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Good day and welcome to the Q2 2022 Shutterstock, Inc. Earnings Conference Call. At this time all participants are in a listen-only mode. After the speaker presentation there will be a question-and-answer session. [Operator Instructions]. Please be advised that today’s conference is being recorded. I’d now like to hand the conference over to your speaker, Mr. Chris Suh, Vice President, Investor Relations and Corporate Development. Please go ahead.
Thanks Suri. Good morning, everyone and thank you for joining us for Shutterstock’s second quarter 2022 earnings call. Joining us today is Paul Hennessy, Shutterstock’s Chief Executive Officer; and Jarrod Yahes, Shutterstock’s 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 long-term effects of investments in our business, the future success and financial impact of new and existing product offerings, our ability to consummate acquisitions and integrate the businesses we have acquired or may acquire into our existing operations, our future growth, margins and profitability, our long-term strategy and our performance targets including 2022 guidance. Actual results or trends could differ materially from our forecast. For more information, please refer to today’s press release on the reports we file with the SEC from time to time, including the risk factors discussed in our most recently filed 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 this call.
We will be discussing certain non-GAAP financial measures today, including adjusted EBITDA and adjusted EBITDA margin, adjusted net income, adjusted net income per diluted share, revenue growth, including by distribution channel on a constant currency basis, billings and free cash flow. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures can be found in the financial tables included with today’s press release and in our 10-Q. I would now like to turn the call over to Paul Hennessy, Chief Executive Officer.
Thanks Chris. Good morning everyone and welcome to our second quarter earnings call. I’d first like to start by conveying my gratitude to my fellow colleagues at Shutterstock for helping me get immersed in the business so quickly and seamlessly. As many of you are aware I am now approaching the end of my first month as Shutterstock’s CEO. I find myself energized by the passion and bias for action permeating throughout the organization and the opportunity to serve our customers. I also look forward to engaging with those of you in the investor community in the weeks and months ahead.
I spent the past several weeks exploring in depth many of the key assets and capabilities unique to Shutterstock that allow us to maintain our leadership position in the industry and best serve our customers, contributors, employees, and shareholders. I would like to speak to each of these key assets and capabilities and finally provide an early indication of some of the strategic priorities I feel maybe untapped opportunities for Shutterstock in the years ahead. The key assets and capabilities that make Shutterstock so unique include, the leading content marketplace with superior depth and breadth across all categories, our recently introduced Creative Flow platform, a unique offering of content, data, and production solutions to large enterprises and small and medium sized businesses. And an extremely talented team able to execute on a range of exciting opportunities that lie ahead.
The bedrock of Shutterstock has always been our content marketplace with industry leading depth and breadth across content hubs. We've invested heavily in our content and technology stack both organically and via acquisitions and will continue to do so. For example, over the past several years we've acquired the world's largest 3D model marketplace in TurboSquid, the world's largest video first marketplace in Pond5 and we've been adding to our editorial and exclusive content most recently with the acquisition of Splash News. As a result of these investments we have massive industry leading scale and have become the de facto primary destination for marketers, creatives, and professionals to come to their content needs for a range of use cases. Our marketplace is particularly well positioned to thrive in a rapidly evolving environment such as the Metaverse with our 3D model and recently added Metaverse ready sound effects content.
To put things in perspective, on our marketplace, 2.1 million customers purchased content from a community of 2.2 million contributors. That's a contributor base that is larger than our nearest competitor by 4X. What this means in real terms is that we have the freshest content from around the world with 5 million to 10 million assets being added every single quarter. Our content library is by far the largest and deepest by a significant margin with 484 million creative and editorial images. In video we are larger than the next player by a factor of 2X including Pond5. And we have more 3D model on our marketplace than any other competitor. In addition to scale, easy of content discoverability and robust ingestion process further differentiates our marketplace from the competition. In short, from a customer perspective as a result of Shutterstock's extensive growing library and ability to service the right content it means that Shutterstock is the go to destination for your content needs whether for example you are a creative professional, a small business owner, or a marketing professional.
In order to allow our customers to more fully leverage our content, Shutterstock is gradually transforming our content marketplace into an end to end full service creative platform. We commenced that journey with significant organic and inorganic investment in our workflow applications and data, culminating in the initial rollout of the Creative Flow platform that leads to our customers in the second quarter. We believe that customers will further benefit from the enhancements planned to the Creative Flow over the next several quarters. We're truly just at the beginning stages of leverage and Creative Flow to enhance the way our customers do their creative work. We believe Creative Flow will ultimately result in stronger engagement with our platform and lead to customer satisfaction and retention across all channels.
We are already seeing strong customer engagement with the platform with existing Shutterstock subscribers using the platform to create and customize their downloaded content. As we get more data about Creative Flow engagement and the downstream impacts on our business, we expect to provide additional insight and metrics to investors. Creative Flow also opens up the potential for a larger total addressable market for template driven creative design tools thereby allowing for audience expansion into the long tail solopreneurs and casual creators creating a long runway for growth.
In summary Shutterstock is well positioned to meet the varied needs of customers in a more complete way by providing the connective tissue that helps our customers transform a piece of content into performance creative. Shutterstock enterprise sales channel is another unique asset that has performed strongly and will be key to our success going forward. We're seeing exceptional traction across a range of strategic solutions that we're bringing to our customer base both large enterprise corporations as well as SMBs. Our sales force is truly global and we're able to deliver end to end creative solutions to customers on a scale that is unmatched by our competitors. We're seeing strong traction at Shutterstock Studios in creating short form and long form video for our customers as well as high interest in 3D engagements for brands.
Our API platform solutions channel is seeing strong demand across content types for predictive data for scoring creative content and for computer vision applications used by large technology companies. And last but not least we developed a strong muscle on our sales channel for end-to-end solution selling starting from our high-end differentiated creative content to our editorial offering in sports and entertainment and news including the Shutterstock archive, Real Time Splash Newsroom subscriptions to highly sophisticated local production services.
I would like to provide a few highlights that show how all of the above is manifesting in our enterprise business. Our studios business is increasingly winning large global deals with customers across industries like pharmaceutical and CPG with ALVs that are three times greater than last year. We're also proud of our studios work with [indiscernible] which commenced in Q1. Through this partnership Shutterstock is continuing its commitment to improve diversity. The partnership will cast hundreds of real people in an effort to produce thousands of powerful and inclusive royalty free images which will be hosted in a curated collection on the Shutterstock website later this year making our marketplace increasingly reflective of the diverse world in which we live. Leading autotech brand Carvana in which the Shutterstock Studio is to produce an original docu series capturing the life and career of Jimmy Johnson, one of the greatest race car drivers of all time which is currently airing on NBC sports. Having launched a virtual production offering, we're seeing continued growth and appetite for AR, VR, and metaverse activations for brands and agencies.
We're experiencing healthy growth in the SMB segment driven by new customer acquisition, upsell, and continued sales momentum with our Flex product franchise. Overall our average revenue per customer in our enterprise channel is 20 times greater than that of our e-commerce channel as we increase wallet size and increase customers and tap into new relationships that are more strategic in nature. In summary, we see a path to sustain growth for our enterprise customers with the right investments in product and services and innovation, strategic account focus, and execution strength. Lastly, as I referenced earlier, I'm impressed by the passion of my fellow Shutterstock colleague across the company by ensuring that we as a team are aligned on our mission encouraging high levels of engagement and collaboration and continuing our investments in world class talent, I believe that we will be well positioned to grow the business across our e-commerce and enterprise sales channel.
Beyond the unique assets and capabilities at Shutterstock, I'd also like to share an early look into some high potential growth and investment opportunities based on my observations so far. Looking forward I see a range of exciting opportunities to improve our business performance and ultimately accelerate growth. While I will touch on these opportunities on today's call, investors should expect to hear more detail in the quarters to come as we turn our strategies into initiatives and outcomes. Firstly, my enthusiasm for the opportunity in front of us in the enterprise segment should have come across loud and clear. We have the right team and the right solution set and now is the time to expand our enviable position by investing for growth. In order to fuel that growth, we're going to need to ensure that our customers are finding the perfect content they're looking for at Shutterstock every single time.
Ultimately world class content is the lifeblood of Shutterstock's business and the reason why we are the dominant player in the market. In the past quarter we closed on two transactions to further content led innovation and growth. Pond5 is the world's largest video first content marketplace with a diverse customer base, strong brand affinity with filmmakers and media companies, and differentiated royalty free creative editorial and exclusive content. The acquisition has further scaled the Shutterstock’s video business which now represents approximately 20% of total revenue on a combined basis and offers a differentiated video collection in premium editorial partners such as Reuters, British Movietone, and British Film Institute.
Slash News further bolsters our editorial business with its archival entertainment and celebrity content library consisting of over 27 million images, its network of 4000 photographers, and its contributor and customer facing technology platform. It is a highly complementary addition to our newsroom offering where we offer real time news and entertainment content from our network. Beyond integrating these two valuable acquisitions into our offering and the strong revenue synergy potential they offer, I strongly believe there's an opportunity to extend our lease by leveraging content as a key differentiator of our marketplace, delivering to our customers and enabling us to drive faster growth.
To give you a sense in more specific terms of what it means for Shutterstock in years to come, we'll be focused on one, making our content catalogue smarter and more dynamic allowing for greater discoverability and relevance for specific market segments, audiences, and used cases. Two, enhancing the quality and unique nature of the metadata that supports our content discovery and predictive performance algorithms. Three, leveraging Shutterstock Studios to create bespoke on brand video or 3D content for our enterprise customers. Four, adding scale in new or emerging content types such as Metaverse Ready Assets as well as content that represents a highly refined finished product for users such as industry or used case specific templates. And finally, providing exclusive access to some of the most talented creators globally further reinforcing the competitive moat around our business. Taken together, differentiated and compelling content is part of the fly wheel that attracts more customers and more contributors Shutterstock.
As we invest in the future, we will be mindful of the framework that we have communicated for shareholder value creation. With our strong cash flow generation profile we believe we will consistently return capital through execution of our M&A strategy, dividends, and share repurchases. We will invest in avenues to accelerate revenue growth with an eye on cash generation and long-term margin improvement. We will continue with our M&A strategy allowing us to acquire businesses that adds to our capabilities strategically and match our return criteria.
In conclusion, as I mentioned at the top of the call, we have the right combination of assets and capabilities to achieve our vision for Shutterstock. The broader strategy is in place and I'll be spending the coming weeks and months ensuring that we're on the right path to improve growth in our business through our world class execution in areas such as customer acquisition and marketing in our e-commerce channel and further investing in our enterprise channel to power the next leg of innovation led revenue growth. We'll also be relying on data driven test and experiment to help learn, iterate, and adjust our strategy where warranted. I look forward to updating you in the quarters ahead. And with that I'll hand the call over to Jarrod to discuss our financial performance and guidance.
Thank you Paul. Good morning everyone. Revenues grew 9% in the second quarter or 13% on a constant currency basis. Revenues for both our e-commerce and enterprise channels benefited this quarter from the addition of Pond5 which we closed on May 11th which added 3.5% to our overall revenue growth based on one and half month’s contribution of the business. Therefore, our constant currency growth in the second quarter excluding Pond5 was just above 9% for the quarter. E-commerce revenues grew 6% on a reported basis aided by our acquisition of Pond5 and grew 9% on a constant currency basis this quarter. Excluding the impact of Pond5, e-commerce revenue grew 2% and 6% on a constant currency basis.
Based on our year-to-date results, the return to strong growth in our e-commerce channel is taking longer than we initially expected and we attribute that to three drivers, notably weakness in Europe compounded by FX pressure and the roll off of the Russia business, ongoing product mix shift towards subscription products with higher LTV but with lower ALVs, and weakness in new customer acquisition. We are focused on reaccelerating growth momentum in our e-commerce channel by refining our customer acquisition strategy and also by driving engagement with our Creative Flow platform that we believe will have a positive impact on retention over time.
We made strong progress with our product roll outs in the second quarter in e-commerce. We just recently rolled out the Creative Flow capabilities to our e-commerce subscription customers at the end of the second quarter. And just last week we unveiled the standalone Creative Flow Plus subscription for $12.99 per month. This is a new price point and the tools first offering for Shutterstock. We look forward to marketing our Creative Flow capabilities to our customers and showcasing our enhanced value proposition. We expect the positive impact of Creative Flow to both customer engagement and customer attention to take place gradually over the coming quarters and we look forward to measuring the results and reporting them out to investors.
Meanwhile we're seeing solid continued momentum within our enterprise channel. Enterprise grew 15% or 19% on a constant currency basis driven by strength with small and medium sized business and enterprise customers. We're also experiencing strong demand for Shutterstock Studios and editorial content and services. Editorial was bolstered by both traction in our newsroom offering supported by our recently announced acquisition of Splash News. We see momentum in both our studios and platform solutions offerings driven by new customer acquisition and higher ALVs. The Pond5 acquisition added 4% of growth in the quarter to the enterprise revenue channel.
For the second quarter reported gross margin declined by approximately 155 basis points year-over-year largely driven by higher non-cash M&A amortization expense of 5.9 million. Excluding M&A amortization, Q2 gross margin improved by 130 basis points year-over-year at 65.6% driven by the ongoing mix shift towards higher margin subscription offerings. Sales and marketing expense was 26% of revenue as compared to 24% in the second quarter of 2021. The year-over-year increase was driven by our marketing presence at the Con Line [ph] event where we showcased our 3D content and capabilities along with additional sales headcount to support the future growth of our enterprise channel.
Product development as a percentage of revenue increased 8% in the second quarter compared to 6% in the second quarter of 2021 driven by further investment in our product roadmap. G&A expenses were 16% of revenue consistent with the second quarter of 2021. However, they included 3.9 million of transaction expenses associated with the Pond5 and Splash acquisitions, offset by lower non-cash compensation expense. Excluding transaction expenses associated with mergers and acquisitions and non-cash compensation expense G&A was 13% of revenues evidencing the operating leverage we are experiencing.
Adjusted EBITDA margins were 23.7%, down 400 basis points from last year, driven by additional spend in sales and marketing and the 3.9 million of M&A transaction expenses previously mentioned. Adjusted for the transaction expenses, adjusted EBITDA margins were 25.5% for the second quarter. Year-to-date our adjusted EBITDA margins are 25.6% and above the high-end of our margin guidance even inclusive of the transaction expenses we included in EBITDA associated with M&A. In the second quarter GAAP diluted earnings per share was $0.53 and adjusted diluted earnings per share was $0.83.
Turning to our balance sheet and cash flows, at the end of the quarter we had 84 million of cash as a result of our acquisitions of Pond5 for 210 million and Splash News for 6 million in the quarter. In connection with the Pond5 acquisition we also drew down 50 million on our revolver. Depending on further acquisitions this year, we may elect to pay down the revolver in the quarters to come. We sustained our share buyback program in the second quarter taking advantage of the weak market conditions and repurchased 286,700 shares for 18 million. As a result, our total shares outstanding decreased by 157,000 shares from the first quarter to 36 million shares at the end of the quarter and we've repurchased 57 million of shares year-to-date.
Our deferred revenue balance was 178 million and increased 16 million from the second quarter of 2021 representing year-over-year growth of 10%. Adjusting for the acquired deferred revenue from PicMonkey and Pond5, deferred revenue grew 2% year-over-year. Our deferred revenue balance was unfavorably impacted by FX as current bookings are converted to dollars at the lower foreign exchange conversion rates. On our key operating metrics for the quarter, subscriber count increased by 15%, subscriber revenue increased by 8%, and subscriber revenue represented 41% of revenues down from 43% in the previous quarter. The addition of Pond5’s revenue which is a non-subscription business, accounted for the entirety of the decline in subscription revenue as a percentage of total revenues. Average revenue per customer increased by 1% above the year-over-year and sequential basis. Paid downloads were down 3.3% and revenue per download increased to $4.46 per download.
Turning to our guidance for the full year, we are maintaining our 2022 guidance of 8% to 10% revenue growth with margins flat to up 50 basis points compared to last year. There are multiple factors that taken together have us maintaining our guidance forecasts for the full year. For example, with respect to currency, the Euro and Pound represent approximately 27% of Shutterstock's revenues and both currencies have depreciated by 10% to 12% year-to-date. At current spot rates, this depreciation represents a 4% headwind to our full year revenues and a substantial increase compared to the 2% headwind we forecast based on spot rates at the beginning of the year. As such we now estimate that FX will be approximately a $30 million headwind to revenues this year assuming current spot rates carry forward for the remainder of the year and we are fully factoring that into our guidance.
We are also factoring in an additional 1% or $8 million reduction in revenues from Russia or $38 million in total. The estimated contribution of Pond5 at approximately $4 million of revenue per month will somewhat offset this impact as will the ongoing strong performance we are seeing in our enterprise channel. Based on the current macroeconomic uncertainty, we are not assuming in our guidance any acceleration of growth rates in the back half of the year in e-commerce or enterprise. We are factoring in a continuation of the current softness with no significant changes in customer spend behavior on content and digital marketing.
In conclusion, we remain focused on continuing our evolution into a creative platform by integrating tools, workflow and data applications into a leading content marketplace. We're making strong progress on integrating our recently announced acquisitions and we are investing for long-term growth despite the current macro uncertainties while delivering on our stated targets for 8% to 10% revenue growth combined with annual margin expansion in 2022. And with that operator we would now like to open the call for any questions.
[Operator Instructions]. Our first question will come from Bernie McTernan with Needham & Co. Please go ahead.
Great, good morning. Thanks for taking the questions. Maybe to start for Paul in your prepared remarks you spoke about the importance of content being the mode for the company. If you could just maybe dive in what gives you confidence that content backed mode and how is the competition -- there be other stock operating peers, free options, or AIB offerings?
Great, yeah, thanks for the question Bernie. It is simple the way I look at it. We've got the leading position in contributors, the leading position in content acquisition. We've done some acquisitions to further bolster our position in content and we understand that getting the right content and putting it in front of our customers so that they can actually convert better, drives the fly wheel forward. So what we see is as we amass these assets, it ultimately drives conversion and then what I say is -- and then when you add Creative Flow tool to help our customers further engage with that content, that engagement increases. So, again you get this very, very positive flywheel of content driving conversion, tools driving engagement with content, and then that driving underlying growth. So that's really how we think about it.
Yep, makes a lot of sense. And for Jarrod, you called $38 million of headwind guide for in total for FX in Russia and then Pond5 probably having $28 million of revenue this year. So is that why the core business is doing better than expected relative to what the prior guide or any other moving pieces that we are thinking about?
You know Bernie, look I think it's a little bit of a tale of two cities. I mean if you look at the numbers and you look at what's going on in enterprise, I mean this is really a tremendous performance. It’s the sales team that's executing strongly and firing on all cylinders, it’s the SMB business that is growing rapidly on the back of some of the Flex family of solutions we introduced the middle of last year, and we're doing a phenomenal job of selling through our exclusive and editorial content as well as seeing a lot of success with our large enterprise clients with our Studios offering. So, I think from Paul and I’s perspective, we couldn't be more pleased about what we're seeing in enterprise both year-to-date as well as our prospects for the remainder of the year. And that does give us confidence in our guidance and I think at this point in time it's fair to say we've seen some great outperformance across sort of multiple aspects of our enterprise business.
On the e-commerce side, I think getting back to strong growth is clearly taking longer than we would like. We sort of peel back the onion for investors and gave folks a peek and we'd like to be at mid to high single-digit revenue growth on an organic reported basis at this point in time and we're just not there. And so I think we're very focused on that, we are focused on new customer acquisition, we are focused on isolating some of the geographic impacts. One of the things I would call out Bernie is if you look at the growth by geo, you can see some of the weakness in Europe and you can also see some of the strength that we're seeing in North America and the U.S. And so we're going to play to those strengths and continue to focus on reinvigorating the growth in e-commerce while taking advantage of the successes that we're seeing in enterprise.
Got it. And then just lastly for me, margins were lower than we and I think the rest of the Street were expecting in the quarter, but reiterate the guidance for the year -- think that we should think about in terms of that maybe there was elevated investment levels in the quarter or think about margins in the second half of the year?
Yeah. So Bernie, the thing we probably should have put this out in our public release, but what we called out was $3.9 million of transaction expenses in the quarter itself. If you back that out, we would've been above 25.5% margin for the quarter and our year-to-date margins, even including that $3.9 million one-time transaction expense are above the top end of the year-to-date of the guidance. So, it really is kind of that one-time transaction fee and this is sort of lawyer fees and banker fees associated with our deals. So we feel good about the guidance, we feel good about the margins. And if you look at our business, where we were really up in terms of year-over-year cost was in the sales and marketing line, and we made a big splash at Con Line [ph] this year. We had a tremendous presence with our 3D offering. And we really feel like that made a lot of headway towards elevating the brand and moving us in the right direction in the hearts and minds of our enterprise customers with whom we're seeing a lot of success with today.
Understood. Thanks for the color.
Thank you. And one moment for our next question. Our next question will come from Andrew Boone with JMP Securities. Please go ahead.
Good morning and thanks for taking my questions. Can we parse I guess Bernie's question a little differently, can you guys talk about the various underlying customer segments and just where there may be strength or weaknesses across consumers, SMBs, agencies, maybe more of the end market that you guys serve?
Andrew, we have if you kind of take a step back and look at Shutterstock historically, we've been a marketplace that has served the needs of professional creatives, whether they be enterprise marketers, whether they be creatives that are working for businesses. And that's really been sort of the bedrock of our audience focus and where we really have tremendous amount of brand recognition and notoriety in the market. And that we expect will continue to be there and you can see some of that today with the tremendous success that we're seeing in enterprise. We have continued to focus on SMB as an opportunity for growth within enterprise. And that is both companies that are small businesses. So think of 5 to 20 employees all the way up to medium sized businesses, that can be 2 to 500 employees. And again, tremendous amount of success that we've seen in the market. And when you look at our 2.2 million customers, that's really the bedrock of whom we are selling to.
The opportunity that we sort of identified a couple of years ago, that we've been capitalizing on and we have plans to further capitalize on is this idea that anyone can be a creative in the marketplace. And we started that journey by initially launching smaller subscriptions. So if you think back to 2020, we started focusing very heavily on our 10 image per month subscription. We introduced two small video subscriptions, a five clip per month and a 10 clip per month video subscription. And we also unveiled two new music subscriptions, a premium beat subscription and an unlimited Shutterstock music subscription, really to cater towards the needs of some of these small business owners who may not be professional creatives. And so sometimes they're referred to as solopreneurs or they may be referred to as casual creatives.
The next big play into that audience is really what we are executing on today, which is with the launch of Creative Flow, but also the launch of Creative Flow Plus, which is the 1299 tools first, template driven design tool subscription that we just launched. You'd be well aware of some of the competition in this space. There's two large players that have really created a large runway for growth and we feel like this is a tremendous untapped opportunity for us to tap into a group of people who are not professional designers, but there's a very long tail of these potential customers. And we feel like that's going to create a tremendous runway for growth. We feel like these people may eventually become professional creators and so we'll have the ability to grow with them as their content needs grow. So this is both an audience acquisition strategy for us to expand the TAM as well as we believe our attention strategy as we grow with these clients may become professional creatives from the casual creatives that we are today. So that's broadly speaking how we're thinking about where we were vis-a-vis the audience segmentation, kind of where we are, and where we're going.
That's helpful, thanks. And then secondly on Splash, you guys are now clearly more established with editorial. Can you talk about the future of editorial and how you're leveraging just a larger editorial base and what that looks like over the next couple years? Thanks so much guys.
Yeah, maybe I'll take that one. We're absolutely committed to the editorial space and whether that's acquisitions like Splash bolstering our team to be deeper and more engaged in the editorial side of our business or just even acquiring exclusive content to further bolster that area like we've done of late. I think that's just a critical leg of our strategic tool to balance out not only all that we've talked about on content and all of the customer segments that Jarrod talked about, but by providing the position of Shutterstock to be the place for content. And by elevating our brand from what was maybe a position of leader in just stock photo to now a leader in all things content and tools for creatives, we become the one stop shop as a full end to end full service creative platform. And editorial is a big part of that.
Yeah, I think those are great points and there clearly is for us a competitive opportunity to really take share in editorial. Andrew two things I would call out, which I'm not sure if people fully recognize, but Pond5 had a strong editorial video presence. So we did not prior to Pond5 have a presence in editorial video. With Pond5 we do now have that presence and editorial video is a tremendous opportunity. The other piece is the way we had gone to market with editorial previously was what you would think of as a buy activity approach. So customers would come, they'd identify an individual asset that they want to acquire, and then they would pay us for that asset and we would share that with the publisher. There is a tremendous opportunity in editorial subscriptions where customers engage with us on a more recurring basis in recognition of the exclusive editorial content that we have available. With our archive growing the way it is, with our existing editorial presence, with the Splash Newsroom offering, Splash gives us that opportunity to sell editorial subscriptions. We did not have that capability in our platform previously, and the technology platform that Splash brings, brings us that ability to sell editorial subscriptions, which in and of itself when you combine that with editorial video, this is a tremendous opportunity for us. There's a long runway for us and while this is not huge as a percentage of our revenue, this is clearly an area where we see a competitive opportunity for us to approach.
Thanks guys.
Thank you. One moment for our next question. That will come from the line of Youssef Squali with Truist. Please go ahead.
Great, thank you. Good morning everyone. So couple of questions for me, maybe starting with you, Paul, and obviously on the new -- so the CEO position may be new to you, but you've been on for many years. I was wondering if maybe you can share with us any meaningful kind of changes or any meaningful kind of differences you see in how we run Shutterstock versus your predecessor? And I guess related to that, I think in your prepared remarks -- need to invest in growth. How do you see -- expected improvement in margins that the company has kind of committed to delivering year in and year out? And I have a follow-up.
Yeah, first, let me start with I've worked for businesses that in the past required accelerated growth to get the unit economics required in those businesses and that just required rapid and aggressive scale. What I see here at Shutterstock is that I've inherited an incredible balance sheet and a business that kicks off cash earnings and strong margins. And so I plan to continue that trend of growing our business profitably with over the long-term expanding margins. Might there be variability as we invest in near-term opportunities that expands the platform, expand our revenue growth, but ultimately lead to long-term EBITDA and EBITDA margin growth, certainly. And so there's a lot of pattern recognition that I see from a variety of industries that I bring to bear, but Shutterstock is so well positioned because of its balance sheet and because of its both human capital and assets and all of the assets that I talked about on the call from contributors to the actual content, to the marketplace itself, to the new tools that we're launching, to its editorial framework, and the scaling enterprise business again, there's a lot of opportunity for growth.
When I talked about investing for growth in our channels, we're going to obviously make sure that our core continues to be healthy. And in places where we see now new opportunities, and again, we talked a lot about enterprise, there are large scale customers that want what we have. And we're going to enable that, and we're going to enable that fast because as we enable that quickly, that widens and deepens our competitive mode. So that's really what I mean, but we will be responsible stewards of our investors' capital and the capital that we kick off from our business. And, again we'll stay the course in terms of delivering high value for our shareholders and long-term margin expansion.
Okay. And then Jarrod, if I look at sales and marketing for the first half the year, it showed some efficiency decline. I was wondering how much of that is just related to these new initiatives that you've talked about, how much maybe also related to competition particularly as getting now has, you know, has public currency, etcetera, what's your expectations for the second half?
So our expectation for the second half is not too different from the performance that we've seen in the first half of the year with respect to our channels and with respect to our business performance, right. There's a lot of macro uncertainty out there. We are not factoring into our guidance sort of a rebound if you will or a come down in cost and efficiency with respect to sales and marketing in the back half of the year. Nothing like that needs to happen for us to meet or beat our numbers in the second half of the year. This is an industry that is very competitive. This is an industry where prices are very well understood and well publicized by our customer base. And so what is absolutely critical for us is to add underlying value to the content subscription.
When you look at Creative Flow and you look at the value that we are now giving to a subscriber of Shutterstock, where we're giving them not only creation tools and bundling that into the content subscription, but the ability to catalog assets, the ability to predict what assets are going to perform, the ability to calendarize and collaborate with their colleagues. We think that fundamentally we are improving the value prop and over time that's a better product market fit, which will lead to greater customer retention and have an impact on the growth of our business. That is our play, it is really add value to the customer and eventually the customer will add value to us as a business. And so, it is really early days Youssef. I mean, we just rolled this out to our customers in the second quarter. And we just rolled out the standalone create sub literally last week. This is the culmination of a year and a half of work around this strategy. And so we're really excited to see the results and we're really excited to start marketing this. We really haven't started to market this value proposition, this enhanced value proposition to our customers. So we think there's a great opportunity in front of us to be able to do so.
Got it. Okay. Thank you both.
Thank you. [Operator Instructions]. Our next question will come from Nat Schindler with Bank of America. Please go ahead.
Yeah, I just want to see if you could walk through what has happened in the past in a possible ad recession affecting advertising with your business and how your broadening of both your customer base and your media types will change how you are affected?
Sure Nat, I'll start and I think Paul will follow-up. I think from our experience, there's been sort of two periods of dislocation that have happened in the market. You can think about sort of the recession around the time of the mortgage crisis in 2008, 2009. And more recently you can think about the pandemic in the first and second quarter of 2020. And both of those examples saw significant declines in economic activity and some dislocation in digital ad spend and digital advertising. Now, if you track back to 2008, 2009, Shutterstock was a smaller company at that point in time, a true disruptor in the industry, and there were significant share gains that were taking place that we're accruing to Shutterstock. So in that specific example, despite a recession, Shutterstock was able to grow very, very strongly. So I think you almost need to kind of push through that and kind of fast forward to the point in time where we are an 850 million leader as we are today.
If you look to the first and second quarter of 2020, when economic activity really came to a standstill, the business was down 1.5% in each one of those quarters. So I think it did show a resiliency that existed. And, when you think about stock as a component of overall digital ad spend, keep in mind the vast majority of the economics accrue to the large platforms. And so when you think about a cutback on a particular campaign, we don't necessarily believe that stock is the first place that cost out happens. And so let me turn it over to Paul to give his perspectives on how we would kind of react to some volatility in the market.
Yeah. Thanks Jarrod. The way that we think about it is, this business has all of the dials and levers for us to be able to control our own destiny. We've got our hands on our marketing spend and so that's ultimately quite variable and so we can manage that. We've got our hands on our hiring which is obviously a large expense in our business, and we can dial that in as appropriate depending on how long or if there is a particular ad recession or a recession broadly or globally. And the very nature of our business in the way that we pay our contributors and run our business is essentially on a revenue share basis. And so we don't have to prepay or get ahead of our skis in any kind of economic environment that could put our business in harm's way. So one, we're just going to be able to manage our business very well, true, even what could be protracted, potentially protracted periods of time. I think Jarrod talked well about, we're not the first advertising cut to go, right. We are critical to any level of creative. And so while media spends aggregate tonnage of media spends may shrink, the underlying content that creates the media is what Shutterstock has to offer.
And then finally, what I'd say is if you track us over time, going from predominantly photos to now music, video, 3D, again an expanded sales force that's now appealing to the largest companies in the world, we've differentiated our business. By the way, I'd add to that end content tools that allow our creators to better execute and engage with our content. All of that diversifies our platform, de-risks our platform, and takes away volatility that you might see in a business that could have been or was initially purely stocked photo.
Great. Thank you.
And I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. Paul Hennessy for any closing remarks.
Great. Thanks for joining us today. And I'd just like to thank all of our contributors, our customers, and our employees, and look this ends our call for today. Thanks so much.
This concludes today's conference call. Thank you for participating. You may now disconnect.