Shutterstock, Inc. 10-K

Item 9A. Controls and Procedures. Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2023. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. However, any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objective. Based on the evaluation of our disclosure controls and procedures as of December 31, 2023, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at a reasonable assurance level. Management’s Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Management assessed our internal control over financial reporting as of December 31, 2023. Management based its assessment on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment, management has concluded that our internal control over financial reporting was effective as of December 31, 2023. PricewaterhouseCoopers LLP, an independent registered public accounting firm (PCAOB ID 238 ), has audited the consolidated financial statements included in this Annual Report on Form 10-K and, as part of the audit, has issued a report on the effectiveness of our internal control over financial reporting as of December 31, 2023, which begins on page F-2 of this Annual Report on Form 10-K. Changes in Internal Control Over Financial Reporting There were no changes in our internal control over financial reporting, identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the three months ended December 31, 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Limitations on Controls Our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives as specified above. Management does not expect, however, that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and fraud. The design of a control system must reflect that there are resource constraints, and the benefits of controls must be considered relative to their costs. 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. Item 9B. Other Information. (c) Insider Trading Arrangements 63 Table of Contents In August 2023 , John Caine , our Chief Product and Digital Officer, entered into a prearranged stock trading plan . Mr. 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. Mr. 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. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. Not applicable. 64 Table of Contents PART III Item 10. Directors, Executive Officers and Corporate Governance The information required by this item is incorporated by reference to our Proxy Statement for the 2024 Annual Meeting of Stockholders to be filed with the SEC, within 120 days after the end of the fiscal year ended December 31, 2023. We have adopted a Code of Business Conduct and Ethics that applies to all of our directors, officers and employees, including our principal executive officer and our principal financial and accounting officer. The Code of Business Conduct and Ethics is available on our investor relations website (investor.shutterstock.com) in the “Corporate Governance” section. We will post any amendments to, or waivers from, a provision of this Code of Business Conduct and Ethics by posting such information on our website, at the address and location specified above. Item 11. Executive Compensation The information required by this item is incorporated by reference to our Proxy Statement for the 2024 Annual Meeting of Stockholders to be filed with the SEC, within 120 days after the end of the fiscal year ended December 31, 2023. Item 12. Security Ownership Of Certain Beneficial Owners And Management And Related Stockholder Matters The information required by this item is incorporated by reference to our Proxy Statement for the 2024 Annual Meeting of Stockholders to be filed with the SEC, within 120 days after the end of the fiscal year ended December 31, 2023. Item 13. Certain Relationships And Related Transactions, and Director Independence The information required by this item is incorporated by reference to our Proxy Statement for the 2024 Annual Meeting of Stockholders to be filed with the SEC, within 120 days after the end of the fiscal year ended December 31, 2023. Item 14. Principal Accounting Fees and Services The information required by this item is incorporated by reference to our Proxy Statement for the 2024 Annual Meeting of Stockholders to be filed with the SEC, within 120 days after the end of the fiscal year ended December 31, 2023. 65 Table of Contents PART IV Item 15. Exhibits, Financial Statement Schedules. (a) The following documents are included as part of this Annual Report on Form 10-K: (1) Financial Statements Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets F-4 Consolidated Statements of Operations F-5 Consolidated Statements of Comprehensive Income F-6 Consolidated Statements of Stockholders’ Equity F-7 Consolidated Statements of Cash Flows F- 8 Notes to Consolidated Financial Statements F-9 (2) Financial Statement Schedules Financial statement schedules have been omitted because they are not applicable or the required information is included in the consolidated financial statements or notes thereto. (3) Exhibits See the Exhibit Index, which immediately precedes the signature page of this Annual Report on Form 10-K. Item 16. Form 10-K Summary. None. Table of Contents Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Shutterstock, Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Shutterstock, Inc. and its subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of operations, of comprehensive income, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2023, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. F-2 Table of Contents Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Revenue Recognition - 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. The Company recognizes revenue upon the satisfaction of performance obligations. 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. 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 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. Giphy, Inc. 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. (Giphy). 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 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 F-3 Table of Contents 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 New York, New York February 26, 2024 We have served as the Company’s auditor since 2011. F-4 Table of Contents SHUTTERSTOCK, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except par value amount) December 31, 2023 2022 ASSETS Current assets: Cash and cash equivalents $ 100,490 $ 115,154 Accounts receivable, net of allowance of $ 6,335 and $ 5,830 91,139 67,249 Prepaid expenses and other current assets 100,944 33,268 Total current assets 292,573 215,671 Property and equipment, net 64,300 54,548 Right-of-use assets 15,395 17,593 Intangible assets, net 184,396 173,087 Goodwill 383,325 381,920 Deferred tax assets, net 24,874 16,533 Other assets 71,152 21,832 Total assets $ 1,036,015 $ 881,184 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 9,108 $ 7,183 Accrued expenses 131,443 89,387 Contributor royalties payable 54,859 38,649 Deferred revenue 203,463 187,070 Debt 30,000 50,000 Other current liabilities 23,513 11,445 Total current liabilities 452,386 383,734 Deferred tax liability, net 4,182 4,465 Lease liabilities 29,404 35,611 Other non-current liabilities 22,949 9,892 Total liabilities 508,921 433,702 Commitments and contingencies (Note 16) Stockholders’ equity: Common stock, $ 0.01 par value; 200,000 shares authorized; 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 399 396 Treasury stock, at cost; 4,410 and 3,776 shares as of December 31, 2023 and December 31, 2022, respectively ( 228,213 ) ( 200,008 ) Additional paid-in capital 424,229 391,482 Accumulated other comprehensive loss ( 11,974 ) ( 15,439 ) Retained earnings 342,653 271,051 Total stockholders’ equity 527,094 447,482 Total liabilities and stockholders’ equity $ 1,036,015 $ 881,184 See accompanying notes to consolidated financial statements F-5 Table of Contents SHUTTERSTOCK, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) Year Ended December 31, 2023 2022 2021 Revenue $ 874,587 $ 827,826 $ 773,415 Operating expenses: Cost of revenue 352,630 314,306 277,659 Sales and marketing 214,749 203,154 204,878 Product development 96,162 65,434 52,014 General and administrative 142,646 132,644 130,758 Impairment of lease and related assets — 18,664 — Total operating expenses 806,187 734,202 665,309 Income from operations 68,400 93,624 108,106 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 Provision for income taxes 12,199 14,934 12,853 Net income $ 110,269 $ 76,103 $ 91,883 Earnings per share: Basic $ 3.07 $ 2.11 $ 2.52 Diluted $ 3.04 $ 2.08 $ 2.46 Weighted average shares outstanding: Basic 35,878 36,042 36,509 Diluted 36,242 36,546 37,324 See accompanying notes to consolidated financial statements F-6 Table of Contents SHUTTERSTOCK, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) Year Ended December 31, 2023 2022 2021 Net income $ 110,269 $ 76,103 $ 91,883 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 See accompanying notes to consolidated financial statements F-7 Table of Contents SHUTTERSTOCK, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands) Additional Paid-in Capital Accumulated Other Comprehensive Income / (Loss) Retained Earnings Common Stock Treasury Stock Shares Amount Shares Amount Total Balance at December 31, 2020 38,803 $ 389 2,558 $ ( 100,027 ) $ 360,939 $ ( 7,681 ) $ 168,305 $ 421,925 Equity-based compensation — — — — 36,179 — — 36,179 Issuance of common stock in connection with employee stock option exercises and RSU vesting 660 7 — — 2,141 — — 2,148 Common shares withheld for settlement of taxes in connection with equity-based compensation ( 254 ) ( 4 ) — — ( 22,722 ) — — ( 22,726 ) Repurchase of Treasury Shares — — 234 ( 27,169 ) — — — ( 27,169 ) Cash dividends paid — — — — — — ( 30,651 ) ( 30,651 ) Other comprehensive income / (loss) — — — — — ( 3,107 ) — ( 3,107 ) Net income — — — — — — 91,883 91,883 Balance at December 31, 2021 39,209 392 2,792 ( 127,196 ) 376,537 ( 10,788 ) 229,537 468,482 Equity-based compensation — — — — 35,740 — — 35,740 Issuance of common stock in connection with employee stock option exercises and RSU vesting 654 7 — — 1,803 — — 1,810 Common shares withheld for settlement of taxes in connection with equity-based compensation ( 258 ) ( 3 ) — — ( 22,598 ) — — ( 22,601 ) Repurchase of treasury shares — — 984 ( 72,812 ) — — — ( 72,812 ) Cash dividends paid — — — — — — ( 34,589 ) ( 34,589 ) Other comprehensive income / (loss) — — — — — ( 4,651 ) — ( 4,651 ) Net income — — — — — — 76,103 76,103 Balance at December 31, 2022 39,605 396 3,776 ( 200,008 ) 391,482 ( 15,439 ) 271,051 447,482 Equity-based compensation — — — — 48,577 — — 48,577 Issuance of common stock in connection with employee stock option exercises and RSU vesting 634 5 — — ( 3 ) — — 2 Common shares withheld for settlement of taxes in connection with equity-based compensation ( 257 ) ( 2 ) — — ( 15,827 ) — — ( 15,829 ) Repurchase of treasury shares — — 634 ( 28,205 ) — — — ( 28,205 ) Cash dividends paid — — — — — — ( 38,667 ) ( 38,667 ) Other comprehensive income / (loss) — — — — — 3,465 — 3,465 Net income — — — — — — 110,269 110,269 Balance at December 31, 2023 39,982 $ 399 4,410 $ ( 228,213 ) $ 424,229 $ ( 11,974 ) $ 342,653 $ 527,094 See accompanying notes to consolidated financial statements F-8 Table of Contents SHUTTERSTOCK, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended December 31, 2023 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 110,269 $ 76,103 $ 91,883 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 79,729 68,470 48,771 Deferred taxes ( 26,176 ) ( 10,587 ) ( 1,771 ) Non-cash equity-based compensation 48,577 35,740 36,179 Impairment of lease and related assets — 18,664 — Bad debt expense 1,894 3,697 137 Bargain purchase gain ( 50,261 ) — — Changes in operating assets and liabilities: Accounts receivable ( 24,409 ) ( 22,105 ) ( 4,093 ) Prepaid expenses and other current and non-current assets ( 50,501 ) 532 ( 13,184 ) Accounts payable and other current and non-current liabilities 20,892 ( 24,328 ) 34,444 Contributor royalties payable 15,841 7,772 898 Deferred revenue 14,697 4,493 23,108 Net cash provided by operating activities $ 140,552 $ 158,451 $ 216,372 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures ( 44,645 ) ( 43,296 ) ( 28,125 ) Business combination, net of cash acquired ( 53,721 ) ( 211,843 ) ( 181,609 ) Asset acquisitions — ( 3,417 ) ( 31,639 ) Cash received related to Giphy Retention Compensation 53,657 — — Acquisition of content ( 11,096 ) ( 16,821 ) ( 8,874 ) 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 Proceeds from exercise of stock options 2 1,810 2,148 Cash paid related to settlement of employee taxes related to RSU vesting ( 15,834 ) ( 22,601 ) ( 22,726 ) Payment of cash dividends ( 38,667 ) ( 34,589 ) ( 30,651 ) Proceeds from credit facility 30,000 50,000 — Repayment of credit facility ( 50,000 ) — — Repurchase of treasury shares ( 28,205 ) ( 73,488 ) ( 26,493 ) Payment of debt issuance costs — ( 619 ) — Net cash used in financing activities $ ( 102,704 ) $ ( 79,487 ) $ ( 77,722 ) Effect of foreign exchange rate changes on cash 1,804 ( 2,277 ) ( 2,769 ) 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 Cash, cash equivalents and restricted cash, end of period $ 100,490 $ 115,154 $ 314,017 Supplemental Disclosure of Cash Information: Cash paid for: Cash paid for income taxes $ 33,067 $ 23,444 $ 19,092 Cash paid for interest $ 1,724 $ 1,045 — See accompanying notes to consolidated financial statements F-9 Table of Contents SHUTTERSTOCK, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Summary of Operations and Significant Accounting Policies Description of Business 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. 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. Images are typically used in visual communications, such as websites, digital and print marketing materials, corporate communications, books, publications and other similar uses. • Footage - consisting of video clips, premium footage filmed by industry experts and cinema grade video effects, available in HD and 4K formats. Footage is often integrated into websites, social media, marketing campaigns and cinematic productions. • Music - consisting of high-quality music tracks and sound effects, which are often used to complement images and footage. • 3 Dimensional (“3D”) Models - consisting of 3D models, used in a variety of industries such as advertising, media and video production, gaming, retail, education, design and architecture. • 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. Principles of Consolidation and Basis of Presentation The consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Certain immaterial changes in presentation have been made to conform the prior period presentation to current period reporting. Use of Estimates F-10 Table of Contents 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. Actual results could differ from those estimates. Such estimates include, but are not limited to, the determination of the allowance for doubtful accounts, the volume of expected unused licenses for our subscription-based products, the assessment of recoverability of property and equipment, the fair value of acquired goodwill and intangible assets, the amount of non-cash equity-based compensation, the assessment of recoverability of deferred tax assets, the measurement of income tax and contingent non-income tax liabilities and the determination of the incremental borrowing rate used to calculate the lease liability. Concentration of Risk Financial instruments that are exposed to concentration of credit risk consist primarily of cash and cash equivalents and accounts receivable balances. Cash and cash equivalents are held with financial institutions of high quality. Balances may exceed the amount of insurance provided on such deposits. 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. The Company performs initial and ongoing credit reviews on these customers, which involve consideration of the customers’ financial information, their location, and other factors to assess the customers’ ability to pay. The Company also performs ongoing financial condition evaluations for its existing customers. 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, 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 As of December 31, 2023 and 2022, the Company’s cash and cash equivalents were $ 100.5 million and $ 115.2 million, respectively. The Company’s cash balance consist primarily of bank deposits. Cash equivalents consists primarily of money market accounts and are stated at cost, which approximates fair value. Fair Value Measurements The Company records its financial assets and liabilities at fair value. Fair value is determined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the reporting date. Fair value is estimated by applying inputs which are classified into the following levels of a three-tier hierarchy as follows: Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2- inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; and Level 3 - unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions regarding what market participants would use in pricing. Accounts Receivable and Allowance for Doubtful Accounts The Company’s accounts receivable consists of customer obligations due under normal trade terms, carried at their face value less an allowance for doubtful accounts, if required. The Company determines its allowance for doubtful accounts based on an evaluation of (i) the aging of its accounts receivable considering historical receivables loss rates, (ii) on a customer-by-customer basis, where appropriate, and (iii) the economic environments in which the Company operates. F-11 Table of Contents SHUTTERSTOCK, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table presents the changes in the Company’s allowance for doubtful accounts (in thousands): Year Ended December 31, 2023 2022 2021 Balance, beginning of period $ 5,830 $ 1,910 $ 4,942 Add: bad debt expense 1,894 3,697 137 Less: write-offs, net of recoveries and other adjustments ( 1,389 ) 223 ( 3,169 ) Balance, end of period $ 6,335 $ 5,830 $ 1,910 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 Property and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation and amortization is calculated using the straight-line method over the estimated useful lives of the related assets. Generally, the useful lives are as follows: Equipment 3 years Furniture and fixtures 7 years Software 3 years Leasehold improvements Shorter of expected useful life or lease term Capitalized Internal Use Software The Company capitalizes the qualifying costs of computer software developed for internal use, which are incurred during the application development stage, and amortizes them over the software’s estimated useful life. Costs incurred in the preliminary and post-implementation stages of the Company’s products are expensed as incurred. The amounts capitalized include employee’s payroll and payroll-related costs directly associated with the development activities as well as external direct costs of services used in developing internal-use software. The Company’s policy is to amortize capitalized costs using the straight-line method over the estimated useful life, which is currently three years , beginning when the software is substantially complete and ready for its intended use. Impairment of Long-Lived Assets Long-lived assets, inclusive of definite-lived intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying value of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying value of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized in the amount by which the carrying value of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying value or the fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposed group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet. In 2022, the Company recorded an impairment charge related to a portion of its right-of-use assets and property and equipment triggered by the Company’s decision to cease using certain office spaces. See Note 4, Property and Equipment and Note 15, Leasing for further discussion. There were no long-lived asset impairment charges in 2023 or 2021. Goodwill and Intangible Assets 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. 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. F-12 Table of Contents SHUTTERSTOCK, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Revenue Recognition A significant portion of the Company’s revenue is earned from the license of content. Content licenses are generally purchased on a monthly or annual basis, whereby a customer pays for a predetermined quantity of content that may be downloaded over a specific period of time, or, on a transactional basis, whereby a customer pays for individual content licenses at the time of download. The Company also generates revenue from tools available through the Company’s platform. For contracts that contain multiple performance obligations, the Company allocates the transaction price to each performance obligation based on a relative standalone selling price. The standalone selling price is determined based on the price at which the performance obligation is sold separately, or if not observable through past transactions, is estimated taking into account available information including internally approved pricing guidelines and pricing information of comparable products. The Company recognizes revenue upon the satisfaction of performance obligations. The Company recognizes revenue on both its subscription-based and transaction-based products when content is downloaded by a customer, at which time the license is provided. In addition, the Company estimates expected unused licenses for subscription-based products and recognizes the revenue associated with the unused licenses as digital content is downloaded and licenses are obtained for such content by the customer during the subscription period. The estimate of unused licenses is based on historical download activity and future changes in the estimate could impact the timing of revenue recognition of the Company’s subscription products. For revenue associated with tools available through the Company’s platform, revenue is recognized on a straight-line basis over the subscription period. The Company expenses contract acquisition costs as incurred, to the extent that the amortization period would otherwise be one year or less. Collectability is 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. Customers that do not pay in advance are invoiced and are required to make payments under standard credit terms. Collectability for customers who pay on credit terms allowing for payment beyond the date at which service commences, is based on a credit evaluation for certain new customers and transaction history with existing customers. The Company recognizes revenue gross of contributor royalties because the Company is the principal in the transaction as it is the party responsible for the performance obligation and it controls the product or service before transferring it to the customer. The Company also licenses content to customers through third-party resellers. Third-party resellers sell the Company’s products directly to customers as the principal in those transactions. Accordingly, the Company recognizes revenue net of costs paid to resellers. The Company also reports revenue net of return and chargeback allowances. These allowances are based off historical trends when available. Cost of Revenue The Company’s cost of revenue includes royalties paid to contributors, credit card processing fees, content reviewer costs, customer service expenses, infrastructure and hosting costs related to maintaining our creative platform and cloud-based software platform, depreciation and amortization of capitalized internal-use software, purchased content and acquisition-related intangible assets, allocated facility costs and other supporting overhead costs. Costs of revenue also includes employee compensation, including non-cash equity-based compensation, bonuses and benefits associated with the maintenance of the Company’s creative platform and cloud-based software platform. Contributor Royalties and Internal Sales Commissions 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. The Company advances certain contributor royalties which are initially deferred and expensed based on the contractual royalty rate at the time of customer download or when the Company determines future recovery is not probable. 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, 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. F-13 Table of Contents SHUTTERSTOCK, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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. Product Development The Company expenses product development costs as incurred, except for costs that are capitalized for certain internal software development projects. Product development costs are primarily comprised of development personnel salaries, non-cash equity-based compensation, software and other IT equipment costs as well as allocated facility costs and related overhead. Advertising Costs The Company expenses the cost of advertising and promoting its products as incurred. Such costs totaled $ 93.1 million, $ 97.2 million and $ 112.9 million for the years ended December 31, 2023, 2022 and 2021, respectively, which are included in sales and marketing expense in the Consolidated Statements of Operations. Leasing The Company records rent expense on a straight-line basis over the term of the related lease. At inception, the Company first determines if an arrangement contains a lease and the classification of that lease, if applicable. The Company recognizes right-of-use (“ROU”) assets and lease liabilities for its operating leases. For contracts with lease and non-lease components, the Company has elected not to allocate the contract consideration, and to account for the lease and non-lease components as a single lease component. The Company has also elected not to recognize a lease liability or ROU asset for leases with a term of 12 months or less, and recognize lease payments for those short-term leases on a straight-line basis over the lease term in the Consolidated Statements of Operations. Operating leases are included in ROU assets, other current liabilities and lease liabilities (net of current portion) on the Consolidated Balance Sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments under the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The implicit rate within the Company’s leases is generally not determinable and therefore the incremental borrowing rate at the lease commencement date is utilized to determine the present value of lease payments. The determination of the incremental borrowing rate requires judgment. Management determines the incremental borrowing rate for each lease using the Company’s estimated borrowing rate, adjusted for various factors including level of collateralization, term and currency to align with the terms of the lease. The ROU asset also includes any lease prepayments, offset by lease incentives. Certain of the Company’s leases include options to extend or terminate the lease. An option to extend the lease is considered in connection with determining the ROU asset and lease liability when the Company is reasonably certain that the option will be exercised. An option to terminate is considered unless the Company is reasonably certain the option will not be exercised. Equity-Based Compensation The Company grants Restricted Stock Units, Performance-based Restricted Stock Units (“PRSUs” and, collectively with Restricted Stock Units, “RSUs”) and Stock Options to directors and officers and certain other employees of the Company. Awards granted prior to June 1, 2022 were granted under the Company’s Amended and Restated 2012 Omnibus Equity Incentive Plan (the “2012 Plan”). At the Annual Meeting held on June 2, 2022, the Company’s stockholders approved the 2022 Omnibus Equity Incentive Plan (the “2022 Plan”). Awards granted subsequent to June 2, 2022 were granted under the 2022 Plan. F-14 Table of Contents 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. The portion of the award that is ultimately expected to vest is recognized as expense over the requisite service period. Forfeitures are accounted for as they occur. For awards with a change of control condition, an evaluation is made at the grant date and future periods as to the likelihood of the condition being met. Compensation expense is adjusted in future periods for subsequent changes in the expected outcome of the change of control conditions until the vesting date. Compensation expense related to awards with a market condition is recognized over the requisite service period regardless of the achievement of the market condition. Compensation expense related to awards with a performance condition is recognized over the requisite service period based on the expected levels of achievement. 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. The Company uses the closing price of the Company’s common stock on the date of grant to determine the fair value of RSUs. The Company uses the Black Scholes option pricing model, to determine the fair value of stock options on the date of grant. The Monte Carlo simulation model is used if the award has a market condition. The determination of the grant date fair value using an option-pricing model and simulation model requires judgment as well as assumptions regarding a number of other complex and subjective variables. These variables include the Company’s closing market price at the grant date, the expected stock price volatility over the expected term of the awards, awards’ exercise and cancellation behaviors, risk-free interest rates and expected dividends. The awards granted pursuant to the 2012 Plan and the 2022 Plan are subject to a time-based vesting requirement and certain award grants may also include market based or performance based vesting conditions. While each PRSU corresponds to one target share of the Company’s stock, the number of shares that may eventually vest will be between 0 % and 150 % of a recipient’s target shares, depending on both the recipient’s continued service with the Company and the extent to which performance goals will have been achieved. Awards generally vest over three or four years . Upon the vesting of RSUs, the Company has a practice of net share settlement, to cover any required withholding taxes by retaining the number of shares with a value equal to the amount of the tax and remitting an equal amount of cash to the appropriate taxing authorities. Employee Benefit Plans The Company offers a 401(k) defined contribution plan and provides for discretionary employer matching contributions. All matching contributions are recognized as an expense in the Statement of Operations, as incurred. 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. Income Taxes The Company’s income tax expense includes U.S. (federal and state) and foreign income taxes. Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax basis, and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered. The Company accounts for unrecognized tax benefits using a more-likely-than-not threshold for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. The Company establishes reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes may be due. The Company records an income tax liability for the difference, if any, between the benefit recognized and measured and the tax position taken or expected to be taken on the Company’s tax returns. 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 F-15 Table of Contents 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. On a quarterly basis, the Company assesses the realizability of deferred tax assets, based on the available evidence including a history of taxable income, estimates of future taxable income and planning strategies and a valuation allowance is recorded to the extent that it is not more likely than not that the deferred tax assets will be realized. Significant management judgment is required in determining the provision for income taxes and deferred tax assets and liabilities. In the event that actual results differ from these estimates, the Company will adjust these estimates in future periods which may result in a change in the effective tax rate in a future period. 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 Company has elected to treat any potential GILTI inclusions as a period cost. Other Non-income Taxes The Company is subject to certain non-income taxes, including value added taxes, sales taxes and royalty withholding taxes. Where appropriate, the Company has made accruals for these taxes, which are reflected in the Company’s consolidated financial statements. These accruals are subject to statute of limitations requirements and review by governmental authorities. Treasury Stock The Company accounts for treasury stock under the cost method and is included as a component of stockholders’ equity. Treasury stock held by the Company may be reissued in the future. The Company’s policy is to account for reissued shares as a reduction of Treasury stock on a first-in, first-out basis. Net Income Per Share Basic net income per share is computed by dividing the net income attributable to common stockholders by the weighted average number of common shares outstanding during the period. Any potential issuance of common shares, including those that are contingent and do not participate in dividends, is excluded from basic weighted average number of common shares outstanding. Diluted net income per share is computed by dividing the net income attributable to common stockholders by the weighted average common shares outstanding and all potential common shares, if they are dilutive. Reportable Segments For the year ended December 31, 2023, the Company has identified one operating segment, which has also been determined to be the Company’s primary reportable business segment. Operating segments are defined as components of an enterprise for which separate financial information is available and is evaluated regularly by the Company’s chief operating decision maker (“CODM”), or decision-making group, in deciding how to allocate resources and in assessing financial performance. Contingent Consideration 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. F-16 Table of Contents SHUTTERSTOCK, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Foreign Currency The functional currency of the Company’s foreign subsidiaries is generally the respective local currency. Monetary assets and liabilities that are denominated in currencies other than each entity’s functional currency are remeasured into the functional currency at the period-end exchange rates and result in transactional gains and losses. The net impact of foreign currency transactional gains and losses on the Company’s results of operations were gains of $ 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. dollars using the period-end exchange rates for balance sheet accounts and the period average exchange rate for the Statements of Operations are recorded as a component of accumulated other comprehensive income / (loss) within stockholders’ equity. Recently Adopted Accounting Standard Updates In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 eliminates certain exceptions to the guidance in Topic 740 related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes, enacted changes in tax laws or rates and clarifies the accounting transactions that result in a step-up in the tax basis of goodwill. The guidance is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. The Company adopted ASU 2019-12, effective January 1, 2021. The impact of adoption of this standard on the consolidated financial statements, including accounting policies, processes and systems, was not material. In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”). ASU 2021-08 addresses inconsistency related to the recognition and measurement of contract assets and contract liabilities acquired in a business combination. ASU 2021-08 requires that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination as if it had originated the contracts, in accordance with Topic 606, Revenue from Contracts with Customers . The guidance is effective for fiscal years beginning after December 15, 2022 and interim periods within those fiscal years. Early adoption of the amendments is permitted and an entity that early adopts should apply the amendments (1) retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early application and (2) prospectively to all business combinations that occur on or after the date of initial application. The Company has early adopted ASU 2021-08 effective January 1, 2021, and the impact of adoption of this standard on the consolidated financial statements was not material. F-17 Table of Contents 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 Fair Value Measurements The Company had no assets or liabilities requiring fair value hierarchy disclosures as of December 31, 2023 and 2022, except as noted below. Money Market Accounts 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, 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, 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. The Company’s non-financial assets, which include long-lived assets, intangible assets and goodwill, are not required to be measured at fair value on a recurring basis. However, if certain triggering events occur, or if an annual impairment test is required and the Company is required to evaluate the non-financial asset for impairment, a resulting asset impairment would require that the non-financial asset be recorded at its fair value. In 2022, the Company recorded an impairment charge related to a portion of its right-of-use assets and property and equipment triggered by the Company’s decision to cease using certain office spaces. See Note 15, Leasing for further discussion. F-18 Table of Contents SHUTTERSTOCK, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Long-Term Investments As of December 31, 2023 and 2022, the Company’s Long-Term Investments totaled $ 20.0 million, which is reported within other assets on the Consolidated Balance Sheets. The Company uses the measurement alternative for equity investments with no readily determinable fair value and are reported at cost, adjusted for impairments or any observable price changes in ordinary transactions with identical or similar investments. On a quarterly basis, the Company evaluates the carrying value of its Long-Term Investments for impairment, which includes an assessment of revenue growth, earnings performance, working capital and the general market conditions. For the years ended December 31, 2023 and 2022, no adjustments to the carrying values of the Company’s Long Term Investments were identified as a result of this assessment. Changes in performance negatively impacting operating results and cash flows of these investments could result in the Company recording an impairment charge in future periods. Investment in ZCool Technologies Limited (“ZCool”) 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 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. ZCool is a variable interest entity that is not consolidated because the Company is not the primary beneficiary. 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 In 2020, the Company invested $ 5.0 million in preferred shares of an entity with a creative production and analytics platform. These preferred shares do not have a readily determinable fair value, and give the Company less than a 2 % fully diluted ownership interest. (3) Acquisitions Giphy, Inc. 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. F-19 Table of Contents SHUTTERSTOCK, INC. 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 ( 98,723 ) Fair value of consideration attributable to pre-combination service 2 34,972 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. F-20 Table of Contents SHUTTERSTOCK, INC. 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: Giphy 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 19,500 Intangible assets 40,500 Deferred tax asset 1 1,463 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 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. 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 Pond5, Inc. On May 11, 2022, the Company completed its acquisition of all of the outstanding shares of Pond5, for approximately $ 218.0 million. The total purchase price was paid with existing cash on hand as well as a $ 50 million drawdown on a newly established revolving credit facility (See Note 7). In connection with the acquisition, the Company incurred approximately $ 4.0 million of transaction costs, which is included in general and administrative expenses on the Consolidated Statements of Operations. F-21 Table of Contents SHUTTERSTOCK, INC. 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. The Company believes its acquisition of this video-first content marketplace provides expanded offerings across footage, image and music. The identifiable intangible assets, which include customer relationships, developed technology and trade names have weighted average useful lives of approximately 14.2 years, 5 years and 10 years, respectively. The goodwill arising from the transaction is primarily attributable to expected operational synergies and is not deductible for income tax purposes. Splash News On May 28, 2022, the Company completed its acquisition of all of the outstanding shares of Splash News, for approximately $ 6.3 million. The total purchase price was paid with existing cash on hand in the three months ended June 30, 2022. In connection with the acquisition, the Company incurred approximately $ 0.3 million of transaction costs, which is included in general and administrative expenses on the Consolidated Statements of Operations. Splash News is a United Kingdom based entertainment news network and is a source for image and video content across celebrity, red carpet and live events. The Company believes this acquisition expands Shutterstock Editorial’s Newsroom offering for access to premium exclusive content. The identifiable intangible asset, developed technology, has a useful life of approximately 4 years. The goodwill arising from the transaction is primarily attributable to expected operational synergies and is not deductible for income tax purposes. The Pond5 and Splash News transactions were accounted for using the acquisition method and, accordingly, the results of the acquired businesses have been included in the Company’s results of operations from the respective acquisition dates. For the twelve months ended December 31, 2022, revenue of $ 36.7 million was included in the Consolidated Statements of Operations related to these acquired companies. The fair value of consideration transferred in these business combinations has been allocated to the intangible and tangible assets acquired and liabilities assumed at the acquisition date, with the remaining unallocated amount recorded as goodwill. The identifiable intangible assets of these acquisitions are being amortized on a straight-line basis. The fair value of the customer relationships was determined using a variation of the income approach known as the multiple-period excess earnings method. The fair value of the trade name was determined using the relief-from-royalty method, and the fair value of the developed technology was determined using the relief-from-royalty and the cost to recreate methods. 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 aggregate purchase price for these acquisitions has been allocated to the assets acquired and liabilities assumed as follows (in thousands): F-22 Table of Contents SHUTTERSTOCK, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Assets acquired and liabilities assumed (in thousands): Pond5 Splash News Total Cash and cash equivalents $ 11,675 $ 180 $ 11,855 Accounts receivable 1,273 500 $ 1,773 Other assets 1,102 525 1,627 Right of use asset 1,674 — 1,674 Intangible assets: Customer relationships 34,900 — 34,900 Trade name 5,300 — 5,300 Developed technology 27,600 1,263 28,863 Intangible assets 67,800 1,263 69,063 Goodwill 158,957 5,565 164,522 Total assets acquired $ 242,481 $ 8,033 $ 250,514 Accounts payable, accrued expenses and other liabilities ( 9,304 ) ( 1,528 ) ( 10,832 ) Contributor royalties payable ( 3,039 ) ( 3,039 ) Deferred revenue ( 3,705 ) — ( 3,705 ) Deferred tax liability ( 6,381 ) ( 189 ) ( 6,570 ) Lease liability ( 2,038 ) — ( 2,038 ) Total liabilities assumed ( 24,467 ) ( 1,717 ) ( 26,184 ) Net assets acquired $ 218,014 $ 6,316 $ 224,330 2021 Acquisitions PicMonkey, LLC On September 3, 2021, the Company completed the acquisition of substantially all of the assets and assumption of certain liabilities from PicMonkey, LLC (“PicMonkey”), for approximately $ 109.4 million. The total purchase price was paid with existing cash on hand in the three months ended September 30, 2021. In connection with the acquisition, the Company incurred approximately $ 2 million of transaction costs, which is included in general and administrative expenses in the Consolidated Statements of Operations. PicMonkey is a Washington-based company that operates an online graphic design and image editing platform that enables creators of any skill level to design high-quality visual assets. The Company believes this acquisition provides Shutterstock’s global customer community with professional-grade, easy-to-use design tools. The identifiable intangible assets, which include customer relationships, developed technology and trade names, have weighted average useful lives of approximately 12 years, 5 years and 10 years, respectively. The goodwill arising from the transaction is primarily attributable to expected operational synergies and is expected to be deductible for income tax purposes. TurboSquid, Inc. On February 1, 2021, the Company completed its acquisition of all of the outstanding shares of TurboSquid, Inc. (“TurboSquid”), for approximately $ 77.3 million. The total purchase price was paid with existing cash on hand in the three months ended March 31, 2021. In connection with the acquisition, the Company incurred approximately $ 1.6 million of transaction costs, which is included in general and administrative expenses on the Consolidated Statements of Operations. TurboSquid is a Louisiana-based company that operates a marketplace offering more than one million 3D models, a marketplace for 2 dimensional (“2D”) images derived from 3D objects and a digital asset management solution. 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. F-23 Table of Contents SHUTTERSTOCK, INC. 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. The goodwill arising from the transaction is primarily attributable to expected operational synergies and is not deductible for income tax purposes. The PicMonkey and TurboSquid transactions were accounted for using the acquisition method and, accordingly, the results of the acquired businesses have been included in the Company’s results of operations from the respective acquisition dates. For the 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. The identifiable intangible assets of these acquisitions are being amortized on a straight-line basis. The fair value of the customer relationships was determined using a variation of the income approach known as the multiple-period excess earnings method. The fair value of the trade names and developed technology were determined using the relief-from-royalty method, and the fair value of the contributor content was determined using the cost-to-recreate method. Determining the fair value requires management to use significant judgment and estimates, including estimates of future revenue growth rates, research and development expense adjustments, sales and marketing expense adjustments, the discount rate, earnings before interest, taxes, and amortization (“EBITA”) margins and the customer attrition rate, among others. The aggregate purchase price for these acquisitions have been allocated to the assets acquired and liabilities assumed as follows (in thousands): Assets acquired and liabilities assumed (in thousands): PicMonkey TurboSquid Total Cash and cash equivalents $ — $ 5,165 $ 5,165 Other assets 502 1,553 2,055 Property and equipment — 472 472 Right of use asset 1,420 — 1,420 Intangible assets: Customer relationships 28,800 9,000 37,800 Trade name 3,000 2,200 5,200 Developed technology 12,900 7,800 20,700 Contributor content — 2,500 2,500 Intangible assets 44,700 21,500 66,200 Goodwill 71,607 59,491 131,098 Deferred tax asset 2,456 — 2,456 Total assets acquired $ 120,685 $ 88,181 $ 208,866 Accounts payable, accrued expenses and other liabilities ( 780 ) ( 4,685 ) ( 5,465 ) Contributor royalties payable — ( 2,243 ) ( 2,243 ) Deferred revenue ( 8,557 ) — ( 8,557 ) Deferred tax liability ( 533 ) ( 3,923 ) ( 4,456 ) Lease liability ( 1,420 ) — ( 1,420 ) Total liabilities assumed ( 11,290 ) ( 10,851 ) ( 22,141 ) Net assets acquired $ 109,395 $ 77,330 $ 186,725 F-24 Table of Contents SHUTTERSTOCK, INC. 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, 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, 2023 2022 Revenue As Reported $ 874,587 $ 827,826 Pro Forma 884,587 868,976 Income before income taxes As Reported $ 122,468 $ 91,037 Pro Forma 66,723 69,896 Asset Acquisitions In July 2021, the Company completed the acquisitions of Pattern89, Inc., Datasine Limited and assets from Shotzr, Inc. These three entities provide data driven insights through their artificial intelligence platforms. The aggregate purchase price for these transactions was approximately $ 35 million and is subject to customary working capital and other adjustments and was paid from existing cash on hand. Approximately $ 3.4 million of the total purchase consideration was subject to contractual holdback provisions and was paid during 2022. The Company has accounted for these transactions as asset acquisitions and has recorded a total of $ 41 million of developed technology intangible assets, which are being amortized on a straight-line basis over a useful life of 3 years. (4) Property and Equipment Property and equipment is summarized as follows (in thousands): December 31, 2023 2022 Computer equipment and software $ 308,473 $ 261,067 Furniture and fixtures 10,829 10,328 Leasehold improvements 19,153 18,635 Property and equipment 338,455 290,030 Less: accumulated depreciation ( 274,155 ) ( 235,482 ) Property and equipment, net $ 64,300 $ 54,548 Depreciation and amortization expense related to property and equipment amounted to $ 37.7 million, $ 34.0 million and $ 31.7 million, for the years ended December 31, 2023, 2022 and 2021, respectively. Of these amounts, $ 36.1 million, $ 31.0 million and $ 28.4 million are included in cost of revenue for the years ended December 31, 2023, 2022 and 2021, respectively, and $ 1.7 million, $ 3.0 million and $ 3.3 million are included in general and administrative expense for the years ended December 31, 2023, 2022 and 2021, respectively. Depreciation and amortization expense is included in cost of revenue and general and administrative expense based on the nature of the asset. There was no loss on disposal for the years ended December 31, 2023, 2022 and 2021, respectively. F-25 Table of Contents SHUTTERSTOCK, INC. 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. See Note 15, Leasing for further discussion. Capitalized Internal-Use Software The Company capitalized costs related to the development of internal-use software of $ 45.1 million, $ 40.7 million and $ 27.8 million for the years ended December 31, 2023, 2022 and 2021, respectively. Capitalized amounts are included as a component of property and equipment under computer equipment and software. During 2023, 2022 and 2021, the Company invested significantly in its product development and hosting infrastructure to enhance its customer experience and increase the efficiency with which management deploys new products and features. The portion of total depreciation expense related to capitalized internal-use software was $ 34.9 million, $ 29.6 million and $ 26.9 million for the years ended December 31, 2023, 2022 and 2021, respectively. Depreciation expense related to capitalized internal-use software is included in cost of revenue in the Consolidated Statement of Operations. 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. (5) Goodwill and Intangible Assets Goodwill The following table summarizes the changes in the Company’s goodwill balance for the year ended December 31, 2023 (in thousands): Goodwill Balance as of December 31, 2022 $ 381,920 Goodwill related to acquisitions — Foreign currency translation adjustment 1,405 Balance as of December 31, 2023 $ 383,325 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. The Company utilized a qualitative assessment of its content business reporting unit to determine whether a quantitative assessment was necessary and determined there were no indicators of potential impairment. There were no impairments of goodwill in any of the periods presented in the consolidated financial statements. F-26 Table of Contents SHUTTERSTOCK, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Intangible Assets Intangible assets, all of which are subject to amortization, consist of the following as of December 31, 2023 and 2022 (in thousands): As of December 31, 2023 As of December 31, 2022 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Weighted Average Life (Years) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Customer relationships $ 90,350 $ ( 26,982 ) $ 63,368 12 $ 88,996 $ ( 19,168 ) $ 69,828 Trade name 37,937 ( 9,272 ) 28,665 12 16,588 ( 7,209 ) 9,379 Developed technology 115,914 ( 61,376 ) 54,538 5 94,872 ( 35,288 ) 59,584 Contributor content 65,628 ( 27,897 ) 37,731 8 54,284 ( 20,098 ) 34,186 Patents 259 ( 165 ) 94 18 259 ( 149 ) 110 Total $ 310,088 $ ( 125,692 ) $ 184,396 $ 254,999 $ ( 81,912 ) $ 173,087 Amortization expense related to the intangible assets was $ 42.0 million, $ 34.5 million and $ 17.1 million for the years ended December 31, 2023, 2022 and 2021, respectively. Of these amounts, $ 38.7 million, $ 32.1 million and $ 13.1 million are included in cost of revenue for the years ended December 31, 2023, 2022 and 2021, respectively, and $ 3.3 million, $ 2.4 million and $ 4.0 million are included in general and administrative expense for the years ended December 31, 2023, 2022 and 2021, respectively. The Company determined that there was no indication of impairment for the intangible assets for all periods presented. Estimated amortization expense for the next five years is: $ 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. (6) Accrued Expenses Accrued expenses consisted of the following (in thousands): December 31, 2023 2022 Compensation $ 75,752 $ 40,314 Non-income taxes 23,702 24,390 Website hosting and marketing fees 11,804 6,608 Other expenses 20,185 18,075 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. F-27 Table of Contents SHUTTERSTOCK, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (7) Debt On May 6, 2022, the Company entered into a five-year $ 100 million unsecured revolving loan facility (the “Credit Facility”) with Bank of America, N.A., as Administrative Agent and other lenders. The Credit Facility includes a letter of credit sub-facility and a swingline facility and it also permits, subject to the satisfaction of certain conditions, up to $ 100 million of additional revolving loan commitments with the consent of the Administrative Agent. At the Company’s option, revolving loans accrue interest at a per annum rate based on either (i) the base rate plus a margin ranging from 0.125 % to 0.500 %, determined based on the Company’s consolidated leverage ratio or (ii) the Term Secured Overnight Financing Rate (“SOFR”) (for interest periods of 1, 3 or 6 months) plus a margin ranging from 1.125 % to 1.5 %, determined based on the Company’s consolidated leverage ratio. The Company is also required to pay an unused commitment fee ranging from 0.150 % to 0.225 %, determined based on the Company’s consolidated leverage ratio. In connection with the execution of this agreement, the Company paid debt issuance costs of approximately $ 0.6 million. 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. The Company is also required to maintain compliance with a consolidated leverage ratio and a consolidated interest coverage ratio, in each case, determined in accordance with the terms of the Credit Facility. As of December 31, 2023, the Company was in compliance with these covenants. (8) Stockholders’ Equity Common Stock The holders of common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders. Subject to preferences that may be applicable to any outstanding preferred stock, holders of common stock are entitled to receive ratably such dividends as may be declared by the Board of Directors out of funds legally available for that purpose. In the event of liquidation, dissolution or winding up of the Company, the holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to the prior distribution rights of any outstanding preferred stock. The common stock has no preemptive or conversion rights or other subscription rights. The outstanding shares of common stock are fully paid and non-assessable. Under the amended and restated certificate of incorporation, which became effective upon completion of the IPO, the Company’s certificate of incorporation authorized 200,000,000 shares of $ 0.01 per share par value common stock. Preferred Stock Under the amended and restated certificate of incorporation, which became effective upon completion of the IPO, the Company’s Board of Directors has the authority, without further action by the stockholders, to issue up to 5,000,000 shares of preferred stock, $ 0.01 par value, in one or more series. The Board of Directors also has the authority to designate the rights, preferences, privileges and restrictions of each such series, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any series. The issuance of preferred stock may have the effect of delaying, deferring or preventing a change in control of Shutterstock without further action by the stockholders. The issuance of preferred stock with voting and conversion rights may also adversely affect the voting power of the holders of common stock. In certain circumstances, an issuance of preferred stock could have the effect of decreasing the market price of the common stock. As of December 31, 2023, the Company has no t issued and has no plans to issue any shares of preferred stock. Treasury Stock F-28 Table of Contents SHUTTERSTOCK, INC. 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. Accordingly, the share repurchase program is subject to the Company having available cash to fund repurchases. Under the share repurchase program, management is authorized to purchase shares of the Company’s common stock from time to time through open market purchases or privately negotiated transactions at prevailing prices as permitted by securities laws and other legal requirements, and subject to market conditions and other factors 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 . Dividends 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 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. (9) Revenue 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. Content : 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. 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 F-29 Table of Contents SHUTTERSTOCK, INC. 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”). 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 Enterprise 434,646 326,442 283,203 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. $ 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. F-30 Table of Contents SHUTTERSTOCK, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (10) Equity-Based Compensation The Company recognizes stock-based compensation expense for all share-based payment awards including employee stock options and RSUs granted under either the 2012 Plan or the 2022 Plan based on the fair value of each award on the grant date. The following table summarizes non-cash equity-based compensation expense, net of forfeitures, by line item included in the Company’s Consolidated Statements of Operations for the years ended December 31, 2023, 2022 and 2021 (in thousands): Year Ended December 31, 2023 2022 2021 Cost of revenue $ 815 $ 567 $ 363 Sales and marketing 7,359 5,486 2,888 Product development 13,200 10,380 6,720 General and administrative 27,203 19,307 26,208 Total $ 48,577 $ 35,740 $ 36,179 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 On October 10, 2012, the Company’s 2012 Plan became effective. The 2012 Plan provides for the grant of incentive stock options to Company employees, and for the grant of non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units, performance units and performance shares to employees, directors and consultants. The maximum aggregate number of shares that may be issued under the 2012 Plan was initially 6,750,000 shares of common stock. The number of shares available for issuance under the 2012 Plan will be increased annually commencing January 1, 2013 by an amount equal to the lesser of 1,500,000 shares of common stock, 3 % of the outstanding shares of common stock as of the last day of the immediately preceding fiscal year, or such other amount as determined by the Company’s Board of Directors. Any awards issued under the 2012 Plan that are forfeited by the participant will become available for future grant under the 2012 Plan. The number of shares of common stock available under the 2012 Plan was automatically increased by approximately 1,093,000 and 1,087,000 shares on January 1, 2022 and 2021, respectively, pursuant to the automatic increase provisions of the 2012 Plan. This plan expired on June 2, 2022. 2022 Omnibus Equity Incentive Plan On June 2, 2022, the Company’s stockholders approved the 2022 Omnibus Equity Incentive Plan (the “2022 Plan”). The 2022 Plan provides for the grant of incentive stock options to Company employees, and for the grant of non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units, performance units and performance shares (collectively, “Awards”) to employees, officers, directors, consultants and advisors of the Company. The maximum aggregate number of shares that may be issued under the 2022 Plan is 4,000,000 shares of our common stock and is subject to adjustment in connection with changes in capitalization, reorganization and change in control events. 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 become available for future grant under the 2022 Plan. Awards granted subsequent to June 2, 2022 were granted under the 2022 Plan. F-31 Table of Contents SHUTTERSTOCK, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Stock Option Awards The following is a summary of stock option awards (in thousands) and weighted average exercise price per option: Plan Options Weighted Average Exercise Price Options outstanding at December 31, 2022 831 $ 61.32 Options exercised ( 1 ) 40.30 Options canceled or expired ( 1 ) 64.20 Options outstanding at December 31, 2023 829 $ 61.34 Options exercisable at December 31, 2023 301 $ 34.41 Intrinsic value of stock options is calculated as the excess of market price of the Company’s common stock over the strike price of the stock options, multiplied by the number of stock options. The intrinsic value of the Company’s stock options is as follows (in thousands): As of December 31, 2023 2022 Stock options outstanding $ 4,232 $ 5,576 Stock options exercisable $ 4,232 $ 5,400 Stock options vested and expected to vest $ 4,232 $ 5,576 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. On April 24, 2014, the Company granted 500,000 stock options with a market-based condition to its Founder and Executive Chairman. In 2018, the number of stock options was adjusted from 500,000 stock options to approximately 527,000 and the exercise price of each option was adjusted from $ 80.94 to $ 76.73 , in connection with a special dividend and pursuant to the anti-dilution provisions of the 2012 Plan. The stock options will not vest or become exercisable unless (i) the Founder and Executive Chairman remains continuously employed by the Company until the fifth anniversary of the date of grant and (ii) the average 90-day closing price of the Company’s common stock equals or exceeds $ 161.88 per share for any 90 consecutive calendar days during the period commencing on the fifth anniversary of the date of grant and ending on the tenth anniversary of the date of grant, inclusive provided that the Founder and Executive Chairman remains continuously employed by the Company until the date of satisfaction of such condition. The derived requisite service period was determined to be six years based on a valuation technique. The total fair value of the grant is $ 21.6 million and is being recognized over the derived requisite service period. In the event that the market condition remains unsatisfied upon completion of the requisite service period, no charge will be reversed. F-32 Table of Contents SHUTTERSTOCK, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Restricted Stock Units Awards (including PRSUs) The following table presents a summary of the Company’s RSUs activity for the year ended December 31, 2023 (in thousands): Plan RSUs Weighted Average Fair Value Non-vested balance at December 31, 2022 1,717 $ 70.17 Units granted 1,181 65.92 Units vested ( 630 ) 65.92 Units canceled or forfeited ( 330 ) 75.65 Non-vested balance at December 31, 2023 1,938 $ 68.03 Non-vested and deferred balance at December 31, 2023 1,997 $ 67.49 On April 24, 2014, the Company granted 100,000 restricted stock units with a market-based condition to its Founder and Executive Chairman. In 2018, the number of RSUs was adjusted to approximately 105,000 , in connection with a special dividend and pursuant to the anti-dilution provisions of the 2012 Plan. The restricted stock units will vest only if (i) the reporting person remains continuously employed by the Company until the fifth anniversary of the date of grant and (ii) the average 90-day closing price of the Company's common stock equals or exceeds $ 161.88 for any 90 consecutive calendar days during the period commencing on the fifth anniversary of the date of grant and ending on the tenth anniversary of the date of grant, inclusive; provided that the reporting person remains continuously employed by the Company until the date of satisfaction of such condition. The derived requisite service period was determined to be six years based on a valuation technique. The total fair value of the grant is $ 5.8 million and is being recognized over the derived requisite service period. In the event that the market condition remains unsatisfied upon completion of the requisite service period, no charge will be reversed. 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 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 gain / (loss) $ 879 $ ( 1,338 ) $ ( 3,303 ) Interest expense ( 1,856 ) ( 1,336 ) — Interest income / (expense) and other 4,784 87 ( 67 ) Other income / (expense), net $ 3,807 $ ( 2,587 ) $ ( 3,370 ) (12) Income Taxes The Company’s geographical breakdown of its income before income taxes is as follows (in thousands): Year Ended December 31, 2023 2022 2021 Domestic $ 108,013 $ 86,207 $ 104,241 Foreign 14,455 4,830 495 Income before income taxes $ 122,468 $ 91,037 $ 104,736 F-33 Table of Contents SHUTTERSTOCK, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table summarizes the consolidated provision for income taxes (in thousands): Year Ended December 31, 2023 2022 2021 Current provision: Federal $ 24,015 $ 16,891 $ 7,834 State and local 5,392 3,362 2,694 Foreign 8,967 5,268 4,096 Deferred provision (benefit): Federal ( 24,880 ) ( 9,286 ) ( 1,715 ) State and local ( 1,047 ) ( 1,107 ) ( 137 ) Foreign ( 248 ) ( 194 ) 81 Provision for income taxes $ 12,199 $ 14,934 $ 12,853 The provision for income taxes differs from statutory income tax rate as follows: Year Ended December 31, 2023 2022 2021 U.S. income tax at federal statutory rate 21.0 % 21.0 % 21.0 % Tax credits ( 4.2 ) ( 3.3 ) ( 1.8 ) State and local taxes, net of federal benefit 2.2 1.6 1.6 Equity-based compensation 3.4 1.4 ( 0.6 ) Foreign rate differential 0.4 0.8 0.5 Foreign-derived intangible income deduction ( 6.4 ) ( 8.2 ) ( 5.5 ) Uncertain tax positions 0.9 3.4 0.8 Valuation allowance 1.3 1.2 0.8 Capital loss — ( 1.7 ) ( 4.9 ) Bargain purchase gain ( 8.6 ) — — Non-deductible—other — 0.2 0.4 Total provision for income taxes 10.0 % 16.4 % 12.3 % F-34 Table of Contents SHUTTERSTOCK, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The tax effect of the Company’s temporary differences that give rise to deferred tax assets and liabilities are presented below (in thousands): Year Ended December 31, 2023 2022 Deferred tax assets: Non-cash equity-based compensation $ 15,922 $ 14,947 Intangible amortization 101 81 Accruals and reserves 6,881 6,526 Lease liabilities 8,410 10,069 Net operating losses 17,691 8,978 Other 1,850 1,648 Gross deferred tax assets 50,855 42,249 Valuation allowance ( 6,841 ) ( 4,622 ) Net deferred tax assets 44,014 37,627 Deferred tax liabilities: Right-of-use assets ( 2,806 ) ( 3,867 ) 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. The following table summarizes changes to the Company’s unrecognized tax benefits as follows (in thousands): Year Ended December 31, 2023 2022 2021 Balance of unrecognized tax benefits at January 1 $ 13,021 $ 10,229 $ 9,592 Gross additions for tax positions for prior years 399 139 — Gross additions for tax positions for current year 1,054 2,844 795 Gross reductions for tax positions of prior years ( 958 ) ( 191 ) ( 158 ) Balance of unrecognized tax benefits at December 31 $ 13,516 $ 13,021 $ 10,229 The total amount of unrecognized tax benefits as of December 31, 2023 was $ 12.5 million, which, if recognized, would impact the Company’s effective tax rate in future periods. Unrecognized tax benefits is included within prepaid expenses and other current assets and other non-current liabilities on the Consolidated Balance Sheets. The Company has determined that it is reasonably possible that there will be a reversal of unrecognized tax benefits by as much as $ 6.8 million in the next fiscal year due to the expected resolution of prior year tax matters. The Company recognizes interest expense and tax penalties related to unrecognized tax benefits as a component of income tax expense in the Consolidated Statements of Operations. Interest and penalties included in the Company’s provision for income taxes were not material in all the periods presented. The Company and its subsidiaries file income tax returns in the U.S. and various foreign jurisdictions. The Company is currently under examination by the U.S. 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. F-35 Table of Contents 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. 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 Basic net income per share is computed using the weighted average number of common shares outstanding for the period, excluding unvested RSUs and stock options. Diluted net income per share is based upon the weighted average common shares outstanding for the period plus dilutive potential common shares, including unvested RSUs and stock options using the treasury stock method. The following table sets forth the computation of basic and diluted net income per share for fiscal years 2023, 2022 and 2021 (in thousands): Year Ended December 31, 2023 2022 2021 Net income $ 110,269 $ 76,103 $ 91,883 Shares used to compute basic net income per share 35,878 36,042 36,509 Dilutive potential common shares: Stock options and employee stock purchase plan shares 100 155 247 Unvested restricted stock awards 264 349 568 Shares used to compute diluted net income per share 36,242 36,546 37,324 Basic net income per share $ 3.07 $ 2.11 $ 2.52 Diluted net income per share $ 3.04 $ 2.08 $ 2.46 Potentially dilutive shares included in the calculation 1,034 1,127 1,336 Anti-dilutive shares excluded from the calculation 944 464 6 (14) Geographic Financial Information The following represents the Company’s geographic revenue based on customer location (in thousands): Year Ended December 31, 2023 2022 2021 North America $ 427,746 $ 353,197 $ 290,979 Europe 231,048 243,025 253,479 Rest of the world 215,793 231,604 228,957 Total revenue $ 874,587 $ 827,826 $ 773,415 Included in North America is the United States which comprises approximately 46 %, 40 % and 34 % of total revenue for the years ended December 31, 2023, 2022 and 2021, respectively. No other country accounts for more than 10% of the Company’s revenue in any period presented. F-36 Table of Contents SHUTTERSTOCK, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The Company’s long-lived tangible assets were located as follows (in thousands): December 31, 2023 2022 North America $ 46,531 $ 42,266 Europe 17,695 12,079 Rest of the world 74 203 Total long-lived tangible assets $ 64,300 $ 54,548 Included in North America is the United States, which comprises 68 % and 73 % of total long-lived tangible assets as of December 31, 2023 and 2022, respectively. Included in Europe is Ireland, which comprised 21 % and 17 % of total long-lived tangible assets as of December 31, 2023 and 2022, respectively. No other country accounts for more than 10% of the Company’s long-lived tangible assets in any period presented. (15) Leasing The Company’s leases relate primarily to office facilities that expire on various dates from 2024 through 2029, some of which include one or more options to renew. All of the Company’s leases are classified as operating leases. Operating lease costs, including insignificant costs related to short-term leases, were $ 6.4 million, $ 10.7 million and $ 10.2 million for the years ended December 31, 2023, 2022 and 2021, respectively. The Company made cash payments for operating leases of $ 10.9 million, $ 9.4 million and $ 9.7 million for the years ended December 31, 2023, 2022 and 2021, respectively, which were included in cash flows from operating activities within the Consolidated Statements of Cash Flows. In addition, for the years ended December 31, 2023 and 2022, the Company recorded right-of-use assets of $ 1.9 million and $ 6.0 million, respectively, which were obtained in exchange for lease obligations. For the years ended December 31, 2023 and 2022, the Company’s operating leases have a weighted average remaining lease term of 4.8 years and 5.7 years, respectively, and a weighted average discount rate of 6.3 %. Balance sheet information for the Company’s leases as of December 31, 2023, is as follows: December 31, (in thousands) 2023 2022 Right-of-use assets $ 15,395 $ 17,593 Lease liabilities, current $ 9,076 $ 8,910 Lease liabilities, non-current 29,404 35,611 Total lease liabilities $ 38,480 $ 44,521 F-37 Table of Contents SHUTTERSTOCK, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Lease Commitments Future undiscounted lease payments for the Company’s operating lease liabilities and a reconciliation of these payments to its lease liabilities at December 31, 2023 are as follows (in thousands): Reconciliation of future undiscounted lease payments to lease liabilities Lease Commitments Year ending December 31, 2024 10,240 2025 9,269 2026 7,299 2027 7,662 2028 7,843 Thereafter 2,615 Total undiscounted lease payments 44,928 Less: imputed interest ( 6,448 ) Total lease liabilities $ 38,480 The Company’s most significant lease is for its headquarters in New York City, which was entered into in March 2013 and was amended in January 2016 (“ESB Lease”). As amended, the ESB Lease will expire in 2029, and the undiscounted remaining future minimum lease payments are approximately $ 38.9 million. The Company is also party to a letter of credit as a security deposit for this leased facility, in the amount of $ 3.2 million. Impairment of Lease and Related Assets 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 triggered the recognition of 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. The Company calculated the fair value of the right-of-use asset and property and equipment for the impacted office spaces based on estimated future discounted cash flows using significant unobservable inputs. These inputs include (i) the length of time necessary to market the office space and commence receiving sub-lease income, (ii) the anticipated amount of sub-lease income and tenant improvement allowances, and (iii) a discount rate incorporating risks associated with these projected cash flows. This fair value measurement is classified as Level 3 in the fair value hierarchy. The Company fully impaired the Right-of-use assets and Property and equipment associated with the abandoned smaller office spaces. (16) Commitments and Contingencies Other Non-Lease Obligations As of December 31, 2023, the Company’s other unconditional cash obligations, consisting primarily of unconditional 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, are as follows: Year Ending December 31, Other Obligations 2024 $ 45,400 2025 31,600 2026 4,500 2027 200 2028 200 Thereafter — Total non-lease unconditional obligations $ 81,900 F-38 Table of Contents SHUTTERSTOCK, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Legal Matters From time to time, the Company may become party to litigation in the ordinary course of business, including direct claims brought by or against the Company with respect to intellectual property, contracts, employment and other matters, as well as claims brought against the Company’s customers for whom the Company has a contractual indemnification obligation. The Company assesses the likelihood of any adverse judgments or outcomes with respect to these matters and determines loss contingency assessments on a gross basis after assessing the probability of incurrence of a loss and whether a loss is reasonably estimable. In addition, the Company considers other relevant factors that could impact its ability to reasonably estimate a loss. A determination of the amount of reserves required, if any, for these contingencies is made after analyzing each matter. The Company reviews reserves, if any, at least quarterly and may change the amount of any such reserve in the future due to new developments or changes in strategy in handling these matters. Although the results of litigation and threats of litigation, investigations and claims cannot be predicted with certainty, the Company currently believes that the final outcome of these matters will not have a material adverse effect on its business, consolidated financial position, results of operations, or cash flows. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors. The Company currently has no material active litigation matters and, accordingly, no material reserves related to litigation. Customer Indemnifications In the ordinary course of business, the Company enters into contractual arrangements under which it agrees to provide indemnification of varying scope and terms to customers with respect to certain matters, including, but not limited to, losses arising out of the breach of the Company’s intellectual property warranties for damages to the customer directly attributable to the Company’s breach. The Company is not responsible for any damages, costs, or losses to the extent such damages, costs or losses arise as a result of the modifications made by the customer, or the context in which an image is used. The standard maximum aggregate obligation and liability to any one customer for all claims is generally limited to ten thousand dollars. The Company offers certain of its customers greater levels of indemnification, including unlimited indemnification. As of December 31, 2023, the Company has recorded no liabilities related to indemnification for loss contingencies. Additionally, the Company believes that it has the appropriate insurance coverage in place to adequately cover such indemnification obligations, if necessary. Employment Agreements and Indemnification Agreements The Company has entered into employment arrangements and indemnification agreements with certain executive officers and with certain employees. 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. F-39 Table of Contents EXHIBIT INDEX Exhibit Number Incorporated by Reference Exhibit Description Form File No. Exhibit Filing Date 2.1 Agreement and Plan of Merger, dated as of October 5, 2012, between the Registrant and Shutterstock Images LLC. S-1/A 333-181376 2.1 October 5, 2012 2.2 Agreement and Plan of Merger, dated as of October 5, 2012, among the Registrant, Shutterstock Investors II, Inc., Insight Venture Partners (Cayman) V, L.P., Shutterstock Investors III, Inc. and Insight Venture Partners V Coinvestment Fund, L.P. S-1/A 333-181376 2.2 October 5, 2012 2.3 Agreement and Plan of Merger, dated as of May 10, 2022. 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. S-1/A 333-181376 3.2 June 29, 2012 3.2 Amended and Restated Bylaws of the Registrant, as currently in effect. S-1/A 333-181376 3.4 September 27, 2012 4.1 Specimen Stock Certificate of the Registrant S-3ASR 333-243706 4.1 August 10, 2020 4.2 Description of the Registrant’s Securities 10-K 001-35669 4.1 February 13, 2020 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 10.2 § 2012 Omnibus Equity Incentive Plan and Form of Award Agreements. 10-K 001-35669 10.2 February 27, 2015 10.3 § 2022 Omnibus Equity Incentive Plan and Form of Award Agreement 14A 001-35669 N/A April 21, 2022 10.4 § Shutterstock, Inc. Short-Term Incentive Plan. S-1/A 333-181376 10.7 August 30, 2012 10.5(a) § Employment Agreement between Shutterstock Images LLC and Jonathan Oringer dated September 24, 2012. S-1/A 333-181376 10.8(a) September 27, 2012 10.5(b) § Severance and Change in Control Agreement between Shutterstock Images LLC and Jonathan Oringer dated September 24, 2012. S-1/A 333-181376 10.8(b) September 27, 2012 10.5(c) § Summary of Compensatory Arrangements with Jonathan Oringer, dated April 24, 2014. 8-K 001-35669 N/A April 28, 2014 10.5(d) § Amendment to Employment Agreement, dated February 11, 2020, by and between Jon Oringer and Shutterstock, Inc. 10-K 001-35669 10.5(d) February 13, 2020 10.5(e) § Amendment to Severance and Change in Control Agreement, dated February 11, 2020, by and between Jon Oringer and Shutterstock, Inc. 10-K 001-35669 10.5(e) February 13, 2020 10.6 Lease Agreement, between Shutterstock, Inc. and Empire State Building Company LLC, dated March 21, 2013. 10-Q 001-35669 10.1 May 10, 2013 10.7 First Lease Modification Agreement, by and between Shutterstock, Inc. and ESRT Empire State Building, L.L.C., dated August 31, 2015. 10-Q 001-35669 10.3 November 6, 2015 10.8 Second Lease Modification and Extension Agreement, by and between Shutterstock, Inc. and ESRT Empire State Building, L.L.C., dated January 8, 2016. 8-K 001-35669 10.1 January 13, 2016 10.9 Third Lease Modification Agreement, dated July 19, 2016, by and between Shutterstock, Inc. and ESRT Empire State Building, L.L.C. 10-Q 001-35669 10.1 August 4, 2016 10.10 § Shutterstock, Inc. Director Compensation Policy 10-K 001-35669 10.1 February 26, 2019 10.11 § Shutterstock, Inc. Form of 2012 Omnibus Equity Incentive Plan Restricted Stock Unit Award Agreement 10-Q 001-35669 10.5 May 4, 2016 10.12 § Shutterstock, Inc. Form of 2012 Omnibus Equity Incentive Plan Restricted Stock Unit Award Agreement for Canadian Employees 10-Q 001-35669 10.6 May 4, 2016 10.13 § Shutterstock, Inc. Form of 2012 Omnibus Equity Incentive Plan Deferred Restricted Stock Unit Award Agreement 10-Q 001-35669 10.7 May 4, 2016 10.14 § Shutterstock, Inc. Amended and Restated 2012 Omnibus Equity Incentive Plan 10-Q 001-35669 10.4 August 4, 2016 10.15 § Shutterstock, Inc. 2012 Amended and Restated Omnibus Equity Incentive Plan Restricted Stock Unit Award Agreement, as amended September 15, 2016 10-Q 001-35669 10.1 November 4, 2016 10.16 § Shutterstock, Inc. 2012 Amended and Restated Omnibus Equity Incentive Plan Restricted Stock Unit Award Agreement for Canadian Employees, as amended September 15, 2016 10-Q 001-35669 10.2 November 4, 2016 10.17 § Shutterstock, Inc. 2012 Amended and Restated Omnibus Equity Incentive Plan Deferred Restricted Stock Unit Award Agreement, as amended September 15, 2016 10-Q 001-35669 10.3 November 4, 2016 10.18 § Shutterstock, Inc. 2012 Amended and Restated Omnibus Equity Incentive Plan Performance Stock Unit Award Agreement 8-K 001-35669 10.1 February 11, 2020 10.19 § Shutterstock, Inc. 2012 Amended and Restated Omnibus Equity Incentive Plan Restricted Stock Unit Award Agreement, for grants subsequent to April 2020 10-Q 001-35669 10.1 April 27, 2021 Table of Contents Exhibit Number Incorporated by Reference Exhibit Description Form File No. Exhibit Filing Date 10.20(a) § Employment Agreement, dated August 5, 2019, by and between the Company and Steven Ciardiello 8-K 001-35669 10.1 August 6, 2019 10.20(b) § Amendment to Employment Agreement, dated November 5, 2019, by and between the Company and Steven Ciardiello 10-Q 001-35669 10.4 November 5, 2019 10.21(a) § Employment Agreement, dated March 13, 2019, by and between the Company and Stan Pavlovsky 10-Q 001-35669 10.1 April 25, 2019 10.21(b) § Amendment to Employment Agreement, dated November 5, 2019, by and between the Company and Stan Pavlovsky 10-Q 001-35669 10.1 November 5, 2019 10.21(c) § Second Amendment to Employment Agreement, dated February 11, 2020, by and between Stan Pavlovsky and Shutterstock, Inc. 10-K 001-35669 10.25(c) February 13, 2020 10.22 § Employment Agreement, dated November 7, 2019, by and between the Company and Jarrod Yahes 8-K 001-35669 10.1 November 18, 2019 10.23(a) § Employment Agreement, dated November 4, 2019, between the Company and Pietro Silvio 10-Q 001-35669 10.2 July 28, 2020 10.23(b) § Separation Agreement and General Release, between the Company and Peter Silvio, dated September 1, 2022 8-K 001-35669 10.1 September 7, 2022 10.24 § Employment Agreement, dated May 8, 2022, by and between the Company and Paul J. Hennessy 8-K 001-35669 10.2 May 11, 2022 10.25 § Employment Agreement, dated January 12, 2023, by and between the Company and John Caine 8-K 001-35669 10.1 January 17, 2023 10.26 Credit Agreement, dated as of May 6, 2022, by and among Shutterstock, Inc., as borrower, certain subsidiary guarantors, certain financial institutions, as lenders, and Bank of America, N.A., as administrative agent for such lenders. 8-K 001-35669 10.1 May 11, 2022 10.27 § 2022 Nonqualified Deferred Compensation Plan 10-Q 001-35669 10.2 October 25, 2022 21.1 ** List of Subsidiaries. 23.1 ** Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm. 24.1 ** Power of Attorney (included on signature page of this Annual Report on Form 10-K). 31.1 ** Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 ** Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32 #** Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 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. 101.SCH * XBRL Taxonomy Extension Schema Document. 101.CAL * XBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF * XBRL Taxonomy Extension Definition Linkbase Document. 101.LAB * XBRL Taxonomy Extension Label Linkbase Document. 101.PRE * XBRL Taxonomy Extension Presentation Linkbase Document. 104 * Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) _______________________________________________________________________________ * XBRL information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934, and is not subject to liability under those sections, is not part of any registration statement or prospectus to which it relates and is not incorporated or deemed to be incorporated by reference into any registration statement, prospectus or other document. § Management contract or compensatory plan or arrangement. # These certifications are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference in any filing we make under the Securities Act of 1933 or the Securities Exchange Act of 1934, irrespective of any general incorporation language in any filings. ** Filed herewith. Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SHUTTERSTOCK, INC. Dated: February 26, 2024 By: /s/ PAUL J. HENNESSY Paul J. Hennessy Chief Executive Officer Each person whose individual signature appears below hereby authorizes and appoints Paul J. Hennessy and Jarrod Yahes, and each of them, with full power of substitution and resubstitution and full power to act without the other, as his or her true and lawful attorney-in-fact and agent to act in his or her name, place and stead and to execute in the name and on behalf of each person, individually and in each capacity stated below, and to file any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing, ratifying and confirming all that said attorneys-in-fact and agents or any of them or their or his or her substitute or substitutes may lawfully do or cause to be done by virtue thereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ JONATHAN ORINGER Founder and Executive Chairman of the Board February 26, 2024 Jonathan Oringer /s/ PAUL J. HENNESSY Chief Executive Officer and Director (Principal Executive Officer) February 26, 2024 Paul J. Hennessy /s/ JARROD YAHES Chief Financial Officer (Principal Financial Officer) February 26, 2024 Jarrod Yahes /s/ STEVEN CIARDIELLO Chief Accounting Officer (Principal Accounting Officer) February 26, 2024 Steven Ciardiello /s/ RACHNA BHASIN Director February 26, 2024 Rachna Bhasin /s/ DEIRDRE M. BIGLEY Director February 26, 2024 Deirdre M. Bigley /s/ THOMAS R. EVANS Director February 26, 2024 Thomas R. Evans /s/ ALFONSE UPSHAW Director February 26, 2024 Alfonse Upshaw