Earnings Call: Q3 2016

Nov 4, 2016

Good day, ladies and gentlemen, and welcome to the Shutterstock Third Quarter 2016 Earnings Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time. As a reminder, today's call is being recorded. I would now like to introduce your host for today's conference, Mr. Rossen Daniel, Vice President of Strategic Finance. Sir, please go ahead. Thank you, operator. Good morning, everyone, and thank you for joining us for Shutterstock's Q3 2016 earnings call. Joining me today is John Oringer, our Founder, Chief Executive Officer and Chairman and Steven Burns, our 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 the expansion of our addressable market, the growth of our customer base and success of new product offerings, including products we recently acquired, revenue growth and the predictability of revenue, adjusted EBITDA, equity based compensation, foreign currency rates, taxes and capital expenditures. 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 Factors in the company's Form 10 ks as updated in our Form 10 Q for the period ended September 30, 2016, 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, non GAAP net income, revenue growth on a fixed currency basis and free cash flow, 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 provides important additional insights about the performance of the company's overall business and operating performance and enhances the comparability for investors 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. And with that, I'd like to turn the call over to John. Thanks, Ross, and thanks, everyone, for joining us today for Shutterstock's 3rd quarter 2016 earnings call. This was a solid quarter for Shutterstock and we have a significant amount of momentum as we head into the final months of the year. Compared to the Q3 of 2015, revenue increased 17% with adjusted EBITDA margins of 21%, both excluding the impact of foreign currency movements. Our image library expanded 61 percent to over 102,000,000 images. Our video library expanded 64 percent to 5,400,000 video clips. Paid downloads grew 8% to 41,000,000 dollars and revenue per download was up 8% excluding the impact of foreign currency movements. We continue to expand the market for digital content. Businesses of all sizes around the world are becoming increasingly visual with their communication and many are looking to us to ensure that they have immediate access to high quality content that's innovative, easy to use and continues to evolve according to their needs. At the same time, our search experience, workflow tools and evolving technology help our clients to better communicate with their customers using our stock imagery, video and music. The result is consistent growth for us and the ability for our customers around the world to continue to grow their businesses utilizing our products. The supply side of our marketplace is important to the network effect that drives our business and continues to grow significantly. Over 160,000 contributors added more than 10,000,000 images and 500,000 video clips to our robust library in the 3rd quarter. In September, our image library exceeded 100,000,000 images, giving us meaningful scale compared to our competition. At the same time, our editorial and music capabilities are accelerating due to our investments in unique and exclusive content. We've come a long way from the 30,000 photos offered at the launch of the company in 2003. Every day, we work to improve and enhance both the content that we offer and the technology that our customers use to access it. As you are aware, we are dedicating considerable time and resources to migrate our technology stack to a more scalable efficient platform. By doing this, we are ensuring that we are well equipped to handle the growth we believe is ahead of us, while providing our customers with a best in class experience. We expect to complete the bulk of our platform migration by the end of this year and we'll continue to enhance our technology to make sure they can handle increasingly diverse array of content. As we change engines in flight, we're also investing in the business by enhancing our product offering, which is attracting new customers to our platform. To that point, we are capitalizing on the increasing demand we are seeing for video content. Ads utilizing digital video are showing significant growth, primarily driven by the massive consumer shift to mobile and actions taken by marketers and agencies to ensure that consumers are viewing premium video content, no matter what device they're using. In the Q3, our video library grew 64% year over year, which puts us in a strong position as these trends continue to take shape. And similar to our traditional photo platform, it's not just about the size of our library, but also about the quality and diversity of content. We're also focused on enhancing our comprehensive music offering. As our video business grows, we're finding that customers are increasingly looking to pair royalty free music with their video clips and other pieces of media. We now have an exclusive and entire curated collection of over 10,000 tracks across music genres that have gone to great lengths to ensure that our customers have access to a rich high quality selection, way beyond what you would find from other licensing services. This has been well received by customers. In the past quarter, we licensed music to some of the largest agencies in the world as well as an impressive list of consumer brands such as Tesla, Oakley, Honda and L'Oreal. Another exciting development for our business is the progress we're making in editorial imagery. This quarter, we acquired the COBOL collection and ARDA archive, which builds on our acquisition of Rex Features last year. We're also benefiting from our ongoing collaborations with Penske Media and the Associated Press, and as well as our recently announced partnership with the European Press Agency. While it's early days for this part of the business, we're optimistic about its prospects and its potential to complement our growth. As we continue to invest in and build a diverse array of high quality content, we're also making it easier for customers to use our content, whether they are professional marketers or small business owners. Our in browser cloud based editor tool recently came out of beta and now has several new powerful functions. We are seeing increased we are seeing increasing customer adoption of this product. We also continue to receive very strong feedback from our customers and contributors on the computer vision technology that powers both our reverse image search and visually similar search. In July, we announced an API integration with Google, which joins Facebook, AOL, Salesforce, Wix and hundreds of others that integrate Shutterstock search capabilities directly into their products. Finally, in September, we announced that the Shutterstock collection of photos and illustrations search, edit and license imagery without leaving the Photoshop application. Shutterstock is the largest stock photography collection to ever integrate with Adobe Photoshop. So how are we seeing all of this manifest in our business? We now have over 1,600,000 customers, a 14% increase year over year. We also continue to see a high level of revenue retention with rates over 94% over the past year on a constant dollar basis. We are happy with these metrics and they certainly show that we were doing a lot of the right things to acquire content, clients and provide valuable solutions to their business challenges. But we also know that there's a lot more work to do to ensure consistent revenue and earnings growth. Let me take a few moments now to walk through how we are thinking about growth in both revenue and profitability over the short and long term. 1st, we expect that given our work to build and enhance our content library and our technology platform, our traditional e commerce customers will continue to grow steadily. Throughout the past year, we have been able to accelerate our pace of customer acquisition while continuing to see a high return on investment for marketing spend. 2nd, our enterprise customer base is growing rapidly and we expect that trend to continue as we convert more e commerce customers into enterprise accounts, broaden the portfolio of content available to our enterprise customers and introduce new functionality and services into our premier product. Customers who upgrade to our enterprise product increased their annual spend with Shutterstock significantly. We now have over 34,000 enterprise customers and revenue from our enterprise business makes up roughly 30% of our total revenue. 3rd, we expect continued growth from editorial and music businesses. As I noted earlier, there are tremendous market trends that are providing significant tailwinds for us and we are ideally situated giving the size, quality and growth of our content library and the relationships we already have with millions of businesses worldwide. On the editorial side, we are disrupting the outdated ways customers by sports, entertainment and news content from the traditional players in this space. For music, historically, there has not been a clean and easy way to license audio without worrying about the complex licensing issues you will be faced in the future. PremiumBeat and Shutterstock Music are now solving these problems. We were taking all these business models and rethinking them from the customer point of view. Today, we have a model that's way ahead of our competition, yet we are just getting started and we anticipate these products will become larger contributors to our growth and profitability over time. 4th, we believe international expansion will continue to deliver another leg of growth. As more people around the world further realize the value of stock content in their communication and messaging. Our technology, customer and sales support are all easily scaled to local market needs. We currently offer our products in 20 languages and generate approximately 66% of our revenue from customers outside the United States. We're recognizing the ease of use and utility of stock imagery and are demanding innovative tools and technologies to easily customize it. And finally, we're just getting started in workflow and believe we are approaching a huge shift in the way businesses work and tell stories to sell their products and services. We are retooling our technology, platform and business to adapt to these trends and you can expect consistent innovation and workflow tools for our customers. Every single day since I started this company in 2000 and 3, I have personally watched our customers use our products. And I can tell you that not only do we see what they will need in the future, but the competitive set does not appear prepared for the changes which lie ahead. I'm very confident in the fundamentals of our business. We are delivering solid operational performance, strong financial results, product that amazes our customers and our team is more capable than ever. We are tracking new customers while continuing to satisfy the needs of our existing customers. We are uncovering new and exciting ways to engage our large and growing customer base, including a growing number of enterprise customers. We believe our investments in our technology and our products are positioning us well for future profitable growth. I'll now turn the call over to Stephen to go into more detail on the drivers of our financial performance this past quarter. Thanks, John, and thank you everyone for joining us today. Before I discuss our performance, I want to let you know that we posted a brief presentation on our website, which contains supporting materials for our quarterly results as well as other items discussed on today's call. As John highlighted, both sides of Shutterstock's 2 sided marketplace continue to expand, strengthening the network effects of our business model and translating into sustained financial growth and profitability. During the Q3, we delivered revenue growth on a reported basis of 15% as compared to the Q3 of 2015 with an adjusted EBITDA margin of 19%. Excluding the impact of currency fluctuations, our revenue growth was approximately 17% and adjusted EBITDA margin was 21%. We continue to see solid trends across our key metrics as we attract new customers across multiple content types and increase customer lifetime value. This past quarter, our user base expanded 14% to over 1,600,000 customers. We also saw an 8% increase in paid downloads driven by new customers as well as increased activity across our existing subscriber base. Finally, we saw revenue per download increased 5% on a reported basis and 8% excluding the impact of foreign currency movements, primarily driven by our continued success in growing our enterprise business, which operates at higher price points than our traditional e commerce offerings. It's important to note that while we did see a shift in our revenue per download trends in the 3rd quarter, it's important to note that we did see a shift in our revenue per download in the 3rd quarter. As we discussed on our last call, we spoke about the impact on download growth from the new subscription products with monthly download limits that we launched in the Q2 of 2015. The Q3 of this year marked the anniversary of those product launches, making the Q3 of 2016 comparable to the prior year period. Going forward, we expect to grow download activity and revenue per download as we expect to continue to attract new customers and further grow our enterprise sales as well as our footage, editorial and music products, all of which carry higher average prices than our e commerce image platform. As John noted, international expansion is a strong driver of our growth strategy. Currently, of the approximately 66% of our revenues from customers outside the United States, approximately half of that is from customers in Europe with the balance from Asia Pacific and Latin America. All of these regions are growing at double digit growth rates. Shifting to the cost side of the business, we continue to align our spending with our revenue opportunities while ensuring we are positioning ourselves for profitable growth over the long term. Operating expenses increased 13% versus the Q3 a year ago, driven primarily by higher contributor royalties associated with our growing revenue and an increase in marketing spend. Contributor royalties were approximately 28% for the Q3, which was consistent with the Q3 of 2015 as well as the first half of twenty sixteen. Now I will discuss some of the major expense categories and for each category my comments and the numbers referenced will exclude stock based compensation expense. Our sales and marketing expense increased 21% versus the Q3 a year ago and was approximately 26% of revenue. As expected and as we highlighted on our investor calls in the first half of this year, total sales and marketing expenses as a percentage of revenues on a year to date basis has returned to levels similar to 2015 as we grow our traditional businesses and capitalize on newer opportunities such as music and editorial. Overall, the cost of acquiring a customer remains relatively steady and the return on our marketing investment remains consistent with historical levels as we drive new customers to our platform while keeping retention and repurchase rates high across our subscription and on demand products. Product and development costs increased 10% in the Q3 versus the Q3 last year, primarily due to higher personnel and consulting costs related to building a more expansive user experience and transitioning the technology platform, partially offset by increased capitalization of labor in the Q3 of approximately $4,000,000 General and administrative expenses increased 14% for the Q3 versus the same period a year ago driven primarily by higher personnel costs. Overall, our revenue growth in the 3rd quarter along with consistent focus on managing our costs translated into adjusted EBITDA growth of 17%. It's important to note that we are delivering this growth even as we focus on expanding our capabilities by investing in personnel, product development and technology, so we can further strengthen top line results and continue to innovate. GAAP net income in the quarter grew 129 percent to $9,400,000 or $0.26 per diluted share. This increase was driven by improved operating performance, lower stock based compensation expense and lower income tax expense. The lower income tax expense for the quarter was primarily driven by our claim for U. S. Federal research and development tax credits related to the years 2013 through 2015, resulting from the completion of a formal study. We anticipate our effective tax rate for full year 2016 to be significantly below 40%, primarily as a result of these R and D credits as well as other items that we've discussed on our last call. Non GAAP net income, which excludes the after tax impact of non cash equity based compensation expense, also excludes the amortization of acquisition related intangibles and excludes changes in the fair value of contingent consideration related to acquisitions as well as the estimated tax impact of these adjustments. So when taking all of those items, non GAAP net income was $0.40 per share which is an increase of 41% versus the Q3 of last year. We grew free cash flow 34% year over year in the Q3 to $19,900,000 and our liquidity finished September at the end of September with over $290,000,000 of cash and short term investments. On a year to date basis, our revenue has been impacted by approximately $2,000,000 to 3,000,000 pound throughout 2016 primarily as a result of the Brexit situation. While we are leaving our full year guidance unchanged, assuming currency rates hold at their levels as of the end of the Q3, our full year 2016 revenue will be impacted by approximately $4,000,000 primarily due to the British pound devaluation versus the U. S. Dollar. As a reminder, we record revenue at the exchange rate at the time a product is sold as opposed to when the actual download by the customer occurs. As a result, the impact of currency movements tends to lag the shift in market currency rates and the ultimate foreign currency effect will depend on the actual exchange rates and the timing of downloads. For full year 2016, our expectations remain the same as far as it relates to our prior financial guidance for revenue and adjusted EBITDA, that's revenue of $495,000,000 to $510,000,000 and adjusted EBITDA of $95,000,000 to 100,000,000 These expectations include the impact of our technology platform migration and the currency impact I just mentioned. In closing, and as John highlighted earlier, we are very confident in the fundamentals of our business. We are seeing strong growth on both sides of our marketplace. We are growing both our traditional e commerce and enterprise customer bases globally and we are continuing to invest in our product and technology to position us well for long term profitable growth. Thanks for your time this morning and John and I will now be happy to answer any questions you may have. Operator, please prompt the call participants for questions. Our first question comes from the line of Brian Fitzgerald with Jefferies. Your line is now open. Thanks. John, you mentioned ads using video had been increasing. Wondering, when you look at your video client base, what is the mix dynamic there marketers versus studios maybe and where do you see that going forward that mix shifting? Thanks. So as it relates to the video product, because it is continuing to expand, we're seeing very strong demand from all of the sectors that would utilize the video, whether they be cinematographers, videographers, studios utilizing it. We're seeing it as well from marketers. Our there's not a I think it would be a mistake to look at the historical patterns of growth and try to extrapolate that to the future because as you can see in many e commerce businesses and in many web based businesses, the use of video is expanding greatly. And so what we are seeing is strong demand and new uses across the landscape. But, so overall, multiple uses and I'd say new customers taking a look at stock video on a regular basis. Operator? Our next question comes from the line of Joe Sisquale with Cantor Fitzgerald. Your line is now open. Okay. Thank you very much. Two questions. Can we go back to the one of the metrics, the slowdown in paid downloads that you reported, it was 8%. I think in the first half of 2016, it was north of 20%. Help us just understand the puts and takes there. And to the obvious question that we're getting from investors, is there now any visible impacts from what Adobe has been doing in the last 18 months or so? And then about the tech stack that or the new tech stack you're migrating to, can you help us just maybe understand how will the experience change both from a user and from a contributor standpoint? Thank you. So let me start with the Adobe question. And the answer on Adobe is no, we are not seeing an impact. We continue to see customer adoption and customer activity to be strong. The Adobe plug in that we launched, our plug in that works within the Adobe Photoshop environment has gotten significant traction among customers and is not just the largest collection, but is easier to use than even Adobe's own stock product within their environment. So we feel very good about where we are and we're hearing very good customer feedback. As it relates to download, the down yield load metrics, these go hand in hand and that is the revenue per download metric and the paid download metric go together. So they are good indicators of our subscription business. We launched the new subscription products in the Q2 of 2015. And at that time, we removed the daily download limits in favor of monthly limits, which was based on our customer feedback, something that was desired. And that was a 25 a day limit. And so that was removed. And so this had the effect of accelerating download activity beginning in the Q2 of 2015 through the Q2 of 2016 on a comparable basis. We are seeing higher retention from these products and higher customer lifetime value than we did in the 25 a day product. And so excluding the as you say in the first half of twenty sixteen, we had these comparisons. So that's why in my comments I said that the Q3 of 2016 with the metric up 8% year over year that is the 1st period of if you would like for like comparison with the new products live. And just on that before you jump into the second it seems like your annual guidance would imply that both metrics even to hit the lower end of your guidance would imply improvement in both year on year growth in average order per I'm sorry, in revenue per download and in paid downloads. Is that fair? I think we should take that offline because I'm not sure I'm following your math, but was happy to do that offline. Okay, great. Thanks. Sorry, John. Yes, I can jump in and talk a little bit about Adobe too. Focusing just on Adobe is way too simplistic of a way to look at our business. It's now been over a year. We've competed with players that are much more sophisticated than Adobe in this space. We have 13 years of experience and we know exactly what we're doing in this space. We're constantly growing both sides of the marketplace. And our customer acquisition is stronger than ever. Our enterprise product continues to compete with the rest of the space. And we are going to continue to focus on building this business. In addition, we've also introduced editing tools that apply both to customers of existing Adobe products and completely new segments that Adobe is missing out on. So you have to look at our business as the way that we compete today with our customers and that we continue to erode into these players also. As it relates to the tech stack migration that we've talked about, can you just restate your question? Yes. I was just trying to understand as we go through that and trying to see how that will change the user experience. Is it going to just make it a lot easier for users to is it improving the search engine? Is it basically improving the ability for contributors to upload their creative either video or photo or whatever? Just trying to understand a sense of what the net impact of this big investment will be as we start looking at 2017 and beyond? It's all of the above. We took a look at every piece of code that runs the entire business and over the past 18 months, we've rewritten about 80% of it. The new tech stack is completely services oriented. The new tech stack is written in node and Java and we believe it's going to help us with both continuing to grow both sides of the current marketplace in the business that as you know it today and continue to allow us to work into the workflow of the customer from beginning to end. And if you look at our new editor product, you can see that a lot of the features that are in that product on our old tech stack would be really difficult to integrate into the user experience. But in a little while, we'll have the complete end to end customer traffic running through the new stack and be able to improve the user experience from beginning to end and work our way into the workflow of that user. And that includes everything from the latency all the way through to the desktop or experience on the device that a user has. And so it's as John says end to end. And once again, we are 80% through that migration at this point in time. Okay, great. Thank you, both. Our next question comes from Andrew Bruckner with RBC Capital Markets. Your line is now open. Thank you. I'm wondering if you can talk a little bit about how you see the enterprise side of the business growing. I think you mentioned now it's 30% of the business. Where do you ultimately see that going? And then separately, if you could make a comment on how you're thinking about share repurchases? Thank you. Yes. I mean enterprise has grown. Enterprise stays 30% of our revenue. Enterprise continues to grow faster than the business today. 35,000 customers are in our comprise our enterprise product. And part of the tech stack migration is getting our premier product to be part of product changes we make across the entire tech stack. So, the workflow enhancements and product additions that you see on the core side of our business, the e commerce side of the business will expand into the Premier side. We believe that will create a stickier experience over time. We now have music and editorial and enterprise as well. So our partnership with Penske Media, our partnership with Rex, I mean, our acquisition of Rex, our partnership with, The Associated Press, we're bringing all of that content to our premier customers. So that's an entirely new segment of customer and content that we'll be able to serve to that audience. Business and to drive, of course, an appropriate level of return on that investment. When we think about priorities after that investing in the business, we think about external opportunities in the form of acquisitions that would expand our core competencies or apply our core competencies into those businesses to drive long term growth. And examples of that would be our acquisition of REX in the editorial space and PremiumV D in the music space. And if we can't find alternatives, we then will of course consider as we have in the past returning capital to shareholders. And the amount of any share buybacks in any quarterly period will be a function of the opportunities as they present themselves. But each and every quarter, this is a discussion that we have not just among management, but of course with our Board. On a year to date basis, we did buyback almost $60,000,000 of stock and we don't have any specific timeframe in mind as to when we will continue or if we'll continue to buy shares in this year or as we go forward. But what we do know is we have $40,000,000 approximately left on our share repurchase plan that the Board authorized and we'll continue to evaluate all the opportunities to determine how we proceed. Thank you. And I guess just quickly to the first question, any comments you can make on the size of the enterprise sales force? And is that where you'd like it today? I think, it's a question we've received in the past. We think that the enterprise sales force is a size that used to be in the early days of, I'd say, maybe e commerce businesses, people measured those businesses by how quickly people ramped up their teams. We believe that our product portfolio, the addition of our product our products to that portfolio, as John mentioned, editorial, music, footage, all joining the enterprise platform actually gives our reps significantly more capabilities to actually increase the revenue per rep. So we are continuing to expand that sales force as and when appropriate, especially as it relates to international markets where we don't have as big a presence as we'd like today. But we're looking for continued effectiveness and efficiency and we'll continue to, I'd say, expand as long as we get an appropriate return on that investment. Perfect. Thank you. Our next question comes from Ralph Schackart with William Blair. Your line is now open. Good morning. Two questions if I could please. First on the increase in the CapEx guide, can you give us a sense of sort of what's the major contributor to that this quarter? And I guess last quarter was raised as well. And then 2, Stephen, just looking at the midpoint of guidance for Q4 even after normalizing for the FX headwinds in Q3, it may imply some modest reacceleration in the business. So maybe if you could speak to that and if I could bolt one more on what would be the factors on the annual guidance given sort of the wide range that will contribute to Shutterstock hitting the lower end versus the higher end? Thank you. So as it relates to CapEx, the primary driver there is the platform migration that we've talked about in terms of the capitalization of labor. And we are continuing to make sure that we are well positioned for 2017 and beyond both from the application environment in terms of our platform and user experience and also our infrastructure. So we see 2016, I think this is slightly above where we thought we'd be on capital expenditures driven by the cap of labor, but still consistent with our overall objectives. I think it's also important as it relates to kind of the increasing CapEx, but we've also done, which is consistent with my comments in late 2015 and earlier this year that we have made significant improvements in efficiency around our working capital investment. And we've continued to generate our sources of cash from working capital both by improving the way in which we are addressing collection of receivables and the managing of payables not on a one time basis, but really to be consistent with companies of our size. And so we've made significant improvements there. We also so the funding of that CapEx really is coming from many areas, including but not limited to what I just mentioned in terms of working capital generation. As it relates to guidance, other than the comments we made about annual guidance, we're not going to go into the quarterly guidance forecasting game. So we looked at the with the exception of CapEx and with the exception of the tax rate, we're not changing our guidance and both of those are due to events that have occurred in the environment. 1 is our savings on taxes as I talked about in my comments and also the capitalization of labor. So as it relates to guidance, we don't have any additional comments other than that we are comfortable with our adjusted EBITDA and revenue guidance that we've put forth. Okay. Thank you. Our next question comes from Lloyd Walmsley with Deutsche Bank. Your line is now open. Thanks. You grew customers, I think 16% and you're adding a lot of new products and enterprise customers continue to spend a lot more. So I'm just trying to figure out why your revenue growth is so close to the customer growth. And then specifically, I guess, it looked like U. S. Slowed down a bit more than other geographies. And if you kind of strip out enterprise, it looks like growth ex enterprise is about low single digits. So maybe you can help us just understand why growth is slowing in the face of all these new products and enterprise customers? And I guess second question, if I can, somewhat related, last quarter you talked about the potential for the re platforming to drive an acceleration in revenue growth. So wondering if you can just give us a sense of how to think about the timing of the different phases of getting through the re platforming and how that translates into kind of business improvement and whether you still think revenue growth could accelerate on the back of that replatforming? Thanks guys. Sure. So as it relates to the customer growth rate, the actual number of customers and the impact on revenue as it relates to that, there's a broad mix of customers. And so it's not as if we've gained more we don't talk about for instance, there's e commerce customers, there's video only customers, there's new editorial customers joining and then there's customers who are buying if you would multiple products. On an ex FX basis, our 17% growth is certainly a deceleration versus what we had in the first half. But it is close to our expectations and consistent with the idea that in 2016, while we are doing, as John mentioned, a replatforming of every line of code to improve both productivity internally as it relates to our engineering platform to improve the user experience to create a frictionless customer environment where customers are able to do their work faster and more easily with our content. That is all part of what we've been focused on. While doing that, while we certainly believe that higher growth is desirable, we're still pleased with the high teens growth that we've experienced on an ex FX basis. And so as we go in and into 2017 and beyond, we've talked about a significant improvement in the productivity of our engineering group. We've talked about the ability of launching functionality. I would encourage anyone who hasn't taken a look at the functions in our editor product to go to our platform and take a look at it. I would encourage anyone who hasn't taken a look at the plug ins and see the ease of functionality because we think those and see the ease of functionality because we think those are a testament to the ability of this new platform for us to continue to drive growth. As it relates to the timing of acceleration of growth, we'll talk about our 2017 guidance on our next call. But at this point in time, what I'll say is that we believe that over the we're doing today in 2016 what we think is the most beneficial for our business to drive customers to continue to work on our platform and to continue to use us as a primary source of stock content. So I don't we certainly wouldn't be making these investments if we didn't expect substantial returns on those. Yes. Look, I'll add to that. If we were just focused on this year or this quarter, we'd be growing the business faster and we'd be neglecting the tech stack and the years, 2017, 2018, 2019 and even 2020. We're thinking about this business for the long term. We're rebuilding our tech stack and growth slowed down a little bit and we're focused on the future of this business and we're not thinking about it quarter to quarter. All right. Thanks guys. Our next question comes from Blake Harper with Loop Capital. Your line is now open. Thanks. John, I wanted to ask you about Adobe, but in a different way. Wanted to just see if you could talk about what the how the downloads for the plug in has been with the Photoshop and with Photoshop plug in and also, are there plans to develop similar types of plug ins for other Adobe Creative Cloud apps? We're seeing thousands of users in Adobe use our product with access to over 100,000,000 of our images. So we see thousands of people inside of Adobe accessing the largest collection that's ever been integrated into Creative Cloud, period. And on top of that, we've been asked by major holding companies and advertising agencies to make presentations, which our sales teams have done to significant size groups at their organizations, so that they can see the ease of use. And like I said on my earlier comments, this is the best way for anyone to access our environment, if they are users of Adobe Photoshop and they are sophisticated users of that product that want to ultimately bring in Shutterstock images, which is the largest and freshest collection of images, we believe and they believe it too. We've gotten great customer feedback that this is a great way to do it. Okay, thanks. And would you be able to go into other apps too, other than the Creative Cloud apps? Yes, yes. We want to be anywhere, any businesses being creative. We want to build our own workflow tools. We want to integrate into other workflow tools and we even want our customers to build their own integrations using our API. So we're going to continue to build on that. And part of the tech stack migration is going to make it easier for us to build even richer integrations with the largest companies in the world like we have been. All right. Thanks. Our next question comes from the line of Aaron Kessler with Raymond James. Your line is now open. Great, thanks. Can you just I don't think you provided the revenues via geography. I think you said international is about 66% or outside North America and then you also have Europe and rest of world. So it looks like the North America number implies revenues were down about 20% sequentially or about flat year over year. So just want to confirm that. And any other just thoughts on if that's true, why that would have been in Q3? And just on the expense side, it looks like G and A and SBC were also kind of down sequentially. I don't know if there's any one time step within those numbers. Thank you. Yes. So, a couple of things. First, as it relates to the geographic breakdown, we did file our 10 Q this morning and certainly all the geography geographic breakdown is contained within there. Outside the U. S. Represents customers outside the U. S. Represents 66% and the U. S. Was up 11% year over year. So the ratio of customers within the marketplace has been maintained at about 2 thirds outside the U. S, 1 third inside the U. S. And when you include the other parts of North America, it's about 70% of global I'm sorry, 70% of our revenue if you take the other parts of North America into the international region. So we're very comfortable with the growth in every market. Like I said on my earlier comments, we're seeing double digit growth rates across the board in each market. As it relates to your second question, stock based comp, we had some changes there. We can take that question offline. I'm not sure I'm following your G and A comment. Just down slightly sequentially on a absolute basis. Was driven by stock based compensation expense being lower. That's within there. And if you go to the cash flow and you see the amortization of stock based comp, you'll be able to see the variance quarter year over year. Got it. Great. Thank you. I'm showing no further questions in queue at this time. I'd like to turn the call back to Mr. Burns for closing remarks. Thanks, operator. We appreciate everyone joining us today and look forward to speaking with you all soon. Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect. Everyone have a great day.