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Acquisitions | 9 Months Ended
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Sep. 30, 2023
Business Combination and Asset Acquisition [Abstract] |
Acquisitions | Acquisitions Giphy, Inc. On May 22, 2023, the Company entered into a Stock Purchase Agreement with Meta Platforms, Inc. (“Meta”) dated May 22, 2023 (the “Purchase Agreement”). On June 23, 2023, the Company completed its acquisition of all of the outstanding shares of Giphy, Inc. (“Giphy”) from Meta. The consideration paid by the Company pursuant to the Purchase Agreement was $53 million in net cash, in addition to cash acquired, assumed debt and other working capital adjustments. The consideration was paid with existing cash on hand. Giphy is a New York-based company that operates a collection of GIFs and stickers that supplies casual conversational content. The Company believes its acquisition of Giphy extends Shutterstock’s audience touchpoints beyond primarily professional marketing and advertising use cases and expands into casual conversations. In January 2023, the United Kingdom Competition and Markets Authority (the “CMA”) issued its final order requiring Meta to divest its ownership of Giphy, which Meta acquired in 2020. In connection with the closing of the acquisition, whose terms were preapproved by the CMA, the Company and Meta entered into a transitional services agreement (the “TSA”) pursuant to which Meta is responsible for certain costs related to retention of Giphy employees, including (i) recurring salary, bonus, and benefits through August 2024, which would be $35.6 million if all employees are retained through August 2024, and (ii) nonrecurring items, totaling $87.9 million, comprised of one-time employment inducement bonuses and the cash value of unvested Meta equity awards (the “Giphy Retention Compensation”). The Giphy Retention Compensation will be paid to the individuals for being employees of the Company subsequent to the completion of the acquisition. Accordingly, it was determined that the payments by the Company are for future service requirements and will be reflected as operating expenses, less any amounts earned by the employees prior to the acquisition, in the Company’s Statements of Operations as incurred. The Giphy Retention Compensation is reflected as a reduction of the purchase price and has been funded into an escrow account. The Giphy purchase price was calculated as follows:
| Purchase Price
Purchase price | $ | 53,000 |
Cash acquired and other working capital adjustments | 4,750 |
Cash paid on closing | $ | 57,750 |
Fair value of Giphy Retention Compensation contingent consideration 1 | (98,723) |
Fair value of consideration attributable to pre-combination service 2 | 34,972 |
Net purchase price | $ | (6,001) |
1 - This amount consists of $123.5 million of Giphy Retention Compensation, adjusted for $18.9 million of income tax obligations associated with the receipt of the Giphy Retention Compensation and $5.9 million for the time value of money. 2 - Relates to the cash value of replaced unvested Meta equity awards attributable to pre-combination services. Upon closing of the acquisition, the Company also entered into an agreement with Meta whereby the Company will provide Meta with Giphy content through API services for a period of two years. The Company allocated and deferred $30 million of the business combination proceeds to this agreement, which will be recognized as revenue as services are provided. The identifiable intangible assets, which include developed technology and the trade name have weighted average useful lives of approximately 4.0 years and 15.0 years, respectively. The fair value of the developed technology was determined using the cost to recreate method, and the fair value of the trade name was determined using the relief-from-royalty method. The Giphy transaction was accounted for using the acquisition method and, accordingly, the results of the acquired business has been included in the Company’s results of operations from the acquisition date. For the three and nine months ended September 30, 2023, revenue of $5.0 million and $5.4 million, respectively, was included in the Consolidated Statements of Operations related to the Company’s acquisition of Giphy. The fair value of consideration transferred in this business combination has been allocated to the intangible and tangible assets acquired and liabilities assumed at the acquisition date, with the excess of the fair value of the net assets acquired over the net consideration received recorded as a bargain purchase gain. The identifiable intangible assets of these acquisitions are being amortized on a straight-line basis. The aggregate purchase price for this acquisition has been allocated to the assets acquired and liabilities assumed as follows (in thousands):
Assets acquired and liabilities assumed: | Giphy 1
Cash and cash equivalents | $ | 4,030 |
Prepaid expenses and other current assets | 1,416 |
Right of use assets | 1,243 |
Intangible assets: |
Trade name | 21,000 |
Developed technology | 21,500 |
Intangible assets | 42,500 |
Deferred tax asset | 1,006 |
Other assets | 1,647 |
Total assets acquired | $ | 51,842 |
Accounts payable, accrued expenses and other liabilities | (4,949) |
Lease liability | (1,090) |
Total liabilities assumed | (6,039) |
Net assets acquired | $ | 45,803 |
Net purchase price | (6,001) |
Bargain purchase gain | $ | 51,804 |
1 - During the three months ended September 30, 2023, the Company revised its preliminary allocation of the Giphy purchase price to the assets acquired and liabilities assumed by $9.9 million associated with additional information analyzed related to the deferred income tax balances. The measurement and allocation of the purchase price is preliminary and will be finalized within the allowable measurement period once the Company finalizes its assessment of fair value of intangible assets, income tax balances and other assets acquired and liabilities assumed. The Company recognized a non-taxable bargain purchase gain of $51.8 million, representing the excess of the fair value of the net assets acquired in addition to the net consideration to be received from Meta. The bargain purchase gain is the result of the CMA’s regulatory order requiring Meta’s divestiture of Giphy and the Giphy Retention Compensation payments. In connection with the acquisition, the Company incurred approximately $3.0 million of transaction costs, which is included in general and administrative expenses on the Consolidated Statements of Operations. As of September 30, 2023, Shutterstock’s receivable of $109.4 million, is against an escrow fully funded by Meta. $79.8 million and $29.6 million are included within Prepaid expenses and other current assets and Other assets, respectively, on the Consolidated Balance Sheet. 2022 Acquisitions Pond5, Inc. On May 11, 2022, the Company completed its acquisition of all of the outstanding shares 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 the Company’s revolving credit facility. In connection with the acquisition, the Company incurred approximately $4.0 million of transaction costs, which is included in general and administrative expenses on the Consolidated Statements of Operations. Pond5 is a New York based company that operates a video-first content marketplace for royalty-free and editorial video. The Company believes its acquisition of this video-first content marketplace provides expanded offerings across footage, image and music. The identifiable intangible assets, which include customer relationships, developed technology and trade names have weighted average useful lives of approximately 14.2 years, 5 years and 10 years, respectively. The goodwill arising from the transaction is primarily attributable to expected operational synergies and is not deductible for income tax purposes. Splash News On May 28, 2022, the Company completed its acquisition of all of the outstanding shares of Splash News, for approximately $6.3 million. The total purchase price was paid with existing cash on hand. 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. The fair value of consideration transferred in these business combinations has been allocated to the intangible and tangible assets acquired and liabilities assumed at the acquisition date, with the remaining unallocated amount recorded as goodwill. The identifiable intangible assets of these acquisitions are being amortized on a straight-line basis. The fair value of the customer relationships was determined using a variation of the income approach known as the multiple-period excess earnings method. The fair value of the trade name was determined using the relief-from-royalty method, and the fair value of the developed technology was determined using the relief-from-royalty and the cost to recreate methods. The aggregate purchase price for these acquisitions has been allocated to the assets acquired and liabilities assumed as follows (in thousands):
Assets acquired and liabilities assumed: | Pond5 1 | Splash News | 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 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. 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, 2023 and 2022, respectively, as if the Giphy acquisition had been completed on January 1, 2022 and as if the Pond5 and Splash News acquisitions had been completed on January 1, 2021, after giving effect to certain purchase accounting adjustments, primarily related to bargain purchase gain, Giphy Retention Compensation - non-recurring, intangible assets and transaction costs. These pro forma results have been prepared for comparative purposes only and are based on estimates and assumptions that have been made solely for purposes of developing such pro forma information 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,
| 2023 |  | 2022 |  | 2023 |  | 2022
Revenue |  |  |  |  |  |  |
As Reported | $ | 233,248 |  |  | $ | 204,096 |  |  | $ | 657,368 |  |  | $ | 610,100 |
Pro Forma | 233,248 |  |  | 209,096 |  |  | 667,368 |  |  | 645,383 |
Income before income taxes |  |  |  |  |  |  |
As Reported | $ | 27,613 |  |  | $ | 27,139 |  |  | $ | 120,408 |  |  | $ | 82,528 |
Pro Forma | 22,080 |  |  | 10,904 |  |  | 58,685 |  |  | 76,810 |

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 805 -SubTopic 20 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147479907/805-20-50-5 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 805 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//805/tableOfContent + Details
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