Good day, ladies and gentlemen, and welcome to your Q1 2019 Shutterstock, Inc. Earnings Conference Call. [Operator Instructions]. As a reminder, today's conference is being recorded. I would now like to turn the call over to 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 2019 Earnings Call. Joining me today is Jon Oringer, our Founder, Chief Executive Officer and Chairman; and Steven Berns, our Co-Chief Operating and Chief 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 long-term effects of our investments in our business, the future success and financial impact of new and existing product offerings, our future growth, margins and profitability, our long-term strategy, our growth potential, potential future results of efforts to reduce our expense footprint and implementation of large-scale business solutions and our 2019 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 entitled Risk Factors in the company's Annual Report on Form 10-K for the year ended December 31, 2018 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 EBITDA margin, adjusted net income, revenue growth excluding Webdam, revenue growth on a constant currency basis, including and excluding Webdam, revenue growth and revenue per download 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, which is posted on the Investor Relations section of our website. We believe that the use of these measures in conjunction with GAAP financial measures allows investors consider our operating results on the same basis used by management. This provides them with important information -- with important additional insights about the company's overall business and operating performance and enhances 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. Lastly, as a reminder, we sold Webdam in February of 2018 and therefore Webdam was included in our Q1 2018 results, prior to the sale. Some of our commentary today will specifically state that we are excluding the results of Webdam, meaning that we are excluding it from our first quarter of 2018 to provide a comparable basis to the first quarter of 2019. And now, I will turn the call over to Jon.

Thanks, Steve. Thank you everyone for joining us today for Shutterstock's first quarter 2019 earnings call. First, we are pleased to have welcomed Stan Pavlovsky on April 1 as Co-Chief Operating Officer and Head of Strategic Operations. The product, technology and marketing teams will report to Stan. Stan joins us with deep expertise in digital and e-commerce, most recently serving as President of Meredith Digital and Executive Vice President of Meredith Corporation. We believe with the addition of Stan, we are better positioned to execute our strategy across the company and to further drive continuous improvement of the customer and contributor experiences. I remain focused on growing our business and creating the best possible experience for our customers, contributors and employees. I plan to focus more of my time in areas where I can add the most value to the business, namely our vision, long-term strategy and ongoing innovation in our space to fuel our growth. Now moving onto our first quarter 2019 performance. During the first quarter, we remained focused on the three pillars of our strategy: platform, network, and talent, and we continue to see growth in revenue and profitability. We continue to enhance the features on our platform and make our content and tools available anytime, anywhere, while continuously enhancing the marketer experience through our high performance platform. We developed several upgrades to our network and firewall and completed several enhancements to strengthen the stability and scalability of our platform. We focused on improving our customer and contributor network experience with several enhancements, including launching in-app contributor registration in 21 languages on both Android and iOS. The upgraded app makes it easier than ever for iOS and Android users to more effectively monetize their content. We also recently released our iOS View in Room application, which allows…

Thanks, Jon, and good morning everyone. Before I discuss our performance, I want to let you know that we've posted a brief information deck on our website that contains supporting materials for today's call. Reviewing some of our key metrics in the first quarter on a year-over-year basis, paid downloads grew 8% to an all-time high of 47.2 million, revenue per download grew 0.6% on a reported basis and 2.8% on a constant currency basis. Our image library expanded by 39% to over 260 million images and our video library increased by 44% to over 14 million clips. Revenue growth as reported in the first quarter was 6.7%. Two items which impacted our first quarter revenue growth were the sale of Webdam in February 2018 and foreign currency fluctuations. Excluding the impact of foreign currency movements, revenue growth was approximately 9.1% in the first quarter as compared to 2018. Excluding the impact of Webdam from the 2018 first quarter, revenue growth in the first quarter of '19 was approximately 8.7%. And finally, excluding both FX movements and Webdam, revenue grew 11.1% in the first quarter. Operating income was $8.1 million in the first quarter, an increase of approximately 80%, driven by our continuous cost management efforts and growth in revenue. Adjusted EBITDA for the quarter grew 15.7% to $25.5 million, which compares to $22.1 million in the same period a year ago, driven primarily by the increase in operating income. As Jon mentioned earlier, revenue in the first quarter from our e-commerce channel improved 9.3% to $98.1 million as compared to the prior year first quarter. The growth was driven by continued 2018 marketing efficiencies and platform improvements into 2019, which led to the steady acquisition and retention trends. Our enterprise channel revenue grew 7.7% in the quarter to $65.2…

[Operator Instructions]. Our first question comes from Youssef Squali with SunTrust.

This is Nate on for Youssef. So I believe your fiscal year -- your full year guidance implies 11.5% to 13.5% organic FX-neutral growth. And so this quarter you came in a bit below that. So we're wondering what gives you the confidence that you can accelerate to your full year guidance? And then maybe color on what areas you will see that acceleration in, between e-commerce, enterprise and then what does the linearity across the quarters look like, as well, would be helpful.

I'll jump in first and I'll let Steve. I'd say on our e-commerce side, we're seeing the acceleration there. Our new studio platform is performing very well. As we move more pages on to that platform, we see continued performance improvements on conversion and also with our users. It also gives us a lot more flexibility to continue to make optimization through our key customer flows to increase the KPIs to then generate the revenue we need for our plan. On the enterprise side, I would say that what we're doing is we're working on our go-to-market strategy. We're improving our product, which is the premier product and also includes the SMB team subscription. We continue to optimize certain marketing efforts, like lead flow optimization, scrutinizing the pipeline, understanding exactly which leads go to the right reps et cetera. We're working on our back-end business systems, improving those. We're working on our product catalog and really taking a look at the prices and performance of all of our products over time, looking at how the environment around us for marketers is changing and we are optimizing those prices and products. We're looking towards further geographic optimization of our enterprise product as well, including understanding exactly where our sales reps are, where they need to be and how we can move them into the right spot to continue to sell the best. That includes both the SMB and the enterprise side. And we're also just looking to really understand the enterprise customer, how they change and how we continue to grow as we kind of reach a bit of an inflection point where we have a lot of customers and we're really understanding kind of how [indiscernible] needs change and where we could further improve the product, our go-to-market strategy and our marketing to continue to generate revenue from these enterprise customers. [Indiscernible] answer Jon's comments. So, Nate, I don't know if you had a follow-up.

Maybe just digging in on -- starting with maybe just e-commerce, new studio platform, I don't -- maybe some more color there. I don't know if we've heard about that before, at least on these calls.

Yeah, it's an internal name, but what the platform allows us to do is really move towards that single service for all of our product platforms. So when you look at kind of how our media service, for instance, as one of the big key services in our underlying infrastructure and product environment has evolved, we're going to place where we can really optimize and store certain advanced types of metadata for search optimization and also really understanding what our customers need. So as we start to index that metadata in more creative ways, we can start to show the way that our similar images or our asset details page are displayed in different ways based on different customers and different regions. That kind of leads to the way our search algorithm is going to continue to evolve using that metadata. And when we're on this platform, which we continue to make progress on all of our different products and services and asset types, we will be able to be cross-sell and discover in more interesting ways.

Got it, thank you for that. And then -- I guess, then drilling back on enterprise, it sounds like it's going to take maybe some time to get things going in the right direction there. Is that maybe the right way to think about that, that e-commerce is probably really the accelerant here and enterprise may take some more time?

Well, I think it's -- what I would say is that our growth in the first quarter of this year for enterprise ex-FX and ex-Webdam, was relatively consistent to what we saw in the fourth quarter. And so we're continuing to do the work that Jon just mentioned to improve the enterprise. As you just indicated, the e-commerce growth has been significant -- significantly improved. We've done many things over the past number of quarters to improve that. As we talked about the growth on an ex-FX basis was 11.6% for e-commerce in the quarter and that compares to mid-single digit growth in the first quarter of last year, versus 2017. So we feel like we have the capabilities and the tools to enable us to an improved growth on both channels. But again, at this point, like I said, we feel like the mix of the two enable us to hit our 2019 objectives.

And our following question comes from Alex Giaimo with Jefferies. Your line is open.

Jon, can you just provide an update on how some of the non-image businesses have been performing, mainly music and editorial? Do you feel comfortable with the way those businesses have progressed? And then maybe moving forward, are there any other capabilities there you are looking to add to the overall platform? Thanks.

Sure. Yes. So we continue to be excited about all the asset types, besides image on our platform. I think I can go through them one by one. If you look at music, we acquired PremiumBeat a few years ago and we continue to work on that product. That user interface is a bit different than the other ways -- it's a bit different because of the way that you sell music. And so if you go to premiumbeat.com, you'll see that some of those UI/UX elements over time are going to be integrated into the Shutterstock website and continue to kind of serve that customer need with that exact type of product. Today, we have a music product on the Shutterstock website, but we need to bring over the PremiumBeat kind of details that customers really like and that goes for the premier platform as well, our enterprise platform, which -- there's a lot of opportunity there as well. If you look at editorial, we continue to -- we continue to improve there. We just signed our AP deal again, which gives us a lot of news, entertainment and some sports images as well that we sell into our channels. And that continues to get customers that we wouldn't have been able to get before and it continues to allow us to sell more products and services that we were selling before to those current customers. If you look at footage, we continue to think about the different ways to sell to those customers as well. Footage was the first asset type onto our studio platform, which you could see today has improved from the days when it first entered that platform. Some of those key improvements on that, on those flows, will get also applied to the image side as well, as those image pages get put onto that studio platform, which you could see by even our search results. They're common, code [ph] stacked now between both footage and image. So that's a pretty important way that we're going to be able to beat the merchandising and cross-sell to our customers between those two asset types. And just going back to image, I mean that's our biggest product, we continue to sell more than six images every single second and we continue to work on just the micro -- tiniest little details of those flows to make that site the fastest, most performant site it could be. We've made a lot of improvements over the past six months to a year and you can see that in the speed of that platform. And AB testing time ph some of these tiny differences really makes a difference. So we're planning to do a lot more of that in the future.

Great. And then just the follow-up on any other capabilities that you might be looking to add in the future.

I mean it's -- as far as our product road map goes, there is thousands of improvements across all of our different asset types and the focus right now really is on that platform, which every day we make -- we make improvements on. It's fully cloud enabled. This allows us to scale to different types of traffic, since we're so international, the time schedule [ph] in the morning between 10:00 AM and 2:00 PM when there is overlap with different countries kind of firing at the same time, as we make improvements, as our SEO gets better, as we improve the flow of these websites and see a lot more traffic coming through, we are on many different lists, the top 400 most traffic site, definitely in the U.S., and sometimes on certain lists, The Planet ph . And so when you look at kind of being able to scale technology at that level, the platform is really performing well. So we think we have a lot of upside there.

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

This is Seth on for Lloyd. I just had two, if I may. I wanted to dig a little bit further deeper into the enterprise product, it went negative quarter-over-quarter. I was just wondering if you could walk us through some of the drivers associated with this. Is there anything one-time to call out in addition to FX and maybe how we should be thinking about the enterprise business going forward? And then I have a follow-up after that. Thank you.

So as it relates to the quarter-over-quarter performance, as I've discussed, I think, in the past, the first quarter of the year has historically been a relatively flat quarter, plus or minus, to the fourth quarter of the prior year. And so the performance that we saw in the first quarter wasn't -- it didn't deviate from that general trend in terms of the absolute. As it relates to the question on was there anything one-time in nature, the answer is no. What we talked about in terms of some of the activity, both from a product, from an engineering, from a go-to-market capability, from a sales level of -- solution selling that we're doing, a lot of activities on improving all of those, but there was nothing that I would point to in the quarter-over-quarter or year-over-year that was a key change.

Thanks. And the follow-up is, just wondering on an update on Flashstock and how that business is progressing, any large deals that have been signed or just any information that you're willing to share? Thank you.

I'd say a few things. First, I'd say the custom product is an important part of the Shutterstock portfolio offering to enterprise customers. It still is an important need on behalf of our customers. We've made some technology improvements in the way in which customers can work with that platform and we feel that once again we don't break out by product details, but it has both enabled certain conversations and strengthened others, and it continues to be not a significant part of our business in terms of absolute revenue growth of that product, but it does -- it is an important part and we believe has significant growth opportunities and we are continuing to invest strongly in it. Jon?

The only thing I would add is that on the product side, we continue to look at exactly how briefs are created, right? So if you think about someone that wants a stock photo as easy as -- that's customized, but it's easy to buy as a stock photo -- you'll never get as close to actual stock as stock. It's just -- the custom nature of it makes it, so that you need to kind of modify that image a little bit. But as we improve the brief process and productize it, it's really the technology solution that we're looking for at the end of the day. We want to reduce the amount of manual work that the customer needs to do. So if we can get the customer in the field, really that he is understanding their customer -- their customer at the right time, is kind of B2B to C kind of flow, and get the kind of intelligence into that brief in an automated, mechanized type of way, so that we can match the right photographer with that and client will all be happier at the end of the day and we'll be able to produce die cuts and image as quick as possible for that customer. That's how we think about custom. All right, operator, any other questions?

I'm showing no further questions at this time. I would now like to turn the call back to Steven Berns for closing remarks.

We appreciate everybody's interest in Shutterstock and speak to all of you soon, if not before, speak to you next quarter. Thank you.

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