Q3 2024 Shutterstock Inc Earnings Call
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Good day, and thank you for standing by.
Speaker Change: Come to the Q3 2024 shatter shock incorporated 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 on your telephone you will then hear an automated message advising that your hand is raised to withdraw.
Speaker Change: Your question. Please press Star one again, please be advised that today's conference is being recorded I would now like to hand, the call over to Rick Powell SVP Finance and Investor Relations. Please go ahead.
Rick Powell: Thank you latonia.
Good morning, everyone and thank you for joining us for Shutterstock third quarter 2024 earnings call.
Speaker Change: Many of US today is Paul Hennessy Shadow Stokes, Chief Executive Officer, and Jarrod, Sheldon Fox Chief Financial Officer.
Speaker Change: Please note that some of the information Youll hear general discussion today will consist of forward looking statements, including without limitation, the long term effects of the investments in our business.
Speaker Change: <unk> success, and financial impact of new and existing product offerings, our ability to consummate acquisitions and integrate the businesses, we have acquired or may apply into our existing operations, our future gross margins and profitability.
Speaker Change: Long term strategy and outperformance targets, including 2020 for guidance and long range financial targets.
Speaker Change: Actual results or trends could differ materially from our forecast.
Speaker Change: For more information please refer to today's press release, which we have posted to our Investor Relations website. Please also refer to the reports we filed with the SEC from time to time, including the risk factors discussed in our most recently filed Form 10-K for discussions of important risk factors that could cause actual results to differ materially from any forward looking statements. We may make on this.
Speaker Change: Yes.
Speaker Change: We will be discussing certain non-GAAP financial measures today, including adjusted net income adjusted net income per diluted share adjusted EBITDA and adjusted EBITDA margin revenue growth, including by distribution channel on a constant currency basis billings and free cash flow.
Speaker Change: 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.
Speaker Change: I'd now like to turn the call over to Paul Hennessy, Our Chief Executive Officer. Thanks.
Thanks, Rick Good morning, everyone and thank you for joining US today. Following a strong first half I am pleased to report that Shutterstock reported both record third quarter revenues and record adjusted EBITDA. This is a tremendous accomplishment and I would like to thank our customers our contributors and our entire shutterstock team for their incredible efforts that help.
Speaker Change: Generate these results I will walk you through the component parts of our business in a moment, but suffice it to say the quarter played out better than we expected.
Speaker Change: I would also like to extend a warm welcome to the global <unk> team, including our new colleagues in Australia, and New Zealand and Mexico, and we're thrilled to have them be part of this journey with us.
Speaker Change: Q3 is the first quarter, the Nevada contributed to our consolidated result, and we could not be more pleased the strong product market fit of <unk> elements. The high value low cost unlimited multiyear subscription is resounding in the market.
Speaker Change: Before we turn to this quarter's results I'd like to first share that after five years at Shutterstock <unk> will be leaving the company to pursue another opportunity Jared deep understanding of the key drivers of our business has played a pivotal role in the expansion of our portfolio and growth. During his tenure as CFO. He has taken the business from 90.
Speaker Change: $6 million in EBITDA in 2000 $20 million to $250 million. This year nearly doubled our EBITDA margins and lead 11 acquisitions, which have all been constructive in driving overall revenue and EBITDA growth I want to thank Jerry for his incredible contributions to Shutterstock and wish him the very best in the future.
Speaker Change: I'd also like to announce that Rick Powell will become our Chief Financial Officer, Rick started in June as SVP Finance and Investor Relations given ricks extensive experience we are certain that under his leadership Shutterstock will continue to drive profitable growth for our shareholders.
Speaker Change: Now, let's turn to our third quarter results.
Speaker Change: In the third quarter Shutterstock delivered revenues of $251 million Rep.
Speaker Change: Representing growth of seven 4% year over year, adjusted EBITDA was $70 million with a 28% margin.
Speaker Change: Content achieved revenues of $204 million in the third quarter, representing growth of 14% year over year.
Speaker Change: <unk> contributed content revenues of $38 million in the third quarter.
Speaker Change: Excluding the <unk> contribution content revenues declined 7% year over year compared to the 9% decline that we saw in the second quarter and in line with the rate of recovery that we predicted for this part of our business we.
Speaker Change: We remain focused on improving performance in this area and are working extremely hard to drive the desired results.
Speaker Change: <unk>, we have made the simplified pricing streamline the product offering and eliminate the use of the free trial promotion are slowly resulting in the improved performance that we're experiencing across our content business.
Speaker Change: As I stated in like Q2 remarks, we believe that the <unk> acquisition fills what was a material void in our product suite.
Speaker Change: The recent performance of <unk> is underscoring that sentiment.
Speaker Change: Following a recent series of site improvements product enhancements and the launch of an energetic and compelling rebrand and Vito has seen a sharp increase in paying subscribers.
Speaker Change: We are extremely encouraged by these trends and while we believe there is a growing customer base that sees tremendous value in an unlimited multi asset subscription. We also believe that our traditional pack and subscription products can continue to grow and succeed in the market. We are excited about the opportunity that the combination of <unk>.
Speaker Change: <unk> and our existing product offerings bring not only to our customers, but also to our contributors and our business overall, our offerings focused on medium and large sized customers are experiencing solid steady demand in line with recent trends.
Speaker Change: A contributing factor to our improved content performance is being driven by AI generated content and we believe this could be a material opportunity for shutterstock.
Speaker Change: AI generated content has been available to download in license directly on our side since the beginning of last year with quality improving at a fast pace.
Speaker Change: We further embraced this technology by launching a generative plus in April of this year generative plus as a low cost month to month subscription specific to the licensing of AI generated content.
Speaker Change: Subscribers to this products have grown each month since launch with millions of AI image is being generated and hundreds of thousands of these had been licensed as.
As we expected our existing customers, who choose to subscribe and download the AI generated content continue to license traditional stock content at a similar rate and in many cases are increasing their traditional stock usage.
Speaker Change: Also in September just under half of subscribers to this product were new customers to shutterstock with many going on to buy traditional stock. In addition to generative plus we see no material science at traditional stock licensing is being displaced in fact to the contrary we are seeing increments.
Speaker Change: <unk> here across both new and existing customers.
Speaker Change: While we are happy with improving performance in our content business. We continue to invest heavily behind the success. We are seeing in data distribution and services our product offering that are targeted at faster growth and more nascent tam than our traditional content business.
Speaker Change: Data distribution and services achieved revenues of $47 million in the third quarter.
Speaker Change: In data, we continue to see a smaller number of large contract value deals. We are building out our sales force and footprint in order to address growing global demand as new customers globally recognize the value from license high quality data for AI model training.
These customers include large global technology companies as well as high growth VC backed generative AI companies that are revolutionizing the application landscape in.
Speaker Change: In addition to new customers. We are also seeing multiple land and expand growth opportunities with existing customers.
Speaker Change: Existing customers are expanding in three primary ways.
Speaker Change: Firstly, they are asking us for more data and incremental or refresh data in specific content categories for.
Speaker Change: For example, since our last call we saw multiple expansions with existing customers and we are seeing interest from customers in incremental data and newer formats of data brought to us through and vital seconds.
Speaker Change: Secondly, they are continuing to diversify the type of data they seek from US for example, a customer initially purchased several asset types, including inclusive of images video and three D. And subsequently returned to also purchase audio to augment their data for AI model training.
Speaker Change: Lastly, they are asking us to both source new content to satisfy their training needs and further enhance the metadata of existing content.
Speaker Change: Recent examples of this include a customer that commissioned us to source a large set of bespoke video content for AI model fine tuning.
Speaker Change: Another customer purchased additional existing metadata within our datasets and yet a different customer purchased enhanced metadata services in order to create new detailed asset descriptions.
Speaker Change: Each of these is a massive opportunity for shutterstock and we are being nimble in the way we serve our customers in order to be responsive to market needs and growth.
Speaker Change: In distribution our gift business.
As the worlds preeminent purveyor of gifts and the new message based advertising format that is something that you share not something you skip.
Speaker Change: Audience engagement with guests continue to show impressive growth globally.
Speaker Change: Q3 views reached a staggering number of approximately 19 billion per day. This number is up over 10% versus the same quarter last year.
Speaker Change: Understandably, we continue to be excited by the opportunity here and are investing aggressively the third quarter gave us even more confidence that there is a strong path to monetization of this business.
Speaker Change: During the quarter, we continued to fortify the giffy team with strong sales hires. These new hires are already winning deals with the result being that our paying customer base increased by 46 clients when compared to the second quarter.
Speaker Change: Our deal pipeline is increasing on the back of this investment, giving us confidence in our ability to scale as we look towards 2025 and beyond.
Speaker Change: We are seeing strength in both CPG and entertainment having closed multiple deals in these areas and recently closed our first deal in the gaming vertical the foundation is being laid to build a scalable sustainable high growth business.
Speaker Change: In this regard you may have seen our press release from earlier today detailing our new and exciting partnership with Tic Toc earlier. This month Tictoc expanded its long standing relationship with gift, giving selecting us as a valued partner to power a new specialized recommendation engine with indirect messaging that delivers users the right.
Speaker Change: Gift content at the right time on Tech Tuck. This is an exciting opportunity for tictoc users the share gift content indirect messaging, we continue to work with Tic toc to explore ways to further enhance this offering across the tick tock experience.
Speaker Change: Finally in services Shutterstock Studios, our award winning end to end production business had a great quarter with revenues more than doubled that of third quarter last year. These results put this business well on its way to achieving record revenues for the year.
Speaker Change: This is a business whose product is truly differentiated and one in which we are extremely proud.
Speaker Change: Our focus in terms of the capital resources and attention directed across data distribution and services reflects the opportunity. We believe exists for 20% plus growth in these emerging businesses. The results. We're seeing are proving that this focus is resulting in even greater returns than we anticipated.
Speaker Change: In closing we remain confident that our strategy is laid out at the start of the year remained sound and that our third quarter results lay a strong foundation to achieve our 2027 targets for Shutterstock to achieve $1 2 billion of revenue and $350 million of EBITDA.
Now with more details on the financials I will hand, the call over to Jared.
Jared: Thank you Paul and good morning, everyone.
Jared: <unk> revenue for the third quarter was a record $250 6 million up seven 4% year over year with both business lines nicely outperforming our expectations.
Jared: Content revenue was $204 million, an increase of 14% versus the prior year.
Jared: In Novato has meaningfully outperformed expectations since the acquisition the.
Jared: But the total revenue contribution to content from <unk> in the quarter was $37 6 million.
Jared: This reflects revenue after the July 22nd close of the acquisition.
Jared: In <unk> outperforming because subscriber additions are exceeding expectations on the back of a strong brand refresh and site improvements.
Jared: Excluding the <unk> <unk> in quarter contribution content declined 7% year over year, which represents a 200 basis point improvement as compared to the second quarter and the second consecutive quarter of improvement.
Jared: This is another great data point that we're getting back to work at it growth.
Jared: Our most popular product categories and packs and subscriptions have experienced several months net customer additions, making us optimistic about the resiliency here.
Jared: In addition, the improvements we've made in pricing packaging and promotion across our properties are showing positive results.
Speaker Change: Data distribution and services revenue was $47 million in the quarter and data, we've seen new customer demand combined with expansions with existing customers through various land and expand opportunities as Paul described.
Speaker Change: Growth in gift and studios accelerating in the back half of the year and we continue to hire aggressively to build out the sales team to support rapid growth in those businesses.
Speaker Change: The data distribution and services businesses have grown more than 40% year to date, and we feel great about the momentum here.
Speaker Change: As I review the P&L. Please note that these line items exclude the expenses to reconcile from net income to adjusted EBITDA.
Speaker Change: In the third quarter sales and marketing was 20% of revenue compared to 22, 6% in the prior year.
Speaker Change: Based on the positive momentum in content, we expect sales and marketing spend to increase in the fourth quarter as we invest behind the positive results we are seeing.
Speaker Change: Product development was six 1% of revenue in the quarter compared to seven 5% in the prior year, reflecting prudent cost management and ongoing integration of our acquisitions.
Speaker Change: Because some of our product development spend is capitalized we also expect capitalized R&D to decline in the coming quarters, improving free cash flow conversion.
Speaker Change: G&A expenses were 13% of revenue in the quarter compared to 11% in the prior year.
Speaker Change: Note the third quarter G&A expenses include $3 2 million of in Novato transaction costs associated with legal and M&A fees.
Speaker Change: These expenses totaled $8 2 million year to date and are not added back for purposes of calculating adjusted EBITDA.
Speaker Change: Adjusted EBITDA for the third quarter was a record $70 million with 27, 9% EBITDA margins.
Speaker Change: Free cash flow was also extremely strong in the third quarter at $45 7 million.
Speaker Change: Consistent with the second quarter, we repurchased $21 million of shares.
Speaker Change: Based on the relative attractiveness of our shares we expect to continue to buy back shares over the long term and we will renew our repurchase authorization as necessary.
Speaker Change: After payment of the quarterly dividend and executing on our share repurchases in the third quarter, we saw our cash balance increased to $131 million.
Speaker Change: Cash includes approximately $18 million of excess cash that came on the balance sheet of in novato.
Speaker Change: Along with offsetting payments that we expect to make next quarter.
Excluding any excess acquired cash our cash balance still increased substantially from $75 million in Q2 to $113 million in the third quarter, even after share repurchases and dividends are taken into account.
Speaker Change: Our net debt balance at the third quarter was $149 million, representing a net debt to LTM EBITDA ratio of 0.6 times.
Speaker Change: Given the attractive rates that we have on our lines and the low cost of capital we do not plan on paying down debt at this time.
Speaker Change: As discussed previously we will aggressively redeploy cash flows to repurchase stock pay dividends and acquire companies that add strategic value to shutterstock.
Now turning to guidance.
Speaker Change: Given shutterstock as a record third quarter performance and our expectations for continued business improvement through the remainder of the year, we're raising our guidance for both revenue and adjusted EBITDA.
Speaker Change: Revenue is expected to be between $935 to $940 million representing growth of 7% to seven 5% year over year.
Speaker Change: We are seeing content improve each quarter and expect that trend to continue in the fourth quarter.
Speaker Change: In Nevada was outperforming expectations and off to a strong start.
Speaker Change: And data distribution and services remains strong as I previously outlined.
Speaker Change: Adjusted net income per diluted share guidance increases to $4 22.
To $4 31 per share.
Speaker Change: And adjusted EBITDA guidance increases to $247 million to $250 million.
Speaker Change: This adjusted EBITDA guidance includes an expected $9 million of M&A costs for the full year.
Speaker Change: Please note that adjusted EBITDA is expected to be in the range of 24% to 25% in the fourth quarter.
Speaker Change: In summary, Shutterstock had a record quarter in terms of revenues and profits were steadily returning to organic growth in content and our new <unk> acquisition is outperforming.
Speaker Change: Our investments in data distribution and services are paying dividends and were hiring in sales aggressively behind that success.
Speaker Change: With a solid balance sheet and strong free cash flow, we're using our capital smartly to grow our business and return capital to shareholders.
Speaker Change: Lastly, we are well set up to achieve our Shutterstock 2027 targets of $1 2 billion of revenues and $350 million of EBITDA and we look forward to providing investors an update against those targets next quarter.
Speaker Change: Lastly, as I depart from Shutterstock I wanted to take this opportunity to thank Paul Hennessy, John Oranger and the entire Shutterstock board of directors to be amazing opportunity. The company has afforded me in an extremely fulfilling five year journey.
Speaker Change: I leave Shutterstock with a firm conviction in the company's strong competitive position and growth prospects.
The finance team is extremely capable and I have the utmost confidence that Rick and the team will continue to drive profitable growth for Shutterstock shareholders.
Speaker Change: And with that operator, we open the line for any questions certainly.
Speaker Change: Certainly as it reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.
Speaker Change: And one moment for your first question.
Speaker Change: Our first question will be coming from Curt Nagle of Bank of America. Your line is open.
Curt Nagle: Good morning, Thank you very much.
Maybe just a couple on goofy curious what the revenue contribution wasn't through Q.
Speaker Change: And then just.
Speaker Change: Thinking about the potential monetization from tick tock.
Speaker Change: Is that I think previously you had commented given it could be.
Speaker Change: Like a $50 million run rate business in a year or two.
Speaker Change: Does it feel like that contemplated in that figure.
Speaker Change: So I'll take the first part Curtis and then I'll pass it over to Paul to talk about the gift the opportunity and Tic Toc.
Speaker Change: <unk> <unk> as we acquired the business the run rate revenues of the business were about $20 million, we've consolidated that business into our data distribution and services segment, we're seeing very nice growth in that segment, it's growing 40% on a year to date basis.
Speaker Change: We're continuing to see.
Speaker Change: <unk> expand strengths on strengths, so it's growing sequentially each and every quarter over the course of this year and we expect that to continue we're not going to be breaking out the individual sub components of the DDS revenue segment.
Speaker Change: But really pleased with what we're seeing in terms of ongoing sequential and year over year growth with give you as we grow in scale, we're obviously investing heavily behind it from a sales perspective.
Speaker Change: And in card regarding that the tick tock deal.
Speaker Change: I can't I can't talk about the specifics or nature of the deal, but I did reference the growth that we're seeing across skippy.
Speaker Change: In gift usage.
Speaker Change: <unk> and <unk> and now the monetization business. So certainly when we look at look at more users sending more guests with with higher levels of engagement.
Speaker Change: We believe we're going to monetize that and so we continue to be very very bullish on the revenue opportunity for GSE.
Speaker Change: In line with a lot of the comments that I that I have given in the past we remain very very enthusiastic about giffy.
Speaker Change: Okay. Thank you very much.
Speaker Change: Yes.
Speaker Change: One moment for our next question.
Speaker Change: Our next question will be coming from Youssef Squali of choice Securities. Your line is open.
Youssef Squali: Great. Thank you very much Gerry best of luck.
Youssef Squali: For your new endeavor, and we look forward to working with you.
Youssef Squali: So.
Youssef Squali: Couple of questions, maybe starting on the content side.
And excluding Bartow can you maybe peel that onion, a little bit you did show some sequential improvement I think we went from negative.
Youssef Squali: Ken So negative 19 negative seven so red trajectory, how should we think about that trajectory going forward I E that the pace of the recovery do we get to.
Youssef Squali: Sure.
Youssef Squali: Positive growth sometime in 2025 from where you sit today.
Youssef Squali: And then maybe on the <unk>.
Side, what kind of visibility do you have into the pipeline there not only for Q4, but for 2025, I think you historically kind of quantified.
Youssef Squali: The money in the bank if you will from.
Youssef Squali: David.
Youssef Squali: How do you see that progressing.
Youssef Squali: 25.
The type of visibility at the type of growth you expect in that line. Thank you very much.
Speaker Change: Great. Thanks Joseph.
Speaker Change: I'll take content, Jerry can take data on the content business look.
Speaker Change: Don't know what day, we cross over but we're making really good progress the changes that we've made from coming off the free trial to reintroducing, our our smaller packs as I mentioned in our in our core subscription.
Speaker Change: Product is getting traction.
Speaker Change: Seeing growth in the business and you start to see the the the level of the decline is shrinking you mentioned minus 10 to minus nine minus 7% and we're predicting that Q4 is better than that so we're really like what we see what we're seeing and then if you add in some of my commentary on the combination of.
Speaker Change: <unk> AI in our content business, we're now seeing not only existing customers using the AI sub and maintaining their level of stock used and in many instances growing that.
Speaker Change: We're also starting to see new customers come into the franchise.
Speaker Change: For the AI products and start to use stock content. So we really like this ecosystem that starting to happen of not.
Speaker Change: Growth in both stock and AI for customer sets. So again I can't tell you exactly when we cross over but I really like the hand that we've got and the businesses the core business ex <unk> is improving.
Speaker Change: And use of just to add a note on our data we came into this year with about $60 million for the visibility of our business and Thats, what we communicated at the onset of the year, we're going to finish the year with well over $100 million of revenue this year and meaningfully outperformed our expectations.
Speaker Change: We're effectively at a very similar situation looking forward. This is a business thats lumpy. This is a business that's characterized by limited visibility and quite frankly, it makes it tough for us to forecast. We are extremely pleased with a lot of the land and expand opportunities that we're seeing because whenever you are winning business from existing clients.
Speaker Change: It much more visible and much more certain as compared to new customer bookings and so we're excited about what we're seeing with new customer pipeline, but this idea that knew that existing customers have a multitude of ways to expand with shutterstock should over the long term make us a much more durable and visible business and we're really.
Speaker Change: Pleased with the way we're building out those existing customer service lines.
Thanks, and just one quick one on in bottle, we seem to be more excited today about it than you were at acquisition can you maybe flesh out the growth you've seen there and kind of on a standalone basis, what kind of growth do you think this business can sustain.
Speaker Change: Yeah, I'll start Jerry can can weigh in look I mentioned some of the things that <unk> has done of late really post acquisition.
Speaker Change: We were appropriately conservative with our new acquisition on what that growth opportunity might be but we're seeing the work that they did on the customer experience the work that they've done with the rebrand.
Speaker Change: Is driving new subs into the franchise and so we're we're more bullish today on the growth.
Speaker Change: The product market fit of <unk> than we were when we acquired the company and so we're obviously very excited and theyre delivering beyond our expectations.
Speaker Change: Alright, thank you.
Speaker Change: Thank you.
Speaker Change: And one moment for our next question.
Speaker Change: And our next question will be coming from Bernie Mcternan of Needham <unk> Company. Your line is open.
Great. Thanks for taking the questions.
Bernie Mcternan: Jared Sad to see you go appreciate all the help over the years the best of luck in the new role.
Speaker Change: Anthony Your line.
Speaker Change: Just maybe the jewelry approach.
Speaker Change: Trying to think about these opportunities.
Speaker Change: From the data deal.
Are those going to be once you're talking about more metadata or those maybe one time.
Speaker Change: Or are those going to be more recurring revenue.
Great.
Speaker Change: Yeah.
Speaker Change: And sorry for the sorry for the background here.
Speaker Change: Okay.
Speaker Change: It sounds very cute both.
Speaker Change: Doug as well as the daughter, they both sound adorable and thanks, so much for your for your question.
Speaker Change: Look I think what we're seeing from our customers is recurring demand for incremental refresh data recurring demand for additional services to be layered on top of the first party data that we have on offer.
Speaker Change: And that's really exciting because we know that this R&D effort.
Speaker Change: We're only going to expand as investments are made and generative AI across this leading technology platforms.
Speaker Change: We are privileged to be a go to trusted source for some of that first party data as well as the enhancement and optimization of that first party data.
And quite frankly, when you look at data and the opportunity there around generative AI and you look at Giffy. It becomes very clear that Shutterstock is a really durable business with some really exciting growth opportunities.
Speaker Change: Today investors are not affording us a terminal multiple we think thats going to change as people realize that not only is our core business stabilizing varies surely in and gradually after these growth opportunities are really really exciting and we're investing aggressively behind what we see we think the rest of the market will eventually as well.
Speaker Change: That's great and then just two quick follow ups.
Speaker Change: And Paul in your prepared remarks, you mentioned, some new types of content that <unk> brings to compute computer vision that wasn't seemingly it wasn't in the Shutterstock library can you just dive into that a little bit more whether it's types of content or types of data or whatever it maybe.
Speaker Change: Pretty decent confidence in your ability to keep growing that traditional products I guess, how are you seeing the go to market those products interact with them about how now that you're you've happened in both under the same roof for for three months and then you know.
Speaker Change: On the Salesforce side Youre also a few comments in there about just that are investing aggressively behind the sales force on the data side I guess, where are you in the ramp and any learnings from ramping that sales force. So far thank you.
Speaker Change: Great I'll I'll start with the Nevada question right now the two products that exist in the marketplace and by the way they existed in the marketplace prior and what we're seeing is by having multiple irons in the fire so far pack products and subscriptions on Shutterstock and neon.
Speaker Change: Unlimited offering and involve.
Speaker Change: It really provides an entire product suite to address all kind of customer needs. So we're seeing it to be an incremental move rather than dilutive to one or the other.
Speaker Change: And on the data side Gerry do you want to talk about the sales force investment and where we are in on that yeah, we've been hiring.
Speaker Change: Steadily slowly, but surely for our data sales force. These are strategic sellers, who really have a need to partner deeply with some of the world's most sophisticated technology organizations.
Speaker Change: We've been expanding the diversity of that sales force globally. So we've recently made some hires into Europe and Asia. So I think that's a great step for US and we're also starting to think about additional distribution partners. For example, we're seeing venture capital firms actually recommend our first party data.
Speaker Change: To their portfolio companies, which is very exciting for us as well as traditional service providers start to recommend our first party data to some of their technology clients. So we're really thrilled about the traditional salesforce buildout as well as the additional distribution that can come from having partnerships with venture capital firms.
Speaker Change: And service providers.
Speaker Change: Great. Thank you.
Speaker Change: As a reminder to ask a question. Please press star one one and wait for your name to be announced to withdraw your question. Please press star one again.
Speaker Change: And our next question will be coming from Andrew Boone of JMP Securities. Your line is open.
Andrew Boone: Thanks, so much for taking my questions.
Andrew Boone: I wanted to ask two follow ups in terms of AI just following up on Bonnie's question.
Andrew Boone: It's a revisiting path customers for data sales there was a theory early on that he would continue to buy more data from you guys.
Andrew Boone: Seeing incremental purchases of existing forms of data or can you just talk about the sustainability as you guys go back.
Andrew Boone: In recent past customers.
Andrew Boone: And then part of the distribution that you guys talked about in past quarters with smaller companies I would just love an update on that in terms of our deals go into what our Hyperscale orders and kind of people building next frontier models are you guys, making any progress in terms of smaller companies that are building more.
Andrew Boone: Look maybe vertically specific models.
Speaker Change: Sure Andrew Thanks, so much for the question.
Speaker Change: AI generative tool available back in January of 2023, and we've been learning watching and experimenting the entire time, we moved to a a packaged launch.
Speaker Change: Earlier, this year, where customers can comment for a low price subscription engage in our products and what you know.
Speaker Change: And aiding and exciting for US is stock content customers are using degenerative AI subscription and their stock content use continuous and in many cases, they are using more stock content use as a as they use the general.
Speaker Change: [noise] of AI product. In addition, new customers that are coming looking for generative AI are finding it at shutterstock engaging in the product and then going on to buy stock content. So we always said that this would be a one plus one and generative AI being a a new ingredient.
Speaker Change: So they are creative and advertisers can use these products together to create more and we're actually seeing that come to life now so we're seeing subscriptions grow in that product.
Speaker Change: It's growing every single month and over time, we'll keep reporting out on how thats doing and what the effect is having on our our stock content business, but right now it's additive and by the way. That's just on the image side. If you let your mind wander on what we could do with generative.
Speaker Change: Our generative three D product, there's a lot more that we think can be a stock plus AI equaling a bigger aggregate business.
Speaker Change: Thank you.
Speaker Change: Thank you.
And I would now like to turn the conference back to Paul Hennessy CEO for closing remarks.
Paul Hennessy: As always I'd like to thank our team and contributors for their continued efforts and also our customers for continuing to trust shutterstock as their provider of choice as we've just outlined this was a record quarter for Shutterstock I could not be more proud of these results and importantly, what drove them being the team's ability.
Paul Hennessy: And desire to optimally execute against our strategy each and every day. Thank you. This ends the call for today.
Speaker Change: And this concludes today's conference call. Thank you for participating you may now disconnect.
Paul Hennessy: Okay.
Paul Hennessy: Okay.
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Paul Hennessy: Good day, and thank you for standing by.
Welcome to the Q3 2024 shutter shock incorporated 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 on your telephone you will then hear an automated message advising that your hand is raised to withdraw.
Paul Hennessy: Your question. Please press Star one again, please be advised that today's conference is being recorded I would now like to hand, the call over to Rick Powell SVP Finance and Investor Relations. Please go ahead.
Rick Powell: Thank you latonia.
Rick Powell: Good morning, everyone and thank you for joining us for Shutterstock third quarter 2024 earnings call.
Speaker Change: Joining us today as Paul Hennessy, Shutterstock, Chief Executive Officer, and Jarrod Yeas, Shutterstock to Chief Financial Officer.
Speaker Change: Please note that some of the information Youll hear general discussion today will consist of forward looking statements, including without limitation. The long term effects of the investments in our business the future success and financial impact of new and existing portal friends, our ability to consummate acquisitions and integrate the businesses, we have acquired or may apply into our existing <unk>.
Speaker Change: Operations, our future gross margins and profitability.
Speaker Change: Our long term strategy and outperformance targets, including 2020 full guidance and long range financial targets.
Speaker Change: Actual results or trends could differ materially from our forecast.
Speaker Change: For more information please refer to today's press release, which we have posted to our Investor Relations website. Please also refer to the reports we filed with the SEC from time to time, including the risk factors discussed in our most recently filed Form 10-K for discussions of important risk factors that could cause actual results to differ materially from any forward looking statements. We may make on this call.
We will be discussing certain non-GAAP financial measures today, including adjusted net income adjusted net income per diluted share adjusted EBITDA and adjusted EBITDA margin revenue growth, including by distribution channel on a constant currency basis billings and free cash flow.
Speaker Change: 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.
Speaker Change: Yeah.
Speaker Change: I'd now allowed to turn the call over to Paul Hennessy, Our Chief Executive Officer.
Good morning, everyone and thank you for joining us today. Following a strong first half I am pleased to report that Shutterstock reported both record third quarter revenues and record adjusted EBITDA. This is a tremendous accomplishment and I would like to thank our customers our contributors and our entire shutterstock team for their incredible efforts that helped.
Speaker Change: Generate these results I will walk you through the component parts of our business in a moment, but suffice it to say the quarter played out better than we expected.
I would also like to extend a warm welcome to the global <unk> team, including our new colleagues in Australia, New Zealand, and Mexico, and we're thrilled to have them be part of this journey with us.
Speaker Change: Q3 is the first quarter than Nevada contributed to our consolidated result, and we could not be more pleased the strong product market fit of vital elements the high value low cost unlimited multiyear subscription is rebounding in the market.
Speaker Change: Before we turn to this quarter's results I'd like to first share that after five years at Shutterstock <unk> will be leaving the company to pursue another opportunity Jared deep understanding of the key drivers of our business. It played a pivotal role in the expansion of our portfolio and growth. During his tenure as CFO. He has taken the business from 90.
Speaker Change: $6 million in EBITDA in 2000 $20 million to $250 million. This year nearly doubled our EBITDA margins and lead 11 acquisitions, which have all been constructive in driving overall revenue and EBITDA growth I want to thank Jerry for his incredible contributions to Shutterstock and wish him the very best in the future.
Speaker Change: I'd also like to announce that Rick Powell will become our Chief Financial Officer, Rick started in June as SVP Finance and Investor Relations given ricks extensive experience we are certain that under his leadership Shutterstock will continue to drive profitable growth for our shareholders.
Speaker Change: Now, let's turn to our third quarter results.
Speaker Change: In the third quarter Shutterstock delivered revenues of 251 million.
Speaker Change: Presenting growth of seven 4% year over year, adjusted EBITDA was $70 million with a 28% margin.
Speaker Change: Content achieved revenues of $204 million in the third quarter, representing growth of 14% year over year.
Speaker Change: <unk> contributed content revenues of $38 million in the third quarter excluding.
Excluding the <unk> contribution content revenues declined 7% year over year compared to the 9% decline that we saw in the second quarter and in line with the rate of recovery that we predicted for this part of our business we.
We remain focused on improving performance in this area and are working extremely hard to drive the desired results.
Speaker Change: <unk>, we have made the simplified pricing streamline the product offering and eliminate the use of the free trial promotion are slowly resulting in the improved performance that we're experiencing across our content business.
Speaker Change: As I stated in like Q2 remarks, we believe that the <unk> acquisition was a material void in our product suite.
Speaker Change: The recent performance of <unk> bottle is underscoring that sentiment.
Speaker Change: Following a recent series of site improvements product enhancements and the launch of an energetic and compelling rebrand <unk> has seen a sharp increase in paying subscribers. We are extremely encouraged by these trends and while we believe there is a growing customer base that sees tremendous value in an unlimited multi asset subscription.
Speaker Change: We also believe that our traditional pack and subscription products can continue to grow and succeed in the market. We are excited about the opportunity that the combination of <unk> and our existing product offerings bring not only to our customers, but also to our contributors and our business overall.
Speaker Change: Our offerings focused on medium and large sized customers are experiencing solid steady demand in line with recent trends.
Speaker Change: A contributing factor to our improved content performance is being driven by AI generated content and we believe this could be a material opportunity for shutterstock.
Speaker Change: AI generated content has been available to download in license directly on our slide since the beginning of last year with quality improving at a fast pace.
Speaker Change: We further embraced this technology by launching a generative plus in April of this year generative plus as a low cost month to month subscription specific to the licensing of AI generated content.
Speaker Change: Subscribers to this products have grown each month since launch with millions of AI image is being generated and hundreds of thousands of these had been licensed.
Speaker Change: As we expected our existing customers, who choose to subscribe and download the AI generated content continue to license traditional stock content at a similar rate and in many cases are increasing their traditional stock usage.
Speaker Change: Also in September just under half of subscribers to this product were new customers to shutterstock with many going on to buy traditional stock. In addition to generative plus we see no material signs of traditional stock licensing is being displaced in fact to the contrary we are seeing increments.
Speaker Change: <unk> here across both new and existing customers.
While we are happy with improving performance in our content business. We continue to invest heavily behind the success. We are seeing in data distribution and services our product offering that are targeted at faster growth and more nascent tam than our traditional content business.
Speaker Change: Data distribution and services achieved revenues of $47 million in the third quarter.
Speaker Change: In data, we continue to see a smaller number of large contract value deals. We are building out our sales force and footprint in order to address growing global demand as new customers globally recognize the value from license high quality data for AI model training. These.
Speaker Change: These customers include large global technology companies as well as high growth VC backed generative AI companies that are revolutionizing the application landscape.
In addition to new customers. We are also seeing multiple land and expand growth opportunities with existing customers.
Speaker Change: Existing customers are expanding in three primary ways.
Speaker Change: Firstly, they are asking us for more data and incremental or refresh data in specific content categories for.
For example, since our last call we saw multiple expansions with existing customers and we are seeing interest from customers and incremental data and newer formats of data brought to us through and vital seconds.
Speaker Change: Secondly, they are continuing to diversify the type of data they seek from US for example, a customer initially purchased several asset types, including inclusive of images video and three D. And subsequently returned to also purchase audio to augment their data for AI model training.
Speaker Change: Lastly, they are asking us to both source new content to satisfy their training needs and further enhance the meta data of existing content.
Recent examples of this include a customer that commissioned us to source a large set of bespoke video content for AI model fine tuning.
Speaker Change: Another customer purchased additional existing metadata within our datasets and yet a different customer purchased enhanced metadata services in order to create new detailed asset descriptions.
Speaker Change: Each of these is a massive opportunity for shutterstock and we are being nimble in the way we serve our customers in order to be responsive to market needs and growth.
In distribution our gift business.
Speaker Change: As the worlds preeminent purveyor of gifts and the new message based advertising format that is something that you share not something you skip.
Speaker Change: Audience engagement with guests continue to show impressive growth globally Q.
Q3 views reached a staggering number of approximately 19 billion per day. This number is up over 10% versus the same quarter last year.
Speaker Change: Understandably, we continue to be excited by the opportunity here and are investing aggressively in the third quarter gave us even more confidence that there is a strong path to monetization of this business <unk>.
Speaker Change: During the quarter, we continued to fortify the giffy team with strong sales hires. These new hires are already winning deals with the result being that our paying customer base increased by 46 clients when compared to the second quarter.
Our deal pipeline is increasing on the back of this investment, giving us confidence in our ability to scale as we look towards 2025 and beyond.
Speaker Change: We are seeing strength in both CPG and entertainment having closed multiple deals in these areas and recently closed our first deal in the gaming vertical the foundation is being laid to build a scalable sustainable high growth business.
Speaker Change: In this regard you may have seen our press release from earlier today detailing our new and exciting partnership with Tic Toc earlier. This month tick tock expanded its long standing relationship with gift, giving selecting us as a valued partner to power a new specialized recommendation engine with indirect messaging that delivers users the right gift.
Speaker Change: Content at the right time on Tic Tac.
Speaker Change: This is an exciting opportunity for tictoc users share gift content indirect messaging, we continue to work with Tic toc to explore ways to further enhance this offering across the tick tock experience.
Speaker Change: Finally in services Shutterstock Studios, our award winning end to end production business had a great quarter with revenues more than doubled that of third quarter last year. These results put this business well on its way to achieving record revenues for the year.
Speaker Change: This is a business whose product is truly differentiated and one in which we are extremely proud.
Speaker Change: Our focus in terms of the capital resources and attention directed across data distribution and services reflects the opportunity. We believe exists for 20% plus growth in these emerging businesses. The results. We're seeing are proving that this focus is resulting in even greater returns than we anticipated.
Speaker Change: In closing we remain confident that our strategy is laid out at the start of the year remained sound and that our third quarter results lay a strong foundation to Agee achieve our 2027 targets for Shutterstock to achieve $1 2 billion of revenue and $350 million of EBITDA now.
Speaker Change: With more details on the financials I will hand, the call over to Jerry.
Speaker Change: Yes.
Jerry: Thank you Paul and good morning, everyone.
Jerry: <unk> revenue for the third quarter was a record $250 6 million up seven 4% year over year with both business lines nicely outperforming our expectations.
Jerry: <unk> revenue was $204 million, an increase of 14% versus the prior year.
Jerry: In Novato has meaningfully outperformed expectations since the acquisition.
Jerry: But the total revenue contribution to content from <unk> in the quarter was $37 6 million.
This reflects revenue after the July 22nd close of the acquisition.
Jerry: In <unk> outperforming biggest subscriber additions are exceeding expectations on the back of a strong brand refresh and site improvements.
Jerry: Excluding the <unk> in quarter contribution content declined 7% year over year, which represents a 200 basis point improvement as compared to the second quarter and the second consecutive quarter of improvement.
Jerry: This is another great data point that we're getting back to organic growth.
Jerry: Our most popular product categories and packs and subscriptions have experienced several months net customer additions, making us optimistic about the resiliency here.
Jerry: In addition, the improvements we've made in pricing packaging and promotion across our properties are showing positive results.
Speaker Change: Data distribution and services revenue was $47 million in the quarter and data, we've seen new customer demand combined with expansions with existing customers through various land and expand opportunities as Paul described.
Speaker Change: Growth in gift and studios is accelerating in the back half of the year and we continue to hire aggressively to build out the sales team to support rapid growth in those businesses.
Speaker Change: The data distribution and services businesses have grown more than 40% year to date, and we feel great about the momentum here.
Speaker Change: As I review the P&L. Please note that these line items exclude the expenses to reconciled from net income to adjusted EBITDA.
Speaker Change: In the third quarter sales and marketing was 20% of revenue compared to 22, 6% in the prior year.
Speaker Change: Based on the positive momentum in content, we expect sales and marketing spend to increase in the fourth quarter as we invest behind the positive results we are seeing.
Speaker Change: Product development was six 1% of revenue in the quarter compared to seven 5% in the prior year, reflecting prudent cost management and ongoing integration of our acquisitions.
Speaker Change: Can you give some of our product development spend is capitalized we also expect capitalized R&D to decline in the coming quarters, improving free cash flow conversion.
Speaker Change: G&A expenses were 13% of revenue in the quarter compared to 11% in the prior year.
Speaker Change: Note the third quarter G&A expenses include $3 2 million of in Novato transaction costs associated with legal and M&A fees.
Speaker Change: These expenses totaled $8 $2 million year to date and are not added back for purposes of calculating adjusted EBITDA.
Speaker Change: Adjusted EBITDA for the third quarter was a record $70 million with 27, 9% EBITDA margins.
Speaker Change: Free cash flow was also extremely strong in the third quarter at $45 7 million.
Speaker Change: Consistent with the second quarter, we repurchased $21 million of shares.
Speaker Change: Based on the relative attractiveness of our shares we expect to continue to buy back shares over the long term and we will renew our repurchase authorization as necessary.
Speaker Change: After payment of the quarterly dividend and executing on our share repurchases in the third quarter, we saw our cash balance increased to $131 million.
Speaker Change: Cash includes approximately $18 million of excess cash that came on the balance sheet of Nevada.
Speaker Change: Along with offsetting payments that we expect to make next quarter.
Speaker Change: Excluding any excess acquired cash our cash balance still increased substantially from $75 million in Q2 to a $113 million in the third quarter, even after share repurchases and dividends are taken into account.
Speaker Change: Our net debt balance at the third quarter was $149 million, representing a net debt to LTM EBITDA ratio of 0.6 times.
Speaker Change: Given the attractive rates that we have on our lines and the low cost of capital we do not plan on paying down debt at this time.
As discussed previously we will aggressively redeploy cash flows to repurchase stock and pay dividends and acquire companies that add strategic value to shutterstock.
Speaker Change: Now turning to guidance.
Speaker Change: Given the Shutterstock as a record third quarter performance and our expectations for continued business improvement through the remainder of the year, we're raising our guidance for both revenue and adjusted EBITDA.
Speaker Change: Revenue is expected to be between $935 to $940 million representing growth of 7% to seven 5% year over year.
Speaker Change: We are seeing content improve each quarter and expect that trend to continue in the fourth quarter.
Speaker Change: In Nevada was outperforming expectations and off to a strong start.
And data distribution and services remains strong as I previously outlined.
Speaker Change: Adjusted net income per diluted share guidance increases to $4 22.
Speaker Change: To $4 31 per share.
Speaker Change: And adjusted EBITDA guidance increases to $247 million to $250 million.
Speaker Change: This adjusted EBITDA guidance includes an expected $9 million of M&A costs for the full year.
Speaker Change: Please note that adjusted EBITDA is expected to be in the range of 24% to 25% in the fourth quarter.
In summary, Shutterstock had a record quarter in terms of revenues and profits were steadily returning to organic growth in content and our new <unk> acquisition is outperforming.
Speaker Change: Our investments in data distribution and services are paying dividends and were hiring in sales aggressively behind that success.
Speaker Change: With a solid balance sheet and strong free cash flow, we are using our capital smartly to grow our business and return capital to shareholders.
Speaker Change: Lastly, we are well set up to achieve our Shutterstock 2027 targets of $1 2 billion of revenues and $350 million of EBITDA and we look forward to providing investors an update against those targets next quarter.
Speaker Change: Lastly, as I depart from Shutterstock I wanted to take this opportunity to thank Paul Hennessy, John Oranger and the entire Shutterstock board of directors for the Amazing opportunity. The company has afforded me in an extremely fulfilling five year journey.
Speaker Change: I leave Shutterstock with a firm conviction in the company's strong competitive position and growth prospects.
Speaker Change: The finance team is extremely capable and I have the utmost confidence that Rick and the team will continue to drive profitable growth for Shutterstock shareholders.
Speaker Change: And with that operator, we open the line for any questions certainly.
Certainly as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile our Q&A roster.
Speaker Change: And one moment for our first question.
Speaker Change: Our first question will be coming from Curt Nagle of Bank of America. Your line is open.
Curt Nagle: Good morning, Thanks, very much maybe.
Curt Nagle: Maybe just a couple on jiffy curious what the revenue contribution wasn't re queue.
Curt Nagle: Then just.
Curt Nagle: Thinking about the potential monetization from tick tock.
Speaker Change: Is that I think previously you Paul you had commented given it could be like a $50 million run rate business.
Curt Nagle: Year or two.
Curt Nagle: A deal like that contemplated in that figure.
Speaker Change: So I'll take the first part Curtis and then I'll pass it over to Paul to talk about the gift the opportunity and Tic Toc.
Paul Hennessy: Vis vis <unk> as we acquired the business the run rate revenues of the business were about $20 million, we've consolidated that business into our data distribution and services segment, we're seeing very nice growth in that segment, it's growing 40% on a year to date basis.
Speaker Change: We're continuing to see.
Speaker Change: Expand strength on strength, so it's growing sequentially each and every quarter over the course of this year and we expect that to continue we're not going to be breaking out the individual sub components of the DDS revenue segment.
Speaker Change: Really pleased with what we're seeing in terms of ongoing sequential and year over year growth with Giffy as we grow in scale, we're obviously investing heavily behind it from a sales perspective.
Speaker Change: And card regarding that tick tock deal clearly you can't I can't talk about the specifics or nature of the deal, but I did reference the growth that we're seeing across giffy.
Speaker Change: In gift usage, and and <unk> and now the monetization business. So certainly when we look at look at more users sending more guests with with higher levels of engagement.
Speaker Change: We believe we are going to monetize that and so we continue to be very very bullish on the revenue opportunity for GSE in line with a lot of the comments that I've given in the past we remain very very enthusiastic about gassy.
Speaker Change: Okay. Thanks very much.
Speaker Change: Yes.
Speaker Change: One moment for our next question.
Speaker Change: Our next question will be coming from Youssef Squali of choice Securities. Your line is open.
Youssef Squali: Great. Thank you very much.
Youssef Squali: Best of luck.
Speaker Change: For your new endeavor, and we look forward to working with you.
Speaker Change: So.
Youssef Squali: Couple of questions, maybe starting on the content side.
Speaker Change: And excluding Bartow can you maybe peel that onion, a little bit you did show some sequential improvement I think we went from negative 10 to negative nine to negative seven so red trajectory, how should we think about that trajectory going forward.
Speaker Change: E. The pace of the recovery do we get to.
Speaker Change: Positive growth sometime in 2025 from where you sit today.
Speaker Change: And then maybe on the data.
Speaker Change: Side, what kind of visibility do you have into the pipeline there not only for Q4, but for 2025, I think you historically kind of quantified.
Speaker Change: The money in the bank if you will from.
Speaker Change: David.
Speaker Change: How do you see that progressing.
Speaker Change: The type of visibility at the top of growth.
Speaker Change: Expect in that line. Thank you very much.
Speaker Change: Great. Thanks Joseph.
Speaker Change: I'll take content, Jerry can take data on the content business look.
Speaker Change: Don't know what day, we cross over but we're making really good progress the changes that we've made.
Speaker Change: Coming off the free trial to reintroducing, our our smaller packs as I mentioned in our in our core subscription.
Speaker Change: Product is getting traction.
Speaker Change: Seeing growth in the business and you start to see the the.
Speaker Change: The level of the decline is shrinking you mentioned minus 10 to minus nine minus seven and we're predicting that Q4 is better than that so we're really like what we see what we're seeing and then if you add in some of my commentary on the combination.
Speaker Change: AI in our content business, we're now seeing not only existing customers using the AI and maintaining their level of stock to use and in many instances growing that.
Speaker Change: We're also starting to see new customers come into the franchise.
Speaker Change: For the AI products and start to your stock content. So we really like this ecosystem is starting to happen now.
Speaker Change: <unk>.
Speaker Change: Our growth in both stock and AI for customer sets. So again I can't tell you exactly when we cross over but I really like the hand that we've got and the businesses the core business ex <unk> is improving.
Speaker Change: And use of just to add a note on the data we came into this year with about $60 million for the visibility of our business and Thats, what we communicated at the onset of the year, we're going to finish the year with well over $100 million of revenue this year and meaningfully outperformed our expectations.
Speaker Change: We're effectively at a very similar situation looking forward. This is a business thats lumpy. This is a business that's characterized by limited visibility and quite frankly, it makes it tough for us to forecast. We are extremely pleased with a lot of the land and expand opportunities that we're seeing because whenever you are winning business from existing clients.
Speaker Change: Much more visible and much more certain as compared to new customer bookings and so we're excited about what we're seeing with new customer pipeline, but this idea that knew that existing customers have a multitude of ways to expand with shutterstock should over the long term make us a much more durable and visible business and we're really.
Speaker Change: Pleased with the way we're building out those existing customer service lines.
Speaker Change: Thanks, and just one quick one on in bottle, we seem to be more excited today about it than you were at acquisition can you maybe flesh out the growth you're seeing there and kind of on a standalone basis, what kind of growth do you think this business can sustain.
Speaker Change: Yes.
Speaker Change: Dr. Jerry Kent can weigh in look I mentioned some of the things that <unk> has done of late really post acquisition.
Speaker Change: We were appropriately conservative with our new acquisition on what that growth opportunity might be but we are seeing the work that they did on the customer experience the work that they've done with the rebrand.
Speaker Change: Is driving new subs into the franchise and so where we're more bullish today on the growth.
Speaker Change: The product market fit of <unk> than we were when we acquired the company and so we're obviously very excited and theyre delivering beyond our expectations.
Speaker Change: Alright, thank you.
Speaker Change: Thank you.
Speaker Change: One moment for our next question.
Speaker Change: And our next question will be coming from Bernie Mcternan of Needham <unk> Company. Your line is open.
Bernie Mcternan: Great. Thanks for taking my questions.
Speaker Change: Jared Sad to see you go I appreciate all the help over the years the best of luck in the new role.
Speaker Change: Anthony Your line.
Speaker Change: Just maybe Australia post.
Trying to think about the opportunity from the data deal.
Speaker Change: Are those going to be once you're talking about more metadata are those moving.
Speaker Change: Jim.
Speaker Change: I was going to be more recurring revenue.
Speaker Change: Yeah.
Speaker Change: And sorry for the sorry for the background here.
Speaker Change: Okay.
Speaker Change: Perfect.
Speaker Change: Very cute both.
Speaker Change: Doug as well as the daughter, they both sound adorable and thanks, so much for your for your question.
Speaker Change: Look I think what we're seeing from our customers is recurring demand for incremental refresh data recurring demand for additional services to be layered on top of the first party data that we have on offer.
Speaker Change: And that's really exciting because we know that this R&D effort.
Speaker Change: Are only going to expand as investments are made and generative AI across since leading technology platforms.
Speaker Change: We are privileged to be a go to trusted source for some of that first party data as well as the enhancement and optimization of that first party data.
Speaker Change: And quite frankly, when you look at data and the opportunity there around generative AI and you look at Giffy. It becomes very clear that Shutterstock is a really durable business with some really exciting growth opportunities.
Speaker Change: Today investors are not affording us a terminal multiple we think thats going to change as people realize that not only is our core business stabilizing very surely in and gradually after these growth opportunities are really really exciting and we're investing aggressively behind what we see we think the rest of the market will see eventually as well.
Speaker Change: That's great and then just two quick follow ups.
Speaker Change: And Paul in your prepared remarks, you mentioned, some new types of content that <unk> brings to compute computer vision that wasn't seemingly it wasn't in the Shutterstock library can you just dive into that a little bit more whether it's types of content or types of data or whatever it maybe.
Paul Hennessy: Yes, without getting into the specifics of the secret sauce as one of the things that <unk> has been very strong in his templates in advance and being able to leverage those both for core traditional content use but also data services and data training.
Paul Hennessy: It's a multiple value in having that so we're we're excited.
Paul Hennessy: We're excited to have them on board and with the access to that to that supply and content.
Speaker Change: Great and then just last one for me just a follow up on the tick Tock Giffy deal with Tic Toc contributing revenue prior to the deal announced this morning.
Speaker Change: I don't want to I don't want to give.
Speaker Change: Any specifics around it.
Speaker Change: Our partner performance, we don't even give a total revenue of gift.
Speaker Change: Broadly, but what I'll say is they've been a good partner and a source of inventory for a long time and we believe that this new agreement will make it even more seamless for their customers and to get the experience. So I think it's a cost to the business.
Speaker Change: Understood should have my son ask the tough one. Thanks again, guys. Thanks, again, guys bring them bring them bring them back.
Speaker Change: Thank you.
Speaker Change: One moment for our next question.
Speaker Change: And our next question is coming from Matthew cost of Nomura. Your line is open.
Matthew Cost: Great. Good morning, Thanks for taking my questions. The first one is just around the interaction between <unk> and the traditional content products I think you mentioned during the prepared remarks.
Matthew Cost: Pretty decent confidence in your ability to keep growing that traditional product I guess, how are you seeing the go to market those products interact with <unk> now that you've had in both under the same roof for three months and then.
Matthew Cost: On the Salesforce side Youre also a few comments in there about that.
Matthew Cost: Investing aggressively behind the sales force on the data side, I guess, where are you in the ramp and any learnings from ramping that sales force. So far thank you.
Matthew Cost: Great I'll start with the <unk> question right now the two products that exist in the marketplace and by the way they existed in the marketplace prior and what we're seeing is by having multiple irons in the fire for pack products and subscriptions on Shutterstock and Neil.
Matthew Cost: Unlimited offering at <unk>. It really provides an entire product suite to address all kind of customer needs. So we're seeing it to be an incremental move rather than dilutive to one or the other.
Speaker Change: And on the data side Gerry do you want to talk about the sales force investment and where we are in on that yes, we've been hiring.
Speaker Change: Steadily slowly, but surely for our data sales for us. These are our strategic sellers, who really have a need to partner deeply with some of the world's most sophisticated technology organizations.
Speaker Change: We've been expanding the diversity of that sales force globally. So we've recently made some hires into Europe and Asia. So I think that's a great step for US and we're also starting to think about additional distribution partners. For example, we're seeing venture capital firms actually recommend our first party data.
Speaker Change: To their portfolio companies, which is very exciting for us as well as traditional service providers start to recommend our first party data to some of their technology clients. So we're really thrilled about the traditional sales force build out as well as the additional distribution that can come from having partnerships with venture capital firms.
Speaker Change: And service providers.
Speaker Change: Great. Thank you.
As a reminder to ask a question. Please press star one one and wait for your name to be announced to withdraw your question. Please press star one again.
Speaker Change: And our next question will be coming from Andrew Boone of JMP Securities. Your line is open.
Andrew Boone: Thanks, so much for taking my questions.
Andrew Boone: I wanted to ask two follow ups in terms of AI just following up on Bonnie's question as you guys.
Andrew Boone: Revisiting path customers for data sales there was a theory early on but hey, they would continue to buy more data from you guys are you guys seeing incremental purchases of existing forms of data or can you just talk about the sustainability as you guys go back.
Andrew Boone: And resell past customers.
Andrew Boone: And then the part of.
Andrew Boone: The distribution you guys talked about in past quarters with smaller companies I would just love an update on that in terms of our deals go into what our Hyperscale orders and kind of people building next door to your models are you guys, making any progress in terms of smaller companies that are building more.
Andrew Boone: Maybe vertically specific models.
Speaker Change: Sure Andrew Thanks, so much for the question.
Speaker Change: We are actually seeing existing data customers continue to purchase refresh data from us and the way that we expected. So there is a need for sort of incremental and growth data, but Moreover, one of the things. We've seen that's surprising is we've actually started to see some of our first instances of re licensure of the initial.
Speaker Change: Corpus of data that we resold the first time around so as companies come to the end of a three year term for an initial corpus of data that they've license.
Speaker Change: The significant majority of our agreements our term agreements that need to re license that data and we've seen them determined that they need that data for R&D purposes, and that there's a value to that data we've seen those.
Speaker Change: Re sign again, which is very exciting for us.
Speaker Change: As you think about the opportunity going forward.
Speaker Change: Opportunity clearly is around what you would describe as an.
Speaker Change: An industry vertical specific application layer or regenerative AI application layer for developing applications around data there are big opportunities with some of the Hyperscale <unk> around <unk>, and that's where a lot of our existing customer demand is coming from but a lot of the new companies that are coming up that are.
Speaker Change: Raising significant funding those companies are building incredible point solutions incredible industry vertical specific applications and they can potentially be some of the most exciting new customers for shutterstock and I would put runway and rekha as examples of that customer cohort.
Yes.
Speaker Change: Thanks, that's helpful and I wanted to touch on the content.
Speaker Change: You have some some great comments earlier in terms of the uptake of generative AI within our core content business can you just talk about that help us understand where you are in that process, what's the potential for that to become a larger portion of the business and maybe just where you are today as we think about that transition and what potentially could be generative.
Speaker Change: As a as a tailwind for the content portion of the business. Thanks, so much.
Speaker Change: Sure Andrew.
I'll just remind everyone. We've been at this game a long time, we were like first out the door by having our.
Speaker Change #100: AI generative tool available back in January of 2023, and we've been learning watching and experimenting the entire time, we moved to a packaged launch.
Speaker Change #100: Earlier, this year, where customers can comment.
Speaker Change #100: Our low priced subscription engage in our products and what <unk>.
Speaker Change #100: Fascinating and exciting for us is stock content customers are using.
Speaker Change #100: Degenerative AI subscription and their stock content use continuous and in many cases, they are using more stock content use as a as they use the generative AI product. In addition, new customers that are coming looking for generative AI are finding it at Shutterstock engaged.
Speaker Change #100: And the product and then going on to buy stock content.
Speaker Change #100: So we always said that this would be a one plus one and generative AI being a a new ingredient so thats creative and advertisers can use these products together to create more and we're actually seeing that come to life now so we're seeing subscriptions grow in that product.
Speaker Change #100: It's growing every single month.
Speaker Change #100: And over time, we'll keep reporting out on how thats doing and what the effect is having on our stock content business, but right now it's additive and by the way that's just on the image side.
Speaker Change #100: If you let your mind wander on what we could do with generative video our generative three D product. There's a lot more that we think can be a stock plus AI equaling a bigger aggregate business.
Speaker Change #100: Thank you.
Speaker Change #100: Thank you.
Speaker Change #101: And I would now like to turn the conference back to Paul Hennessy CEO for closing remarks.
Paul Hennessy: As always I'd like to thank our team in contributors for their continued efforts and also our customers for continuing to trust shutterstock as their provider of choice as we've just outlined this was a record quarter for shutterstock and could not be more proud of these results and importantly, what drove them being the team's ability.
Paul Hennessy: And desire to optimally execute against our strategy each and every day. Thank you. This ends the call for today.
Speaker Change #102: And this concludes today's conference call. Thank you for participating you may now disconnect.