Shutterstock Inc (SSTK) 2017 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Shutterstock Inc.

Fourth Quarter 2017 Earnings Conference Call.

(Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference over to your host, Mr. Michael Mestrandrea, Director of Corporate Finance and Investor Relations.

Sir, you may begin.

Thank you, operator.

Good morning, everyone, and thank you for joining us for Shutterstock's fourth quarter and full year 2017 earnings call.

Joining me today is Jon Oringer, our Founder, Chief Executive Officer and Chairman; and Steven Berns, our Chief Operating and Financial Officer.

During this call management

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expectations, estimates and other information.

These include

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Relating to long-term effects of our investment in our business, the future success and financial impact to new and existing product offerings, our future growth and profitability, our long-term strategy, growth potential, future results, efforts to reduce our expense footprint and implementation of large-scale business solutions.

New revenue recognition rules and 2018 guidance.

Our actual results may differ materially from the results predicted and reported results should not be considered as an indication of future performance.

Please refer to today's press release, and the reports and documents we file from time to time with the U.S. Securities and Exchange Commission, including the section entitled Risk Factors in the company's annual report on Form 10-K for the year ended December 31, 2017, 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 refer to adjusted EBITDA, adjusted net income, revenue growth on a constant-currency basis and free cash flow, which are non-GAAP financial measures.

You can find a description of these items along with reconciliation of most directly comparable GAAP financial measures in today's earnings release and in our Form 10-K, which are posted on our Investor Relations site.

We believe that the use of these measures in conjunction with GAAP financial measures allows investors to consider our operating results on the same basis used by management.

This provides them with important additional insights about the company's overall business and operating performance and enhances the comparability in assessing our financial reporting.

However, these

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measures should not be considered as a substitute for, or superior to, financial information prepared in accordance with GAAP.

And with that, I'd like to turn the call over to Jon.

Thanks, Mike.

Thanks, everyone, for joining us today for Shutterstock's fourth quarter and year-end 2017 earnings call.

We continue to make solid progress in the evolution of our business from a marketplace to a creative platform.

We are seeing continued operational momentum from our many initiatives, including our upgraded technology platform, the transformation of our operating structure to focus business units and the introduction of new products, features and functionality for our customers.

In addition, we continue to build and strengthen our team every day.

Overall, I'm pleased with the improvement in our revenue performance in the fourth quarter.

Although margins this quarter and for the full year were impacted by the infrastructure and platform investments we have made in our business, we are confident these critical investments will have a long-term positive impact on our financial results.

Also, while being an important long-term investment, we will start to see some of this positive impact in 2018.

On the fourth quarter of 2017, on a constant-currency basis, revenue grew approximately 12.6% compared to the fourth quarter of 2016 and adjusted EBITDA was $23.3 million compared to $25.9 million in 2016.

In addition, on a year-over-year basis, during the fourth quarter of 2017, our customer base grew by 9.5% to just over 1.8 million customers.

Paid downloads increased by 4% to $43.9 million.

We grew revenue per download by 7% on a constant-currency basis, and we expanded our image library by 46% to over 170 million images and increased our video library by 47% to more than 9 million clips.

As we discussed on prior calls, over the last few years we made investments that we believe transforms our marketplace into a platform that provides individuals and enterprises with the content types and tools needed to collaboratively design and build creative projects.

While these investments have impacted our short-term profitability, we have already begun to see positive tangible results in the form of user growth and retention, and expect to continue to benefit from these investments over the long term.

In 2017, we achieved several important objectives.

More than 1.8 million active paying customers contributed to our revenue in 2017 and more than 350,000 approved contributors made their content available on our platform.

By the end of 2017 we had more than 170 million images and 9 million video clips available for license.

Across our products, we -- as we continue to focus on our customer's workflow, we launched several features to increase engagement.

We now track and cast many parts of our customer experience and at times could be running many A/B tests simultaneously.

These tests measure impact to lifetime value, product mix, order value, download success and engagement, and the winning experiments get pushed live into production.

We successfully migrated our public API to our new code base, and continue to evolve our platform for other businesses to directly integrate.

HubSpot and Google Slides are examples of the many partners that started to use our API in 2017.

We plan to continue to invest in making sure images are available in business applications everywhere.

And you can see the API developer documentation for yourself at developer.shutterstock.com.

We continue to attract amazing content through both our user-generated collection and new agreements with companies such as the World Surf League and the Associated Press.

We continue to innovate our machine learning and artificial intelligence algorithms that are becoming an important part of our platform.

While our prototype of compositionally aware search is just one way that is helping our customers find images in new and unique ways.

These advanced search capabilities of our nearly 180 million images combined with our editor tools enables customers to fully produce the creative content they need.

We acquired Flashstock and rebranded it Shutterstock Custom, launching our custom content platform for our enterprise customers, and for our music offering we launched our new PremiumBeat website as well as a mobile app, which enables on-the-go music discovery.

As we transition from a stock image marketplace to a global creative platform, we continue to remain laser-focused on implementing our strategy around building a robust platform, enhancing the network effects exhibited throughout our product, and attracting and retaining talent that enable the successful execution of our business strategy.

This means providing our customers with both compelling content and innovative tools that stay at the heart of our customer's workflow and facilitate a seamless process for our growing contributor network.

In our e-commerce image business, we're seeing solid customer growth and our focus continues to be on offering the right pricing and packaging to our customers, while optimizing our customer acquisition funnel.

Throughout 2017, we were able to drive improvements in both product mix and customer retention.

We ramped up A/B testing significantly beginning in the second quarter of 2017 and have progressed on personalization efforts.

This has yielded significant improvements in our user experience and enhanced our ability to attract new customers.

Importantly, while making these improvements in our e-commerce image business, we have also been able to drive down marketing costs per acquisition, as compared to 2016 and early 2017.

Within our motion offering we have begun simplifying our pricing structure for video and continue to make progress in building out the portfolio of our products.

This includes RocketStock, which produces original state-of-the-art video packs, industry-leading video effects elements and high-quality after effects templates, which includes lower thirds and title sequences.

In December, we made great strides with our PremiumBeat product offering.

We launched our first music mobile experience for video producers, editors and filmmakers.

The new application allows access to the full collection of editors -- I'm sorry, the new application allows access to the full collection of exclusive high-quality tracks on premiumbeat.com from any device.

We also introduced a design overhaul and new discovery functionality to the premiumbeat.com site.

For our enterprise business, we continue to build our geographic presence and expand usage of video, music and editorial content.

We're getting very strong positive feedback from our customers who are increasingly making multiproduct purchases across content types.

Revenue generated by our enterprise business grew 26% year-over-year in the fourth quarter, and represented approximately 34% of our total revenue compared to 32% in our fourth -- in the fourth quarter of 2016.

In editorial, we continue to cover fantastic events, including the Victoria's Secret fashion show in Shanghai and on-set photography for some of the U.K's biggest TV shows.

During the year, we covered 4,000 entertainment events and about 2,400 sports events.

You may have noticed our editorial images are now visible on our e-commerce website.

And while today, we don't have a full editorial offering on our e-commerce -- and while today we have a full editorial offering on our enterprise platform, we only get half of our product on the e-commerce site but expect to launch a self-service editorial product in the near future.

While our sports, entertainment and news content is in its early stages

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product in new customer-friendly ways and we'll continue to invest in the area.

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[The transition of this] offering into Shutterstock is going well and we are very (inaudible) with the feedback from customers.

As I noted last quarter, we believe custom is a large long-term opportunity for us and that we are well-positioned to significantly add to our contributor communities that custom has today.

In summary, this was a solid quarter and year for our business.

We continue to make progress by focusing on our tech platforms, new products and launching features and functionality for our growing customer base.

Additionally, the strengths and the talent joining Shutterstock makes me excited for what we will build in 2018 and beyond.

Lastly, as Steven will discuss in greater detail, we had 2 strategic transactions to date in 2018.

First, we made a strategic investment in ZCool, our exclusive distributor in China, to further expand and enhance our reach in the greater China region.

Second, we entered into an agreement to sell WebDAM, a digital asset management business that we acquired in early 2014 for a purchase price of $14.4 million.

Our sale price of WebDAM is $49.1 million.

The WebDAM business was never closely integrated into Shutterstock like our other acquisitions and over the years, as we try to integrate WebDAM we realized that integration wouldn't have been as productive as we had initially anticipated, since the customer base is more distinct than we had originally thought.

Ultimately, we found the right place for WebDAM to grow and the price was right for us to sell to Binder.

We know that Binder is the right home for WebDAM and we also win with a solid return on investment for our shareholders.

And with that, I'll turn the call over to Steven, who will provide a more detailed overview of our operations and financial performance.

Thanks, Jon, and thank you, everyone, for joining us today.

Before I discuss our performance, I want to let you know that we posted a brief information deck on our website that contains supporting materials for today's call.

As Jon has highlighted, Shutterstock continued to execute against our strategic vision throughout the fourth quarter, translating into revenue growth on a reported basis of 16.6% and an adjusted EBITDA margin of 15.3%.

On a constant-currency basis, as compared to the prior year fourth quarter, revenue growth was 13.9%.

As compared to the prior year fourth quarter we saw revenue per download increase 11% on a reported basis and 8% on a constant-currency basis, driven by the continued growth in our enterprise and motion businesses, as well as a continued shift in our e-commerce image offerings toward our smaller subscription plans, which are sold at higher price per image rate than our traditional larger subscriptions.

Revenues generated by our e-commerce platform improved 10% as compared to the prior year fourth quarter, as we are continuing to see positive results from improved focus on product mix and improved optimization of our conversion funnel.

Our enterprise business grew 26% compared to the prior year fourth quarter to approximately $52 million.

International expansion and localization continues to be a core part of our long-term growth strategy.

And in the fourth quarter of 2017, of the approximately 62% of our revenues from customers outside the United States, approximately half of that 62% was derived from customers in Europe with the balance from Asia-Pacific and Latin America.

Shifting to the cost side of the business.

For the fourth quarter of 2017, operating expenses increased 24% versus the fourth quarter of 2016, driven primarily by investments we are making in both our infrastructure and our smaller but high-growth, high potential businesses.

Sales and marketing spending, as a percentage of revenue, remains consistent with the prior year and the third quarter of 2017.

Before I speak to the quarterly expenses in more detail, let me note a few full year comparison points that are worth mentioning.

Revenue versus prior year improved by 12.7% driven by enterprise and e-commerce, expenses excluding stock-based compensation increased 20%, primarily reflecting staff-related and sales and marketing costs.

For the full year 2017, adjusted EBITDA was $88 million, representing a 15.8% margin compared to 19.3% in 2016.

Going back now to the quarterly expenses.

As I noted during our last call, we have taken and continue to take actions to reduce the growth of our expenses.

This is an ongoing exercise that we believe will yield results in 2018.

In the fourth quarter of 2017, we saw contributor royalty expense of approximately 27% of revenue, which is unchanged from the third quarter of 2017.

I'll now discuss some of the major expense categories.

For each category I discuss my comments and the amounts referenced will exclude stock-based compensation.

Our sales and marketing expense increased 19% versus the fourth quarter a year ago.

This spend is split equally between the sum of brand and performance marketing and the cost of our enterprise sales organization.

Overall, our return on investment on this spend is healthy and remains consistent with our historical results.

Product development costs increased 28% in the fourth quarter of 2017 versus the fourth quarter last year, primarily due to higher personnel and consulting costs, relating to our building of a more expansive customer platform.

General and administrative expenses increased by 63% versus the fourth quarter of last year, driven primarily by higher personnel costs and consulting expenses related to our implementations of several large-scale business solutions, which we believe will enhance the organization's operational efficiency.

It is worth noting that these expenses are 9% lower than the third quarter of 2017.

As a result of the new U.S. enacted law referred to as the Tax Cuts and Jobs Act, the company recorded a noncash charge of $3.7 million related to the remeasurement of our deferred taxes to account for the new statutory rate of 21%.

In addition, in the fourth quarter of this year -- of 2017, the company recorded a charge of approximately $800,000 related to the one-time tax payment resulting from the deemed repatriation of our accumulated foreign earnings.

The $800,000 will be paid over 8 years as permitted under the law with no interest and such payment will be weighted to the later part of that 8-year period.

Together, the charges increased our 2017 effective tax rate by 15 percentage points.

However, for 2017, it is important and worth noting that our cash taxes paid were $5 million versus $19.1 million paid in 2016.

GAAP net income in the quarter was $2.1 million or $0.06 per diluted share.

Adjusted net income was $10.6 million or $0.30 per diluted share for the fourth quarter of 2017.

Overall, our revenue growth in the fourth quarter, along with increased operating expenses translated into adjusted EBITDA of $23.3 million, which compares to adjusted EBITDA of $25.9 million in the same period a year ago.

Moving to cash flows and the balance sheet.

The fourth quarter was another strong period as we generated $36.5 million of cash from operations.

Free cash flow, which includes cash outflows for capital expenditures and content purchases was $18.7 million.

At the end of 2017, we had approximately $250 million of cash and short-term liquid investments.

Total deferred revenue grew 29% year-over-year to $157.9 million at the end of 2017, of which approximately 39% relates to our e-commerce business and 55% to our enterprise business with 7% related to other businesses.

Effective January 1, 2018, as a result of our adoption of the new revenue recognition rules required by the SEC, we expect a reduction in our deferred revenue balance by approximately $11 million.

The offset of which will be to retained earnings net of tax.

So in other words, that will not flow through the P&L, it will go straight from deferred revenue into retained earnings.

Turning to 2018.

We remain encouraged by the momentum across our business.

We recently entered into 2 agreements, as Jon mentioned earlier.

First, we entered into an agreement to sell our WebDAM business for $49.1 million.

And in the first quarter of 2018, we anticipate recording a gain on the sale of WebDAM, which is being finalized now.

And second, as Jon noted, and was announced earlier this morning, we made an investment in our exclusive distributor in China, ZCool, to further expand our international reach in the greater China region.

Please note that excluding WebDAM's revenues from 2017 our full year revenue would have been $541 million, which represents 12% growth over 2016.

Our financial guidance for 2018 excludes WebDAM and is fully detailed in today's earnings press release.

We expect 2018 revenue of between $625 million and $635 million, representing growth of between 15.5% and 17.4% versus 2017.

We expect adjusted EBITDA of between $105 million and $110 million, representing growth of between 19% and 25%.

This adjusted EBITDA guidance excludes the gain we will recognize on the sale of WebDAM in Q1 of this year.

We appreciate your time today, and now Jon and I will be happy to answer any questions you may have.

Operator, can you please prompt the participants for questions.

(Operator Instructions) Our first question comes from Brian Fitzgerald with Jefferies.

With respect to the 2018 guidance, any color you can provide on the anticipated contribution from Shutterstock Custom on the outlook?

And then, as we think about the mix between e-commerce and enterprise, enterprise going from 18% to 34% now, how do you see enterprise ramping through '18 and then maybe where can that get to -- where do you expect that to get to longer term?

So as it relates to the Shutterstock Custom contribution, we don't break out the individual products within each of the e-commerce and enterprise.

What I will say is that custom is an important part of the overall portfolio of products and services that we offer to our enterprise clients.

And we believe that it's not just important as a product by itself but important as a portfolio that can be offered to multinational customers as well as customers in single countries to serve the content needs that they have for their marketing programs.

As it relates to enterprise and e-commerce the -- if you can repeat the question?

I mean you're talking about the growth in enterprise from 18% to 34%, so just...

Yes.

Yes, but those -- yes, I like -- we like that, it has grown from 18% of the business in '14 to 34% now.

Maybe, how should we see that trajectory continue in the future?

Where do you think enterprise is a portion of your mix can get to longer term?

Right.

So when we think about, kind of, where we've been successful in the enterprise space, we have not fully penetrated in any way shape or form most of the countries in which our products are offered.

So we are in 21 languages, we're not strong and we don't have our fair share of wallet in many of those markets.

And when we -- remember when we talk about enterprise, we're also talking about our SMB product.

And so it's not just large multinational businesses but it's also those companies that might have a team of people that could be working -- it could be a multinational company but also working in potentially smaller environments, but still, good-size businesses.

So we see all of the regions and the countries in those regions as opportunities, once again, despite the size.

As it relates to the, which will go up faster, obviously, enterprise is growing faster than e-commerce now.

And we -- we're not trying to force those ratios into a certain level.

What we're trying to do is serve the customer needs and we've adapt our -- and launch products that meet those needs as we go through it.

So we don't have -- it's not like the, I would just call it the old days where companies would try to target x percent within a product.

We focus on the customer and work back into what's going to make the most sense for them.

And thus far, like you say, we've seen this great growth in enterprise but we don't see anything slowing that down.

Our next question comes from Youssef Squali with SunTrust.

A couple, if I may.

First, can you speak a little more about the marketing efficiency in the model and maybe the marketing efficiency within enterprise versus e-commerce?

Growth is certainly impressive, we saw an inflection point this quarter, which is great, but it's certainly coming at a much lower margin.

And as a -- on a related topic, anything to call out in both the sales and marketing, and product and development line that's maybe one-time in nature?

Over the last several quarters you've called out some consulting work.

We thought -- we're under the impression that most of these consulting works were now behind us.

But I think you've mentioned consulting a couple of times in your prepared remarks, and then I have follow-up.

Sure.

So first it relates to marketing efficiency, I think, a few things to know.

One is that our overall costs for acquiring customers, we've become much more efficient in how we're going after customers our efforts in terms of localization.

We're certainly not where we expect to be as we go forward but we've made significant strides in the marketing arena as it relates to SEM, as it relates to content marketing, as it relates to other areas.

With regard to the cost, we've talked about pressure on our costs related to a number of different areas including our infrastructure move to AWS and having about 150 basis points of margin pressure on that, which we expect will be reducing throughout 2018 and we've talked about that.

So there's been a number of projects as we move to a hybrid cloud environment, there's been other consulting areas, where some of which shows up in capitalized labor, but some portion of that is making its way just through the P&L.

Once again, so we're very focused, we don't think, as you know the margins that we're producing are indicative of the long-term strength in the business and we're focused on improving those as our '18 guidance implies.

As it relates -- there's nothing else I would say about our sales and marketing efforts.

It's obviously a dynamic market and we continue to look for the best and most optimal way of attracting and retaining customers.

And same thing for product and development, no one-time thing to call out?

No, I wouldn't call out any one-time thing.

Clearly we're focused as you'll note from Jon's comments and I think the cadence of what we've been doing in the editorial space, our inclusion of custom, where we've been on other features and functionality on our e-commerce and traditional enterprise offerings, our launch of the new team experience product, which enables greater collaboration and functionality for teams.

I think all of those are indicative of the product efforts that our engineering and product folks have put forward.

Okay.

That's helpful.

And then, just quickly, was there -- what was the contribution from Flashstock this quarter, if you can?

Just to get some organic growth numbers in there.

And then, Jon, maybe you can touch a little bit about the WebDAM sale?

Why do it now?

We were under the impression initially when you first made the acquisition that, that asset was important to your transformation from a marketplace to a platform.

Maybe you can just help us kind of think through the puts and takes of that decision.

So on the custom contribution first, I'd say, once again, we don't talk specifically about the contribution of each of the specific products.

But I would say is that for 2017 consistent with the comments that we made at the time of the acquisition, Shutterstock Custom was not a material contributor to either top line or any impact or any material impact on EBITDA.

On WebDAM, so back in 2014, we purchased WebDAM to try to work our way into enterprise workflow.

At the time our enterprise revenue was pretty small.

And we were growing our way into that business.

As we grew into that business we realized that the WebDAM customer is pretty distinct from the Shutterstock enterprise customer.

So over time, we looked for the right integration points in the workflow, and we couldn't find them.

We continued to build WebDAM.

It continued to grow as a standalone business.

We referred customers to WebDAM.

And over time, we built other types of workflow enhancements into our products and into our platform, which we continue to do every day now.

Why do it now?

The opportunity came up.

We had some inbound interest and we took the conversation and it happened.

So if that didn't happen it would've been fine also, we would have continued to grow it.

I think -- just to add to Jon's comments for a second.

As Jon said, at the time that WebDAM was acquired, there wasn't a workflow effort on our core products.

So it wasn't as if we were building the editor tool, it wasn't as if we were building the collaboration capabilities.

And as time moved on, those were being tightly integrated into our offering.

So the workflow aspects that we initially thought we would get from the WebDAM acquisition, while important to customers just looking for digital asset management, we saw that the buyer of digital asset management services tends to be very different inside an organization than the buyer and user of Shutterstock's services and workflow tools.

So it's really evolved and I think, it made sense for us to once again take the call and we're pleased both for Shutterstock shareholders as well as for WebDAM and its new partner and owner Binder.

So we think it's a good transaction for all involved.

Our next question comes from Lloyd Walmsley with Deutsche Bank.

Just wondering you guys have clearly been investing a lot in the replatforming, which has driven capitalized R&D and CapEx up over the last call it 2 years.

The guidance for $48 million, looks like it's down slightly but it's still pretty elevated relative to where you were back in, say, '15.

Should we expect that to continue to trend down after '18, as you just wind down some of the investment or should we expect it to kind of stay at these levels?

And then a second one, if I can, when you look at the custom business, can you just give us a sense of how much of the growth you're seeing there is plugging the acquisition into Shutterstock and leveraging the Shutterstock customer base versus, perhaps, the business operating on its own that you acquired.

And I guess, just at a higher level, do you feel like it's performing at a much better level inside Shutterstock than it was as a standalone?

So as it relates to -- thanks for the question, Lloyd.

So as it relates to investment, I think it's important to know how do we measure ourselves, and it's not as if we look and think of something as capitalized labor and therefore, it somehow is not meaningful to us.

We look at our performance as a function of the -- the cash flow is generated off of EBITDA and the business, the revenue is generated, the expenses we have.

And whether those expenses are there on the balance sheet in the form of capitalized labor or it's in the form of taxes paid or it's in the form of other deductions.

We are -- we're focused on that free cash flow generation off of revenue.

So to note, I think, first and most importantly, is that we are completely focused on the dollars in and the dollars out.

As it relates to the capitalization of labor, we're not giving guidance beyond 2018 other than to say that we're very focused on making sure that we are improving both EBITDA margins as well as our free cash flow margins as we go forward and that obviously includes both revenue increases but also making sure that we have the proper level of investment associated with that revenue generation.

So we certainly are focused on it.

We don't -- we have a zero-based process.

We're not looking at like we did last year.

We look at what makes sense to do.

And we expect as we become more efficient with our engineering resources that we will be able to once again, which we're doing in 2018, reducing external labor materially as well as being more efficient in our use of our internal resources.

I'll flip it to Jon, one second on the custom business, but what I wanted to say about the custom business is, when we think about acquisitions and this is, I think, important to think in the context of your question, we think about our core capabilities and when we add something to that as we added PremiumBeat in the music side, as we added Rex in the editorial side and as we add custom in the offering, primarily at this point to enterprises.

We think of those as expanding our core and not as if they are somehow independent of the core of the business.

And so, it -- both attracts new customers to the Shutterstock platform, the addition of custom, as well as it attract Shutterstock to customers of custom.

And given that there are customers who -- what we're seeing is, a need by specifically one -- right now one multinational looking at us very early in the acquisition after custom and saying, "Hey, I want to look at all my content needs across stock, video, custom and see how we can work collaboratively to solve their needs".

So I think it presents opportunities that otherwise wouldn't be there.

But it's not two separate paths running in parallel, but one single path serving customer needs.

Yes.

I mean you answered the question, but I would just add that, custom is a really clean integration for us.

We changed the name on day 1, basically.

We started the integration that first week and we -- today have 1 sales team that's out selling all of our products on the enterprise side.

It's going to take some time.

We just did the acquisition this past summer.

So the company is -- the product is growing.

And we expect that we'll be able to accelerate that growth with our sales team now, which is a lot bigger than what Flashstock had before as Shutterstock Custom.

Our next question comes from Masumi Nishida with Citigroup.

My question is, for your fiscal year 2018 guidance, revenues up 16%, 17%.

Can you please provide more color on what is driving it in terms of volume and pricing?

And my second question is on pricing for image.

Can you just please help us understand how you've been able to increase pricing during the year quarter-on-quarter.

That's my 2 questions.

So as it relates to volume and price.

Clearly, we look at a mix of products to serve customer needs and so we look for those offerings and price them accordingly, so that it both attracts our customers, retains the customers but also provides a share return to our -- a fair return to our contributors.

And we're focused on making sure that we continue to attract the highest quality content on a global basis and make that available to customers and that's what creates the network effect that has enabled Shutterstock to grow to its current levels.

And so, it's not a -- we're not trying to make a single choice for customers.

We're trying to provide them a sufficient choice and still have something that obviously makes economic sense.

As it relates to the pricing is, what -- I think you might be referring to the increase in price per download and that relates primarily to the changing subscriptions that we've offered.

We've had new product offerings, the small subs, which have a higher price per download then our larger subs did and the growth in absolute customers of those smaller subs has been very good and so that has increased -- has been a contributor to the increase in the price per download.

In addition to the fact that our product mix, music and video, editorial often have prices that are higher and so those can have an impact and obviously, in our enterprise business that's a higher price as well.

So it's product mix but it's also the offerings within our e-commerce subscription model.

And that does conclude our Q&A session for today.

I would now like to turn the call back to Mr. Steven Berns, Chief Financial Officer and Chief Operating Officer, for any further remarks.

Thanks very much, we appreciate everybody's participation today and look forward to speaking with you soon.

Ladies and gentlemen, thank you for your participation in today's conference.

This concludes the program.

You may all disconnect.

Everyone, have a great day.