Getty Images Holdings, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. The company licenses visual content through Getty Images, iStock and Unsplash. Its July 22, 2022 business combination with CC Neuberger Principal Holdings II was accounted for as a reverse recapitalization; prior-period results are those of Legacy Getty.
Financial performance and position
Amounts below are in millions of U.S. dollars except per-share data and percentages.
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $230.5 | $237.0 | $694.8 | $679.6 |
| Operating income | $50.4 | $55.0 | $146.4 | $147.4 |
| Net income (loss) | $(118.1) | $33.6 | $(54.3) | $75.9 |
| Adjusted EBITDA and margin | $77.7; 33.7% | $81.6; 34.4% | $229.4; 33.0% | $227.4; 33.5% |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $129.2 | $129.6 |
| Capital expenditures | Not stated for quarter | Not stated for quarter | $46.0 | $36.7 |
- Margins: Operating margin was about 21.9% in Q3 2022 versus 23.2% in Q3 2021, and 21.1% versus 21.7% for the nine-month periods. Cost of revenue was 27.8% of revenue in Q3 and 27.5% year to date, compared with 26.4% and 26.9%, respectively.
- Cash and liquidity: September 30 cash and cash equivalents were $71.9 million, down from $186.3 million at year-end 2021; cash, equivalents and restricted cash totaled $76.4 million. The company reported $80.0 million available under its revolving credit facility, expiring February 2024. Current assets were $224.4 million and current liabilities $302.3 million; deferred revenue, the largest current liability, is generally not settled in cash.
- Debt: Long-term debt, net, was $1.392 billion; the debt table reports $1.399 billion of principal before issuance costs and discounts. This included $300 million of Senior Notes and U.S.- and euro-denominated term loans. The company repaid $300 million of U.S. term loans in August and reported compliance with debt covenants. Interest expense was $29.4 million in Q3 and $89.0 million year to date.
- Cash flows: Nine-month investing cash use was $48.0 million and financing cash use was $178.6 million. Cash declined by $115.1 million, including a $17.6 million adverse effect from exchange rates.
Material changes versus the prior comparable period
- Q3 reported revenue fell 2.8%; on a currency-neutral basis it rose 2.8%. Nine-month reported revenue increased 2.2%, or 6.4% currency-neutral. A stronger U.S. dollar reduced reported growth by 560 basis points in Q3 and 420 basis points year to date.
- Q3 Creative revenue declined 2.1% reported but grew 3.2% currency-neutral; Editorial declined 3.0% reported but grew 3.1% currency-neutral. For the nine months, Creative was nearly flat reported (down 0.2%) and Editorial grew 7.3% reported. Other revenue declined in both periods.
- Operating income declined 8.4% in Q3 and 0.7% year to date. Adjusted EBITDA declined 4.8% in Q3 and increased 0.9% year to date; its margin narrowed by 0.7 percentage points in Q3 and 0.5 points year to date.
- GAAP net loss included a $161.3 million non-cash warrant fair-value loss. Q3 also included a $26.7 million preferred-stock early-redemption premium and $4.7 million of preferred dividends in the calculation of loss attributable to Getty Images Holdings, Inc. These items, along with foreign-exchange gains, materially affected reported earnings.
- The business combination generated approximately $864.2 million of gross proceeds. The company redeemed all legacy redeemable preferred stock for approximately $615.0 million cash and 15.0 million shares, and issued shares in the transaction and earn-out. Class A shares outstanding increased to 394.8 million at September 30 from 196.1 million at December 31, 2021.
Outlook, commentary, risks and unusual items
- Outlook: No numerical revenue or earnings guidance is provided. Management said available cash and operating cash flows should fund ordinary operations and planned investing for at least the next 12 months and the foreseeable future. It expects SG&A to rise in dollars but remain relatively stable as a share of revenue in the near term, and amortization to decline over coming years.
- Management commentary: Management cited growth in subscriptions, Editorial recovery and customer engagement. LTM purchasing customers rose to 837,000 from 766,000; active annual subscribers to 107,000 from 70,000; and annual-subscriber revenue retention was 103.0% versus 102.3%. KPI definitions and coverage changed in Q3, limiting direct comparisons; under the prior reporting method, the company gave different subscriber and retention figures.
- Unusual items and subsequent events: Private-placement warrants were exercised cashlessly in August. Remaining public and forward-purchase warrants were redeemed on October 19, 2022 for $0.2 million. The company launched Unsplash+ on October 4. A former warrant holder sued on October 19, alleging breach of the warrant agreement and implied covenant; the company says it considers the claims without merit and intends to defend itself.
- Risks: Foreign currency movements affect both reported revenue and debt-related earnings; about 50% of revenue came from outside the U.S. Floating-rate debt exposes the company to higher interest expense. Other cited risks include competition, customer and supplier retention, content rights and intellectual property claims, cybersecurity and reliance on technology, macroeconomic conditions, and tax audits. Management reported no material adverse effect expected from existing ordinary-course legal matters, while noting litigation uncertainty.
- The company recorded a $2.6 million year-to-date impairment charge on office right-of-use assets after subleasing space. The Unsplash contingent-consideration liability was $4.9 million at quarter-end after a $10.0 million payment. Management reported disclosure controls were effective as of September 30, 2022.
Important facts for investors to verify
- Reconcile the $161.3 million warrant fair-value charge and other transaction-related items to recurring operating performance; review the company’s non-GAAP Adjusted EBITDA reconciliation.
- Assess post-transaction share dilution, including the 59.0 million earn-out shares issued and the increase in outstanding Class A shares.
- Review debt maturities, floating-rate exposure, swap coverage, revolving-facility availability and the effect of foreign exchange on euro-denominated debt.
- Check the basis for management’s liquidity outlook against declining cash, capital spending, debt service and other commitments.
- Track currency-neutral versus reported revenue trends, subscription growth and the KPI reporting changes when comparing periods.
- Monitor the warrant-holder lawsuit, tax exposures and any future effects of the office impairment or contingent consideration.