Shutterstock, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Amounts are in U.S. dollars; financial statements are unaudited.
Business context
Shutterstock licenses images, footage and music, and offers 3D models, creative design software and related services through e-commerce and enterprise channels. In May 2022, it acquired video marketplace Pond5 and entertainment news provider Splash News. The company reported more than 2.4 million active paying customers for the trailing 12 months, 424 million images and 27 million footage clips in its collection, and 130.8 million paid downloads in the first nine months.
Financial results and key metrics
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $204.1 million | $194.4 million | $610.1 million | $567.6 million |
| Operating income | $28.7 million | $22.2 million | $86.0 million | $93.5 million |
| Net income | $23.0 million | $16.0 million | $69.1 million | $75.0 million |
| Diluted EPS | $0.64 | $0.43 | $1.88 | $2.01 |
| Operating margin | 14% | 11% | 14% | 16% |
| Adjusted EBITDA | $56.0 million | $44.4 million | $159.8 million | $153.9 million |
| Free cash flow | $21.4 million | $44.3 million | $53.2 million | $132.8 million |
Q3 revenue grew 5% reported and 10% at constant currency; nine-month revenue grew 7% and 11%, respectively. E-commerce revenue was $124.6 million in Q3 (+2%) and $379.1 million for nine months (+5%); enterprise revenue was $79.5 million (+9%) and $231.0 million (+12%). Q3 subscriber revenue rose to $87.7 million from $81.5 million, while paid downloads declined to 42.8 million from 44.3 million. Revenue per download increased to $4.43 from $4.20. Nine-month paid downloads fell to 130.8 million from 135.0 million, while revenue per download increased to $4.37 from $4.11.
At September 30, cash and cash equivalents were $76.2 million, down from $314.0 million at year-end 2021. Current liabilities were $360.1 million and total liabilities were $409.6 million. Debt was $50 million under a new $100 million revolving facility; remaining borrowing capacity was $48 million net of standby letters of credit. The company said it was in compliance with facility covenants. Nine-month operating cash flow was $97.3 million, versus $161.9 million; investing cash outflow was $257.9 million, including acquisitions, and financing cash outflow was $70.3 million.
Changes and management commentary
- Q3 revenue increased $9.7 million year over year, and net income rose 44%; for the first nine months, revenue increased $42.5 million but operating income fell 8% and net income fell 8%.
- Foreign currency weakness materially reduced reported growth: Q3 constant-currency revenue growth was 10% versus 5% reported, and nine-month growth was 11% versus 7% reported. Europe revenue declined in both comparisons; management cited weaker demand and currency pressure in Q3.
- Acquisitions contributed $13.1 million of Q3 revenue and $20.3 million for nine months. Management attributed growth to acquisitions, higher subscriber revenue, multi-asset offerings, and enterprise momentum in Shutterstock Studios and Editorial.
- Cost of revenue rose 15% in Q3, driven by acquisition-related depreciation and amortization, royalties and content costs, and hosting and technology costs. Product development expense rose 29% in Q3 and 33% year to date. Q3 sales and marketing expense declined 12%, partly due to reduced television and brand marketing.
- Operating cash flow and free cash flow declined year over year. Management cited lower operating income and timing of operating expense payments; investing outflows included $211.8 million for acquisitions, net of cash acquired.
Outlook, risks and contingencies
- No numerical revenue or earnings guidance is provided in the supplied filing text. Management said cash, cash generated from operations and the credit facility should cover anticipated needs for at least the next 12 months and thereafter for the foreseeable future.
- Management expects cost of revenue to fluctuate with revenue and downloads, and product development investment to continue. Sales and marketing spending may vary as the company optimizes channels and invests in customer acquisition, products and geographies.
- Key exposures include foreign-exchange movements, discretionary customer spending and competition. The company does not currently hedge foreign currency risk; it estimated a 10% exchange-rate move against foreign-currency revenues would affect revenue by approximately 3%. It said inflation had not materially affected results to date, but rising costs may not be fully offset by pricing.
- Non-lease obligations, primarily minimum royalty guarantees and purchase commitments, totaled approximately $95.5 million. The company reported no material active litigation or material litigation reserves. No material changes to previously disclosed risk factors were reported.
- The Pond5 and Splash News purchase-price allocations remained preliminary. The company declared a $0.24-per-share dividend payable in December 2022, subject to the stated terms. Its share-repurchase authorization was fully used by September 30.
Important facts for investors to verify
- How much future growth is organic versus acquisition-driven, and whether constant-currency growth can persist as foreign-exchange pressures change.
- Whether higher revenue per download and subscriber revenue can offset continued declines in paid downloads and transactional revenue.
- Whether operating cash flow and free cash flow recover after acquisition spending, working-capital changes, dividends and employee-tax withholding payments.
- Acquisition integration, realized synergies, amortization burden and final purchase-price allocations, particularly for Pond5.
- Liquidity and covenant headroom, including the $50 million borrowing, $48 million remaining facility capacity and scheduled contractual commitments.