Q4 2020 Shutterstock Inc Earnings Call
Okay.
Good day, ladies and gentlemen, and welcome to the fourth quarter of 2020 Shutterstock earnings Conference 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, Inc.
Once you require assistance during the conference. Please press Star then zero on your Touchtone telephone.
As a reminder of the conference call is being recorded.
Oh by the launch of hand, the conference over to your host Mr. Chris The VP of Investor Relations and corporate development you may begin.
Thank you Julie.
Good morning, everyone and thank you for joining us for Shutterstock as fourth quarter 2020 earnings call.
Joining us today, we have Stan Pavlovsky Shutterstock, the Chief Executive Officer, and Jared Gates, Shutterstock, the 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 the investments in our business the future success and financial impact of new and existing product offerings and the integration of the company's strategic acquisitions.
Our future growth margins and profitability, our long term strategy and our performance targets.
Actual results or trends could differ materially from our forecast.
For more information please refer to today's press release and the reports we filed with the SEC from time to time, including the risk factors discussed in our most recently filed annual report on form 10-K for.
For the discussions of important risk factors that could cause actual results to differ materially from any forward looking statements. We may make on this call.
We discuss 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, which are posted on the IR section of our website.
Finally, please refer to the brief information deck, we posted on our website that contains supporting materials for today's call.
And now I'd like to turn the call over to Scott.
Thanks, Chris and good morning, everyone and thank you for joining Shutterstock fourth quarter earnings call.
In the fourth quarter Shutterstock experienced the sharp acceleration in year on year revenue growth to 9%, which capped off the year in which we built tremendous momentum each and every quarter of <unk>.
Revenue growth and our outperformance in the fourth quarter was broad based by revenue channel by geography by product and content types.
Our subscription metrics were exceptionally strong this quarter.
We also experienced upside from a desire by our clients to fully utilize budgets before year end and in addition to strong holiday demand driven in part by increased promotional efforts.
We estimate the end of the quarter increase in transactional revenues added between 1% to 2% to our revenues for the quarter.
We experience we experienced a return to revenue growth in our enterprise revenue channel earlier than expected and with the stronger velocity than we previously expected on the back of multiple quarters of strong bookings growth.
It is clear the changes we have implemented are now having a positive impact which are translating into our reported results.
The reinvigorating our sales organization innovating, our suite of product offerings, and making further platform investments and our API, we are starting to see more consistent and stronger growth in bookings and deferred Robyn.
Our year end deferred revenue of $149 8 million has grown 5.6% from December 2019 of the back of meaningful growth in the third quarter, we believe that our return to year over year growth earlier than we expected coupled with multiple strong quarters of differ.
<unk> revenue growth are good leading indicators pointing towards a healthy 2021 for our enterprise revenue channel.
In addition, our E Commerce channel ended the year extremely well driven by overall company subscription growth metrics that meaningfully exceeded our expectations for the quarter.
With the quarterly year over year of growth of 45 per cent and the number of subscribers, 18% subscriber revenue growth and increasing average revenue per customer. We are strongly encouraged by these results.
We are not stopping here and have plans to aggressively innovate in 'twenty 'twenty one both in terms of new subscription product rollouts and innovations in our product roadmap.
None of our accomplishments this year would be possible without an ambitious management team that is eager to drive performance at Shutterstock and make an impact on our industry.
Throughout 2020, we completed the build out of the management team and demonstrated a strong ability to attract and retain world class talent to drive our business to new Heights.
Of note since the last Investor call, we have been hiring aggressively in our API platform team and then the enterprise sales.
We have also added multiple executives to our management team such as Dorian Quest as Chief marketing Officer, Megan shown as SVP of product.
Bridget Golar as VP of business intelligence, and Aidan Darn day as head of Shutterstock Studios.
Most recently I am pleased to report that we have also brought on board John lap them as our general Counsel John.
John was most recently the general counsel at Rover, and ecommerce marketplace company and previous to that spent 14 years at Getty and brings a wealth of the industry knowledge the shutterstock.
Each earnings call since the beginning of my new role of Shutterstock CEO I have discussed our progress in each.
Each of Shutterstock three strategic focus areas.
Workflow innovation fresh and relevant content and data and insights to drive performance today I'd like to highlight our focus on content in particular, what we are doing to expand into new content areas like three D. With our recently announced acquisition of Turbo squid, but also to build a can.
Head of the moat around our business by gaining access to exclusive editorial content.
On behalf of the team I would like to welcome all of the Squids The Shutterstock Inc.
Can't express enough how delighted we are to work with you.
As a company with many folks based in New York, London, Berlin, and Singapore. We are excited to have a base of passionate employees and new oil in New Orleans, and take advantage of the strong talent and silicon by you.
In addition to being the largest marketplace for three D models today Turbo square it brings the shutterstock several technology assets that are tremendous value.
Notably pixel squid and crack at it.
So split is effectively the bridge for two D customers to be able to benefit from three D models.
Our clients will be able to take highly complex three D models spin it along multiple axes defined perfect angle and then instantly create of PNG image asset.
Pixel squared will save our clients tremendous time and money as compared to having to digitally manipulate and cure rate of two D image that does not meet their requirements.
Pixel squid is available for purchase both as an unlimited subscription or on a transaction basis.
Cracking is of special like as digital asset management solution that is particularly well suited to the content needs of three new users, who use cracking to create manage and share three the assets.
Turbo split of has a strong presence in many industry verticals that represent an important Tam extension for shutterstock, including gaming retail education visual effects design and architecture.
Its clients include industry leaders, such as Walmart for Energizer G M. Ethan Allen U S Postal service and Google.
There is a tremendous opportunity to take the thousands of corporates that purchase from turbo squid today as E commerce customers and provide them white glove customer service via our enterprise channel and offer them additional shutterstock solutions.
Turbo squid has been an open platform and supports models built with the major three D tool sets, including three D. S. Max Maya cinema for D and open source three D solutions such as blunder.
The company also has close ties with the gaming development ecosystems and supports models by unity and Unreal engine.
We plan to maintain those relationships and also work as an advocate in our industry to extend three D into additional use cases, such as E commerce digital marketing and for enhancing websites.
Another way that we are focused on bringing fresh content to our customers is by increasing the amount of exclusive content, we offer through our editorial business.
As many of you know Shutterstock entered the editorial business would be acquisition of Rex features in 2015.
That acquisition injected the talent and platform to build our editorial business.
This is a business that typically involves establishing long term relationships and exclusivity around the content distribution relationship.
These are typically three to five year contracts and so they come up for renewal infrequently.
Recently, we have started experiencing additional traction in this area will then sports publisher archives of median production companies, which one of them produce sought after regional and global content, which can be delivered directly to our customers' workflows through our proprietary API technology.
Shutterstock the ability to compete is further enhanced by our ability to invest in these relationships to increase revenue for the content partner backed by a strong capital structure with no debt and a significant cash balance of.
Of note in.
In the past several months, we have won multiple new exclusive relationships, including West Ham Rangers football club and Motorsport images and we are in multiple discussions to win other meaningful exclusive partnerships.
As I discussed when starting my new role, we expect to generate the majority of shareholder value over the next three to five years through a combination of consistent revenue growth and margin expansion in.
In 2020, we grew EBITDA over 60% and earnings per share even greater than that through a combination of revenue growth and by expanding margins by over 800 basis points.
That increase in EBITDA translated to record free cash flows for Shutterstock.
This type of performance provides us tremendous flexibility in terms of our ability to strategically invest in the organic growth of our business.
All of the product innovation around subscription products, we brought to market in 2020 is fundamentally enabled by our ability to run of profitable business.
The complement our investments in our business, we are fortunate to be able to simultaneously return capital to shareholders through smart acquisitions, raising our dividend and repurchasing shares.
We realized that as a result of the immense progress that we have made this past year with margin expansion. We have set of high bar preferred further margin expansion in 'twenty 'twenty one but.
But we believe we are up for the challenge and are excited as a management team for the year at.
Before turning the call over to Jeremy to discuss our financials I wanted to thank the shutterstock team for their hard work and dedication in 2020.
With all of our lives fundamentally changed in 2020, our team was able to focus on our strategic initiatives roll out new products market them more effectively and efficiently.
Deliver for our clients around the world and ultimately significantly accelerate revenue over the course of the year.
And now I'll turn the call over to Jarrett.
Thank you Stan and good morning, everyone share.
The stock ended the year with exceptionally strong revenue growth well exceeding our expectations and building off the positive momentum we had in the third quarter.
Two areas of surprise to the upside where our enterprise channel, which returned to recognized revenue growth a quarter earlier than we expected and with demand levels that were stronger than we projected.
Further our subscribers and subscriber revenue growth accelerated to record levels as compared to the already strong results in the third quarter driving outperformance in E Commerce.
All of these trends position us extremely well going into 'twenty and 'twenty one.
Fourth quarter revenues grew 9% year over year for 7% on a constant currency basis.
Growth was led by our E Commerce channel, which grew 11%.
Whereas our enterprise channel ended the year with year over year growth of 6%.
While our revenue growth for the quarter was extremely strong.
As Stan noted we benefited from an end of the year budget flush of clients combined with the strong holiday demand environment, which positively impacted the quarter.
For the full year 2020 revenue growth was 2% with E commerce growth of 5% offset by a 2% decline in the enterprise channel.
From a geographic perspective on a year over year basis, we saw revenue acceleration this quarter across all regions with particular strength in North America, which was up 13%.
Europe grew 8% and the rest of the world, including Asia grew 5%.
Gross margins were 63.4% consistent with our third quarter margins.
While the gross margins were strong I would note for investors that this is partially due to lower utilization, which we believe will reverse itself over the course of 'twenty 'twenty one.
For the full year 2020 gross margins were 61, 1% up three 8% from 57, 2% in 2019.
Sales and marketing expense was 25% of revenue as compared to 28 per cent of revenue in the fourth quarter of 2019.
As expected there was the sequential increase in sales and marketing from Q3, the Q4 consistent with our plan for accelerating marketing spend in the back half of the year on branding, our new subscription products and targeted performance marketing.
For example, we embarked on our first connected TV and linear TV campaigns in the fourth quarter.
Sales and marketing expenses also increased due to higher employee compensation associated with our improved business performance.
Sales and marketing expenses as the percentage of revenues were 24 per cent for the full year 'twenty 'twenty down from 28% in 2019.
It is important to note the we incurred little to no TD expenses in 2020 due to the pandemic and we do expect those expenses true increase in 'twenty and 'twenty, one, particularly in the back half of the year.
Product development costs were 5% of revenue for the quarter down from 9% in the fourth quarter of 2019.
In product development, we are seeing expense reductions due to fewer resources committed to the remediation of tech debt and a refocus on new projects and innovation.
On a full year basis product development expenses declined 20% per.
The lead you to some one time software expenses, we incurred in 2019 that did not recur in 2020.
G&A expenses were 18% of revenue up from 16% of revenue in the fourth quarter of 2019.
G&A expenses. This quarter included some incremental stock based compensation expense associated with our performance based stock Awards ex.
Excluding stock comp expense G&A expenses as a percentage of revenue were roughly flat compared to the fourth quarter of 2019.
For the full year G&A expenses were flat for 2019, and excluding stock comp expense declined due to cost reduction efforts combined with operating leverage of our business.
Adjusted EBITDA margins increased to 26, 8% compared to 14.5% in the fourth quarter of 2019.
We continue to have strong results from a margin perspective, and we're focused on driving shareholder value by balancing growth with robust margins and cash flows.
For the full year EBITDA margins increased 840 basis points to 23, 2% from 14.8% in 2019, and we grew EBITDA in excess of 60% year over year for 96 million to $155 million.
For the fourth quarter GAAP EPS was <unk> 70.
And adjusted diluted EPS was <unk> 93, representing growth of 483% and 260% respectively.
For the full year GAAP EPS was $1 97, and adjusted diluted EPS was $2 of 62 cents representing growth of 249% and 113% respectively.
Turning to our balance sheet and cash flows at the end of the quarter, we had $429 million of cash up from 383 million at September 32020.
The quarterly increase in cash of $45 million includes $65 million of operating cash flows offset by $6 million of capex in content acquisitions $7 million for investments in M&A activity.
And the $6 million quarterly cash dividend paid in December.
On February 1st we closed on the acquisition of Turbo squid for $75 million, which would have brought our cash balance down to $354 million from Q4 ending cash levels.
Investors should expect more muted cash addition in Q1 as compared to Q4 with annual bonuses being paid in the first quarter.
On January 12, we announced the 24% increase in our quarterly dividend to <unk> 21 per share.
This increase was attributable to the positive cash flow results, we had in 2020 as well as our confidence in the business for 'twenty and 'twenty one we.
We will continue to periodically revisit the quarterly dividend and plan to grow it further over time.
Turning to our key operating metrics they were of particular bright spot for shutterstock during the quarter.
Subscriber count increased by 45%.
Subscriber revenue increased by 18%.
Average revenue per customer increased by 0.9%.
Paid downloads were down 4% and the revenue per download increased to $3 of 91 cents per download.
Our image library expanded by 15% and our footage library increased by 24%.
As we look at our historical data, we believe piece of the fastest rates of subscriber growth and subscriber revenue growth we've ever experienced as a company.
Clearly our S M B and prosumer oriented products are resonating in the market and experiencing good traction.
I will however, reiterate what I said last quarter, which was that while we're thrilled with the subscription trends. We do not believe this accelerated pace of growth in subscription will continue each and every quarter.
With respect to our M&A strategy, we've been picking up steam in terms of execution.
We believe that the acquisitions of turbo squid and ampere represent the types of acquisitions, we'd like to continue to execute on.
Amperes of small bolt on of key talent and AI technology focused on music content.
Whereas turbo squid is of medium sized acquisition that adds a new content type to our marketplace and an attractive three D market with strong industry tailwind.
Turbo squid has been the steady growth business over time with good margins, we paid at multiple for the business in line with our trading multiple and the deal is immediately accretive.
As we think about strategic acquisitions, Shutterstock three revenue channels, including a large enterprise sales force of market, leading API offering and a customer base of 2 million E commerce customers should allow us to accelerate the growth in acquired companies over time.
We have also recently added talent and post merger integration to allow us to scale and integrate the acquisitions, we've made to date and assist with deals we will execute on in the future.
Finally, turning to our guidance.
For 'twenty 'twenty, one our expectations for the full year are as follows revenue of 708 million to $722 million, representing 6% to 8% annual revenue growth.
Adjusted EBITDA of 165 million to 171 million with margins ranging from flat to up 50 basis points.
And adjusted EPS of between $2 75.
The $2.90.
In terms of the composition of revenue growth in 'twenty and 'twenty. One we believe enterprise will grow 2% to 3% slower than E Commerce, and we will continue to experience quarterly growth throughout the year in both channels.
Though not necessarily at the growth rate rates, we experienced in the fourth quarter.
Revenue guidance includes approximately $20 million of revenue based on the close of the <unk> Wood acquisition as of February for 'twenty, 'twenty, one, which will be reported within our E Commerce revenue channel.
Investors should note the part of the way we're thinking about our revenue guidance is that we are still seeing multiple countries going in and out of lockdown due to the pandemic, which is driving uneven demand globally.
As of now we don't have complete visibility as to when these regions will come back and we will adjust our forecast accordingly as demand normalizes throughout the year.
From a margin perspective, we're targeting up to 50 basis points of EBITDA margin expansion for 2021.
For the full year 'twenty 'twenty, one we expect to see slight increases in sales and marketing as a percentage of revenues, which will be more than offset by further operating leverage in G&A costs and slightly better gross margins the <unk>.
Sum total of which should allow us to achieve additional EBITDA margin expansion in 2021.
Other modeling assumptions of for 2021 of note include.
Stock based compensation of approximately $33 million.
Depreciation and amortization expense of $50 million.
Capital expenditures of $30 million.
And an effective tax rate percentage in the low twenties.
Also we expect our share count increases to be inline with historical trends.
We are pleased as a management team with our results both in terms of the sharp acceleration of revenue growth combined with exceptional margins.
As stated previously we plan to continue to reinvest some of the margin upside we've experienced to innovate and invest in the best position Shutterstock for growth in the years to come.
Thank you so much for joining us today, we appreciate your time operator, we'd now like to open the line for any questions.
Ladies and gentlemen, if you have a question at this time. Please press the star and the number one key on your Touchtone telephone. If a question has been answered or you wish to remove yourself from the queue. Please press the pound key.
He told all the poll for questions.
Your first question comes from John Egbert of Stifel.
Great. Thanks for taking the question.
Obviously really strong trends in subscriber revenue during the quarter.
Can we unpack that a little bit more can you talk about some of the factors influencing that momentum whether it's.
The promotions I think that were cited in sales and marketing maybe merchandising of different price points for subscriptions, maybe evolving the offering in general what are some of the interesting takeaways from the fourth quarter of success there.
Hey, John.
Thanks for being on today.
A lot of our success is really tied to our new subscriptions that we introduced over the course of 2020.
Which had a particular resonance in queue for these.
These include subscriptions targeted at small and medium businesses around our image products as.
As well as music and footage products that we launched earlier this year. So what I would say is.
The growth acceleration has definitely come from the.
Small and medium business sector.
And that that was even more pronounced in Q4, and then on the enterprise side, we've continued to see momentum quarter over quarter over quarter.
What was interesting in Q4 was the the budget flush that we talked about earlier, where we saw a lot of transactional product uplift in Q4 within the enterprises.
Marketers were looking to use up budgets more than we expected and that added about 1% to 2% to our growth.
Thanks.
Your next question comes from Youssef Squali rituals securities.
Awesome. Thank you and good morning, guys. So congrats on the very solid quarter. So if I just Tom.
Step back a little bit and look at what you guys have said historically that the organic growth in this in this industry I think you've often talked about organic growth of around 7% you just did better which is awesome, but as I look at 2021 and I look at your guidance of six to eight so you're targeting exam.
<unk> kind of the midpoint of of of.
The overall industry, but you know of number of things happened last year. Obviously, you have some really easy comps in Q1 and Q2.
Turbo squid, which I think Jared you talked about $20 million contribution.
M.
Blanket probably on other things, but so maybe maybe unpack the debt, 6% to 8% growth in terms of organic versus Nonorganic in Hawaii.
May actually be at least based on that guy to may be growing below your own expectations for the industry. It seems a bit conservative or maybe it just lack of.
Clear visibility into into the depend M <unk> and its effect and the other question I have is on turbo squid, maybe Stan could you just speak about kind of low hanging fruit opportunities there from integrating that acquisition into your core product maybe in terms of cross selling other things versus.
Kind of of the long term opportunities may be like moving into new verticals, new product, new Joe's et cetera, that'd be helpful. Thank you.
Hey, Youssef.
So in terms of guidance I think we believe that we're on pretty solid footing in terms of the fundamentals.
I think the visibility into guidance is still.
Somewhat challenging.
We continue to see uneven.
Performance in certain geographies for example, because of continued lockdowns.
So some of what you're hearing is that.
We still have some.
Some of the Covid.
You know effect that is impacting the business.
Right now.
And we definitely plan as you know as things start to open up and as there becomes more of what we call sort of the consistency around our performance and consistency of crew.
Ross geographies, we will definitely update our guidance.
Later in the year.
As it relates to.
Some of the short term opportunities with three D. M Turbo squid, we have a couple of the immediate opportunities one of which is.
The fact that today the business is primarily driven on a on the self service model, It's an E commerce model.
But we know that a lot of the users work at large corporate clients.
And so our ability to provide increased service level.
And provide additional services.
Such as our studio services or our platform solutions and API services really present opportunities in the short term that we that we are looking to take advantage of.
So in addition to as you mentioned the addition to some of the longer term opportunities from this category.
What's happening in social media of what's happening in gaming.
And some of the verticals that we may have a lower concentration or penetration than turbo squid, which obviously presents opportunities for us in the short term it's.
It's really about our sales channels, it's really about platform solutions, and it's about enterprise and our ability to take.
And create a new product offering.
That includes three D within those channels.
Alright Thats helpful. Thank you.
And again, ladies and gentlemen, if you have a question at this time. Please press the star and the the number one key on your test home telephone.
Your next question comes from Ron Josey with JMP Securities.
Great. Thanks for taking the question and the happy new year.
Good to hear from you so I wanted to talk maybe.
Maybe a quick follow up on usage of questions around in your answer around subscriptions with subscribers re accelerating a little bit more relaxed the reacceleration of 44% year over year, and you talked about the benefits and the focus on the consumer and SMB can you help us unpack these verticals of little bit more in terms of what led to this increase is that the investment in sales.
Thank you just mentioned, but also just the the tailwind that we're seeing broadly around ecommerce you mentioned CTV anything more to help unpack, what's driving the subscriptions. Besides just the verticals around pro Sumer and Smbs and Jared you mentioned something pretty interesting on on tech debt I think I heard you talk about paying down tech debt overall and so.
Maybe talk about just internally how this has helped change your processes and focus more on innovation and growth and and how we see the organization or how you see the organization move forward when we pay down the stack debt. Thank you.
Yeah, absolutely so I'll I'll take the subscription question and I'll, let Gerald talk a little bit more about R&D expense.
As far as subscriptions.
You're absolutely right we definitely.
Made a concerted effort as it relates to sales and marketing to.
Really focus on subscriptions because of consumer behavior.
Both in our category as well as just how consumers are.
Really.
Have have embraced subscriptions across multiple categories.
In particular, when we look at.
The small and medium businesses and digital transformation. You know this has been this has been of real trend. This past year and so for US we've been able to sort of take advantage of that trend across all of our sales channels, whether that's E commerce.
Where we introduced a small subscriptions or smaller price subscriptions across image footage and video which have been.
You know very successful.
But also we have <unk>.
<unk> in our platform solutions area that have also been very successful during this time website builders as an example.
Our advertising partners.
The company's move more of their dollars to digital that has had an impact on us so and even actually even in our enterprise channel, where we have in certain cases small P M size businesses that.
<unk> like to have the sales assisted approach those have been.
Exceeding our expectations, so what I would say is.
The SMB segment has definitely.
Across all of our sales channels is definitely outperformed.
What we call our professional.
Creative segment as well as our.
Sort of high touch large corporations segment, although we have made.
Significant progress there, but when you think about the fact that advertising categories like auto and travel some of the largest advertising categories that have been significantly impacted this past year, which were not immune from.
The small and medium business segment has really helped us to offset that.
And then if I could just follow up for Gerry do you talk about tech debt I think I heard 2 million E commerce customers any sense on how that's trended maybe backing up your comments around the F&B. Thanks guys.
Yep.
I'll, let I'll, let Jared I don't know if the Jared do you have the the specific growth in customers our subscription customer growth.
Was significant in terms of the 46%.
Overall customer growth.
I don't know if we have the right in front of us, but we'll we'll look that up.
And then.
I'll, let Jared take the the.
The R&D question.
Sure. So just on our overall customer growth we ended the quarter with just over 2 million of total customers for the company.
We were just under 2 million customers for the company as at the end of last year. So modest growth of just in terms of total number of customers out of it.
Part of that is there's a large tail of transactional customers, which come in and out and don't move the revenue as much sort of the total customer count on hasn't been increasing certainly at the same rate as subscription customer growth, which is really what's driving that average revenue per customer up and I think that's part of our part of our overall.
Strategy.
In terms of our technology and how we're thinking about product development costs I think the team has done a great job in driving down our product development costs of particularly as you think about maintenance expenditures, so product and the R&D costs have come down from about 8% of revenues to about 6% of <unk>.
Revenues as of the past year.
And I think Theres a couple of reasons for that one is as I mentioned in my prepared remarks, we did have several million dollars of spend in software in 2019 debt.
Didn't recur in 2020.
But the other piece is we are spending less time and less effort in the less resources in terms of remediation of tech debt.
And we've reached the conclusion of some large long term projects that have taken place over the course of the past several years for example migration off of legacy platforms to new platforms as well as migrations of the cloud for our operating infrastructure as well as our internal infrastructure.
The infrastructure.
And what the team has really been doing is fundamentally asking a question with regards to of maintenance expenditures.
In product as to whether something ultimately drives revenue or not whether something is ultimately tied to innovation or not.
We've been Reorienting resources towards innovation.
And I think the way you can really see that from a P&L perspective is look at the Capex one of the.
The Capex line is effectively flat year over year, while product expenses went down meaningfully and Capex for US is predominantly software development expenditures associated with new product builds and innovation, whereas maintenance needs to be expensed through the P&L. So I think we feel really good about Steve.
In terms of Opex, while continuing to reinvest in the business from a capex perspective in order to build out new products that are really focused on growth and innovation.
Thank you guys appreciate it.
Thanks, Ron.
I'm showing no further questions at this time I'd like to turn.
The conference back to Stan CEO.
I'd like to once again.
Yes, we did just have someone popping you do have a question from Matt Schindler with Bank of America.
Great.
Yes, hi, guys, sorry, I had technical difficulties given the question Ed.
Just wanted to.
Follow up on the point you made during the call. You said you benefited from some end of year budget.
The.
Excess budget I would imagine that happens every Q4 or often.
Is there.
How much of this is different from normal seasonal growth so sort.
Your upside here of how much would that would have been.
Usual or how much of it would have been excess here because of that and of different. Additionally, where the cuts show up I would imagine would come in on more of the revenue per download as opposed to subscriptions and people paying more for types of media, but is.
There's some more detail you could talk about.
Yeah. So.
On the I'll, let jarrett sort of talk about the what happens with pricing as the.
Sort of our downloads go up and down.
The.
And the sort of the combination of of changes in the product mix, but in terms of the what we called the budget flush.
In Q4.
I think we did a great job with.
With promotions this year in Q4, it definitely exceeded our expectations.
Compared to a year prior.
Particularly under the circumstances.
This year end.
Our sales team and our account management team did a really good job in.
Leveraging those with our clients to get as much value.
From a from a transactional business in Q4, so you're right there is some.
There's definitely kind of the the using of using up of budget on a on an annual basis. I think this year, we were a little bit more promotional around that and really wanted to see if we could.
Enable our clients and help our clients with the with year end and we were successful.
Yeah.
Yes.
Yeah, and I would just add in terms of out of your question on revenue per download in paid downloads and the impact from from subscription we.
We did see a nice tick up in paid downloads. This quarter, we actually saw paid downloads increased about 2.3 million quarter on quarter as compared to the third quarter of 2020.
And ultimately that resulted in a paid download decline of 4% as compared to the five 6% we've experienced over the course of the past two quarters.
So I think customer engagement coming back in customer utilization coming back.
Certainly a positive sign for us and something that we expect to continue the.
Take forward into 'twenty and 'twenty one.
What's interesting is when you look at the revenue per download increasing 13, 7% as it did in the fourth quarter.
That's not just as a mathematical result of paid downloads being down.
Also a result of the increase in subscription as a percentage of our total business.
So fundamentally.
<unk> products do.
Do come with the meaningful increases in average revenue per customer and they are also accretive and support revenue per download.
So I think we feel really good about increases in utilization quarter on quarter in terms of paid downloads and we also feel good about the revenue per download increases, which are really being driven by our subscription products not necessarily because we're raising unit prices with our business.
Great. Thank you.
Okay, and I am showing no further questions at this time I will now turn the conference back to Stan CEO.
Alright, thank you.
I'd like to once again convey my gratitude to and appreciation for Shutterstock employees customers and contributors for the support and engagement.
I continue to be excited for the road ahead as we continue to take advantage of the opportunities ahead of us with that that ends our call for the day. Thank you.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful day you may all disconnect.
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