Shutterstock, Inc. — Q2 2023 Form 10-Q
Business context and reporting period. Unaudited results cover the quarter and six months ended June 30, 2023, compared with the corresponding 2022 periods. Shutterstock operates a marketplace and platform for licensed images, footage, music and 3D models, alongside creative tools and enterprise services. It acquired Giphy on June 23, 2023.
Key financial results
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $208.8m | $206.9m | $424.1m | $406.0m |
| Operating income | $8.7m | $25.4m | $49.1m | $57.3m |
| Net income | $50.0m | $19.4m | $82.9m | $46.0m |
| Diluted EPS | $1.37 | $0.53 | $2.27 | $1.25 |
| Operating cash flow | Not separately provided for the quarter | Not separately provided for the quarter | $96.6m | $59.6m |
- Q2 operating margin was approximately 4.2%, down from 12.3%; cost of revenue was 40% of sales versus 37% a year earlier. Six-month operating margin was approximately 11.6%, compared with 14.1%.
- Q2 net income included a $41.9m Giphy bargain-purchase gain. The gain also contributed to six-month net income growth; operating income declined in both comparisons.
- Non-GAAP Q2 adjusted EBITDA was $60.1m, with a 28.8% margin, versus $48.9m and 23.7%. Six-month adjusted EBITDA was $129.8m versus $103.7m. Q2 free cash flow, as defined by the company, was $33.4m versus $21.6m; six-month free cash flow was $84.2m versus $31.8m. Six-month free cash flow includes $15.8m of Giphy retention-compensation reimbursement. These non-GAAP measures are not substitutes for GAAP results.
- At June 30, cash and equivalents were $87.1m; current assets were $273.4m and current liabilities $407.6m. Debt was $30.0m, with $68m of remaining borrowing capacity under the $100m revolver, net of standby letters of credit. The company reported compliance with facility covenants.
- Six-month cash used in investing was $66.1m and cash used in financing was $57.9m. Cash declined by $28.0m from year-end 2022. The company reported $78.1m of non-lease obligations and approximately $51m of operating lease obligations.
Material changes versus the prior period
- Q2 revenue grew 1%; first-half revenue grew 4% reported and 5% on a constant-currency basis. E-commerce revenue fell 12% in Q2 and 9% for the first half, attributed primarily to weakness in new-customer acquisition. Enterprise revenue increased 22% and 27%, respectively, led by computer-vision data partnerships and acquired businesses.
- Q2 paid downloads declined to 38.5m from 43.4m; first-half downloads fell to 81.2m from 88.0m. Revenue per download rose to $4.71 from $4.46 in Q2, primarily due to sales-channel mix.
- Operating expenses rose 10% in Q2 and 8% in the first half. Product development costs increased substantially, including $11.0m of non-recurring Giphy retention compensation in each period. Higher acquisition-related depreciation and amortization, royalties and platform costs also increased cost of revenue.
- Giphy’s purchase accounting resulted in a preliminary $41.9m bargain-purchase gain. The company also recorded $3.0m of Giphy transaction costs in general and administrative expense.
Outlook, risks and unusual items
- No specific revenue, earnings or cash-flow guidance is provided. Management said cash, cash generated from operations and available credit are expected to meet anticipated cash needs for at least the next 12 months.
- Management noted potential seasonality, including possible lower customer usage in Q3 and higher demand in Q4, and said quarterly results can vary with acquisition timing and computer-vision revenue recognition. Customer content spending is discretionary and exposed to economic conditions and competition.
- The Giphy transaction was required by a U.K. Competition and Markets Authority divestiture order. The acquisition valuation and allocation remained preliminary. Meta-funded retention compensation includes employee costs and awards; specified compensation is recognized as operating expense as service is provided. The company had a $101.9m receivable against an escrow fully funded by Meta, and agreed to provide Meta Giphy API services for two years.
- Other risks include foreign exchange exposure: approximately 30% of first-half revenue was denominated in foreign currencies, and the company does not currently hedge this exposure. The filing also identifies potential Giphy integration, monetization, retention and litigation risks. No material active litigation or material changes to previously disclosed risk factors were reported.
- The board authorized a new $100m share-repurchase program in June; $96m remained authorized at quarter-end. A quarterly dividend of $0.27 per share was declared after quarter-end.
Important facts for investors to verify
- How much of reported earnings growth reflects the non-recurring Giphy bargain-purchase gain, and how do acquisition-related and retention costs affect underlying profitability?
- Whether Enterprise and computer-vision growth can offset continued e-commerce weakness and declining paid downloads.
- The final Giphy purchase-price allocation, cash and working-capital adjustments, escrow receivable collection, and retention compensation and integration costs.
- Cash-flow sustainability after considering timing-related working-capital movements, the $15.8m reimbursement included in reported free cash flow, capital spending, dividends and repurchases.
- Debt, available revolver capacity, contractual obligations and the company’s ability to sustain distributions while funding operations and acquisitions.