Shutterstock, Inc. — FY 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. The filing also reports unaudited results for the quarter ended December 31, 2015. Amounts below are U.S. dollars.
Business context
Shutterstock operates a global marketplace licensing images, video, music and editorial content, and offers WebDAM digital asset management services. In 2015, it served more than 1.4 million paying customers in over 150 countries, with a library of 71.4 million images and more than 3.5 million video clips. It delivered 147.2 million paid downloads. The company acquired Rex Features and PremiumBeat in January 2015 and expanded editorial distribution through a partnership with Penske Media Corporation.
Financial and operating results
| Metric | FY 2015 | FY 2014 |
|---|---|---|
| Revenue | $425.1 million | $328.0 million |
| Operating income | $41.0 million | $39.0 million |
| Net income | $19.6 million | $22.1 million |
| Net cash from operations | $85.3 million | $82.9 million |
| Free cash flow (non-GAAP) | $68.3 million | $64.2 million |
| Cash and cash equivalents | $241.3 million | $233.5 million |
| Short-term investments | $47.1 million | $54.8 million |
| Total debt | None | None |
Revenue rose 30%; paid downloads increased 17% to 147.2 million, and revenue per download rose 10% to $2.84, primarily from growth in On Demand and other higher-priced offerings. Gross margin was approximately 59% versus 60%; operating margin was 9.6% versus 11.9%, and net margin was 4.6% versus 6.7%. GAAP net income fell 11%. Adjusted EBITDA, a non-GAAP measure, increased 19% to $84.7 million.
Fourth quarter: Revenue was $116.0 million, up 27% from $91.2 million in Q4 2014. Operating income was $15.0 million versus $12.3 million; net income was $6.9 million versus $7.0 million.
Year-end working capital was $174.9 million, down from $203.2 million. Deferred revenue increased to $98.2 million from $75.8 million. Operating cash flow included a $22.6 million increase in deferred revenue. Investing cash outflow was $71.8 million, including $62.4 million, net of cash acquired, for the 2015 acquisitions. The company repurchased approximately 460,000 shares for $14.8 million; $84.4 million remained under its $100 million authorization.
Changes, outlook and risks
- Operating expenses rose 33%, faster than revenue. General and administrative expense increased 60%, partly from added personnel, acquisition-related amortization, executive severance and equity acceleration. Equity-based compensation totaled $28.9 million.
- Other expense increased to $6.7 million, including $4.8 million of expense from fair-value changes in acquisition contingent consideration and foreign-currency losses. Management expected further PremiumBeat contingent-consideration expense in 2016.
- Management gave no specific revenue or earnings forecast. It expected 2016 capital additions, including digital content acquisition and capitalized labor, of approximately $25 million, and expected advertising and product-development spending to rise in absolute dollars.
- Management said existing cash and expected operating cash flows should cover anticipated needs for at least 12 months. There was no outstanding debt or available credit line.
- A January 2016 amendment to the headquarters lease added approximately $52.6 million of obligations beginning in 2017; future minimum lease payments, including the amendment, were reported at $90.5 million.
- Key risks include intense competition and pricing pressure; reliance on attracting and retaining customers and contributors; foreign-exchange exposure (31% of revenue was denominated in foreign currencies); cyber-security and service interruptions; intellectual-property claims and customer indemnification; international privacy and data-localization requirements; tax uncertainty; and acquisition integration and growth costs. The company reported no material active litigation and no material off-balance-sheet arrangements.
Important facts for investors to verify
- Whether revenue-per-download growth and higher-priced product mix can persist while download volumes expand.
- Whether operating margins stabilize as marketing, personnel, acquisition and equity-compensation costs grow.
- The eventual cash payment and earnings impact of the $11.1 million acquisition contingent-consideration liability, including up to $10 million tied to PremiumBeat performance.
- The effects of the expanded headquarters lease, share repurchases and planned capital spending on liquidity and strategic flexibility.
- Integration and control progress for Rex Features and PremiumBeat; management excluded both acquired businesses from its 2015 internal-control assessment. The auditor’s opinion on the company’s controls was unqualified for the assessed operations.
- Foreign-exchange, privacy/data-localization, tax and intellectual-property exposures, including the scope of indemnification obligations and insurance coverage.
Adjusted EBITDA and free cash flow are non-GAAP measures; the filing cautions that they are not standardized and should be considered alongside GAAP results.