Shutterstock, Inc. — FY 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014. The filing also reports unaudited fourth-quarter results. Unless noted otherwise, amounts are U.S. dollars.
Business context
Shutterstock operates a global marketplace licensing images, video and music, with revenue primarily from subscriptions and On Demand purchases. In 2014, more than 1.2 million paying users generated revenue; the collection included 46.8 million images and more than 2 million video clips. The company acquired WebDAM in March 2014 and launched Shutterstock Music in June.
Financial and operating performance
| Metric | FY 2014 | FY 2013 | Change |
|---|---|---|---|
| Revenue | $328.0 million | $235.5 million | +39% |
| Gross profit / gross margin | $198.0 million / 60.4% | $144.9 million / 61.5% | Margin down 1.1 percentage points |
| Operating income / margin | $38.6 million / 11.8% | $43.3 million / 18.4% | Income down 11% |
| Net income / margin | $22.1 million / 6.7% | $26.5 million / 11.2% | Income down 17% |
| Net cash from operations | $82.9 million | $56.4 million | +47% |
| Free cash flow, non-GAAP | $64.7 million | $42.3 million | +53% |
| Adjusted EBITDA, non-GAAP | $70.7 million | $53.4 million | +32% |
Paid downloads rose 26% to 125.9 million, while revenue per download increased 10% to $2.58, mainly reflecting a greater contribution from higher-priced On Demand and other purchase options. Subscription products generated more than 40% of revenue; On Demand represented approximately 35% and other purchase options approximately 20%.
Fourth quarter: Revenue was $91.2 million versus $68.0 million in Q4 2013, up 34%. Operating income was $12.2 million versus $12.5 million, and net income was $7.0 million versus $7.9 million. Quarterly operating costs and expenses were $79.0 million.
Liquidity, debt and financial position
At year-end, cash and cash equivalents were $233.5 million and short-term investments were $54.8 million; working capital was $203.2 million. Total liabilities were $132.3 million and stockholders’ equity was $251.4 million. The company reported no outstanding debt and no available line of credit. Management said cash, cash equivalents and operating cash flow were expected to meet anticipated needs for at least 12 months.
2014 investing cash outflow was $29.0 million, including $18.0 million of capital expenditures and $10.1 million paid for WebDAM. Management anticipated approximately $18 million of capital additions in 2015. Operating cash flow benefited in part from a $22.6 million increase in deferred revenue.
Material changes, outlook and risks
- Revenue grew strongly, but operating expenses increased 51%, faster than revenue. Product development rose 76%, general and administrative expenses 69%, sales and marketing 45%, and cost of revenue 43%.
- Non-cash equity compensation increased to $23.8 million from $6.2 million, contributing to the decline in GAAP operating and net margins. The 2014 amount included a CEO option grant with a disclosed fair value of $21.6 million, recognized over a derived six-year service period.
- The effective tax rate was 42.0%, compared with 39.0% in 2013. The company became subject to entity-level federal and state taxation after its 2012 reorganization; 2012 net income included a one-time, non-cash $28.8 million tax benefit and is not directly comparable.
- After year-end, Shutterstock acquired Rex for $33.0 million in stated consideration, including $31.7 million cash and $1.3 million in RSUs. It acquired PremiumBeat for $31.7 million cash at closing, granted $5.0 million in RSUs, and may owe up to $10.0 million contingent on revenue targets.
- Management planned continued investment in customer acquisition, product development, international expansion and enterprise sales. No specific revenue or earnings guidance was provided. The filing identifies competition, customer/contributor retention, technology availability and cybersecurity, international regulation and foreign exchange, tax exposure, and acquisition integration as important risks.
- Contractual commitments included $40.4 million of operating leases, $5.0 million of co-location obligations, and $4.4 million of purchase obligations in the summarized schedule; separate notes describe approximately $9.4 million of unconditional purchase obligations. The filing reports no material active litigation and no material off-balance-sheet arrangements.
Most important facts for investors to verify
- Whether download growth and higher revenue per download continue, and whether the mix shift supports revenue without further margin erosion.
- How much of the gap between revenue growth and profit growth reflects recurring investment versus unusually high equity compensation and other costs.
- The cash impact, integration progress and revenue contribution of Rex and PremiumBeat, including PremiumBeat’s contingent payment terms.
- Cash-flow quality and deferred-revenue trends, including the timing of customer usage and recognition of advance payments.
- Exposure to a 42% effective tax rate, foreign-currency movements, international data and payment regulations, and customer indemnification claims.
Adjusted EBITDA, Non-GAAP Net Income and Free Cash Flow are company-defined non-GAAP measures; assess them alongside GAAP results. The filing states that WebDAM was excluded from management’s and the auditor’s internal-control assessment because of its 2014 acquisition.