Good day, ladies and gentlemen and welcome to the First Quarter 2018 Shutterstock Inc. Earnings Call. [Operator Instructions] As a reminder, today’s conference maybe recorded. I would now like to turn the call over to Mr. Steve Ciardiello, Chief Accounting Officer. Sir, you may begin.

Thank you, operator. Good morning, everyone and thank you for joining us for Shutterstock’s first quarter 2018 earnings call. Joining me today is Jon Oringer, our Founder, Chief Executive Officer and Chairman and Steven Berns, our Chief Operating and Chief Financial Officer. During this call, management may make forward-looking statements. There are subject to risks and uncertainties, including predictions, expectations, estimates and other information. These include statements relating to long-term effects of our investments in our business, the future success and financial impact of new and existing product offerings, our future growth and profitability, our long-term strategy, growth potential, future results of efforts to reduce our expense footprint, implementation of large scale business solutions and 2018 guidance. 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 reports and documents we file from time-to-time with the U.S. Securities and Exchange Commission, including the section titled Risk Factors in the company’s annual report on Form 10-K for the year ended December 31, 2017 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 growth on a constant currency basis and free cash flow, all of 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 allow investors to consider our operating results on the same basis used by management. This provides them with important additional insights about the company’s overall business and operating performance and enhances the comparability 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 would like to turn the call over to Jon.

Thanks, Steve and thanks everyone for joining us today for Shutterstock’s first quarter 2018 earnings call. During the first quarter, we continue to execute on our vision to be a global creative platform, empowering customers with compelling content, innovative tools and valuable services to drive faster, more efficient content discovery and creation. We are seeing strong operational momentum from our many initiatives, including our upgraded technology platform and the introduction of new products, features and functionality for our customers. Importantly, we are also continuing to attract and develop talented individuals that enable our success. While I am pleased with the performance in our top line growth during the quarter, we remain focused on also improving our margins, which is noted in prior calls, company impacted by the infrastructure and platform investments we have made and continue to make in our business. While these critical investments have impacted our margins in the last several quarters, we believe they will result in long-term positive impacts on our financial results. In the first quarter of 2018, we completed the sale of our WebDAM business on February 26, 2018. Our reported revenue increased 17.5% to $153 million compared to the first quarter of 2017. On a constant currency basis, revenue grew approximately 12.8% compared to the first quarter of 2017. And when excluding the impact of currency and WebDAM, first quarter revenue grew 13.7%. Adjusted EBITDA was $22.1 million compared to $23.2 million in the first quarter of 2017. WebDAM did not materially impact our adjusted EBITDA results in either period. In addition, on a year-over-year basis, during the first quarter of 2018, our customer base grew by 9% to more than 1.8 million customers. Paid downloads increased by 0.5% to 43.7 million downloads. Revenue per download grew 12% on a constant currency basis…

Thanks, Jon and thanks everyone for joining us today. Before I discuss our performance, as always I want to let you know that we posted a brief information deck on our website that contains supporting material for today’s call. As Jon has highlighted, we continued to execute against our strategic vision throughout the first quarter resulting in revenue growth on a reported basis of 17.5% and an adjusted EBITDA margin of 14.4%. While the company did benefit from foreign currency movements in the quarter, we saw favorable growth at the local currency level. On a constant currency basis and excluding WebDAM, revenue growth was 13.7% from the first quarter of 2017 to the first quarter of 2018. As compared to the prior year first quarter, we saw revenue per download increased 17% on a reported basis and 12% on a constant currency basis driven by the continued growth in our enterprise and motion businesses as well as a continued shift in our e-commerce image offerings towards our smaller subscription plans, which are sold at higher price per image rates than our traditional larger subscriptions. Revenues generated by our e-commerce business improved 11% as compared to the prior year first quarter as we are continuing to see positive results from improved focus on product mix and improved optimization of our conversion funnel. Our enterprise business grew 31% compared to the prior year first quarter to approximately $60 million. Our reported enterprise revenue results now include sales from our API platform, which have historically been reported in other. All periods have been adjusted to reflect this change. As Jon mentioned, international expansion and localization continues to be a core part of our growth strategy. These features include improved local currency payment functionality, improved contributor workflow and continued improvements to our search algorithm.…

Yes, sir. [Operator Instructions] And our first question comes from the line of Youssef Squali from SunTrust. You may begin.

Yes, hi. It’s Naved Khan for Youssef. Just a couple of questions. So just on the paid downloads the year-on-year growth slowed a bit. Is there something related to the pricing change that might have affected the growth here? And then just in regards to the guidance, you are obviously reiterating the annual guidance, but if I just look at the EBITDA growth at the low end, it implies 19%, so what gives you the confidence that you can still hit those numbers and how should we be thinking about the shape of the year?

Sure. So as it relates to the first question, I think the paid downloads and the growth on a year-over-year basis keep in mind that in the first quarter of 2017, we did not have our small subscriptions out. And so those were launched in the second quarter and so there was a shift. So, we saw both the benefits of that shift in our actual customer account. And so we had significant growth in customers. In addition, we also had some shift from 350 per month and 750 per month subs that weren’t utilizing the full benefit of those subscriptions shift to these small subs. The combination of those resulted in some shift in the actual number of paid downloads that in terms of the growth of those. So, when we look at our images and obviously paid downloads includes all of our products and all of the content whether it be editorial or video or music. And so in total though images being the largest portion, this growth is not surprising to us like I say given that the first quarter of 2018 is the first quarter on which in this year which we have the small subs and I think the second quarter and the third quarter you will see slight benefits versus what you saw in this comparison. As it relates to our guidance, the first quarter is just the first quarter. We don’t give quarterly guidance. And so what I would say is based on our business plan, based on the activities we have seen, based on our revenue performance, based on the cost actions that we have taken and continue to take, we believe that the combination of our revenue performance and our cost management will result in us achieving the guidance that we have provided.

Thanks, Steven. That’s helpful. I have one quick follow-up if I may. And maybe this is a question for Jon, when should we start to think about the payoff from the increased localization and personalization effort that you are undertaking?

Well, it’s a continuous process and we have been implementing personalization, localization actually for many years. We are going to continue to evolve that and we can do it in a more efficient and optimized way on our new platform. Our new platform is a great place to run experiments, because we have all of our codes in one language across all of our different stacks and products. We have – we are going to have all of our data in one place. We are going to have certain methodologies to process that data, clean that data in ways that we didn’t before and it will be standardized across all of our products. So, I would say it’s an evolving process. We have seen some benefit from it and we will continue to see more and more from the replatform.

Thank you.

And our next question comes from the line of Brian Fitzgerald from Jefferies. You may begin.

Thanks, guys. On the growth you are seeing in enterprise, can we get a little bit more detail on the mix maybe whether new businesses coming in from SMBs or is it larger multinationals? And then on the international side, roughly two-thirds of total revenue, would you callout any specific regions and products where you are seeing strong momentum and maybe likewise in the U.S pockets of strength that you are seeing, particularly in the U.S. also? Thanks.

Sure. So, as it relates to the growth of enterprise, what I would say is that we have seen very good consumption from existing clients in terms of their activity on the platform. Our enterprise team has been extremely productive in terms of ensuring customers are aware of our new features and functionality that the platform is being utilized by them in a way that serves their needs best. So, I think that’s a positive on the bookings front if you would, so obviously future revenue. We continue to have lots of opportunities in all of our regions, including the U.S., as it relates to SMBs corporates. That’s true on a global basis. So, as you probably know, I think as we have talked about over the past couple of years, we have established, if you would, significant presence out of our London office, in our Berlin office, in our Singapore office and of course we have local people in countries within each of the European Asia-Pac and Latin American regions to really drive the booking side and ultimately that results in the utilization. So, we feel that the growth in enterprise is not necessarily – it’s really a function of what the work that we did in 2017 that resulted in the utilization and of course bookings are important and that’s what shows up in deferred revenue to the extent it’s a commitment and not a by activity account. And so we feel that, that will continue to be a positive. As it relates to the international – the two-thirds of the international, once again I think that, that has been relatively consistent over the years. And I would not – we think our localization efforts, we don’t have a target, for instance, as I have talked about many years ago, companies would have a target as to what they wanted their percentage revenues to be from international versus domestic. We think that the implementation of our localization efforts, including localization of payment, localization of content, continued refinement of our localization of search, the continued benefits of the features and functionality on products around video and music. All of that will contribute to grow both in the U.S. and outside, but we don’t have specific targets by market. Jon?

Yes, I would add to that. There are no specific spots of momentum, but we sold over a 100 different countries. We source our images from 150 different countries. And the 6 images we sell every single second is generating a lot of data for us and again, on our new platform in one code base with all of our data in one place, we are going to be able to get insights and sell images in better ways in the near future.

Great. Thanks, Steve and Jon. And maybe one follow-up to your point on the platform and I have bit of follow-up to your discussion on your previous question. How would you gauge and you said it’s an ongoing process, but how would you gauge you are in terms of this replatforming process, are we in the late endings of that, but it’s going to be an ongoing process, would you even characterize it like that?

I’d say it’s never going to end if we are doing things right. Technology is changing a lot and we are adapting to it every single day. As the business gets bigger, it gets more complicated and we have introduced this new types of technologies that we have to bring into the system and then optimize our code to move forward. It’s a continuous rolling process. The big pieces of the replatform getting on to one stack moving all of our code from multiple languages to one language. I am getting everybody on board with kind of the direction of where we are going for the new stack, all of that is behind us now and we are starting to see those pages go live and perform better.

Thank you.

And our next question comes from the line of Ralph Schackart from William Blair. You may begin.

Good morning. Just sort of focusing on the e-comm business, I think you talked about optimizing the conversion funnel, new products and price changes sort of driving the strong double-digit growth. Any one of those factors you sort of call out in terms of having more of a pronounced impact on the growth? And then as a follow-up, I think you talked about some new products that you are looking to rollout within that e-comm business in ‘18, any perspective or color you could add and then new products and potential impact on the growth rate going forward would be great too? Thank you.

So on the factors driving growth, I appreciate the question. When we think about the activity in the first quarter and all of the activities that led up to the first quarter of 2018, it really is the performance is really the result of many, many, many small, but important changes in our platform, in features, in functionality, in our user experience, in our technology that creates a much richer environment for our users. So, it isn’t – while I know it’s easy to try to find that one soundbite that it really doesn’t exist, what I think it goes back to is what really began in late 2015 and really enabled us to have the growth that we had in the second half of last year as we talked about in the second quarter of ‘17. And then we saw that performance I think this first quarter on e-commerce business is just a continuation of that effort. We did on the video and music side. We have made significant improvements in those platforms and so that also contributes to our e-commerce performance. And once again, there is not one thing that from a financial performance perspective you could point to, it’s really the accumulated benefit of all of those. As it relates to the second part of your question?

Yes, for new products, I would point to a couple of them. I think you will see tighter integration. Well, I know you will see tighter integration with custom on our enterprise side and that’s going to spawn some new types of products as we integrate custom and our other types of asset types like commercial, stock photography and editorial stock photography. Also on the enterprise side, you will see more multi-asset types of deals where our customers will be able to without much friction move from purchasing one asset to another and we are developing plans that makes it easier and easier for us to sell.

Okay, thank you.

And our next question comes from the line of Lloyd Walmsley from Deutsche Bank. You may begin.

Thanks. I had a couple. First on the cost side, it sounds like you have identified a pretty firm commitment and a plan to control costs. Can you help us just to understand which line items should start to show operating leverage over the rest of the year? And maybe from a timing perspective, when we should expect to start to see that leverage? And then second one you mentioned I think it was about $9 million or $10 million reduction in deferred revenue impact specifically from the accounting change. Just wondering if you can help us understand, is that recognized actually in this quarter as revenue and that’s why it came out or is it shifting into 2Q? Any kind of additional color you can help us as to understand that since it has been a – historically a big source of contribution of free cash flow and it didn’t look like it was more than slightly positive this quarter. So would love some help there?

Sure. So, just to take the second question first, so as with – as is required by the standard that deferred revenue that was recognized – was not recognized as revenue in Q1. So it did not benefit, but for the $1 million that I mentioned in my prior comments. So, our – just for avoidance of any doubt, our revenue reflects a $1 million benefit from deferred revenue from the accounting change. The deferred revenue adjustment of nearly $10 million was booked directly to retained earnings pursuant to the accounting standards. And so that is just a direct entry. And there was not a cash impact as it relates to that deferred revenue, because keep in mind, the deferred revenue could be cash that we have collected in advance and ultimately just reflects effectively a liability that we have going forward that makes its way through the P&L on the form of GAAP revenue.

Okay, we shouldn’t – so that kind of evaporates. We don’t – we won’t see that ever hit revenue?

Correct. It went right through...

And then on the cost side, first question?

Yes. So on the cost side, G&A and product development will continue to see cost improvements. And on the COGS side as well as sales and marketing, you will continue to see growth that is proportional to revenue growth. We have a number of areas where our incremental revenue should be generating incremental margin without the same degree of cost, because as I talked about the implementation of a number of factors both internally generated and third-party applications. So, our workday environment, some of the internal tools and capabilities that we are building is as we have talked about, our new platform enables the significant benefit from that platform in terms of the productivity of our engineering talent. There are number of things that our engineers used to do where those are now done by our functions whether those would be the marketing function or other functions, whether it be our content marketing platform or other platforms that don’t require the use of engineers. And we have just many internal tools that are enabling us to be more productive. So, we don’t require the same level of resources for the incremental revenue being generated. There wasn’t any single other line I would highlight. I think we will get our total P&L and make the choices across that.

Okay, thank you.

Thank you. And I am showing no further questions at this time. I would now like to turn the call back over to Mr. Steven Berns for closing remarks.

We appreciate everybody’s time this morning. Thanks again and we will talk to you in the near future.

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.