Good day, ladies and gentlemen, and welcome to Shutterstock's 2015 Second Quarter Earnings Call. At this time, all participant lines are in a listen-only mode to reduce background noise, but later we will be conducting a question-and-answer session and instructions will follow at that time. As a reminder, this conference call today is being recorded. I would now like to turn the conference over to Craig Felenstein, Senior Vice President of Investor Relations. You have the floor sir.

Thank you, operator. Good morning, everyone, and thank you for joining us for Shutterstock's second quarter 2015 earnings call. Joining me today is Jon Oringer, our Founder, Chief Executive Officer, and Chairman; and Tim Bixby, our Chief Financial Officer. During this call, management may make forward-looking statements that are subject to risks and uncertainty, including predictions, expectations, estimates and other information. These include statements relating to the expansion of our addressable markets, the success of new product offerings, including products we recently acquired, revenue growth and the predictability of our revenue, adjusted EBITDA, equity-based compensation, taxes, and capital expenditures. Our actual results may differ materially from the results predicted and reported results should not be considered as an indication of future performance. Please refer to today's press release and the reports and documents filed by us from time-to-time with the U.S. Securities and Exchange Commission, including the section entitled Risk Factors in the company's Form 10-K filed on February 27, 2015 for a discussion of important risk factors that could cause actual results to differ materially from those discussed in any forward-looking statements we may make on this call. On this call, we will refer to adjusted EBITDA, non-GAAP net income and free cash flow, which are non-GAAP financial measures. You can find a description of these items along with a reconciliation to the most directly comparable GAAP financial measures in today's earnings release, which is posted on the Investor Relations section of our website. We believe that the use of these measures provides additional insight for investors. 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 with that out of the way, let me turn the call over to Jon. Jonathan Oringer -…

Thank you very much, Jon; and thanks, everyone else, for joining us this morning. Our industry-leading marketplace continues to attract more and more customers and contributors. This momentum once again translated into strong financial results in Q2, with revenue increasing 30% versus the second quarter a year ago. Excluding the impact of currency, as well as contributions from our PremiumBeat and Rex acquisitions which closed in January, revenue growth was approximately 27% as we delivered significantly increased contributions from our expanding video and enterprise offerings while also generating growth from our traditional e-commerce business. We continue to see nice trends across all key metrics as we attract new customers across multiple content types and work to increase customer lifetime value. This past quarter, our user base expanded to more than 1.3 million customers, up 25% versus a year ago, including a 50% increase in our enterprise customer base over that same period. While customer growth this past quarter remained quite strong, the number of new e-commerce customers was somewhat below our initial expectations, primarily due to some softness across much of Europe. However, as Jon mentioned, we recently launched several new subscription offerings to better meet customer needs. The early signs have been encouraging, with subscription growth increasing versus the months before we introduced these products. There is one nuance surrounding the new product offerings that I want to mention, as it impacted reported revenues this past quarter and does have full-year implications. While the new subscriptions are expected to lift average customer lifetime revenue, revenue recognition is somewhat more back-loaded to the end of each month rather than evenly spread across the month. And this is due to the monthly rather than daily download limitation. As a result, we saw an increase in deferred revenue due to this change,…

Our first question for the day comes from the line of Rohit Kulkarni from RBC Capital. Your line is open.

Okay, great. Thanks. Tim, on the guidance for second half, if you could just draw out your assumptions underlying the change in guidance versus in May and Q2 performance; in particular, if you could just call out what the accounting impact and incremental FX headwinds versus the softness in consumer or customer acquisitions in revenue and EBITDA, that would be helpful. And as far as the big-picture competitive environment is concerned, is there any linearity that you saw in terms of how customer acquisition, or your retention, or your churn trended over the last 12 weeks to 18 weeks around Adobe launch? And how do you think you need to react over the next six months or so?

Sure, so I'll take a couple questions there. So the first one around the guidance adjustment; the second one around timing and potential Adobe impact. I'll take the first one. So important to note that this past year, we gave our initial full-year guidance, actually almost a year ago, last November, for the full year. A lot had changed since then. We did not adjust guidance in Q1; a lot of FX movement. And at this point, we decided that it felt the numbers were a little bit aggressive for the year, particularly due to the three primary changes that you noted. So about half of the adjustment that we're making to the revenue line in our guidance versus the previous guidance, about half of that is due to the softness we saw in customer acquisitions in Q2, which in a recurring revenue business with our retention rates, et cetera, that impact rolls through the rest of the year. And then about 25% due to continued FX impacts, that sort of lag impact of FX; and then the remaining 25% due to actually the success of the new product launch, which has slightly different accounting implications, so there's just a little bit more deferred revenue that impacts us because this is the changeover year of launching this new product. In terms of the Adobe launch and I'll let Jon chime in here, but from a timing perspective Adobe didn't really launch anything new through Fotolia until the end of the quarter, so clearly no potential to have real impact on the numbers. And while they are out there in the market with some marketing efforts, we have not seen any impact on our business either in the second quarter or in the continuing result to date in the third quarter. Jonathan Oringer - Founder, Chairman & Chief Executive Officer: Yes. And further on the competitive environment point, the competitive environment has changed around us, and we've watched over the past decade-plus change consistently. We focus on our product; we focus on our customers; we focus on our contributors. We're completely focused on doing what we do every day. And we're going to continue to deliver the strong growth we've been delivering and continue to invest in new opportunities, and that's not going to change.

Okay. And if I could just add one follow-up on the Penske agreement, can you quantify or give more color as to how large of a contributor that agreement could become over the next 12 months to 24 months?

Yes, the partnership with Penske is a great one; they're obviously a super-strong brand with a long reputation for great content, and they are really forward thinking. And they chose Shutterstock as a partner over several other options, so we're very excited about it. We're not giving financial guidance at this point. We're just getting up and running over the next coming months. And this is going to be a long-term partnership, and we are very optimistic about the results we can deliver. Jonathan Oringer - Founder, Chairman & Chief Executive Officer: Yes, and the PMC – if you think about the combination of Rex and PMC together, it's a very powerful combination. Our customers that buy commercial images from us have always asked for the editorial part of the business. It's been a hard thing to break into, but we think we have the right strategy. Now we have two important pieces that will push that strategy forward. And we plan to make this a part of our business going forward.

Okay. Thank you. I'll get back into the queue.

Thanks.

Thank you. Our next question is from the line of Brian Fitzgerald from Jefferies. Your line is open.

Thanks. A question around – maybe a follow-up question. With the changes in the competitive environment, have you seen any shift or changes in the dynamics around – or percentages around your a-la-carte business versus your subscription customers? And then I have one follow-up. Thanks.

No, I mean most of the trends in terms of the share of business we're seeing across each of the content types and the product lines has remained quite stable. I think that the change we have seen is, with the launch of our new subscription product, some positive trends where more of our customers are choosing that subscription product than might have before. And so I think it's – removing that daily download limit is not only appearing to be a great move for subscribers or historic subscribers but also it's possible that on-demand customers may find it more interesting. So we are seeing a couple of positive trends with that launch. Jonathan Oringer - Founder, Chairman & Chief Executive Officer: Yes. And while you may see other companies out there trying to replicate our subscription, 10 years ago, we invented the marketplace-based subscription for stock photography. We have more data than all of our competitors. We know how this product sells better than anybody else in the competitive environment. We continue to evolve it, and you can see that in the changes we have made recently; they are very customer-centric, and we know those customers best.

Thanks, Jon, Tim. And then the follow-up maybe was as you take a step back, do you think Shutterstock's library or the technology, if you had to put yourself in one camp, what's the real competitive advantage against – it's a very fragmented space. There's a lot of big players there. Everybody's getting to library sizes that are big. Is it the library or the technology that you would argue is your competitive advantage? Jonathan Oringer - Founder, Chairman & Chief Executive Officer: It's both. You need the content but you also need all of the data. We have the best quality. You can see it by doing search results from our competitors and doing the same search result with us. In some cases for some searches, maybe other competitors will have good content, too. But you'll get the content that you need for your project from us quicker, because of all the data collected and because of how customer-centric we are and how well we know these customers.

Great. Thanks, Jon. Jonathan Oringer - Founder, Chairman & Chief Executive Officer: Okay.

Thank you. Our next question comes from the line of Youssef Squali from Cantor Fitzgerald. Your line is open.

Hi, thank you very much, a couple questions, please, if I may. Tim, can you go back to and maybe give us a little more clarity on exactly what happened in Europe? I think you singled out Europe as the area of some weakness around your e-commerce offering and then you were launching the new products. So maybe just some more detail on that would be helpful. And then on the a-la-carte service, I think Adobe's offering is priced more competitively than yours. Any plans to match pricing? And if not, how do you compete within that niche? Thanks.

Sure. Some of the softness we saw across Europe, I would say, is a couple things coming together. You've got a pretty significant currency impact, whether you're in a local currency, you've got uncertain economies; you've got FX effect. And you've got countries like certainly Eastern Europe and Greece and Russia with fairly significant or macro issues. So that coupled with, I think, some normal ongoing competitive impact, we just found that our forecast on expectations were a little bit aggressive, and that was much more localized in Europe. U.S. growth rates were very strong; we're seeing steady improvement across most of Asia Pacific. But that I think is the main driver there. With the product launch, this is an expected thing. We're going to be testing different flavors of our subscription products going forward. But we're finding that customers are really reacting positively to no daily download limit, so that's one where we're going to continue to see how the data flows and the revenue recognition is just a byproduct of that, where anytime you switch over to a new product that has this impact. And you're going to have that negative impact in the switchover year. On the a-la-carte pricing, price is not – we're not competing on price. I think price and value since the beginning of Shutterstock is important. But it's more around the simplicity and the clarity of the price and not the price level. This is not a commodity business. We want to be competitive on pricing, but quality, search, value, those are, have always been, will continue to be the primary competitive components. Jonathan Oringer - Founder, Chairman & Chief Executive Officer: As far as price goes, like Tim said, we're always looking at price and we're always looking at the competitive environment. We have a huge head-start on our product. We have a huge head-start on understanding our customers. We plan to keep that head-start. And while we grow fast we also continue to invest in new products and services that make it easier for our customers to find these images and to get the best images. That's not going to stop, and as we grow we're going to continue to invest. So, as long as we continue to have a lead, which we plan to, we will be competitive on price. And we can probably even charge more because of that competitive lead.

Jon, just one last one. Stock wise, maybe can you just help us understand your philosophy around buybacks? Your stock obviously has seen a pretty major drop of late. Just wondering; with your cash-generative business model and strong balance sheet, what are your thoughts about buybacks, or the board's thoughts about buybacks on that? Thanks. Jonathan Oringer - Founder, Chairman & Chief Executive Officer: Yes. Well, first, I agree our shares are significantly undervalued. But our first priority is investing organically to build off of long-term growth opportunities. Second opportunity is M&A to augment our organic growth. And the third is then to return that capital back to shareholders in the form of, in the future, a dividend or a buyback. But as long as we see a future where we can continue to invest organically, we do. As long as we see a future where we can continue to invest in M&A, we do. We will keep that cash for those investments.

Okay. Thanks, and Tim, best of luck.

Thanks, Youssef.

Thank you. Our next question comes from the line of Ralph Schackart from William Blair. Your line is open. Ralph E. Schackart - William Blair & Co. LLC: Good morning. A couple questions if I could. Just curious how your customer acquisitions have trended post Q2, mainly in Eastern Europe with the new products. Has that new subscription product offering brought customers back there? And then maybe as a follow-up, why did you decide to change to the subscription pricing right now without metering? I think historically you've metered the number of images around 25 downloads per day, if I'm not mistaken. And then one more if I could. With the no-metering on the subscription, do you expect that to change the gross margin profile going forward?

Sure, I'll take that. On the customer acquisition side, we don't break down that level of detail by region going forward, outside the current – the prior quarter. But I think we're seeing encouraging signs across the board with the subscription acquisition. So you know the data we've seen so far is all quite positive. Jonathan Oringer - Founder, Chairman & Chief Executive Officer: Yes. On the unlimited, well, on the no limit per day, no metering subscription, we were always listening to our customers, and we always had a way for them to top off if they did run out of their daily download limit. And that was our on-demand product. We decided to make it easier. And with a bunch of backend changes, it became easier for us to launch this, and it made sense. We listened to customers and we delivered the product that they wanted. It's as simple as that.

On the gross margin side on the new products, our goal is for contributors to make a fair return. That is a key part of why our content library is so strong; if our contributors tend to come to us first, we pay out 28% or so of revenue across contributor base. Products on their own can have higher or lower royalty impacts, but we're seeing fairly consistent royalty rates across even the new products. It tends to be a little higher when you launch a new product then it comes down over time, because folks are testing, and without a limit they may download more. But the trend-lines are all going where we expect them to go. If we found that a new product had very strong uptake and great growth prospects, and it somehow had a higher download rate at a royalty or margin impact, we control that. We would have to decide and we would decide and our target is to continue to deliver that just under 30% return to our contributors. I expect that will continue to be very – part of the strategy going forward. Ralph E. Schackart - William Blair & Co. LLC: Great. One more if I could. Just on the newly revised full-year guidance, just curious; what's your visibility that you have into it now? I guess on one hand you have more visibility because it's subscription-based. But the other hand you have also the potential to have more customers adopt subscription, which could potentially change the dynamics in Q3 and Q4. Just any thoughts around that.

Yes, I would say the visibility is comparable, so not a dramatic change. What is a change is that we don't have the years of history for the new products that we have for 25 downloads a day or on-demand. So from that perspective, you don't have quite as much of the seasonal historical data. But these are the same customers. They are the same. They are creative professionals around the world. Their needs are not much different than they had been over many years. So the nice thing about having 1.3 million users and growing is that the law of large numbers helps you. Behavior is consistent and stable, and so our visibility tends to be pretty good. When we set our own goals for each coming quarter, our track record of coming in that range or even slightly above has been very consistent. Ralph E. Schackart - William Blair & Co. LLC: Great. One more if I could, actually, please. Your comment today on the increase in Adwords pricing, I know historically you've given out some LTV metrics around your customer base. Do you think that with what you've seen today that you could still manage the business to your historic LTV range that you've talked about?

Yes, I think we have seen some incremental increases. And it's not just in the last couple quarters, but the last couple of years, there's been an increase in how much we're spending to acquire new customers, particularly in search. But another benefit we have is; search is not the only game in town. We have other ways of generating customers. We have strong word-of-mouth, a lot of customers coming to us through unpaid channels. So overall, we're still seeing our ability to grow the customer base and our ad spend or marketing spend versus revenue has remained pretty stable. Ralph E. Schackart - William Blair & Co. LLC: Okay, thanks. Best of luck, Tim.

Thank you.

Thank you. Our next question comes from the line of Aaron Kessler from Raymond James. Your line is open. Aaron M. Kessler - Raymond James & Associates, Inc.: Great. Thanks, guys; couple questions. First just on the guidance, I believe you noted that the subscription change to unlimited will have some impact on the on-demand buying. How was that factored, if at all, into guidance? Was that part of the accounting change? And second, Tim, for metrics going forward, I think you noted you made some changes there. Do you continue to plan to give out downloads and pricing? And third, just for Europe, I guess how much of that would've been maybe seasonality, just weaker seasonality in Europe in Q2 versus an actual slowdown there? Thanks.

Yes, so the accounting change is really not related to on-demand. It's really the un-metered or the no daily download limit. So the mechanics of revenue recognition are that when you have a daily download limit of 25 downloads, our practice is to recognize a month's worth of revenue pro rata each day over the course of the month. And when we switch to an unlimited download we're recognizing on download. And then at the end of the month, we recognize the balance of the deferred revenue, because the month is over and you start a new month. So it tends to be a little more back-loaded. Over time, that works itself out, because you've got similar amounts coming into a month as being deferred out of a month. But because this is a changeover quarter, Q2, and this is a changeover year, 2015, we will see a negative impact. We will recognize a little bit – a few million dollars less of revenue than we otherwise would have. On the metrics, yes, we think that there's a bunch of metrics combined that capture the color of the business. And we didn't – increased (37:37) the different data points that we've been sharing with folks. And I expect we'll continue to add – to share some of those, particularly the enterprise information, because we think that's very helpful. Downloads and revenue per download we'll continue to provide. It's just one piece of the puzzle. I think you see this quarter where the growth rate in the download count has actually increased versus the prior quarter. These will ebb and flow. It's a natural – captures the flow of the business; so we expect to continue to share those metrics. On Europe, Europe's seasonality; true seasonality tends to be in the third quarter, which are the slower summer months. Q2, I wouldn't ascribe so much to seasonality as I would to economic uncertainty and currency fluctuation, which not only affects just the translation of currency itself but also folks' ability to purchase products in foreign currency. There's quite a bit of business outside of the U.S. that's being conducted in dollars for Shutterstock as it is for lots of e-commerce companies, so that also impacts. Aaron M. Kessler - Raymond James & Associates, Inc.: Just back to the first question real quick. I understood the accounting changes; but I guess the question was do you expect an impact from maybe less on-demand buying in the guidance for second half?

No. I mean we factored in the trend lines we're seeing. So we're seeing nice growth rate in on-demand; to the extent that there is a change in mix of customers purchasing one versus the other, that's all factored into our models and our guidance. Aaron M. Kessler - Raymond James & Associates, Inc.: Okay, great. Thank you.

Thank you. Our next question comes from the line of Lloyd Walmsley from Deutsche Bank. Your line is open.

Thanks, guys. So a couple, I guess just first, it sounds like the new guidance reflects mostly some of the trends in Europe as well as some of these accounting changes around the new plans. But it doesn't sound like you're seeing anything outside of marketing costs potentially competitively. Is that fair to say the guidance doesn't really assume any meaningful competitive impact outside of marketing?

Yes. We've seen no, as I mentioned, the competitive landscape is very much like it has always been. Adobe launched something new at the end of the quarter, but Fotolia has been a key competitor of Shutterstock for many years. It's the same images, it's the same catalog, it's the same search. Adobe has a nice brand name, but no real change in the market dynamics that we're seeing either in the quarter or in the week since the quarter ended.

Okay. And then on the lower volume subscription offering, I know you touched on it; but can you give us a better sense of how much of the uptake there is coming from new customers or a-la-carte customers switching into the subscriptions versus people trading down from higher-volume subscriptions? Jonathan Oringer - Founder, Chairman & Chief Executive Officer: It's coming from everywhere. We also see – because we haven't had a subscription at that level before, we're seeing new types of customers too come in. So it spans the whole customer base.

It's pretty early days for the new product. And I think once we get a few quarters of data and a better understanding of how these – the customers' decision-making is working, that's the kind of information we would consider sharing. But it's – we're a few months into this launch and things look good, but it's a little early I think to look at macro trends until we get a little bit more data.

Okay, thanks. Thanks for the help, guys.

Thank you. Our next question comes from the line of Blake Harper from Topeka Capital Markets. Your line is open.

Hi, guys. I wanted to ask you, Jon, if you think that any of the changes to the pricing for your subscription model or other lower-priced offerings by your competitors changes the addressable market in any way or the size of it? Jonathan Oringer - Founder, Chairman & Chief Executive Officer: Yes, I think what we're seeing through all these changes is a lot of people that normally wouldn't have bought images before start to buy them. Just like we always have, we see more and more people starting to realize they need legal, model released (42:11) they start to get in trouble. If you just grab images off of Google you will get in trouble. It's easier than ever to find your copyrighted material and to sue if someone uses it incorrectly. So as people get more educated, and as the environment changes around us, and more and more people are able to easily create websites and do marketing on their own, we are seeing different types of customers come in, all the way from PowerPoint presentations to billboard advertisements. People need this stuff.

Okay. And then one follow-up if I could, on the paid download growth that accelerated again after being – after declining last quarter and previously, just wanted to understand really how that is an indicator of the business. Obviously with the enterprise product, it's not as relevant. But just wanted to see if you could help us explain how that metric can indicate some of the health of business, or if there's other types of metrics that you could release in the future that would help us either to understand on the number of subscribers, or on number of enterprise customers, or something else like that, that could help us to get a better understanding of the business.

Yes, I think it's a nice trend point we saw where the growth rate was a little higher in Q2 than in prior quarters. The download count tends to be somewhat of a proxy for the subscription business. We have sort of an 80/20 rule where the bulk of the downloads are under the subscription plan. Subscription products, probably 75% or so of the downloads. And so it is a good indicator of subscription behavior. It's not necessarily an indicator of revenue or customer growth, but it's more an indicator of their behavior. So that's a good data point; but looking at it in isolation, you definitely lose a lot of the nuance of the rest of the business. I think enterprise accounts and their growth, and our ability to take an e-commerce customer and make them an enterprise customer and generate 10 times as much revenue in that year of transition, that's a pretty great metric. And those are the kinds of metrics that we've begun sharing. And we'll continue to share things like that where it gives you a little more sight into some of the sub-business units of the business that are growing well. Jonathan Oringer - Founder, Chairman & Chief Executive Officer: We are pretty conscious about metrics, and we're always trying to figure out what could be the best way to get you guys to understand the business the best. So we're always reevaluating the stuff and trying to figure out how to communicate those metrics.

Okay. Thanks, guys. Best of luck, Tim.

Thank you.

Operator, we have time for one last question, please.

Sure. Our last question that we have time for today is from the line of Dean Prissman from Morgan Stanley. Your line is open. Dean J. Prissman - Morgan Stanley & Co. LLC: Hey, guys; thanks for taking my questions. I know you talked about enterprise customer growth, but what was the enterprise revenue growth in the quarter, and how did it compare to last quarter? And then I think following upon Youssef's question, Jon, what if anything in the competitive environment would make you consider price cuts in your a-la-carte business? Thank you.

First question first. Enterprise growth was strong. We don't break out specific growth rates for each of the businesses, but enterprise continues to grow faster than the overall business. We've got more than 100 sales reps cranking it out and selling well. That business is growing very nicely. It's 22% or so of the overall revenue, so it continues to grow as a proportion of the whole business. Jonathan Oringer - Founder, Chairman & Chief Executive Officer: As far as pricing goes, again, we're constantly evaluating the competitive environment. You have to remember; these are businesses buying our images. Businesses are using our images to make money off of our images. A business spending a couple dollars for an image is not too much to ask. It happens 4 times per second at Shutterstock, and it will continue to happen because people need these images to run their businesses. Dean J. Prissman - Morgan Stanley & Co. LLC: Great, thanks. Best of luck, Tim.

Thank you.

Thank you. That's all the questions that we have time for today, so I'd like to turn the call back over to management for closing remarks.

Thank you, everybody, for joining us today. If you have any follow-up questions, please let us know. We're here in New York. Thank you very much.