Shutterstock, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Unaudited results are compared with the corresponding 2020 periods. Shutterstock operates a global platform licensing images, video, music and other creative content, with e-commerce and enterprise sales channels; its offerings expanded in 2021 to include 3D models, design software and AI-driven content insights.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $194.4 million | $165.2 million | $567.6 million | $485.7 million |
| Operating income | $22.2 million | $29.3 million | $93.5 million | $57.7 million |
| Net income | $16.0 million | $22.6 million | $75.0 million | $45.9 million |
| Diluted EPS | $0.43 | $0.62 | $2.01 | $1.27 |
| Operating margin | 11.4% | 17.8% | 16.5% | 11.9% |
Q3 revenue grew 18% year over year (17% at constant currency); e-commerce revenue rose 18% to $121.7 million and enterprise revenue rose 17% to $72.7 million. Growth reflected higher subscriber revenue, acquisitions and improved revenue per download. Nine-month revenue increased 17% (15% at constant currency). E-commerce represented 64% of nine-month revenue and enterprise 36%.
Q3 paid downloads increased to 44.3 million from 43.4 million, while revenue per download rose to $4.20 from $3.79, primarily from product mix. Subscribers reached 336,000, up from 255,000; subscriber revenue was $81.5 million versus $67.6 million. These subscriber metrics exclude TurboSquid and PicMonkey.
Q3 operating expenses increased 27%, faster than revenue growth, including a 49% rise in sales and marketing, principally from $13.0 million of additional marketing spend and higher employee costs. Consequently, Q3 operating income fell 24% and net income fell 29%. For the first nine months, operating income rose 62% and net income 63%, supported by revenue growth and operating expenses growing more slowly than revenue.
Cash, liquidity and capital
- Cash and cash equivalents were $300.6 million at September 30, 2021, down from $428.6 million at year-end 2020. Current assets were $375.7 million and current liabilities $315.5 million.
- Nine-month operating cash flow was $161.9 million, up from $100.2 million. Investing cash outflow was $242.4 million, chiefly reflecting acquisitions, $21.2 million of capital expenditures and $7.9 million of content acquisitions. Financing cash outflow was $46.4 million, including $23.0 million of dividends, $21.3 million for employee tax withholding and $4.2 million of share repurchases.
- Non-GAAP free cash flow was $132.8 million for nine months, compared with $85.6 million. Q3 free cash flow was $44.3 million, compared with $57.0 million. The company defines and reconciles this non-GAAP measure separately from GAAP cash flow.
- The company reported no long-term borrowings. Management said cash on hand and operating cash flow should cover anticipated needs for at least the next 12 months. Deferred revenue was $171.1 million, and nearly all was expected to be recognized within 12 months.
- The company paid $23.0 million in dividends during the nine months and declared a further $0.21 per-share dividend payable in December 2021. It had $95 million remaining under its share repurchase authorization.
Material developments, outlook and risks
Shutterstock acquired TurboSquid in February for approximately $77.3 million and PicMonkey assets in September for approximately $110 million. Together, the businesses contributed $8.9 million of Q3 revenue and $20.6 million for the nine months. In July, the company acquired Pattern89, Datasine and Shotzr assets for approximately $35 million, recording $41 million of developed-technology intangibles. PicMonkey purchase accounting remained preliminary. Acquisitions drove substantial increases in goodwill and intangible assets and increased amortization expense.
The filing gives no numerical revenue or earnings guidance. Management expects cost of revenue to fluctuate with revenue and downloads, and sales and marketing spending to vary as it invests in customer acquisition, products and geographies. It also plans ongoing product-development investment. Management noted seasonal demand patterns and continuing uncertainty from COVID-19; customer content spending is discretionary and sensitive to economic conditions. Foreign-currency movements are another exposure: about 35% of nine-month revenue was denominated in foreign currencies, and the company did not hedge this exposure. It estimated a 10% exchange-rate move against those currencies could affect revenue by approximately 3%.
At September 30, non-lease commitments totaled approximately $59.0 million, primarily minimum royalty guarantees and purchase obligations. The company reported no material active litigation, no material off-balance-sheet arrangements, and no material changes to the risk factors in its 2020 Form 10-K. Disclosure controls were assessed as effective; acquired businesses were still being integrated into internal control processes.
Important facts for investors to verify
- How much of reported growth reflects organic performance versus TurboSquid, PicMonkey and the AI-related acquisitions.
- Whether higher revenue per download and subscriber growth persist, and how product mix and paid-download trends develop.
- Whether increased marketing and acquisition-related amortization continue to pressure quarterly operating margins and GAAP earnings.
- How acquisition integration, preliminary PicMonkey purchase-price allocation, and the resulting goodwill and intangible assets affect future results.
- Whether operating cash flow remains strong after acquisition spending, dividends, share repurchases and employee tax-withholding payments.
- How COVID-19-related demand uncertainty, seasonality, currency exposure, and $59.0 million of non-lease commitments affect results and liquidity.