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Shutterstock, Inc. (SSTK)

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Shutterstock, Inc. (SSTK)

Q3 2018 Results Earnings Conference Call

October 30, 2018 08:30 AM ET

Executives

Amy Behrman - Investor Relations

Jon Oringer - Chief Executive Officer

Steven Berns - Chief Operating Officer, Chief Financial Officer

Analysts

Youssef Squali - SunTrust Robinson Humphrey, Inc.

Brian Fitzgerald - Jefferies Group

Ralph Schackart - William Blair

Lloyd Walmsley - Deutsche Bank

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the Q3 2018 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. [Operator Instructions]

I would now like to introduce your host for today's conference, Ms. Amy Behrman, Senior Director of Corporate Development, Strategy and Investor Relations. You may begin.

Amy Behrman

Thank you, operator. Good morning, everyone and thank you for joining us for Shutterstock's third quarter 2018 earnings call. Joining me today is Jon Oringer, our Founder, Chief Executive Officer and Chairman; and Steven Berns, our Chief Operating Officer 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 referring 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, our growth potential, potential future results of efforts to reduce our expense footprint and implementation of large-scale business solutions, and our 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 the reports and documents we file from time-to-time with the U.S. Securities and Exchange Commission, including the section entitled Risk Factor in the company's annual report on Form 10-K for the year ended December 31, 2017, and quarterly report on Form 10-Q for the quarter ended June 30, 2018, and September 30, 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 net income, revenue growth on a constant currency basis, including and excluding Webdam, 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 item 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 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 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 did not contribute to our third quarter 2018 operating results. However, Webdam was included in our 2017 results and therefore, some of our commentary today will specifically state that we are excluding the results of Webdam, meaning that we are excluding it from the third quarter of 2017 to provide a comparable basis to the third quarter of 2018.

And with that, I would like to turn the call over to Jon.

Jon Oringer

Thanks, Amy, and thank you, everyone, for joining us for today's Shutterstock, for today Shutterstock's Third Quarter 2018 Earnings Call. During the third quarter, we continued to execute on our strategic goal of being the go-to global platform for our customers' creative and editorial needs, empowering them with compelling content, innovative tools and valuable services, our focus on cost management and operational efficiencies yielding results and improving margins and increased free cash flow generation.

At the same time, we are also investing considerable time and resources to upgrading our technology infrastructure to enhance the customer experience. Revenue increased 7.5% on a reported basis. Excluding the impact of Webdam and the impact of foreign currency movements, third quarter revenue increased 11.3%. Adjusted EBITDA grew 8.1%, driven primarily by the impact of increased revenue and the benefits of our continued cost management efforts. Our e-commerce channel grew 8.5%, driven by the success of our image products, however, our revenue growth, specifically related to footage, was negatively impacted by some issues being encountered during the implementation of certain technology initiatives in the quarter.

We have taken actions to correct and stabilize our technology environment and believe the impact to revenue was temporary and that we are well positioned for improved growth. Across e-commerce channel, we continue to pursue marketing activities with a strong ROI and are focused on increasing conversion and customer lifetime value. We continue to optimize pricing and packaging options.

We also introduced UI and UX improvements on our footage site, and we are continuing to optimize that user experience. Our enterprise channel delivered top line growth of 14.1%, as compared to the third quarter of 2017, driven by the APAC and EMEA regions. While the growth in the quarter was below our expectations, we have and continued to invest in our operational infrastructure to increase the efficiency and productivity of the team. We are encouraged by our year-to-date results, revenue has increased 26% versus the same period in 2017, and revenue has increased 27% on a trailing 12-month basis.

Read the rest of this transcript on seekingalpha.com