What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-26 compared with 2023-02-14 · 234 added, 169 removed, 398 unchanged (50% of the section changed)

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Overview and Recent Developments

Shutterstock is a global creative platform for transformative brands and media companies.

Shutterstock is a leading global creative platform connecting brands and businesses to high quality content.

Our 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.

Contributors upload their content to our web properties in exchange for royalty payments based on customer download activity.

Beyond content, customers also leverage the Company’s platform to assist with the entire creative process from ideation through creative execution.

Our key content offerings include:

Digital content licensed to our customers for their creative needs includes images, footage, music, and 3D models (our “Content” offering).

Our Content revenues represent the majority of the Company’s business and are supported by our searchable creative platform and driven by our large contributor network.

In addition, our customers have needs that are beyond traditional content license products and services.

These include (i) licenses to metadata associated with our images, footage, music tracks and 3D models through our data offering, (ii) distribution and advertising services from our Giphy business, which consists of GIFs (graphics interchange format visuals) that serve as a critical ingredient in text- and message- based conversations and in contextual advertising settings, (iii) specialized solutions for high-quality content matched with production tools and services through Shutterstock Studios and (iv) other tailored white-glove services (collectively, our “Data, Distribution, and Services” offerings).

The Company’s Content and Data, Distribution, and Services offering revenues are as follows (in thousands):

Year Ended December 31,

2023 2022 2021

Content $ 737,264 $ 789,306 $ 757,470

Data, Distribution, and Services 137,323 38,520 15,945

Total Revenue $ 874,587 $ 827,826 $ 773,415

Our Content Offering:

Our Content offering include:

• Images - consisting of photographs, vectors and illustrations.

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• 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.

Our offerings are distributed to customers under the following brands:

• Generative AI Content - consisting of images generated from algorithms trained with high-quality, ethically sourced content.

Customers can generate images by entering a description of their desired content into model prompts.

Our Content is distributed to customers under the following brands:

Shutterstock;

and Splash News.

Shutterstock, our flagship brand, includes various content types such as image, footage, music and editorial.

For customers seeking specialized solutions, Shutterstock Studios extends our offerings by providing custom, high-quality content matched with production tools and services at scale.

In addition, our collection of images, footage clips, music tracks and 3D models is also distributed through our Computer Vision offering which is used by large technology companies to train AI models.

Pond5 is a video-first content marketplace which expands the Company’s content offerings across footage, image and music.

PicMonkey is a leading online graphic design and image editing platform.

TurboSquid operates a marketplace that offers more than one million 3D models and a 2 dimensional (“2D”) marketplace derived from 3D objects.

Our Offset brand provides authentic and exceptional content for high-impact use cases that require extraordinary images, featuring work from top assignment photographers and illustrators from around the world.

PicMonkey is a leading online graphic design and image editing platform.

PremiumBeat offers exclusive high-quality music tracks and provides producers, filmmakers and marketers the ability to search handpicked production music from the world’s leading composers.

Splash News provides editorial image and video content across celebrity and red carpet events.

Bigstock maintains a separate content library tailored for creators seeking to incorporate cost-effective imagery into their projects.

Signature capabilities include:

• Magic Brush - Magically modify an image by brushing over the areas you'd like to change and simply describing what you want to add, replace or erase.

• Variations - Generate alternate options of any stock or AI-generated image.

• Expand Image - Broaden the view of any image, as easily as if zooming out through a camera lens, to see more of the scene behind the central image.

• Smart Resize - Automatically change the shape of your image to match the dimensions you need.

• Background Remover - Remove or replace the background with any scene when the subject of an image is perfect, but the background is not.

• AI Image Generator - Allows anyone to create high-quality, ethically-sourced visuals in seconds (ready for licensing and indemnifiable for commercial use) by simply describing what they are looking for.

Over 2.0 million active, paying customers contributed to our revenue in 2023.

As of December 31, 2022, more than 2.3 million approved contributors made their images, footage and music tracks available in our collection, which has grown to 600 million images and 45 million footage clips as of December 31, 2022.

Our contributors made their images, footage and music tracks available in our collection, which has grown to 771 million images and 54 million footage clips as of December 31, 2023.

This makes our collection of content one of the largest of its kind, and we delivered 153.0 million paid downloads to our customers across all of our brands during the year ended December 31, 2023.

Contributors of Content typically earn a royalty each time their work is licensed.

Contributors earn royalties based on our published earnings schedule that is based on annual licensing volume, which determines the contributor’s earnings tier and the purchase option under which the content was licensed.

Royalties represent the largest component of our operating expenses, are

reported within cost of revenue, tend to fluctuate proportionately with revenue and paid downloads and may be impacted by the mix of products sold.

In October 2022, Shutterstock announced our strategic partnership with OpenAI, an AI research and deployment company.

In 2023, Shutterstock integrated Dall-E 2, OpenAI’s tool for AI-generated content into the Shutterstock platform to enable our customers to input keywords and generate unique images based on their specific criteria.

Through our platform, we primarily generate revenue by licensing content to our customers.

During the year ended December 31, 2022, 61% of our revenue and the majority of our content licenses came from our E-commerce sales channel.

The majority of our customers license content directly through our self-service web properties which include Shutterstock.com, pond5.com, premiumbeat.com, turbosquid.com and bigstock.com.

E-commerce customers have the ability to purchase plans that are paid on either a monthly or annual basis or to license content on a transactional basis.

E-commerce customers generally license content under our standard or enhanced licenses, with additional licensing options available to meet customers’ individual needs.

Customers in our Enterprise sales channel generally have unique content, licensing and workflow needs.

These customers benefit from communication with our dedicated sales, service and research teams which provide a number of personalized 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 our e-commerce platform.

Customers in our enterprise sales channel may also benefit from access to (i) Shutterstock Editorial, which includes our library of editorial images and videos, (ii) Shutterstock Studios, our offering which provides custom, high-quality content matched with production tools and services at scale, and (iii) Computer Vision, our offering which provides metadata associated with our content collection, used to train AI models.

Our range of solutions, including the depth of our API platform integrations, appeals to a broad and diverse customer base and enables us to adapt and evolve with the needs of our more high touch clients to deliver capabilities that embed deep within their workflows.

Our Enterprise sales channel provided approximately 39% of our revenue in 2022.

Content contributors generally earn royalties based on our published earnings schedule that is based on annual licensing volume, which determines the contributor’s earnings tier and the purchase option under which the content was licensed.

Royalties represent the largest component of our operating expenses, are reported within cost of revenue, tend to fluctuate proportionately with revenue and paid downloads and may be impacted by the mix of products sold.

As the use cases for our creative solutions expand, we believe our customers are seeking alternative means to consume our offerings.

As a result, we have seen continued demand for our monthly subscription products, including our suite of multi-asset subscriptions, launched during 2021.

These multi-asset products are credit-based and enable customers to license images, footage and music in a single subscription.

As a result, we have seen demand for our monthly subscription products.

Our monthly subscriptions provide for either a fixed number of content licenses or credits that may be used to download content during the period.

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For users who need less content, individual content licenses may also be purchased on a transactional basis, paid for at the time of download.

Our Data, Distribution, and Services offering address customer demand for products and services that are beyond our Content licenses.

These products and services include, among other things, the use of our metadata, leveraging our Giphy, Inc.

platform, and customized Shutterstock Studios offerings.

We have seen increased demand for access to our metadata for machine learning and generative artificial intelligence model training.

We offer ethically sourced and licenseable metadata at industry leading scales and quality.

Our metadata customer base ranges from large technology and media companies to smaller start-up organizations.

In 2023, we completed our acquisition of Giphy, Inc.

Giphy is a content platform that allows users to personalize casual conversations with GIFs, and generates billions of monthly impressions through over 14,000 API partners.

We believe customers in all industries will look to use Giphy in marketing campaigns as another advertising outlet.

Our Data, Distribution, and Services offering also includes high-quality production and custom content at scale provided by Shutterstock Studios (“Studios”).

Studios is a cost-effective solution for brands and agencies looking to meet their content needs and create fresh dynamic digital assets.

Customers can bring an idea, and our Studios team will provide a 360-degree content creation solution.

We offer a whole spectrum of services at pre-production, production, live production and post-production stages.

Key Operating Metrics

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Subscribers, subscriber revenue and average revenue per customer from acquisitions are included in these metrics beginning twelve months after the closing of the respective business combination.

Accordingly, the metrics include Subscribers, Subscriber revenue, and Average revenue per customer from TurboSquid beginning February 2022 and from PicMonkey beginning September 2022.

These metrics exclude the respective customer counts and revenues from our acquisitions of Pond5 and Splash News.

Accordingly, the metrics include Subscribers, Subscriber revenue, and Average revenue per customer from TurboSquid beginning February 2022, from PicMonkey beginning September 2022, and from Pond5 and Splash News beginning May 2023.

These metrics exclude the respective counts and revenues from Giphy.

We define subscribers as those customers who purchase one or more of our monthly recurring products for a continuous period of at least three months, measured as of the end of the reporting period.

We believe the number of subscribers is an important metric that provides insight into our monthly recurring business and its growth.

We believe the number of subscribers is an important metric that provides insight into our monthly recurring business.

We believe that an increase in our number of subscribers is an indicator of engagement in our platform and potential for future growth.

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We define subscriber revenue as the revenue generated from subscribers during the period.

We believe subscriber revenue, together with our number of subscribers, provide insight into the portion of our business and growth driven by our monthly recurring products.

We believe subscriber revenue, together with our number of subscribers, provide insight into the portion of our business driven by our monthly recurring products.

Average Revenue Per Customer

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We define customers as total active, paying customers that contributed to total revenue over the last twelve-month period.

Changes in our average revenue per customer will be driven by changes in the mix of our subscription-based products and the pricing in our transactional business.

Changes in our average revenue per customer will be driven by changes in the mix of our subscription-based and transactional products as well as pricing in our transactional business.

Paid Downloads

We define paid downloads as the number of downloads that our customers make in a given period of our content.

Paid downloads exclude content related to custom content, downloads of content that are offered to customers for no charge, including our free image of the week, and downloads associated with our Computer Vision offering.

Measuring the number of paid downloads that our customers make in a given period is important because they are the primary method of delivering licensed content, which drives a significant portion of the Company’s revenue and contributor royalties.

Paid downloads exclude content related to our Studios business, downloads of content that are offered to customers for no charge (including our free trials), and downloads associated with our data offering.

Measuring the number of paid downloads that our customers make in a given period is important because it is a measure of customer engagement on our platform and triggers the recognition of revenue and contributor royalties.

Revenue per Download

We define revenue per download as the amount of revenue recognized in a given period divided by the number of paid downloads in that period excluding revenue from custom content, revenue that is not derived from or associated with content licenses and revenue associated with our Computer Vision offering.

We define revenue per download as the amount of revenue recognized in a given period divided by the number of paid downloads in that period excluding revenue from our Studios business, revenue that is not derived from or associated with content licenses and revenue associated with our data offering.

This metric captures any changes in our pricing, including changes resulting from the impact of competitive pressures, as well as the mix of licensing options that our customers choose, some of which generate more revenue per download than others, and the impact that changes in foreign currency rates have on our pricing.

Changes in revenue per download are primarily driven by the introduction of new product offerings, changes in product mix and customer utilization of our products.

Changes in revenue per download are primarily driven by the introduction of new product offerings, changes in product and sales channel mix and customer utilization of our products.

Content in our Collection

We define content in our collection as the total number of approved images (photographs, vectors and illustrations) and footage (in number of clips) in our library at the end of the period.

We exclude content from this collection metric that is not uploaded directly to our site but is available for license by our customers through an application program interface, custom content and certain content that may be licensed for editorial use only.

Prior to December 31, 2022, this metric only included approved images and footage clips on shutterstock.com at the end of the period.

We exclude content from this collection metric that is not uploaded directly to our site but is available for license by our customers through an application program interface, content from our Studios business and AI generated content.

Prior to December 31, 2022, this metric only included approved images

and footage clips in our library on shutterstock.com at the end of the period.

We believe that our large selection of high-quality content enables us to attract and retain customers and drives our network effect.

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1 Subscribers, Subscriber Revenue and Average Revenue Per Customer from acquisitions are included in these metrics beginning twelve months after the closing of the respective business combination.

Accordingly, the metrics include Subscribers, Subscriber revenue, and Average revenue per customer from TurboSquid beginning February 2022 and from PicMonkey beginning September 2022.

These metrics exclude the respective customer counts and revenues from our acquisitions of Pond5 and Splash News.

These metrics exclude the respective counts and revenues from our acquisition of Giphy.

Basis of Presentation

The majority of our revenues are earned from licensing content.

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

Subsequent to the acquisition of PicMonkey, we also generate revenue from the license of tools available through our platform.

A significant portion of our revenues are earned from licensing content.

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

We also generate revenue from tools made available through our platform.

For contracts that contain multiple performance obligations, we allocate the transaction price to each performance obligation based on a relative standalone selling price.

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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 our subscription products.

For revenue associated with the license of tools available through our platform, the Company recognizes revenue on a straight-line basis over the subscription period.

For revenue associated with tools available through our platform, the Company recognizes revenue on a straight-line basis over the subscription period.

We expense 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 our customers purchase products by making an electronic payment with a credit card at the time of the transaction.

Collectability is probable at the time the electronic order or contract is entered.

A significant portion of our customers purchase products by making electronic payments with a credit card at the time of the transaction.

Customer payments received in advance of revenue recognition are contract liabilities and are recorded as deferred revenue.

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Impairment of lease and related assets includes impairment charges related to a portion of the Company’s right-of-use assets and property and equipment triggered by the decision to cease using certain office spaces.

Bargain Purchase Gain .

A bargain purchase gain is recognized subsequent to an acquisition, if the fair value of the net assets acquired and liabilities assumed exceeds the net consideration.

Other (Expense) / Income, Net.

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Income from operations 68,400 93,624 108,106

Other (expense) / income, net (2,587) (3,370) 4,257

Bargain purchase gain 50,261 — —

Other income / (expense), net 3,807 (2,587) (3,370)

Income before income taxes 122,468 91,037 104,736

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Income from operations 8 % 11 % 14 %

Other (expense) / income, net — % — % 1 %

Bargain purchase gain 6 % — % — %

Other income / (expense), net — % — % — %

Income before income taxes 14 % 11 % 14 %

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Income from operations 68,400 93,624 (25,224) (27)

Other expense, net (2,587) (3,370) 783 (23)

Bargain purchase gain 50,261 — 50,261 *

Other income / (expense), net 3,807 (2,587) 6,394 (247)

Income before income taxes 122,468 91,037 31,431 35

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On a constant currency basis, revenue increased approximately 5% in the year ended December 31, 2023, as compared to 2022.

Approximately 18% and 7% of the Company’s revenues were denominated in Euro and Pounds Sterling, respectively.

These currencies have depreciated to historically low values compared to the U.S.

dollar during the twelve months ended December 31, 2022.

Other currencies we transact in, including the Japanese Yen and Australian Dollar also depreciated significantly during the period.

E-commerce revenues increased by 2%, to $501.4 million in 2022, as compared to 2021.

On a constant currency basis, E-commerce revenues increased by 5% in 2022, as compared to 2021.

During 2022, growth in our E-commerce sales channel was driven by revenue generated from our acquisitions of PicMonkey and Pond5 which were completed on September 3, 2021 and May 11, 2022, respectively.

E-commerce revenue also benefited from higher subscriber revenue, which was offset by a reduction in revenue generated from our transactional products.

Enterprise revenues increased by 15%, to $326.4 million in 2022, as compared to 2021.

On a constant currency basis, Enterprise revenues increased by 20% in 2022, as compared to 2021.

The increase in Enterprise revenues was primarily driven by growth in our Computer Vision and multi-asset product offerings, in addition to revenue generated from our acquisitions of Pond5 and Splash News, which were completed on May 11, 2022 and May 28, 2022, respectively.

Enterprise revenue growth also benefited from continued momentum in Shutterstock Studios and Shutterstock Editorial.

Content license revenues decreased by 7%, to $737.3 million in 2023, as compared to 2022.

On a constant currency basis, Content license revenues decreased by 7% in 2023, as compared to 2022.

The decline in our Content license revenues was driven by weakness in new customer acquisition, partially offset by increases in Pond5.

Pond5 contributed to revenues for the full year in 2023 compared to seven months in 2022.

Data, Distribution, and Services revenues increased by 256%, to $137.3 million in 2023, as compared to 2022, and increased by 256% in 2023 on a constant currency basis.

The increase in Data, Distribution, and Services revenues was primarily driven by growth in our data offering, which accounted for $84.9 million of the growth from 2022 to 2023 and $10.5 million of revenue generated from Giphy.

2023 revenue from our E-commerce customers decreased by 12%, to $439.9 million in 2023, as compared to 2022.

E-commerce revenues were not impacted on a constant currency basis in 2023.

The decline in our E-commerce revenues was driven by weakness in new customer acquisition, partially offset by revenues generated from our acquisition of Pond5, which contributed to revenues for the full year in 2023.

2023 revenues from our Enterprise customers increased by 33%, to $434.6 million in 2023, as compared to 2022.

Enterprise revenues were not impacted on a constant currency basis in 2023.

The increase in Enterprise revenues was primarily driven by growth in our data offering, revenue generated from our acquisitions of Pond5 and Splash News, which contributed to revenues for the full year in 2023 and revenue generated from Giphy.

In the years ended December 31, 2023 and 2022, we delivered 153.0 million and 173.3 million paid downloads, respectively, and our revenue per download was $4.72 in 2023 compared to $4.40 in 2022.

During 2022, the 6% increase in revenue per download, is primarily due to changes in product mix coupled with a reduction in paid download volumes.

During 2023, the decline in paid downloads is attributed to the decline in the E-commerce business.

Changes in our revenue by region were as follows:

revenue from North America increased by $62.2 million, or 21%, to $353.2 million, revenue from Europe decreased by $10.5 million, or 4%, to $243.0 million and revenue from outside Europe and North America increased by $2.6 million, or 1%, to $231.6 million, in the year ended December 31, 2022 compared to 2021.

revenue from North America increased by $74.5 million, or 21%, to $427.7 million, revenue from Europe decreased by $12.0 million, or 5%, to $231.0 million and revenue from outside Europe

and North America decreased by $15.8 million, or 7%, to $215.8 million, in the year ended December 31, 2023 compared to 2022.

Cost and Expenses

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(ii) increased royalty, content and reviewer costs;

and (iii) higher costs associated with website hosting, hardware and software licenses.

We expect that our cost of revenue will continue to fluctuate in line with changes in revenue and paid downloads.

(iii) higher costs associated with website hosting, hardware and software licenses;

and (iv) Giphy employee-related costs comprised of $4.9 million of recurring Giphy Retention Compensation and $4.3 million of non-recurring Giphy Retention Compensation.

We expect that our cost of revenue will continue to fluctuate in line with changes in revenue.

Sales and Marketing.

Sales and marketing expenses decreased by $1.7 million, or 1%, to $203.2 million in 2022 as compared to 2021.

As a percent of revenue, sales and marketing expenses decreased to 25% for the year ended December 31, 2022, from 26% for 2021.

The decrease in sales and marketing expenses was primarily driven by $15.7 million in lower marketing spend, partially offset by $5.2 million in higher employee-related costs and $2.6 million in higher non-cash compensation expense.

In addition, the Company has incurred additional marketing expenses associated with second quarter live events and festivals.

Sales and marketing expenses increased by $11.6 million, or 6%, to $214.7 million in 2023 as compared to 2022.

As a percent of revenue, sales and marketing expenses was 25% for the years ended December 31, 2023 and 2022.

The increase in sales and marketing expenses was primarily driven by (i) $5.1 million in higher employee-related costs;

(ii) $3.1 million in higher consultant costs;

and (iii) Giphy employee-related costs comprised of $1.4 million of recurring Giphy Retention Compensation and $1.0 million of non-recurring Giphy Retention Compensation not considered necessary to operate our business.

We expect sales and marketing expenses to continue to fluctuate as we optimize our sales channels and invest in new customer acquisition, products and geographies.

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Product development expenses increased by $30.7 million, or 47%, to $96.2 million in 2023 as compared to 2022.

This increase was primarily driven by (i) $6.3 million in higher employee and third-party contractor related costs, net of capitalized labor for the twelve months ended December 31, 2022, (ii) $3.7 million in higher non-cash compensation expense and (iii) increased software and other IT-related costs for the twelve months ended December 31, 2022.

This increase was primarily driven by (i) Giphy employee-related costs comprised of $5.5 million of recurring Giphy Retention Compensation, net of capitalized labor and $20.9 million of non-recurring Giphy Retention Compensation not considered necessary to operate our business and (ii) $2.8 million in higher non-cash compensation expense.

We expect product development expenses, of which a portion will be capitalized, to continue in the foreseeable future, as we pursue opportunities to invest in developing new products and internal tools and enhance the functionality of our existing products and technologies.

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General and administrative expenses increased by $10.0 million, or 8%, to $142.6 million in 2023 as compared to 2022.

This increase was primarily driven by (i) $4.3 million in professional fees related to our acquisitions of Pond5 and Splash News, (ii) $3.6 million increase in bad debt expense;

(iii) $1.8 million related to realized foreign currency losses, (iii) $1.6 million in severance costs associated with a strategic workforce optimization initiative;

and (iv) $1 million related to a donation to provide direct assistance to Shutterstock’s contributors in Ukraine.

These increases were partially offset by (i) $6.9 million in lower non-cash compensation expense related to the departure of certain executives and expense associated with certain performance based awards, (ii) $1.9 million in lower depreciation and amortization expense and (iii) $1.2 million in lower employee-related costs.

This increase was primarily driven by (i) $7.9 million in higher non-cash equity-based compensation expense and (ii) Giphy employee-related costs comprised of $1.8 million of recurring Giphy Retention Compensation, net of capitalized labor and $5.4 million of non-recurring Giphy Retention Compensation not considered necessary to operate our business.

These increases are partially offset by $1.4 million in lower occupancy costs and $1.2 million in lower professional fees.

For the twelve months ended December 31, 2023 and 2022, general and administrative expenses included $3.0 million and $3.9 million in transaction costs related to the Giphy and Pond5 acquisitions, respectively.

Bargain Purchase Gain .

We recognized a bargain purchase gain of $50.3 million in 2023 related to the acquisition of Giphy, which represents the excess of the fair value of the net assets acquired in addition to the net negative purchase price.

Impairment of Lease and Related Assets .

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This resulted in an $18.7 million impairment charge, of which $15.9 million and $2.8 million relates to right-of-use assets and property and equipment, respectively.

Other expense, net.

During 2022, other expense, net substantially consisted of $1.3 million of expense due to foreign currency fluctuations and $1.3 million of interest expense related to the Credit Facility.

There was no impairment of lease and related assets in 2023.

Other income / (expense), net.

During 2023, other income / (expense), net substantially consisted of $4.8 million of interest income and $0.9 million of favorable unrealized foreign currency fluctuations, partially offset by $1.9 million of interest expense related to our credit facility.

As we increase the volume of business transacted in foreign currencies resulting from international expansion and as currency rates fluctuate, we expect foreign currency gains and losses to continue to fluctuate.

During 2021, other expense, net substantially consisted of $3.3 million of expense due to foreign currency fluctuations.

During 2022, other income / (expense), net substantially consisted of $1.3 million of expense due to foreign currency fluctuations and $1.3 million of interest expense related to the Credit Facility.

Income Taxes.

Income tax expense increased by $2.1 million, to $14.9 million in 2022 as compared to 2021.

Income tax expense decreased by $2.7 million, to $12.2 million in 2023 as compared to 2022.

Our effective tax rates for the years ended December 31, 2023 and 2022 were approximately 10.0% and 16.4%, respectively.

The 2023 effective tax rate differs from the U.S.

federal statutory tax rate primarily due to the foreign-derived intangible income deduction.

federal statutory tax rate primarily due to the non-taxable bargain purchase gain associated with the acquisition of Giphy, the effect of the U.S.

Research and Development (“R&D”) tax credit, and the foreign-derived intangible income deduction.

The 2022 effective tax rate differs from the U.S.

federal statutory rate primarily due to the foreign-derived intangible income deduction and the impact of a capital loss transaction.

federal statutory rate primarily due to the effect of the U.S.

R&D tax credit and the foreign-derived intangible income deduction.

Comparison of the Years Ended December 31, 2022 and December 31, 2021

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General and administrative 132,644 130,758 1,886 1

Impairment of long-lived assets 18,664 — 18,664 *

Total operating expenses 734,202 665,309 68,893 10

Income from operations 93,624 108,106 (14,482) (13)

Other (expense) / income, net (3,370) 4,257 (7,627) (179)

Other expense, net (2,587) (3,370) 783 (23)

Income before income taxes 91,037 104,736 (13,699) (13)

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Net income $ 76,103 $ 91,883 $ (15,780) (17) %

* Not meaningful

Revenue increased by $54.4 million, or 7%, to $827.8 million in 2022 as compared to 2021.

On a constant currency basis, revenue increased approximately 11% in the year ended December 31, 2022, as compared to 2021.

Our revenue growth in 2021 is primarily driven by revenue generated from our 2021 acquisitions and the increase in our subscription business.

From 2020 to 2021, subscribers grew by 22% to 343,000 and subscriber revenue grew by 20% to $317.5 million.

E-commerce revenues increased by 19%, to $490.2 million in 2021 as compared to 2020.

Approximately 18% and 7% of the Company’s revenues were denominated in Euro and Pounds Sterling, respectively.

These currencies have depreciated to historically low values compared to the U.S.

dollar during the twelve months ended December 31, 2022.

Other currencies we transact in, including the Japanese Yen and Australian Dollar also depreciated significantly during the period.

Content license revenues increased by 4%, to $789.3 million in 2022 as compared to 2021.

On a constant currency basis, Content revenues increased by 8% in 2022, as compared to 2021.

During 2022, growth in our Content offering was driven by revenue generated from our acquisitions of PicMonkey and Pond5.

Content revenue also benefited from higher subscriber revenue, which was offset by a reduction in revenue generated from our transactional products.

Data, Distribution, and Services revenues increased by 142%, to $38.5 million in 2022 as compared to 2021.

On a constant currency basis, Data, Distribution, and Services revenues increased by 144% in 2022, as compared to 2021.

The increase in Data, Distribution, and Services revenues was primarily driven by growth in our data offering, which accounted for $15.2 million of the growth from 2021 to 2022.

Data, Distribution, and Services revenue growth also benefited from continued momentum in Shutterstock Studios.

2022 revenue from our E-commerce customers increased by 2%, to $501.4 million in 2022 as compared to 2021.

On a constant currency basis, E-commerce revenues increased by 5% in 2022, as compared to 2021.

During 2021, growth in our E-commerce sales channel was primarily driven by increased subscriber revenue and revenue generated by our acquisitions of TurboSquid and PicMonkey, which were completed on February 1, 2021 and September 3, 2021, respectively.

Enterprise revenues increased by 11%, to $283.2 million in 2021 as compared to 2020.

During 2022, growth in our E-commerce sales channel was driven by revenue generated from our acquisitions of PicMonkey and Pond5.

E-commerce revenue also benefited from higher subscriber revenue, which was offset by a reduction in revenue generated from our transactional products.

2022 revenues from our Enterprise customers increased by 15%, to $326.4 million in 2022 as compared to 2021.

On a constant currency basis, Enterprise revenues increased by 20% in 2022, as compared to 2021 .

We have continued to execute on our strategy to respond to market trends including making updates to product offerings and continuously improving our platform.

We believe these enhancements impacted our Enterprise sales operations during the period and were one of the drivers of the increased deferred revenue balance as of December 31, 2021.

In the years ended December 31, 2021 and 2020, we delivered 180.0 million paid downloads, and our revenue per download increased to $4.16 in 2021, as compared to $3.68 in 2020.

During 2021, the 13% increase in revenue per download, is primarily due to changes in product mix.

The increase in Enterprise revenues was primarily driven by growth in our data offering, in addition to revenue generated from our acquisitions of Pond5 and Splash News.

Enterprise revenue growth also benefited from continued momentum in Shutterstock Studios and Shutterstock Editorial.

In the years ended December 31, 2022 and 2021, we delivered 173.3 million and 180.0 million paid downloads, respectively, and our revenue per download was $4.40 in 2022, as compared to $4.16 in 2021.

During 2022, the 6% increase in revenue per download is primarily due to changes in product mix coupled with a reduction in paid download volumes.

Changes in our revenue by region were as follows:

revenue from North America increased by $54.4 million, or 23%, to $291.0 million, revenue from Europe increased by $32.8 million, or 15%, to $253.5 million and revenue from outside Europe and North America increased by $19.5 million, or 9%, to $229.0 million, in the year ended December 31, 2021 compared to 2020.

Cost and Expenses

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Cost of revenue increased by $36.6 million, or 13%, to $314.3 million in 2022 as compared to 2021.

As a percent of revenue, cost of revenues increased to 38% for the year ended December 31, 2022, from 36% for 2021.

This increase was primarily driven by:

(i) higher royalty expense, content procurement costs and credit card fees, associated with our increased revenue and (ii) increased depreciation and amortization expense driven by our recent acquisitions.

In addition, in 2020, cost of revenue includes severance charges of $1.2 million.

We expect that our cost of revenue will fluctuate in line with changes in revenue and paid downloads.

(i) increased depreciation and amortization expense driven by our recent acquisitions;

(ii) increased royalty, content and reviewer costs;

and (iii) higher costs associated with website hosting, hardware and software licenses.

We expect that our cost of revenue will continue to fluctuate in line with changes in revenue and paid downloads.

Sales and Marketing.

Sales and marketing expenses increased by $45.6 million, or 29%, to $204.9 million in 2021 as compared to 2020.

As a percent of revenue, sales and marketing expenses increased to 26% for the year ended December 31, 2021, from 24% for 2020.

This increase was primarily driven by (i) $31.7 million in higher marketing spend which includes performance marketing, brand marketing and television ad spend, and (ii) $11.3 million in higher employee-related costs, primarily related to commissions associated with increased enterprise billings.

In addition, for the year ended December 31, 2021 and 2020, sales and marketing expense includes severance charges of $2.2 million and $1.7 million, respectively.

We expect sales and marketing expenses to fluctuate as we optimize our sales channels and invest in new customer acquisition, products and geographies.

Sales and marketing expenses decreased by $1.7 million, or 1%, to $203.2 million in 2022 as compared to 2021.

As a percent of revenue, sales and marketing expenses decreased to 25% for the year ended December 31, 2022, from 26% for 2021.

In addition, the Company has incurred additional marketing expenses associated with second quarter live events and festivals.

We expect sales and marketing expenses to continue to fluctuate as we optimize our sales channels and invest in new customer acquisition, products and geographies.

Product Development.

Product development expenses increased by $13.4 million, or 26%, to $65.4 million in 2022 as compared to 2021.

This increase was primarily driven by higher personnel costs and higher non-cash compensation expense.

These increases were partially offset by a reduction in software and other IT-related costs, for the year ended December 31, 2021, as compared to the prior year.

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General and administrative expenses increased by $1.9 million, or 1%, to $132.6 million in 2022 as compared to 2021.

This increase was primarily driven by (i) $5.9 million in higher employee-related costs in 2021 as compared to 2020, (ii) $4.7 million in higher non-cash compensation expense;

and (iii) $4.3 million in higher professional fees, which were impacted by transaction costs associated with our acquisitions of TurboSquid and PicMonkey.

These increases were partially offset by a $2.4 million decline in bad debt expense, and other reductions associated with ongoing vendor management initiatives.

For the years ended December 31, 2021 and 2020, general and administrative expenses include severance charges of $0.5 million and $1.4 million, respectively.

Other (expense) / income, net.

During 2021, other (expense) / income, net substantially consisted of $3.3 million of expense due to foreign currency fluctuations.

We expect to experience future foreign currency gains and losses as the US Dollar fluctuates relative to non-US currencies in which we transact.

During 2020, approximately $3.1 million of other (expense) / income, net related to favorable foreign currency fluctuations, in addition to $1.2 million of interest income.

This increase was primarily driven by (i) $4.3 million in professional fees related to our acquisitions of Pond5 and Splash News, (ii) $3.6 million increase in bad debt expense;

(iii) $1.8 million related to realized foreign currency losses, (iv) $1.6 million in severance costs associated with a strategic workforce optimization initiative;

and (v) $1 million related to a donation to provide direct assistance to Shutterstock’s contributors in Ukraine.

Impairment of Lease and Related Assets .

Impairment of lease and related assets was $18.7 million in 2022.

In the fourth quarter of 2022, the Company completed an analysis of leased-office usage and (i) ceased using certain of its office space, including two floors of its headquarters in New York City as well as (ii) abandoned certain other smaller office spaces.

This resulted in an $18.7 million impairment charge, of which $15.9 million and $2.8 million relates to right-of-use assets and property and equipment, respectively.

Other expense, net.

During 2022, other expense, net substantially consisted of $1.3 million of expense due to foreign currency fluctuations and $1.3 million of interest expense related to the Credit Facility.

During 2021, other expense, net substantially consisted of $3.3 million of expense due to foreign currency fluctuations.

Income Taxes.

Income tax expense decreased by $4.9 million to $12.9 million in 2021 as compared to 2020.

Income tax expense increased by $2.1 million, to $14.9 million in 2022 as compared to 2021.

Our effective tax rates for the years ended December 31, 2022 and 2021 were approximately 16.4% and 12.3%, respectively.

The 2022 effective tax rate differs from the U.S.

federal statutory rate primarily due to the foreign-derived intangible income deduction and the impact of a capital loss transaction.

federal statutory rate primarily due to the effect of the U.S.

R&D tax credit and the foreign-derived intangible income deduction.

The 2021 effective tax rate differs from the U.S.

federal statutory rate primarily due to the foreign-derived intangible income deduction partially offset by other items.

federal statutory rate primarily due to the foreign-derived intangible income deduction and the impact of a capital loss transaction.

Liquidity and Capital Resources

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We declared and paid cash dividends of $1.08 per share of common stock, or $38.7 million during the year ended December 31, 2023.

On January 30, 2023, our Board of Directors declared a quarterly cash dividend of $0.27 per share of outstanding common stock payable on March 16, 2023 to stockholders of record at the close of business on March 2, 2023.

On January 29, 2024, our Board of Directors declared a quarterly cash dividend of $0.30 per share of outstanding common stock payable on March 14, 2024 to stockholders of record at the close of business on February 29, 2024.

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

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Share Repurchase Program

In October 2015, our board of directors approved a share repurchase program, authorizing us to repurchase up to $100 million of our common stock and in February 2017, our Board of Directors approved an increase to the share repurchase program, authorizing us to repurchase up to an additional $100 million of our outstanding common stock.

In October 2015, our board of directors approved a share repurchase program, authorizing us to repurchase up to $100 million of our common stock and in February 2017, our Board of Directors approved an increase to the share repurchase program (collectively, the “2015 and 2017 Share Repurchase Programs”), authorizing us to repurchase up to an additional $100 million of our outstanding common stock.

As of December 31, 2022, we have fully utilized our authorization for repurchases under the 2015 and 2017 Share Repurchase Programs.

In June 2023, our Board of Directors approved a share repurchase program (the “2023 Share Repurchase Program”), providing authorization to repurchase up to $100 million of our common stock.

We expect to fund future repurchases, if any, through a combination of cash on hand, cash generated by operations and future financing transactions, if appropriate.

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During the year ended December 31, 2023, we repurchased approximately 634,500 shares of our common stock at an average per share cost of $44.45.

As of December 31, 2022, we have fully utilized our authorization for purchases under the share repurchase program.

Stock Offering

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

We sold 516,000 shares of common stock in the Stock Offering and our Founder and Executive Chairman of the Board sold 2,064,000 shares of common stock in the Stock Offering.

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

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

As of December 31, 2023, we had $71.8 million of remaining authorization for purchases under the 2023 Share Repurchase Program.

Revolving Credit Facility

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In connection with the execution of this agreement, we paid debt issuance costs of approximately $0.6 million.

On May 9, 2022, we borrowed $50 million for use in connection with the acquisition of Pond5 and for general corporate purposes.

As of December 31, 2022, we had outstanding borrowings under the Credit Facility of $50 million.

As of December 31, 2021, we had no outstanding debt obligations.

As of December 31, 2023 and December 31, 2022, we had $30 million and $50 million, respectively, of outstanding borrowings under the Credit Facility.

As of December 31, 2023, we had a remaining borrowing capacity of $67 million, net of standby letters of credit.

For the year ended December 31, 2023, the Company paid cash interest totaling $1.7 million and our annualized interest rate was 5.8%.

On January 27, 2023, we fully repaid our borrowings under the Credit Facility and had a remaining borrowing capacity of $98 million, net of standby letters of credit.

The Credit Facility contains financial covenants and requirements restricting certain of our activities, which are usual and customary for this type of loan.

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Future capital expenditures will generally relate to building enhancements to the functionality of our current platform, the acquisition of additional storage, servers, network connectivity hardware, security apparatus and software, leasehold improvements and furniture and fixtures related to office expansion and relocation, content and general corporate infrastructure.

As of December 31, 2022, we had approximately $93 million in unconditional cash obligations, consisting primarily of purchase obligations related to contracts for cloud-based services, infrastructure and other business services as well as minimum

royalty guarantees in connection with certain content licenses, of which the majority is due to be paid within the next two years.

As of December 31, 2023, we had approximately $82 million in unconditional cash obligations, consisting primarily of purchase obligations related to contracts for cloud-based services, infrastructure and other business services as well as minimum royalty guarantees in connection with certain content licenses, of which the majority is due to be paid within the next two years.

In addition, as of December 31, 2023, we had approximately $45 million in operating lease obligations with lease payments extending through 2029.

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Our primary source of cash from operating activities is cash collections from our customers.

The majority of our revenue is generated from credit card transactions and is typically settled within one to five business days.

A significant portion of our revenue is generated from credit card transactions and is typically settled within one to five business days.

Our primary uses of cash for operating activities are for the payment of royalties to content contributors, employee-related expenditures and the payment of other operating expenses incurred in the ordinary course of business.

Net cash provided by operating activities was $140.6 million for the year ended December 31, 2023, compared to $158.5 million for the year ended December 31, 2022.

The decline in cash provided by operating activities for the year ended December 31, 2022 was impacted by the timing of payments and cash receipts in the ordinary course of business which can cause operating cash flow to fluctuate from period to period.

The decline in cash provided by operating activities for the year ended

December 31, 2023 was impacted by the timing of payments and cash receipts in the ordinary course of business which can cause operating cash flow to fluctuate from period to period.

In addition, operating cash flows for the year ended December 31, 2023 were unfavorably impacted by the recurring and non-recurring payments made to the Giphy workforce, the reimbursement of which is reflected in Investing Activities on the Statement of Cash Flows.

Operating cash flows for the year ended December 31, 2022 were unfavorably impacted by several large accounts payables and accrued expense items from 2021 that were paid in 2022.

Net cash provided by operating activities was $158.5 million for the year ended December 31, 2022, compared to $216.4 million for the year ended December 31, 2021.

In the year ended December 31, 2021, operating cash flows were favorably impacted from our increased operating income and changes in the timing of payments pertaining to operating expenses, which can cause operating cash flow to fluctuate from period to period.

In addition, in the year ended December 31, 2020, operating cash flows were impacted by $7.8 million in one-time payments associated with long-term incentives related to our 2017 acquisition of Flashstock.

Investing Activities

Our investing activities have consisted primarily of capital expenditures, business combinations, asset acquisitions, investments and content acquisitions.

As of 2023, investing activities also includes amounts related to the Giphy Retention Compensation.

Capital expenditures include internal-use software and website development costs, purchases of software equipment, and capitalization of leasehold improvements.

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Cash used in investing activities totaled $54.3 million, $275.6 million and $250.4 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Cash used in investing activities for the year ended December 31, 2022 was $275.6 million, consisting primarily of (i) $211.8 million cash used in the acquisitions of Pond5 and Splash News, net of cash acquired;

Cash used in investing activities for the year ended December 31, 2023 was $54.3 million, consisting primarily of (i) $53.7 million cash used in the acquisition of Giphy, net of cash acquired;

(ii) capital expenditures of $44.6 million for internal-use software and website development costs, and purchases of software and equipment, and (iii) $11.1 million paid to acquire the rights to distribute certain digital content in perpetuity.

Cash used in investing activities for the year ended December 31, 2021 was $250.4 million, consisting primarily (i) $181.6 million cash used in the acquisitions of TurboSquid and PicMonkey, net of cash acquired;

These cash outflows were partially offset by $53.7 million of Giphy Retention Compensation, as reimbursed by the Giphy seller.

Cash used in investing activities for the year ended December 31, 2022 was $275.6 million, consisting primarily (i) $211.8 million cash used in the acquisitions of Pond5 and Splash News, net of cash acquired;

(ii) capital expenditures of $43.3 million for internal-use software and website development costs, and purchase of software and equipment, and (iii) $16.8 million paid to acquire the rights to distribute certain digital content in perpetuity.

Cash used in investing activities for the year ended December 31, 2021 was $250.4 million, consisting primarily of (i) $181.6 million cash used in the acquisitions of Turbosquid and PicMonkey, net of cash acquired;

(ii) $31.6 million cash used in the asset acquisitions of Pattern89, Inc., Datasine Limited and assets from Shotzr, Inc.;

(iii) capital expenditures of $28.1 million for internal-use software and website development costs, and purchase of software and equipment, and (iv) $8.9 million to acquire the rights to distribute certain digital content in perpetuity.

Cash used in investing activities for the year ended December 31, 2020 was $35.3 million, consisting primarily of capital expenditures of $25.6 million for internal-use software and website development costs, and purchase of software and equipment, an investment of $5.0 million in a creative production and analytics platform, $3.0 million to acquire the rights to distribute certain digital content in perpetuity and $1.9 million associated with the acquisition of AI driven music technology.

Financing Activities

Our financing activities have consisted primarily of payments associated with cash dividends, settlements of tax withholding obligations related to employee stock-based compensation awards and repurchases of common stock under our share repurchase program.

Our financing activities also includes proceeds from our Credit Facility, proceeds from our Stock Offering and proceeds received in connection with the exercise of stock options.

Our financing activities also includes proceeds from and payments of our Credit Facility, proceeds from our Stock Offering and proceeds received in connection with the exercise of stock options.

Cash used in financing activities totaled $102.7 million, $79.5 million and $77.7 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Cash used in financing activities during 2023 primarily consisted of (i) $50.0 million used for the repayment of our Credit Facility;

(ii) $38.7 million, related to the payment of the quarterly cash dividend;

(iii) $28.2 million in connection with the repurchase of common stock under our 2023 Share Repurchase Program;

and (iv) $15.8 million paid in settlement of tax withholding obligations related to employee stock-based compensation awards.

These amounts were partially offset by approximately $30.0 million in proceeds received from our Credit Facility.

Cash used in financing activities during 2022 primarily consisted of (i) $73.5 million in connection with the repurchase of common stock under our share repurchase program;

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Cash used in financing activities during 2021 primarily consisted of (i) $30.7 million related to the payment of the quarterly cash dividend;

(ii) $26.5 million in connection with the repurchase of common stock under our share repurchase program, and (iii) $22.7 million, paid in settlement of tax withholding obligations related to employee stock-based compensation awards.

These amounts were partially offset by approximately $2.1 million in proceeds received in connection with the exercise of stock options.

Cash used in financing activities during 2020 primarily consisted of $24.4 million related to the payment of the quarterly cash dividends and $4.5 million, paid in settlement of tax withholding obligations related to employee stock-based compensation awards.

These amounts were partially offset by $23.2 million of proceeds from our Stock Offering, after deducting underwriting discounts, commissions and offering expenses paid and $1.2 million of proceeds received in connection with the exercise of stock options.

(ii) $26.5 million in connection with the repurchase of common stock under our share repurchase

program, and (iii) $22.7 million, paid in settlement of tax withholding obligations related to employee stock-based compensation awards.

These amounts were partially offset by $2.1 million in proceeds received in connection with the exercise of stock options.

Non-GAAP Financial Measures

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Management believes that adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted net income per diluted common share, revenue growth (including by distribution channel) on a constant currency basis (expressed as a percentage) and free cash flow are useful to investors because these measures enable investors to analyze Shutterstock’s operating results on the same basis as that used by management.

Additionally, management believes that adjusted EBITDA, adjusted EBITDA margin, adjusted net income and adjusted net income per diluted common share provide useful information

to investors about the performance of the Company’s overall business because such measures eliminate the effects of unusual or other infrequent charges that are not directly attributable to Shutterstock’s underlying operating performance and revenue growth (including by distribution channel) on a constant currency basis, provides useful information to investors by eliminating the effect of foreign currency fluctuations that are not directly attributable to Shutterstock’s operating performance.

Additionally, management believes that adjusted EBITDA, adjusted EBITDA margin, adjusted net income and adjusted net income per diluted common share provide useful information to investors about the performance of the Company’s overall business because such measures eliminate the effects of unusual or other infrequent charges that are not directly attributable to Shutterstock’s underlying operating performance and revenue growth (including by distribution channel) on a constant currency basis, provides useful information to investors by eliminating the effect of foreign currency fluctuations that are not directly attributable to Shutterstock’s operating performance.

Management also believes that providing these non-GAAP financial measures enhances the comparability for investors in assessing Shutterstock’s financial reporting.

Management believes that free cash flow is useful for investors because it provides them with an important perspective on the cash available for strategic measures, after making necessary capital investments in internal-use software and website development costs to support the Company’s ongoing business operations and after excluding the impact of nonrecurring payments associated with long-term incentives related to our 2017 acquisition of Flashstock, and provides them with the same measures that management uses as the basis for making resource allocation decisions.

Management believes that free cash flow is useful for investors because it provides them with an important perspective on the cash available for strategic measures, after making necessary capital investments in internal-use software and website development costs to support the Company’s ongoing business operations and provides them with the same measures that management uses as the basis for making resource allocation decisions.

Our use of non-GAAP financial measures has limitations as an analytical tool, and these measures should not be considered in isolation or as a substitute for an analysis of our results as reported under GAAP, as the excluded items may have significant effects on our operating results and financial condition.

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When evaluating our performance, these non-GAAP financial measures should be considered alongside other financial performance measures, including various cash flow metrics, net income and our other GAAP results.

Our method for calculating adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted net income per diluted common share, revenue growth (including by distribution channel) on a constant currency basis and free cash flow, as well as a reconciliation of the differences between adjusted EBITDA, adjusted net income, revenue growth (including by distribution channel) on a constant currency basis and free cash flow, and the most comparable financial measures calculated and presented in accordance with GAAP, is presented below.

Adjusted EBITDA

We define adjusted EBITDA as net income adjusted for depreciation and amortization, non-cash equity-based compensation, impairment of lease and related assets, foreign currency transaction gains and losses, severance costs associated with strategic workforce optimizations, interest income and expense and income taxes.

distribution channel) on a constant currency basis and free cash flow, and the most comparable financial measures calculated and presented in accordance with GAAP, is presented below.

The expense associated with the Giphy Retention Compensation related to (i) the one-time employment inducement bonuses and (ii) the vesting of the cash value of unvested Meta equity awards held by the employees prior to closing, which are reflected in operating expenses (together, the “Giphy Retention Compensation Expense - non-recurring”), are required payments in accordance with the terms of the acquisition.

Meta’s sale of Giphy was directed by the CMA and accordingly, the terms of the acquisition were subject to CMA preapproval.

Management considers the operating expense associated with these required payments to be unusual and non-recurring in nature.

The Giphy Retention Compensation Expense - non-recurring is not considered ongoing expense necessary to operate the Company’s business.

Therefore, such expenses have been included in the below adjustments for calculating adjusted EBITDA, adjusted EBITDA margin, adjusted net income and adjusted net income per diluted common share.

For the three and twelve months ended December 31, 2023, the Company also incurred $6.6 million and $13.6 million, respectively, of Giphy Retention Compensation expense related to recurring employee costs, which is included in operating expenses, and are not included in the below adjustments for calculating adjusted EBITDA, adjusted EBITDA margin, adjusted net income and adjusted net income per diluted common share.

Adjusted EBITDA and Adjusted EBITDA Margin

We define adjusted EBITDA as net income adjusted for depreciation and amortization, non-cash equity-based compensation, bargain purchase gain related to the acquisition of Giphy, Giphy Retention Compensation Expense - non-recurring, impairment of lease and related assets, foreign currency transaction gains and losses, severance costs associated with strategic workforce optimizations, interest income and expense and income taxes.

We define adjusted EBITDA margin as the ratio of adjusted EBITDA to revenue.

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Non-cash equity-based compensation 48,577 35,740 36,179

Bargain purchase gain (50,261) — —

Giphy Retention Compensation Expense - non-recurring 31,577 — —

Impairment of lease and related assets — 18,664 —

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_______________________________________________________________________________

(1) Included in other adjustments, net is foreign currency transaction gains and losses, severance associated with strategic workforce optimizations and interest income and expense.

(1) Included in other adjustments, net includes unrealized foreign currency transaction gains and losses, severance associated with strategic workforce optimizations and interest income and expense.

Adjusted Net Income

We define adjusted net income as net income adjusted for the impact of non-cash equity-based compensation, the amortization of acquisition-related intangible assets, impairment of lease and related assets, severance costs associated with strategic workforce optimizations and the estimated tax impact of such adjustments.

We define adjusted net income as net income adjusted for the impact of non-cash equity-based compensation, the amortization of acquisition-related intangible assets, bargain purchase gain related to the acquisition of Giphy, Giphy Retention Compensation Expense - non-recurring, impairment of lease and related assets, severance costs associated with strategic workforce optimizations and the estimated tax impact of such adjustments.

We define adjusted net income per diluted common share as adjusted net income divided by weighted average diluted shares.

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(8,163) (6,886) (3,133)

Bargain purchase gain (50,261) — —

Giphy Retention Compensation Expense - non-recurring 31,577 — —

Tax effect of Giphy Retention Compensation Expense - non-recurring (7,421) — —

Impairment of lease and related assets — 18,664 —

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(1) Statutory tax rates are used to calculate the tax effect of the adjustments.

(2) Of these amounts, $7.5 million and $5.3 million are included in cost of revenue for the three months ended December 31, 2022 and 2021, respectively, and $27.0 million and $10.2 million are included in cost of revenue for the years ended December 31, 2022 and 2021, respectively.

(2) Of these amounts, $31.6 million, $27.0 million and $10.2 million are included in cost of revenue for the years ended December 31, 2023, 2022 and 2021, respectively.

The remainder of acquisition-related amortization expense is included in general and administrative expense in the Statement of Operations.

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Revenue growth on a constant currency basis 5 % 11 % 15 %

E-commerce reported revenue (in thousands) $ 501,384 $ 490,212 $ 412,521

E-commerce revenue growth 2 % 19 % 5 %

E-commerce revenue growth on a constant currency basis 5 % 16 % 5 %

Enterprise reported revenue (in thousands) $ 326,442 $ 283,203 $ 254,165

Enterprise revenue growth 15 % 11 % (2) %

Enterprise revenue growth on a constant currency basis 20 % 10 % (2) %

Content reported revenue (in thousands) $ 737,264 $ 789,306 $ 757,470

Content revenue growth (7) % 4 % 14 %

Content revenue growth on a constant currency basis (7) % 8 % 13 %

Data, Distribution, and Services reported revenue (in thousands) $ 137,323 $ 38,520 $ 15,945

Data, Distribution, and Services revenue growth 256 % 142 % 252 %

Data, Distribution, and Services revenue growth on a constant currency basis 256 % 144 % 252 %

Free Cash Flow

We define free cash flow as our cash provided by operating activities, adjusted for capital expenditures and content acquisition, and, with respect to the twelve months ended December 31, 2020, a payment associated with long-term incentives related to our 2017 acquisition of Flashstock.

The following is a reconciliation of net cash provided by operating activities to free cash flow for each of the periods indicated:

We define free cash flow as our cash provided by operating activities, adjusted for capital expenditures and content acquisition, and, with respect to the twelve months ended December 31, 2023, cash received related to Giphy Retention Compensation in connection with the acquisition of Giphy.

The following is a presentation of cash flow information and a reconciliation of net cash provided by operating activities to free cash flow for each of the periods indicated:

Year Ended December 31,

2023 2022 2021

Cash flow information:

(in thousands)

Net cash provided by operating activities $ 140,552 $ 158,451 $ 216,372

Net cash used in investing activities $ (54,316) $ (275,550) $ (250,438)

Net cash used in financing activities $ (102,704) $ (79,487) $ (77,722)

Free cash flow:

Net cash provided by operating activities $ 140,552 $ 158,451 $ 216,372

Capital expenditures (44,645) (43,296) (28,125)

Content acquisitions (11,096) (16,821) (8,874)

Payments related to long-term incentives related to acquisitions — — 7,759

Cash received related to Giphy Retention Compensation 53,657 — —

Free Cash Flow $ 138,468 $ 98,334 $ 179,373

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Revenue Recognition

The majority of our revenues are earned from the license of content.

A significant portion of our revenues are 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.

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We recognize revenues upon the satisfaction of performance obligations.

For content licenses, we recognize revenues on both a subscription-based and transaction-based products when content is downloaded by a customer, at which time the license is provided.

We recognize revenue on both our subscription-based and transaction-based products when content is downloaded by a customer, at which time the license is provided.

In addition, we estimate expected unused licenses for subscription-based products and recognize the estimated revenue associated with 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 our subscription products.

For revenue associated with tools available through our platform, the Company recognizes revenue on a straight-line basis over the subscription period.

For revenue associated with tools available

through our platform, we recognize revenue on a straight-line basis over the subscription period.

We expense 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 our 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.

Collectability is probable at the time the electronic order or contract is entered.

A significant portion of our 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.

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Our accounts receivable consists of customer obligations due under normal trade terms, carried at their fair value less an allowance for doubtful accounts, if required.

We determine our allowance for doubtful accounts based on an evaluation of the aging of our accounts receivable and on a customer-by-customer basis where appropriate.

Our reserve analysis contemplates our historical loss rate on receivables, specific customer situations and the economic environments in which we operate.

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

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

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

We determine our allowance for doubtful accounts based on an evaluation of (i) the aging of our accounts receivable considering historical receivables loss rates, (ii) on a customer-by-customer basis, where appropriate, and (iii) the economic environments in which we operate.

As of December 31, 2023 and 2022, we had an allowance for doubtful accounts of $6.3 million and $5.8 million, respectively.

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

The global intangible low-taxed income (“GILTI”) provisions of the TCJA impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations.

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

We have elected to treat any potential GILTI inclusions as a period cost.

2 unchanged sentences

Fair values are based on the exit price (i.e., the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date) and valuation methods that may be utilized include the multiple-period excess earnings method, the relief-from-royalty method and the cost-to-recreate method.

Determining the fair value of the customer relationships intangible assets requires management to use significant judgment and estimates, including estimates of future revenue growth rates for existing customers, the discount rate, earnings before interest, taxes and amortization (“EBITA”) margins and the customer attrition rate, among others.

Determining the fair value requires management to use significant judgment and estimates, including revenue growth rates, the royalty rate and the discount rate related to the trade name and revenue growth rates, the royalty rate and the economic life related to developed technology, among others.

Other assets and liabilities acquired in a business combination are recorded based on the fair value of the assets acquired and liabilities assumed at acquisition date.

3 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 7. Management’s Discussion and Analysis