Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Shutterstock Inc (SSTK, Financial) successfully completed the acquisition of Envato, which is expected to positively impact the Content business.
- The company reported strong overall results for Q2 2024, with revenue of $220 million, representing a growth of 5.4%, and adjusted EBITDA of $62 million with margins of 28%.
- Data, Distribution, and Services business experienced hyper growth of 129% in the second quarter.
- Shutterstock Inc (SSTK) launched innovative GenAI 3D capabilities in partnership with NVIDIA, which promises to significantly reduce the time and expense associated with 3D model creation.
- The company entered into a partnership with Databricks to offer Shutterstock ImageAI, enhancing their AI capabilities and product offerings.
Negative Points
- Content revenue declined by 9% year-over-year to $170 million, with new customer acquisition in small- and medium-sized customers remaining soft.
- The company acknowledged that getting back to year-over-year growth in the Content business is taking longer than expected.
- Shutterstock Inc (SSTK) had to factor reduced expectations for Content growth into their guidance.
- The company incurred $3.1 million in transaction costs associated with the Envato acquisition, impacting G&A expenses.
- Despite strong performance in Data, Distribution, and Services, the company expects a slight step-down in the second half of the year, indicating potential volatility in revenue.
Q & A Highlights
Q: Jarrod, can you explain the expected step-down in the DDS business for the back half of the year and the recurring nature of these deals?
A: Year-to-date performance in DDS has been exceptional. We expect continued success in the back half of the year, with less than a $10 million step-down. The business remains healthy and strong, with a growing base of TAL revenue and bookings backlog. We are focused on building a sustainable business to meet our 2027 long-term targets. (Jarrod Yahes, CFO)
Q: Can you elaborate on the step-down in brand marketing for Q2 and expectations for sales and marketing spend going forward?
A: The step-down was due to a large branding campaign that ran off between Q1 and Q2. We expect sales and marketing to remain around 24% of revenue for the year. Additional spend will focus on hiring sales talent to support our data distribution and services business. (Jarrod Yahes, CFO)
Q: What's the updated plan for the content part of the business, and what are the key levers being pulled to get back to growth?
A: We are simplifying our product offerings and introducing more unlimited products, such as those from Envato. The focus is on being competitive in the marketplace from a pricing and simplification perspective. We are confident that the content business will return to growth. (Paul Hennessy, CEO)
Q: Can you discuss the use cases for the 3D Gen AI product with NVIDIA and its revenue recognition?
A: The 3D Gen AI product will supercharge workflows in areas like immersive experiences and gaming. Revenue from this product will come back at a high margin, but will be shared with our contributors, consistent with our approach to other Gen AI products. (Paul Hennessy, CEO)
Q: Can you provide an update on partnerships with hyperscalers and major AI players, especially in light of the regulatory environment?
A: We have engaged with some of the world's largest companies around generative AI. The regulatory environment is emphasizing the importance of licensable AI training data. Shutterstock is at the heart of this, providing high-fidelity metadata critical for the sustainability of Gen AI products. (Paul Hennessy, CEO)
Q: How much of the revenue was non-cash for data deals in this quarter?
A: Approximately $12 million of revenue in the second quarter was received in the form of equity. (Paul Hennessy, CEO)
Q: What is driving the trend in your existing subscriber base, and what gives you confidence that trends can improve in the second half?
A: We haven't seen significant movements in churn. The decline in subscribers is partly due to the elimination of the free trial for subscriptions, leading customers to pivot to more transactional and pack products. We believe this strategy is beneficial for the long-term health of the business. (Paul Hennessy, CEO)
Q: Can you discuss the impact of the Envato acquisition on your content business?
A: Envato is expected to contribute $75 million to 2024 revenues and will be reported in Content revenues starting in Q3. This acquisition adds an unlimited subscription product and a complementary customer base, which will drive long-term sustainable growth for Shutterstock. (Jarrod Yahes, CFO)
Q: What are the expectations for adjusted net income per diluted share and adjusted EBITDA for the full year?
A: Adjusted net income per diluted share guidance is maintained at $4.18 to $4.32 per share. Adjusted EBITDA is maintained at $245 million to $248 million, despite $7.5 million of one-time M&A costs. (Jarrod Yahes, CFO)
Q: How is the company planning to deploy capital given its strong balance sheet and flexible capital structure?
A: Shutterstock has tremendous optionality around deploying capital for share repurchases, investments in organic growth, or tuck-in M&A. We are focused on driving towards our 2027 targets of $1.2 billion in revenues and $350 million in EBITDA. (Jarrod Yahes, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
