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. If anyone should require assistance during the call, please press star, then zero on your touch-tone telephone to reach an operator. 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. Rawson 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 third quarter 2016 earnings call. Joining me today is Jon Oringer, our Founder, Chief Executive Officer, and Chairman, and Steven Berns, 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 US Securities and Exchange Commission, including the section entitled Risk Factors in the company's Form 10-K, 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 for investors 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. With that, I'd like to turn the call over to Jon.
Thanks, Rossen. Thanks, everyone, for joining us today for Shutterstock's third 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 third quarter of 2015, revenue increased 17%, with adjusted EBITDA margins of 21%, both excluding the impact of foreign currency movements. Our image library expanded 61% to over 102 million images. Our video library expanded 64% to 5.4 million video clips. Paid downloads grew 8% to 41 million, 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, 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 million images and 500,000 video clips to our robust library in the third quarter.
In September, our image library exceeded 100 million 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 and 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, will continue to enhance our technology to make sure that it can handle an 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 third quarter, our video library grew 64% year-over-year, which puts us in a strong position as these trends continue to take shape.
Similar to our traditional photo platform, it's not just about the size of our library, but also about the quality and diversity of the 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, and 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'Oréal.
Another exciting development for our business is the progress we are making in editorial imagery. This quarter, we acquired The Kobal Collection and The Art Archive, which builds on our acquisition of Rex Features last year. We are also benefiting from our ongoing collaborations with Penske Media and the Associated Press, 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 are 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 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's search capabilities directly into their products. Finally, in September, we announced that the Shutterstock collection of photos and illustrations is now accessible within Adobe Photoshop through a custom-built plugin. This plugin allows users to search, edit, and license imagery without leaving the Photoshop application. Shutterstock is the largest stock photography collection to ever integrate with Adobe Photoshop. How are we seeing all of this manifest in our business? We now have over 1.6 million 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. 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. 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. First, 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 from marketing spend. Second, 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 increase 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. Third, we expect continued growth from our video, 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 given 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 buy 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 are 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. Fourth, 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, who are recognizing the ease of use and utility of stock imagery and are demanding innovative tools and technologies to easily customize it.
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 2003, 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 attracting 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 Steven to go into more detail on the drivers of our financial performance this past quarter.
Thanks, Jon. 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 Jon highlighted, both sides of Shutterstock's two-sided marketplace continue to expand, strengthening the network effects of our business model and translating into sustained financial growth and profitability. During the third quarter, we delivered revenue growth on a reported basis of 15% as compared to the third quarter 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 1.6 million 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 increase 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 we did see a shift in our revenue per download in the third 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 second quarter of 2015. The third quarter of this year marked the anniversary of those product launches, making the third quarter 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 Jon noted, international expansion is a strong driver of our growth strategy.
Currently, of the approximately 66% of our revenues from customers outside the U.S., 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 third quarter 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 third quarter, which was consistent with the third quarter of 2015 as well as the first half of 2016.
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 third quarter 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 third quarter versus the third quarter 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 third quarter of approximately $4 million. General and administrative expenses increased 14% for the third quarter versus the same period a year ago, driven primarily by higher personnel costs. Overall, our revenue growth in the third 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% to $9.4 million, 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&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.
When taking all of those items, non-GAAP net income was $0.40 per share, which is an increase of 41% versus the third quarter of last year. We grew free cash flow 34% year-over-year in the third quarter to $19.9 million, and our liquidity finished at the end of September with over $290 million of cash and short-term investments. On a year-to-date basis, our revenue has been impacted by approximately $2 million-$3 million due to the devaluation of the British 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 third quarter, our full year 2016 revenue will be impacted by approximately $4 million, primarily due to the British pound devaluation versus the US 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 relates to our prior financial guidance for revenue and adjusted EBITDA. That is revenue of $495 million-$510 million and adjusted EBITDA of $95 million-$100 million. These expectations include the impact of our technology platform migration and the currency impact I just mentioned. In closing, as Jon 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 Jon and I will now be happy to answer any questions you may have. Operator, please prompt the call participants for questions.
Ladies and gentlemen, if you would like to ask a question at this time, please press the star then the number 1 key on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, you may do so by pressing the pound key. Again, if you would like to ask a question on the phone lines at this time, that is star, then 1. Our first question comes from the line of Brian Fitzgerald with Jefferies. Your line is now open.
Thanks. Jon, 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.
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. 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. What we are seeing is strong demand and new uses across the landscape. 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 Youssef Squali with Cantor Fitzgerald. Your line is now open.
Thank you very much. Two questions. Can we go back to 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? About the tech stack, 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.
Let me start with the Adobe question. 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 plugin that we launched, our plugin that works within the Adobe Photoshop environment, has gotten a 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. We feel very good about where we are, and we're hearing very good customer feedback. As it relates to the download metrics, these go hand in hand, and that is the revenue per download metric and the paid download metric go together. They are good indicators of our subscription business.
We launched the new subscription products in the second quarter of 2015. 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. That was a 25-a-day limit. That was removed. This had the effect of accelerating download activity beginning in the second quarter of 2015 through the second quarter 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. Excluding the, as you say, in the first half of 2016, we had these comparisons.
That's why, in my comments, I said that the third quarter of 2016, with the metric up 8% year-over-year, that is the first period of, if you would, a like-to-like comparison with the new products live.
Just on that, before you jump into the second question, 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 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, Jon.
Yeah, 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. Our customer acquisition is stronger than ever. Our enterprise product continues to compete with the rest of the space. 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.
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?
Yeah, I was just trying to understand as we go through that and trying to see how that will change the user experience. Is it improving the search engine? Is it basically improving the ability for contributors to upload their creative, either video or photo, 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. 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. 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. 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.
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.
That includes everything from the latency, all the way through to the desktop or experience on a device that a user has. So it's, as Jon says, end to end. 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? Separately, if you could make a comment on how you're thinking about share repurchases. Thank you.
Do you want to take it?
Yeah. Enterprise has grown. Enterprise today is 30% of our revenue. Enterprise continues to grow faster than the business today. 35,000 customers comprise our enterprise product. Part of the tech stack migration is getting our Premier product to be part of the main platform that we're building out so that Premier customers can continue to benefit from the product changes we make across the entire tech stack. 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'll create a stickier experience over time. We now have music and editorial in Enterprise as well. Our partnership with Penske Media, our partnership with Rex, our acquisition of Rex, our partnership with The Associated Press, we're bringing all of that content to our Premier customers.
That's an entirely new segment of customer and content that we'll be able to serve to that audience.
As it relates to your question on buybacks, when we think about allocation of capital, our first priority remains investing in the 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. Examples of that would be our acquisition of Rex in the editorial space and PremiumBeat in the music space. If we can't find alternatives, we then will, of course, consider, as we have in the past, returning capital to shareholders. The amount of any share buybacks in any quarterly period will be a function of the opportunities as they present themselves.
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 buy back almost $60 million 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. What we do know is we have $40 million 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. 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 at 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 products to that portfolio, as Jon mentioned, editorial, music, footage, all joining the enterprise platform, actually gives our reps significantly more capabilities to actually increase the revenue per rep. 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. We're looking for continued effectiveness and efficiency, and we'll continue to, as I 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 what's the major contributor to that in this quarter? I guess last quarter was raised as well. Then two, Steven, just looking at the midpoint of guidance for Q4, even after normalizing for the FX headwinds in Q3, it may imply some modest re-acceleration in the business. 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 would contribute to Shutterstock hitting the lower end versus the higher end? Thank you.
As it relates to CapEx, the primary driver there, Ralph, is the platform migration that we've talked about in terms of the capitalizational labor, and we're continuing to make sure that we are well positioned for 2017 and beyond, both from the application environment in terms of our platform, and the user experience, and also our infrastructure. We see 2016, I think this is slightly above where we thought we'd be on capital expenditures driven by the CapEx of labor, but still consistent with our overall objectives. I think it's also important as it relates to kind of the increase in CapEx, what 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.
We've continued to generate 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. We've made significant improvements there. 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. We looked 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.
One is our savings on taxes, as I talked about in my comments, and also the capitalization of labor. 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. Enterprise customers continue to spend a lot more. I'm just trying to figure out why your revenue growth is so close to the customer growth. Specifically, I guess it looked like U.S. slowed down a bit more than other geographies, and if you strip out enterprise, it looks like growth ex enterprise is about low single digits. Maybe you can help us just understand why growth is slowing in the face of all these new products and enterprise customers. 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.
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 business improvement, and whether you still think revenue growth could accelerate on the back of that re-platforming. Thanks, guys.
Sure. 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. It's not as if we've-- 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.
It is close to our expectations and consistent with the idea that in 2016, while we are doing, as Jon mentioned, a re-platforming 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. As we go 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 plugins that we've launched in Microsoft PowerPoint and the plugin for Adobe to take a look at 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.
What I'll say is that we believe that 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. We certainly wouldn't be making these investments if we didn't expect substantial returns on those.
Yeah, 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, '18, '19, and even 2020. We're thinking about this business for the long term. We're rebuilding our tech stack, growth slowed down a little bit, 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. Jon, I wanted to ask you about Adobe, in a different way. Wanted to just see if you could talk about how the downloads for the plugin have been with the Photoshop plugin, also other plans to develop similar types of plugins for other Adobe Creative Cloud apps.
We're seeing thousands of users in Adobe use our product with access to over 100 million of our images. We see thousands of people inside of Adobe accessing the largest collection that's ever been integrated into Creative Cloud, period.
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. 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, 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. Would you be able to go into other apps too, other Adobe Creative Cloud apps?
Yeah. We want to be anywhere, any business is being creative. We want to build our own workflow tools. We want to integrate in other workflow tools, and we even want our customers to build their own integrations using our API. We're going to continue to build on that. 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.
Got it. Thanks.
As a reminder, ladies and gentlemen, if you'd like to ask a question at this time, please press the star, then the number 1 key. Our next question comes from the line of Aaron Kessler with Raymond James. Your line is now open.
Great. Thanks. I don't think you provided the revenues by geography. I think you said international is about 66% or outside North America. Then you also have Europe and rest of world. Because it looks like the North America number implies revenues are down about 20% sequentially or about flat year-over-year. Just want to confirm that. Any other just thoughts on if that's true, why that would have been in Q3. Just on the expense side, it looks like G&A and SBC were also kind of down sequentially. Just I don't know if there's any one-time stuff within those numbers. Thank you.
A couple of things. First, as it relates to the geographic breakdown, we did file our 10-Q this morning. Certainly all the geographic breakdown is contained within there. Customers outside the U.S. represent 66%. The U.S. was up 11% year-over-year. The ratio of customers within the marketplace has been maintained at about two-thirds outside the U.S., one-third inside the U.S. When you include the other parts of North America, it's about 70% of our revenue if you take the other parts of North America into the international region. 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&A comment.
Just down slightly sequentially on an absolute basis.
That was driven by stock-based compensation expense being lower. That's within there. If you go to the cash flow and you see the amortization of stock-based comp, you'll be able to see the variance 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. Berns for closing remarks.
Thanks, operator. We appreciate everyone joining us today and look forward to speaking with you all soon. Thank you.
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