What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2024-02-26 compared with 2023-02-14 · 289 added, 183 removed, 1040 unchanged (31% of the section changed)

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

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

Our management’s evaluation of internal control over financial reporting excluded the internal control activities of Pond5, Inc., acquired in May 2022, as discussed in Note 3 to the Consolidated Financial Statements.

The financial results of this acquisition are included in the consolidated financial statements as of and for the year ended December 31, 2022 and represent approximately 4% and 1% of total revenues and total assets, respectively.

Based on our assessment, management has concluded that our internal control over financial reporting was effective as of December 31, 2023.

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Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met.

Further, no evaluation of controls can provide absolute

assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.

Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.

Other Information.

In August 2023 , John Caine , our Chief Product and Digital Officer, entered into a prearranged stock trading plan .

Caine's plan includes the potential sale of up to 8,600 shares of our common stock in February 2024.

The shares of common stock that may be sold pursuant to Mr.

Caine’s plan, are shares to be issued upon the vesting of restricted stock units and include shares that will be automatically sold to cover mandatory tax withholding obligations.

Caine’s trading plan was entered into during an open trading window and is intended to satisfy the affirmative defense of Rule 10b5-1(c) under the Exchange Act and our policies regarding insider transactions.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

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

As described in Management’s Report on Internal Control Over Financial Reporting, management has excluded Pond5, Inc.

(“Pond5”) from its assessment of internal control over financial reporting as of December 31, 2022 because it was acquired by the Company in a purchase business combination during 2022.

We have also excluded Pond5 from our audit of internal control over financial reporting.

Pond5 is a wholly-owned subsidiary whose total revenues and total assets excluded from management’s assessment and our audit of internal control over financial reporting represent 4% and 1%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2022.

Definition and Limitations of Internal Control over Financial Reporting

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

Revenue Recognition

As described in Notes 1 and 9 to the consolidated financial statements, the majority of the Company’s revenue is earned from the license of content.

Revenue Recognition - Content

As described in Notes 1 and 9 to the consolidated financial statements, for the year ended December 31, 2023, the Company’s total revenue was $874.6 million, of which content revenue totaled $737.3 million.

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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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.

For the year ended December 31, 2022, the Company’s total revenue was $827.8 million.

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

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

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

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

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

Pond5 Acquisition - Valuation of Certain Customer Relationships Intangible Assets

As described in Note 3 to the consolidated financial statements, on May 11, 2022, the Company completed its acquisition of Pond5 for approximately $218.0 million.

The acquisition resulted in $34.9 million of customer relationships being recorded, of which a significant portion relates to certain customer relationships intangible assets.

The fair value of the customer relationships intangible assets was determined using a multiple-period excess earnings 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.

The principal considerations for our determination that performing procedures relating to the valuation of certain customer relationships intangible assets acquired in the acquisition of Pond5 is a critical audit matter are (i) the significant judgment by management when developing the fair value estimate of certain customer relationships intangible assets acquired;

(ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to estimates of future revenue growth rates for existing customers, the discount rate, EBITA margins, and the customer attrition rate;

These procedures included testing the effectiveness of controls relating to the revenue recognition process, including controls over content revenue recognized.

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

Acquisition - Valuation of Trade Name and Developed Technology Intangible Assets

As described in Note 3 to the consolidated financial statements, on June 23, 2023, the Company completed the acquisition of Giphy Inc.

The consideration paid by the Company was $53.0 million in net cash, in addition to cash acquired, assumed debt and other working capital adjustments.

The acquisition resulted in $21.0 million of a trade name and $19.5 million of developed technology intangible assets being recorded.

The fair value of the trade name and developed technology intangible assets was determined using the relief-from-royalty method.

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.

The principal considerations for our determination that performing procedures relating to the valuation of the trade name and developed technology intangible assets acquired in the acquisition of Giphy is a critical audit matter are (i) the significant judgment by management when developing the fair value estimate of the trade name and developed technology intangible assets acquired;

(ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to the revenue growth rates, the royalty rate, and the discount rate used in the valuation of the trade name and the revenue growth rates, the royalty rate, and the economic life used in the valuation of the developed technology;

and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

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

These procedures included testing the effectiveness of controls relating to the acquisition accounting, including controls over management’s valuation of the customer relationships intangible assets and controls over the development of significant assumptions related to estimates of future revenue growth rates for existing customers, the discount rate, EBITA margins, and the customer attrition rate.

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

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

(ii) testing the completeness and accuracy of underlying data used in the multiple-period excess earnings method;

and (iii) evaluating the reasonableness of the significant assumptions used by management related to estimates of future revenue growth rates for existing customers, the discount rate, EBITA margins, and the customer attrition rate.

Evaluating the reasonableness of estimates of future revenue growth rates for existing customers, EBITA margins, and the customer attrition rate involved considering (i) the past performance of the acquired business and (ii) the consistency

with external market and industry data.

Professionals with specialized skill and knowledge were used to assist in the evaluation of the appropriateness of the multiple-period excess earnings method and the reasonableness of the discount rate assumption.

These procedures included testing the effectiveness of controls relating to the acquisition accounting, including controls over management’s valuation of the trade name and developed technology intangible assets.

These procedures also included, among others (i) reading the purchase agreement;

(ii) testing management’s process for developing the fair value estimate of the trade name and developed technology intangible assets acquired;

(iii) evaluating the appropriateness of the relief-from-royalty method used by management;

(iv) testing the completeness and accuracy of underlying data used in the relief-from-royalty method;

and (v) evaluating the reasonableness of the significant assumptions used by management related to the revenue growth rates, the royalty rate, and the discount rate used in the valuation of the trade name and the revenue growth rates, the royalty rate, and the economic life used in the valuation of the developed technology.

Evaluating management’s assumptions related to the revenue growth rates used in the valuation of the trade name and developed technology intangible assets involved considering (i) the past performance of the acquired business;

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

and (iii) whether the assumptions were consistent with evidence obtained in other areas of the audit.

Evaluating management’s assumption related to the economic life used in the valuation of the developed technology intangible asset involved considering whether the assumption was consistent with evidence obtained in

other areas of the audit.

Professionals with specialized skill and knowledge were used to assist in the evaluation of the appropriateness of the relief-from-royalty method and the reasonableness of the royalty rate and discount rate assumptions used in the valuation of the trade name and the royalty rate and the economic life assumptions used in the valuation of the developed technology.

/s/ PricewaterhouseCoopers LLP

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39,981 and 39,605 shares issued and 35,571 and 35,829 shares outstanding as of December 31, 2023 and December 31, 2022, respectively

Additional paid-in capital 391,482 376,537

Treasury stock, at cost;

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( 228,213 ) ( 200,008 )

Additional paid-in capital 424,229 391,482

Accumulated other comprehensive loss ( 11,974 ) ( 15,439 )

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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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Net income $ 110,269 $ 76,103 $ 91,883

Foreign currency translation loss ( 4,651 ) ( 3,107 ) ( 1,461 )

Other comprehensive loss ( 4,651 ) ( 3,107 ) ( 1,461 )

Foreign currency translation gain / (loss) 3,465 ( 4,651 ) ( 3,107 )

Other comprehensive income / (loss) 3,465 ( 4,651 ) ( 3,107 )

Comprehensive income $ 113,734 $ 71,452 $ 88,776

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Comprehensive

Loss Retained

Income / (Loss) Retained

Common Stock Treasury Stock

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

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

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

Equity-based compensation — — — — 36,179 — — 36,179

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

Issuance of common stock in connection with employee stock option exercises and RSU vesting 660 7 — — 2,141 — — 2,148

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

Repurchase of Treasury Shares — — 234 ( 27,169 ) — — — ( 27,169 )

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

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

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

Net income — — — — — — 91,883 91,883

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Cash dividends paid — — — — — — ( 34,589 ) ( 34,589 )

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

Other comprehensive income / (loss) — — — — — ( 4,651 ) — ( 4,651 )

Net income — — — — — — 76,103 76,103

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Cash dividends paid — — — — — — ( 38,667 ) ( 38,667 )

Other comprehensive loss — — — — — ( 4,651 ) — ( 4,651 )

Other comprehensive income / (loss) — — — — — 3,465 — 3,465

Net income — — — — — — 110,269 110,269

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Bad debt expense 1,894 3,697 137

Bargain purchase gain ( 50,261 ) — —

Changes in operating assets and liabilities:

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Accounts payable and other current and non-current liabilities 20,892 ( 24,328 ) 34,444

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

Contributor royalties payable 15,841 7,772 898

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Asset acquisitions — ( 3,417 ) ( 31,639 )

Long term investments — — ( 5,000 )

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

Acquisition of content ( 11,096 ) ( 16,821 ) ( 8,874 )

Security deposit (payment) / release ( 173 ) ( 191 ) 140

Security deposit release / (payment) 1,489 ( 173 ) ( 191 )

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

CASH FLOWS FROM FINANCING ACTIVITIES

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

Proceeds from exercise of stock options 2 1,810 2,148

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Proceeds from credit facility 30,000 50,000 —

Repayment of credit facility ( 50,000 ) — —

Repurchase of treasury shares ( 28,205 ) ( 73,488 ) ( 26,493 )

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Effect of foreign exchange rate changes on cash 1,804 ( 2,277 ) ( 2,769 )

Net (decrease) / increase in cash, cash equivalents and restricted cash ( 198,863 ) ( 114,557 ) 122,700

Net decrease in cash, cash equivalents and restricted cash ( 14,664 ) ( 198,863 ) ( 114,557 )

Cash, cash equivalents and restricted cash, beginning of period 115,154 314,017 428,574

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Description of Business

Shutterstock (the “Company” or “Shutterstock”) is a 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.

Shutterstock (the “Company” or “Shutterstock”) is a leading global creative platform connecting brands and businesses to high quality content.

The Company’s platform brings together users and contributors of content by providing readily-searchable content that 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.

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

The Company’s key content offerings include:

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

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

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

These include (i) licenses to metadata associated with the Company’s images, footage, music tracks and 3D models through the Company’s data offering, (ii) distribution and advertising services from the Company’s 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, the Company’s “Data, Distribution, and Services” offerings)

The Company’s Content offering includes:

• 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.

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.

• 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.

On June 23, 2023, the Company completed its acquisition of Giphy, Inc.

(“Giphy”), a a New York-based company that operates a collection of GIFs and stickers that supplies casual conversational content.

The Company believes its acquisition of Giphy extends Shutterstock’s audience touchpoints beyond primarily professional marketing and advertising use cases and expands into casual conversations.

See Note 3 Acquisitions.

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Use of Estimates

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

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

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Concentration of Risk

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Balances may exceed the amount of insurance provided on such deposits.

The majority of the Company’s revenues are derived from customers who license content using electronic payments at the time of a transaction.

A significant portion of the Company’s revenues are derived from customers who license content using electronic payments at the time of a transaction.

The Company’s accounts receivable are primarily from enterprise customers who require invoicing.

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The Company also performs ongoing financial condition evaluations for its existing customers.

As of December 31, 2022, one customer accounted for approximately 22 % of the accounts receivable balance.

As of December 31, 2023, two customers accounted for approximately 29 % of the accounts receivable balance.

No other customer accounted for or exceeded 10% of the accounts receivable balance.

As of December 31, 2021, no single customer accounted for or exceeded 10% of accounts receivable.

Additionally, no single customer accounted for or exceeded 10% of revenue for the years ended December 31, 2022, 2021 or 2020.

As of December 31, 2022, one customer accounted for 22 % of the accounts receivable balance.

Additionally, no single customer accounted for or exceeded 10% of revenue for the year ended December 31, 2021.

Cash, Cash Equivalents and Restricted Cash

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

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

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

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

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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write-offs, net of recoveries and other adjustments ( 1,389 ) 223 ( 3,169 )

223 ( 3,169 ) ( 1,217 )

Balance, end of period $ 6,335 $ 5,830 $ 1,910

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

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Chargeback and Sales Refund Allowance

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

As of December 31, 2022 and December 31, 2021, the Company’s combined allowance for chargebacks and sales refunds was $ 0.4 million, which is included as a component of other current liabilities on the Consolidated Balance Sheets.

For certain Data, Distribution, and Services transactions, the Company has $ 40.4 million of unbilled receivables of which $ 17.6 million are recorded in Accounts Receivable and $ 22.8 million are recorded in Other Assets.

Property and Equipment

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

In 2022, the Company’s goodwill balance was allocated to a single reporting unit.

The Company’s goodwill balance was allocated to a single reporting unit.

Since inception through December 31, 2023, the Company has not had any impairment of goodwill.

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Revenue Recognition

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

A significant portion of the Company’s revenue is earned from the license of content.

The Company also generates revenue from tools available through the Company’s platform.

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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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.

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

The significant portion of the Company’s customers purchase products by making electronic payments with a credit card at the time of the transaction.

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

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

The Company also reports revenue net of return and chargeback allowances.

These allowances are based off historical trends when available.

Cost of Revenue

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Contributor Royalties and Internal Sales Commissions

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

The Company expenses contributor royalties in the period revenue is recognized, which is generally when the customer download occurs, and includes the corresponding contributor royalties in cost of revenue.

Contributor royalties are generally paid monthly.

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For the years ended December 31, 2023, 2022 and 2021, the Company deferred $ 3.9 million, $ 6.3 million and $ 7.2 million, respectively, in royalty advances and amortized $ 4.0 million, $ 7.1 million and $ 5.8 million, respectively, in royalty advance expense which is included in cost of revenue.

As of December 31, 2022 and 2021, the Company has deferred contributor royalties of $ 0.6 million and $ 1.4 million, respectively, which is included in prepaid expenses and other current assets in the Consolidated Balance Sheets.

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

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

As of December 31, 2023 and 2022, the Company has deferred contributor royalties of $ 0.6 million, which is included in prepaid expenses and other current assets in the Consolidated Balance Sheets.

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Product Development

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Awards granted subsequent to June 2, 2022 were granted under the 2022 Plan.

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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The Company recorded employer matching contributions of $ 5.4 million, $ 5.1 million and $ 4.4 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Interest expense

Interest expense is comprised of borrowing costs on debt, 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.

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

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To the extent that the assessment of such tax positions changes, the change in estimate is recorded in the period in which the determination is made.

The reserves are adjusted in light of changing facts and circumstances, such as the outcomes of tax audits or lapses in statutes of limitations.

The reserves are adjusted in light of changing

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

facts and circumstances, such as the outcomes of tax audits or lapses in statutes of limitations.

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

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These accruals are subject to statute of limitations requirements and review by governmental authorities.

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Treasury Stock

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Contingent Consideration

The Company records a liability for contingent consideration at the date of a business combination and reassesses the fair value of the liability each period until it is settled.

Upon settlement of these liabilities, the portion of the contingent consideration payment that is attributable to the initial amount recorded as part of the business combination is classified as a cash flow from financing activities and the portion of the settlement that is attributable to subsequent changes in the fair value of the contingent consideration is classified as a cash flow from operating activities in the Consolidated Statement of Cash Flows.

The Company records an asset or liability for contingent consideration at the date of a business combination and reassesses the fair value of the asset or liability each period until it is settled.

Upon settlement of these assets or liabilities, the portion of the contingent consideration payment that is attributable to the initial amount recorded as part of the business combination is classified as a cash flow from financing activities if the contingent consideration is a liability, or a cash flow from investing activities if the contingent consideration is an asset, and the portion of the settlement that is attributable to subsequent changes in the fair value of the contingent consideration is classified as a cash flow from operating activities in the Consolidated Statement of Cash Flows.

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Foreign Currency

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

The net impact of foreign currency transactional gains and losses on the Company’s results of operations were losses of $ 3.1 million and $ 3.2 million in 2022 and 2021, respectively, and a gain of $ 2.4 million in 2020.

The net impact of foreign currency transactional gains and losses on the Company’s results of operations were gains of $ 0.7 million in 2023 and losses of $ 3.1 million in 2022 and $ 3.2 million in 2021, respectively.

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

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Recently Adopted Accounting Standard Updates

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

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

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

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

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Recent Accounting Pronouncements Not Yet Adopted

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, which enhances incremental disclosures on an annual and interim basis, clarifies circumstances in which an entity can disclose multiple segment measures of profit or loss, provides new segment disclosure requirements for entities with a single reportable segment, and contains other disclosure requirements.

The purpose of the amendments is to enable investors to better understand an entity’s overall performance and assess potential future cash flows.

This ASU applies to all public entities that are required to report segment information in accordance with ASC 280, and is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

Shutterstock is evaluating the impact of this ASU on our consolidated financial statements.

In December 2023, the FASB issued ASU No.

2023-08 (“ASU 2023-08”), Intangibles—Goodwill and Other—Crypto Assets (Subtopic 350-60):Accounting for and Disclosure of Crypto Assets to enhance the valuation and disclosure of crypto assets held by an entity.

ASU 2023-08 is effective for annual periods beginning after December 15, 2024 and the interim periods therein.

Upon adoption, a cumulative-effect adjustment to the opening balance of retained earnings is to be made as of the beginning of the annual period in which the entity adopts the amendments.

Early adoption is permitted.

The adoption of this accounting standard is not expected to impact the Company’s operations, financial position or cash flows.

The Company does not hold any Crypto Assets as of December 31, 2023.

In December 2023, the FASB issued ASU No.

2023-09 (“ASU 2023-09”), Income Taxes (Topic 740):

Improvement to Income Tax Disclosures to enhance the transparency and decision usefulness of income tax disclosures.

ASU 2023-09 is effective for annual periods beginning after December 15, 2024 on a prospective basis.

Early adoption is permitted.

Shutterstock is currently evaluating the impact of this accounting standard update on its consolidated financial statements and related disclosures.

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

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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 December 31, 2022, the Company did not have any cash equivalent balances.

As of December 31, 2023 and 2022, the Company did not have any cash equivalent balances.

Other Fair Value Measurements

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

The carrying amounts of cash, accounts receivable, restricted cash, accounts payable, accrued expenses and the Giphy Retention Compensation 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.

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In 2018, the Company invested $ 15.0 million in convertible preferred shares issued by ZCool (the “Preferred Shares”).

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

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

ZCool and its affiliates have been the exclusive distributor of Shutterstock content in China since 2014.

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

On February 2, 2024, ZCool entered into a definitive agreement with Meitu, Inc.

(“Meitu”), whereby all outstanding shares of ZCool will be acquired by Meitu upon the satisfaction of certain conditions precedent.

In connection with this acquisition, the Company’s $ 15.0 million of Preferred Shares will be exchanged for approximately $ 15.0 million of Meitu common shares which are publicly traded on the Main Board of The Stock Exchange of Hong Kong Limited.

Meitu’s primary business is the provision of online advertising and other internet value added services in the PRC.

Other Equity Investments

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(3) Acquisitions

On May 22, 2023, the Company entered into a Stock Purchase Agreement with Meta Platforms, Inc.

(“Meta”) dated May 22, 2023 (the “Purchase Agreement”).

On June 23, 2023, the Company completed its acquisition of all of the outstanding shares of Giphy, Inc.

(“Giphy”) from Meta.

The consideration paid by the Company pursuant to the Purchase Agreement was $ 53 million in net cash, in addition to cash acquired, assumed debt and other working capital adjustments.

The consideration was paid with existing cash on hand.

Giphy is a New York-based company that operates a collection of GIFs and stickers that supplies casual conversational content.

The Company believes its acquisition of Giphy extends Shutterstock’s audience touchpoints beyond primarily professional marketing and advertising use cases and expands into casual conversations.

In January 2023, the United Kingdom Competition and Markets Authority (the “CMA”) issued its final order requiring Meta to divest its ownership of Giphy, which Meta acquired in 2020.

In connection with the closing of the acquisition, whose terms were preapproved by the CMA, the Company and Meta entered into a transitional services agreement (the “TSA”) pursuant to which Meta is responsible for certain costs related to retention of Giphy employees, including (i) recurring salary, bonus, and benefits through August 2024, which would be $ 35.6 million if all employees are retained through August 2024, and (ii) nonrecurring items, totaling $ 87.9 million, comprised of one-time employment inducement bonuses and the cash value of unvested Meta equity awards (the “Giphy Retention Compensation”).

The Giphy Retention Compensation will be paid to the individuals for being employees of the Company subsequent to the completion of the acquisition.

Accordingly, it was determined that the payments by the Company are for future service requirements and will be reflected as operating expenses, less any amounts earned by the employees prior to the acquisition, in the Company’s Statements of Operations as incurred.

The Giphy Retention Compensation is reflected as a reduction of the purchase price and has been funded into an escrow account.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Giphy purchase price was calculated as follows:

Purchase Price

Purchase price $ 53,000

Cash acquired and other working capital adjustments 4,750

Cash paid on closing $ 57,750

Fair value of Giphy Retention Compensation contingent consideration 1

Fair value of consideration attributable to pre-combination service 2

Net purchase price $ ( 6,001 )

1 - This amount consists of $ 123.5 million of Giphy Retention Compensation, adjusted for $ 18.9 million of income tax obligations associated with the receipt of the Giphy Retention Compensation and $ 5.9 million for the time value of money.

2 - Relates to the cash value of replaced unvested Meta equity awards attributable to pre-combination services.

Upon closing of the acquisition, the Company also entered into an agreement with Meta whereby the Company will provide Meta with Giphy content through API services for a period of two years .

The Company allocated and deferred $ 30 million of the business combination proceeds to this agreement, which will be recognized as revenue as services are provided.

The identifiable intangible assets, which include developed technology and the trade name have weighted average useful lives of approximately 7 years and 15 years, respectively.

The fair value of the developed technology and the trade name was determined using the relief-from-royalty method.

Determining the fair value requires management to use significant judgement 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.

The Giphy transaction was accounted for using the acquisition method and, accordingly, the results of the acquired business has been included in the Company’s results of operations from the acquisition date.

For the year ended December 31, 2023, revenue of $ 10.5 million was included in the Consolidated Statements of Operations related to the Company’s acquisition of Giphy.

The fair value of consideration transferred in this business combination has been allocated to the intangible and tangible assets acquired and liabilities assumed at the acquisition date, with the excess of the fair value of the net assets acquired over the net consideration received recorded as a bargain purchase gain.

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The aggregate purchase price for this acquisition has been allocated to the assets acquired and liabilities assumed as follows (in thousands):

Assets acquired and liabilities assumed:

Cash and cash equivalents $ 4,030

Prepaid expenses and other current assets 1,416

Right of use assets 1,243

Intangible assets:

Trade name 21,000

Developed technology 2

Intangible assets 40,500

Deferred tax asset 1

Other assets 1,647

Total assets acquired $ 50,299

Accounts payable, accrued expenses and other liabilities ( 4,949 )

Lease liability ( 1,090 )

Total liabilities assumed ( 6,039 )

Net assets acquired $ 44,260

Net purchase price ( 6,001 )

Bargain purchase gain $ 50,261

1 - During the three months ended September 30, 2023, the Company revised its preliminary allocation of the Giphy purchase price to the assets acquired and liabilities assumed by $ 9.9 million associated with additional information analyzed related to the deferred income tax balances.

The measurement and allocation of the purchase price is preliminary and will be finalized within the allowable measurement period once the Company finalizes its assessment of fair value of intangible assets, income tax balances and other assets acquired and liabilities assumed.

2 - During the three months ended December 31, 2023, the Company revised its preliminary allocation of the Giphy purchase price to the assets acquired and liabilities assumed by $ 1.6 million associated with additional information analyzed related to the valuation of the Developed Technology asset.

The Company recognized a non-taxable bargain purchase gain of $ 50.3 million, representing the excess of the fair value of the net assets acquired in addition to the net consideration to be received from Meta.

The bargain purchase gain is the result of the CMA’s regulatory order requiring Meta’s divestiture of Giphy and the Giphy Retention Compensation payments.

In connection with the acquisition, the Company incurred approximately $ 3.0 million of transaction costs, which is included in general and administrative expenses on the Consolidated Statements of Operations.

As of December 31, 2023, Shutterstock’s receivable of $ 88.2 million is against an escrow fully funded by Meta.

$ 64.5 million and $ 23.7 million are included within Prepaid expenses and other current assets and Other assets, respectively, on the Consolidated Balance Sheet.

2022 Acquisitions

On May 11, 2022, the Company completed its acquisition of all of the outstanding shares of Pond5, for approximately $ 218.0 million.

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In connection with the acquisition, the Company incurred approximately $ 4.0 million of transaction costs, which is included in general and administrative expenses on the Consolidated Statements of Operations.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Pond5 is a New York based company that operates a video-first content marketplace for royalty-free and editorial video.

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The Company believes this acquisition expands Shutterstock Editorial’s Newsroom offering for access to premium exclusive content.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The identifiable intangible asset, developed technology, has a useful life of approximately 4 years.

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Assets acquired and liabilities assumed (in thousands):

Splash News 1

Pond5 Splash News Total

Cash and cash equivalents $ 11,675 $ 180 $ 11,855

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Net assets acquired $ 218,014 $ 6,316 $ 224,330

____________________________________________________

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.

During the three months ended September 30, 2022, the Company updated its preliminary allocation of the Pond5 purchase price to the assets acquired and liabilities assumed.

This resulted in a (i) $ 4.0 million increase to goodwill, (ii) a $ 4.1 million decrease to intangible assets, including a $ 7.0 million decrease to the value of customer relationships, partially offset by a $ 2.3 million increase to the value of the developed technology, and (iii) other immaterial adjustments.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2021 Acquisitions

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

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

For the year ended December 31, 2022, PicMonkey and TurboSquid revenues of $ 26.0 million and $ 28.3 million, respectively, are included in the Consolidated Statements of Operations.

For the twelve months ended December 31, 2021, PicMonkey revenues of $ 8.9 million are included in the Consolidated Statements of Operations.

For the twelve months ended December 31, 2021, TurboSquid revenues of $ 25.9 million are included in the Consolidated Statements of Operations.

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

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Assets acquired and liabilities assumed (in thousands):

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 twelve months ended December 31, 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.

The following unaudited pro forma consolidated financial information (in thousands) reflects the results of operations of the Company for the twelve months ended December 31, 2023 and 2022, as if the Giphy acquisition had been completed on January 1, 2022 and as if the Pond5 and Splash News acquisitions had been completed on January 1, 2021, after giving effect to certain purchase accounting adjustments, primarily related to bargain purchase gain, Giphy Retention Compensation - non-recurring, intangible assets and transaction costs.

These pro forma results have been prepared for comparative purposes only and are based on estimates and assumptions that have been made solely for purposes of developing such pro forma information and are not necessarily indicative of what the Company’s operating results would have been, had the acquisitions actually taken place at the beginning of the previous annual period.

Year Ended December 31,

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

The aggregate purchase price for these transactions was approximately $ 35 million and is subject to customary working capital and other adjustments and was

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

paid from existing cash on hand.

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

Approximately $ 3.4 million of the total purchase consideration was subject to contractual holdback provisions and was paid during 2022.

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There was no loss on disposal for the years ended December 31, 2023, 2022 and 2021, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In 2022, the Company recorded an impairment charge of $ 2.8 million primarily related to certain of its leasehold improvements triggered by the Company’s decision to cease using certain office spaces.

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As of December 31, 2023 and 2022, the Company had capitalized internal-use software of $ 60.3 million and $ 50.1 million, respectively, net of accumulated depreciation, which was included in property and equipment, net.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(5) Goodwill and Intangible Assets

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Balance as of December 31, 2023 $ 383,325

In 2022, the Company’s goodwill balance was allocated to a single reporting unit.

The Company’s goodwill balance was allocated to a single reporting unit.

The Company performed its annual goodwill assessment as of October 1, 2023 and concluded that the fair value of its reporting unit was greater than its carrying amount, and therefore, no adjustment to the carrying value of goodwill was necessary.

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There were no impairments of goodwill in any of the periods presented in the consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Intangible Assets

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$ 37.9 million in 2024, $ 27.4 million in 2025, $ 25.1 million in 2026, $ 18.8 million in 2027, $ 16.1 million in 2028 and $ 59.1 million thereafter.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(6) Accrued Expenses

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Total accrued expenses $ 131,443 $ 89,387

As of December 31, 2023, compensation-related accrued expenses included amounts due to Giphy employees for compensation earned pre-acquisition and severance costs associated with workforce optimizations.

For the year ended December 31, 2023, the Company recognized $ 12.5 million of severance costs associated with workforce optimizations, of which $ 0.3 million is reported in Cost of Revenues, $ 4.2 million in Sales and Marketing, $ 3.6 million in Product Development, and $ 4.4 million in General and Administrative expenses for the year ended December 31, 2023 .

Of this amount, approximately $ 7.7 million is included within accrued expenses as of December 31, 2023 and is expected to be paid to employees over the next 12 months.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

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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 December 31, 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 year ended December 31, 2022, the Company recognized interest expense of $ 1.3 million.

For the year ended December 31, 2022, the Company’s annualized interest rate was 3.8 %.

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

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

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

For the year ended December 31, 2023 and 2022, the Company recognized interest expense of $ 1.9 million and $ 1.3 million, respectively.

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.

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As of December 31, 2023, the Company was in compliance with these covenants.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(8) Stockholders’ Equity

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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 purchase an additional $ 100 million of its common stock.

As of December 31, 2022, the Company has repurchased approximately 3.8 million shares of its common stock under the share repurchase program at an average per-share cost of approximately $ 52.97 .

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

As of December 31, 2022, the Company had fully utilized its authorization for repurchases under the 2015 and 2017 Share Repurchase Programs.

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

During 2023 and 2022, the Company repurchased approximately 634,500 and 983,700 shares of its common stock, respectively, at an average per share cost of $ 44.45 and $ 74.02 , respectively.

As of December 31, 2023, the Company had $ 72 million of remaining authorization for purchases under the 2023 Share Repurchase Program.

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

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Under the share repurchase program, management is authorized to purchase shares of the Company’s common stock from time to time through open market purchases or privately negotiated transactions at prevailing prices as permitted by securities laws and other legal requirements, and subject to market conditions and other factors

During 2022 and 2021, the Company repurchased approximately 984,000 and 234,000 shares of its common stock, respectively, at an average per share cost of $ 74.02 and $ 116.26 , respectively.

As of December 31, 2022, the Company has fully utilized its authorization under the share repurchase program.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Stock Offering

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

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

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

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

As of December 31, 2023, in total the Company has repurchased approximately 4.4 million shares of its common stock under the 2015 and 2017 Share Repurchase Programs and the 2023 Share Repurchase Program at an average per-share cost of $ 51.74 .

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

The Company declared and paid cash dividends totaling $ 1.08 and $ 0.96 per share of common stock, or $ 38.7 million and $ 34.6 million, during the years ended December 31, 2023 and 2022, respectively.

On January 30, 2023, the Company’s 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, the Company’s 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.

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

The Company distributes its products through two primary channels:

The majority of the Company’s customers license content 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.

In the fourth quarter of 2023, management reevaluated and changed its revenue disaggregation from a sales channel categorization to a product offering categorization of Content and Data, Distribution, and Services.

This new categorization is aligned with how the Company measures revenue performance.

Management believes this new classification better represents the nature, amount, and timing of revenue from customer contracts, and aligned with the growth of its Data, Distribution, and Services offering.

The majority of the Company’s customers license image, video, music and 3D content for commercial purposes either directly through the Company’s self-service web properties or through the Company’s dedicated sales teams.

Content customers have the flexibility to purchase subscription-based plans that are paid on a monthly or annual basis.

Customers 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.

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 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 following table summarizes the Company’s revenue by distribution channel for the years ended December 31, 2022, 2021 and 2020 (in thousands):

Certain content customers also have unique content, licensing and workflow needs.

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

Data, Distribution, and Services :

Revenues from this offering grew significantly during 2023, and represents 16 % of the full year 2023 revenue.

Our Data, Distribution, and Services offerings address customer demand for products and services that are beyond our stock image, footage music and 3D model licenses.

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

at unique 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 used 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 and post-production stages.

The Company’s Content and Data, Distribution, and Services revenues for the years ended December 31, 2023, 2022 and 2021 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 Revenues $ 874,587 $ 827,826 $ 773,415

Historically, the Company analyzed revenue using the E-Commerce and Enterprise sales channels.

E-Commerce revenues are derived from customers who license content directly through the Company’s self-service web properties.

The Enterprise revenues are derived from customers with unique content, licensing and workflow needs and engage with the Company’s sales team.

The Company’s revenues using the historical E-Commerce and Enterprise disaggregation for the years ended December 31, 2023, 2022 and 2021 are as follows (in thousands):

Year Ended December 31,

2023 2022 2021

E-commerce $ 439,941 $ 501,384 $ 490,212

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

Deferred revenue reported on the balance sheet represents unfulfilled performance obligations for which the Company has either received payment or has outstanding receivables.

The December 31, 2023 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.

$ 176.2 million of total revenue recognized for the year ended December 31, 2022 was reflected in deferred revenue as of January 1, 2022.

$ 182.2 million of total revenue recognized for the year ended December 31, 2023 was reflected in deferred revenue as of December 31, 2022.

In addition, as of December 31, 2023, the Company has approximately $ 59.6 million of contracted but unsatisfied performance obligations relating primarily to our data offering, which are not included as a component of deferred revenue and that the Company expects to recognize over a five year period.

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Total $ 48,577 $ 35,740 $ 36,179

The following table summarizes non-cash equity-based compensation expense, net of forfeitures, by award type included in the Company’s Consolidated Statements of Operations for the years ended December 31, 2022, 2021 and 2020 (in thousands):

Year Ended December 31,

2022 2021 2020

Stock options $ 147 $ 710 $ 2,088

RSUs 35,593 35,469 26,221

Total $ 35,740 $ 36,179 $ 28,309

For the year ended December 31, 2023, 2022 and 2021 substantially all of the Company’s non-cash equity-based compensation expense related to RSUs.

2012 Omnibus Equity Incentive Plan

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Shares subject to Awards granted under the 2022 Plan that expire unexercised or are forfeited, will become available for future grant under 2022 Plan.

However, shares used to pay the exercise price of an Award or to satisfy the tax withholding obligations related to an Award will not

However, shares used to pay the exercise price of an Award or to satisfy the tax withholding obligations related to an Award will not become available for future grant under the 2022 Plan.

Awards granted subsequent to June 2, 2022 were granted under the 2022 Plan.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

become available for future grant under the 2022 Plan.

Awards granted subsequent to June 2, 2022 were granted under the 2022 Plan.

Stock Option Awards

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

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

Options Weighted Average

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Stock options vested and expected to vest $ 4,232 $ 5,576

The intrinsic value of stock options exercised for the years ended December 31, 2022, 2021 and 2020 was approximately $ 1.1 million, $ 3.0 million and $ 0.5 million, respectively.

The following weighted average assumptions were used in the fair value calculation for the year ended December 31, 2020.

The intrinsic value of stock options exercised for the years ended December 31, 2023, 2022 and 2021 was approximately $ 33 thousand, $ 1.1 million and $ 3.0 million, respectively.

No stock option awards were granted during the years ended December 31, 2023, 2022 and 2021.

Year Ended December 31,

Expected term (in years) 6.0

Volatility 43.8 %

Risk-free interest rate 1.73 %

Dividend yield —

Valuation Data:

Weighted average fair value per share granted $ 18.86

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

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Restricted Stock Units Awards (including PRSUs)

The following table presents a summary of the Company’s RSUs activity for the year ended December 31, 2022:

The following table presents a summary of the Company’s RSUs activity for the year ended December 31, 2023 (in thousands):

RSUs Weighted Average

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As of December 31, 2023, the total unrecognized compensation charge related to the restricted stock units is approximately $ 78.3 million, which is expected to be recognized through fiscal 2027.

(11) Other (Expense) / Income, net

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

(11) Other Income / (Expense), net

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

Year Ended December 31,

2023 2022 2021

Foreign currency (loss) / gain $ ( 1,338 ) $ ( 3,303 ) $ 3,067

Foreign currency gain / (loss) $ 879 $ ( 1,338 ) $ ( 3,303 )

Interest expense ( 1,856 ) ( 1,336 ) —

Other 87 ( 67 ) 1,190

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

Interest income / (expense) and other 4,784 87 ( 67 )

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

(12) Income Taxes

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Capital loss — ( 1.7 ) ( 4.9 )

Bargain purchase gain ( 8.6 ) — —

Non-deductible—other — 0.2 0.4

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Depreciation and amortization ( 11,605 ) ( 21,692 )

Contingent consideration ( 8,911 ) —

Net deferred tax assets $ 20,692 $ 12,068

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

If the performance targets are not met in the second quarter of 2024, this deferred tax asset will be reversed.

In addition, the $ 6.8 million valuation allowance relates to certain foreign net operating loss carryforwards, where the Company has determined that there is sufficient uncertainty regarding the future realization of these net operating losses.

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

Internal Revenue Service for the tax years 2017 through 2021.

The Company is no longer subject to U.S.

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

As of December 31, 2022, the Company has $ 37.5 million in tax net operating loss carryforwards in US and foreign tax jurisdictions which are available to reduce future income taxes and the majority of this amount relates to jurisdictions with an indefinite carryforward period.

Internal Revenue Service for the tax years 2017 through 2021, and expects the examinations for these years to be concluded in the next twelve months.

The Company no longer subject to U.S.

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

SHUTTERSTOCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As of December 31, 2023, the Company has $ 77.4 million in tax net operating loss carryforwards in U.S.

and foreign tax jurisdictions which are available to reduce future income taxes and the majority of this amount relates to jurisdictions with an indefinite carryforward period.

As of December 31, 2023, the Company had approximately $ 32.4 million of undistributed earnings attributable to its foreign subsidiaries.

It is the Company’s practice and intention to indefinitely reinvest the earnings of its foreign subsidiaries in those operations.

The Company has not provided deferred U.S.

income taxes or foreign withholding taxes on temporary differences resulting from the earnings indefinitely reinvested outside the United States.

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

The Company has no plans to indefinitely reinvest the earnings of its foreign subsidiaries in those operations.

An estimate of the associated taxes related to repatriation of these undistributed earnings is not material.

(13) Net Income Per Share

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2024 $ 45,400

Thereafter 200

Total non-lease unconditional obligations $ 81,900

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The agreements specify various employment-related matters, including annual compensation, performance incentive bonuses, and severance benefits in the event of termination with or without cause.

(17) Subsequent Events

On February 1, 2024, the Company completed its acquisition of Backgrid USA, Inc.

and Backgrid London LTD (collectively, “Backgrid”) for approximately $ 20 million, subject to customary working capital adjustments.

The purchase price was paid with existing cash on hand.

Backgrid supplies media organization with real-time celebrity content, and expands the Company’s offering of editorial images and footage across celebrity, red carpet and live-events.

EXHIBIT INDEX

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8-K 001-35669 2.1 May 11, 2022

2.4 Stock Purchase Agreement, dated May 22, 2023

8-K 001-35669 2.1 May 23, 2023

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

6 unchanged sentences

10-K 001-35669 4.1 February 13, 2020

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

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

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

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

97 ** 2023 Executive Compensation Clawback Policy

101.INS * XBRL Instance Document.

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

What changed 10-K

Item 9A. Controls and Procedures