Good day, ladies and gentlemen, and welcome to the Q4 and Full-Year 2012 Shutterstock Earnings Conference Call. My name is Keith and I’ll be your operator for today. (Operator instructions.) As a reminder, today’s conference is being recorded for replay purposes. With that I’d like to turn the conference over to your host, Ms. Denise Garcia of ICR. Please go ahead.

Good afternoon. Welcome to Shutterstock’s Q4 and full year 2012 earnings call. Joining me today to discuss our results are Jon Oringer, Founder, CEO and Chairman; Thilo Semmelbauer, President and Chief Operating Officer; and Tim Bixby, CFO. Before we begin I would like to take this opportunity to remind you that during the course of this call management may make forward-looking statements that are subject to various risks and uncertainties including predictions, expectations, estimates and other information. Actual results may differ materially from the results predicted and reported results should not be considered as an indication of future performance. Listeners are referred to the reports and documents filed from time to time by us with the Securities and Exchange Commission including the section entitled “Risk Factors” in the company’s latest 10(q) filed with the SEC on November 20, 2012 for a discussion of these and other important risk factors that could cause actual results to differ materially from those discussed in forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason even if new information becomes available or other events occur in the future. In addition, as we refer to our earnings we will refer to adjusted EBITDA which we define as income from operations before depreciation and amortization, non-cash equity based compensation, interest, and taxes; non-GAAP net income, which excludes the one-time benefit related to the company’s reorganization, non-cash equity compensation expense and the tax benefit for deductible non-cash equity compensation; and free cash flow, which we define as cash provided by operating activities adjusted for cash, interest income, and expense and less capital expenditures. Adjusted EBITDA, non-GAAP net income, and free cash flow are non-GAAP financial measures. You can find a reconciliation of these items to the most directly-comparable GAAP financial measures in our Q4 and full year 2012 earnings release which is posted on the Investor Relations section of our website. We believe that the use of adjusted EBITDA, non-GAAP net income, and free cash flow provide additional insight for investors to use in the evaluation of ongoing operating results and trends. However, these non-GAAP financial measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP. And now I’ll turn the call over to Jon Oringer, Shutterstock’s Founder, CEO and Chairman.

Thanks, and thank you all for joining us for our Q4 and full year 2012 earnings call. I’m pleased to report another strong quarter where we exceeded our top line and bottom line expectations. We continue to see strong growth in all major geographies and across all of our offerings. On today’s call we will describe the progress we made in Q4 and 2012 and provide financial guidance for Q1 and full year 2013. Let’s begin with our key operating metrics download volume and revenue per download. Every download is a business licensing an image on our platform. When businesses choose Shutterstock to license images and video, contributors earn money and receive feedback on what’s selling. This motivates contributors to upload more content which increases the breadth of our library and in turn helps us to attract new customers and to foster their loyalty. This is a virtuous cycle that drives our business and ultimately our financial results. So in Q4 we have proudly delivered a record 21.4 million downloads. Our revenue per download reached a new high of $2.30 and our collection grew to more than 23 million images and video clips, making it one of the largest libraries of its kind. Our strong operating results drove record financial performance. Q4 revenue grew 42% year-over-year to $49.2 million. Adjusted EBITDA grew 54% to $11.3 million in Q4 2012. We finished the year with revenue of $169.6 million representing 41% growth over the prior year and we achieved this growth while delivering adjusted EBITDA of $34.9 million. Alongside this outstanding financial performance we continued to make excellent progress on our three growth strategies, which are increased global penetration; emerging content types; and large enterprises. Let’s spend a moment on each of these, starting with global penetration. Given that we represent…

Thanks, Jon. We are keenly focused on providing value to both sides of our global marketplace – contributors and customers – and are proud of the many accomplishments we had in Q4 and the full year 2012. Starting with contributors, we continue to focus on increasing the size, quality, and diversity of our content library. Looking at the stats we had a record quarter in contributor payouts and our collection grew more in Q4 than in any previous quarter. We added 1.6 million images and more than 100,000 video clips in the quarter, and ended the year with 23 million images and 800,000 video clips. We continue to invest in initiatives to support this growth. For example, in Q4 we produced a comprehensive success guide to help new and existing contributors create high-quality stock imagery, which has gotten great feedback. We also launched contributor profile pages so that our customers can easily follow and keep track of the latest content from their favorite contributors. On the customer side of the marketplace, we know that finding the right image quickly is a major reason customers choose Shutterstock. Search is a key competitive advantage and we continue to make improvements that leverage the high volume of data our users generate. One improvement we made in Q4 has reduced the number of times customers get zero search results. By interpreting the user intent and making more intelligent recommendations, we’ve been able to improve the experience significantly. We also continue to optimize our search results for different languages. During the quarter we made progress in several languages, leading to improved conversion and usage in those languages. These types of changes can have a significant impact on our conversion rates over time which allows us to lower our costs to acquire new customers and increases…

Great, thanks Thilo. We’ll now review a little more detail around some of the operational and financial metrics and then we’ll be happy to take questions at the end. As a quick review, the number of paid downloads was 21.4 million for the quarter, a key operating metric for us. This was up 32% from 16.2 million paid downloads in Q4 2011. Revenue overall was $49.2 million, an increase of 42% as compared to the same quarter in the prior year. On a constant currency basis growth would have been two percentage points better, or 44% year-on-year growth. Revenue per download also showed a nice increase, increasing 7% to $2.30 as compared to $2.14 in the same period a year ago. This increase in revenue per download as in past quarters continues to be driven by the mix of pricing plans that our customers select. We have a higher effective cost per download in certain pricing plans, particularly our direct sales efforts to larger customers and our on-demand plans both of which are growing faster than the overall business, and that has continued to cause the average revenue per download to increase over time. Note that we have not raised prices for several years and that this shift is due solely to mix shift. Notably, if we look only at incremental new customer revenue the split between on-demand and subscription is quite balanced, roughly 50/50. Adjusted EBITDA grew 54% to $11.3 million for the quarter as compared to $7.3 million in Q4 2011, primarily the result of increased revenue but also due to increased efficiencies in marketing investment. Net income was $29.0 million compared to $5.8 million in Q4 2011. The diluted earnings per share result was $0.88. This net income, it is important to note, includes the impact of…

(Operator instructions.) Your first question is from the line of Ross Sandler with Deutsche Bank. Please go ahead. Ross Sandler – Deutsche Bank: Hey guys, nice quarter. Just a couple questions. First, you talked about the conversion rate improvement that you’re seeing from the local language stuff. Can you just quantify that at all? What kind of uptick do you see when you go into a new market with a local language? Second question is are you also seeing any conversion rate improvement happening in the US from some of the design issues you talked about? And then lastly, it sounds like the direct sales initiative is ramping nicely. Can you just also talk about the opportunity for that piece in markets outside of the US? Like which markets do you think it’ll work in and when does that rollout actually happen? Thanks.

Hi Ross, it’s Thilo. I’ll maybe take the first piece of your question, we’ll sort of go around. I think when we launch a new language on our site that’s obviously just one piece of the puzzle in our strategy to make our site and our content more relevant to increase penetration in our markets. So the way we think about it, it’s one step. We need to, in addition to having the local language mobilize our marketing in those countries, make sure we have the right content and make sure that the search experience is providing the right content for our customers. So it’s a lot of things that come together and really the language rollout and the search improvements are part of a longer term strategy to optimize the site. It’s something that doesn’t by itself have a significant input without all the other things coming together. The second part of your question I believe was around design issues, but you may need to clarify because I’m not sure I followed that one. Ross Sandler – Deutsche Bank: I just want to know are you seeing also conversion rate lift in the US market from some of the things that you’ve been working on.

Yeah, we’re always testing different things on the website, whether it’s buttons or a language and pricing pages and configuration – so that’s part of an ongoing process. When you look at our marketing spend as a whole and the fact that we were able to in Q4 increase spend significantly while holding our efficiencies, that all the conversion improvements are flowing into that as well.

Yeah, and I think a good metric to look at is probably the growth rate overall in North America. That’s really driven by the US, and we’re seeing growth rates that are well above the overall growth rate of the company. So even though it’s our most established territory we’re still seeing very strong growth, and that means both the existing users are continuing to recur at a high level but also conversions are also improving in the US. In terms of the direct sales opportunity, it is definitely US-focused now and we’re making really great traction but some of the master service agreements are with global agencies. And so we’re already making inroads with multinational groups that have subdivisions in the US and in many other territories. We’re also seeing some good traction in Germany and other European territories and that’s probably where you’ll see the first inroads. It’s where we have people on the ground for the first time in the last couple of years and so I would expect to sort of roll out that way. Ross Sandler – Deutsche Bank: Great, thanks guys.

Your next question is from the line of Scott Dewitt with Morgan Stanley. Please go ahead. Zach – Morgan Stanley: Hey guys, it’s Zach calling in for Scott. Just wanted to know if you can give us a little more detail on how you think about the revenue and EBITDA guidance – how do you think about it internally and then how do you maybe modify it for the street and what kind of confidence integral do you have in that?

So I think we’re highly confident we can achieved these numbers. Our philosophy hasn’t changed. We’ve got a quarter under our belts as a public company but we’ve obviously been setting these expectations and measuring ourselves against them for many years so that really hasn’t changed. It’s the external communication that is now an added piece of it. So we have great visibility into the current quarter obviously – we’re halfway through. We have strong visibility into Q2 and then as we go through the remainder of the year we’re really relying on what are very established annual trends. So if you look at the last three years you see an annual cycle that’s consistent as the months of the year roll out. So we’re really relying on a lot of data that we now have and the year-to-date numbers support that confidence. One thing to note is that when we grow at a 40% or plus rate that means that a lot of things have gone right. It means currency is not too much of a headwind, it means that nothing radical has changed in the search spend market, and it means that we’re continuing to find new marketing efficiencies. All those have happened over the last couple quarters. We can’t rely on that happening every quarter into the future but that’s certainly our internal goal. Zach – Morgan Stanley: Great, thanks guys.

Your next question comes from the line of Nat Brogadir with Stifel Nicolaus. Please go ahead. Nat Brogadir – Stifel Nicolaus: Hey guys, thanks for the time, nice quarter. Quickly on the paid downloads, that accelerated pretty nicely on a year-over-year basis. Can you just talk about why you think that is? Is it the international expansion? Is it North America? I think the revenue per download seems to be coming in line but you guys are certainly beating expectations on the paid download. What’s the driver there?

So there’s a couple of drivers. Obviously mix can drive it, so as we continue to see a shift to on-demand it’s a lower unit number but it obviously drives the revenue per download up. Subscription usage can accelerate in Q4 as we sort of head into the later part of the year, and I think we saw a surge in usage that drove the downloads up as well. So again, a lot of things kind of came together even ahead of our own expectations in Q4 on a volume basis. We are investing from a marketing perspective in pretty much every territory in creative ways, and I think we’re just finding more and more of the niches where we’re able to convert more and that’s helped to drive the volume up. Nat Brogadir – Stifel Nicolaus: Great, thanks. And just one follow-up: now that you guys have over $100 million in cash and are generating free cash, how do you think about the balance sheet and returning capital to shareholders?

Yeah, so we had a term loan. We paid half down; we’ll pay the rest down, we’re kind of keeping the balance sheet pretty clean. $100 million is a good base number. We’re obviously generating a fair amount of cash. We’re looking at ways to continue to invest. We like to have a little cushion. One of the things where we go in and talk to very, very large global companies now and they like to know that Shutterstock is as strong as the strongest companies in the world, and having a strong balance sheet is part of that conversation. We also take note that although we’re growing very rapidly, if we see an opportunity to grow inorganically we have cash on the balance sheet, we have a public equity – that’s also something that we would take advantage of if it made sense. Nat Brogadir – Stifel Nicolaus: Great, thanks guys.

Your next question is from the line of Ralph Schackart with William Blair. Please go ahead. Ralph Schackart – William Blair: Hi, good afternoon. Tim, if I can start off and ask another question on the 2013 outlook. What sort of drove the boosted outlook on this call vis-à-vis last call? Obviously you raised the guidance. And too, if you can give us some perspective on what the annual retention rate was in 2012 and how that compares to 2011, thanks.

Yes, on the retention side we’re seeing very consistent metrics where we’re able to retain essentially 100% of our revenue from year to year so we haven’t seen any real shift in that. Average revenue per customer, lifetime value and all those kind of basic measures remain quite consistent. So that gives us a lot of confidence. One of the things, you know, when you see these annual patterns repeat year-over-year it gives you a little more confidence into the coming year of seeing that same trend. So just sort of as a reminder, we have two surge points of the year – the early part of the year and then again in September. And those we just saw some nice results again in 2012 and if you roll that forward with a good November/December result that enables us to put out some numbers that we’re very confident in. Ralph Schackart – William Blair: Great, thank you.

Your next question is from the line of Brian Fitzgerald with Jefferies. Please go ahead. Brian Fitzgerald – Jefferies : Thanks, guys. You talked a bit about the record pace of growth for video footage into the library. Can you talk a bit about maybe the dynamics around the usage that you’ve seen around the new formats? And then internationally, is there a difference between what you’re seeing in terms of the various markets around those same dynamics – what’s going into the library and the usage of the newer formats? Thanks.

This is Thilo. Obviously our footage business is doing great. We’ve talked before about it’s essentially doubling and we’ll continue to see that trajectory. We continue to build out the collection and that’s coming from all geographies of the world, and we have a nice geographic diversity in our footage sales as well. We’re very focused on improving, continuing to improve the site and the search experience and we’re very pleased with our performance so far. The formats, you know, I would say as you probably would expect the higher definition formats are gaining more and more traction. And I think we see the same thing on the image side as we see on the video side – that pixel count matters and there’s high demand for more and more of that. So that was consistent in Q4 as it has been in recent quarters.

Another couple good dynamics to keep in mind around footage is it tends to be a lower volume per user and a much higher price point. And the buyers are tending to use it much more in relation to motion videos, so a movie studio, a television studio, production companies. West Coast activity has been an interesting area for us. So it’s a real different dynamic economically, volume and price, but overall it’s very similar to the core business. So that’s why it’s really a promising area for us and we’re continuing to invest more in it. Brian Fitzgerald – Jefferies : Great, thanks.

Your next question is from the line of Andre Sequin with RBC Capital Markets. Please go ahead. Andre Sequin – RBC Capital Markets: Great, thanks for taking my question. I was wondering how do you think about then the approach to pricing on your enterprise contracts? Do you feel you have to give them a pretty big discount and if so, are you able to flow any of that through to your contributors? And then you guys are projecting a 40% tax rate for the year. With all the revenue you earn overseas do you expect you’ll be able to take advantage of some of the lower tax rates in any of those jurisdictions going forward?

Let me take those in order, this is Thilo. On direct sales, as you know our price points range widely in direct sales depending on the licensing terms, the indemnification terms and other features. We can be in the $10’s per image up to the $100’s per image. Discounting is very common obviously in all direct sales but we have significantly higher price points obviously there than in the core business, which is the ecommerce side. And as our contributors are paid in percentage terms, if there are discounts that will flow through to the contributors as well but the higher price points flow through to the contributors. And actually we’re getting great feedback on what they’re starting to see in terms of their payouts, much higher dollar per images. From a tax perspective, that’s obviously an area where we have the benefit of real revenue and real earnings in all territories of the world – 70% of revenue and essentially the same ratio of profits outside the US so that’s an opportunity for us. And we are looking at ways to synch up our earnings and our tax rates with the appropriate jurisdictions. For this year our estimate is that our effective rate will remain essentially where it is but obviously that’s an opportunity that we’re working on internally; and as we get more information about when that’s likely to roll into the numbers we will certainly share it. But at this point that has a little bit of lead time on it. Andre Sequin – RBC Capital Markets: Okay great, thank you. Nice quarter.

Your next question is from the line of Youssef Squali with Cantor Fitzgerald. Please go ahead. Youssef Squali – Cantor Fitzgerald: Alright, thank you very much. A couple questions. I guess if I looked at the new guidance it implies about a $10 million increase to the top line at the midpoint with virtually no flow through to the bottom line – I think it’s about $1 million. I was wondering if you can maybe elaborate on that a little bit. Is there an increase in OPEX planned because I think your comments on gross margin seem to insinuate that gross margins should be relatively flat? And second, if I look at the ratio of paid downloads to the number of images added to the library on a sequential basis I think this was your strongest quarter ever or at least in a long while. So I’m trying to understand the reasons for the strong conversion and maybe as importantly, is there anything there that would make it not sustainable going forward? Thanks.

Yeah, I’ll take a crack at both of those. So on the operating expense side, we do expect cost of revenue and royalties to remain essentially static, so no real change there. The two areas that in Q1 we expect to sort of drive a flattish EBITDA even though revenue we expect to increase – G&A has stepped up a little bit, so as we expand our headquarters operation and have added headcount here those costs have gone up slightly. Public company readiness costs are going to be a little higher and then we’re also accruing at a slightly higher tax rate. So some sort of non-operational items are escalating in the early part of this year and that’ll be essentially flat through the year. And then marketing we tend to spend a little bit more earlier in the year. We’re again, always looking for opportunities to spend more but that’s an area where you know, the sooner you get folks in before the later part of the year the better; and those two areas will drive most of it.

On the images added and paid downloads, it’s a very interesting question – I would go back to the network effects from the business, because as you know when we add content to the library it makes it easier for us to convert new customers because there’s more great stuff that those customers can find and we get better retention. And so definitely we are seeing a positive network effects in the business right now and that’s one of the things that gives us confidence in our outlook.

I think that adding content to library is a good indicator of overall health. It’s not sort of a one-to-one or direct correspondence with financial results but it’s a good indicator over time, maybe not a quarter but multiple quarters and years where we constantly add we have a fresh library where people are more likely to find what they need. And so you want to see that continuing to grow over time but I would hesitate to maybe draw direct lines in short periods. Youssef Squali – Cantor Fitzgerald: Yep, okay, that makes sense. And maybe just, Jon, in your prepared remarks you talked about your belief that you guys are gaining share – I was wondering if you can maybe expand on that a little bit? What are you seeing competitively that either makes you more comfortable or maybe it’s status quo versus what you guys are seeing here in the IPO process. Thanks.

Well, we know that selling two images is more than anybody else in our space. We know that we have more data than any of our competitors because of the amount of downloads and images we serve. All this adding up kind of gives us the impression that we are taking more share than others. A lot more customers are tending to move from commissioned to marketplace and from traditional to marketplace because our model is so easy to use. Youssef Squali – Cantor Fitzgerald: Okay, thanks a lot.

And with that, ladies and gentlemen, that’ll conclude today’s call. Thank you very much for joining us and you may now disconnect. Have a good day.