Rawson Daniel - VP of Strategic Finance & Analytics Jon Oringer - Founder, Chairman & CEO Steven Berns - CFO.

Brian Fitzgerald - Jefferies Youssef Squali - Cantor Fitzgerald Andrew Bruckner - RBC Capital Markets Ralph Schackart - William Blair Lloyd Walmsley - Deutsche Bank Blake Harper - Loop Capital Aaron Kessler - Raymond James.

Good day, ladies and gentlemen, and welcome to the Shutterstock Third Quarter 2016 Earnings Call. At this time all participants are in a listen-only mode. [Operator Instructions]. Later we will conduct a question-and-answer session and instructions will be given at that time. As a reminder, today's call is being recorded.

I would now like to introduce your host for today's conference, Mr. Rawson Daniel, Vice President of Strategic Finance. Sir, please go ahead..

Thank you, Operator. Good morning, everyone, and thank you for joining us for Shutterstock's third quarter 2016 earnings call. Joining me today is Jon Oringer, our Founder, Chief Executive Officer, and Chairman; and Steven Berns, our Chief Financial Officer.

During this call management may make forward-looking statements that are subject to risk and uncertainty including predictions, expectations, estimates and other information.

These include statements relating to the expansion of our addressable market, the growth of our customer base and success of new product offerings including products we recently acquired; revenue growth, and the predictability of revenue, adjusted EBITDA, equity-based compensation, foreign currency rates, taxes, and capital expenditures.

Our actual results may differ materially from the results predicted and reported results should not be considered as an indication of future performance. Please refer to today's press release and the reports and documents we file from time to time with the U.S.

Securities and Exchange Commission including the section entitled Risk Factors in the Company's Form 10-K as updated in our Form 10-Q for the period ended September 30, 2016 for discussions of important Risk Factors that could cause actual results to differ materially from those discussed in any forward-looking statements we may make on this call.

On this call we will refer to adjusted EBITDA, non-GAAP net income, revenue growth on a fixed currency basis, and free cash flow which are non-GAAP financial measures.

You can find a description of these items along with a reconciliation to the most directly comparable GAAP financial measures in today's earnings release which is posted on the Investor Relations section of our website.

We believe the use of these measures provides important additional insights for investors about the performance of the Company's overall business and operating performance and enhances the comparability for investors in assessing our financial reporting.

However, these non-GAAP financial measures should not be considered as a substitute for or superior to financial information prepared in accordance with GAAP. With that I would like to turn the call over to Jon..

Thanks, Rawson. Thanks everyone for joining us today for Shutterstock's third quarter 2016 earnings call. This was a solid quarter for Shutterstock and we have a significant amount of momentum as we head into the final months of the year.

Compared to the third quarter of 2015, revenue increased 17% with adjusted EBITDA margins of 21%, both excluding the impact of foreign currency movements. Our image library expanded 61% to over 102 million images.

Our video library expanded 64% to 5.4 million video clips, paid downloads grew 8% to $41 million and revenue per download was up 8% excluding the impact of foreign currency movements. We continue to expand the market for digital content.

Businesses of all sizes around the world are becoming increasingly visual with their communication and many are looking to us to ensure that they have immediate access to high-quality content that's innovative, easy to use and continues to evolve according to their needs.

At the same time, our search experience, workflow tools, and evolving technology help our clients better communicate with their customers using our stock imagery, video, and music. The result is consistent growth for us and the ability for our customers around the world to continue to grow their businesses utilizing our products.

The supply side of our marketplace is important to the network effect that drives our business and continues to grow significantly, over 160,000 contributors adding more than 10 million images and 500,000 video clips to our robust library in the third quarter.

In September, our image library exceeded 100 million images giving us meaningful scale compared to our competition. At the same time, our editorial and music capabilities are accelerating due to our investments in unique and exclusive content. We have come a long way from the 30,000 photos offered at the launch of the company in 2003.

Every day we work to improve and enhance both the content that we offer and the technology that our customers used to access it. As you are aware, we are dedicating considerable time and resources to migrate our technology stack to a more scalable and efficient platform.

By doing this, we are ensuring that we are well equipped to handle the growth we believe is ahead of us while providing our customers with the best-in-class experience.

We expect to complete the bulk of our platform migration by the end of this year and will continue to enhance our technology to make sure that it can handle an increasingly diverse array of content.

As we change engines in-flight, we are also investing in the business by enhancing our product offering which is attracting new customers to our platform. To that point, we are capitalizing on the increasing demand we are seeing for video content.

Ads utilizing digital video are showing significant growth primarily driven by the massive consumer shift to mobile and actions taken by marketers and agencies to ensure that consumers are viewing premium video content no matter what device they are using.

In the third quarter, our video library grew 64% year-over-year which puts us in a strong position as used trends continue to take shape. And similar to our traditional photo platform, it is not just about the size of our library but also about the quality and diversity of the content. We are also focused on enhancing our comprehensive music offering.

As our video business grows, we are finding that customers are increasingly looking to pair royalty free music with their video clips and other pieces of media.

We now have an exclusive an entire curated collection of over 10,000 tracks across music genres that have gone to great lengths to ensure that our customers have access to a rich high-quality selection, way beyond what you would find from other licensing services. This has been well received by customers.

In the past quarter, we licensed music to some of the largest agencies in the world as well as an impressive list of consumer brands such as Tesla, Oakley, Honda, and L'Oreal. Another exciting development for our business is the progress we are making in editorial imagery.

This quarter we acquired the Kobal Collection and Art Archive which builds on our acquisition of Rex Features last year. We are also benefiting from our ongoing collaborations with Penske Media and the Associated Press as well as our recently announced partnership with the European Press Agency.

While it's early days for this part of the business, we are optimistic about its prospects and its potential to complement our growth. As we continue to invest in and build a diverse array of high-quality content, we are also making it easier for customers to use our content whether they are professional marketers or small business owners.

Our in-browser cloud-based editor tool recently came out of beta and now has several new powerful functions. We are seeing increasing customer adoption of this product.

We also continue to receive very strong feedback from our customers and contributors on the computer vision technology that powers both our reverse image search and visually similar search.

In July, we announced an API integration with Google which joins Facebook, AOL, Salesforce, Wix, and hundreds of others that integrate Shutterstock search capabilities directly into their products.

Finally, in September, we announced that Shutterstock collection of photos and illustrations is now accessible within Adobe Photoshop through a custom-built plug-in. This plug-in allows users to search, edit, and license imagery without leaving the Photoshop application.

Shutterstock is the largest stock photography collection to ever integrate with Adobe Photoshop. So how are we seeing all of this manifest in our business? We now have over 1.6 million customers, a 14% increase year-over-year. We also continue to see a high level of revenue retention with rates over 94% over the past year on a constant dollar basis.

We are happy with these metrics and they certainly show that we were doing a lot of the right things to acquire content, clients, and provide valuable solutions to their business challenges. But we also know there is a lot more work to do to ensure consistent revenue and earnings growth.

Let me take a few moments now to walk through how we are thinking about growth in both revenue and profitability over the short and long-term. First, we expect that given our work to build and enhance our content library and our technology platform, our traditional e-commerce customers will continue to grow steadily.

Throughout the past year we have been able to accelerate our pace of customer acquisition while continuing to see a high return on investment for marketing spend.

Second, our enterprise customer base has grown rapidly and we expect that trend to continue as we convert more e-commerce customers into enterprise accounts, broaden the portfolio of content available to our enterprise customers, and introduce new functionality and services into our premier product.

Customers who upgrade to our enterprise product increase their annual spend with Shutterstock significantly. We now have over 34,000 enterprise customers and revenue from our enterprise business mix of roughly 30% of our total revenue. Third, we expect continued growth from our video, editorial, and music businesses.

As I noted earlier, there are tremendous market trends that are providing significant tailwinds for us and we are ideally situated given the size, quality, and growth of our content library and the relationships we already have with millions of businesses worldwide.

On the editorial side, we are disrupting the outdated ways customers buy sports, entertainment, and news content from the traditional players in this space. For music historically there has not been a clean and easy way to license audio without worrying about the complex licensing issues you will be facing in the future.

PremiumBeat and Shutterstock Music are now solving these problems. We are taking all of these business models and rethinking them from the customer point of view.

Today we have a model that is way ahead of our competition yet we are just getting started and we anticipate these products will become larger contributors to our growth and profitability over time.

Fourth, we believe international expansion will continue to deliver another leg of growth as more people around the world further realize the value of stock content in their communication and messaging. Our technology, customer and sales support are all easily scaled to local market needs.

We currently offer our products in 20 languages and generate approximately 66% of our revenue from customers outside the United States. We are recognizing the ease of use and utility of stock imagery and are demanding innovative tools and technologies to easily customize it.

And finally, we are just getting started in workflow and believe we are approaching a huge shift in the way businesses work and tell stories to sell their products and services. We are retooling our technology, platform, and business to adapt to these trends and you can expect consistent innovation in workflow tools were our customers.

Every single day since I started this company in 2003, I have personally watched our customers use our products and I can tell you that not only do we see what they will need in the future but the competitive set does not appear prepared for the changes which lie ahead. I am very confident in the fundamentals of our business.

We are delivering solid operational performance, strong financial results, product that amazes our customers and our team is more capable than ever. We are attracting new customers while continuing to satisfy the needs of our existing customers.

We are uncovering new and exciting ways to engage our large and growing customer base including a growing number of enterprise customers. We believe our investments in our technology and our products are positioning us well for future profitable growth.

I will now turn the call over to Steven to go into more detail on the drivers of our financial performance this past quarter..

Thanks, Jon, and thank you everyone for joining us today. Before I discuss our performance, I want to let you know that we posted a brief presentation on our website which contains supporting materials for our quarterly results as well as other items discussed on today's call.

As Jon highlighted, both sides of Shutterstock's two-sided marketplace continue to expand strengthening the network effect of our business model and translating into sustained financial growth and profitability.

During the third quarter we delivered revenue growth on a reported basis of 15% as compared to the third quarter of 2015 with an adjusted EBITDA margin of 19%. Excluding the impact of currency fluctuations, our revenue growth was approximately 17% and adjusted EBITDA margin was 21%.

We continue to see solid trends across our key metrics as we attract new customers across multiple content types and increase customer lifetime value. This past quarter our user base expanded 14% to over 1.6 million customers.

We also saw an 8% increase in pay downloads driven by new customers as well as increased activity across our existing subscriber base.

Finally, we saw revenue per download increase 5% on a reported basis and 8% excluding the impact of foreign currency movements primarily driven by our continued success in growing our enterprise business which operates at higher price points than our traditional e-commerce offerings.

It's important to note that we did see a shift in our revenue per download in the third quarter. As we discussed on our last call, we spoke about the impact on download growth from the new subscription products with monthly download limits that we launched in the second quarter of 2015.

The third quarter of this year marked the anniversary of those product launches making the third quarter of 2016 comparable to the prior year period.

Going forward, we expect to grow download activity and revenue per download as we expect to continue to attract new customers and further grow our enterprise sales as well as our footage, editorial, and music products all of which carry higher average prices than our e-commerce image platform.

As Jon noted, international expansion is a strong driver of our growth strategy. Currently of the approximately 66% of our revenues from customers outside the United States, approximately half of that is from customers in Europe with the balance from Asia-Pacific and Latin America. All of these regions are growing at double-digit growth rates.

Shifting to the cost side of the business, we continue to align our spending with our revenue opportunities while ensuring we are positioning ourselves for profitable growth over the long-term.

Operating expenses increased 13% versus the third quarter a year ago driven primarily by higher contributor royalties associated with our growing revenue and an increase in marketing spend. Contributor royalties were approximately 28% for the third quarter which was consistent with the third quarter of 2015 as well as the first half of 2016.

Now I will discuss some of the major expense categories and for each category my comments and the numbers referenced will exclude stock-based compensation expense. Our sales and marketing expense increased 21% versus the third quarter a year ago and was approximately 26% of revenue.

As expected and as we highlighted on our investor calls in the first half of this year, total sales and marketing expenses as a percentage of revenues on a year-to-date basis has returned to levels similar to 2015 as we grow our traditional businesses and capitalize on newer opportunities such as music and editorial.

Overall, the cost of acquiring a customer remains relatively steady and the return on our marketing investment remains consistent with historical levels as we drive new customers to our platform while keeping retention and repurchase rates high across our subscription and on-demand products.

Product and development costs increased 10% in the third quarter versus the third quarter last year primarily due to higher personnel and consulting costs related to building a more expansive user experience and transitioning the technology platform partially offset by increased capitalization of labor in the third quarter of approximately $4 million.

General and administrative expenses increased 14% for the third quarter versus the same period a year ago driven primarily by higher personnel costs. Overall, our revenue growth in the third quarter along with consistent focus on managing our costs translated into adjusted EBITDA growth of 17%.

It's important to note that we are delivering this growth even as we focus on expanding our capabilities by investing in personnel, product development, and technology so we can further strengthen top-line results and continue to innovate. GAAP net income in the quarter grew 129% to $9.4 million or $0.26 per diluted share.

This increase was driven by improved operating performance, lower stock-based compensation expense, and lower income tax expense. The lower income tax expense for the quarter was primarily driven by our claim for U.S. Federal Research and Development tax credits related to the years 2013 through 2015 resulting from the completion of a formal study.

We anticipate our effective tax rate for full year 2016 to be significantly below 40% primarily as a result of these R&D credits as well as other items that we have discussed on our last call.

Non-GAAP net income which excludes the after-tax impact of non-cash equity-based compensation expense also excludes the amortization of acquisition-related intangibles and excludes changes in the fair value of contingent consideration related to acquisitions as well as the estimated tax impact of these adjustments.

So when taken all of those items, non-GAAP net income was $0.40 per share which is an increase of 41% versus the third quarter of last year. We grew free cash flow 34% year-over-year in the third quarter to $19.9 million and our liquidity finished September, at the end of September with over $290 million of cash and short-term investments.

On a year-to-date basis our revenue has been impacted by approximately $2 million to $3 million due to the devaluation of the British pound throughout 2016 primarily as a result of the Brexit situation.

While we are leaving our full year guidance unchanged, assuming currency rates hold at their levels as of the end of the third quarter our full year 2016 revenue will be impacted by approximately $4 million primarily due to the British pound devaluation versus the U.S. dollar.

As a reminder, we record revenue at the exchange rates at the time a product is sold as opposed to when the actual download by the customer occurs. As a result, the impact of currency movements tends to lag the shift in market currency rates and the ultimate foreign currency effect will depend on the actual exchange rates and the timing of downloads.

For full year 2016, our expectations remain the same as far as it relates to our prior financial guidance for revenue and adjusted EBITDA, that's revenue of $495 million to $510 million and adjusted EBITDA of $95 million to $100 million.

These expectations include the impact of our technology platform migration and the currency impact I just mentioned. In closing, and as Jon highlighted earlier, we are very confident in the fundamentals of our business.

We are seeing strong growth on both sides of our marketplace, we are growing both our traditional e-commerce and enterprise customer bases globally, and we are continuing to invest in our product and technology to position us well for long-term profitable growth.

Thanks for your time this morning and Jon and I will now be happy to answer any questions you may have. Operator, please prompt the call participants for questions..

[Operator Instructions]. Our first question comes from the line of Brian Fitzgerald with Jefferies. Your line is now open..

Thanks. Jon, you mentioned ads using video had been increasing. Wondering, when you look at your video client base, what is the mix dynamic there, marketers versus studios may be and where do you see that going forward, that mix shifting? Thanks..

So as it relates to the video product, the cost is continuing to expand. We are seeing very strong demand from all of the sectors that would utilize the video whether they be cinematographers, videographers, studios utilizing it; we are seeing it as well from marketers.

There is not a -- I think it would be a mistake to look at the historical patterns of growth and try to extrapolate that to the future because as you can see in many e-commerce businesses and in many web-based businesses, the use of video is expanding greatly. And so what we are seeing is strong demand in new uses across the landscape.

But -- so overall, multiple uses and I would say new customers taking a look at stock video on a regular basis.

Operator?.

Our next question comes from the line of Youssef Squali with Cantor Fitzgerald. Your line is now open..

Okay. Thank you very much. Two questions. Can we go back to one of the metrics, the slowdown in paid downloads that you reported was 8%. I think in the first half of 2016 it was north of 20%.

Help us just understand the puts and takes there? And to the obvious question that we are getting from investors, is there now any visible impacts from what Adobe has been doing in the last 18 months or so? And then about the tax stack or the new tax stack you are migrating to, can you help us just may be understand how will the experience change both from a user and from a contributor standpoint? Thank you..

So let me start with the Adobe question and the answer on Adobe is no, we are not seeing an impact. We continue to see customer adoption and customer activity to be strong.

The Adobe plug-in that we launched, our plug-in that works within the Adobe Photoshop environment has gotten a significant traction among customers and is not just the largest collection but is easier to use than even Adobe's own stock product within their environment.

So we feel very good about where we are and we are hearing very good customer feedback. As it relates to download, the download metrics, these go hand in hand and that is the revenue per download metric and the paid download metric go together. So they are good indicators of our subscription business.

We launched the new subscription products in the second quarter of 2015 and at that time we removed the daily download limits in favor of monthly limits which was based on our customer feedback, something that was desired and that was a 25 a day limit and so that was removed.

And so this had the effect of accelerating download activity beginning in the second quarter of 2015 through the second quarter of 2016 on a comparable basis. We are seeing higher retention from these products and higher customer lifetime value than we did in the 25 a day product.

And so excluding as you say in the first half of 2016, we had these comparisons. So that's why in my comments I said that the third quarter of 2016 with the metric up 8% year-over-year, that is the first period of if you will like for like comparison with the new products live..

And just on that before you jump into the second question, it seemed like your annual guidance would imply that both metrics even to hit the lower end of your guidance would imply improvement in both year-on-year growth in average order and I'm sorry -- in revenue per download and in paid downloads.

Is that fair?.

I think we should take that off line because I'm not sure I am following your math but happy to do that off-line..

Okay, great. Sorry, Jon..

I can jump in and talk a little bit about Adobe too. Focusing just on Adobe is way too simplistic of a way to look at our business. It has now been over a year, we competed with players that are much more sophisticated than Adobe in this space. We have 13 years of experience and we know exactly what we are doing in this space.

We are constantly growing both sides of the marketplace and our customer acquisition is stronger than ever. Our enterprise product continues to compete with the rest of the space and we are going to continue to focus on building this business.

In addition, we've also introduced editing tools that apply both to customers of existing Adobe products and completely new segments that Adobe is missing out on. So you have to look at our business as the way that we compete today with our customers and that we continue to erode into these players also..

As it relates to the tech stack migration that we talked about can you restate your question?.

Yes, I was just trying to understand as we go through that and trying to see how that will change the user experience.

Is it going to just make it a lot easier for users to -- is it improving the search engine? Is it basically improving the ability for contributors to upload their creative either video or photo or whatever? Just trying to understand a sense of what the net impact of this big investment will be as we start looking at 2017 and beyond?.

It's all of the above. We took a look at every piece of code that runs the entire business and over the past 18 months, we have rewritten about 80% of it. The new tech stack is completely services oriented.

The new tech stack is written in Node and Java and we believe it's going to help us with both continuing to grow both sides of the current marketplace in the business that as you know it today and continue to allow us to work into the workflow of the customer from beginning to end.

And if you look at our new editor product, you can see that a lot of the features that are in that product on our old tech stack would be really difficult to integrate into the user experience.

But in a little while we will have the complete end-to-end customer traffic running through the new stack and be able to improve the user experience from beginning to end and work our way into the workflow of that user..

And that includes everything from the latency all the way through to the desktop or experience on the device that a user has. And so as Jon says, end to end and once again we are 80% through that migration at this point in time..

Our next question comes from Andrew Bruckner with RBC Capital Markets. Your line is now open..

Thank you. I'm wondering if you can talk a little bit about how you see the enterprise side of the business growing. I think you mentioned now it is 30% of the business. Where do you ultimately see that going? And then separately if you can make a comment on how you are thinking about share repurchases? Thank you..

Yes, I mean enterprise has grown enterprise stays 30% of our revenue, enterprise continues to grow faster than the business today.

35,000 customers comprise our enterprise product and part of the tech stack migration is getting our premier products be part of the main platform that we are building out so that premier customers can continue to benefit from the product changes we make across the entire tech stack.

So the workflow enhancements and product additions that you see on the core side of our business, the e-commerce side of the business will expand into the premier side. We believe that will create a secure experience over time.

We now have music and editorial in enterprise as well so our partnership with Penske Media, our partnership with Rex, I mean our acquisition of Rex, our partnership with The Associated Press, we are bringing all of that content to our premier customers.

That's an entirely new segment of customer and content that we will be able to serve to that audience..

As it relates to your question on buybacks, when we think about allocation of capital our first priority remains investing in the business and to drive of course an appropriate level of return on that investment.

When we think about priorities after investing in the business, we think about external opportunities in the form of acquisitions that would expand our core competencies or apply our core competencies into those businesses to drive long-term growth.

And examples of that would be our acquisition of Rex in the editorial space and PremiumBeat in the music space. And if we can't find alternatives, we then will of course consider as we have in the past returning capital to shareholders.

The amount of any share buybacks in any quarterly period will be a function of the opportunities as they present themselves but each and every quarter this is a discussion that we have not just among management but of course with our Board.

On a year-to-date basis, we did buy back almost $60 million of stock and we don't have any specific timeframe in mind as to when or if we will continue to buy shares in this year or as we go forward.

But what we do know is we have $40 million approximately left on our share repurchase plan that the Board authorized and we will continue to evaluate all the opportunities to determine how we proceed..

Thank you.

I guess just quickly to the first question, any comments you can make on the size of the enterprise salesforce and is that where you would like it today?.

I think it's a question we have received in the past. We think that the enterprise salesforce is at a size that used to be in the early days I would say may be e-commerce businesses people measured those businesses by how quickly people ramped up their teams.

We believe that our product portfolio, the addition of our products to that portfolio, as Jon mentioned, editorial, music, footage, all joining the enterprise platform actually gives our reps significantly more capabilities to actually increase the revenue per rep.

So we are continuing to expand that salesforce as and when appropriate especially as it relates to international markets where we don't have as big a presence as we would like today. But we are looking for continued effectiveness and efficiency and we will continue to say expand as long as we get an appropriate return on that investment..

Our next question comes from Ralph Schackart with William Blair. Your line is now open..

Good morning. Two questions if I could please.

First on the increase in the CapEx guide, can you give us a sense of sort of what's the major contributor to that in this quarter and I guess last quarter it was raised as well? And then, two, Steven, just looking at the midpoint of guidance for Q4 even after normalizing for the FX headwinds in Q3, it may imply some modest reacceleration in the business.

So may be if you could speak to that? And if I could bolt one more on, what would be the factors on the annual guidance given sort of the wide range that would contribute to Shutterstock hitting the lower end versus the higher end? Thank you..

So as it relates to CapEx, the primary driver there is the platform migration that we've talked about in terms of the capitalization of labor and we are continuing to make sure that we are well-positioned for 2017 and beyond both from a -- the application environment in terms of our platform and the user experience and also our infrastructure.

So we see 2016, I think this is slightly above where we thought we would be on capital expenditures driven by the cap of labor but still consistent with our overall objectives.

I think it's also important as it relates to the increase in CapEx, what we have also done which is consistent with my comments in late 2015 and earlier this year that we have made significant improvements in efficiency around our working capital investment.

And we've continued to generate sources of cash from working capital both by improving the way in which we are addressing collection of receivables and the managing of payables not on a one-time basis but really to be consistent with companies of our size. And so we've made significant improvements there.

We also -- the funding of that CapEx really is coming from many areas including but not limited to what I just mentioned in terms of working capital generation. As it relates to guidance, other than the comments we made about annual guidance we are not going to go into the quarterly guidance forecasting game.

So we looked at the -- with the exception of CapEx and with the exception of the tax rate, we are not changing our guidance and both of those are due to events that have occurred in the environment, one is our savings on taxes as I've talked about in my comments and also the capitalization of labor.

So as it relates to guidance, we don't have any additional comments other than that we are comfortable with our adjusted EBITDA and revenue guidance that we put forth..

Our next question comes from Lloyd Walmsley with Deutsche Bank. Your line is now open..

Thanks. You grew customers I think 16% and you are adding a lot of new products and enterprise customers continue to spend a lot more. So I'm just trying to figure out why your revenue growth is so close to the customer growth? And then specifically I guess it looked like U.S.

slowed down a bit more than other geographies and if you kind of strip out enterprise, it looks like growth ex-enterprise is about low-single-digits.

So maybe you can help us just understand why growth is slowing in the face of all these new products and enterprise customers? And I guess second question if I can somewhat related, last quarter you talked about the potential for the re-platforming to drive an acceleration in revenue growth.

So wondering if you can just give us a sense of how to think about the timing of the different phases of getting through the re-platforming and how that translates into kind of business improvement and whether you still think revenue growth could accelerate on the back of that re-platforming? Thanks, guys..

Sure. So as it relates to the customer growth rate, the actual number of customers and the impact on revenue as it relates to that, there is a broad mix of customers and so it's not as if we have gained more.

We don't talk about for instance there is e-commerce customers, there is video-only customers, there is new editorial customers joining and then there is customers who are buying if you would multiple products.

On an ex-FX basis, our 17% growth is certainly a deceleration versus what we had in the first half but it is close to our expectations and consistent with the idea that in 2016 while we are doing, as Jon mentioned, a re-platforming of every line of code to improve both productivity internally as it relates to our engineering platform, to improve the user experience to create a frictionless customer environment where customers are able to do their work faster and more easily with our content.

That is all part of what we have been focused on. While doing that, while we certainly believe that higher growth is desirable, we are still pleased with the high-teens growth that we have experienced on an ex-FX basis. And so as we go into 2017 and beyond, we have talked about a significant improvement in the productivity of our engineering group.

We've talked about the ability of launching functionality. I would encourage anyone who hasn't taken a look at the functions in our editor product to go to our platform and take a look at it.

I would encourage anyone who hasn't taken a look at the plug-ins that we have launched in Microsoft PowerPoint and the plug-in for Adobe to take a look at those and see the ease of functionality because we think those are a testament to the ability of this new platform for us to continue to drive growth.

As it relates to the timing of acceleration of growth, we will talk about our 2017 guidance on our next call, but at this point in time, what I will say is that we believe that over -- we are doing today in 2016 what we think is the most beneficial for our business to drive customers to continue to work on our platform and to continue to use us as a primary source of stock content.

So I don't -- we certainly wouldn't be making these investments if we didn't expect substantial returns on those..

I will add to that. If we were just focused on this year or this quarter, we would be growing the business faster and we would be neglecting the tech stack and the years 2017, 2018, 2019, and even 2020. We are thinking about this business for the long-term.

We are rebuilding our tech stack and growth slowed down a little bit and we are focused on the future of this business and we are not thinking about it quarter-to-quarter..

Our next question comes from Blake Harper with Loop Capital. Your line is now open..

Thanks. Jon, I wanted to ask you about Adobe but in a different way.

I wanted to just see if you could talk about what the -- how the downloads for the plug-in have been with the Photoshop and with Photoshop plug-in and also are there plans to develop similar types of plug-ins for other Adobe creative cloud apps?.

We are seeing thousands of users in Adobe use our product with access to over 100 million of our images. So we see thousands of people inside of Adobe accessing the largest collection that's ever been integrated into creative cloud period..

And on top of that, we have been asked by major holding companies and advertising agencies to make presentations which our sales teams have done to significant sized groups at their organizations so that they can see the ease of use.

And like I said on my earlier comments, this is the best way for anyone to access our environment if they are users of Adobe Photoshop and they are sophisticated users of that product that want to ultimately bring in Shutterstock images which is the largest and freshest collection of images we believe and they believe it too.

We have gotten great customer feedback that this is a great way to do it..

Okay, thanks.

And would you be able to go into other apps too, other Adobe creative cloud apps?.

Yes. We want to be anywhere any business is being creative. We want to build our own workflow tools, we want to integrate into other workflow tools, and we even want our customers to build their own integrations using our API. So we are going to continue to build on that.

And part of the tech stack migration is going to make it easier for us to build even richer integrations with the largest companies in the world like we have been..

[Operator Instructions]. Our next question comes from the line of Aaron Kessler with Raymond James. Your line is now open..

Great, thanks. Can you just -- I don't think you provided the revenues by geography. I think you said international is about 66% or outside North America and you also have Europe and rest of world. So it looks like the North America number implies revenues were down about 20% sequentially or about flat year-over-year so just want to confirm that.

And any other just thoughts on if that's true why that would have been in Q3? And just on the expense side, it looks like G&A and SBC were also kind of down sequentially. I don't know if there are any one-time stuff within those numbers? Thank you..

Yes, so a couple of things. First, as it relates to the geographic breakdown, we did file our 10-Q this morning and certainly all the geography or geographic breakdown is contained within there. Outside the U.S. represents customers outside the U.S. represent 66% and the U.S. was up 11% year-over-year.

So the ratio of customers within the marketplace has been maintained at about two-thirds outside the U.S., one-third inside the U.S. And when you include the other parts of North America, it's about 70% of global -- I'm sorry -- 70% of our revenue if you take the other parts of North America into the international region.

So we are very comfortable with the growth in every market. Like I said on my earlier comments, we are seeing double-digit growth rates across the board in each market. As it relates to your second question, oh stock-based comp, we had some changes there. We can take that question off-line. I'm not sure I am following your G&A comment..

Just down slightly sequentially on an absolute basis..

That was driven by stock-based compensation expense being lower. That's within there and if you go to the cash flow and you see the amortization of stock-based comp, you will be able to see the variance year-over-year..

I'm showing no further questions in queue at this time. I would like to turn the call back to Mr. Berns for closing remarks..

Thanks, Operator. We appreciate everyone joining us today and look forward to speaking with you all soon. Thank you..

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect. Everyone have a great day..