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Acquisitions | 9 Months Ended
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Sep. 30, 2022
Business Combination and Asset Acquisition [Abstract] |
Acquisitions | Acquisitions Pond5, Inc. On May 11, 2022, the Company completed its acquisition of Pond5, for approximately $218.0 million. The total purchase price was paid with existing cash on hand as well as a $50 million drawdown on a newly established revolving credit facility (See Note 7). In connection with the acquisition, the Company incurred approximately $3.6 million of transaction costs, which is included in general and administrative expenses on the Consolidated Statements of Operations. Pond5 is a New York based company that operates a video-first content marketplace for royalty-free and editorial video. The Company believes its acquisition of this video-first content marketplace provides expanded offerings across footage, image and music. The identifiable intangible assets, which include customer relationships, developed technology and trade names have weighted average useful lives of approximately 14.2 years, 5 years and 10 years, respectively. The goodwill arising from the transaction is primarily attributable to expected operational synergies and is not deductible for income tax purposes. Splash News On May 28, 2022, the Company completed its acquisition of Splash News, for approximately $6.3 million. The total purchase price was paid with existing cash on hand in the three months ended June 30, 2022. In connection with the acquisition, the Company incurred approximately $0.3 million of transaction costs, which is included in general and administrative expenses on the Consolidated Statements of Operations. Splash News is a United Kingdom based entertainment news network and is a source for image and video content across celebrity, red carpet and live events. The Company believes this acquisition expands Shutterstock Editorial’s Newsroom offering for access to premium exclusive content. The identifiable intangible asset, developed technology, has a useful life of approximately 4 years. The goodwill arising from the transaction is primarily attributable to expected operational synergies and is not deductible for income tax purposes. The Pond5 and Splash News transactions were accounted for using the acquisition method and, accordingly, the results of the acquired businesses have been included in the Company’s results of operations from the respective acquisition dates. For the three and nine months ended September 30, 2022, revenue of $13.1 million and $20.3 million, respectively, was included in the Consolidated Statements of Operations related to these acquired companies. The fair value of consideration transferred in these business combinations has been allocated to the intangible and tangible assets acquired and liabilities assumed at the acquisition date, with the remaining unallocated amount recorded as goodwill. The identifiable intangible assets of these acquisitions are being amortized on a straight-line basis. The fair value of the customer relationships was determined using a variation of the income approach known as the multiple-period excess earnings method. The fair value of the trade name was determined using the relief-from-royalty method, and the fair value of the developed technology was determined using the relief-from-royalty and the cost to recreate methods. The aggregate purchase price for these acquisitions has been allocated to the assets acquired and liabilities assumed as follows (in thousands):
Assets acquired and liabilities assumed (in thousands): | Pond5 1 | Splash News 1 | Total
Cash and cash equivalents | $ | 11,675 |  | $ | 180 |  | $ | 11,855 |
Accounts receivable | 1,273 |  | 500 |  | $ | 1,773 |
Other assets | 1,102 |  | 525 |  | 1,627 |
Right of use asset | 1,674 |  | — |  | 1,674 |
Intangible assets: |  |  |
Customer relationships | 34,900 |  | — |  | 34,900 |
Trade name | 5,300 |  | — |  | 5,300 |
Developed technology | 27,600 |  | 1,263 |  | 28,863 |
Intangible assets | 67,800 |  | 1,263 |  | 69,063 |
Goodwill | 158,957 |  | 5,565 |  | 164,522 |
Total assets acquired | $ | 242,481 |  | $ | 8,033 |  | $ | 250,514 |
|  |  | — |
Accounts payable, accrued expenses and other liabilities | (9,304) |  | (1,528) |  | (10,832) |
Contributor royalties payable | (3,039) |  |  | (3,039) |
Deferred revenue | (3,705) |  | — |  | (3,705) |
Deferred tax liability | (6,381) |  | (189) |  | (6,570) |
Lease liability | (2,038) |  | — |  | (2,038) |
Total liabilities assumed | (24,467) |  | (1,717) |  | (26,184) |
Net assets acquired | $ | 218,014 |  | $ | 6,316 |  | $ | 224,330 |
____________________________________________________ 1 The allocation of the purchase price is preliminary and will be finalized within the allowable measurement period once independent valuations of the fair value of the assets acquired and liabilities assumed are completed. During the three months ended September 30, 2022, the Company updated its preliminary allocation of the Pond5 purchase price to the assets acquired and liabilities assumed. This resulted in a (i) $4.0 million increase to goodwill, (ii) a $4.1 million decrease to intangible assets, including a $7.0 million decrease to the value of customer relationships, partially offset by a $2.3 million increase to the value of the developed technology, and (iii) other immaterial adjustments. 2021 Acquisitions PicMonkey, LLC On September 3, 2021, the Company completed the acquisition of substantially all of the assets and assumption of certain liabilities from PicMonkey, for approximately $109.4 million. The total purchase price was paid with existing cash on hand in the three months ended September 30, 2021. In connection with the acquisition, the Company incurred approximately $2 million of transaction costs, which is included in general and administrative expenses on the Consolidated Statements of Operations. PicMonkey is a Washington-based company that operates an online graphic design and image editing platform that enables creators of any skill level to design high-quality visual assets. The Company believes this acquisition provides Shutterstock’s global customer community with professional-grade, easy-to-use design tools. The identifiable intangible assets, which include customer relationships, developed technology and trade names, have weighted average lives of approximately 12 years, 5 years and 10 years, respectively. The goodwill arising from the transaction is primarily attributable to expected operational synergies and is expected to be deductible for income tax purposes. TurboSquid, Inc. On February 1, 2021, the Company completed its acquisition of TurboSquid, Inc. (“TurboSquid”), for approximately $77.3 million. The total purchase price was paid with existing cash on hand in the three months ended March 31, 2021. In connection with the acquisition, the Company incurred approximately $1.6 million of transaction costs, which is included in general and administrative expenses on the Consolidated Statements of Operations. TurboSquid is a Louisiana-based company that operates a marketplace offering more than one million 3D models, a marketplace for 2D images derived from 3D objects and a digital asset management solution. The Company believes this acquisition establishes Shutterstock as the premium destination for 3D models as well as 3D models in an easy-to-use 2D format. The identifiable intangible assets, which include customer relationships, developed technology, trade names and contributor content, have weighted average useful lives of approximately 12 years, 4.7 years, 10 years and 4 years, respectively. The goodwill arising from the transaction is primarily attributable to expected operational synergies and is not deductible for income tax purposes. The PicMonkey and TurboSquid transactions were accounted for using the acquisition method and, accordingly, the results of the acquired businesses have been included in the Company’s results of operations from the respective acquisition dates. The fair value of consideration transferred in these business combinations has been allocated to the intangible and tangible assets acquired and liabilities assumed at the acquisition date, with the remaining unallocated amount recorded as goodwill. The identifiable intangible assets of these acquisitions are being amortized on a straight-line basis. The fair value of the customer relationships was determined using a variation of the income approach known as the multiple-period excess earnings method. The fair value of the trade names and developed technology were determined using the relief-from-royalty method, and the fair value of the contributor content was determined using the cost-to-recreate method. The aggregate purchase price for these acquisitions has been allocated to the assets acquired and liabilities assumed as follows (in thousands):
Assets acquired and liabilities assumed (in thousands): | PicMonkey | TurboSquid | Total
Cash and cash equivalents | $ | — |  | $ | 5,165 |  | $ | 5,165 |
Other assets | 502 |  | 1,553 |  | 2,055 |
Property and equipment | — |  | 472 |  | 472 |
Right of use asset | 1,420 |  | — |  | 1,420 |
Intangible assets: |  |  |
Customer relationships | 28,800 |  | 9,000 |  | 37,800 |
Trade name | 3,000 |  | 2,200 |  | 5,200 |
Developed technology | 12,900 |  | 7,800 |  | 20,700 |
Contributor content | — |  | 2,500 |  | 2,500 |
Intangible assets | 44,700 |  | 21,500 |  | 66,200 |
Goodwill | 71,607 |  | 59,491 |  | 131,098 |
Deferred tax asset | 2,456 |  | — |  | 2,456 |
Total assets acquired | $ | 120,685 |  | $ | 88,181 |  | $ | 208,866 |
Accounts payable, accrued expenses and other liabilities | (780) |  | (4,685) |  | (5,465) |
Contributor royalties payable | — |  | (2,243) |  | (2,243) |
Deferred revenue | (8,557) |  | — |  | (8,557) |
Deferred tax liability | (533) |  | (3,923) |  | (4,456) |
Lease liability | (1,420) |  | — |  | (1,420) |
Total liabilities assumed | (11,290) |  | (10,851) |  | (22,141) |
Net assets acquired | $ | 109,395 |  | $ | 77,330 |  | $ | 186,725 |
Pro-Forma Financial Information (unaudited) The following unaudited pro forma consolidated financial information (in thousands) reflects the results of operations of the Company for the three and nine months ended September 30, 2022 and 2021, as if the Pond5 and Splash News acquisitions had been completed on January 1, 2021 and as if the TurboSquid and PicMonkey acquisitions had been completed on January 1, 2020, after giving effect to certain purchase accounting adjustments, primarily related to intangible assets and transaction costs. These pro forma results have been prepared for comparative purposes only and are not necessarily indicative of what the Company’s operating results would have been, had the acquisitions actually taken place at the beginning of the previous annual period.
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
Revenue |  |  |  |  |  |  |
As Reported | $ | 204,096 |  |  | $ | 194,439 |  |  | $ | 610,100 |  |  | $ | 567,632 |
Pro Forma | 204,096 |  |  | 213,350 |  |  | 630,383 |  |  | 630,666 |
Income before income taxes |  |  |  |  |  |  |
As Reported | $ | 27,139 |  |  | $ | 20,420 |  |  | $ | 82,528 |  |  | $ | 90,624 |
Pro Forma | 27,139 |  |  | 23,253 |  |  | 85,956 |  |  | 92,550 |

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI https://asc.fasb.org/topic&trid=2303972 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 5 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=128092470&loc=d3e4946-128472 + Details
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