, LLC Acquisition

As described in Note 3 to the consolidated financial statements, on September 3, 2021, the Company completed the acquisition of substantially all of the assets and assumption of certain liabilities from PicMonkey for a contractual purchase price of $109.4 million, which resulted in $28.8 million of a customer relationships intangible asset being recorded.

Fair value of the customer relationships intangible asset was determined using a multi-period excess earnings valuation method.

Determining the fair value of the customer relationships intangible asset involved the use of significant judgment, including estimates of future revenue growth rates from existing customers, research and development (“R&D”) expense adjustments, sales and marketing (“S&M”) expense adjustments, the discount rate, earnings before interest, taxes, and amortization (“EBITA”) margins and the customer attrition rate.

The principal considerations for our determination that performing procedures relating to the valuation of the customer relationships intangible asset acquired in the acquisition of PicMonkey is a critical audit matter are the significant judgment by management when developing the fair value of the customer relationships intangible asset, which in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to future revenue growth rates from existing customers, R&D expense adjustments, S&M expense adjustments, the discount rate, EBITA margins, and the customer attrition rate used in the valuation of the customer relationships intangible asset.

In addition, the audit effort involved the use of professionals with specialized skill and knowledge.

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 of the effectiveness of controls relating to the acquisition accounting, including controls over management’s valuation of the customer relationships intangible asset and controls over the development of significant assumptions related to future revenue growth rates from existing customers, R&D expense adjustments, S&M expense adjustments, the discount rate, EBITA margins, and the customer attrition rate.

These procedures also included, among others (i) reading the purchase agreement and (ii) testing management’s process for developing the fair value of the customer relationships intangible asset.

Testing management’s process included (i) evaluating the appropriateness of the multi-period excess earnings valuation method;

(ii) testing the completeness and accuracy of data provided by management;

and (iii) evaluating the reasonableness of significant assumptions related to the future revenue growth rates from existing customers, R&D expense adjustments, S&M expense adjustments, the discount rate, EBITA

margins, and the customer attrition rate used in the valuation of the customer relationships intangible asset.

Evaluating the reasonableness of the significant assumptions related to future revenue growth rates from existing customers, R&D expense adjustments, S&M expense adjustments, EBITA margins, and the customer attrition rate involved considering (i) the past performance of the acquired business;

(ii) the consistency with external market and industry data;

(iii) and whether the 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 multi-period excess earnings valuation method and in the evaluation of the reasonableness of the R&D expense adjustments, S&M expense adjustments, the discount rate, and the customer attrition rate significant assumptions.

/s/ PricewaterhouseCoopers LLP

26 unchanged sentences

Total current liabilities 333,784 256,929

Deferred tax liability, net 2,781 —

Lease liabilities 36,966 41,620

8 unchanged sentences

Treasury stock, at cost;

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

2,792 and 2,558 shares as of December 31, 2021 and December 31, 2020, respectively

( 127,196 ) ( 100,027 )

17 unchanged sentences

Income from operations 108,106 85,266 20,155

Gain on Sale of Webdam — — 38,613

Other income / (expense), net 4,257 4,761 ( 4,952 )

Other (expense) / income, net ( 3,370 ) 4,257 4,761

Income before income taxes 104,736 89,523 24,916

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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) — — — — — — 6,178 6,178

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

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

1 unchanged sentence

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

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

Other comprehensive income — — — — — 251 — 251

1 unchanged sentence

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 loss — — — — — ( 1,461 ) — ( 1,461 )

1 unchanged sentence

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

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 — — — — 36,179 — — 36,179

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 660 7 — — 2,141 — — 2,148

Common shares withheld for settlement of taxes in connection with equity-based compensation ( 254 ) ( 4 ) — — ( 22,722 ) — — ( 22,726 )

Repurchase of treasury shares — — 234 ( 27,169 ) — — — ( 27,169 )

Cash dividends paid — — — — — — ( 30,651 ) ( 30,651 )

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

Other comprehensive loss — — — — — ( 3,107 ) — ( 3,107 )

Net income — — — — — — 91,883 91,883

12 unchanged sentences

Non-cash equity-based compensation 36,179 28,309 22,815

Gain on Sale of Webdam — — ( 38,613 )

Loss on impairment of long-term investment — — 5,881

Bad debt expense 137 2,580 84

9 unchanged sentences

Capital expenditures ( 28,125 ) ( 25,630 ) ( 26,081 )

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

Business combination, net of cash acquired ( 181,609 ) — —

Asset acquisitions ( 31,639 ) ( 1,850 ) —

Proceeds from sale of Webdam, net — — 2,500

8 unchanged sentences

Payment of cash dividends ( 30,651 ) ( 24,401 ) —

Repurchase of treasury shares ( 26,493 ) — —

Net cash used in financing activities $ ( 77,722 ) $ ( 4,587 ) $ ( 1,696 )

Effect of foreign exchange rate changes on cash ( 2,769 ) ( 2,475 ) ( 1,307 )

Net increase / (decrease) in cash, cash equivalents and restricted cash 122,700 72,409 ( 22,576 )

Net (decrease) / increase in cash, cash equivalents and restricted cash ( 114,557 ) 122,700 72,409

Cash, cash equivalents and restricted cash, beginning of period 428,574 305,874 233,465

1 unchanged sentence

Supplemental Disclosure of Cash Information:

Cash paid for:

Cash paid for income taxes $ 19,092 $ 8,751 $ 1,902

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Description of Business

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

Shutterstock (the “Company” or “Shutterstock”) is a leading global creative platform offering full-service solutions, high-quality content, and creative workflow solutions 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:

Contributors upload their content to the Company’s web properties in exchange for royalty payments based on customer download activity.

The Company’s key offerings include:

• Images - consisting of photographs, vectors and illustrations.

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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.

Contributors upload their content to the Company’s web properties in exchange for royalty payments based on customer download activity.

The Company also offered digital asset management services through its cloud-based digital asset management platform (“Webdam”).

As discussed in Note 3, on February 26, 2018, the Company completed a sale transaction, pursuant to which the buyer in the transaction acquired certain assets and assumed certain contracts and liabilities which constituted the Company’s digital asset management business (the “Sale of Webdam”).

• 3 Dimensional (“3D”) Models - consisting of 3D models, used in a variety of industries such as advertising, media and video production, gaming, retail, education, design and architecture, following the Company’s acquisition of TurboSquid, Inc.

on February 1, 2021.

See Note 3 Acquisitions.

• Creative Design Software - consisting of the Company’s online graphic design and image editing platform.

On September 3, 2021, the Company completed the acquisition of substantially all of the assets and assumption of certain liabilities from PicMonkey, LLC.

See Note 3 Acquisitions.

Principles of Consolidation and Basis of Presentation

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Cash, Cash Equivalents and Restricted Cash

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

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

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

Restricted cash — 2,613

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.

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.

As of December 31, 2021 and 2020, the Company’s cash and cash equivalents were $ 314.0 million and $ 428.6 million, respectively.

The Company’s cash balance consist primarily of bank deposits.

Cash equivalents consists primarily of money market accounts and are stated at cost, which approximates fair value.

Fair Value Measurements

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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):

6 unchanged sentences

Balance, end of period $ 1,910 $ 4,942 $ 3,579

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

1 - Other adjustments includes the adoption of ASU 2016-13 on January 1, 2020, which increased the allowance for doubtful accounts by $ 0.3 M.

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Chargeback and Sales Refund Allowance

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There were no long-lived asset impairment charges in 2021, 2020 or 2019.

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Goodwill and Intangible Assets

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

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

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

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

Subsequent to the acquisition of PicMonkey, the Company also generates revenue from the license of creative editing tools.

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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

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

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

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

For revenue associated with the Company’s creative editing tools, revenue is recognized on a straight-line basis over the subscription period.

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

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

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

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

Cost of Revenue

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

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

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 related to maintaining our creative platform and cloud-based software platform, depreciation and amortization of capitalized internal-use software, purchased content and acquisition-related intangible assets, allocated facility costs and other supporting overhead costs.

Costs of revenue also includes employee compensation, including non-cash equity-based compensation, bonuses and benefits associated with the maintenance of the Company’s creative platform and cloud-based software platform.

Contributor Royalties and Internal Sales Commissions

3 unchanged sentences

For the years ended December 31, 2021, 2020 and 2019, the Company deferred $ 7.2 million, $ 3.6 million and $ 8.4 million, respectively, in royalty advances and amortized $ 5.8 million, $ 5.5 million and $ 9.2 million, respectively, in royalty advance expense which is included in cost of revenue.

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

As of December 31, 2021, the Company has deferred contributor royalties of $ 1.4 million, which is included in prepaid expenses and other current assets in the Consolidated Balance Sheets.

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

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.

3 unchanged sentences

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.

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Advertising Costs

2 unchanged sentences

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

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

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

At inception, the Company first determines if an arrangement contains a lease and the classification of that lease, if applicable.

The Company recognizes right-of-use (“ROU”) assets and lease liabilities for its 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

14 unchanged sentences

These variables include the Company’s closing market price at the grant date, the expected stock price volatility over the expected term of the awards, awards’ exercise and cancellation behaviors, risk-free interest rates, and expected dividends, which are estimated as follows:

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

• Fair Value of Common Stock.

19 unchanged sentences

The Company recorded employer matching contributions of $ 4.4 million, $ 3.8 million and $ 3.7 million for the years ended December 31, 2021, 2020 and 2019, respectively.

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

10 unchanged sentences

In the event that actual results differ from these estimates, the Company will adjust these estimates in future periods which may result in a change in the effective tax rate in a future period.

Except as required under U.S.

tax laws, the Company does not provide for U.S.

taxes on the undistributed earnings and profits of its foreign subsidiaries.

With the enactment of the TCJA, the Company is required to treat the undistributed earnings and profits of its foreign subsidiaries accumulated through a measurement period that should not extend more than one year beyond the date of the enactment of the TCJA as if they were repatriated to the U.S., and pay a current U.S.

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

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

income taxes or foreign withholding taxes that otherwise may be payable if it were to repatriate such earnings, since the Company does not intend to repatriate such amounts.

In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income (“GILTI”) provisions of the TCJA.

The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations.

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

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

The Company treats any potential GILTI inclusions as a period cost.

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Other Non-income Taxes

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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, 2021, the Company has identified one operating segment, which has also been determined to be the Company’s primary reportable business segment.

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

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

Contingent Consideration

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Monetary assets and liabilities that are denominated in currencies other than each entity’s functional currency are remeasured into the functional currency at the period-end exchange rates and result in transactional gains and losses.

The net impact of foreign currency transactional gains and losses on the Company’s results of operations were gains of $ 2.4 million and $ 0.2 million in 2020 and 2019, respectively, and a loss of $ 2.2 million in 2018.

The net impact of foreign currency transactional gains and losses on the Company’s results of operations was a loss of $ 3.2 million in 2021 and gains of $ 2.4 million and $ 0.2 million in 2020 and 2019, respectively.

Translation adjustments resulting from converting the foreign subsidiaries financial statements into U.S.

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

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

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

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

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

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

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

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

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

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

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”).

2 unchanged sentences

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

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

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

The Company adopted ASU 2019-12, effective January 1, 2021.

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

In October 2021, the FASB issued ASU No.

2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”).

ASU 2021-08 addresses inconsistency related to the recognition and measurement of contract assets and contract liabilities acquired in a business combination.

ASU 2021-08 requires that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination as if it had originated the contracts, in accordance with Topic 606, Revenue from Contracts with Customers .

The guidance is effective for fiscal years beginning after December 15, 2022 and interim periods within those fiscal years.

Early adoption of the amendments is permitted and an entity that early adopts should apply the amendments (1) retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early application and (2) prospectively to all business combinations that occur on or after the date of initial application.

The Company has early adopted ASU 2021-08 effective January 1, 2021, and the impact of adoption of this standard on the consolidated financial statements was not material.

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

3 unchanged sentences

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.

As of December 31, 2021 and 2020, the Company had a balance of $ 195.1 million and $ 250.0 million, respectively, in money market accounts.

Other Fair Value Measurements

2 unchanged sentences

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.

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

As of December 31, 2021 and 2020, the Company’s Long-Term Investments totaled $ 20.0 million, 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.

For the years ended December 31, 2021 and 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.

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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

1 unchanged sentence

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

Long-term Lending Facility and Note Receivable

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

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

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

(3) Sale of Webdam

Sale of Digital Asset Management Business

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

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

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

(3) Acquisitions

PicMonkey, LLC

On September 3, 2021, the Company completed the acquisition of substantially all of the assets and assumption of certain liabilities from PicMonkey, LLC (“PicMonkey”), for approximately $ 109.4 million.

The total purchase price was paid with existing cash on hand in the three months ended September 30, 2021.

In connection with the acquisition, the Company incurred approximately $ 2 million of transaction costs, which is included in general and administrative expenses in the Consolidated Statements of Operations.

PicMonkey is a Washington-based company that operates an online graphic design and image editing platform that enables creators of any skill level to design high-quality visual assets.

The Company believes this acquisition provides Shutterstock’s global customer community with professional-grade, easy-to-use design tools.

The identifiable intangible assets, which include customer relationships, developed technology and trade names, have weighted average useful lives of approximately 12 years, 5 years and 10 years, respectively.

The goodwill arising from the transaction is primarily attributable to expected operational synergies and is expected to be deductible for income tax purposes.

TurboSquid, Inc.

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

(“TurboSquid”), for approximately $ 77.3 million.

The total purchase price was paid with existing cash on hand in the three months ended March 31, 2021.

In connection with the acquisition, the Company incurred approximately $ 1.6 million of transaction costs, which is included in general and administrative expenses on the Consolidated Statements of Operations.

TurboSquid is a Louisiana-based company that operates a marketplace offering more than one million 3D models, a marketplace for 2 dimensional (“2D”) images derived from 3D objects and a digital asset management solution.

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

believes this acquisition establishes Shutterstock as the premium destination for 3D models as well as 3D models in an easy-to-use 2D format.

The identifiable intangible assets, which include customer relationships, developed technology, trade names and contributor content, have weighted average useful lives of approximately 12 years, 4.7 years, 10 years and 4 years, respectively.

The goodwill arising from the transaction is primarily attributable to expected operational synergies and is not deductible for income tax purposes.

The PicMonkey and TurboSquid transactions were accounted for using the acquisition method and, accordingly, the results of the acquired businesses have been included in the Company’s results of operations from the respective acquisition dates.

For the year ended December 31, 2021, PicMonkey and TurboSquid revenues of $ 8.9 million and $ 25.9 million, respectively, are included in the Consolidated Statements of Operations.

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

The identifiable intangible assets of these acquisitions are being amortized on a straight-line basis.

The fair value of the customer relationships was determined using a variation of the income approach known as the multiple-period excess earnings method.

The fair value of the trade names and developed technology were determined using the relief-from-royalty method, and the fair value of the contributor content was determined using the cost-to-recreate method.

Determining the fair value requires management to use significant judgment and estimates, including estimates of future revenue growth rates, research and development expense adjustments, sales and marketing expense adjustments, the discount rate, earnings before interest, taxes, and amortization (“EBITA”) margins and the customer attrition rate, among others.

The aggregate purchase price for these acquisitions have been allocated to the assets acquired and liabilities assumed as follows (in thousands):

Assets acquired and liabilities assumed (in thousands):

PicMonkey TurboSquid Total

Cash and cash equivalents $ — $ 5,165 $ 5,165

Other assets 502 1,553 2,055

Property and equipment — 472 472

Right of use asset 1,420 — 1,420

Intangible assets:

Customer relationships 28,800 9,000 37,800

Trade name 3,000 2,200 5,200

Developed technology 12,900 7,800 20,700

Contributor content — 2,500 2,500

Intangible assets 44,700 21,500 66,200

Goodwill 71,607 59,491 131,098

Deferred tax asset 2,456 — 2,456

Total assets acquired $ 120,685 $ 88,181 $ 208,866

Accounts payable, accrued expenses and other liabilities ( 780 ) ( 4,685 ) ( 5,465 )

Contributor royalties payable — ( 2,243 ) ( 2,243 )

Deferred revenue ( 8,557 ) — ( 8,557 )

Deferred tax liability ( 533 ) ( 3,923 ) ( 4,456 )

Lease liability ( 1,420 ) — ( 1,420 )

Total liabilities assumed ( 11,290 ) ( 10,851 ) ( 22,141 )

Net assets acquired $ 109,395 $ 77,330 $ 186,725

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following unaudited pro forma consolidated financial information (in thousands) reflects the results of operations of the Company for the years ended December 31, 2021 and 2020, as if the PicMonkey and TurboSquid acquisitions had been completed on January 1, 2020, after giving effect to certain purchase accounting adjustments, primarily related to intangible assets and transaction costs.

These pro forma results have been prepared for comparative purposes only and are not necessarily indicative of what the Company’s operating results would have been, had the acquisitions actually taken place at the beginning of the previous annual period.

Year Ended December 31,

As Reported $ 773,415 $ 666,686

Pro Forma 795,498 720,302

Income before income taxes

As Reported $ 104,736 $ 89,523

Pro Forma 109,850 87,044

Asset Acquisitions

In July 2021, the Company completed the acquisitions of Pattern89, Inc., Datasine Limited and assets from Shotzr, Inc.

These three entities provide data driven insights through their artificial intelligence platforms.

The aggregate purchase price for these transactions was approximately $ 35 million and is subject to customary working capital and other adjustments and was paid from existing cash on hand.

Approximately $ 3.6 million of the total purchase consideration was subject to contractual holdback provisions and is expected to be paid within the next 12 months.

The Company has accounted for these transactions as asset acquisitions and has recorded a total of $ 41 million of developed technology intangible assets, which are being amortized on a straight-line basis over a useful life of 3 years.

(4) Property and Equipment

Property and equipment is summarized as follows (in thousands):

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There was no loss on disposal for the years ended December 31, 2021, 2020 and 2019, respectively.

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Capitalized Internal-Use Software

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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)

As of December 31, 2021 and 2020, the Company had capitalized internal-use software of $ 39.0 million and $ 38.0 million, respectively, net of accumulated depreciation, which was included in property and equipment, net.

2 unchanged sentences

Balance as of December 31, 2020 $ 89,413

Goodwill related to acquisitions 131,098

Foreign currency translation adjustment ( 695 )

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Amortization expense related to the intangible assets was $ 17.1 million, $ 5.8 million and $ 7.0 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Of these amounts, $ 3.4 million, $ 2.3 million and $ 1.7 million are included in cost of revenue for the years ended December 31, 2020, 2019 and 2018, respectively, and $ 2.4 million, $ 4.7 million and $ 3.8 million are included in general and administrative expense for the years ended December 31, 2020, 2019 and 2018, respectively.

Of these amounts, $ 13.1 million, $ 3.4 million and $ 2.3 million are included

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

in cost of revenue for the years ended December 31, 2021, 2020 and 2019, respectively, and $ 4.0 million, $ 2.4 million and $ 4.7 million are included in general and administrative expense for the years ended December 31, 2021, 2020 and 2019, respectively.

The Company determined that there was no indication of impairment for the intangible assets for all periods presented.

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$ 28.3 million in 2022, $ 28.0 million in 2023, $ 21.0 million in 2024, $ 10.2 million in 2025, $ 8.2 million in 2026 and $ 28.1 million thereafter.

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(6) Accrued Expenses

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In February 2017, the Company’s Board of Directors approved an increase to the share repurchase program, authorizing the Company to purchase an additional $ 100 million of its common stock.

As of December 31, 2020, the Company has repurchased approximately 2,558,000 shares of its common stock under the share repurchase program at an average per-share cost of approximately $ 39.09 .

As of December 31, 2021, the Company has repurchased approximately 2.8 million shares of its common stock under the share repurchase program at an average per-share cost of approximately $ 45.55 .

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

During 2021, the Company repurchased approximately 233,700 shares of its common stock at an average per share cost of $ 116.26 .

During 2020, the Company did no t repurchase any shares of its common stock under the share repurchase program.

As of December 31, 2021, there is $ 73 million of remaining authorization for purchases 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

4 unchanged sentences

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.

The Company declared and paid cash dividends totaling $ 0.84 and $ 0.68 per share of common stock, or $ 30.7 million and $ 24.4 million, during the years ended December 31, 2021 and 2020, respectively.

On January 24, 2022, the Company’s Board of Directors declared a quarterly cash dividend of $ 0.24 per share of outstanding common stock payable on March 17, 2022 to stockholders of record at the close of business on March 3, 2022.

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

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

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

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

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

The Company distributes its content offerings through two primary channels:

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These customers benefit from communication with dedicated sales professionals, service and research teams which provide a number of tailored enhancements to their creative workflows including non-standard licensing rights, multi-seat access, ability to pay on credit terms, multi-brand licensing packages, increased indemnification protection and content licensed for use-cases outside of those available on the e-commerce platform.

In addition to the Company’s content offerings, the Company has historically generated revenue through other channels:

The Company’s Other sales channel previously included revenue from Webdam’s digital asset management offerings which provided tools to help organizations manage, search, distribute and collaborate on creative and other brand-building activities.

Effective February 26, 2018, the Company completed the Sale of Webdam.

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

SHUTTERSTOCK, INC.

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Total Revenues $ 773,415 $ 666,686 $ 650,523

(1) As previously discussed in Note 3, on February 26, 2018, the Company completed the Sale of Webdam.

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

The December 31, 2021 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.

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Total $ 36,179 $ 28,309 $ 22,815

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, 2021, 2020 and 2019 (in thousands):

11 unchanged sentences

The number of shares of common stock available under the 2012 Plan was automatically increased by approximately 1,087,000 and 1,065,000 shares on January 1, 2021 and 2020, respectively, pursuant to the automatic increase provisions of the 2012 Plan.

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Stock Option Awards

3 unchanged sentences

Options outstanding at December 31, 2020 977,033 $ 57.90

Options granted 53,022 42.96

Options exercised ( 56,476 ) 37.93

Options canceled or expired ( 31,719 ) 43.70

Options outstanding at December 31, 2021 920,557 $ 59.13

7 unchanged sentences

The intrinsic value of stock options exercised for the years ended December 31, 2021, 2020 and 2019 was approximately $ 3.0 million, $ 0.5 million and $ 1.1 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 and 2019.

No stock option awards were granted during the year ended December 31, 2021.

Year Ended December 31,

2020 2019 2018

Expected term (in years) 6.0 6.3

5 unchanged sentences

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.

In 2018, the number of stock options was adjusted from 500,000 stock options to approximately 527,000 and the exercise price of each option was adjusted from $ 80.94 to $ 76.73 , in connection with a special dividend and pursuant to the anti-dilution provisions of the 2012 Plan.

The stock options 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.

1 unchanged sentence

In the event that the market condition remains unsatisfied upon completion of the requisite service period, no charge will be reversed.

In conjunction with the Special Dividend Adjustment, the Company adjusted the number of stock options to approximately 527,000 from 500,000 and the exercise price of each option to $ 76.73 , from $ 80.94 pursuant to the anti-dilution provisions of the 2012 Plan.

The market-based conditions required for vesting remain unchanged.

As of December 31, 2021, the total unrecognized compensation charge related to 2012 Plan non-vested options is approximately $ 0.9 million, which is expected to be recognized through fiscal year 2023.

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Restricted Stock Units Awards (including PRSUs)

8 unchanged sentences

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

In 2018, the number of RSUs was adjusted to approximately 105,000 , in connection with a special dividend and pursuant to the anti-dilution provisions of the 2012 Plan.

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

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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

The market-based conditions required for vesting remain unchanged.

In the event that the market condition remains unsatisfied upon completion of the requisite service period, no charge will be reversed.

As of December 31, 2021, the total unrecognized compensation charge related to the restricted stock units is approximately $ 44.7 million, which is expected to be recognized through fiscal 2024.

(10) Other Income / (Expense), net

The following table presents a summary of the Company’s other income / (expense) activity included in the accompanying Consolidated Statements of Operations (in thousands):

(10) Other (Expense) / Income, net

The following table presents a summary of the Company’s other (expense) / income activity included in the accompanying Consolidated Statements of Operations (in thousands):

Year Ended December 31,

2021 2020 2019

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

Impairment of a long-term investment asset — — ( 5,881 )

Foreign currency (loss) / gain $ ( 3,303 ) $ 3,067 $ 540

Interest income 137 1,190 4,221

Other income / (expense), net $ 4,257 $ 4,761 $ ( 4,952 )

Other ( 204 ) — —

Other (expense) / income, net $ ( 3,370 ) $ 4,257 $ 4,761

(11) Income Taxes

5 unchanged sentences

Income before income taxes $ 104,736 $ 89,523 $ 24,916

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table summarizes the consolidated provision for income taxes (in thousands):

10 unchanged sentences

Provision for income taxes $ 12,853 $ 17,757 $ 4,808

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

9 unchanged sentences

Valuation allowance 0.8 0.9 3.9

Transition tax related to TCJA — — ( 0.3 )

Capital loss ( 4.9 ) — —

Non-deductible—other 0.4 0.2 2.6

Total provision for income taxes 12.3 % 19.8 % 19.3 %

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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Intangible amortization 261 850

Non-income tax accruals 2,499 2,647

Accruals and reserves 6,016 3,542

Lease liabilities 9,715 10,995

Other liabilities 5,804 6,508

Net operating losses 7,591 3,204

Other 1,729 1,557

Gross deferred tax assets 38,924 31,656

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In addition, the $ 3.6 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):

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

The Company has determined that it is reasonably possible that there will be a reversal of unrecognized tax benefits by as much as $ 1.4 million in the next fiscal year due to the expected resolution of prior year tax matters.

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.

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

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

Internal Revenue Service for tax year 2017 and 2018 and Wisconsin for years 2015 - 2018.

The Company is no longer subject to U.S.

federal tax examinations for years before 2017, or state and local tax examinations by tax authorities for years before 2015.

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

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

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As of December 31, 2021, the Company has $ 38.2 million in tax net operating loss carryforwards in US and foreign tax jurisdictions which are available to reduce future income taxes and the majority of this amount relates to jurisdictions with an indefinite carryforward period.

As of December 31, 2021, the Company had approximately $ 15.2 million of undistributed earnings attributable to its foreign subsidiaries.

3 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

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Anti-dilutive shares excluded from the calculation 6 931 1,202

(13) Segment and Geographic Information

Segment Financial Information

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)

(13) Geographic Financial Information

6 unchanged sentences

Total revenue $ 773,415 $ 666,686 $ 650,523

Included in North America is the United States which comprises approximately 33 % of total revenue for the year ended December 31, 2020, and 32 % of total revenue for the years ended December 31, 2019 and 2018.

Included in Europe is the United Kingdom which accounts for approximately 8 % of total revenue for the year ended December 31, 2020.

Included in North America is the United States which comprises approximately 34 %, 33 % and 32 % of total revenue for the years ended December 31, 2021, 2020 and 2019, respectively.

No other country accounts for more than 10% of the Company’s revenue in any period presented.

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company’s long-lived tangible assets were located as follows (in thousands):

4 unchanged sentences

Included in North America is the United States, which comprises 76 % and 75 % of total long-lived tangible assets as of December 31, 2021 and 2020, respectively.

Ireland, included in Europe in the above table, accounted for 11 % of total long-lived tangible assets as of December 31, 2021.

No other country accounts for more than 10% of the Company’s long-lived tangible assets in any period presented.

The Company’s leases relate primarily to office facilities that expire on various dates from 2022 through 2029, some of which include one or more options to renew.

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Total lease liabilities $ 45,330 $ 50,717

Lease Commitments

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, 2021 are as follows (in thousands):

7 unchanged sentences

As amended, the ESB Lease will expire in 2029, and the undiscounted remaining future minimum lease payments are approximately $ 50.4 million.

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

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

The Company is also party to a letter of credit as a security deposit for this leased facility, in the amount of $ 1.7 million.

(15) Commitments and Contingencies

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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

The following table sets forth, for the periods indicated, the Company’s financial information for the eight most recent quarters ended December 31, 2020.

In the Company’s opinion, this unaudited information has been prepared on a basis consistent with the annual consolidated financial statements and includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the unaudited information for the periods presented.

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)

Revenue $ 180,944 $ 165,227 $ 159,230 $ 161,285 $ 166,371 $ 159,079 $ 161,741 $ 163,332

Operating expenses (1) :

Cost of revenue 66,308 60,331 63,811 69,123 71,797 68,635 68,526 69,218

Sales & marketing 44,369 36,655 35,557 42,660 47,182 45,614 44,488 44,446

Product development 9,867 10,617 12,485 13,069 15,103 13,533 13,594 14,986

General and administrative 32,807 28,277 24,832 30,652 26,486 28,114 32,063 26,583

Total operating expenses 153,351 135,880 136,685 155,504 160,568 155,896 158,671 155,233

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

Other income / (expense), net (2)

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

____________________________________________________________________________

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

(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.

(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

73 unchanged sentences

8-K 001-35669 10.1 February 11, 2020

10.19 § Shutterstock, Inc.

2012 Amended and Restated Omnibus Equity Incentive Plan Restricted Stock Unit Award Agreement, for grants subsequent to April 2020

10-Q 001-35669 10.1 April 27, 2021

Number Incorporated by Reference

5 unchanged sentences

10-Q 001-35669 10.4 November 5, 2019

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

10-Q 001-35669 10.1 April 26, 2018

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

10-Q 001-35669 10.2 November 5, 2019

10.21(b) § Mutual Separation Agreement and General Release, dated February 25, 2020, 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

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

21 unchanged sentences

101.PRE * XBRL Taxonomy Extension Presentation Linkbase Document.

104 * Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

_______________________________________________________________________________

23 unchanged sentences

BIGLEY Director February 10, 2022

/s/ JEFF EPSTEIN Director February 11, 2021

/s/ THOMAS R.

4 unchanged sentences

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