Q2 2022 Shutterstock Inc Earnings Call

July 26, 2022

Okay.

Good day and welcome to the Q2 2022 Shutterstock, Inc earnings Conference call at this time.

Time, all participants are in a listen only mode.

After the speaker presentation, there will be a question and answer session to ask a question. During this session you will need to press star one one on your Touchtone telephone. Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker, Mr. Chris Xu Vice President Investor Relations and corporate development.

Please go ahead.

Thanks Jerry.

Good morning, everyone and thank you for joining us for Shutterstock second quarter 2022 earnings call.

Joining us today as Paul Hennessy, Shutterstock, Chief Executive Officer, and Jarrod Shutterstock Chief Financial Officer.

Please note that some of the information during our discussion today will consist of forward looking statements, including without limitation, the long term effects of investments in our business.

Future success, and financial impact of new and existing product offerings, our ability to consummate acquisitions and integrate the businesses. We have acquired they acquired into our existing operations, our future growth margins and profitability.

Long term strategy and our performance targets, including 2022 guidance.

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 Form 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'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-Q.

I would now like to turn the call over to Paul NSE, Chief Executive Officer.

Thanks, Greg.

Everyone and welcome to our second quarter earnings call.

I'd first like to start by conveying my gratitude to my fellow colleagues at Shutterstock for helping me get immersed in the business so quickly and seamlessly.

Many of you are aware now approaching the end of my first month as Shutterstock CEO I find myself energized by the passion and bias for action permeating throughout the organization and the opportunity to serve our customers I also look forward to engaging with those of you on the investor community in the weeks and months ahead.

I spent the past several weeks exploring in that many of the key assets and capabilities unique to shutterstock that allow us to maintain our leadership position in the industry and best serve our customers contributors employees and shareholders I'd like to speak to each of these key assets and capabilities and finally provide an early indication.

On some of the strategic priorities I feel maybe untapped opportunities for Shutterstock in the years ahead.

Key assets and capabilities that make shutterstock. So unique include.

The leading content marketplace with superior depth and breadth across all categories.

Our recently introduced created flow platform.

Our unique offering of content data and production solutions to large enterprises, and small and medium size businesses.

And an extremely talented team able to execute on a range of exciting opportunities that lie ahead.

The bedrock of Shutterstock has always been our content marketplace with industry, leading depth and breadth across content types.

We've invested heavily in our content and technology stack, both organically and via acquisitions and we'll continue to do so for example.

Sample over the past several years, we've acquired the world's largest <unk> model marketplace in the turbo squid, the world's largest video first marketplace in PON five.

And we've been adding to our editorial and exclusive content. Most recently with the acquisition of Splash news.

As a result of these investments we have massive industry, leading scale and it become the de facto primary destination for marketers creative and professional to come to their content needs for a range of use cases.

Our marketplace is particularly well positioned to thrive in a rapidly evolving environment such as the <unk> with our <unk> model and recently added meta versus ready sound effects content.

Put things in perspective on our marketplace $2 1 million customers purchase content from our community of $2 2 million contributors that's it.

Distributor base that is larger than our nearest competitor by four X.

What this means in real terms is that we have the freshest content from around the world with five to 10 million assets being added every single quarter.

Our content library is by far the largest and deepest by a significant margin with 484 million creative and editorial images.

In video we are larger than the next player by a factor of <unk>, including <unk> five and.

And we have more <unk> models on our marketplace than any other competitor.

In addition to scale ease of content discovery ability and a robust ingestion process further differentiate our marketplace from the competition.

In short from a customer perspective, as a result of Shutterstock extensive growing library and ability to surface the right content.

It means that Shutterstock is the go to destination for your content media. Whether for example, you are creative professional small business owner or a marketing professional.

In order to allow our customers the more customers to more fully leverage our content shutterstock is gradually transform our content marketplace into an end to end full service creative platform.

We commenced that journey with significant organic and inorganic investment in our workflow applications and data, culminating in the initial rollout of the creative flow platform relief to our customers in the second quarter.

We believe the customers will further benefit from the enhancements planned to the creative flow.

Over the next several quarters.

We are truly just at the beginning stages of leveraging create a flow to enhance the way our customers do their creative work.

We believe create a flow will ultimately result in stronger engagement with our platform and lead to customer satisfaction and retention across all channels.

We are already seeing strong customer engagement with the platform with existing shutterstock subscribers using the platform to create and customer customize their downloaded content.

As we get more data about creative flow engagement and the downstream impacts on our business, we expect to provide additional insight and metrics to investors.

Create a flow also opens up the potential for a larger total addressable market for template driven creative design tools, thereby thereby allowing for audience expansion into the long tail, so solar printers, and casual created creating a long runway for growth.

In summary, Shutterstock is well positioned to meet the varied needs of customers and a more complete way by providing that connective tissue that helps our customers transform a piece of content into performance creative.

Shutterstock enterprise sales channel is another unique asset that has performed strongly and will be key to our success going forward.

Being exceptional traction across a range of strategic solutions that we're bringing to our customer base, both large enterprise corporations as well as F&B.

Our sales force is truly global and we are able to deliver end to end creative solutions to customers on a scale that is unmatched by our competitors.

We're seeing strong traction at Shutterstock studios, and creating short form and long form video for our customers as well as high interest in three D engagements for brands.

Our API platform solutions channel is seeing strong demand across content types for predictive data for scoring creative content and for computer vision applications used by large technology companies.

And last but not least we have developed a strong muscle in our sales channel for end to end solution selling starting from our high end differentiated creative content to our editorial offerings in sports and entertaining entertainment and news.

Including the Shutterstock archive real time, slash newsroom subscriptions to highly sophisticated global production services.

I'd like to provide a few highlights that show how all of the above is manifesting in our enterprise business.

Our studios business is increasingly winning large global deals with customers across industry like pharmaceutical and CPG with <unk> that are three times greater than last year.

We're also proud of our studios work with Allergan aesthetics, which commenced in Q1.

Through this partnership Shutterstock is continuing its commitment to improve diversity.

The partnership will cost hundreds of real people in an effort to produce thousands of powerful and inclusive royalty free images, which will be hosted in a curated collection on the Shutterstock website later this year, making our marketplace increasingly reflective of the diverse world in which we live.

Leading auto Tech brand Carvana enlisted Shutterstock studios to produce an original Darkey series, capturing the life and career of Jimmy Johnson, one of the greatest race car drivers of all time, which is currently airing on NBC sports.

Having launched the virtual production offering we're seeing continued growth and appetite for AAR VR and met a verse activations for brands and agencies.

We're experiencing healthy growth in the SMB segment, driven by new customer acquisition upsell and continued sales momentum with our flex product franchise.

Overall, our average revenue per customer in our enterprise channel is 20 times greater than that of our E. Commerce channel as we increased wallet size and increased customers and tap into new relationships that are more strategic in nature.

In summary, we see a path to sustained growth with our enterprise customers with the right investments in product and services and innovation strategic account focus and execution strength.

Lastly, as I referenced earlier I'm impressed by the passion of Micellar Shutterstock colleagues across the company by ensuring that we as a team are aligned on our mission encouraging high levels of engagement and collaboration and continuing our investments in world class talent.

I believe that we will be well positioned to grow the business across our E Commerce and enterprise sales channel.

Beyond the unique assets and capabilities at Shutterstock I'd also like to share an early look into some high potential growth and investment opportunities based on my observation so far.

Looking forward I see a range of exciting opportunities to improve our business performance and ultimately accelerate growth.

I'll touch on these opportunities on today's call investors should expect to hear more detail on the quarters to come as we turn our strategies into initiatives and outcomes.

Firstly my enthusiasm for the opportunity in front of us in the enterprise segment should have come across loud and clear.

We have the right team and the right solution set and now is the time to extend our enviable position by investing for growth.

In order to fuel that growth, we're going to need to need to ensure that our customers are finding the perfect content. They are looking for at Shutterstock.

Every single time.

Ultimately world class content is the lifeblood of Shutterstock business and the reason why we give the dominant player in the market.

In the past quarter, we closed on two transactions to further content led innovation and growth.

<unk> is the world's largest video first content marketplace with a diverse customer base strong brand affinity with filmmakers and media companies and differentiated royalty free creative editorial and exclusive content.

The acquisition adds further scale to Shutterstock video business, which now represents approximately 20% of total revenue on a combined basis and offers a differentiated video collection and premium editorial partners such as Reuters British movie tone and British film Institute.

Splash news further bolsters, our editorial business with its archival entertainment and celebrity content library, because it consisting of over 27 million images.

<unk> network of 4000 photographers and his contributor and customer facing technology platform.

It is a highly complementary addition to our newsroom offering where we offer real time news and entertainment content from our network.

Beyond integrating these two valuable acquisitions into our offering and the strong revenue synergy potential. They offer I strongly believe there is an opportunity to extend our lead by leveraging content is a key differentiator of our marketplace delivering to our customers and enabling us to drive faster growth.

To give you a sense in more specific terms of what this means for shutterstock in the years to come we.

We will be focused on.

One, making our content catalog smarter and more dynamic, allowing for greater discovery ability and relevance for specific market segments audiences and use cases.

Two enhancing the quality and unique nature of the metadata that supports our content discovery and predictive performance algorithms.

Three leveraging Shutterstock studios to create bespoke on brand video or <unk> content.

Our enterprise customers.

For adding scale in new or emerging content types, such as meta versus ready assets as well as content that represents a highly refined finished product for users such as industry or use case specific templates.

And finally darn exclusive access to some of the most talented creators globally further reinforcing the competitive moat around our business.

Taken together differentiated compelling content is part of the flywheel that attracts more customers and more contributors to shutterstock.

As we invest for the future we will be mindful of the framework that we've communicated for shareholder value creation.

With our strong cash flow generation profile, we believe we will consistently return capital through execution of our M&A strategy dividends and share repurchases, we will invest in avenues to accelerate revenue growth.

On cash generation and long term margin improvement.

We will continue with our M&A strategy, allowing us to allowing us to acquire businesses that add to our capabilities strategically and match our returns criteria.

In conclusion as I mentioned at the top of the call. We had the right combination of assets and capabilities to achieve our vision for Shutterstock.

Broad strategy is in place and I'll be spending the coming weeks and months, ensuring that we're on the right path to improve growth in our business throughout world class execution in areas, such as customer acquisition and marketing and our E Commerce channel and further investing in our enterprise channel to power. The next leg of innovation led revenue growth.

We will also be relying on data driven tests and experiments to help learn iterate and adjust our strategy where warranted.

I look forward to updating you in the quarters ahead.

And with that I'll hand, the call over to Jared to discuss our financial performance and guidance.

Thank you Paul good morning, everyone.

Revenues grew 9% in the second quarter or 13% on a constant currency basis.

Revenues for both our E Commerce and enterprise channels benefited this quarter from the addition, upon five which we closed on May 11, which added three 5% to our overall revenue growth based on one and a half months contribution of the business.

Therefore, our constant currency growth in the second quarter, excluding PON five is just above 9% for the quarter.

E Commerce revenues grew 6% on a reported basis aided by our acquisition upon five and grew 9% on a constant currency basis this quarter.

Excluding the impact upon five e-commerce revenue grew 2% and 6% on a constant currency basis.

Based on our year to date results. The returned to strong growth in our E. Commerce channel is taking longer than we initially expected and we attribute that to three drivers, notably weakness in Europe compounded by FX pressure and the rollout of the Russia business.

Ongoing product mix shift towards subscription products with higher ltvs, but with lower <unk>.

And weakness in new customer acquisition.

We are focused on re accelerating growth momentum in our E Commerce channel by refining our customer acquisition strategy and also by driving engagement with our creative flow platform that we believe will have a positive impact on retention over time.

We made strong progress with our product rollouts in the second quarter in E Commerce.

Just recently rolled out the creative flow capabilities to our e-commerce subscription customers at the end of the second quarter.

And just last week, we unveiled the standalone accretive flow plus subscription for $12 99 per month.

This is a new price point and the tools first offering for Shutterstock.

We look forward to marketing, our creative flow capabilities to our customers and showcasing our enhanced value proposition.

We expect the positive impact of creative flow to both customer engagement and customer attention to take place gradually over the coming quarters, and we look forward to measuring the results and reporting them out to investors.

Meanwhile, we're seeing solid continued momentum within our enterprise channel.

Enterprise grew 15% or 19% on a constant currency basis, driven by strength with small and medium sized business and enterprise customers.

We're also experiencing strong demand for Shutterstock studios and editorial content and services.

Editorial was bolstered by both traction in our newsroom offering supported by our recently announced acquisition of Splash News.

We've seen momentum in both our studios and platform solutions offerings, driven by new customer acquisition and high rail views the.

The <unk> acquisition added 4% of growth in the quarter to the enterprise revenue channel.

For the second quarter reported gross margin declined by approximately 155 basis points year over year, largely driven by higher noncash M&A amortization expense of $5 9 million.

Excluding M&A amortization Q2 gross margin improved by 130 basis points year over year to 65, 6% driven by the ongoing mix shift towards higher margin subscription offerings.

Shelves and marketing expense was 26% of revenue as compared to 24% in the second quarter of 2021.

The year over year increase was driven by our marketing presence at the Con Lion event, where we showcased our <unk> content and capabilities along with additional sales head count to support the future growth of our enterprise channel.

Product development as a percentage of revenue increased to 8% in the second quarter compared to 6% in the second quarter of 2021, driven by further investment in our product roadmap.

G&A expenses were 16% of revenue consistent with the second quarter of 2021. However, they included $3 9 million of transaction expenses associated with the PON, five and splash acquisitions offset by lower noncash compensation expense.

Excluding transaction expenses associated with mergers and acquisitions and noncash compensation expense G&A was 13% of revenues evidenced in the operating leverage we are experiencing.

Adjusted EBITDA margins were 23, 7% down 400 basis points from last year, driven by additional spend in sales and marketing and the $3 9 million of M&A transaction expenses previously mentioned.

Adjusted for the transaction expenses adjusted EBITDA margins were 25, 5% for the second quarter.

Year to date, our adjusted EBITDA margins are 25, 6% and above the high end of our margin guidance, even inclusive of the transaction expenses. We included in the EBITDA associated with M&A.

In the second quarter GAAP diluted earnings per share was <unk> 53, and.

And adjusted diluted earnings per share was <unk> 83.

Turning to our balance sheet and cash flows at the end of the quarter, we had $84 million of cash as a result of our acquisitions upon five for $210 million and splash news for $6 million in the quarter.

In connection with the <unk> five acquisition, we also drew down $50 million on our revolver depend.

Depending on further acquisitions. This year, we may elect to pay down the revolver in the quarters to come.

We sustained our share buyback program in the second quarter, taking advantage of the weak market conditions, and repurchased 286700 shares for $18 million.

As a result, our total shares outstanding decreased by 157000 shares from the first quarter to 36 million shares at the end of the quarter, we've repurchased $57 million of shares year to date.

Our deferred revenue balance was $178 million increased $16 million from the second quarter of 2021, representing year over year growth of 10%.

Adjusting for the acquired deferred revenue from pick monkey in PON five deferred revenue grew 2% year over year.

Our deferred revenue balance was unfavorably impacted by FX as current bookings are converted to dollars at the lower foreign exchange conversion rates.

On our key operating metrics for the quarter subscriber count increased by 15%.

Subscriber revenue increased by 8% and subscriber revenue represented 41% of revenues down from 43% in the previous quarter.

The addition of <unk> revenue, which is a non subscription business accounted for the entirety of the decline in subscription revenue as a percentage of total revenues.

Average revenue per customer increased by 1%.

On both a year over year and sequential basis paid.

Paid downloads were down three 3% and revenue per download increased to $4 46 per download.

Turning to our guidance for the full year, we are maintaining our 2022 guidance of 8% to 10% revenue growth with margins flat to up 50 basis points compared to last year.

There are multiple factors that taken together have us maintaining our guidance forecast for the full year.

For example, with respect to currency the euro and pound represent approximately 27% of Shutterstock revenues and both currencies have depreciated by 10% to 12% year to date.

At current spot rates. This depreciation represents a 4% headwind to our full year revenues and a substantial increase compared to the 2% headwind we forecast based on spot rates at the beginning of the year.

As such we now estimate that FX will be approximately a $30 million headwind to revenues. This year, assuming current spot rates carry forward for the remainder of the year and we are fully factoring that into our guidance.

We're also factoring in an additional 1% or $8 million reduction in revenues from Russia were $38 million in total.

The estimated contribution upon thoughts at approximately $4 million of revenue per month.

Somewhat offset this impact as well as the ongoing strong performance, we are seeing in our enterprise channel.

Based on the current macroeconomic uncertainty we are not assuming in our guidance any acceleration of growth rates in the back half of the year and e-commerce or enterprise.

We are factoring in a continuation of the current softness with no significant changes in customer spend behavior on content and digital marketing.

In conclusion, we remain focused on continuing our evolution into a creative platform by integrating tools workflow and data applications into a leading content marketplace were.

We're making strong progress on integrating our recently announced acquisitions and.

And we are investing for long term growth. Despite the current macro uncertainties, while delivering on our stated targets for 8% to 10% revenue growth combined with annual margin expansion in 2022.

And with that operator, we'd now like to open the call for any questions.

As a reminder to ask a question you will need to press star one one on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.

Our first question will come from Bernie Mcternan with Needham <unk> co. Please go ahead.

Good morning, Thanks for taking the questions maybe.

Maybe to start for Paul your prepared remarks, you spoke about the importance of content being the moat for the company.

Just maybe dive in what gives you confidence that content back the moat and how is the competition other it would be other stock operating peers free options or AI Big Springs.

Great. Thanks for the question Brian .

It's simple the way I look at it we've.

We've got the.

The leading position in contributors.

Leading positioning in.

<unk> content acquisition, we've done some acquisitions to further bolster our position in content and we understand that.

Getting the right content.

And putting it in front of our customers so that they can actually convert better drive the flywheel forward. So what we see is when as we map these assets.

It ultimately drives conversion and then what I'd say is and then when you add.

Creative flow tools to help our customers further engage with that content.

That engagement increases so again you get this very very positive flywheel of content.

Driving conversion tools driving engagement with content and then that driving underlying growth. So that's really how we think about it.

Yes. It makes it makes a lot of sense and then for Jared.

$38 million of the guide for in total for <unk> in Russia, and then Pan five probably adding $28 million of revenue. This year. So does that imply that the core business is doing better than expected relative to the prior guide or any other moving pieces that we're thinking about.

Bernie look I think it's a little bit of a tale of two cities I mean, if you look at the numbers and you look at what's going on in enterprise I mean, this is really a tremendous performance.

It's the sales team, that's executing strongly and firing on all cylinders at the SMB business that is growing rapidly on the back of some of the flex family of solutions, we introduced the middle of last year.

We're doing a phenomenal job of selling through exclusive and editorial content as well as.

Seeing a lot of success with our large enterprise clients with our studios offering.

So I think from from Pollinize perspective, we couldnt be more pleased about what we're seeing in enterprise both year to date as well as our prospects for the remainder of the year and that does give us confidence in our in our guidance and I think.

At this point in time, it's fair to say, we've seen some great outperformance across multiple aspects of our enterprise business.

On the E Commerce side, I think getting back to strong growth is clearly taking longer than we would like we sort of peel back the onion for investors and gave folks at peak.

We'd like to be at mid to high single digit revenue growth on an organic reported basis at this point in time.

We're just not there and so I think we're very focused on that we're focused on new customer acquisition. We are focused on isolating some of the geographic impacts.

One of the things I would call out Bernie is if you look at the growth by Geo you can see some of the weakness in Europe and you can also see some of the strength that we're seeing in North America, and the U S and so we're going to.

Later, those strengths and continue to focus on reinvigorating the growth in e-commerce, while taking advantage of the successes that we're seeing in enterprise.

Got it and then just lastly for me margins were lower than we and I think the rest of the street were expecting a quarter, but you reiterated the guidance for the year things that we should think about in terms of that maybe there was elevated investment levels in the quarter or think about margins.

In the second half.

Yes, so Bernie the thing we probably should have put this out in our in our public release, but what we called out was $3 $9 million of transaction expenses in.

In the quarter itself. If you back that out we would have been above 25, 5% margins for the quarter and our year to date margins, even including that $3 9 million.

Onetime transaction expense or above the top end of the year to date year to date of the guidance.

So.

It really is kind of that onetime transaction fee and this is sort of lawyer fees and banker fees associated with our deals.

So we feel good about the guidance, we feel good about the margins.

And if you look at our business, where we were really up in terms of year over year cost was in the sales and marketing line and we made a big splash at Con lie in this year, we had a tremendous presence with our <unk> offering.

And we really feel like that made a lot of headway towards elevating the brand and moving us in the right direction in the Hearts and minds of our enterprise customers with whom we're seeing a lot of success with today.

Understood. Thanks for the color.

Thank you and one moment for our next question.

Okay.

Our next question will come from Andrew Boone with JMP Securities. Please go ahead.

Good morning, and thanks for taking my questions.

Can we parse I guess bonnie's question, a little differently can you guys talk about the various underlying customer segments.

Where there may be strength or weaknesses across consumers F&B agencies.

Maybe more of the end market that you guys serve.

Andrew.

Have you kind of take a step back and look at Shutterstock. Historically, we've been a marketplace that has served the needs of professional creators.

Whether they be enterprise marketers, whether they be.

Creatives that are working.

For businesses and Thats really been sort of the bedrock of our audience.

Focus and where we really have a tremendous amount of.

Brand recognition and notoriety in the market.

And that we expect we will continue to be there and you can see some of that today with the tremendous success that we're seeing in enterprise.

We have continued to focus on SMB as an opportunity for growth within enterprise and that is.

Both companies that are small businesses, so think of 5% to 20 employees all the way up to medium size businesses that can be two to 500 employees.

Again tremendous amount of success that we've seen in the market and when you look at our $2 2 million customers, that's really the bedrock of whom we are selling to.

The opportunity that we sort of identified a couple of years ago that we've been capitalizing on and we have plans to further capitalize on is.

This idea that anyone can be creative in the marketplace and we started that journey by initially launching smaller subscription. So if you think back to 2020, we started focusing very heavily on our 10 image per month subscription.

We introduced two small video subscriptions of five per month in a 10 per month video subscription and we also unveiled two new music subscriptions.

Premium beat subscription on an unlimited shutterstock music subscription really to cater towards the needs of some of these small business owners, who may not be professional creators and so sometimes the referred to as a solo printers or they may be referred to as casual creatives.

The next big play into that audience is really what we are executing on today, which is with the launch of create a flow, but also the launch of creative <unk>, plus which is the 12 99 tools first template driven design tools subscription that we just launched <unk>.

Well aware of some of the competition in this space. There's two large players that have really created a large runway for designed tool subscription that we just launched <unk>.

You'd be well aware of some of the competition in this space. There's two large players that have really created a large one runway for growth and we feel like this is a tremendous untapped opportunity for us.

Tap into a group of people, who are not professional designers, but theres, a very long tail of these potential customers.

And we feel like that's going to create a tremendous runway for growth. We feel like these people may eventually become professional creators and so we'll have the ability to grow with them as their content needs grow. So this is both an audience acquisition strategy for us to expand the Tam as well as we believe our retention strategy as we grow with these <unk>.

Clients may become professional creators from the casual creatives that we are today. So that's broadly speaking how we're thinking about where we were vis vis the audience segmentation and kind of where we are and where we're where we're going.

That's helpful. Thanks.

And then secondly on Splash you guys are now clearly more established with editorial can you talk about the future of editorial and how youre leveraging just a larger editorial base and what that looks like over the next couple of years. Thanks, So much guys.

Yes, maybe I'll take that one.

We're absolutely committed to the editorial space.

And whether that's acquisitions like splash.

Bolstering our team to be deep deeper and more engaged in the editorial side of our business.

Or just even.

Acquiring.

Exclusive content to further bolster that area like we've done of late.

I think that's just a critical.

Leg of our of our strategic stool to balance out not only what we've talked about on on content and all of the customer segment that Jared talked about but <expletive> by providing the position of shutterstock to be the place for our content and by elevating our.

Rand from what was maybe a position of leader in just stock photo.

To now a leader in all things content and tools for creators we become the one stop shop as a full end to end full service created platform and editorials that big part of that.

I think those are those are those are great points and there clearly is for us.

On a competitive opportunity to really take share in an editorial Andrew two things I would call out, which I'm not sure if people fully recognize but PON five had a strong editorial video presence. So we did not prior to upon five have a presence in editorial video with <unk> five we do now have that prep.

And editorial and video is a tremendous opportunity.

The other pieces the way we have gone to market with editorial previously was what you would think of as a buy activity approach.

Customers would come that identifying individual assets that they want to acquire and then they would pay us for that asset and we would share that with the publisher.

There is a tremendous opportunity and editorial subscriptions, where customers engage with us on a more recurring basis in recognition of the exclusive editorial content that we have available with our archive growing the way it is with our existing editorial presence with the splash.

<unk> room, offering splash gives us that opportunity to sell editorial subscriptions, we did not have that capability in our platform previously and the technology platform that Splash springs brings us that ability to sell editorial subscriptions, which in and of itself. When you combine that with editorial video.

This is a tremendous opportunity for us there's a long runway for us and while this is not huge as a percentage of our revenue. This is clearly an area, where we see a competitive opportunity for us to approach.

Thanks, guys.

Thank you one moment for our next question.

That will come from the line of Youssef Squali with <unk>. Please go ahead.

Great. Thank you good morning, everyone.

Couple of questions from me, maybe starting with you Paul.

Obviously.

On the <unk>, so the CEO position may be new to but <unk> been on for many years I was wondering if maybe you can share with us any meaningful kind of changes or any meaningful kind of differences you see in.

How are you.

Iran Shutterstock versus your predecessor.

And I guess related to that I think in your prepared remarks, you need.

We need to invest in growth.

How do you see.

Two the expected improvement in margins that the company has kind of committed to delivering year in and year out and I have a follow up.

Yeah.

First of all.

Let me, let me start with.

I've worked for for our businesses that in the past.

<unk>.

Required.

Accelerated growth two to get the unit economics required in those businesses and that just required rapid and aggressive scale.

What I see here at Shutterstock is that.

I've inherited an incredible balance sheet and a business that that kicks off cash earnings and strong margins.

So I plan to continue that trend of growing our business profitably.

With over the long term.

Expanding margin.

Might there be variability as we invest in.

Near term opportunities that expand the platform expand our revenue growth.

But ultimately lead to long term EBITDA and EBITDA margin growth.

Certainly and so there's a lot of pattern recognition that I see from it from a variety of industries that I bring to bear.

But shutterstock is so well positioned because of its balance sheet and because of it both human capital and asset and all of the assets that I talked about on the call from contributors to the actual content to the marketplace itself to the new tools that we're launching two its editorial framework.

And that scaling enterprise business.

Again, there's a lot of opportunity for growth when I talked about investing for growth in our channels.

We're going to obviously make sure that our core continues to be healthy and.

And in places, where we see now new opportunities again, we talked a lot about enterprise.

There are large scale customers that want what we have.

And we're going to enable that and we're going to enable that bath, because as we enable that quickly that widens and deepens our competitive moat. So that's really what I mean, but we will be responsible stewards of our investors' capital and the capital that we kick off from our business and again, we will stay the course.

In terms of delivering high value for our shareholders.

And long term margin expansion.

Okay.

And then Jared.

I look at sales and marketing for the first half of the year. It showed.

Some.

Efficiency decline I was wondering how much of that is just related to these new initiatives.

You've talked about.

How much maybe also related to competition, particularly as getting now has.

As public currency et cetera, what's your expectations for the second half.

So our expectation for the second half is not too different from the performance that we've seen in the first half of the year with respect to our channels and with respect to our business performance.

There's a lot of macro uncertainty out there.

We are not factoring into our guidance sort of a rebound if you will or have come down in <unk>.

Cost and efficiency with respect to sales and marketing in the back half of the year.

Nothing like that needs to happen for us to meet or beat our numbers in the second half of the year.

This is an industry that is very competitive.

This is an industry where.

Prices are very well understood and well publicized by our customer base and so what is absolutely critical for us is to add underlying value to the content subscription when.

When you look at creative flow and you look at the value that we are now giving to a subscriber of shutterstock, where we're giving them not only creation tools and bundling that into the content subscription, but the ability to catalog assets the ability to predict what assets are going to perform the ability to calendarize and collaborate with their colleagues.

We think that fundamentally we are improving the value prop and over time, that's a better product market fit which will lead to greater customer retention and have an impact on the growth of our business that is our play is really add value to the customer and eventually the customer will add value to us as a business and so.

It is really early days you said I mean, we just rolled this out to our customers in the second quarter.

We just rolled out the standalone creates literally last week.

This is the culmination of a.

Year, and a half of work around the strategy and so we're we're really excited to see the results and we're really excited to start marketing. This we really haven't started to market. This value proposition this enhanced value proposition to our customers. So we think theres a great opportunity in front of us to be able to do so.

Got it okay. Thank you both.

Thank you as a reminder, if you have a question at this time. Please press star one one keys on your Touchtone telephone.

One moment for our next question.

Our next question will come from Nat Schindler with Bank of America. Please go ahead.

Yes, I just Wanna.

See if you could walk through what has happened in the past in a possible add a recession affecting advertising with your business and how your broadening of both your customer base and your media types will change.

How you are affected.

Sure I'll start and I think.

Paul will Paul a follow up I think from our experience there has been sort of two periods of.

Dislocation that have happened in the market you can think about sort of the recession around the time of the mortgage crisis.

In 2008 2009.

And more recently you can think about the pandemic.

In the first and second quarter of 2020 and both of those examples saw significant declines in economic activity and some dislocation in digital AD spend and in digital advertising now if you track back to 2008 2009 shut.

Our stock was a smaller company at that point in time.

Disruptor in the industry and there were significant share gains that were taking place that we're accruing to shutterstock. So in that specific example, despite a recession shutterstock was able to grow very very strongly. So I think you almost need to kind of push through that and kind of fast forward to the.

Point in time, where we are at $850 million leader as we are today.

If you look to the first and second quarter of 2020, when economic activity really came to a standstill.

The business was down a percent in house and each one of those quarters. So I think it did show a resiliency.

That existed.

And.

When you think about stock as a component of overall digital AD spend keep in mind. The vast majority of the economics accrue to the large platforms.

And so when you think about a cutback on a particular campaign, we don't necessarily believe that stock in the first place that cost out happens.

So let me turn it over to Paul to give his perspectives on how we would kind of react to.

Volatility in the.

The market.

Yeah.

Thanks, Sharon the way the way that we think about it is this business has all of the dials and levers for us to be able to.

Control our own destiny.

We've got we've got our hands on our marketing spend and so that's ultimately quite variable and so we can we can manage that we've got our hands on our hiring which is obviously a large expense in our business and we can dial that in as appropriate depending on how long or if there is.

A particular at recession, or a recession broad broadly or or globally, and the very nature of our business in the way that we.

Our contributors and and run our business.

It's essentially essentially on a revenue share basis, and so we don't have to prepay.

Or get ahead of our skis and any kind of economic environment that could put our business in harm's way. So one we're just going to be able to manage our business very well through even what could be approached tracking.

Potentially protracted periods of time.

I think Jerry talked about we're not the first advertising to go right. We are critical to any level of creative and so while media spend aggregate tonnage of media spend may shrink.

The underlying content that create the media is what Shutterstock has to offer and then finally, what I'd say is if you track us over time.

Going from predominantly photos to now music video.

Three D again, an expanded sales force is now appealing to the largest companies in the world.

We differentiated our business by the way I would add to that and content tool that allow our creators to better execute and engage with our content all of that Diversifies. Our platform de risks our platform and takes away volatility that you might see in a business that could have been or was any.

Italy purely stock photo.

Okay.

Great. Thank you.

Thank you.

And im showing no further questions in the queue at this time I would now like to turn the call back over to Mr. Paul Hennessy for any closing remarks.

Great. Thanks to all for joining us today and I just like to thank all of our contributors our customers and our employees.

And look this ends our call for today. Thanks, so much.

This concludes today's conference call. Thank you for participating you may now disconnect.

We will begin shortly to raise Johan during Q&A you can dial one one.

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Good day and welcome to the Q2 2020 to Shutterstock, Inc. 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 to ask a question. During this session you will need to press star one one on your Touchtone telephone. Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker, Mr. Chris <unk>, Vice President Investor Relations and corporate development.

Please go ahead.

Thanks Ray.

Good morning, everyone and thank you for joining us for Shutterstock second quarter 2022 earnings call joining us today as Paul Hennessy, Shutterstock, Chief Executive Officer, and Jared is Shutterstock Chief Financial Officer.

Please note that some of the information you are during our discussion today will consist of forward looking statements, including without limitation. 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 they acquired into our exists.

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.

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-Q.

I would now like to turn the call over to Paul <unk>, Chief Executive Officer.

Thanks, Chris Good morning, everyone and welcome to our second quarter earnings call.

I'd first like to start by conveying my gratitude to my fellow colleagues at Shutterstock for helping me get immersed in the business. So quickly and seamlessly as many of you are aware now approaching the end of my first month as Shutterstock CEO I find myself energized by the passion and bias for action permeating throughout the organization and the opportunity to serve.

Our customers I also look forward to engaging with those of you on the investor community in the weeks and months ahead.

Of some of the strategic priorities I feel maybe untapped opportunities for Shutterstock in the years ahead.

Key assets and capabilities that make shutterstock. So unique include.

The leading content marketplace with superior depth and breadth across all categories.

Our recently introduced created flow platform.

Our unique offering of content data and production solutions to large enterprises, and small and medium size businesses.

And an extremely talented team able to execute on a range of exciting opportunities that lie ahead.

The bedrock of Shutterstock has always been our content marketplace with industry, leading depth and breadth across content types.

We have invested heavily in our content and technology stack, both organically and via acquisitions and we'll continue to do so for example over the past several years, we've acquired the world's largest <unk> model market placement of turbo squid, the world's largest video first marketplace in PON five.

And we've been adding to our editorial and exclusive content. Most recently with the acquisition of Splash news.

Our marketplace is particularly well positioned to thrive in a rapidly evolving environment such as the <unk> with our <unk> model and recently added meta versus ready sound effects content.

Put things in perspective on our marketplace $2 1 million customers purchase content from our community of $2 2 million contributors.

Distributor base that is larger than our nearest competitor by four X.

What this means in real terms is that we have the freshest content from around the world with five to 10 million assets being added every single quarter.

Our content library is by far the largest and deepest by a significant margin with 484 million creative and editorial images.

In video we are larger than the next player by a factor of <unk>, including <unk> five and.

And we have more three D models on our marketplace than any other competitor.

In addition to scale ease of content discovery ability and a robust ingestion process further differentiate our marketplace from the competition.

In short from a customer perspective, as a result of Shutterstock extensive growing library and ability to surface the right content.

It means that Shutterstock is the go to destination for your content needs. Whether for example, you are creative professional a small business owner or a marketing professional.

In order to allow our customers to customers to more fully leverage our content shutterstock is gradually transform our content marketplace into an end to end full serve as creative platform.

We believe that customers will further benefit from the enhancements planned to the creative flow over the next several quarters.

We are truly just at the beginning stages of leveraging create a flow to enhance the way our customers do their creative work.

We believe create a flow will ultimately result in stronger engagement with our platform and lead to customer satisfaction and retention across all channels. We.

We are already seeing strong customer engagement with the platform with existing shutterstock subscribers using the platform to create and customer customize their downloaded content.

As we get more data about creative flow engagement and the downstream impacts on our business, we expect to provide additional insight and metrics to investors.

Create a flow also opens up the potential for a larger total addressable market for template driven creative design tools, thereby thereby allowing for audience expansion into the long tailed so solar printers and casual created creating a long runway for growth.

In summary, Shutterstock is well positioned to meet the varied needs of customers in a more complete way by providing that connective tissue that helps our customers transform a piece of content into performance created.

Shutterstock enterprise sales channel is another unique asset that has performed strongly and will be key to our success going forward. We are seeing exceptional traction across a range of strategic solutions that we're bringing to our customer base, both large enterprise corporations as well as F&B or.

Our sales force is truly global and we are able to deliver end to end creative solutions to customers on a scale that is unmatched by our competitors.

We're seeing strong traction at Shutterstock studios in creating short form and long form video for our customers as well as high interest in three D engagements for brands.

Including the Shutterstock archive real time, slash newsroom subscriptions to highly sophisticated global production services.

I'd like to provide a few highlights that show how all of the above is manifesting in our enterprise business.

Our studios business is increasingly winning large global deals with customers across industry like pharmaceutical and CPG with MLD that are three times greater than last year.

We're also proud of our studios work with Allergan aesthetics, which commenced in Q1.

Through this partnership Shutterstock is continuing its commitment to improve diversity.

The partnership with hundreds of real people in an effort to produce thousands of powerful and inclusive royalty free images, which will be hosted in a curated collection on the Shutterstock website later this year, making our marketplace increasingly reflective of the diverse world in which we live.

Having launched the virtual production offering we're seeing continued growth and appetite for AAR.

And meta verse activations for brands and agencies.