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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________________________________________________________________
FORM 10-Q
___________________________________________________________________________________________________
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-35669
_____________________________________________________________________
SHUTTERSTOCK, INC.
(Exact name of registrant as specified in its charter)
________________________________________________________

Delaware |  | 80-0812659
(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

350 Fifth Avenue, 21st Floor
New York, NY 10118
(Address of principal executive offices, including zip code)
(646) 710-3417
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
______________________________________________________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:

Title of each class | Trading Symbol(s) | Name of each exchange on which registered
Common Stock, $0.01 par value per share | SSTK | New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer | ☒ |  | Accelerated filer | ☐ |  |  |
Non-accelerated filer | ☐ |  | Smaller reporting company | ☐ |  |  |
|  |  | Emerging growth company | ☐ |  |  |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). | ☐ | Yes | ☒ | No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. |

As of October 21, 2022, 35,815,050 shares of the registrant’s common stock, $0.01 par value per share, were outstanding.

1

Table of Contents
Shutterstock, Inc.
FORM 10-Q
Table of Contents
For the Quarterly Period Ended September 30, 2022

| Page No.
PART I. FINANCIAL INFORMATION |
Item 1. | Financial Statements (Unaudited) | 4
| Consolidated Balance Sheets | 4
| Consolidated Statements of Operations | 5
| Consolidated Statements of Comprehensive Income | 6
| Consolidated Statements of Stockholders’ Equity | 7
| Consolidated Statements of Cash Flows | 8
| Notes to Consolidated Financial Statements | 9
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 24
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 39
Item 4. | Controls and Procedures | 41
PART II. OTHER INFORMATION |
Item 1. | Legal Proceedings | 42
Item 1A. | Risk Factors | 42
Item 6. | Exhibits | 42
Signatures | 44

2

Table of Contents
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, particularly in the discussion under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All statements other than statements of historical fact, are forward-looking. Examples of forward-looking statements include, but are not limited to, statements regarding guidance, industry prospects, future business, future results of operations or financial condition, future dividends, future stock performance, our ability to consummate acquisitions and integrate the businesses we have acquired or may acquire into our existing operations, new or planned features, products or services, management strategies and our competitive position. You can identify many forward-looking statements by words such as “may,” “will,” “would,” “should,” “could,” “expects,” “aims,” “anticipates,” “believes,” “estimates,” “intends,” “plans,” “predicts,” “projects,” “seeks,” “potential,” “opportunities” and other similar expressions and the negatives of such expressions. However, not all forward-looking statements contain these words. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause our actual results to differ materially from those expressed or implied by the forward-looking statements. Such risks and uncertainties include, among others, those discussed under the caption “Risk Factors” in our most recently filed Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission (the “SEC”) on February 10, 2022 (our “2021 Form 10-K”), under the caption “Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, which was filed with the SEC on July 26, 2022, and in our consolidated financial statements, related notes, and the other information appearing elsewhere in the 2021 Form 10-K, this Quarterly Report on Form 10-Q and our other filings with the SEC. Given these risks and uncertainties, you should not place undue reliance on any forward-looking statements. The forward-looking statements contained in this Quarterly Report on Form 10-Q are made only as of the date hereof, and we do not intend, and, except as required by law, we undertake no obligation to update any forward-looking statements contained herein after the date of this report to reflect actual results or future events or circumstances.
Unless the context otherwise indicates, references in this Quarterly Report on Form 10-Q to the terms “Shutterstock,” “the Company,” “we,” “our” and “us” refer to Shutterstock, Inc. and its subsidiaries. “Shutterstock,” “Shutterstock Editorial,” “Asset Assurance,” “Offset,” “Bigstock,” “Rex Features,” “PremiumBeat,” “TurboSquid,” “PicMonkey,” “Pattern89,” “Shotzr,” “Pond5,” “Splash News,” “Shutterstock Studios” and “Shutterstock Editor” and their logos are registered trademarks and are the property of Shutterstock, Inc. or one of our subsidiaries. All other trademarks, service marks and trade names appearing in this Quarterly Report on Form 10-Q are the property of their respective owners.
3

Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Shutterstock, Inc.
Consolidated Balance Sheets
(In thousands, except par value amount)
(unaudited)

| September 30, |  | December 31,
| 2022 |  | 2021
ASSETS |  |  |
Current assets: |  |  |
Cash and cash equivalents | $ | 76,244 |  |  | $ | 314,017 |
Accounts receivable, net of allowance of $3,498 and $1,910 | 52,713 |  |  | 47,707 |
Prepaid expenses and other current assets | 32,095 |  |  | 26,491 |
Total current assets | 161,052 |  |  | 388,215 |
Property and equipment, net | 55,141 |  |  | 48,074 |
Right-of-use assets | 32,946 |  |  | 34,570 |
Intangible assets, net | 172,916 |  |  | 123,822 |
Goodwill | 379,505 |  |  | 219,816 |
Deferred tax assets, net | 12,391 |  |  | 10,512 |
Other assets | 26,229 |  |  | 26,701 |
Total assets | $ | 840,180 |  |  | $ | 851,710 |
LIABILITIES AND STOCKHOLDERS’ EQUITY |  |  |
Current liabilities: |  |  |
Accounts payable | $ | 6,467 |  |  | $ | 10,092 |
Accrued expenses | 80,699 |  |  | 99,529 |
Contributor royalties payable | 35,974 |  |  | 29,004 |
Deferred revenue | 174,384 |  |  | 180,979 |
Debt | 50,000 |  |  | — |
Other current liabilities | 12,549 |  |  | 14,180 |
Total current liabilities | 360,073 |  |  | 333,784 |
Deferred tax liability, net | 3,495 |  |  | 2,781 |
Lease liabilities | 35,871 |  |  | 36,966 |
Other non-current liabilities | 10,158 |  |  | 9,697 |
Total liabilities | 409,597 |  |  | 383,228 |
Commitments and contingencies (Note 14) |  |  |
Stockholders’ equity: |  |  |
Common stock, $0.01 par value; 200,000 shares authorized; 39,585 and 39,209 shares issued and 35,809 and 36,417 shares outstanding as of September 30, 2022 and December 31, 2021, respectively | 396 |  |  | 392 |
Treasury stock, at cost; 3,776 and 2,792 shares as of September 30, 2022 and December 31, 2021, respectively | (200,008) |  |  | (127,196) |
Additional paid-in capital | 380,325 |  |  | 376,537 |
Accumulated comprehensive loss | (22,720) |  |  | (10,788) |
Retained earnings | 272,590 |  |  | 229,537 |
Total stockholders’ equity | 430,583 |  |  | 468,482 |
Total liabilities and stockholders’ equity | $ | 840,180 |  |  | $ | 851,710 |

See Notes to Unaudited Consolidated Financial Statements.
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Table of Contents
Shutterstock, Inc.
Consolidated Statements of Operations
(In thousands, except for per share data)
(unaudited)

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
Revenue | $ | 204,096 |  |  | $ | 194,439 |  |  | $ | 610,100 |  |  | $ | 567,632 |
Operating expenses: |  |  |  |  |  |  |
Cost of revenue | 79,911 |  |  | 69,634 |  |  | 226,381 |  |  | 199,223 |
Sales and marketing | 47,777 |  |  | 54,456 |  |  | 155,335 |  |  | 142,273 |
Product development | 17,534 |  |  | 13,565 |  |  | 48,322 |  |  | 36,289 |
General and administrative | 30,189 |  |  | 34,615 |  |  | 94,085 |  |  | 96,335 |
Total operating expenses | 175,411 |  |  | 172,270 |  |  | 524,123 |  |  | 474,120 |
Income from operations | 28,685 |  |  | 22,169 |  |  | 85,977 |  |  | 93,512 |
Other expense, net | (1,546) |  |  | (1,749) |  |  | (3,449) |  |  | (2,888) |
Income before income taxes | 27,139 |  |  | 20,420 |  |  | 82,528 |  |  | 90,624 |
Provision for income taxes | 4,099 |  |  | 4,391 |  |  | 13,471 |  |  | 15,627 |
Net income | $ | 23,040 |  |  | $ | 16,029 |  |  | $ | 69,057 |  |  | $ | 74,997 |
Earnings per share: |  |  |  |  |  |  |
Basic | $ | 0.64 |  |  | $ | 0.44 |  |  | $ | 1.91 |  |  | $ | 2.05 |
Diluted | $ | 0.64 |  |  | $ | 0.43 |  |  | $ | 1.88 |  |  | $ | 2.01 |
Weighted average common shares outstanding: |  |  |  |  |  |  |
Basic | 35,929 |  | 36,622 |  | 36,117 |  | 36,510
Diluted | 36,269 |  | 37,417 |  | 36,681 |  | 37,285

See Notes to Unaudited Consolidated Financial Statements.
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Table of Contents
Shutterstock, Inc.
Consolidated Statements of Comprehensive Income
(In thousands)
(unaudited)

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
Net income | $ | 23,040 |  |  | $ | 16,029 |  |  | $ | 69,057 |  |  | $ | 74,997 |
Foreign currency translation loss | (6,101) |  |  | (1,842) |  |  | (11,932) |  |  | (1,552) |
Other comprehensive loss | (6,101) |  |  | (1,842) |  |  | (11,932) |  |  | (1,552) |
Comprehensive income | $ | 16,939 |  |  | $ | 14,187 |  |  | $ | 57,125 |  |  | $ | 73,445 |

See Notes to Unaudited Consolidated Financial Statements.
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Table of Contents
Shutterstock, Inc.
Consolidated Statements of Stockholders’ Equity
(In thousands)
(unaudited)

|  |  |  |  |  |  | Additional Paid-in Capital |  | Accumulated Other Comprehensive Income / (Loss) |  | Retained Earnings |  |  |  |
|  | Common Stock |  | Treasury Stock |  |  |  |  |  |  |
Three Months Ended September 30, 2022 |  | Shares |  | Amount |  | Shares |  | Amount |  |  |  |  | Total |  |
Balance at June 30, 2022 |  |  | 39,482 |  |  | $ | 395 |  |  | 3,501 |  |  | $ | (183,800) |  |  | $ | 370,934 |  |  | $ | (16,619) |  |  | $ | 258,183 |  |  | $ | 429,093 |  |  |
Equity-based compensation |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 9,088 |  |  | — |  |  | — |  |  | 9,088 |  |  |
Issuance of common stock in connection with employee stock option exercises and RSU vesting |  |  | 120 |  |  | 2 |  |  | — |  |  | — |  |  | 1,240 |  |  | — |  |  | — |  |  | 1,242 |  |  |
Common shares withheld for settlement of taxes in connection with equity-based compensation |  |  | (17) |  |  | (1) |  |  | — |  |  | — |  |  | (937) |  |  | — |  |  | — |  |  | (938) |  |  |
Repurchase of treasury shares |  |  | — |  |  | — |  |  | 275 |  |  | (16,208) |  |  | — |  |  | — |  |  | — |  |  | (16,208) |  |  |
Cash dividends paid |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (8,633) |  |  | (8,633) |  |  |
Other comprehensive loss |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (6,101) |  |  | — |  |  | (6,101) |  |  |
Net income |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 23,040 |  |  | 23,040 |  |  |
Balance at September 30, 2022 |  |  | 39,585 |  |  | $ | 396 |  |  | 3,776 |  |  | $ | (200,008) |  |  | $ | 380,325 |  |  | $ | (22,720) |  |  | $ | 272,590 |  |  | $ | 430,583 |  |  |
Three Months Ended September 30, 2021 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance at June 30, 2021 |  |  | 39,173 |  |  | $ | 392 |  |  | 2,558 |  |  | $ | (100,027) |  |  | $ | 360,404 |  |  | $ | (7,391) |  |  | $ | 211,956 |  |  | $ | 465,334 |  |  |
Equity-based compensation |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 8,743 |  |  | — |  |  | — |  |  | 8,743 |  |  |
Issuance of common stock in connection with employee stock option exercises and RSU vesting |  |  | 28 |  |  | — |  |  | — |  |  | — |  |  | 217 |  |  | — |  |  | — |  |  | 217 |  |  |
Repurchase of treasury shares |  |  | — |  |  | — |  |  | 42 |  |  | (4,858) |  |  | — |  |  | — |  |  | — |  |  | (4,858) |  |  |
Common shares withheld for settlement of taxes in connection with equity-based compensation |  |  | (10) |  |  | — |  |  | — |  |  | — |  |  | (1,044) |  |  | — |  |  | — |  |  | (1,044) |  |  |
Cash dividends paid |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (7,683) |  |  | (7,683) |  |  |
Other comprehensive loss |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (1,842) |  |  | — |  |  | (1,842) |  |  |
Net income |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 16,029 |  |  | 16,029 |  |  |
Balance at September 30, 2021 |  |  | 39,191 |  |  | $ | 392 |  |  | 2,600 |  |  | $ | (104,885) |  |  | $ | 368,320 |  |  | $ | (9,233) |  |  | $ | 220,302 |  |  | $ | 474,896 |  |  |
Nine Months Ended September 30, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance at December 31, 2021 |  |  | 39,209 |  |  | $ | 392 |  |  | 2,792 |  |  | $ | (127,196) |  |  | $ | 376,537 |  |  | $ | (10,788) |  |  | $ | 229,537 |  |  | $ | 468,482 |  |  |
Equity-based compensation |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 23,958 |  |  | — |  |  | — |  |  | 23,958 |  |  |
Issuance of common stock in connection with employee stock option exercises and RSU vesting |  |  | 623 |  |  | 7 |  |  | — |  |  | — |  |  | 1,803 |  |  | — |  |  | — |  |  | 1,810 |  |  |
Common shares withheld for settlement of taxes in connection with equity-based compensation |  |  | (247) |  |  | (3) |  |  | — |  |  | — |  |  | (21,973) |  |  | — |  |  | — |  |  | (21,976) |  |  |
Repurchase of treasury shares |  |  | — |  |  | — |  |  | 984 |  |  | (72,812) |  |  | — |  |  | — |  |  | — |  |  | (72,812) |  |  |
Cash dividends paid |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (26,004) |  |  | (26,004) |  |  |
Other comprehensive loss |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (11,932) |  |  | — |  |  | (11,932) |  |  |
Net income |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 69,057 |  |  | 69,057 |  |  |
Balance at September 30, 2022 |  |  | 39,585 |  |  | $ | 396 |  |  | 3,776 |  |  | $ | (200,008) |  |  | $ | 380,325 |  |  | $ | (22,720) |  |  | $ | 272,590 |  |  | $ | 430,583 |  |  |
Nine Months Ended September 30, 2021 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance at December 31, 2020 |  |  | 38,803 |  |  | $ | 389 |  |  | 2,558 |  |  | $ | (100,027) |  |  | $ | 360,939 |  |  | $ | (7,681) |  |  | $ | 168,305 |  |  | $ | 421,925 |  |  |
Equity-based compensation |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 26,639 |  |  | — |  |  | — |  |  | 26,639 |  |  |
Issuance of common stock in connection with employee stock option exercises and RSU vesting |  |  | 629 |  |  | 6 |  |  | — |  |  | — |  |  | 2,012 |  |  | — |  |  | — |  |  | 2,018 |  |  |
Common shares withheld for settlement of taxes in connection with equity-based compensation |  |  | (241) |  |  | (3) |  |  | — |  |  | — |  |  | (21,270) |  |  | — |  |  | — |  |  | (21,273) |  |  |
Repurchase of treasury shares |  |  | — |  |  | — |  |  | 42 |  |  | (4,858) |  |  | — |  |  | — |  |  | — |  |  | (4,858) |  |  |
Cash dividends paid |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (23,000) |  |  | (23,000) |  |  |
Other comprehensive loss |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (1,552) |  |  | — |  |  | (1,552) |  |  |
Net income |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 74,997 |  |  | 74,997 |  |  |
Balance at September 30, 2021 |  |  | 39,191 |  |  | $ | 392 |  |  | 2,600 |  |  | $ | (104,885) |  |  | $ | 368,320 |  |  | $ | (9,233) |  |  | $ | 220,302 |  |  | $ | 474,896 |  |  |

See Notes to Unaudited Consolidated Financial Statements.
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Shutterstock, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(unaudited)

| Nine Months Ended September 30,
| 2022 |  | 2021
CASH FLOWS FROM OPERATING ACTIVITIES |  |  |
Net income | $ | 69,057 |  |  | $ | 74,997 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |
Depreciation and amortization | 49,834 |  |  | 33,731 |
Deferred taxes | (6,874) |  |  | 420 |
Non-cash equity-based compensation | 23,958 |  |  | 26,639 |
Bad debt expense | 993 |  |  | 182 |
Changes in operating assets and liabilities: |  |  |
Accounts receivable | (5,541) |  |  | (1,628) |
Prepaid expenses and other current and non-current assets | (3,157) |  |  | (11,469) |
Accounts payable and other current and non-current liabilities | (32,927) |  |  | 24,639 |
Contributor royalties payable | 5,236 |  |  | 1,200 |
Deferred revenue | (3,290) |  |  | 13,147 |
Net cash provided by operating activities | $ | 97,289 |  |  | $ | 161,858 |
CASH FLOWS FROM INVESTING ACTIVITIES |  |  |
Capital expenditures | (32,922) |  |  | (21,167) |
Business combination, net of cash acquired | (211,843) |  |  | (181,772) |
Asset acquisitions | (1,667) |  |  | (31,440) |
Acquisition of content | (11,191) |  |  | (7,890) |
Security deposit payment | (282) |  |  | (138) |
Net cash used in investing activities | $ | (257,905) |  |  | $ | (242,407) |
CASH FLOWS FROM FINANCING ACTIVITIES |  |  |
Repurchase of treasury shares | (73,488) |  |  | (4,171) |
Proceeds from exercise of stock options | 1,810 |  |  | 2,018 |
Cash paid related to settlement of employee taxes related to RSU vesting | (21,976) |  |  | (21,273) |
Payment of cash dividend | (26,004) |  |  | (23,000) |
Proceeds from credit facility | 50,000 |  |  | — |
Payment of debt issuance costs | (619) |  |  | — |
Net cash used in financing activities | $ | (70,277) |  |  | $ | (46,426) |
Effect of foreign exchange rate changes on cash | (6,880) |  |  | (1,020) |
Net decrease in cash and cash equivalents | (237,773) |  |  | (127,995) |
Cash and cash equivalents, beginning of period | 314,017 |  |  | 428,574 |
Cash and cash equivalents, end of period | $ | 76,244 |  |  | $ | 300,579 |
Supplemental Disclosure of Cash Information: |  |  |
Cash paid for income taxes | $ | 19,476 |  |  | $ | 14,811 |
Cash paid for interest | 474 |  |  | — |

See Notes to Unaudited Consolidated Financial Statements.
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Table of Contents
Shutterstock, Inc.
Notes to Consolidated Financial Statements
(unaudited)
(1) Summary of Operations and Significant Accounting Policies
Summary of Operations
Shutterstock, Inc. (the “Company” or “Shutterstock”) is the leading global creative platform for transformative brands and media companies. The Company’s platform brings together users and contributors of content by providing readily-searchable content that our customers pay to license and by compensating contributors as their content is licensed. Contributors upload their content to the Company’s web properties in exchange for royalty payments based on customer download activity.
The Company’s key offerings include:
•Images - consisting of photographs, vectors and illustrations. Images are typically used in visual communications, such as websites, digital and print marketing materials, corporate communications, books, publications and other similar uses.
•Footage - consisting of video clips, premium footage filmed by industry experts and cinema grade video effects, available in HD and 4K formats. Footage is often integrated into websites, social media, marketing campaigns and cinematic productions.
•Music - consisting of high-quality music tracks and sound effects, which are often used to complement images and footage.
•3 Dimensional (“3D”) Models - consisting of 3D models, used in a variety of industries such as advertising, media and video production, gaming, retail, education, design and architecture. This offering became available upon the Company’s acquisition of TurboSquid, Inc. on February 1, 2021.
•Creative Design Software - consisting of the Company’s online graphic design and image editing platform. This offering became available after the Company completed the acquisition of substantially all of the assets and assumption of certain liabilities from PicMonkey, LLC (“PicMonkey”) on September 3, 2021.
On May 11, 2022, the Company completed its acquisition of Pond5, Inc. (“Pond5”), a video-first content marketplace which expands Shutterstock’s content offerings across footage, image and music. On May 28, 2022, Shutterstock acquired SCP 2020 Limited (“Splash News”), an entertainment news network for newsrooms and media companies, which offers image and video content across celebrity, red carpet and live events.
Basis of Presentation
The unaudited condensed consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not include all information and footnotes required by GAAP for complete financial statements.
The interim Consolidated Balance Sheet as of September 30, 2022, and the Consolidated Statements of Operations, Comprehensive Income and Stockholders’ Equity for the three and nine months ended September 30, 2022 and 2021, and the Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021, are unaudited. The Consolidated Balance Sheet as of December 31, 2021, included herein, was derived from the audited financial statements as of that date, but does not include all disclosures required by GAAP. These unaudited interim financial statements have been prepared on a basis consistent with the Company’s annual financial statements and, in the opinion of management, reflect all adjustments, which include all normal recurring adjustments necessary to fairly state the Company’s financial position as of September 30, 2022, and its consolidated results of operations, comprehensive income, stockholders’ equity and cash flows for the three and nine months ended September 30, 2022 and 2021. The financial data and the other financial information disclosed in the notes to the financial statements related to these periods are also unaudited. The results of operations for the nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2022 or for any other future annual or interim period.
These financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K, which was filed with the SEC on February 10, 2022. The unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in
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Shutterstock, Inc.
Notes to Consolidated Financial Statements
(unaudited)
consolidation. Certain immaterial changes in presentation have been made to conform the prior period presentation to current period reporting.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements. Actual results could differ from those estimates. Such estimates include, but are not limited to, the determination of the allowance for doubtful accounts, the volume of expected unused licenses for our subscription-based products, the assessment of recoverability of property and equipment, the fair value of acquired goodwill and intangible assets, the amount of non-cash equity-based compensation, the assessment of recoverability of deferred tax assets, the measurement of income tax and contingent non-income tax liabilities and the determination of the incremental borrowing rate used to calculate the lease liability.
Cash and Cash Equivalents
The Company’s cash and cash equivalents consist primarily of bank deposits and money market funds.
Allowance for Doubtful Accounts
The Company’s accounts receivable consists of customer obligations due under normal trade terms, carried at their face value less an allowance for doubtful accounts, if required. The Company determines its allowance for doubtful accounts based on an evaluation of (i) the aging of its accounts receivable considering historical receivables loss rates, (ii) on a customer-by-customer basis, where appropriate, and (iii) the economic environments in which the Company operates.
During the nine months ended September 30, 2022, the Company recorded bad debt expense of $1.0 million. As of September 30, 2022 and December 31, 2021, the Company’s allowance for doubtful accounts was approximately $3.5 million and $1.9 million, respectively. The allowance for doubtful accounts is included as a reduction of accounts receivable on the Consolidated Balance Sheets.
Chargeback and Sales Refund Allowance
The Company establishes a chargeback allowance and sales refund reserve allowance based on factors surrounding historical credit card chargeback trends, historical sales refund trends and other information. As of September 30, 2022 and December 31, 2021, the Company’s combined allowance for chargebacks and sales refunds was $0.4 million, which was included as a component of other current liabilities on the Consolidated Balance Sheets.
Revenue Recognition
The majority of the Company’s revenue is earned from the license of content. Content licenses are generally purchased on a monthly or annual basis, whereby a customer pays for a predetermined quantity of content that may be downloaded over a specific period of time, or, on a transactional basis, whereby a customer pays for individual content licenses at the time of download. Subsequent to the acquisition of PicMonkey, the Company also generates revenue from tools made available through the Company’s platform.
The Company recognizes revenue upon the satisfaction of performance obligations. For content licenses, the Company recognizes revenue on both its subscription-based and transaction-based products when content is downloaded by a customer, at which time the license is provided. In addition, the Company estimates expected unused licenses for subscription-based products and recognizes the revenue associated with the unused licenses as digital content is downloaded and licenses are obtained for such content by the customer during the subscription period. The estimate of unused licenses is based on historical download activity, and future changes in the estimate could impact the timing of revenue recognition of the Company’s subscription products. For revenue associated with tools made available through the Company’s platform, revenue is recognized on a straight-line basis over the subscription period. The Company expenses contract acquisition costs as incurred, to the extent that the amortization period would otherwise be one year or less.
Collectability is reasonably assured at the time the electronic order or contract is entered. The majority of the Company’s customers purchase products by making electronic payments with a credit card at the time of the transaction. Customer payments received in advance of revenue recognition are contract liabilities and are recorded as deferred revenue. Customers that do not pay in advance are invoiced and are required to make payments under standard credit terms. Collectability for customers who pay on credit terms allowing for payment beyond the date at which service commences is based on a credit evaluation for certain new customers and transaction history with existing customers.
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Shutterstock, Inc.
Notes to Consolidated Financial Statements
(unaudited)
The Company recognizes revenue gross of contributor royalties because the Company is the principal in the transaction, as it is the party responsible for the performance obligation and it controls the product or service before transferring it to the customer. The Company also licenses content to customers through third-party resellers. Third-party resellers sell the Company’s products directly to customers as the principal in those transactions. Accordingly, the Company recognizes revenue net of costs paid to resellers.
Interest expense
Interest expense is comprised of borrowing costs on debt. In addition, interest expense includes amortization of debt issuance costs and unused commitment fees associated with the Company’s credit facility.
Debt issuance costs are recorded in prepaid expenses and other current assets and other assets in the Consolidated Balance Sheets and are amortized over the term of the credit facility.
(2) Fair Value Measurements and Long-term Investments
Fair Value Measurements
The Company had no assets or liabilities requiring fair value hierarchy disclosures as of September 30, 2022 or December 31, 2021, except as noted below.
Cash Equivalents
Cash equivalents include money market accounts and are classified as a level 1 measurement based on quoted prices in active markets for identical assets that the reporting entity can access at the measurement date. As of December 31, 2021, the Company had cash equivalent balances of $195.1 million. As of September 30, 2022, the Company did not have any cash equivalent balances.
Other Fair Value Measurements
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value because of the short-term nature of these instruments. Debt consists of principal amounts outstanding under our credit facility, which approximates fair value as underlying interest rates are reset regularly based on current market rates and is classified as Level 2. The Company’s non-financial assets, which include property and equipment, intangible assets and goodwill, are not required to be measured at fair value on a recurring basis. However, if the Company is required to evaluate a non-financial asset for impairment, whether due to certain triggering events or because annual impairment testing is required, a resulting asset impairment would require that the non-financial asset be recorded at fair value.
Long-term Investments
As of September 30, 2022 and December 31, 2021, the Company’s long-term investments were in equity securities with no readily determinable fair value, totaled $20.0 million, and were reported within other assets on the Consolidated Balance Sheets. The Company uses the measurement alternative for these equity investments and their carrying value is reported at cost, adjusted for impairments or any observable price changes in ordinary transactions with identical or similar investments.
On a quarterly basis, the Company evaluates the carrying value of its long-term investments for impairment, which includes an assessment of revenue growth, earnings performance, working capital and general market conditions. As of September 30, 2022, no adjustments to the carrying values of the Company’s long-term investments were identified as a result of this assessment. Changes in performance negatively impacting operating results and cash flows of these investments could result in the Company recording an impairment charge in future periods.
(3) 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.
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Shutterstock, Inc.
Notes to Consolidated Financial Statements
(unaudited)
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.
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Shutterstock, Inc.
Notes to Consolidated Financial Statements
(unaudited)
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.
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Shutterstock, Inc.
Notes to Consolidated Financial Statements
(unaudited)
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 |

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Shutterstock, Inc.
Notes to Consolidated Financial Statements
(unaudited)
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 |

(4) Property and Equipment
Property and equipment is summarized as follows (in thousands):

| As of September 30, 2022 |  | As of December 31, 2021
Computer equipment and software | $ | 250,600 |  |  | $ | 221,429 |
Furniture and fixtures | 10,217 |  |  | 10,238 |
Leasehold improvements | 19,876 |  |  | 19,453 |
Property and equipment | 280,693 |  |  | 251,120 |
Less accumulated depreciation | (225,552) |  |  | (203,046) |
Property and equipment, net | $ | 55,141 |  |  | $ | 48,074 |

Depreciation expense related to property and equipment was $8.7 million and $7.9 million for the three months ended September 30, 2022 and 2021, respectively, and $25.0 million and $23.8 million for the nine months ended September 30, 2022 and 2021, respectively. Cost of revenues included depreciation expense of $8.0 million and $7.1 million for the three months ended September 30, 2022 and 2021, respectively, and $22.7 million and $21.3 million for the nine months ended September 30, 2022 and 2021, respectively. General and administrative expense included depreciation expense of $0.8 million and $0.8 million for the three months ended September 30, 2022 and 2021, respectively, and $2.3 million and $2.5 million for the nine months ended September 30, 2022 and 2021, respectively.
Capitalized Internal-Use Software
The Company capitalized costs related to the development of internal-use software of $10.9 million and $6.7 million for the three months ended September 30, 2022 and 2021, respectively, and $31.1 million and $20.9 million for the nine months ended September 30, 2022 and 2021, respectively. Capitalized amounts are included as a component of property and equipment under computer equipment and software on the Consolidated Balance Sheets.
The portion of total depreciation expense related to capitalized internal-use software was $7.6 million and $6.7 million for the three months ended September 30, 2022 and 2021, respectively, and $21.6 million and $20.1 million for the nine months ended September 30, 2022 and 2021, respectively. Depreciation expense related to capitalized internal-use software is included in cost of revenue in the Consolidated Statements of Operations.
As of September 30, 2022 and December 31, 2021, the Company had capitalized internal-use software of $48.4 million and $39.0 million, respectively, net of accumulated depreciation, which was included in property and equipment, net.
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Shutterstock, Inc.
Notes to Consolidated Financial Statements
(unaudited)
(5) Goodwill and Intangible Assets
Goodwill
The Company’s goodwill balance is attributable to its Content reporting unit and is tested for impairment annually on October 1 or upon a triggering event. No triggering events were identified during the nine months ended September 30, 2022.
The following table summarizes the changes in the Company’s goodwill balance during the nine months ended September 30, 2022 (in thousands):

| Goodwill |  |  |  |
Balance as of December 31, 2021 | $ | 219,816 |  |  |  |  |
Goodwill related to acquisitions | 164,522 |  |  |  |  |
Foreign currency translation adjustment | (4,833) |  |  |  |  |
Balance as of September 30, 2022 | $ | 379,505 |  |  |  |  |

Intangible Assets
Intangible assets consisted of the following as of September 30, 2022 and December 31, 2021 (in thousands):

| As of September 30, 2022 |  |  |  | As of December 31, 2021
| Gross Carrying Amount |  | Accumulated Amortization |  | Net Carrying Amount |  | Weighted Average Life (Years) |  | Gross Carrying Amount |  | Accumulated Amortization |  | Net Carrying Amount
Amortizing intangible assets: |  |  |  |  |  |  |  |  |  |  |  |  |
Customer relationships | $ | 86,362 |  |  | $ | (16,606) |  |  | $ | 69,756 |  |  | 12 |  | $ | 55,542 |  |  | $ | (13,906) |  |  | $ | 41,636 |
Trade name | 15,978 |  |  | (6,587) |  |  | 9,391 |  |  | 9 |  | 11,787 |  |  | (6,805) |  |  | 4,982 |
Developed technology | 92,111 |  |  | (28,562) |  |  | 63,549 |  |  | 4 |  | 67,940 |  |  | (14,214) |  |  | 53,726 |
Contributor content | 48,303 |  |  | (18,197) |  |  | 30,106 |  |  | 8 |  | 37,984 |  |  | (14,632) |  |  | 23,352 |
Patents | 259 |  |  | (145) |  |  | 114 |  |  | 18 |  | 259 |  |  | (133) |  |  | 126 |
Total | $ | 243,013 |  |  | $ | (70,097) |  |  | $ | 172,916 |  |  |  |  | $ | 173,512 |  |  | $ | (49,690) |  |  | $ | 123,822 |

Amortization expense was $9.5 million and $5.6 million for the three months ended September 30, 2022 and 2021, respectively, and $24.8 million and $9.9 million for the nine months ended September 30, 2022 and 2021, respectively. Cost of revenue included amortization expense of $8.9 million and $4.2 million for the three months ended September 30, 2022 and 2021, respectively, and $23.1 million and $6.5 million for the nine months ended September 30, 2022 and 2021, respectively. General and administrative expense included amortization expense of $0.6 million and $1.4 million for the three months ended September 30, 2022 and 2021, respectively, and $1.7 million and $3.4 million for the nine months ended September 30, 2022 and 2021, respectively.
The Company determined that there was no indication of impairment of the intangible assets for any period presented. Estimated amortization expense is: $9.3 million for the remaining three months of 2022, $37.0 million in 2023, $30.3 million in 2024, $20.2 million in 2025, $18.2 million in 2026, $12.2 million in 2027 and $45.8 million thereafter.
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Shutterstock, Inc.
Notes to Consolidated Financial Statements
(unaudited)
(6) Accrued Expenses
Accrued expenses consisted of the following (in thousands):

| As of September 30, 2022 |  | As of December 31, 2021
Compensation | $ | 30,321 |  |  | $ | 43,529 |
Non-income taxes | 23,702 |  |  | 21,488 |
Website hosting and marketing fees | 8,738 |  |  | 18,314 |
Other expenses | 17,938 |  |  | 16,198 |
Total accrued expenses | $ | 80,699 |  |  | $ | 99,529 |

(7) Debt
On May 6, 2022, the Company entered into a five-year $100 million unsecured revolving loan facility (the “Credit Facility”) with Bank of America, N.A., as Administrative Agent and other lenders. The Credit Facility includes a letter of credit sub-facility and a swingline facility and it also permits, subject to the satisfaction of certain conditions, up to $100 million of additional revolving loan commitments with the consent of the Administrative Agent.
At the Company’s option, revolving loans accrue interest at a per annum rate based on either (i) the base rate plus a margin ranging from 0.125% to 0.500%, determined based on the Company’s consolidated leverage ratio or (ii) the Term Secured Overnight Financing Rate (“SOFR”) (for interest periods of 1, 3 or 6 months) plus a margin ranging from 1.125% to 1.5%, determined based on the Company’s consolidated leverage ratio. The Company is also required to pay an unused commitment fee ranging from 0.150% to 0.225%, determined based on the Company’s consolidated leverage ratio. In connection with the execution of this agreement, the Company paid debt issuance costs of approximately $0.6 million.
On May 9, 2022, the Company borrowed $50 million for use in connection with the acquisition of Pond5, described under Note 3 (“Acquisitions”) and for general corporate purposes. As of September 30, 2022, the Company had outstanding borrowings under the Credit Facility of $50 million and had a remaining borrowing capacity of $48 million, net of standby letters of credit. As of December 31, 2021, the Company had no outstanding debt obligations. For the three and nine months ended September 30, 2022, the Company recognized interest expense of $0.4 million and $0.6 million, respectively. For the three and nine months ended September 30, 2022, the Company’s annualized interest rate was 3.2% and 3.0%, respectively.
The Credit Facility contains financial covenants and requirements restricting certain of the Company’s activities, which are usual and customary for this type of credit facility. The Company is also required to maintain compliance with a consolidated leverage ratio and a consolidated interest coverage ratio, in each case, determined in accordance with the terms of the Credit Facility. As of September 30, 2022, the Company was in compliance with these covenants.
(8) Stockholders’ Equity and Equity-Based Compensation
Stockholders’ Equity
Common Stock
The Company issued approximately 103,000 and 18,000 shares of common stock during the three months ended September 30, 2022 and 2021, respectively, related to the exercise of stock options and the vesting of Restricted Stock Units.
Treasury Stock
In October 2015, the Company’s Board of Directors approved a share repurchase program, authorizing the Company to purchase up to $100 million of its common stock. In February 2017, the Company’s Board of Directors approved an increase to the share repurchase program, authorizing the Company to repurchase up to an additional $100 million of its outstanding common stock.
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Shutterstock, Inc.
Notes to Consolidated Financial Statements
(unaudited)
The Company expects to fund future repurchases, if any, through a combination of cash on hand, cash generated by operations and future financing transactions, if appropriate. Accordingly, the share repurchase program is subject to the Company having available cash to fund repurchases. Under the share repurchase program, management is authorized to purchase shares of the Company’s common stock from time to time through open market purchases or privately negotiated transactions at prevailing prices as permitted by securities laws and other legal requirements, and subject to market conditions and other factors.
During the three and nine months ended September 30, 2022, the Company repurchased approximately 275,000 and 984,000 shares of its common stock at an average per share cost of $58.94 and $74.02, respectively. During the three and nine months ended September 30, 2021, the Company repurchased approximately 41,900 shares of its common stock at an average cost of $115.95. As of September 30, 2022, the Company fully utilized its authorization for purchases under the share repurchase program.
Dividends
The Company declared and paid cash dividends of $0.24 and $0.72 per share of common stock, or $8.6 million and $26.0 million, during the three and nine months ended September 30, 2022, respectively, and $0.21 and $0.63 per share of common stock, or $7.7 million and $23.0 million, during the three and nine months ended September 30, 2021, respectively.
On October 17, 2022, the Company’s Board of Directors declared a quarterly cash dividend of $0.24 per share of outstanding common stock payable on December 15, 2022 to stockholders of record at the close of business on December 1, 2022. Future declarations of dividends are subject to the final determination of the Board of Directors, and will depend on, among other things, the Company’s future financial condition, results of operations, capital requirements, capital expenditure requirements, contractual restrictions, anticipated cash needs, business prospects, provisions of applicable law and other factors the Board of Directors may deem relevant.
Equity-Based Compensation
The Company recognizes stock-based compensation expense for all equity-based compensation awards, including employee Restricted Stock Units and Performance-based Restricted Stock Units (“PRSUs” and, collectively with Restricted Stock Units, “RSUs”) and stock options, based on the fair value of each award on the grant date. Awards granted prior to June 1, 2022 were granted under the Company’s Amended and Restated 2012 Omnibus Equity Incentive Plan (the “2012 Plan”). At the Annual Meeting held on June 2, 2022, the Company’s stockholders approved the 2022 Omnibus Equity Incentive Plan (the “2022 Plan”). Awards granted subsequent to June 2, 2022 were granted under the 2022 Plan.
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Shutterstock, Inc.
Notes to Consolidated Financial Statements
(unaudited)
The following table summarizes non-cash equity-based compensation expense, net of forfeitures, by financial statement line item included in the accompanying Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021 (in thousands):

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
Cost of revenue | $ | 173 |  |  | $ | (49) |  |  | $ | 407 |  |  | $ | 309 |
Sales and marketing | 1,503 |  |  | 638 |  |  | 4,060 |  |  | 2,031 |
Product development | 2,957 |  |  | 1,675 |  |  | 7,295 |  |  | 4,703 |
General and administrative | 4,455 |  |  | 6,479 |  |  | 12,196 |  |  | 19,596 |
Total | $ | 9,088 |  |  | $ | 8,743 |  |  | $ | 23,958 |  |  | $ | 26,639 |

The following table summarizes non-cash equity-based compensation expense, net of forfeitures, by award type included in the accompanying Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021 (in thousands):

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
Stock options | $ | 84 |  |  | $ | 179 |  |  | $ | 62 |  |  | $ | 531 |
RSUs | 9,004 |  |  | 8,564 |  |  | 23,896 |  |  | 26,108 |
Total | $ | 9,088 |  |  | $ | 8,743 |  |  | $ | 23,958 |  |  | $ | 26,639 |

Stock Option Awards
During the nine months ended September 30, 2022, no options to purchase shares of its common stock were granted. As of September 30, 2022, there were approximately 286,000 options vested and exercisable with a weighted average exercise price of $34.03. As of September 30, 2022, the total unrecognized compensation expense related to non-vested options was approximately $0.1 million, which is expected to be recognized through 2023.
Restricted Stock Unit Awards
During the nine months ended September 30, 2022, the Company had RSU grants, net of forfeitures, of approximately 1,122,000. As of September 30, 2022, there are approximately 1,730,000 non-vested RSUs outstanding with a weighted average grant-date fair value of $71.59. As of September 30, 2022, the total unrecognized non-cash equity-based compensation expense related to the non-vested RSUs was approximately $84.9 million, which is expected to be recognized through 2026.
During the nine months ended September 30, 2022 and 2021, shares of common stock with an aggregate value of $22.0 million and $21.3 million were withheld upon vesting of RSUs and paid in connection with related remittance of employee withholding taxes to taxing authorities.
During the nine months ended September 30, 2022, the Company had approximately $3 million in forfeitures associated with the resignation of its former Chief Executive Officer.
(9) Revenue
The Company distributes its products through two primary channels:
E-commerce: The majority of the Company’s customers make purchases of content licenses and tools directly through the Company’s self-service web properties. E-commerce customers have the flexibility to purchase subscription-based plans that are paid on a monthly or annual basis. Customer are also able to license content on a transactional basis. These customers generally license content under the Company’s standard or enhanced licenses, with additional licensing options available to meet customers’ individual needs. E-commerce customers typically pay the full amount of the purchase price in advance or at the time of license, generally with a credit card.
Enterprise: The Company also has a base of customers with unique content, licensing and workflow needs. These customers benefit from communication with dedicated sales professionals, service and research teams which provide a number of tailored enhancements to their creative workflows including non-standard licensing rights, multi-seat access, ability to pay on
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Shutterstock, Inc.
Notes to Consolidated Financial Statements
(unaudited)
credit terms, multi-brand licensing packages, increased indemnification protection and content licensed for use-cases outside of those available on the E-commerce platform.
The Company’s revenues by distribution channel for the three and nine months ended September 30, 2022 and 2021 are as follows (in thousands):

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
E-commerce | $ | 124,594 |  |  | $ | 121,707 |  |  | $ | 379,052 |  |  | $ | 360,822 |
Enterprise | 79,502 |  |  | 72,732 |  |  | 231,048 |  |  | 206,810 |
Total Revenues | $ | 204,096 |  |  | $ | 194,439 |  |  | $ | 610,100 |  |  | $ | 567,632 |

The September 30, 2022 deferred revenue balance will be earned as content is downloaded or upon the expiration of subscription-based products, and nearly all is expected to be earned within the next twelve months. $152.7 million of total revenue recognized for the nine months ended September 30, 2022 was reflected in deferred revenue as of December 31, 2021.
(10) Other Expense, net
The following table presents a summary of the Company’s other income and expense activity included in the accompanying Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021 (in thousands):

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
Foreign currency loss | $ | (1,116) |  |  | $ | (1,761) |  |  | $ | (2,877) |  |  | $ | (2,994) |
Interest expense | (439) |  |  | — |  |  | (645) |  |  | — |
Other | 9 |  |  | 12 |  |  | 73 |  |  | 106 |
Total other expense | $ | (1,546) |  |  | $ | (1,749) |  |  | $ | (3,449) |  |  | $ | (2,888) |

(11) Income Taxes
The Company’s effective tax rates yielded a net expense of 15.1% and 21.5% for the three months ended September 30, 2022 and 2021, respectively, and a net expense of 16.3% and 17.2% for the nine months ended September 30, 2022 and 2021, respectively.
During the three months ended September 30, 2022, the net effect of discrete items decreased the effective tax rate by 3.3%. For the nine months ended September 30, 2022, the net effect of discrete items decreased the effective tax rate by 2.5%. The discrete items for the three months ended September 30, 2022, primarily relate to the effect of the U.S. Research and Development (“R&D”) tax credit claimed on the Company’s 2021 tax return, which was substantially completed in the third quarter of 2022. The discrete items for the nine months ended September 30, 2022, primarily relate to windfall tax benefits associated with equity-based compensation. Excluding discrete items, the Company’s effective tax rate would have been 18.4% and 18.8% for the three and nine months ended September 30, 2022, respectively.
During the three months ended September 30, 2021, the net effect of discrete items increased the effective tax rate by 1.3%. For the nine months ended September 30, 2021, the net effect of discrete items decreased the effective tax rate by 3.0%. The discrete items for the nine months ended September 30, 2021, primarily relate to windfall tax benefits associated with equity-based compensation. Excluding discrete items, the Company’s effective tax rate would have been 20.2% for the three and nine months ended September 30, 2021.
The Company has computed the provision for income taxes based on the estimated annual effective tax rate excluding a loss jurisdiction with no tax benefit and the application of discrete items, if any, in the applicable period.
During the three and nine months ended September 30, 2022 and 2021, uncertain tax positions recorded by the Company were not significant. To the extent the remaining uncertain tax positions are ultimately recognized, the Company’s effective tax rate may be impacted in future periods.
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Shutterstock, Inc.
Notes to Consolidated Financial Statements
(unaudited)
The Company recognizes interest expense and tax penalties related to unrecognized tax benefits in income tax expense in the Consolidated Statements of Operations. The Company’s accrual for interest and penalties related to unrecognized tax benefits was not significant for the three and nine months ended September 30, 2022 and 2021.
During the nine months ended September 30, 2022 and 2021, the Company paid net cash taxes of $19.5 million and $14.8 million, respectively.
(12) Net Income Per Share
Basic net income per share is computed using the weighted average number of shares of common stock outstanding for the period, excluding unvested RSUs and stock options. Diluted net income per share is based upon the weighted average shares of common stock outstanding for the period plus dilutive potential shares of common stock, including unvested RSUs and stock options using the treasury stock method.
The following table sets forth the computation of basic and diluted net income per share for the three and nine months ended September 30, 2022 and 2021 (in thousands):

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
Net income | $ | 23,040 |  |  | $ | 16,029 |  |  | $ | 69,057 |  |  | $ | 74,997 |
Shares used to compute basic net income per share | 35,929 |  |  | 36,622 |  |  | 36,117 |  |  | 36,510 |
Dilutive potential common shares |  |  |  |  |  |  |
Stock options | 120 |  |  | 255 |  |  | 174 |  |  | 240 |
Unvested restricted stock awards | 220 |  |  | 540 |  |  | 390 |  |  | 535 |
Shares used to compute diluted net income per share | 36,269 |  |  | 37,417 |  |  | 36,681 |  |  | 37,285 |
Basic net income per share | $ | 0.64 |  |  | $ | 0.44 |  |  | $ | 1.91 |  |  | $ | 2.05 |
Diluted net income per share | $ | 0.64 |  |  | $ | 0.43 |  |  | $ | 1.88 |  |  | $ | 2.01 |
Dilutive shares included in the calculation | 1,208 |  |  | 1,279 |  |  | 1,150 |  |  | 1,312 |
Anti-dilutive shares excluded from the calculation | 549 |  |  | 4 |  |  | 400 |  |  | 8 |

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Shutterstock, Inc.
Notes to Consolidated Financial Statements
(unaudited)
(13) Geographic Information
The following table presents the Company’s revenue based on customer location (in thousands):

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
North America | $ | 89,061 |  |  | $ | 77,264 |  |  | $ | 254,900 |  |  | $ | 210,527 |
Europe | 57,308 |  |  | 60,301 |  |  | 182,792 |  |  | 187,356 |
Rest of the world | 57,727 |  |  | 56,874 |  |  | 172,408 |  |  | 169,749 |
Total revenue | $ | 204,096 |  |  | $ | 194,439 |  |  | $ | 610,100 |  |  | $ | 567,632 |

The United States, included in North America in the above table, accounted for 39% and 33% of consolidated revenue for the nine months ended September 30, 2022 and 2021, respectively. No other country accounts for more than 10% of the Company’s revenue in any period presented.
The Company’s long-lived tangible assets were located as follows (in thousands):

| As of September 30, |  | As of December 31,
| 2022 |  | 2021
North America | $ | 45,182 |  |  | $ | 40,465 |
Europe | 9,883 |  |  | 7,460 |
Rest of the world | 76 |  |  | 149 |
Total long-lived tangible assets | $ | 55,141 |  |  | $ | 48,074 |

The United States, included in North America in the above table, accounted for 77% and 76% of total long-lived tangible assets as of September 30, 2022 and December 31, 2021, respectively. Ireland, included in Europe in the above table, accounted for 14% and 11% of total long-lived tangible assets as of September 30, 2022 and December 31, 2021, respectively. No other country accounts for more than 10% of the Company’s long-lived tangible assets in any period presented.
(14) Commitments and Contingencies
As of September 30, 2022, the Company had total non-lease obligations in the amount of approximately $95.5 million, which consisted primarily of minimum royalty guarantees and unconditional purchase obligations related to contracts for infrastructure and other business services. As of September 30, 2022, the Company’s non-lease obligations for the remainder of 2022 and for the years ending December 31, 2023, 2024, 2025 and 2026 were approximately $20.7 million, $38.9 million, $29.0 million, $6.3 million and $0.6 million, respectively.
Legal Matters
From time to time, the Company may become party to litigation in the ordinary course of business, including direct claims brought by or against the Company with respect to intellectual property, contracts, employment and other matters, as well as claims brought against the Company’s customers for whom the Company has a contractual indemnification obligation. The Company assesses the likelihood of any adverse judgments or outcomes with respect to these matters and determines loss contingency assessments on a gross basis after assessing the probability of incurrence of a loss and whether a loss is reasonably estimable. In addition, the Company considers other relevant factors that could impact its ability to reasonably estimate a loss. A determination of the amount of reserves required, if any, for these contingencies is made after analyzing each matter. The Company reviews reserves, if any, at least quarterly and may change the amount of any such reserve in the future due to new developments or changes in strategy in handling these matters. Although the results of litigation and threats of litigation, investigations and claims cannot be predicted with certainty, the Company currently believes that the final outcome of these matters will not have a material adverse effect on its business, consolidated financial position, results of operations, or cash flows. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors. The Company currently has no material active litigation matters and, accordingly, no material reserves related to litigation.
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Shutterstock, Inc.
Notes to Consolidated Financial Statements
(unaudited)
Indemnification and Employment Agreements
In the ordinary course of business, the Company enters into contractual arrangements under which it agrees to provide indemnification of varying scope and terms to customers with respect to certain matters, including, but not limited to, losses arising out of the breach of the Company’s intellectual property warranties for damages to the customer directly attributable to the Company’s breach. The Company is not responsible for any damages, costs, or losses to the extent such damages, costs or losses arise as a result of any modifications made by the customer, or the context in which content is used. The standard maximum aggregate obligation and liability to any one customer for any single claim is generally limited to ten thousand dollars but can range to $250,000, with certain exceptions for which our indemnification obligation are uncapped. As of September 30, 2022, the Company had recorded no material liabilities related to indemnification obligations for loss contingencies. Additionally, the Company believes that it has the appropriate insurance coverage in place to adequately cover such indemnification obligations, if necessary.
Pursuant to the Company’s charter documents and separate written indemnification agreements, the Company has certain indemnification obligations to its executive officers, certain employees and directors, as well as certain former officers and directors.
The Company has also entered into employment agreements with its executive officers and certain employees. These agreements specify various employment-related matters, including annual compensation, performance incentive bonuses, and severance benefits in the event of termination or in the event of a change in control or otherwise, with or without cause.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our interim unaudited consolidated financial statements and related notes contained elsewhere in this Quarterly Report on Form 10-Q and with information contained in our other filings, including the audited consolidated financial statements included in our 2021 Form 10-K.
In addition to historical consolidated financial information, this discussion contains forward-looking statements including statements about our plans, estimates and beliefs. These statements involve risks and uncertainties and our actual results could differ materially from those expressed or implied in forward-looking statements. See “Forward Looking Statements” above. See also the “Risk Factors” disclosures contained in our 2021 Form 10-K and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, which was filed with the SEC on July 26, 2022 for additional discussion of the risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements.
Overview and Recent Developments
Shutterstock, Inc. (referred to herein as the “Company”, “we,” “our,” and “us”) is the leading global creative platform for transformative brands and media companies. Our platform brings together users and contributors of content by providing readily-searchable content that our customers pay to license and by compensating contributors as their content is licensed.
Our key offerings include:
•Images - consisting of photographs, vectors and illustrations. Images are typically used in visual communications, such as websites, digital and print marketing materials, corporate communications, books, publications and other similar uses.
•Footage - consisting of video clips, premium footage filmed by industry experts and cinema grade video effects, available in HD and 4K formats. Footage is often integrated into websites, social media, marketing campaigns and cinematic productions.
•Music - consisting of high-quality music tracks and sound effects, which are often used to complement images and footage.
•3 Dimensional (“3D”) Models - consisting of 3D models, used in a variety of industries such as advertising, media and video production, gaming, retail, education, design and architecture. This offering became available upon our acquisition of TurboSquid, Inc. (“TurboSquid”) on February 1, 2021.
•Creative Design Software - consisting of our online graphic design and image editing platform. This offering became available after we completed the acquisition of substantially all of the assets and assumption of certain liabilities from PicMonkey, LLC (“PicMonkey”) on September 3, 2021.
On May 11, 2022, we completed our acquisition of Pond5, Inc. (“Pond5”), a video-first content marketplace which expands our content offerings across footage, image and music. On May 28, 2022, we acquired SCP 2020 Limited (“Splash News”), an entertainment news network for newsrooms and media companies, which offers image and video content across celebrity, red carpet and live events.
For customers seeking specialized solutions, Shutterstock Studios extends our offerings by providing custom, high-quality content matched with production tools and services at scale. Shutterstock Studios delivers end-to-end custom creative services providing data-driven content strategy and full-scale production for our customers. Shutterstock Editorial provides imagery and video content for the latest news, sports and entertainment, and Shutterstock Editorial also offers the Newsroom, for global breaking news, exclusives and archival content.
In addition, in July of 2021, through our newly formed entity Shutterstock.AI, Inc. (“Shutterstock.AI”), we acquired Pattern89, Inc., Datasine Limited, and assets from Shotzr, Inc., three artificial intelligence entities that provide data driven insights through their artificial intelligence platforms. Shutterstock.AI will commercialize data assets within our content library and enable companies to grow their capabilities in computer vision and content insights. The artificial intelligence tools obtained from these acquisitions will enable us to help customers make more data-informed content decisions.
Over 2.4 million active, paying customers contributed to our revenue for the twelve-month period ended September 30, 2022. As of September 30, 2022, more than 2.2 million approved contributors made their images, footage and music tracks available in our collection, which has grown to more than 424 million images and more than 27 million footage clips as of
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September 30, 2022. This makes our collection of content one of the largest of its kind, and we delivered 130.8 million paid downloads to our customers across all of our brands during the nine months ended September 30, 2022.
Through our platform, we generate revenue as our customers make purchases of content licenses and tools. During the nine months ended September 30, 2022, 62% of our revenue and the majority of our content licenses came from our E-commerce sales channel. The majority of our customers license content directly through our self-service web properties. E-commerce customers have the ability to purchase plans that are paid on either a monthly or annual basis or to license content on a transactional basis. E-commerce customers generally license content under our standard or enhanced licenses, with additional licensing options available to meet customers’ individual needs.
Customers in our Enterprise sales channel generally have unique content, licensing and workflow needs. These customers benefit from communication with our dedicated sales, service and research teams which provide a number of personalized enhancements to their creative workflows including non-standard licensing rights, multi-seat access, ability to pay on credit terms, multi-brand licensing packages, increased indemnification protection and content licensed for use-cases outside of those available on our e-commerce platform. Customers in our enterprise sales channel may also benefit from our API platform as well as access to Shutterstock Editorial, which includes our library of editorial images and videos and Shutterstock Studios, which provides data-driven content strategy, brand storytelling and full scale production services. Our Enterprise sales channel provided approximately 38% of our revenue for the nine months ended September 30, 2022.
As the use cases for our creative solutions expand, we believe our customers are seeking alternative means to consume our offerings. As a result, we have seen strong growth in customers purchasing monthly subscription products, including our suite of multi-asset subscriptions, launched in 2021. These multi-asset products are credit-based and enable customers to license images, footage and music in a single subscription. Our subscriptions provide for either a fixed number of content licenses or credits that may be used to download content during the period. Our subscription-based pricing model makes the creative process easier because customers can download content in our collection for use in their creative process without incremental costs, which provides greater creative freedom and helps improve work product. In addition, customers may also purchase licenses through other contractual plans where the customer commits to buy a predetermined quantity of content licenses that may be downloaded over a period of time, generally between one month to one year. For users who need less content, individual content licenses may also be purchased on a transactional basis, paid for at the time of download.
Contributors of content typically earn a royalty each time their work is licensed. Contributors earn royalties based on our published earnings schedule that is based on annual licensing volume, which determines the contributor’s earnings tier and the purchase option under which the content was licensed. Royalties represent the largest component of our operating expenses, are reported within cost of revenue, tend to fluctuate proportionately with revenue and paid downloads and may be impacted by the mix of products sold.
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Key Operating Metrics
We regularly review a number of key operating metrics to evaluate our business, determine the allocation of resources and make decisions regarding business strategies. We believe that these metrics can be useful for understanding the underlying trends in our business. The following table summarizes our key operating metrics, which are unaudited, for the three and nine months ended September 30, 2022 and 2021:

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
Subscribers (end of period)1 | 607,000 |  |  | 336,000 |  |  | 607,000 |  |  | 336,000 |
Subscriber revenue (in millions)1 | $ | 87.7 |  |  | $ | 81.5 |  |  | $ | 257.8 |  |  | $ | 236.1 |
Average revenue per customer (last twelve months)1 | $ | 329 |  |  | $ | 361 |  |  | $ | 329 |  |  | $ | 361 |
Paid downloads (in millions) | 42.8 |  |  | 44.3 |  |  | 130.8 |  |  | 135.0 |
Revenue per download | $ | 4.43 |  |  | $ | 4.20 |  |  | $ | 4.37 |  |  | $ | 4.11 |
Content in our collection (end of period, in millions): |  |  |  |  |  |  |
Images | 424 |  |  | 390 |  |  | 424 |  |  | 390 |
Footage clips | 27 |  |  | 23 |  |  | 27 |  |  | 23 |

___________________________________________________
1 Subscribers, Subscriber Revenue and Average Revenue Per Customer from acquisitions are included in these metrics beginning twelve months after the closing of the respective business combination. Accordingly, the metrics include Subscribers, Subscriber revenue, and Average revenue per customer from TurboSquid beginning February 2022 and from PicMonkey beginning September 2022. These metrics exclude the respective counts and revenues from our acquisitions of Pond5 and Splash News.
Subscribers, Subscriber Revenue and Average Revenue Per Customer from acquisitions are included in these metrics beginning twelve months after the closing of the respective business combination. Accordingly, the metrics include Subscribers, Subscriber revenue, and Average revenue per customer from TurboSquid beginning February 2022 and from PicMonkey beginning September 2022. These metrics exclude the respective counts and revenues from our acquisitions of Pond5 and Splash News.
Subscribers
We define subscribers as those customers who purchase one or more of our monthly recurring products for a continuous period of at least three months, measured as of the end of the reporting period. We believe the number of subscribers is an important metric that provides insight into our monthly recurring business and its growth. We believe that an increase in our number of subscribers is an indicator of engagement in our platform and potential for future growth.
Subscriber Revenue
We define subscriber revenue as the revenue generated from subscribers during the period. We believe subscriber revenue, together with our number of subscribers, provide insight into the portion of our business and growth driven by our monthly recurring products.
Average Revenue Per Customer
Average revenue per customer is calculated by dividing total revenue for the last twelve-month period by customers. We define customers as total active, paying customers that contributed to total revenue over the last twelve-month period. Changes in our average revenue per customer will be driven by changes in the mix of our subscription-based products and the pricing in our transactional business.
Paid Downloads
We define paid downloads as the number of downloads that our customers make in a given period of our content. Paid downloads exclude content related to custom content, downloads of content that are offered to customers for no charge, including our free image of the week, and downloads associated with our computer vision offering. Measuring the number of
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paid downloads that our customers make in a given period is important because they are the primary method of delivering licensed content, which drives a significant portion of the Company’s revenue and contributor royalties.
Revenue per Download
We define revenue per download as the amount of revenue recognized in a given period divided by the number of paid downloads in that period excluding revenue from custom content, revenue that is not derived from or associated with content licenses and revenue associated with our computer vision offering. This metric captures any changes in our pricing, including changes resulting from the impact of competitive pressures, as well as the mix of licensing options that our customers choose, some of which generate more revenue per download than others, and the impact that changes in foreign currency rates have on our pricing. Changes in revenue per download are primarily driven by the introduction of new product offerings, changes in product mix and customer utilization of our products.
Content in our Collection
We define content in our collection as the total number of approved images (photographs, vectors and illustrations) and footage (in number of clips) in our library on shutterstock.com at the end of the period. We exclude content from this collection metric that is not uploaded directly to our site but is available for license by our customers through an application program interface, custom content and certain content that may be licensed for editorial use only. We believe that our large selection of high-quality content enables us to attract and retain customers and drives our network effect.
Critical Accounting Policies and Estimates
Our financial statements are prepared in accordance with GAAP. The preparation of the consolidated financial statements in conformity with GAAP requires our management to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities, the disclosure or inclusion of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the period. We evaluate our significant estimates on an ongoing basis, including, but not limited to, estimates related to allowance for doubtful accounts, the volume of expected unused licenses used in revenue recognition for our subscription-based products, the fair value of acquired goodwill and intangible assets and income tax provisions. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.
We believe that the policies, assumptions and estimates associated with our revenue recognition, allowance for doubtful accounts, goodwill and intangible assets and accounting for income taxes have the greatest potential impact on our financial statements. Therefore, we consider these to be our critical accounting policies and estimates.
A description of our critical accounting policies that involve significant management judgments appears in our 2021 Form 10-K, under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates.”
See Note 1 to our Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for a full description of the impact of the adoption of new accounting standards on our financial statements. There have been no material changes to our critical accounting policies and estimates as compared to our critical accounting policies and estimates included in our 2021 Form 10-K.
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Key Components of Our Results of Operations
Revenue
We distribute our content offerings through two primary channels:
E-commerce: The majority of our customers make purchases of content licenses and tools directly through our self-service web properties. E-commerce customers have the flexibility to purchase a subscription-based plan that is paid on a monthly or annual basis or to license content on a transactional basis. These customers generally license content under our standard or enhanced licenses, with additional licensing options available to meet customers’ individual needs. E-commerce customers typically pay the full amount of the purchase price in advance or at the time of license, generally with a credit card.
Enterprise: We also have a base of customers with unique content, licensing and workflow needs. These customers benefit from communication with our dedicated sales, service and research teams which provide a number of tailored enhancements to their creative workflows including non-standard licensing rights, multi-seat access, ability to pay on credit terms, multi-brand licensing packages, increased indemnification protection and content licensed for use-cases outside of those available on the e-commerce platform.
The Company’s revenues by distribution channel for the three and nine months ended September 30, 2022 and 2021 are as follows (in thousands):

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
E-commerce | $ | 124,594 |  |  | $ | 121,707 |  |  | $ | 379,052 |  |  | $ | 360,822 |
Enterprise | 79,502 |  |  | 72,732 |  |  | 231,048 |  |  | 206,810 |
Total Revenues | $ | 204,096 |  |  | $ | 194,439 |  |  | $ | 610,100 |  |  | $ | 567,632 |

Costs and Expenses
Cost of Revenue. Cost of revenue consists of royalties paid to contributors, credit card processing fees, content review costs, customer service expenses, infrastructure and hosting costs related to maintaining our creative platform and cloud-based software platform, depreciation and amortization of capitalized internal-use software, purchased content and acquisition-related intangible assets, allocated facility costs and other supporting overhead costs. Cost of revenue also includes employee compensation, including non-cash equity-based compensation, bonuses and benefits associated with the maintenance of our creative platform and cloud-based software platform.
Sales and Marketing. Sales and marketing expenses include third-party marketing, advertising, branding, public relations and sales expenses. Sales and marketing expenses also include associated employee compensation, including non-cash equity-based compensation, bonuses and benefits, and commissions as well as allocated facility and other supporting overhead costs.
Product Development. Product development expenses consist of employee compensation, including non-cash equity-based compensation, bonuses and benefits, and expenses related to vendors engaged in product management, design, development and testing of our websites and products. Product development costs also includes software and other IT equipment costs, allocated facility expenses and other supporting overhead costs.
General and Administrative. General and administrative expenses include employee compensation, including non-cash equity-based compensation, bonuses and benefits for executive, finance, accounting, legal, human resources, internal information technology, internet security, business intelligence and other administrative personnel. In addition, general and administrative expenses include outside legal, tax and accounting services, bad debt expense, insurance, facilities costs, other supporting overhead costs and depreciation and amortization expense.
Other Expense, Net. Other expense, net consists of non-operating costs such as foreign currency transaction gains and losses in addition to interest income and expense.
Income Taxes. We compute income taxes using the asset and liability method, under which deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted statutory income tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce net deferred tax assets to the amount expected to be realized.
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Results of Operations
The following table presents our results of operations for the periods indicated. The period-to-period comparisons of results are not necessarily indicative of results for future periods.

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
| (in thousands)
Consolidated Statements of Operations: |  |  |  |  |  |  |
Revenue | $ | 204,096 |  |  | $ | 194,439 |  |  | $ | 610,100 |  |  | $ | 567,632 |
Operating expenses: |  |  |  |  |  |  |
Cost of revenue | 79,911 |  |  | 69,634 |  |  | 226,381 |  |  | 199,223 |
Sales and marketing | 47,777 |  |  | 54,456 |  |  | 155,335 |  |  | 142,273 |
Product development | 17,534 |  |  | 13,565 |  |  | 48,322 |  |  | 36,289 |
General and administrative | 30,189 |  |  | 34,615 |  |  | 94,085 |  |  | 96,335 |
Total operating expenses | 175,411 |  |  | 172,270 |  |  | 524,123 |  |  | 474,120 |
Income from operations | 28,685 |  |  | 22,169 |  |  | 85,977 |  |  | 93,512 |
Other expense, net | (1,546) |  |  | (1,749) |  |  | (3,449) |  |  | (2,888) |
Income before income taxes | 27,139 |  |  | 20,420 |  |  | 82,528 |  |  | 90,624 |
Provision for income taxes | 4,099 |  |  | 4,391 |  |  | 13,471 |  |  | 15,627 |
Net income | $ | 23,040 |  |  | $ | 16,029 |  |  | $ | 69,057 |  |  | $ | 74,997 |

The following table presents the components of our results of operations for the periods indicated as a percentage of revenue:

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
Consolidated Statements of Operations: |  |  |  |  |  |  |
Revenue | 100 | % |  | 100 | % |  | 100 | % |  | 100 | %
Operating expenses: |  |  |  |  |  |  |
Cost of revenue | 39 | % |  | 36 | % |  | 37 | % |  | 35 | %
Sales and marketing | 23 | % |  | 28 | % |  | 25 | % |  | 25 | %
Product development | 9 | % |  | 7 | % |  | 8 | % |  | 6 | %
General and administrative | 15 | % |  | 18 | % |  | 15 | % |  | 17 | %
Total operating expenses | 86 | % |  | 89 | % |  | 86 | % |  | 84 | %
Income from operations | 14 | % |  | 11 | % |  | 14 | % |  | 16 | %
Other expense, net | (1) | % |  | (1) | % |  | (1) | % |  | (1) | %
Income before income taxes | 13 | % |  | 11 | % |  | 14 | % |  | 16 | %
Provision for income taxes | 2 | % |  | 2 | % |  | 2 | % |  | 3 | %
Net income | 11 | % |  | 8 | % |  | 11 | % |  | 13 | %

__________________________________
Note: Due to rounding, percentages may not sum to totals.
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Comparison of the Three Months Ended September 30, 2022 and 2021
The following table presents our results of operations for the periods indicated:

| Three Months Ended September 30,
| 2022 |  | 2021 |  | $ Change |  | % Change
| (in thousands) |  |
Consolidated Statements of Operations: |  |  |  |  |  |  |
Revenue | $ | 204,096 |  |  | $ | 194,439 |  |  | $ | 9,657 |  |  | 5 | %
Operating expenses: |  |  |  |  |  |  |
Cost of revenue | 79,911 |  |  | 69,634 |  |  | 10,277 |  |  | 15 |
Sales and marketing | 47,777 |  |  | 54,456 |  |  | (6,679) |  |  | (12) |
Product development | 17,534 |  |  | 13,565 |  |  | 3,969 |  |  | 29 |
General and administrative | 30,189 |  |  | 34,615 |  |  | (4,426) |  |  | (13) |
Total operating expenses | 175,411 |  |  | 172,270 |  |  | 3,141 |  |  | 2 |
Income from operations | 28,685 |  |  | 22,169 |  |  | 6,516 |  |  | 29 |
Other expense, net | (1,546) |  |  | (1,749) |  |  | 203 |  |  | (12) |
Income before income taxes | 27,139 |  |  | 20,420 |  |  | 6,719 |  |  | 33 |
Provision for income taxes | 4,099 |  |  | 4,391 |  |  | (292) |  |  | (7) |
Net income | $ | 23,040 |  |  | $ | 16,029 |  |  | $ | 7,011 |  |  | 44 | %

Revenue
Revenue increased by $9.7 million, or 5%, to $204.1 million in the three months ended September 30, 2022 compared to the same period in 2021. On a constant currency basis, revenue increased approximately 10% in the three months ended September 30, 2022, compared to the same period in 2021. Approximately 17% and 7% of the Company’s revenues were denominated in Euro and Pounds Sterling, respectively. These currencies have depreciated to historically low values compared to the U.S. dollar during the three months ended September 30, 2022. Other currencies we transact in, including the Japanese Yen and Australian Dollar also depreciated significantly during the period.
The Company’s E-commerce revenues increased by 2%, to $124.6 million in the three months ended September 30, 2022, compared to the same period in 2021. On a constant currency basis, E-commerce revenues increased by 6% in the three months ended September 30, 2022, compared to the same period in 2021. During the three months ended September 30, 2022, growth in our E-commerce sales channel was primarily driven by revenue generated from our acquisitions of PicMonkey and Pond5 which were completed on September 3, 2021 and May 11, 2022, respectively. E-commerce revenue also benefited from higher subscriber revenue, which was offset by a reduction in revenue generated from our transactional products.
The Company’s Enterprise revenues increased by 9%, to $79.5 million in the three months ended September 30, 2022, compared to the same period in 2021. On a constant currency basis, the Company’s Enterprise revenues increased by 15% in the three months ended September 30, 2022, compared to the same period in 2021. Enterprise revenue growth was driven by our multi-asset product offerings and continued momentum in Shutterstock Studios and Shutterstock Editorial. Enterprise revenue growth also benefited from our acquisitions of Pond5 and Splash News, which were completed on May 11, 2022 and May 28, 2022, respectively.
In the three months ended September 30, 2022 and 2021, we delivered 42.8 million and 44.3 million paid downloads, respectively, and our revenue per download was $4.43 and $4.20 for the three months ended September 30, 2022 and 2021, respectively. During the three months ended September 30, 2022, the increase in revenue per download was primarily due to changes in product mix.
Changes in our revenue by region were as follows: revenue from North America increased by $11.8 million, or 15%, to $89.1 million, revenue from Europe decreased by $3.0 million, or 5%, to $57.3 million and revenue from outside Europe and North America increased by $0.9 million, or 1%, to $57.7 million, in the three months ended September 30, 2022 compared to the same period in 2021. During the three months ended September 30, 2022, the decline in revenue in Europe was a result of weaker demand and foreign currency pressures.
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Costs and Expenses
Cost of Revenue. Cost of revenue increased by $10.3 million, or 15% to $79.9 million in the three months ended September 30, 2022 compared to the same period in 2021. This increase was primarily driven by: (i) increased depreciation and amortization expense driven by our recent acquisitions; (ii) increased royalty, content and reviewer costs; and (iii) higher costs associated with website hosting, hardware and software licenses. We expect that our cost of revenue will continue to fluctuate in line with changes in revenue and paid downloads.
Sales and Marketing. Sales and marketing expenses decreased by $6.7 million, or 12%, to $47.8 million in the three months ended September 30, 2022 compared to the same period in 2021. As a percent of revenue, sales and marketing expenses decreased to 23% for the three months ended September 30, 2022, from 28% for the same period in 2021. This was primarily driven by $8.4 million in decreased marketing spend, primarily related to a decline in linear television ad spend and brand marketing. We expect sales and marketing expenses to continue to fluctuate as we optimize our sales channels and invest in new customer acquisition, products and geographies.
Product Development. Product development expenses increased by $4.0 million, or 29%, to $17.5 million in the three months ended September 30, 2022 compared to the same period in 2021. This increase was driven by $3.0 million in higher employee and third-party contractor related costs, net of capitalized labor, for the three months ended September 30, 2022, as compared to the same period in the prior year. We expect product development expenses, of which a portion will be capitalized, to continue in the foreseeable future, as we pursue opportunities to invest in developing new products and internal tools and enhance the functionality of our existing products and technologies.
General and Administrative. General and administrative expenses decreased by $4.4 million, or 13%, to $30.2 million in the three months ended September 30, 2022 compared to the same period in 2021. This decrease was driven by (i) $2.3 million in lower professional fees driven by transaction costs associated with the PicMonkey acquisition on September 3, 2021, and (ii) $1.8 million in decreased non-cash compensation expense.
Other Expense, Net. In the three months ended September 30, 2022, other expense, net substantially consisted of $1.1 million of unfavorable unrealized foreign currency fluctuations and $0.4 million of interest expense related to the Credit Facility. During the three months ended September 30, 2021, other expense, net substantially consisted of $1.8 million of unfavorable foreign currency fluctuations. As we increase the volume of business transacted in foreign currencies resulting from international expansion and as currency rates fluctuate, we expect foreign currency gains and losses to continue to fluctuate.
Income Taxes. Income tax expense decreased by $0.3 million for the three months ended September 30, 2022, compared to the same period in 2021. Our effective tax rates were 15.1% and 21.5% for the three months ended September 30, 2022 and 2021, respectively.
For the three months ended September 30, 2022, the effective tax rate decreased by 3.3% related primarily to the effect of the U.S. Research and Development (“R&D”) tax credit claimed on the Company’s 2021 tax return, which was substantially completed in the third quarter of 2022. Excluding discrete items, our effective tax rate would have been 18.4% for the three months ended September 30, 2022.
For the three months ended September 30, 2021, the net effect of discrete items increased the effective tax rate by 1.3%. Excluding discrete items, our effective tax rate would have been 20.2% for the three months ended September 30, 2021.
As we continue to expand our operations outside of the United States, we have been and may continue to become subject to taxation in additional non-U.S. jurisdictions and our effective tax rate could fluctuate accordingly.
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Comparison of the Nine Months Ended September 30, 2022 and 2021
The following table presents our results of operations for the periods indicated:

| Nine Months Ended September 30,
| 2022 |  | 2021 |  | $ Change |  | % Change
| (in thousands) |  |
Consolidated Statements of Operations Data: |  |  |  |  |  |  |
Revenue | $ | 610,100 |  |  | $ | 567,632 |  |  | $ | 42,468 |  |  | 7 | %
Operating expenses: |  |  |  |  |  |  |
Cost of revenue | 226,381 |  |  | 199,223 |  |  | 27,158 |  |  | 14 | %
Sales and marketing | 155,335 |  |  | 142,273 |  |  | 13,062 |  |  | 9 | %
Product development | 48,322 |  |  | 36,289 |  |  | 12,033 |  |  | 33 | %
General and administrative | 94,085 |  |  | 96,335 |  |  | (2,250) |  |  | (2) | %
Total operating expenses | 524,123 |  |  | 474,120 |  |  | 50,003 |  |  | 11 | %
Income from operations | 85,977 |  |  | 93,512 |  |  | (7,535) |  |  | (8) | %
Other expense, net | (3,449) |  |  | (2,888) |  |  | (561) |  |  | 19 | %
Income before income taxes | 82,528 |  |  | 90,624 |  |  | (8,096) |  |  | (9) | %
Provision for income taxes | 13,471 |  |  | 15,627 |  |  | (2,156) |  |  | (14) | %
Net income | $ | 69,057 |  |  | $ | 74,997 |  |  | $ | (5,940) |  |  | (8) | %

Revenue
Revenue increased by $42.5 million, or 7%, to $610.1 million in the nine months ended September 30, 2022 compared to the same period in 2021. On a constant currency basis, revenue increased approximately 11% in the nine months ended September 30, 2022, compared to the same period in 2021. Approximately 18% and 7% of the Company’s revenues were denominated in Euro and Pounds Sterling, respectively. These currencies have depreciated to historically low values compared to the U.S. dollar during the nine months ended September 30, 2022. Other currencies we transact in, including the Japanese Yen and Australian Dollar also depreciated significantly during the period.
The Company’s E-commerce revenues increased by 5%, to $379.1 million in the nine months ended September 30, 2022, compared to the same period in 2021. On a constant currency basis, the Company’s E-commerce revenues increased by 8% in the nine months ended September 30, 2022, compared to the same period in 2021. During the nine months ended September 30, 2022, growth in our E-commerce sales channel was primarily driven by revenue generated from our acquisitions of PicMonkey and Pond5, which were completed on September 3, 2021 and May 11, 2022, respectively. E-commerce revenue also benefited from higher subscriber revenue, which was offset by a reduction in revenue generated from our transactional products.
The Company’s Enterprise revenues increased by 12%, to $231.0 million in the nine months ended September 30, 2022, compared to the same period in 2021. On a constant currency basis, the Company’s Enterprise revenues increased by 16% in the nine months ended September 30, 2022, compared to the same period in 2021. Enterprise revenue growth was driven by our multi-asset product offerings and continued momentum in Shutterstock Studios and Shutterstock Editorial. Enterprise revenue growth also benefited from our acquisitions of Pond5 and Splash News, which were completed on May 11, 2022 and May 28, 2022, respectively.
In the nine months ended September 30, 2022 and 2021, we delivered 130.8 million and 135.0 million paid downloads, respectively, and our revenue per download was $4.37 and $4.11 for the nine months ended September 30, 2022 and 2021, respectively. During the nine months ended September 30, 2022, the increase in revenue per download was primarily due to changes in product mix.
Changes in our revenue by region were as follows: revenue from North America increased by $44.4 million, or 21%, to $254.9 million, revenue from Europe decreased by $4.6 million, or 2%, to $182.8 million and revenue from outside Europe and North America increased by $2.7 million, or 2%, to $172.4 million, in the nine months ended September 30, 2022 compared to the same period in 2021.
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Costs and Expenses
Cost of Revenue. Cost of revenue increased by $27.2 million, or 14%, to $226.4 million in the nine months ended September 30, 2022 compared to the same period in 2021. This increase was primarily driven by: (i) increased depreciation and amortization expense driven by our recent acquisitions; (ii) increased royalty, content and reviewer costs; and (iii) higher costs associated with website hosting, hardware and software licenses. We expect that our cost of revenue will continue to fluctuate in line with changes in revenue and paid downloads.
Sales and Marketing. Sales and marketing expenses increased by $13.1 million, or 9%, to $155.3 million in the nine months ended September 30, 2022 compared to the same period in 2021. As a percent of revenue, sales and marketing expenses remained flat at 25% for the nine months ended September 30, 2022 and 2021. The increase in sales and marketing expenses was primarily driven by (i) $5.1 million in higher employee-related costs and (ii) $2.4 million in higher marketing spend. In addition, the Company has incurred additional marketing expenses associated with second quarter live events and festivals. We expect sales and marketing expenses to continue to fluctuate as we optimize our sales channels and invest in new customer acquisition, products and geographies.
Product Development. Product development expenses increased by $12.0 million, or 33%, to $48.3 million in the nine months ended September 30, 2022 as compared to the same period in 2021. This increase in product development was primarily driven by (i) $9.2 million in higher employee and third-party contractor related costs, net of capitalized labor for the nine months ended September 30, 2022 and (ii) increased software and other IT-related costs for the nine months ended September 30, 2022. We expect product development expenses, of which a portion will be capitalized, to continue in the foreseeable future, as we pursue opportunities to invest in developing new products and internal tools and enhance the functionality of our existing products and technologies.
General and Administrative. General and administrative expenses decreased by $2.3 million, or 2%, to $94.1 million in the nine months ended September 30, 2022 compared to the same period in 2021. This decrease was primarily driven by a $7.4 million decrease in non-cash compensation expense related to the departure of certain executives and expense associated with certain performance based awards and $1.8 million in lower depreciation and amortization expense. This was partially offset by (i) $3.9 million in professional fees related to our acquisitions of Pond5 and Splash News, (ii) $2.0 million related to realized foreign currency losses, (iii) $1 million related to a donation to provide direct assistance to Shutterstock’s contributors in Ukraine, and (iv) $0.8 million increase in bad debt expense.
Other Expense, Net. During the nine months ended September 30, 2022, other expense, net substantially consisted of $2.9 million of unfavorable foreign currency fluctuations and $0.6 million of interest expense related to the Credit Facility. During the nine months ended September 30, 2021, approximately $3.0 million of other expense, net consisted of unfavorable foreign currency fluctuations. As we increase the volume of business transacted in foreign currencies resulting from international expansion and as currency rates fluctuate, we expect foreign currency gains and losses to continue to fluctuate.
Income Taxes. Income tax expense decreased by $2.2 million for the nine months ended September 30, 2022 as compared to the same period in 2021. Our effective tax rates for the nine months ended September 30, 2022 and 2021 were 16.3% and 17.2%, respectively.
For the nine months ended September 30, 2022, the effective tax rate decreased by 2.5% related primarily to windfall tax benefits associated with equity-based compensation, as well as the effect of the R&D tax credit and the FDII deduction claimed on the Company’s 2021 tax return, which was substantially completed in the third quarter of 2022. Excluding discrete items, our effective tax rate would have been 18.8% for the nine months ended September 30, 2022.
For the nine months ended September 30, 2021, the effective tax rate decreased by 3.0% related primarily to windfall tax benefits associated with equity-based compensation. Excluding discrete items, our effective tax rate would have been 20.2% for the nine months ended September 30, 2021.
As we continue to expand our operations outside of the United States, we have been and may continue to become subject to taxation in additional non-U.S. jurisdictions, and our effective tax rate could fluctuate accordingly.
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Quarterly Trends
Our operating results may fluctuate from quarter to quarter as a result of a variety of factors, including the effects of some seasonal trends in customer behavior. For example, we expect that certain customers’ usage may decrease at times during the third quarter of each calendar year due to the summer vacation season and may increase at times during the fourth quarter of each calendar year as demand is generally higher to support marketing campaigns in advance of the fourth quarter holiday season. While we believe seasonal trends have affected and will continue to affect our quarterly results, our growth trajectory may have overshadowed these effects to date. Additionally, because a significant portion of our revenue is derived from repeat customers who have purchased subscription plans, our revenues have historically been less volatile than if we had no subscription-based customers.
In addition, expenditures on content by customers tend to be discretionary in nature, reflecting overall economic conditions, the economic prospects of specific industries, budgeting constraints, buying patterns and a variety of other factors, many of which are outside our control, including any impacts from COVID-19. As a result of these and other factors, the results of any prior quarterly or annual periods should not be relied upon as indicators of our future operating performance.
See “Risks Related to the Coronavirus (“COVID-19”) Pandemic, The effect of the COVID-19 pandemic on our operations, and the operations of our customers, partners and suppliers, could have a material adverse effect on our business, financial condition, cash flows and results of operations” in Part I, Item 1A, “Risk Factors” in our 2021 Form 10-K for further discussion of the possible impact of the COVID-19 pandemic on our business.
Liquidity and Capital Resources
As of September 30, 2022, we had cash and cash equivalents totaling $76.2 million which consisted of bank balances. Since inception, we have financed our operations primarily through cash flows generated from operations. In addition, if necessary, we have the ability to draw on our credit facility, which was obtained on May 6, 2022.
Historically, our principal uses of cash have included funding our operations, capital expenditures, content acquisitions, business combinations and asset acquisitions that enhance our strategic position, cash dividend payments and share purchases under our share repurchase program. We plan to finance our operations, capital expenditures and corporate actions largely through cash generated by our operations and our credit facility. Since our results of operations are sensitive to the level of competition we face, increased competition could adversely affect our liquidity and capital resources.
Dividends
We declared and paid cash dividends of $0.72 per share of common stock, or $26.0 million during the nine months ended September 30, 2022.
On October 17, 2022, our Board of Directors declared a quarterly cash dividend of $0.24 per share of outstanding common stock payable on December 15, 2022 to stockholders of record at the close of business on December 1, 2022. Future declarations of dividends are subject to the final determination of our Board of Directors, and will depend on, among other things, our future financial condition, results of operations, capital requirements, capital expenditure requirements, contractual restrictions, anticipated cash needs, business prospects, provisions of applicable law and other factors our Board of Directors may deem relevant.
Share Repurchase Program
In October 2015, our Board of Directors approved a share repurchase program, authorizing us to repurchase up to $100 million of our common stock and, in February 2017, our Board of Directors approved an increase to the share repurchase program, authorizing us to repurchase up to an additional $100 million of our outstanding common stock. We expect to fund future repurchases, if any, through a combination of cash on hand, cash generated by operations and future financing transactions, if appropriate. Accordingly, our share repurchase program is subject to us having available cash to fund repurchases. Under the share repurchase program, management is authorized to purchase shares of our common stock from time to time through open market purchases or privately negotiated transactions at prevailing prices as permitted by securities laws and other legal requirements, and subject to market conditions and other factors.
As of September 30, 2022, we have repurchased approximately 3.8 million shares of our common stock under the share repurchase program at an average per-share cost of $52.97. During the nine months ended September 30, 2022, we repurchased approximately 984,000 shares of our common stock at an average per share cost of $74.02. As of September 30, 2022, we have fully utilized our authorization for purchases under the share repurchase program.
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Equity-Based Compensation
Upon the vesting of restricted stock units (“RSUs”), we have a practice of net share settlement, to cover any required withholding taxes by retaining the number of shares with a value equal to the amount of the tax and remitting an equal amount of cash to the appropriate taxing authorities, rather than requiring employees to sell a portion of the shares that they receive upon vesting to fund the required withholding taxes (“sell-to-cover”). The net share settlement approach has increased our cash outflows compared to the cash outflows under the sell-to-cover approach. In addition, as compared to the sell-to-cover approach, net share settlement has resulted in fewer shares being issued into the market as employees’ RSUs vest, thereby reducing the dilutive impact of our equity-based compensation programs on stockholders.
During the nine months ended September 30, 2022, we paid $22.0 million related to employee taxes on RSU vestings.
Revolving Credit Facility
On May 6, 2022, we entered into a five-year $100 million unsecured revolving loan facility (the “Credit Facility”) with Bank of America, N.A., as Administrative Agent and other lenders. The Credit Facility includes a letter of credit sub-facility and a swingline facility and it also permits, subject to the satisfaction of certain conditions, up to $100 million of additional revolving loan commitments with the consent of the Administrative Agent.
At our option, revolving loans accrue interest at a per annum rate based on either (i) the base rate plus a margin ranging from 0.125% to 0.500%, determined based on the Company’s consolidated leverage ratio or (ii) the Term Secured Overnight Financing Rate (“SOFR”) (for interest periods of 1, 3 or 6 months) plus a margin ranging from 1.125% to 1.5%, determined based on our consolidated leverage ratio. We are also required to pay an unused commitment fee ranging from 0.150% to 0.225%, determined based on the Company’s consolidated leverage ratio. In connection with the execution of this agreement, we paid debt issuance costs of approximately $0.6 million.
On May 9, 2022, we borrowed $50 million for use in connection with the acquisition of Pond5 and for general corporate purposes. As of September 30, 2022, we had outstanding borrowings under the Credit Facility of $50 million. As of December 31, 2021, we had no outstanding debt obligations. For the three and nine months ended September 30, 2022, the Company paid cash interest totaling $0.4 million and $0.5 million, respectively. For the three and nine months ended September 30, 2022, our annualized interest rate was 3.2% and 3.0%, respectively.
The Credit Facility contains financial covenants and requirements restricting certain of our activities, which are usual and customary for this type of loan. We are also required to maintain compliance with a consolidated leverage ratio and a consolidated interest coverage ratio, in each case, determined in accordance with the terms of the Credit Facility. As of September 30, 2022, we are in compliance with these covenants.
Sources and Uses of Funds
We believe, based on our current operating plan, that our cash and cash equivalents, and cash from operations, will be sufficient to meet our anticipated cash needs for at least the next 12 months and thereafter for the foreseeable future. Future capital expenditures could relate to building enhancements to the functionality of our current platform, the acquisition of additional storage, servers, network connectivity hardware, security apparatus and software, leasehold improvements and furniture and fixtures related to office expansion and relocation, content and general corporate infrastructure. See Note 14 to our Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for information regarding our existing capital commitments as of September 30, 2022.
Cash Flows
The following table summarizes our cash flow data for the nine months ended September 30, 2022 and 2021 (in thousands).

| Nine Months Ended September 30,
| 2022 |  | 2021
Net cash provided by operating activities | $ | 97,289 |  |  | $ | 161,858 |
Net cash used in investing activities | $ | (257,905) |  |  | $ | (242,407) |
Net cash used in financing activities | $ | (70,277) |  |  | $ | (46,426) |

Operating Activities
Our primary source of cash from operating activities is cash collections from our customers. The majority of our revenue is generated from credit card transactions and is typically settled within one to five business days. Our primary uses of cash for
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operating activities are for the payment of royalties to content contributors, employee-related expenditures and the payment of other operating expenses incurred in the ordinary course of business.
Net cash provided by operating activities was $97.3 million for the nine months ended September 30, 2022, compared to $161.9 million for the nine months ended September 30, 2021. In the nine months ended September 30, 2022, operating cash flows were unfavorably impacted from a reduction in operating income and changes in the timing of payments pertaining to operating expenses, which can cause operating cash flow to fluctuate from period to period.
Investing Activities
Cash used in investing activities for the nine months ended September 30, 2022 was $257.9 million, consisting primarily of (i) $211.8 million used in the acquisitions of Pond5 and Splash News, net of cash acquired, (ii) capital expenditures of $32.9 million for internal-use software and website development costs and purchases of software and equipment, and (iii) $11.2 million paid to acquire the rights to distribute certain digital content into perpetuity.
Cash used in investing activities in the nine months ended September 30, 2021 was $242.4 million, consisting primarily of (i) $181.8 million cash used in the acquisitions of TurboSquid and PicMonkey, net of cash acquired; (ii) $31.4 million cash used in the asset acquisitions of Pattern89, Inc., Datasine Limited and assets from Shotzr, Inc.; (iii) capital expenditures of $21.2 million for internal-use software and website development costs and purchases of software and equipment, and (iv) $7.9 million paid to acquire the rights to distribute certain digital content in perpetuity.
Financing Activities
Cash used in financing activities in the nine months ended September 30, 2022 was $70.3 million, consisting of (i) $73.5 million in connection with the repurchase of common stock under our share repurchase program; (ii) $26.0 million, related to the payment of the quarterly cash dividend, and (iii) $22.0 million paid in settlement of tax withholding obligations related to employee stock-based compensation awards. These amounts were partially offset by $50.0 million proceeds received from our Credit Facility.
Cash used in financing activities in the nine months ended September 30, 2021 was $46.4 million, consisting primarily of (i) $23.0 million, related to the payment of the quarterly cash dividend; (ii) $21.3 million, paid in settlement of tax withholding obligations related to employee stock-based compensation awards, and (iii) $4.2 million in connection with the repurchase of common stock under our share repurchase program. These amounts were partially offset by approximately $2.0 million received from the issuance of common stock in connection with the exercise of stock options.
Contractual Obligations and Commitments
We lease real estate under operating lease agreements that expire on various dates during the period from 2022 through 2029. We do not have any material finance lease obligations and our property, equipment and software have been purchased primarily with cash. We do not anticipate any difficulties in renewing those leases and co-location agreements that expire within the next several years and that we currently plan to renew, or in leasing other space or hosting facilities, if required.
On March 21, 2013, we entered into an operating lease agreement to lease our headquarters in New York City, which was amended in 2016. The aggregate undiscounted future minimum lease payments under the lease, as amended, are approximately $46.1 million. We are also party to a letter of credit as a security deposit for this leased facility in the amount of $1.7 million.
Additionally, as of September 30, 2022, aggregate undiscounted future minimum lease payments under other operating leases are approximately $8.1 million.
We enter into unconditional purchase obligations related to contracts for cloud-based services, infrastructure and other business services as well as minimum royalty guarantees in connection with certain content licenses. As of September 30, 2022, our guaranteed royalty payments and unconditional purchase obligations for the remainder of 2022 and for the fiscal years ending December 31, 2023, 2024, 2025 and 2026 were approximately $20.7 million, $38.9 million, $29.0 million, $6.3 million and $0.6 million, respectively.
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Non-GAAP Financial Measures
To supplement our consolidated financial statements presented in accordance with the accounting principles generally accepted in the United States, or GAAP, our management considers certain financial measures that are not prepared in accordance with GAAP, collectively referred to as non-GAAP financial measures, including adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted net income per diluted common share, revenue growth (including by distribution channel) on a constant currency basis (expressed as a percentage), and free cash flow. These non-GAAP financial measures are included solely to provide investors with additional information regarding our financial results and are not based on any standardized methodology prescribed by GAAP and are not necessarily comparable to similarly-titled measures presented by other companies.

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
Non-GAAP Financial Measures: | (in thousands)
Adjusted EBITDA | $ | 56,033 |  |  | $ | 44,400 |  |  | $ | 159,769 |  |  | $ | 153,882 |
Adjusted net income | 36,166 |  |  | 26,354 |  |  | 103,622 |  |  | 100,925 |
Free cash flow | $ | 21,398 |  |  | $ | 44,318 |  |  | $ | 53,176 |  |  | $ | 132,801 |
Revenue growth on a constant currency basis | 10 | % |  | 17 | % |  | 11 | % |  | 15 | %

These non-GAAP financial measures have not been calculated in accordance with GAAP, should be considered only in addition to results prepared in accordance with GAAP and should not be considered as a substitute for, or superior to, GAAP measures. In addition, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted net income per diluted common share, revenue growth (including by distribution channel) on a constant currency basis (expressed as a percentage) and free cash flow should not be construed as indicators of our operating performance, liquidity or cash flows generated by operating, investing and financing activities, as there may be significant factors or trends that they fail to address. We caution investors that non-GAAP financial information, by its nature, departs from traditional accounting conventions; accordingly, its use can make it difficult to compare our current results with our results from other reporting periods and with the results of other companies.
Our management uses these non-GAAP financial measures, in conjunction with GAAP financial measures, as an integral part of managing the business and to, among other things: (i) monitor and evaluate the performance of our business operations, financial performance and overall liquidity; (ii) facilitate management’s internal comparisons of the historical operating performance of its business operations; (iii) facilitate management’s external comparisons of the results of its overall business to the historical operating performance of other companies that may have different capital structures and debt levels; (iv) review and assess the operating performance of our management team and, together with other operational objectives, as a measure in evaluating employee compensation and bonuses; (v) analyze and evaluate financial and strategic planning decisions regarding future operating investments; and (vi) plan for and prepare future annual operating budgets and determine appropriate levels of operating investments.
Management believes that adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted net income per diluted common share, revenue growth (including by distribution channel) on a constant currency basis (expressed as a percentage) and free cash flow are useful to investors because these measures enable investors to analyze our operating results on the same basis as that used by management. Additionally, management believes that adjusted EBITDA, adjusted EBITDA margin, adjusted net income and adjusted net income per diluted common share provide useful information to investors about the performance of the Company’s overall business because such measures eliminate the effects of unusual or other infrequent charges that are not directly attributable to our underlying operating performance, and that revenue growth (including by distribution channel) on a constant currency basis, provides useful information to investors by eliminating the effect of foreign currency fluctuations that are not directly attributable to our operating performance. Management also believes that providing these non-GAAP financial measures enhances the comparability for investors in assessing our financial reporting. Management believes that free cash flow is useful for investors because it provides them with an important perspective on the cash available for strategic measures, after making necessary capital investments in property and equipment to support the Company’s ongoing business operations and provides them with the same measures that management uses as the basis for making resource allocation decisions.
Our use of non-GAAP financial measures has limitations as an analytical tool, and these measures should not be considered in isolation or as a substitute for an analysis of our results as reported under GAAP, as the excluded items may have significant effects on our operating results and financial condition. Additionally, our methods for measuring non-GAAP financial measures may differ from other companies’ similarly titled measures. When evaluating our performance, these non-
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GAAP financial measures should be considered in addition to other financial performance measures, including various cash flow metrics, net income and our other GAAP results.
Our method for calculating adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted net income per diluted common share, revenue growth (including by distribution channel) on a constant currency basis and free cash flow, as well as a reconciliation of the differences between adjusted EBITDA, adjusted net income, revenue growth (including by distribution channel) on a constant currency basis and free cash flow, and the most comparable financial measures calculated and presented in accordance with GAAP, are presented below.
Adjusted EBITDA and Adjusted EBITDA Margin
We define adjusted EBITDA as net income adjusted for depreciation and amortization, non-cash equity-based compensation, foreign currency transaction gains and losses, interest income and expense and income taxes. We define adjusted EBITDA margin as the ratio of adjusted EBITDA to revenue.
The following is a reconciliation of net income to adjusted EBITDA for each of the periods indicated:

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
| (in thousands)
Net income | $ | 23,040 |  |  | $ | 16,029 |  |  | $ | 69,057 |  |  | $ | 74,997 |
Add / (less) Non-GAAP adjustments: |  |  |  |  |  |  |
Depreciation and amortization | 18,259 |  |  | 13,488 |  |  | 49,834 |  |  | 33,731 |
Non-cash equity-based compensation | 9,088 |  |  | 8,743 |  |  | 23,958 |  |  | 26,639 |
Other adjustments, net(1) | 1,547 |  |  | 1,749 |  |  | 3,449 |  |  | 2,888 |
Provision for income taxes | 4,099 |  |  | 4,391 |  |  | 13,471 |  |  | 15,627 |
Adjusted EBITDA | $ | 56,033 |  |  | $ | 44,400 |  |  | $ | 159,769 |  |  | $ | 153,882 |
Adjusted EBITDA margin | 27.5 | % |  | 22.8 | % |  | 26.2 | % |  | 27.1 | %

_______________________________________________________________________________
(1)Other adjustments, net includes unrealized foreign currency transaction gains and losses, and interest income and expense.
Adjusted Net Income and Adjusted Net Income Per Diluted Common Share
We define adjusted net income as net income adjusted for the impact of non-cash equity-based compensation, the amortization of acquisition-related intangible assets and the estimated tax impact of such adjustments. We define adjusted net income per diluted common share as adjusted net income divided by weighted average diluted shares.
The following is a reconciliation of net income to adjusted net income for each of the periods indicated:

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
| (in thousands)
Net income | $ | 23,040 |  |  | $ | 16,029 |  |  | $ | 69,057 |  |  | $ | 74,997 |
Add / (less) Non-GAAP adjustments: |  |  |  |  |  |  |
Non-cash equity-based compensation | 9,088 |  |  | 8,743 |  |  | 23,958 |  |  | 26,639 |
Tax effect of non-cash equity-based compensation(1) | (2,135) |  |  | (2,055) |  |  | (5,629) |  |  | (6,260) |
Acquisition-related amortization expense | 8,069 |  |  | 4,754 |  |  | 21,224 |  |  | 7,253 |
Tax effect of acquisition-related amortization expense(1) | (1,896) |  |  | (1,117) |  |  | (4,988) |  |  | (1,704) |
Adjusted net income | $ | 36,166 |  |  | $ | 26,354 |  |  | $ | 103,622 |  |  | $ | 100,925 |
Adjusted net income per diluted common share | $ | 1.00 |  |  | $ | 0.70 |  |  | $ | 2.82 |  |  | $ | 2.71 |

(1)Statutory tax rates are used to calculate the tax effect of the adjustments.
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Revenue Growth (including by distribution channel) on a Constant Currency Basis
We define revenue growth (including by distribution channel) on a constant currency basis (expressed as a percentage) as the increase in current period revenues over prior period revenues, utilizing fixed exchange rates for translating foreign currency revenues for all periods in the comparison.

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
| (in thousands)
Reported revenue (in thousands) | $ | 204,096 |  |  | $ | 194,439 |  |  | $ | 610,100 |  |  | $ | 567,632 |
Revenue growth | 5 | % |  | 18 | % |  | 7 | % |  | 17 | %
Revenue growth on a constant currency basis | 10 | % |  | 17 | % |  | 11 | % |  | 15 | %
E-commerce reported revenue (in thousands) | $ | 124,594 |  |  | $ | 121,707 |  |  | $ | 379,052 |  |  | $ | 360,822 |
E-commerce revenue growth | 2 | % |  | 18 | % |  | 5 | % |  | 20 | %
E-commerce revenue growth on a constant currency basis | 6 | % |  | 18 | % |  | 8 | % |  | 18 | %
Enterprise reported revenue (in thousands) | $ | 79,502 |  |  | $ | 72,732 |  |  | $ | 231,048 |  |  | $ | 206,810 |
Enterprise revenue growth | 9 | % |  | 17 | % |  | 12 | % |  | 12 | %
Enterprise revenue growth on a constant currency basis | 15 | % |  | 15 | % |  | 16 | % |  | 9 | %

Free Cash Flow
We define free cash flow as our cash provided by operating activities, adjusted for capital expenditures and content acquisition.
The following is a reconciliation of net cash provided by operating activities to free cash flow for each of the periods indicated:

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
| (in thousands)
Net cash provided by operating activities | $ | 37,715 |  |  | $ | 54,642 |  |  | $ | 97,289 |  |  | $ | 161,858 |
Capital expenditures | (12,125) |  |  | (5,830) |  |  | (32,922) |  |  | (21,167) |
Content acquisitions | (4,192) |  |  | (4,494) |  |  | (11,191) |  |  | (7,890) |
Free Cash Flow | $ | 21,398 |  |  | $ | 44,318 |  |  | $ | 53,176 |  |  | $ | 132,801 |

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to market risks in the ordinary course of our business, including risks related to foreign currency exchange rate fluctuation, interest rate fluctuation and inflation.
Foreign Currency Exchange Risk
Our sales to international customers are denominated in multiple currencies, including but not limited to the U.S. dollar, the euro, the British pound, the Australian dollar and the Japanese yen. Revenue denominated in foreign currencies as a percentage of total revenue was approximately 33% and 35% for the nine months ended September 30, 2022 and 2021, respectively. Changes in exchange rates will affect our revenue and certain operating expenses to the extent that our revenue is generated and expenses are incurred in currencies other than the U.S. dollar. Royalties earned by and paid to contributors are denominated in the U.S. dollar and will not be affected by changes in exchange rates. Based on our foreign currency denominated revenue for the nine months ended September 30, 2022, we estimate that a 10% change in the exchange rate of the U.S. dollar against all foreign currency denominated revenues would result in an approximately 3% impact on our revenue.
We have established foreign subsidiaries in various countries and have concluded that the functional currency of these entities is generally the local currency. Business transacted in currencies other than each entity’s functional currency results in transactional gains and losses. Translation adjustments resulting from converting the foreign subsidiaries’ financial statements into U.S. dollars are recorded as a component of accumulated other comprehensive loss in stockholders’ equity. We do not currently enter into derivatives or other financial instruments in order to hedge our foreign currency exchange risk, but we may do so in the future.
Our historical revenue by currency is as follows (in thousands):

|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  | 2022 |  | 2021 |  | 2022 |  | 2021
|  | U.S. Dollars |  | Originating Currency |  | U.S. Dollars |  | Originating Currency |  | U.S. Dollars |  | Originating Currency |  | U.S. Dollars |  | Originating Currency
Euro |  | $ | 33,993 |  |  | € | 32,868 |  |  | $ | 35,930 |  |  | € | 30,333 |  |  | $ | 111,635 |  |  | € | 102,626 |  |  | $ | 112,573 |  |  | € | 94,876 |
British pounds |  | 14,606 |  |  | £ | 12,140 |  |  | 14,678 |  |  | £ | 10,681 |  |  | 42,826 |  |  | £ | 33,654 |  |  | 43,587 |  |  | £ | 31,802 |
All other non-U.S. currencies(1) |  | 14,788 |  |  |  |  | 14,261 |  |  |  |  | 44,069 |  |  |  |  | 42,290 |  |  |
Total foreign currency |  | 63,387 |  |  |  |  | 64,869 |  |  |  |  | 198,530 |  |  |  |  | 198,450 |  |  |
U.S. dollar |  | 140,709 |  |  |  |  | 129,570 |  |  |  |  | 411,570 |  |  |  |  | 369,182 |  |  |
Total revenue |  | $ | 204,096 |  |  |  |  | $ | 194,439 |  |  |  |  | $ | 610,100 |  |  |  |  | $ | 567,632 |  |  |

(1)Includes no single currency which exceeded 5% of total revenue for any of the periods presented.
Interest Rate Fluctuation Risk
Our cash and cash equivalents consist of cash and money market accounts. The primary objective of our investment activities is to preserve principal while maximizing income without significantly increasing risk. The fair value of our cash and cash equivalents is not particularly sensitive to interest rate changes.
Amounts borrowed under our Credit Facility accrue interest at a per annum rate based on either (i) the base rate plus a margin ranging from 0.125% to 0.500%, determined based on our consolidated leverage ratio or (ii) the Term Secured Overnight Financing Rate (for interest periods of 1, 3 or 6 months) plus a margin ranging from 1.125% to 1.5%, determined based on our consolidated leverage ratio. A hypothetical 10% change in interest rates would not have a material impact on our interest expense as of September 30, 2022.
Inflation Risk
We do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.
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Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. However, any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objective.
Based on the evaluation of our disclosure controls and procedures as of September 30, 2022, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We completed the acquisitions of Pond5 and Splash News during the second quarter of 2022 and are in the process of integrating the acquired businesses into our overall internal control over financial reporting process.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Although we are not currently a party to any material active litigation, from time to time, third parties assert claims against us regarding intellectual property rights, employment matters, privacy issues and other matters arising during the ordinary course of business. Although we cannot be certain of the outcome of any litigation or the disposition of any claims, nor the amount of damages and exposure, if any, that we could incur, we currently believe that the final disposition of all existing matters will not have a material adverse effect on our business, results of operations, financial condition or cash flows. In addition, in the ordinary course of our business, we are also subject to periodic threats of lawsuits, investigations and claims. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
Item 1A. Risk Factors.
We operate in a rapidly changing environment that involves a number of risks that could materially affect our business, financial condition or future results, some of which are beyond our control. In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our 2021 Form 10-K, and Part II, “Item 1A. Risk Factors” in our second quarter 2022 Form 10-Q, which could materially affect our business, financial condition or future results. During the three months ended September 30, 2022, there were no material changes to these risk factors as described in our 2021 Form 10-K and second quarter 2022 Form 10-Q.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(c)

ISSUER PURCHASES OF EQUITY SECURITIES
Period | (a) Total Number of Shares (or Units) Purchased |  | (b) Average Price Paid Per Share (or Unit) |  | (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs(1) |  | (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be Purchased Under the Plans or Programs(1)
July 1 - 31, 2022 | 60,000 |  |  | $ | 58.82 |  |  | 60,000 |  |  |
August 1 - 31, 2022 | 143,463 |  |  | 60.48 |  |  | 143,463 |  |  |
September 1 - 30, 2022 | 71,538 |  |  | 55.95 |  |  | 71,538 |  |  |
| 275,001 |  |  | $ | 58.94 |  |  | 275,001 |  |  | $ | — |

_______________________________________________________________________________
(1)We purchased shares of our common stock in open market purchases pursuant to share repurchases authorized by our Board of Directors. In October 2015, our Board of Directors authorized the repurchase of up to $100 million of our common stock, and in February 2017, our Board of Directors approved an increase to the share repurchase program, authorizing us to repurchase an additional $100 million of our outstanding common stock. As of September 30, 2022, we have fully utilized our authorization for purchases under this authorization.
Item 6. Exhibits.
See the Exhibit Index, which immediately precedes the signature page of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.
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EXHIBIT INDEX

Exhibit |  |
Number |  | Exhibit Description
10.1 |  | Separation Agreement and General Release between the Company and Peter Silvio, dated September 1, 2022
10.2# |  | 2022 Nonqualified Deferred Compensation Plan
31.1# |  | Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2# |  | Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32# |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS |  | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH |  | XBRL Taxonomy Extension Schema Document
101.CAL |  | XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF |  | XBRL Taxonomy Extension Definition Linkbase Document
101.LAB |  | XBRL Taxonomy Extension Label Linkbase Document
101.PRE |  | XBRL Taxonomy Extension Presentation Linkbase Document
104 |  | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

______________________________________
# Filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

| SHUTTERSTOCK, INC.
Dated: October 25, 2022 | By: | /s/ Jarrod Yahes
|  | Jarrod Yahes
|  | Chief Financial Officer
|  | (Principal Financial Officer)
Dated: October 25, 2022 | By: | /s/ Steven Ciardiello
|  | Steven Ciardiello
|  | Chief Accounting Officer
|  | (Principal Accounting Officer)

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