Shutterstock, Inc. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. The filing also reports unaudited fourth-quarter results. Shutterstock operates a global marketplace licensing images, footage and music, with e-commerce and enterprise sales channels. Figures below are in U.S. dollars; financial statement amounts are in millions unless noted.
Key financial results
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Revenue | $666.7 | $650.5 | +2% |
| Cost of revenue | $259.6 | $278.2 | -7% |
| Operating income | $85.3 | $20.2 | +$65.1 |
| Operating margin | 12.8% | 3.1% | +9.7 percentage points |
| Net income | $71.8 | $20.1 | +$51.7 |
| Diluted EPS | $1.97 | $0.57 | +$1.40 |
| Cash from operations | $165.1 | $102.6 | +$62.4 |
| Company-defined free cash flow | $144.2 | $73.2 | +$71.0 |
Cost of revenue was 39% of revenue, implying a 61% gross margin, versus 43% and 57%, respectively, in 2019. Net margin was approximately 10.8%, versus 3.1%. Adjusted EBITDA, a non-GAAP measure, was $154.9 million, with a 23.2% margin, compared with $96.3 million and 14.8% in 2019. Company-defined free cash flow includes an adjustment for $7.8 million of acquisition-related incentive payments; it is not a GAAP measure.
Revenue trends and fourth quarter
- E-commerce revenue increased 5% to $412.5 million; enterprise revenue decreased 2% to $254.2 million. E-commerce generated about 62% of revenue and enterprise about 38%.
- Subscribers rose 45% to 281,000, while subscriber revenue increased 12% to $265.3 million. Management attributed the gap in growth rates partly to the popularity of smaller subscription plans.
- Paid downloads fell 4% to 180.0 million, while revenue per download rose to $3.68 from $3.43. Average revenue per customer increased to $333 from $330.
- Fourth-quarter revenue was $180.9 million, up from $166.4 million in Q4 2019. Operating income was $27.6 million versus $5.8 million, and net income was $25.9 million versus $4.4 million.
Liquidity, cash flow and capital allocation
- Cash and cash equivalents were $428.6 million at year-end, up from $303.3 million. Working capital was $232.1 million, compared with $131.1 million.
- The company reported no long-term borrowings at December 31, 2020. Lease liabilities totaled $50.7 million, including current and non-current obligations.
- Investing cash outflow was $35.3 million, including $25.6 million of capital expenditures, a $5.0 million investment and $3.0 million for content rights. Financing cash outflow was $4.6 million.
- Shutterstock paid $24.4 million in dividends during 2020. The board approved a quarterly dividend of $0.21 per share for payment in March 2021. The company had $100 million remaining under its repurchase authorization but made no repurchases in 2020.
- In an August 2020 offering, Shutterstock received $23.2 million net from its sale of 516,000 shares; the founder and executive chairman separately sold 2.064 million shares and received those proceeds.
Changes, outlook and risks
- Revenue growth slowed to 2% from 4% in 2019. Management said COVID-19 and related customer marketing-budget pressure adversely affected revenue growth and paid-download activity. The company continued operating remotely and said service delivery was generally maintained.
- Operating income improved substantially as operating expenses fell 8%, including lower cost of revenue, sales and marketing, and product development expenses. Marketing spend declined by $21.1 million as the company focused on more efficient customer acquisition. General and administrative expense increased 3%, including higher equity compensation and bad debt expense.
- Management stated that operating cash, together with cash on hand, was expected to cover anticipated needs for at least 12 months. The filing does not provide quantitative revenue or earnings guidance for 2021.
- On February 1, 2021, after year-end, Shutterstock acquired TurboSquid for approximately $75 million, subject to customary adjustments, funded from existing cash. Purchase accounting was not complete when the filing was prepared.
- Principal risks include prolonged or renewed COVID-19 impacts, intense competition and pricing pressure, dependence on customer and contributor participation, cybersecurity and service interruptions, content intellectual-property claims and indemnification exposure, evolving privacy and tax rules, foreign-exchange exposure, and execution and integration risks from acquisitions. The company cited no material active litigation and no material off-balance-sheet arrangements.
- Other items to note: 2020 bad debt expense increased, and the allowance for doubtful accounts rose to $4.9 million from $3.6 million. Founder Jonathan Oringer beneficially owned approximately 36.8% of shares as of February 5, 2021. The auditor issued an unqualified opinion and reported effective internal control over financial reporting.
Important facts for investors to verify
- Whether subscription growth and higher revenue per download can offset continued weakness in paid-download volumes and enterprise sales.
- How much of the 2020 operating-margin improvement is sustainable, given lower marketing and product-development spending and the pandemic-related disruption.
- Whether the $149.8 million year-end deferred-revenue balance converts to revenue as expected; the filing says nearly all is expected to be recognized within 12 months.
- The cash, earnings and integration impact of the TurboSquid acquisition, including the final purchase-price allocation and any subsequent goodwill or intangible assets recorded.
- The sustainability of dividends and any future buybacks in light of operating needs, acquisition spending, lease and purchase commitments, and the founder’s concentrated ownership.
- Potential foreign-exchange, tax, privacy and intellectual-property exposures, including the $9.6 million balance of unrecognized tax benefits and the company’s customer indemnification obligations.