Shutterstock, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless stated otherwise. Shutterstock operates a platform licensing images, footage, music and, following its February 1 acquisition of TurboSquid, 3D models. Figures below are in U.S. dollars.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $183.3 million | $161.3 million | +14% reported; +11% constant currency |
| Operating income / margin | $38.1 million / 21% | $5.8 million / 4% | Operating income +559% |
| Net income | $29.5 million | $4.3 million | +584% |
| Diluted EPS | $0.79 | $0.12 | — |
| Adjusted EBITDA / margin | $56.4 million / 30.8% | $22.1 million / 13.7% | Non-GAAP |
| Operating cash flow | $35.8 million | $6.9 million | — |
| Free cash flow | $26.8 million | $6.2 million | Non-GAAP |
Revenue growth reflected e-commerce revenue of $118.4 million (+19%; +16% constant currency), led primarily by subscriber revenue and also benefiting from TurboSquid, and enterprise revenue of $64.9 million (+5%; +3% constant currency). Operating expenses fell 7% to $145.2 million; cost of revenue declined 11%, sales and marketing 2%, and product development 18%, while general and administrative expense was essentially flat. The effective tax rate was 17.2%, versus 31.4% in Q1 2020.
Operating indicators and balance sheet
- Subscribers were 306,000 versus 209,000; subscriber revenue was $76.5 million versus $63.9 million.
- Paid downloads declined 2% to 45.8 million, while revenue per download rose to $3.96 from $3.42. Management attributed lower usage partly to COVID-19.
- Cash and cash equivalents were $363.9 million at quarter-end, down from $428.6 million at December 31, 2020. Current assets were $440.6 million and current liabilities $265.3 million.
- The company reported no long-term borrowings. Lease liabilities were $40.1 million current and $40.1 million non-current. Total liabilities were $314.6 million.
- Deferred revenue was $153.6 million; nearly all was expected to be recognized within 12 months. Management said cash, cash equivalents and operating cash generation should cover anticipated needs for at least 12 months.
Cash flows, acquisition and capital allocation
Investing cash outflow was $81.2 million, mainly the $72.2 million net cash paid for TurboSquid and $8.5 million of capital expenditures. Financing cash outflow was $19.4 million, including $13.0 million for employee share-based compensation tax withholding and a $7.6 million dividend, partly offset by stock-option proceeds. Cash declined by $64.6 million overall.
TurboSquid was acquired for approximately $77.3 million, subject to working-capital adjustments. The preliminary allocation included $59.5 million of goodwill and $21.5 million of intangible assets; purchase accounting and working-capital adjustments were not final. The company paid a $0.21-per-share dividend in the quarter and declared another $0.21 dividend payable in June. No shares were repurchased; $100 million of authorization remained.
Management commentary, risks and unusual items
- Management said COVID-19 continued to weigh on revenue growth and customer marketing budgets, with lower paid-download usage partly attributed to the pandemic. The filing provided no specific full-year financial guidance.
- Reported growth was 14% compared with 11% on a constant-currency basis. Foreign-currency losses of $2.5 million contributed to other expense, versus $0.5 million of other income in Q1 2020. The company does not currently hedge foreign-currency risk; a 10% exchange-rate change against foreign-currency revenues was estimated to affect revenue by approximately 3%.
- Q1 2020 comparisons included $7.8 million of acquisition-related long-term incentive payments; the company excludes that payment in its free-cash-flow calculation. Q1 2021 also included $8.2 million of non-cash equity compensation.
- Non-lease obligations, primarily minimum royalty guarantees and purchase commitments, totaled approximately $48.8 million. The company reported no material active litigation or material litigation reserves and no material change in risk factors from its 2020 Form 10-K.
- Management identified revenue recognition estimates, doubtful accounts, acquired goodwill and intangible-asset valuation, and income taxes among significant accounting judgments. TurboSquid was still being integrated into internal controls.
Key facts for investors to verify
- How much of revenue growth and subscriber growth is sustainable, and how quickly paid-download volumes recover from the decline.
- The contribution of TurboSquid to reported results, final purchase-price adjustments, and expected integration costs or synergies.
- Whether the strong operating-margin and cash-flow comparisons persist, accounting for the prior-year one-time incentive payment and Q1 2021 working-capital timing.
- Exposure to foreign exchange, discretionary customer marketing budgets, COVID-19 effects, and the company’s ability to meet royalty and other contractual commitments while maintaining dividends.
- The assumptions used for subscription unused-license revenue recognition and the valuation and recoverability of acquired goodwill and intangible assets.