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0:03 Good day. And thank you for standing by. Welcome to the Fourth Quarter 2021 Shutterstock Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session [Operator Instructions].

0:25 I would now like to hand the conference over to your speaker today, Chris Suh, Vice President, Investor Relations and Corporate Development. Please go ahead..

0:35 Thanks, Victor. Good morning, everyone, and thank you for joining us for Shutterstock's Fourth Quarter 2021 Earnings Call. Joining us today is Stan Pavlovsky, Shutterstock's Chief Executive Officer; and Jarrod Yahes, Shutterstock's Chief Financial Officer.

Please note that some of the information you'll hear during our discussion today will consist of forward-looking statements, including, without limitation, the impact of COVID-19 on our business, the long-term effects of investments in our business; the future success and financial impact of new and existing product offerings; our ability to consummate acquisitions and integrate the businesses we have acquired or may acquire into our existing operations; our future growth; margins and profitability; our long-term strategy; and our performance targets, including 2022 guidance.

Actual results or trends could differ materially from our forecast.

1:27 For more information, please refer to today's press release and the reports we file with the SEC from time to time, including the risk factors discussed in our most recently filed 10-K for discussions of important risk factors that could cause actual results to differ materially from any forward-looking statements we may make on this call.

1:45 We'll be discussing certain non-GAAP financial measures today, including adjusted EBITDA and adjusted EBITDA margin, adjusted net income, adjusted net income per diluted share, revenue growth, including by distribution channel on a constant currency basis, billings and free cash flow.

Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures can be found in the financial tables included with today's press release and in our 10-K. 2:11 With that, I'll turn the call over to Stan..

2:15 Thanks, Chris, and good morning, everyone, and thank you for joining us for the Shutterstock's Fourth Quarter 2021 Earnings Call. Today, we'll be discussing Shutterstock's results for 2021.

We'll also talk about how the acquisitions we completed in 2021, coupled with the organic investments into our business, have positioned us extremely well for 2022. Shutterstock saw 16% revenue growth in the full year 2021, our highest annual growth rate since 2016. Our e-commerce channel grew 19% in 2021 and over 10% on an organic basis.

2:57 Meanwhile, our enterprise channel grew 11% year-over-year, a return to growth after declining in 2020. In 2021, we experienced growth across image, video and music in our e-commerce channel, driven by outsized growth in our subscription products, resulting in 22% subscriber growth and 20% subscription revenue growth.

3:23 In the fourth quarter, e-commerce revenue grew 16%. As discussed last quarter, e-commerce organic growth was low single digits in the quarter and the slowdown partially reflected the lapping of new e-commerce subscription products launched in 2020.

Further, as we increasingly transition to a subscription-led model, we have seen softness within our transaction customer segment. We use our products on an ad hoc project-by-project basis.

3:54 In addition, we dedicated greater focus on new product launches for our enterprise channel last year, which was reflected in a relative slowdown in new e-commerce product launches over the course of 2021.

That said, on the e-commerce subscription front, we are seeing strong traction with our mixed asset FLEX 25 subscription, which was launched in October 21, with the aim of providing access to Shutterstock's image, video and music content library in one plan that offers great value, flexibility and customization.

4:31 Within the first several months of 2022, we'll be introducing new products in our e-commerce channel, which we expect to result in organic growth returning to more normalized levels over the course of the year. I will now switch gears to our enterprise channel.

Our enterprise channel grew 11% in 2021, which reflected a powerful return to growth after declining 2% the prior year. Growth in our enterprise channel was driven by strength in our core image and footage business and further bolstered by growth in our FLEX products for SMBs, Shutterstock Studios and our computer vision offering.

5:13 We are very pleased with the momentum and progress we've seen in the enterprise channel.

To put things in context, we have been on a journey over the past 2 years to reinvigorate our enterprise business, which included redefining our go-to-market approach with a greater focus on our largest accounts, expanding our presence with SMB customers and scaling Shutterstock Studios.

5:39 We also made several organizational changes, including a customer-centric and channel-centric go-to-market strategy rather than a region-based approach, adjusting our incentive plans to better align with our commercial strategy and invested in our systems to enable us to scale.

5:58 Our sharper commercial focus on growing our strategic solutions, revenue streams and subscription-based revenue streams have yielded tangible results in terms of our product offering. Our strategic solutions product suite includes new offerings such as FLEX premium, studios and 3D content.

We're happy to report that we're seeing several indicators that point to the success of this plan, and we expect to see strong and sustainable growth in our enterprise channel going forward in 2022. 6:32 Besides our revenue and bookings momentum, I would like to provide some additional proof points that lay out our progress.

First, enterprise bookings, retention rates improved from the low 80s in 2020 to the mid-90s in 2021, reflecting stickier customer relationships as we upsell and cross-sell strategic solutions to customers. These solutions include multi-asset subscription products, including FLEX products for SMBs and studio services.

7:05 Enterprise subscription bookings as a percent of total enterprise bookings increased from 24% in 2019 to 29% in 2021. These subscription bookings include our new FLEX subscription product, which approached $15 million of revenues on a run rate basis, a steep ramp-up following the initial launch in Q2 2021.

The number of enterprise deals with greater than $100,000 in AOV grew almost 80% in 2021 with an average annual value of $175,000. 7:46 Looking ahead, we're very excited about our product road map in 2022, which will leverage the various acquisitions we consummated last year.

We continue to see strong growth in 3D revenues stemming from our acquisition of TurboSquid. 3D is an exciting and dynamic content type that has seen increasing adoption across many use cases, ranging from visual effects for the film and TV industry to video games and architecture and design.

8:17 More recently, TurboSquid's 3D assets have been used by customers in the metaverse and in creating beautiful works of art captured in NFTs, where our characters and objects can be downloaded from our leading 3D marketplace and deployed into these environments.

PicMonkey's intuitive platform will be a foundational element in our strategy for more deeply embedding ourselves in our customers' workflow. We will be introducing a reimagined, easier-to-use application as a part of creative flow that will allow our customers to create beautiful, professional designs in an easy-to-use experience.

8:58 And finally, the 3 AI assets that Shutterstock acquired will further manifest itself in our e-commerce and enterprise offerings this year. Shutterstock's AI-powered search will transform content discovery, allowing customers to generate ranked results, which include insights based on specific marketing goals, industry and target audience.

We believe that the introduction of predictive insights fueled by AI-driven content analytics will allow our creators and marketers to back their creative intuition with insights, giving their ideas the best chance to succeed.

9:40 As we've communicated in previous quarters, we're on a journey to transform Shutterstock into a creative platform, leveraging content, data and workflow applications.

We believe that introducing these innovations in the form of workflow enhancements and predictive insights for our customers will also have a direct measurable impact on our business metrics.

For example, we expect that more deeply embedding ourselves into our customers' workflow make our offering inherently stickier, which we believe will result in greater customer engagement and ultimately, higher revenue retention rates.

10:20 In addition, we believe that our new creative power tools powered by PicMonkey will drive an increase in high-margin recurring subscription revenue, adding further stability and visibility into our revenue base.

And finally, we believe that we will be well positioned to attract new types of customers, such as the nonprofessional creative enthusiast segment. We believe to have an -- we expect to have an Investor Day later this year in order to help investors better track and understand the progress we are making in the strategic initiatives we've embarked on.

11:00 Before I turn over the call to Jarrod, I'd like to leave you with a few takeaways. First, we feel encouraged by our business and financial results in 2021.

We accelerated revenue growth, enhanced profitability, continued to pivot towards a subscription business and furthered our journey to transform Shutterstock into a leading creative platform, leveraging content, data and workflow applications.

11:28 Secondly, we are now firing on all cylinders with respect to our enterprise channel and feel great about our momentum, solution offering and team going into 2022. And lastly, we have the capital and strategic intent to progress our acquisition strategy into 2022.

It's an exciting and dynamic time for Shutterstock, I'm thrilled about what we achieved in 2021, and I'm even more thrilled about what's ahead for us in 2022. 12:00 And with that, I'll turn the call over to Jarrod..

stock-based compensation of $45 million; depreciation and amortization expense of $64 million; capital expenditures of $40 million; and an effective tax rate in the low 20s.

21:37 We are pleased as a management team with our 2021 results, which saw an acceleration of revenue growth to 16% year-over-year, success in driving operating leverage with EBITDA margins expanding almost 180 basis points and the tremendous progress we've made in our product road map in evolving into a subscription-based creative platform with our Creative Flow application suite.

22:01 With our balance sheet capital, Shutterstock executed on 5 strategic acquisitions, raised our dividend by 14% and stepped up our share repurchase program. We're looking forward to 2022, and we very much thank you for joining us today. We do appreciate your time. 22:18 Operator, we'd now like to open the line for any question..

22:23 [Operator Instructions] Our first question will come from line of Andrew Boone from JMP securities. You may begin..

22:42 Hi, guys, thanks for taking my questions and good morning. So Shutterstock has launched a number of new subscription products over the last year or 2 years. And we've seen this be a key driver of growth.

Where are you in terms of better addressing kind of the customer need versus these packages? In other words, can better merchandising continue to be a growth driver for '22 and 2023? And then I've got a follow-up. Thank you..

23:14 Hi, Andrew. Great – great question and great to hear from you. Pricing and packaging of content and different type of assets is definitely -- will continue to help our business going forward, particularly as we have new content types, particularly as we continue to onboard new contributors with new experiences.

With that said, our Creative Flow applications will start to enhance the subscriptions even further by getting into the workflow of our customers, which is really a big part of the strategy going forward.

23:58 So when we think about packaging and having great content and getting into new content types, such as 3D, et cetera, that's a big part of continued growth within our current TAM.

When we talk about sort of getting into new workflow products, we're talking about expanding that TAM, driving new customer growth as well as driving higher retention on existing customers.

So this year, you'll start to see new subscriptions that are not just sort of content or marketplace subscriptions but also subs that are focused on tools and applications..

24:39 Great. And then this may be more modeling. But what I'm doing here is I'm taking the number of paid downloads times the revenue per download to get kind of a download revenue number and then just looking at the plug versus total revenue.

And so we've seen that kind of diverge as we got through 2021 and understood that kind of PicMonkey helps there.

Can you help us think about how customer content and computer vision revenue should trend as we think about 2022 as we kind of add a new line to the model?.

25:14 Sure, Andrew. Let me add a little bit of color to that. So there are multiple businesses that don't conform neatly to the P times Q that you're describing, which is the revenue per download and the number of downloads. There is our computer vision offering. There's our studios business.

There's the PicMonkey offering that we recently acquired, and then there are other parts of the way that we engage in enterprise with offerings like asset assurance that also are not included in that model.

So you do see this divergence, which is basically resulting in the price per download increasing despite the fact that we are not necessarily increasing our headline prices to our customers 25:58 So that's one thing that I would like to make clear is as you think about -- and back to your question on merchandising and pricing and packaging, we are seeking to improve the value proposition to our customers.

We are not improving unit pricing. We are actually looking at maintaining unit pricing, keeping it consistent and then adding a lot of value add to the bundle and to the subscription offering.

So that's generally the approach that we're taking, and those ancillary services are why you're seeing that breakdown of just multiplying the P times Q to add up to the overall revenue stream..

26:35 Great, thanks, guys..

26:39 Thank you. [Operator Instructions] Our next question comes from line of Bernie McTernan from Needham. You may begin..

26:56 Good morning. It's Chris on for Bernie. Can you talk about -- you kind of touched on TurboSquid and the new kind of customer types that are coming to you the new verticals.

Is that -- is there a sales force integration happening here? Are these customers coming to the platform on their own? And then also, like you talked about the metaverse and NFTs, kind of how -- can you talk to how it's all kind of coming together there?.

27:20 Yes, absolutely, Chris. So a couple of ways.

One, obviously, we have a marketplace where there's -- historically, a majority of the revenues have been from consumers that are coming directly to our site experience, licensing models for use in different -- as you mentioned, different vertical scenarios, whether that's from in video, gaming, et cetera.

Where we're going is we're going to be enabling services within the enterprise. You're going to start to see that quarter where we have a lot of demand. Agency, for example. Agencies are looking at 3D services on behalf of their clients.

So we're going to start to enable our 3D sort of experiences within enterprise in Q1, which will allow our customers to do all sorts of things, whether that's the metaverse, whether that's spatial-enabling products within retail environments, whatever the case may be.

So we're going to be launching services similar to what we do on the 2D content side, except obviously with 3D, a little bit more hands on-leveraging the technology that we acquired with TurboSquid..

28:51 Got it? And then if I could just slip one more in. I know it's only been a couple of quarters, but how do you think of the brand campaign? Kind of what have you kind of learned about -- or I guess another way to ask is you've got a lot of levers to pull here in the coming quarters, coming months.

So is this something where you're kind of, I think we might -- I know you spoke to the margins and the cost line item specifically, but what did you learn? And is it something we might see in the future because of the kind of the new products and new leverage you have to pull?.

29:18 Yes. It's a great point. So we definitely learned a lot in terms of the creative, in terms of the channels within our brand campaign that have a higher ROI versus lower ROI.

The net of it is we're going to continue to test different creative, and we're going to focus on channels that have the highest as part of what we've learned with our brand campaign that we ran this past year. And so that nets us to having a more targeted view in 2022, which means we will not be -- we do not expect to spend at the same level.

But you're right, we're launching new products that require customer education with Creative Flow with 3D. And so we do continue to plan to test in the highest ROI channels..

30:16 Great, thanks for the time, good luck..

30:20 [Operator Instructions] And I'm not showing any further questions in the queue. I’d like to turn the call over to Stan for any closing remarks..

30:45 Well, thank you for joining us today. And thank you for the questions. And as always, we want to express our gratitude to our customers, contributors and employees. We're looking forward to an exciting and impactful 2022 and that ends our call for today..

31:04 This concludes today's conference call. Thank you for participating. You may disconnect. Everyone have a great day..