Shutterstock, Inc.

Good day and thank you for standing by. Welcome to the Q4 2023 Shutterstock Earnings Conference Call. At this time, all participants are on 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'll need to press star 1-1 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 today's conference is being recorded. I would like to hand the conference over to your speaker today, Chris Hsu, Vice President, Investor Relations and Corporate Development. Please go ahead.

Thanks, Kevin. Good morning, everyone, and thank you for joining us for Shutterstock's fourth quarter 2023 earnings call. Joining us today is Paul Hennessy, Shutterstock's CEO, and Jared Yates, 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 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 2024 guidance and long-range financial targets. Absolute results or trends could differ materially from our forecast. For more information, please refer to today's press release and the presentation material discussing our long-range financial targets, which we have provided on our website. Please also refer to the reports we filed with the SEC from time to time, including the risk factors discussed in our most recent file for discussions of important risk factors that could cause results to differ materially from any forward-looking statements we may make on the call. We'll be discussing certain non-GAAP financial measures today, including adjusted EBITDA and adjusted 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 papers included with today's press release in our 10K. And now let's turn the call over to Paul Hennessy, CEO.

Thank you, Chris, and good morning to everyone on the call. We appreciate you joining us. We have a lot of ground to cover today. We'll be discussing Shutterstock's 2023 results and 2024 guidance. In addition, we'll introduce a new framework to help investors better understand the company's long-term trajectory, including long-term financial targets for 2027. We have posted material that outlines our framework for Shutterstock 2027 on our investor relations website. I'll turn first to Shutterstock's strong performance in 2023. Shutterstock generated a record $241 million of EBITDA on $875 million of revenue in 2023, in line with our most recent guidance and well ahead of the initial guidance we had issued a year ago. In 2023, 6% top-line growth was paired with 27.5% EBITDA margins, and 10% EBITDA growth. For the full year, our enterprise channel grew 33%. As investors are aware, the exceptional growth in our enterprise channel was driven by the strength of our data revenues, which more than quintupled to 104 million in 2023. Excluding data, enterprise had another strong year growing 8% in 2023, with growth accelerating to 12% in Q4 2023, driven by continued strength across content, studios, and Giphy. For the full year, our e-commerce channel declined 12%. While e-commerce revenues were softer than expected, operational improvements to the top of the funnel to the broader customer journey are stabilizing the business, and we are confident it will improve gradually over the course of 2024 and return to growth. To that end, we have a number of initiatives underway to drive a recovery in revenues from our small and medium customers that constitute the bulk of e-commerce revenues. These initiatives span two core areas. One, driving higher traffic and higher conversion rates at the top of the funnel. And two, driving higher retention for the customers we've already converted. We are also in the process of dramatically reducing free trial as part of our conversion funnel. Reducing the use of free trial as a conversion tool has led to some short-term pain in new customer editions and subscriber counts. However, we believe this is the right course of action to build a strong base of highly retentive customers seeking a premium stock content offering. We also believe that new and higher AOV content types will help us back to growth. Video and 3D have begun to pick up steam. For Shutterstock, the revenue from video, 3D, and music has grown in double digits for the past four years. Video, 3D, music, and other non-image revenues as a percentage of total content revenue have increased from 25% to 35%, driven by higher AOV and revenue per download. We expect this trend to continue. And on the generative AI front, we are squarely focused on monetization and creating generative AI-focused product SKUs. We have now deployed multiple image generation APIs accessible within each of our products and are optimizing the technology to the specific customer behavior and product SKU. And we expect to be in market with our 3D generative capabilities this year. Switching gears, let's look ahead to our 2027 long-range target. Over the past several years, the profitability of our content business has allowed us the flexibility and freedom to invest in other areas that offer faster opportunities for growth. These investment opportunities are both adjacent to and highly complementary to content. And now these investments are rapidly transforming into true businesses with multi-billion dollar TAMs with high growth potential. And going forward, we'll be shining a light on them and providing revenue breakouts across two categories, content and data distribution and services. This transition in reporting reflects the shift to emphasize our offerings rather than the sales channels we use to go to market. Content is sold both online and through our global sales team. As a company, we are focused on acquiring and retaining customers small, medium, and large in a cohesive and integrated fashion. And the e-commerce versus enterprise dividing line has become increasingly blurred. Furthermore, the new reporting line enables us to provide greater line of sight into our non-content revenue streams, which before had been embedded in enterprise. As we think about our content category, Since inception, Shutterstock has been and will continue to be a leading global creative platform that connects brands and businesses to high-quality content. Across a range of brands and content types, our content business grows steadily, operates globally at massive scale, and generates large amounts of cash. Our content business generated $737 million in revenue last year, making us one of the largest players in our industry, and is powered by the industry's largest content library across content types. We also have the largest network of contributors and multiple channels with which to go to market, including a global sales force and multiple web properties that service a range of customers. This past year, we layered generative image creation and generative editing capabilities into our offerings, thereby making both stock content and AI-generated content available to our customers. Chugstock's content business occupies a leadership position within the stock content industry and enjoys significant scale, brand recognition, and operating leverage. However, the stock content industry is a more mature market with a TAM that approximates $8 billion, growing at 5% to 7%. We expect to return to growth at the higher end of this range by leveraging our current strengths in areas like video and 3D and leading with newer content types like generative image, video, and 3D. We intend to improve our leadership position in stock content by being attuned to customer demand signals for content and meeting their evolving needs. Our acquisition of Backgrid last month is a prime example of meeting customer demand for content. With this acquisition, we expanded our editorial library with an additional 30 million images and videos across candid celebrity, red carpet, and live events, and added more than 1,400 contributors. In short, we acquired exclusive trending content, marquee customers, and a loyal customer base. BackGrid augments the launch of our editorial subscription last year And combined with our slash acquisition positions us well to be a supplier of choice for entertainment content. And so now, having reviewed our core content category, I'd like to talk to investors about our emerging growth businesses, which going forward, we will be reporting out as data distribution and services. Shutterstock's data business occupies a pivotal position on the gender of AI value chain. Today, we are a preferred provider of training data for generative AI models due to the depth and quality of our ethically sourced content and metadata and the accompanying legal protection we provide across images, video, music, and 3D. As we look ahead, AI and machine learning model training will continue to be a growth opportunity especially as we look to diversify our revenue base by targeting new buyers beyond the hyperscalers. In fact, we just won our first seven-figure contract involving a venture-backed startup in the generative AI ecosystem and we feel there are much more such opportunities ahead. We'll also be expanding our delivery model by leveraging our cloud marketplace partners. This will allow us to go from being a wholesale provider of data to the likes of Meta and OpenAI to a retail provider of data to the hundreds of companies we believe are going to custom train their own models. To that end, we are in the process of rolling out Shutterstock's training data onto data marketplaces of Databricks, Snowflake, Amazon, and Google Cloud. We are just starting to gain traction through this expanded distribution, and we are excited about leveraging the large-scale sales team and marketing support of these major partners. Data is a sizable TAM with enormous growth potential. Licensing data sales for training generative AI models is estimated to be a $9 billion TAM by 2030, with a growth rate of over 20%. And we believe we have some of the most unique and differentiated assets in the space to be able to win here, as reflected in the growth of our data business, which grew to $104 million in 2023. Next, let's talk about distribution, which includes our newly acquired Giphy platform. Giphy is a scaled content platform that reaches more than 1 billion daily users, serves more than 10 billion pieces of content daily, and has more than 20,000 API slash SDK partners. The GIPI platform extends our reach into conversational content, which provides us with an enormous opportunity to build a native advertising business built on contextual signals. Native advertising is a $95 billion business in the U.S. alone, growing at 14%. And GIPI is well-positioned to be an industry leader in moment marketing, within real-time conversations. Furthermore, Giphy allows us to expand our API relationships with the major tech giants and other API partners, and we will be looking to convert these partners into paying customers. Giphy also bolsters our ability to be an end-to-end solution for advertisers who can rely on us for both custom content creation and broad media distribution. In the past few quarters, We've already developed advertising relationships with brands such as L'Oreal, CeraVe, Pepsi's Pure Leaf Tea, and Sony, plus additional work for two major financial service brands and a leading delivery service. These initial tests started small but are already rapidly expanding. The potential for budget and scale is tremendous here. Giphy has the potential to be hundreds of millions of dollars in revenue based on industry CPM rates of $5 to $10 and the billions of viewable impressions on our platform. Lastly, Giphy ties into our data business and the content library contains a rich repository of data and extends the scope of our licensable data set to now include GIFs. We are very excited about the early momentum of the Giphy business the impressive breadth of deals already won, and the robust pipelines in place, and we're looking forward to keeping you informed as we grow the business. Next, let's talk about services, which includes Shutterstock Studios. We launched Shutterstock Studios in 2020. Our studio's business is growing rapidly, and we see the opportunity to grow 25% for the long term. Since inception, we have delivered an award-winning array of work, spanning 30-second spots, branded documentaries, animated commercials, experiential activations, episodic series, and more. We continue to see strong demand and a robust pipeline going into 2024 for customers' traditional production and creative needs from the world's biggest brands and creative agencies. And most recently, we've already won work and see significant growth opportunities in the realm of virtual production and games development. Virtual production is a $2 billion market and is a very natural alignment between our TurboSquid 3D assets and studios offering that makes us unique. Now, with the production power of Shutterstock Studios, We leverage 3D and virtual production technology at scale, creating virtual environments from real locations and building fantastical worlds that are truly immersive. This is the same method that was initially pioneered by Hollywood Studios, and we're now adapting the same technology for commercial projects worldwide. This is completely transforming how our customers are approaching global content and marketing. Because of the investments we've made in 3D, this has become a viable alternative to physical production, creating new paths that are more sustainable, efficient, and creatively empowering. Meanwhile, game development is a $45 billion market, and you can't talk about gaming without talking about 3D. 3D content is a critical component in games, and TurboSquid is a trusted name for that content. Moreover, companies are looking to enter the gaming space with their original IP. Budgets are tight. Talent is in short supply. Shutterstock's 3D assets, studio's footprint, and global talent network gives us the right to play and win in this exciting realm. Taken together, our data distribution and services offering massively expands our TAM by over 10 These offerings already account for 16% of Shutterstock's total revenue today, and we expect this percentage to grow to 22% of total revenues by 2027. We've developed a clear leadership position in content and a massively successful and profitable business, and we intend to do the same thing in data distribution and services over the next several years. We will be innovating and investing in these businesses setting them up to grow over 20% per annum for the long term. As a result, we expect Shutterstock 2027 to result in significant re-acceleration of our revenue growth to 10% with even faster growth in profitability. In conclusion, we're proud of what we accomplished in 2023 and the growth and profit we delivered for our shareholders. Across our business, we believe there are tremendous opportunities to accelerate growth, and we believe in Shutterstock's 2027 long-term targets and approach to allocating capital to large, fast-growing opportunities to accelerate the growth of our business. As a team, we are united in purpose and mission to empower the world to tell their stories by bridging the gap between idea and execution and to connect customers to the content they need. I really like the hand we have, and we're excited for what's in store in 2024 and beyond. I'll now turn the call over to Jared to review our financial results, 2024 guidance, and the financial impact of Shutterstock 2027.