Shutterstock, Inc. — Q2 2013 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2013. Financial statements are unaudited. Shutterstock operates a global marketplace licensing commercial digital imagery, with revenue from subscriptions and usage-based plans.
Financial performance
| Metric | Q2 2013 | Q2 2012 | First half 2013 | First half 2012 |
|---|---|---|---|---|
| Revenue | $56.8 million | $40.6 million | $107.9 million | $78.2 million |
| Operating income | $10.9 million | $6.2 million | $20.9 million | $10.0 million |
| Net income | $6.9 million | $6.1 million | $12.4 million | $9.8 million |
| Basic and diluted EPS | $0.20 | $0.22 | $0.37 | $0.35 |
- Q2 revenue increased 40%; first-half revenue increased 38%. Growth reflected higher paid downloads and revenue per download. Q2 paid downloads were 24.3 million versus 18.3 million; revenue per download was $2.33 versus $2.22. The image collection reached 27.3 million, up from 20.2 million.
- Q2 operating margin was approximately 19.2% versus 15.3%; net margin was approximately 12.1% versus 15.0%. First-half operating margin was approximately 19.4% versus 12.8%; net margin was approximately 11.5% versus 12.5%. The filing reports cost of revenue at 38% of revenue in Q2 and 39% for the first half of 2013.
- First-half operating cash flow was $17.8 million, compared with $18.9 million. Investing cash outflow was $4.8 million; financing cash outflow was $2.3 million. Cash and cash equivalents were $112.8 million at June 30, versus $102.1 million at year-end 2012.
- Total assets were $172.5 million and total liabilities were $76.9 million. Deferred revenue was $46.7 million. The company had no outstanding debt after repaying the remaining $6.0 million term loan in March 2013.
Changes, outlook, and risks
- Net income grew more slowly than revenue in Q2, and declined as a percentage of revenue, principally reflecting a much higher tax provision. The company became subject to corporate federal and state income taxes after its October 2012 reorganization; the Q2 effective tax rate was 37.3% versus 2.3% in 2012. The first-half 2013 rate was 40.6%, including a 1.3 percentage-point discrete state tax expense.
- Management expects to continue investing in customer acquisition, international expansion, and product development. It anticipated approximately $12 million of capital expenditures for the remainder of 2013 and expected cash and operating cash flow to cover anticipated needs for at least 12 months. Advertising spend was expected to rise in absolute dollars as international expansion continued.
- Management cited potential quarterly seasonality, discretionary customer spending, competition and foreign-exchange exposure. International customers accounted for 63% of Q2 revenue, while 32% of revenue was denominated in foreign currencies. The company did not hedge foreign-currency exposure; a 10% exchange-rate change was estimated to affect revenue by approximately 3%.
- A new New York office lease has an 11-year term and approximately $42.2 million of aggregate minimum payments; $1.8 million of cash was restricted as security. Purchase obligations totaled $2.25 million. The company reported no material active litigation, no material changes to its previously disclosed risk factors, and no off-balance-sheet arrangements.
- Other business developments included launches of the Offset imagery brand and Skillfeed online-learning marketplace. The filing provides no quantified revenue contribution or financial outlook for these initiatives.
Important facts to verify
- Whether paid-download and revenue-per-download growth, including the increasing On Demand mix, continued after the quarter.
- How corporate tax expense and any uncertain tax positions affect subsequent effective tax rates and earnings.
- Whether planned capital expenditures and the new office lease affect cash generation or liquidity as expected.
- How contributor royalty thresholds, marketing investment, competition, and unhedged currency exposure affect margins and growth.
- Whether new offerings such as Offset and Skillfeed generate meaningful revenue; the filing does not quantify their contribution.