Shutterstock, Inc. 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk. We are exposed to market risks in the ordinary course of our business, including risks related to foreign currency exchange rate fluctuation, interest rate fluctuation and inflation. Foreign Currency Exchange Risk Our sales to international customers are denominated in multiple currencies, including but not limited to the U.S. dollar, the euro, the British pound, the Australian dollar and the Japanese yen. Revenue denominated in foreign currencies as a percentage of total revenue was approximately 32%, 35% and 36% in 2022, 2021 and 2020, respectively. Changes in exchange rates will affect our revenue and certain operating expenses to the extent that our revenue is generated and expenses are incurred in currencies other than the U.S. dollar. Royalties earned by and paid to contributors are denominated in the U.S. dollar and will not be affected by changes in exchange rates. Based on our foreign currency denominated revenue for 2022, we estimate that a 10% change in the exchange rate of the U.S. dollar against all foreign currency denominated revenues would impact our revenue by approximately 3%. We have established foreign subsidiaries in various countries and have concluded that the functional currency of these entities is generally the local currency. Business transacted in currencies other than each entity’s functional currency results in transactional gains and losses. The net impacts of foreign currency transactions on our financial statements were losses of $3.1 million and $3.2 million in 2022 and 2021, respectively, and a gain of $2.4 million in 2020. Translation adjustments resulting from converting the foreign subsidiaries’ financial statements into U.S. dollars are recorded as a component of accumulated other comprehensive income (loss) in stockholders’ equity. We do not currently enter into derivatives or other financial instruments in order to hedge our foreign currency exchange risk, but we may do so in the future. Our historical revenue by currency is as follows (in thousands): Year Ended December 31, 2022 2021 2020 U.S. Dollars Originating Currency U.S. Dollars Originating Currency U.S. Dollars Originating Currency Euro $ 148,643 € 138,531 $ 152,290 € 129,140 $ 138,128 € 122,287 British pounds 57,144 £ 45,711 57,851 £ 42,340 49,402 £ 38,570 All other non-U.S. currencies (1) 59,204 57,342 49,630 Total foreign currency 264,991 267,483 237,160 U.S. dollar 562,835 505,932 429,526 Total revenue $ 827,826 $ 773,415 $ 666,686 (1) Includes no single currency which exceeded 5% of total revenue for any of the periods presented. 59 Table of Contents Interest Rate Fluctuation Risk Our cash and cash equivalents consist of cash and money market accounts. The primary objective of our investment activities is to preserve principal while maximizing income without significantly increasing risk. The fair value of our cash and cash equivalents is not particularly sensitive to interest rate changes. Amounts borrowed under our Credit Facility 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 our consolidated leverage ratio or (ii) the Term Secured Overnight Financing Rate (for interest periods of 1, 3 or 6 months) plus a margin ranging from 1.125% to 1.5%, determined based on our consolidated leverage ratio. A hypothetical 10% change in interest rates would not have a material impact on our interest expense as of December 31, 2022. Inflation Risk We do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations. Item 8. Financial Statements and Supplementary Data. The information required by this item is incorporated by reference to the consolidated financial statements and accompanying notes which begins on page F-2 of this Annual Report on Form 10-K. 60 Table of Contents Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None.