Good morning, ladies and gentlemen. Thank you for standing by, and welcome to the Quarter Four 2019 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] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Ms. Heidi Garfield, General Counsel. Please go ahead.

Thank you, operator. Good morning, everyone, and thank you for joining us for Shutterstock’s fourth quarter and full year 2019 earnings call. Joining me today is Jon Oringer, our Founder, Chief Executive Officer and Chairman; Stan Pavlovsky, our President and Chief Operating Officer; and Jarrod Yahes, our Chief Financial Officer. Please note that some of the information you will hear during our discussion today will consist of forward-looking statements, including without limitation, the 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 and our 2019 guidance. Actual results or trends could differ materially from our forecast. For more information, please refer to today’s press release and the reports we file with the SEC from time to time, including the risk factors discussed in our most recently filed annual report on Form 10-K filed with the Securities and Exchange Commission. We will be discussing certain non-GAAP financial measures today, including adjusted EBITDA, adjusted EBITDA margin, adjusted net income, revenue growth, including by distribution channel, on a constant currency basis and free cash flow. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measure can be found in the financial tables included with today’s press release, which is posted on the Investor Relations section of our website. Finally, please refer to the brief information deck we posted on our website that contains supporting materials for today’s call. And now I will turn the call over to Jon.

Thanks, Heidi, and thank you, everyone, for joining us today for Shutterstock’s fourth quarter and full year 2019 earnings call. As you have seen over the last several weeks, we made some leadership announcements that the entire Board and management team are excited about. First and most recently, this morning, we announced that after serving as CEO for the past 16 years, I will be assuming the role of Executive Chairman of Shutterstock, which will take effect on April 1. In this new position, I’m excited to continue to help the company from a different perspective. I am pleased to announce that Stan Pavlovsky, our current President and Chief Operating officer will be assuming the role of CEO. I speak for the entire Board when I say that we are confident that Stan is the ideal person for the job. I’ve enjoyed working closely with him since he joined last year, and his leadership and vision have been invaluable. Stan hit the ground running as soon as he joined taking impactful leadership role, not only in the operations of Shutterstock, but also in the development and execution of our long-term strategic vision. His experience and his extensive background in successfully growing and leading e-commerce, retail, and digital media businesses, make him uniquely qualified to assume the responsibilities as CEO. In my role as Executive Chairman, I will continue leveraging my areas of expertise advising on Shutterstock’s strategic initiatives and supporting the company in the next phase of its growth and innovation. I plan to stay involved in the strategy and long-term direction of the business, including yearly planning, M&A, capital allocation, and other large projects and initiatives. I want to be clear that my fiduciary duty and commitment to shareholders will not change in my new role and will remain…

Thanks, Jon, and good morning, everyone. Before I begin my remarks, I would like to thank Jon for his continued leadership at Shutterstock. Jon is a true visionary. He’s been instrumental in every aspect of building this great company into a leading global platform, offering best-in-class content tools and services to millions. We’ve worked together with management team to solidify a transition plan designed to provide leadership continuity, and I look forward to working with Jon throughout the transition and beyond. Having been the COO for almost a year now, I’ve been focused on driving improved execution across sales, marketing, product and technology to ensure that all of these areas are working together to create a better customer and contributor experience. As CEO, I look forward to driving our long-term strategy in support of Shutterstock’s vision to be a leading content and technology platform that enables marketers and creators around the world to deliver impactful stories that capture and captivate their audiences. As Jon mentioned, this company started off as a disruptor in the space. By taking advantage of the growing need for content, Shutterstock ended up changing the stock content industry. For the past 16 years, we’ve kept up that entrepreneurial spirit, and we must continue to push ourselves to be disruptors. We are well positioned to expand on our current portfolio of offerings and find ways to better align with key trends to capture compelling new opportunities. So as CEO, I intend to drive higher customer retention and new revenue streams by focusing on three things; innovation that enhances our customer workflow; content that is relevant and fresh; and data and insights that drive performance. We have an ambitious plan and a lot of work ahead of us, and I’m excited about our future prospects. As we look…

Thank you, Stan, and good morning, everyone. Before I get started, I’d like to say how excited I am to have joined Shutterstock. In my first few months as CFO, I’ve been impressed by the strong team here and their commitment to building innovative solutions to meet the changing needs of our customers. I believe there’s a tremendous opportunity to enhance the operational and financial performance of Shutterstock, and I look forward to continuing to work closely with Stan, Jon, our Board of Directors and the entire team to solidify Shutterstock’s position for long-term success and further our vision of being a leading content and technology platform. And now for the financial results, revenue growth in the fourth quarter compared to the prior year was 3% on both a reported and constant currency basis. For the full year 2019, revenue growth was 4%, excluding the impact of FX movements, revenue growth was approximately 2% higher for the full year or 6%. Breaking down our revenue growth performance in 2019 further, in the fourth quarter, the e-commerce channel, which represents 60% of our revenues, increased 6% to $110 million as compared to the fourth quarter of 2018. In the fourth quarter, the enterprise channel revenue, which represents 40% of our revenues, decreased 2% to $65.5 million and was flat on a constant currency basis as compared to the fourth quarter of 2018. For the full year, the e-commerce channel remained healthy and experienced growth of 7% or 9% on a constant currency basis, consistent with 2018. For the full year, the enterprise channel grew 1% and 3% on a constant currency basis. As we’ve discussed, this represents a considerable slowdown for the enterprise channel on a full year basis as compared to the rapid growth in years past. We do expect…

[Operator Instructions] Your first question comes from Youssef Squali of SunTrust. Your line is now open.

Great. Thank you. This is Nate Mitchell on for Youssef. First off, Jon, Stan, Jarrod, congrats on your new roles. Stan, maybe first if you could maybe flush out the one or two most important strategic priorities for you in your first year as CEO, particularly as it relates to the core image business, may be you can update us on the contributions to your business from image versus video versus music, and then what gives you confidence that you can inflect enterprise in the second half? And then I have a follow-up for Jarrod.

Absolutely. And thanks for the kind words. Yes, my priority for this year is a couple of things. First and foremost, as Jarrod mentioned, we do feel that we’re going to start to see leverage in the business this year. So, we’re definitely focused on improving margins, first and foremost. From a revenue perspective, as we look at the different asset types, it’s been wonderful to see kind of the shift – the mix shift of new and emerging products like our video products, our music products start to really have an impact both on the price per download, but also on our revenue, particularly both in – actually, both in enterprise and in e-commerce. As far as the enterprise growth, we’ve started to make changes as we talked about over the last couple of quarters, and this last month, we launched a new account segmentation. We launched a new commission plan, and we’re hiring several new sales positions. And so, as we think about the typical ramp-up time and the sales cycle, we definitely expect to see improved results in the back half of the year. And as Jarrod mentioned, one of the ways that we start to measure that effectiveness is through the deferred revenue balance going forward. So, the excitement I have about enterprise is the fact that we are putting our sellers against specific client segments, and we are hiring new talent that will help us execute in that channel. And I’ll turn it over to Jarrod to – or actually, I’ll turn it over back to you to ask Jarrod your next question.

And then, Jarrod, what gives you confidence that you can drive EBITDA growth in 2020 after declining in 2019? And how do you think about the growth in performance marketing expense in 2020?

Sure. So, I think we do feel very comfortable with getting the margins back up. I think we’re very focused on it as a company. I think there’s kind of two things that I would call out. One is ongoing prudent cost management and really investing from a milestone perspective as we achieve our objectives during the year. If you look at the G&A year-on-year, we put on about $15 million of incremental G&A in 2019 as compared to 2018. As I mentioned in my prepared remarks, there were investments in cybersecurity, technology, as well as in other areas. And I think we really are well prepared to realize the fruits of those investments. They are fixed investments, and as we see revenue growth this year, we would expect it to drop to the bottom line from more of a contribution margin perspective rather than see growth in those G&A lines. From a performance marketing perspective, performance marketing is more linked to revenue than our G&A line. We do feel like there is opportunity within performance marketing to increase the effectiveness of that performance marketing spend. We’re very focused on our metrics around customer acquisition costs, customer lifetime value, and the value that we derive from our performance marketing spend. So, we think there’s interesting opportunities there to get more bang from our buck by leveraging additional channels for performance marketing spend and really taking a test-and-learn perspective with the way we spend what is a fairly large marketing budget in that area.

Got it. Appreciate the color. Thanks guys.

Thank you.

Thanks, Nate.

Your next question comes from Brent Thill of Jefferies. Your line is now open.

This is Alex on for Brent. So two questions for me, one for Jon and one for Jarrod. For Jon, I guess, why was now the right time to step aside after running the company for so long? And then was it an abrupt decision or had it been planned out for some time? And then for Jarrod, if you could just talk through the thought process to pay out the quarterly dividends, just wondering if it’s a cognizant decision to being viewed more as a value stock rather than a growth stock or just any general thoughts around that decision?

Thanks, Alex. So yes, this was a transition that was planned over a long period of time. It was a couple of years ago now that I started to really talk through with the Board about what this company needs for its next phase, and we decided to go through the process of trying to figure out how to do that, and all that has rolled out over the past couple of years of work to get to this point. The truth of the matter is that we’re just at a point where we need a CEO with a different skill set. We believe Stan is that person. And over the past year, working with Stan, it’s become clear to me that we’re going to get to a great place with him as CEO. And the Board is behind me on that as well. So, I’d say it was a pretty thoughtful and involved process.

Great. Thanks, Jon. And just with respect to your question on the dividend, the way we look at the dividend is – this is a more methodical way to return capital to shareholders in a predictable manner that existing and new investors can get behind in order to realize yield on top of the capital appreciation that they would expect from our stock. If you kind of look at the way we’re starting the dividend at $0.17 a share, it’s approximately $24 million per annum. It equates to about a 1.5% dividend yield on our stock. And if you look at it as a percentage of free cash flow, it’s about 1/3 of our free cash flow. We think there’s opportunity to move up from here. If you look historically, the company has returned capital to shareholders, either in the form of share repurchases or in the form of special dividends. And what’s great about both of those formats is the immediacy of the return that you see, but it’s difficult to invest behind because there’s no future predictability as to when those returns to shareholders are going to take place. I think with our quarterly dividend, we will have that predictability of return of capital to shareholders. We’ll also have the flexibility to continue to reinvest in our business for innovation as well as make acquisitions. So it’s not an or, it’s an and where we’ll be able to make investments in the company, do M&A and pay out and hopefully grow the dividend over time. We do recognize the slowdown in top line growth at the company. And I think the dividend is really a recognition that there is a significant amount of capital on the balance sheet of the company. And it is in our fiduciary best interest to return some of that capital to shareholders in a predictable manner that benefits them. So I think we feel quite good about the decision and feel like it’s a great opportunity for shareholders as well.

Thank you guys, and congrats to all three of you.

Thank you.

Thank you. There are currently no more questions at this time. I will now turn the call back to the company for closing remarks.

Thank you for joining us today. We’re so excited about these developments at the company, and we look forward to continuing to update you as we deliver on our long-term strategy. Thanks, and goodbye.

Ladies and gentlemen, this concludes today’s conference call. You may now disconnect.