Shutterstock, Inc. — FY2019 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2019; fourth-quarter figures are also summarized below. Shutterstock operates a global marketplace licensing images, footage and music, alongside enterprise and custom-content services. It reported more than 1.9 million revenue-generating customers, 187.8 million paid downloads and over 314 million images and 17 million footage clips in its collection at year-end.
Financial results and liquidity
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | $650.5 million | $623.3 million |
| Operating income / margin | $20.2 million / 3.1% | $32.5 million / 5.2% |
| Net income | $20.1 million | $54.7 million |
| Diluted EPS | $0.57 | $1.54 |
| Adjusted EBITDA (non-GAAP) | $96.3 million | $105.1 million |
| Cash from operating activities | $102.6 million | $102.2 million |
| Free cash flow (non-GAAP) | $73.2 million | $63.5 million |
Revenue increased 4% year over year, or 6% excluding foreign-exchange effects. E-commerce revenue grew 7% and enterprise revenue 1%; their constant-currency growth rates were 9% and 3%, respectively. Paid downloads rose 5% to 187.8 million, while revenue per download increased to $3.43 from $3.40. Cost of revenue was 42.8% of revenue, implying a 57.2% gross margin.
At December 31, 2019, cash and cash equivalents were $303.3 million, working capital was $131.1 million and total liabilities were $302.4 million. The company reported no long-term borrowings; operating lease liabilities totaled $56.9 million. Cash and operating cash flow are reported separately from lease commitments and deferred revenue.
Q4 2019: Revenue was $166.4 million versus $162.1 million in Q4 2018. Operating income was $5.8 million versus $15.6 million; net income was $4.4 million versus $14.9 million, and diluted EPS was $0.12 versus $0.42.
Material changes versus the prior comparable period
- Revenue growth slowed: reported growth was 4% in 2019 versus 12% in 2018. Enterprise growth decelerated notably, from 22% to 1% reported.
- Operating expenses rose 7% to $630.4 million, faster than revenue. Sales and marketing increased 9% and general and administrative expense increased 16%; operating margin fell to 3.1% from 5.2%.
- Net income declined 63%. FY2018 included a $38.6 million pre-tax gain on the Webdam sale; 2019 also benefited from $4.8 million of other income versus $5.0 million of other expense in 2018.
- Adjusted EBITDA decreased about 8%, while free cash flow increased about 15%, aided in part by lower capital expenditures.
- Cash increased to $303.3 million from $230.9 million. Working capital increased to $131.1 million from $83.4 million.
Outlook, commentary, risks and unusual items
- Management gave no specific numeric revenue or earnings guidance in the supplied filing text. It expects to continue investing in customer acquisition, technology, infrastructure, products and international expansion; marketing expense is expected to increase in absolute dollars.
- Management said cash on hand and cash generated from operations should cover anticipated needs for at least the next 12 months. The board declared a quarterly dividend of $0.17 per share in February 2020 and said it expects comparable quarterly payments, subject to board discretion and business needs.
- 2019 unusual or notable items included approximately $2.2 million of severance charges, $1.5 million of accelerated amortization associated with the Editorial rebrand, and about $7.8 million of expected 2020 payments under Flashstock performance-based bonus arrangements. No goodwill impairment was recorded; the 2018 $5.9 million investment impairment related to SilverHub.
- Key risks include intensifying competition and price pressure, slowing growth, customer and contributor retention, reliance on search-engine traffic and third-party cloud/payment providers, cybersecurity and privacy regulation, intellectual-property and indemnification claims, foreign-exchange exposure, and tax uncertainty. The CCPA took effect in January 2020. Brexit, completed on January 31, 2020, adds regulatory and currency uncertainty; UK customers represented about 8% of 2019 revenue.
- The company reported no material active litigation and no material off-balance-sheet arrangements. Management and the auditor concluded internal control over financial reporting was effective at year-end; a previously disclosed weakness related to certain enterprise revenue controls was reported as remediated.
Important facts for investors to verify
- Whether revenue and especially enterprise growth stabilize after the 2019 slowdown, and whether download and revenue-per-download trends persist.
- Whether expense growth moderates and operating margins recover; review the gap between GAAP net income and non-GAAP adjusted EBITDA.
- Cash-flow sustainability after capital investment, dividends and any share repurchases; assess the $129.2 million of disclosed operating lease and purchase obligations.
- The assumptions supporting the company’s goodwill valuation, particularly the Editorial cash-flow assessment, and the potential impact of tax examinations and evolving privacy, digital-tax and sales-tax rules.
- The sustainability of the announced $0.17 quarterly dividend and the implications of founder and CEO Jonathan Oringer’s approximately 45.5% ownership.