Shutterstock, Inc.

Thank you for standing by and welcome to Shutterstock's Q1 2023 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentations, there will be a question and answer session. To ask a question at that time, please press star 11 on your telephone. As a reminder, today's call is being recorded. I will now turn the conference over to your host, Chris Hsu, Vice President, Investor Relations and Corporate Development. Please go ahead.

Thanks, Valerie. Thanks, Chris. Good morning, everyone, and thank you for joining us for Shutterstock's first quarter 2023 earnings call. Joining us today is Paul Hennessy, Shutterstock's Chief Executive Officer, and Jared Yates, Shutterstock's Chief Financial Officer. Please note that some of the information you'll hear during our discussion today will consist of forward-looking statements including about limitations, the long-term effects of investments in our business, the future success and financial impact of new and existing product offerings, our ability to consummate acquisitions and integrate the businesses we have acquired or may acquire into our existing operations, our future of 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 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 you may make on this call. We'll be discussing certain non-GAAP financial measures today, including adjusted EBITDA and adjusted EBITDA margin, adjusted net income, adjusted net income per diluted share, revenue growth including by distribution channel on a constant currency basis, billings and free cash flow. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures can be found in the financial tables included with today's press release and in our 10Q. I'd now like to turn the call over to Paul Hennessy, Chief Executive Officer.

Thanks, Chris. Good morning, everyone, and thanks for joining us today. Shutterstock delivered an exceptional first quarter. I'm pleased to report that Shutterstock generated $215 million in revenue, growing 8% year-on-year, well above our expectations. Our EBITDA this quarter was at record levels in terms of both dollars and margin, reflecting strong revenue growth combined with operating leverage and cost discipline. EBITDA grew 27% year-on-year to $70 million for the quarter, representing a 32% margin. Free cash flow was $51 million in the quarter, allowing us to pay down our revolver in full while still maintaining a strong cash balance. Growth in the quarter was led by our enterprise sales channel, which saw 33% revenue growth driven by strength and subscription bookings for content, our data partnerships to help global technology companies train their generative AI models, and momentum at Shutterstock Studios and editorial. I'd like to spend a few minutes detailing the strength of our core enterprise channel and what is driving our ongoing success and momentum. Subscription bookings grew 20% this quarter and now represent 34% of total bookings, up from 28% a year ago. A rapid transition to a subscription model is having a positive effect on new business bookings, which is up 20% year on year, as well as higher retention, with churn declining by 4% year over year. We also have expanded our relationship with large existing accounts leveraging our editorial and studio capabilities, where we've seen strength specifically in retail, banking, and travel and leisure. Our creative engine, which includes Shutterstock Studios and our data partnerships, are the fastest growing parts of our enterprise channel and are expected to grow in excess of 50% this year. Our e-commerce sales channel experienced similar trends from the fourth quarter, declining by 6%, driven by continued weak demand in Europe. We are testing multiple strategies and tactics to improve the performance of this channel, which we see as underperforming relative to potential. We remain cautious on the channel, yet are hopeful that some of the top of funnel enthusiasm driven by our generative AI offerings will begin to positively impact the business in the quarters ahead. At our investor day back in February, we talked about Shutterstock's content engine and how our creative engine and data engine accelerated. To briefly refresh everyone's memories, our content engine represents the main core of our business. It drives most of the revenue today and is powered by one of the industry's largest content libraries, including 615 million images, 47 million videos, 4 million music tracks and sound effects, and 1.2 million 3D models. Our creative engine, which includes Creative Flow and studios, allows us to extend our customer relationships by offering a powerful combination of content, creative editing tools, and production services. And the rich metadata embedded in our content library has been the basis for our data engine, which has allowed us to unlock new verticals, products, and capabilities for our customers. Across a variety of metrics and data points, for example, customer engagement with our generative AI offering and our expanding pipeline of data partnerships, we're seeing signals that the investments we're making across our creative engine and our data engines are yielding tangible dividends. This is especially the case in our enterprise sales channel, where our value proposition for enterprise customers is rapidly evolving from being a scaled content provider across multiple content types to comprise more workflow tools, data training sets, and AI-enabled services. Today, I want to take the opportunity to provide some recent examples of how these three engines are interconnected and how growth in one engine accelerates growth in the others. To that end, I'll be mapping out how these various engines relate to, one, our initiatives in gender of AI and some of the strong top of funnel interests we're seeing. Two, our recently announced partnerships with NVIDIA. And three, the continued momentum of our data partnerships. We are aggressively investing in bringing generative AI to our customers. After launching our AI image generation platform in partnership with OpenAI in January, we had last reported that users had created 3 million assets in the two weeks immediately following the launch. From the three months since inception, almost 1 million users have created more than 20 million assets on our platform. To put that in context, Shutterstock averaged 10 million new images every quarter since 2020. And so the pace thus far in generative images created far exceeds the growth we've seen historically in our content engine. Although it's too early to provide any definitive statements on generative AI's revenue potential, I'm excited to report some early indicators that speak to high engagement and the exciting potential of this new technology across the entire user journey. First, our gender of AI offering has been generating traffic at the top of the funnel with our image generator tool driving creation of approximately 10,000 new accounts every single day. Now, many of these new accounts are experimenting for the first time and engaging with the tools and technology and are trying to better understand what we have to offer with little purchase intent or monetization potential. However, we believe that many of these new accounts also represent potential new customers who have never been paying customers of Shutterstock in the past. In addition, we're finding that our investment in paid media is being supplemented by robust levels of earned media. So far, we've benefited from millions of media impressions and over 100 news articles that have driven additional top of funnel traffic. Secondly, when those new users get in the door, they're really engaging with the tools and deriving value from them. Furthermore, as we've rolled out additional features, such as the ability to zoom out and create variations, we've seen an increase in the average number of images generated per user. as well as our improved conversion rates with one of the new features increasing conversion rates by two and a half times. And lastly, I'm happy to report that customers can now search our growing library of AI generated images, which are available for purchase. We're already seeing a small but growing cohort of users jumping into this part of the library where they can find visuals that go beyond the bounds of what our core library offers. In addition to our investments in generative AI for images, we recently announced a partnership with NVIDIA to bring to market generative 3D capabilities. We believe this will lower the cost of 3D model production and expand use cases, including the creation of low cost digital twins that replicate products found in the physical world. This partnership is particularly exciting because it spans the full 3D lifecycle, consisting of 3D model production, model monetization, and last mile model customization. Shutterstock is ideally positioned as a partner to NVIDIA, and we will bring our unique assets to bear, including metadata from our data engine, which will train NVIDIA's text-to-3D model, as well as our TurboSquid marketplace, which will allow creators to monetize their generative 3D models for use across 3D's many use cases, including NVIDIA's Omniverse, and other metaverse environments. In addition to the major investments we're making in developing and delivering generative AI for our customers, we continue to be highly encouraged by our pipeline of data partnerships to help large tech companies train their models to develop their own generative AI products and solutions. The need to use metadata for generative AI model training is expanding. And we are seeing new companies invest with urgency to build commercializable products within their core area of focus. We are also seeing our pipeline expand for existing customers across multiple asset types. Customers who started with images looking at video and customers looking at music and 3D content for model training. The use cases for training data are also expanding and we are seeing opportunities that are increasingly industry-specific and for specific commercial products. This quarter, we're excited to report that we signed two data partnerships. We significantly expanded and renewed for a six-year term an existing data partnership when their needs expanded beyond image and into multiple other asset types, such as video, 3D, and music. And we're also establishing a new five-year relationship with a leading social media platform. As we convert our pipeline into opportunities, we are seeing total contract value more consistently becoming high seven-figure and eight-figure deals. Strategically, we're targeting multi-year, multi-faceted partnerships that feature recurring quarterly metadata refreshes, along with co-investment in technology to align incentives. These typically would also include content licensing and creative services as part of the overall future strategic roadmap. We are starting to see consistency in the pattern of land and expand across fields that speaks to how our growth engines are interconnected, and I wanted to provide some examples. The first is an example where we led with a data partnership largely around image model training data. That evolved where we integrated the tools of our data partner into our core offering to grow revenues and provide new creative to our customers. Over time, the needs of our partner grew and expanded into other content. Another example is where we have a longstanding content relationship with a partner. For a large technology platform, we have leveraged our API to provide them content for the years. We then expanded this relationship to include higher end studio work, which we recently further expanded into a data partnership focused on providing data training sets for their AI applications. For both of the clients mentioned, our end-to-end creative platform has enabled a much more strategic relationship with clients where we can deliver value across business lines. As I noted at our investor day, whether you're an individual creator small business, or a Fortune 500 company, Shutterstock has the content, the creative tools, and the data to power your business. To fulfill this vision, we have completely rethought the way Shutterstock goes to market, leveraging our creative and data engines to aggressively transform our business in this dynamic and exciting content landscape. Our journey as an end-to-end creative platform is full steam ahead. With that, I'll now hand the call over to Jared to discuss our financial performance and our guidance. Jared?