Shutterstock, Inc.

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 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 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 Hsu, 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's CEO, and Jared Yays, Shutterstock's 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, the 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 10Q. 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, and I wish everyone a happy Halloween. In the third quarter, Shutterstock's data and creative engines fueled faster growth and furthered 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. 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-date performance and improved confidence and visibility in our business, we are again raising both revenue and EBITDA guidance for 2023, which Jared will discuss in more detail. Q3 also marked 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 in 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 beachhead in virtual production, leveraging 3D assets for gaming ecosystem. We view this market opportunity as 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% 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 at 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 text-to-3D model generation capabilities, as well as expand our library of models available for purchase. 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 in 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 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 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. Second, we are seeing conversion effectiveness and retention begin to improve. Our conversion rates in October have 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. Third, we have just brought to market an exciting new e-commerce 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. shutterstock essentials shutterstock essentials plan is a 9.99 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 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's 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. 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 lookalike 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 DALI 3, 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 platforms. And Shutterstock is positioned to benefit as the ecosystem starts to change more for licensable, high-quality images. Beyond our e-commerce and enterprise content businesses, I'd like to discuss two of the most exciting growth areas in GIPHY and in data, both of which are important parts of our strategy. To remind investors, Giphy 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. To that end, Giphy 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 Giphy's content is something you share rather than something you skip has strong resonance with these advertisers. We expect exciting developments from Giphy in the quarters that come, As advertiser interest in the platform grows and we scale our ability to execute on customer campaigns. 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 application is now universally recognized as an unsustainable business tactic It's fraught with legal, financial, and reputational challenges. This plays to Shutterstock's strengths because we offer ethically sourced and licensable metadata at unique scale across media, including images, video, music, and 3D. 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 signed 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 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 models and build applications will require a different approach to consumption and distribution. In closing, we are seeing some really encouraging signs across our business. Our future engines of growth in Giphy 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 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. With that, I'll turn the call over to Jared.