10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

 ___________________________________________________________ 

FORM 10-Q

 ___________________________________________________________ 

(Mark One)

x    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

For the quarterly period ended June 30, 2017

or

o         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.)

Shutterstock, Inc.

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)

 __________________________________________________________

Indicate by check mark whether 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.   x Yes   o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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).   x Yes   o 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 x	Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)
	Smaller reporting company o
	Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has not elected 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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  o Yes  x No
Indicate the number of shares outstanding of each of the issuer’s classes of stock, as of the latest practicable date.
Class	Outstanding at July 28, 2017
Common Stock, $0.01 par value per share	34,628,759

Shutterstock, Inc.

FORM 10-Q

Table of Contents

For the Quarterly Period Ended June 30, 2017

		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 Cash Flows	7
	Notes to Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	32
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 6.	Exhibits	33
Signatures		34

2

SPECIAL NOTE ON 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, and Section 21E of the Securities Exchange Act of 1934, as amended, particularly in the discussions under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. These include statements that involve expectations, plans or intentions (such as those relating to future business, future results of operations or financial condition, new or planned features, products or services, or management strategies) based on our management’s current beliefs and assumptions. These forward-looking statements can be identified by words such as “may”, “will”, “would”, “should”, “could”, “expect”, “anticipate”, “believe”, “estimate”, “intend”, “plan” and other similar expressions. However, not all forward-looking statements contain these words. These forward-looking statements involve known and unknown risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our 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, or the SEC, on February 27, 2017, and in our consolidated financial statements, related notes, and the other information appearing elsewhere in such report, as well as information appearing in this report on Form 10-Q and our other filings with the SEC. Any forward-looking statement made by us in this Quarterly Report on Form 10-Q speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may occur and it is not possible for us to predict them all. We do not intend, and, except as required by law, we undertake no obligation, to update any of our forward-looking statements after the date of this report to reflect actual results or future events or circumstances. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

 Unless the context otherwise indicates, references in this Quarterly Report on Form 10-Q and our other filings with the SEC to the terms “Shutterstock”, “the Company”, “we”, “our” and “us” refer to Shutterstock, Inc. and its subsidiaries. “Shutterstock”, “Bigstock”, “Offset”, “PremiumBeat”, “Rex Features” and “Webdam” are registered trademarks or logos appearing in this Quarterly Report on Form 10-Q 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

PART I.     FINANCIAL INFORMATION

Item 1.        Financial Statements.

Shutterstock, Inc.

Consolidated Balance Sheets

(In thousands, except par value amount)

(unaudited)

	June 30,			December 31,
	2017			2016
ASSETS
Current assets:
Cash and cash equivalents	$	210,550		$	224,190
Short-term investments	54,963			54,972
Accounts receivable, net	38,178			38,107
Prepaid expenses and other current assets	29,241			22,569
Total current assets	332,932			339,838
Property and equipment, net	69,469			56,101
Intangible assets, net	30,157			30,157
Goodwill	50,977			49,271
Deferred tax assets, net	22,312			23,013
Other assets	5,117			3,398
Total assets	$	510,964		$	501,778
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	3,042		$	7,305
Accrued expenses	44,368			41,106
Contributor royalties payable	20,777			20,473
Deferred revenue	135,990			122,235
Other liabilities	1,517			12,378
Total current liabilities	205,694			203,497
Deferred tax liability, net	1,836			2,147
Other non-current liabilities	11,891			9,438
Total liabilities	219,421			215,082
Commitments and contingencies (Note 6)
Stockholders’ equity:
Common stock, $0.01 par value; 200,000 shares authorized; 37,171 and 36,926 shares issued and 34,612 and 34,816 shares outstanding as of June 30, 2017 and December 31, 2016, respectively	372			369
Treasury stock, at cost; 2,559 and 2,110 shares as of June 30, 2017 and December 31, 2016, respectively	(100,027		)	(77,567		)
Additional paid-in capital	262,056			251,890
Accumulated comprehensive loss	(8,926		)	(17,061		)
Retained earnings	138,068			129,065
Total stockholders’ equity	291,543			286,696
Total liabilities and stockholders’ equity	$	510,964		$	501,778

See Notes to Unaudited Consolidated Financial Statements.

4

Shutterstock, Inc.

Consolidated Statements of Operations

(In thousands, except for per share data)

(unaudited)

	Three Months Ended June 30,					Six Months Ended June 30,
	2017		2016			2017		2016
Revenue	$	133,995	$	124,419		$	264,219	$	241,071
Operating expenses:
Cost of revenue	57,289		52,245			109,700		100,308
Sales and marketing	37,109		31,571			69,612		58,659
Product development	12,892		11,971			23,936		23,196
General and administrative	23,420		18,155			47,383		37,609
Total operating expenses	130,710		113,942			250,631		219,772
Income from operations	3,285		10,477			13,588		21,299
Other income (expense), net	1,510		(212		)	1,965		(224		)
Income before income taxes	4,795		10,265			15,553		21,075
Provision for income taxes	1,729		3,016			5,884		7,693
Net income	$	3,066	$	7,249		$	9,669	$	13,382
Net income per share:
Basic	$	0.09	$	0.21		$	0.28	$	0.38
Diluted	$	0.09	$	0.20		$	0.27	$	0.37
Weighted average shares outstanding:
Basic	34,581		34,957			34,589		35,166
Diluted	35,250		35,642			35,421		35,870

See Notes to Unaudited Consolidated Financial Statements.

5

Shutterstock, Inc.

Consolidated Statements of Comprehensive Income

(In thousands)

(unaudited)

	Three Months Ended June 30,					Six Months Ended June 30,
	2017		2016			2017		2016
Net income	$	3,066	$	7,249		$	9,669	$	13,382
Foreign currency translation gain (loss)	5,920		(4,261		)	8,135		(2,405		)
Unrealized gain on investments	—		154			—		218
Other comprehensive income (loss)	5,920		(4,107		)	8,135		(2,187		)
Comprehensive income	$	8,986	$	3,142		$	17,804	$	11,195

See Notes to Unaudited Consolidated Financial Statements.

6

Shutterstock, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(unaudited)

	Six Months Ended June 30,
	2017			2016
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	9,669		$	13,382
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	14,721			9,005
Deferred taxes	676			1,792
Non-cash equity-based compensation	13,243			14,605
Change in fair value of contingent consideration	—			2,495
Settlement of contingent consideration liability in excess of acquisition-date fair value	(6,255		)	(1,640		)
Bad debt expense	646			2,702
Chargeback and sales refund reserves	—			(92		)
Changes in operating assets and liabilities:
Accounts receivable	(924		)	(12,033		)
Prepaid expenses and other current and non-current assets	(8,604		)	(4,317		)
Accounts payable and other current and non-current liabilities	4,980			(274		)
Contributor royalties payable	136			1,598
Deferred revenue	12,117			13,017
Net cash provided by operating activities	$	40,405		$	40,240
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(25,769		)	(16,294		)
Investment purchases, net	(1,400		)	(7,798		)
Acquisition of digital content	(1,551		)	(1,462		)
Security deposit (payment)/release	30			(889		)
Net cash used in investing activities	$	(28,690	)	$	(26,443	)
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of treasury shares	(24,977		)	(44,468		)
Proceeds from exercise of stock options	944			3,520
Proceeds from issuance of common stock under 2012 Employee Stock Purchase Plan	—			809
Cash paid related to settlement of employee taxes related to RSU vesting	(4,991		)	—
Settlement of contingent consideration liability	(3,745		)	(2,360		)
Net cash (used in) provided by financing activities	$	(32,769	)	$	(42,499	)
Effect of foreign exchange rate changes on cash	7,414			(1,684		)
Net decrease in cash and cash equivalents	(13,640		)	(30,386		)
Cash and cash equivalents, beginning of period	224,190			241,304
Cash and cash equivalents, end of period	$	210,550		$	210,918
Supplemental Disclosure of Cash Information:
Cash paid for income taxes	$	3,329		$	11,890

See Notes to Unaudited Consolidated Financial Statements.

7

Shutterstock, Inc.

Notes to Consolidated Financial Statements 

(unaudited)

(1) Summary of Operations and Significant Accounting Policies

Summary of Operations

Shutterstock, Inc., together with its subsidiaries (collectively, the “Company” or “Shutterstock”), is a global technology company that has created a two-sided marketplace for creative professionals to license content. The Company’s library of creative content includes: (a) digital imagery, which consists of licensed photographs, vectors, illustrations and video clips that customers use in their visual communications, such as websites, digital and print marketing materials, corporate communications, books, publications and video content; and (b) commercial music, which consists of high-quality music tracks and sound effects, and is often used to complement the digital imagery. The Company licenses creative content to its customers. Contributors upload their creative content to the Company’s websites in exchange for royalty payments based on customer download activity. The Company also offers digital asset management services through its cloud-based digital asset management platform. This service provides tools for customers to better manage creative content and brand management assets.

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 June 30, 2017, consolidated statements of operations and comprehensive income for the three and six months ended June 30, 2017 and 2016, and consolidated statement of cash flows for the six months ended June 30, 2017 and 2016 are unaudited. The consolidated balance sheet as of December 31, 2016, 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 only normal recurring adjustments necessary to state fairly the Company’s financial position as of June 30, 2017 and its consolidated results of operations, comprehensive income and cash flows for the three and six months ended June 30, 2017 and 2016. 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 three and six months ended June 30, 2017 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2017 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, 2016 included in the Company’s Annual Report on Form 10-K, which was filed with the SEC on February 27, 2017. 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 consolidation.

During the second quarter of 2017, the Company recorded immaterial adjustments to its unaudited condensed consolidated financial statements to (1) reduce revenue by approximately $0.6 million and (2) increase general and administrative expense by approximately $0.1 million, related to prior periods. The Company has concluded that the impact of the adjustment is not material to the results of operations or financial position for the current period or any prior quarterly or annual period financial statements; accordingly, the Company recorded the related adjustment in the three months ended June 30, 2017.

Certain 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 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 assessment of recoverability of property and equipment, the fair value of acquired goodwill and intangible assets, the grant-date fair value of non-cash equity-based compensation, the assessment of recoverability of deferred tax assets and the measurement of certain contingent non-income tax liabilities.

8

Shutterstock, Inc.

Notes to Consolidated Financial Statements 

(unaudited)

Restricted Cash

The Company’s restricted cash relates to security deposits for its office leases. As of June 30, 2017 and December 31, 2016, the Company had restricted cash of approximately $2.6 million in other assets that related to the lease for its headquarters in New York City, which expires in 2029. The carrying value of restricted cash approximates fair value.

Allowance for Doubtful Accounts

The Company’s accounts receivable consist 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 the aging of its accounts receivable and on a customer-by-customer basis where appropriate. The Company’s reserve analysis contemplates the Company’s historical loss rate on receivables, specific customer situations and the economic environments in which the Company operates. As of June 30, 2017 and December 31, 2016, the Company’s allowance for doubtful accounts was approximately $6.4 million and $5.5 million, respectively, which was included as a reduction of accounts receivable.

Deferred Rent

The Company records rent expense on a straight-line basis over the term of the related lease. The difference between the rent expense recognized and the actual payments made in accordance with the lease agreement is recognized as a deferred rent liability on the Company’s balance sheet. As of June 30, 2017 and December 31, 2016, the Company had deferred rent of $10.9 million and $8.6 million, respectively, which was included in other non-current liabilities.

Chargeback and Sales Refund Allowance

The majority of the Company’s customers purchase products by making an electronic payment with a credit card at the time of a transaction. 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 June 30, 2017 and December 31, 2016, the Company’s combined allowance for chargebacks and sales refunds was $0.6 million, which was included in other liabilities.

Recently Adopted Accounting Standard Updates

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employees Share-Based Payment Accounting (“ASU 2016-09”). This ASU changes how companies account for certain aspects of share-based payment awards to employees, including the requirement for all income tax effects related to settlements of share-based payment awards be reported in earnings as an increase or decrease to income tax expense, providing the Company an accounting policy election to either recognize forfeitures as they occur or record an estimate, and requires that all income tax-related cash flows resulting from share-based payments be reported as operating activities in the statement of cash flows.

The Company adopted ASU 2016-09 on January 1, 2017. All income tax effects related to settlements of share-based payment awards will be reported as an increase or decrease to the provision for income taxes. In addition, starting January 1, 2017, the Company will account for forfeitures as they occur and, as of January 1, 2017, recognized a $0.7 million reduction to retained earnings as the cumulative effect of the change in accounting principle. The Company adopted the cash flow presentation component of ASU 2016-09 retrospectively, and accordingly, decreased cash flows from operating activities by $1.4 million and increased cash flows from financing activities by $1.4 million for the six months ended June 30, 2016.

Recently Issued Accounting Standard Updates

In November 2016, the FASB issued ASU 2016-18, Statements of Cash Flows (Topic 230): Restricted Cash, which requires entities to present restricted cash with cash and cash equivalents on the statement of cash flows when reconciling the total beginning and ending amounts for the periods shown on the statement of cash flows. ASU 2016-18 is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. The Company is evaluating the impact of adopting this new accounting standard on its financial statements. The balance of the Company’s restricted cash was $2.6 million as of June 30, 2017.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments. ASU 2016-13 replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses. The ASU is intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a

9

Shutterstock, Inc.

Notes to Consolidated Financial Statements 

(unaudited)

reporting entity at each reporting date. Adoption of this guidance is required, prospectively, for annual periods beginning after December 15, 2019, with early adoption permitted for annual periods beginning after December 15, 2018. The Company is evaluating the impact of adopting this new accounting standard on its financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires that the rights and obligations created by leases with a duration greater than 12 months be recorded as assets and liabilities on the balance sheet of the lessee. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 and can be applied using a modified retrospective approach for all leases entered into before the effective date. Early adoption is permitted. The Company is evaluating the impact of adopting this new accounting standard on its financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09, and its related amendments, provides a unified model to determine when and how revenue is recognized and requires certain additional disclosures around the nature, amount, timing, and uncertainty of revenue and cash flows arising from customers. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 will be effective for the fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. This new guidance may be applied retrospectively to each prior period (full retrospective) or retrospectively with the cumulative effect recognized as of the date of initial application (modified retrospective). The Company expects to adopt this guidance in the first quarter of fiscal 2018 and apply the modified retrospective approach. The Company is evaluating the impact of adopting this new accounting standard on its financial statements.

(2) Fair Value Measurements

The following tables present the Company’s fair value hierarchy for its assets and liabilities (in thousands):

	As of June 30, 2017
	Aggregate Fair Value		Level 1		Level 2		Level 3
Assets:
Money market accounts	$	76,793	$	76,793	$	—	$	—
Commercial paper	$	54,963	—		54,963		—
Total assets measured at fair value	$	131,756	$	76,793	$	54,963	$	—

	As of December 31, 2016
	Aggregate Fair Value		Level 1		Level 2		Level 3
Assets:
Money market accounts	$	81,623	$	81,623	$	—	$	—
Commercial paper	$	54,972	—		54,972		—
Total assets measured at fair value	$	136,595	$	81,623	$	54,972	$	—
Liabilities:
Acquisition related contingent consideration	$	10,000	$	—	$	—	$	10,000
Total liabilities measured at fair value	$	10,000	$	—	$	—	$	10,000

Money Market Accounts

Cash equivalents include money market accounts which are classified as a level 1 measurement based on quoted prices in active markets for identical assets that the Company can access at the measurement date. The total amount of money market accounts included in cash and cash equivalents was $76.8 million and $81.6 million as of June 30, 2017 and December 31, 2016, respectively.

Commercial Paper

The Company’s short-term investments consist of commercial paper with original maturities of 90 days or less. Commercial paper is classified as a level 2 measurement based on quoted market prices for identical assets, which are subject to infrequent transactions. The total amount of commercial paper included in short-term investments was $55.0 million as of June 30, 2017 and December 31, 2016.

10

Shutterstock, Inc.

Notes to Consolidated Financial Statements 

(unaudited)

Acquisition-Related Contingent Consideration

As of December 31, 2016, the settlement amount of the contingent consideration related to the Company’s acquisition of PremiumBeat was determined to be $10.0 million and was included in other liabilities. This contingency was considered a level 3 measurement. No changes in fair value were recorded during the six months ended June 30, 2017. The contingent consideration of $10.0 million was paid in March 2017, and there was no remaining liability as of June 30, 2017.

Other Fair Value Measurements

Cash, accounts receivable, restricted cash, accounts payable, accrued expenses and deferred revenue carrying amounts approximate fair value because of the short-term nature of these instruments. 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 certain triggering events occur, or if an annual impairment test is required and the Company is required to evaluate the non-financial asset for impairment, a resulting asset impairment would require that non-financial assets be recorded at fair value.

(3) Property and Equipment

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

	As of June 30, 2017			As of December 31, 2016
Computer equipment and software	$	85,779		$	63,711
Furniture and fixtures	4,503			3,434
Leasehold improvements	23,165			20,944
Property and equipment	113,448			88,089
Less accumulated depreciation	(43,979		)	(31,988		)
Property and equipment, net	$	69,469		$	56,101

Depreciation expense related to property and equipment was $6.3 million and $3.5 million for the three months ended June 30, 2017 and 2016, respectively, and $11.9 million and $6.5 million for the six months ended June 30, 2017 and 2016, respectively. Depreciation expense is included in cost of revenue and general and administrative expense based on the nature of the asset being depreciated.

Capitalized Internal-Use Software

The Company capitalized costs related to the development of internal-use software of $7.9 million and $3.4 million for the three months ended June 30, 2017 and 2016, respectively, and $14.6 million and $6.2 million for the six months ended June 30, 2017 and 2016, respectively. Capitalized amounts are included as a component of property and equipment under computer equipment and software.

The portion of total depreciation expense related to capitalized internal-use software was $2.9 million and $0.7 million for the three months ended June 30, 2017 and 2016, respectively, and $5.0 million and $1.2 million for the six months ended June 30, 2017 and 2016, respectively. Depreciation expense related to capitalized internal-use software is included in cost of revenue and general and administrative expense.

As of June 30, 2017 and December 31, 2016, the Company had capitalized internal-use software of $29.9 million and $20.3 million, respectively, net of accumulated depreciation, which was included in property and equipment, net.

11

Shutterstock, Inc.

Notes to Consolidated Financial Statements 

(unaudited)

(4) Goodwill and Intangible Assets

Goodwill

The Company’s goodwill balance is attributable to its Bigstock, Editorial, Music and Webdam reporting units and is tested for impairment at least annually on October 1 or upon a triggering event. Bigstock, Music and Editorial are included in the Company's “Content Business” reporting segment while Webdam is included in the non-reportable “Other Category”. The following table summarizes the changes in the Company’s goodwill balance by reportable and non-reportable segments through June 30, 2017 (in thousands):

	Consolidated		Content Business		Other Category
Balance as of December 31, 2016	$	49,271	$	40,508	$	8,763
Foreign currency translation adjustment	1,706		1,706		—
Balance as of June 30, 2017	$	50,977	$	42,214	$	8,763

No triggering events were identified during the six months ended June 30, 2017.

Intangible Assets

Intangible assets consisted of the following as of June 30, 2017 and December 31, 2016 (in thousands):

	As of June 30, 2017						As of December 31, 2016
	Gross Carrying Amount		Accumulated Amortization			Weighted Average Life (Years)	Gross Carrying Amount		Accumulated Amortization
Amortizing intangible assets:
Customer relationships	$	17,424	$	(5,566	)	9	$	16,712	$	(4,344	)
Trade name	7,184		(2,336		)	7	6,677		(2,030		)
Developed technology	3,211		(2,895		)	4	3,224		(1,934		)
Contributor content	14,943		(2,101		)	11	12,958		(1,386		)
Patents	259		(59		)	18	227		(52		)
Domain name	160		(67		)	12	160		(55		)
Total	$	43,181	$	(13,024	)		$	39,958	$	(9,801	)

Amortization expense was $1.4 million and $1.3 million for the three months ended June 30, 2017 and 2016, respectively, and $2.8 million and $2.5 million for the six months ended June 30, 2017 and 2016, respectively. The Company determined that there was no indication of impairment of the intangible assets for any period presented. Estimated amortization expense for the next five years is: $2.9 million for the remaining six months of 2017, $4.7 million in 2018, $4.5 million in 2019, $3.9 million in 2020, $3.4 million in 2021, $2.6 million in 2022 and $8.3 million thereafter.

(5) Accrued Expenses

Accrued expenses consisted of the following (in thousands):

	As of June 30, 2017		As of December 31, 2016
Compensation	$	11,762	$	13,732
Non-income taxes	5,881		7,383
Royalty tax withholdings	7,337		6,921
Other expenses	19,388		13,070
Total accrued expenses	$	44,368	$	41,106

12

Shutterstock, Inc.

Notes to Consolidated Financial Statements 

(unaudited)

(6) Commitments and Contingencies

The Company leases facilities under agreements accounted for as operating leases. Rental expense for operating leases was $2.0 million and $1.4 million for the three months ended June 30, 2017 and 2016, respectively, and $4.2 million and $3.0 million for the six months ended June 30, 2017 and 2016, respectively. Some leases have defined escalating rent provisions, which are expensed over the term of the related lease on a straight-line basis commencing with the date of possession. Any rent allowance or abatement is netted in this calculation. All leases require payment of real estate taxes and operating expense increases.

In 2016, the Company’s lease for its office facility in New York City was amended to, among other things, provide for the lease of approximately 25,000 square feet of additional office space and extend the term of the lease. In connection with the underlying lease agreement, the Company entered into a letter of credit as a security deposit for the leased facilities, which was increased to $2.6 million in connection with the 2016 amendment. The letter of credit was collateralized by $2.6 million of cash as of June 30, 2017, which is recorded as restricted cash and is included in other assets in the consolidated balance sheet. As amended, the lease is scheduled to expire in 2029 and aggregate future minimum payments under the amended lease are approximately $80.5 million.

Other Commitments

On October 20, 2016, the Company entered into a multi-part transaction with an unrelated third-party contributor (the “Transaction Party”). The transaction included three primary components: (a) a revolving credit facility pursuant to which the Company would be obligated to lend up to $4.6 million under certain conditions (the “Facility”) to the Transaction Party. The Facility has a term of five years and requires the Transaction Party to make quarterly payments of principal to the Company beginning on the fourth anniversary of the Facility. The Facility bears interest at 10.0%, with all interest payments deferred until maturity, and the entire unpaid balance of principal and accrued interest due upon maturity; (b) the Company will be the exclusive distributor of the Transaction Party’s content in certain markets subject to certain limitations; and (c) the Company, at its option, may acquire the Transaction Party at any time after the third anniversary of the Facility or match any third-party acquisition offer with respect to the Transaction Party at any time until the fifth anniversary of the Facility. 

On March 27, 2017, the Facility was amended to reduce the maximum lending amount to $3.0 million.  Simultaneously, the Company invested $1.6 million in a convertible note issued by the Transaction Party, which matures on October 20, 2021.  The convertible note bears interest at 10%, with all interest payments deferred until maturity, and the entire unpaid balance of principal and accrued interest due upon maturity. The principal amount of the convertible note and any accrued and unpaid interest may be converted into equity of the Transaction Party at the Company’s option on the maturity date, or earlier upon certain events.

As of June 30, 2017, there have been no borrowings under the Facility and the Company’s $1.6 million investment in the convertible note is included as a component of other non-current assets.

13

Shutterstock, Inc.

Notes to Consolidated Financial Statements 

(unaudited)

Other Obligations

As of June 30, 2017, the Company had other obligations in the amount of approximately $43.3 million, which consisted primarily of minimum royalty guarantees and unconditional purchase obligations related to contracts for infrastructure and other business services. As of June 30, 2017, the Company’s other obligations for the remainder of 2017 and for the years ending December 31, 2018, 2019 and 2020 were approximately $8.6 million, $15.4 million, $11.1 million and $8.2 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, as such, no material reserves related to litigation.

Indemnification and Employment Agreements

In the ordinary course of business, the Company enters into contractual agreements 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 an image is used. The Company’s license agreements generally cap indemnification obligations at amounts ranging from $10,000 to $250,000, with exceptions for certain products for which the Company’s indemnification obligations are uncapped. As of June 30, 2017, the Company had recorded no material liabilities related to indemnification obligations in accordance with the authoritative guidance 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 with or without cause and in the event of a change in control.

14

Shutterstock, Inc.

Notes to Consolidated Financial Statements 

(unaudited)

(7) Stockholders’ Equity and Equity-Based Compensation

Stockholders’ Equity

Common Stock

During the six months ended June 30, 2017, the Company issued approximately 245,000 shares of common stock, primarily related to the exercise of stock options and the vesting of restricted stock units (“RSUs”).

Treasury Stock

In October 2015, the Company’s Board of Directors approved a share repurchase program, pursuant to which the Company is authorized 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, pursuant to which the Company is authorized to repurchase up to an additional $100 million of its outstanding common stock. The Company expects to fund future repurchases through a combination of cash on hand, cash generated by operations and future financing transactions, if needed. Accordingly, the Company’s share repurchase program is subject to the Company having available cash to fund repurchases. Under the program, the Company is authorized to purchase shares 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 six months ended June 30, 2017, the Company repurchased approximately 449,000 shares of its common stock under the share repurchase program at an average per-share cost of approximately $50.04. As of June 30, 2017, the Company had $100.0 million remaining for purchases under the share repurchase program.

Equity-Based Compensation

The Company recognizes stock-based compensation expense for all share-based payment awards, including employee stock options and RSUs granted under the 2012 Omnibus Equity Incentive Plan and sales of shares of common stock under the 2012 Employee Stock Purchase Plan (the “2012 ESPP”), based on each award’s fair value on the grant date.

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 six months ended June 30, 2017 and 2016 (in thousands): 

	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Cost of revenue	$	225	$	521	$	433	$	1,054
Sales and marketing	1,226		1,357		2,444		2,548
Product development	2,004		2,003		3,260		4,152
General and administrative	3,833		3,371		7,107		6,851
Total	$	7,287	$	7,252	$	13,243	$	14,605

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 six months ended June 30, 2017 and 2016 (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Stock options	$	1,858	$	1,892	$	3,424	$	3,628
RSUs	5,429		5,207		9,819		10,652
ESPP shares	—		153		—		325
Total	$	7,287	$	7,252	$	13,243	$	14,605

15

Shutterstock, Inc.

Notes to Consolidated Financial Statements 

(unaudited)

Stock Option Awards

During the six months ended June 30, 2017, the Company granted options to purchase approximately 80,000 shares of its common stock with a weighted average exercise price of $48.53. As of June 30, 2017, there were approximately 315,000 options vested and exercisable with a weighted average exercise price of $35.60. As of June 30, 2017, the total unrecognized compensation charge related to non-vested options was approximately $18.0 million, which is expected to be recognized through 2021.

Restricted Stock Units

During the six months ended June 30, 2017, the Company granted approximately 329,000 RSUs, net of forfeitures. As of June 30, 2017 there are approximately 1,308,000 non-vested RSUs outstanding. As of June 30, 2017, the total unrecognized non-cash equity-based compensation charge related to the non-vested RSUs was approximately $47.9 million, which is expected to be recognized through fiscal year 2021.

During the six months ended June 30, 2017, shares with an aggregate value of $5.0 million were withheld upon vesting of RSUs and in connection with related remittance to taxing authorities.

ESPP Shares

In December 2016, the Company’s Board of Directors suspended the 2012 ESPP. During the six months ended June 30, 2017, no shares of the Company’s common stock were issued under the 2012 ESPP.

(8) Employee Benefit Plans

The Company has a 401(k) defined contribution plan and provides for annual discretionary employer matching contributions not to exceed 3% of employees’ base compensation per year. Matching contributions are fully vested and non-forfeitable at all times. The Company recorded expenses related to employer matching contributions of $0.5 million for the three months ended June 30, 2017 and 2016, and $0.9 million and $1.0 million for the six months ended June 30, 2017 and 2016, respectively.

(9) 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 six months ended June 30, 2017 and 2016 (in thousands):

	Three Months Ended June 30,					Six Months Ended June 30,
	2017		2016			2017		2016
Foreign currency gain (loss)	$	1,295	$	(123	)	$	1,660	$	547
Change in fair value of contingent consideration	—		(130		)	—		(844		)
Interest income	216		41			306		73
Total income (expense)	$	1,510	$	(212	)	$	1,965	$	(224	)

(10) Income Taxes

The Company’s effective tax rates were 36.1% and 29.4% for the three months ended June 30, 2017 and 2016, respectively, and 37.8% and 36.5% for the six months ended June 30, 2017 and 2016, respectively.  In the three months ended June 30, 2017, the Company incurred discrete tax items relating primarily to the tax effect of vested equity-based compensation, and in the six months ended June 30, 2017, the Company incurred discrete tax items relating primarily to withholding tax incurred on income earned in foreign jurisdictions. The net effect of discrete items increased the effective tax rate by 0.5% and 3.6%, respectively. In the three and six months ended June 30, 2016, the Company incurred a discrete tax benefit related primarily to the release of reserve for uncertain tax positions due to a lapse in the statute of limitations which decreased the effective tax rate by 9.1% and 3.3%, respectively.

The Company has computed the provision for income taxes based on the estimated annual effective tax rate and the application of discrete items, if any, in the applicable period. The estimated annual effective tax rate differs from the statutory tax rate due primarily to an increase of income in foreign jurisdictions with lower statutory rates.

During the three and six months ended June 30, 2017 and 2016, unrecognized tax benefits recorded by the Company for uncertain tax positions taken in prior years were not material. During the three and six months ended June 30, 2016, the Company recognized a tax benefit of approximately $1.2 million related to the release of reserve for uncertain tax positions due

16

Shutterstock, Inc.

Notes to Consolidated Financial Statements 

(unaudited)

to a lapse in the statute of limitations. To the extent the remaining unrecognized tax benefits are ultimately recognized, the Company’s effective tax rate may be impacted in future periods.

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 material for the three and six months ended June 30, 2017 and 2016.

As of June 30, 2017, the Company had approximately $10.4 million of undistributed earnings attributable to its foreign subsidiaries. It is the Company’s practice and intention to indefinitely reinvest the earnings of its foreign subsidiaries in those operations. The Company has not provided deferred U.S. income taxes or foreign withholding taxes on temporary differences resulting from the earnings indefinitely reinvested outside the United States. It is currently not practicable for the Company to calculate the associated unrecognized deferred tax liability.

(11) Net Income Per Share

Basic net income per share is computed by dividing the net income attributable to common stockholders by the weighted average number of common shares outstanding during the period. Any potential issuance of common shares, including those that are contingent and do not participate in dividends, is excluded from weighted average number of common shares outstanding. Income available to common stockholders is computed by deducting income allocated to participating securities, if any, including unvested shares for the restricted award holder since these unvested shares have participating rights.

Diluted net income per share is computed by dividing the net income attributable to common stockholders by the weighted average common shares outstanding and all potential common shares, if they are dilutive.

A reconciliation of assumed exercised shares used in calculating basic and diluted net income per share follows (in thousands):

	Three Months Ended June 30,		Six Months Ended June 30,
	2017	2016	2017	2016
Weighted average shares outstanding:
Basic	34,581	34,957	34,589	35,166
Stock options and ESPP shares	473	479	484	415
Unvested RSUs and restricted stock awards	196	206	348	289
Diluted	35,250	35,642	35,421	35,870
Dilutive securities included in the calculation	1,646	1,907	1,786	1,860
Anti-dilutive securities excluded from the calculation	1,091	1,259	1,086	1,165

(12) Geographic Information

The following table presents the Company’s revenue based on customer location (in thousands): 

	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
North America	$	52,771	$	49,565	$	105,569	$	96,707
Europe	44,064		41,094		86,637		80,280
Rest of the world	37,160		33,760		72,013		64,084
Total revenue	$	133,995	$	124,419	$	264,219	$	241,071

The United States, included in North America in the above table, accounted for 35% and 35% of consolidated revenue for the three months ended June 30, 2017 and 2016, respectively and 36% and 36% of total revenue for the six months ended June 30, 2017 and 2016, respectively. The United Kingdom, included in Europe in the above table, accounted for 9% and 10% of total revenue for the three months ended June 30, 2017 and 2016, respectively, and 9% and 10% of total revenue for the six months ended June 30, 2017 and 2016, respectively. No other country accounts for more than 10% of the Company’s revenue in any period presented.

17

Shutterstock, Inc.

Notes to Consolidated Financial Statements 

(unaudited)

The Company’s long-lived tangible assets were located as follows (in thousands): 

	June 30,		December 31,
	2017		2016
North America	$	68,294	$	54,913
Europe	1,097		1,141
Rest of the world	78		47
Total long-lived tangible assets	$	69,469	$	56,101

The United States, included in North America in the above table, accounted for 95% of total long-lived tangible assets as of June 30, 2017 and December 31, 2016.

(13) Subsequent Events

On July 7, 2017, the Company, through its indirect wholly-owned subsidiary, completed its acquisition of all of the outstanding shares of FlashStock Technology, Inc. (“Flashstock”) for approximately $50 million, pursuant to a definitive agreement dated June 27, 2017. Approximately $45.9 million was funded on July 7, 2017 and the remaining $4.1 million will be funded in September 2017, all of which with existing cash on hand. Flashstock is a Toronto-based company that enables the creation of custom content through a propriety software platform.

18

Item 2.         Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion of our financial condition and results of operations should be read together with our interim consolidated unaudited 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 Annual Report on Form 10-K for the fiscal year ended December 31, 2016 filed with the SEC on February 27, 2017.

In addition to historical consolidated financial information, this discussion may contain forward-looking statements that reflect our plans, estimates and beliefs. These statements involve risks and uncertainties and our actual results could differ materially from those discussed below. See the “Special Note on Forward Looking Statements” disclosure included above for a discussion of the uncertainties, risks and assumptions associated with these statements. See also the “Risk Factors” disclosure of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 for additional discussion of such risks.

Overview and Recent Developments

Shutterstock is a leading global technology company that operates a two-sided marketplace for creative professionals to license content. Our library of creative content includes: (a) digital imagery, which consists of licensed photographs, vectors, illustrations and video clips that customers use in their visual communications, such as websites, digital and print marketing materials, corporate communications, books, publications and video content; and (b) commercial music, which consists of high-quality music tracks and sound effects and which is often used to complement the digital imagery. We also offer digital asset management services through Webdam, our cloud-based digital asset management platform, which provides tools for customers to better manage content and brand management assets. 

Our global marketplace brings together users and contributors of creative content by providing a readily-searchable collection of content that our customers can pay to license and incorporate into their work and by compensating contributors as their content is licensed to our customers. More than 1.7 million active, paying customers contributed to our revenue for the twelve-month period ended June 30, 2017. As of June 30, 2017, more than 250,000 approved contributors made their creative content available in our collection, which has grown to more than 140 million images and has grown to include more than 7.5 million video clips. This makes our collection of creative content one of the largest of its kind, and we delivered more than 86 million paid downloads across all of our brands during the six months ended June 30, 2017. We believe that we delivered the highest volume of commercial image downloads in this period of any single brand in our industry during that period.

During the three months ended June 30, 2017, in addition to the increase in creative content provided by our contributors, we also enhanced our product offerings as follows:

• In April 2017, our digital asset management business, Webdam, launched Workstream™, a workflow management solution built specifically for enterprise marketing and creative teams. Workstream™ streamlines the entire creative development process, including asset requests, creative briefs, collaborative reviews and approval routing, by aligning people, tasks and approvals.

Through our two-sided marketplace, we generate revenue by licensing creative content to our customers, which is offset by paying royalties to contributors each time their content is delivered to a customer for use. During the six months ended June 30, 2017, 64% of our revenue and the majority of our content licenses came from users of our e-commerce platform. E-commerce customers have the flexibility of choosing content subscription plans that provide a large volume of content for their creative process without concern for the incremental cost of each license, or for customers with other content needs, we offer simple, affordable, a la carte content licenses. For larger organizations or those with unique content, licensing, and workflow needs, our dedicated enterprise sales, service, and research teams are able to provide a number of enhancements to their creative workflows beyond the use-cases available on our e-commerce platform.

Each time an image, video clip or music track is delivered to a customer for use, we record a royalty expense for the amount due to the associated contributor. Royalties are calculated using either a fixed dollar amount or a fixed percentage of revenue, and are typically paid to contributors on a monthly basis, subject to withholding taxes and certain payout minimums. Royalties represent the largest component of our operating expenses (and are reported within cost of revenue) and tend to increase proportionally with revenue. In addition to content sourced through direct submission through our web properties, content may also be obtained through exclusive distribution agreements with strategic partners or through the direct acquisition of a content library or archive. In certain cases, we will enter into arrangements with contributors whereby we guarantee a minimum royalty to a contributor or strategic partner, usually paid up-front, in exchange for exclusive rights to distribute content when we believe such exclusivity provides us with a distinct competitive advantage. In recent years we have made a number of enhancements to our content libraries through the direct acquisition of content and through entering into several such agreements and partnerships.

Our cost of revenue is substantially similar as a percentage of revenue for our e-commerce and enterprise customers. While contributors earn a fixed amount per download for some of our plans, we have set the per-download amount paid to our

19

contributors for each of our purchase options so that contributors earn more per download from plans where we collect higher revenue per download. In other words, we strive to deliver a similar percentage of revenue to contributors regardless of which purchase option a customer chooses. We expect that shifts in the relative popularity of these two purchase options will not materially impact our cost of revenue.

As a provider of digital asset management technology, we also generate revenue by licensing the use of our Webdam platform to customers on a contract basis, which is typically twelve months.

We manage customer acquisition costs based on the expected blended customer lifetime value across our purchase options so that we are able to manage our marketing expenses to achieve certain desired growth targets. As a result, we do not believe that shifts in the mix between e-commerce and enterprise sales channels will materially impact our operating margins.

An important driver of our growth is customer acquisition, which we achieve primarily through online marketing efforts, including paid search, organic search, online display advertising, email marketing, affiliate marketing, social media and strategic partnerships. Over the past several years, our investments in marketing have been a significant percentage of revenue. Since we believe the market for creative content is at an early stage, we plan to continue to invest aggressively in customer acquisition to achieve revenue and market share growth. We believe that another important driver of growth is the quality of the user experience we provide on our websites, especially the efficiency with which our search interfaces and algorithms help customers find the creative content that they need, the degree to which we make use of the large quantity of data we collect about images, videos and music and search patterns, and the degree to which our websites have been localized for international audiences. To this end, we have invested aggressively in product development and hosting infrastructure, and we intend to continue to invest in these areas, to the extent that we can improve the customer experience and increase the efficiency with which we deploy new products and features. Finally, the quality and quantity of content that we make available in our collection is another key driver of our growth. Approved and licensable high-quality content in the Shutterstock collection exceeded 140 million images and 7.5 million video clips as of June 30, 2017, making it one of the largest libraries of its kind.

On July 7, 2017, we completed the acquisition of FlashStock Technology, Inc. (“Flashstock”) pursuant to a definitive agreement dated June 27, 2017, for approximately $50 million. The acquisition was funded through existing cash on hand. Flashstock is a Toronto-based company that enables the creation of custom content through a proprietary software platform.

Key Operating Metrics

In addition to key financial 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 six months ended June 30, 2017 and 2016:

	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
	(in millions, except revenue per download)
Paid downloads (during the period)	42.7		43.4		86.2		84.6
Revenue per download (during the period)	$	3.05	$	2.81	$	2.98	$	2.79
Content in Our Collection (end of period):
Images	144.7		92.1		144.7		92.1
Video Clips	7.6		4.9		7.6		4.9

Paid Downloads

Measuring the number of paid downloads that our customers make in any given period is important because downloads are the primary method of delivering licensed content, which drives a significant portion of our revenue and contributor royalties. For customers that choose to purchase content à la carte, each incremental content license results in incremental recognition of revenue. For customers that choose our subscription purchase options, we do not recognize revenue from each incremental content license, but we believe that download activity is an important measure of the value that a customer is getting from a subscription. We define paid downloads as the number of downloads that our customers make in a given period of our photographs, vectors, illustrations, video clips or music tracks, excluding re-downloads of content that a customer has downloaded in the past (which do not generate incremental revenue or contributor royalty expense) and downloads of content that is offered to customers for no charge, including our free image of the week and content made available through our Freestock product (which we make available as a means of acquiring new customers and attracting existing customers to return to our websites more frequently).

20

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 the impact of revenue that is not derived from or associated with content licenses. This metric captures any changes in our pricing, as well as the mix of purchase 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. For example, when a customer pays $49 for five images, we earn more revenue per download ($9.80 per download) than when a customer purchases a one-month subscription for $249 and downloads 100 images during the month ($2.49 per download). Revenue per download has increased over the last three years, almost entirely due to the change in product mix. During this period, pricing has remained relatively constant.

Content in our Collection

We define content in our collection as the total number of (a) images (photographs, vectors and illustrations) and (b) video clips available to customers for commercial license on shutterstock.com at any point in time. We exclude content from this collection metric that is not uploaded directly to our site but is available to our customers through an application program interface and certain content that may be licensed for editorial use only. We record this metric as of the end of a period. Offering a large selection of content allows us to acquire and retain customers and, therefore, we believe that broadening our selection of high-quality content is an important driver of our revenue growth.

Non-GAAP Financial Measures

This Quarterly Report on Form 10-Q, including this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains a calculation of period-over-period revenue growth on a constant-currency basis, which is a financial measure that has not been calculated in accordance with GAAP, and should be considered in addition to our results prepared in accordance with GAAP and should not be considered as a substitute for, or superior to, our results prepared in accordance with GAAP.

Revenue growth on a constant-currency basis (expressed as a percentage) is calculated by determining the increase in current period revenues over prior period revenues, utilizing fixed exchange rates for translating foreign currency revenues for both periods.

Our management uses this non-GAAP financial measure, in conjunction with GAAP financial measures, as an operating measure to help evaluate our business and in making financial and operational decisions. Management believes that providing a measure of period-over-period revenue growth on a constant-currency basis is useful to investors to provide them with disclosures of Shutterstock’s revenue trends and overall business on the same basis as that which is used by management and because this metric eliminates the effect of foreign currency fluctuations that are not directly attributable to Shutterstock’s underlying operating performance and are outside management’s control. Additionally, management believes that providing this non-GAAP financial measure enhances the comparability for investors in assessing Shutterstock’s financial reporting. However, 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.

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, medical self-insurance accruals, chargeback and sales refund reserve, the fair value of goodwill, intangibles and other long-lived assets, non-cash equity-based compensation expense, the fair value of contingent consideration, the provision for income taxes and the amount of certain non-income tax accruals. 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, chargeback and sales refund reserve, stock-based compensation, self-insurance accruals, accounting for non-income and income taxes, goodwill and intangible assets and advertising costs 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 Annual Report on Form 10-K for the fiscal year ended December 31, 2016 that we filed with the SEC on February 27, 2017, or the

21

2016 Form 10-K, under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates.”

During the first quarter of 2017, we adopted the Financial Accounting Standards Board’s Accounting Standards Update 2016-09: Compensation - Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting, which simplified the accounting for stock-based compensation in a number of areas, including the accounting for awards expected to be forfeited and the accounting for the tax effects of stock-based compensation. 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 this accounting standard on our financial statements. Apart from the item described above, there have been no material changes to our critical accounting policies and estimates as compared to our critical accounting policies and estimates included in the 2016 Form 10-K.

Key Components of Our Results of Operations

Revenue

We record revenue net of credit card chargebacks and refunds. The majority of our revenue is generated through the licensing of creative content, and the majority of our licensing revenue is generated by sales through our e-commerce platform.

We generate revenue through our e-commerce platform from the sale of subscriptions that provide customers the flexibility of high-volume content subscriptions as well as a variety of other purchase options. Our subscriptions typically vary in length from one month to one year. In addition to sales through our e-commerce platform, we offer additional purchase options to enterprise customers that can be tailored to meet our customers’ specific needs.

We typically receive the full amount of e-commerce purchases at the time of sale; however, revenue is recognized ratably over the course of a subscription period or as content is downloaded. Some of our larger custom and enterprise accounts are invoiced and pay us on credit terms. For certain of these accounts, we receive payment in installments over the course of an annual commitment.

We also generate revenue through Webdam, which licenses digital asset management software services to marketing and creative teams and enterprise organizations through its cloud-based software platform. Software licensing fees are recognized ratably as revenue over the course of the contractual term, which is typically one year.

Our deferred revenue consists of amounts paid by customers for which revenue recognition criteria have not been met. For content revenue, deferred revenue is recognized as revenue when content is licensed or when the right to license content expires, and all other revenue recognition criteria have been met. For Webdam, deferred revenue is recognized as revenue through passage of time and when all other revenue recognition criteria have been met.

Revenues generated from each of the sales channels are as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
E-Commerce	$	85,942	$	83,465	$	169,703	$	163,387
Enterprise	42,941		37,141		84,807		70,508
Other	5,112		3,813		9,709		7,176
Total Revenue	$	133,995	$	124,419	$	264,219	$	241,071

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, the infrastructure and hosting costs related to maintaining our e-commerce platform and cloud-based software platform and associated employee compensation, including non-cash equity-based compensation, bonuses and benefits, amortization of content and technology intangible assets, allocated facility costs and other supporting overhead costs. We expect that our cost of revenue will increase in absolute dollars in the foreseeable future as our revenue grows.

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. We expect sales and marketing expenses to increase in absolute dollars in the foreseeable future as we continue to invest in new customer acquisition.

22

Product Development. Product development expenses consist of employee compensation, including non-cash equity-based compensation, bonuses and benefits, and expenses related to contractors engaged in product management, design, development and testing of our websites and products. Product development costs also include allocated facility and other supporting overhead costs. We expense product development expenses as incurred, except for costs that are capitalized for internal-use software development projects and subsequently depreciated over the expected useful life of the developed software. We expect product development expenses, of which a portion will be capitalized, to increase in absolute dollars in the foreseeable future as we continue to invest in developing new products and internal tools and enhancing the functionality of our existing products and technology.

General and Administrative. General and administrative expenses include employee compensation, including non-cash equity-based compensation, bonuses and benefits for executive, finance, business development, accounting, legal, human resources, internal information technology, 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 and other supporting overhead costs. We expect to incur incremental general and administrative expenses to support our global operational growth and enhancements to support our reporting and planning functions.

Other Expense, Net. Other expense consists of non-operating costs such as foreign currency transaction gains and losses, interest income and expense and prior to 2017, changes in the fair value of contingent consideration related to acquisitions. 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. 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. As of June 30, 2017, we have not recorded any such valuation allowances.

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.

23

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 June 30,					Six Months Ended June 30,
	2017		2016			2017		2016
	(in thousands)
Consolidated Statements of Operations:
Revenue	$	133,995	$	124,419		$	264,219	$	241,071
Operating expenses:
Cost of revenue	57,289		52,245			109,700		100,308
Sales and marketing	37,109		31,571			69,612		58,659
Product development	12,892		11,971			23,936		23,196
General and administrative	23,420		18,155			47,383		37,609
Total operating expenses	130,710		113,942			250,631		219,772
Income from operations	3,285		10,477			13,588		21,299
Other income (expense), net	1,510		(212		)	1,965		(224		)
Income before income taxes	4,795		10,265			15,553		21,075
Provision for income taxes	1,729		3,016			5,884		7,693
Net income	$	3,066	$	7,249		$	9,669	$	13,382

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Consolidated Statements of Operations:
Revenue	100	%	100	%	100	%	100	%
Operating expenses:
Cost of revenue	43	%	42	%	42	%	42	%
Sales and marketing	28	%	25	%	26	%	24	%
Product development	10	%	10	%	9	%	10	%
General and administrative	17	%	15	%	18	%	16	%
Total operating expenses	98	%	92	%	95	%	91	%
Income from operations	2	%	8	%	5	%	9	%
Other income (expense), net	1	%	—	%	1	%	—	%
Income before income taxes	4	%	8	%	6	%	9	%
Provision for income taxes	1	%	2	%	2	%	3	%
Net income	2	%	6	%	4	%	6	%

__________________________________

Note: Percent totals may not sum exactly, due to rounding

24

Comparison of the Three Months Ended June 30, 2017 and 2016

The following table presents our results of operations for the periods indicated:

	Three Months Ended June 30,
	2017		2016			$ Change			% Change
	(in thousands)
Consolidated Statements of Operations:
Revenue	$	133,995	$	124,419		$	9,576		8	%
Operating expenses:
Cost of revenue	57,289		52,245			5,044			10
Sales and marketing	37,109		31,571			5,538			18
Product development	12,892		11,971			921			8
General and administrative	23,420		18,155			5,265			29
Total operating expenses	130,710		113,942			16,768			15
Income from operations	3,285		10,477			(7,192		)	(69	)
Other income (expense), net	1,510		(212		)	1,722			*
Income before income taxes	4,795		10,265			(5,470		)	(53	)
Provision for income taxes	1,729		3,016			(1,287		)	*
Net income	$	3,066	$	7,249		$	(4,183	)	(58	)%

__________________________________

*    Not meaningful

Revenue

Revenue increased by $9.6 million, or 8%, to $134.0 million in the three months ended June 30, 2017 compared to the same period in 2016. Excluding the impact of foreign currency fluctuations, revenue increased 9% in the three months ended June 30, 2017 compared to the same period in 2016. Increased activity by our enterprise customers was the primary driver of our revenue growth during the period, which in turn has driven a 9% increase in revenue per download as compared to the prior year. In addition, we continued to grow our e-commerce customer base and undertake initiatives focused on broadening our subscription product offerings, giving customers a greater choice of content plans to meet their needs. We believe these offerings will lead to sustained customer engagement over longer periods. In the three months ended June 30, 2017 and 2016, we delivered 42.7 million and 43.4 million paid downloads, respectively, and our revenue per download increased to $3.05 for the three months ended June 30, 2017 from $2.81 for the three months ended June 30, 2016.

In addition, revenue from North America increased by $3.2 million, or 6%, to $52.8 million in the three months ended June 30, 2017 compared to the same period in 2016, revenue from Europe increased by $3.0 million, or 7%, to $44.1 million in the three months ended June 30, 2017 compared to the same period in 2016, and revenue from the rest of the world increased by $3.4 million, or 10%, to $37.2 million in the three months ended June 30, 2017 compared to the same period in 2016.

Costs and Expenses

Cost of Revenue. Cost of revenue increased by $5.0 million, or 10%, to $57.3 million in the three months ended June 30, 2017 compared to the same period in 2016. Royalties increased $0.4 million, or 1%, which is attributable to the increase in revenue during the period. We anticipate royalties will continue growing in absolute dollars as revenue grows, although royalties as a percentage of revenue may vary somewhat from period to period primarily due to customer usage and product mix and to a lesser extent due to the contributors’ achievement of royalty target thresholds. Costs associated with website hosting and depreciation and amortization increased by $6.6 million to $10.5 million for the three months ended June 30, 2017 compared to the same period in 2016, related primarily to increased costs associated with technology and infrastructure enhancements.

Sales and Marketing. Sales and marketing expenses increased by $5.5 million, or 18%, to $37.1 million in the three months ended June 30, 2017 compared to the same period in 2016. Expenses related to brand and performance advertising, the largest component of our sales and marketing expenses, increased by $3.7 million, or 22%, to $20.2 million in the three months ended June 30, 2017 compared to the same period in 2016 as a result of increased spending on affiliate, search advertising and other new marketing channels. We anticipate that our global sales and marketing spend will continue to increase in absolute dollars for the foreseeable future as we continue to pursue growth through new products and geographies as well as growth from new customers.

25

Product Development. Product development expenses remained relatively unchanged from $12.0 million for the three months ended June 30, 2016 to $12.9 million for the three months ended June 30, 2017. We continue to increase our investment in product, engineering and quality assurance to support the increasing number of product development initiatives for our websites, including ongoing efforts to improve our search capabilities. A significant portion of this investment is capitalized as internal use software. We anticipate product development expenses to increase in the foreseeable future, of which a portion will continue to be capitalized, as we continue to invest in developing new products and internal tools and enhancing the functionality of our existing products and technology.

General and Administrative. General and administrative expenses increased by $5.3 million, or 29%, to $23.4 million in the three months ended June 30, 2017 compared to the same period in 2016. The most significant component of this increase relates to employee-related expenses which increased by $3.5 million, or 41%, to $12.1 million in the three months ended June 30, 2017 due to increases in our workforce to support our growth and improved efficiency and effectiveness of our infrastructure. In addition, we incurred approximately $0.8 million in professional fees related to our acquisition of Flashstock, which closed in July 2017. The remaining change in general and administrative expenses is attributable to various operating expenses associated with the overall growth in our business.

Other Income (Expense), Net. Other expenses generally include foreign currency gains and losses and changes in the fair value of contingent consideration related to the passage of time. During the three months ended June 30, 2017, nearly all of the $1.5 million of other income related to the remeasurement of our non-functional currency assets and liabilities. During the three months ended June 30, 2016, we incurred expense related to the change in the fair value of contingent consideration, which was mostly offset by foreign currency gains. Foreign currency transaction gains and losses could fluctuate in future periods as we continue to expand our international operations and increase the volume of business transacted in currencies other than the U.S. dollar.

Income Taxes. Income tax expense decreased by $1.3 million to $1.7 million in the three months ended June 30, 2017 compared to the same period in 2016. Our effective tax rate for the three months ended June 30, 2017 and 2016 was 36.1% and 29.4%, respectively. During the three months ended June 30, 2017, we incurred a net discrete tax expense related primarily to the tax effect of vested equity-based compensation, which increased our effective tax rate by 0.5%, and during the three months ended June 30, 2016, we incurred a net discrete tax benefit related primarily to the release of reserve for uncertain tax positions due to a lapse in the statute of limitations, which decreased our effective tax rate by 9.1%. Excluding these discrete items, our effective tax rate would have been 35.6% and 38.5% for the three months ended June 30, 2017 and 2016, respectively. The decrease in the effective tax rate for the three months ended June 30, 2017 resulted from additional benefits relating to the U.S. Research & Development tax credit and an increase of income in foreign jurisdictions with lower statutory rates.

26

Comparison of the Six Months EndedJune 30, 2017 and 2016

The following table presents our results of operations for the periods indicated:

	Six Months Ended June 30,
	2017		2016			$ Change			% Change
	(in thousands)
Consolidated Statements of Operations Data:
Revenue	$	264,219	$	241,071		$	23,148		10	%
Operating expenses:
Cost of revenue	109,700		100,308			9,392			9	%
Sales and marketing	69,612		58,659			10,953			19	%
Product development	23,936		23,196			740			3	%
General and administrative	47,383		37,609			9,774			26	%
Total operating expenses	250,631		219,772			30,859			14	%
Income from operations	13,588		21,299			(7,711		)	(36	)%
Other expense, net	1,965		(224		)	2,189			*
Income before income taxes	15,553		21,075			(5,522		)	(26	)%
Provision for income taxes	5,884		7,693			(1,809		)	*
Net income	$	9,669	$	13,382		$	(3,713	)	(28	)%

______________________________________

*    Not meaningful

Revenue

Revenue increased by $23.1 million, or 10%, to $264.2 million in the six months ended June 30, 2017 compared to the same period in 2016. Excluding the impact of foreign currency fluctuations, revenue for the six months ended June 30, 2017 increased 12% as compared to the same period in the prior year. We continue to grow our customer base and undertake initiatives focused on broadening our subscription product offerings, giving customers a greater choice of content plans to meet their needs. We believe these offerings will lead to sustained customer engagement over longer periods. As a result of these initiatives, the increase in revenue was primarily attributable to a 2%increase in the number of paid downloads, the acquisition of new customers and increased activity by our enterprise customers, driving a 7%increase in revenue per download. In the six months ended June 30, 2017 and 2016, we delivered 86.2 million and 84.6 million paid downloads, respectively, and our average revenue per download during these periods was $2.98 and $2.79, respectively.

In addition, revenue from North America increased by $8.9 million, or 9%, to $105.6 million in the six months ended June 30, 2017 compared to the same period in 2016, revenue from Europe increased by $6.4 million, or 8%, to $86.6 million in the six months ended June 30, 2017 compared to the same period in 2016, and revenue from the rest of the world increased by $7.9 million, or 12%, to $72.0 million in the six months ended June 30, 2017 compared to the same period in 2016.

Cost and Expenses

Cost of Revenue.   Cost of revenue increased by $9.4 million, or 9%, to $109.7 million in the six months ended June 30, 2017 compared to the same period in 2016. Royalties increased $2.2 million, or 3%,  which was attributable to the increases in revenue and paid downloads during the period. We anticipate royalties will continue growing in absolute dollars as revenue grows, although royalties as a percentage of revenue may vary somewhat from period to period primarily due to customer usage and product mix and to a lesser extent due to the contributors’ achievement of royalty target thresholds. Costs associated with website hosting and depreciation and amortization increased by $8.6 million to $16.1 million in the six months ended June 30, 2017 compared to the same period in 2016, related primarily to increased costs associated with technology and infrastructure enhancements.

Sales and Marketing.   Sales and marketing expenses increased by $11.0 million, or 19%, to $69.6 million in the six months ended June 30, 2017 compared to the same period in 2016. Expenses related to brand and performance advertising, the largest component of our sales and marketing expenses, increased by $9.0 million, or 31%, for the six months ended June 30, 2017 compared to the same period in 2016 as a result of increased spending on affiliate, search advertising and other new channels. We anticipate that our global advertising spend will continue to increase in absolute dollars for the foreseeable future, as we continue to pursue growth through new products and geographies as well as growth from new customers.

27

Product Development.   Product development expenses remained relatively unchanged at $23.9 million for the six months ended June 30, 2017. We continue to increase our investment in product, engineering and quality assurance to support the increasing number of product development initiatives for our websites, including ongoing efforts to improve our search capabilities. A significant portion of this investment is capitalized as internal use software. We anticipate product development expenses to increase in the foreseeable future, of which a portion will continue to be capitalized, as we continue to invest in developing new products and internal tools and enhancing the functionality of our existing products and technology.

General and Administrative.   General and administrative expenses increased by $9.8 million, or 26%, to $47.4 million in the six months ended June 30, 2017 compared to the same period in 2016. The most significant component of this increase relates to employee-related expenses, which increased by $5.8 million, or 33%, to $23.4 million in the six months ended June 30, 2017 due to increases in our workforce to support our growth and improved efficiency and effectiveness of our infrastructure. Additionally, professional service fees increased $4.1 million primarily relating to the procurement of specialized services pertaining to the organizational growth. The remaining offset in general and administrative expenses is attributable to various operating expenses associated with the overall growth in our business.

Other Income/(Expense), Net. Other expenses generally include foreign currency gains and losses and changes in the fair value of contingent consideration related to the passage of time.  During the six months ended June 30, 2017, nearly all of the $2.0 million of other income related to the remeasurement of our non-functional currency assets and liabilities. During the six months ended June 30, 2016, we incurred expense related to the change in the fair value of contingent consideration, which was mostly offset by foreign currency gains. Foreign currency transaction gains and losses could fluctuate in future periods as we continue to expand our international operations and increase the volume of business transacted in currencies other than the U.S. dollar.

Income Taxes.   Income tax expense decreased by $1.8 million to $5.9 million in the six months ended June 30, 2017 compared to the same period in 2016. Our effective tax rate for the six months ended June 30, 2017 and 2016 was 37.8% and 36.5%, respectively. During the six months ended June 30, 2017, we incurred a net discrete tax expense relating primarily to withholding tax incurred on income earned in foreign jurisdictions, which increased our effective tax rate by 3.6% and during the six months ended June 30, 2016, we incurred a net discrete tax benefit related primarily to the release of reserve for uncertain tax positions due to a lapse in the statute of limitations, which decreased our effective tax rate by 3.3%. Excluding these discrete items, the effective tax rate would have been 34.2% and 39.8% during the six months ended June 30, 2017 and 2016, respectively. The decrease in the effective tax rate for the six months ended June 30, 2017 resulted from additional benefits relating to the U.S. Research & Development tax credit and an increase of income in foreign jurisdictions with lower statutory rates.

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 certain customers’ usage may decrease during the fourth quarter of each calendar year due to the year-end holiday vacation season and may increase in the first quarter of each calendar year as many customers return to work. While we believe seasonal trends have affected and will continue to affect our quarterly results, our trajectory of rapid growth 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 tend to be smoother and less volatile than if we had no subscription-based customers.

In addition, expenditures on digital 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. 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.

Liquidity and Capital Resources

As of June 30, 2017, we had cash and cash equivalents and short term investments totaling $265.5 million. Cash and cash equivalents, which consist primarily of money market mutual funds and checking account balances, were $210.6 million. Our short-term investments, all of which mature in 90 days or less, were $55.0 million. Since inception, we have financed our operations primarily through cash flows generated from operations.

Historically, our principal uses of cash have been funding our operations, capital expenditures, content acquisition, business combinations that enhance our strategic position and share purchases under our share repurchase program. We plan to finance our operations and capital expenses largely through cash generated by our operations. Since our results of operations are sensitive to the level of competition we face, increased competition could adversely affect our liquidity and capital resources.

28

Acquisition of FlashStock Technologies, Inc.

On July 7, 2017, we completed our acquisition of FlashStock Technology, Inc. (“Flashstock”) for approximately $50.0 million, pursuant to a definitive agreement dated June 27, 2017. Approximately $45.9 million was funded on July 7, 2017 and the remaining $4.1 million will be funded in September 2017, all of which with existing cash on hand. Flashstock is a Toronto-based company that enables the creation of custom visual content through a propriety software platform.

Share Repurchase Program

In October 2015, our board of directors approved a share repurchase program, pursuant to which we are authorized to repurchase up to $100 million of our common stock, and in February 2017, our Board approved an additional repurchase program, under which we are authorized to repurchase up to an additional $100 million of our common stock. We expect to fund repurchases 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 this program, management is authorized to purchase shares 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 June 30, 2017, we have repurchased approximately 2,558,000 shares of our common stock under the share repurchase program at an average per-share cost of $39.09. As of June 30, 2017, we had $100.0 million remaining for share repurchases under this program.

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. Consistent with previous periods, we expect that future capital expenditures will primarily relate to acquiring additional servers and network connectivity hardware and software, enhancements to the functionality of our current platform, leasehold improvements and furniture and fixtures related to office expansion and relocation, digital content and general corporate infrastructure. In March 2017, we paid the full amount of the contingent purchase price for PremiumBeat of approximately $10.0 million. See Note 6 to our Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for information regarding existing capital commitments as of June 30, 2017.

Cash Flows

The following table summarizes our cash flow data for the six months ended June 30, 2017 and 2016 (in thousands).

	Six Months Ended June 30,
	2017			2016
Net cash provided by operating activities	$	40,405		$	40,240
Net cash used in investing activities	$	(28,690	)	$	(26,443	)
Net cash used in financing activities(1)	$	(32,769	)	$	(42,499	)

_______________________________________________________________________________

(1) Includes repurchase of common stock under the share repurchase program for the six months ended June 30, 2017 and 2016. No distributions or dividends have been paid during the periods presented.

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 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 $40.4 million for the six months ended June 30, 2017, compared to $40.2 million for the six months ended June 30, 2016. In the six months ended June 30, 2017, operating cash flows were impacted favorably by changes in the timing of payments pertaining to operating expenses, which can cause operating cash flow to fluctuate from period to period. The impact of these changes were mostly offset by the March 2017 payment of the contingent consideration related to the PremiumBeat acquisition.

29

Investing Activities

Cash used in investing activities in the six months ended June 30, 2017 was $28.7 million, consisting primarily of capital expenditures of $25.8 million to purchase software and equipment related to our data centers, capitalization of leasehold improvements and website development costs and $1.6 million paid to acquire the rights to distribute certain digital content in perpetuity.

Cash used in investing activities in the six months ended June 30, 2016 was $26.4 million, consisting primarily of capital expenditures of $16.3 million to purchase software and equipment related to our data centers, capitalization of leasehold improvements and website development costs and $1.5 million paid to acquire the rights to distribute certain digital content in perpetuity. In addition, we increased our position in short-term investments by $7.8 million, net of sales.

Financing Activities

Cash used in financing activities in the six months ended June 30, 2017 was $32.8 million, consisting primarily of $25.0 million paid for share repurchases during the period. Cash used in financing activities also included $3.7 million, which was paid in settlement of contingent consideration liabilities related to the 2015 acquisition of PremiumBeat and $5.0 million, which was paid in settlement of tax withholding obligations related to employee stock-based compensation awards. These amounts were partially offset by proceeds of approximately $0.9 million from the issuance of common stock in connection with the exercise of stock options.

Cash used in financing activities in the six months ended June 30, 2016 was $42.5 million, consisting primarily of $44.5 million paid for share repurchases during the period, which was partially offset by proceeds of approximately $3.5 million from the issuance of common stock in connection with the exercise of stock options and the sale of stock under our employee stock purchase plan.

Contractual Obligations and Commitments

We lease office facilities under operating lease agreements that expire on various dates through 2029. We do not have any material capital lease obligations and our property, equipment and software have been purchased primarily with cash. We anticipate expanding our office and co-location facilities as our revenue and customer base continue to grow and diversify. 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 future minimum lease payments under the lease, as amended, are approximately $80.5 million. We are also party to a letter of credit as a security deposit for this leased facility, which was increased to $2.6 million in January 2016 in connection with an amendment of the lease. As of June 30, 2017, the letter of credit is collateralized by $2.6 million of cash, which is reported as restricted cash on our consolidated balance sheet as of June 30, 2017.

Additionally, as of June 30, 2017, aggregate future minimum lease payments under other operating leases are approximately $5.8 million.

As of June 30, 2017, our guaranteed royalty payments and unconditional purchase obligations for the remainder of 2017 and for the fiscal years ending December 31, 2018, 2019 and 2020 were approximately $8.6 million, $15.4 million, $11.1 million and $8.2 million, respectively.

Other Commitments

On October 20, 2016, we entered into a multi-part transaction with an unrelated third-party contributor (the “Transaction Party”). The transaction included three primary components: (a) a revolving credit facility pursuant to which we would be obligated to lend up to $4.6 million under certain conditions, (the “Facility”) to the Transaction Party. The Facility has a term of five years and requires the Transaction Party to make quarterly payments of principal to us beginning on the fourth anniversary of the Facility. The Facility bears interest at 10.0%, with all interest payments deferred until maturity, and the entire unpaid balance of principal and accrued interest due upon maturity; (b) we will be the exclusive distributor of the Transaction Party’s content in certain markets subject to certain limitations; and (c) we may, at our option, may acquire the Transaction Party at any time after the third anniversary of the Facility or match any third-party acquisition offer with respect to the Transaction Party at any time until the fifth anniversary of the Facility. 

On March 27, 2017, the Facility was amended to reduce the maximum lending amount to $3.0 million.  Simultaneously, we invested $1.6 million in a convertible note issued by the Transaction Party, which matures on October 20, 2021.  The convertible note bears interest at 10.0%, with all interest payments deferred until maturity, and the entire unpaid balance of principal and accrued interest due upon maturity. The principal amount of the convertible note and any accrued and unpaid interest may be converted into equity of the Transaction Party at our option on the maturity date, or earlier upon certain events.

30

As of June 30, 2017, there were no borrowings under the Facility.

Off-Balance Sheet Arrangements

As of June 30, 2017, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K, that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

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 interest rate fluctuation, foreign currency exchange rate fluctuation and inflation.

Interest Rate Fluctuation Risk

Our investments include cash and cash equivalents, which consist of cash, commercial paper and money market accounts. The primary objective of our investment activities is to preserve principal while maximizing income without significantly increasing risk. Because our cash and cash equivalents have a maximum term of 90 days, our portfolio’s fair value is not particularly sensitive to interest rate changes.

We did not have any long-term borrowings as of June 30, 2017. 

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 34% and 32% for the three months ended June 30, 2017 and 2016, respectively. We have foreign currency exchange risks related to non-U.S. dollar denominated revenues. All amounts earned by and paid to our foreign contributors are denominated in the U.S. dollar. However, 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. Based on our foreign currency denominated revenue for the six months ended June 30, 2017, 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 their functional currency is 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 income (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 June 30,								Six Months Ended June 30,
	2017				2016				2017				2016
	U.S. Dollars		Originating Currency		U.S. Dollars		Originating Currency		U.S. Dollars		Originating Currency		U.S. Dollars		Originating Currency
Euro	$	24,332	€	22,151	$	20,609	€	18,245	$	47,184	€	43,602	$	39,207	€	35,116
British pounds	11,234		£	8,791	11,863		£	8,266	22,775		£	18,113	23,536		£	16,413
All other non-U.S. currencies(1)	9,395				8,467				18,164				15,956
Total foreign currency	44,961				40,939				88,123				78,699
U.S. dollar	89,034				83,480				176,096				162,372
Total revenue	$	133,995			$	124,419			$	264,219			$	241,071

(1) Includes no single currency which was greater than 5% of total revenue for any of the periods presented

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.

31

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 June 30, 2017. 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. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based on the evaluation of our disclosure controls and procedures as of June 30, 2017, 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.

32

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, 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 2016 Form 10-K which could materially affect our business, financial condition or future results. During the three months ended June 30, 2017, there were no material changes to the risk factors described in our 2016 Form 10-K.

Item 6.        Exhibits.

See the Exhibit Index immediately following the signature page of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

33

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: August 2, 2017	By:	/s/ Steven Berns
		Steven Berns
		Chief Operating Officer and Chief Financial Officer
		(Principal Financial Officer)
Dated: August 2, 2017	By:	/s/ Steven Ciardiello
		Steven Ciardiello
		Chief Accounting Officer
		(Principal Accounting Officer)

34

EXHIBIT INDEX

Exhibit
Number	Exhibit Description
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
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

______________________________________ 

#    Filed herewith.

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-14(a) OF

THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Jonathan Oringer, certify that:

1.          I have reviewed this quarterly report on Form 10-Q of Shutterstock, Inc.;

2.          Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.          Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.          The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.          Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.          Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.          Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.          Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.          The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.          All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.          Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 2, 2017	By:	/s/ Jonathan Oringer
		Jonathan Oringer
		Chief Executive Officer
		(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-14(a) OF

THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Steven Berns, certify that:

1.          I have reviewed this quarterly report on Form 10-Q of Shutterstock, Inc.;

2.          Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.          Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.          The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.          Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.          Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.          Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.          Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.          The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.          All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.          Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 2, 2017	By:	/s/ Steven Berns
		Steven Berns
		Chief Financial Officer
		(Principal Financial Officer)

EX-32

EXHIBIT 32

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Shutterstock, Inc., for the quarterly period ended June 30, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jonathan Oringer, as Chief Executive Officer of Shutterstock, Inc., hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Shutterstock, Inc.

Date: August 2, 2017	By:	/s/ Jonathan Oringer
		Jonathan Oringer
		Chief Executive Officer
		(Principal Executive Officer)

In connection with the Quarterly Report on Form 10-Q of Shutterstock, Inc., for the quarterly period ended June 30, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven Berns, as Chief Financial Officer of Shutterstock, Inc., hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Shutterstock, Inc.

Date: August 2, 2017	By:	/s/ Steven Berns
		Steven Berns
		Chief Financial Officer
		(Principal Financial Officer)

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2017	Jul. 28, 2017
Document and Entity Information
Entity Registrant Name	Shutterstock, Inc.
Entity Central Index Key	0001549346
Document Type	10-Q
Document Period End Date	Jun. 30, 2017
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		34,628,759
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q2

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Current assets:
Cash and cash equivalents	$ 210,550	$ 224,190
Short-term investments	54,963	54,972
Accounts receivable, net	38,178	38,107
Prepaid expenses and other current assets	29,241	22,569
Total current assets	332,932	339,838
Property and equipment, net	69,469	56,101
Intangible assets, net	30,157	30,157
Goodwill	50,977	49,271
Deferred tax assets, net	22,312	23,013
Other assets	5,117	3,398
Total assets	510,964	501,778
Current liabilities:
Accounts payable	3,042	7,305
Accrued expenses	44,368	41,106
Contributor royalties payable	20,777	20,473
Deferred revenue	135,990	122,235
Other liabilities	1,517	12,378
Total current liabilities	205,694	203,497
Deferred tax liability, net	1,836	2,147
Other non-current liabilities	11,891	9,438
Total liabilities	219,421	215,082
Commitments and contingencies (Note 6)
Stockholders’ equity:
Common stock, $0.01 par value; 200,000 shares authorized; 37,171 and 36,926 shares issued and 34,612 and 34,816 shares outstanding as of June 30, 2017 and December 31, 2016, respectively	372	369
Treasury stock, at cost; 2,559 and 2,110 shares as of June 30, 2017 and December 31, 2016, respectively	(100,027)	(77,567)
Additional paid-in capital	262,056	251,890
Accumulated comprehensive loss	(8,926)	(17,061)
Retained earnings	138,068	129,065
Total stockholders’ equity	291,543	286,696
Total liabilities and stockholders’ equity	$ 510,964	$ 501,778

XML

Consolidated Balance Sheets (Parenthetical) - $ / shares	Jun. 30, 2017	Dec. 31, 2016
Statement of Financial Position [Abstract]
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	200,000,000	200,000,000
Common stock, shares issued (in shares)	37,171,000	36,926,000
Common stock, shares outstanding (in shares)	34,612,000	34,816,000
Treasury stock, shares held in treasury (in shares)	2,559,000	2,110,000

XML

Consolidated Statements of Operations - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Income Statement [Abstract]
Revenue	$ 133,995	$ 124,419	$ 264,219	$ 241,071
Operating expenses:
Cost of revenue	57,289	52,245	109,700	100,308
Sales and marketing	37,109	31,571	69,612	58,659
Product development	12,892	11,971	23,936	23,196
General and administrative	23,420	18,155	47,383	37,609
Total operating expenses	130,710	113,942	250,631	219,772
Income from operations	3,285	10,477	13,588	21,299
Other income (expense), net	1,510	(212)	1,965	(224)
Income before income taxes	4,795	10,265	15,553	21,075
Provision for income taxes	1,729	3,016	5,884	7,693
Net income	$ 3,066	$ 7,249	$ 9,669	$ 13,382
Net income per share:
Basic (in dollars per share)	$ 0.09	$ 0.21	$ 0.28	$ 0.38
Diluted (in dollars per share)	$ 0.09	$ 0.20	$ 0.27	$ 0.37
Weighted average shares outstanding:
Basic (in shares)	34,581	34,957	34,589	35,166
Diluted (in shares)	35,250	35,642	35,421	35,870

XML

Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Statement of Comprehensive Income [Abstract]
Net income	$ 3,066	$ 7,249	$ 9,669	$ 13,382
Foreign currency translation gain (loss)	5,920	(4,261)	8,135	(2,405)
Unrealized gain on investments	0	154	0	218
Other comprehensive income (loss)	5,920	(4,107)	8,135	(2,187)
Comprehensive income	$ 8,986	$ 3,142	$ 17,804	$ 11,195

XML

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$ 9,669	$ 13,382
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	14,721	9,005
Deferred taxes	676	1,792
Non-cash equity-based compensation	13,243	14,605
Change in fair value of contingent consideration	0	2,495
Settlement of contingent consideration liability in excess of acquisition-date fair value	(6,255)	(1,640)
Bad debt expense	646	2,702
Chargeback and sales refund reserves	0	(92)
Changes in operating assets and liabilities:
Accounts receivable	(924)	(12,033)
Prepaid expenses and other current and non-current assets	(8,604)	(4,317)
Accounts payable and other current and non-current liabilities	4,980	(274)
Contributor royalties payable	136	1,598
Deferred revenue	12,117	13,017
Net cash provided by operating activities	40,405	40,240
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(25,769)	(16,294)
Investment purchases, net	(1,400)	(7,798)
Acquisition of digital content	(1,551)	(1,462)
Security deposit (payment)/release	30	(889)
Net cash used in investing activities	(28,690)	(26,443)
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of treasury shares	(24,977)	(44,468)
Proceeds from exercise of stock options	944	3,520
Proceeds from issuance of common stock under 2012 Employee Stock Purchase Plan	0	809
Cash paid related to settlement of employee taxes related to RSU vesting	(4,991)	0
Settlement of contingent consideration liability	(3,745)	(2,360)
Net cash (used in) provided by financing activities	(32,769)	(42,499)
Effect of foreign exchange rate changes on cash	7,414	(1,684)
Net decrease in cash and cash equivalents	(13,640)	(30,386)
Cash and cash equivalents, beginning of period	224,190	241,304
Cash and cash equivalents, end of period	210,550	210,918
Supplemental Disclosure of Cash Information:
Cash paid for income taxes	$ 3,329	$ 11,890

XML

Summary of Operations and Significant Accounting Policies

6 Months Ended

Jun. 30, 2017

Accounting Policies [Abstract]

Summary of Operations and Significant Accounting Policies

Summary of Operations and Significant Accounting Policies

Summary of Operations

Shutterstock, Inc., together with its subsidiaries (collectively, the “Company” or “Shutterstock”), is a global technology company that has created a two-sided marketplace for creative professionals to license content. The Company’s library of creative content includes: (a) digital imagery, which consists of licensed photographs, vectors, illustrations and video clips that customers use in their visual communications, such as websites, digital and print marketing materials, corporate communications, books, publications and video content; and (b) commercial music, which consists of high-quality music tracks and sound effects, and is often used to complement the digital imagery. The Company licenses creative content to its customers. Contributors upload their creative content to the Company’s websites in exchange for royalty payments based on customer download activity. The Company also offers digital asset management services through its cloud-based digital asset management platform. This service provides tools for customers to better manage creative content and brand management assets.

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 June 30, 2017, consolidated statements of operations and comprehensive income for the three and six months ended June 30, 2017 and 2016, and consolidated statement of cash flows for the six months ended June 30, 2017 and 2016 are unaudited. The consolidated balance sheet as of December 31, 2016, 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 only normal recurring adjustments necessary to state fairly the Company’s financial position as of June 30, 2017 and its consolidated results of operations, comprehensive income and cash flows for the three and six months ended June 30, 2017 and 2016. 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 three and six months ended June 30, 2017 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2017 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, 2016 included in the Company’s Annual Report on Form 10-K, which was filed with the SEC on February 27, 2017. 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 consolidation.

During the second quarter of 2017, the Company recorded immaterial adjustments to its unaudited condensed consolidated financial statements to (1) reduce revenue by approximately $0.6 million and (2) increase general and administrative expense by approximately $0.1 million, related to prior periods. The Company has concluded that the impact of the adjustment is not material to the results of operations or financial position for the current period or any prior quarterly or annual period financial statements; accordingly, the Company recorded the related adjustment in the three months ended June 30, 2017.

Certain 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 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 assessment of recoverability of property and equipment, the fair value of acquired goodwill and intangible assets, the grant-date fair value of non-cash equity-based compensation, the assessment of recoverability of deferred tax assets and the measurement of certain contingent non-income tax liabilities.

Restricted Cash

The Company’s restricted cash relates to security deposits for its office leases. As of June 30, 2017 and December 31, 2016, the Company had restricted cash of approximately $2.6 million in other assets that related to the lease for its headquarters in New York City, which expires in 2029. The carrying value of restricted cash approximates fair value.

Allowance for Doubtful Accounts

The Company’s accounts receivable consist 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 the aging of its accounts receivable and on a customer-by-customer basis where appropriate. The Company’s reserve analysis contemplates the Company’s historical loss rate on receivables, specific customer situations and the economic environments in which the Company operates. As of June 30, 2017 and December 31, 2016, the Company’s allowance for doubtful accounts was approximately $6.4 million and $5.5 million, respectively, which was included as a reduction of accounts receivable.

Deferred Rent

The Company records rent expense on a straight-line basis over the term of the related lease. The difference between the rent expense recognized and the actual payments made in accordance with the lease agreement is recognized as a deferred rent liability on the Company’s balance sheet. As of June 30, 2017 and December 31, 2016, the Company had deferred rent of $10.9 million and $8.6 million, respectively, which was included in other non-current liabilities.

Chargeback and Sales Refund Allowance

The majority of the Company’s customers purchase products by making an electronic payment with a credit card at the time of a transaction. 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 June 30, 2017 and December 31, 2016, the Company’s combined allowance for chargebacks and sales refunds was $0.6 million, which was included in other liabilities.

Recently Adopted Accounting Standard Updates

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employees Share-Based Payment Accounting (“ASU 2016-09”). This ASU changes how companies account for certain aspects of share-based payment awards to employees, including the requirement for all income tax effects related to settlements of share-based payment awards be reported in earnings as an increase or decrease to income tax expense, providing the Company an accounting policy election to either recognize forfeitures as they occur or record an estimate, and requires that all income tax-related cash flows resulting from share-based payments be reported as operating activities in the statement of cash flows.

The Company adopted ASU 2016-09 on January 1, 2017. All income tax effects related to settlements of share-based payment awards will be reported as an increase or decrease to the provision for income taxes. In addition, starting January 1, 2017, the Company will account for forfeitures as they occur and, as of January 1, 2017, recognized a $0.7 million reduction to retained earnings as the cumulative effect of the change in accounting principle. The Company adopted the cash flow presentation component of ASU 2016-09 retrospectively, and accordingly, decreased cash flows from operating activities by $1.4 million and increased cash flows from financing activities by $1.4 million for the six months ended June 30, 2016.

Recently Issued Accounting Standard Updates

In November 2016, the FASB issued ASU 2016-18, Statements of Cash Flows (Topic 230): Restricted Cash, which requires entities to present restricted cash with cash and cash equivalents on the statement of cash flows when reconciling the total beginning and ending amounts for the periods shown on the statement of cash flows. ASU 2016-18 is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. The Company is evaluating the impact of adopting this new accounting standard on its financial statements. The balance of the Company’s restricted cash was $2.6 million as of June 30, 2017.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments. ASU 2016-13 replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses. The ASU is intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. Adoption of this guidance is required, prospectively, for annual periods beginning after December 15, 2019, with early adoption permitted for annual periods beginning after December 15, 2018. The Company is evaluating the impact of adopting this new accounting standard on its financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires that the rights and obligations created by leases with a duration greater than 12 months be recorded as assets and liabilities on the balance sheet of the lessee. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 and can be applied using a modified retrospective approach for all leases entered into before the effective date. Early adoption is permitted. The Company is evaluating the impact of adopting this new accounting standard on its financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09, and its related amendments, provides a unified model to determine when and how revenue is recognized and requires certain additional disclosures around the nature, amount, timing, and uncertainty of revenue and cash flows arising from customers. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 will be effective for the fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. This new guidance may be applied retrospectively to each prior period (full retrospective) or retrospectively with the cumulative effect recognized as of the date of initial application (modified retrospective). The Company expects to adopt this guidance in the first quarter of fiscal 2018 and apply the modified retrospective approach. The Company is evaluating the impact of adopting this new accounting standard on its financial statements.

XML

Fair Value Measurements

6 Months Ended

Jun. 30, 2017

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

The following tables present the Company’s fair value hierarchy for its assets and liabilities (in thousands):

	As of June 30, 2017
	Aggregate Fair Value		Level 1		Level 2		Level 3
Assets:
Money market accounts	$	76,793	$	76,793	$	—	$	—
Commercial paper	$	54,963	—		54,963		—
Total assets measured at fair value	$	131,756	$	76,793	$	54,963	$	—

	As of December 31, 2016
	Aggregate Fair Value		Level 1		Level 2		Level 3
Assets:
Money market accounts	$	81,623	$	81,623	$	—	$	—
Commercial paper	$	54,972	—		54,972		—
Total assets measured at fair value	$	136,595	$	81,623	$	54,972	$	—
Liabilities:
Acquisition related contingent consideration	$	10,000	$	—	$	—	$	10,000
Total liabilities measured at fair value	$	10,000	$	—	$	—	$	10,000

Money Market Accounts

Cash equivalents include money market accounts which are classified as a level 1 measurement based on quoted prices in active markets for identical assets that the Company can access at the measurement date. The total amount of money market accounts included in cash and cash equivalents was $76.8 million and $81.6 million as of June 30, 2017 and December 31, 2016, respectively.

Commercial Paper

The Company’s short-term investments consist of commercial paper with original maturities of 90 days or less. Commercial paper is classified as a level 2 measurement based on quoted market prices for identical assets, which are subject to infrequent transactions. The total amount of commercial paper included in short-term investments was $55.0 million as of June 30, 2017 and December 31, 2016.

Acquisition-Related Contingent Consideration

As of December 31, 2016, the settlement amount of the contingent consideration related to the Company’s acquisition of PremiumBeat was determined to be $10.0 million and was included in other liabilities. This contingency was considered a level 3 measurement. No changes in fair value were recorded during the six months ended June 30, 2017. The contingent consideration of $10.0 million was paid in March 2017, and there was no remaining liability as of June 30, 2017.

Other Fair Value Measurements

Cash, accounts receivable, restricted cash, accounts payable, accrued expenses and deferred revenue carrying amounts approximate fair value because of the short-term nature of these instruments. 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 certain triggering events occur, or if an annual impairment test is required and the Company is required to evaluate the non-financial asset for impairment, a resulting asset impairment would require that non-financial assets be recorded at fair value.

XML

Property and Equipment

6 Months Ended

Jun. 30, 2017

Property, Plant and Equipment [Abstract]

Property and Equipment

Property and Equipment

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

	As of June 30, 2017			As of December 31, 2016
Computer equipment and software	$	85,779		$	63,711
Furniture and fixtures	4,503			3,434
Leasehold improvements	23,165			20,944
Property and equipment	113,448			88,089
Less accumulated depreciation	(43,979		)	(31,988		)
Property and equipment, net	$	69,469		$	56,101

Depreciation expense related to property and equipment was $6.3 million and $3.5 million for the three months ended June 30, 2017 and 2016, respectively, and $11.9 million and $6.5 million for the six months ended June 30, 2017 and 2016, respectively. Depreciation expense is included in cost of revenue and general and administrative expense based on the nature of the asset being depreciated.

Capitalized Internal-Use Software

The Company capitalized costs related to the development of internal-use software of $7.9 million and $3.4 million for the three months ended June 30, 2017 and 2016, respectively, and $14.6 million and $6.2 million for the six months ended June 30, 2017 and 2016, respectively. Capitalized amounts are included as a component of property and equipment under computer equipment and software.

The portion of total depreciation expense related to capitalized internal-use software was $2.9 million and $0.7 million for the three months ended June 30, 2017 and 2016, respectively, and $5.0 million and $1.2 million for the six months ended June 30, 2017 and 2016, respectively. Depreciation expense related to capitalized internal-use software is included in cost of revenue and general and administrative expense.

As of June 30, 2017 and December 31, 2016, the Company had capitalized internal-use software of $29.9 million and $20.3 million, respectively, net of accumulated depreciation, which was included in property and equipment, net.

XML

Goodwill and Intangible Assets

6 Months Ended

Jun. 30, 2017

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets

Goodwill and Intangible Assets

Goodwill

The Company’s goodwill balance is attributable to its Bigstock, Editorial, Music and Webdam reporting units and is tested for impairment at least annually on October 1 or upon a triggering event. Bigstock, Music and Editorial are included in the Company's “Content Business” reporting segment while Webdam is included in the non-reportable “Other Category”. The following table summarizes the changes in the Company’s goodwill balance by reportable and non-reportable segments through June 30, 2017 (in thousands):

	Consolidated		Content Business		Other Category
Balance as of December 31, 2016	$	49,271	$	40,508	$	8,763
Foreign currency translation adjustment	1,706		1,706		—
Balance as of June 30, 2017	$	50,977	$	42,214	$	8,763

No triggering events were identified during the six months ended June 30, 2017.

Intangible Assets

Intangible assets consisted of the following as of June 30, 2017 and December 31, 2016 (in thousands):

	As of June 30, 2017						As of December 31, 2016
	Gross Carrying Amount		Accumulated Amortization			Weighted Average Life (Years)	Gross Carrying Amount		Accumulated Amortization
Amortizing intangible assets:
Customer relationships	$	17,424	$	(5,566	)	9	$	16,712	$	(4,344	)
Trade name	7,184		(2,336		)	7	6,677		(2,030		)
Developed technology	3,211		(2,895		)	4	3,224		(1,934		)
Contributor content	14,943		(2,101		)	11	12,958		(1,386		)
Patents	259		(59		)	18	227		(52		)
Domain name	160		(67		)	12	160		(55		)
Total	$	43,181	$	(13,024	)		$	39,958	$	(9,801	)

Amortization expense was $1.4 million and $1.3 million for the three months ended June 30, 2017 and 2016, respectively, and $2.8 million and $2.5 million for the six months ended June 30, 2017 and 2016, respectively. The Company determined that there was no indication of impairment of the intangible assets for any period presented. Estimated amortization expense for the next five years is: $2.9 million for the remaining six months of 2017, $4.7 million in 2018, $4.5 million in 2019, $3.9 million in 2020, $3.4 million in 2021, $2.6 million in 2022 and $8.3 million thereafter.

XML

Accrued Expenses

6 Months Ended

Jun. 30, 2017

Payables and Accruals [Abstract]

Accrued Expenses

Accrued Expenses

Accrued expenses consisted of the following (in thousands):

	As of June 30, 2017		As of December 31, 2016
Compensation	$	11,762	$	13,732
Non-income taxes	5,881		7,383
Royalty tax withholdings	7,337		6,921
Other expenses	19,388		13,070
Total accrued expenses	$	44,368	$	41,106

XML

Commitments and Contingencies

6 Months Ended

Jun. 30, 2017

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

The Company leases facilities under agreements accounted for as operating leases. Rental expense for operating leases was $2.0 million and $1.4 million for the three months ended June 30, 2017 and 2016, respectively, and $4.2 million and $3.0 million for the six months ended June 30, 2017 and 2016, respectively. Some leases have defined escalating rent provisions, which are expensed over the term of the related lease on a straight-line basis commencing with the date of possession. Any rent allowance or abatement is netted in this calculation. All leases require payment of real estate taxes and operating expense increases.

In 2016, the Company’s lease for its office facility in New York City was amended to, among other things, provide for the lease of approximately 25,000 square feet of additional office space and extend the term of the lease. In connection with the underlying lease agreement, the Company entered into a letter of credit as a security deposit for the leased facilities, which was increased to $2.6 million in connection with the 2016 amendment. The letter of credit was collateralized by $2.6 million of cash as of June 30, 2017, which is recorded as restricted cash and is included in other assets in the consolidated balance sheet. As amended, the lease is scheduled to expire in 2029 and aggregate future minimum payments under the amended lease are approximately $80.5 million.

Other Commitments

On October 20, 2016, the Company entered into a multi-part transaction with an unrelated third-party contributor (the “Transaction Party”). The transaction included three primary components: (a) a revolving credit facility pursuant to which the Company would be obligated to lend up to $4.6 million under certain conditions (the “Facility”) to the Transaction Party. The Facility has a term of five years and requires the Transaction Party to make quarterly payments of principal to the Company beginning on the fourth anniversary of the Facility. The Facility bears interest at 10.0%, with all interest payments deferred until maturity, and the entire unpaid balance of principal and accrued interest due upon maturity; (b) the Company will be the exclusive distributor of the Transaction Party’s content in certain markets subject to certain limitations; and (c) the Company, at its option, may acquire the Transaction Party at any time after the third anniversary of the Facility or match any third-party acquisition offer with respect to the Transaction Party at any time until the fifth anniversary of the Facility. 

On March 27, 2017, the Facility was amended to reduce the maximum lending amount to $3.0 million.  Simultaneously, the Company invested $1.6 million in a convertible note issued by the Transaction Party, which matures on October 20, 2021.  The convertible note bears interest at 10%, with all interest payments deferred until maturity, and the entire unpaid balance of principal and accrued interest due upon maturity. The principal amount of the convertible note and any accrued and unpaid interest may be converted into equity of the Transaction Party at the Company’s option on the maturity date, or earlier upon certain events.

As of June 30, 2017, there have been no borrowings under the Facility and the Company’s $1.6 million investment in the convertible note is included as a component of other non-current assets.

Other Obligations

As of June 30, 2017, the Company had other obligations in the amount of approximately $43.3 million, which consisted primarily of minimum royalty guarantees and unconditional purchase obligations related to contracts for infrastructure and other business services. As of June 30, 2017, the Company’s other obligations for the remainder of 2017 and for the years ending December 31, 2018, 2019 and 2020 were approximately $8.6 million, $15.4 million, $11.1 million and $8.2 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, as such, no material reserves related to litigation.

Indemnification and Employment Agreements

In the ordinary course of business, the Company enters into contractual agreements 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 an image is used. The Company’s license agreements generally cap indemnification obligations at amounts ranging from $10,000 to $250,000, with exceptions for certain products for which the Company’s indemnification obligations are uncapped. As of June 30, 2017, the Company had recorded no material liabilities related to indemnification obligations in accordance with the authoritative guidance 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 with or without cause and in the event of a change in control.

XML

Stockholders’ Equity and Equity-Based Compensation

6 Months Ended

Jun. 30, 2017

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stockholders’ Equity and Equity-Based Compensation

Stockholders’ Equity and Equity-Based Compensation

Stockholders’ Equity

Common Stock

During the six months ended June 30, 2017, the Company issued approximately 245,000 shares of common stock, primarily related to the exercise of stock options and the vesting of restricted stock units (“RSUs”).

Treasury Stock

In October 2015, the Company’s Board of Directors approved a share repurchase program, pursuant to which the Company is authorized 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, pursuant to which the Company is authorized to repurchase up to an additional $100 million of its outstanding common stock. The Company expects to fund future repurchases through a combination of cash on hand, cash generated by operations and future financing transactions, if needed. Accordingly, the Company’s share repurchase program is subject to the Company having available cash to fund repurchases. Under the program, the Company is authorized to purchase shares 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 six months ended June 30, 2017, the Company repurchased approximately 449,000 shares of its common stock under the share repurchase program at an average per-share cost of approximately $50.04. As of June 30, 2017, the Company had $100.0 million remaining for purchases under the share repurchase program.

Equity-Based Compensation

The Company recognizes stock-based compensation expense for all share-based payment awards, including employee stock options and RSUs granted under the 2012 Omnibus Equity Incentive Plan and sales of shares of common stock under the 2012 Employee Stock Purchase Plan (the “2012 ESPP”), based on each award’s fair value on the grant date.

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 six months ended June 30, 2017 and 2016 (in thousands): 

	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Cost of revenue	$	225	$	521	$	433	$	1,054
Sales and marketing	1,226		1,357		2,444		2,548
Product development	2,004		2,003		3,260		4,152
General and administrative	3,833		3,371		7,107		6,851
Total	$	7,287	$	7,252	$	13,243	$	14,605

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 six months ended June 30, 2017 and 2016 (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Stock options	$	1,858	$	1,892	$	3,424	$	3,628
RSUs	5,429		5,207		9,819		10,652
ESPP shares	—		153		—		325
Total	$	7,287	$	7,252	$	13,243	$	14,605

Stock Option Awards

During the six months ended June 30, 2017, the Company granted options to purchase approximately 80,000 shares of its common stock with a weighted average exercise price of $48.53. As of June 30, 2017, there were approximately 315,000 options vested and exercisable with a weighted average exercise price of $35.60. As of June 30, 2017, the total unrecognized compensation charge related to non-vested options was approximately $18.0 million, which is expected to be recognized through 2021.

Restricted Stock Units

During the six months ended June 30, 2017, the Company granted approximately 329,000 RSUs, net of forfeitures. As of June 30, 2017 there are approximately 1,308,000 non-vested RSUs outstanding. As of June 30, 2017, the total unrecognized non-cash equity-based compensation charge related to the non-vested RSUs was approximately $47.9 million, which is expected to be recognized through fiscal year 2021.

During the six months ended June 30, 2017, shares with an aggregate value of $5.0 million were withheld upon vesting of RSUs and in connection with related remittance to taxing authorities.

ESPP Shares

In December 2016, the Company’s Board of Directors suspended the 2012 ESPP. During the six months ended June 30, 2017, no shares of the Company’s common stock were issued under the 2012 ESPP.

XML

Employee Benefit Plans

6 Months Ended

Jun. 30, 2017

Compensation and Retirement Disclosure [Abstract]

Employee Benefit Plans

Employee Benefit Plans

The Company has a 401(k) defined contribution plan and provides for annual discretionary employer matching contributions not to exceed 3% of employees’ base compensation per year. Matching contributions are fully vested and non-forfeitable at all times. The Company recorded expenses related to employer matching contributions of $0.5 million for the three months ended June 30, 2017 and 2016, and $0.9 million and $1.0 million for the six months ended June 30, 2017 and 2016, respectively.

XML

Other Expense, Net

6 Months Ended

Jun. 30, 2017

Other Nonoperating Income (Expense) [Abstract]

Other Expense, Net

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 six months ended June 30, 2017 and 2016 (in thousands):

	Three Months Ended June 30,					Six Months Ended June 30,
	2017		2016			2017		2016
Foreign currency gain (loss)	$	1,295	$	(123	)	$	1,660	$	547
Change in fair value of contingent consideration	—		(130		)	—		(844		)
Interest income	216		41			306		73
Total income (expense)	$	1,510	$	(212	)	$	1,965	$	(224	)

XML

Income Taxes

6 Months Ended

Jun. 30, 2017

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The Company’s effective tax rates were 36.1% and 29.4% for the three months ended June 30, 2017 and 2016, respectively, and 37.8% and 36.5% for the six months ended June 30, 2017 and 2016, respectively.  In the three months ended June 30, 2017, the Company incurred discrete tax items relating primarily to the tax effect of vested equity-based compensation, and in the six months ended June 30, 2017, the Company incurred discrete tax items relating primarily to withholding tax incurred on income earned in foreign jurisdictions. The net effect of discrete items increased the effective tax rate by 0.5% and 3.6%, respectively. In the three and six months ended June 30, 2016, the Company incurred a discrete tax benefit related primarily to the release of reserve for uncertain tax positions due to a lapse in the statute of limitations which decreased the effective tax rate by 9.1% and 3.3%, respectively.

The Company has computed the provision for income taxes based on the estimated annual effective tax rate and the application of discrete items, if any, in the applicable period. The estimated annual effective tax rate differs from the statutory tax rate due primarily to an increase of income in foreign jurisdictions with lower statutory rates.

During the three and six months ended June 30, 2017 and 2016, unrecognized tax benefits recorded by the Company for uncertain tax positions taken in prior years were not material. During the three and six months ended June 30, 2016, the Company recognized a tax benefit of approximately $1.2 million related to the release of reserve for uncertain tax positions due to a lapse in the statute of limitations. To the extent the remaining unrecognized tax benefits are ultimately recognized, the Company’s effective tax rate may be impacted in future periods.

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 material for the three and six months ended June 30, 2017 and 2016.

As of June 30, 2017, the Company had approximately $10.4 million of undistributed earnings attributable to its foreign subsidiaries. It is the Company’s practice and intention to indefinitely reinvest the earnings of its foreign subsidiaries in those operations. The Company has not provided deferred U.S. income taxes or foreign withholding taxes on temporary differences resulting from the earnings indefinitely reinvested outside the United States. It is currently not practicable for the Company to calculate the associated unrecognized deferred tax liability.

XML

Net Income Per Share

6 Months Ended

Jun. 30, 2017

Earnings Per Share [Abstract]

Net Income Per Share

Net Income Per Share

Basic net income per share is computed by dividing the net income attributable to common stockholders by the weighted average number of common shares outstanding during the period. Any potential issuance of common shares, including those that are contingent and do not participate in dividends, is excluded from weighted average number of common shares outstanding. Income available to common stockholders is computed by deducting income allocated to participating securities, if any, including unvested shares for the restricted award holder since these unvested shares have participating rights.

Diluted net income per share is computed by dividing the net income attributable to common stockholders by the weighted average common shares outstanding and all potential common shares, if they are dilutive.

A reconciliation of assumed exercised shares used in calculating basic and diluted net income per share follows (in thousands):

	Three Months Ended June 30,		Six Months Ended June 30,
	2017	2016	2017	2016
Weighted average shares outstanding:
Basic	34,581	34,957	34,589	35,166
Stock options and ESPP shares	473	479	484	415
Unvested RSUs and restricted stock awards	196	206	348	289
Diluted	35,250	35,642	35,421	35,870
Dilutive securities included in the calculation	1,646	1,907	1,786	1,860
Anti-dilutive securities excluded from the calculation	1,091	1,259	1,086	1,165

XML

Geographic Information

6 Months Ended

Jun. 30, 2017

Segment Reporting [Abstract]

Geographic Information

Geographic Information

The following table presents the Company’s revenue based on customer location (in thousands): 

	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
North America	$	52,771	$	49,565	$	105,569	$	96,707
Europe	44,064		41,094		86,637		80,280
Rest of the world	37,160		33,760		72,013		64,084
Total revenue	$	133,995	$	124,419	$	264,219	$	241,071

The United States, included in North America in the above table, accounted for 35% and 35% of consolidated revenue for the three months ended June 30, 2017 and 2016, respectively and 36% and 36% of total revenue for the six months ended June 30, 2017 and 2016, respectively. The United Kingdom, included in Europe in the above table, accounted for 9% and 10% of total revenue for the three months ended June 30, 2017 and 2016, respectively, and 9% and 10% of total revenue for the six months ended June 30, 2017 and 2016, 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): 

	June 30,		December 31,
	2017		2016
North America	$	68,294	$	54,913
Europe	1,097		1,141
Rest of the world	78		47
Total long-lived tangible assets	$	69,469	$	56,101

The United States, included in North America in the above table, accounted for 95% of total long-lived tangible assets as of June 30, 2017 and December 31, 2016.

XML

Subsequent Events

6 Months Ended

Jun. 30, 2017

Subsequent Events [Abstract]

Subsequent Events

Subsequent Events

On July 7, 2017, the Company, through its indirect wholly-owned subsidiary, completed its acquisition of all of the outstanding shares of FlashStock Technology, Inc. (“Flashstock”) for approximately $50 million, pursuant to a definitive agreement dated June 27, 2017. Approximately $45.9 million was funded on July 7, 2017 and the remaining $4.1 million will be funded in September 2017, all of which with existing cash on hand. Flashstock is a Toronto-based company that enables the creation of custom content through a propriety software platform.

XML

Summary of Operations and Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2017

Accounting Policies [Abstract]

Basis of Presentation

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.

Unaudited Interim Financial Statements

The interim consolidated balance sheet as of June 30, 2017, consolidated statements of operations and comprehensive income for the three and six months ended June 30, 2017 and 2016, and consolidated statement of cash flows for the six months ended June 30, 2017 and 2016 are unaudited. The consolidated balance sheet as of December 31, 2016, 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 only normal recurring adjustments necessary to state fairly the Company’s financial position as of June 30, 2017 and its consolidated results of operations, comprehensive income and cash flows for the three and six months ended June 30, 2017 and 2016. 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 three and six months ended June 30, 2017 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2017 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, 2016 included in the Company’s Annual Report on Form 10-K, which was filed with the SEC on February 27, 2017. 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 consolidation.

During the second quarter of 2017, the Company recorded immaterial adjustments to its unaudited condensed consolidated financial statements to (1) reduce revenue by approximately $0.6 million and (2) increase general and administrative expense by approximately $0.1 million, related to prior periods. The Company has concluded that the impact of the adjustment is not material to the results of operations or financial position for the current period or any prior quarterly or annual period financial statements; accordingly, the Company recorded the related adjustment in the three months ended June 30, 2017.

Certain changes in presentation have been made to conform the prior period presentation to current period reporting.

Use of Estimates

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 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 assessment of recoverability of property and equipment, the fair value of acquired goodwill and intangible assets, the grant-date fair value of non-cash equity-based compensation, the assessment of recoverability of deferred tax assets and the measurement of certain contingent non-income tax liabilities.

Restricted Cash

Restricted Cash

The Company’s restricted cash relates to security deposits for its office leases. As of June 30, 2017 and December 31, 2016, the Company had restricted cash of approximately $2.6 million in other assets that related to the lease for its headquarters in New York City, which expires in 2029. The carrying value of restricted cash approximates fair value.

Allowance for Doubtful Accounts

Allowance for Doubtful Accounts

The Company’s accounts receivable consist 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 the aging of its accounts receivable and on a customer-by-customer basis where appropriate. The Company’s reserve analysis contemplates the Company’s historical loss rate on receivables, specific customer situations and the economic environments in which the Company operates.

Deferred Rent

Deferred Rent

The Company records rent expense on a straight-line basis over the term of the related lease. The difference between the rent expense recognized and the actual payments made in accordance with the lease agreement is recognized as a deferred rent liability on the Company’s balance sheet.

Chargeback and Sales Refund Allowance

Chargeback and Sales Refund Allowance

The majority of the Company’s customers purchase products by making an electronic payment with a credit card at the time of a transaction. 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.

Recently Adopted and Issued Accounting Standard Updates

Recently Adopted Accounting Standard Updates

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employees Share-Based Payment Accounting (“ASU 2016-09”). This ASU changes how companies account for certain aspects of share-based payment awards to employees, including the requirement for all income tax effects related to settlements of share-based payment awards be reported in earnings as an increase or decrease to income tax expense, providing the Company an accounting policy election to either recognize forfeitures as they occur or record an estimate, and requires that all income tax-related cash flows resulting from share-based payments be reported as operating activities in the statement of cash flows.

The Company adopted ASU 2016-09 on January 1, 2017. All income tax effects related to settlements of share-based payment awards will be reported as an increase or decrease to the provision for income taxes. In addition, starting January 1, 2017, the Company will account for forfeitures as they occur and, as of January 1, 2017, recognized a $0.7 million reduction to retained earnings as the cumulative effect of the change in accounting principle. The Company adopted the cash flow presentation component of ASU 2016-09 retrospectively, and accordingly, decreased cash flows from operating activities by $1.4 million and increased cash flows from financing activities by $1.4 million for the six months ended June 30, 2016.

Recently Issued Accounting Standard Updates

In November 2016, the FASB issued ASU 2016-18, Statements of Cash Flows (Topic 230): Restricted Cash, which requires entities to present restricted cash with cash and cash equivalents on the statement of cash flows when reconciling the total beginning and ending amounts for the periods shown on the statement of cash flows. ASU 2016-18 is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. The Company is evaluating the impact of adopting this new accounting standard on its financial statements. The balance of the Company’s restricted cash was $2.6 million as of June 30, 2017.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments. ASU 2016-13 replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses. The ASU is intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. Adoption of this guidance is required, prospectively, for annual periods beginning after December 15, 2019, with early adoption permitted for annual periods beginning after December 15, 2018. The Company is evaluating the impact of adopting this new accounting standard on its financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires that the rights and obligations created by leases with a duration greater than 12 months be recorded as assets and liabilities on the balance sheet of the lessee. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 and can be applied using a modified retrospective approach for all leases entered into before the effective date. Early adoption is permitted. The Company is evaluating the impact of adopting this new accounting standard on its financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09, and its related amendments, provides a unified model to determine when and how revenue is recognized and requires certain additional disclosures around the nature, amount, timing, and uncertainty of revenue and cash flows arising from customers. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 will be effective for the fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. This new guidance may be applied retrospectively to each prior period (full retrospective) or retrospectively with the cumulative effect recognized as of the date of initial application (modified retrospective). The Company expects to adopt this guidance in the first quarter of fiscal 2018 and apply the modified retrospective approach. The Company is evaluating the impact of adopting this new accounting standard on its financial statements.

XML

Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2017

Fair Value Disclosures [Abstract]

Schedule of fair value measurements

The following tables present the Company’s fair value hierarchy for its assets and liabilities (in thousands):

	As of June 30, 2017
	Aggregate Fair Value		Level 1		Level 2		Level 3
Assets:
Money market accounts	$	76,793	$	76,793	$	—	$	—
Commercial paper	$	54,963	—		54,963		—
Total assets measured at fair value	$	131,756	$	76,793	$	54,963	$	—

	As of December 31, 2016
	Aggregate Fair Value		Level 1		Level 2		Level 3
Assets:
Money market accounts	$	81,623	$	81,623	$	—	$	—
Commercial paper	$	54,972	—		54,972		—
Total assets measured at fair value	$	136,595	$	81,623	$	54,972	$	—
Liabilities:
Acquisition related contingent consideration	$	10,000	$	—	$	—	$	10,000
Total liabilities measured at fair value	$	10,000	$	—	$	—	$	10,000

XML

Property and Equipment (Tables)

6 Months Ended

Jun. 30, 2017

Property, Plant and Equipment [Abstract]

Summary of property and equipment

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

	As of June 30, 2017			As of December 31, 2016
Computer equipment and software	$	85,779		$	63,711
Furniture and fixtures	4,503			3,434
Leasehold improvements	23,165			20,944
Property and equipment	113,448			88,089
Less accumulated depreciation	(43,979		)	(31,988		)
Property and equipment, net	$	69,469		$	56,101

XML

Goodwill and Intangible Assets (Tables)

6 Months Ended

Jun. 30, 2017

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of changes in goodwill

The following table summarizes the changes in the Company’s goodwill balance by reportable and non-reportable segments through June 30, 2017 (in thousands):

	Consolidated		Content Business		Other Category
Balance as of December 31, 2016	$	49,271	$	40,508	$	8,763
Foreign currency translation adjustment	1,706		1,706		—
Balance as of June 30, 2017	$	50,977	$	42,214	$	8,763

Schedule of intangible assets

Intangible assets consisted of the following as of June 30, 2017 and December 31, 2016 (in thousands):

	As of June 30, 2017						As of December 31, 2016
	Gross Carrying Amount		Accumulated Amortization			Weighted Average Life (Years)	Gross Carrying Amount		Accumulated Amortization
Amortizing intangible assets:
Customer relationships	$	17,424	$	(5,566	)	9	$	16,712	$	(4,344	)
Trade name	7,184		(2,336		)	7	6,677		(2,030		)
Developed technology	3,211		(2,895		)	4	3,224		(1,934		)
Contributor content	14,943		(2,101		)	11	12,958		(1,386		)
Patents	259		(59		)	18	227		(52		)
Domain name	160		(67		)	12	160		(55		)
Total	$	43,181	$	(13,024	)		$	39,958	$	(9,801	)

XML

Accrued Expenses (Tables)

6 Months Ended

Jun. 30, 2017

Payables and Accruals [Abstract]

Schedule of accrued expenses

Accrued expenses consisted of the following (in thousands):

	As of June 30, 2017		As of December 31, 2016
Compensation	$	11,762	$	13,732
Non-income taxes	5,881		7,383
Royalty tax withholdings	7,337		6,921
Other expenses	19,388		13,070
Total accrued expenses	$	44,368	$	41,106

XML

Stockholders’ Equity and Equity-Based Compensation (Tables)

6 Months Ended

Jun. 30, 2017

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Summary of non-cash equity-based compensation expense included in the Company's statement of operations

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 six months ended June 30, 2017 and 2016 (in thousands): 

	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Cost of revenue	$	225	$	521	$	433	$	1,054
Sales and marketing	1,226		1,357		2,444		2,548
Product development	2,004		2,003		3,260		4,152
General and administrative	3,833		3,371		7,107		6,851
Total	$	7,287	$	7,252	$	13,243	$	14,605

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 six months ended June 30, 2017 and 2016 (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Stock options	$	1,858	$	1,892	$	3,424	$	3,628
RSUs	5,429		5,207		9,819		10,652
ESPP shares	—		153		—		325
Total	$	7,287	$	7,252	$	13,243	$	14,605

XML

Other Expense, Net (Tables)

6 Months Ended

Jun. 30, 2017

Other Nonoperating Income (Expense) [Abstract]

Summary of the Company's other (expense) income, net activity

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 six months ended June 30, 2017 and 2016 (in thousands):

	Three Months Ended June 30,					Six Months Ended June 30,
	2017		2016			2017		2016
Foreign currency gain (loss)	$	1,295	$	(123	)	$	1,660	$	547
Change in fair value of contingent consideration	—		(130		)	—		(844		)
Interest income	216		41			306		73
Total income (expense)	$	1,510	$	(212	)	$	1,965	$	(224	)

XML

Net Income Per Share (Tables)

6 Months Ended

Jun. 30, 2017

Earnings Per Share [Abstract]

Schedule of Weighted Average Number of Shares

A reconciliation of assumed exercised shares used in calculating basic and diluted net income per share follows (in thousands):

	Three Months Ended June 30,		Six Months Ended June 30,
	2017	2016	2017	2016
Weighted average shares outstanding:
Basic	34,581	34,957	34,589	35,166
Stock options and ESPP shares	473	479	484	415
Unvested RSUs and restricted stock awards	196	206	348	289
Diluted	35,250	35,642	35,421	35,870
Dilutive securities included in the calculation	1,646	1,907	1,786	1,860
Anti-dilutive securities excluded from the calculation	1,091	1,259	1,086	1,165

XML

Geographic Information (Tables)

6 Months Ended

Jun. 30, 2017

Segment Reporting [Abstract]

Revenue from External Customers by Geographic Areas

The following table presents the Company’s revenue based on customer location (in thousands): 

	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
North America	$	52,771	$	49,565	$	105,569	$	96,707
Europe	44,064		41,094		86,637		80,280
Rest of the world	37,160		33,760		72,013		64,084
Total revenue	$	133,995	$	124,419	$	264,219	$	241,071

Long-lived Assets by Geographic Areas

The Company’s long-lived tangible assets were located as follows (in thousands): 

	June 30,		December 31,
	2017		2016
North America	$	68,294	$	54,913
Europe	1,097		1,141
Rest of the world	78		47
Total long-lived tangible assets	$	69,469	$	56,101

XML

Summary of Operations and Significant Accounting Policies (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016
Restricted Cash and Cash Equivalents Items [Line Items]
Revenue impacts	$ (133,995)	$ (124,419)	$ (264,219)	$ (241,071)
General and administrative	23,420	$ 18,155	47,383	37,609
Allowance for Doubtful Accounts
Allowance for doubtful accounts	6,400		6,400		$ 5,500
Deferred Rent
Deferred rent non-current balance	10,900		10,900		8,600
Chargeback and Sales Refund Allowance
Chargeback and sales refund allowances	600		600		600
Recently Adopted Accounting Standard Updates
Net cash provided by operating activities			40,405	40,240
Net cash (used in) provided by financing activities			(32,769)	(42,499)
Other Assets
Restricted Cash and Cash Equivalents Items [Line Items]
Restricted cash related to security deposits for leased office location that expires in 2024	2,600		$ 2,600		2,600
New Accounting Pronouncement, Early Adoption, Effect | Accounting Standards Update 2016-09, Excess Tax Benefit Component
Recently Adopted Accounting Standard Updates
Net cash provided by operating activities				(1,400)
Net cash (used in) provided by financing activities				$ 1,400
New Accounting Pronouncement, Early Adoption, Effect | Accounting Standards Update 2016-09, Excess Tax Benefit Component | Retained Earnings
Recently Adopted Accounting Standard Updates
Reduction to retained earnings					$ 700
Restatement Adjustment [Member]
Restricted Cash and Cash Equivalents Items [Line Items]
Revenue impacts	600
General and administrative	$ 100

XML

Fair Value Measurements - Schedule of fair value measurements (Details) - Estimate of Fair Value Measurement - Recurring Basis - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Assets:
Total assets measured at fair value	$ 131,756	$ 136,595
Liabilities:
Total liabilities measured at fair value		10,000
Acquisition related contingent consideration
Liabilities:
Total liabilities measured at fair value		10,000
Money market accounts
Assets:
Total assets measured at fair value	76,793	81,623
Commercial paper
Assets:
Total assets measured at fair value	54,963	54,972
Level 1
Assets:
Total assets measured at fair value	76,793	81,623
Liabilities:
Total liabilities measured at fair value		0
Level 1 | Acquisition related contingent consideration
Liabilities:
Total liabilities measured at fair value		0
Level 1 | Money market accounts
Assets:
Total assets measured at fair value	76,793	81,623
Level 1 | Commercial paper
Assets:
Total assets measured at fair value	0	0
Level 2
Assets:
Total assets measured at fair value	54,963	54,972
Liabilities:
Total liabilities measured at fair value		0
Level 2 | Acquisition related contingent consideration
Liabilities:
Total liabilities measured at fair value		0
Level 2 | Money market accounts
Assets:
Total assets measured at fair value	0	0
Level 2 | Commercial paper
Assets:
Total assets measured at fair value	54,963	54,972
Level 3
Assets:
Total assets measured at fair value	0	0
Liabilities:
Total liabilities measured at fair value		10,000
Level 3 | Acquisition related contingent consideration
Liabilities:
Total liabilities measured at fair value		10,000
Level 3 | Money market accounts
Assets:
Total assets measured at fair value	0	0
Level 3 | Commercial paper
Assets:
Total assets measured at fair value	$ 0	$ 0

XML

Fair Value Measurements - Narrative (Details) - USD ($)	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Mar. 31, 2017	Dec. 31, 2016
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Change in fair value of contingent consideration	$ 0	$ 2,495,000
Estimate of Fair Value Measurement | Recurring Basis
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets measured at fair value	131,756,000			$ 136,595,000
Estimate of Fair Value Measurement | Recurring Basis | Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets measured at fair value	0			0
Estimate of Fair Value Measurement | Recurring Basis | Arbour Interactive Inc (PremiumBeat) | Acquisition related contingent consideration | Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Change in fair value of contingent consideration	0
Estimate of Fair Value Measurement | Recurring Basis | Other Current Liabilities | Arbour Interactive Inc (PremiumBeat) | Acquisition related contingent consideration | Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value included in other non-current liabilities				10,000,000
Contingent consideration	0		$ 10,000,000
Estimate of Fair Value Measurement | Recurring Basis | Money market accounts
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets measured at fair value	76,793,000			81,623,000
Estimate of Fair Value Measurement | Recurring Basis | Money market accounts | Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets measured at fair value	0			0
Estimate of Fair Value Measurement | Recurring Basis | Commercial paper
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets measured at fair value	54,963,000			54,972,000
Estimate of Fair Value Measurement | Recurring Basis | Commercial paper | Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets measured at fair value	$ 0			$ 0

XML

Property and Equipment (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016
Property and Equipment
Property and equipment	$ 113,448		$ 113,448		$ 88,089
Less accumulated depreciation	(43,979)		(43,979)		(31,988)
Property and equipment, net	69,469		69,469		56,101
Depreciation expense	6,300	$ 3,500	11,900	$ 6,500
Capitalized amount	7,900	3,400	14,600	6,200
Amortization expense	2,900	$ 700	5,000	$ 1,200
Internal use software	29,900		29,900		20,300
Computer equipment and software
Property and Equipment
Property and equipment	85,779		85,779		63,711
Furniture and fixtures
Property and Equipment
Property and equipment	4,503		4,503		3,434
Leasehold improvements
Property and Equipment
Property and equipment	$ 23,165		$ 23,165		$ 20,944

XML

Goodwill and Intangible Assets - Changes in goodwill (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2017 USD ($)
Changes in goodwill
Balance at the beginning of the period	$ 49,271
Foreign currency translation adjustment	1,706
Balance at the end of the period	50,977
Content Business
Changes in goodwill
Balance at the beginning of the period	40,508
Foreign currency translation adjustment	1,706
Balance at the end of the period	42,214
Other Category
Changes in goodwill
Balance at the beginning of the period	8,763
Foreign currency translation adjustment	0
Balance at the end of the period	$ 8,763

XML

Goodwill and Intangible Assets - Intangible Assets (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2017	Dec. 31, 2016
Amortizing intangible assets:
Gross Carrying Amount	$ 43,181	$ 39,958
Accumulated Amortization	(13,024)	(9,801)
Customer relationships
Amortizing intangible assets:
Gross Carrying Amount	17,424	16,712
Accumulated Amortization	$ (5,566)	(4,344)
Weighted Average Life	9 years
Trade name
Amortizing intangible assets:
Gross Carrying Amount	$ 7,184	6,677
Accumulated Amortization	$ (2,336)	(2,030)
Weighted Average Life	7 years
Developed technology
Amortizing intangible assets:
Gross Carrying Amount	$ 3,211	3,224
Accumulated Amortization	$ (2,895)	(1,934)
Weighted Average Life	4 years
Contributor content
Amortizing intangible assets:
Gross Carrying Amount	$ 14,943	12,958
Accumulated Amortization	$ (2,101)	(1,386)
Weighted Average Life	11 years
Patents
Amortizing intangible assets:
Gross Carrying Amount	$ 259	227
Accumulated Amortization	$ (59)	(52)
Weighted Average Life	18 years
Domain name
Amortizing intangible assets:
Gross Carrying Amount	$ 160	160
Accumulated Amortization	$ (67)	$ (55)
Weighted Average Life	12 years

XML

Goodwill and Intangible Assets - Narrative (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Goodwill and Intangible Assets Disclosure [Abstract]
Amortization expense	$ 1.4	$ 1.3	$ 2.8	$ 2.5
Remainder of 2017	2.9		2.9
2018	4.7		4.7
2019	4.5		4.5
2020	3.9		3.9
2021	3.4		3.4
2022	2.6		2.6
Thereafter	$ 8.3		$ 8.3

XML

Accrued Expenses (Details) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Payables and Accruals [Abstract]
Compensation	$ 11,762	$ 13,732
Non-income taxes	5,881	7,383
Royalty tax withholdings	7,337	6,921
Other expenses	19,388	13,070
Total accrued expenses	$ 44,368	$ 41,106

XML

Commitments and Contingencies - Leases (Details) ft² in Thousands, $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2017 USD ($)	Jun. 30, 2016 USD ($)	Jun. 30, 2017 USD ($)	Jun. 30, 2016 USD ($)	Dec. 31, 2016 ft²	Jan. 31, 2016 USD ($)
Operating leases
Rental expense inclusive of operating leases	$ 2.0	$ 1.4	$ 4.2	$ 3.0
Letter of credit as a security deposit for the leased facilities	2.6		2.6
Future minimum lease payments under non-cancelable operating leases
Total minimum lease payments						$ 80.5
Other assets
Operating leases
Letter of credit collateralized as restricted cash	$ 2.6		$ 2.6
New York CIty Office Space
Operating leases
Area of additional office space (sq ft) | ft²					25

XML

Commitments and Contingencies - Other Commitments (Details) - Indirect Guarantee of Indebtedness - USD ($)	Oct. 20, 2016	Jun. 30, 2017	Mar. 27, 2017
Revolving Credit Facility | The Facility
Other Commitments [Line Items]
Maximum lending amount	$ 4,600,000.0		$ 3,000,000.0
Facility term	P5Y
Interest rate percent	10.00%
Borrowings made		$ 0
Convertible Notes Payable | Convertible Note Maturing October 2021
Other Commitments [Line Items]
Maximum lending amount			$ 1,600,000.0
Interest rate percent			10.00%

XML

Commitments and Contingencies - Other Obligations and Indemnification and Employment Agreements (Details)	Jun. 30, 2017 USD ($)
Commitments and Contingencies Disclosure [Abstract]
Other obligations	$ 43,300,000
Maturity of unconditional purchase obligations
Remainder of 2017	8,600,000
2018	15,400,000
2019	11,100,000
2020	8,200,000
Indemnifications
Minimum aggregate obligation and liability	10,000
Maximum aggregate obligation and liability	250,000
Material indemnification obligation	$ 0

XML

Stockholders’ Equity and Equity-Based Compensation - Narrative (Details) - USD ($)	6 Months Ended
	Jun. 30, 2017	Feb. 28, 2017	Dec. 31, 2016	Oct. 31, 2015
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares repurchased (in shares)	2,559,000		2,110,000
Common Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares issued (in shares)	245,000
Authorized purchase amount (up to)				$ 100,000,000
Authorized increase in purchase amount		$ 100,000,000
Shares repurchased (in shares)	449,000
Average per share cost (in dollars per share)	$ 50.04
Value remaining for repurchase	$ 100,000,000
Stock options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares granted for purchase (in shares)	80,000
Weighted average exercise price (in dollars per share)	$ 48.53
Options vested and exercisable (in shares)	315,000
Options vested and exercisable, weighted average exercise price (in dollars per share)	$ 35.60
Unrecognized compensation charge	$ 18,000,000
RSUs
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares granted (in shares)	329,000
Nonvested shares outstanding (in shares)	1,308,000
Unrecognized non-cash equity-based compensation charge	$ 47,900,000
Aggregate value withheld upon vesting	$ 5,000,000
ESPP shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares issued (in shares)	0

XML

Stockholders’ Equity and Equity-Based Compensation - Summary of non-cash equity-based compensation (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Non-cash equity-based compensation expense related to the 2012 Plan and 2012 ESPP
Non-cash equity-based compensation	$ 7,287	$ 7,252	$ 13,243	$ 14,605
Stock options
Non-cash equity-based compensation expense related to the 2012 Plan and 2012 ESPP
Non-cash equity-based compensation	1,858	1,892	3,424	3,628
RSUs
Non-cash equity-based compensation expense related to the 2012 Plan and 2012 ESPP
Non-cash equity-based compensation	5,429	5,207	9,819	10,652
ESPP shares
Non-cash equity-based compensation expense related to the 2012 Plan and 2012 ESPP
Non-cash equity-based compensation	0	153	0	325
Cost of revenue
Non-cash equity-based compensation expense related to the 2012 Plan and 2012 ESPP
Non-cash equity-based compensation	225	521	433	1,054
Sales and marketing
Non-cash equity-based compensation expense related to the 2012 Plan and 2012 ESPP
Non-cash equity-based compensation	1,226	1,357	2,444	2,548
Product development
Non-cash equity-based compensation expense related to the 2012 Plan and 2012 ESPP
Non-cash equity-based compensation	2,004	2,003	3,260	4,152
General and administrative
Non-cash equity-based compensation expense related to the 2012 Plan and 2012 ESPP
Non-cash equity-based compensation	$ 3,833	$ 3,371	$ 7,107	$ 6,851

XML

Employee Benefit Plans (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Compensation and Retirement Disclosure [Abstract]
Annual discretionary employer matching contributions (as a percent)			3.00%
Employer matching contributions	$ 0.5	$ 0.5	$ 0.9	$ 1.0

XML

Other Expense, Net (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Other Nonoperating Income (Expense) [Abstract]
Foreign currency gain (loss)	$ 1,295	$ (123)	$ 1,660	$ 547
Change in fair value of contingent consideration	0	(130)	0	(844)
Interest income	216	41	306	73
Total income (expense)	$ 1,510	$ (212)	$ 1,965	$ (224)

XML

Income Taxes (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Income Tax Disclosure [Abstract]
Effective tax rate (as a percent)	36.10%	29.40%	37.80%	36.50%
Increase (decrease) in effective tax rate	0.50%	(9.10%)	3.60%	(3.30%)
Tax benefit related to release of reserve		$ 1.2		$ 1.2
Undistributed earnings	$ 10.4		$ 10.4

XML

Net Income Per Share (Details) - shares shares in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Weighted average shares outstanding:
Basic (in shares)	34,581	34,957	34,589	35,166
Stock options and ESPP shares (in shares)	473	479	484	415
Unvested RSUs and restricted stock awards (in shares)	196	206	348	289
Diluted (in shares)	35,250	35,642	35,421	35,870
Dilutive securities included in the calculation (in shares)	1,646	1,907	1,786	1,860
Anti-dilutive securities excluded from the calculation (in shares)	1,091	1,259	1,086	1,165

XML

Geographic Information (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016
Geographic revenue based on customer location and long-lived tangible assets
Total revenue	$ 133,995	$ 124,419	$ 264,219	$ 241,071
Total long-lived tangible assets	69,469		69,469		$ 56,101
North America
Geographic revenue based on customer location and long-lived tangible assets
Total revenue	52,771	$ 49,565	105,569	$ 96,707
Total long-lived tangible assets	$ 68,294		$ 68,294		$ 54,913
United States | Total revenue | Geographic concentration
Geographic revenue based on customer location and long-lived tangible assets
Concentration risk percentage	35.00%	35.00%	36.00%	36.00%
United States | Total long-lived tangible assets | Geographic concentration
Geographic revenue based on customer location and long-lived tangible assets
Concentration risk percentage			95.00%		95.00%
Europe
Geographic revenue based on customer location and long-lived tangible assets
Total revenue	$ 44,064	$ 41,094	$ 86,637	$ 80,280
Total long-lived tangible assets	$ 1,097		$ 1,097		$ 1,141
United Kingdom | Total revenue | Geographic concentration
Geographic revenue based on customer location and long-lived tangible assets
Concentration risk percentage	9.00%	10.00%	9.00%	10.00%
Rest of the world
Geographic revenue based on customer location and long-lived tangible assets
Total revenue	$ 37,160	$ 33,760	$ 72,013	$ 64,084
Total long-lived tangible assets	$ 78		$ 78		$ 47

XML

Subsequent Events (Details) - Flashstock - Subsequent Event - USD ($) $ in Millions		1 Months Ended
	Jul. 07, 2017	Sep. 30, 2017
Subsequent Event [Line Items]
Acquisition price	$ 50.0
Payments for business acquisition	$ 45.9
Scenario, Forecast
Subsequent Event [Line Items]
Payments for business acquisition		$ 4.1