Shutterstock, Inc. 10-Q

Item 1. Financial Statements. Shutterstock, Inc. Consolidated Balance Sheets (In thousands, except par value amount) (unaudited) June 30, December 31, 2022 2021 ASSETS Current assets: Cash and cash equivalents $ 84,046 $ 314,017 Accounts receivable, net of allowance of $ 2,990 and $ 1,910 48,816 47,707 Prepaid expenses and other current assets 30,394 26,491 Total current assets 163,256 388,215 Property and equipment, net 52,549 48,074 Right-of-use assets 34,293 34,570 Intangible assets, net 185,860 123,822 Goodwill 377,654 219,816 Deferred tax assets, net 8,709 10,512 Other assets 26,247 26,701 Total assets $ 848,568 $ 851,710 LIABILITIES AND STOCKHOLDERS ’ EQUITY Current liabilities: Accounts payable $ 5,889 $ 10,092 Accrued expenses 84,547 99,529 Contributor royalties payable 34,853 29,004 Deferred revenue 178,353 180,979 Debt 50,000 — Other current liabilities 14,309 14,180 Total current liabilities 367,951 333,784 Deferred tax liability, net 4,592 2,781 Lease liabilities 37,397 36,966 Other non-current liabilities 9,535 9,697 Total liabilities 419,475 383,228 Commitments and contingencies (Note 14) Stockholders’ equity: Common stock, $ 0.01 par value; 200,000 shares authorized; 39,482 and 39,209 shares issued and 35,981 and 36,417 shares outstanding as of June 30, 2022 and December 31, 2021, respectively 395 392 Treasury stock, at cost; 3,501 and 2,792 shares as of June 30, 2022 and December 31, 2021, respectively ( 183,800 ) ( 127,196 ) Additional paid-in capital 370,934 376,537 Accumulated comprehensive loss ( 16,619 ) ( 10,788 ) Retained earnings 258,183 229,537 Total stockholders’ equity 429,093 468,482 Total liabilities and stockholders’ equity $ 848,568 $ 851,710 See Notes to Unaudited Consolidated Financial Statements. 4 Table of Contents Shutterstock, Inc. Consolidated Statements of Operations (In thousands, except for per share data) (unaudited) Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Revenue $ 206,872 $ 189,912 $ 406,004 $ 373,193 Operating expenses: Cost of revenue 77,019 67,757 146,470 129,589 Sales and marketing 54,229 45,896 107,558 87,817 Product development 17,162 11,993 30,788 22,724 General and administrative 33,088 31,041 63,896 61,720 Total operating expenses 181,498 156,687 348,712 301,850 Income from operations 25,374 33,225 57,292 71,343 Other (expense) / income, net ( 2,661 ) 1,323 ( 1,903 ) ( 1,139 ) Income before income taxes 22,713 34,548 55,389 70,204 Provision for income taxes 3,268 5,094 9,372 11,236 Net income $ 19,445 $ 29,454 $ 46,017 $ 58,968 Earnings per share: Basic $ 0.54 $ 0.81 $ 1.27 $ 1.62 Diluted $ 0.53 $ 0.79 $ 1.25 $ 1.58 Weighted average common shares outstanding: Basic 36,123 36,570 36,213 36,453 Diluted 36,578 37,189 36,890 37,218 See Notes to Unaudited Consolidated Financial Statements. 5 Table of Contents Shutterstock, Inc. Consolidated Statements of Comprehensive Income (In thousands) (unaudited) Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Net income $ 19,445 $ 29,454 $ 46,017 $ 58,968 Foreign currency translation (loss) / gain ( 4,945 ) 64 ( 5,831 ) 290 Other comprehensive (loss) / income ( 4,945 ) 64 ( 5,831 ) 290 Comprehensive income $ 14,500 $ 29,518 $ 40,186 $ 59,258 See Notes to Unaudited Consolidated Financial Statements. 6 Table of Contents Shutterstock, Inc. Consolidated Statements of Stockholders’ Equity (In thousands) (unaudited) Additional Paid-in Capital Accumulated Other Comprehensive Income / (Loss) Retained Earnings Common Stock Treasury Stock Three Months Ended June 30, 2022 Shares Amount Shares Amount Total Balance at March 31, 2022 39,352 $ 394 3,214 $ ( 165,465 ) $ 373,765 $ ( 11,674 ) $ 247,403 $ 444,423 Equity-based compensation — — — — 7,044 — — 7,044 Issuance of common stock in connection with employee stock option exercises and RSU vesting 242 2 — — 566 — — 568 Common shares withheld for settlement of taxes in connection with equity-based compensation ( 112 ) ( 1 ) — — ( 10,441 ) — — ( 10,442 ) Repurchase of treasury shares — — 287 ( 18,335 ) — — — ( 18,335 ) Cash dividends paid — — — — — — ( 8,665 ) ( 8,665 ) Other comprehensive loss — — — — — ( 4,945 ) — ( 4,945 ) Net income — — — — — — 19,445 19,445 Balance at June 30, 2022 39,482 $ 395 3,501 $ ( 183,800 ) $ 370,934 $ ( 16,619 ) $ 258,183 $ 429,093 Three Months Ended June 30, 2021 Balance at March 31, 2021 39,010 $ 391 2,558 $ ( 100,027 ) $ 357,422 $ ( 7,455 ) $ 190,173 $ 440,504 Equity-based compensation — — — — 9,686 — — 9,686 Issuance of common stock in connection with employee stock option exercises and RSU vesting 244 2 — — 490 — — 492 Common shares withheld for settlement of taxes in connection with equity-based compensation ( 81 ) ( 1 ) — — ( 7,194 ) — — ( 7,195 ) Cash dividends paid — — — — — — ( 7,671 ) ( 7,671 ) Other comprehensive income — — — — — 64 — 64 Net income — — — — — — 29,454 29,454 Balance at June 30, 2021 39,173 $ 392 2,558 $ ( 100,027 ) $ 360,404 $ ( 7,391 ) $ 211,956 $ 465,334 Six Months Ended June 30, 2022 Balance at December 31, 2021 39,209 $ 392 2,792 $ ( 127,196 ) $ 376,537 $ ( 10,788 ) $ 229,537 $ 468,482 Equity-based compensation — — — — 14,870 — — 14,870 Issuance of common stock in connection with employee stock option exercises and RSU vesting 503 5 — — 563 — — 568 Common shares withheld for settlement of taxes in connection with equity-based compensation ( 230 ) ( 2 ) — — ( 21,036 ) — — ( 21,038 ) Repurchase of treasury shares — — 709 ( 56,604 ) — — — ( 56,604 ) Cash dividends paid — — — — — — ( 17,371 ) ( 17,371 ) Other comprehensive loss — — — — — ( 5,831 ) — ( 5,831 ) Net income — — — — — — 46,017 46,017 Balance at June 30, 2022 39,482 $ 395 3,501 $ ( 183,800 ) $ 370,934 $ ( 16,619 ) $ 258,183 $ 429,093 Six Months Ended June 30, 2021 Balance at December 31, 2020 38,803 $ 389 2,558 $ ( 100,027 ) $ 360,939 $ ( 7,681 ) $ 168,305 $ 421,925 Equity-based compensation — — — — 17,896 — — 17,896 Issuance of common stock in connection with employee stock option exercises and RSU vesting 601 6 — — 1,795 — — 1,801 Common shares withheld for settlement of taxes in connection with equity-based compensation ( 231 ) ( 3 ) — — ( 20,226 ) — — ( 20,229 ) Cash dividends paid — — — — — — ( 15,317 ) ( 15,317 ) Other comprehensive income — — — — — 290 — 290 Net income — — — — — — 58,968 58,968 Balance at June 30, 2021 39,173 $ 392 2,558 $ ( 100,027 ) $ 360,404 $ ( 7,391 ) $ 211,956 $ 465,334 See Notes to Unaudited Consolidated Financial Statements. 7 Table of Contents Shutterstock, Inc. Consolidated Statements of Cash Flows (In thousands) (unaudited) Six Months Ended June 30, 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 46,017 $ 58,968 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 31,575 20,243 Deferred taxes ( 3,602 ) 1,782 Non-cash equity-based compensation 14,869 17,896 Bad debt expense 620 213 Changes in operating assets and liabilities: Accounts receivable ( 762 ) ( 6,056 ) Prepaid expenses and other current and non-current assets ( 1,207 ) ( 5,892 ) Accounts payable and other current and non-current liabilities ( 28,980 ) 6,359 Contributor royalties payable 3,713 1,750 Deferred revenue ( 2,669 ) 11,953 Net cash provided by operating activities $ 59,574 $ 107,216 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures ( 20,797 ) ( 15,337 ) Business combination, net of cash acquired ( 212,096 ) ( 72,165 ) Asset acquisitions ( 150 ) — Acquisition of content ( 6,999 ) ( 3,396 ) Security deposit payment ( 281 ) ( 65 ) Net cash used in investing activities $ ( 240,323 ) $ ( 90,963 ) CASH FLOWS FROM FINANCING ACTIVITIES Repurchase of treasury shares ( 56,937 ) — Proceeds from exercise of stock options 568 1,801 Cash paid related to settlement of employee taxes related to RSU vesting ( 21,038 ) ( 20,229 ) Payment of cash dividend ( 17,371 ) ( 15,317 ) Proceeds from credit facility 50,000 — Payment of debt issuance costs ( 619 ) — Net cash used in financing activities $ ( 45,397 ) $ ( 33,745 ) Effect of foreign exchange rate changes on cash ( 3,825 ) ( 36 ) Net decrease in cash and cash equivalents ( 229,971 ) ( 17,528 ) Cash and cash equivalents, beginning of period 314,017 428,574 Cash and cash equivalents, end of period $ 84,046 $ 411,046 Supplemental Disclosure of Cash Information: Cash paid for income taxes $ 12,700 $ 9,495 Cash paid for interest 90 — See Notes to Unaudited Consolidated Financial Statements. 8 Table of Contents Shutterstock, Inc. Notes to Consolidated Financial Statements (unaudited) (1) Summary of Operations and Significant Accounting Policies Summary of Operations Shutterstock, Inc. (the “Company” or “Shutterstock”) is the leading global creative platform for transformative brands and media companies. The Company’s platform brings together users and contributors of content by providing readily-searchable content that our customers pay to license and by compensating contributors as their content is licensed. Contributors upload their content to the Company’s web properties in exchange for royalty payments based on customer download activity. The Company’s key offerings include: • Images - consisting of photographs, vectors and illustrations. Images are typically used in visual communications, such as websites, digital and print marketing materials, corporate communications, books, publications and other similar uses. • Footage - consisting of video clips, premium footage filmed by industry experts and cinema grade video effects, available in HD and 4K formats. Footage is often integrated into websites, social media, marketing campaigns and cinematic productions. • Music - consisting of high-quality music tracks and sound effects, which are often used to complement images and footage. • 3 Dimensional (“3D”) Models - consisting of 3D models, used in a variety of industries such as advertising, media and video production, gaming, retail, education, design and architecture. This offering became available upon the Company’s acquisition of TurboSquid, Inc. on February 1, 2021. • Creative Design Software - consisting of the Company’s online graphic design and image editing platform. This offering became available after the Company completed the acquisition of substantially all of the assets and assumption of certain liabilities from PicMonkey, LLC (“PicMonkey”) on September 3, 2021. On May 11, 2022, the Company completed its acquisition of Pond5, Inc. (“Pond5”), a video-first content marketplace which expands Shutterstock’s content offerings across footage, image and music. On May 28, 2022, Shutterstock acquired SCP 2020 Limited (“Splash News”), an entertainment news network for newsrooms and media companies, which offers image and video content across celebrity, red carpet and live events. Basis of Presentation The unaudited condensed consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not include all information and footnotes required by GAAP for complete financial statements. The interim Consolidated Balance Sheet as of June 30, 2022, and the Consolidated Statements of Operations, Comprehensive Income and Stockholders’ Equity for the three and six months ended June 30, 2022 and 2021, and the Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021, are unaudited. The Consolidated Balance Sheet as of December 31, 2021, included herein, was derived from the audited financial statements as of that date, but does not include all disclosures required by GAAP. These unaudited interim financial statements have been prepared on a basis consistent with the Company’s annual financial statements and, in the opinion of management, reflect all adjustments, which include all normal recurring adjustments necessary to fairly state the Company’s financial position as of June 30, 2022, and its consolidated results of operations, comprehensive income, stockholders’ equity and cash flows for the three and six months ended June 30, 2022 and 2021. The financial data and the other financial information disclosed in the notes to the financial statements related to these periods are also unaudited. The results of operations for the six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2022 or for any other future annual or interim period. These financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K, which was filed with the SEC on February 10, 2022. The unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in 9 Table of Contents Shutterstock, Inc. Notes to Consolidated Financial Statements (unaudited) consolidation. Certain immaterial changes in presentation have been made to conform the prior period presentation to current period reporting. Use of Estimates The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements. Actual results could differ from those estimates. Such estimates include, but are not limited to, the determination of the allowance for doubtful accounts, the volume of expected unused licenses for our subscription-based products, the assessment of recoverability of property and equipment, the fair value of acquired goodwill and intangible assets, the amount of non-cash equity-based compensation, the assessment of recoverability of deferred tax assets, the measurement of income tax and contingent non-income tax liabilities and the determination of the incremental borrowing rate used to calculate the lease liability. Cash and Cash Equivalents The Company’s cash and cash equivalents consist primarily of bank deposits and money market funds. Allowance for Doubtful Accounts The Company’s accounts receivable consists of customer obligations due under normal trade terms, carried at their face value less an allowance for doubtful accounts, if required. The Company determines its allowance for doubtful accounts based on an evaluation of (i) the aging of its accounts receivable considering historical receivables loss rates, (ii) on a customer-by-customer basis, where appropriate, and (iii) the economic environments in which the Company operates. During the six months ended June 30, 2022, the Company recorded bad debt expense of $ 0.6 million. As of June 30, 2022 and December 31, 2021, the Company’s allowance for doubtful accounts was approximately $ 3.0 million and $ 1.9 million, respectively. The allowance for doubtful accounts is included as a reduction of accounts receivable on the Consolidated Balance Sheets. Chargeback and Sales Refund Allowance The Company establishes a chargeback allowance and sales refund reserve allowance based on factors surrounding historical credit card chargeback trends, historical sales refund trends and other information. As of June 30, 2022 and December 31, 2021, the Company’s combined allowance for chargebacks and sales refunds was $ 0.4 million, which was included as a component of other current liabilities on the Consolidated Balance Sheets. Revenue Recognition The majority of the Company’s revenue is earned from the license of content. Content licenses are generally purchased on a monthly or annual basis, whereby a customer pays for a predetermined quantity of content that may be downloaded over a specific period of time, or, on a transactional basis, whereby a customer pays for individual content licenses at the time of download. Subsequent to the acquisition of PicMonkey, the Company also generates revenue from tools made available through the Company’s platform. The Company recognizes revenue upon the satisfaction of performance obligations. For content licenses, the Company recognizes revenue on both its subscription-based and transaction-based products when content is downloaded by a customer, at which time the license is provided. In addition, the Company estimates expected unused licenses for subscription-based products and recognizes the revenue associated with the unused licenses as digital content is downloaded and licenses are obtained for such content by the customer during the subscription period. The estimate of unused licenses is based on historical download activity, and future changes in the estimate could impact the timing of revenue recognition of the Company’s subscription products. For revenue associated with tools made available through the Company’s platform, revenue is recognized on a straight-line basis over the subscription period. The Company expenses contract acquisition costs as incurred, to the extent that the amortization period would otherwise be one year or less. Collectability is reasonably assured at the time the electronic order or contract is entered. The majority of the Company’s customers purchase products by making electronic payments with a credit card at the time of the transaction. Customer payments received in advance of revenue recognition are contract liabilities and are recorded as deferred revenue. Customers that do not pay in advance are invoiced and are required to make payments under standard credit terms. Collectability for customers who pay on credit terms allowing for payment beyond the date at which service commences is based on a credit evaluation for certain new customers and transaction history with existing customers. 10 Table of Contents Shutterstock, Inc. Notes to Consolidated Financial Statements (unaudited) The Company recognizes revenue gross of contributor royalties because the Company is the principal in the transaction, as it is the party responsible for the performance obligation and it controls the product or service before transferring it to the customer. The Company also licenses content to customers through third-party resellers. Third-party resellers sell the Company’s products directly to customers as the principal in those transactions. Accordingly, the Company recognizes revenue net of costs paid to resellers. Interest expense Interest expense is comprised of borrowing costs on debt. In addition, interest expense includes amortization of debt issuance costs and unused commitment fees associated with the Company’s credit facility. Debt issuance costs are recorded in prepaid expenses and other current assets and other assets in the Consolidated Balance Sheets and are amortized over the term of the credit facility. (2) Fair Value Measurements and Long-term Investments Fair Value Measurements The Company had no assets or liabilities requiring fair value hierarchy disclosures as of June 30, 2022 or December 31, 2021, except as noted below. Cash Equivalents Cash equivalents include money market accounts and are classified as a level 1 measurement based on quoted prices in active markets for identical assets that the reporting entity can access at the measurement date. As of December 31, 2021, the Company had cash equivalent balances of $ 195.1 million. As of June 30, 2022, the Company did not have any cash equivalent balances. Other Fair Value Measurements The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value because of the short-term nature of these instruments. Debt consists of principal amounts outstanding under our credit facility, which approximates fair value as underlying interest rates are reset regularly based on current market rates and is classified as Level 2. The Company’s non-financial assets, which include property and equipment, intangible assets and goodwill, are not required to be measured at fair value on a recurring basis. However, if the Company is required to evaluate a non-financial asset for impairment, whether due to certain triggering events or because annual impairment testing is required, a resulting asset impairment would require that the non-financial asset be recorded at fair value. Long-term Investments As of June 30, 2022 and December 31, 2021, the Company’s long-term investments were in equity securities with no readily determinable fair value, totaled $ 20.0 million, and were reported within other assets on the Consolidated Balance Sheets. The Company uses the measurement alternative for these equity investments and their carrying value is reported at cost, adjusted for impairments or any observable price changes in ordinary transactions with identical or similar investments. On a quarterly basis, the Company evaluates the carrying value of its long-term investments for impairment, which includes an assessment of revenue growth, earnings performance, working capital and general market conditions. As of June 30, 2022, no adjustments to the carrying values of the Company’s long-term investments were identified as a result of this assessment. Changes in performance negatively impacting operating results and cash flows of these investments could result in the Company recording an impairment charge in future periods. (3) Acquisitions Pond5, Inc. On May 11, 2022, the Company completed its acquisition of Pond5, for approximately $ 218.3 million, subject to customary working capital adjustments. The total purchase price was paid with existing cash on hand as well as a $ 50 million drawdown on a newly established revolving credit facility (See Note 7). In connection with the acquisition, the Company incurred approximately $ 3.6 million of transaction costs, which is included in general and administrative expenses on the Consolidated Statements of Operations. 11 Table of Contents Shutterstock, Inc. Notes to Consolidated Financial Statements (unaudited) Pond5 is a New York based company that operates a video-first content marketplace for royalty-free and editorial video. The Company believes its acquisition of this video-first content marketplace provides expanded offerings across footage, image and music. The identifiable intangible assets, which include customer relationships, developed technology and trade names have weighted average useful lives of approximately 12.2 years, 5 years and 10 years, respectively. The goodwill arising from the transaction is primarily attributable to expected operational synergies and is not deductible for income tax purposes. Splash News On May 28, 2022, the Company completed its acquisition of Splash News, for approximately $ 6.3 million. The total purchase price was paid with existing cash on hand in the three months ended June 30, 2022. In connection with the acquisition, the Company incurred approximately $ 0.3 million of transaction costs, which is included in general and administrative expenses on the Consolidated Statements of Operations. Splash News is a United Kingdom based entertainment news network and is a source for image and video content across celebrity, red carpet and live events. The Company believes this acquisition expands Shutterstock Editorial’s Newsroom offering for access to premium exclusive content. The identifiable intangible asset, developed technology, has a useful life of approximately 4 years. The goodwill arising from the transaction is primarily attributable to expected operational synergies and is not deductible for income tax purposes. The Pond5 and Splash News transactions were accounted for using the acquisition method and, accordingly, the results of the acquired businesses have been included in the Company’s results of operations from the respective acquisition dates. For the three months ended June 30, 2022, revenue of $ 7.2 million was included in the Consolidated Statements of Operations related to these acquired companies. The fair value of consideration transferred in these business combinations has been allocated to the intangible and tangible assets acquired and liabilities assumed at the acquisition date, with the remaining unallocated amount recorded as goodwill. The identifiable intangible assets of 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 name was determined using the relief-from-royalty method, and the fair value of the developed technology was determined using the relief-from-royalty and the cost to recreate methods. 12 Table of Contents Shutterstock, Inc. Notes to Consolidated Financial Statements (unaudited) The aggregate purchase price for these acquisitions has been allocated to the assets acquired and liabilities assumed as follows (in thousands): Assets acquired and liabilities assumed (in thousands): Pond5 1 Splash News 1 Total Cash and cash equivalents $ 11,675 $ 180 $ 11,855 Accounts receivable 1,273 500 $ 1,773 Other assets 1,102 525 1,627 Right of use asset 1,674 — 1,674 Intangible assets: — Customer relationships 41,900 — 41,900 Trade name 4,700 — 4,700 Developed technology 25,300 1,263 26,563 Intangible assets 71,900 1,263 73,163 Goodwill 154,949 5,565 160,514 Deferred tax asset — — — Total assets acquired $ 242,573 $ 8,033 $ 250,606 — Accounts payable, accrued expenses and other liabilities ( 8,090 ) ( 1,528 ) ( 9,618 ) Contributor royalties payable ( 3,039 ) ( 3,039 ) Deferred revenue ( 3,705 ) — ( 3,705 ) Deferred tax liability ( 7,434 ) ( 189 ) ( 7,623 ) Lease liability ( 2,038 ) — ( 2,038 ) Total liabilities assumed ( 24,306 ) ( 1,717 ) ( 26,023 ) Net assets acquired $ 218,267 $ 6,316 $ 224,583 ____________________________________________________ 1 The allocation of the purchase price is preliminary and will be finalized within the allowable measurement period once independent valuations of the fair value of the assets acquired and liabilities assumed are completed. 2021 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, 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 on the Consolidated Statements of Operations. PicMonkey is a Washington-based company that operates an online graphic design and image editing platform that enables creators of any skill level to design high-quality visual assets. The Company believes this acquisition provides Shutterstock’s global customer community with professional-grade, easy-to-use design tools. The identifiable intangible assets, which include customer relationships, developed technology and trade names, have weighted average 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 TurboSquid, Inc. (“TurboSquid”), for approximately $ 77.3 million. The total purchase price was paid with existing cash on hand in the three months ended March 31, 2021. In connection with the acquisition, the Company incurred approximately $ 1.6 million of transaction costs, which is included in general and administrative expenses on the Consolidated Statements of Operations. TurboSquid is a Louisiana-based company that operates a marketplace offering more than one million 3D models, a marketplace for 2D images derived from 3D objects and a digital asset management solution. The Company believes this 13 Table of Contents Shutterstock, Inc. Notes to Consolidated Financial Statements (unaudited) 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. The fair value of consideration transferred in these business combinations has been allocated to the intangible and tangible assets acquired and liabilities assumed at the acquisition date, with the remaining unallocated amount recorded as goodwill. The identifiable intangible assets of 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. The aggregate purchase price for these acquisitions has 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 14 Table of Contents Shutterstock, Inc. Notes to Consolidated Financial Statements (unaudited) Pro-Forma Financial Information (unaudited) The following unaudited pro forma consolidated financial information (in thousands) reflects the results of operations of the Company for the three and six months ended June 30, 2022 and 2021, as if the Pond5 and Splash News acquisitions had been completed on January 1, 2021 and as if the TurboSquid and PicMonkey acquisitions had been completed on January 1, 2020, after giving effect to certain purchase accounting adjustments, primarily related to intangible assets and transaction costs. These pro forma results have been prepared for comparative purposes only and are not necessarily indicative of what the Company’s operating results would have been, had the acquisitions actually taken place at the beginning of the previous annual period. Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Revenue As Reported $ 206,872 $ 189,912 $ 406,004 $ 373,193 Pro Forma 213,452 211,643 426,287 417,316 Income before income taxes As Reported $ 22,713 $ 34,548 $ 55,389 $ 70,204 Pro Forma 26,326 35,978 58,559 68,941 (4) Property and Equipment Property and equipment is summarized as follows (in thousands): As of June 30, 2022 As of December 31, 2021 Computer equipment and software $ 240,535 $ 221,429 Furniture and fixtures 10,223 10,238 Leasehold improvements 19,746 19,453 Property and equipment 270,504 251,120 Less accumulated depreciation ( 217,955 ) ( 203,046 ) Property and equipment, net $ 52,549 $ 48,074 Depreciation expense related to property and equipment was $ 8.3 million and $ 7.9 million for the three months ended June 30, 2022 and 2021, respectively, and $ 16.3 million and $ 15.9 million for the six months ended June 30, 2022 and 2021, respectively. Cost of revenues included depreciation expense of $ 7.5 million and $ 7.1 million for the three months ended June 30, 2022 and 2021, respectively, and $ 14.7 million and $ 14.2 million for the six months ended June 30, 2022 and 2021, respectively. General and administrative expense included depreciation expense of $ 0.8 million for the three months ended June 30, 2022 and 2021, and $ 1.6 million and $ 1.7 million for the six months ended June 30, 2022 and 2021, respectively. Capitalized Internal-Use Software The Company capitalized costs related to the development of internal-use software of $ 10.6 million and $ 7.2 million for the three months ended June 30, 2022 and 2021, respectively, and $ 20.1 million and $ 14.2 million for the six months ended June 30, 2022 and 2021, respectively. Capitalized amounts are included as a component of property and equipment under computer equipment and software on the Consolidated Balance Sheets. The portion of total depreciation expense related to capitalized internal-use software was $ 7.2 million and $ 6.6 million for the three months ended June 30, 2022 and 2021, respectively, and $ 14.0 million and $ 13.3 million for the six months ended June 30, 2022 and 2021, respectively. Depreciation expense related to capitalized internal-use software is included in cost of revenue in the Consolidated Statements of Operations. As of June 30, 2022 and December 31, 2021, the Company had capitalized internal-use software of $ 45.1 million and $ 39.0 million, respectively, net of accumulated depreciation, which was included in property and equipment, net. 15 Table of Contents Shutterstock, Inc. Notes to Consolidated Financial Statements (unaudited) (5) Goodwill and Intangible Assets Goodwill The Company’s goodwill balance is attributable to its Content reporting unit and is tested for impairment annually on October 1 or upon a triggering event. No triggering events were identified during the six months ended June 30, 2022. The following table summarizes the changes in the Company’s goodwill balance during the six months ended June 30, 2022 (in thousands): Goodwill Balance as of December 31, 2021 $ 219,816 Goodwill related to acquisitions 160,514 Foreign currency translation adjustment ( 2,676 ) Balance as of June 30, 2022 $ 377,654 Intangible Assets Intangible assets consisted of the following as of June 30, 2022 and December 31, 2021 (in thousands): As of June 30, 2022 As of December 31, 2021 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Weighted Average Life (Years) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Amortizing intangible assets: Customer relationships $ 95,508 $ ( 15,556 ) $ 79,952 12 $ 55,542 $ ( 13,906 ) $ 41,636 Trade name 15,922 ( 6,659 ) 9,263 9 11,787 ( 6,805 ) 4,982 Developed technology 92,231 ( 23,327 ) 68,904 4 67,940 ( 14,214 ) 53,726 Contributor content 44,465 ( 16,843 ) 27,622 8 37,984 ( 14,632 ) 23,352 Patents 259 ( 140 ) 119 18 259 ( 133 ) 126 Total $ 248,385 $ ( 62,525 ) $ 185,860 $ 173,512 $ ( 49,690 ) $ 123,822 Amortization expense was $ 8.2 million and $ 2.3 million for the three months ended June 30, 2022 and 2021, respectively, and $ 15.3 million and $ 4.4 million for the six months ended June 30, 2022 and 2021, respectively. Cost of revenue included amortization expense of $ 7.7 million and $ 1.2 million for the three months ended June 30, 2022 and 2021, respectively, and $ 14.2 million and $ 2.3 million for the six months ended June 30, 2022 and 2021, respectively. General and administrative expense included amortization expense of $ 0.6 million and $ 1.1 million for the three months ended June 30, 2022 and 2021, respectively, and $ 1.1 million and $ 2.0 million for the six months ended June 30, 2022 and 2021, respectively. The Company determined that there was no indication of impairment of the intangible assets for any period presented. Estimated amortization expense is: $ 19.0 million for the remaining six months of 2022, $ 37.7 million in 2023, $ 30.8 million in 2024, $ 20.6 million in 2025, $ 18.6 million in 2026, $ 13.1 million in 2027 and $ 46.1 million thereafter. 16 Table of Contents Shutterstock, Inc. Notes to Consolidated Financial Statements (unaudited) (6) Accrued Expenses Accrued expenses consisted of the following (in thousands): As of June 30, 2022 As of December 31, 2021 Compensation $ 28,077 $ 43,529 Non-income taxes 24,711 21,488 Website hosting and marketing fees 9,917 18,314 Other expenses 21,842 16,198 Total accrued expenses $ 84,547 $ 99,529 (7) Debt On May 6, 2022, the Company entered into a five-year $ 100 million unsecured revolving loan facility (the “Credit Facility”) with Bank of America, N.A., as Administrative Agent and other lenders. The Credit Facility includes a letter of credit sub-facility and a swingline facility and it also permits, subject to the satisfaction of certain conditions, up to $ 100 million of additional revolving loan commitments with the consent of the Administrative Agent. At the Company’s option, revolving loans accrue interest at a per annum rate based on either (i) the base rate plus a margin ranging from 0.125 % to 0.500 %, determined based on the Company’s consolidated leverage ratio or (ii) the Term Secured Overnight Financing Rate (“SOFR”) (for interest periods of 1, 3 or 6 months) plus a margin ranging from 1.125 % to 1.5 %, determined based on the Company’s consolidated leverage ratio. The Company is also required to pay an unused commitment fee ranging from 0.150 % to 0.225 %, determined based on the Company’s consolidated leverage ratio. In connection with the execution of this agreement, the Company paid debt issuance costs of approximately $ 0.6 million. On May 9, 2022, the Company borrowed $ 50 million for use in connection with the acquisition of Pond5, described under Note 3 (“Acquisitions”) and for general corporate purposes. As of June 30, 2022, the Company had outstanding borrowings under the Credit Facility of $ 50 million and had a remaining borrowing capacity of $ 48 million, net of standby letters of credit. As of December 31, 2021, the Company had no outstanding debt obligations. For the three and six months ended June 30, 2022, the Company recognized interest expense of $ 0.2 million. The Credit Facility contains financial covenants and requirements restricting certain of the Company’s activities, which are usual and customary for this type of credit facility. The Company is also required to maintain compliance with a consolidated leverage ratio and a consolidated interest coverage ratio, in each case, determined in accordance with the terms of the Credit Facility. As of June 30, 2022, the Company was in compliance with these covenants. (8) Stockholders’ Equity and Equity-Based Compensation Stockholders’ Equity Common Stock The Company issued approximately 130,000 and 163,000 shares of common stock during the three months ended June 30, 2022 and 2021, respectively, related to the exercise of stock options and the vesting of Restricted Stock Units. Treasury Stock In October 2015, the Company’s Board of Directors approved a share repurchase program, authorizing the Company to purchase up to $ 100 million of its common stock. In February 2017, the Company’s Board of Directors approved an increase to the share repurchase program, authorizing the Company to repurchase up to an additional $ 100 million of its outstanding common stock. 17 Table of Contents Shutterstock, Inc. Notes to Consolidated Financial Statements (unaudited) The Company expects to fund future repurchases, if any, through a combination of cash on hand, cash generated by operations and future financing transactions, if appropriate. Accordingly, the share repurchase program is subject to the Company having available cash to fund repurchases. Under the share repurchase program, management is authorized to purchase shares of the Company’s common stock from time to time through open market purchases or privately negotiated transactions at prevailing prices as permitted by securities laws and other legal requirements, and subject to market conditions and other factors. During the three and six months ended June 30, 2022, the Company repurchased approximately 286,700 and 708,700 shares of its common stock at an average per share cost of $ 63.95 and $ 79.87 , respectively. During the six months ended June 30, 2021, the Company did no t repurchase any shares of its common stock under the share repurchase program. As of June 30, 2022, the Company had $ 16.2 million of remaining authorization for purchases under the share repurchase program. Dividends The Company declared and paid cash dividends of $ 0.24 and $ 0.48 per share of common stock, or $ 8.7 million and $ 17.4 million, during the three and six months ended June 30, 2022, respectively, and $ 0.21 and $ 0.42 per share of common stock, or $ 7.7 million and $ 15.3 million, during the three and six months ended June 30, 2021, respectively. On July 18, 2022, the Company’s Board of Directors declared a quarterly cash dividend of $ 0.24 per share of outstanding common stock payable on September 15, 2022 to stockholders of record at the close of business on September 1, 2022. Future declarations of dividends are subject to the final determination of the Board of Directors, and will depend on, among other things, the Company’s future financial condition, results of operations, capital requirements, capital expenditure requirements, contractual restrictions, anticipated cash needs, business prospects, provisions of applicable law and other factors the Board of Directors may deem relevant. Equity-Based Compensation The Company recognizes stock-based compensation expense for all equity-based compensation awards, including employee Restricted Stock Units and Performance-based Restricted Stock Units (“PRSUs” and, collectively with Restricted Stock Units, “RSUs”) and stock options, based on the fair value of each award on the grant date. Awards granted prior to June 1, 2022 were granted under the Company’s Amended and Restated 2012 Omnibus Equity Incentive Plan (the “2012 Plan”). At the Annual Meeting held on June 2, 2022, the Company’s stockholders approved the 2022 Omnibus Equity Incentive Plan (the “2022 Plan”). Awards granted subsequent to June 2, 2022 were granted under the 2022 Plan. 18 Table of Contents Shutterstock, Inc. Notes to Consolidated Financial Statements (unaudited) The following table summarizes non-cash equity-based compensation expense, net of forfeitures, by financial statement line item included in the accompanying Consolidated Statements of Operations for the three and six months ended June 30, 2022 and 2021 (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Cost of revenue $ 156 $ 194 $ 234 $ 358 Sales and marketing 1,629 926 2,557 1,393 Product development 2,557 1,799 4,338 3,028 General and administrative 2,701 6,767 7,740 13,117 Total $ 7,043 $ 9,686 $ 14,869 $ 17,896 The following table summarizes non-cash equity-based compensation expense, net of forfeitures, by award type included in the accompanying Consolidated Statements of Operations for the three and six months ended June 30, 2022 and 2021 (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Stock options $ ( 197 ) $ 177 $ ( 22 ) $ 352 RSUs 7,240 9,509 14,891 17,544 Total $ 7,043 $ 9,686 $ 14,869 $ 17,896 Stock Option Awards During the six months ended June 30, 2022, no options to purchase shares of its common stock were granted. As of June 30, 2022, there were approximately 319,000 options vested and exercisable with a weighted average exercise price of $ 34.46 . As of June 30, 2022, the total unrecognized compensation expense related to non-vested options was approximately $ 0.2 million, which is expected to be recognized through 2023. Restricted Stock Unit Awards During the six months ended June 30, 2022, the Company had RSU grants, net of forfeitures, of approximately 745,000 . As of June 30, 2022, there are approximately 1,393,000 non-vested RSUs outstanding with a weighted average grant-date fair value of $ 76.22 . As of June 30, 2022, the total unrecognized non-cash equity-based compensation expense related to the non-vested RSUs was approximately $ 81.3 million, which is expected to be recognized through 2026. During the six months ended June 30, 2022 and 2021, shares of common stock with an aggregate value of $ 21.0 million and $ 20.2 million were withheld upon vesting of RSUs and paid in connection with related remittance of employee withholding taxes to taxing authorities. During the three months ended June 30, 2022, the Company had approximately $ 3 million in forfeitures associated with the resignation of its former Chief Executive Officer. On July 1, 2022, the Company awarded RSUs with a value of $ 30 million to its newly appointed Chief Executive Officer, which vest over a three-year service period. $ 15 million of these awards are subject to performance metrics. (9) Revenue The Company distributes its products through two primary channels: E-commerce: The majority of the Company’s customers make purchases of content licenses and tools directly through the Company’s self-service web properties. E-commerce customers have the flexibility to purchase subscription-based plans that are paid on a monthly or annual basis. Customer are also able to license content on a transactional basis. These customers generally license content under the Company’s standard or enhanced licenses, with additional licensing options available to meet customers’ individual needs. E-commerce customers typically pay the full amount of the purchase price in advance or at the time of license, generally with a credit card. Enterprise: The Company also has a base of customers with unique content, licensing and workflow needs. These customers benefit from communication with dedicated sales professionals, service and research teams which provide a number 19 Table of Contents Shutterstock, Inc. Notes to Consolidated Financial Statements (unaudited) of tailored enhancements to their creative workflows including non-standard licensing rights, multi-seat access, ability to pay on credit terms, multi-brand licensing packages, increased indemnification protection and content licensed for use-cases outside of those available on the E-commerce platform. The Company’s revenues by distribution channel for the three and six months ended June 30, 2022 and 2021 are as follows (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 E-commerce $ 127,388 $ 120,715 $ 254,458 $ 239,115 Enterprise 79,484 69,197 151,546 134,078 Total Revenues $ 206,872 $ 189,912 $ 406,004 $ 373,193 The June 30, 2022 deferred revenue balance will be earned as content is downloaded or upon the expiration of subscription-based products, and nearly all is expected to be earned within the next twelve months. $ 120.5 million of total revenue recognized for the six months ended June 30, 2022 was reflected in deferred revenue as of December 31, 2021. (10) Other (Expense) / Income, net The following table presents a summary of the Company’s other income and expense activity included in the accompanying Consolidated Statements of Operations for the three and six months ended June 30, 2022 and 2021 (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Foreign currency (loss) / gain $ ( 2,495 ) $ 1,277 $ ( 1,761 ) $ ( 1,233 ) Interest expense ( 205 ) — ( 205 ) — Other 39 46 63 94 Total other (expense) / income $ ( 2,661 ) $ 1,323 $ ( 1,903 ) $ ( 1,139 ) (11) Income Taxes The Company’s effective tax rates yielded a net expense of 14.4 % and 14.7 % for the three months ended June 30, 2022 and 2021, respectively, and a net expense of 16.9 % and 16.0 % for the six months ended June 30, 2022 and 2021, respectively. During the three months ended June 30, 2022, the net effect of discrete items decreased the effective tax rate by 4.9 %. For the six months ended June 30, 2022, the net effect of discrete items decreased the effective tax rate by 2.2 %. The discrete items for the three and six months ended June 30, 2022, primarily relate to windfall tax benefits associated with equity-based compensation. Excluding discrete items, the Company’s effective tax rate would have been 19.3 % and 19.1 % for the three and six months ended June 30, 2022, respectively. During the three months ended June 30, 2021, the net effect of discrete items decreased the effective tax rate by 5.3 %. For the six months ended June 30, 2021, the net effect of discrete items decreased the effective tax rate by 4.0 %. The discrete items for the three and six months ended June 30, 2021, primarily relate to windfall tax benefits associated with equity-based compensation. Excluding discrete items, the Company’s effective tax rate would have been 20.0 % for the three and six months ended June 30, 2021. The Company has computed the provision for income taxes based on the estimated annual effective tax rate excluding a loss jurisdiction with no tax benefit and the application of discrete items, if any, in the applicable period. During the three and six months ended June 30, 2022 and 2021, uncertain tax positions recorded by the Company were not significant. To the extent the remaining uncertain tax positions are ultimately recognized, the Company’s effective tax rate may be impacted in future periods. 20 Table of Contents Shutterstock, Inc. Notes to Consolidated Financial Statements (unaudited) The Company recognizes interest expense and tax penalties related to unrecognized tax benefits in income tax expense in the Consolidated Statements of Operations. The Company’s accrual for interest and penalties related to unrecognized tax benefits was not significant for the three and six months ended June 30, 2022 and 2021. During the six months ended June 30, 2022 and 2021, the Company paid net cash taxes of $ 12.7 million and $ 9.5 million, respectively. (12) Net Income Per Share Basic net income per share is computed using the weighted average number of shares of common stock outstanding for the period, excluding unvested RSUs and stock options. Diluted net income per share is based upon the weighted average shares of common stock outstanding for the period plus dilutive potential shares of common stock, including unvested RSUs and stock options using the treasury stock method. The following table sets forth the computation of basic and diluted net income per share for the three and six months ended June 30, 2022 and 2021 (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Net income $ 19,445 $ 29,454 $ 46,017 $ 58,968 Shares used to compute basic net income per share 36,123 36,570 36,213 36,453 Dilutive potential common shares Stock options 169 242 201 233 Unvested restricted stock awards 286 377 476 532 Shares used to compute diluted net income per share 36,578 37,189 36,890 37,218 Basic net income per share $ 0.54 $ 0.81 $ 1.27 $ 1.62 Diluted net income per share $ 0.53 $ 0.79 $ 1.25 $ 1.58 Dilutive shares included in the calculation 836 1,221 1,121 1,328 Anti-dilutive shares excluded from the calculation 590 2 325 10 21 Table of Contents Shutterstock, Inc. Notes to Consolidated Financial Statements (unaudited) (13) Geographic Information The following table presents the Company’s revenue based on customer location (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 North America $ 85,896 $ 68,954 $ 165,839 $ 133,263 Europe 62,931 64,778 125,484 127,055 Rest of the world 58,045 56,180 114,681 112,875 Total revenue $ 206,872 $ 189,912 $ 406,004 $ 373,193 The United States, included in North America in the above table, accounted for 38 % and 31 % of consolidated revenue for the six months ended June 30, 2022 and 2021, respectively. No other country accounts for more than 10% of the Company’s revenue in any period presented. The Company’s long-lived tangible assets were located as follows (in thousands): As of June 30, As of December 31, 2022 2021 North America $ 43,625 $ 40,465 Europe 8,837 7,460 Rest of the world 87 149 Total long-lived tangible assets $ 52,549 $ 48,074 The United States, included in North America in the above table, accounted for 77 % and 76 % of total long-lived tangible assets as of June 30, 2022 and December 31, 2021, respectively. Ireland, included in Europe in the above table, accounted for 13 % and 11 % of total long-lived tangible assets as of June 30, 2022 and December 31, 2021, respectively. No other country accounts for more than 10% of the Company’s long-lived tangible assets in any period presented. (14) Commitments and Contingencies As of June 30, 2022, the Company had total non-lease obligations in the amount of approximately $ 103.3 million, which consisted primarily of minimum royalty guarantees and unconditional purchase obligations related to contracts for infrastructure and other business services. As of June 30, 2022, the Company’s non-lease obligations for the remainder of 2022 and for the years ending December 31, 2023, 2024, 2025 and 2026 were approximately $ 30.6 million, $ 37.3 million, $ 28.5 million, $ 6.3 million and $ 0.6 million, respectively. Legal Matters From time to time, the Company may become party to litigation in the ordinary course of business, including direct claims brought by or against the Company with respect to intellectual property, contracts, employment and other matters, as well as claims brought against the Company’s customers for whom the Company has a contractual indemnification obligation. The Company assesses the likelihood of any adverse judgments or outcomes with respect to these matters and determines loss contingency assessments on a gross basis after assessing the probability of incurrence of a loss and whether a loss is reasonably estimable. In addition, the Company considers other relevant factors that could impact its ability to reasonably estimate a loss. A determination of the amount of reserves required, if any, for these contingencies is made after analyzing each matter. The Company reviews reserves, if any, at least quarterly and may change the amount of any such reserve in the future due to new developments or changes in strategy in handling these matters. Although the results of litigation and threats of litigation, investigations and claims cannot be predicted with certainty, the Company currently believes that the final outcome of these matters will not have a material adverse effect on its business, consolidated financial position, results of operations, or cash flows. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors. The Company currently has no material active litigation matters and, accordingly, no material reserves related to litigation. 22 Table of Contents Shutterstock, Inc. Notes to Consolidated Financial Statements (unaudited) Indemnification and Employment Agreements In the ordinary course of business, the Company enters into contractual arrangements under which it agrees to provide indemnification of varying scope and terms to customers with respect to certain matters, including, but not limited to, losses arising out of the breach of the Company’s intellectual property warranties for damages to the customer directly attributable to the Company’s breach. The Company is not responsible for any damages, costs, or losses to the extent such damages, costs or losses arise as a result of any modifications made by the customer, or the context in which content is used. The standard maximum aggregate obligation and liability to any one customer for any single claim is generally limited to ten thousand dollars but can range to $ 250,000 , with certain exceptions for which our indemnification obligation are uncapped. As of June 30, 2022, the Company had recorded no material liabilities related to indemnification obligations for loss contingencies. Additionally, the Company believes that it has the appropriate insurance coverage in place to adequately cover such indemnification obligations, if necessary. Pursuant to the Company’s charter documents and separate written indemnification agreements, the Company has certain indemnification obligations to its executive officers, certain employees and directors, as well as certain former officers and directors. The Company has also entered into employment agreements with its executive officers and certain employees. These agreements specify various employment-related matters, including annual compensation, performance incentive bonuses, and severance benefits in the event of termination or in the event of a change in control or otherwise, with or without cause. 23 Table of Contents