Shutterstock, Inc.

Good day and thank you for standing by. Welcome to the Q2 2024 Shutterstock Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speaker's presentation, there will be a question and answer session. To ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. I would now like to hand the conference over to your speaker today, Rick Powell, SVP Finance and Investor Relations.

Thank you, Josh. Good morning, everyone, and thank you for joining us for Shutterstock's second quarter 2024 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, 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. Actual 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 data business, 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 for any forward-looking statements we may make on the call. We'll 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. 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, our Chief Executive Officer. Thanks Rick.

Good morning everyone and thank you for joining us today. On our last earnings call, I reported that we had signed a definitive agreement to acquire Envato, a leading provider of digital creative assets and templates. As you may have seen, this transaction was completed successfully on July 22nd. We're truly excited about welcoming the experienced Envato team into the Shutterstock family and also excited about the impact of this acquisition on our content business. The addition of Envato on top of Shutterstock's 2024 performance to date puts us well on our way to achieving the long-term targets that I laid out back in February for Shutterstock to achieve $1.2 billion of revenue and $350 million of EBITDA by 2027. Now let's get into the second quarter results. I'm pleased to report that the overall results in the second quarter were strong, and when combined with our first quarter results, make for a strong first half of 2024. In the second quarter, Shutterstock delivered revenue of $220 million, representing growth of 5.4%, and adjusted EBITDA of $62 million, with margins of 28%, solidly exceeding our expectations for both revenue and profit for the quarter. Our data distribution and services business had another quarter of hyper-growth, and our content business showed a slight improvement, but not to the degree that we had hoped. Content revenue was $170 million for the quarter, a decline of 9% versus the prior year. Demand from our larger customers was resilient, with solid bookings growth in the quarter and strong retention. Our larger customers are spending with confidence across geographies, content types, and product SKUs. By contrast and consistent with the recent past, new customer acquisition in small and medium-sized customers was soft and did not experience the rebound we would have hoped for. Over the past several quarters, we've made strides from an execution perspective to improve the performance of content, including improving marketing execution around SEO, normalizing levels of SEM spend, as well as driving improvements in funnel conversion, and we remain focused on improving the performance of this business. We continue to focus on simplifying the experience across our brand and more effectively addressing customers' needs. Recent examples of this include offering unlimited subscriptions at PremiumV and the simplification of our product offering at Pond5. In addition, with Envato, we believe that we are poised to fill a void in our content product suite with respect to unlimited subscriptions. When combined with our existing business, Envato is expected to have an immediate positive impact on both the sustainability and growth potential of content, with subscriber counts more than doubling to 1.15 million subscribers, subscription revenue as a percent of total content revenue increasing from 48% to 55%, and revenue from content types like video, audio, and 3D growing from 35% to 45%. As we continue to innovate and add additional Gen AI capabilities, I'm pleased to report that we have just publicly released Shutterstock's GenAI 3D capabilities in conjunction with NVIDIA at SIGGRAPH 2024. Commercially available API access will begin in September for a range of corporate beta customers that have expressed an interest. Trained exclusively on Shutterstock content, this is a first-to-market innovation that promises to significantly reduce the time and expense associated with 3D model creation. Users of the API will be able to generate 3D models using both text prompts and images, which we believe is a game-changing capability. Users will also be able to generate 3D model previews in under 20 seconds, which increases productivity and usability and dramatically lowers their creation costs. In addition to Gen3D, we also recently entered into a partnership with Databricks to offer Shutterstock Image AI, Image AI is built using the advanced capabilities of Databricks Mosaic AI and trained exclusively using Shutterstock's world-class image repository. Image AI generates customized, high-fidelity, trusted images that can be readily tailored to specific business needs with fine-tuning. This enables brands that combine the power of AI-generated content with their own libraries, enabling them to truly personalize that content Shutterstock was also recently named Databricks Data Provider Partner of the Year, and we're very proud of this recognition. I would now like to turn to data distribution and services, which experienced hypergrowth of 129% in the second quarter. On a trailing 12-month basis, data distribution and services is up 160%. With respect to data, this business continues to surprise us to the upside. In terms of demand, we are continuing to sign a small number of larger deals each quarter with total contract values between $25 million and $50 million. This is a business that is quickly evolving in terms of deal sizes, structure, content types, and demand, and with respect to the types of metadata customers are looking for. In the second quarter, we signed a multi-year agreement with Microsoft to provide high-quality multimodal training data for their AI projects. We also signed multi-year agreements with Runway and Recca. Both of these companies are highly innovative gen AI companies with extremely exciting futures and are backed by world-class venture and strategic corporates. I'm also extremely pleased to announce the recent appointment of Jamie Theven to our board of directors. Jamie has been researching AI for decades, starting with a PhD in AI from MIT, and last year was recognized on Time Magazine's list of top 100 most influential people in AI. She is currently Chief Scientist and Technical Fellow at Microsoft. Her thought leadership in this space will be a huge benefit to us as we continue to navigate this fast-paced and quickly evolving environment. Shutterstock is proud to be at the epicenter of the exciting innovation happening in generative AI and will continue to look at the multiple ways for maximizing the inherent value of our data to open up new and innovative revenue streams. Moving on to distribution, at the center of distribution is Giphy, 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. Traffic and impressions on the site continue their strong momentum. Media served on Giphy continues to trend upwards with the second quarter seeing annual growth of over 25%. In order to scale this business, we continue to aggressively hire salespeople. To oversee this expansion, we're delighted to announce that we have hired a chief growth officer for Giphy, Kevin Hein. Kevin spent 13 years at Meta and was their head of agency relationships. He brings with him a wealth of expertise in media sales, encompassing strategic partnership development, revenue generation, and market penetration. Additionally, he has a strong history of building and scaling high growth businesses. We look forward to welcoming Kevin. In order to help investors better understand our traction with Giphy, we wanted to provide an update on the number of active paying Giphy customers, including both API customers and brand advertisers. Beyond Meta, this number has increased from five at the start of the year to 65 in the second quarter, and we expect to bring many more customers into the fold as we grow the team. Finally, in terms of Q2 performance, our services business, which includes our cutting-edge global creative and production studio solutions, achieved 50% growth in the quarter. With studios, our 3D and immersive vertical continues to scale in leaps and bounds as we expect our partnerships with some of the world's largest marketers and media companies. Leveraging the power of our 3D content and virtual production pipeline, we are delivering immersive storytelling on a global scale. A prime example of this is our collaboration with Netflix and their in-house game studios. This partnership achieved an important milestone with the release of our first game on July 24th based on the hit Netflix TV series, Perfect Match. We provided full mobile game development teams covering all art, engineering, music, sound effects, and VFX for the game. Our collaboration will continue to thrive with more exciting games yet to be announced. We're leveraging our 3D experience and TurboSquid 3D content to deliver immersive experiences. Our success is showing that these best-in-class 3D and creative services are the key in building a next-generation global production offering. In closing, we're pleased with the strong growth and profitability in our second quarter. Our sharp focus remains on setting the business up to achieve our Shutterstock 2027 projections of $1.2 billion of revenues and $350 million of EBITDA. Our strategy of investing in the large and rapid growing TAMs and data distribution and services is paying off. We remain enthusiastic about content with the addition of value-packed unlimited subscription and huge progress around launching innovative generative AI capabilities with partners like NVIDIA and Databricks. And while we work to invest and accelerate growth in new and exciting areas, we are driving a highly profitable and cash flow generative business, putting ourselves in a position to continually return capital to shareholders. With that, I'll hand the call over to Jerry.