0:03 Good day. And thank you for standing by. Welcome to the Fourth Quarter 2021 Shutterstock Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session [Operator Instructions]. 0:25 I would now like to hand the conference over to your speaker today, Chris Suh, Vice President, Investor Relations and Corporate Development. Please go ahead.

0:35 Thanks, Victor. Good morning, everyone, and thank you for joining us for Shutterstock's Fourth Quarter 2021 Earnings Call. Joining us today is Stan Pavlovsky, Shutterstock's Chief Executive Officer; and Jarrod Yahes, Shutterstock's Chief Financial Officer. Please note that some of the information you'll hear during our discussion today will consist of forward-looking statements, including, without limitation, the impact of COVID-19 on our business, the long-term effects of investments in our business; the future success and financial impact of new and existing product offerings; our ability to consummate acquisitions and integrate the businesses we have acquired or may acquire into our existing operations; our future growth; margins and profitability; our long-term strategy; and our performance targets, including 2022 guidance. Actual results or trends could differ materially from our forecast. 1:27 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 10-K for discussions of important risk factors that could cause actual results to differ materially from any forward-looking statements we may make on this call. 1:45 We'll be discussing certain non-GAAP financial measures today, including adjusted EBITDA and adjusted EBITDA margin, adjusted net income, adjusted net income per diluted share, revenue growth, including by distribution channel on a constant currency basis, billings and free cash flow. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures can be found in the financial tables included with today's press release and in our 10-K. 2:11 With that, I'll turn the call over to Stan.

2:15 Thanks, Chris, and good morning, everyone, and thank you for joining us for the Shutterstock's Fourth Quarter 2021 Earnings Call. Today, we'll be discussing Shutterstock's results for 2021. We'll also talk about how the acquisitions we completed in 2021, coupled with the organic investments into our business, have positioned us extremely well for 2022. Shutterstock saw 16% revenue growth in the full year 2021, our highest annual growth rate since 2016. Our e-commerce channel grew 19% in 2021 and over 10% on an organic basis. 2:57 Meanwhile, our enterprise channel grew 11% year-over-year, a return to growth after declining in 2020. In 2021, we experienced growth across image, video and music in our e-commerce channel, driven by outsized growth in our subscription products, resulting in 22% subscriber growth and 20% subscription revenue growth. 3:23 In the fourth quarter, e-commerce revenue grew 16%. As discussed last quarter, e-commerce organic growth was low single digits in the quarter and the slowdown partially reflected the lapping of new e-commerce subscription products launched in 2020. Further, as we increasingly transition to a subscription-led model, we have seen softness within our transaction customer segment. We use our products on an ad hoc project-by-project basis. 3:54 In addition, we dedicated greater focus on new product launches for our enterprise channel last year, which was reflected in a relative slowdown in new e-commerce product launches over the course of 2021. That said, on the e-commerce subscription front, we are seeing strong traction with our mixed asset FLEX 25 subscription, which was launched in October 21, with the aim of providing access to Shutterstock's image, video and music content library in one plan that offers great value, flexibility and customization. 4:31 Within the first several months of 2022, we'll be introducing new products in our e-commerce channel,…

12:06 Thank you, Stan, and good morning, everyone. For the full year 2021 Shutterstock’s revenue growth was 16% or 15% on a constant currency basis with e-commerce growth of 19% and enterprise growth of 11%. Revenues grew 14% in the fourth quarter or 15% on a constant currency basis. Foreign exchange was a slight headwind in the fourth quarter as compared to earlier in the year, as the euro and pound continued to soften versus the US dollar. 12:36 E-commerce revenue grew 16% this quarter, and our enterprise channel continued to have great results with 10% revenue growth, driven by strong bookings momentum and accelerated growth at Shutterstock Studios. For the full year, gross margins were 64.1%, up 300 basis points from 61.1% in 2020. For the fourth quarter, gross margin declined by approximately 150 basis points to 61.9% year-over-year largely driven by higher noncash amortization expense of $5.2 million associated with our recent acquisitions. 13:16 Backing out M&A amortization, Q4 gross margin actually improved by over 100 basis points year-over-year. Sales and marketing expense was 30% of revenue as compared to 25% in the fourth quarter of 2020 and up from 28% in the third quarter. This increase was driven by increased investment in marketing, largely around our previously discussed brand campaign. 13:43 For the full year, sales and marketing expense was 26% of revenue as compared to 24% in 2020 with the increase largely related to our recent brand campaign. Product development as a percentage of revenue increased approximately 220 basis points in the fourth quarter due to costs associated with our recent acquisitions, higher compensation costs due to additional hiring of engineers as well as additional stock compensation expense. 14:13 On a full year basis, product development as a percentage of revenue remained constant at 7%. G&A…

22:23 [Operator Instructions] Our first question will come from line of Andrew Boone from JMP securities. You may begin.

22:42 Hi, guys, thanks for taking my questions and good morning. So Shutterstock has launched a number of new subscription products over the last year or 2 years. And we've seen this be a key driver of growth. Where are you in terms of better addressing kind of the customer need versus these packages? In other words, can better merchandising continue to be a growth driver for '22 and 2023? And then I've got a follow-up. Thank you.

23:14 Hi, Andrew. Great – great question and great to hear from you. Pricing and packaging of content and different type of assets is definitely -- will continue to help our business going forward, particularly as we have new content types, particularly as we continue to onboard new contributors with new experiences. With that said, our Creative Flow applications will start to enhance the subscriptions even further by getting into the workflow of our customers, which is really a big part of the strategy going forward. 23:58 So when we think about packaging and having great content and getting into new content types, such as 3D, et cetera, that's a big part of continued growth within our current TAM. When we talk about sort of getting into new workflow products, we're talking about expanding that TAM, driving new customer growth as well as driving higher retention on existing customers. So this year, you'll start to see new subscriptions that are not just sort of content or marketplace subscriptions but also subs that are focused on tools and applications.

24:39 Great. And then this may be more modeling. But what I'm doing here is I'm taking the number of paid downloads times the revenue per download to get kind of a download revenue number and then just looking at the plug versus total revenue. And so we've seen that kind of diverge as we got through 2021 and understood that kind of PicMonkey helps there. Can you help us think about how customer content and computer vision revenue should trend as we think about 2022 as we kind of add a new line to the model?

25:14 Sure, Andrew. Let me add a little bit of color to that. So there are multiple businesses that don't conform neatly to the P times Q that you're describing, which is the revenue per download and the number of downloads. There is our computer vision offering. There's our studios business. There's the PicMonkey offering that we recently acquired, and then there are other parts of the way that we engage in enterprise with offerings like asset assurance that also are not included in that model. So you do see this divergence, which is basically resulting in the price per download increasing despite the fact that we are not necessarily increasing our headline prices to our customers 25:58 So that's one thing that I would like to make clear is as you think about -- and back to your question on merchandising and pricing and packaging, we are seeking to improve the value proposition to our customers. We are not improving unit pricing. We are actually looking at maintaining unit pricing, keeping it consistent and then adding a lot of value add to the bundle and to the subscription offering. So that's generally the approach that we're taking, and those ancillary services are why you're seeing that breakdown of just multiplying the P times Q to add up to the overall revenue stream.

26:35 Great, thanks, guys.

26:39 Thank you. [Operator Instructions] Our next question comes from line of Bernie McTernan from Needham. You may begin.

26:56 Good morning. It's Chris on for Bernie. Can you talk about -- you kind of touched on TurboSquid and the new kind of customer types that are coming to you the new verticals. Is that -- is there a sales force integration happening here? Are these customers coming to the platform on their own? And then also, like you talked about the metaverse and NFTs, kind of how -- can you talk to how it's all kind of coming together there?

27:20 Yes, absolutely, Chris. So a couple of ways. One, obviously, we have a marketplace where there's -- historically, a majority of the revenues have been from consumers that are coming directly to our site experience, licensing models for use in different -- as you mentioned, different vertical scenarios, whether that's from in video, gaming, et cetera. Where we're going is we're going to be enabling services within the enterprise. You're going to start to see that quarter where we have a lot of demand. Agency, for example. Agencies are looking at 3D services on behalf of their clients. So we're going to start to enable our 3D sort of experiences within enterprise in Q1, which will allow our customers to do all sorts of things, whether that's the metaverse, whether that's spatial-enabling products within retail environments, whatever the case may be. So we're going to be launching services similar to what we do on the 2D content side, except obviously with 3D, a little bit more hands on-leveraging the technology that we acquired with TurboSquid.

28:51 Got it? And then if I could just slip one more in. I know it's only been a couple of quarters, but how do you think of the brand campaign? Kind of what have you kind of learned about -- or I guess another way to ask is you've got a lot of levers to pull here in the coming quarters, coming months. So is this something where you're kind of, I think we might -- I know you spoke to the margins and the cost line item specifically, but what did you learn? And is it something we might see in the future because of the kind of the new products and new leverage you have to pull?

29:18 Yes. It's a great point. So we definitely learned a lot in terms of the creative, in terms of the channels within our brand campaign that have a higher ROI versus lower ROI. The net of it is we're going to continue to test different creative, and we're going to focus on channels that have the highest as part of what we've learned with our brand campaign that we ran this past year. And so that nets us to having a more targeted view in 2022, which means we will not be -- we do not expect to spend at the same level. But you're right, we're launching new products that require customer education with Creative Flow with 3D. And so we do continue to plan to test in the highest ROI channels.

30:16 Great, thanks for the time, good luck.

30:20 [Operator Instructions] And I'm not showing any further questions in the queue. I’d like to turn the call over to Stan for any closing remarks.

30:45 Well, thank you for joining us today. And thank you for the questions. And as always, we want to express our gratitude to our customers, contributors and employees. We're looking forward to an exciting and impactful 2022 and that ends our call for today.

31:04 This concludes today's conference call. Thank you for participating. You may disconnect. Everyone have a great day.