Shutterstock, Inc. Q2 FY2020 Earnings Call

Good morning. My name is Jake, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Shutterstock Q2 2020 Earnings Conference Call. After the speaker’s remarks, there will be a question-and-answer session. Thank you. At this time, I would like to turn the call over to our first host, Chris Suh, Vice President of Corporate Development and Investor Relations. Sir, please go ahead.

Thank you, operator. Good morning, everyone, and thank you for joining us for Shutterstock’s second quarter 2020 earnings call. Joining me today is Stan Pavlovsky, our Chief Executive Officer, and Jarrod Yahes, our Chief Financial Officer. Please note that some of the information you will hear during our discussion today will consist of forward-looking statements, including without limitation, the impact of COVID-19 on our business, the long-term effects of our investments in our business, the future success and financial impact of new and existing products, our future growth, margins, and profitability, our long-term strategy and our performance targets. Actual results or trends could differ materially from our forecast. For more information, please refer to today’s press release and the reports we file with the SEC from time to time, including the risk factors discussed in our most recently filed quarterly report on Form 10-Q and our annual report on Form 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 our call. We’ll be discussing certain non-GAAP financial measures today, including adjusted EBITDA, adjusted EBITDA margin, adjusted net income, revenue growth, including by distribution channel, and on a constant currency basis billings and free cash flow. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measure can be found in the financial tables included with today’s press release and in our Form 10-Q, which are posted on the Investor Relations section of our website. Finally, please refer to the brief information that we posted on our website that contains supporting materials for today's call, as well as the new interactive IR Microsite that is available on the IR section of Shutterstock's website. And now at this time, I'll turn the call over to Stan.

Thanks, Chris, and welcome to Shutterstock. We look forward to your contributions as we continually increase our outreach and communications towards the investment community. Good morning, everyone, and thank you for joining Shutterstock's second quarter earnings call. I wanted to begin by thanking all of our Shutterstock employees who have effectively transitioned to working remotely and have been incredibly dedicated and focused during this time to offer continuity of service to our customers. As a result of their efforts, we are making progress on our strategic plan focused on workflow innovation, content services, and data and insights, which will deliver strong returns for our shareholders. Shutterstock's revenues proved to be much more resilient in the second quarter compared to our expectations, as well as relative to how we were trending at the end of April, down high single digits. Our second quarter 2020 revenues of $159 million are down 2% from last year, and down 1% on a constant currency basis. Our rest of world region, which includes Asia, grew modestly this quarter while the North America and European regions declined 3% consistent with last quarter. In the back half of the year, we are making investments in the long-term growth of the company. First, we are redeploying capital into our platform solutions offering and undertaking significant global expansion of our sales and technical integration teams. We believe that this is a key growth area for Shutterstock as our customers look to consume our content services natively within enterprise applications from ad builders to website creation tools and applications. The major investment in our platform solutions offering is mission-critical and highly strategic to Shutterstock and benefits us in several ways. First, because we're accessing our customers' customers, we expect these relationships to effectively open up new market segments for us. Second, customer volumes, revenues, and engagement levels as measured by monthly and daily active users tend to go up consistently. And finally, as a result of higher engagement, platform solution relationships tend to result in enhanced customer retention and stickiness. Among the key milestones we have recently achieved in the platform solutions offering is our new Microsoft ads integration, which makes our content available to all Microsoft advertisers through their ad builder. With Facebook, we were a large launch partner for a new ads initiative. Our Editor and Content are available in a new part of Facebook ads to help more advertisers create beautiful performance ads. We are also driving platform relationships deep into our Enterprise business to make it stickier and recurring in nature by becoming more native into Enterprise workflows. For example, we just launched our platform solutions offering within Snap, Weight Watchers, and Business Insider in just the last two weeks. Over the past year, we have grown the number of API platform integrations from 4,800 to over 6,500 integrations and made it easier for our Enterprise customers to get access to our content in the tools they use every day. In addition to investing in our platform solutions offering, we have planned investments in both marketing and brand building to support some of the new subscription products we are rolling out. With a range of new subscription products planned for roll out in the back half of the year in music and with multi-asset products, we aim to support these products with significant reach and mind share within our marketing efforts. Last quarter, I discussed three tenets that I'll be focusing on as Shutterstock CEO in order to differentiate our business and position us for long-term success. First, innovation that enhances our customer workflow; second, data and insights that drive performance; and third, content that is relevant and fresh. This quarter, I want to discuss a few investments we made to ensure that our content is relevant and fresh. First, we have enhanced our ability to cost-effectively ingest content at a lower cost using AI and automation rather than offshore and onshore manual review resources. You can see the benefit of that in our gross margins this quarter. This automation makes us more scalable to ingest more content at the top of the funnel, improves our ability to reduce duplicated content as we expect that we will allow us to be more nimble with respect to tailoring the content and addressing the needs of the market. We have been working on this for some time, and I'm proud to see this technology begin to get implemented and drive results. Second, as I mentioned previously, clients increasingly prefer to purchase content via subscription model, with digital advertisers facing an accelerated demand for fresher creative content in order to capture and retain attention from their audiences. In order to drive towards higher-performing and fresh content in the beginning of June, we evolved our royalty structure to better align our contributor incentives with our own, and we expect this will result in a content library enabling the growth of current and future subscription product sales. Lastly, we are making investments to foster diversity and inclusion amongst our contributors, customers, and valued employees. Seeking diversity is a core principle of Shutterstock and embodies our belief that different perspectives strengthen our business. We have historically focused on the diversity of our contributor community and the content in our collection, but we're committed to doing much more to amplify powerful diverse voices in our network. This includes leveraging AI to surface more localized and diverse content, improving our talent acquisition and performance management programs to build a more diverse and inclusive workforce, and launching a grant program dedicated to supporting photographers, artists, videographers, and musicians who drive diversity, inclusion, and environmental awareness initiatives. As a company and as a leadership team, we are committed to making a long-lasting impact in support of diversity and inclusion at Shutterstock and in our communities. In order to provide more insight into the evolution of our business, we are introducing three new KPIs to investors this quarter that we track internally and believe are important for our business, particularly as we transition primarily towards a subscription-based model. We expect to always have some meaningful non-subscription component of our business, including editorial and custom, but expect that it will become a minority of our revenues over time. Jarrod will share the details of these new KPIs as he discusses our financial results. Lastly, we are seeing tremendous progress in our initiatives around margin expansion and we're starting to see the results flow through. Our adjusted EBITDA in the second quarter was $37 million, representing a margin of 23%, which is up from 15% last year. This performance represents record quarterly EBITDA for Shutterstock and is driven by several initiatives across content, technology, and marketing to improve the efficiency of our operations. Before handing it over to Jarrod for a detailed financial review, I want to thank the Shutterstock team for our record performance this quarter. With several of our margin enhancement initiatives now executed, we are focused on returning to growth while continuing to maintain our margin momentum, and we're in a great place to execute on M&A deals and reward shareholders with additional capital deployment on the back of our strong margin execution. And with that, I'll turn the call over to Jarrod.

Thank you, Stan, and good morning, everyone. Let me start by saying we feel quite good about the second quarter and our progress against our goals. When we reported the first quarter, we saw revenue declines of high single digits year-over-year in March and April, which were predominantly attributable to the impact of the pandemic. I am pleased to report that the improved trend we saw in the last couple of weeks of April accelerated into both May and June, resulting in the relative strength we saw in our revenues in the second quarter. Revenue declined 2% in the second quarter compared to the prior year and was down 1% on a constant currency basis. Our e-commerce channel increased 2% to $98.2 million, while our Enterprise channel revenue decreased 6% to $61.1 million. Our e-commerce channel displayed growth in North America and the rest of the world as our customers return to work and the multiple demand tailwinds of digital marketing growth and website proliferation powered our business. As Stan mentioned, the European geography has not yet recovered to 2019 levels. Our Enterprise channel was down largely as a result of lower bookings in prior quarters, and we believe that we are poised to eventually achieve year-over-year growth in billings and deferred revenues. The key sales leadership we need for success is largely in place at this point, and we have an improved product suite and the articulation of our differentiated value proposition. We do believe it will still take several quarters for the revenue growth to shine through in the Enterprise channel. In terms of our margins and profitability in the second quarter, gross margins were 60%, up approximately 200 basis points from 58% in the second quarter of 2019. This improvement is due to several factors, including the automation and AI we've been introducing into our content ingestion process, reductions in depreciation expense from technology platform and infrastructure costs, and the reduction in royalties due to lower utilization during the pandemic. Sales and marketing expense was 22% of revenue as compared to 28% in the second quarter of 2019. The favorability in sales and marketing expense is driven by an increased level of scrutiny in our performance marketing spend, as we adhere to tight metrics around marketing return on investment. Based on the positive demand signs we are seeing and our progress in our plans for improving margins, we're accelerating our marketing spend in the back half of the year and expect to spend significantly more on both top-of-funnel and performance marketing efforts to drive our subscription offerings. Product development costs were 8% of revenue, flat with the second quarter of 2019. Our product development expenses are net of capitalized labor, which is reported within the fixed assets on our balance sheet. G&A expenses were 16% of revenue, down from 20% of revenue in the second quarter of 2019. The G&A decrease of $7.2 million is attributable to reductions in stock compensation and amortization expenses, coupled with our global efforts around vendor elimination and renegotiation, overhead cost reductions, and process automation and Enterprise software platform consolidation. Our efforts in this regard since the beginning of the year are beginning to shine through. Adjusted EBITDA margins increased to 23% compared to 16% in the second quarter of 2019. Q2 adjusted EBITDA of $33 million included $2.8 million of severance expense, which impacted margins by 175 basis points. We do not expect material severance expenses in the back half of the year. GAAP net income was $19 million or $0.53 per diluted share, and adjusted net income was $22.2 million or $0.62 per diluted share as compared to $11.8 million or $0.33 per diluted share in the second quarter of 2019. Turning to our balance sheet and cash flows. At the end of the quarter, we had $311 million of cash, up from $296 million at March 31, 2020. The quarterly increase in cash of $15 million was above and beyond the payment of our June dividend of $0.17 per share. Our free cash flow was $22.4 million as compared to $19.8 million in the second quarter of 2019. The year-over-year increase in free cash flow is due to improved profitability on consistent business volumes. Our deferred revenue balance declined to $138.2 million from $138.9 million at March 31, 2019. The change in deferred revenue is predominantly due to our Enterprise business which has not yet shown accelerated bookings in 2020. We are at this quarter providing investors with a new schedule on the Investor Relations section of our website with a reconciliation of billings to deferred revenues. As we turn around the Enterprise channel, this will first result in billings and deferred revenue growth and provide a good leading indicator of our progress in getting back to growth and recognized revenues in the Enterprise channel. As Stan previously mentioned, we are providing three new operating metrics this quarter that will provide insight into the growing subscription nature of our business. We are also maintaining all of the previous metrics we have traditionally provided around download volume and revenue per download, as well as the size and growth of our image and footage library. Reviewing some of our key operating metrics and associated trends in the second quarter on a year-over-year basis, subscribers increased 30% to 223,000. Subscriber growth was driven by video, music, and image subscription products, as customers increasingly prefer to consume our content with a regular monthly allotment. Subscriber revenue increased 8% to $62.6 million and represents 39% of our revenues, up from 36% of our revenues last year. Subscriber growth is well in excess of subscriber revenue growth due to changes in the product mix with growth in our small subscription products being higher than growth in our larger subscription products. Average revenue per customer increased 0.2% year-over-year to $326. Our long-term strategy is to increase the average revenue per customer, particularly in the Enterprise channel by leveraging cross-sell of our platform solution offering, as well as our Editorial and Custom business. Paid downloads declined by 6% to 44 million in the second quarter, mainly due to reduced activity and utilization related to the pandemic. This resulted in revenue per download increasing by $0.17 to $3.61 per download. Our image library expanded by 21% to approximately 340 million images, and our video library increased by 27% to approximately 19 million clips. In terms of capital allocation, Shutterstock will pay out its next quarterly dividend of $0.17 per share on September 17, 2020. As previously stated, we plan to grow the dividend in line with earnings growth, and we'll periodically revisit the payout based on our cash flow profile and alternative uses of capital. With respect to our M&A strategy, we are actively looking at assets and we're in a great position to execute. We'll continue to be disciplined as we evaluate M&A opportunities, so we can be confident we have the ability to integrate the acquisitions and that they present compelling industrial logic and strategic fit. From a forward-looking perspective on the second half of the year, I'd like to provide some color on what we expect. We are working towards getting back to overall quarterly revenue growth as a company by the fourth quarter, and we're focusing our sales and marketing investments around that. Our ability to get back to growth will of course be somewhat dependent on the resolution of the pandemic and its impact on the various geographies in which we operate. From a margin perspective, Q2 margins were exceptional, and investors should expect those margins to come down in the back half of the year as we reinvest in platform solutions and sales and marketing spend. We also expect G&A expenses on a GAAP basis to increase in the back half of the year based on an increase in non-cash stock compensation expense. Because of the strong EBITDA performance, the stock compensation expense tends to increase. While EBITDA margins will be lower in the back half of the year than the second quarter, we are still targeting year-over-year margin expansion of at least 50 basis points in 2020 compared to calendar year 2019, and we are highly confident of overachieving on that target, even including the severance expense we've incurred year-to-date. Lastly, we're proud to roll out Shutterstock's new interactive Investor Relations Microsite today on the Investor Relations section of our website. We believe that this is a first-of-its-kind fully interactive investor microsite, complete with videos of key members of our management team, dynamic charts and graphs with our TAM and go-to-market approach, and audio responses to frequently asked investor questions. With investor interactions today almost entirely virtual, this type of investor engagement will allow investors to drill down into the parts of Shutterstock's story that are most compelling via self-guided navigation rather than a static PDF presentation. We are pleased as a management team with the resiliency of our revenues in the second quarter, as well as our execution in driving margin improvement and profitability. In the back half of the year, we plan to reinvest some of that margin to get back to growth while continuing to press forward with our capital allocation plans. We appreciate your time today and thank you for joining us. Operator, we'd now like to open the line for any questions investors and analysts may have.

Thank you. We have a question from Youssef Squali with SunTrust. Please go ahead.

Thank you very much. It's Youssef Squali. Hi everyone. Congratulations on a strong quarter, and Jarrod, I appreciate the additional information provided on the website. I have two questions. First, regarding your outperformance compared to expectations, could you elaborate on the product types—such as video, image, or music—that contributed to this? Were there any specific aspects of the quarter that surprised you and led to this outperformance? More impressively, I noticed your EBITDA margin reached 23%. It's been a long time since I've seen that level; I believe you'd have to go back to around 2013 or 2014. I understand you'll be making more investments, but as you assess the business alongside the structural changes you're implementing, could you comment on the potential for gross margins moving forward? Additionally, what do you see as the new long-term EBITDA margin that this business can sustain post-COVID? Clearly, you benefited from lower travel and entertainment expenses related to the pandemic, but as things normalize, where do you anticipate the margins settling compared to what you expected six months ago? Thank you.

Yes, absolutely. Youssef, it's great to have you on the call and I hope you’re keeping safe and healthy. I’ll address the first question, and then Jarrod will discuss margin and EBITDA going forward. Regarding revenue, as we mentioned on the call, we’ve observed significant movement, especially in SMB where the demand for content and digital assets has risen. We’ve also launched new products, including a new video subscription service, which has gained traction. Additionally, we've introduced smaller image subscriptions aimed at the prosumer and small business markets, which have been successful and align with broader market trends. From a revenue standpoint, we're not entirely unaffected by challenges in certain customer categories, particularly travel and media, which have faced substantial difficulties. In response, we're focused on assisting our customers with new services like custom and editorial for commercial use products. This strategic pivot has been beneficial, especially as we progressed into May and June, helping us to mitigate some of the headwinds brought on by the pandemic. Now, I’ll turn it over to Jarrod to elaborate on margin and EBITDA trends.

Great. Thanks. So Youssef, I think we're quite pleased with our execution year-to-date against our objectives for taking up the profitability of the business. I think, in the past when we spoke last quarter and the quarter before, the leverage in the model was really in G&A. And I think we continue to believe that as you think about 2020 and beyond, there is leverage in G&A. The G&A that we experienced as a percentage of revenues in the second quarter of 20% is not the right level of G&A for the company. We believe that while the second quarter was quite exceptional, this level of 16% or 17% level of G&A as a percentage of revenue is something that is going to allow us to get operating leverage in our business and expand annual EBITDA margins year-on-year for at least the next several years. The other area that I would say from a longer-term perspective does have operating leverage is in the sales and marketing line. You'll see that we've gotten a bit shrewder on sales and marketing expense. The flip side of that is there are long-term systemic reasons why sales and marketing should also decrease as a percentage of revenue on a go-forward basis, which is really the evolution of our business towards a subscription model. As more and more of our business becomes subscription, the need to acquire new customers via performance marketing efforts becomes less, and it becomes more of a retention challenge in terms of growing your business and expanding your business. There are long-term reasons why there will be some leverage in that sales and marketing line going forward. From a gross margin perspective, however, I would say that we do not have plans to long-term systemically take up our gross margins. We believe that we have a model that allows us to have cost of goods sold that effectively matches our revenue line. We want to be competitive in the market in terms of the pricing of our subscription products. I don't think that while gross margins came up this quarter as a result of several of the reasons that we mentioned, that is something that when you consider a long-term perspective should systemically go up. The gross margins you would expect to be stable over time with meaningful leverage in the G&A line and some modest leverage in the sales and marketing line as we gradually evolve our business towards more of a subscription model.

Okay. That’s helpful. Thank you, guys.

We have a question from Brad Erickson with Needham & Company.

Hi, thanks. Just a few. So first when you think about the mix of your content at the moment what sort of drove the higher revenue per download in the quarter? And maybe just if you could just put that in context of the higher portion of subscription revenues and sort of how we should be thinking about that going forward?

Sure. So Brad, when you think about the higher revenue per download, it's really a function of a reduction in utilization of the business. So as the number of paid downloads decreases because of the subscription nature of a fair amount of our revenues, ultimately, we are able to capture those revenues without associated costs. So if you look at what happened within the quarter, we experienced paid downloads down approximately 5.6% or 6%, while we experienced an increase in revenue per download of approximately 5%. So the two effectively mathematically offset each other because of the nature of our revenues.

Got it. That's great. And then you talked about seeing signals right now that are leading you to put ad dollars back to work in the second half. And I guess the equation of balancing growth versus profitability, maybe just talk about your long-term philosophy there? And how you prioritize one over the other?

Yes, I think from our perspective, there are core categories that we're involved in, and we want to ensure we're growing at least at the same rate as the category growth, being one of the major players. As we continue to innovate and expand into new adjacent areas for the business, that's where we aim to focus on growth acceleration. However, as Jarrod mentioned, our decisions regarding increasing margins are being made with careful consideration. For instance, some changes related to content ingestion and the use of technology are strategic investments that do not impact marketing dollars or other growth areas but enhance efficiency within the business. Over time, we will keep seeking opportunities while also making investments in both core growth and leveraging our balance sheet to support business enhancement and future investments. We're very enthusiastic about our current position due to the financial stability of the business.

Got it. That's great. And maybe just squeeze one last one in, if I can. Beyond the macro, what needs to happen on the Enterprise side to kind of return to growth? You talked about kind of looking towards the trajectory and maybe towards the end of the year, early next year there? Is it just, I guess, things like more platform solutions partnerships? Is the sales force productivity just picking up as those new folks get ramped? Maybe just talk about the mechanics of what can drive a return to growth on the Enterprise side of the business. Thanks.

Yes, no, absolutely. The Enterprise segment is made up of several parts of our business, including platform solutions, as well as SMB and our sort of top-tier clients. Our strategy for the top-tier clients involves several initiatives to increase average order value or the size of those deals. This includes providing turnkey end-to-end solutions. As we head further into this year, we will continue to launch new services into the Enterprise. We think we have some tailwinds with the small and medium segment, particularly because of the trends that exist around the move to digital and the acceleration of e-commerce. We see this in both our SMB and platform solution segments. What I would say is, we have a lot of room for penetration into both landing and expanding those accounts and we're seeing signals of that. Additionally, we are excited about the platform solutions part of our business. We will continue to invest heavily in that segment because it adds substantial value for our partners and creates network effects from an audience development perspective for the Shutterstock offering.

Got it. That’s great. Thanks.

Thank you. We have a question from Lloyd Walmsley with Deutsche Bank.

Thanks. I have a couple. I guess, firstly, can you talk about changes to the royalty payouts to contributors? And did you have a full quarter benefit from that in gross margin? Or should we expect gross margins to increase in the second half around that? And I guess related to that, are there going to be seasonal variances in gross margin to account for kind of rising payouts over the course of the year to contributors? And then the second one on the Enterprise side. I know you guys have been doing some go-to-market changes on how you kind of source new customers. Can you talk about how that's going and how critical is that to kind of getting the broader Enterprise segment back to growth? Thanks.

Yes, absolutely. First, regarding gross margins and the changes in contributor royalties, I want to clarify that several factors are influencing our gross margins. These include hosting costs for our data centers, content ingestion costs, credit card fees, and royalties. A substantial part of the improvement we saw this quarter is due to reduced download activity and the automation of the content ingestion process compared to manual methods. There are multiple factors affecting gross margins; some of these will persist while others may fluctuate depending on business conditions, product mix, and so on. I'll let Jarrod discuss the long-term outlook for the remainder of the year, and then I will address the Enterprise question.

Sure. I think, as I mentioned, when I provided insight on our EBITDA margins long-term, we are focused on ensuring that we maintain our gross margins while enabling a successful expansion of the subscription offers in our business. As you would expect, subscription offers typically come with lower unit prices; however, it’s how customers prefer to consume in today’s economy. Our current revenue structure enables that model. This structure kicked in June, so we will get the full three months of it in the third and fourth quarter. However, I don't expect that structure in and of itself to result in significant gross margin increases. Keep in mind that pricing to the end market is also a crucial factor, and it's essential that we achieve stability in our gross margins over time. Therefore, we are looking to ensure that gross margins remain stable, while also leveraging our G&A and achieving some efficiencies in our sales and marketing based on the increasing subscription nature of our business.

Thanks, Jarrod. Your point on Enterprise is a great one. New customers and new logos that we bring into our platform are key KPIs we look at internally, and they are crucial for the growth of Enterprise. We see expanding and penetrating existing accounts with new services, so when we look at net retention, it is greater than prior year. Sourcing new logos is also critical, from a pipeline perspective, which is something we monitor daily and weekly as part of the growth strategy.

Okay. And if I can ask one more, just going back to some of the drivers of the subscription number growth versus the revenue growth. How much of the growth in the number of subscribers is driven by your new video product this quarter? Is it new products versus new format products or new lower-priced tier products? What were some of the new lower-priced tiers this quarter?

Sure. So Lloyd, while we don't disclose revenue by product, we will not provide subscriber growth by product. Fundamentally, the significant increase in the number of subscribers compared to subscriber revenue growth is driven by the success and tendency of this new prosumer segment to consume some of our smaller subscription products. We talk about our existing total addressable market within the stock media industry, and we anticipate some of the expansion will come from casual creatives. Those casual creatives often prefer smaller subscription products. They may not need our $750 product, but they are more inclined to consume, for example, ten assets per month at $30 per month, which is a subscription product available on the homepage of our website. We've seen growth in some of those smaller subscription products, such as an image product. We previously announced our new footage product, which has seen meaningful traction. We also have a new music product in PremiumBeat, a lower-cost product we're supporting with increased sales and marketing. Those lower-cost subscriptions, driven by the prosumer segment, are the key factors driving the trend of subscriber growth exceeding subscriber revenue growth.

All right. Thank you, guys.

Thank you. We have a question from Alex Giaimo with Jefferies. Please go ahead, sir.

Okay. Thanks for taking questions, guys. A bit of a follow-up to a couple of previous questions. But you had mentioned the goal is to get back to overall revenue growth as a company. And just looking at the addressable market analysis in the slide deck you guys put out, it looks like you're looking at about 7% stock imagery growth, if I'm reading that correctly from an industry standpoint. So should we consider that maybe the North Star where future revenue growth can get to for the company? And what needs to happen to eliminate some of the competitors that are taking share and have Shutterstock participate more in that upside? Lastly, in Q2, you were able to dramatically expand margins, while also seeing revenue decline just 1%. Does that give you more confidence in the sustainability of your current revenue levels as a baseline, given the fact that you raised spending and the top line was still relatively steady? Thanks, guys.

Yes, great question, Alex. The 7% category growth expectation is similar to some of the expectations that were had going into this year around advertising and retail. However, many of those expectations have changed significantly as a result of the pandemic. You're correct; the 7% growth that was expected for this category would be what we expect to grow as a key player in this space. Additionally, we believe there are several adjacent categories we are exploring that could also help us accelerate growth in the long term. However, currently, growth projections are difficult to pinpoint accurately. We firmly believe we can achieve more growth by deepening our integration into customer workflows while making the necessary investments. Regarding our margin profile and leverage in the business moving forward, we stated at the beginning of the year our goal to increase business margins. We had previously indicated a 50-basis-point improvement target, and we're confident that we will meet or exceed that going forward.

Hi. Thank you. Just a follow-up to the M&A reference in your prepared remarks. Can you just again help us frame the type of products or technology you think could help solidify the business as it exists today or help accelerate the business? Any incremental color there would be very helpful. Thanks, guys.

Sure. Youssef, I'll share some comments, and then Stan can add on. From our perspective, there are two types of potential opportunities we are looking at. There are consolidation opportunities in the stock media space that we regularly evaluate. We are disciplined in our approach and believe these businesses can be beneficial from a content perspective and provide access to new contributor communities. We typically look for acquisitions that are accretive immediately or within a short period based on the deal multiple and our ability to realize synergies. Additionally, we are actively seeking strategic opportunities. These are companies with revenue multiples that are not yet mature, but we believe that with our vast customer base and strong sales capabilities, we can accelerate their growth and improve margins. We are looking into marketing technologies aimed at creative content workflows and tools that our creatives use to manipulate content, as well as advancements in AI and machine learning to optimize content deployment across marketing and web applications.

Sounds good. Thanks.

Thank you, everybody. I want to take one last opportunity to thank our employees, our customers, and our contributors for their support and engagement. I couldn't be more proud of the organization. I'm so excited about our future and believe that we're very well positioned to take advantage of the opportunities ahead. So please stay safe, and that ends our call for the day.

Thank you. That now concludes the call, everyone. You may now disconnect.