Getty Images (GETY) - 2024 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) The unaudited condensed consolidated financial statements for the quarter ended March 31, 2024, show a decrease in total assets to $2.59 billion from $2.60 billion at year-end 2023, with net income increasing to $13.6 million due to unrealized foreign exchange gains, despite a revenue decline Condensed Consolidated Balance Sheets As of March 31, 2024, total assets were $2.585 billion, a slight decrease from $2.602 billion at December 31, 2023, while total liabilities decreased and stockholders' equity increased Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $2,585,453 | $2,601,761 | | Cash and cash equivalents | $134,198 | $136,623 | | Goodwill | $1,499,432 | $1,501,814 | | Total Liabilities | $1,896,308 | $1,920,331 | | Long-term debt, net | $1,384,938 | $1,398,658 | | Total Stockholders' Equity | $689,145 | $681,430 | Condensed Consolidated Statements of Operations For the three months ended March 31, 2024, revenue decreased to $222.3 million, but net income attributable to the company significantly increased to $13.5 million, primarily driven by a $16.4 million unrealized foreign exchange gain Q1 Statement of Operations Summary (in thousands, except per share data) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Revenue | $222,278 | $235,642 | | Income from operations | $41,034 | $49,452 | | Net income attributable to Getty Images | $13,455 | $2,696 | | Diluted EPS | $0.03 | $0.01 | - A significant driver of the net income increase was the swing in unrealized foreign exchange gains, which were $16.4 million in Q1 2024 compared to a loss of $10.9 million in Q1 2023[10] Condensed Consolidated Statements of Cash Flows For the first quarter of 2024, net cash provided by operating activities decreased to $21.5 million from $31.9 million in the prior year, resulting in a total cash, cash equivalents, and restricted cash decrease of $2.1 million Q1 Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $21,528 | $31,915 | | Net cash used in investing activities | $(14,452) | $(15,525) | | Net cash used in financing activities | $(5,272) | $(47) | | Net (decrease) increase in cash | $(2,114) | $18,884 | Notes to Condensed Consolidated Financial Statements Key notes detail revenue disaggregation, debt structure, legal proceedings including a lawsuit from former warrant holders and litigation against Stability AI, and subsequent events such as the acquisition of Motorsport Images and a voluntary debt prepayment Q1 2024 Revenue by Product and Region (in thousands) | Category | Q1 2024 Revenue | | :--- | :--- | | By Product | | | Creative | $138,858 | | Editorial | $79,429 | | By Region | | | Americas | $124,408 | | EMEA | $72,915 | | APAC | $24,955 | - The company is appealing a court judgment in favor of former public warrant holders totaling approximately $87.9 million plus pre-judgment interest[64] - Getty Images is actively pursuing litigation against Stability AI in both the US and the UK for alleged unauthorized reproduction of millions of its images to train AI models[65][66] - On April 1, 2024, the company acquired Motorsport Images for $15.0 million in cash and approximately 1.2 million shares of stock[71] - On May 3, 2024, the company made a voluntary prepayment of $30.0 million on its USD term loans[74] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 5.7% year-over-year revenue decline to softness in Creative non-subscription business and residual impacts from the 2023 Hollywood strikes, while highlighting strong growth in e-commerce subscriptions and a focus on converting customers to subscription models Business Overview Getty Images is a global visual content creator and marketplace serving over 750,000 purchasing customers across its Getty Images, iStock, and Unsplash brands, with a strategic shift towards a subscription model now comprising approximately 55% of total revenue - The company operates through three main brands: Getty Images (premium content for enterprises), iStock (budget-conscious e-commerce for SMBs), and Unsplash (free and paid subscriptions for prosumers)[96][97][98] - Subscriptions now account for approximately 55% of total revenue, reflecting a strategic shift towards recurring revenue models[108] Q1 2024 Revenue Contribution by Product Line | Product Line | % of Q1 2024 Revenue | | :--- | :--- | | Creative | 62.5% | | Editorial | 35.7% | | Other | 1.8% | Results of Operations For Q1 2024, revenue decreased 5.7% to $222.3 million, with Creative non-subscription revenue declining significantly, partially offset by increased subscription revenue, while operating income decreased and amortization expense saw a substantial 92.6% reduction Q1 2024 vs Q1 2023 Results of Operations (in thousands) | Metric | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $222,278 | $235,642 | (5.7)% | | Income from operations | $41,034 | $49,452 | (17.0)% | | Net income | $13,587 | $3,203 | NM | - The 5.7% revenue decline was consistent on both a reported and currency-neutral basis, with the timing of revenue recognition negatively impacting year-over-year growth by approximately 360 basis points[127] - Creative revenue decline was driven by a $13.2 million drop in non-subscription revenue, particularly from Agency customers, partially offset by a $5.6 million increase in creative subscription revenue, fueled by a 27.7% rise in iStock subscriptions[127] - Amortization expense decreased by 92.6% to $0.5 million from $7.2 million, as several intangible assets became fully amortized in the prior year[137] Liquidity and Capital Resources As of March 31, 2024, the company had $134.2 million in cash and cash equivalents and $150.0 million available under its revolving credit facility, with net cash from operations decreasing to $21.5 million due to lower Adjusted EBITDA and higher interest and tax payments - Primary sources of liquidity are cash on hand ($134.2 million), cash from operations, and an undrawn $150.0 million revolving credit facility[150] - Net cash provided by operating activities decreased by 32.5% year-over-year, from $31.9 million in Q1 2023 to $21.5 million in Q1 2024[153][155] Key Performance Indicators and Non-GAAP Financial Measures For the LTM ending March 31, 2024, total purchasing customers decreased by 7.2%, while total active annual subscribers grew significantly by 79.0%, and Adjusted EBITDA for Q1 2024 was $70.2 million, with a slight decrease in margin Key Performance Indicators (LTM Ended March 31) | KPI | 2024 | 2023 | % Change | | :--- | :--- | :--- | :--- | | Total purchasing customers (thousands) | 769 | 829 | (7.2)% | | Total active annual subscribers (thousands) | 262 | 147 | 79.0% | | Annual subscriber revenue retention rate | 90.0% | 99.8% | -980 bps | Adjusted EBITDA Reconciliation (in thousands) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net income | $13,587 | $3,203 | | Adjusted EBITDA | $70,212 | $76,265 | | Adjusted EBITDA margin | 31.6% | 32.4% | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's 5-year interest rate swap with a notional amount of $355.0 million matured in February 2024 and has not been replaced, with no other material changes in market risk exposures since the 2023 Annual Report on Form 10-K - A $355.0 million interest rate swap used to hedge variable interest rate risk matured on February 19, 2024, and has not been replaced[181] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal control over financial reporting during the quarter - Management concluded that as of March 31, 2024, the company's disclosure controls and procedures were effective[183] - No material changes to internal control over financial reporting occurred during the quarter ended March 31, 2024[184] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is subject to various legal proceedings and claims incidental to its business, which it does not currently anticipate will have a material adverse impact on its financial results - The company is subject to legal proceedings but does not currently expect them to have a material adverse impact, with further details provided in Note 11 of the financial statements[186][187] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2023 - No material changes have occurred to the risk factors disclosed in the company's 2023 Form 10-K[188] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications pursuant to the Sarbanes-Oxley Act of 2002 and Inline XBRL data files - The exhibits filed with this report include certifications from the CEO and CFO as required by Sections 302 and 906 of the Sarbanes-Oxley Act[192] Signatures The report was duly signed on May 9, 2024, by the company's Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer - The Form 10-Q was signed on May 9, 2024, by Craig Peters (CEO), Jennifer Leyden (CFO), and Chris Hoel (CAO)[196][197]