Shutterstock Inc (SSTK) 2012 Q3 法說會逐字稿

Good day, ladies and gentlemen.

And welcome to the third-quarter 2012 Shutterstock, Inc earnings conference call.

My name Diana, and I will be the operator for today.

At this time, all participants are in a listen-only mode.

Later we will conduct a question-and-answer session.

(Operator Instructions).

As a reminder, this conference is being recorded.

I would like to turn the call over to your host for today, Ms. Denise Garcia, ICR.

Please go ahead.

Good afternoon.

Welcome to Shutterstock's third-quarter of 2012 earnings call.

Joining me today to discuss our results are Jon Oringer, Founder, CEO and Chairman; Thilo Semmelbauer, President and CEO; and Tim Bixby; CFO.

Before we begin, I would like to take this opportunity to remind you that during the course of this call, management will make forward-looking statements within the meaning of the Private Securities Legislation Reform Act of 1995 that are subject to various risks and uncertainties.

Including predictions, expectations, estimates and other information that may be considered forward-looking.

Actual results may differ materially from the results predicted.

And reported results should not be considered as an indication of future performance.

Throughout today's discussion, we will present some important factors relating to our business, which may potentially affect these forward-looking statements.

Listeners are referred to the reports and documents filed from time to time by us with the Security and Exchange Commission, including the section entitled Risk Factors in the Company's Prospectives, filed with the SEC on October 11, 2012, for a discussion of these and other important risk factors that could cause actual results to differ materially from those discussed in forward-looking statements.

We undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available, or other events occur in the future.

In addition, as we refer to earnings, we will also refer to adjusted EBITDA, which we define as income from operations before depreciation and amortization, non-cash equity-based compensation, interest and taxes.

Non-GAAP net income, which excludes the after-tax impact of non cash equity-based compensation, and free cash flow, which we define as our cash provided by operating activities, adjusted for cash interest income and subtracting capital expenditures.

Adjusted EBITDA, non-GAAP net income, and free cash flow are non-GAAP financial measures.

¶ You can find a reconciliation of these items to the most directly comparable GAAP financial measures in our third-quarter earnings release, which is posted on the Investor Relations section of our website.

We believe that the use of adjusted EBITDA, non-GAAP net income, and free cash flow provide additional insight for investors to use in the evaluation of ongoing operating results and trends.

However, these non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.

And now I will turn the call over to Jon Oringer, Shutterstock's Founder, CEO and Chairman.

Thank you, Denise.

And thank you all for joining us.

This is our first earnings call as a public company.

And I'm excited to be updating our shareholders and the broader investment community about our performance.

I'm pleased to report that we had a strong third quarter, exceeding our top-line and bottom-line expectations.

We continue to see strong growth in all geographies and across all of our offerings as we execute our strategies.

On today's call, we will describe the progress we made in the third quarter, and provide guidance for fourth-quarter and 2013.

As most of you know, Shutterstock is a global marketplace for commercial imagery.

Businesses turn to Shutterstock for the imagery they need to sell their products and services.

Our marketplace is driven by a virtuous cycle content creation and consumption.

When images are downloaded, contributors earn money and give valuable feedback on what is selling.

As new content is uploaded, our library gets larger and customers come back to download more images.

With one of the largest libraries of its kind, we deliver more than two paid-image downloads per second.

By the end of the third quarter of 2012, we had surpassed 250 million total downloads in our history.

The more images we provide and the faster that we can help our customers find the image they're looking for, the more customers we can attract.

This is the cycle that drives our business and, ultimately, our financial results.

So I'll start with our quarterly operating metrics.

Early in the quarter, we celebrated an exciting milestone when we added the 20 millionth image to our collection.

We continued to add fresh content throughout the quarter, approaching 22 million images by the end of September.

In that same time period, we delivered nearly 19 million paid downloads.

And our revenue per download reached a record high of $2.26.

This resulted in strong financial performance.

Third-quarter revenue grew 36% to $42.3 million, from $31.2 million in the same period last year.

Adjusted EBITDA grew 49% from $6.9 million in the third quarter of 2011, to $10.3 million in the same period this year.

We are quite pleased with these results.

Now let's turn to some of our key accomplishments from the quarter.

As you know, we made the transition to becoming a public company.

We are thrilled to be operating in the public market and excited about the flexibility it gives us.

As ever, we are focused on continuing to grow our share of the multi billion-dollar market for commercial imagery.

Given that we represent a very small portion of the overall market, our primary focus is on customer acquisition, which Thilo will describe in more detail.

In addition, there are three strategic growth areas that are particularly important for us -- international penetration, emerging content types, and large enterprises.

All three areas have their own dedicated teams at Shutterstock.

And I'll discuss our Q3 progress in each one.

Let's start with international.

Shutterstock is truly a global company.

We currently sell to customers in more than 150 countries in 10 different languages.

And our 35,000 contributors come from more than 100 countries.

Since online marketing is an important growth driver for us, we continue to optimize the way that we reach customers across languages and geographies.

This helps our marketing dollars to go further.

We also continue to invest in localizing our proprietary search technology so that customers can find the image they need, no matter what language they speak.

In Q3, we tested changes to our search algorithm in one of our key foreign languages.

And we saw meaningful impact on search success and conversion rates.

We are currently in the process of rolling these changes out across other geographies.

SCO is another incredibly important and complex challenge when you're dealing with 10 languages.

We have spent years getting good at international SCO, and in Q3 we took a few more steps forward in this area.

Now let's turn our second growth area -- emerging content types.

Video footage is our most important priority here.

We see video content creation and consumption growing rapidly.

As digital cameras that can take HC video continue to get cheaper, more powerful and more accessible, we've seen increasing number of video artists looking for ways to monetize their content.

On the consumption side, with increasing global broadband penetration and powerful mobile devices taking advantage of 4G networks, we see websites using more and more video.

Our footage business continues to grow at more than 100% year-over-year.

We continue to use what we have learned in the nine years of selling still images to optimize the way that we source video and make it available to our customers.

Our footage team spent the third quarter improving video discovery and our video search algorithms, making sure that Shutterstock is the place to find the perfect video for your needs.

Finally, let's talk about large enterprises, a segment that is increasingly important for us.

If you look at Fortune 500 companies, over 70% of them already have at least one Shutterstock user.

But the amount that these companies are spending with us is a small fraction of their overall image spend.

In Q3 we ramped up our efforts to improve and increase the ways that we can meet the needs of large-enterprise customers.

I am excited about the progress we made in Q3 and the quarters and years ahead.

With that, I'll turn the call over to Thilo, who will walk you through our third-quarter operational highlights.

Thanks, John.

As John mentioned, our business is driven by strong network effects.

More new customers and more repeat activities from existing customers drives more downloads, which generates more payouts to contributors.

More payouts encourage contributors to give us more great content, which in turn drives more download activity.

This cycle of activity also creates data that we use to optimize the website and our proprietary search technology.

This is the virtuous cycle that drives our business, and in Q3 our network effects continued to strengthen.

We had 18.7 million downloads in Q3, up 26% from Q3 2011.

This led to a record quarter in contributor payouts.

And while our content library is already the largest of its kind, our collection grew more in Q3 than in any other quarter in our history.

We added over 1.5 million images of fresh content, 50% more than we added in Q3 2011.

And we also added over 100,000 video clips in the quarter.

We ended the quarter with over 21 million images and 700,000 video clips.

The volume of content that we are attracting is exciting.

But more importantly, the quality and diversity of our new content is better than ever.

One of the indicators we use is our image approval rate, which was unchanged in Q3.

We continue to be picky, and approve just over of the half of the content we receive.

On the marketing and sales front, we made good progress in Q3, acquiring new customers efficiently and driving revenue.

The bulk of our marketing sales spend is focused on online marketing.

And overall, we spent $9.6 million in Q3, up only 13% versus Q3 2011.

This spend drove revenue of $42.3 million, an increase of 36% from Q3 2011.

We were pleased to see our cost to acquire new customers decline year-over-year.

We achieved this through improved efficiency, through more testing and optimization, better localization of our campaigns in international geographies, and by adding new marketing channels.

Online marketing is a constant balance of optimizing and testing.

Some quarters we increase spend to test out new approaches.

In other quarters, we optimize faster than we are able to invest in new testing.

In Q3, we found lots of places to optimize, allowing our marketing spend as a percent of revenue to improve nearly four points, compared to the prior year.

Going forward, we are likely to dial our investment in marketing back up to levels consistent with prior quarters.

This quarter we also saw strong growth in both downloads and revenue per download.

As in other recent periods, gains in revenue per paid-download came primarily from product mix shift, as we held pricing for our various plans flat across our markets.

On the sales side, where we're just getting started penetrating agencies and large enterprises, we had our best quarter ever.

On the agency side, we signed our third global master service agreement with a large agency network.

And we grew adoption and usage across all of our agencies.

On the enterprise side, we signed more deals than ever, and we also expanded are selling footprint by adding new team members in the US and Europe, including our first sales office outside of headquarters.

Finally, given that we are based in New York City, I want to provide a quick update on how Shutterstock fared during Hurricane Sandy.

We are proud to report that all of our customer- and contributor-facing websites operated without interruption.

A great testament to our technology team and the contingency planning that has been completed over the last couple of years.

I am very proud of the creativity and flexibility that our team has shown during this time.

With that, I'd like to hand it over to Tim Bixby, our CFO, who will share some financial highlights from the quarter.

Great, thanks, Thilo.

As a quick reminder, our non-GAAP financial measures do exclude stock-based compensation expenses, and we would like you to refer to today's press release and the recent filings for the appropriate reconciliations.

Now let's review some of the key metrics for the quarter.

As a quick review, number of paid downloads was $18.7 million for the quarter.

This was up 26% from $14.8 million in the third quarter of 2011.

Revenue was $42.3 million, an increase of 36% compared to the same quarter in the prior year.

And importantly, in constant currency terms, our annual revenue growth rate in the third quarter would have been approximately 39%, about 3 percentage points better.

Revenue per download increased 8% to $2.26, as compared to $2.10 in the same period in the prior-year.

Important to note that we've not increased our prices in several years.

This increase in revenue per download, as in past quarters, continues to be driven by the mix and the shift of the mix in pricing plans that our customers select.

We have a higher effective price for download in certain pricing plans, particularly our direct sales efforts and our on-demand pricing plans.

And those are growing faster than the overall business, and a little bit faster than our subscription downloads.

And that has continued to cause the average revenue per downloads increase.

Adjusted EBITDA grew 49%, $10.3 million for the quarter, as compared to $6.9 million in the third quarter of 2011, a nice increase.

Net income was a $8.7 million compared to $5.7 million in the third quarter of 2011.

Diluted earnings per share, GAAP EPS, was $0.31 -- and this is on a pro forma basis for the share count, including preferred shares.

Please note that prior to our recent reorganization, we had both common and preferred shares.

And I think we've given you a good amount of data in the press release to make sure you are getting what you need to understand the per share dynamics.

Net income includes stock-based compensation expense of about $0.7 million in the quarter.

This diluted -- excuse me, diluted EPS calculation for the third quarter is based on 28.5 weighted average fully diluted common shares.

This does not include the impact of shares issued during the fourth quarter in relation to our recent initial public offering.

That happened just after the end of the third quarter.

Non-GAAP net income in the third quarter was $9.4 million as compared to $6.3 million in the third quarter of the prior year.

And non-GAAP net income, as we mentioned, excludes the after-tax impact of non-cash stock compensation expense.

Shifting to operating expenses, our cost of revenue was just above 38%.

This was in line with prior quarters.

And these cost of goods, as you may recall, are driven primarily by our contributor royalty payments related to image download for our customers.

We expect our cost of revenue, as a percentage of revenue, to remain stable in the coming quarter at between 38% and 39% of revenue.

Our total R&D expense was $4 million in the quarter, about 9.5% of revenue, as compared to $2.8 million in the prior year.

Our G&A expense, excluding non-cash equity-based compensation expense as a percentage of revenue, increased slightly over the same quarter in the prior year, from 6.2% to 6.7%, primarily due to costs associated with our transition to becoming a public company.

Sales and marketing continued to show operating leverage over the prior year, improving by more than 4 percentage points, as we continued to find efficiencies within our marketing channels.

While this was an improvement as compared to recent quarters, we expect that sales and marketing expense will increase somewhat as compared to the third quarter, relative to revenue, as we continue to test new ways to spend incremental marketing dollars while optimizing our existing marketing efforts.

In terms of overall headcount, we ended the quarter with 234 employees.

This is an increase of about 35% from 173 at the beginning of 2012, and up 47% from 159 a year ago.

And this is more or less in line with our overall staffing and growth goals.

The breakdown of these headcount additions over the course of the year in three categories are as follows.

About 40% of those additions were within our Product and Technology Group, the folks that sort of build products that we deliver to customers.

About 40% in sales and marketing.

And the remaining 20% in our G&A area.

And now I will turn to talking a bit about our expectations for the fourth quarter, which is coming up.

We are well into it.

And the full-year of 2013.

Some initial thoughts there.

We are increasing our revenue and adjusted EBITDA expectations for both Q4 and for 2013.

Please keep in mind the patterns of seasonality we have seen historically.

During the fourth quarter, customer purchase activity typically decreases a little bit during the holiday period in late November and late December when our customers are typically working fewer days per week, as compared to other periods of the year.

This pattern has been relatively consistent for several years.

We expect it to repeat this year.

For the past several years, as a result of purchase activity.

Then typically increases as our customers return to work shortly after the new year.

As a result, for the fourth quarter, we have strong growth expectations.

We expect revenue to grow to a level between $44 million and $45 million.

And our expectations for adjusted EBITDA have also increased to -- what we expect to see -- between $9 million and $9.5 million in the fourth quarter.

We estimate that fully diluted share count for the fourth quarter will be approximately $34 million.

And this will include the impact of our recently completed initial public offering.

I would now like to highlight an interesting item related to stock-based compensation that will be important for modeling purposes for the fourth quarter.

Historically, since Shutterstock has operated as an LLC with value appreciation rights, or VAR plans -- this is similar to option plan for an LLC type of company -- we incurred both ongoing stock-based compensation expense related to a small number of employees.

As well as deferred stock-based competition expense related to grants of VARs to all employees.

So at the point of our conversion to a Delaware C corporation in early Q4, on October 5th, some of the deferred -- actually, all of the deferred stock-based compensation expense related to these grants of equity to employees, gets accelerated.

This is pretty standard and typical.

And now that we have all of the information about the IPO and the valuation, we're able to provide this information ahead of the coming fourth quarter.

As a result, we expect that our Q4 results will include a stock-based compensation expense in the amount of approximately $8 million.

Going forward from Q1 2013, it's important to note that we expect to have typical ongoing stock -based compensation expense each quarter, in line with other similarly situated companies.

This amount for the full-year of 2013 is expected to be approximately $7 million.

So in the fourth quarter, true-up due to our transition and reorganization.

And then in 2013, we will look very much like other similarly situated companies.

A couple of other assumptions that we think will help you with Q4, and then we will talk about 2013.

Amortization of intangibles, approximately $0.3 million for the full-year of 2012.

Stock compensation expense for the full-year, approximately $11 million, including the Q4 adjustment that I just spoke about.

Depreciation, approximately $2.5 million.

An effective tax rate and a cash tax rate in Q4 of approximately 43%.

And a CapEx -- capital expenditures total spend for the year of 2012 we expect to be approximately $5 million.

If we combine our performance to-date with our Q4 expectations, would give you a full-year expectation of between $164 million of $166 million.

And an expected adjusted EBITDA for the year between $32.5 million and $33 million.

Fully diluted weighted average share count for the year we would estimate to be approximately $32 million.

Our expectations for revenue for 2013 have also increased.

And we now expect revenue in 2013 of between $204 million and $208 million.

And for adjusted EBITDA, we have increased that as well, to between $44 million and $45 million.

Fully diluted share count for the full-year for 2013 we expect to be approximately 35.5 million shares.

We expect total capital expenditures in 2013 of about $11 million.

And this is made up of two pieces; this is also important to note.

About $5 million of that is related to ongoing computer servers and network infrastructure to really run the business and expand our operations to provide products to customers.

And this is apples to apples with the approximately $5 million we expect to spend in 2012.

There is an additional $6 million we have added to our expectation for next year.

Which is more of a nonrecurring expense related to lease-hold improvements we expect to incur, as we plan to relocate and expand our primary headquarters office in New York City.

That is likely to happen, we expect now, over the course of 2013.

And so we will expect to incur a capital expense related to that.

Just isolating the operating CapEx that drives the business, $5 million expected in 2012, $5 million or so expected in 2013.

So a nice improvement in the ratio of that CapEx to revenue from 2012 to 2013.

In summary, we are off to what I think is a very strong start an a public company.

And we have just begun executing on several growth opportunities ahead of us.

Got a unique business, with one of the largest content libraries of is kind, leading search technology, and a business model that enjoys significant network effects.

We're really excited about the future, and we look forward to a long and productive relationship with our stockholders, and also with our new equity analysts.

And with that, we will wrap up and we would now like to turn it back over to the operator, who can rejoin the call and will be happy to take questions from the participants.

Diana, if you could rejoin the call?

Awesome.

(Operator Instructions).

Scott Devitt, Morgan Stanley.

Hi, thanks for taking my question.

I have two, please.

First on the Q3 marketing spend, continued to leverage based on the reasons that you laid out in the call.

I was just wondering, you mentioned that sales and marketing may go back to prior quarter levels, I think, was the comment.

I was just wondering if you could talk about that in terms of how we should incorporate that from a modeling standpoint over the next few quarters?

And then, secondly, you mentioned also the headcount adds, and particularly, I think, inside sales and engineering, were two areas of focus more recently.

How has that progressed and where do you think you are now in terms of hiring in those areas?

Thanks.

Sure.

So we will hit the sales and marketing ratio first.

Then we'll do the headcount second.

So on sales and marketing, I think, you know, the results in the quarter were quite positive in that we were able to drive significant growth by a lot of efficiencies.

But also the marketing spend drove more revenue growth in terms of ratio than we have seen in the past couple of quarters.

So a lot of things kind of came together and brought that number down quite a bit in terms of efficiency in Q3.

I don't think we will see -- our expectations -- we will see that number bump up a little bit in the coming quarters.

I would not expect it as high as you saw in Q2 and Q1.

But I would expect it slightly higher than you are seeing today in Q3.

That should give you a little flavor for how we are looking at it.

Q3 was very strong performance, but we -- our bias as always is towards investing more, towards driving more growth.

So it will probably edge up somewhat, but less than Q2.

And hi, Scott, this is Thilo.

I will take your headcount question.

On the sales side, I -- just to give you a feel for it, you know, we don't break it out.

But direct sales makes up less than 10% of our revenue.

But it's growing much faster than our overall business.

And if you look at our sales team, our headcount is also less than 10% of our headcount.

But again, that team is growing faster than the overall headcount.

That is on the sales side.

I believe you also asked about R&D?

R&D headcount is less than half of our total headcount, and we do expect that to grow over time.

And it, you know, it's largely in line with historical levels.

Thank you.

Ross Sandler, Deutsche Bank.

Thanks, guys.

I also have just two quick ones.

A follow-up on the marketing.

So, Thilo, you mentioned some optimizations, some efficiency.

Can you just give us a little more color on where that was coming from?

Was it domestic, was it international?

And, like, what are the, you know, the tactics that are driving some of that efficiency?

And is it a sustainable trend or do you think it was, you know, some efficiency found that may not persist?

And was any of it driven by the higher mix of organic subs or was it primarily the marketing side?

And then, Tim, can you give us a little sense on the growth rate for on-demand versus subscription in the quarter?

Thanks, guys.

And good quarter.

Okay, on the marketing side.

So just to kind of explain the approach, the way we approach marketing.

We're always trying to find new places to spend cost-effectively.

And we're always optimizing so, you know, it is natural to see quarter-to-quarter fluctuations.

But specifically, for Q3, we had optimizations across our regions.

Looking at some of our less efficient channels and moving some of that spend into more efficient channels.

And again, you know, our channels are search engine marketing, display advertising we use for targeting networks, and in lots of other channels as well.

We also had some improvements through better localization of our campaigns.

Which is, I think, something that we have seen in the past, but we saw more of it in Q3.

Now on the flip side, we also spent in some new channels that was additional spend.

But net-net, we had a very efficient quarter.

Hopefully, that gives you some of the color.

Yes, then in terms of the growth rates by pricing plan.

Again, we don't break down exact metrics.

But we saw continuation, I think, of trends we have seen over recent quarters.

And what that has been generally is, the subscription plan, pricing plan has grown a little bit more slowly than our overall growth.

And on-demand growing a little bit faster.

And that has continued to drive the mix shift.

But we have seen consistent, steady growth from both over time.

We expect that to continue.

In terms of outliers, I think, you know, direct sales and footage, you know, video footage, tend to be the ones that grow a fair amount faster than the overall business.

So that is also a trend that we expect to continue.

Great, thank you.

Brian Fitzgerald, Jefferies.

Hey, guys, it's Sasan sitting in for Brian.

Two questions.

The first is, can you talk about the -- just sort of the press release you guys put out recently, the Bigstock API program with CafePress and Emma.

What is really kind of the monetization model there, and what else is, you know, going forward, if there's other sorts of partnership you can do on that front?

And then my second question is, you guys have had sort of a -- revenue per download sort of inflation or increase for, you know, the last several quarters.

Going forward, are you thinking about pricing, increasing pricing?

Or are you going to kind of keep pricing consistent, and then, you know, get -- have some ability from emerging concept formats for improvement in pricing?

Thanks.

Well, hey, yes, this is Jon.

I'll take that first question about the Bigstock API.

So we have gotten some demand over the years for, you know, companies that may have a creative audience to link in to our website in a more programmatic way so that they can sell images through their products directly.

So companies like MIAMA, they do email campaigns for creatives, or CafePress, where they put images on certain items.

We sort of can create a pretty seamless way for their customers to buy our images.

So, have we started to see that demand?

We implemented the API, and that's why we did that.

So, yes, and this is Thilo.

I'll pick up on the pricing point.

As we have mentioned, we've held our pricing for our products flat over, not only Q3, but really over the last few years, because our focus is really on increasing share.

We are still -- we are the significant price advantage to some of our competition.

And we believe that is the right place for us to be right now.

Long-term, again, I think that we've talked about, there is probably opportunity.

But we are very focused on increasing our penetration at this point.

Okay, alright, thanks a lot.

Andre Sequin, RBC Capital Markets.

Thanks for taking my question, and congratulations on a great quarter here.

Just a couple of questions also.

First, I wonder if you could give us a little color on any linearity you might have seen in the quarter.

I mean, clearly it was -- we saw good strength throughout the quarter.

But was there any acceleration or deceleration growth through the quarter that you saw that might be carrying through into 4Q?

Or perhaps any regions that were performing better or worse?

And then secondly, in building out your international offering, how close are you to adding any new languages or currency options, or are there any other developments since the road show that you might call out?

And I guess as sort of -- as a part of that, is there any significant pricing difference between international regions that could impact the revenue per download if revenue in one country were to grow faster or slower?

Thanks.

Sure.

We'll take the first one first, then the selling-buying pattern.

What we have seen in past years, and what we saw again this year was sort of a sharp uptick in the sort of daily revenue run rate in the September and early October period we've seen in prior years.

It tends to hit relatively suddenly.

But it's been a consistent pattern.

We saw it again this quarter.

We have a lot of visibility.

We can see, you know, 90% of our revenue in a given quarter comes from existing customers from whom we have a lot of data.

So it's highly visible and highly predictable.

So we kind of saw what we more or less expected to see.

Heading into the fourth quarter, I think because we exceeded our expectations, it definitely sets you up stronger for the fourth quarter.

We typically don't see revenue declines.

We are always building every month and every quarter on a larger and larger base.

So it definitely sets us up strong for the fourth quarter.

We expect a strong finish.

We had that last year, so this year I think we will be in good shape.

On international.

So Shutterstock has been an international company from the beginning.

We've been -- we've had languages -- we've had the site translated into many languages going back to 2007.

We're always looking at new geos and trying to figure out where, you know, to put our resources.

And we're not ready to share any specifics right now.

But as I mentioned before, one of the things that we did do over the past quarter was in one of our geographies improve search.

And we saw great things by just using all of the data we have with our millions and millions of downloads, our two downloads per second.

We are able to take that data and really jump into a geography and make it much more localized.

So while we are looking at new geos, we also go back and constantly refine all of the languages we do sell in currently.

Great, thank you.

Ralph Schackart, William Blair.

Good afternoon.

Good start, guys.

First question is related to your outlook.

Your 2013 outlook was stronger than our model.

Can you remind us, first, how you approach your guidance and the visibility you have into your annual outlook?

And then how you balanced your 2013 outlook, given what has been a little bit, sort of a mixed bag from some of the agencies?

Yes.

So I think our outlook and optimism and confidence and visibility has not changed looking into 2013 and beyond.

What did change, I think, is a strong finish and result in Q3, and sort of continued building the strength in that in early Q4.

So we're basically letting that role through the future periods.

If you look at the middle of the range, the midpoint of the range on revenue, it is right on the sort of 25% growth mark.

So we're still confident in that number.

We have obviously done better than that in recent quarters.

We are cautiously looking to see what is happening in Europe, and with currency.

Those have been against us this year.

And we have delivered very strong performance despite that.

So those are starting to soften and improve a little bit.

Currency is kind of flattish now, actually getting somewhat better over the past month.

Growth rates in Europe have sort of stabilized.

So, you know, we are cautiously optimistic.

But we built the guidance so that when some of these key factors move against us and for us, and shift around, that we are comfortable we can still achieve the top- and bottom-line.

Great.

One more, too, if I could.

Can you give us a sense of where you think EBITDA to operating cash flow conversion rates will be for '13?

Or should they be, you know, similar to 2012?

And given, you know, the recent IPO cash, how are you thinking about cash deployment going forward as you start to, you know, generate a lot of free cash flow?

Yes, so on the first one, I think I would expect a similar pattern of conversion going forward.

The only couple of things I would highlight, we mentioned a nonrecurring CapEx item obviously that will hit cash.

That is not something we expect year in, year out.

It's a one-timer we expect this year.

And I'd also highlight our transition from close to zero tax rate as an LLC to a full taxpayer in Q4.

But absent those adjustments, which I think you've taken account of, I would expect a similar conversion rate.

And then in terms of the IPO cash and free cash flow?

In terms of the IPO cash, I mean the keys there about the IPO, you know, a really important branding effort for us.

We're just starting to see the benefits of that as we expand, both in the US and outside the US.

That's a really important piece of it.

The strength of the balance sheet, being able to go into very large companies and convince them that we are the best option for them on price and value and stability as a Company, that's a winner.

And having that strong balance sheet is important.

And then we're also always looking for growth opportunities.

Our organic growth opportunities are significant.

It's a pretty good list of things we're going after.

But if we see opportunities to accelerate that at the right valuation, we will take advantage of a little bit of the cash in the balance sheet, and also the public equity to move quickly on those opportunities.

Thank you.

Nat Brogadir, Stifel Nicolaus.

Hey, guys.

Thank you for taking my question.

Two quick ones.

First, housekeeping.

The $8 million in stock comp, is that going to flow 100% through G&A from a GAAP basis?

And then secondly, you know, if you look at the margin guidance, EBITDA margin adjusted 28% to 21%.

You know, you guys really just upsided the 3Q at 24% EBITDA margin.

So it looks like, sequentially, cash OpEx is increasing some $3 million or $4 million.

You know, wondering what line items we should be thinking about that increase, excluding the $8 million stock comp?

Thanks a lot, guys.

Yes, so on the stock comp, we'll be pushing that through each of the line items.

So it will be spread based on our employee base, which obviously hits each of the line items, not just in G&A.

It will be, you know, in terms of headcount, a significant proportion of our headcount.

Probably 40%-plus is in the R&D product category.

Another 30%-plus in sales and marketing.

So you will see the bulk of it below the gross margin line.

But there might be a small amount above the gross margin line.

And then in terms of EBITDA, the most leverage I think will come from where you've seen it in recent quarters, in terms of both up and down, is sales and marketing.

Our G&A expense will step up, as you have seen a little bit, due to the public company costs and infrastructure costs.

That will scale a little bit more going in 2014 and beyond.

Sales and marketing will be the key driver, and I think that is why we encourage you not to model or extrapolate the Q3 rate forward.

But somewhere that is a little more conservative, because we do have places to spend that.

Thanks.

And ladies and gentlemen, this concludes the question-and-answer portion for today.

We'd like to thank everyone for their attendance and participation in today's call.

And you may now disconnect.

And have a great day.