Q4 2021 Shutterstock Inc Earnings Call
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 this presentation. There will be a question answer session to ask a question. During the session you will need to press star one on your telephone.
If you require any further assistance please press star zero.
I'll now turn the conference over to speak today, Chris Xu Vice President Investor Relations and corporate development. Please go ahead.
Thanks Victor.
Good morning, everyone and thank you for joining us for Shutterstock fourth quarter 2021 earnings call. Joining us today is Stan Pavlovsky, Shutterstock, Chief Executive Officer, and Jared Yeas, Shutterstock 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.
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.
We will 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.
With that I'll turn the call over to Stan.
Thanks, Chris and good morning, everyone and thank you for joining us for the Shutterstock fourth quarter 2021 earnings call.
Today, we'll be discussing <unk> results for 2021, we will 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 ecommerce channel grew 19% in 2021 and over 10% on an organic basis.
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 and our E Commerce channel driven by outsized growth in our subscription product, resulting in 22% subscriber growth and 20% subscription revenue growth.
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 product 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.
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 shutter stocks image video and music content Library, and one plan that offers great value flexibility and customization.
Within the first several months of 2022, we'll be introducing new products and our E Commerce channel, which we expect to result in organic growth returning to more normalized levels over the course of the year.
I'll 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 product for Smbs Shutterstock Studios, and our computer vision offering.
We are very pleased with the momentum and progress we've seen in the enterprise channel.
Things that in context, we haven't been on a journey over the past two years to reinvigorate our enterprise business, which included redefining our go to market approach with a greater focus on our largest accounts.
<unk>, our presence with SMB customers and scaling Shutterstock studios.
We also made several organizational changes, including our 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.
<unk> invested in our systems to enable us to scale.
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 offerings are.
Our strategic solutions product suite includes new offerings, such as flex premium studios and <unk> content.
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.
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 <unk> in 2020 to the mid <unk> in 2021, reflecting reflecting stickier customer relationships as we upsell and cross sell strategic solutions to customers.
These solutions include multi asset subscription products, including flex product for Smbs and studio services.
Enterprise subscription bookings as a percent of total enterprise bookings increased from 24% in 2019% to 29% in 2021.
<unk> 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 $100000 in <unk>.
<unk> grew almost 80% in 2021 with an average annual value of $175000.
Looking ahead, we're very excited about our product roadmap in 2022, which will leverage the various acquisitions, we consummated last year.
We continue to see strong growth in <unk> revenues stemming from our acquisition of Turbo squid.
<unk> is an exciting and dynamic content types that are seeing increasing adoption across many use cases, ranging from visual effects for the film and television industry to video games and architecture and design.
More recently turbo squid, three b assets have been used by customers in the meta versus and then creating beautiful works of art captured in Ftes, where our characters and objects can be downloaded from our leading <unk> marketplace and deployed into these environments.
Pick monkeys, and intuitive platform will be a foundational element in our strategy for more deeply embedding ourselves and our customers workflow, we will be introducing a re imagined easier to use application as a part of creative flow that will allow our customers to create beautiful professional.
<unk> and an easy to use experience.
And finally, the three AI assets that Shutterstock acquired will further manifest itself in our E Commerce and enterprise offerings. This year.
Shutterstock 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 interim 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.
As we've communicated in previous quarters, we're on the journey to transform shutterstock until 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. We 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 and the.
<unk> stickier, which we believe will result in greater customer engagement and ultimately higher revenue retention rates.
In addition, we believe that our new creative power tools powered by pick Monkey 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 enthusiasts segment.
We believe to have and 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 have embarked on.
Before I turn over the call to Jerry 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 content data and workflow workflow applications.
<unk>, 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.
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.
And with that I'll turn the call over to Jarrett.
Thank you Stan and good morning, everyone for.
For the full year 2021, Shutterstock as revenue growth was 16% or 15% on a constant currency basis with e-commerce growth of 19% and enterprise growth of 11%.
Revenues grew 14% in the fourth quarter or 15% on a constant currency basis.
Foreign exchange was a slight headwind in the fourth quarter as compared to earlier in the year as the euro and pound continued to soften versus the U S. Dollar.
E Commerce revenue grew 16% this quarter and our enterprise channel continued to have great results with 10% revenue growth driven by strong bookings momentum and accelerated growth at Shutterstock Studios.
For the full year gross margins were 64, 1% up 300 basis points from 61, 1% in 2020.
For the fourth quarter gross margin declined by approximately 150 basis points to 61, 9% year over year, largely driven by higher noncash amortization expense of $5 2 million associated with our recent acquisitions.
Backing out M&A amortization Q4, gross margin actually improved by over 100 basis points year over year.
Sales and marketing expense was 30% of revenue as compared to 25% in the fourth quarter of 2020 and up from 28% in the third quarter.
This increase was driven by increased investment in marketing largely around our previously discussed brand campaign.
For the full year sales and marketing expense was 26% of revenue as compared to 24% in 2020 with the increase largely related to our recent brand campaign.
Product development as a percentage of revenue increased approximately 220 basis points in the fourth quarter due to costs associated with our recent acquisitions and higher compensation costs due to additional hiring of engineers as well as additional stock compensation expense.
On a full year basis product development as a percentage of revenue remained constant at 7%.
G&A expenses were 17% of revenue down 1% from the fourth quarter of 2020.
G&A expenses benefited from lower bad debt expense as compared to the fourth quarter of 2020.
On a full year basis G&A as a percentage of revenue remained consistent at 17%.
Adjusted EBITDA margins of 19% in the fourth quarter were in line with our expectations and prior guidance and resulted from deployment of the remaining incremental marketing spend we first previewed in the second quarter of last year.
Absent our $7 million sequential increase in marketing spend our EBITDA margins in Q4 would have been flat with the third quarter.
For the full year 2021, we meaningfully exceeded our margin guidance and EBITDA margins increased 172 basis points to 25% from 23, 2% in 2020.
<unk> stock grew EBITDA by 25% year over year from 155 million to $193 million.
For the fourth quarter GAAP diluted earnings per share was <unk> 45, and adjusted diluted earnings per share was <unk> 77.
For the full year GAAP earnings per share was $2 46 and.
And adjusted diluted earnings per share was $3 48 reps.
Representing growth of 25% and 33% respectively.
Turning to our balance sheet and cash flows at the end of the quarter, we had $314 million of cash up from 301 million at September 32021.
We generated $55 million of operating cash flows partially offset by $8 million of Capex 8 million quarterly cash dividend paid in December and $22 million from share repurchases.
Our deferred revenue balance of $181 million increased almost $10 million from the third quarter and over $31 million from the fourth quarter of 2020 representing growth of 21%.
Even when excluding the balance from pick Monkey, we grew deferred revenues, 15% year over year in the fourth quarter.
This.
And our deferred revenue is a strong leading indicator of the future growth in recognized revenue of our enterprise revenue channel, which represents more than half of the deferred revenue balance.
On January 25th we announced a 14% increase in our quarterly dividend to <unk> 24 per share, which will be paid on March 17.
This increase was attributable to the positive cash flow results, we had in 2021 as well as our confidence in the business for 2022.
We will continue to periodically revisit the quarterly dividend and plan to grow it further over time.
With respect to our share buyback program, we repurchased 192000 shares for $22 million during the quarter and continue to be in the market each day buying.
On a full year basis, we repurchased 234000 shares for $27 million we.
We expect to increase our annual share repurchase program from the $75 million per annum previously communicated to the full $100 million available under our current share repurchase authorization.
At current share prices this higher buyback will allow us to buy back approximately 3% of the shares outstanding each year up from 2%.
By growing our dividend over time repurchasing shares on a consistent basis and remaining active in M&A. Our goal is to provide investors compounding annual returns that exceed our growth in revenues and operating profit.
Turning to our key operating metrics for the fourth quarter.
Subscriber count increased by 22% subscriber revenue increased by 14%.
Average revenue per customer increased by 11% to $368 paid downloads were down 2% and revenue per download increased to $4 29 per download.
In 2021, our subscriber count and subscriber revenue increased by 22% and 20% respectively meaningfully faster than the overall organic growth rate of the company.
One of the drivers of that Stan mentioned is the strong market reception for our flex multi asset subscriptions in our enterprise channel.
On the back of our Flex 25 launch last quarter in E. Commerce. We also plan to introduce multiple new flex products in the early part of this year.
Finally, turning to our guidance.
For 2022, our expectations for the full year are as follows.
Revenue of $835 million to $850 million, representing 8% to 10% annual revenue growth.
Adjusted EBITDA of $210 million to $217 million with margins ranging from flat to up 50 basis points.
Adjusted earnings per share of $3 65 to $3 80.
In terms of the composition of revenue growth in 2022, we believe enterprise will exhibit high single digit revenue growth throughout the year and E. Commerce will start the year with high single digit revenue growth accelerating to double digit revenue growth by the fourth quarter.
In terms of the acquisitions consummated last year, one extra month of turbo squid and eight additional months of pick monkey at the run rates of acquisition contributed approximately $18 million of additional revenue or 2% of our total revenue growth.
As the revenue guidance is based on current spot rates for the Euro and GBP.
As compared to 2021, where currency had a positive impact on revenues of 1% for 2022 currency as expected our current spot rates to have a negative impact of 2% on revenue growth in the upcoming year, which is factored into our guidance.
Taken in totality currency is a 2% headwind and M&A is a 2% tailwind to growth such that organic constant currency revenue growth is 8% to 10% consistent with our guidance.
I would note that this is above the rate of Tam growth at both the high and low end of the range.
From a margin perspective, we're targeting up to 50 basis points of EBITDA margin expansion in 2022, consistent with how we commenced 2021.
For the full year 2022, we expect to see decreases in sales and marketing as a percentage of revenue, which will more than offset increases in product development costs as we invest in our product roadmap.
Gross margins will be stable and consistent with last year on a quarterly basis.
Other modeling assumptions for 2022 of note include stock based compensation of $45 million depreciation.
Depreciation and amortization expense of $64 million.
Capital expenditures of $40 million and an effective tax rate in the low twenties.
We are pleased as a management team with our 2021 results, which saw an acceleration of revenue growth to 16% year over year.
Access and driving operating leverage with EBITDA margins, expanding almost a 180 basis points.
And the tremendous progress we've made in our product roadmap and evolving into a subscription based creative platform with our creative flow application suite.
With our balance sheet capital Shutterstock executed on five 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.
Operator, we'd now like to open the line for any questions.
As a reminder to ask a question you will need to press star one on your telephone and to withdraw your question.
Please standby, we compile the Q&A roster.
Our first question comes from the line of Andrew Boone from JMP Securities.
May begin.
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 two years and.
And we've seen this be a key driver of growth.
Are you in terms of better addressing the customer needs versus these packages.
Other words.
Better merchandising continued to be a growth driver for 'twenty, two and 2023.
I've got a follow up thank you.
Great Great question and great to hear from you.
Pricing and packaging.
<unk> of content in different types of assets is definitely.
We will continue to.
Uh huh.
To help our business going forward.
Particularly as we have new content types, particularly as.
We continue to onboard new contributors with new.
<unk>.
New experiences with that said.
Our creative flow applications will start to.
Hence the subscriptions, even further by getting into the workflow of our customers, which is really a big part of.
The strategy going forward, so when we think about.
Packaging, and having great content and getting into new content types, such as <unk> et cetera.
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.
Great.
This might be more modeling, but what I'm doing here is I'm, taking the number of paid downloads times of revenue per download.
To get kind of a download revenue number and then just looking at the plug versus total revenue.
So we've seen that kind of to purge as we got through 2021 and understood that kind of pick monkey helps there.
Can you help us think about how custom content and computer vision revenue should trend as we think about 2022.
As we kind of add a new line to the model.
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 youre, describing which is the revenue per download and the number of downloads there as our computer vision offering as our studios business, there's the pig monkey 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 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 pricing to our customers.
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 a consistent and then adding a lot of VAT.
You add to the bundle into the subscription offering so thats generally the approach that we're taking.
And those ancillary services or why Youre seeing that breakdown of just multiplying the P times Q to add up to the overall revenue stream.
Great. Thanks, guys.
Thank you once again Thats star one for a question Star one.
<unk> for questions.
Our next question comes from the line.
Bernie Mcternan from Needham.
You may begin.
Good morning, it's Chris on for Bernie can you talk about you kind of touched on turbo squid menu kind of customer types that are coming to you to do verticals.
That is there a sales force integration happening here it is customers coming to the platform on their own.
Like you talked about the amount of risk and achieve kind of how is it can you talk to how it all kind of coming together there.
Yes, absolutely.
Chris.
A couple of ways, one obviously, we have a marketplace where.
There is 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.
Film and video gaming.
Et cetera.
Where we're going is where we're going to be enabling services within the enterprise you're going to start to see that in the next quarter, where we have a lot of demand agency for example agencies are looking.
At <unk> services on behalf of their clients.
So we're going to we're going to start to enable our.
The sort of experiences.
Within.
Within enterprise in Q1.
Which will allow our customers to do all sorts of things, whether that's the meta versus 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.
Judy content side, except obviously with three D.
Little bit more.
Hands on leveraging the technology that we acquired with Turbo squid.
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 and kind of what have you kind of learned about that.
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 kind of think we Mike I know you spoke to your margins and the cost line item, specifically, but what did you learn and is it something like in the future because of the kind of the new products and new levers you have to call.
Yes.
Great point, so we definitely learned a lot in terms of.
The creative in terms of the channels within our brand campaigns 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 ROI.
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 three D and so we do continue to plan to test in the highest ROI channels.
Great. Thanks for the time and good luck.
And once again Thats star one for questions following one loan for questions.
Once again Thats star one for questions.
And I'm not showing any further questions in the queue I'd like to turn the call over to Stan <unk> for any closing remarks.
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.
This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
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