Getty Images Holdings, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; comparisons are to the corresponding 2022 periods. Getty Images operates Getty Images, iStock and Unsplash, licensing creative and editorial visual content and related services globally.
Financial performance and position
| Metric | Q2 2023 | Six months 2023 |
|---|---|---|
| Revenue | $225.7 million, down 3.3% reported and 2.0% currency-neutral | $461.3 million, down 0.6% reported and up 1.7% currency-neutral |
| Operating income | $33.5 million, down 29.6%; 14.8% operating margin | $82.9 million, down 13.7%; 18.0% operating margin |
| Net income (loss) | $(4.3) million; loss attributable to Getty Images was $(4.1) million, or $(0.01) per share | $(1.1) million; loss attributable to Getty Images was $(1.4) million; reported per-share loss rounded to $0.00 |
| Adjusted EBITDA (non-GAAP) | $66.5 million; 29.5% margin, versus $74.1 million and 31.7% | $142.6 million; 30.9% margin, versus $151.7 million and 32.7% |
| Operating cash flow | $73.8 million for six months, compared with $80.3 million | |
| Capital expenditures | $29.5 million for six months; primarily property and equipment, including internal software development |
At June 30, cash and cash equivalents were $121.3 million; total cash, including restricted cash, was $125.6 million. Long-term debt, net, was $1.415 billion. The $150 million revolving credit facility, extended to May 2028, was undrawn. Current assets of $285.3 million were below current liabilities of $319.5 million; deferred revenue, a major current liability, generally does not require cash settlement. The company repaid $20 million of USD term loans in May and a further $20 million on August 11, after quarter-end.
Changes versus the prior comparable periods
- Q2 revenue declined across Creative and Editorial; Other revenue increased. For the first half, Editorial and Other grew, while Creative declined. Foreign exchange reduced reported revenue growth by 1.3 percentage points in Q2 and 2.3 points for the half-year.
- SG&A increased 12.8% in Q2 and 11.4% for the half-year, driven mainly by higher staff and equity-compensation costs and legal fees associated with warrant litigation. Lower marketing spending partly offset the increases.
- Operating income and Adjusted EBITDA declined in both comparison periods. Lower amortization provided an offset, as certain intangible assets became fully amortized in late 2022.
- Net results were affected by the reversal from prior-year foreign-exchange and derivative gains to losses, alongside higher interest expense. First-half foreign-exchange losses were $14.1 million versus gains of $38.2 million a year earlier.
- Operating cash flow decreased 8.1% year over year. Cash used in investing fell to $29.5 million from $32.4 million; cash used in financing rose to $24.6 million from $9.9 million, primarily reflecting term-loan repayments.
Outlook, risks and unusual items
- Liquidity outlook: Management expects existing cash and operating cash flows to fund ordinary-course operations and planned investing for at least the next 12 months and thereafter for the foreseeable future. No specific revenue or earnings guidance is provided.
- Customer and product indicators: Trailing-twelve-month active annual subscribers were 182,000 versus 89,000, and paid downloads were 94 million versus 93 million. Annual-subscriber revenue retention was 98.5%, down from 101.9%. Management attributes part of the subscriber growth to expanded subscription offerings and notes reporting changes affected some KPI comparisons.
- Debt and interest-rate exposure: Debt covenants were met at June 30. Each 0.125 percentage-point increase in relevant rates was estimated to increase annual interest expense by about $0.4 million on USD term loans and $0.6 million on EUR term loans, after considering the disclosed swaps for the USD exposure.
- Canadian tax assessment: The company is contesting CRA assessments related to a 2015 tax return. It may have to pay up to $19 million during 2023 as part of the appeal; the stated maximum potential outcome if the CRA prevails is $26.5 million. Management believes it is more likely than not to prevail.
- Litigation and AI: Getty Images is defending two lawsuits by former public warrant holders seeking damages and believes the claims lack merit. Separately, it is pursuing U.S. and U.K. claims against Stability AI alleging unauthorized use of images and related data; the U.S. defendants sought dismissal or transfer, and U.K. proceedings were ongoing. Outcomes and financial effects are uncertain.
- Other risks: Management highlighted competition, generative-AI legal and ethical issues, currency movements, high interest rates and possible prolonged writers’ and actors’ strikes affecting entertainment coverage. The company reported effective disclosure controls and no material change in internal controls during the quarter.
Important facts for investors to verify
- Whether subscription growth translates into improved revenue retention and sustained revenue growth, particularly in Creative.
- How much of the earnings decline reflects recurring operating costs versus foreign-exchange and derivative movements; review the non-GAAP Adjusted EBITDA reconciliation alongside GAAP results.
- Debt repayment pace, interest costs, rate sensitivity and continued availability of the undrawn revolving facility.
- Developments in the Canadian tax appeal and the warrant and Stability AI litigation, including any cash payments, damages or legal-cost changes.
- How changes in foreign exchange, macroeconomic conditions and entertainment-industry strikes affect reported revenue and editorial demand.