Getty Images Holdings, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. Getty Images operates Getty Images, iStock and Unsplash, licensing visual content and related services globally. Comparisons are with Q1 2022; the 2022 business combination and resulting share-count changes affect comparability of per-share data.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $235.6 million | $231.0 million | +2.0% reported; +5.5% currency neutral |
| Operating income | $49.5 million | $48.5 million | +1.9% |
| Operating margin | 21.0% | 21.0% | Broadly unchanged |
| Net income | $3.2 million | $25.1 million | Down 87% |
| Net income attributable to Getty Images | $2.7 million | $6.1 million | Down; 2022 included an $18.8 million preferred-stock dividend deduction |
| Basic and diluted EPS | $0.01 | $0.03 | Down |
| Adjusted EBITDA (non-GAAP) | $76.1 million | $77.7 million | Down 2.0% |
| Adjusted EBITDA margin (non-GAAP) | 32.3% | 33.6% | Down 1.3 percentage points |
| Operating cash flow | $31.9 million | $49.4 million | Down 35.3% |
| Capital expenditures | $15.5 million | $16.2 million | Primarily property, equipment and software development |
Cash from operations less capital expenditures was approximately $16.4 million, compared with $33.1 million in Q1 2022. Cash and cash equivalents were $116.8 million at March 31, 2023, up from $97.9 million at year-end 2022; cash, cash equivalents and restricted cash totaled $121.3 million. Current assets were $297.4 million and current liabilities $319.6 million. Management notes that deferred revenue, the largest current liability, generally does not require cash settlement.
Long-term debt, net of issuance costs and discounts, was $1.437 billion, compared with $1.429 billion at December 31, 2022. The company reported compliance with all debt covenants. It repaid $2.6 million of debt in Q1. On May 4, 2023, it increased revolving-credit capacity from $80 million to $150 million and extended maturity to May 2028; the facility was undrawn. On May 10, it used $20 million of cash to repay USD Term Loans.
Material changes and operating trends
- Creative revenue decreased 1.3% reported to $146.5 million, but increased 1.9% currency neutral. Growth in annual subscriptions was offset by declines in certain à-la-carte products and monthly subscriptions.
- Editorial revenue rose 7.5% reported to $84.6 million, or 11.3% currency neutral, supported by assignments and subscriptions and more entertainment events with fewer COVID-era access restrictions.
- Other revenue increased 18.1% reported to $4.5 million, driven by data licensing, digital asset management and music licensing.
- Foreign exchange movements reduced reported revenue growth by about 350 basis points. The company recorded $10.9 million of net unrealized foreign-exchange losses, versus $7.0 million of gains a year earlier, primarily related to Euro-denominated term loans. Derivative fair-value results also shifted from a $12.1 million gain to a $2.1 million loss.
- SG&A increased 9.9% to $102.4 million, including higher staff costs—primarily equity compensation—and professional fees related to litigation and public-company reporting. Amortization fell 41.0% to $7.2 million as certain intangible assets became fully amortized.
- Net income fell substantially, principally reflecting the year-over-year swing in foreign-exchange and derivative results, despite lower income-tax expense. The effective tax rate was 50.2%, compared with 34.3%.
Outlook, risks and contingencies
No quantified revenue or earnings guidance is provided in the filing. Management expects ordinary-course operations and planned investing activities to be funded by existing cash and operating cash flows, and believes liquidity is sufficient for at least the next 12 months and the foreseeable future. It expects SG&A to rise in absolute dollars but remain relatively stable as a share of revenue in the near term; amortization is expected to decline as additional intangibles become fully amortized.
- Canadian tax assessment: The Canada Revenue Agency assessed tax related to a 2015 intercompany transaction and indicated further assessments may follow. Getty Images says it will contest the matter and believes it is more likely than not to prevail. It may need to pay up to $17 million in 2023 during the appeal process; the stated maximum potential outcome if the CRA prevails is $25 million.
- Generative AI litigation: Getty Images alleges that Stability AI used approximately 12 million images and related information without authorization. The company seeks damages and injunctive relief in U.S. and U.K. proceedings. Stability AI moved to dismiss or transfer the U.S. case; the dispute remains unresolved.
- Other litigation: Two lawsuits by former public warrant holders allege breaches of the warrant agreement and securities-law violations. Getty Images disputes the claims and intends to defend itself. Management does not currently expect existing matters to have a material adverse financial effect, but litigation outcomes are uncertain.
- Business and market risks: Key exposures include competition, customer and contributor retention, content-sourcing and intellectual-property risks, evolving AI-related legal and ethical issues, cybersecurity and technology dependence, foreign exchange, interest rates, inflation, and macroeconomic and geopolitical conditions.
- Interest-rate exposure: The filing estimates that each one-eighth percentage-point increase in Term SOFR would add approximately $0.9 million in annual interest expense, while the same increase in EURIBOR would add approximately $0.6 million. Interest-rate swaps partly offset rate exposure.
Important facts for investors to verify
- Whether currency-neutral growth, particularly in Creative, continues and whether reported revenue remains constrained by foreign exchange.
- Whether subscription growth can offset declines in some à-la-carte and monthly offerings, and how the annual-subscriber retention trend develops.
- Whether operating cash flow and cash generation improve, given the Q1 year-over-year decline and substantial debt-service requirements.
- The effect of interest rates, currency movements and any additional debt repayment on interest expense and leverage.
- Developments in the Canadian tax appeal, including any required advance payment, and the potential financial or operational effects of the AI and warrant-holder litigation.
- Progress and terms of the expanded revolving facility, subsequent $20 million term-loan repayment, and ongoing covenant compliance.