Good day, ladies and gentlemen, and welcome to the Q3 2017 Shutterstock, Inc. 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 follow at that time. As a reminder, this conference call may be recorded. I would now like to introduce your host for today's conference Michael Mestrandrea. Please go ahead.

Thank you, operator. Good morning, everyone, and thank you for joining us for Shutterstock's third quarter 2017 earnings call. Joining me today is Jon Oringer, our Founder, Chief Executive Officer and Chairman; Steven Berns, our Chief Operating Officer and Financial Officer. During this call, management may make forward-looking statements that are subject to risk, uncertainty, including predictions, expectations, estimates and other information. These include statements relating to expansion of our addressable market, the growth of customer base, success of new and existing product offerings, growth and predictability of our revenue, adjusted EBITDA, equity-based compensation, foreign currency rates, taxes and capital expenditures. Our actual results may differ materially from the results predicted. The reported results should not be considered as an indication of future performance. Please refer to today's press release, the reports, documents we file from time-to-time with the U.S. Securities and Exchange Commission, including section entitled Risk Factors in the company's annual report on the Form 10-K on December 31, 2016, for a discussion of important risk factors that cause actual results to differ materially from those discussed in any forward-looking statements that we may make on this call. On this call, we refer to adjusted EBITDA, adjusted EBITDA growth, adjusted EBITDA margin, adjusted net income, each of these metrics on a consistent currency basis, revenue growth on a constant currency basis, free cash flow all of which are non-GAAP financial measures. You will find a description of these items along with the reconciliation of most directly comparable GAAP financial measures in today's earnings release from our Form 8-K, which are posted on our Investor Relations website. We believe that the uses of the measures in conjunction with GAAP financial measures provides an important additional insights for investors about the performance of the company's overall business and operating performance, it enhances comparability for investors in assessing our financial reporting. However, these non-GAAP financial measures should not be considered as a substitute for financial information prepared in accordance with GAAP. And with that, I'll turn the call over to Jon.

Thanks, Mike. And thanks everyone for joining us today for Shutterstock's third quarter 2017 earnings call. We continue to make progress in our business. As we noted last quarter, we are seeing positive operational momentum as a result of our new technology platform and operating structure. We are pleased with the improvement in our top line performance in the third quarter. So our margins continue to be affected by the investments we are making in our business, which will have a long-term positive impact. In the third quarter of 2017, on a constant currency and year-over-year basis, revenue grew 14% and adjusted EBITDA increased 1%. In addition, on a year-over-year basis during the third quarter of 2017, our customer base grew by 11% to nearly 1.8 million customers. Paid downloads increased by 2% to 41.9 million. We grew revenue per download by 10% on a constant currency basis. We expanded our image library by 52% to over 155 million images, and our video library increased by 54% to more than 8 million clips. We continue to take deliberate actions to transition from a stock image marketplace to a broader platform that provides individuals and enterprises with the various content types and tools used to collaboratively design, build and distribute creative projects. Over the past few years, we've been making investments in our business that are enabling us to address larger opportunities, that we believe will drive shareholder value over the long-term. Our technology platform, which as you know, has been undergoing an upgrade over the last several quarters, is showing positive results from our investments. We're seeing a better speed of innovation, which is allowing us to get our products and services to the market quicker and more efficiently. Operationally, we are now organized to align more deliberately with our…

Thanks, Jon, and thank you everyone for joining us today. Before I discuss our third quarter performance, I want to let you know that we posted a brief presentation deck, and those other items on our website that contains supporting materials for today's call. As Jon has highlighted, Shutterstock continued to execute against our strategic vision throughout the third quarter, translating into revenue growth on a reported basis of 15%, and an adjusted EBITDA margin of 16%. As Jon mentioned, we completed the acquisition of Flashstock in July, which is rebranded now as Shutterstock Custom. As previously mentioned, Shutterstock Custom will have a minimal impact on our financial results in 2017, but we believe it will be a significant growth engine in years to come. On a constant currency basis, as compared to the prior year third quarter, revenue growth was 14% and adjusted EBITDA margin was 16%. This past quarter our customer base expanded 11% to 1.8 million customers. As compared to the prior year third quarter, we saw revenue per download increase 11% on a reported basis, or 10% on a constant currency basis driven by the continued growth in our enterprise and motion businesses, as well as a shift within our e-commerce business toward our smaller subscription plans, which were sold at higher price per image rates than our traditional larger subscriptions. Revenues generated by our e-commerce business improved 6% as compared to the prior year third quarter, as we are continuing to see positive results from the changes in product mix of our subscription business. Our enterprise business delivered 29% year-over-year growth to $49.3 million. International expansion and localization continues to be a core part of our long-term growth strategy. In the third quarter of 2017, of the approximately 60% of revenues from customers outside the…

Certainly. Our first question comes from the line of Lloyd Walmsley from Deutsche Bank. Your line is now open.

Thank you. I'm going to ask two if I can. First, it looks like you're pushing the new Custom product pretty hard at Adweek specifically. Can you just talk about the customer reception for this and give us a sense for what kind of revenue contribution that made in the quarter and how we should think about it going forward? And then second, it looks like you're taking up the guidance on capitalized R&D quite a bit. So wondering if you can talk about what is driving that? And then is any of that focused on kind of the fourth quarter and then coming out as we get into next year, and kind of a one-time-ish basis, or is that just increasing investment that's going to continue?

I'll start out taking about Custom, and then I'll hand it over to Steven on your other question. Custom is really exciting for us. So ever since we started this company back in 2003, stock photography fit a really important business need. But over-and-over brands would come to us and ask us if there was any way that we could provide more customized images with their products in those images. We always knew we were either going to figure out a way to build into this space, or purchase a company and merger our way or acquire our way into this space. And when we met Grant at Flashstock, we realized that he had the right product, the right technology and a customer base outlined perfectly with ours. So what we have today is that product that we accelerated right to something that we can integrate into our business very fast. And we get to take the 30,000 enterprise customers that we have and bring them right into that product, and the 300,000 very active contributors that we've known, some of which for over a decade, into that product as well. So we can offer a lot to that business line, and get the Custom product in our enterprise customers' hands as well.

So to the questions with regard to the contribution from Custom in the quarter, what we've said is for the full year basis it's a small amount, it's de minimis, and therefore we haven't changed our numbers, and it's not material to the year. So we'll include it as part of our enterprise business as we are now into 2018 and beyond. But it is, once again, not material to the period. As it relates to the capitalized labor, we've had a number of areas where we've been spending on features, functionality, re-platforming of our technology base, all of which have resulted in both internal and external resources being devoted to that. A significant portion of that has a life beyond, a useful life beyond the current period. And therefore, under GAAP requires capitalization, we amortize that over a 3-year period. As we look forward, there's been a lot of external costs that we have had in terms of external labor regarding project – move really specific projects and specific deliverables. We'll be reducing that. And as we reduce that we would expect that, as I indicated in my comments, that the level of G&A spend, which is combined with both period cost as well as the amortization of the capitalized labor that, that number that you see in this period is not the new normal. So what we see in the fourth quarter is kind of a finishing up of many areas, but not a level that we expect as we go forward. We don't have any specific comments with regard to 2018 guidance, other than to say that as we look at 2018, we feel confident that our expectations of improved operating and EBITDA margins is a reasonable expectation.

Okay. And if I can just follow up on the contribution, maybe you can just help us understand. Would enterprise revenue have accelerated without any contribution from the Flashstock business? Is that what you can help us with?

Yeah. Flashstock had no impact on the enterprise revenue percentage change in the quarter that would have been significant. So while it was – obviously, they had some revenue it was not material to the period. And keep in mind that, because of the way in which you account for revenue of an acquired entity, that it comes through at a relatively low margin for the deferred revenue that was on their balance sheet at the time of the acquisition. So especially, in this period, it's not material.

Okay. That's helpful. Thank you.

Thank you. Our next question comes from the line of Brent Thill from Jefferies. Your line is now open.

Good morning. Thanks for taking our question. This is Alex Giaimo on for Brent. Maybe just a follow on to the previous question, if you can just discuss further the trends you're seeing in the enterprise business. It looks like the growth there reaccelerated nicely from 2Q which is a positive. You touched on a bit in the opening comments, or maybe just color on clients' feedback and the momentum you're seeing there, and how you expect the trend moving forward. Thanks.

So as it relates to the trends in enterprise, we've talked about that – obviously, this is not a sprint, it's a marathon, and we're certainly, while the second quarter was not what we would consider to be a good proxy for the future, we are pleased with where we are in the third quarter. We still believe that as it relates to both the share of wallet that we have from existing customers, as well as the total number of customers, that there are significant opportunities here both in all of the regions around the world. So as we think about adding Custom, as John indicated, to that platform that many customers use, and as customers are now taking in-house a lot of activities that may have been done externally before, that creates a significant opportunity given that our platform has both the content and the tools that enable for many of the activities that they perform, whether those be just pushing out a content developing, producing content and then pushing that out to various websites and other digital platforms, that can all be done on the Shutterstock platform. And so it creates a workflow environment that is substantially improved, versus the marketplace environment that we previously had. So we continue to look at the enterprise customer and our offering and enhance it, I would expect to do so going forward. So we've had very positive client feedback. I think the question that came up before, as it relates to our presence at Adweek, I think is just a reflection of the fact that we feel very positive about the Custom product and its meaningfulness to our enterprise customers. So as we look forward all positive trends, but once again we're not taking anything for granted, and continue to keep our heads down and pound away at it.

Great. Thanks for the color.

Thank you. Our next question comes from the line of Ralph Schackart from William Blair. Your line is now open. Ralph Edward Schackart - William Blair & Co. LLC: Good morning. Two questions if I could. First on the guidance. Typically Q4 would display seasonal pattern of a sequential uptick over Q3, at least going back past couple of years. So just curious if there was any revenue pull forward in the Q3 that you would expect in Q4 of this year? And then second in the prepared remarks you talked about a lower customer acquisition costs. Just curious maybe sort of the one or two primary drivers of that and then would that be sort of the new operating norm you would expect going forward? Thank you.

So as it relates to the sequential quarters, we expect the seasonality to be within the normal ranges. There is nothing significant that we expect in the fourth quarter relative to our historical pattern of fourth quarter over third quarter. And so the one reason our guidance on revenue is at the high end of the range is because our performance in the third quarter when we look at the nine-months and then the fourth quarter. It just from – and a trend basis for where we are in the month of October, we feel comfortable with updating that statement. As it relates to the cost of acquiring customers, we've seen continued improvement in our marketing efficiency, and therefore the cost to acquire has been favorable. As we look forward, we see lots of opportunity to increase our marketing spend in various ways and in various marketplaces, and we'll continue to do that. We expect to do so efficiently, but I wouldn't say that the cost for acquisition is something that is easily predicted because the competitiveness in the marketplace, as it relates to SEM spend and other activities varies from period-to-period. But we certainly – that's why we're always looking for efficiencies because we want to be able to maintain a level of spend that allows us to be flexible as it relates to pricing in the marketplace for the various marketing and content types we go after. Ralph Edward Schackart - William Blair & Co. LLC: Okay. Thank you.

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

Okay. Thank you very much. Two questions if I may. One, Jon, just big picture, can you speak to again the growth in the overall segment, whether you think you're gaining share or losing share, and any update to the competitive dynamics that have evolved in this space in the last 12 months or so? And then Steven, your tax rate was substantially lower. Can you maybe speak to that and your kind of what do you expect that to be in Q4? And lastly SBC also came in a little bit better. What's your guidance for the rest of the year? Thanks.

Yeah. I'll start. So big picture growth in segment, there's a lot of opportunity left in the space. Just to remind you, of all the businesses we're in, e-commerce, images where we sell images over the e-commerce channel, our enterprise business which continues to grow, our editorial product which we're just starting to see some traction with, and we'll continue to get the assets that people need, and cover the events when it comes to sports, the entertainment images that people need, and all the media content. We'll continue to grow into that world. Our digital asset management product that we acquired through WebDAM, we're going to continue to find places to integrate that into our different products and services. Our motion business, audio and video, we were one of the first into this space, and definitely have innovated on that product more than our competitors, and I believe there's a lot of upside there too. And now with Custom, a brand new multi-billion dollar market that we get to cross-sell and up-sell our current customers into, and it's growing well on its own even before we even started to do that. If you combine all of this, and think about the fact that today we touch about 1.8 million customers, and if you look at small businesses alone, easily above 50 million around the world, there's a lot of upside here, there's a lot of businesses for us to continue to sell into and continue building all six of these lines of business. If you take it further from there, which we plan to do and we're doing currently, you take workflow, you take tools, and you tie all of these six lines of business together, and you start to create a platform, and that's where this business is going. I can talk a lot about our business. If you want some information on the competitive area, I think, it's best left before what you can find out there, but that's where we're focused on today.

As it relates to the tax rate question, as I've indicated for the past couple of years, we've been focused on reducing our cash taxes effectively that has obviously an impact on our rate, and we've done so with good planning and good process here. There was a discrete tax benefit in the third quarter from a U.S. R&D tax credit, as well as other activities that are coupled discrete items that are detailed in our footnote in our 10-Q that was filed this morning. We feel very positive about where we are. We will continue to be, I don't want to say – we'll continue to be very mindful of our cash taxes. We had $12 million year-over-year cash tax savings, and so that is a significant level. We did not realize how quickly we would achieve some of these benefits, and so we're pleased with our ability to do so. Our cash, or I should say our tax rate for the full year, we still expect, I say, in the mid-30%s. Based on discrete items, it could possibly be slightly lower, but we'll continue to once again to be focused on minimizing our cash taxes. And given our global footprint, our expanding customer base outside the United States, and various operations we have, all of that makes it possible for us to have this lower rate. So once again, really pleased with our position to-date, but we'll continue to be very mindful of the opportunities ahead of us.

And on the stock-based comp, I think initially earlier in the year, you had guided to about $30 million. I think you're tracking much lower than that. I think you're tracking around $20 million for the first 9 months.

Yeah. I mean that number I would say is a function of a number of items in terms of our compensation policies, and being mindful of dilution. And so what we've done is, we've just been consistent, I'd say over the past year or two years, in terms of how we think about the overall dilution, and make sure that while we continue to focus on paying our employees competitively, that we're also mindful of the impact of equity grants. And so we look at this, and I'd say we certainly would expect that it's going to be in the mid-$20 million at this point in time. But it's not – the best proxy for the fourth quarter expense is the third quarter expense. There's nothing that specifically we expect to happen in the fourth quarter.

Okay. That's helpful. Thank you.

Thank you. Our next question comes from the line of Kip Paulson from Cantor Fitzgerald. Your line is now open.

Hi, thanks for taking my question. Just a couple from me. So given the acceleration in e-commerce and enterprise, how did this growth pick up throughout the quarter? Was this pretty much linear, or was it more backend quarter weighted, and ultimately where do you think enterprise revenue contribution can get to over time? And then the second question would be, when do you expect investment growth to slow somewhat relative to your revenue growth? Thanks.

So as relates to the inter quarter activity, July and September tends to be the stronger months relative to the third quarter. That was no different in 2017, as we've seen in prior periods. And we continue to see, we saw a good June in – despite the results of the second quarter not being where we would have wanted them, July really followed a good June, and then August, just the nature of holidays and vacations, and on the client side and the agency side tends to be less activity. And so strength in both of those months in August once again continued to be, on a relative basis, a good period for us. As it relates to the enterprise, I should say, I'll just jump to the question on... What was your last question, on our expense growth versus revenue growth. I talked about that as it relates to – we expect growth in margins to be greater, to be better in 2018. So we're not – while we do expect some continued expenses, as I talked about earlier in the call, as it relates to capitalized labor, amortization of previously capitalized labor due to external costs implementation on projects on various parts of our platform as we get into 2018, we are very mindful of that and expect expansion of our operating margins.

All right. Great. Thanks guys.

Thank you. At this time, I'm not showing any further questions, and would like to turn the call back over to Steven Berns for any closing remarks.

We appreciate everybody's time today. Thanks again for your interest in Shutterstock. We'll talk to you next quarter.

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