Getty Images Holdings, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited. Getty Images operates a global visual-content licensing marketplace through Getty Images, iStock and Unsplash. Comparisons are with Q1 2023 unless noted. Amounts below are in U.S. dollars.
Financial results
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $222.3 million | $235.6 million | Down 5.7%; down 5.7% currency-neutral |
| Gross contribution (revenue less cost of revenue) | $162.0 million; 72.9% margin | $172.4 million; 73.1% margin | Down 6.0% |
| Operating income | $41.0 million; 18.5% margin | $49.5 million; 21.0% margin | Down 17.0% |
| Net income | $13.6 million | $3.2 million | Up $10.4 million |
| Adjusted EBITDA (non-GAAP) | $70.2 million; 31.6% margin | $76.3 million; 32.4% margin | Down $6.1 million |
| Operating cash flow | $21.5 million | $31.9 million | Down 32.5% |
| Capital expenditures | $14.5 million | $15.5 million | Down $1.1 million |
Net income improved substantially mainly because foreign-exchange results swung to a $16.4 million gain from a $10.9 million loss, primarily due to revaluation of euro-denominated debt. This non-operating benefit partly offsets the decline in operating income. Interest expense rose to $32.7 million from $30.5 million. Income tax expense was $11.2 million, with a 45.2% effective rate.
Revenue and operating trends
- Creative revenue fell 5.2% to $138.9 million. Non-subscription creative revenue declined 17.8%, while creative subscription revenue rose 7.7%; iStock subscriptions increased 27.7%.
- Editorial revenue decreased 6.2% to $79.4 million, reflecting lower ALC and subscription demand and residual effects of the 2023 Hollywood strikes.
- Other revenue fell 11.7% to $4.0 million, primarily due to lower data licensing.
- Management estimates revenue-recognition timing reduced year-over-year Q1 growth by approximately 360 basis points. Cost of revenue was 27.1% of revenue versus 26.9%; SG&A was 45.4% versus 43.4%, as expenses were spread over lower revenue.
- Trailing-12-month purchasing customers declined 7.2% to 769,000, while active annual subscribers rose 79.0% to 262,000. Annual subscriber revenue retention fell to 90.0% from 99.8%. Paid downloads were flat at 95 million.
Balance sheet, liquidity and debt
- At March 31, cash and cash equivalents were $134.2 million, restricted cash was $4.5 million, and total current assets were $363.6 million versus current liabilities of $422.3 million (a $58.7 million working-capital deficit).
- Long-term debt, net, was $1.385 billion, including $300 million of Senior Notes, $634.4 million of USD term loans and $451.9 million of EUR term loans. Approximate net debt against cash and cash equivalents was $1.251 billion. The company reported compliance with debt covenants.
- The $150 million revolving credit facility was available and expires May 4, 2028. Management said cash, operating cash flows and available liquidity should support ordinary-course operations and planned investing for at least the next 12 months and thereafter for the foreseeable future.
- Operating, investing and financing cash flows were respectively $21.5 million provided, $14.5 million used and $5.3 million used. Cash, cash equivalents and restricted cash decreased $2.1 million to $138.7 million.
Outlook, risks and notable items
- No specific revenue or earnings guidance was provided. Management expects cost of revenue to rise in absolute dollars with revenue, SG&A to increase in absolute dollars but remain relatively stable as a percentage of revenue, depreciation to remain stable, and amortization to be insignificant. Management noted continuing foreign-exchange volatility.
- A $355 million notional interest-rate swap matured in February 2024; the company had not entered a replacement hedge by quarter-end. On May 3, 2024, it prepaid $30 million of USD term loans from cash on hand, without penalty.
- On April 1, 2024, the company agreed to acquire Motorsport Images for $15 million cash and approximately 1.2 million Class A shares. Results will be consolidated from the acquisition date; purchase-price allocation was still being finalized.
- Warrant-holder litigation resulted in judgments of $36.9 million and $51.0 million, plus prejudgment interest at 9% annually. The company appealed and the plaintiffs cross-appealed; briefing was underway. The balance sheet reported litigation reserves of $99.5 million. Management said it could not assure outcomes, while stating existing matters were not currently expected to have a material adverse effect.
- In a Canadian tax dispute, the company estimates it may have to pay up to $17.2 million in 2024 while contesting assessments; the stated maximum potential outcome if the tax authority prevails is $25.1 million. The company believes it is more likely than not to prevail.
- Management identified risks including competition, customer and subscription trends, AI-related legal and reputational issues, content supply, cybersecurity, foreign exchange and interest rates, litigation, and tax matters. It reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether the revenue decline and lower subscriber retention persist, and whether subscription growth offsets weakness in ALC and agency demand.
- The cash and earnings impact, timing and appeal status of the warrant judgments, including accrued interest and litigation reserves.
- Developments in the Canadian tax dispute, including any required advance payment and potential recovery.
- Debt, interest costs and liquidity following the $30 million term-loan prepayment and expiration of the interest-rate swap hedge.
- Motorsport Images’ final purchase-price allocation, integration costs and contribution, and the effects of the cash-and-share consideration.