Shutterstock, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Financial statements are unaudited. Shutterstock operates a global marketplace for licensed images, footage, music and 3D models, alongside creative design software and related services.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $206.9M | $189.9M | $406.0M | $373.2M |
| Operating income | $25.4M | $33.2M | $57.3M | $71.3M |
| Operating margin | 12% | 17% | 14% | 19% |
| Net income | $19.4M | $29.5M | $46.0M | $59.0M |
| Diluted EPS | $0.53 | $0.79 | $1.25 | $1.58 |
| Adjusted EBITDA | $48.9M | $53.1M | $103.7M | $109.5M |
| Free cash flow | $21.6M | $61.7M | $31.8M | $88.5M |
Q2 revenue grew 9% reported and 13% on a constant-currency basis. E-commerce revenue rose 6% reported to $127.4M; Enterprise revenue increased 15% to $79.5M. Growth reflected acquisitions, higher subscriber revenue, multi-asset offerings and Enterprise momentum. Paid downloads declined to 43.4M from 44.9M, while revenue per download rose to $4.46 from $4.17.
For the first half, operating cash flow was $59.6M, down from $107.2M. Capital expenditures were $20.8M and content acquisitions were $7.0M. Cash and equivalents were $84.0M at June 30, versus $314.0M at year-end 2021. Current liabilities exceeded current assets by approximately $204.7M, including $178.4M of deferred revenue.
At quarter-end, debt was $50.0M under a new revolving facility; $48M of capacity remained available, net of standby letters of credit. The company reported compliance with facility covenants. Total assets were $848.6M and stockholders’ equity was $429.1M.
Changes versus the prior comparable period
- Revenue rose 9%, but operating income fell 24% and net income fell 34% in Q2. Operating expenses increased 16%, faster than revenue.
- Q2 sales and marketing expense rose 18%, product development 43%, and cost of revenue 14%. Acquisition-related amortization, higher marketing spend, contributor costs and infrastructure costs contributed to expense growth.
- Six-month reported revenue increased 9% (12% constant currency), while operating income declined 20%, net income 22%, operating cash flow 44% and free cash flow 64%.
- Paid downloads declined year over year in both Q2 and the first half; higher revenue per download, mainly from product mix, partly offset that pressure.
- Cash declined substantially following acquisition spending, repurchases, dividends and other uses. The company also added $50M of debt; it had no debt at December 31, 2021.
Outlook, commentary, risks and unusual items
- The filing provides no quantified full-year revenue or earnings guidance. Management said cash, operating cash flow and the facility should cover anticipated needs for at least 12 months and thereafter for the foreseeable future.
- Management expects cost of revenue to fluctuate with revenue and downloads, and expects continued investment in marketing, customer acquisition, product development and new products. It noted potential seasonal softness in Q3 and stronger marketing demand in Q4.
- Pond5 was acquired May 11 for approximately $218.3M and Splash News May 28 for approximately $6.3M. Together, the acquired businesses contributed $7.2M of Q2 revenue. Purchase-price allocations were preliminary; acquisition transaction costs were recorded in G&A.
- Q2 other expense included $2.5M of unfavorable foreign-currency effects and $0.2M of interest expense. Foreign-currency revenue was about 33% of first-half revenue; management estimates a 10% dollar exchange-rate move against foreign currencies would affect revenue by approximately 3%. The company does not currently hedge currency exposure.
- Share repurchases totaled $56.9M in the first half, and cash dividends totaled $17.4M. The board declared a further $0.24-per-share dividend for September 2022. The repurchase program had $16.2M of authorization remaining.
- Non-lease commitments, primarily minimum royalty guarantees and purchase obligations, totaled approximately $103.3M. The company reported no material active litigation or material litigation reserves. It identified no material changes to previously disclosed risk factors other than risks associated with capital needs and its new debt facility.
- Management cited discretionary customer spending, competition, foreign exchange movements, seasonal patterns, acquisition integration and debt covenant compliance as factors that could affect results. It reported effective disclosure controls; integration of acquired businesses into internal controls was ongoing.
Investor facts to verify
- How much reported growth came from acquisitions versus the existing business, particularly as acquired businesses contributed $7.2M in Q2.
- Whether subscriber growth and improved revenue per download can offset declining paid downloads and transactional revenue.
- Whether elevated marketing, development and acquisition-related amortization costs continue to pressure margins and cash generation.
- Cash-flow and liquidity trends after acquisition outlays, repurchases and dividends, including use of the remaining credit-facility capacity and compliance with covenants.
- Final acquisition purchase-price allocations, integration progress and whether expected synergies materialize.