Shutterstock, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Unaudited consolidated results. Shutterstock operates a global creative-content platform licensing images, footage, music and, following its February acquisition of TurboSquid, 3D models.
Financial results and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $189.9 million | $159.2 million | $373.2 million | $320.5 million |
| Operating income | $33.2 million | $22.5 million | $71.3 million | $28.3 million |
| Operating margin | 17% | 14% | 19% | 9% |
| Net income | $29.5 million | $19.0 million | $59.0 million | $23.3 million |
| Diluted EPS | $0.79 | $0.53 | $1.58 | $0.65 |
| Adjusted EBITDA (non-GAAP) | $53.1 million | $37.0 million | $109.5 million | $59.1 million |
| Free cash flow (non-GAAP) | $61.7 million | $22.4 million | $88.5 million | $28.6 million |
Q2 revenue rose 19% year over year (16% at constant currency); six-month revenue rose 16% (13% constant currency). For the first half, operating cash flow was $107.2 million, investing cash outflow $91.0 million and financing cash outflow $33.7 million. Investing outflows included $72.2 million, net of acquired cash, for TurboSquid; financing outflows included $20.2 million of employee tax withholding on vested equity awards and $15.3 million of dividends.
At June 30, cash and cash equivalents were $411.0 million, versus $428.6 million at year-end 2020. Current assets were $484.4 million and current liabilities $282.5 million. Total liabilities were $330.5 million, including lease liabilities; the company reported no long-term borrowings. Deferred revenue was $161.9 million. Management said cash and operating cash flows should cover anticipated needs for at least 12 months.
Performance changes and drivers
- Q2 E-commerce revenue grew 23% to $120.7 million (20% constant currency); Enterprise grew 13% to $69.2 million (9% constant currency). First-half growth was 21% and 9%, respectively.
- Q2 paid downloads increased slightly to 44.9 million from 44.0 million, while revenue per download rose to $4.17 from $3.61, primarily reflecting product mix. First-half downloads were nearly flat at 90.7 million versus 90.8 million; revenue per download increased to $4.07 from $3.51.
- Subscribers reached 321,000 at quarter-end, up from 223,000 a year earlier; subscriber revenue for Q2 was $78.1 million versus $62.7 million. Management attributed E-commerce growth primarily to increased subscriber revenue and also noted a contribution from TurboSquid.
- Q2 sales and marketing expense rose 29%, including higher marketing spend and employee-related costs. General and administrative expense rose 25%, including higher performance-award compensation. For the first half, cost of revenue declined 3%, while sales and marketing and general and administrative expenses increased 12% and 11%, respectively.
- Reported first-half results include TurboSquid from February 1, 2021. The acquisition cost approximately $77.3 million; $59.5 million of goodwill and $21.5 million of identifiable intangible assets were recorded.
Outlook, risks and notable items
- The filing provides no numerical revenue or earnings guidance. Management expects operating costs to fluctuate with revenue, downloads, channel investment and product development; it also describes typical seasonal softness in Q3 and stronger marketing demand in Q4.
- Management cited continued uncertainty from COVID-19, which affected customer marketing budgets and operations, while noting that services were generally delivered remotely. The company said there were no material changes to the risk factors in its 2020 Form 10-K.
- Foreign currency exposure is material: 36% of first-half revenue was denominated in foreign currencies. Management estimated a 10% exchange-rate change against those currencies could affect revenue by approximately 3%; it did not hedge this exposure. First-half other expense included $1.2 million of unfavorable foreign currency fluctuations.
- First-half effective tax rate was 16.0%; equity-compensation windfall tax benefits reduced the rate. Excluding discrete items, management reported an estimated 20.0% rate.
- In July 2021, the company acquired Pattern89, DataSine and certain Shotzr assets for approximately $35 million in cash, subject to customary adjustments, to expand AI-driven data and content-insight capabilities. This was after quarter-end.
- Non-lease purchase obligations, primarily minimum royalty guarantees and business-service commitments, totaled approximately $45.4 million. The company reported no material active litigation, no material off-balance-sheet arrangements and no material contingency reserves. It paid a $0.21-per-share dividend in Q2 and declared another $0.21 dividend for September 2021.
Key facts for investors to verify
- How much of revenue growth came from underlying operations versus currency and the TurboSquid acquisition, particularly given the prior-year comparison period.
- Whether higher revenue per download and subscriber growth persist, and how product mix affects contributor royalties and margins.
- The sustainability of cash generation after acquisition spending, dividends and cash tax withholding for equity awards; free cash flow and adjusted EBITDA are non-GAAP measures.
- Integration progress and financial contribution from TurboSquid, and the purchase accounting and performance of the July 2021 AI acquisitions.
- Exposure to COVID-related demand changes, seasonality, foreign exchange movements and the company’s ability to maintain margins while investing in marketing and product development.