Good day, ladies and gentlemen, and welcome to the Shutterstock Incorporated Q4 2016 Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to turn the conference over to VP of Strategic Finance, Rawson Daniel, you may begin.

Thank you, operator. Good morning, everyone, and thank you for joining us for Shutterstock's fourth quarter and full year 2016 earnings call. Joining me today is Jon Oringer, our Founder, Chief Executive Officer and Chairman, and Steven Berns, our Chief Operating and Financial Officer. During this call management may make forward-looking statements that are subject to risk and uncertainty including predictions, expectations, estimates and other information. These include statements relating to the expansion of our addressable market, the growth of our customer base and success of new and existing product offerings; revenue growth and the predictability of revenue, adjusted EBITDA, equity-based compensation, foreign currency rates, 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 we file from time to time with the U.S. Securities and Exchange Commission including the section entitled risk factors in the Company's Annual report on Form 10-K for the year ended December 31,2016. For discussions 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, adjusted net income, revenue and adjusted EBITDA growth on a constant currency basis 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 and in our Form 10-K, which are posted on the investor relations section of our website. We believe that the use of these measures in conjunction with GAAP financial measures provides important additional insights for investors about the performance of the Company's overall business and operating performance and enhances the comparability for investors in assessing our financial reporting. However, these non-GAAP financial measures, should not be considered as a substitute for or superior to financial information prepared in accordance with GAAP. And with that I will like to turn the call over to Jon.

Thanks, Rawson. And thanks everyone for joining us today for Shutterstock's fourth quarter and year-end 2016 earnings call. We made significant progress on the execution of our strategy in 2016. We improved and expanded the content we offer our customers, we enhance the technology on which our customers access this content. We continue to diversify our product mix through video, music and editorial offerings and we continue to grow internationally. This progress manifests into 18% annual revenue growth and 18% annual adjusted EBITDA growth on a constant currency basis as well as strong growth across our key metrics. During the year we expanded our image library by 63% to over 116 million images. We expanded our video library by 68% to over 6 million video clips. We grew paid downloads by 14% to $168 million and we increased revenue per download by 4% on a constant currency basis. Beyond the numbers though what I am most excited about is how our long-term vision for the business is now beginning to come to fruition. To-date Shutterstock has been about providing our users with real time access to a library of high quality content. Consumers and businesses of all shapes and sizes need imagery for their projects and we have been a go to option and valuable partner for them. Overtime we have innovated, making our products easier to use, providing better search and workflow tools and continuously diversifying our product mix. While this approach has brought us to where we are today generating over 5 downloads per second nearly $500 million in revenue and approaching $100 million in adjusted EBITDA, we have designs for something much more. Over the coming years our vision is to expand our business from a marketplace to a platform. We are confident that successfully executing our…

Thanks Jon and thanks everyone for joining us today. We have posted a brief presentation deck on our website, which contains supporting materials for our quarterly and annual results as well as other items discussed on today's call. As Jon highlighted, Shutterstock delivered another year of profitable growth and operating momentum in 2016. Continued growth across both sides of our marketplace translated into full-year revenue growth on a reported basis of 16% and adjusted EBITDA growth of 13%. On a constant currency basis, 2016 revenue and adjusted EBITDA growth were both approximately 18%. For the full year our revenue was impacted by approximately $4.5 million due to the strengthening of the U.S. dollar versus the British pound throughout 2016. This impact was approximately $500,000 more than was expected at the end of the third quarter of 2016. Looking at the fourth quarter of 2016, as compared to the fourth quarter of last year total Company revenue increased 12% on a reported basis. On a constant currency basis fourth quarter revenue grew 14% driven by increased results from our expanding video and music offerings as well as from sustained growth at our traditional e-commerce and enterprise businesses. We continue to see solid trends across our key metrics, as we attract new customers across multiple content types and increase customer lifetime value. This past quarter, our customer base expanded 14% to nearly 1.7 million customers. As compared to the prior-year, fourth quarter we saw a 6% increase in paid downloads driven by new customers as well as increased activity across our existing subscriber base. We also saw revenue per download increase 6% on a reported base or 8% on a constant currency basis, primarily driven by continued growth in our enterprise video and music products, which operate at higher price points than…

[Operator Instructions] And our first question comes from Youssef Squali with Cantor Fitzgerald. Your line is open.

Thank you very much. Good morning all. Few questions. Jon growth in paid downloads has been the lowest we have seen in many, many quarters, just trying to understand or why isn’t this a trend. Or why isn’t this trend sorry an indication of maybe either a maturity of the industry or more intense competitive position that’s likely here at this day. And also can you expand on your strategy of expanding the business from a market place to a platform. Just give us an idea how big is this new larger addressable market you are discussing and can you – how quickly do you think, you can get the business to reaccelerate based on these new initiatives. Thank you.

Sure the growth in paid downloads follows the growth of the e-commerce business. So it tracks pretty well to that. As far as this strategy, let's go back a few years. So, when we went public our strategy was at that time we were a Company that was just over $100 million of revenue and we were building, what was at that time a relatively new enterprise business. We were expanding our video product. And we were building the business internationally. We took that three-pronged strategy now almost five years later and did a really good job with that. The business is nearly $500 million in revenue, nearly $100 million of EBITDA. And today what we're focused on is taking our transactional marketplace and turning it into an end-to-end platform. So what we did in 2015 and 2016 is build, rebuild our entire tech platform in order to do that. In order to take the Company from being a transactional marketplace to having many more touch points with the customer over their entire creative lifecycle for using imagery, deploying imagery, creating imagery and measuring imagery. We have a lot of work left to do and we're going to continue to build on top of the platform. This is not something that we do for the next quarter, for the next year, this is a multi-year strategy and it expands our addressable market pretty significantly. If you think of stock imagery as a $5 billion to $10 billion addressable market. You take the total workflow market and that’s many tens of billions of dollars of addressable market. So we think we have a great platform. We have a great model, we have a great starting point, which is selling over 5 images per second to businesses all around the world and we are going to work-off of that, that starting point.

Just as a follow up to that, how quickly do you think we should start seeing the positive impacts or the accretive impacts of that to the growth rate. And Steven I think looking at your 2017 guidance it looks like your EBITDA margin guidance is somewhat flattish with the last couple of years. Can you just speak to the leverage in the model overtime over the next couple of years. Thanks.

I mean, I think, Youssef as Jon just discussed, this is not for instance just a 2017 event, so in terms of providing financial guidance we're providing 2017 guidance but on a quarterly basis what we think is that we're going to continue to build-off of the platform that we are finishing up in this quarter, that we're going to drive that growth as we go forward. And we're in the show me again, we're putting our heads down and executing and we think that to provide here's what we're going to do is less valuable than here's what we've just done. And so as we go forward we think that where we're planning aggressively to drive growth but we want to be realistic about what the near-term results might be.

Okay. Thank you.

And in terms of EBITDA margin. I think that goes hand in hand with the growth that we expect and certainly we as Jon talked about revenue growth acceleration we expect that over time will have that EBITDA growth acceleration consistent with our prior communications.

Okay thanks.

And our next question comes from Brian Fitzgerald with Jefferies. Your line is open.

Hi, thank you this is John on for Brian. Just now that you're a few quarters into the integration with Google and Facebook just can you provide any updates on how those partnerships are progressing and just walk us through kind of how you guys are getting paid on that and how that affects the model going out. Thanks.

Yeah, so as it relates to those partnerships to this point in time those are not material impacts on our overall financial results. We're working well with both of those partners but they're not individually or even together those two material. We continue to – the payment models for those we haven't described those in the public domain. We're working with Google on the AdWords and AdSense model. And on Facebook with businesses that are looking to produce ads on the Facebook platform using Shutterstock images. So both of those obviously given the growth in the platforms by both on Google and Facebook are important relationships and we continue to want to be in those environments where our customers or potential customers are going to use images to drive their businesses a consumption of their products and services.

Great thank you.

And our next question comes from Andrew Bruckner with RBC Capital Markets. You know line is open.

Thank you, I’m wondering if you can make any comments kind of on customer trends and then sales to the same customers in terms of how much more you're getting per customer. And then secondarily if you can talk a little bit about with a higher mix of enterprise customers does that at all affect your gross margins. Thank you.

So on the latter part of your question. Gross margins are really unaffected, as a result of the fact that the contributor royalties are generally similar across the platform when you average all of the different types of customers on each platform so. So that is not an impact. As it relates to customer growth, it's been very stable if you would in the 14% to 15% annually and the revenue per customer was essentially flat year-over-year. That was attributable primarily to a higher mix to enterprise but also a higher mix to some lower priced subscription versus our 750 image per month product. And what we're looking for is not just the revenue per month, but obviously the lifetime customer revenue and the lifetime value. And so we believe that the new products have a greater stickiness obviously not everyone needs 750 images a month, not everyone is an enterprise customer and so we'll continue to test those over time. Retention is steady and it's also in - customer retention that is and it's also in line with our past couple of years.

Thank you.

And our next question comes from Lloyd Walmsley with Deutsche Bank. Your line is open.

Thanks, a couple if I can. First as you shift more to the workflow side. Are there any metrics you can share around uptake of Shutterstock Editor and kind of comment on how you plan to monetize that longer term. Are there much higher spend rates from users who adopt the Editor or is there going to be a long-term monetization through just other ways through Editor. And then if you – second one if I can looks like you're testing some lower priced subscription tiers that we've seen in the wild. If you can just give us a sense for how much of that in your test seems to be pulling people in, who would ordinarily have bought ala carte versus kind of people down shifting from higher priced tiers. Any color you can share on those tests.

To start on Editor, Editor is just the beginning of our workflow product and we plan to build that out further. We're not disclosing any specific metrics on Editor but we have said that people that use Editor do buy more photos from us. And increases engagement and we will continue to try to increase engagement. On a lower priced subscriptions we are just moving to. Where the market is, we see other segments of customers that are willing to buy from us on lower volume packages. We're going to offer those lower volume packages to them when it makes sense.

Okay thanks.

And our next question comes Blake Harper with Loop Capital. Your line is open.

Hi thanks. Jon wanted to ask you if you could address what you think is the end-market size of a Microstock market right now is there a deflationary pressure that you see given large supply and just to follow-up on what you said there about some of the pricing implications that you're seeing.

It's hard to just break out Microstock. In fact Microstock has had several definitions over the years, I can tell you that businesses of all sizes have not decreased their need for imagery. Every business needs imagery to sell their product or service and we're increasingly becoming the place that people go to get those images. We will also continuously become more of a place that people go to work on their own images and we will be more in the work flow of all of these businesses. Today we have 1.7 million customers those are mostly businesses. There are tens and tens of millions of customers out there that could be buying our product and our goal is to get them.

Okay, thanks and then one more if I could. Could you just give us something on the Adobe Photoshop Plugin at the kind of uptake, or usage there and then also if you have any further plans to do something similar with some of the other Adobe Creative Cloud applications as well.

We plan to plug into every single place that a person would need an image. We'll do this with our API. We'll do it actively where we partner with a Company and we’ll allow other company to integrate with our API directly. You mentioned one, Adobe that is just one of our connectors. We plan to be everywhere a business need dimension.

Okay, thanks Jon.

Our next question comes from Ralph Schackart with William Blair. Your line is open.

Good morning. Jon I was wondering if you could give us maybe a little bit more color on the reacceleration comments. I think you called out specifically moving to an end-to-end platform but any more color you could add just in terms of services you would offer or a product hold that the current platform has today. And then second just for Steven can you give us a sense of what FX headwinds may be in the 2017 guidance. Thank you.

I’ll start, if you look at 2016 was a year of re-platforming a lot of the Company. A lot of the way that we work on our products a lot of the way that we develop our products and a lot of the codes that our products get launched onto. 2017 is going to be the year that we build on that technological platform and we continue to innovate on behalf of the customer. We're not going to give much detail about our products we're the only public company in this space and we're going to continue to innovate and deliver for the customer every day like we do.

So as relates to the FX impact on guidance, we're just looking at where rates finished out the year in 2016 and looking at the impact on 2017 of those rates being flat and so effectively we're looking at a couple of points of impact but that’s already incorporated within our guidance.

Okay thank you.

And our next question comes from Aaron Kessler with Raymond James. You line is open.

Great thanks. A couple questions, Jon can you update us maybe on the video growth through – in terms of NRV images or a rough revenue percentage and how video is tracking. The second, royalty rates I have been hearing that those maybe coming down for some of the competitors. Share your thoughts on what you're seeing from a royalty rate perspective. And third, can you just remind us what the cap software is for 2016 in total and just for 2017 if you're finishing up the tech platform in Q1, why would that be so high for the rest of year, is that driven some of the newer products you talked about thank you.

Maybe I'll start on video. Video is an important part of our offering, video is growing faster than the Company is growing both on the customer and contributor side. Video is still a complicated thing to use and as we get better with our workflow efforts we plan to make video easier and easier to use for customers. I’d say it's very difficult and we've proven with Editor that we can make simple transforms of imagery a lot easier for the customer and we plan to do that with video as well.

In terms of the capitalization of software, for 2016 it was about capitalization of labor as it relates to building of our product. That was about $18 million in 2016. We expect a similar level in 2017 and to the answer the question that you had with regard to the platform being finished out, and then going to customer facing functionality in features that is what is keeping the cap labor at basically a similar rate. What we have been doing is kind of building that foundation, which allows us to now build better features and functionality to drive customer consumption of our products. So we expect that we'll continue to have that rate for 2017.

Got it and is there any quick thoughts on the royalty rate, that you see from some of competitors any changes there?

I think that, what were trying to do is drive both the best contributors on our – to keep them on our platform, sustain their contribution of great quality imagery to drive our customers to continue to use Shutterstock and that has been a successful model. We see the royalty rate as, as fair and our contributors deem it the same. So we look at it from the outcome of the behaviors of both our customers and contributors. We see what competitors are doing but we don't think that just cutting a single side of the marketplace is an effective mechanism for long-term profitable and sustainable growth.

Got it, great. Thank you.

[Operator Instructions]

Okay, given that there's no other questions. We appreciate every ones time today and we look forward to speaking with you soon. Thank you.

Ladies and gentlemen thank you for participating in today's conference. This concludes the program and you may all disconnect. Everyone have a great day.