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TABLE OF CONTENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

As filed with the Securities and Exchange Commission on August 23, 2013

Registration No. 333-        

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933



Shutterstock, Inc.
(Exact name of Registrant as specified in its charter)



Delaware
(State or other jurisdiction of
incorporation or organization)
  7389
(Primary Standard Industrial
Classification Code Number)
  80-0812659
(I.R.S. Employer
Identification Number)

60 Broad Street, 30th Floor
New York, NY 10004
(646) 419-4452
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)

Jonathan Oringer
Chief Executive Officer
Shutterstock, Inc.
60 Broad Street, 30th Floor
New York, NY 10004
(646) 419-4452
(Name, address including zip code, and telephone number including area code, of agent for service)



Copies to:

Brian B. Margolis, Esq.
Stephen C. Ashley, Esq.
Orrick, Herrington & Sutcliffe LLP
51 West 52nd Street
New York, NY 10019
(212) 506-5000
  Gregory B. Astrachan, Esq.
Willkie Farr & Gallagher LLP
787 Seventh Avenue
New York, NY 10019
(212) 728-8000

Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.



          If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.    o

          If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

          If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

          If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

          Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o   Accelerated filer o   Non-accelerated filer ý
(Do not check if a
smaller reporting company)
  Smaller reporting company o

CALCULATION OF REGISTRATION FEE

       
 
Title of Each Class of Securities
to be Registered

  Proposed Maximum
Aggregate Offering
Price(1)(2)

  Amount of
Registration Fee

 

Common Stock, par value $0.01 per share

  $172,500,000   $23,529

 

(1)
Includes            shares of Common Stock issuable upon exercise of the Underwriters' option to purchase additional shares.

(2)
Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act.

          The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

   


The information in this prospectus is not complete and may be changed. We and the selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted.

PROSPECTUS (Subject to Completion)
Issued              , 2013

                        Shares

GRAPHIC

COMMON STOCK



Shutterstock, Inc. is offering                             shares of its common stock and the selling stockholders are offering                             shares of our common stock. We will not receive any proceeds from the sale of shares by the selling stockholders.



Our common stock is listed on the New York Stock Exchange under the symbol "SSTK". On August 22, 2013, the last reported sale price of our common stock on the New York Stock Exchange was $53.92 per share.



We are an "emerging growth company" under applicable Securities and Exchange Commission rules and, as such, will be subject to reduced public company reporting requirements. Investing in our common stock involves risks. See "Risk Factors" section beginning on page 14.



PRICE $              A SHARE



 
 
Price to Public
 
Underwriting
Discounts and
Commissions
 
Proceeds to
Shutterstock
 
Proceeds to
Selling
Stockholders

Per Share

  $     $     $     $  

Total

  $     $     $     $  

We and the selling stockholders have granted the underwriters the right to purchase up to                           additional shares of common stock at the price to public less the underwriting discounts and commissions.

The Securities and Exchange Commission and state securities regulators have not approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares of common stock to purchasers on                           , 2013.



MORGAN STANLEY   DEUTSCHE BANK SECURITIES   JEFFERIES

 

ALLEN & COMPANY LLC   RBC CAPITAL MARKETS   STIFEL   WILLIAM BLAIR

   

                           , 2013


Table of Contents

GRAPHIC


Table of Contents

LOGO


Table of Contents

LOGO


Table of Contents


TABLE OF CONTENTS

 
  Page  

Prospectus Summary

    1  

The Offering

    8  

Summary Consolidated Financial Data

    9  

Risk Factors

    14  

Special Note Regarding Forward-Looking Statements

    34  

Industry and Market Data

    35  

Use of Proceeds

    36  

Market Price of Common Stock

    37  

Dividend Policy

    37  

Capitalization

    38  

Selected Consolidated Financial Data

    39  

Management's Discussion and Analysis of Financial Condition and Results of Operations

    44  

Business

    74  

Management

    93  

Executive Compensation

    99  

Certain Relationships and Related Party Transactions

    110  

Principal Stockholders

    112  

Description of Capital Stock

    114  

Shares Eligible for Future Sale

    118  

Material U.S. Federal Income Tax and Estate Tax Consequences to Non-U.S. Holders

    120  

Underwriting

    124  

Legal Matters

    128  

Experts

    128  

Where You Can Find More Information

    128  

Index to Consolidated Financial Statements

    F-1  



        You should rely only on the information contained in this prospectus or contained in any free writing prospectus filed with the Securities and Exchange Commission. Neither we nor the underwriters have authorized anyone to provide you with information that is different from that contained in this prospectus. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date.

        Until                        , 2013 (25 days after the commencement of this offering), all dealers that buy, sell or trade the common stock, may be required to deliver a prospectus, regardless of whether they are participating in this offering. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

        For investors outside the United States: neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus outside of the United States.


Table of Contents


PROSPECTUS SUMMARY

        The following summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our common stock, you should carefully read this entire prospectus, including our consolidated financial statements and the related notes and the information set forth in the sections of this prospectus titled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Some of the statements in this prospectus constitute forward-looking statements. See the section of this prospectus titled "Special Note Regarding Forward-Looking Statements" for more information.


SHUTTERSTOCK, INC.

Overview

        Shutterstock operates an industry-leading global marketplace for commercial digital imagery. Commercial digital imagery consists of licensed photographs, illustrations and video clips that companies use in their visual communications, such as websites, digital and print marketing materials, corporate communications, books, publications and video content. Demand for commercial digital imagery comes primarily from businesses, marketing agencies and media organizations. We estimate that the market for pre-shot commercial digital imagery will grow from approximately $4 billion in 2011 to approximately $6 billion in 2016, based on a study conducted on our behalf by L.E.K. Consulting LLC. There has been a significant increase in the demand for commercial digital imagery as rapid technological advances have reduced the cost and effort required to create, license and use images. Our global online marketplace brings together users of commercial digital imagery with image creators from around the world. More than 750,000 active, paying users contributed to revenue in 2012. More than 40,000 approved contributors make their images and video clips available in our collection, which has grown to more than 28 million images and more than 1 million video clips. This makes our collection one of the largest of its kind, and, in the twelve months ended December 31, 2012, we delivered more than 76 million paid downloads (including both commercial and editorial images) to our customers.

        Our online marketplace provides a freely searchable collection of commercial digital imagery (i.e., stock photography, illustrations, vectors, video clips, templates and fonts) that our users can pay to license, download and incorporate into their work. We compensate contributors for each of their images or video clips that is downloaded. This marketplace model allows us to offer users a disruptive, low-cost and easy-to-use alternative to the time-consuming and expensive traditional methods of obtaining commercial imagery. It enables millions of small and medium-sized businesses, or SMBs, to affordably access commercial digital imagery, and allows larger enterprises and media agencies to more easily and efficiently satisfy their increasing image needs.

        We are the beneficiaries of significant network effects. As we have grown, our broadening audience of paying users has attracted more imagery from contributors. This increased selection of imagery has in turn helped to attract more paying users. The success of this network effect is facilitated by the trust that users place in Shutterstock to maintain the integrity of our branded marketplace. Every contributor in our marketplace and every image we make available must pass our proprietary screening process and meet our standards of quality. In addition, and unlike the significant majority of free images available online, our rigorous vetting process enables us to provide confidence and indemnification to our users that the content in our collection has been appropriately licensed for commercial or editorial use.

        We make the licensing of images and video clips affordable, simple and easy in order to encourage a high volume of purchases and downloads. Our customers' average cost per download was $2.23 in 2012. We are a pioneer of the subscription-based usage model in our industry, whereby subscribers can download and use a large number of images in their creative process without concern for the incremental cost of each download. A significant majority of our downloads come from subscription-based users, who contribute approximately half of our revenue. We also offer simple and easy-to-use On Demand purchase options for

 

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users who purchase imagery when and as needed. As a result of our simple and affordable licensing models, we believe that we achieved the highest volume of commercial image downloads of any single brand in our industry in 2012. In addition to generating revenue, this high volume of download activity allows us to continually improve the quality and accuracy of our search algorithms, as well as to encourage the creation of new content to meet our users' needs.

        Our revenue is diversified and predictable. More than 750,000 customers from more than 150 countries contributed to our revenue in 2012, with our top 25 customers in the aggregate accounting for less than 3% of our revenue. We have historically benefitted from a high degree of revenue retention from both subscription-based and On Demand customers. For example, in 2010, 2011 and 2012, we experienced year-to-year revenue retention of 96%, 102% and 100%, respectively. This means that customers that contributed to our revenue in 2011 contributed, in the aggregate, 100% as much revenue in 2012 as they did in 2011. Customers typically pay us upfront and then use their downloads in a predictable pattern over time, which results in favorable cash flow characteristics and has historically added predictability and stability to our financial performance.

        We have achieved significant growth since our marketplace was launched in 2003. In 2011 and 2012, we generated revenue of $120.3 million and $169.6 million, respectively, representing year-over-year growth of 45.0% and 41.0%, respectively. In 2011 and 2012, we generated Adjusted EBITDA of $26.5 million and $34.9 million, respectively, Non-GAAP Net Income of $23.9 million and $28.0 million, respectively, and Free Cash Flow of $36.1 million and $41.5 million, respectively. See "Summary Consolidated Financial Data—Non-GAAP Financial Measures." In 2011 and 2012, our net income was $21.9 million and $47.5 million, respectively. In 2012, net income included a one-time tax benefit of $28.8 million related to our conversion to a Delaware C-corporation on October 5, 2012. We are a global business; in 2012, 35% of our revenue came from North America, 37% came from Europe and 28% came from the rest of the world.

Industry Overview: Commercial Digital Imagery

        Images help businesses to communicate and engage with customers, market products and differentiate their brands. Companies invest in imagery for the same reasons they invest in marketing, advertising and media production: to increase the impact, engagement and differentiation of their communications. From the smallest start-ups to the largest multinationals, companies pay to license photographs, video clips and illustrations for use in print and digital marketing materials, corporate communications, external and internal websites, social networking sites, mobile applications, games and videos. Imagery is also widely used in publishing books, eBooks, magazines and news articles. The demand for paid imagery in a commercial context comes primarily from:

    Businesses:  Large corporations, small and medium-sized businesses and sole proprietorships that have marketing, communications and design needs;

    Marketing Agencies:  Creative service providers such as advertising agencies, media agencies, graphic design firms, web design firms and freelance design professionals; and

    Media Organizations:  Creators of print and digital content, from large publishers and broadcast companies to professional bloggers.

        These professional users of imagery are very selective about where they source their images; images must be of high quality and must fulfill the licensing obligations necessary for use in a commercial context. These requirements were historically fulfilled by commissioning images for specific purposes, or licensing pre-shot images from a catalog or database. This typically cost hundreds or thousands of dollars per image, which made licensing imagery affordable only for larger companies with significant marketing or creative budgets.

 

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        Rapid technological changes have caused a significant shift in the economics of demand and supply for commercial digital imagery. The rise of digital marketing and increases in the type and frequency of visual communications employed by businesses has caused a dramatic increase in demand for licensed imagery. At the same time, affordable, high-quality cameras and video cameras, as well as high performance photo and video-editing software, are enabling millions of people around the world to create commercial-quality digital imagery at a very low cost. Online marketplaces use the disruptive power of the internet to bring these highly fragmented groups together so that businesses of all sizes can quickly search for, find, and download affordable visual content to enhance their communications.

        We estimate that the market for pre-shot commercial imagery was approximately $4 billion in 2011 and that it will grow to approximately $6 billion by 2016, based on a study conducted on our behalf in August 2012 by L.E.K. Consulting LLC, or L.E.K. Within this market, the "traditional stock photography" segment, which has historically served larger businesses, is expected to remain stable at approximately $2.3 billion between 2011 and 2016. The stock photography marketplace segment along with the market for all other commercial digital imagery (i.e., stock illustrations, vectors, video clips, templates and fonts) is expected to grow 15-20% annually during that same period to a total of more than $3.5 billion in 2016.

Challenges in the Market for Commercial Digital Imagery

        Even with the advent of websites capable of sourcing and providing commercial digital imagery, significant challenges remain for users of many online marketplaces, including limited selection, difficulties in finding images quickly, high or complex pricing, poor image quality, and a lack of appropriate licensing and legal protection. At the same time, the creators of commercial digital imagery face obstacles to easily upload, market and distribute their images to a large audience. They also lack tools for discovering the kinds of content that customers demand.

The Shutterstock Solution

Key Benefits for Our Users

Millions of high-quality images and video clips available for commercial use

 

We currently provide a licensable digital collection of more than 28 million images and more than 1 million video clips, one of the largest collections of its kind. We source our content from over 40,000 approved contributors in more than 100 countries.

Superior search results

 

We consider our proprietary search interface and algorithms to be intuitive and efficient, allowing users with widely ranging search queries to quickly find the most suitable image for their needs. We believe that, with one of the highest volumes of downloads of commercial content in 2012, we have the data to power the best search experience in our industry.

 

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Low cost of content

 

Our affordable pricing models enable users to download content for as little as $0.28 per download. Across our pricing plans, customers paid an average of $2.23 per download in 2012. We believe that our disruptive pricing models increase the number of businesses that can participate in the market for commercial imagery and that they increase the number of downloads that we deliver.

Creative freedom through simple pricing

 

Our subscription-based pricing model makes the creative process easier. Subscription users can download any image in our collection at any resolution we offer for use in their creative process without worrying about incremental cost. For users who need less content, we offer simple, affordable, On Demand pricing, which is presented as a flat rate across all content and sizes that we offer.

100% vetted, commercial-quality content

 

We are highly focused on maintaining the quality of our collection. Our content has been vetted by a member of our review team for standards of quality and relevance. We also leverage proprietary review technology to pre-filter images and video clips and enhance the productivity of our reviewers. Less than 20% of contributor applicants who applied in 2012 were approved as contributors to shutterstock.com, and less than 65% of content uploaded by approved contributors in 2012 satisfied our rigorous acceptance requirements.

Appropriately licensed content

 

Our review process is designed to ensure that every image and video clip is appropriately licensed for its intended use. The strength of our review process enables us to offer $10,000 of indemnification protection to every customer to cover legal costs or damages that may arise from their use of Shutterstock content. In certain cases, we offer greater indemnification levels through custom contracts.

 

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Key Benefits for Our Contributors

Distribution to the largest, global audience

 

In 2012, shutterstock.com received an average of more than 10 million monthly unique visitors and more than 65 million monthly page views according to comScore Media Metrix, and we delivered more than 76 million paid downloads. According to industry surveys, contributors who have images available on our site generate more income through Shutterstock than through any other sites with which they are registered.

Global ecommerce capabilities

 

Our global ecommerce platform allows us to process payments from across the world in 10 currencies, and our users can currently transact on our flagship website in 20 languages.

Efficient uploading, tagging and review process

 

Based on user feedback and competitive benchmarking, we believe that we have the most efficient upload, tagging and review process of all of the major competitors in our industry.

Robust feedback, tools and information

 

Our contributors can monitor download activity by image and geography, as well as by self-defined image themes. We also provide data on search trends, allowing content creators to see which images and subjects are popular on our site, and to plan new content themes accordingly.

Specialized community

 

We operate a forum for the photographers, videographers and illustrators that make up our contributor community, allowing them to share tips with one another and to showcase their work.

Shutterstock's Competitive Strengths

        In addition to the compelling value propositions that we offer to users and contributors, we believe that the following competitive advantages separate us from our competitors:

        A Leading Global Marketplace with Strong Network Effects.    Our content collection is currently one of the largest in the commercial digital imagery industry, with over 28 million images and more than 1 million video clips, from more than 40,000 contributors. We believe that the growth of our content collection and the growth in our site traffic support one another through a strong network effect—a broader selection of images and video clips from our contributors attracts more image and video users; this larger audience of paying users increases the amount spent in our marketplace and attracts more content submissions from a greater number of contributors.

        Extensive Data and Superior Search.    We believe that we have achieved one of the highest volumes of commercial image downloads of any company in our industry. In 2012 alone, we delivered more than 76 million paid downloads. The number of contributor-generated image tags in our collection is currently more than 995 million. This user-generated data, coupled with our investments in technology and our many years of experience in developing search algorithms for our industry, have enabled us to create what we believe is the best search experience available.

 

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        Simple, Flexible and Low-Cost Pricing.    Our customers' average cost per download was $2.23 in 2012. Our subscription plans, which we pioneered in the industry, generate an important sense of creative freedom for our professional users. Additionally, we offer simple and cost-effective On Demand purchase options for less frequent users. The simplicity and affordability of these plans have allowed us to broaden our existing and potential user base, and deliver a high volume of paid downloads for our contributors.

        Trusted, Actively Managed Marketplace.    We are committed to providing a trusted online marketplace for appropriately licensed, high-quality commercial imagery and video. Our rigorous review process for new images ensures the integrity and quality of content in our collection. Each image and video clip is individually examined by our team of trained reviewers to meet our high standards of quality and commercial viability. This review process is designed to minimize the legal risk to our users from inappropriately licensed imagery.

Shutterstock's Growth Strategies

        Acquire More Users and Contributors.    Our active user base of SMBs currently represents a very small fraction of the global total of SMBs. We view this as a marketing opportunity. A significant portion of our growth to date has been driven by word of mouth recommendations; we plan to continue to foster word of mouth by continuing to grow our collection and deliver exceptional service. Additionally, we expect to increase our investments in online and offline marketing to help raise awareness in our core customer and contributor communities as well as in additional market segments and geographies.

        Lead Innovation in User and Contributor Experience.    With one of the largest collections of images in the industry, and one of the highest volumes of site traffic and commercial image downloads, we believe that we have more information on the marketplace and user needs than any of our competitors. We intend to use this data to continue to improve the quality of our search algorithms and user experience. We also plan to enhance the tools we offer contributors to help them easily establish their portfolios on our site, track their performance and explore opportunities to create content that customers need. Furthermore, we intend to roll out new product offerings and product extensions that we believe will create deeper relationships with our core communities and attract new users to our sites.

        Increase Localization.    We are a global company, with users in more than 150 countries, contributors in more than 100 countries and a website that is available in 20 languages. We plan to deepen our global penetration among users and contributors by improving the quality of the Shutterstock experience, regardless of language or location. There is significant unmet demand for localized content, such as images with locally relevant themes, customs, objects and ethnicities. We plan to increase the geographical diversity of our contributor community so that we can provide the images demanded by our increasingly global user base.

        Increase Our Penetration of Media Agencies and Large Enterprises.    To date, the majority of our revenue has been generated from small and medium-sized businesses purchasing online. Currently, less than 15% of our revenue is generated through direct sales to large organizations. We believe that we have a strong value proposition for large media agencies and enterprises, which have historically purchased commercial imagery via sales-driven relationships. We are working to increase our revenue from these companies through a direct sales approach and by offering tailored purchase options.

        Pursue Emerging Content Types.    Alternative content types such as video footage represent significant opportunities for growth. Given the convergence of photography and video tools, we believe that our network effects in still image licensing will help propel our efforts in the video market. In addition to video, we see opportunities in other emerging digital content areas that may be relevant to our customers.

 

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Risks Associated with Our Business

        Our business is subject to a number of risks of which you should be aware before making an investment decision. These risks are discussed more fully in the section of this prospectus titled "Risk Factors," and include but are not limited to:

    our ability to identify, attract and retain customers and contributors to our online marketplace;

    our ability to maintain repeat purchase and subscription revenue;

    our new and rapidly changing market;

    the competitive nature of and anticipated growth in our markets;

    our ability to maintain our competitive position in a highly competitive industry;

    our ability to protect our intellectual property and protect against infringement claims made by third parties; and

    our ability to successfully navigate the risks related to our international operations and expansion.

Company Information

        Our principal office is located at 60 Broad Street, 30th Floor, New York, New York 10004, and our telephone number is (646) 419-4452. Our corporate website address is www.shutterstock.com. We do not incorporate the information contained in, or that can be accessed through, our corporate website into this prospectus, and you should not consider it part of this prospectus. After launching our marketplace in 2003, we organized in the State of New York as Shutterstock, Inc. in December 2004, and we became Shutterstock Images LLC in June 2007. On October 5, 2012, we reorganized from Shutterstock Images LLC, a New York limited liability company, or the LLC, to Shutterstock, Inc., a Delaware corporation, referred to as the "Reorganization." In this prospectus, "we," "us," "our," "Company" and "Shutterstock" refer to Shutterstock, Inc. and its subsidiaries.

        "Shutterstock", "Offset", "Skillfeed", "Bigstock" and "Big Stock Photo" are registered trademarks or logos appearing in this prospectus and are the property of Shutterstock, Inc. or one of our subsidiaries. All other trademarks, service marks and trade names appearing in this prospectus are the property of their respective owners.

 

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THE OFFERING

Common stock offered:

   

By Shutterstock

 

             shares

By the selling stockholders

 

             shares

Total

 

             shares

Common stock to be outstanding after this offering

 

             shares (             shares if the underwriters' option to purchase additional shares is exercised in full)

Underwriters' option to purchase additional shares

 

The underwriters have an option to purchase a maximum of            additional shares of common stock from us and a maximum of            additional shares of common stock from the selling stockholders at the price to public less the underwriting discounts and commissions. The underwriters could exercise this option at any time within 30 days from the date of the prospectus.

Use of proceeds

 

The principal purposes of this offering are to facilitate an orderly distribution of shares for the selling stockholders, to increase our public float, and to increase our capitalization and financial flexibility. We intend to use the net proceeds from this offering primarily for general corporate purposes, including working capital and capital expenditures. We may also use a portion of the net proceeds to acquire or invest in complementary companies, products or technologies, although we currently do not have any acquisitions or investments planned. We will not receive any of the proceeds from the sale of shares to be offered by the selling stockholders. See "Use of Proceeds" for additional information.

Risk factors

 

See "Risk Factors" and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our common stock.

NYSE symbol

 

"SSTK"

        The number of shares of our common stock to be outstanding following this offering is based on 33,692,311 shares of our common stock outstanding as of June 30, 2013, and excludes:

    560,372 shares of our common stock issuable upon the exercise of options outstanding as of June 30, 2013 at a weighted average exercise price of $15.43 per share;

    5,910,074 shares of our common stock reserved for future grant or issuance under our 2012 Omnibus Equity Incentive Plan; and

    2,926,283 shares of our common stock reserved for future issuance under our 2012 Employee Stock Purchase Plan.

        Except as otherwise indicated, information in this prospectus reflects or assumes the following:

    no exercise of options outstanding as of June 30, 2013; and

    no exercise by the underwriters of their option to purchase up to an additional                        shares of common stock from us and to purchase up to an additional                        shares of common stock from the selling stockholders.

 

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SUMMARY CONSOLIDATED FINANCIAL DATA

        The following tables summarize our consolidated financial and other data for the periods ended and as of the dates indicated. We derived the consolidated statements of operations data for each of the years ended December 31, 2010, 2011 and 2012 and the consolidated balance sheet data as of December 31, 2012 from our audited consolidated financial statements and related notes included elsewhere in this prospectus. We derived the consolidated statements of operations data for each of the six months ended June 30, 2012 and 2013 and the consolidated balance sheet data as of June 30, 2013 from our unaudited consolidated financial statements and related notes included elsewhere in this prospectus. We have prepared the unaudited financial information on the same basis as the audited consolidated financial statements and have included, in our opinion, all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of the financial information set forth in those statements.

        Our historic results are not necessarily indicative of the results that may be expected in the future, and our interim results are not necessarily indicative of the results to be expected for the full fiscal year. You should read this data together with our consolidated financial statements and related notes, "Capitalization," "Selected Consolidated Financial Data," and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus.

 
  Year Ended December 31,   Six Months Ended June 30,  
 
  2010   2011   2012   2012   2013  
 
  (in thousands, except share and per share amounts)
 
 
   
   
   
  (unaudited)
 

Consolidated Statements of Operations Data:

                               

Revenue

  $ 82,973   $ 120,271   $ 169,616   $ 78,199   $ 107,926  

Operating expenses:

                               

Cost of revenue

    32,353     45,504     64,676     29,825     41,589  

Sales and marketing

    17,820     31,929     45,107     23,333     25,292  

Product development

    4,591     9,777     16,330     6,860     9,615  

General and administrative(1)

    8,414     10,171     21,651     8,177     10,514  
                       

Total operating expenses

    63,178     97,381     147,764     68,195     87,010  
                       

Income from operations

    19,795     22,890     21,852     10,004     20,916  

Other income (expense), net

    19     10     (47 )   5     8  
                       

Income before income taxes

    19,814     22,900     21,805     10,009     20,924  

Provision (benefit) for income taxes(2)

    876     1,036     (25,738 )   227     8,496  
                       

Net income

  $ 18,938   $ 21,864   $ 47,543   $ 9,782   $ 12,428  
                       

Less:

                               

Preferred interest distributed

    6,475     7,144     9,000     3,788      

Preferred interest accretion

    7,068     4,058              

Undistributed (loss) earnings to participating stockholder / members

    (3,659 )   (2,692 )   (4,086 )   (1,342 )   41  
                       

Net income available to common stockholders / members

  $ 9,054   $ 13,354   $ 42,629   $ 7,336   $ 12,387  
                       

 

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  Year Ended December 31,   Six Months Ended June 30,  
 
  2010   2011   2012   2012   2013  
 
  (in thousands, except share and per share amounts)
 
 
   
   
   
  (unaudited)
 

Net income (loss) per basic share available to common stockholders / members:

                               

Distributed

  $ 0.94   $ 1.03   $ 1.14   $ 0.54   $  

Undistributed

    (0.50 )   (0.39 )   0.65     (0.19 )   0.37  
                       

Net income per share (basic)

  $ 0.44   $ 0.64   $ 1.79   $ 0.35   $ 0.37  
                       

Net income (loss) per diluted share available to common stockholders / members:

                               

Distributed

  $ 0.94   $ 1.03   $ 1.13   $ 0.54   $  

Undistributed

    (0.50 )   (0.39 )   0.66     (0.19 )   0.37  
                       

Net income per share (diluted)

  $ 0.44   $ 0.64   $ 1.79   $ 0.35   $ 0.37  
                       

Weighted average shares outstanding:

                               

Basic

    20,770,041     20,849,242     23,785,299     20,849,242     33,435,439  

Diluted

    20,770,041     20,849,242     23,833,223     20,849,242     33,903,898  

(1)
The following table summarizes non-cash equity-based compensation expense included in the Company's statement of operations. Prior to the Reorganization on October 5, 2012, there was no non-cash equity-based compensation expense related to the stock options as a result of a change-of-control condition:

 
  Year Ended December 31,   Six Months Ended June 30,  
 
  2010   2011   2012   2012   2013  
 
  (in thousands)
 
 
   
   
   
  (unaudited)
 

Cost of revenue

  $   $   $ 219   $   $ 165  

Sales and marketing

            783         507  

Product development

            1,696         584  

General and administrative

    1,114     2,122     7,687     2,157     1,314  
                       

Total

  $ 1,114   $ 2,122   $ 10,385   $ 2,157   $ 2,570  
                       
(2)
Prior to October 5, 2012, we operated as a New York limited liability company for federal and state income tax purposes, taxed as a partnership, and therefore were not subject to federal and state income taxes. In connection with the Reorganization, we recorded a one-time non-cash tax benefit of $28.8 million. Following the Reorganization, we became subject to income taxes.

 

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  Year Ended December 31,   Six Months Ended
June 30,
 
 
  2010   2011   2012   2012   2013  

Other Financial and Operational Data:

                               

Adjusted EBITDA (in thousands)(1)

  $ 21,783   $ 26,532   $ 34,877   $ 13,321   $ 25,211  

Non-GAAP net income (in thousands)(2)

  $ 20,044   $ 23,913   $ 27,921   $ 11,890   $ 13,969  

Free cash flow (in thousands)(3)

  $ 27,591   $ 36,095   $ 41,773   $ 16,307   $ 14,820  

Paid downloads (in millions) (during period)(4)

    44.1     58.6     76.0     35.9     46.7  

Revenue per download (during period)(5)

  $ 1.88   $ 2.05   $ 2.23   $ 2.18   $ 2.31  

Images in our collection (in millions) (end of period)(6)

    13.3     17.4     23.3     20.2     27.3  

(1)
See "—Non-GAAP Financial Measures" below as to how we define and calculate Adjusted EBITDA and for a reconciliation between Adjusted EBITDA and net income, the most directly comparable financial measure presented on a U.S. generally accepted accounting principles, or GAAP, basis and a discussion about the limitations of Adjusted EBITDA.

(2)
See "—Non-GAAP Financial Measures" below as to how we define and calculate Non-GAAP Net Income and for a reconciliation between Non-GAAP Net Income and net income, the most directly comparable GAAP financial measure and a discussion about the limitations of Non-GAAP Net Income.

(3)
See "—Non-GAAP Financial Measures" below as to how we define and calculate Free Cash Flow and for a reconciliation between Free Cash Flow and net cash provided by operating activities, the most directly comparable GAAP financial measure and a discussion about the limitations of Free Cash Flow.

(4)
Paid downloads is the number of paid image and video clip downloads that our customers make during a given period. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Key Operating Metrics—Paid Downloads" for more information as to how we define and calculate paid downloads.

(5)
Revenue per download is the amount of revenue recognized in a given period divided by the number of paid downloads in that period. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Key Operating Metrics—Revenue per Download" for more information as to how we define and calculate paid revenue per download.

(6)
Images in our collection is the total number of photographs, vectors and illustrations available on shutterstock.com to customers at the end of the period. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Key Operating Metrics—Images in our Collection" for more information as to how we define and calculate paid images in our collection.

 
  As of June 30, 2013  
 
  Actual   As Adjusted(1)  
 
  (in thousands)
(unaudited)

 

Consolidated Balance Sheet Data:

             

Cash and cash equivalents

  $ 112,803   $    

Working capital

    73,512        

Property and equipment, net

    6,778        

Total assets

    172,548        

Deferred revenue

    46,736        

Total liabilities

    76,946        

Total stockholders' equity

  $ 95,602   $    

(1)
The as adjusted column in the balance sheet data table above gives effect to the sale and issuance by us of                        shares of common stock in this offering based upon an assumed public offering price of $            per share, which is the last reported sale price of our common stock on the New York Stock Exchange on                        , 2013, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

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Non-GAAP Financial Measures

Adjusted EBITDA

        To provide investors with additional information regarding our financial results, we have disclosed within this prospectus Adjusted EBITDA, a non-GAAP financial measure. We define Adjusted EBITDA as net income adjusted for other (income) expense, income taxes, depreciation and amortization, and non-cash equity-based compensation. We believe Adjusted EBITDA is an important measure of operating performance because it allows management, investors and others to evaluate and compare our core operating results from period to period by removing the impact of our asset base (depreciation and amortization), non-cash equity-based compensation, interest and taxes.

        Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider this measure in isolation or as a substitute for analysis of our results as reported under U.S. generally accepted accounting principles, or GAAP, as the excluded items may have significant effects on our operating results and financial condition. When evaluating our performance, you should consider Adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, net income and our other GAAP results. Additionally, our Adjusted EBITDA measure may differ from other companies' Adjusted EBITDA as it is a non-GAAP disclosure.

        The following is a reconciliation of Adjusted EBITDA to net income, the most directly comparable GAAP measure:

 
  Year Ended December 31,   Six Months
Ended June 30,
 
 
  2010   2011   2012   2012   2013  
 
  (in thousands)
 

Net income

  $ 18,938   $ 21,864   $ 47,543   $ 9,782   $ 12,428  

Non-GAAP adjustments:

                               

Depreciation and amortization                        

    874     1,520     2,640     1,160     1,725  

Non-cash equity-based compensation

    1,114     2,122     10,385     2,157     2,570  

Other (income) expense, net

    (19 )   (10 )   47     (5 )   (8 )

Provision (benefit) for income taxes

    876     1,036     (25,738 )   227     8,496  
                       

Adjusted EBITDA

  $ 21,783   $ 26,532   $ 34,877   $ 13,321   $ 25,211  
                       

Non-GAAP Net Income

        To provide investors with additional information regarding our financial results, we have disclosed within this prospectus non-GAAP net income, a non-GAAP financial measure. We define non-GAAP net income as net income excluding the one-time tax benefit due to the Reorganization and the after-tax impact of non-cash equity-based compensation. We believe non-GAAP net income is an important measure of operating performance because it allows management, investors and others to evaluate and compare our operating results from period to period by removing the impact of our one-time tax benefit due to the Reorganization in October 2012, non-cash equity-based compensation, and the tax benefit for the deductible non-cash equity-based compensation. Our use of non-GAAP net income has limitations as an analytical tool, and you should not consider this measure in isolation or as a substitute for analysis of our results as reported under GAAP as the excluded items may have significant effects on our operating results and financial condition. When evaluating our performance, you should consider non-GAAP net income alongside other financial performance measures, including various cash flow metrics, net income and our other GAAP results. Additionally, our non-GAAP net income measure may differ from other companies' non-GAAP net income as it is a non-GAAP disclosure.

 

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        The following is a reconciliation of Non-GAAP net income to net income, the most directly comparable GAAP measure:

 
  Year Ended December 31,   Six Months
Ended June 30,
 
 
  2010   2011   2012   2012   2013  
 
  (in thousands)
 

Net income

  $ 18,938   $ 21,864   $ 47,543   $ 9,782   $ 12,428  

Non-GAAP adjustments:

                               

One-time tax benefit due to the Reorganization

            (28,811 )        

Non-cash equity-based compensation

    1,114     2,122     10,385     2,157     2,570  

Non-cash equity-based compensation tax benefit

    (8 )   (73 )   (1,196 )   (49 )   (1,029 )
                       

Non-GAAP net income

  $ 20,044   $ 23,913   $ 27,921   $ 11,890   $ 13,969  
                       

Free Cash Flow

        To provide investors with additional information regarding our financial results, we have disclosed within this prospectus Free Cash Flow, a non-GAAP financial measure. We define Free Cash Flow as our cash provided by (used in) operating activities, adjusted for capital expenditures and other income (expense). We believe that Free Cash Flow is an important measure of liquidity because it allows management, investors and others to evaluate the cash that we generate after the financing of projects required to maintain or expand our asset base. When evaluating our performance, you should consider Free Cash Flow alongside other financial performance measures, including various cash flow metrics, net income and our other GAAP results. Additionally, our Free Cash Flow measure may differ from other companies' Free Cash Flow as it is a non-GAAP disclosure.

        The following is a reconciliation of Free Cash Flow to net cash provided by operating activities, the most directly comparable GAAP measure:

 
  Year Ended December 31,   Six Months
Ended June 30,
 
 
  2010   2011   2012   2012   2013  
 
  (in thousands)
 

Net cash provided by operating activities

  $ 28,726   $ 39,547   $ 45,534   $ 18,922   $ 17,814  

Other income (expense), net

    19     10     (47 )   5     8  

Capital expenditures

    (1,116 )   (3,442 )   (3,808 )   (2,610 )   (2,986 )
                       

Free cash flow

  $ 27,591   $ 36,095   $ 41,773   $ 16,307   $ 14,820  
                       

 

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RISK FACTORS

        This offering and an investment in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with the financial and other information contained in this prospectus, before deciding whether to invest in shares of our common stock. If any of the following risks actually occur, our business, financial condition, operating results, cash flow and prospects could be materially adversely affected. This could cause the trading price of our common stock to decline, and you may lose part or all of your investment.

Risks Relating to Our Business and Industry

The success of our business depends on our ability to continue to attract and retain customers and contributors to our online marketplace for commercial digital imagery.

        The success of our business and our future growth depends significantly on our ability to continue to attract new customers and contributors, as well as continue to retain existing customers and contributors, to our online marketplace for commercial digital imagery. To maintain and increase our revenue, we must regularly add new customers and retain our existing customers. An increase in paying customers has generally attracted more images and video clips from contributors, which increases our content selection and in turn attracts additional paying customers. To attract new customers and contributors and retain existing customers and contributors, we rely heavily on the effectiveness of our marketing efforts, the size and content of our collection and the functionality and features of our marketplace. Our marketing efforts may be unsuccessful, our collection may fail to grow as anticipated and new technologies may render the systems and features of our marketplace obsolete, any of which would adversely affect our results of operations and future growth prospects.

Our business depends in large part on repeat customer purchases from both our subscription-based and our On Demand purchase options. If customers reduce or cease their spending with us, or if content contributors reduce or end their participation in our marketplace, our business will be harmed.

        The majority of our revenue is derived from customers who have purchased with us in the past. As a result, our future performance largely depends on our ability to motivate our customers to continue to purchase from us. A key factor in creating such an incentive is our ability to provide customers with the images they seek and to refresh and grow our collection of digital imagery based on current and future trends. We seek to achieve these goals by attracting new contributors to our marketplace and by retaining our existing contributors. If we are unable to attract new contributors, retain existing contributors or add new imagery to our online marketplace, or if we fail to do so in a timely manner, customers requiring new and up-to-date content may reduce their spending with us. Another key factor in retaining our existing customers is our ability to deliver a user experience that continues to meet customers' needs, including the quality and accuracy of our search algorithms. If we are unable to maintain or improve upon the user experience that we deliver customers in a way that motivates our customers to continue to purchase from us, our business would be harmed. Furthermore, although historically the gross margins and revenue retention rates from our subscription-based and our On Demand purchase options have been substantially similar, there can be no assurance that this will continue in future periods. To the extent that revenue from our On Demand purchases continues to increase as a percentage of our total revenue, we will become more dependent upon such purchase options.

We operate in a new and rapidly changing market, which makes it difficult to evaluate our future prospects and may increase the risk that we will not be successful.

        The market for commercial digital imagery is a relatively new and rapidly changing market that may not develop as expected. Our business strategy and projections rely on a number of assumptions about the market for commercial digital imagery, including the size and projected growth of the market over the next

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several years. Some or all of these assumptions may be incorrect. The market for online commercial digital imagery may not develop as we expect or as third party analysts have forecasted or we may fail to address the needs of this market.

        The limited history of the market in which we operate makes it difficult to effectively assess our future prospects, and you should consider our business and prospects in light of the risks and difficulties we encounter in this evolving market. These risks and difficulties include our ability to:

    attract new customers and retain existing customers;

    offer customers the kinds of images they are seeking;

    successfully compete with other companies that are currently in, or may in the future enter, the commercial digital imagery marketplace;

    protect against the misuse of our imagery;

    raise awareness of our online community and brand name;

    successfully expand our business;

    develop a scalable, high-performance technology infrastructure that can efficiently and reliably handle increased customer and contributor usage globally, as well as the deployment of new features and services; and

    avoid interruptions or disruptions in our services.

        We may not be able to successfully address these risks and difficulties or others, including those described elsewhere in these risk factors. We cannot accurately predict whether our products and services will achieve significant acceptance by potential customers in significantly larger numbers than at present. You should therefore not rely on our historic growth rates as an indication of future growth.

Our business is highly competitive. Competition presents an ongoing threat to the success of our business.

        The commercial digital imagery industry is intensely competitive. Competition may result in loss of market share, pricing pressures or reduced profit margins, any of which could substantially harm our business and results of operations. We compete with a wide array of companies, from significant media companies to individual imagery creators, to provide commercial digital imagery to users of such imagery. These competitors include:

    other online marketplaces for imagery such as iStockphoto, Fotolia and Dreamstime;

    traditional stock content providers such as Getty Images and Corbis Corporation;

    specialized visual content companies that are established in local, content or product-specific market segments such as Reuters Group PLC, the Associated Press and Thought Equity Motion;

    websites focused on image search and discovery such as Google Images;

    websites for image hosting, art and related products such as Flickr;

    social networking and social media services such as Facebook; and

    commissioned photographers and photography agencies.

        We believe that the principal competitive factors in the commercial digital imagery industry are: brand awareness; company reputation; the quality, relevance and diversity of images; the ability to source new imagery; the licensability of images and the degree to which image users are protected from legal risk; the effective use of current and emerging technology; the accessibility of imagery, distribution capability, and speed and ease of search and fulfillment; customer service; and the global nature of a company's interfaces

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and marketing efforts, including local languages, currencies, and payment methods. In addition, demand for our services is sensitive to price. Many external factors, including our technology and personnel costs and our competitors' pricing and marketing strategies, could significantly impact our pricing strategies. If we fail to meet our customers' price expectations, we could lose customers. A drop in our prices without a corresponding increase in volume would negatively impact our revenue.

        Some of our existing and potential competitors have or may obtain significantly greater financial, marketing or other resources or greater brand awareness than we have. Some of these competitors may be able to respond more quickly to new or expanding technology and devote more resources to product development, marketing or content acquisition than we can. If competitors offer higher royalties, easier contribution workflows, less selective vetting processes or convince contributors to distribute their content on an exclusive basis, contributors may choose to stop distributing new content with us or remove their existing content from our collection. Competitors may also seek to develop new products, technologies or capabilities that could render obsolete or less competitive many of the products, services and content types that we offer. If we are unable to compete successfully against our competitors, our growth prospects and results of operations may be adversely affected.

New competitors could enter our market and we may be unsuccessful in competing with these new entrants.

        New competitors may enter our market, particularly if technological advances or other market dynamics make creating, sourcing, archiving, indexing, reviewing, searching or delivering commercial digital images easier or more affordable. While we believe that there are obstacles to creating a meaningful network effect between customers and contributors, the barriers to creating a website that allows for the sale of digital content are low, which could result in greater competition. Our contributors, for example, may freely offer the images they provide to us to our competitors and may remove their images at any time. New entrants may raise significant amounts of capital and they may choose to prioritize increasing their market share and brand awareness over profitability, including, for example, by offering higher royalties for exclusivity. Additionally, larger, more established and better capitalized entities may acquire, invest in or partner with our competitors or leverage their own image-related competencies to enter our market. If we are unable to compete successfully against new entrants, our growth prospects and results of operations may be adversely affected.

We may not be able to prevent the misuse of our imagery and we may be subject to infringement claims.

        We rely on intellectual property laws and contractual restrictions to protect our rights and the imagery in our collection. Certain countries are very lax in enforcing intellectual property laws. Litigation in those countries will likely be costly and ineffective. Consequently, these intellectual property laws afford us only limited protection. Unauthorized parties have attempted, and may attempt, to improperly use our licensed digital imagery. We cannot guarantee that we will be able to prevent the unauthorized use of our digital imagery or that we will be successful in stopping such use once it is detected.

        We have been subject to a variety of third-party infringement claims in the past and will likely be subject to similar claims in the future. We license all of our digital imagery from photographers, illustrators and videographers, and, although we have staff committed to reviewing each image that we accept into our collection, we cannot guarantee that each contributor holds the rights or releases he or she claims or that such rights and releases are adequate. As a result, we may be subject to infringement claims or other claims by third parties. Furthermore, we offer our customers indemnification of up to $10,000 for legal costs and direct damages arising from the use of an image or video footage licensed through us. We also offer some of our customers custom contracts that either provide for larger indemnification amounts or unlimited indemnification. However, our contractual maximum liability may not be enforceable in all jurisdictions. We maintain insurance policies to cover potential intellectual property disputes. Since 2009, we have received approximately 35 customer claims for indemnification. Following investigation of such claims, fewer than one-third resulted in our making a cash payment to settle such claims. Aggregate amounts paid

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to date to settle customer indemnification claims have not been material. Although we have insurance to cover indemnification claims, and although, to date, these claims have not resulted in any material liability to us, we have incurred, and will continue to incur, expenses related to such claims and related settlements, which may increase over time.

        If a third-party infringement claim or series of claims is brought against us for uninsured liabilities or in excess of our insurance coverage, our business could suffer. In addition, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts or scope to protect us against all losses. Any claims against us, regardless of their merit, could severely harm our financial condition and reputation, strain our management and financial resources, and adversely affect our business.

Assertions by third parties of infringement or other violations by us of intellectual property rights could result in significant costs and substantially harm our business and operating results.

        Internet, technology and media companies are frequently subject to litigation based on allegations of infringement, misappropriation or other violations of intellectual property rights or rights related to their use of technology. Some internet, technology and media companies, including some of our competitors, own large numbers of patents, copyrights, trademarks and trade secrets, which they may use to assert claims against us. Third parties may in the future assert that we have infringed, misappropriated or otherwise violated their intellectual property rights, and as we face increasing competition, the possibility of intellectual property rights claims against us grows. Such litigation may involve patent holding companies or other adverse patent owners who have no relevant product revenue, and therefore our own issued and pending patents may provide little or no deterrence to these patent owners in bringing intellectual property rights claims against us. Existing laws and regulations are evolving and subject to different interpretations, and various federal and state legislative or regulatory bodies may expand current or enact new laws or regulations. We cannot assure you that we are not infringing or violating any third-party intellectual property rights or rights related to use of technology.

        We cannot predict whether assertions of third-party intellectual property rights or any infringement or misappropriation or other claims arising from such assertions will substantially harm our business and operating results. If we are forced to defend against any infringement or misappropriation claims, whether they are with or without merit, are settled out of court, or are determined in our favor, we may be required to expend significant time and financial resources on the defense of such claims. Furthermore, an adverse outcome of a dispute may require us to pay damages, potentially including treble damages and attorneys' fees, if we are found to have willfully infringed a party's intellectual property; cease making, licensing or using content that is alleged to infringe or misappropriate the intellectual property of others; expend additional development resources to redesign our technology; enter into potentially unfavorable royalty or license agreements in order to obtain the right to use necessary technologies, content, or materials; and to indemnify our partners and other third parties. Royalty or licensing agreements, if required or desirable, may be unavailable on terms acceptable to us, or at all, and may require significant royalty payments and other expenditures. In addition, any lawsuits regarding intellectual property rights, regardless of their success, could be expensive to resolve and would divert the time and attention of our management and technical personnel.

Unless we increase market awareness of our company and our services, our revenue may not continue to grow.

        We believe that our ability to attract and retain new customers and contributors depends in large part on our ability to increase our brand awareness within our industry. In order to increase the number of our customers and contributors, we may be required to expend greater resources on advertising, marketing, and other brand-building efforts to preserve and enhance customer and contributor awareness of our brand. Currently, a significant portion of our marketing spending consists of search engine marketing, which exposes us to risk in the event that one or more large search engines were to reconfigure their algorithms in such a way that would result in less business for us.

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        Our marketing campaigns or other efforts to increase our brand awareness may not succeed in bringing new visitors to our online marketplace or converting such visitors to paying customers or contributors and may not be cost-effective. Our brand may be impaired by a number of other factors, including disruptions in service due to technology issues, data privacy and security issues, and exploitation of our trademarks and other intellectual property by others without our permission.

We have experienced rapid growth in recent periods. If we fail to effectively manage our growth, our business and operating results may suffer.

        We have experienced, and expect to continue to experience, significant growth, which has placed, and will continue to place, significant demands on our management and our operational and financial infrastructure. We expect that our growth strategy will require us to commit substantial financial, operational and technical resources. Continued growth could also strain our ability to maintain reliable operation of our online marketplaces for our customers and contributors, develop and improve our operational, financial and management controls, enhance our reporting systems and procedures and recruit, train and retain highly skilled personnel. As our operations grow in size, scope and complexity, we will need to improve and upgrade our systems and infrastructure, which will require significant expenditures and allocation of valuable management resources. If we fail to allocate limited resources effectively in our organization as it grows, our business, operating results and financial condition will suffer.

One of our strategic goals is to generate a larger percentage of our revenue from larger companies, which may place greater demands on us in terms of increased service, indemnification or working capital requirements, any of which could increase our costs or substantially harm our business and operating results.

        One of our strategic goals is to increase the percentage of our revenue that come from larger companies, in addition to the small and medium-size companies from whom we have generated the majority of our revenue historically. In order to win the business of larger companies, we may face greater demands in terms of increased service requirements, greater indemnification requirements, greater pricing pressure, and greater working capital to accommodate the larger receivables and collections issues that are likely to occur as a result of being paid on credit terms. If we are unable to adequately address those demands, it may affect our ability to grow our business in this segment, which may adversely affect our results of operations and future growth. If we address those demands in a way that expands our risk of infringement claims, significantly increases our operating costs, reduces our ability to maintain or increase pricing, or increases our working capital requirements, our business, operating results and financial condition may suffer.

Continuing expansion into international markets is important for our growth, and as we continue to expand internationally, we face additional business, political, regulatory, operational, financial and economic risks, any of which could increase our costs or otherwise limit our growth.

        Continuing to expand our business to attract customers and contributors in countries other than the United States is a critical element of our business strategy. In 2012, approximately 65% of our revenue was derived from customers located outside of North America. While a significant portion of our customers reside outside of the United States, we have a limited operating history as a company outside the United States. We expect to continue to devote significant resources to international expansion through establishing additional offices, hiring additional overseas personnel and exploring acquisition opportunities. In addition, we expect to increase marketing for our foreign language offerings and to further localize our collection and user experience for foreign markets. Our ability to expand our business and to attract talented employees, and customers and contributors in an increasing number of international markets requires considerable management attention and resources and is subject to the particular challenges of supporting a rapidly growing business in an environment of multiple languages,

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cultures, customs, legal systems, alternative dispute systems, regulatory systems and commercial infrastructures. Expanding our international focus may subject us to risks that we have not faced before or increase risks that we currently face, including risks associated with:

    modifying our technology and marketing our offerings for customers and contributors beyond the 20 languages we currently offer;

    localizing our content to foreign customers' preferences and customs;

    legal, political or systemic restrictions on the ability of U.S. companies to do business in foreign countries, including, among others, restrictions imposed by the U.S. Office of Foreign Assets Control (OFAC) on the ability of U.S. companies to do business in certain specified foreign countries or with certain specified organizations and individuals;

    compliance with foreign laws and regulations, including disclosure requirements, privacy laws, rights of publicity, technology laws and laws relating to content;

    protecting and enforcing our intellectual property rights;

    recruiting and retaining talented and capable management and employees in foreign countries;

    potential adverse foreign tax consequences;

    strains on our financial and other systems to properly administer VAT, withholdings and other taxes;

    currency exchange fluctuations;

    remedying the material weakness in our internal control over financial reporting relating to tax compliance; and

    higher costs associated with doing business internationally.

        These risks may make it impossible or prohibitively expensive to expand to new international markets, or delay entry into such markets, which may affect our ability to grow our business.

As a result of the Reorganization, we are subject to entity-level taxation, which will result in significantly greater income tax expense than we have incurred historically.

        Prior to the Reorganization on October 5, 2012, we operated as a New York limited liability company. As a limited liability company, we recognized no federal and state income taxes, as the members of the LLC, and not the entity itself, were subject to income tax on their allocated share of our earnings. On October 5, 2012, we reorganized as a Delaware corporation. Consequently, we are currently subject to entity-level taxation even though historically Shutterstock Images LLC did not pay U.S. federal or state income taxes. As a result, our corporate income tax rate has increased significantly now that we are subject to federal, state and additional city income taxes.

Our operations may expose us to greater than anticipated income tax liabilities, which could harm our financial condition and results of operations.

        We plan to structure our activities in a manner so as to minimize our tax liabilities. However, we have operations in various taxing jurisdictions in the United States and foreign countries, and there is a risk that our tax liabilities in one or more jurisdictions could be more than reported relative to prior taxable periods and more than anticipated relative to future taxable periods.

        In addition, the determination of our worldwide provision for income taxes, tax withholdings and other tax liabilities requires significant judgment and there are many transactions and calculations for which the ultimate tax determination is uncertain. Although we believe our estimates are reasonable, our ultimate tax liability may differ from the amounts recorded in our financial statements and may materially

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adversely affect our financial results in the period or periods for which such determination is made. We have created reserves with respect to such tax liabilities where we believe it to be appropriate. However, there can be no assurance that our ultimate tax liability will not exceed the reserves that we have created.

        Furthermore, the current administration of the U.S. federal government has made public statements indicating that it has made international tax reform a priority, and key members of the U.S. Congress have conducted hearings and proposed changes to U.S. tax laws. Recent changes to U.S. tax laws, including limitations on the ability of taxpayers to claim and utilize foreign tax credits and the deferral of certain tax deductions until earnings outside of the United States are repatriated to the United States, as well as other changes to U.S. tax laws that may be enacted in the future, could impact the tax treatment of our foreign earnings. Due to the large and expanding scale of our international business activities, any changes in the U.S. taxation of such activities may increase our worldwide effective tax rate and harm our financial position and results of operations.

We currently have a material weakness in our internal control over financial reporting relating to compliance with certain tax regulations, that, if not properly remediated, could impair our ability to comply with the accounting and reporting requirements applicable to public companies.

        In connection with the audit of our financial statements as of and for the year ended December 31, 2011, we and our independent registered public accounting firm identified a material weakness in internal control over financial reporting with respect to our tax compliance process. Specifically, it was determined that we did not have adequate procedures and controls to appropriately comply with, and account for, certain non-income tax regulations. These non-income tax issues related to underpayment of international consumption tax, sales and use tax and royalty withholdings compliance. A material weakness is defined as a significant deficiency, or a combination of significant deficiencies, that results in a reasonable possibility that a material misstatement of our financial statements will not be prevented by our internal control over financial reporting. A significant deficiency means a control deficiency, or a combination of control deficiencies, that adversely affects our ability to initiate, record, process or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of our financial statements that is more than inconsequential will not be prevented or detected by our internal control over financial reporting.

        We began to remediate this material weakness during fiscal years 2012 and 2013 by increasing the level of tax expertise within our finance department, by hiring an external accounting firm with the appropriate knowledge and ability to supplement internal resources in the review process and to fulfill our obligations to comply with the accounting and reporting requirements applicable to public companies, and by updating our systems to collect the necessary data and taxes to comply with our required tax compliance processes. The actions that we are taking are subject to ongoing senior management review, as well as audit committee oversight. We were unable to fully remediate this material weakness during fiscal year 2012 and, therefore, the material weakness was not remediated as of December 31, 2012. Although we plan to complete this remediation process as quickly as possible, we cannot at this time estimate how long it will take, and our initiatives may not prove to be successful in remediating this material weakness. If we are unable to successfully remediate this material weakness, it could harm our operating results, cause us to fail to meet our SEC reporting obligations or applicable stock exchange listing requirements on a timely basis, cause our stock price to be adversely affected or result in inaccurate financial reporting or material misstatements in our annual or interim financial statements.

Our operations may expose us to greater than anticipated sales and transaction tax liabilities, including VAT, which could harm our financial condition and results of operations.

        We may have exposure to sales or other transaction taxes (including VAT) on our past and future transactions. A successful assertion by any state or local jurisdiction or country that we failed to pay such sales or other transaction taxes, or the imposition of new laws requiring the payment of such taxes, could

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result in substantial tax liabilities related to past sales, create increased administrative burdens or costs, discourage customers from purchasing images from us, or otherwise substantially harm our business and results of operations. See also "—We currently have a material weakness in our internal control over financial reporting relating to compliance with certain tax regulations that, if not properly remediated, could impair our ability to comply with the accounting and reporting requirements applicable to public companies."

If we do not respond to technological changes or upgrade our website and technology systems, our growth prospects and results of operations could be adversely affected.

        To remain competitive, we must continue to enhance and improve the functionality and features of our websites in addition to our infrastructure. Although we currently do not have specific plans for any infrastructure upgrades that would require significant capital investment outside of the normal course of business, in the future we will need to improve and upgrade our technology, database systems and network infrastructure in order to allow our business to grow in both size and scope. Without such improvements, our operations might suffer from unanticipated system disruptions, slow application performance or unreliable service levels, any of which could negatively affect our reputation and ability to attract and retain customers and contributors. Furthermore, in order to continue to attract and retain new customers, we are likely to incur expenses in connection with continuously updating and improving our user interface and experience. We may face significant delays in introducing new services, products and enhancements. If competitors introduce new products and services using new technologies or if new industry standards and practices emerge, our existing websites and our proprietary technology and systems may become obsolete or less competitive, and our business may be harmed. In addition, the expansion and improvement of our systems and infrastructure may require us to commit substantial financial, operational and technical resources, with no assurance that our business will improve.

Technological interruptions that impair access to our websites or the efficiency of our marketplace would damage our reputation and brand and adversely affect our results of operations.

        The satisfactory performance, reliability and availability of our websites and our network infrastructure are critical to our reputation, our ability to attract and retain both customers and contributors to our online marketplace and our ability to maintain adequate customer service levels. Any system interruptions that result in the unavailability of our websites could result in negative publicity, damage our reputation and brand or adversely affect our results of operations. We may experience temporary system interruptions for a variety of reasons, including security breaches and other security incidents, viruses, telecommunication and other network failures, power failures, software errors, data corruption or an overwhelming number of visitors trying to reach our websites during periods of strong demand. We rely upon third-party service providers, such as co-location and cloud service providers, for our data centers and application hosting, and we are dependent on these third parties to provide continuous power, cooling, internet connectivity and physical security for our servers. In the event that these third-party providers experience any interruption in operations or cease business for any reason, or if we are unable to agree on satisfactory terms for continued hosting relationships, our business could be harmed and we could be forced to enter into a relationship with other service providers or assume hosting responsibilities ourselves. Although we operate two data centers in an active/standby configuration for geographic and vendor redundancy and even though we maintain a third disaster recovery facility to back up our collection, a system disruption at the active data center could result in a noticeable disruption to our websites until all website traffic is redirected to the standby data center. Even a disruption as brief as a few minutes could have a negative impact on marketplace activities and could therefore result in a loss of revenue. Because some of the causes of system interruptions may be outside of our control, we may not be able to remedy such interruptions in a timely manner, or at all. In addition, we have entered into service level agreements with some of our larger customers. Technological interruptions could result in a breach of such agreements and subject us to considerable penalties.

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Failure to protect our intellectual property could substantially harm our business and operating results.

        The success of our business depends on our ability to protect and enforce our patents, trade secrets, trademarks, copyright and all of our other intellectual property rights, including our intellectual property rights underlying our online marketplace and search algorithms. We attempt to protect our intellectual property under trade secret, trademark, copyright and patent law, and through a combination of employee and third-party nondisclosure agreements, other contractual restrictions, and other methods. These afford only limited protection. Despite our efforts to protect our intellectual property rights and trade secrets, unauthorized parties may attempt to copy aspects of our intellectual property and use our trade secrets and other confidential information. Moreover, policing our intellectual property rights is difficult, costly and may not always be effective. To the extent these unauthorized parties, which may include our competitors, are successful in copying aspects of our search algorithms and our trade secrets, our business could be harmed.

        We have registered Shutterstock, Offset, Skillfeed, Bigstock and Big Stock Photo and other marks as trademarks in the United States. Nevertheless, competitors may adopt service names similar to ours, or purchase our trademarks and confusingly similar terms as keywords in internet search engine advertising programs, thereby impeding our ability to build brand identity and possibly leading to confusion among our customers. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of the term Shutterstock or our other trademarks. Any claims or customer confusion related to our trademarks could damage our reputation and brand and substantially harm our business and operating results.

        We currently own the www.shutterstock.com internet domain name and various other related domain names. Domain names are generally regulated by internet regulatory bodies. If we lose the ability to use a domain name in a particular country, we would be forced either to incur significant additional expenses to market our products within that country or to elect not to sell products in that country. Either result could harm our business and operating results. The regulation of domain names in the United States and in foreign countries is subject to change. Regulatory bodies could establish additional top-level domains, appoint additional domain name registrars or modify the requirements for holding domain names. As a result, we may not be able to acquire or maintain the domain names that utilize our brand names in the United States or other countries in which we conduct business or in which we may conduct business in the future.

        In order to protect our trade secrets and other confidential information, we rely in part on confidentiality agreements with our employees, consultants and third parties with whom we have relationships. These agreements may not effectively prevent disclosure of trade secrets and other confidential information and may not provide an adequate remedy in the event of misappropriation of trade secrets or any unauthorized disclosure of trade secrets and other confidential information. In addition, others may independently discover our trade secrets and confidential information, and in such cases we could not assert any trade secret rights against such parties. Costly and time-consuming litigation could be necessary to enforce or determine the scope of our trade secret rights and related confidentiality and nondisclosure provisions. Failure to obtain or maintain trade secret protection, or our competitors' acquisition of our trade secrets or independent development of unpatented technology similar to ours or competing technologies, could adversely affect our competitive business position.

        Litigation or proceedings before the U.S. Patent and Trademark Office or other governmental authorities and administrative bodies in the United States and foreign countries may be necessary in the future to enforce our intellectual property rights, to protect our patent rights, trademarks, trade secrets and domain names and to determine the validity and scope of the proprietary rights of others. Furthermore, the monitoring and protection of our intellectual property rights may become more difficult, costly and time consuming as we continue to expand internationally, particularly in those markets, such as China and certain other developing countries in Asia, in which legal protection of intellectual property rights is less robust than in the United States and in Europe. Our efforts to enforce or protect our proprietary rights may be ineffective and could result in substantial costs and diversion of resources and management time, each of which could substantially harm our operating results.

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Much of the software and technologies used to provide our services incorporate, or have been developed with, "open source" software, which may restrict how we use or distribute our services or require that we publicly release certain portions of our source code.

        Much of the software and technologies used to provide our services incorporate, or have been developed with, "open source" software. Such "open source" software may be subject to third party licenses that impose restrictions on our software and services. Examples of "open source" licenses include the GNU General Public License and GNU Lesser General Public License. Such open source licenses typically require that source code subject to the license be made available to the public and that any modifications or derivative works to open source software continue to be licensed under open source licenses. Few courts have interpreted open source licenses, and the manner in which these licenses may be interpreted and enforced is therefore subject to some uncertainty. We rely on multiple software engineers to design our proprietary technologies, and we do not exercise complete control over the development efforts of our engineers. In the event that portions of our proprietary technology are determined to be subject to an open source license, we could be required to publicly release portions of our source code, re-engineer all or a portion of our technologies, or otherwise be limited in the licensing of our technologies, each of which could reduce or eliminate the value of our services and technologies and materially and adversely affect our ability to sustain and grow our business.

Our operating results may fluctuate, which could cause our results to fall short of expectations and our stock price to decline.

        Our revenue and operating results could vary significantly from quarter to quarter and year to year due to a variety of factors, many of which are outside our control. As a result, comparing our operating results on a period to period basis may not be meaningful. In addition to other risk factors discussed in this "Risk Factors" section, factors that may contribute to the variability of our quarterly and annual results include:

    our ability to retain our current customers and to attract new customers and contributors;

    our ability to provide new and relevant imagery to our customers;

    our ability to effectively manage our growth;

    the effects of increased competition on our business;

    our ability to keep pace with changes in technology or our competitors;

    changes in our pricing policies or the pricing policies of our competitors;

    interruptions in service, whether or not we are responsible for such interruptions, and any related impact on our reputation and brand;

    costs associated with defending any litigation or other claims, including those related to our indemnification of our customers;

    our ability to pursue, and the timing of, entry into new geographies or markets and, if pursued, our management of this expansion;

    the impact of general economic conditions on our revenue and expenses;

    seasonality;

    changes in government regulation affecting our business; and

    costs related to potential acquisitions of technology or businesses.

        Because of these risks and others, it is possible that our future results may be below our expectations and the expectations of analysts and investors. In such an event, the price of our common stock may decline significantly.

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Our failure to protect the confidential information of our customers and our networks against security breaches and the risks associated with credit card fraud could expose us to liability, protracted and costly litigation and damage our reputation.

        We collect limited confidential information in connection with registering customers and contributors and other marketplace-related processes on our websites and, in particular, in connection with processing and remitting payments to and from our customers and contributors. Although we maintain security features on our websites, our security measures may not detect or prevent all attempts to hack our systems, denial-of-service attacks, viruses, malicious software, break-ins, phishing attacks, social engineering, security breaches or other attacks and similar disruptions that may jeopardize the security of information stored in and transmitted by our websites. We rely on encryption and authentication technology licensed from third parties to provide the security and authentication to effectively secure transmission of the confidential information that we process for our customers, and such technology may fail to function properly or may be compromised or breached. Additionally, as described above, we use third-party co-location and cloud service vendors for our data centers and application hosting, and their security measures may not prevent security breaches and other disruptions that may jeopardize the security of information stored in and transmitted through their systems. A party that is able to circumvent our security measures could misappropriate proprietary information, cause interruption in our operations, damage or misuse our websites, distribute or delete content owned by our contributors, and misuse the information that they misappropriate. Additionally, our systems may be breached by third parties without our being aware that our systems or data have been compromised. We may be required to expend significant capital and other resources to protect against such security breaches or to alleviate problems caused by such breaches. In addition, a significant cyber-security breach could result in payment networks prohibiting us from processing transactions on their networks. Security and fraud-related issues are likely to become more challenging as we expand our operations.

        Furthermore, some of the software and services that we use to operate our business, including our internal email and customer relationship management software, are hosted by third parties. If these services were to be interrupted or were to cause us to lose control of confidential information, our business operations could be disrupted and we could be exposed to liability and costly litigation.

        Under current credit card practices, we are liable for fraudulent credit card transactions because we do not obtain a cardholder's signature. We do not currently carry insurance against this risk. To date, we have experienced minimal losses from credit card fraud, but we continue to face the risk of significant losses from this type of fraud.

        If any compromise of our security were to occur, we may lose customers and our reputation, business, financial condition and operating results could be harmed. Any compromise of security may result in us being out of compliance with U.S. federal and state, and international laws and we may be subject to lawsuits, fines, criminal penalties, statutory damages, and other costs. Any failure, or perceived failure, by us to comply with our posted privacy policies or with any regulatory requirements or orders or other federal, state, or international privacy or consumer protection-related laws and regulations, could result in proceedings or actions against us by governmental entities or others, subject us to significant penalties and negative publicity, and adversely affect our results of operations. In addition, our failure to adequately control fraudulent credit card transactions could damage our reputation and brand and substantially harm our business and results of operations.

Government regulation of the internet, both in the United States and abroad, is evolving and unfavorable changes could have a negative impact on our business.

        The adoption, modification or interpretation of laws or regulations relating to the internet, ecommerce or other areas of our business could adversely affect the manner in which we conduct our business or the overall popularity or growth in use of the internet. Such laws and regulations may cover a vast array of activities, for example, automatic contract or subscription renewal, credit card fraud and processing, sales, advertising and other procedures, taxation, tariffs, privacy, data management and protection, pricing, content, copyrights, distribution, electronic contracts, consumer protection,

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outsourcing, broadband residential internet access and the characteristics and quality of products or services, and intellectual property ownership and infringement. In certain countries, such as those in Europe, such laws may be more restrictive than in the United States. It is not clear how existing laws governing issues such as property ownership, sales and other taxes, and privacy apply to the internet and ecommerce as the vast majority of these laws were adopted prior to the advent of the internet and do not contemplate or address the unique issues raised by the internet or ecommerce. Those laws that relate to the internet are at various stages of being interpreted by the courts and agencies, and thus, the scope and reach of their applicability can be uncertain. For example, the Children's Online Privacy Protection Act in the U.S. regulates the ability of online services to collect or use certain information from children under the age of 13. If we are required to comply with new regulations or legislation or new interpretations of existing regulations or legislation, this compliance could cause us to incur additional expenses, make it more difficult to renew subscriptions automatically, make it more difficult to attract new subscribers or otherwise alter our business model, or cause us to divert resources and funds to address government or private investigatory or adversarial proceedings. Any of these outcomes could have a material adverse effect on our business, financial condition or results of operations.

        We currently provide content licensing to customers in more than 150 countries. The privacy, data protection, censorship and liability standards and other potentially applicable rules or regulations, and intellectual property laws of those foreign countries, may be different than those in the United States. To the extent that any local laws or regulations apply to our company or operations and we are deemed to not be in compliance with them, our business may be harmed.

Expansion of our operations into additional content categories may subject us to additional business, legal, financial and competitive risks.

        Currently, our operations are focused in significant part on digital still images. Further expansion of our operations and our marketplace into video footage or additional content categories involves numerous risks and challenges, including increased capital requirements, potential new competitors and the need to develop new contributor and strategic relationships. Growth into additional content areas may require changes to our existing business model and cost structure and modifications to our infrastructure and may expose us to new regulatory and legal risks, any of which may require expertise in which we have little or no experience. There is no guarantee that we will be able to generate sufficient revenue from sales of such content to offset the costs of acquiring such content.

The impact of worldwide economic conditions, including effects on advertising and marketing budgets, may adversely affect our business and operating results.

        Our financial condition is affected by worldwide economic conditions and their impact on advertising spending. Expenditures by advertisers generally tend to reflect overall economic conditions, and to the extent that the economy stagnates, companies may reduce their spending on advertising and marketing, and thus the use of our online marketplace. This could have a serious adverse impact on our business. To the extent that overall economic conditions reduce spending on advertising and marketing activities, our ability to retain current and obtain new customers could be hindered, which could reduce our revenue and negatively impact our business.

The loss of key personnel, an inability to attract and retain additional personnel or difficulties in the integration of new members of our management team into our company could affect our ability to successfully grow our business.

        Our future success will depend upon our ability to identify, attract, retain and motivate highly skilled technical, managerial, product development, marketing, content operations and customer service employees. Competition for qualified personnel is intense in our industry. We cannot guarantee that we will be successful in our efforts to attract such personnel.

        We are highly dependent on the continued service and performance of our senior management team, as well as key technical and marketing personnel. Our inability to find suitable replacements for any of the members of our senior management team and our key technical and marketing personnel, should they

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leave our employ, would adversely impair our ability to implement our business strategy and could have a material adverse effect on our business and results of operations. Several members of our senior management team joined us since 2010. We believe the successful integration of our management team is critical to managing our operations effectively and to supporting our growth.

If we cannot maintain our corporate culture as we grow, we could lose the innovation, teamwork and focus that contribute crucially to our business.

        We believe that a critical component of our success is our corporate culture, which we believe fosters innovation, encourages teamwork, cultivates creativity and promotes a focus on execution. We have invested substantial time, energy and resources in building a highly collaborative team that works together effectively in a non-hierarchical environment designed to promote openness, honesty, mutual respect and pursuit of common goals. As we develop the infrastructure of a public company and continue to grow, we may find it difficult to maintain these valuable aspects of our corporate culture. Any failure to preserve our culture could negatively impact our future success, including our ability to attract and retain employees, encourage innovation and teamwork and effectively focus on and pursue our corporate objectives.

If we do not successfully integrate past or potential future acquisitions, our business could be adversely impacted.

        We have in the past pursued, and we may in the future pursue, acquisitions that are complementary to our existing business and that may expand our employee base and the breadth of our offerings. Future acquisitions or investments could result in potential dilutive issuances of equity securities, use of significant cash balances or the incurrence of debt, contingent liabilities or amortization expenses related to goodwill and other intangible assets, any of which could adversely affect our financial condition and results of operations. The benefits of an acquisition or investment may also take considerable time to develop, and we cannot be certain that any particular acquisition or investment will produce the intended benefits.

        Integration of a new company's operations, assets and personnel into ours will require significant attention from our management. The diversion of our management's attention away from our business and any difficulties encountered in the integration process could harm our ability to manage our business. Future acquisitions will also expose us to potential risks, including risks associated with any acquired liabilities, the integration of new operations, technologies and personnel, unforeseen or hidden liabilities, information security vulnerabilities, the diversion of resources from our existing businesses, sites and technologies, the inability to generate sufficient revenue to offset the costs and expenses of acquisitions, and potential loss of, or harm to, our relationships with employees, customers, contributors and other suppliers as a result of integration of new businesses.

We may need to raise additional capital in the future and may be unable to do so on acceptable terms or at all.

        We intend to continue to make investments to support our business growth and may require additional funds to respond to business challenges, including the need to develop new features or functions of our online marketplace, improve our operating infrastructure or acquire complementary businesses, personnel and technologies. Accordingly, we may need to engage in equity or debt financings to secure additional capital. If we raise additional funds through future issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. Any debt financing we secure in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. We may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly impaired, and our business may be harmed.

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We are subject to payments-related risks that may result in higher operating costs or the inability to process payments, either of which could harm our financial condition and results of operations.

        We accept payments using a variety of methods, including credit cards and debit cards. As we offer new payment options to consumers, we may be subject to additional regulations, compliance requirements and fraud. For certain payment methods, including credit and debit cards, we pay interchange and other fees, which may increase over time and raise our operating costs and lower profitability. We rely on third parties to provide payment processing services, including the processing of credit cards and debit cards, and it could disrupt our business if these companies became unwilling or unable to provide these services to us. We are also subject to payment card association operating rules, certification requirements and rules governing electronic funds transfers, which could change or be reinterpreted to make it difficult or impossible for us to comply. If we fail to comply with these rules or requirements, we may be subject to fines and higher transaction fees and lose our ability to accept credit and debit card payments from consumers or facilitate other types of online payments.

        We are also subject to, or voluntarily comply with, a number of other laws and regulations relating to money laundering, international money transfers, privacy and information security and electronic fund transfers. If we were found to be in violation of applicable laws or regulations, we could be subject to civil and criminal penalties or forced to cease our operations.

We are exposed to fluctuations in currency exchange rates, which could adversely affect our results.

        Because we conduct a growing portion of our business outside of the United States but report our financial results in U.S. Dollars, we face exposure to adverse movements in currency exchange rates. Our foreign operations are exposed to foreign exchange rate fluctuations as the financial results are translated from the local currency into U.S. Dollars upon consolidation. If the U.S. Dollar weakens against foreign currencies, the translation of these foreign currency denominated transactions will result in increased revenue, operating expenses and net income. Similarly, if the U.S. Dollar strengthens against foreign currencies, the translation of these foreign currency denominated transactions will result in decreased revenue, operating expenses and net income. As exchange rates vary, sales and other operating results, when translated, may differ materially from expectations.

        We have foreign currency risks related to foreign-currency denominated revenue. All amounts owed and paid to our foreign contributors are denominated and paid in U.S. Dollars. In general, transactions in foreign currencies are paid net of foreign-currency exchange rate charges. Accordingly, changes in exchange rates, and in particular a strengthening of the U.S. Dollar, will negatively affect our revenue and other operating results as expressed in U.S. Dollars.

        Because we have determined our functional currency to be the U.S. Dollar, we have not experienced material fluctuations in our net income as a result of translation gains or losses. During 2010, 2011 and 2012, our foreign currency transaction gains and losses were immaterial. At this time we do not, but we may in the future, enter into derivatives or other financial instruments in order to hedge our foreign currency exchange risk. It is difficult to predict the impact hedging activities would have on our results of operations.

We depend on the continued growth of online commerce and the continued adoption of digital imagery. If these trends do not continue, our growth prospects and results of operations could be adversely impacted.

        The business of selling goods and services over the internet is dynamic and relatively new. Concerns about fraud, privacy and other problems may discourage additional consumers from adopting the internet as a medium of commerce. In countries such as the U.S. and the United Kingdom, where our services and online commerce generally have been available for some time and the level of market penetration of our services is higher than in other countries, acquiring new customers may be more difficult and costly than it has been in the past. In order to expand our customer base, we may need to appeal to and acquire customers who historically have used traditional means of commerce to purchase goods and services. If these target customers prove to be less active than our earlier customers our business could be adversely impacted.

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        In addition, our growth is highly dependent upon the continued demand for imagery. The commercial digital imagery market is rapidly evolving, characterized by changing technologies, intense price competition, introduction of new competitors, evolving industry standards, frequent new service announcements and changing consumer demands and behaviors. To the extent that demand for imagery does not continue to grow as expected, our revenue growth will suffer.

The non-payment of amounts due to us from certain of our larger customers may negatively impact our financial condition.

        Our revenue generated through direct sales to large organizations has grown and currently represents less than 15% of our total revenue. A portion of these customers typically purchase our products on credit and therefore we assume a credit risk for non-payment in the ordinary course of business. Although we evaluate the credit worthiness of new customers and perform ongoing financial condition evaluations of our existing customers, there can be no assurance that our allowances for uncollected accounts receivable balances will be sufficient. As of June 30, 2013, our allowance for doubtful accounts was $384,000. As our direct sales continue to grow, we expect to increase our allowance for doubtful accounts primarily as the result of increased sales to customers who pay on credit.

Our business depends on the development and maintenance of the internet infrastructure. If the internet infrastructure experiences outages or delays our business could be adversely impacted.

        The success of our services will depend largely on the development and maintenance of the internet infrastructure. This includes maintenance of a reliable network backbone with the necessary speed, data capacity and security, as well as the timely development of complementary products, for providing reliable internet access and services. The internet has experienced, and is likely to continue to experience, significant growth in the number of users and amount of traffic. The internet infrastructure may be unable to support such demands. In addition, increasing numbers of users, increasing bandwidth requirements or problems caused by viruses, worms, malware and similar programs may harm the performance of the internet. The backbone network of the internet has been the target of such programs. The internet has experienced a variety of outages and other delays as a result of damage to portions of its infrastructure, and it could face outages and delays in the future. These outages and delays could reduce the level of internet usage generally as well as the level of usage of our services, which could adversely impact our business.

Our business is subject to the risks of earthquakes, fires, floods and other natural catastrophic events and to interruption by man-made problems such as terrorism or computer viruses.

        Our systems and operations are vulnerable to damage or interruption from earthquakes, fires, floods, power losses, telecommunications failures, terrorist attacks, acts of war, human errors, break-ins or similar events. For example, a significant natural disaster, such as an earthquake, fire or flood, could have a material adverse impact on our business, operating results and financial condition, and our insurance coverage may be insufficient to compensate us for losses that may occur. In addition, acts of terrorism could cause disruptions in our business or the economy as a whole. Our principal executive offices are located in New York City, a region that has experienced acts of terrorism in the past. Our servers may also be vulnerable to computer viruses, break-ins and similar disruptions from unauthorized tampering with our computer systems, which could lead to interruptions, delays, loss of critical data or the unauthorized disclosure of confidential customer data. Although we have disaster recovery capabilities, there can be no assurance that we will not suffer from business interruption as a result of any such events. As we rely heavily on our servers, computer and communications systems and the internet to conduct our business and provide high quality service to our customers and contributors, such disruptions could negatively impact our ability to run our business, result in loss of existing or potential customers and contributors and increased maintenance costs, which would adversely affect our operating results and financial condition.

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Risks Related to This Offering and Ownership of Our Common Stock

Our stock price has been and will likely continue to be volatile, and you could lose all or part of your investment.

        The trading price of our common stock has fluctuated and may continue to fluctuate substantially. Since shares of our common stock were sold in our initial public offering in October 2012 at a price of $17.00 per share, the reported high and low sales prices of our common stock have ranged from $21.00 to $60.95 through August 22, 2013. These fluctuations could cause you to lose all or part of your investment in our common stock since you may be unable to sell your shares at or above the price you paid in this offering.

        The trading price of our common stock depends on a number of factors, including those described in this "Risk Factors" section, many of which are beyond our control and may not be related to our operating performance. Factors that could cause fluctuations in the trading price of our common stock include, but are not limited to, the following:

    changes in projected operational and financial results;

    issuance of new or updated research or reports by securities analysts;

    the use by investors or analysts of third-party data regarding our business that may not reflect our actual performance;

    fluctuations in the valuation of companies perceived by investors to be comparable to us;

    fluctuations in the trading volume of our shares, or the size of our public float; and

    general economic and market conditions.

        Furthermore, the stock market has experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, interest rate changes or international currency fluctuations, may negatively impact the market price of our common stock. If the market price of our common stock after this offering does not exceed the public offering price, you may not realize any return on your investment in us and may lose some or all of your investment. In the past, certain companies that have experienced volatility in the market price of their common stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management's attention from other business concerns, which could seriously harm our business.

Future sales of our common stock in the public market could cause our share price to decline.

        Sales of a substantial number of shares of our common stock in the public market following this offering, or the perception that such sales could occur, could adversely affect the market price of our common stock and may make it more difficult for you to sell your common stock at a time and price that you deem appropriate. Based on the number of shares outstanding as of June 30, 2013, we will have            shares of our common stock outstanding upon the closing of this offering (or            shares of our common stock if the underwriters exercise their option to purchase additional shares in full).

        Of these outstanding shares, all of the 5,175,000 shares of common stock sold in our initial public offering and all of the            shares of common stock sold in this offering are or will be freely tradable in the United States without restrictions or further registration under the Securities Act of 1933, as amended, or the Securities Act, except for any shares purchased by our "affiliates" as defined in Rule 144 under the Securities Act. The holders of            shares of outstanding common stock have agreed with the underwriters, subject to certain extensions, not to dispose of or hedge any of their common stock during

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the 90-day period beginning on the date of this prospectus, except with the prior written consent of Morgan Stanley & Co. LLC and Deutsche Bank Securities Inc. Morgan Stanley & Co. LLC and Deutsche Bank Securities Inc. may, at their discretion, release all or some portion of the shares subject to lock-up agreements prior to expiration of the lock-up period. After the expiration of the 90-day lock-up period, these shares may be sold in the public market in the United States, subject to prior registration in the United States, if required, or reliance upon an exemption from U.S. registration, including, in the case of shares held by affiliates or control persons, compliance with the volume restrictions of Rule 144.

        Upon completion of this offering, stockholders owning an aggregate of            shares are entitled, under a registration rights agreement, to require us to register shares of our common stock owned by them for public sale in the United States. In addition, we filed registration statements on Form S-8 under the Securities Act to register the 8,750,000 shares that have been issued or are reserved for future issuance under our under our 2012 Omnibus Equity Incentive Plan and our 2012 Employee Stock Purchase Plan. Subject to the satisfaction of applicable exercise periods and, in certain cases, lock-up agreements with the representatives of the underwriters referred to above, the shares of common stock issued upon exercise of outstanding options and the shares of common stock issued pursuant to our 2012 Employee Stock Purchase Plan will be available for immediate resale in the United States in the open market, unless they are held by "affiliates," as that term is defined in Rule 144 of the Securities Act.

        Sales of our common stock as restrictions end or pursuant to registration rights may make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. We may also issue our shares of common stock or securities convertible into our common stock from time to time in connection with a financing, acquisition, investment or otherwise. Any such sales or issuances could result in substantial dilution to our existing stockholders and cause the trading price of our common stock to decline.

Jonathan Oringer, our founder, and other significant investors will control approximately        % of our outstanding shares of common stock after this offering, and this concentration of ownership may have an effect on transactions that are otherwise favorable to our stockholders.

        Upon completion of this offering, Jonathan Oringer, our founder and largest stockholder, will beneficially own approximately         % of our outstanding shares of common stock, or approximately        % if the underwriters exercise their option to purchase additional shares in full. In addition, certain funds affiliated with Insight Venture Partners, or Insight, will beneficially own approximately        % of our outstanding shares of common stock, or approximately        % if the underwriters exercise their option to purchase additional shares in full. As a result, Mr. Oringer and Insight collectively control the outcome of matters submitted to our stockholders for approval, including the election of directors. This concentration of ownership may also delay, deter or prevent a change in control, and may make some transactions more difficult or impossible to complete without the support of these stockholders, regardless of the impact of such transaction on our other stockholders.

We have incurred and will continue to incur increased costs and our management will face increased demands as a result of operating as a public company.

        We have incurred and will continue to incur significant legal, accounting and other expenses as a result of becoming a public company. In addition, our administrative staff has performed and will continue to be required to perform additional tasks. For example, as a public company, we will need to adopt additional internal controls and disclosure controls and procedures and bear all of the internal and external costs of preparing and distributing periodic public reports in compliance with our obligations under applicable securities laws and New York Stock Exchange rules.

        In addition, changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act, the Dodd-Frank Act and related regulations implemented by

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the Securities and Exchange Commission, or the SEC, and the stock exchanges are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time-consuming. We are currently evaluating and monitoring developments with respect to new and proposed rules and cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management's time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory authorities may initiate legal proceedings against us and our business may be harmed. We have incurred and will continue to incur substantially higher costs to obtain directors' and officers' insurance as a result of becoming a public company. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee, and attract and retain qualified executive officers.

        The increased costs associated with operating as a public company may decrease our net income or increase our net loss, and may cause us to reduce costs in other areas of our business or increase the prices of our products or services to offset the effect of such increased costs. Additionally, if these requirements divert our management's attention from other business concerns, they could have a material adverse effect on our business, financial condition and results of operations.

The recently enacted JOBS Act will allow us to postpone the date by which we must comply with certain laws and regulations and to reduce the amount of information provided in reports filed with the SEC. We cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.

        We are and we will remain an "emerging growth company" until the earliest to occur of (i) the last day of the fiscal year during which our total annual revenue equals or exceeds $1 billion (subject to adjustment for inflation), (ii) the last day of the fiscal year following the fifth anniversary of our initial public offering, (iii) the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt, or (iv) the date on which we are deemed a "large accelerated filer" under the Securities and Exchange Act of 1934, as amended, or the Exchange Act. For so long as we remain an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not "emerging growth companies" including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we will rely on some or all of these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. If we avail ourselves of certain exemptions from various reporting requirements, our reduced disclosure may make it more difficult for investors and securities analysts to evaluate us and may result in less investor confidence.

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If we fail to maintain an effective system of internal controls, we may not be able to report our financial results accurately or in a timely fashion, and we may not be able to prevent fraud; in such case, our stockholders could lose confidence in our financial reporting, which would harm our business and could negatively impact the price of our stock.

        Effective internal controls are necessary for us to provide reliable, timely financial reports and prevent fraud. In addition, Section 404 of the Sarbanes-Oxley Act of 2002 will require us to evaluate and report on our internal control over financial reporting beginning with our Annual Report on Form 10-K for the year ending December 31, 2013. The process of implementing our internal controls and complying with Section 404 will be expensive and time-consuming, and will require significant attention of management. We cannot be certain that these measures will ensure that we implement and maintain adequate controls over our financial processes and reporting in the future. Even if we conclude that our internal control over financial reporting provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, because of its inherent limitations, internal control over financial reporting may not prevent or detect fraud or misstatements. Failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our results of operations or cause us to fail to meet our reporting obligations. If we discover a material weakness, the disclosure of that fact, even if quickly remedied, could reduce the market's confidence in our financial statements and harm our stock price.

        Our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over financial reporting until we are no longer an "emerging growth company," as described above. At such time that an attestation is required, our independent registered public accounting firm may issue a report that is adverse in the event that it is not satisfied with the level at which our controls are documented, designed or operating. Our remediation efforts may not enable us to avoid a material weakness in the future.

Anti-takeover provisions in our charter documents and Delaware law could discourage, delay or prevent a change in control of our company and may affect the trading price of our common stock.

        Our amended and restated certificate of incorporation and bylaws contain provisions that could have the effect of rendering more difficult or discouraging an acquisition deemed undesirable by our board of directors. Our corporate governance documents include provisions that:

    authorize blank check preferred stock, which could be issued with voting, liquidation, dividend and other rights superior to our common stock;

    limit the liability of, and provide indemnification to, our directors and officers;

    limit the ability of our stockholders to call and bring business before special meetings and to take action by written consent in lieu of a meeting;

    require advance notice of stockholder proposals and the nomination of candidates for election to our board of directors;

    establish a classified board of directors, as a result of which the successors to the directors whose terms have expired will be elected to serve from the time of election and qualification until the third annual meeting following their election;

    require that directors only be removed from office for cause; and

    limit the determination of the number of directors on our board and the filling of vacancies or newly created seats on the board to our board of directors then in office.

        As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation Law, which prevents some stockholders holding more than 15% of

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our outstanding common stock from engaging in certain business combinations without the prior approval of our board of directors or the holders of substantially all of our outstanding common stock.

        These provisions of our charter documents and Delaware law, alone or together, could delay or deter hostile takeovers and changes in control or changes in our management. Any provision of our amended and restated certificate of incorporation or bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our common stock if they are viewed as discouraging takeover attempts in the future.

If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they change their recommendations regarding our stock adversely, our stock price and trading volume could decline.

        The trading market for our common stock will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors. If any of the analysts who may cover us change their recommendation regarding our stock adversely, or provide more favorable relative recommendations about our competitors, our stock price would likely decline. If any analyst who may cover us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

Our management will have broad discretion over the use of the proceeds we receive in this offering and might not apply the proceeds in ways that increase the value of your investment.

        Our management will have broad discretion over the use of the net proceeds from this offering and you will be relying on their judgment in applying these proceeds. Our management might not apply our net proceeds in ways that ultimately increase the value of your investment. We expect to use the net proceeds from this offering for general corporate purposes, including working capital and capital expenditures, which may in the future include investments in, or acquisitions of, complementary businesses, services or technologies. Our management might not be able to yield a significant return, if any, on any investment of these net proceeds. You will not have the opportunity to influence our decisions on how to use our net proceeds from this offering.

We do not expect to declare any dividends in the foreseeable future.

        We do not anticipate declaring any cash dividends to holders of our common stock in the foreseeable future. Consequently, investors may need to rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. Investors seeking cash dividends should not purchase our common stock.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

        This prospectus includes forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends affecting the financial condition of our business. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time those statements are made and/or management's good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to:

    our ability to identify, attract and retain customers and contributors to our online marketplace;

    our ability to maintain repeat purchase and subscription revenue;

    our new and rapidly changing market;

    the competitive nature of and anticipated growth in our markets;

    our ability to maintain our competitive position in a highly competitive industry;

    our ability to protect our intellectual property and protect against infringement claims made by third parties;

    our ability to increase our brand awareness within the industry;

    our ability to effectively manage our rapid growth in recent periods;

    our ability to generate a larger percentage of our revenue from larger companies and satisfy related demands;

    our ability to successfully navigate the risks related to our international operations and expansion;

    the degree to which our operations expose us to greater than anticipated tax liabilities;

    our ability to respond to technological changes or upgrade our websites and technological systems;

    the attraction and retention of qualified employees and key personnel;

    fluctuations in our annual and quarterly results of operations;

    the impact of and our ability to successfully integrate past and future business acquisitions;

    our ability to remedy the material weakness in our internal control over financial reporting relating to compliance with certain tax regulations; and

    other risk factors included under "Risk Factors" in this prospectus.

        In addition, in this prospectus, the words "believe," "may," "will," "would," "should," "could," "estimate," "continue," "anticipate," "intend," "expect," "predict," "potential" and similar expressions, as they relate to our company, our business and our management, are intended to identify forward-looking statements. In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this prospectus may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statements.

        Forward-looking statements speak only as of the date of this prospectus. You should not put undue reliance on any forward-looking statements. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except to the extent required by applicable laws. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

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INDUSTRY AND MARKET DATA

        Unless otherwise indicated, information contained in this prospectus concerning our industry and the markets in which we operate, including our general expectations and market position, market opportunity and market size, is based on information from various sources, on assumptions that we have made that are based on those data and other similar sources and on our knowledge of the markets for our products. These sources include industry publications, reports, surveys and forecasts prepared by IDC, BIA/Kelsey, Cisco, IBISWorld, Netcraft, comScore and MagnaGlobal, as well as a report commissioned by us and prepared by L.E.K. Consulting LLC. These data from such sources involve a number of assumptions and limitations, and contain projections and estimates based on various assumptions of the future performance of the industry in which we operate, and you are cautioned not to give undue weight to such estimates. While we believe the market position, market opportunity and market size information included in this prospectus to be generally reliable, such information is inherently imprecise and we cannot give you any assurance that any of the projected results will be achieved. In addition, projections, assumptions and estimates of our future performance and the future performance of the industry in which we operate is necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in "Risk Factors" and elsewhere in this prospectus. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties set forth above and by us.

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USE OF PROCEEDS

        We estimate that the net proceeds to us from the sale of the shares of our common stock offered by us will be approximately $             million, based on an assumed public offering price of $            per share, which was the closing price of our common stock as reported on the New York Stock Exchange on                         , 2013, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters' option to purchase additional shares in this offering is exercised in full, we estimate that our net proceeds will be approximately $             million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We will not receive any proceeds from the sale of common stock by the selling stockholders.

        A $1.00 increase (decrease) in the assumed public offering price of $            per share would increase (decrease) the net proceeds to us from this offering by approximately $             million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of one million shares in the number of shares of common stock offered by us would increase (decrease) the net proceeds to us from this offering by approximately $             million, assuming the assumed public offering price remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

        The principal purposes of this offering are to facilitate an orderly distribution of shares for the selling stockholders, to increase our public float, and to increase our capitalization and financial flexibility. We intend to use the net proceeds from this offering primarily for general corporate purposes, including working capital and capital expenditures. We may also use a portion of the net proceeds to acquire or invest in complementary companies, products or technologies, although we currently do not have any acquisitions or investments planned.

        Based on our current cash and cash equivalents balance together with cash generated from operations, we do not expect that we will have to utilize any of the net proceeds to us from this offering to fund our operations during the next 12 months. Therefore, we will have broad discretion over the uses of the net proceeds received in this offering. Pending such uses, we intend to invest the net proceeds from this offering in interest-bearing, investment grade securities.

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MARKET PRICE OF COMMON STOCK

        Our common stock has been listed on the New York Stock Exchange under the symbol "SSTK" since October 11, 2012. Prior to that date, there was no public trading market for our common stock. The following table sets forth for the periods indicated the high and low sales prices per share of our common stock as reported on the New York Stock Exchange:

 
  Low   High  

Year ending December 31, 2012

             

Fourth Quarter (beginning October 11, 2012)

  $ 21.00   $ 28.63  

Year ending December 31, 2013

             

First Quarter

  $ 23.31   $ 45.21  

Second Quarter

  $ 37.37   $ 57.49  

Third Quarter (through August 22, 2013)

  $ 50.17   $ 60.95  

        On August 22, 2013, the last reported sale price of our common stock on the New York Stock Exchange was $53.92 per share.

        As of June 30, 2013, we had 13 holders of record of our common stock. The actual number of stockholders is greater than this number of record holders, and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other entities.


DIVIDEND POLICY

        We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any cash dividends on our common stock in the foreseeable future. Any future determination relating to our dividend policy will be made at the discretion of our board of directors, based upon on our financial condition, results of operations, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant.

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CAPITALIZATION

        The following table summarizes our cash and cash equivalents, and capitalization as of June 30, 2013 on:

    an actual basis;

    an as adjusted basis, giving effect to the sale by us of                        shares of common stock in this offering based on an assumed public offering price of $            per share, which was the closing price of our common stock as reported on the New York Stock Exchange on                        , 2013, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

        You should read this table in conjunction with "Selected Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and our consolidated financial statements and related notes included elsewhere in this prospectus.

 
  As of June 30, 2013  
 
  Actual   As Adjusted  
 
  (in thousands)
 
 
  (unaudited)
 

Cash and cash equivalents

  $ 112,803   $    
           

Stockholders' equity:

             

Common stock, $0.01 par value; 200,000,000 shares authorized, 33,692,311 issued and outstanding, actual; 200,000,000 shares authorized,              shares issued and outstanding, as adjusted

    337        

Preferred stock, $0.01 par value; 5,000,000 shares authorized, no shares issued and outstanding, actual; and 5,000,000 shares authorized, no shares issued and outstanding, as adjusted

           

Additional paid-in capital

    54,520        

Retained earnings

    40,745        

Total stockholders' equity

    95,602        
           

Total capitalization

  $ 95,602   $    
           

        The number of shares of our common stock to be outstanding following this offering is based on 33,692,311 shares of our common stock outstanding as of June 30, 2013, and excludes:

    560,372 shares of our common stock issuable upon the exercise of options outstanding as of June 30, 2013 at a weighted average exercise price of $15.43 per share;

    5,910,074 shares of our common stock reserved for future grant or issuance under our 2012 Omnibus Equity Incentive Plan; and

    2,926,283 shares of our common stock reserved for future issuance under our 2012 Employee Stock Purchase Plan.

        Except as otherwise indicated, information in this prospectus reflects or assumes the following:

    no exercise of options outstanding as of June 30, 2013; and

    no exercise by the underwriters of their option to purchase up to an additional                        shares of common stock from us and to purchase up to an additional                        shares of common stock from the selling stockholders.

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SELECTED CONSOLIDATED FINANCIAL DATA

        The following tables set forth our selected consolidated financial and other data. We derived the selected consolidated statement of operations data for the years ended December 31, 2010, 2011 and 2012 and the selected consolidated balance sheet data as of December 31, 2011 and 2012, from our audited consolidated financial statements that are included elsewhere in this prospectus. We derived the selected consolidated statement of operations data for the six months ended June 30, 2012 and 2013 and the selected consolidated balance sheet data as of June 30, 2013, from our unaudited consolidated financial statements that are included elsewhere in this prospectus. We derived the consolidated statements of operations data for the years ended December 31, 2008 and 2009 and the balance sheet data as of December 31, 2008, 2009 and 2010 from our audited consolidated financial statements not included in this prospectus.

        You should read the following selected consolidated financial data in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," and our

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consolidated financial statements and related notes included elsewhere in this prospectus. Our historic results are not necessarily indicative of the results that may be expected in the future.

 
  Year Ended December 31,   Six Months Ended June 30,  
 
  2008   2009   2010   2011   2012   2012   2013  
 
  (in thousands, except share and per share amounts)
 
 
   
   
   
   
   
  (unaudited)
 

Consolidated Statements of Operations Data:

                                           

Revenue

  $ 52,744   $ 61,099   $ 82,973   $ 120,271   $ 169,616   $ 78,199   $ 107,926  

Operating expenses(1):

                                           

Cost of revenue

    16,903     21,826     32,353     45,504     64,676     29,825     41,589  

Sales and marketing

    9,308     10,949     17,820     31,929     45,107     23,333     25,292  

Product development

    1,120     2,361     4,591     9,777     16,330     6,860     9,615  

General and administrative

    4,844     6,217     8,414     10,171     21,651     8,177     10,514  
                               

Total operating expenses

    32,175     41,353     63,178     97,381     147,764     68,195     87,010  
                               

Income from operations

    20,569     19,746     19,795     22,890     21,852     10,004     20,916  

Other income (expense), net

    18     5     19     10     (47 )   5     8  
                               

Income before income taxes

    20,587     19,751     19,814     22,900     21,805     10,009     20,924  

Provision for income taxes(2)

    942     909     876     1,036     (25,738 )   227     8,496  
                               

Net income

  $ 19,645   $ 18,842   $ 18,938   $ 21,864   $ 47,543   $ 9,782   $ 12,428  
                               

Less:

                                           

Preferred interest distributed

    7,578     5,431     6,475     7,144     9,000     3,788      

Preferred interest accretion

    7,175     6,804     7,068     4,058              

Undistributed (loss) earnings to participating stockholder / members

    (6,875 )   (2,242 )   (3,659 )   (2,692 )   (4,086 )   (1,342 )   41  
                               

Net income available to common stockholders / members

  $ 11,767   $ 8,849   $ 9,054   $ 13,354   $ 42,629   $ 7,336   $ 12,387  
                               

Net income (loss) per basic share available to common stockholders / members:

                                           

Distributed

  $ 1.09   $ 0.75   $ 0.94   $ 1.03   $ 1.14   $ 0.54   $  

Undistributed

    (0.48 )   (0.31 )   (0.50 )   (0.39 )   0.65     (0.19 )   0.37  
                               

Net income per share (basic)

  $ 0.61   $ 0.44   $ 0.44   $ 0.64   $ 1.79   $ 0.35   $ 0.37  
                               

Net income (loss) per diluted share available to common stockholders / members:

                                           

Distributed

  $ 1.09   $ 0.75   $ 0.94   $ 1.03   $ 1.13   $ 0.54   $  

Undistributed

    (0.48 )   (0.31 )   (0.50 )   (0.39 )   0.66     (0.19 )   0.37  
                               

Net income per share (diluted)

  $ 0.61   $ 0.44   $ 0.44   $ 0.64   $ 1.79   $ 0.35   $ 0.37  
                               

Weighted average shares outstanding:

                                           

Basic

    19,350,104     20,117,701     20,770,041     20,849,242     23,785,299     20,849,242     33,435,439  

Diluted

    19,350,104     20,117,701     20,770,041     20,849,242     23,833,223     20,849,242     33,903,898  

(1)
The following table summarizes non-cash equity-based compensation expense included in the Company's statement of operations. Prior to the Reorganization on October 5, 2012, there was no non-cash equity-based compensation expense related to the stock options as a result of a change-of-control condition:

 
  Year Ended December 31,   Six Months Ended June 30,  
 
  2008   2009   2010   2011   2012   2012   2013  
 
  (in thousands)
 
 
   
   
   
   
   
  (unaudited)
 

Cost of revenue

  $   $   $   $   $ 219   $   $ 165  

Sales and marketing

                    783         507  

Product development

                    1,696         584  

General and administrative

    2,032     1,833     1,114     2,122     7,687     2,157     1,314  
                               

Total

  $ 2,032   $ 1,833   $ 1,114   $ 2,122   $ 10,385   $ 2,157   $ 2,570  
                               

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(2)
For 2008, 2009, 2010 and 2011, and up through the Reorganization on October 5, 2012, we operated as a New York limited liability company for federal and state income tax purposes, taxed as a partnership, and therefore were not subject to federal and state income taxes. In connection with the Reorganization, we recorded a one-time non-cash tax benefit of $28.8 million. Following the Reorganization, we became subject to federal, state and city income taxes.

 
  Year Ended December 31,   Six Months Ended June 30,  
 
  2008   2009   2010   2011   2012   2012   2013  

Other Financial and Operational Data:

                                           

Adjusted EBITDA (in thousands)(1)

  $ 22,782   $ 21,983   $ 21,783   $ 26,532   $ 34,877   $ 13,321   $ 25,211  

Non-GAAP net income (in thousands)(2)

  $ 21,677   $ 20,675   $ 20,044   $ 23,913   $ 27,921   $ 11,890   $ 13,969  

Free cash flow (in thousands)(3)

  $ 28,665   $ 26,399   $ 27,591   $ 36,095   $ 41,773   $ 16,307   $ 14,820  

Paid downloads (in millions) (during period)(4)

    34.0     34.0     44.1     58.6     76.0     35.9     46.7  

Revenue per download (during period)(5)

  $ 1.55   $ 1.80   $ 1.88   $ 2.05   $ 2.23   $ 2.18   $ 2.31  

Images in our collection (in millions) (end of period)(6)

    5.1     8.9     13.3     17.4     23.3     20.2     27.3  

(1)
See "—Non-GAAP Financial Measures" below as to how we define and calculate Adjusted EBITDA and for a reconciliation between Adjusted EBITDA and net income, the most directly comparable financial measure presented on a U.S. generally accepted accounting principles, or GAAP, basis and a discussion about the limitations of Adjusted EBITDA.

(2)
See "—Non-GAAP Financial Measures" below as to how we define and calculate Non-GAAP Net Income and for a reconciliation between Non-GAAP Net Income and net income, the most directly comparable GAAP financial measure and a discussion about the limitations of Non-GAAP Net Income.

(3)
See "—Non-GAAP Financial Measures" below as to how we define and calculate Free Cash Flow and for a reconciliation between Free Cash Flow and net cash provided by operating activities, the most directly comparable GAAP financial measure and a discussion about the limitations of Free Cash Flow.

(4)
Paid downloads is the number of paid image and video clip downloads that our customers make during a given period. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Key Operating Metrics—Paid Downloads" for more information as to how we define and calculate paid downloads.

(5)
Revenue per download is the amount of revenue recognized in a given period divided by the number of paid downloads in that period. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Key Operating Metrics—Revenue per Download" for more information as to how we define and calculate paid revenue per download.

(6)
Images in our collection is the total number of photographs, vectors and illustrations available to customers on shutterstock.com at the end of the period. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Key Operating Metrics—Images in our Collection" for more information as to how we define and calculate paid images in our collection.

 
  As of December 31,   As of June 30,  
 
  2008   2009   2010   2011   2012   2013  
 
  (in thousands)
 
 
   
   
   
   
   
  (unaudited)
 

Consolidated Balance Sheet Data:

                                     

Cash and cash equivalents

  $ 975   $ 4,937   $ 6,544   $ 14,097   $ 102,096   $ 112,803  

Working capital (deficit)

    (12,858 )   (15,813 )   (21,909 )   (28,435 )   56,684     73,512  

Property and equipment, net

    816     1,219     1,703     3,844     5,255     6,778  

Total assets

    3,404     11,067     13,863     24,855     147,114     172,548  

Deferred revenue

    9,723     14,259     19,631     28,451     37,934     46,736  

Term loan facility

                    6,000      

Total liabilities

    15,026     22,514     31,355     49,058     70,180     76,946  

Redeemable preferred members' interest

    34,539     36,218     36,811     33,725          

Common members' interest

    2,949     4,782     5,699     5,699          

Total members' (deficit)

    (46,161 )   (47,665 )   (54,303 )   (57,928 )        

Total stockholders' equity

                  $ 76,934   $ 95,602  

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Non-GAAP Financial Measures

Adjusted EBITDA

        To provide investors with additional information regarding our financial results, we have disclosed within this prospectus Adjusted EBITDA, a non-GAAP financial measure. We define Adjusted EBITDA as net income adjusted for other (income) expense, income taxes, depreciation and amortization, and non-cash equity-based compensation. We believe Adjusted EBITDA is an important measure of operating performance because it allows management, investors and others to evaluate and compare our core operating results from period to period by removing the impact of our asset base (depreciation and amortization), non-cash equity-based compensation, interest and taxes.

        Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider this measure in isolation or as a substitute for analysis of our results as reported under U.S. generally accepted accounting principles, or GAAP, as the excluded items may have significant effects on our operating results and financial condition. When evaluating our performance, you should consider Adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, net income and our other GAAP results. Additionally, our Adjusted EBITDA measure may differ from other companies' Adjusted EBITDA as it is a non-GAAP disclosure.

        The following is a reconciliation of Adjusted EBITDA to net income for each of the periods indicated:

 
  Year Ended December 31,   Six Months Ended June 30,  
 
  2008   2009   2010   2011   2012   2012   2013  
 
  (in thousands)
 

Net Income

  $ 19,645   $ 18,842   $ 18,938   $ 21,864   $ 47,543   $ 9,782   $ 12,428  

Non-GAAP adjustments:

                                           

Depreciation and amortization

    181     404     874     1,520     2,640     1,160     1,725  

Non-cash equity-based compensation

    2,032     1,833     1,114     2,122     10,385     2,157     2,570  

Other (income) expense, net

    (18 )   (5 )   (19 )   (10 )   47     (5 )   (8 )

Provision (benefit) for income taxes

    942     909     876     1,036     (25,738 )   227     8,496  
                               

Adjusted EBITDA

  $ 22,782   $ 21,983   $ 21,783   $ 26,532   $ 34,877   $ 13,321   $ 25,211  
                               

Non-GAAP Net Income

        To provide investors with additional information regarding our financial results, we have disclosed within this prospectus non-GAAP net income, a non-GAAP financial measure. We define non-GAAP net income as net income excluding the one-time tax benefit due to the Reorganization and the after-tax impact of non-cash equity-based compensation. We believe non-GAAP net income is an important measure of operating performance because it allows management, investors and others to evaluate and compare our operating results from period to period by removing the impact of our one-time tax benefit due to the Reorganization in October 2012, non-cash equity-based compensation, and the tax benefit for the deductible non-cash equity-based compensation.

        Our use of non-GAAP net income has limitations as an analytical tool, and you should not consider this measure in isolation or as a substitute for analysis of our results as reported under GAAP as the excluded items may have significant effects on our operating results and financial condition. When evaluating our performance, you should consider non-GAAP net income alongside other financial performance measures, including various cash flow metrics, net income and our other GAAP results. Additionally, our non-GAAP net income measure may differ from other companies' non-GAAP net income as it is a non-GAAP disclosure.

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        The following is a reconciliation of Non-GAAP net income to net income for each of the periods indicated:

 
  Year Ended December 31,   Six Months Ended June 30,  
 
  2008   2009   2010   2011   2012   2012   2013  
 
  (in thousands)
 

Net Income

  $ 19,645   $ 18,842   $ 18,938   $ 21,864   $ 47,543   $ 9,782   $ 12,428  

Non-GAAP adjustments:

                                           

One-time tax benefit due to the Reorganization

                    (28,811 )        

Non-cash equity-based compensation

    2,032     1,833     1,114     2,122     10,385     2,157     2,570  

Non-cash equity-based compensation tax benefit

            (8 )   (73 )   (1,196 )   (49 )   (1,029 )
                               

Non-GAAP net income

  $ 21,677   $ 20,675   $ 20,044   $ 23,913   $ 27,921   $ 11,890   $ 13,969  
                               

Free Cash Flow

        To provide investors with additional information regarding our financial results, we have disclosed within this prospectus Free Cash Flow, a non-GAAP financial measure. We define Free Cash Flow as our cash provided by (used in) operating activities, adjusted for capital expenditures and other income (expense). We believe that Free Cash Flow is an important measure of operating performance because it allows management, investors and others to evaluate the cash that we generate after the financing of projects required to maintain or expand our asset base. When evaluating our performance, you should consider Free Cash Flow alongside other financial performance measures, including various cash flow metrics, net income and our other GAAP results. Additionally, our Free Cash Flow measure may differ from other companies' Free Cash Flow as it is a non-GAAP disclosure.

        The following is a reconciliation of Free Cash Flow to net cash provided by operating activities for each of the periods indicated:

 
  Year Ended December 31,   Six Months Ended June 30,  
 
  2008   2009   2010   2011   2012   2012   2013  
 
  (in thousands)
 

Net cash provided by operating activities

  $ 29,064   $ 27,151   $ 28,726   $ 39,547   $ 45,534   $ 18,922   $ 17,814  

Other income (expense), net

    18     5     19     10     (47 )   5     8  

Capital expenditures

    (381 )   (747 )   (1,116 )   (3,442 )   (3,808 )   (2,610 )   (2,986 )
                               

Free cash flow

  $ 28,665   $ 26,399   $ 27,591   $ 36,095   $ 41,773   $ 16,307   $ 14,820  
                               

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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 the consolidated financial statements and related notes that are included elsewhere in this prospectus. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under "Risk Factors" or in other parts of this prospectus.

Overview

        Shutterstock operates an industry-leading global marketplace for commercial digital imagery. Commercial digital imagery consists of licensed photographs, illustrations and video clips that companies use in their visual communications, such as websites, digital and print marketing materials, corporate communications, books, publications and video content. Demand for commercial digital imagery comes primarily from businesses, marketing agencies and media organizations. We estimate that the market for pre-shot commercial digital imagery will grow to approximately $6 billion in 2016, based on a study conducted on our behalf by L.E.K. Consulting LLC, or L.E.K.

        Our global online marketplace brings together users of commercial digital imagery with image creators from around the world. More than 750,000 active, paying users contributed to revenue in 2012, representing an increase of 36% compared to the prior year. We have historically benefitted from a high degree of revenue retention from both subscription-based and On Demand customers. For example, in 2010, 2011 and 2012, we experienced year-to-year revenue retention of 96%, 102% and 100%, respectively. This means that customers that contributed to our revenue in 2011 contributed, in the aggregate, 100% as much revenue in 2012 as they did in 2011. More than 40,000 approved contributors make their images and video clips available in our collection, which has grown to more than 28 million images and more than 1 million video clips. This makes our collection one of the largest of its kind and, in the twelve months ended December 31, 2012, we delivered more than 76 million paid downloads (including both commercial and editorial images) to our customers. We believe that we delivered the highest volume of commercial image downloads in 2012 of any single brand in our industry.

        In 2003, we launched the initial version of our website and became one of the first companies in our industry to offer a simple subscription-based payment model. Since then, we have continually enhanced our platform, achieving key product development and business milestones that have driven our revenue and traffic growth:

    In November 2005, we launched our first foreign language website, in Japanese. We currently make our website available in a total of 20 languages and transact in 10 currencies on shutterstock.com, including U.S. Dollars, Euros, British Pounds and Yen.

    In February 2006, we began offering video footage in addition to our collection of still images.

    In June 2007, we launched Shutterstock On The Red Carpet, a program that facilitates the acquisition of press passes for Shutterstock contributors so that they can photograph newsworthy events.

    In August 2008, we launched an On Demand purchase option to better meet the needs of lower-volume image users.

    In September 2009, we acquired certain assets and liabilities of Bigstockphoto, Inc., or Bigstock, for approximately $3.3 million in cash. Bigstock offers its customers the option of purchasing "credits," which are redeemed as images are downloaded. In 2011, Bigstock also began offering a Pay As You Go purchase option that allows customers to pay a fixed price as and when they download images.

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    In October 2009, we began offering each of our customers indemnification of up to $10,000 to cover legal costs or damages that may arise from their use of a Shutterstock image and to signal to customers that they can trust the quality and legal integrity of content they license through our marketplace. We subsequently began offering larger indemnification amounts or unlimited indemnification to certain of our customers.

    In November 2011, we launched Shutterstock for iPad, an application enabling visitors to search, browse and organize images using an iPad.

    In November 2012, we launched Shutterstock for iPhone, an application enabling visitors to search, browse and organize images using an iPhone.

    During the first eight months of 2013, we launched 10 new languages—Czech, Danish, Finnish, Hungarian, Korean, Norwegian, Polish, Swedish, Turkish and Thai—bringing the total number of languages we support to 20.

    In March 2013, we launched a new image discovery tool called Spectrum. The prototype, which is part of the Company's Labs development program for exploratory tools and products, indexes hexagram data to yield search results by color. Designed and built entirely in-house, Spectrum offers designers a new way to explore their ideas and inspiration.

    In March 2013, we announced the formation of Offset, a new brand featuring a collection of imagery from top photographers and illustrators around the world. Offset features the works from established and respected collections including National Geographic and Huber Images. With Offset, creative image buyers can purchase authentic, sophisticated imagery with a straightforward licensing process. Pricing is simple and transparent, and visible alongside each image and currently ranges between $250 and $500 depending on the size of the file.

    In April 2013, we surpassed contributor payouts of $150 million since our founding in 2003, illustrating our dynamic global marketplace and ability to connect artists to image buyers around the world.

    In April 2013, we reached 25 million images in our collection, and our users have made more than 300 million paid image downloads from our content collection since our founding in 2003.

    In May 2013, we announced the launch of a new tool called Keyword Suggestions. This tool suggests keywords based on similar images within the collection and reduces the time contributors need to spend creating keywords.

    In May 2013, we surpassed one million licensable video clips in our collection of royalty-free stock footage.

    In June 2013, we announced a new online marketplace called Skillfeed. The platform offers a collection of curated video courses through a simple, affordable subscription plan. We obtain content from instructors from around the world, specializing in topics such as graphic design, video and photo editing, Microsoft Excel and web development.

    In July 2013, we celebrated the 10th anniversary of the Company's founding and also launched Shutterstock Stories, which highlight the unique life stories of Shutterstock contributors and will award $75,000 through creative grants to winning contributors.

    In August 2013, we opened our first international office in London. The team in London will lead business development and customer service efforts for the United Kingdom, Shutterstock's largest individual market outside of the U.S.

    In August 2013, we announced a collaboration with Facebook to offer more than one million active advertisers seamless access to millions of high-quality photographs and illustrations. Businesses will

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      be able to search and choose from millions of Shutterstock images directly within Facebook's ad creation tool, and use those images in any ad created using the tool, including News Feed, Mobile and Desktop units.

        As an online marketplace, we generate revenue by licensing images and we pay royalties to contributors for each of their images that is downloaded. Approximately half of our revenue and the significant majority of our downloads come from subscription-based users. These customers can download and use a large number of images in their creative process without concern for the incremental cost of each image download. For users who need fewer images, we offer simple, affordable, On Demand pricing, which is presented as a flat rate across all images and sizes. Since the launch of our On Demand purchase options in 2008, revenue from our On Demand purchase options has increased as a percentage of our overall revenue and we expect that this trend will continue.

        Each time an image or video clip is downloaded, 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 as described on our websites. Royalties are paid to contributors on a monthly basis subject to certain payout minimums. Royalties represent the largest component of our operating expenses and tend to increase proportionally with revenue.

        Our cost of revenue is substantially similar as a percentage of revenue for our On Demand and subscription-based purchase options. While contributors earn a fixed amount per download for some of our plans, we have set the per-download amount paid to our contributors for each of our purchase options in such a way 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 to contributors regardless of which purchase option a customer chooses. Cost of revenue for our On Demand purchase options has been slightly lower than that of our subscription-based options; however, this difference has historically represented less than 5% of revenue. As a result, we expect that any shifts in the relative popularity of these two purchase options will not substantially impact our cost of revenue.

        We manage customer acquisition costs based on the blended customer lifetime value across our purchase options and so we are able to control our marketing expenses as a percentage of revenue. As a result, we do not believe that shifts in the mix between On Demand or subscription-based purchase options will materially impact our operating margins. In addition, the repeat revenue characteristics of customers whose first purchase was a subscription-based purchase option are substantially similar to those whose first purchase was an On Demand purchase option.

        We have achieved significant growth in the last three years. Our total revenue has grown from $83.0 million in 2010 to $120.3 million in 2011 and to $169.6 million in 2012, representing a compound annual growth rate of 43.0% since 2010. As our revenue has grown, so have our operating expenses, from $63.2 million in 2010 to $97.4 million in 2011 and to $147.8 million in 2012, principally as a result of increased royalties, marketing costs and payroll expenses.

        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, we increased our investments in marketing as a percentage of revenue. Since we believe the market for commercial digital imagery 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 images that they need, the degree to which we make use of the large quantity of data we collect about images and search patterns, and the degree to which our websites have been localized for international audiences. To this end, we have also invested aggressively in product development and we plan to continue to invest in this area. Finally, the quality and quantity of content that we make available in our collection is another key driver of our growth. In the last three calendar years, the

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number of approved and licensable images and video clips in the Shutterstock collection has grown from 13 million to over 23 million images, making it one of the largest collections of its kind.

        Even as we have invested in our key growth drivers of customer acquisition, customer experience improvement and content acquisition, we have delivered strong profitability. In 2012, our net income was $47.5 million and net cash from operating activities was $45.5 million. In the same period, Adjusted EBITDA, non-GAAP net income and Free Cash Flow were $34.8 million, $28.0 million and $41.5 million, respectively. See "Selected Consolidated Financial Data—Non-GAAP Financial Measures."

        From September 7, 2007 through October 5, 2012, we operated as a New York limited liability company (the "LLC"). In May 2012, in connection with the filing of a registration statement for our initial public offering (the "IPO"), we formed Shutterstock, Inc., a Delaware corporation, as a wholly-owned subsidiary of the LLC. On October 5, 2012, the Company reorganized by way of a merger of the LLC with and into Shutterstock, Inc., with Shutterstock, Inc. surviving in the merger (the "Reorganization").

        On October 16, 2012, we completed our IPO of 5,175,000 shares of common stock, including 675,000 shares sold as a result of the underwriters' exercise of their over-allotment option, at a price of $17.00 per share. The IPO resulted in net proceeds to the Company of approximately $81.8 million after deducting underwriting discounts and commissions, and before deducting total estimated expenses in connection with the offering of $4.9 million.

        Additionally, upon consummation of the Reorganization, we recognized the following one-time acceleration charges for non-cash stock-based compensation:

    a charge of approximately $2.4 million, net of estimated forfeitures, in connection with a the removal of the change of control condition for our VAR Plan awards and exchanging them for stock options; and

    a charge of approximately $0.5 million in connection with the removal of the change of control condition from the Profits Interest Agreement entered into with a Company employee.

        Upon the effectiveness of the our registration statement on Form S-1 for our IPO on October 10, 2012, we incurred a one-time acceleration for non-cash equity-based compensation of approximately $3.6 million in connection with the accelerated vesting of 50% of the unvested portion of the profits interest award granted to an executive officer and related issuance of 302,917 shares of common stock which was based on the exchange date fair value.

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 are useful for understanding the underlying trends in our business. The following table summarizes our key operating metrics, which are unaudited, for the years ended December 31, 2010, 2011 and 2012 and for the six months ended June 30, 2012 and 2013:

 
  Year Ended December 31,   Six Months
Ended
June 30,
 
 
  2010   2011   2012   2012   2013  
 
  (in millions, except revenue per download)
 

Paid downloads (during period)

    44.1     58.6     76.0     35.9     46.7  

Revenue per download (during period)

  $ 1.88   $ 2.05   $ 2.23   $ 2.18   $ 2.31  

Images in our collection (end of period)

    13.3     17.4     23.3     20.2     27.3  

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Paid Downloads

        Measuring the number of paid downloads that our customers make in any given period is important because our revenue and contributor royalties are driven by paid download activity. For customers that choose our On Demand purchase options, each incremental download results in incremental recognition of revenue. For customers that choose our subscription purchase options, we do not recognize revenue from each incremental download, but we believe that download activity is an important measure of the value that a customer is getting from a subscription and the likelihood that he or she will renew. We define paid downloads as the number of downloads that our customers make in a given period of our photographs, vectors, illustrations or video clips, excluding re-downloads of images that a customer has downloaded in the past (which do not generate contributor royalty expense) and downloads of our free image of the week (which we make available as a means of acquiring new customers and attracting existing customers to return to our websites more frequently).

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. This metric captures both 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. For example, when a customer pays $49.00 for five On Demand images, we earn more revenue per download ($9.80) than when a customer purchases a one-month subscription for $249.00 and downloads 100 images during the month ($2.49). Over the last three years, revenue from each of our purchase options has grown, however our fastest growing purchase options have been those that generate more revenue per download, most notably our On Demand purchase options. Due to this change in product mix, our revenue per download has increased steadily over the last three years.

Images in our Collection

        We define images in our collection as the total number of photographs, vectors and illustrations available to customers on shutterstock.com at any point in time. We record this metric as of the end of a period. Offering a large selection of images allows us to acquire and retain customers and, therefore, we believe that broadening our selection of high-quality images is an important driver of our revenue growth.

Basis of Presentation

Revenue

        We generate revenue by licensing commercial digital imagery. The significant majority of our revenue is generated via either subscription or On Demand purchase options. We generate subscription revenue through the sale of subscriptions varying in length from 30 days to one year. Our most popular subscription offering allows up to 25 image downloads per day for a flat monthly fee. In substantially all cases, we receive the full amount of the subscription payment by credit card at the time of sale; however, subscription revenue is recognized on a straight-line basis over the subscription period. We generate On Demand revenue through the sale of fixed packages of downloads varying in quantity from one image to 25 images. We also generate On Demand revenue through Bigstock via the sale of both credits plans (which enable a customer to purchase a fixed number of credits which can then be utilized to download images anytime within one year) and Pay As You Go pricing (which provides for simple cash pricing of individual images). We typically receive the full amount of the purchase at the time of sale; however, revenue is recognized as images are downloaded or when the right to download images expires (typically 365 days after purchase). We provide a number of other purchase options which together represented approximately 8% and 10% of our revenue in 2011 and 2012, respectively. These purchase options include custom accounts (for customers that need multi-seat access, invoicing, greater or unlimited indemnification, or a higher volume of images) and video footage (which are sold both individually and in

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fixed packages). We typically receive the full amount of the purchase at the time of sale; however, revenue is recognized as images or video clips are downloaded or when the right to download expires, typically 365 days after purchase. Some of our larger custom accounts are invoiced at or after the time of sale and pay us on credit terms. Some custom accounts pay in quarterly installments over the course of an annual commitment.

        Our deferred revenue consists of paid but unrecognized subscription revenue, On Demand revenue, and other revenue. Deferred revenue is recognized as revenue when images or video clips are downloaded (On Demand), through the passage of time (subscriptions) or when credits or the right to download images or video clips expire, and when all other revenue recognition criteria have been met.

Costs and Expenses

        Cost of Revenue.    Cost of revenue consists of royalties paid to contributors, credit card processing fees, image and video clip review costs, customer service expenses, the infrastructure costs related to maintaining our websites and associated employee compensation and non-cash equity-based compensation, 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 and non-cash equity-based compensation, commissions and benefits as well as 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.

        Product Development.    Product development expenses consist of headcount expenses, including compensation, and non-cash equity-based compensation, benefits and bonuses for salaried employees and contractors engaged in product management, design, development and testing of our websites and products. Product development costs also include facility and other supporting overhead costs. We expense product development expenses as incurred. We expect product development expenses to increase in absolute dollars in the foreseeable future as we continue to invest in developing new products and enhancing the functionality of our existing products.

        General and Administrative.    General and administrative expenses include employee salaries, non-cash equity-based compensation and benefits for executive, finance, business development, accounting, legal, human resources, internal information technology and other administrative personnel. In addition, general and administrative expenses include outside legal and accounting services, facilities costs and other supporting overhead costs. We expect to incur incremental general and administrative expenses to support our growth and to support operating as a public company.

        Income Taxes.    Historically, we filed our income tax return as a "pass through" New York limited liability company for federal and state income tax purposes and were subject to taxation on allocable portions of our net income and other taxes based on various methodologies employed by taxing authorities in certain localities. As a limited liability company, we recognized no federal and state income taxes, as the members of the LLC, and not the entity itself, were subject to income tax on their allocated share of our earnings. On October 5, 2012, we reorganized from a limited liability company to a Delaware corporation. Consequently, our corporate income tax rate has increased significantly now that we are subject to federal, state and additional city income taxes.

        As we expand our operations outside of the United States, we may become subject to taxation in non-U.S. jurisdictions and our effective tax rate could fluctuate accordingly.

        Our U.S. GAAP income taxes are computed using the asset and liability method, under which deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted statutory income tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce net deferred tax assets to the amount expected to be realized.

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Results of Operations

        The following table presents our results of operations for the periods indicated. The period-to-period comparisons of results are not necessarily indicative of results for future periods.

 
  Year Ended December 31,   Six Months Ended
June 30,
 
 
  2010   2011   2012   2012   2013  
 
  (in thousands)
 

Consolidated Statement of Operations:

                               

Revenue

  $ 82,973   $ 120,271   $ 169,616   $ 78,199   $ 107,926  

Operating expenses:

                               

Cost of revenue

    32,353     45,504     64,676     29,825     41,589  

Sales and marketing

    17,820     31,929     45,107     23,333     25,292  

Product development

          9,777     16,330     6,860     9,615  

General and administrative

    8,414     10,171     21,651     8,177     10,514  
                       

Total operating expenses

    63,178     97,381     147,764     68,195     87,010  
                       

Income from operations

    19,795     22,890     21,852     10,004     20,916  

Other income (expense), net

    19     10     (47 )   5     8  
                       

Income before income taxes

    19,814     22,900     21,805     10,009     20,924  

Provision (benefit) for income taxes

    876     1,036     (25,738 )   227     8,496  
                       

Net income

  $ 18,938   $ 21,864   $ 47,543   $ 9,782   $ 12,428  
                       

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

 
  Year Ended December 31,   Six Months Ended
June 30,
 
 
  2010   2011   2012   2012   2013  

Consolidated Statement of Operations as a Percentage of Revenue:

                               

Revenue

    100 %   100 %   100 %   100 %   100 %

Operating expenses:

                               

Cost of revenue

    39     38     38     38     39  

Sales and marketing

    21     27     26     30     23  

Product development

    6     8     10     9     9  

General and administrative

    10     8     13     10     10  
                       

Total operating expenses

    76     81     87     87     81  
                       

Income from operations

    24     19     13     13     19  

Other income (expense), net

    0     0     0     0     0  
                       

Income before income taxes

    24     19     13     13     19  

Provision (benefit) for income taxes

    1     1     (15 )   0     8  
                       

Net income

    23 %   18 %   28 %   13 %   11 %
                       

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Comparison of the Six Months Ended June 30, 2012 and June 30, 2013

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

 
  Six Months Ended June 30,  
 
  2012   2013   $ Change   % Change  
 
  (in thousands)
   
 

Consolidated Statements of Operations Data:

                         

Revenue

  $ 78,199   $ 107,926   $ 29,727     38 %

Operating expenses:

                         

Cost of revenue

    29,825     41,589     11,764     39  

Sales and marketing

    23,333     25,292     1,959     8  

Product development

    6,860     9,615     2,755     40  

General and administrative

    8,177     10,514     2,337     29  
                   

Total operating expenses

    68,195     87,010     18,815     28  
                   

Income from operations

    10,004     20,916     10,912     109  

Other income (expense), net

    5     8     3     60  
                   

Income before income taxes

    10,009     20,924     10,915     109  

Provision for income taxes

    227     8,496     8,269     *  
                   

Net income

  $ 9,782   $ 12,428   $ 2,646     27 %
                   

*
Not meaningful. See "—Income Taxes" below.

Revenue

        Revenue increased by $29.7 million, or 38%, to $107.9 million in the six months ended June 30, 2013 compared to the same period in 2012. This increase in revenue was primarily attributable to growth in the number of paid downloads and an increase in revenue per download. In the six months ended June 30, 2012 and 2013, we delivered 35.9 million and 46.8 million paid downloads, respectively, and our average revenue per download increased from $2.18 to $2.31. Paid downloads increased primarily due to the acquisition of new customers as a result of our marketing strategies. Revenue per download increased primarily due to growth in our On Demand offerings, which capture a higher effective price per image. In the six months ended June 30, 2012 compared to the same period in 2013, revenue from North America increased from 35% to 36% while revenue from Europe decreased from 38% to 36% and revenue from the rest of the world was flat at 27%.

Cost and Expenses

        Cost of Revenue.    Cost of revenue increased by $11.8 million, or 39%, to $41.6 million in the six months ended June 30, 2013 compared to the same period in 2012. Royalties increased $8.2 million, or 37%, driven by an increase in the number of downloads from existing and new customers. We anticipate royalties growing in line with revenues for the remainder of 2013 and beyond, although royalties as a percentage of revenue may vary somewhat from period to period primarily due to the contributor's achievement level of royalty target thresholds. Credit card charges increased by $1.0 million, or 34%, to $3.8 million as a result of increased card volume in the six months ended June 30, 2013. We expect credit card charges to increase for the remainder of 2013 and beyond as credit card transaction volume increases. Employee-related costs increased by $1.0 million, or 52%, driven by increased headcount in customer service, content and website operations to support increased customer volume and a more robust hosting infrastructure. Other costs associated with website hosting, content consulting and allocation of depreciation and amortization expense increased by $0.9 million, or 49%, to $2.8 million in the six months ended June 30, 2013 as compared to the same period in 2012.

        Sales and Marketing.    Sales and marketing expenses increased by $2.0 million, or 8%, to $25.3 million in the six months ended June 30, 2013 compared to the same period in 2012. Advertising expenses, the

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largest component of our sales and marketing expenses, decreased by $2.5 million, or 14%, as compared to the prior period as a result of more efficient spending on both search and display advertising in the current period which has continued to yield a high level of returns. However, we anticipate that our global advertising spend will begin to increase in absolute dollars for the remainder of 2013 and beyond, as we further our international expansion while seeking to maintain a cost-effective customer acquisition ratio. Employee-related expenses, including travel and entertainment, increased by $3.6 million, or 90%, driven by an increase in sales and marketing headcount to support our expansion into new markets, increased sales commissions as a result of growing revenue from direct sales, and non-cash equity-based compensation. Other corporate overhead expenses, including allocated insurance costs due to operating as a public company and increased recruiting costs driven by headcount increases, increased by $0.3 million or 68%.

        Product Development.    Product development expenses increased by $2.8 million, or 40%, to $9.6 million in the six months ended June 30, 2013 compared to the same period in 2012. Employee-related costs increased by $2.1 million, or 44%, driven by headcount increases in product, engineering and quality assurance to support our increasing number of product development initiatives for our websites, including ongoing efforts to improve our search capabilities, and increased non-cash equity-based compensation. In addition, other technology costs increased by $0.2 million, or 75%, to $0.5 million primarily due to costs associated with third party providers and the use of cloud based environments.

        General and Administrative.    General and administrative expenses increased by $2.3 million, or 29%, to $10.5 million in the six months ended June 30, 2013 compared to the same period in 2012. Non-income tax expenses increased $1.1 million, or 182%, primarily due to our increased volume of sales activity. Employee-related expenses, excluding non-cash equity based compensation, increased by $1.0 million, or 37%, as we added finance, legal, human resources, internal information technology and business intelligence personnel to support the growth in our revenue and the infrastructure necessary to operate as a public company. Other corporate overhead expenses, including allocated insurance costs due to operating as a public company, increased recruiting costs driven by headcount increases, and increased finance costs due to the accelerated repayment of the term loan in March 2013, increased by $0.7 million or 190%. Non-cash equity based compensation decreased by $0.8 million, or 39%, to $1.3 million due to re-measuring the profits interest award in 2012 to market value.

        Income Taxes.    Effective October 5, 2012, the Company became a Delaware corporation, and therefore became subject to federal and state income tax expense. For all periods on and prior to October 5, 2012, the Company filed its income tax returns as a limited liability company and was taxed as a "pass through" partnership for federal and state income tax purposes and recognized no federal and state income taxes, as the members of the LLC, and not the Company itself, were subject to income tax on their allocated share of the Company's earnings. As a result, the effective tax rate was 40.6% in the six months ended June 30, 2013 compared to 2.3% for the same period in 2012. The Company incurred a discrete tax expense relating to a change in its state apportionment percentage during the six months ended June 30, 2013 which increased the effective tax rate by 1.3%. Excluding this discrete expense, the effective rate would have been 39.3%.

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Comparison of the Years Ended December 31, 2011 and December 31, 2012

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

 
  Year Ended December 31,  
 
  2011   2012   $ Change   % Change  
 
  (in thousands)
   
 

Consolidated Statements of Operations Data:

                         

Revenue

  $ 120,271   $ 169,616   $ 49,345     41 %

Operating expenses:

                         

Cost of revenue

    45,504     64,676     19,172     42  

Sales and marketing

    31,929     45,107     13,178     41  

Product development

    9,777     16,330     6,553     67  

General and administrative

    10,171     21,651     11,480     113  
                   

Total operating expenses

    97,381     147,764     50,383     52  
                   

Income from operations

    22,890     21,852     (1,038 )   (5 )

Other income (expense), net

    10     (47 )   (57 )   (570 )
                   

Income before income taxes

    22,900     21,805     (1,095 )   (5 )

Provision (benefit) for income taxes

    1,036     (25,738 )   (26,774 )   *  
                   

Net income

  $ 21,864   $ 47,543   $ 25,679     117 %
                   

*
Not meaningful. See "—Income Taxes" below.

Revenue

        Revenue increased by $49.3 million, or 41%, to $169.6 million in 2012 compared to 2011. This increase in revenue was primarily attributable to growth in paid downloads and an increase in revenue per download. In 2011 and 2012, respectively, we delivered 58.6 million and 76.0 million paid downloads, and our average revenue per download increased from $2.05 to $2.23. Paid downloads increased primarily due to the acquisition of new customers. Revenue per download increased primarily due to growth in our On Demand offerings, which capture a higher effective price per image. Comparing 2011 to 2012, revenue from North America increased from 34% to 35%, while revenue from Europe decreased from 40% to 37% and revenue from the rest of the world increased from 26% to 28%.

Cost and Expenses

        Cost of Revenue.    Cost of revenue increased by $19.2 million, or 42%, to $64.7 million in 2012 compared to 2011. Royalties increased $14.3 million, or 42%, driven by an increase in downloads from existing and new customers. Credit card charges increased $0.9 million or 17% driven by an increase in card volume activity in 2012. Employee-related costs increased $1.8 million, or 72%, driven by increased average headcount in customer service, content and website operations from 35 employees at year-end 2011 to 46 at year-end 2012 to support increased customer volume, a more robust website infrastructure and the one-time acceleration and vesting following the Reorganization of non-cash equity-based compensation in the amount of $0.2 million. Other costs associated with website hosting, content consulting and allocation of depreciation and amortization expense increased by $1.9 million, or 76%, to $4.3 million in 2012 compared to 2011.

        Sales and Marketing.    Sales and marketing expenses increased by $13.2 million, or 41%, to $45.1 million in 2012 compared to 2011. Advertising expenses increased by $6.8 million, or 27%, as compared to the prior period, as a result of increased spending on both online and offline advertising, including spending on both search and display advertising globally. Employee-related expenses increased by $4.9 million, or 103%, driven by increases in sales and marketing average headcount from 36 employees at year-end 2011 to 63 employees at year-end 2012, increased sales commissions as a result of growing revenue from direct sales and the one-time acceleration and vesting following the Reorganization of non-cash equity-based compensation in the amount of $0.8 million.

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        Product Development.    Product development expenses increased by $6.6 million, or 67%, to $16.3 million in 2012 compared to 2011. Employee-related costs increased by $5.3 million or 78%, driven by increases in product, engineering and quality assurance average headcount from 54 employees at year-end 2011 to 76 employees at year-end 2012 and the one-time acceleration and vesting following the Reorganization of non-cash equity-based compensation in the amount of $1.7 million. The increased average headcount costs were driven by an increasing number of product development initiatives for our websites, including significant and ongoing efforts to improve our search capabilities. In addition, consulting costs increased by $0.7 million primarily due to costs associated with outsourced development and quality assurance services related to employee headcount growth.

        General and Administrative.    General and administrative expenses increased by $11.5 million, or 113%, to $21.7 million in 2012 compared to 2011. Employee-related expenses increased by $7.2 million, or 115%, driven by increases in finance, legal, human resources, internal information technology and business intelligence personnel average headcount from 24 employees at year-end 2011 to 35 employees at year-end 2012 to support the growth in our revenue and the infrastructure necessary to operate as a public company. Included in the employee-related expense increase is non-cash equity-based compensation increase in the amount of $5.6 million related to the one-time acceleration and vesting following the Reorganization of non-cash equity-based compensation in the amount of $4.9 million and vesting of a common member's ownership interest in the amount of $0.7 million, as more fully described in Note 9 of the Notes to Consolidated Financial Statements included elsewhere in this prospectus. In addition, professional fees increased by $1.3 million, or 128%, because of additional expenses associated with incremental fees related to being a public company.

        Income Taxes.    In 2012, we recorded a one-time non-cash tax benefit of $28.8 million as a result of recognition of deferred tax assets resulting from our tax status change to be subject to taxation as a corporation commencing October 5, 2012. The computation of the effective tax rate includes earnings incurred prior to October 5, 2012 when we were subject to New York City unincorporated business tax as a partnership. Our on-going effective corporate tax rate is expected to be approximately 40% as compared to our historical effective tax rate of approximately 2% and, therefore, comparison of effective tax rate would result in a comparison that is not meaningful as more fully described in Note 5 of the Notes to Consolidated Financial Statements included elsewhere in this prospectus.

Comparison of the Years Ended December 31, 2010 and December 31, 2011

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

 
  Year Ended December 31,  
 
  2010   2011   $ Change   % Change  
 
  (in thousands)
   
 

Consolidated Statements of Operations Data:

                         

Revenue

  $ 82,973   $ 120,271   $ 37,298     45 %

Operating expenses:

                         

Cost of revenue

    32,353     45,504     13,151     41  

Sales and marketing

    17,820     31,929     14,109     79  

Product development

    4,591     9,777     5,186     113  

General and administrative

    8,414     10,171     1,757     21  
                   

Total operating expenses

    63,178     97,381     34,203     54  
                   

Income from operations

    19,795     22,890     3,095     16  

Other income (expense), net

    19     10     (9 )   (47 )
                   

Income before income taxes

    19,814     22,900     3,086     16  

Provision for income taxes

    876     1,036     160     18  
                   

Net income

  $ 18,938   $ 21,864   $ 2,926     15 %
                   

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Revenue

        Revenue increased by $37.3 million, or 45%, to $120.3 million in 2011 compared to 2010. This increase in revenue was primarily attributable to growth in paid downloads and an increase in revenue per download. In 2010 and 2011, respectively, we delivered 44.1 million and 58.6 million paid downloads, and our average revenue per download increased from $1.88 to $2.05. Paid downloads increased primarily due to the acquisition of new customers. Revenue per download increased primarily due to growth in our On Demand offerings, which capture a higher effective price per image. From 2010 to 2011, revenue from North America remained unchanged at 34% while revenue from Europe decreased from 41% to 40% and revenue from the rest of the world increased from 25% to 26%.

Cost and Expenses

        Cost of Revenue.    Cost of revenue increased by $13.2 million, or 41%, to $45.5 million in 2011 compared to 2010. Royalties increased $10.8 million, or 47%, driven by an increase in downloads from existing and new customers. Credit card charges remained substantially unchanged at $5.1 million as increasing card volume in 2011 was offset by significantly lower credit card processing fees per transaction as we switched the majority of our credit card processing to a new vendor in 2011. Employee-related costs increased $1.1 million, or 60%, driven by increased headcount in customer service, content and website operations from 31 employees at year-end 2010 to 37 employees at year-end 2011 to support increased customer volume and a more robust website infrastructure.

        Sales and Marketing.    Sales and marketing expenses increased by $14.1 million, or 79%, to $31.9 million in 2011 compared to 2010. Advertising expenses, the largest component of our sales and marketing expenses, accounted for approximately 86% of that increase, as such expenses increased by $12.1 million, or 89%, as compared to the prior period, as a result of increased spending on both online and offline advertising, including spending on both search and display advertising globally. Employee-related expenses increased by $1.4 million, or 41%, driven by increases in sales and marketing headcount from 36 employees at year-end 2010 to 40 employees at year-end 2011 and increased sales commissions as a result of growing revenue from direct sales. These cost increases were partially offset by the closure of our telesales call center in Saratoga Springs, New York, which had expenses of $0.9 million in 2010.

        Product Development.    Product development expenses increased by $5.2 million, or 113%, to $9.8 million in 2011 compared to 2010. Employee-related costs increased by $3.3 million or 94%, driven by headcount increases in product, engineering and quality assurance from 33 employees at year-end 2010 to 63 employees at year-end 2011. The increased headcount costs were driven by an increasing number of product development initiatives for our websites, including significant and ongoing efforts to improve our search capabilities. In addition, recruiting expenses increased by $0.6 million, and consulting costs increased by $0.5 million primarily due to costs associated with outsourced development and quality assurance services.

        General and Administrative.    General and administrative expenses increased by $1.8 million, or 21%, to $10.2 million in 2011 compared to 2010. Employee-related expenses increased by $1.3 million, or 67%, as we increased finance, legal, human resources, internal information technology and business intelligence personnel from 19 employees at year-end 2010 to 29 employees at year-end 2011 to support the growth in our revenue and the infrastructure necessary to operate as a public company. Non-cash equity-based compensation expense increased by $1.0 million, or 91%, due to the ongoing vesting of a common member's ownership interest, as more fully described in Note 11 to our Consolidated Financial Statements included elsewhere in this prospectus. In 2011, post-acquisition service compensation related to a former employee of Bigstock decreased by $0.6 million.

        Income Taxes.    Income tax expense increased by $0.2 million, or 18%, to $1.0 million in 2011 compared to 2010 due to increased New York City unincorporated business tax resulting from increased taxable income.

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Quarterly Results of Operations

        The following tables set forth our unaudited quarterly consolidated statement of operations data for the last ten fiscal quarters. The information for each of these quarters has been prepared on the same basis as the audited consolidated financial statements included elsewhere in this prospectus and, in the opinion of management, includes all adjustments, consisting solely of normal recurring adjustments, necessary for the fair presentation of the results of operations for these periods. This data should be read in conjunction with the audited consolidated financial statements and related notes included elsewhere in this prospectus. The results of historical periods are not necessarily indicative of our operating results for any future period.

 
  Three Months Ended  
 
  Mar 31,
2011
  Jun 30,
2011
  Sep 30,
2011
  Dec 31,
2011
  Mar 31,
2012
  Jun 30,
2012
  Sept 30,
2012
  Dec 31,
2012
  Mar 31,
2013
  Jun 30,
2013
 
 
  (in thousands)
 

Consolidated Statement of Operations Data:

                                                             

Revenue

  $ 25,475   $ 28,912   $ 31,156   $ 34,728   $ 37,574   $ 40,625   $ 42,260   $ 49,157   $ 51,117   $ 56,809  

Operating expenses:

                                                             

Cost of revenue

    10,179     10,977     11,373     12,975     14,389     15,436     16,057     18,794     19,821     21,768  

Sales and marketing

    6,961     6,875     8,493     9,600     12,240     11,093     9,752     12,022     11,978     13,314  

Product development

    1,887     2,368     2,811     2,711     3,419     3,441     3,795     5,675     4,555     5,060  

General and administrative

    2,012     2,285     2,539     3,335     3,732     4,445     3,765     9,709     4,780     5,734  
                                           

Total operating expenses

    21,039     22,505     25,216     28,621     33,780     34,415     33,369     46,200     41,134     45,876  
                                           

Income from operations

    4,436     6,407     5,940     6,107     3,794     6,212     8,891     2,957     9,983     10,933  

Other income (expense), net

    6     1     1     2     3     2     (3 )   (49 )   (12 )   20  
                                           

Income before income taxes

    4,442     6,408     5,941     6,109     3,797     6,212     8,888     2,908     9,971     10,953  

Provision (benefit) for income taxes

    189     273     253     321     86     141     146     (26,111 )   4,406     4,090  
                                           

Net income

  $ 4,253   $ 6,135   $ 5,688   $ 5,788   $ 3,711   $ 6,071   $ 8,742   $ 29,019   $ 5,565   $ 6,863  
                                           

Non-GAAP Financial Data:

                                                             

Adjusted EBITDA(1)

  $ 5,053   $ 7,205   $ 6,945   $ 7,329   $ 4,986   $ 8,335   $ 10,290   $ 11,266   $ 11,778   $ 13,433  

Non-GAAP net income(2)

  $ 4,568   $ 6,577   $ 6,261   $ 6,507   $ 4,360   $ 7,530   $ 9,401   $ 6,630   $ 6,132   $ 7,837  

Free cash flow(3)

  $ 9,556   $ 8,820   $ 8,303   $ 9,416   $ 8,560   $ 7,747   $ 13,372   $ 12,094   $ 12,675   $ 2,145  

(1)
See "Selected Consolidated Financial Data—Non-GAAP Financial Measures" as to how we define and calculate Adjusted EBITDA and a discussion about the limitations of Adjusted EBITDA, and see below for a reconciliation between Adjusted EBITDA and net income, the most directly comparable GAAP financial measure.

(2)
See "Selected Consolidated Financial Data—Non-GAAP Financial Measures" as to how we define and calculate Non-GAAP net income and a discussion about the limitations of Non-GAAP net income, and see below for a reconciliation between Non-GAAP net income and net income, the most directly comparable GAAP financial measure.

(3)
See "Selected Consolidated Financial Data—Non-GAAP Financial Measures" as to how we define and calculate Free Cash Flow and a discussion about the limitations of Free Cash Flow, and see below for a reconciliation between Free Cash Flow and net cash provided by operating activities, the most directly comparable GAAP financial measure.

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        The following table presents the unaudited quarterly results of operations as a percentage of revenue:

 
  Three Months Ended  
 
  Mar 31,
2011
  Jun 30,
2011
  Sep 30,
2011
  Dec 31,
2011
  Mar 31,
2012
  Jun 30,
2012
  Sept 30,
2012
  Dec 31,
2012
  Mar 31,
2013
  Jun 30,
2013
 

Consolidated Statement of Operations Data as a percentage of revenue:

                                                             

Revenue

    100 %   100 %   100 %   100 %   100 %   100 %   100 %   100 %   100 %   100 %

Operating expenses:

                                                             

Cost of revenue

    40     38     37     37     39     38     38     38     39     38  

Sales and marketing

    27     24     27     28     32     27     23     24     23     24  

Product development

    7     8     9     8     9     9     9     12     9     9  

General and administrative

    8     8     8     10     10     11     9     20     9     10  
                                           

Total operating expenses

    82     78     81     83     90     85     79     94     80     81  
                                           

Income from operations

    18     22     19     17     10     15     21     6     20     19  

Other income (expense), net

    0     0     0     0     0     0     (0 )   (0 )   (0 )   0  
                                           

Income before income taxes

    18     22     19     17     10     15     21     6     20     19  

Provision (benefit) for income taxes

    1     1     1     1     0     0     0     (53 )   9     7  
                                           

Net income

    17 %   21 %   18 %   16 %   10 %   15 %   21 %   59 %   11 %   12 %
                                           

        The following is a reconciliation of Adjusted EBITDA to net income for each of the periods indicated:

 
  Three Months Ended  
 
  Mar 31,
2011
  Jun 30,
2011
  Sep 30,
2011
  Dec 31,
2011
  Mar 31,
2012
  Jun 30,
2012
  Sept 30,
2012
  Dec 31,
2012
  Mar 31,
2013
  Jun 30,
2013
 
 
  (in thousands)
 

Reconciliation of Net Income to Adjusted EBITDA:

                                                             

Net income

  $ 4,253   $ 6,135   $ 5,688   $ 5,788   $ 3,711   $ 6,071   $ 8,742   $ 29,019   $ 5,565   $ 6,863  

Non-GAAP adjustments:

                                                             

Depreciation and amortization

    288     336     407     489     528     632     729     751     779     946  

Non-cash equity-based compensation

    329     462     598     733     664     1,493     670     7,558     1,016     1,554  

Other income (expense), net

    (6 )   (1 )   (1 )   (2 )   (3 )   (2 )   3     49     12     (20 )

Provision (benefit) for income taxes

    189     273     253     321     86     141     146     (26,111 )   4,406     4,090  
                                           

Adjusted EBITDA

  $ 5,053   $ 7,205   $ 6,945   $ 7,329   $ 4,986   $ 8,335   $ 10,290   $ 11,266   $ 11,778   $ 13,433  
                                           

        The following is a reconciliation of Non-GAAP net income to net income for each of the periods indicated:

 
  Three Months Ended  
 
  Mar 31,
2011
  Jun 30,
2011
  Sep 30,
2011
  Dec 31,
2011
  Mar 31,
2012
  Jun 30,
2012
  Sept 30,
2012
  Dec 31,
2012
  Mar 31,
2013
  Jun 30,
2013
 
 
  (in thousands)
 

Reconciliation of Net Income to Non-GAAP Net Income:

                                                             

Net income

  $ 4,253   $ 6,135   $ 5,688   $ 5,788   $ 3,711   $ 6,071   $ 8,742   $ 29,019   $ 5,565   $ 6,863  

Non-GAAP adjustments:

                                                             

One-time tax benefit due to the Reorganization

                                (28,811 )        

Non-cash equity-based compensation

    329     462     598     733     664     1,493     670     7,558     1,016     1,554  

Non-cash equity-based compensation tax benefit

    (14 )   (20 )   (25 )   (14 )   (15 )   (34 )   (11 )   (1,136 )   (449 )   (580 )
                                           

Non-GAAP net income

  $ 4,568   $ 6,577   $ 6,261   $ 6,507   $ 4,360   $ 7,530   $ 9,401   $ 6,630   $ 6,132   $ 7,837  
                                           

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        The following is a reconciliation of Free Cash Flow to net cash provided by operating activities for each of the periods indicated:

 
  Three Months Ended  
 
  Mar 31,
2011
  Jun 30,
2011
  Sep 30,
2011
  Dec 31,
2011
  Mar 31,
2012
  Jun 30,
2012
  Sept 30,
2012
  Dec 31,
2012
  Mar 31,
2013
  Jun 30,
2013
 
 
  (in thousands)
 

Reconciliation of Free Cash Flow to Net Cash Provided by Operating Activities:

                                                             

Net cash provided by operating activities

  $ 10,367   $ 9,570   $ 9,517   $ 10,093   $ 9,815   $ 9,107   $ 13,966   $ 12,646   $ 13,790   $ 4,024  

Other income (expense), net

    6     1     1     2     3     2     (3 )   (49 )   (12 )   20  

Capital expenditures

    (805 )   (749 )   (1,213 )   (675 )   (1,252 )   (1,358 )   (597 )   (601 )   (1,127 )   (1,859 )
                                           

Free cash flow

  $ 9,556   $ 8,820   $ 8,303   $ 9,416   $ 8,560   $ 7,747   $ 13,372   $ 12,094   $ 12,675   $ 2,145  
                                           

Quarterly Trends

        Our operating results may fluctuate from quarter to quarter as a result of a variety of factors. Our results may reflect the effects of some seasonal trends in customer behavior. For example, we expect usage to decrease during the fourth quarter of each calendar year due to the year-end holiday season, and to increase in the first quarter of each calendar year as many customers return to work. While we believe these 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 revenue tends to be smoother and less volatile than if we had no subscription-based customers.

        In addition, expenditures by customers tend to be discretionary in nature, reflecting overall economic conditions, the economic prospects of specific industries, budgeting constraints and 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 indications of our future operating performance.

Liquidity and Capital Resources

        As of June 30, 2013, we had cash and cash equivalents of $112.8 million, which primarily consisted of money market mutual funds and checking accounts. Since inception, we have financed our operations primarily through cash flow generated from operations. In addition, in October 2012, we received $76.9 million of net proceeds from our IPO.

        Historically, our principal uses of cash have been funding our operations, capital expenditures and distributions to members. On October 4, 2012, we made a final distribution to the LLC members representing all undistributed earnings. The final distribution approximated all of the cash generated from the operations of the LLC through October 4, 2012. Following this final distribution, no additional distributions were made to members of the LLC. Additionally, following the Reorganization, our tax rate and related tax payments have increased significantly as we became subject to federal, state and additional city income tax.

        We entered into a term loan facility in September 2012 that provided for a $12 million term loan. Following the final distribution to members described above, the borrowings from the term loan facility were used to fund the short-term capital needs of our operations following the final distribution to members and our IPO. On December 24, 2012, we paid down $6.0 million of the term loan and on March 25, 2013, we paid off the remaining outstanding balance of $6.0 million. As of June 30, 2013, we had no outstanding debt.

        We plan to finance our operations and capital expenses largely through 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, both by reducing our revenue and our net income, as a

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result of reduced sales, reduced prices and increased promotional activities, among other factors, as well as by requiring us to spend cash on advertising and marketing in an effort to maintain or increase market share in the face of such competition. In addition, the advertising and marketing expenses used to maintain market share and support future revenue will be funded from current capital resources or from borrowings or equity financings. As a result, our ability to grow our business relying largely on funds from our operations is sensitive to competitive pressures and other risks relating to our liquidity or capital resources.

Sources of Funds

        We believe, based on our current operating plan, that our existing cash and cash equivalents and cash flow generated from operations will be sufficient to meet our anticipated cash needs for at least the next 12 months.

Uses of Funds

        Capital Expenditures.    Consistent with previous periods, we expect that future capital expenditures will primarily relate to acquiring additional servers and network connectivity hardware and software, leasehold improvements and furniture and fixtures related to office expansion and relocation and general corporate infrastructure. We anticipate capital expenditures of approximately $12 million for the final two fiscal quarters of 2013. See Note 7 to our Consolidated Financial Statements included elsewhere in this prospectus.

Historical Trends

        The following table summarizes our cash flow data for 2010, 2011 and 2012 and the six months ended June 30, 2012 and 2013, respectively.

 
  Year Ended December 31,   Six Months Ended
June 30,
 
 
  2010   2011   2012   2012   2013  
 
  (in thousands)
 

Net cash provided by operating activities

  $ 28,726   $ 39,547   $ 45,534   $ 18,922   $ 17,814  

Net cash (used in) investing activities

  $ (1,219 ) $ (3,419 ) $ (4,259 ) $ (2,826 ) $ (4,777 )

Net cash (used in) provided by financing activities(1)

  $ (25,900 ) $ (28,575 ) $ 46,724   $ (15,151 ) $ (2,330 )

(1)
Comprised of distributions to LLC members for years ended December 31, 2010, 2011, and 2012 and for the six months ended June 30, 2012. Includes net proceeds from the IPO and proceeds of the term loan facility for year ended 2012 and six months ended 2013 includes repayments of the term loan facility. Since the Reorganization, no further distributions to members have been made.

Cash Flows