Q3 2023 Shutterstock Inc Earnings Call

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Good morning, ladies and gentlemen, thank you for standing by and welcome to the third quarter 2023 Shutterstock, Inc earnings Conference call.

At this time all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session.

To ask a question during the session you will need to press star one one on your telephone you didn't hear an automated message advising your hand just raised.

To withdraw your question. Please press star one again.

Please be advised that today's conference is being recorded.

I would now like to turn the conference over to your Speaker today, Chris Xu Vice President of Investor Relations and corporate development. Please go ahead.

Thanks Michele good.

Morning, everyone and thank you for joining us for Shutterstock third quarter 2023 earnings call joining us today as Paul Hennessy Shutterstock CEO, Jerry gaze Shutterstock CFO.

Please note that some of the information you'll hear 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 the 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 2023 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 Form 10-K for discussions of important risk factors that could cause actual results to differ materially from any forward looking statements we make on the 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.

Operator: Good morning, ladies and gentlemen. Thank you for standing by and welcome to the third quarter. 2023 Shutterstock Inc, earnings conference call. At this time, all participants are in a listen only mode. After the speakers presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded.

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

Thank you Chris Good morning, everyone. Thank you for joining us today, and I wish everyone a happy Halloween.

In the third quarter, Shutterstock data and creative engines fields faster growth and further the transformation of our business.

Enterprise demand picked up and we expect a further acceleration into the fourth quarter.

We are seeing seeing stabilization and are executing operationally to drive a recovery in e-commerce over the next several quarters supported by marketing and product innovation.

Operator: I would now like to turn the conference over to your speaker today.

Chris Suh: Chris Suh, vice president of investor relations and corporate development. Please go ahead. Thanks, Michelle.

On top of strong operational performance Shutterstock also delivered exceptionally strong financial performance this quarter with record revenues of $233 million representing growth of 14% year on year.

Chris Suh: Good morning, everyone, and thank you for joining us for Shutterstock's third quarter 2023 earnings call.

Chris Suh: Joining us today is Paul Hennessy, Shutterstock CEO, and Jarrod Yahes, Shutterstock CEO. Please note that some of the information you'll hear during our discussion today will consist of forward looking statements, including without limitations, the long term effects of investments in our business. The future success and the financial impact of new and existing product offerings are ability to cultivate acquisitions that 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 2023 guidance.

We continue to be highly profitable generating $65 million of EBITDA or 28% margin.

EBITDA has exceeded $60 million every quarter for three consecutive quarters and we are on track to grow EBITDA by double digits. This year.

Based on our strong year to date performance and improved confidence and visibility in our business. We are again, raising both revenue and EBITDA guidance for 2023, which Jerry will discuss in more detail.

Q3 also marked the first quarter were enterprise revenues exceeded e-commerce revenue for Shutterstock are.

Chris Suh: Absolute results or trends could differ materially from our forecast. For more information, please refer to today's press release and the reports we file will be SEC from time to time, including the risk factors discussed in our most recently filed form 10K, for discussions of important risk factors that could cause absolute results differ materially from any forward looking statements we make on the call. We'll be discussing certain non-GAF financial measures today, including adjusted EVA DAW and adjusted EVA DAW margin, adjusted net income, adjusted net income per diluted share, revenue growth, including by distribution channel on a constant currency basis, feelings and free cash flow. Reconciliation of these non-GAF measures to the most directly comparable GAF measures can be found in the financial tables included with today's press release and in our 10Q.

Our enterprise channel is posting consistent growth and in the third quarter grew 60% in total and grew 4% excluding data.

We continue to experience strong growth in subscription offerings for medium size enterprises, with our flex product, which grew 9% in the third quarter.

And we also saw strong momentum in Shutterstock studios, signing our two largest deals ever.

Studios has a strong beachhead in virtual production leveraging <unk> assets for gaming ecosystem.

We view this market opportunity is having tremendous legs is the gamification of entertainment and interactive media continues.

Strength in SMB products and studios is expected to drive accelerated enterprise growth of between 10 and 15% in the fourth quarter excluding data.

Paul Hennessy: I'd now like to turn the call over to Paul Hennessy, Chief Executive Officer. Thank you, Chris.

On the three D front, Shutterstock and Nvidia are making good progress on our generative <unk> offering and we will be testing in the fourth quarter.

Paul Hennessy: Good morning, everyone. Thank you for joining us today. I wish everyone a happy Halloween. In the third quarter, Shutterstock's data and creative engines fueled faster growth and further the transformation of our business, enterprise demand picked up and we expect a further acceleration into the fourth quarter. We are seeing stabilization and are executing operationally to drive a recovery in e-commerce over the next several quarters supported by marketing and product innovation. On top of strong operational performance, Shutterstock also delivered exceptionally strong financial performance this quarter with record revenues of 233 million, representing growth of 14% year on year.

As we communicated the outside of the partnership earlier. This year, we believe that our generative <unk> offering will lower the cost of <unk> model production and drive wider adoption across diverse use cases through simple tax to three D model generation capabilities as well as expand our library of models available for <unk>.

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Meanwhile, our ecommerce channel declined 15% on a year over year basis. In Q3 2023, we are confident that our initiatives will drive a recovery in e-commerce over the next several quarters, including marketing changes driving growth in the top of funnel traffic.

Paul Hennessy: We continue to be highly profitable, generating 65 million of EBITDA or 28% margin. Ibadah has exceeded 60 million every quarter for three consecutive quarters and we are on track to grow Ibadah by double digits this year.

Improvements in both conversion effectiveness and customer retention and the recent launch of our low cost Essentials plan, featuring unlimited content and our latest and generative AI capabilities.

As we mentioned on our last earnings call. We believe that we've underinvested in marketing in the last several quarters. We have since increased our paid marketing spend in both brand and SCM and expanded our affiliate channel with a significant new partner.

Paul Hennessy: Based on our strong year-to-date performance and improved confidence and visibility in our business, we are again raising both revenue and Ibadah guidance for 2023, which Jarrod will discuss in more detail. Q3 also mark the first quarter where enterprise revenues exceeded e-commerce revenue for Shutterstock. Our enterprise channel is posting consistent growth and in the third quarter grew 60% in total and grew 4% excluding data. We continue to experience strong growth and subscription offerings for medium-sized enterprises with our Flex product, which grew 9% in the third quarter.

As a result in October we have seen traffic growth accelerated to 9% and believe this trend of accelerated traffic growth will continue.

We have numerous future opportunities and to drive additional top of funnel traffic improvements and we'll continue to spend on marketing, which will drive growth in the fourth quarter and into next year.

Second we are seeing conversion effectiveness and retention begin to improve our conversion rates in October has improved by over 10%. We are also seeing improvements in retention of our subscription products with churn rates at their lowest point over the past three and a half years.

Paul Hennessy: And we also saw strong momentum at Shutterstock Studios finding our two largest deals ever. Studios has a strong beach head and virtual production leveraging 3D assets for gaming ecosystem. Review this market opportunity is having tremendous legs as the gamification of entertainment and interactive media continues. Strength and SMB products and studios is expected to drive accelerated enterprise growth of between 10 and 15% in the fourth quarter excluding data. On the 3D front, Shutterstock and Nvidia are making good progress on our generative 3D offering and will be testing in the fourth quarter.

We believe that we have likely given up some of the lower quality customer growth. We may have acquired during the pandemic and are now building off a more stable base of core customers.

Third we have just brought to market an exciting new ecommerce product that marries all of our capabilities in generative AI, including image generation and generative editing tools with unlimited content at an attractive price point.

Paul Hennessy: As we communicated the outset of the partnership earlier this year, we believe that our generative 3D offering will lower the cost of 3D model production and drive wider adoption across diverse use cases through simple tax to 3D model generation capabilities, as well as expand our library of models available for purchase.

<unk> stock essentials.

Other stock Essentials plan as of 999 monthly plan that is simple and low cost and target small business and casual creative customers by giving them access to our AI powered image generation and our recently launched AI powered editing tools.

Unlimited access to a library of over $3 5 million wholly owned images and.

Paul Hennessy: Meanwhile, our e-commerce channel declined 15% on a year-over-year basis in Q3 2023. We have confidence that our initiatives will drive a recovery and e-commerce over the next several quarters including marketing changes, driving growth in the top of funnel traffic, improvements in both conversion effectiveness and customer retention. And the recent launch of our low cost essentials plan featuring unlimited content and our latest in generative AI capabilities. As we mentioned in our last earnings call, we believe that we under invested in marketing in the last several quarters.

And the discount on our premium tier of images and other content types.

In addition to essential serving as a customer acquisition product. We believe there is an opportunity to serve the evolving need of our customers by Upselling and cross selling higher priced premium images videos music and <unk> assets to these essentials customers.

We also launched creative AI, our generative AI powered editing suite last week, which will be included in Shutterstock Essentials plan.

As a result customers can both generate new images and use AI powered tools to edit any pre existing images to make stock their own <unk>.

Paul Hennessy: We have since increased our paid marketing spend in both brand and SEM and expanded our affiliate channel with a significant new partner. As a result, in October we have seen traffic growth accelerate to 9% and believe this trend of accelerated traffic growth will continue. We have numerous future opportunities in SEO to drive additional top of funnel traffic improvements and will continue to spend on marketing which will drive growth in the fourth quarter and into next year.

Create and buy AI includes five generative features that are on par with or better than anything available in the market today.

Our magic brush function to modify a specific portion of an image.

<unk> variations to quickly generate lookalike alternatives zoom.

Zoom out a function to generate a wider lens perspective.

Smart resize, our to ensure components of image are correctly proportionate to each other and a background remover.

Paul Hennessy: Second, we are seeing conversion effectiveness and retention begin to improve. Our conversion rate in October has improved by over 10%. We are also seeing improvements in retention in our subscription products with churn rates at their lowest point over the past three and a half years. We believe that we have likely given up some of the lower quality customer growth we may have acquired during the pandemic and are now building off a more stable base of core customers.

In terms of generative AI image generation through our collaboration with open AI Shutterstock has priority access to the latest technology, including Dolly <unk> III and our teams are finding the preliminary results best in class.

As a result of improving quality and a shift in the marketplace. We believe that monetization is in sharper focus across image generation editing platform and.

Paul Hennessy: Third, we have just brought to the market an exciting new e-commerce product that marries all of our capabilities in general AI including image generation and generative editing tools with unlimited content at an attractive price point. Shutterstock Essentials. Shutterstock Essentials plan is a $9.99 monthly plan that is simple and low cost and target small business and casual creative customers by giving them access to our AI powered image generation and are recently launched AI powered editing tools, unlimited access to a library over 3.5 million holy owned images and a discount on our premium tier of images and other content types.

Shutterstock is positioned to benefit as the ecosystem starts to change more for license of all high quality images.

Beyond our e-commerce and enterprise content businesses I'd like to discuss two of the most exciting growth areas and giffy and in data both of which are important parts of our strategy.

To remind investors giffy is a scaled content platform that sits at the intersection of personal communications and shared moments revolving around events and emotions.

Enjoys massive audience reach and generate billions of monthly impressions through over 14000 API partners.

All of this translates into a unique and exciting opportunity for brands.

Paul Hennessy: In addition to Essentials serving as a customer acquisition product, we believe there is an opportunity to serve the evolving need of our customers by upselling and cross selling higher price premium images, videos, music and 3D assets to these essential customers. We also launched Creative AI, our generative AI powered editing suite last week, which will be included in Shutterstock Essentials plan. As a result, customers can both generate new images and use AI powered tools to edit any pre-existing images to make stock their own.

To that end <unk> is now officially open for business and we are up and running with our first customers on the AD platform with multiple other proposals out.

We are seeing strong receptivity by brands in CPG retail food and beverage and financial services.

The idea that <unk> content is something you share rather than something you skip has strong residents with these advertisers we expect exciting developments for <unk> in the quarters to come as advertiser interest in the platform grows and we scale our ability to execute on customer campaigns.

Paul Hennessy: Creative AI includes five generative features that are on par with or better than anything available in the market today. A magic brush function to modify a specific portion of an image, automated variations to quickly generate look alike alternatives, a zoom out function to generate a wider lens perspective. A smart resizer to ensure components of image are correctly proportionate to each other and a background remover. In terms of generative AI image generation through our collaboration with open AI, Shutterstock has priority access to the latest technology, including dolly tree and our teams are finding the preliminary results best in class.

Turning to data. It is now clear the data sales for AI and ml model training is an explosive growth opportunity for shutterstock.

Scraping proprietary data to change to drain generative AI models for commercial application is now universally recognized as an unsustainable business tactic, it's fraught with legal financial and Reputational challenges.

This plays to Shutterstock strengths, because we offer ethically sourced and licensed Apple metadata at unique scale across media, including images video music and three D.

Paul Hennessy: As a result of improving quality and a shift in the marketplace, we believe that monetization is in sharper focus across image generation and the editing platform. And Shutterstock is positioned to benefit as the ecosystem starts to change more for licenseable high quality images.

The scale and quality of our data is evidenced by our incredible roster of customers and partners.

This quarter I am pleased to report, we have signed a new multiyear deal with Amazon.

As well as expanded relationships with multiple existing strategic customers.

Paul Hennessy: Beyond our e-commerce and enterprise content businesses, I like to discuss two of the most exciting growth areas in GIFI and in data, both of which are important parts of our strategy. To remind investors, GIFI is a scaled content platform that sits at the intersection of personal communications and shared moments revolving around events and emotions. It enjoys massive audience reach and generates billions of monthly impressions through over 14,000 API partners. All of this translates into a unique and exciting opportunity for brands.

Our customers have reviewed our data in detail conducted extensive due diligence and evaluation testing and ultimately decided that shutterstock was the key partner from which to source. This critical ingredient for their AI needs.

Thus far we've had tremendous success in working with the world's largest technology platforms, but we believe the next tier of potential customers, who are looking to train their own proprietary generative AI model and build applications will require a different approach to consumption and distribution.

Paul Hennessy: To that end, GIFI is now officially open for business and we are often running with our first customers on the ad platform with multiple other proposals out. We are seeing strong receptivity by brands in CPG, retail, food and beverage and financial services. The idea that Giffy's content is something you share rather than something you skip as strong residents with these advertisers. We expect exciting developments from Giffy in the quarters that come as advertiser interest in the platform grows and we scale our ability to execute on customer campaigns.

In closing we are seeing some really encouraging signs across our business our future engines of growth and Giffy and data are showing extremely strong demand.

Our E Commerce business is stabilizing and we expect recovery over the next several quarters and.

In our enterprise business picked up and is expecting an even stronger finish to the year.

We have some exciting new products that will be rolling out in the fourth quarter, and we see tremendous potential future upside in our business with our creative and data engines, taking the lead in Shutterstock transformation.

With that I'll turn the call over to Jared.

Thank you Paul and good morning, everyone.

Paul Hennessy: Turning to data, it is now clear that data sales for AI and ML model training is an explosive growth opportunity for Shutterstock. Scraping proprietary data to chain to drain generative AI models for commercial application is now universally recognized as an unsustainable business packet. It is fraught with legal, financial and reputational challenges. This plays the Shutterstock strength because we offer ethically stores and licenseable metadata at unique scale across media, including images, video, music and 3D.

<unk> reported an exceptionally strong third quarter with revenues of $233 million and revenue growth of just over 14% a record quarter and well beyond our expectations.

Q3, adjusted EBITDA was $65 million with 20% margins showcasing the strong profitability of our business.

The enterprise channel was up 60% in the third quarter driven by revenue from our data engine, which grew to 46 million a record performance and driven by our recent win with Google as well as a new win with Amazon.

We are in the process of booking an additional $40 million in total contract value with multiple new and existing data customers.

Paul Hennessy: The scale and quality of our data is evidenced by our incredible roster of customers and partners. This quarter, I am pleased to report we have found a new multi-year deal with Amazon, as well as expanded relationships with multiple existing strategic customers. Our customers have reviewed our data in detail, conducted extensive due diligence and evaluation testing and ultimately decided that Shutterstock was the key partner from which source is critical ingredient for their AI needs.

On these new bookings, we are structuring our deals in a manner that will result in more consistent quarterly revenue recognition over an extended period of time.

And so while the new bookings will not impact 2023.

Most of the revenue will flow into 2024 and beyond.

Over time this approach creates a more significant bookings backlog.

Greater visibility and predictability and ultimately a more scalable and sustainable data business.

Paul Hennessy: Thus far, we have had tremendous success in working with the world's largest technology platforms, but we believe the next year potential customers who are looking to train their own proprietary generative AI model and build applications will require a different approach to consumption and distribution.

Our enterprise channel growth, excluding data was driven by strong 9% growth from flex subscriptions as well as gift <unk> starting to ramp up.

As Paul mentioned, we expect revenue growth to accelerate further into the fourth quarter to 10% to 15% based on some landmark wins at <unk> Studios and overall bookings momentum.

Paul Hennessy: In closing, we are seeing some really encouraging signs across our business. Our future engines of growth in GIFI and data are showing extremely strong demands. Our e-commerce business is stabilizing and we expect recovery over the next several quarters. Our enterprise business picked up and is expecting an even stronger finish to the year. We have some exciting new products that will be rolling out in the fourth quarter and we see tremendous potential future upside in our business with our creative and data engines taking the lead in Shutterstock's transformation.

The growth of our creative and data engine. So we discussed at our Investor Day in February is clearly accelerating and positively impacting our enterprise channel.

Our E Commerce channel was down 15% in the third quarter as Paul discussed we are seeing stabilization in the business and expect a recovery in the quarters to come based on current initiatives.

Subscriber revenue was up for the quarter with subscriber counts slightly down, but having stabilized sequentially, indicating that new customer additions and customer attrition are beginning to match and.

Jarrod Yahes: With that, I'll turn the call over to Jared. Thank you, Paul. And good morning, everyone.

Jarrod Yahes: Shutterstock reported an exceptionally strong third quarter with revenues of 233 million and revenue growth of just over 14 percent, a record quarter and will be on our expectations. Q3 adjusted EBITDA with 65 million with 28 percent margins showcasing the strong profitability of our business. The enterprise channel was up 60 percent in the third quarter driven by revenue from our data engine which grew to 46 million, a record performance and driven by our recent wind with Google, as well as a new wind with Amazon.

And a meaningful improvement from the past several quarters. We've also seen improvements in churn rates and we believe that many of the cohort of customers that came into the business in 2021 have left the business, resulting in a more durable base of customers. We expect the fourth quarter revenues and e-commerce to be stable sequentially.

<unk> reversing the recent trends that we've seen.

Reported gross margins declined by just over 1% driven by higher royalties related to revenue generated through data cells noncash M&A amortization and giffy retention compensation.

Jarrod Yahes: We are in the process of booking an additional $40 million in total contract value with multiple new and existing data customers. On these new bookings, we are structuring our deals in a manner that will result in more consistent quarterly revenue recognition over an extended period of time. And so, while the new bookings will not impact 2023, most of the revenue will flow into 2024 and beyond. Over time, this approach creates a more significant bookings backlog, greater visibility and predictability, and ultimately a more scalable and sustainable data business.

Give your retention compensation had minimal net cash impact of shutterstock in the quarter as these costs were reimbursed.

Sales and marketing expense in the third quarter was 24% of revenue compared to 23% of revenue in the third quarter of 2022.

We expect full year marketing spend of 25% consistent with 2022, as we dial up performance marketing spend and our E Commerce sales channel significantly in the fourth quarter.

Sales and marketing spend in the fourth quarter is expected to be at least $10 million higher than Q3 with additional spending on branding and SCM.

Jarrod Yahes: Our enterprise channel growth, excluding data, was driven by strong 9% growth from flex subscriptions, as well as giffy starting to ramp up. As Paul mentioned, we expect revenue growth to accelerate further into the fourth quarter to 10 to 15 percent based on some landmark wins at Shurstock Studios and overall bookings momentum. The growth of our creative and data engines that we discussed at our investor day in February is clearly accelerating and positively impacting our enterprise channel.

As Paul mentioned with conversion effectiveness up this gives us the opportunity to spend further to grow our business.

Product development was 12% of revenue compared to 9% of revenue in the third quarter of 2022.

Nearly all of the increase is due to give you related retention compensation costs that were reimbursed. In addition to $1 5 million of severance incurred in the quarter.

G&A expenses were 16% of revenue compared to 15% in the third quarter of 2022, driven by higher noncash stock compensation costs.

Jarrod Yahes: Our e-commerce channel is down 15 percent in the third quarter. As Paul discussed, we are seeing stabilization in the business and expect a recovery in the quarters to come based on current initiatives. Subscribe or revenue with up for the quarter, with subscriber counts slightly down but having stabilized sequentially, indicating that new customer additions and customer attrition are beginning to match, and a meaningful improvement from the past several quarters. We've also seen improvements in churn rates and we believe that many of the cohort of customers that came into the business in 2021 have left the business resulting in a more durable base of customers.

<unk> cost and give your retention compensation that was reimbursed.

Stock compensation costs are higher due to greater expectations around annual performance this year.

Severance costs totaled $2 1 million as we ensure that we have the right cost structure for strong profitability going into 2024.

As an executive team, we are squarely focused on driving both revenue growth and profitability and we consistently managed costs across our expense structure.

We grew Q3, adjusted EBITDA by 15% year over year to $64 6 million.

Jarrod Yahes: We expect the fourth quarter revenues in e-commerce to be stable sequentially reversing the recent trends that we have seen. Reported gross margins declined by just over 1 percent driven by higher royalties related to revenue generated through data sales, non-cash M&A amortization, and giffy retention compensation. Giffy retention compensation had minimal net cash impact to Shurstock in the quarter as these costs were reimbursed. Sales and marketing expense in the third quarter was 24 percent of revenue compared to 23 percent of revenue in the third quarter of 2022.

Adjusted EBITDA margins were up 20 basis points year over year to 27, 7% driven by revenue growth.

This margin improvement was despite a 3% impact from deferred costs that were reimbursed in cash but included in our reported adjusted EBITDA.

We are well above where we expected from a margin perspective year to date at 29, 6% and have the flexibility to invest across our business to accelerate growth.

While we are encouraged by our margin performance year to date, we expect a more normal margin profile in the coming quarters.

Jarrod Yahes: We expect a full year marketing spend of 25 percent consistent with 2022 as we dial up performance marketing spend in our e-commerce sales channel significantly in the fourth quarter. Sales and marketing spend in the fourth quarter is expected to be at least $10 million higher than Q3 with additional spending on branding and SCM. As Paul mentioned with conversion effectiveness up this gives us the opportunity to spend further to grow our business.

Turning to our balance sheet, we had $75 million of cash at the end of the quarter.

Free cash flow was negatively impacted by customer receipts of $12 million that we received just after the quarter close and we expect cash balances to grow meaningfully into the fourth quarter on the back of record free cash flow.

Our deferred revenue balance was $203 million down from $207 million last quarter. However, the reduction in deferred revenues is largely due to amortization of acquisition balances from Giffy.

Jarrod Yahes: Product development was 12 percent of revenue compared to 9 percent of revenue in the third quarter of 2022. Nearly all of the increase is due to giffy related retention compensation costs that will reimbursed in addition to 1.5 million of severance incurred in the quarter. GNA expenses were 16% of revenue compared to 15% in the third quarter of 2022 driven by higher non-cash stock compensation costs, severance costs, and giffy retention compensation that was reimbursed.

Our focus is to amplify revenue growth and strong profitability with attractive shareholder returns.

During the quarter, we paid $10 million related to our quarterly dividend, providing a yield of over 3%.

We also repurchased 351000 shares for $15 million and with our current share repurchase authorization, we can repurchase 7% of our shares annually.

Jarrod Yahes: Stock compensation costs are higher due to greater expectations around annual performance this year. Severance costs total 2.1 million as we ensure that we have the right cost structure for strong profitability going into 2024. As an executive team, we are squarely focused on driving both revenue growth and profitability and we consistently manage costs across our expense structure. We grew Q3 adjusted EBITDA by 15% year over year to 64.6 million. Adjusted EBITDA margins were up 20 basis points year over year to 27.7% driven by revenue growth.

For the full year, we are raising our revenue growth guidance from a range of 3% to 5% to 5% to 7% and our adjusted EBITDA from a range of $227 million to 235 million to 240 million to $245 million.

Our third time, raising revenue and adjusted EBITDA guidance this year.

In the fourth quarter, we expect our enterprise channel, excluding data to accelerate to 10% to 15% growth its best performance this year.

And we expect to see stable sequential revenues in e-commerce.

We expect another strong quarter in data slightly above the quarterly revenues in the first half of the year.

Jarrod Yahes: This margin improvement was despite a 3% impact from giffy costs that were reimbursed in cash but included in reported adjusted EBITDA. We are well above where we expected from a margin perspective year to date at 29.6% and have the flexibility to invest across our business to accelerate growth.

We are increasing revenue expectations to over $100 million in.

In data revenue in 2023 up from the prior expectations of $70 million.

The increase in our expectations for growth is coming from new customers, we have signed such as Google and Amazon, but also from significant land and expand wins with multiple existing customers.

Jarrod Yahes: While we are encouraged by our margin performance year to date, we expect a more normal margin profile in the coming quarters. Turning to our balance sheet, we had 75 million of cash at the end of the quarter. Free cash flow is negatively impacted by customer receipts of 12 million that were received just after the quarter close and we expect cash balances to go meaningfully into the fourth quarter on the back of record free cash flow. Our deferred revenue balance was 203 million down from 207 million last quarter. However, the reduction in deferred revenues is largely due to amortization of acquisition balances from giffy.

Furthermore, our bookings and pipeline for next year has grown dramatically already providing us line of sight to over $60 million in revenue in 2024 from contracts that are already in place or being completed now.

And this is before 2023 is even complete.

It is clear that our data business is seeing demand accelerate dramatically.

Our EBITDA guidance factors in the significant ramp of at least $10 million in marketing in Q4, as well as $16 million per year of full year <unk> expenses that will be reimbursed, making them cash neutral for the business.

Jarrod Yahes: Our focus is to amplify revenue growth and strong profitability with attractive shareholder returns. During the quarter, we paid 10 million related to our quarterly dividend, providing yield of over 3%. We also repurchased 351,000 shares for 15 million and with our current sharey purchase authorization, we can repurchase 7% of our shares annually.

With some of the client inflows received just past the third quarter. We also expect surer start to generate record fourth quarter free cash flows.

Suffice it to say that we are excited about how the year has progressed and the demand signals we are seeing.

Jarrod Yahes: For the full year, we are raising our revenue growth guidance from a range of 3% to 5% to 5% to 7%. And our adjusted EBITDA from a range of 227 million to 235 million to 240 million to 245 million. Our third time raising revenue and adjusted EBITDA guidance this year. In the fourth quarter, we expect our enterprise channel excluding data to accelerate to 10% to 15% growth. It's best performance this year.

Our E Commerce channel is stabilizing and expect it to turn the quarter with new products and improved marketing support.

And enterprise is steadily growing at mid single digits soon to be bolstered by goofy add the <unk> AD platform that has now officially open for business.

We are excited about the dramatic uptick in demand for data from new customers as well as existing clients and the potential for the total addressable market for clean ethically sourced metadata for generative AI model training to broaden out as these capabilities become core to a range of business.

Jarrod Yahes: And we expect to see stable sequential revenues in e-commerce. We expect another strong quarter in data slightly above the quarterly revenues in the first half of the year. We are increasing revenue expectations to over $100 million in data revenue in 2023 up from the prior expectations of $70 million. The increase in our expectations for growth is coming from new customers we have signed, such as Google and Amazon, but also from significant land and expand wins with multiple existing customers.

Applications.

We are focused as a team on executing against some of these extremely exciting growth opportunities that are emerging for shutterstock in real time.

And with that operator, we'll open the line for any questions.

Thank you Adam.

Remind her to ask a question. Please press star one on your telephone and wait for your name to be announced.

To withdraw the question. Please press star one again, please stand by while we compile the Q&A roster.

Okay.

The first question comes from Bernie Mcternan with Needham <unk> Company. Your line is open.

Jarrod Yahes: Furthermore, our bookings and pipeline for next year has grown dramatically, already providing us line of sight to over $60 million in revenue in 2024 from contracts that are already in place or being completed now. And this is before 2023 is even complete. It is clear that our data business is seeing demand accelerate dramatically. Our EBITDA guidance factors in the significant ramp of at least $10 million in marketing in Q4 as well as $16 million per year, a full year get the expenses that will be reimbursed, making them cash neutral for the business. With some of the client inflows received just past the third quarter, we also expect Shutterstock to generate record fourth quarter free cash flows.

Great. Good morning, Thanks for taking the questions maybe to start Paul in your prepared remarks, it seems like.

The industry crossed a line in the sand on their attitude towards web scraped content for training purposes.

Interpreting your comments correctly and if so what really caused that change.

Yes.

I think there is a variety of reasons Bernie that.

The largest players in the industry.

Cross that ni articulated some of them in my prepared remarks.

There is brand reputation issues, there are legal and regulatory issues and I think what the largest players have found and we believe the second tier players will also find is that ethically sourced metadata lifestyle has uniquely positions us to be able to.

Jarrod Yahes: Suffice it to say that we are excited about how the year has progressed and the demand signals we are seeing. Our e-commerce channel is stabilizing and expected to turn the quarter with new products and improved marketing support. An enterprise is steadily growing at mid-single digits soon to be bolstered by Giffy ad platform that is now officially open for business. We are excited about the dramatic uptick in demand for data from new customers as well as existing clients and the potential for the total addressable market for clean, ethically sourced metadata for generative AI model training to broaden out as these capabilities become core to a range of business applications.

To meet there.

Emerging needs around AI so.

We're pleased that.

Good is winning out.

And we're pleased that we have the assets the content.

In the position to leverage that.

Understood. Thank you and then I appreciate the comments on some some of what's going on in the E Commerce platform, but would love if you could provide some more context in terms of traffic growth of 9% in the quarter conversion, 10% higher just where those kind of stand relative to historical norms.

Yeah, clearly there an improvement I think we we've told everyone about the level of experimentation, we're doing and I articulated.

Jarrod Yahes: We are focused as a team on executing against some of these extremely exciting growth opportunities that are emerging for Shutterstock in real time.

The new product launches that we're putting in testing in the market now and I think what you are in addition to by the way work that we're doing to drive incremental traffic as artistic elated in my prepared remarks, and what you find is when you are converting better you've got new products that are attractive to the customers.

Operator: And with that operator, we'll open the line for any questions. Thank you. As a reminder to ask a question, please press store 11 on your telephone and wait for your name to be announced. To withdraw the question, please press store 11 again. Please stand by what we compiled the Q&A roster.

Combined with <unk>.

Better retention overall, the business starts to trend better and Thats, what gives us confidence in calling a stabilization of e-commerce with improvement on the comp.

Bernard McTernan: The first question comes from Bernie McTernan with Needleman company. Your line is open. Great.

Understood and maybe just sorry to cut you off.

Paul Hennessy: Good morning. Thanks for taking the questions. Maybe to start, Paul, and your prepare be marked. It seems like the industry crossed a line of sand on their attitude towards web-script content for training purposes. Am I interpreting your comments correctly and if so what really caused that change? Yeah, I think there's a variety of reasons, Bernie, that the largest players in the industry have crossed that. And I articulate to some of them in my prepared remarks, there is brand reputation issues.

One other thing I would just add as we have been delivering really strong profitability year to date, we're at almost 30% EBITDA margins year to date.

That's given us the ability to invest in sales and marketing sales and marketing was up $8 million sequentially in the third quarter and we expect it to be up another $10 million from those levels in the fourth quarter. So when you are running a highly profitable business.

One of the outcomes of that is that you do have the ability to reinvest and we're doing both at the same time, we're running a highly profitable business and we're significantly reinvesting in the company.

Paul Hennessy: There are legal and regulatory issues. And I think what the large players have found, and we believe the second tier players will also find, is that ethically-sourced metadata lifestyle has uniquely positions us to be able to meet their emerging needs around AI. So we're pleased that good is winning out and we're pleased that we have the assets, the content, and the position of the leverage.

And maybe just lastly for me as a follow up there should we kind of like second half of next year at the right time to assume e-commerce can get back to year over year constant currency growth.

Yes Bernie.

It's Halloween so we're in October still we're not we're not calling the day or the month on when we we crossover.

But I am bullish on our performance and I like the trend.

Understood. Thanks for taking the questions. Thank.

Thank you.

Paul Hennessy: Thank you. And then appreciate the comments on some of what's going on in the e-commerce platform. But we'd love this. You could provide some more context in terms of traffic growth of 9% in the quarter, conversion, 10% higher, just where those kind of stand relative to historical norms. Yeah, clearly they're an improvement. I think we've told everyone about the level of experimentation we're doing. And I articulated the new product launches that we're putting in testing in the market now.

Please standby for the next question.

The next question comes from Youssef Squali with true with <unk>. Your line is open.

Great. Thank you very much and good morning, all so.

Paul on the.

Legal ethically sourced meta data topic yesterday, there since you have been.

A court case that that seem to have bias favorably the journey stability.

Paul Hennessy: And I think what you're in addition to, by the way, work that we're doing to drive incremental traffic is articulated in my prepared remarks. And what you find is when you're converting better, you've got new products that are attractive to customers combined with better retention overall. The business starts to trend better, and that's what gives us confidence in calling a, you know, a stabilization of e-commerce with improvement on the comments. And maybe just, oh, sorry to make it you off.

Art.

Their copyright case, so can you maybe just.

Comments on how that May impact.

Your view or more importantly, maybe.

The data buyers view.

Of demand and the reliance on on.

Shutterstock is.

That place with the African these sorts of metadata.

Sure and I'll tell you that the input and our thinking come from the largest players in the space. So we're having dialogue at the highest level of some of the largest companies in the world and they're giving us direct feedback about why they are buying from shutterstock and as for really for the reasons that I've articulated.

Paul Hennessy: No, Bernie, one other thing I would just add is, you know, we've been delivering really strong profitability year to date. We're at almost 30% e-baga margins year to date. That's given us the ability to invest in thousands of marketing sales and marketing was up $8 million sequentially in the third quarter. And we expect it to be up another $10 million from those levels in the fourth quarter. So when you're running a highly profitable business.

Good.

Current course cases, notwithstanding they're coming to us because we've got the goods and the goods are clean and ethically sourced and we value that input.

Paul Hennessy: One of the outcomes of that is that you do have the ability to reinvest and we're doing both at the same time. We're running a highly profitable business and we're significantly reinvesting in the company. Maybe just lastly for me as a follow up there. Should we is kind of like second half of next year, the right time to assume e-commerce can get back to you over a year, constantly currency growth. Yeah, Bernie, it's, it's Halloween, so we're in October still. We're not, we're not calling the day or the month on when we, you know, we cross over. But I'm bullish on our performance and I like the trend.

And these large companies are quite literally voting with their strategy and voting with their wallets and engaging shutterstock.

Bernard McTernan: Understood. Thanks, taking questions.

To suit their needs. So I think theres going to be a lot of emergence of multiple court cases, but there is nothing sure than the actual customers engaging with our brand.

Operator: Thank you.

Operator: Please stand by for the next question.

Okay, that's great to hear and staying on that topic for a SEC can you elaborate on your comments about.

Working on.

Here.

For customers with maybe a slimmed down version of your data deals for maybe smaller companies that cannot afford the seven or eight.

Type of deal.

Yeah, we articulated that.

There will probably be a different approach and as you as you might expect we're not going to give out the playbook, but we are in discussions and.

Youssef Squali: The next question comes from you, Seth Squally with the truest your line is open. Great. Thank you very much.

The needs of the customers the size of the customers. The the approach of the customers is different than the largest companies in the world and so you can expect shutterstock as it always does to adapt and be customer centric in the way, we put together our products and services. So we're.

Paul Hennessy: Good morning all. So Paul on the legal, ethically sourced metadata topic yesterday. There seems to have been a court case that seems to have biased favorably majoring the stability AI and even art in their copyright case. So can you maybe just comments on how that may impact your view or more importantly, maybe the data buyers view of demand and reliance on on shutter stock is that that place would be ethically sourced metadata.

We'd like to hand that we've got and we're playing it to meet the customer demand.

Alright Super helpful. I mean, maybe lastly, Derek on your Q4 guidance. If my math is correct and implies growth in the low single digit.

And margins in the low to maybe.

And the 'twenty can you just go over again the I.

I think you mentioned some of them in the prepared remarks, but maybe can you just walk through the math, there and maybe more importantly, as we look at 2024 is the assumption that we are on a year on year basis do margins go back to there.

Paul Hennessy: Sure and I'll tell you that the inputs in our thinking come from the largest players in the space so we're having dialogue at the highest level of some of the largest companies in the world and they're giving us direct feedback about why they're buying from Shutterstock and it's for really for the reasons that I've articulated current course cases notwithstanding they're coming to us because we've got the goods and the goods are clean and ethically sourced. Then we value that input and these large companies are quite literally voting with their strategy and voting with their wallets and engaging Shutterstock to suit their needs. So I think there's going to be a lot of emergence of multiple court cases but there's nothing truer than the actual customers engaging with our brand.

Most recent trend line.

Okay.

Great.

Sure. So I think Youre correct both in your overall.

Assessment on Q4, both revenue as well as EBITDA I think got EBITDA, if you sort of do the math you look at the.

Guidance for the full year and you look at the $10 million of incremental sales and marketing.

Spend you'll get to EBITDA, the low twenty's in percentage terms and I think youll get to.

Mid single digits in terms of revenue growth for the quarter.

I think this is clearly putting $10 million of incremental sales and marketing spend on the back of $8 million of incremental sales and marketing spend.

Paul Hennessy: Okay, that's great to hear. And then stay on that topic for a sec. Can you elaborate on your comments about working on next year of potential customers maybe a swing down version of your of data deals for maybe smaller companies that cannot afford the seven or eight digit type of deals. Yeah, we are calculated that there will probably be a different approach and as you as you might expect, you know, we're not going to give out the playbook, but we are in discussions and the needs of the customers, the size of the customers, the approach of the customers is different than the largest companies in the world.

Very heavy investment period for US we are doing that on the back of exceptional year to date profitability I do not think that our Q4 EBITDA margin level is sort of the stable run rate for the business that you expect going forward I think at this point if you look back on the history of the company over the last three or four years.

You've seen a very consistent focus on both revenue growth and profitability.

Would not expect that to change.

Awesome. Thank you so much.

Please standby for the next question.

The next question comes from Andrew Boone with JMP Securities. Your line is open.

Paul Hennessy: And so you can expect Shutterstock as it always does to adapt and be customer centric in the way we put together our products and services. So we're we like the hand that we've got and we're playing it to meet the customer demand.

Good morning, and thanks for taking my questions I wanted to go back about 2020 for disclosure. If you guys had in terms of about $6 million. It sounds like revenue from new data contracts will be more of a occurring going forward can you just give us more details there and talk about maybe the trade offs are recognizing more revenue upfront.

Jarrod Yahes: All right, super helpful. I mean, maybe lastly, Jared, on your Q4 guidance, if my math is correct and implies growth in low single digit and margins, when go low to maybe 18 and the 20s, can you just go over again. And I think you mentioned some of them in the prepared remarks, maybe can you just walk through the math there and maybe more importantly, as we look at 2024, is the assumption that we're on here on your basis, do margins go back to their, you know, most recent trend model.

<unk> a long day thank.

Thank you.

Sure Andrew so.

Theres two disclosures that we made in our prepared remarks that our I think.

Incremental and helpful. One is beyond the two new customers that have been driving in year revenues. There was about $40 million of total contract value of pipeline that is either booked or in the process of being booked that will largely contribute to revenues in both 2024 and beyond.

And so we have line of sight today into at least $60 million of revenue in 2024, and that's really before we end the year and continue to sell and deliver in 2020 for itself. So we're clearly in a very good position to continue to build this business and build it from a position of strength.

Jarrod Yahes: Sure, so I think you're correct both in your overall assessment on Q4 both revenue as well as EBITDA. I think EBITDA, if you sort of do the math, you look at the guidance for the full year and you look at the $10 million of incremental sales and marketing spend, you'll get to EBITDA on the low 20s and percentage terms and I think you'll get to mid single digits in terms of revenue growth for the quarter.

Stability.

Whenever you transition from a perpetual license deal to more of a ratable revenue recognition model there can be an impact on revenue growth, we've seen that with other companies over the years, but we do believe that this is a model that will create greater visibility for Shutterstock. We think it's a model that we'll be able to invest.

Jarrod Yahes: You know, I think this is clearly putting $10 million of incremental sales and marketing spend on the back of $8 million of incremental sales and marketing spend a very heavy investment period for us. We are doing that on the back of exceptional year-to-day profitability. I do not think that our Q4 EBITDA margin level is sort of the stable run rate for the business that you expect going forward. I think at this point, if you look back on the history of the company of the last three or four years, you've seen a very consistent focus on both revenue growth and profitability, I would not expect that to change.

<unk> behind because we will have a much greater sense of the forecast ability of the business and where we are and I think this trend towards a greater number of smaller customers will also benefit our ability to forecast and have visibility in this business. So I think this is part of the natural maturation that any new service.

Youssef Squali: Thank you so much.

Operator: Please stand by for the next question.

Lyne undergoes and we feel really good about the way. This business is evolving with respect to demand with respect to the way the customers are coming in and the way, we will be servicing and delivering against their needs.

Great. Thanks for that and then enterprise ex Guy the partnership's revenue accelerated to.

Andrew Boone: The next question comes from Andrew Boone with JMP Securities. Your line is open. Good morning and thanks for taking my questions. I wanted to go back about the 2024 discussion you guys had in terms of the $69. It sounds like revenue from your data contracts will be more recurring going forward. Can you just give us more details there and talk about maybe the trade-offs of recognizing more revenue upfront versus elongating that. Thank you.

<unk> to 'twenty three.

Question I wanted to ask is can you talk about the declines of adoption enterprises versus self service why the divergence and what's different on the enterprise side ex catapult ourselves.

Sorry, Andrew just to clarify your question Youre talking about adoption of what specifically.

I don't want to get out of the stock media right, you're seeing the enterprise just much more stable on enterprise revenue ex data partnerships versus E com and just.

Jarrod Yahes: Sure, Andrew. So, you know, there's two disclosures that we made in our prepared remarks that are I think incremental and helpful. One is beyond the two new customers that have been driving in your revenues. There's about $40 million of total contract value of pipeline that is either booked or in the process of being booked that will largely contribute to revenues in both 2024 and beyond. And so we have line of sight today into at least $60 million of revenue in 2024.

Just talk about the difference between the two and again why why do you think that's the case and how do we think about that going forward, what's the opportunity what's the risk.

Great question, Andrew Here's how we think about it if you think about.

The E Commerce side, you have a stable set of small and medium customers that are that are consistent users of our of our product whether its images video music or other.

Jarrod Yahes: And that's really before we end the year and continue to selling deliver in 2024 itself. So, we're clearly in a very good position to continue to build this business and build it from a position of strength and stability. Whenever you transition from a perpetual license deal to more of a radical revenue recognition model, there can be an impact on revenue growth. We've seen that with other companies over the years, but we do believe that this is a model that will create greater visibility for shutter stock.

And on the enterprise side.

<unk> got very large scale customers that have been with us for a very long time with very high retention rates because shutterstock is just clearly front and center and a critical aspect of their workflow and so what you see is <unk>.

High retention high growth as we bring more products and services to bear.

For our for our enterprise customers.

And there tends to be on the ecommerce side a level of infrequent use.

Jarrod Yahes: We think it's a model that will be able to invest behind because we will have a much greater sense of the forecast ability of the business and where we are. And I think this trend toward the greater number of smaller customers will also benefit our ability to forecast and have visibility in this business. So, I think this is part of the natural maturation that any new service line undergoes and we feel really good about the way this business is evolving with respect to demand with respect to the way the customers are coming in and the way we'll be servicing and delivering against their needs. Great, thanks for that.

<unk>, which is exactly why we created the new product that I talked about shutterstock essentials, so that customers can.

Engage at a lower price point and still get a high value product that meets their needs. So they're just two different kinds of customers and even within the super categories of E. Commerce and enterprise you have sub classifications of segments of customers and our goal is to make sure that we've got the right product mix for each one of those.

Segments.

Great and then just for my last question and <unk> you saw gross margins declined 50 basis points, you saw 100 points and through Q.

Andrew Boone: And then enterprise X data partnerships revenue accelerated in 3223. The question that I want to ask is can you talk about the difference of adoption between enterprise versus self service. Why the divergence and what's different on the enterprise side X data partnerships. Sorry, Andrew, just to clarify your question, you're talking about adoption of of what specifically. What I want to get out of stock media, right, is you're seeing the enterprise just much more stable on enterprise revenue X data partnerships versus ecom and so just just talk about the difference between the two. And again, why do you think that's the case and how do we think about that going forward? What's the opportunity, what's the risk.

Can you just talk about the gross margin profile is there any changes as newer products enter the mix. Thanks, so much guys.

So Andrew this quarter, we did see a slight compression in the gross margin, but as we called out in the prepared remarks. Some of that is as a result of some of the the giffy compensation that flows through our P&L. It's also as a result of stock compensation expense and that stock comp.

The station expense ticks up because we do compensate our team partially through performance restricted stock units and when the expected results for the year improve which they have the expense ticks up and that partially flows through our gross margins.

Paul Hennessy: Great question, Andrew, here's how we think about it. If you think about the ecommerce side, you have a, you know, a stable set of small and medium customers that are, that are, you know, consistent users of our of our product, whether it's images, video, you know, music or other. And on the enterprise side, you've got very large scale customers that have with been with us for a very long time with very high retention age because shutter stock is just clearly front and center and a critical aspect of their workflow.

There is nothing structural in our business today that is impacting the gross margins.

And as we've mentioned in the past our data deals have very comparable gross margins to our core content business, because we're paying our contributors royalties that are commensurate with our core content business. There are interesting opportunities in the future. However, <unk> has the potential to be a higher gross margin business for shutters.

Stock and Thats something that were keenly aware of and quite excited about as we move into an advertising based model.

Paul Hennessy: And so what you see is, you know, high retention, high growth as we bring more products and services to bear for our for our enterprise customers. And there are tends to be on the ecommerce side, a level of infrequent use, which is exactly why we created the new product that that I talked about shutter stock essentials so that customers can engage at a lower price point and still get a high value product.

Thank you.

Please standby for the next question.

The next question comes from Curtis Nagle with Bank of America. Your line is open.

Great great. Thanks, very much for taking it maybe just staying on that line.

Paul maybe as much as you can I know, it's early days, but just.

Talk a little bit about.

I guess the monetization potential for Jeffrey.

Paul Hennessy: That that meets their needs. So they're just two different kinds of customers. And even within the super categories of ecommerce and enterprise, you have some classifications of segments of customers. And our goal is to make sure that we've got the right product mix for each one of those, segments.

No.

It could be a really big business given the level of impressions youre getting in.

Kind of a team in place.

Yes.

Could you hear I'm curious to hear how you guys are thinking about it.

I'll follow up after that.

Yes.

We're enthusiastic all.

Jarrod Yahes: Great. And just for my last question, in QQ, you saw gross margins to coin 50 basis points, you saw a hundred points in QQ. Can you just talk about the gross margin, Boone? Is there any changes as newer products enter the mix? Thanks so much, guys. So Andrew, this quarter we did see a slight compression in the gross margin, but as we called out in the prepared remarks, some of that is as a result of some of the giffy compensation that flows through our P&L, it's also as a result of stock compensation expense.

We said that we would be kind of relaunching our advertising platform.

In Q4, we were ahead of schedule and the delivery of that.

We.

Started to alert customers that we are officially open for business.

And when you have not only the size and scale, but the level of engagement with the asset.

That is get the.

Advertisers are enthusiastically, including us in there.

Their campaigns for Q4 and are thinking very seriously about us throughout 2024.

Jarrod Yahes: And that stock compensation expense takes off because we do compensate our team partially through performance restricted stock units. And when the expected results for the year improve, which they have, the expense takes off and that partially flows through our gross margins, there is nothing structural in our business today that is impacting the gross margins. And as we've mentioned in the past, our data deals have very comparable gross margins to our core content business because we're paying our contributors royalties that are commensurate with our core content business.

So all of the early signs are very encouraging and as we start to get these campaigns up and running and start to deliver performance.

We think that we think that that spreads in the advertisers get even more enthusiastic so we remain bullish and in fact seeing the quality of the team and the level of our execution I'm more bullish than when we bought the asset back in June.

Okay very helpful.

A question for <unk>.

As much as you can would be curious just to hear a little bit more about the structure of the new daily.

Jarrod Yahes: There are interesting opportunities in the future, however. Giffy has the potential to be a higher gross margin business for shutter stock, and that's something that we're keenly aware of and quite excited about as we move into an advertising-based model. Thank you.

Operator: Please, Sam, buy for the next question.

Data deals right.

Richard one for very Frontloaded, it sounds like they're more spread but.

Got it as a kind of a duration would be helpful. And then if you could just what were the data revenues in <unk> of 'twenty two.

Sure Curtis and Curtis Thanks for joining we look forward to working with you and thanks for joining our call.

Curtis Nagle: The next question comes from Curtis Nagel with Bank of America. Your line is open. Great, thanks very much for taking it.

Data revenues in the fourth quarter of 2022 were $15 million.

And I think you specifically asked about the fourth quarter. The third quarter of 2022 was much lighter was about $2 million.

Paul Hennessy: Maybe just stay on that line. Paul, maybe as much as you can, I know it's early days, but just talk a little bit about the modernization potential for Giffy. Obviously, it could be a really big business given the level of impressions you're getting and kind of the team in place. But yeah, just would be very curious to hear how you guys are thinking about it, and then I'll follow up after that.

And then I think your second question was just on how we think about the data deals ultimately.

There are going to be a range of duration of contracts that we look at depending on the specific needs of our customers are those contracts could be one year in duration two years in duration, we've done contracts as long as five years and six years in duration. So we are going to look at a range of customer contract lengths and it really.

Paul Hennessy: Yeah, we're enthusiastic. We said that we would be kind of relaunching our advertising platform in Q4. We were a head of schedule in the delivery of that. We started to alert customers that we are officially open for business, and when you have not only the size and scale, but the level of engagement with the asset that is Giffy, advertisers are enthusiastically including us in their campaigns for Q4 and are thinking very seriously about us throughout 2024.

Depends on their expected pace of consumption of metadata for building generative AI applications and training models. We also plan on providing incremental training data to our customers and we've seen significant growth in our library with fresh data.

If you look back at our library that growth was traditionally high single digits, we've seen a fairly consistent acceleration in that growth over the course of the past year and both we and our metadata customers are very excited about that fresh incremental data that's coming in that is reflective of the world around us.

Paul Hennessy: So all of the early signs are very encouraging, and as we start to get these campaigns up and running and start to deliver performance, we think that that spreads and the advertisers get even more enthusiastic. So we remain bullish, and in fact seeing the quality of the team and the level of our execution, I'm more bullish than when we bought the asset back in June.

<unk> as it exists.

Ultimately, we think this is going to create a more visible revenue stream for our data business, it's going to give us a waterfall of contracts to build upon and better visibility for revenues in the years to come.

Got it okay. Thanks, so much and looking forward to work with you guys I appreciate it.

Thanks Kurt.

Please standby for the next question.

Jarrod Yahes: Okay, very helpful. And then a question for Jarrod, you know, as much as you can would be curious to hear a little bit more about the structure of the new data deals, right, you know, the original ones were very front loaded, sounds like they're more spread, but any guidance and kind of the duration would be helpful. And then, if you could, just what were the data revenues in 4Q of 22?

Yeah.

The next question comes from Kieran Kenny with Morgan Stanley. Your line is open.

Hi, Thanks for taking my questions I have two.

First can you provide some examples on the types of expansion deals you're signing.

Typically wondering if youre seeing any extension into different content types that werent included in the original deals.

Jarrod Yahes: Sure, Curtis. And Curtis, thanks for joining. We look forward to working with you. And thanks for joining our call. Data revenues in the 4Q of 2022 were 15 million. And I think you specifically asked about the 4Q of the 3rd quarter of 2022 as much lighter was about $2 million. And then I think your second question was just on how we think about the data deals. Ultimately, there are going to be a range of duration of contracts that we look at, depending on the specific needs of our customers.

Then second Jerry can you comment on how the deal count in GCB composition changed in <unk> relative to the first half of the year. Thank you.

Karen is Paul.

Great question.

We see across our large partners exactly as you described.

Some start with a particular content type.

Jarrod Yahes: Those contracts could be one year in duration, two years in duration. We've done contracts as long as five years and six years in duration. So we are going to look at a range of customer contract lengths. And it really depends on their expected pace of consumption of metadata for building generative AI applications and training models. We also plan on providing incremental training data to our customers. And we've seen significant growth in our library with fresh data.

And come back and say give us a lot more of it.

And some that are taking a large portion of their particular content types are now moving from one content type to the other and so by going both vertical and horizontal that creates both.

Revenue and profit opportunity for us, but also allows our large partners and customers.

To better train their models. So it's the comprehensive nature of the entire asset library that we have as well as the underlying metadata and the cleanness of that data and the asset the source nature of that data that makes it so compelling.

Jarrod Yahes: If you look back at our library, that growth was traditionally high single digits. We've seen a fairly consistent acceleration in that growth over the course of the past year. And both we and our metadata customers are very excited about that fresh incremental data that's coming in that is reflective of the world around us today as it exists. Ultimately, we think this is going to create a more visible revenue stream for our data business. It's going to give us a waterfall of contracts to build upon and better visibility through revenues in the years to come.

Karen just to add onto that when.

When you think about our customers and the demand we're seeing from existing customers are fairly significant.

A significant component I would estimate about half of the $40 million of incremental bookings is actually existing customers that are electing to purchase from us new content types or additional volumes of existing content types. So there is very significant incremental demand that's coming from existing customers.

The remainder would be from new customers that we've secured so we're very very excited about that.

Curtis Nagle: Thanks so much and looking forward to working you guys too. Appreciate it. Thanks, Chris.

Nothing materially different to report in terms of customer count.

Operator: Please stand by for the next question.

Still not a business that has hundreds of customers, it's a business where our customer count is growing our customer list is growing.

Karen Kinney: The next question comes from Karen Kinney with Morgan Stanley. Your line is open. All right. Thanks for taking my questions. I have two.

<unk>, a new customer every quarter at least if not more we do have plans to expand the Tam and expand the offerings that we provide to make this a more attractive and more affordable proposition offer different types of customers.

Paul Hennessy: First, can you provide some examples on the types of expansion deals you're signing? And I'm specifically wondering if you're seeing any extension into different content types that weren't included in the original deals. And then second, Jared, can you comment on how the deal count and TCV composition used in 3Q relative to the first half of the year? Thank you. Karen is Paul. Great question. We see across our large partners exactly as you described.

But we're very excited about the demand, we're seeing obviously and.

Existing customers being a significant part of the new GCB pipeline build is a very exciting demand signal for us in terms of land and expand.

Great that's really helpful. Thank you.

I show no further questions at this time.

I would now like to turn the call back to Paul Hennessy for closing remarks.

Paul Hennessy: Some start with a particular content type and come back and say give us a lot more of it. And some that are taking a large portion of the particular content type are now moving from one content type to the other. And so by going both vertical and horizontal, that creates both a you know, revenue and profit opportunity for us, but also allows our large partners and customers to better train their models.

Thank you very much and as always we want to express our gratitude to our customers our contributors and especially our employees. Thank you for joining US this ends our call for today.

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

Paul Hennessy: So it's the the comprehensive nature of the entire asset library that we have as well as the underlying metadata and the cleanness of that data and the assets, the source nature of that data that makes it so compelling. Karen, just to add on to that, when you think about our customers and the demand we're seeing from existing customers, a fairly significant component. I would estimate about half of the $40 million of incremental bookings is actually existing customers that are electing to purchase from us new content types or additional volumes of existing content types.

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Paul Hennessy: So there's very significant incremental demand that's coming from existing customers. The remainder would be from new customers that we secured. So we're very, very excited about that. Nothing materially different to report in terms of customer count. This is still not a business that has hundreds of customers. It's a business where our customer count is growing. Our customer list is growing. We're announcing a new customer every quarter at least, if not more.

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Paul Hennessy: We do have plans to expand the TEMP and expand the offerings that we provide to make this a more attractive and more affordable proposition for different types of customers. But we're very excited about the demand. We're seeing obviously and existing customers being a significant part of the new TCV pipeline build is a very exciting demand signal for us in terms of land and expand. Great. That's really helpful. Thank you.

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Operator: I show no further questions at this time.

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Good morning, ladies and gentlemen, thank you for standing by and welcome to the third quarter 2023, Shutterstock, Inc Earnings Conference call.

At this time all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session to.

To ask a question. During this session you will need to press star one on your telephone you didn't hear an automated message advising your hand just right.

To withdraw your question. Please press star one again please.

Please be advised that today's conference is being recorded.

I would now like to turn the conference over to your Speaker today, Chris Xu Vice President of Investor Relations and corporate development. Please go ahead.

Thanks Michelle.

Good morning, everyone and thank you for joining us for center stock third quarter 2023 earnings call joining us today as Paul Hennessy, Shutterstock, CEO and Jared gaze Shutterstock CFO.

Please note that some of the information Youll hear 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 the 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.

On a long term strategy and our performance targets, including 2023 guidance.

Actual results or trends could differ materially from our forecasts.

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 Form 10-K for discussions of important risk factors that could cause actual results to differ materially from any forward looking statements we make on the 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-Q.

Paul Hennessy: I would now like to turn the call back to Paul Hennessy for closing remarks. Thank you very much. And as always, we want to express our gratitude to our customers, our contributors, and especially our employees. Thank you for joining us. This ends our call for today. Thank you for participating.

Operator: This concludes today's conference call. You may now disconnect.

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

Thank you Chris Good morning, everyone. Thank you for joining us today, and I wish everyone a happy Halloween.

In the third quarter, Shutterstock data and creative engine fuel faster growth and further the transformation of our business and.

Enterprise demand picked up and we expect a further acceleration into the fourth quarter.

We are seeing seeing stabilization and are executing operationally to drive a recovery in e-commerce over the next several quarters supported by marketing and product innovation.

On top of strong operational performance Shutterstock also delivered exceptionally strong financial performance this quarter with record revenues of $233 million representing growth of 14% year on year.

Operator: Andrew Boone, Bernard McTernan, Curtis Nagle Andrew Boone, Bernard McTernan, Curtis Nagle, Andrew Boone, Bernard McTernan, Curtis Nagle, Andrew Boone, Bernard McTernan, Curtis Nagle, Andrew Boone, Bernard McTernan, Curtis Nagle, Andrew Boone, Bernard McTernan, Curtis Nagle, Andrew Boone, Bernard McTernan, Curtis Nagle, Good morning, ladies and gentlemen.

Operator: Thank you for standing by and welcome to the third quarter 2023 Shutterstock Inc, earnings conference call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press door 11. On your telephone, you will be hearing automated message advising your hand is raised. To withdraw your question, please press door 11 again. Please be advised that today's conference is being recorded.

We continue to be highly profitable generating $65 million of EBITDA or 28% margin EBITDA has exceeded $60 million every quarter for three consecutive quarters and we are on track to grow EBITDA by double digits. This year.

Based on our strong year to date performance and improved confidence and visibility in our business. We are again, raising both revenue and EBITDA guidance for 2023, which Jerry will discuss in more detail.

Q3 also marked the first quarter were enterprise revenues exceeded e-commerce revenue per Shutterstock, our enterprise channel is posting consistent growth and in the third quarter grew 60% in total and grew 4% excluding data.

We continue to experience strong growth in subscription offerings for medium size enterprises, with our flex product, which grew 9% in the third quarter.

And we also saw strong momentum in Shutterstock studios, signing our two largest deals ever.

Studios has a strong beachhead in virtual production leveraging <unk> assets for gaming ecosystem.

We view this market opportunity is having tremendous legs as the gamification of entertainment and interactive media continues.

Strength in SMB products and studios is expected to drive accelerated enterprise growth of between 10 and 15% from the fourth quarter excluding data.

Chris Suh: I would now like to turn the conference over to your speaker today, Chris Suh, vice president of investor relations and corporate development. Please go ahead. Thanks, Michelle. Good morning, everyone, and thank you for joining us for Shutterstock's third quarter 2023 earnings call. Joining us today is Paul Hennessy, Shutterstock CEO and Jarrod Yahes, Shutterstock CFO. Please note that some of the information you'll hear during our discussion today will consist of forward-looking statements, including without limitations, the long-term effects of investments in our business.

On the <unk> front, Shutterstock and Nvidia are making good progress on our generative <unk> offering and we will be testing in the fourth quarter.

Chris Suh: The future success and the financial impact of new and existing product offerings are ability to consummate acquisition that integrates 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 2023 guidance. Absolute results or trends could differ materially from our forecast. For more information, please refer to today's press release and the reports we file the SEC from time to time, including the risk factors discussed in our most recently filed forum 10K, for discussions of important risk factors that could cause absolute results to differ materially from any forward-looking statements we make on the call.

Chris Suh: We'll be discussing certain non-GAAP financial measures today, including adjusted EVA DAW and adjusted EVA DAW margin, adjusted net income, adjusted net income per diluted share, revenue growth, including by distribution channel on a constant currency basis, feelings and free cash flow. Reconciliation 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 10K.

Paul Hennessy: I'd now like to turn the call over to Paul Hennessy, Chief Executive Officer. Thank you, Chris. Good morning, everyone. Thank you for joining us today. I wish everyone a happy Halloween. In the third quarter, Shutterstock's data and creative engines fueled faster growth and further the transformation of our business. Enterprise demand picked up and we expect a further acceleration into the fourth quarter. We are seeing stabilization and are executing operationally to drive a recovery in e-commerce over the next several quarters supported by marketing and product innovation.

As we communicated at the outset of the partnership earlier. This year, we believe that our generative <unk> offering will lower the cost of <unk> model production and drive wider adoption across diverse use cases through simple tax to three D model generation capabilities as well as expand our library of models available for purchase.

<unk>.

Meanwhile, our ecommerce channel declined 15% on a year over year basis. In Q3, 2023, we have confidence that our initiatives will drive a recovery in e-commerce over the next several quarters, including marketing changes driving growth in the top of funnel traffic.

Paul Hennessy: On top of strong operational performance, Shutterstock also delivered exceptionally strong financial performance disorder with record revenues of 233 million, representing growth of 14% year on year. We continue to be highly profitable, generating 65 million of EBITDA, or 28% margins. EBITDA has exceeded 60 million every quarter for three consecutive quarters, and we are on track to grow EBITDA by double digits this year. Based on our strong year-to-day performance and improved confidence and visibility in our business, we are again raising both revenue and EBITDA guidance for 2023, which Jarrod will discuss in more detail.

Improvements in both conversion effectiveness and customer retention and the recent launch of our low cost Essentials plan, featuring unlimited content and our latest in generative AI capabilities.

As we mentioned on our last earnings call. We believe that we underinvested in marketing in the last several quarters. We have since increased our paid marketing spend in both brand and SCM and expanded our affiliate channel with a significant new partner.

As a result in October we have seen traffic growth accelerated to 9% and believe this trend of accelerated traffic growth will continue.

Paul Hennessy: Q3 also mark the first quarter where enterprise revenues exceeded e-commerce revenue for Shutterstock. Our enterprise channel is posting consistent growth and in the third quarter grew 60% in total and grew 4% excluding data. We continue to experience strong growth and subscription offerings for medium-sized enterprises with our flex product, which grew 9% in the third quarter. And we also saw strong momentum at Shutterstock Studios signing our two largest deals ever. Studios has a strong beach head and virtual production, leveraging 3D assets for gaming ecosystem.

We have numerous future opportunities in SCO to drive additional top of funnel traffic improvements and we'll continue to spend on marketing, which will drive growth in the fourth quarter and into next year.

Second we are seeing conversion effectiveness and retention begin to improve our conversion rates in October has improved by over 10%. We are also seeing improvements in retention of our subscription products with churn rates at their lowest point over the past three and a half years.

Paul Hennessy: We view this market opportunity as having tremendous legs as the gamification of entertainment and interactive media continues. Strength and SMB products and studios is expected to drive accelerated enterprise growth of between 10 and 15 percent in the fourth quarter excluding data. On the 3D front, Shutterstock and Nvidia are making good progress on our generative 3D offering and will be testing in the fourth quarter. As we communicated the outset of the partnership earlier this year, we believe that our generative 3D offering will lower the cost of 3D model production and drive wider adoption across diverse use cases through simple tax to 3D model generation capabilities, as well as expand our library of models available for purchase.

We believe that we have likely given up some of the lower quality customer growth. We may have acquired during the pandemic and are now building off a more stable base of core customers.

Third we have just brought to market an exciting new ecommerce product that marries all of our capabilities in generative AI, including image generation and generative editing tools with unlimited content at an attractive price point.

<unk> stock essentials.

Another stock Essentials plan is a 999 monthly plan that is simple and low cost and target small business and casual creative customers by giving them.

Access to our AI powered image generation and our recently launched AI powered editing tools.

Unlimited access to a library of over $3 5 million wholly owned images and.

Paul Hennessy: Meanwhile, our e-commerce channel declined 15 percent on a year-over-year basis in Q3 2023. We have confidence that our initiatives will drive a recovery and e-commerce over the next several quarters including marketing changes driving growth in the top of funnel traffic, improvements in both conversion effectiveness and customer retention and the recent launch of our low cost essentials plan featuring unlimited content and our latest in generative AI capabilities. As we mentioned in our last earnings call, we believe that we under invested in marketing in the last several quarters.

And the discount on our premium tier of images and other content types.

In addition to essentially serving as a customer acquisition product. We believe there is an opportunity to serve the evolving need of our customers by Upselling and cross selling higher priced premium images videos music and <unk> assets to these essentials customers.

We also launched creative AI, our generative AI powered editing suite last week, which will be included in Shutterstock Essentials plan.

As a result customers can both generate new images and use AI powered tools to edit any pre existing images to make stock their own <unk>.

Paul Hennessy: We have since increased our paid marketing spend in both brand and SEM and expanded our affiliate channel with a significant new partner. As a result, in October, we have seen traffic growth accelerate to 9 percent and believe this trend of accelerated traffic growth will continue. We have numerous future opportunities in SEO to drive additional top of funnel traffic improvements and will continue to spend on marketing, which will drive growth in the fourth quarter and into next year.

Created by AI includes five generative features that are on par with or better than anything available in the market today.

Our magic brush function to modify a specific portion of an image.

<unk> variations to quickly generate lookalike alternatives zoom.

Zoom out function to generate a wider lens perspective.

Smart resize, our to ensure components of image are correctly proportionate to each other and a background remover.

Paul Hennessy: Second, we are seeing conversion effectiveness and retention begin to improve. Our conversion rate in October has improved by over 10 percent. We are also seeing improvements in retention in our subscription products with churn rates at their lowest point over the past three and a half years. We believe that we have likely given up some of the lower-quality customer growth we may have acquired during the pandemic and are now building off a more stable base of core customers.

In terms of generative AI image generation through our collaboration with open AI Shutterstock has priority access to the latest technology, including <unk> and our teams are finding the preliminary results best in class.

As a result of improving quality and a shift in the marketplace. We believe that monetization is in sharper focus across image generation and editing platform and.

Paul Hennessy: Third, we have just brought to the market an exciting new e-commerce product that marries all of our capabilities in general AI including image generation and generative editing tools with unlimited content at an attractive price point. Shutterstock Essentials Shutterstock Essentials plan is a 999 monthly plan that is simple and low-cost and targets small business and casual creative customers by giving them access to our AI-powered image generation and our recently launched AI-powered editing tools, unlimited access to a library over 3.5 million wholly owned images and a discount on our premium tier of images and other content types.

Shutterstock is positioned to benefit as the ecosystem starts to change more of our licenses are all high quality images.

Beyond our e-commerce and enterprise content businesses I'd like to discuss two of the most exciting growth areas in Getty and in data both of which are important parts of our strategy.

To remind investors skippy is a scaled content platform that sits at the intersection of personal communications and shared moments revolving around events and emotions.

Enjoys massive audience reach and generate billions of monthly impressions through over 14000 API partners.

All of this translates into a unique and exciting opportunity for brands.

Paul Hennessy: In addition to Essentials serving as a customer acquisition product, we believe there is an opportunity to serve the evolving need of our customers by upselling and cross-selling higher-priced premium images, videos, music and 3D assets to these Essentials customers. We also launched Creative AI, our generative AI-powered editing suite last week, which will be included in Shutterstock Essentials plan. As a result, customers can both generate new images and use AI-powered tools to edit any pre-existing images to make stock their own.

To that end Jiffy is now officially open for business and we are up and running with our first customers on the AD platform with multiple other proposals out.

We are seeing strong receptivity by brands in CPG retail food and beverage and financial services.

The idea that <unk> content is something you share rather than something you skip has strong residence with these advertisers we expect exciting developments for <unk> in the quarters to come as advertiser interest in the platform grows and we scale our ability to execute on customer campaigns.

Paul Hennessy: Creative AI includes five generative features that are on par with or better than anything available in the market today. A magic brush function to modify a specific portion of an image, automated variations to quickly generate look-alike alternatives, a zoom out function to generate a wider lens perspective, a smart resizer to ensure components of image are correctly proportionate to each other and a background remover. In terms of generative AI image generation through our collaboration with OpenAI, Shutterstock has priority access to the latest technology, including dolly tree and our teams are finding the preliminary results best in class.

Turning to data. It is now clear that data sales for AI and ml model training is an explosive growth opportunity for shutterstock.

Scraping proprietary data to chain to drain generative AI models for commercial application is now universally recognized as an unsustainable business tactic, it's fraught with legal financial and Reputational challenges.

This plays to Shutterstock strengths, because we offer ethically sourced and licensed the bowl metadata at unique scale across media, including images video music and three D.

Paul Hennessy: As a result of improving quality and a shift in the marketplace, we believe that monetization is in sharper focus across image generation and the editing platform. And Shutterstock is positioned to benefit as the ecosystem starts to change more for license-able high quality images.

The scale and quality of our data is evidenced by our incredible roster of customers and partners.

This quarter I am pleased to report, we have signed a new multiyear deal with Amazon.

As well as expanded relationships with multiple existing strategic customers our.

Paul Hennessy: Beyond our e-commerce and enterprise content businesses, I like to discuss two of the most exciting growth areas in GIFI and in data, both of which are important parts of our strategy. To remind investors, GIFI is a scaled content platform that sits at the intersection of personal communications and shared moments revolving around events and emotions. It enjoys massive audience reach and generates billions of monthly impressions through over 14,000 API partners. All of this translates into a unique and exciting opportunity for brands.

Our customers have reviewed our data in detail conducted extensive due diligence and evaluation testing and ultimately decided that shutterstock was the key partner from which to source this critical ingredient where their AI needs.

Thus far we've had tremendous success in working with the world's largest technology platforms, but we believe the next year of potential customers, who are looking to train their own proprietary generative AI model and build applications will require a different approach to consumption and distribution.

Paul Hennessy: To that end, GIFI is now officially open for business and we are often running with our first customers on the ad platform with multiple other proposals out. We are seeing strong receptivity by brands in CPG, retail, food and beverage and financial services. The idea that Giffy's content is something you share rather than something you skip has strong resonance with these advertisers. We expect exciting developments from Giffy in the quarters that come as advertisers interest in the platform grows and we scale our ability to execute on customer campaigns.

In closing we are seeing some really encouraging signs across our business our future engines of growth and Giffy and data are showing extremely strong demand. Our E. Commerce business is stabilizing and we expect recovery over the next several quarters.

In our enterprise business picked up and is expecting an even stronger finish to the year. We have some exciting new products that will be rolling out in the fourth quarter, and we see tremendous potential future upside in our business with our creative and data engines, taking the lead in Shutterstock transformation.

With that I'll turn the call over to Jared.

Thank you Paul and good morning, everyone.

Paul Hennessy: Turning to data, it is now clear that data sales for AI and ML model training is an explosive growth opportunity for Shutterstock. Scraping proprietary data to train generative AI models for commercial applications is now universally recognized as an unsustainable business packet. It's fraught with legal, financial and reputational challenges. This plays the Shutterstock strength because we offer ethically stores and licenseable metadata at unique scale across media, including images, video, music, and 3D.

Shutterstock reported an exceptionally strong third quarter with revenues of $233 million and revenue growth of just over 14%.

A record quarter and well beyond our expectations.

Q3, adjusted EBITDA was $65 million with 28% margins showcasing the strong profitability of our business.

The enterprise channel was up 60% in the third quarter driven by revenue from our data engine, which grew to 46 million a record performance and driven by our recent win with Google as well as a new win with Amazon.

We are in the process of booking an additional $40 million in total contract value with multiple new and existing data customers.

Paul Hennessy: The scale and quality of our data is evidenced by our incredible roster of customers and partners. This quarter, I'm pleased to report we have found a new multi-year deal with Amazon, as well as expanded relationships with multiple existing strategic customers. Our customers have reviewed our data in detail, conducted extensive due diligence and evaluation testing, and ultimately decided that Shutterstock was the key partner from which to source this critical ingredient where their AI needs.

On these new bookings, we are structuring our deals in a manner that will result in more consistent quarterly revenue recognition over an extended period of time.

And so while the new bookings will not impact 2023.

Most of the revenue will flow into 2024 and beyond.

Over time this approach creates a more significant bookings backlog greater visibility and predictability and ultimately a more scalable and sustainable data business.

Paul Hennessy: Thus far, we've had tremendous success in working with the world's largest technology platforms, but we believe the next year potential customers who are looking to train their own proprietary generative AI model and build applications will require a different approach to consumption and distribution.

Our enterprise channel growth, excluding data was driven by strong 9% growth from flex subscriptions as well as gift <unk> starting to ramp up.

As Paul mentioned, we expect revenue growth to accelerate further into the fourth quarter to 10% to 15% based on some landmark wins at Shutterstock Studios and overall bookings momentum.

Paul Hennessy: In closing, we are seeing some really encouraging signs across our business. Our future engines of growth and giffy and data are showing extremely strong demands. Our e-commerce business is stabilizing and we expect recovery over the next several quarters. And our enterprise business picked up and is expecting an even stronger finish to the year. We have some exciting new product that will be rolling out in the fourth quarter, and we see tremendous potential future upside in our business with our creative and data engines taking the lead in Shutterstock's transformation.

The growth of our creative and data engine. So we discussed at our Investor Day in February is clearly accelerating and positively impacting our enterprise channel.

Our E Commerce channel was down 15% in the third quarter as Paul discussed we are seeing stabilization in the business and expect a recovery in the quarters to come based on current initiatives.

Subscriber revenue was up for the quarter with subscriber counts slightly down, but having stabilized sequentially, indicating that new customer additions and customer attrition are beginning to match and.

Jarrod Yahes: With that, I'll turn the call over to Jared. Thank you, Paul, and good morning, everyone. Shutterstock reported an exceptionally strong third quarter with revenues of 233 million and revenue growth of just over 14%. A record quarter and will be on our expectations. Q3 adjusted EBITDA with 65 million with 28% margins showcasing the strong profitability of our business. The enterprise channel was up 60% in the third quarter driven by revenue from our data engine, which grew to 46 million, a record performance, and driven by our recent win with Google as well as a new win with Amazon.

And a meaningful improvement from the past several quarters. We've also seen improvements in churn rates and we believe that many of the cohort of customers that came into the business in 2021 have left the business, resulting in a more durable base of customers. We expect the fourth quarter revenues and e-commerce to be stable sequentially.

<unk> reversing the recent trends that we've seen.

Reported gross margins declined by just over 1% driven by higher royalties related to revenue generated through data cells noncash M&A amortization and giffy retention compensation.

Jarrod Yahes: We are in the process of booking an additional $40 million in total contract value with multiple new and existing data customers. On these new bookings, we are structuring our deals in a manner that will result in more consistent quarterly revenue recognition over an extended period of time. And so, while the new bookings will not impact 2023, most of the revenue will flow into 2024 and beyond. Over time, this approach creates a more significant bookings backlog, greater visibility and predictability, and ultimately a more scalable and sustainable data business.

Give your retention compensation had minimal net cash impact of shutterstock in the quarter as these costs were reimbursed.

Sales and marketing expense in the third quarter was 24% of revenue compared to 23% of revenue in the third quarter of 2022.

We expect full year marketing spend of 25% consistent with 2022, as we dial up performance marketing spend and our E Commerce sales channel significantly in the fourth quarter.

Sales and marketing spend in the fourth quarter is expected to be at least $10 million higher than Q3 with additional spending on branding and SCM.

Jarrod Yahes: Our enterprise channel growth, excluding data, was driven by strong 9% growth from flex subscriptions, as well as Giffy starting to ramp up. As Paul mentioned, we expect revenue growth to accelerate further into the fourth quarter to 10% to 15%, based on some landmark wins at Shurstock Studios and overall bookings momentum. The growth of our creatives and data engines that we discussed at our investor day in February is clearly accelerating and positively impacting our enterprise channel.

As Paul mentioned with conversion effectiveness up this gives us the opportunity to spend further to grow our business.

Product development was 12% of revenue compared to 9% of revenue in the third quarter of 2022.

Clearly all of the increase is due to give you related retention compensation costs that were reimbursed. In addition to $1 5 million of severance incurred in the quarter.

G&A expenses were 16% of revenue compared to 15% in the third quarter of 2022, driven by higher noncash stock compensation costs severance costs and give your retention compensation that was reimbursed.

Jarrod Yahes: Our e-commerce channel is down 15% in the third quarter. As Paul discussed, we are seeing stabilization in the business and expect a recovery in the quarters to come based on current initiatives. Subscriber revenue was up for the quarter, with subscriber counts slightly down but having stabilized sequentially, indicating that new customer additions and customer attrition are beginning to match, and a meaningful improvement from the past several quarters. We've also seen improvements in churn rates, and we believe that many of the cohort of customers that came into the business in 2021 have left the business, resulting in a more durable base of customers.

Stock compensation costs are higher due to greater expectations around annual performance this year.

Severance costs totaled $2 1 million as we ensure that we have the right cost structure for strong profitability going into 2024.

As an executive team, we are squarely focused on driving both revenue growth and profitability and we consistently manage costs across our expense structure.

We grew Q3, adjusted EBITDA by 15% year over year to $64 6 million.

Jarrod Yahes: We expect the fourth quarter revenues in e-commerce to be stable sequentially, reversing the recent trends that we have seen. Reported gross margins declined by just over 1%, driven by higher royalties related to revenue generated through data cells, non-cash M&A amortization, and Giffy retention compensation. Giffy retention compensation had minimal net cash impact to Shurstock in the quarter, as these costs were reimbursed. Sales and marketing expense in the third quarter was 24% of revenue compared to 23% of revenue in the third quarter of 2022.

Adjusted EBITDA margins were up 20 basis points year over year to 27, 7% driven by revenue growth.

This margin improvement was despite a 3% impact from giffy costs that were reimbursed in cash but included in our reported adjusted EBITDA.

We are well above where we expected from a margin perspective year to date at 29, 6% and have the flexibility to invest across our business to accelerate growth.

While we are encouraged by our margin performance year to date, we expect a more normal margin profile in the coming quarters.

Jarrod Yahes: We expect a full year marketing spend of 25%, consistent with 2022, as we dial up performance marketing spend in our e-commerce sales channel significantly in the fourth quarter. Sales and marketing spend in the fourth quarter is expected to be at least 10 million higher than Q3, with additional spending on branding and SCM. As Paul mentioned, with conversion effectiveness up, this gives us the opportunity to spend further to grow our business. Product development was 12% of revenue compared to 9% of revenue in the third quarter of 2022.

Turning to our balance sheet, we had $75 million of cash at the end of the quarter.

Free cash flow was negatively impacted by customer receipts of $12 million that we received just after the quarter close and we expect cash balances to grow meaningfully into the fourth quarter on the back of record free cash flow.

Our deferred revenue balance was $203 million down from $207 million last quarter. However, the reduction in deferred revenues is largely due to amortization of acquisition balances from Giffy.

Our focus is to amplify revenue growth and strong profitability with attractive shareholder returns.

Jarrod Yahes: Nearly all of the increase is due to Giffy-related retention compensation costs that will reimbursed in addition to 1.5 million of severance incurred in the quarter. GNA expenses were 16% of revenue compared to 15% in the third quarter of 2022 driven by higher non-cash stock compensation costs, severance costs, and giffy retention compensation that was reimbursed. Stock compensation costs are higher due to greater expectations around annual performance this year. Severance costs total 2.1 million as we ensure that we have the right cost structure for strong profitability going into 2024.

During the quarter, we paid $10 million related to our quarterly dividend, providing a yield of over 3%.

We also repurchased 351000 shares for $15 million and with our current share repurchase authorization, we can repurchase 7% of our shares annually.

For the full year, we are raising our revenue growth guidance from a range of 3% to 5% to 5% to 7% and our adjusted EBITDA from a range of 227 million to 235 million to $240 million to $245 million.

Jarrod Yahes: As an executive team, we are squarely focused on driving both revenue growth and profitability and we consistently manage costs across our expense structure. We grew Q3 adjusted EBITDA by 15% year-over-year to 64.6 million. Adjusted EBITDA margins were of 20 basis points year-over-year to 27.7% driven by revenue growth. This margin improvement was despite a 3% impact from giffy costs that were reimbursed in cash but included in reported adjusted EBITDA. We are well above where we expected from a margin perspective year-to-date at 29.6% and have the flexibility to invest across our business to accelerate growth.

Our third time, raising revenue and adjusted EBITDA guidance this year.

In the fourth quarter, we expect our enterprise channel, excluding data to accelerate to 10% to 15% growth its best performance this year.

And we expect to see stable sequential revenues in e-commerce.

We expect another strong quarter in data slightly above the quarterly revenues in the first half of the year.

We are increasing revenue expectations to over $100 million in data revenue in 2023 up from the prior expectations of $70 million.

The increase in our expectations for growth is coming from new customers, we have signed such as Google and Amazon, but also from significant land and expand wins with multiple existing customers.

Jarrod Yahes: While we are encouraged by our margin performance year-to-date, we expect a more normal margin profile in the coming quarters. Turning to our balance sheet, we had 75 million of cash at the end of the quarter. Free cash flow is negatively impacted by customer receipts of 12 million that will receive just after the quarter close and we expect cash balances to go meaningfully into the fourth quarter on the back of record free cash flow.

Furthermore, our bookings and pipeline for next year has grown dramatically already providing us line of sight to over $60 million in revenue in 2024 from contracts that are already in place or being completed now.

Jarrod Yahes: Our deferred revenue balance with 203 million down from 207 million last quarter, however the reduction in deferred revenues is largely due to amortization of acquisition balances from giffy. Our focus is to amplify revenue growth and strong profitability with attractive shareholder returns. During the quarter, we paid 10 million related to our quarterly dividend, providing yield of over 3%. We also repurchased 351,000 shares for 15 million and with our current sharey purchase authorization, we can repurchase 7% of our shares annually.

And this is before 2023 is even complete.

It is clear that our data business is seeing demand accelerate dramatically.

Our EBITDA guidance factors in a significant ramp of at least $10 million in marketing in Q4, as well as $16 million per year of full year <unk> expenses that will be reimbursed, making them cash neutral for the business.

With some of the client inflows received just past the third quarter. We also expect shutterstock to generate record fourth quarter free cash flows.

Suffice it to say that we are excited about how the year has progressed and the demand signals we are seeing.

Jarrod Yahes: For the full year, we are raising our revenue growth guidance from a range of 3% to 5% to 5% to 7%. And our adjusted EBITDA from a range of 227 million to 235 million to 240 million to 245 million, our third time raising revenue and adjusted EBITDA guidance this year. In the fourth quarter, we expect our enterprise channel excluding data to accelerate to 10 to 15% growth. It's best performance this year and we expect to see stable sequential revenues in e-commerce.

Our E Commerce channel is stabilizing and expect it to turn the quarter with new products and improved marketing support.

And enterprise is steadily growing at mid single digits soon to be bolstered by Giffy add the <unk> AD platform that has now officially open for business.

We are excited about the dramatic uptick in demand for data from new customers as well as existing clients and the potential for the total addressable market for clean ethically sourced metadata for generative AI model training to broaden out as these capabilities become core to a range of business.

Applications.

Jarrod Yahes: We expect another strong quarter in data slightly above the quarterly revenues in the first half of the year. We are increasing revenue expectations to over $100 million in data revenue in 2023 up from the prior expectations of $70 million. The increase in our expectations for growth is coming from new customers we have signed, such as Google and Amazon, but also from significant land and expand wins with multiple existing customers. Furthermore, our bookings and pipeline for next year has grown dramatically, already providing us line of sight to over $60 million in revenue in 2024 from contracts that are already in place or being completed now.

We are focused as a team on executing against some of these extremely exciting growth opportunities that are emerging for shutterstock in real time.

And with that operator, we'll open the line for any questions.

Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced.

Withdraw the question. Please press star one again, please standby, while we compile the Q&A roster.

The first question comes from Bernie Mcternan with Needham <unk> Company. Your line is open great.

Great Good morning.

Thanks for taking the questions maybe to start Paul in your prepared remarks, it seems like.

The industry crossed.

Lie in the sand on their attitude towards web scraped content for training purposes am I interpreting your comments correctly and if so what really caused that change.

Jarrod Yahes: And this is before 2023 is even complete. It is clear that our data business is seeing demand accelerate dramatically. Our EBITDA guidance factors in the significant ramp of at least $10 million in marketing in Q4, as well as $16 million per year, a full year get the expenses that will be reimbursed, making them cash neutral for the business. With some of the client inflows received just past the third quarter, we also expect Shutterstock to generate record fourth quarter free cash flows.

Yes, I think there is a variety of reasons Bernie that.

The largest players in the industry.

Have crossed that ni articulated some of them in my prepared remarks.

There is brand reputation issues, there are legal and regulatory issues and I think what the largest players have found and we believe the second tier players will also find is that ethically sourced metadata lifestyle has uniquely positions us to be able to.

Jarrod Yahes: Suffice it to say that we are excited about how the year has progressed and the demand signals we are seeing. Our e-commerce channel is stabilizing and expected to turn the quarter with new products and improved marketing support. An enterprise is steadily growing at mid single digits soon to be bolstered by Giffy ad platform that is now officially open for business. We are excited about the dramatic uptick in demand for data from new customers as well as existing clients and the potential for the total addressable market for clean, ethically sourced metadata for generative AI model training to broaden out as these capabilities become core to a range of business applications. We are focused as a team on executing against some of these extremely exciting growth opportunities that are emerging for Shutterstock in real time.

Meet their emerging needs around AI so.

We're pleased that good is winning out.

And and we're pleased that we have the assets the content.

And the position of <unk>.

The leverage that.

Understood. Thank you and then I appreciate the comments on some some of what's going on in the E Commerce platform, but would love if you could provide some more context in terms of traffic growth of 9% in the quarter conversion, 10% higher just where those kind of stand relative to historical norms.

Yeah.

Really theyre an improvement I think we we've told everyone about the level of experimentation, we're doing and I articulated.

The new product launches that we're putting in testing in the market now and I think what in addition to by the way work that we're doing to drive incremental traffic as articulated in my prepared remarks, and what you find is when you are converting better you've got new products that are attractive to the customers.

Operator: And with that operator, we'll open the line for any questions. Thank you. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw the question, please press star 11 again. Please stand by what we compiled the Q&A roster.

Combined with <unk>.

Better retention overall, the business starts to trend better and Thats, what gives us confidence in calling a stabilization of e-commerce with improvement on the comp.

Bernard McTernan: The first question comes from Bernie McTernan with Needleman company. Your line is open. Great. Good morning. Thanks for taking the questions. Maybe to start, Paul, and your prepare be marked. It seems like the industry crossed a line of sand on their attitude towards web script content for training purposes. Am I interpreting your comments correctly and if so, what really caused that change? Yeah, I think there's a variety of reasons, Bernie, that the largest players in the industry have crossed that.

Understood and maybe just sorry to cut you off.

One other thing I would just add as we have been delivering really strong profitability year to date, we're at almost 30% EBITDA margins year to date.

That's given us the ability to invest in sales and marketing sales and marketing was up $8 million sequentially in the third quarter and we expect it to be up another $10 million from those levels in the fourth quarter. So when you are running a highly profitable business.

Bernard McTernan: And I articulate some of them in my prepared remarks. There is brand reputation issues. There are legal and regulatory issues. And I think what the large players have found, and we believe the second tier players will also find, is that ethically sourced metadata lifestyle has uniquely positions us to be able to meet their emerging needs around AI. So we're pleased that good is winning out. And we're pleased that we have the assets, the content, and the position to leverage. Thank you.

One of the outcomes of that is that you do have the ability to reinvest and we're doing both at the same time, we're running a highly profitable business and we're significantly reinvesting in the company.

And maybe just lastly for me as a follow up there should we is kind of like second half of next year at the right time to assume e-commerce can get back to year over year constant currency growth.

Yes Bernie.

It's Halloween so we're in October still we're not we're not calling the day or the the month on when we we crossover.

But I am bullish on our performance and I like the trend.

Understood. Thanks for taking my questions. Thank.

Paul Hennessy: And then appreciate the comments on some of what's going on in the e-commerce platform. But we'd love if you could provide some more context in terms of traffic growth of 9% in the quarter, conversion, 10% higher, just where those kind of stand relative to historical norms. Yeah, clearly there, there an improvement. I think we we've we've told everyone about the level of experimentation we're doing and I are kicked and we've circulated the new product launches that we're putting in testing in the market now.

Thank you.

Please standby for the next question.

The next question comes from Youssef Squali with true with <unk>. Your line is open.

Okay, great. Thank you very much and good morning, all so.

All on the.

Legal ethically sourced meta data topic yesterday, there since you have been.

A court case that that seem to have bias favorably journey stability to AI.

Paul Hennessy: And I think what you're in addition to, by the way, work that we're doing to drive incremental traffic is articulated in my prepared remarks. And what you find is when you're converting better, you've got new products that are attractive to customers combined with better retention overall, the business starts to trend better. And that's what gives us a confidence in calling a, you know, a stabilization of e-commerce with improvement on the comments.

And their copyright case, so can you maybe just.

Comments on how that May impact.

Your view or more importantly, maybe.

The data buyers view.

Of demand and reliance side.

On Shutterstock is that accurate.

And that place will be ethically sourced the meta data.

Sure and I'll tell you that the inputs in our thinking come from the largest players in the space. So we're having dialogue at the highest level of some of the largest companies in the world and they're giving us direct feedback about why they are buying from shutterstock and as for really for the reasons that I would articulate.

Paul Hennessy: And maybe just, oh, sorry to make it you off. No, Bernie, one other thing I would just add is, you know, we've been delivering really strong profitability year-to-date, we're at almost 30% EBITDA margins year-to-date. That's given us the ability to invest in thousands of marketing sales and marketing was up $8 million sequentially in the third quarter. And we expect it to be up another $10 million from those levels in the fourth quarter.

<unk>.

Current course cases, notwithstanding they're coming to us because we've got the goods and the goods are clean and ethically sourced and we.

Paul Hennessy: So when you're running a highly profitable business, what are the outcomes of that is that you do have the ability to reinvest and we're doing both at the same time, we're running a highly profitable business and we're significantly reinvesting in the company.

We value that input and and these large companies are quite literally voting with their strategy and voting with their wallets and an engaging shutterstock.

Their needs. So I think theres going to be a lot of emergence of multiple court cases, but there is nothing sure than the actual customers engaging with our brand.

Bernard McTernan: Maybe just lastly for me as a follow up there, should we is kind of like second half of next year, the right time to assume e-commerce can get back to year-for-year constantly currency growth? Yeah, Bernie, it's Halloween, so we're in October still, we're not calling the day or the month on when we, you know, we cross over. But I'm bullish on our performance and I like the trend. Understood, thanks, taking questions. Thank you. Please stand by for the next question.

Okay, that's great to hear.

And staying on that topic for a SEC can you elaborate on your comments about.

We're working on now.

Here.

<unk> for customers with maybe a slimmed down version of your data deals for maybe smaller companies that cannot afford the seven or eight.

Type of deal.

Yeah, we articulated that.

There will probably be a different approach and as you as you might expect we're not going to give out the playbook, but we are in discussions and.

Bernard McTernan: The next question comes from you, Seth Squally, with the truest your line is open. Great, thank you very much and good morning all. So Paul, on the legal, ethically sourced meta data topic yesterday, there seems to have been a court case that seems to have biased favorably majority of the AI and even art in their copyright case. So can you maybe just comment on how that may impact your view or more importantly, maybe the data buyers view of demand and reliance on on shutter stock is that that place would be ethically sourced meta data.

The needs of the customers the size of the customers. The the approach of the customers is different than the largest companies in the world and so you can expect shutterstock as it always does to adapt and be customer centric in the way, we put together our products and services. So we're.

I'd like to hand that we've got and we're playing it to meet the customer demand.

Alright Super helpful and maybe lastly, Derek on your Q4 guidance, if my math is correct and implies growth.

Low single digit.

And margins in the low to mid teens.

<unk> in the 'twenty can you just go over again the I.

I think you mentioned some of them in the prepared remarks, and maybe can you just walk through the math, there and maybe more importantly, as we look at 2024 is the assumption that we are on a year on year basis do margins go back to there.

Bernard McTernan: Sure. And I'll tell you that the inputs in our thinking come from the largest players in the space. So we're having dialogue at the highest level with some of the largest companies in the world. And they're giving us direct feedback about why they're buying from Shutterstock. And it's for really for the reasons that I've articulated current course cases notwithstanding, they're coming to us because we've got the goods and the goods are clean and ethically sourced.

Most recent trend model.

Okay great.

Sure. So I think Youre correct both in your overall.

Assessment on Q4, both revenue as well as EBITDA I think got EBITDA, if you sort of do the math you look at the <unk>.

Guidance for the full year and you look at the $10 million of incremental sales and marketing.

Bernard McTernan: And we value that input. And these large companies are quite literally voting with their strategy and voting with their wallets and engaging Shutterstock to suit their needs. So I think there's going to be a lot of emergence of multiple court cases, but there's nothing truer than the actual customers engaging with our brand. Okay, that's great to hear. And then stay on that topic for a sec. Can you elaborate on your comments about working on next year of potential customers, maybe a slim down version of your of data deals for maybe smaller companies that cannot afford the seven or eight digit type of deals.

Spend youll get to EBITDA, the low twenty's in percentage terms, and I think youll get to <unk>.

Mid single digits in terms of revenue growth for the quarter.

I think this is clearly putting $10 million of incremental sales and marketing spend on the back of $8 million of incremental sales and marketing spend.

Very heavy investment period for US we are doing that on the back of exceptional year to date profitability I do not think that our Q4 EBITDA margin level is sort of the stable run rate for the business that you expect going forward I think at this point if you look back on the history of the company over the last three or four years.

You've seen a very consistent focus on both revenue growth and profitability.

Bernard McTernan: Yeah, we are circulated that there will probably be a different approach. And as you as you might expect, you know, we're not going to give out the playbook, but we are in discussions and the needs of the customers, the size of the customers, the approach to the customers is different than the largest companies in the world. And so you can expect Shutterstock as it always does to adapt and be customer centric in the way we put together our products and services. So we're we like the hand that we've got and we're playing it to meet the customer demand. All right, super helpful.

Not expect that to change.

Awesome. Thank you so much.

Please standby for the next question.

Okay.

The next question comes from Andrew Boone with JMP Securities. Your line is open.

Good morning, and thanks for taking my questions I wanted to go back about 2024 disclosures you guys had in terms of about $6 million. It sounds like revenue from new data contracts will be more recurring going forward can you just give us more details there and talk about maybe the trade offs are recognizing more revenue upfront.

Jarrod Yahes: I mean, maybe lastly, Jared, on your cue for guidance, if my math is correct, it implies growth in low single digit and margins, when go low to maybe 18 and the 20s. Can you just go over again, the, I think you mentioned some of them in the prepared remarks, maybe can you just walk through the math there and maybe more importantly, as we look at 2024, is the assumption that we're on here on your basis, do margins go back to their, you know, most recent trend model.

<unk> elongated Matt Thank you.

Sure Andrew so.

Theres two disclosures that we made in our prepared remarks that our I think.

Incremental and helpful. One is beyond the two new customers that have been driving in year revenues. There is about $40 million of total contract value of pipeline that is either booked or in the process of being booked that will largely contribute to revenues in both 2024 and beyond and.

And so we have line of sight today into at least $60 million of revenue in 2024, and that's really before we end the year and continue to sell and deliver in 2020 for itself. So we're clearly in a very good position to continue to build this business and build it from a position of strength.

Jarrod Yahes: Sure, so I think you're correct, both in your overall assessment on Q4 both revenue as well as EBITDA, I think EBITDA, if you sort of do the math, you look at the guidance for the full year and you look at the $10 million of incremental sales and marketing spend, you'll get to EBITDA on the low 20s and percentage terms and I think you'll get to mid single digits in terms of revenue growth for the quarter. You know, I think this is clearly putting $10 million of incremental sales and marketing spend on the back of $8 million of incremental sales and marketing spend a very heavy investment period for us, we are doing that on the back of exceptional year today profitability.

Stability.

Whenever you transition from a perpetual license deal to more of a ratable revenue recognition model there can be an impact on revenue growth, we have seen that with other companies over the years, but we do believe that this is a model that will create greater visibility for Shutterstock. We think it's a model that we will be able to invest.

Behind because we will have a much greater sense of the forecast ability of the business and where we are and I think this trend towards a greater number of smaller customers will also benefit our ability to forecast and have visibility in this business. So I think this is part of the natural maturation that any new service.

Jarrod Yahes: I do not think that our Q4 EBITDA margin level is sort of the stable run rate for the business that you expect going forward. I think at this point, if you look back on the history of the company over the last three or four years, you've seen a very consistent focus on both revenue growth and profitability, I would not expect that to change.

Youssef Squali: Thank you so much. Please stand by for the next question.

Lyne undergoes and we feel really good about the way. This business is evolving with respect to demand with respect to the way the customers are coming in and the way, we will be servicing and delivering against their needs.

Great. Thanks for that and then enterprise ex data partnerships revenue accelerated and through.

Andrew Boone: The next question comes from Andrew Boone with JMP Securities. Your line is open. Good morning and thanks for taking my questions. I wanted to go back about the 2024 disclosure you guys had in terms of the $69. It sounds like revenue from new data contracts will be more recurring going forward. Can you just give us more details there and talk about maybe a trade-offs of recognizing more revenue upfront versus elongating that.

223.

The question I wanted to ask is can you talk about the declines of adoption and our clients versus self service widely Cooper Janssen whats different on the enterprise side ex scatter partnerships.

Sorry, Andrew just to clarify your question you were talking about adoption of what specifically.

Right.

I want to get out of the stock media right.

Seeing the enterprise just much more stable on enterprise revenue ex data partnerships versus E com and.

Andrew Boone: Thank you. Sure, Andrew, so there's two disclosures that we made in our prepared remarks that are incremental and helpful. One is beyond the two new customers that have been driving in your revenues, there's about $40 million of total contract value of pipeline that is either booked or in the process of being booked that will largely contribute to revenues in both 2024 and beyond. And so we have line of sight today into at least $60 million of revenue in 2024 and that's really before we end the year and continue to sell and deliver in 2024 itself.

Just talk about the difference between the two and again why why do you think that's the case and how do we think about that going forward, what's the opportunity what's the risk.

Great question Andrew.

How we think about it if you think about.

The E Commerce side, you have a stable set of small and medium customers that are that are consistent users of our of our product whether its images video music or other and on the enterprise side.

You've got very large scale customers that have been with us for a very long time with very high retention because shutterstock is just clearly front and center and a critical aspect of their workflow and so what you see is <unk>.

Andrew Boone: So we're clearly in a very good position to continue to build this business and build it from a position of strength and stability. Whenever you transition from a perpetual license deal to more of a radical revenue recognition model, there can be an impact on revenue growth. We've seen that with other companies over the years, but we do believe that this is a model that will create greater visibility for shutter stock. We think it's a model that will be able to invest behind because we will have a much greater sense of the forecast ability of the business and where we are.

High retention high growth as we bring more products and services to bear.

For our for our enterprise customers.

And there tends to be on the ecommerce side a level of infrequent use.

<unk>, which is exactly why we created the new product that I talked about shutterstock essentials, so that customers can.

Andrew Boone: And I think this trend toward the greater number of smaller customers will also benefit our ability to forecast and have visibility in this business. So I think this is part of the natural maturation than any new service line undergoes and we feel really good about the way this business is evolving with respect to demand, with respect to the way the customers are coming in and the way we'll be servicing and delivering against their needs.

Engage at a lower price point and still get a high value product that meets their needs. So they're just two different kinds of customers and even within the super categories of E. Commerce and enterprise you have sub classifications of segments of customers and our goal is to make sure that we've got the right product mix for each one of those.

<unk>.

Great and then just for my last question.

Andrew Boone: Great, thanks for that. And then enterprise X data partnerships revenue accelerated in 3223. The question that I want to ask is, can you talk about the difference of adoption between enterprise versus self service? Why the divergence and what's different on the enterprise side X data partnerships? Sorry, Andrew, just to clarify your question, you're talking about adoption of what specifically? What I want to get out of stock media is you're seeing the enterprise just much more stable on enterprise revenue X data partnerships versus e-commerce. And so just talk about the difference between the two and again, why do you think that's the case and how do we think about that going forward? What's the opportunity, what's the risk?

In <unk> you saw gross margins declined 50 basis points, you saw 100 points and QQ.

Can you just talk about the gross margin profile is there any changes as newer products. After the Max thanks, So much guys.

So Andrew this quarter, we did see a slight compression in the gross margin, but as we called out in the prepared remarks. Some of that is as a result of some of the the giffy compensation that flows through our P&L. It's also as a result of stock compensation expense and that stock comp.

Station expense ticks up because we do compensate our team partially through performance restricted stock units and when the expected results for the year improve which they have the expense ticks up and that partially flows through our gross margins.

Paul Hennessy: Great question, Andrew. Here's how we think about it. If you think about the e-commerce side, you have a, you know, a stable set of small and medium customers that are, that are, you know, consistent users of our of our product, whether it's images, video, you know, music or or other. And on the enterprise side, you've got very large scale customers that have been with us for a very long time, with very high retention aids because Shutterstock is just clearly front and center and a critical aspect of their workflow.

There is nothing structural in our business today that is impacting the gross margins.

And as we've mentioned in the past our data deals have very comparable gross margins to our core content business, because we're paying our contributors royalties that are commensurate with our core content business. There are interesting opportunities in the future. However, <unk> has the potential to be a higher gross margin business for <unk>.

Stock and that's something that we're keenly aware of and quite excited about as we move into an advertising based model.

Paul Hennessy: And so what you see is, you know, high retention, high growth as we bring more products and services to bear for our enterprise customers. And there tends to be on the e-commerce side, a level of infrequent use, which is exactly why we created the new product that I talked about, Shutterstock Essentials, so that customers can engage at a lower price point and still get a high value product that meets their needs.

Thank you.

Please standby for the next question.

The next question comes from Curtis Nagle with Bank of America. Your line is open.

Great great. Thanks, very much for taking it maybe just staying on that line.

Paul maybe as much as you can I know, it's early days, but just.

Talk a little bit about.

I guess the monetization potential for jiffy.

Paul Hennessy: So they're just two different kinds of customers and even within the super categories of e-commerce and enterprise, you have subclassifications of segments of customers. And our goal is to make sure that we've got the right product mix for each one of those.

No.

Obviously, it could be a really big business given the level of impressions youre getting in.

Kind of a team in place.

Yes.

Could you hear curious to hear how you guys are thinking about it.

A follow up after that.

Yes.

Andrew Boone: Eglins. Great.

We're enthusiastic all.

Jarrod Yahes: And then just for my last question, in 2Q, you saw gross margins decline 50 basis points. You saw 100 points in 3Q. Can you just talk about the gross margin problem? Is there any changes as your product enter the mix? Thanks much guys. So Andrew, this quarter we did see a slight compression in the gross margin, but as we called out in the prepared remarks, some of that is as a result of some of the giffy compensation that flows through our P&L, it's also as a result of stock compensation expense.

We said that we would be kind of relaunching our advertising platform.

In Q4, we were ahead of schedule and the delivery of that.

We.

Started to alert customers that we are officially open for business.

And when you have not only the size and scale, but the level of engagement with the asset.

That is get the.

Advertisers are enthusiastically including us.

Jarrod Yahes: And that stock compensation expense takes off because we do compensate our team partially through performance restricted stock units. And when the expected results for the year improve, which they have, the expense takes up and that partially flows through our gross margins. There is nothing structural in our business today that is impacting the gross margins. And as we've mentioned in the past, our data deals have very comparable gross margins to our core content business because we're paying our contributors royalties that are commensurate with our core content business.

Their campaigns for Q4 and are thinking very seriously about us throughout 2024.

So all of the early signs are very encouraging and as we start to get these campaigns up and running and start to deliver performance.

We think that we think that that spreads in the advertisers get even more enthusiastic so we remain bullish and in fact seeing the quality of the team and the level of our execution on more bullish than when we bought the asset back in June.

Okay very helpful.

Then a question for Jerry.

Jarrod Yahes: There are interesting opportunities in the future, however, giffy has the potential to be a higher gross margin business for shutter stock. And that's something that we're keenly aware of and quite excited about as we move into an advertising based model.

You know as much as you can would be curious just to hear a little bit more about the structure of the new.

Data deals right.

Richard one for very Frontloaded, it sounds like they're more spread but.

Operator: Thank you. Please stand by for the next question.

Any.

Got it as a kind of a duration would be helpful. And then if you could just what were the data revenues in <unk> of 'twenty two.

Sure Curtis and Curtis Thanks for joining we look forward to working with you and thanks for joining our call.

Curtis Nagle: The next question comes from Curtis Nagel with Bank of America. Your line is open. Great. Thanks very much for taking it. Maybe just stand on that line. You know, Paul, maybe as much as you can, I know it's early days, but just talk a little bit about, I guess the modernization potential for giffy. Obviously, you know, obviously could be really big business given the level of impressions you're getting and kind of the team in place.

Data revenues in the fourth quarter of 2022, our $15 million.

And I think you specifically asked about the fourth quarter. The third quarter of 2022 was much lighter was about $2 million.

And then I think your second question was just on how we think about the data deals ultimately.

There are going to be a range of duration of contracts that we look at depending on the specific needs of our customers are those contracts could be one year in duration two years in duration, we've done contracts as long as five years six years in duration. So we are going to look at a range of customer contract lengths and it really <unk>.

Curtis Nagle: But yeah, just would be your curious to hear how you guys are thinking about it and then I'll follow up after that. Yeah, we're enthusiastic. You know, we said that we would be kind of relaunching our advertising platform in Q4. We were ahead of schedule in the delivery of that. We started to alert customers that we are officially open for business. And when you have not only the size and scale, but the level of engagement with the asset that is giffy, advertisers are enthusiastically, including us in their campaigns for Q4 and are thinking very seriously about us throughout 2024.

<unk> on their expected pace of consumption of metadata for building generative AI applications and training models. We also plan on providing incremental training data to our customers and we've seen significant growth in our library with fresh data.

If you look back at our library that growth was traditionally high single digits, we've seen a fairly consistent acceleration in that growth over the course of the past year and both we and our metadata customers are very excited about that fresh incremental data that's coming in that is reflective of the world around us today.

Curtis Nagle: So all of the early signs are very encouraging and as we start to get these campaigns up and running and start to deliver performance, we think that we think that that spreads and the advertisers get even more enthusiastic. So we remain bullish and in fact seeing the quality of the team and the level of our execution, I'm more bullish than when we bought the asset back in June.

<unk> as it exists.

Ultimately, we think this is going to create a more visible revenue stream for our data business, it's going to give us a waterfall of contracts to build upon and better visibility for revenues in the years to come.

Got it okay. Thanks, very much and looking forward to work with you guys I appreciate it.

Thanks Curtis.

Please standby for the next question.

Paul Hennessy: Okay, very helpful. And then a question for Jarrod, you know as much as you can, would be curious to hear a little bit more about the structure of the new data deals. Right, you know, the kind of original ones were very front-loaded, sounds like they're more spread, but any guidance and kind of the duration would be helpful. And then if you could, just what were the data revenues in 4Q of 22?

Okay.

The next question comes from Kieran Kenny with Morgan Stanley. Your line is open.

Hi, Thanks for taking my questions I have two.

First can you provide some examples on the types of expansion deals you're signing.

Typically wondering if youre seeing any extension into different content types that werent included in the original deals.

Paul Hennessy: Sure, Curtis. And Curtis, thanks for joining. We look forward to working with you and thanks for joining our call. Data revenues in the 4Q of 2022 were 15 million, and I think you specifically asked about the 4Q of the 3Q of 2022 as much lighter, it was about $2 million. And then I think your second question was just on how we think about the data deals. Ultimately, there are going to be a range of duration of contracts that we look at depending on the specific needs of our customers.

And then second Jared can you comment on how the deal count in GCB composition changed in <unk> relative to the first half of the year. Thank you.

Karen is Paul <unk>.

Great question.

We see across our large partners.

Exactly as you described.

Some start with a particular content type.

Paul Hennessy: Those contracts could be one year in duration, two years in duration, we've done contracts as long as five years and six years in duration. So we are going to look at a range of customer contract lengths. And it really depends on their expected pace of consumption of metadata for building generative AI applications and training models. We also plan on providing incremental training data to our customers and we've seen significant growth in our library with fresh data.

And come back and say give us a lot more of it and.

And some that are taking a large portion of their particular content types are now moving from one content type to the other and so by going both vertical and horizontal that creates both.

Revenue and profit opportunity for us, but also allows our large partners and customers.

To better train their models. So is the comprehensive nature of the entire asset library that we have as well as the underlying metadata and the cleanness of that data and the asset the source nature of that data that makes it so compelling.

Paul Hennessy: If you look back at our library, that growth was traditionally high single digits. We've seen a fairly consistent acceleration in that growth over the course of the past year. And both we and our metadata customers are very excited about that fresh incremental data that's coming in that is reflective of the world around us today as it exists.

Karen just to add on to that when.

When you think about our customers and the demand we're seeing from existing customers a fairly significant component I would estimate about half of the $40 million of incremental bookings is actually existing customers that are electing to purchase from us new content types or additional volumes of existing <unk>.

Jarrod Yahes: Ultimately, we think this is going to create a more visible revenue stream for our data business. It's going to give us a waterfall of contracts to build upon and better visibility for revenues in the years to come. Okay, thanks very much and yeah, looking forward to working with you guys too. Appreciate it.

Content types. So there's very significant incremental demand that's coming from existing customers. The remainder would be from new customers that we've secured so we're very very excited about that.

Nothing materially different to report in terms of customer count.

Karen Kinney: Please stand by for the next question. The next question comes from Karen Kinney with Morgan Stanley. Your line is open. All right. Thanks for taking my questions. I have two. First, can you provide some examples on the types of expansion deals you're signing? And I'm specifically wondering if you're seeing any expansion into different content types that weren't included in the original deals. And then second, Jared, can you comment on how the deal count and PCV composition used in 3Q relative to the first half of the year?

This is still not a business that has hundreds of customers, it's a business where our customer count is growing our customer list is growing.

We're announcing a new customer every quarter at least if not more.

Do have plans to expand the Tam and expand the offerings that we provide to make us more attractive and more affordable proposition offer different types of customers, but we're very excited about the demand, we're seeing obviously and existing customers being a significant part of the new <unk>.

Unbilled is a very exciting demand signal for us in terms of land and expand.

Karen Kinney: Thank you. Karen is Paul. Great question. We see across our large partners exactly as you described. Some start with a particular content type and come back and say give us a lot more of it. And some that are taking a large portion of a particular content type are now moving from one content type to the other. And so by going both vertical and horizontal, that creates both a revenue and profit opportunity for us.

Great that's really helpful. Thank you.

I show no further questions at this time.

I'd now like to turn the call back to Paul Hennessy for closing remarks.

Thank you very much and as always we want to express our gratitude to our customers our contributors and especially our employees. Thank you for joining US this ends our call for today.

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

Karen Kinney: But also allows our large partners and customers to better train their models. So it's the comprehensive nature of the entire asset library that we have as well as the underlying metadata and the cleanness of that data and the assets least sourced nature of that data that makes it so welcome help. Karen, just to add on to that, when you think about our customers and the demand we're seeing from existing customers, a fairly significant component.

Karen Kinney: I would estimate about half of the $40 million of incremental bookings is actually existing customers that are electing to purchase from us new content types or additional volumes of existing content types. So there's very significant incremental demand that's coming from existing customers. The remainder would be from new customers that we secured. So we're very, very excited about that. Nothing materially different to report in terms of customer count. This is still not a business that has hundreds of customers.

Karen Kinney: It's a business where our customer count is growing. Our customer list is growing. We're announcing a new customer every quarter at least if not more. We do have plans to expand the temp and expand the offerings that we provide to make this a more attractive and more affordable proposition for different types of customers. But we're very excited about the demand we're seeing obviously and, you know, existing customers being a significant part of the new TCV pipeline build is a very exciting demand signal for us in terms of land and expand.

Operator: Great. That's really helpful. Thank you. I show no further questions at this time.

Paul Hennessy: I would now like to turn the call back to Paul Hennessy for closing remarks. Thank you very much. And as always, we want to express our gratitude to our customers, our contributors, and especially our employees. Thank you for joining us. This ends our call for today. Thank you for participating.

Operator: This concludes today's conference call. You may now disconnect.