Rawson Daniel - Shutterstock, Inc. Jonathan Oringer - Shutterstock, Inc. Steven Berns - Shutterstock, Inc..

Naved Khan - Cantor Fitzgerald Securities Ralph E. Schackart - William Blair & Co. LLC Blake Harper - Loop Capital Markets LLC Lloyd Walmsley - Deutsche Bank Securities, Inc..

Good morning, ladies and gentlemen, and welcome to the Shutterstock Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Rawson Daniel. Please go ahead..

Thank you, operator. Good morning, everyone, and thank you for joining us for Shutterstock's first quarter 2017 earnings call. Joining me today is Jon Oringer, our Founder, Chief Executive Officer, and Chairman; and Steven Berns, our Chief Operating and 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 and existing product offerings, revenue growth and the predictability of our 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 Annual Report on Form 10-K for the year ended December 31, 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, adjusted EBITDA margin, adjusted net income, revenue and adjusted EBITDA growth on a constant-currency basis and free cash flow, which are non-GAAP financial measures.

You can find a description of these items along with the reconciliation to the most directly comparable GAAP financial measures in today's earnings release and in our Form 10-K, which are posted on the Investor Relations section of our website.

We believe that the use of these measures, in conjunction with GAAP financial 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. And with that, I will turn the call over to Jon..

Thanks, Rawson. And thanks everyone for joining us today for Shutterstock's first quarter 2017 earnings call. We had a solid start to the year and remain focused on executing against our long term vision.

In the first quarter of 2017, on a constant currency and year-over-year basis, we grew revenue 14% and adjusted EBITDA 4%, as we continue to deliver strong growth across each of our key metrics. On a year-over-year basis, during the quarter we grew our customer base by 13% to 1.7 million customers. We grew paid downloads by 6% to $43.5 million.

We grew revenue per download by 7% on a constant currency basis. We expanded our image library by 63% to 132 million images and we increased our video library by 64% to 6.9 million clips. We are pleased with our first quarter financial results and continued operational momentum.

Over the past several years we have been successfully diversifying and expanding our offerings, including providing customers with additional content type beyond stock images and more innovative search tools, offering localized products so that we can increase our relevancy to customers globally and providing best-in-class functionality to help our customers more efficiently and effectively utilize and manage their content assets.

By building a broader product suite, we continued to differentiate our business from the competition and attract an increasing number of customers and contributors to Shutterstock.

As we continue to focus on growing and enhancing our current business, we also have our sights set on bigger goals that we believe will propel us to further grow shareholder value.

This means continuing our transition from a stock image marketplace to a broader platform that provide individuals and enterprises with the various content types and tools needed to collaboratively design, build and distribute their creative projects.

We believe that execution on this vision will result in expansion of our market leadership in a large and growing addressable market, translating into consistent growth for our business. On today's call, I want to share a little bit about how we are organizing ourselves to successfully execute against this vision.

Let's start with our technology platform. Over the past couple of years, as we continue to scale Shutterstock, it became clear that our legacy tech stack needed an upgrade to accommodate features, functionalities and products that were being developed and which we had acquired.

Therefore, as we have previously discussed, we've spent considerable resources over the past 18 months on this effort.

The work that we did in this area will enable our pace of innovation to be sustained far into the future and provide us with the ability to launch more and better products with a more personalized and localized customer and contributor experience. We believe our technology is now set for where this business is going, not where it came from.

We are also ensuring that we continue to be well-positioned for international growth. We currently offer our products in 20 languages and generate approximately two-thirds of our revenue from customers outside of the United States. International growth continues to be a big opportunity for us.

And just like in the U.S., we are assembling a significant amount of data that will allow us to customize our product offerings and ensure that our customers globally are having a best-in-class experience on Shutterstock. As we looked at our technology systems and saw the need for an upgrade, we also looked at how our organization was structured.

Over the past few years, we were functionally organized, teams were grouped according to a similar set of rules or tasks. This worked well when the business was primarily in image marketplace. But it is something we need to improve upon as we scale into new areas.

Over the past quarter, we have organized ourselves to align more deliberately with our customers.

We now have five customer-centric teams including e-commerce images; enterprise, which is focused on teams in large organizations; motion, which includes our video and music offerings; editorial, including news, entertainment and sports content; and WebDAM, which delivers digital asset management and workflow solutions.

By organizing ourselves this way, we're able to focus our product, engineering and marketing efforts according to customer needs and demands and ultimately respond more quickly to market dynamics. In our e-commerce image business, we are focused on optimizing our current customer acquisition funnel and extending customer lifetime value.

We're doing this by taking a hard data-driven look at how we are acquiring customers, our pricing and packaging and also by ensuring that we have the right set of innovative products that are geographically relevant and personalized according to specific customer segments.

There is a lot of testing and turning of the dial taking place, but we are already beginning to see significant benefits of this approach. In addition to these improvements, we're also continuing to develop Editor and continue to see increased usage and engagement from customers who use Editor as part of their e-commerce experience.

In our enterprise business, the team is focused on continuing to scale our global sales force and improving our enterprise product to better meet the needs of these customers. Our enterprise business has seen significant growth and in Q1 represents 32% of our total revenue as compared to 29% in the first quarter of 2016.

To keep that momentum going, we hired sales leaders for Europe and Asia last year.

We also continued to improve our sell through rate of video, music and editorial, extending the usage of our enterprise customers and very importantly, we are continuing to develop a feature rich workflow platform to make it easier and more efficient for enterprises to manage the entirety of their creative projects on Shutterstock.

In our motion business, which includes video and music, we are a market leader and continue to focus on customer acquisitions by having the best-in-class library and product experience across both of these asset types.

We now have roughly 7 million video clips and have paired video with an exclusive curated collection of over 20,000 music tracks across genres. This combination is proving very powerful as we continuously get positive feedback from our customers.

More important than the number of clips and tracks they offer is that organizing ourselves to align with our customer needs enables us to have dedicated and streamlined resources from product, technology and marketing to deliver a best in class customer experience. Our editorial business is just getting started but it's a big opportunity for us.

Over the past year we have built an incredible library of news, sports and entertainment content which is seeing the sales channel and growing our customer base. Content partners want to work with Shutterstock and editorial and we're capitalizing on the expanded content that we have in place.

We also believe we have an opportunity to take the editorial product to a level that hasn't been seen yet in the industry and we look forward to showing you the features and functions we're working on in the future. Finally, we have a growing offering in enterprise workflow around our WebDAM brands.

In addition to WebDAM's flagship digital asset management offering, we launched a brand management tool in 2016 and earlier this year a creative collaboration and project management tool named Workstream. With WebDAM, we were busy building a comprehensive suite of services for the various enterprise customers that come to us for their creative needs.

And you can see we're taking actions to organize ourselves for future growth across our business and in time we plan to provide more details around progress in each area. In summary, we had a solid quarter.

And we're taking the right steps to continue acquiring content for our customer base and provide valuable solutions for customers, all of which we believe will deliver long-term shareholder value.

We have an organization framework from where we see the business heading in the future and have a differentiated set of assets and tools that we believe will enable us to create significant value for our customers, contributors, employees and shareholders.

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

revenue of $545 million to $560 million and adjusted EBITDA of $105 million to $110 million. In closing, and as Jon has highlighted earlier in his comments, we are confident in the fundamentals of our business.

We are growing both our e-commerce and enterprise customer bases, increasing engagement on our platform with tools like Editor and through a full suite of content options like images, video, music and editorial. And we are continuing to invest in our products and technology to position us well for long-term profitable growth.

We thank you for your time today. And now Jon and I would be happy to answer any questions you may have. Emily, please prompt the call participants for questions..

And your first question comes from the line of Naved Khan from Cantor Fitzgerald. Your line is open..

Yeah. Hi. Thank you very much. Just a couple of questions. If I just look at the e-commerce growth that slowed to kind of mid single-digits.

And Jon, just putting that in context with your remarks about things that you're doing to react to basically drive better engagement, do you think e-commerce can again come back into the double-digit growth? And then I had a follow up question on the enterprise..

Yeah. Yeah. I think that the core part of our business can grow again. And we're focused every day on coming into this office and working together to do that. Part of the reorganization we went through where we organized the company into GM verticals is really going to help us do this. We were on a new tech stack. We have a lot of great ideas.

We know the market is really large, that we sell to businesses. Businesses use our images every day to sell their product or service. We have 1.7 million of those customers today and we know there's tens of millions of more customers out there that need these assets to sell their products, sell their services, so..

As we've talked about, Naved, in prior calls, we in 2016 moved our tech stack to update it after many years of kind of not bringing into, if you would, the next generation, so that we believed based on that we'll improve the ability of our launching of features and functionality to improve the customer experience.

And so we clearly have done that with the expectation of reacceleration of the growth in the e-commerce business..

Okay. And then on the enterprise side, it looks like it's doing very well, growing on 25% or so.

How much of that is driven by growth in account versus penetration of existing account (20:31) that you might have? And can you just also touch upon the opportunity within enterprise outside of the U.S., what do you see there and where you are at currently?.

So the split between expansion within existing customers and new is about 50/50 and so we're seeing continued retention and spend from our existing customers as well as the attraction and spend from new enterprise customers. That's primarily in the image business.

We see opportunities in video, editorial and music both domestically as well as outside the U.S. So that's really a global opportunity as those products become more – greater utilization from stock providers.

In addition, we – our strategy and as we've indicated in our remarks, we've put a senior sales leader in Singapore because of the significant opportunities in the Asia Pacific region. About a year ago, we put a senior sales leader in Europe to further expand our presence and our opportunities there.

And so we continue to see significant opportunities globally despite the fact that two-thirds of our revenue come from customers outside the U.S. We believe that the opportunities continue to be material..

Okay.

And then the two-thirds comment also applies to enterprise, the two-thirds of enterprise revenue is also from non-U.S.?.

No, it's two-thirds of overall, but still we – remember, as you know, in the life cycle of a customer, it's often that a customer will be in our e-commerce business and then either evolve to or come to our enterprise business. So we look at the two-thirds as a total number.

That's the best because that's what it is mathematically, but that's the best way to evaluate it..

Thank you..

Your next question comes from the line of Brian Fitzgerald from Jefferies. Your line is open..

Hey, this is John (22:56) on for Brian. Thanks for taking my question. Just curious if you could share any additional kind of data points around Shutterstock Editor.

As you kind of continue to invest in reducing the friction to buy, any data points you can share around how Shutterstock Editor is increasing either the lifetime value of the customer or kind of reducing the acquisition cost. Thanks..

Yeah. It's early days for all of our workflow tools. We know that people that use Editor stay with us longer. We can see that they're more engaged. We see that they're using the tool. We're adding features and functionalities to Editor every month. And I see a pretty big future for Editor. It's only available in our core product.

We eventually wanted to be available on our enterprise product and even for other asset types as we start to build that out. We have an entire team working on machine learning and artificial intelligence-type features that will be implemented more and more in our search results and even could be part of our Editor product in the future.

So there's a lot of stuff we're working on that hasn't reached the customer yet. It will be very exciting when it does..

Great. Thanks, guys..

Your next question comes from the line of Ralph Schackart from William Blair. Your line is open..

Good morning. Two questions if I could. Jon, just on the platform rebuilding, maybe just give us a sense of how you're progressing vis-a-vis your internal targets. And then, I'm guessing you still have a view that it will have a potential impact to accelerate your business again, but just wanted to sort of ask on that.

And then Steven you talked about LTV metrics, so holding steady across the customer base, but just wanted to ask specifically as you've introduced some of the lower price plans, how that customer behavior is trending vis-a-vis sort of the broader mix on the e-comm side of the business. Thank you..

I'll start on the platform.

So, through the history of Shutterstock, we fought hard to build and grow fast through individual siloed asset types and that worked for a while until around 2013 or 2014 when we decided to agree on a common tax stack and bring all of our asset types and platforms, whether we organically built those or we acquired those, onto a single tax stack.

We are well through that process. There's always going to be pieces of the platform that we're upgrading. There's always going to be tech that we're working our way out of. But we're getting to a place now where we have an agreed upon platform throughout the company that we all build on.

And we are moving the remaining pieces of those acquisitions and organic pieces that we grew onto this new platform. That will enable us to move faster, cross-sell between products, understand who customers are between all of our products, and our customers – and allow us to do things like focus on reaccelerating growth in the core, for instance..

As it relates to the LTV metrics, what I would tell you is that we're looking at overall conversion rate. We look at total overall volume and we look at retention. And so when we take the combination of these across all of our products, we're seeing very good results.

We don't share specific results by product, but what we can tell you is that we believe that our offerings are finding the customers. They're attractive to customers. And on an overall basis, we believe that as we have done in the past, we'll continue to iterate to make sure that we're meeting the needs of customers globally.

And it's a dynamic customer base and we'll continue to serve their needs. But we feel very good about where we are at this time..

Great. One more if I could, Steven.

Would you mind providing your revenue repeat rate in the quarter, please?.

The retention..

The retention rate?.

Retention, yeah..

At 92%..

Okay. Thank you..

Sure..

Your next question comes from the line of Blake Harper from Loop Capital. Your line is open..

Yes. Thanks. I wanted to ask, last quarter you had talked about some of the lower priced e-commerce packages that contributed to some slower growth.

And just wanted to see where you were seeing some of the newer customer additions, was it some similar type of dynamics in the quarter or are you seeing some kind of some of the -- some higher priced packages that are getting more traction now as well?.

Yes. So I'll just refer back to the last answer I gave in terms of what we're seeing is that we recognize that there are everything from project oriented users, there are small and medium sized businesses that utilize images and other assets, music video and so on, on a more regular basis.

There are freelancers and then there are, if you would, large enterprises that are utilizing huge numbers of assets over -- on a daily basis.

And what we're doing is we're making sure that from our small and medium sized business products, our enterprise products, our team subscriptions as well as our individual users that we are providing them with the pricing and packaging that meets their needs on a fair value basis. And so we're not ever trying to be the lowest priced.

We're trying to be the best value for the work and the projects that they're doing. And when we do that, we see high long-term values consistent with our return on investments that we've had history..

Okay. Thanks..

Your next question comes from the line of Lloyd Walmsley from Deutsche Bank. Your line is open..

Thanks. Two if I can. First, following up on the replatforming, you've talked about moving faster, potentially doing more cross-selling.

Wondering if you can just give us more specifics on what maybe the biggest impact you've seen to date as you guys work on a more modern platform? Are you seeing more customers buy across product or anything specific you'd point to? And then second one, following up around the questions around the acquisition funnel in the script you talked about.

Tests you're doing, changes you're making, is there anything aside from the new lower price points that you would just point us to that you're changing in the acquisition funnel that that's helping you either CAC or LTV?.

So I would start with a couple of things. One is, in terms of -- if you think about the history that we've gone through in terms of the legacy business of just traditional 25 a day images now to being a multi-asset platform with tools for users to modify their assets and to create assets that are customized for their particular need.

When we think about that, whether it be the editorial business with Rex, where we really utilize that, it's the basis of our platform to build out our editorial business and then sign deals with PMC and Associated -- Penske Media, Associated Press. Billy Farrell, we recently had for the second year in a row the exclusive of the Met Gala inside.

We've done numerous events on a global basis that we hadn't. So using that we have lots of customers who want to actually acquire both editorial as well as commercial that is creative assets that are, if you would, the traditional images that we sold.

So that enables us to cross-sell primarily to enterprise but also small and medium size and some individual customers. So that's significant.

As we think about music and video, when you – there are upcoming movies and upcoming commercials in which we have typically sold, for instance, to studios in the production arena images, who are now using our video product in major feature films where that had been, I would say, less common in the past.

It's now not just more common, it's actually a place where creative talent in terms of videographers and cinematographers and directors will come to Shutterstock as a first stop for that type of content. And the same is true for music.

So it's becoming a much more, as those assets are easier to use as the technology has become easier to incorporate stock content into their productions, we're seeing cross-platform activity once again from all venues or customer type segments whether it be on the production side or on creatives in major corporations or even small or medium sized businesses..

Okay, that's helpful.

And then around just the e-commerce acquisition funnel, any more color you can share on just things you're trying or things that are working aside from changes to the pricing?.

Yeah. I mean if you look at our pages they change all the time. We're constantly updating them. If you look at the – even the responsiveness of our core site, speed is way up. The site will feel snappier from page to page. That is our new platform at work.

And we plan to get better and better, add things like site speed globally as we start to move that code to the edge in a more cloud based environment..

Thanks..

I am showing no further questions at this time. I would now like to turn the conference back to Steven Burns..

Thanks very much for your time today. We appreciate it, and we'll talk to you in the next quarter..

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may all disconnect..