Shutterstock, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Amounts are in U.S. dollars; financial statement figures are unaudited. Shutterstock licenses creative content and provides related workflow services through e-commerce and enterprise channels.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $233.2M | $204.1M | $657.4M | $610.1M |
| Operating income | $17.2M | $28.7M | $66.3M | $86.0M |
| Net income | $28.4M | $23.0M | $111.3M | $69.1M |
| Diluted EPS | $0.79 | $0.64 | $3.06 | $1.88 |
| Adjusted EBITDA (non-GAAP) | $64.7M | $56.0M | $194.5M | $159.8M |
| Adjusted EBITDA margin (non-GAAP) | 27.7% | 27.5% | 29.6% | 26.2% |
| Free cash flow (non-GAAP) | $12.7M | $21.4M | $96.9M | $53.2M |
Q3 revenue grew 14% reported (12% constant currency); nine-month revenue grew 8% reported (7% constant currency). GAAP operating margin was approximately 7% for Q3 versus 14% a year earlier, and 10% for the nine months versus 14%. Net income benefited from the Giphy bargain-purchase gain and favorable discrete tax items; the gain was $9.9M in Q3 and $51.8M year to date. Adjusted measures exclude specified items and are not GAAP measures.
Revenue mix and operating trends
- Q3 channel mix: E-commerce revenue fell 15% to $106.0M, while enterprise revenue rose 60% to $127.2M. Enterprise growth was primarily driven by computer vision data partnerships, which generated $45.5M in Q3 versus $1.5M a year earlier.
- Nine-month channel mix: E-commerce declined 11% to $337.7M; enterprise increased 38% to $319.7M. Computer vision partnerships contributed $79.5M versus $4.4M in the prior-year period.
- Management attributed e-commerce weakness primarily to weaker new-customer acquisition. Paid downloads declined to 36.4M in Q3 from 42.8M and to 117.6M year to date from 130.8M. Revenue per download increased to $4.76 from $4.43 in Q3 and to $4.63 from $4.37 year to date.
- Q3 operating expenses rose 23%, faster than revenue growth of 14%. Product development expense increased 60% and general and administrative expense increased 24%; Giphy-related compensation, severance, equity compensation and acquisition-related amortization contributed to cost increases.
Cash, debt and liquidity
- At September 30, cash and cash equivalents were $75.2M, down from $115.2M at December 31, 2022. Current assets were $269.5M and current liabilities $424.3M.
- Nine-month operating cash flow was $106.6M, versus $97.3M. Investing cash outflow was $61.9M, versus $257.9M, reflecting lower acquisition spending; financing cash outflow was $83.2M, versus $70.3M.
- Capital expenditures were $34.7M and content acquisitions were $9.7M in the first nine months. Reported free cash flow of $96.9M is non-GAAP and includes $34.7M of Giphy retention-compensation reimbursements.
- Credit-facility borrowings were $30.0M, down from $50.0M at year-end; $67.0M of borrowing capacity remained, net of standby letters of credit. The company reported compliance with facility covenants.
- The company paid $29.0M in dividends and repurchased $19.0M of shares year to date. Approximately $81.0M remained under its $100M repurchase authorization.
- Management stated that cash, operating cash flows and available credit were expected to meet anticipated cash needs for at least 12 months. Non-lease obligations were approximately $76.0M; operating lease obligations were approximately $48M.
Giphy acquisition, outlook and risks
- Shutterstock acquired Giphy from Meta on June 23, 2023, paying $53M net cash plus acquired cash and working-capital adjustments. The preliminary purchase accounting recorded a $51.8M bargain-purchase gain. The allocation remains subject to finalization during the measurement period.
- Giphy contributed $5.0M of Q3 revenue and $5.4M year to date. Meta-funded employee retention compensation is recognized as expense as service is provided; the company reported $25.4M of non-recurring retention compensation expense year to date and excluded it from certain non-GAAP measures.
- The filing provides no numerical revenue or earnings guidance. Management noted seasonal demand patterns, discretionary customer content spending, and quarter-to-quarter variability in computer-vision revenue recognition. It expects continued product-development investment and sales-and-marketing spending to fluctuate as channels and customer acquisition are optimized.
- Risks include competition, weak e-commerce customer acquisition, foreign-exchange exposure, execution and integration of Giphy, and potential Giphy-related litigation or disruption. The company reported no material active litigation and no material changes to the risk factors in its 2022 Form 10-K. It does not currently hedge foreign-currency risk.
Important facts for investors to verify
- Whether enterprise and computer-vision growth can offset continued e-commerce weakness and declining paid downloads.
- The recurring profitability and cash-flow contribution of the business excluding the Giphy bargain-purchase gain, discrete tax benefits, and non-GAAP adjustments.
- Final Giphy purchase accounting, retention-compensation costs and reimbursements, and progress integrating and monetizing Giphy.
- Cash conversion and liquidity, including the timing of customer collections, planned dividends and buybacks, and remaining credit-facility capacity.
- Whether rising product-development and other operating costs, together with seasonal demand and currency movements, affect future margins.