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Shutterstock Inc (SSTK) Q4 2020 Earnings Call Transcript

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SSTK earnings call for the period ending December 31, 2020.

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Shutterstock Inc (SSTK -1.00%)
Q4 2020 Earnings Call
Feb 11, 2021, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2020 Shutterstock Earnings Conference Call. [Operator Instructions] Later, we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions]

I would now like to hand the conference over to your host, Mr. Chris Suh, VP of Investor Relations and Corporate Development. You may begin.

Chris Suh -- Vice President of Investor Relations and Corporate Development

Thank you, Julie. Good morning, everyone, and thank you for joining us for Shutterstock's Fourth Quarter 2020 Earnings Call. Joining us today is Stan Pavlovsky, Shutterstock's Chief Executive Officer; and Jarrod Yahes, Shutterstock's Chief Financial Officer. Please note that some of the information you'll hear during our discussion today will consist of forward-looking statements including without limitation the impact of COVID-19 on our business, the long-term effects of investments in our business, the future success and financial impact of new and existing product offerings, the integration of the company's strategic acquisitions, our future growth margins and profitability, our long-term strategy, and our performance targets. Actual results or trends could differ materially from our forecast. For more information, please refer to today's press release and the reports we file with the SEC from time-to-time, including the risk factors discussed in our most recently filed Annual Report on Form 10-K for discussions of important risk factors that could cause actual results to differ materially from any forward-looking statements we may make on this call.

We'll 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-K, which are posted on the IR section of our website. Finally, please refer to the brief information that we posted on our website that contains supporting materials for today's call.

And now, I'd like to turn the call over to Stan.

Stan Pavlovsky -- Chief Executive Officer

Thanks, Chris, and good morning, everyone, and thank you for joining Shutterstock's Fourth Quarter Earnings Call. In the fourth quarter, Shutterstock experienced a sharp acceleration in year-on-year revenue growth to 9%, which caps off a year in which we built tremendous momentum each and every quarter. Our revenue growth and our outperformance in the fourth quarter was broad-based by revenue channel, by geography, by product and content types. Our subscription metrics were exceptionally strong this quarter. We also experienced upside from a desire by our clients to fully utilize budgets before year-end in addition to strong holiday demand, driven in part by increased promotional efforts. We estimate the end-of-the-quarter increase in transactional revenues added between 1% to 2% to our revenues for the quarter.

We experienced a return to revenue growth in our enterprise revenue channel earlier than expected and with a stronger velocity than we previously expected on the back of multiple quarters of strong bookings growth. It is clear the changes we have implemented are now having a positive impact, which are translating into our reported results. By reinvigorating our sales organization, innovating our suite of product offerings, and making further platform investments in our API, we are starting to see more consistent and stronger growth in bookings and deferred revenue. Our year-end deferred revenue of 149.8 million has grown 5.6% from December of 2019 on the back of meaningful growth in the third quarter. We believe that our return to year-over-year growth earlier than we expected, coupled with multiple strong quarters of deferred revenue growth, are good leading indicators pointing toward a healthy 2021 for our enterprise revenue channel. In addition, our e-commerce channel ended the year extremely well, driven by overall company subscription growth metrics that meaningfully exceeded our expectations for the quarter, with quarterly year-over-year growth of 45% in the number of subscribers, 18% subscriber revenue growth, and increasing average revenue per customer. We are strongly encouraged by these results. We are not stopping here and have plans to aggressively innovate in 2021, both in terms of new subscription product rollouts and innovations in our product roadmap.

None of our accomplishments this year would be possible without an ambitious management team that is eager to drive performance at Shutterstock and make an impact on our industry. Throughout 2020, we completed the build-out of the management team and demonstrated a strong ability to attract and retain world-class talent to drive our business to new heights. Of note, since the last investor call, we have been hiring aggressively in our API platform team and in enterprise sales. We have also added multiple executives to our management team, such as Dorian Quispe as Chief Marketing Officer, Megan Schoen as SVP of Product, Bridget Gola as VP of Business Intelligence, and Aiden Darne as Head of Shutterstock Studios. Most recently, I am pleased to report that we have also brought onboard John Lapham as our General Counsel. John was most recently the General Counsel at Rover, an e-commerce marketplace company and previous to that spent 14 years at Getty and brings a wealth of industry knowledge to Shutterstock.

Each earnings call since the beginning of my new role as Shutterstock CEO, I have discussed our progress in each of Shutterstock's three strategic focus areas-workflow innovation, fresh and relevant content, and data and insights to drive performance. Today, I'd like to highlight our focus on content, in particular what we are doing to expand into new content areas like 3D with our recently announced acquisition of TurboSquid, but also to build a competitive moat around our business by gaining access to exclusive editorial content. On behalf of the team, I would like to welcome all of the Squids to Shutterstock. I can't express enough how delighted we are to work with you. As a company with many folks based in New York, London, Berlin, and Singapore, we are excited to have a base of passionate employees in New Orleans and take advantage of the strong talent in silicon by you. In addition to being the largest marketplace for 3D models today, TurboSquid brings to Shutterstock several technology assets that are of tremendous value, notably PixelSquid and Kraken. PixelSquid is effectively the bridge for 2D customers to be able to benefit from 3D models. Our clients will be able to take highly complex 3D models, spin it along multiple axes to find perfect angle, and then instantly create a PNG image asset. PixelSquid will save our clients tremendous time and money as compared to having to digitally manipulate and curate a 2D image that does not meet their requirements. PixelSquid is available for purchase both as an unlimited subscription or on a transaction basis.

Kraken is a specialized digital asset management solution that is particularly well suited to the content needs of 3D users who use Kraken to create, manage, and share 3D assets. TurboSquid has a strong presence in many industry verticals that represent an important TAM extension for Shutterstock, including gaming, retail, education, visual effects, design, and architecture. Its clients include industry leaders such as Walmart, Ford, Energizer, GM, Ethan Allen, US Postal Service, and Google. There is a tremendous opportunity to take the thousands of corporates that purchase from TurboSquid today as e-commerce customers and provide them white glove customer service via our enterprise channel and offer them additional Shutterstock solutions.

TurboSquid has been an open platform and supports models built with the major 3D toolsets, including 3ds MAX, Maya, Cinema 4D, and open source 3D solutions such as Blender. The company also has close ties with the gaming development ecosystems and supports models by Unity and Unreal Engine. We plan to maintain those relationships and also work as an advocate in our industry to extend 3D into additional use cases, such as e-commerce digital marketing, and for enhancing websites. Another way that we are focused on bringing fresh content to our customers is by increasing the amount of exclusive content we offer through our editorial business. As many of you know, Shutterstock entered the editorial business with the acquisition of Rex Features in 2015. That acquisition injected the talent and platform to build our editorial business. This is a business that typically involves establishing long-term relationships and exclusivity around the content distribution relationship. These are typically three to five-year contracts and so they come up for renewal in frequently.

Recently, we have started experiencing additional traction in this area within sports, publisher archives, and media and production companies, which own and produce sought after regional and global content, which can be delivered directly to our customers' workflows through our proprietary API technology. Shutterstock's ability to compete is further enhanced by our ability to invest in these relationships, to increase revenue for the content partner backed by a strong capital structure with no debt and a significant cash balance. Of note in the past several months, we have won multiple new exclusive relationships, including West Ham, Rangers Football Club, and Motorsport Images. And we are in multiple discussions to win other meaningful exclusive partnerships.

As I discussed when starting my new role, we expect to generate the majority of shareholder value over the next three to five years through a combination of consistent revenue growth and margin expansion. In 2020, we grew EBITDA over 60% and earnings per share even greater than that through a combination of revenue growth and by expanding margins by over 800 basis points. That increase in EBITDA translated to record free cash flows for Shutterstock. This type of performance provides us tremendous flexibility in terms of our ability to strategically invest in the organic growth of our business. All of the product innovation around subscription products we brought to market in 2020 is fundamentally enabled by our ability to run a profitable business. To complement our investments in our business, we are fortunate to be able to simultaneously return capital to shareholders through smart acquisitions, raising our dividend, and repurchasing shares. We realize that as a result of the immense progress that we have made this past year with margin expansion, we have set a high bar for further margin expansion in 2021. So, we believe we are up for the challenge and are excited as a management team for the year ahead.

Before turning the call over to Jarrod to discuss our financials, I wanted to thank the Shutterstock team for their hard work and dedication in 2020. With all of our lives fundamentally changed in 2020, our team was able to focus on our strategic initiatives, roll out new products, market there more effectively and efficiently, deliver for our clients around the world and, ultimately, significantly accelerate revenue over the course of the year.

And now, I'll turn the call over to Jarrod.

Jarrod Yahes -- Chief Financial Officer

Thank you, Stan, and good morning, everyone. Shutterstock ended the year with exceptionally strong revenue growth, well exceeding our expectations and building off the positive momentum we had in the third quarter. Two areas of surprise to the upside were our enterprise channel, which returned to recognize revenue growth a quarter earlier than we expected and with demand levels that were stronger than we projected. Further, our subscribers and subscriber revenue growth accelerated to record levels as compared to the already strong results in the third quarter, driving outperformance in e-commerce. All of these trends position us extremely well going into 2021.

Fourth quarter revenues grew 9% year-over-year or 7% on a constant currency basis. Growth was led by our e-commerce channel, which grew 11%, whereas our enterprise channel ended the year with year-over-year growth of 6%. While our revenue growth for the quarter was extremely strong, as Stan noted, we benefited from an end-of-the-year budget flush at clients combined with a strong holiday demand environment, which positively impacted the quarter. For the full year 2020, revenue growth was 2% with e-commerce growth of 5%, offset by a 2% decline in the enterprise channel.

From a geographic perspective on a year-over-year basis, we saw revenue acceleration this quarter across all regions with particular strength in North America, which was up 13%. Europe grew 8%, and the rest of the world, including Asia, grew 5%. Gross margins were 63.4%, consistent with our third quarter margins. While the gross margins were strong, I would note for investors that this is partially due to lower utilization, which we believe will reverse itself over the course of 2021. For the full year 2020, gross margins were 61.1%, up 3.8% from 57.2% in 2019. Sales and marketing expense was 25% of revenue as compared to 28% of revenue in the fourth quarter of 2019. As expected, there was a sequential increase in sales and marketing from Q3 to Q4, consistent with our plan for accelerating marketing spend in the back-half of the year on branding our new subscription products and targeted performance marketing.

For example, we embarked on our first connected TV and linear TV campaigns in the fourth quarter. Sales and marketing expenses also increased due to higher employee compensation associated with our improved business performance. Sales and marketing expenses as a percentage of revenues were 24% for the full year 2020, down from 28% in 2019. It's important to note that we incurred little to no G&A expenses in 2020 due to the pandemic. And we do expect those expenses to increase in 2021, particularly in the back-half of the year. Product development costs were 5% of revenue for the quarter, down from 9% in the fourth quarter of 2019. In product development, we are seeing expense reductions due to fewer resources committed to the remediation of tech debt and a refocus on new projects and innovation. On a full year basis, product development expenses declined 20%, partially due to some one-time software expenses we incurred in 2019 that did not recur in 2020.

G&A expenses were 18% of revenue, up from 16% of revenue in the fourth quarter of 2019. G&A expenses this quarter included some incremental stock-based compensation expense associated with our performance-based stock awards. Excluding stock comp expense, G&A expenses as a percentage of revenue were roughly flat compared to the fourth quarter of 2019. For the full year, G&A expenses were flat to 2019 and excluding stock comp expense declined due to cost reduction efforts combined with operating leverage in our business.

Adjusted EBITDA margins increased to 26.8% compared to 14.5% in the fourth quarter of 2019. We continue to have strong results from a margin perspective and are focused on driving shareholder value by balancing growth with robust margins and cash flows. For the full year, EBITDA margins increased 840 basis points to 23.2% from 14.8% in 2019. And we grew EBITDA in excess of 60% year-over-year from 96 million to 155 million. For the fourth quarter, GAAP EPS was $0.70 and adjusted diluted EPS was $0.93, representing growth of 483% and 260% respectively. For the full year, GAAP EPS was $1.97 and adjusted diluted EPS was $2.62, representing growth of 249% and 113% respectively.

Turning to our balance sheet and cash flows. At the end of the quarter, we had $429 million of cash, up from $383 million at September 30, 2020. The quarterly increase in cash of $45 million includes $65 million of operating cash flows, offset by $6 million of CapEx and content acquisitions, $7 million for investments in M&A activity, and the $6 million quarterly cash dividend paid in December. On February 1, we closed on the acquisition of TurboSquid for $75 million, which would have brought our cash balance down to $354 million from Q4 ending cash levels. Investors should expect more muted cash addition in Q1 as compared to Q4 with annual bonuses being paid in the first quarter. On January 12, we announced a 24% increase in our quarterly dividend to $0.21 per share. This increase was attributable to the positive cash flow results we had in 2020 as well as our confidence in the business for 2021. We will continue to periodically revisit the quarterly dividend and plan to grow it further over time.

Turning to our key operating metrics, they were a particular bright spot for Shutterstock during the quarter. Subscriber count increased by 45%. Subscriber revenue increased by 18%. Average revenue per customer increased by 0.9%. Paid downloads were down 4%, and revenue per download increased to $3.91 per download. Our image library expanded by 15%, and our footage library increased by 24%. As we look at our historical data, we believe these are the fastest rates of subscriber growth and subscriber revenue growth we have ever experienced as a company. Clearly, our SMB and prosumer-oriented products are resonating in the market and experiencing good traction. I will, however, reiterate what I said last quarter, which is that while we're thrilled with these subscription trends, we do not believe this accelerated pace of growth in subscription will continue each and every quarter.

With respect to our M&A strategy, we've been picking up steam in terms of execution. We believe that the acquisitions of TurboSquid and Amper represent the types of acquisitions we'd like to continue to execute on. Amper is a small bolt-on of key talent in AI technology focused on music content, whereas TurboSquid is a medium-sized acquisition that adds a new content type to our marketplace in an attractive 3D market with strong industry tailwinds. TurboSquid has been a steady growth business over time with good margins. We paid a multiple for the business in line with our trading multiple, and the deal is immediately accretive.

As we think about strategic acquisitions, Shutterstock's three revenue channels, including a large enterprise salesforce, a market-leading API offering, and a customer base of $2 million e-commerce customers, should allow us to accelerate the growth in acquired companies over time. We have also recently added talent in post-merger integration to allow us to scale and integrate the acquisitions we've made to-date and assist with deals we will execute on in the future.

Finally, turning to our guidance. For 2021, our expectations for the full year are as follows. Revenue of $708 million to $722 million, representing 6% to 8% annual revenue growth. An adjusted EBITDA of $165 million to $171 million with margins ranging from flat to up 50 basis points. An adjusted EPS of between $2.75 to $2.90. In terms of the composition of revenue growth in 2021, we believe enterprise will grow 2% to 3% slower than e-commerce, and we will continue to experience quarterly growth throughout the year in both channels, although not necessarily the growth rates we experienced in the fourth quarter. Revenue guidance includes approximately $20 million of revenue based on the close of the TurboSquid acquisition as of February 1, 2021, which will be reported within our e-commerce revenue channel.

Investors should note the part of the way we're thinking about our revenue guidance is that we are still seeing multiple countries going in and out of lockdown due to the pandemic, which is driving uneven demand globally. As of now, we don't have complete visibility as to when these regions will come back. And we'll adjust our forecast accordingly as demand normalizes throughout the year.

From a margin perspective, we're targeting up to 50 basis points of EBITDA margin expansion for 2021. For the full year 2021, we expect to see slight increases in sales and marketing as a percentage of revenues, which will be more than offset by further operating leverage in G&A costs and slightly better gross margins, the sum total of which should allow us to achieve additional EBITDA margin expansion in 2021. Other modeling assumptions for 2021 of note include stock-based compensation of approximately $33 million, depreciation and amortization expense of $50 million, capital expenditures of $30 million, and an effective tax rate percentage in the low 20s. Also, we expect our share count increases to be in line with historical trends.

We are pleased as a management team with our results, both in terms of the sharp acceleration of revenue growth combined with exceptional margins. As stated previously, we plan to continue to reinvest some of the margin upside we've experienced to innovate and invest and to best position Shutterstock for growth in the years to come. Thank you so much for joining us today. We appreciate your time.

Operator, we'd now like to open the line for any questions.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from John Egbert with Stifel.

John Egbert -- Stifel Nicolaus -- Analyst

Great. Thanks for taking my question. Obviously, really strong trends in subscriber revenue during the quarter. Can we unpack that a little bit more? Can you talk about some of the factors influencing net momentum, whether it's the promotions I think that were cited in sales and marketing, maybe merchandising of different price points for subscriptions, maybe evolving the offering in general? What are some of the interesting takeaways from the fourth quarter success there?

Stan Pavlovsky -- Chief Executive Officer

Hey, John. Thanks for being on today. A lot of our success is really tied to new subscriptions that we introduced over the course of 2020, which had particular resonance in Q4. These include subscriptions targeted at small and medium businesses around our image products as well as music and footage products that we launched earlier this year. So, what I would say is the growth acceleration has definitely come from the small and medium business sector, and that was even more pronounced in Q4. And then, on the enterprise side, we've continued to see momentum quarter over quarter over quarter. What was interesting in Q4 was the the budget flush that we talked about earlier where we saw a lot of transactional products uplift in Q4 within the enterprises. Marketers were looking to use up budgets more than we expected, and that added about 1% to 2% to our growth.

John Egbert -- Stifel Nicolaus -- Analyst

Thanks.

Operator

Your next question comes from Youssef Squali with Truist Securities.

Youssef Squali -- Truist Securities -- Analyst

Awesome. Thank you, and good morning, guys. So, congrats on the very solid quarter. So, if I just step back a little bit, look at what you guys have said historically about the organic growth in this industry, I think you've often talked about organic growth around 7%. You just did better, which is awesome. But as I look at 2021 and I look at your guidance of 6% to 8%, so you're targeting exactly kind of the mid-point of the overall industry. But a number of things happened last year. Obviously, you have some really easy comps in Q1 and Q2. You have TurboSquid, which I think, Jarrod, you talked about $20 million contribution and probably on other things. So maybe unpack that 6% to 8% growth in terms of organic versus non-organic and why at least based on that guide you may be growing below your own expectations for the industry. It seems a bit conservative, or maybe just lack of clear visibility into the pandemic and its effect.

And the other question I have is on TurboSquid. Maybe, Stan, can you just speak about kind of low-hanging fruit opportunities there from integrating that acquisition into your core products, maybe in terms of cross-selling other things versus kind of the long-term opportunities maybe like moving in into new verticals, new products, new geos, et cetera? That'd be helpful. Thank you.

Jarrod Yahes -- Chief Financial Officer

Yeah. Hey, Youssef. So, in terms of guidance, I think we believe that we're on pretty solid footing in terms of the fundamentals. I think the visibility into guidance is still somewhat challenging. We continue to see uneven performance in certain geographies, for example, because of continued lockdowns. So, some of what you're hearing is that we still have some of the COVID effect that is impacting the business right now. And we definitely plan. As things start to open up and as there becomes more what we call sort of the consistency around our performance and consistency across geographies, we will definitely update our guidance later in the year.

As it relates to some of the short-term opportunities with 3D and TurboSquid, we have a couple of immediate opportunities, one of which is the fact that today the business is primarily driven on a self-service model. It's an e-commerce model. But we know that a lot of the users work at large corporate clients. And so, our ability to provide increased service level and provide additional services, such as our studio services or our platform solutions and API services, really present opportunities in the short term that we are looking to take advantage of. So, as we mentioned, in addition to some of the longer-term opportunities from this category and what's happening in social media, what's happening in gaming and some of the verticals that we may have a lower concentration or penetration than TurboSquid, which obviously presents opportunities for us in the short term. It's really about our sales channels. It's really about platform solutions. And it's about enterprise and our ability to take and create a new product offering that includes 3D within those channels.

Youssef Squali -- Truist Securities -- Analyst

All right. That's helpful. Thank you.

Operator

[Operator Instructions] Your next question comes from Ron Josey with JMP Securities.

Ron Josey -- JMP Securities -- Analyst

Great. Thanks for taking the question, and good to hear from you. So, I wanted to talk maybe a quick follow-up on Youssef's questions and your answer around subscriptions. With subscribers reaccelerating a little bit more, reaccelerating 44% year-over-year and you talked about the benefits and the focus on the prosumer and SMBs, can you help us unpack these verticals a little bit more in terms of what led to this increase? Is it the investment in sales, which I think you just mentioned? But, also, just the tailwinds that we're seeing broadly around e-commerce. You mentioned CTV. Anything more to help unpack what's driving these subscriptions besides just the verticals around prosumer and SMBs?

And, Jarrod, you mentioned something pretty interesting on tech debt. I think I heard you talk about paying down tech debt overall. And so, maybe talk about just internally how this has helped change your processes and focus more on innovation and growth and how we see the organization or how you see the organization move forward when we pay down this tech debt. Thank you.

Stan Pavlovsky -- Chief Executive Officer

Yeah. Absolutely. So, I'll take the subscription question, and I'll let Jarrod talk a little bit more about R&D expense. As far as subscriptions, you're absolutely right. We definitely made a concerted effort as it relates to sales and marketing to really focus on subscriptions because of consumer behavior both in our category as well as just how consumers really have embraced subscriptions across multiple categories. And in particular when we look at small and medium businesses and digital transformation, this has been a real trend this past year. And so, for us, we've been able to sort of take advantage of that trend across all of our sales channels, whether that's e-commerce where we introduced small subscriptions or smaller priced subscriptions across image, footage, and video, which have been very successful.

But also, we have partners in our platform solutions area that have also been very successful during this time. Website builders as an example. Our advertising partners as companies move more of their dollars to digital. That has had an impact on us. Actually, even in our enterprise channel where we have in certain cases small and medium size businesses that like to have a sales-assisted approach. Those have been exceeding our expectations. So, what I would say is the SMB segment across all of our sales channels has definitely outperformed what we call our professional creative segment as well as our sort of high-touch large corporation segment, although we have made significant progress there. But when you think about the fact that advertising categories like auto and travel, some of the largest advertising categories that have been significantly impacted this past year which we're not immune from, the small and medium business segment has really helped us to offset that.

Ron Josey -- JMP Securities -- Analyst

And, Stan, if I could just follow up before Jarrod. You talk about tech debt. I think I heard 2 million e-commerce customers. Any sense on how that's trended, maybe backing up your comments around the SMB? Thanks, guys.

Stan Pavlovsky -- Chief Executive Officer

Yeah. I'll let Jarrod. I don't know if, Jarrod, you have the specific growth in customers. Our subscription customer growth was significant in terms of 46%. Overall customer growth, I don't know if we have that right in front of us, but we'll look that up. And then, I'll let Jarrod take the R&D question.

Jarrod Yahes -- Chief Financial Officer

Sure. So, just on our overall customer growth, we ended the quarter with just over 2 million total customers for the company. We were just under 2 million customers for the company as at the end of last year. So modest growth just in terms of total number of customers. And I think part of that is there is a large tail of transactional customers, which come in and out and don't move the revenue as much. So, I think total customer count hasn't been increasing certainly at the same rate as subscription customer growth, which is really what's driving that average revenue per customer up. And I think that's part of our overall strategy.

In terms of our technology and how we're thinking about product development costs, I think the team has done a great job in driving down product development costs, particularly as you think about maintenance expenditures. So, product and R&D costs have come down from about 8% of revenues to about 6% of revenues as of the past year. And I think there's a couple of reasons for that. One is, as I mentioned in my prepared remarks, we did have several million dollars of spend in software in 2019 that didn't recur in 2020. Up at the other pieces, we are spending less time and less effort and less resources in terms of remediation of tech debt. And we've reached the conclusion of some large long-term projects that have taken place over the course of the past several years. For example, migration of legacy platforms to new platforms as well as migration to the cloud for our operating infrastructure as well as our internal BI infrastructure.

And what the team is really been doing is fundamentally asking a question with regards to maintenance expenditures in product as to whether something ultimately drives revenue or not, whether something is ultimately tied to innovation or not. And we've been reorienting resources toward innovation. And I think the way you can really see that from a P&L perspective is look at the capex line. The capex line is effectively flat year-over-year, while product expenses went down meaningfully. And capex for us is predominantly software development expenditures associated with new product builds and innovation, whereas maintenance needs to be expensed through the P&L. So, I think we feel really good about saving in terms of opex, while continuing to reinvest in the business from a capex perspective in order to build out new products that are really focused on growth and innovation.

Ron Josey -- JMP Securities -- Analyst

Thank you, guys. Appreciate it.

Jarrod Yahes -- Chief Financial Officer

Thanks, Rob.

Operator

I'm showing no further questions at this time. I would now like to turn the conference back to Stan, CEO. Actually, yes, we did just have one pop in. You do have a question from Nat Schindler with Bank of America.

Stan Pavlovsky -- Chief Executive Officer

Great.

Nat Schindler -- Bank of America -- Analyst

Yes. Hi, guys. Sorry, I had technical difficulties getting the question in. Just wanted to follow up on a point you made during the call. You said you benefited from some end of your budget excess budget. I would imagine that happens every Q4 or often. How much of this is different from normal seasonal growth? So, assume you're upside here, how much that would have been usual or how much of it would be in excess here because of that? And additionally, where does that show up? I would imagine it would come in more on the revenue per download as opposed to subscriptions and people paying more for types of media. But is there some more detail you can talk about that?

Stan Pavlovsky -- Chief Executive Officer

Yeah. I'll let Jarrod sort of talk about what happens with pricing as sort of our downloads go up and down and sort of the combination of changes in the product mix. But in terms of what we call the budget flush in Q4, I think we did a great job with with promotions this year in Q4. It definitely exceeded our expectations compared to a year prior, particularly under the circumstances this year and our sales team and our account management team did a really good job in leveraging those with our clients to get as much value from transactional business in Q4. So, you're right. There is definitely kind of the using up of budget on an annual basis. I think this year, we were a little bit more promotional around that and really wanted to see if we could enable our clients and help our clients with year-end and we were successful.

Nat Schindler -- Bank of America -- Analyst

Yeah.

Jarrod Yahes -- Chief Financial Officer

And I would just add in terms of your question on revenue per download and paid downloads and the impact from subscription, we did see a nice tick-up in paid downloads this quarter. We actually saw paid downloads increase about 2.3 million quarter-on-quarter as compared to the third quarter of 2020. And ultimately, that resulted in paid download decline of 4% as compared to the 5%, 6% we've experienced over the course of the past two quarters. So, I think customer engagement coming back and customer utilization coming back is certainly a positive sign for us and something that we expect to continue to take forward into 2021.

And what's interesting is when you look at the revenue per download increasing 13.7% as it did in the fourth quarter, that's not just as a mathematical result of paid downloads being down. It's also a result of the increase in subscription as a percentage of our total business. So, fundamentally, subscription products do come with meaningful increases in average revenue per customer. And there are also accretive and support revenue per download. So, I think we feel really good about increases in utilization quarter-on-quarter in terms of paid downloads. And we also feel good about the revenue per download increases, which are really being driven by our subscription products, not necessarily because we're raising unit prices with our business.

Nat Schindler -- Bank of America -- Analyst

Great. Thank you.

Operator

Okay. And I'm showing no further questions at this time. I will now like to turn the conference back to Stan, CEO.

Stan Pavlovsky -- Chief Executive Officer

All right. Thank you. I'd like to once again convey my gratitude to and appreciation for Shutterstock's employees, customers, and contributors for their support and engagement. I continue to be excited for the road ahead as we continue to take advantage of the opportunities ahead of us. With that, that ends our call for the day. Thank you.

Operator

[Operator Closing Remarks]

Duration: 45 minutes

Call participants:

Chris Suh -- Vice President of Investor Relations and Corporate Development

Stan Pavlovsky -- Chief Executive Officer

Jarrod Yahes -- Chief Financial Officer

John Egbert -- Stifel Nicolaus -- Analyst

Youssef Squali -- Truist Securities -- Analyst

Ron Josey -- JMP Securities -- Analyst

Nat Schindler -- Bank of America -- Analyst

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Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/16/2022.

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