UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
For the transition period from to
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (Commission File Number) | (I.R.S. Employer Identification Number) | ||||||||||||
(Address of principal executive offices) (Zip Code)
(206 ) 925-5000
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | o | Accelerated filer | o | |||||||||||
| x | Smaller reporting company | |||||||||||||
| Emerging growth company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of May 5, 2023, 397,100,516 shares of Class A common stock, par value $0.0001 per share of Getty Images Holdings, Inc. were issued and outstanding.
GETTY IMAGES HOLDINGS, INC.
Form 10-Q
Table of Contents
| Page No. | ||||||||
| 4 | ||||||||
i
PART I – FINANCIAL INFORMATION
Cautionary Note Regarding Forward-Looking Statements
Certain statements included in this Quarterly Report on Form 10-Q that are not historical facts are forward-looking statements for purposes of the safe harbor provisions under the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of the words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “should,” “would,” “plan,” “project,” “forecast,” “predict,” “potential,” “seem,” “seek,” “future,” “outlook,” “target” or similar expressions that predict or indicate future events or trends or that are not statements of historical matters. These forward-looking statements include, but are not limited to, statements regarding estimates and forecasts of other financial and performance metrics and projections of market opportunity. These statements are based on various assumptions, whether or not identified in this report, and on the current expectations of our management and are not predictions of actual performance. These forward-looking statements are provided for illustrative purposes only and are not intended to serve as, and must not be relied on by any investor as, a guarantee, an assurance, a prediction or a definitive statement of fact or probability. Actual events and circumstances are difficult or impossible to predict and will differ from assumptions. Many actual events and circumstances are beyond our control.
These forward-looking statements are subject to a number of risks and uncertainties, including:
•our inability to continue to license third-party content and offer relevant quality and diversity of content to satisfy customer needs;
•our ability to attract new customers and retain and motivate an increase in spending by its existing customers;
•the user experience of our customers on our websites;
•the extent to which we are able to maintain and expand the breadth and quality of our content library through content licensed from third-party suppliers, content acquisitions and imagery captured by its staff of inhouse photographers;
•the mix of and basis upon which we license our content, including the price-points at, and the license models and purchase options through, which we license our content;
•the risk that we operate in a highly competitive market;
•the risk that we are unable to successfully execute our business strategy or effectively manage costs;
•our inability to effectively manage our growth;
•our inability to maintain an effective system of internal controls and financial reporting;
•the risk that we may lose the right to use “Getty Images” trademarks;
•our inability to evaluate our future prospects and challenges due to evolving markets and customers’ industries;
•the legal, social and ethical issues relating to the use of new and evolving technologies, such as Artificial Intelligence;
•the risk that our operations in and continued expansion into international markets bring additional business, political, regulatory, operational, financial and economic risks;
•our inability to adequately adapt our technology systems to ingest and deliver sufficient new content;
•the risk of technological interruptions or cybersecurity vulnerabilities;
•the inability to expand our operations into new products, services and technologies and to increase customer and supplier awareness of new and emerging products and services;
•the loss of and inability to attract and retain key personnel that could negatively impact our business growth;
•the inability to protect the proprietary information of customers and networks against security breaches and protect and enforce intellectual property rights;
•our reliance on third parties;
•the risks related to our use of independent contractors;
•the risk that an increase in government regulation of the industries and markets in which we operate could negatively impact our business;
•the impact of worldwide and regional political, military or economic conditions, including declines in foreign currencies in relation to the value of the U.S. dollar, hyperinflation, higher interest rates, devaluation the impact of recent bank failures on the marketplace and the ability to access credit and significant political or civil disturbances in international markets where we conduct business;
•the risk that claims, lawsuits and other proceedings that have been, or may be, instituted against us or our predecessors could adversely affect our business;
•the inability to maintain the listing of our Class A common stock on the New York Stock Exchange;
•volatility in our stock price and in the liquidity of the trading market for our Class A Common Stock;
•the risk that the COVID-19 pandemic and efforts to reduce its spread impacts our business, financial condition, cash flows and operation results more significantly than currently expected;
•changes in applicable laws or regulations;
•the risks associated with evolving corporate governance and public disclosure requirements;
•the risk of greater than anticipated tax liabilities;
•the risks associated with the storage and use of personally identifiable information;
•earnings-related risks such as those associated with late payments, goodwill or other intangible assets;
•our ability to obtain additional capital on commercially reasonable terms;
•the risks associated with being an “emerging growth company” within the meaning of the Securities Act of 1933, as amended;
•risks associated with our reliance on information technology in critical areas of our operations;
•our inability to pay dividends for the foreseeable future;
•the risks associated with additional issuances of Class A Common Stock without stockholder approval;
•costs related to operating as a public company; and
•those factors discussed under the heading “Item 1.A. Risk Factors” of our most recently filed Annual Report on Form 10-K.
If any of these risks materialize or our assumptions prove incorrect, actual results could differ materially from the results implied by these forward-looking statements.
These and other factors that could cause actual results to differ from those implied by the forward-looking statements in this report are more fully described under the heading “Item 1.A. Risk Factors” in our most recently filed Annual Report on Form 10-K and in our other filings with the SEC. The risks described under the heading “Item 1.A. Risk Factors” in our most recently filed Annual Report on Form 10-K are not exhaustive. New risk factors emerge from time to time and it is not possible to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing cautionary statements. We undertake no obligations to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
In addition, the statements of belief and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us, as applicable, as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and you are cautioned not to unduly rely upon these statements.
GETTY IMAGES HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and par value data)
(unaudited)
| March 31, 2023 | December 31, 2022 | ||||||||||
| ASSETS | |||||||||||
| CURRENT ASSETS: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash | |||||||||||
Accounts receivable – net of allowance of $ | |||||||||||
| Prepaid expenses | |||||||||||
| Taxes receivable | |||||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
| PROPERTY AND EQUIPMENT – NET | |||||||||||
| RIGHT OF USE ASSETS | |||||||||||
| GOODWILL | |||||||||||
| IDENTIFIABLE INTANGIBLE ASSETS – NET | |||||||||||
| DEFERRED INCOME TAXES – NET | |||||||||||
| OTHER LONG-TERM ASSETS | |||||||||||
| TOTAL | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| CURRENT LIABILITIES: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued expenses | |||||||||||
| Income taxes payable | |||||||||||
| Deferred revenue | |||||||||||
| Total current liabilities | |||||||||||
| LONG-TERM DEBT – NET | |||||||||||
| LEASE LIABILITIES | |||||||||||
| DEFERRED INCOME TAXES – NET | |||||||||||
| UNCERTAIN TAX POSITIONS | |||||||||||
| OTHER LONG-TERM LIABILITIES | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies (Note 7) | |||||||||||
| STOCKHOLDERS’ EQUITY: | |||||||||||
Class A common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated deficit | ( | ( | |||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Total Getty Images Holdings, Inc. stockholders’ equity | |||||||||||
| Noncontrolling interest | |||||||||||
| Total stockholders’ equity | |||||||||||
| TOTAL | $ | $ | |||||||||
See notes to unaudited condensed consolidated financial statements.
1
GETTY IMAGES HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(unaudited)
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| REVENUE | $ | $ | |||||||||
| OPERATING EXPENSE: | |||||||||||
| Cost of revenue (exclusive of depreciation and amortization shown separately below) | $ | ||||||||||
| Selling, general and administrative expenses | |||||||||||
| Depreciation | |||||||||||
| Amortization | |||||||||||
| Other operating expense – net | |||||||||||
| Operating expense | |||||||||||
| INCOME FROM OPERATIONS | |||||||||||
| OTHER EXPENSE, NET: | |||||||||||
| Interest expense | ( | ( | |||||||||
| (Loss) gain on fair value adjustment for swaps and foreign currency exchange contract – net | ( | ||||||||||
| Unrealized foreign exchange (loss) gains – net | ( | ||||||||||
| Other non-operating expense – net | |||||||||||
| Total other expense – net | ( | ( | |||||||||
| INCOME BEFORE INCOME TAXES | |||||||||||
| INCOME TAX EXPENSE | ( | ( | |||||||||
| NET INCOME | |||||||||||
| Less: | |||||||||||
| Net income attributable to noncontrolling interest | |||||||||||
| Redeemable Preferred Stock dividend | |||||||||||
| NET INCOME ATTRIBUTABLE TO GETTY IMAGES HOLDINGS, INC. | $ | $ | |||||||||
| Net income per share attributable to Class A Getty Images Holdings, Inc. common stockholders: | |||||||||||
| Basic | $ | $ | |||||||||
| Diluted | $ | $ | |||||||||
| Weighted-average Class A common shares outstanding: | |||||||||||
| Basic | |||||||||||
| Diluted | |||||||||||
See notes to unaudited condensed consolidated financial statements.
2
GETTY IMAGES HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(unaudited)
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| NET INCOME | |||||||||||
| OTHER COMPREHENSIVE INCOME (LOSS): | |||||||||||
| Net foreign currency translation adjustment gains (losses) | ( | ||||||||||
| COMPREHENSIVE INCOME | |||||||||||
| Less: Comprehensive gain attributable to noncontrolling interest | |||||||||||
| COMPREHENSIVE INCOME ATTRIBUTABLE TO GETTY IMAGES HOLDINGS, INC. | $ | $ | |||||||||
See notes to unaudited condensed consolidated financial statements.
3
GETTY IMAGES HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(In thousands except share amounts)
(unaudited)
| Class A Common Stock | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total Getty Images Holdings, Inc. Stockholders’ Equity | Noncontrolling Interest | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE - December 31, 2022 | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Net foreign currency translation adjustment gains in comprehensive income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with option exercises | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Equity-based compensation activity | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| BALANCE - March 31, 2023 | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
4
GETTY IMAGES HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
(In thousands except share amounts)
(unaudited)
| Redeemable Preferred Stock | Class A Common Stock | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total Getty Images Holdings, Inc. Stockholders’ Deficit | Noncontrolling Interest | Total Stockholders’ Deficit | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE — December 31, 2021 | $ | $ | $ | $ | ( | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Retroactive application of recapitalization | ( | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE — December 31, 2021, after effect of recapitalization (Note 2) | $ | $ | $ | $ | ( | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net foreign currency translation adjustment gains in comprehensive loss | — | — | — | — | — | — | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cumulative effect of accounting change- adoption of ASU 2019-12 | — | — | — | — | — | ( | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with option exercises | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity-based compensation activity | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Redeemable Preferred Stock dividend | — | — | ( | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE — March 31, 2022 | $ | $ | $ | $ | ( | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
See notes to unaudited condensed consolidated financial statements.
5
GETTY IMAGES HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation | |||||||||||
| Amortization | |||||||||||
| Unrealized exchange loss (gains) on foreign denominated debt | ( | ||||||||||
| Equity-based compensation | |||||||||||
| Deferred income taxes – net | ( | ||||||||||
| Uncertain tax positions | |||||||||||
| Non-cash fair value adjustment for swaps and foreign currency exchange contracts | ( | ||||||||||
| Amortization of debt issuance costs | |||||||||||
| Non cash operating lease costs | |||||||||||
| Impairment of right of use assets | |||||||||||
| Other | |||||||||||
| Changes in current assets and liabilities: | |||||||||||
| Accounts receivable | ( | ||||||||||
| Accounts payable | |||||||||||
| Accrued expenses | ( | ( | |||||||||
| Lease liabilities, non-current | ( | ( | |||||||||
| Income taxes receivable/payable | ( | ||||||||||
| Interest Payable | ( | ( | |||||||||
| Deferred revenue | |||||||||||
| Other | ( | ( | |||||||||
| Net cash provided by operating activities | |||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
| Acquisition of property and equipment | ( | ( | |||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
| Repayment of debt | ( | ( | |||||||||
| Proceeds from common stock issuance | |||||||||||
| Cash paid for equity issuance costs | ( | ( | |||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| EFFECTS OF EXCHANGE RATE FLUCTUATIONS | ( | ||||||||||
| NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | |||||||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH – Beginning of period | |||||||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH – End of period | $ | $ | |||||||||
See notes to unaudited condensed consolidated financial statements.
6
GETTY IMAGES HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation — The Company’s accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial reporting.
The Business Combination in July of 2022 was accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under this method of accounting, CCNB was treated as the “acquired” company and Legacy Getty is treated as the acquirer for financial reporting purposes. The consolidated assets, liabilities and results of operations prior to the Business Combination are those of Legacy Getty. The shares and corresponding capital amounts and earnings per share, prior to the Business Combination, have been retroactively restated based on shares reflecting the exchange ratio established in the Business Combination.
The accompanying unaudited condensed consolidated financial statements include the accounts and operations of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Certain notes or other information that are normally required by U.S. GAAP have been omitted if they substantially duplicate the disclosures contained in the Company’s annual audited financial statements. Accordingly, these condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes in Item 8 of Part II, “Financial Statements and Supplementary Data,” of the Company's 2022 Annual Report on Form 10-K. The accompanying unaudited interim financial statements, in the opinion of management, include all normal and recurring adjustments necessary for a fair presentation of the Company’s unaudited financial statements for the periods presented.
The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2023 or for any other future annual or interim period.
7
Cash, Cash Equivalents and Restricted Cash — The following represents the Company’s cash, cash equivalents and restricted cash as of March 31, 2023 and December 31, 2022 (in thousands):
| As of March 31, 2023 | As of December 31, 2022 | ||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash | |||||||||||
| Total cash, cash equivalents and restricted cash | $ | $ | |||||||||
Cash equivalents are short-term, highly liquid investments that are both readily convertible to cash and have maturities at the date of acquisition of three months or less. Cash equivalents are generally composed of investment-grade debt instruments subject to lower levels of credit risk, including certificates of deposit and money market funds. The Company’s current cash and cash equivalents consist primarily of cash on hand, bank deposits, and money market accounts.
Restricted cash consists primarily of cash held as collateral related to corporate credit cards and real estate lease obligations.
Accounts Receivable — Net — Accounts receivable are trade receivables, net of reserves for allowances for doubtful accounts totaling $6.8 million as of March 31, 2023 and $6.5 million as of December 31, 2022. The Company recorded net bad debt expense of $0.5 million and $0.4 million for the three months ended March 31, 2023 and 2022, respectively.
Allowance for doubtful accounts is calculated based on historical losses, existing economic conditions, and analysis of specific older account balances of customer and delegate accounts. Trade receivables are written off when collection efforts have been exhausted.
Minority Investment without Readily Determinable Fair Value — The carrying amount of the minority investments, which is included within “Other long-term assets” on the Condensed Consolidated Balance Sheets, was $9.8 million and $9.6 million as March 31, 2023 and December 31, 2022, respectively. The Company uses the measurement alternative for these equity investments and their carrying value is reported at cost, adjusted for impairments or any observable price changes in ordinary transactions with identical or similar investments. Revenue related to content consumed by the minority investees was not material during the three months ended March 31, 2023 and 2022.
On a quarterly basis, the Company evaluates the carrying value of its long-term investments for impairment, which includes an assessment of revenue growth, earnings performance, working capital and general market conditions. As of March 31, 2023, no adjustments to the carrying values of the Company’s long-term investments were identified as a result of this assessment. Changes in performance negatively impacting operating results and cash flows of these investments could result in the Company recording an impairment charge in future periods.
Revenue Recognition — Revenue is derived principally from licensing rights to use images, video footage and music that are delivered digitally over the internet. Digital content licenses are generally purchased on a monthly or annual subscription basis, whereby a customer either pays for a predetermined quantity of content or for access to the Company’s content library that may be downloaded over a specific period of time, or, on a transactional basis, whereby a customer pays for individual content licenses at the time of download. Also, a significant portion of revenue is generated through the sale and subsequent use of credits. Various amounts of credits are required to license digital content.
The Company maintains a credit department that sets and monitors credit policies that establish credit limits and ascertains customer creditworthiness, thus reducing the risk of potential credit loss. Revenue is not recognized unless it is determined that collectability is reasonably assured. Revenue is recorded at invoiced amounts (including discounts and applicable sales taxes) less an allowance for sales returns, which is based on historical information. Customer payments received in advance of revenue recognition are contract liabilities and are recorded as deferred revenue. Customers that do not pay in advance are invoiced and are required to make payments under standard credit terms.
8
The Company recognizes revenue under the core principle to depict the transfer of control to the Company’s customers in an amount reflecting the consideration to which the Company expects to be entitled. In order to achieve that core principle, the Company applies the following five-step approach: (i) identify the contract with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when a performance obligation is satisfied.
For digital content licenses, the Company recognizes revenue on both its capped subscription-based, credit-based sales and single image licenses when content is downloaded, at which time the license is provided. In addition, management estimates expected unused licenses for capped subscription-based and credit-based products and recognizes the revenue associated with the unused licenses throughout the subscription or credit period. The estimate of unused licenses is based on historical download activity and future changes in the estimate could impact the timing of revenue recognition of the Company’s subscription products.
For uncapped digital content subscriptions, the Company has determined that access to the existing content library and future digital content updates represent two separate performance obligations. As such, a portion of the total contract consideration related to access to the existing content library is recognized as revenue at the commencement of the contract when control of the content library is transferred. The remaining contractual consideration is recognized as revenue ratably over the term of the contract when updated digital content is transferred to the licensee, in line with when the control of the new content is transferred.
Recently Adopted Accounting Standard Updates — There were no new accounting standards adopted during the quarter ended March 31, 2023 that had a material impact on our financial position or results of operations.
Recently Issued Accounting Standard Updates — The Company implemented new applicable accounting pronouncements that are in effect and does not believe that there are any other new pronouncements that have been issued that might have a material impact on the Company's financial position or results of operations.
3. DERIVATIVE INSTRUMENTS
Interest Rate Risk — The Company does not hold or issue derivative financial instruments for trading purposes. In general, the Company’s derivative activities do not create interest rate risk because fluctuations in the value of the instruments used for economic hedging purposes are offset by fluctuations in the value of the underlying exposures being hedged. Counterparties to derivative financial instruments expose the Company to credit related losses in the event of nonperformance; however, the Company has entered into these instruments with creditworthy financial institutions and considers the risk of nonperformance to be minimal.
The following table summarizes the location and fair value amounts of derivative instruments reported in the Condensed Consolidated Balance Sheets (in thousands):
| As of March 31, 2023 | As of December 31, 2022 | ||||||||||||||||||||||
| Asset | Liability | Asset | Liability | ||||||||||||||||||||
| Derivatives not designated as hedging instruments: | |||||||||||||||||||||||
| Interest rate swaps | $ | $ | $ | $ | |||||||||||||||||||
| Total derivatives | $ | $ | $ | $ | |||||||||||||||||||
Short-term derivative assets are included in “Other current assets” and long-term derivative assets are included in “Other long-term assets” on the Condensed Consolidated Balance Sheet.
The Company recognized a net loss of $2.1 million and gain of $12.1 million on the derivative instruments for the three months ended March 31, 2023 and 2022, respectively. These are included in “(Loss) gain on fair value adjustment for swaps and foreign currency exchange contract – net” on the Condensed Consolidated Statement of Operations.
9
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company’s disclosable financial instruments consist of cash equivalents, interest rate swaps, and debt. Assets and liabilities measured at fair value on a recurring basis (cash equivalents and interest rates) and a nonrecurring basis (debt) are categorized in the tables below.
Financial instrument assets recorded at fair value as of March 31, 2023 and December 31, 2022 are as follows (in thousands):
| As of March 31, 2023 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Money market funds (cash equivalents) | $ | $ | $ | $ | |||||||||||||||||||
| Derivative assets: | |||||||||||||||||||||||
| Interest rate swaps | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
| As of December 31, 2022 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Money market funds (cash equivalents) | $ | $ | $ | $ | |||||||||||||||||||
| Derivative assets: | |||||||||||||||||||||||
| Interest rate swaps | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
The fair value of the Company’s money market funds is based on quoted active market prices for the funds and is determined using the market approach. The fair value of the Company’s interest rate swap contracts are based on market quotes provided by the counterparty. Quotes by the counterparty are calculated based on observable current rates and forward interest rate curves. The Company recalculates and validates this fair value using publicly available market inputs using the market approach.
Financial instrument liabilities recorded or disclosed at fair value as of March 31, 2023 and December 31, 2022 are as follows (in thousands):
| As of March 31, 2023 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Term Loans | $ | $ | $ | $ | |||||||||||||||||||
| Senior Notes | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
| As of December 31, 2022 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Term Loans | $ | $ | $ | $ | |||||||||||||||||||
| Senior Notes | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
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5. OTHER ASSETS AND LIABILITIES
Other Long-Term Assets — Other long-term assets consisted of the following at the reported Balance Sheet dates (in thousands):
| As of March 31, 2023 | As of December 31, 2022 | ||||||||||
| Long term note receivable from a related party | $ | $ | |||||||||
| Minority and other investments | |||||||||||
| Tax receivable | |||||||||||
| Equity method investment | |||||||||||
| Long term deposits | |||||||||||
| Other | |||||||||||
| $ | $ | ||||||||||
Accrued Expenses — Accrued expenses at the reported Balance Sheet dates are summarized below (in thousands):
| As of March 31, 2023 | As of December 31, 2022 | ||||||||||
| Accrued compensation and related costs | $ | $ | |||||||||
| Interest payable | |||||||||||
| Accrued professional fees | |||||||||||
| Other | |||||||||||
| $ | $ | ||||||||||
6. DEBT
Debt included the following (in thousands):
| As of March 31, 2023 | As of December 31, 2022 | ||||||||||
| Senior Notes | $ | $ | |||||||||
| USD Term Loans | |||||||||||
| EUR Term Loans | |||||||||||
| Less: issuance costs and discounts amortized to interest expense | ( | ( | |||||||||
| Long-term debt – net | $ | $ | |||||||||
The face value of the EUR Term Loans was €419.0
As of March 31, 2023, the Company was compliant with all debt covenants and obligations.
7. COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Company enters into certain types of agreements that contingently require the Company to indemnify counterparties against third-party claims. The nature and terms of these indemnifications vary from contract to contract, and generally a maximum obligation is not stated. Because management does not believe a material liability is probable, no related liabilities were recorded at March 31, 2023 and December 31, 2022.
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The Company is subject to a variety of legal claims and suits that arise from time to time in the ordinary course of business. Although management currently believes that resolving such claims, individually or in aggregate, will not have a material adverse impact on the condensed consolidated financial statements, these matters are subject to inherent uncertainties and management’s view of these matters may change in the future. The Company holds insurance policies that mitigate potential losses arising from certain indemnifications, and historically, significant costs related to performance under these obligations have not been incurred.
The Company has open tax audits in various jurisdictions and some of these jurisdictions require taxpayers to pay assessed taxes in advance or at the time of appealing such assessments. One such jurisdiction is Canada, where one of the Company’s subsidiary, iStockphoto ULC, received a tax assessment from the Canada Revenue Agency (“CRA”) in March 2023. Furthermore, the CRA has communicated additional taxes will be assessed shortly. The position taken by the CRA is related to the transactions between iStockphoto ULC and other affiliates within the Getty Images group for the 2015 Canadian income tax return filed.
As part of the appeal process in Canada, the Company may be required to pay a portion of the assessment amount, which could be up to $17.0 million in 2023. Such required payment is not an admission that the Company believes it is subject to such taxes. The Company believes that the assessment is baseless and intends to appeal and vigorously contest the assessment. The Company believes it is more likely than not it will prevail on appeal, however, if the CRA were to be successful in the appeal process, the maximum potential outcome could be up to $25.0 million.
8. REVENUE
The Company distributes its content and services offerings through three primary products:
Creative — Creative, is comprised of royalty free (“RF”) photos, illustrations, vectors and videos, that are released for commercial use and cover a wide variety of commercial, conceptual and contemporary subjects, including lifestyle, business, science, health, wellness, beauty, sports, transportation and travel. This content is available for immediate use by a wide range of customers with a depth, breadth and quality allowing our customers to produce impactful websites, digital media, social media, marketing campaigns, corporate collateral, textbooks, movies, television and online video content relevant to their target geographies and audiences. We primarily source Creative content from a broad network of professional, semi-professional and amateur creators, many of whom are exclusive to Getty Images. We have a global creative insights team dedicated to providing briefing and art direction to our exclusive contributor community.
Editorial — Editorial, is comprised of photos and videos covering the world of entertainment, sports and news. We combine contemporary coverage of events around the globe and have one of the largest privately held archives globally with access to images from the beginning of photography. We invest in a dedicated editorial team which includes over 115 staff photographers and videographers to generate our own coverage in addition to coverage from our network of content partners.
Other — The Company offers a range of additional products and services to deepen the customer relationships, enhance customer loyalty and create additional differentiation in the market. These additional products and services currently include music licensing, digital asset management and distribution services, print sales and data licensing.
The following table summarizes the Company’s revenue by product (in thousands):
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Creative | $ | $ | |||||||||
| Editorial | |||||||||||
| Other | |||||||||||
| Total Revenue | $ | $ | |||||||||
The March 31, 2023 deferred revenue balance will be earned as content is downloaded, services are provided or upon the expiration of subscription-based products, and nearly all is expected to be earned within the next twelve months. During the three months ended March 31, 2023, the Company recognized revenue of $82.8 million, that had been included in deferred revenue as of January 1, 2023.
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9. EQUITY—BASED COMPENSATION
Equity-based compensation expense is recorded in “Selling, general and administrative expenses” in the Condensed Consolidated Statements of Operations, net of estimated forfeitures. The Company recognized equity-based compensation - net of estimated forfeitures of $6.8 million and $1.7 million for the three months ended March 31, 2023 and 2022, respectively. The Company capitalized $0.7 million of stock-based compensation expense associated with the cost of developing internal-use software during the three months ended March 31, 2023.
The Getty Images Holdings, Inc. 2022 Equity Incentive Plan (“2022 Plan”) provides for the grant of stock options, including incentive stock options and nonqualified stock options, stock appreciation rights, restricted stock, dividend equivalents, restricted stock units (“RSU”) and other stock or cash-based awards. Equity-based awards generally vest over or four years . Under the 2022 Plan, up to 51,104,577 shares of Class A common stock is reserved for issuance, of which 7,878,787 are available to be issued as of March 31, 2023.
Stock Options — The following tables presents a summary of the Company’s stock option activity for the three months ended March 31, 2023 (in thousands except weighted average data and years):
| Weighted | Remaining | ||||||||||||||||
| Number | Average | Average | |||||||||||||||
| of | Exercise | Contractual | |||||||||||||||
| awards | Price | Life (in Years) | |||||||||||||||
| Outstanding — December 31, 2022 | $ | ||||||||||||||||
| Granted | |||||||||||||||||
| Exercised | ( | ||||||||||||||||
| Pre-vesting forfeitures | ( | ||||||||||||||||
| Post-vesting cancellations | |||||||||||||||||
| Outstanding – March 31, 2023 | |||||||||||||||||
| Exercisable – March 31, 2023 | $ | ||||||||||||||||
| Vested and expected to vest after March 31, 2023 | $ | ||||||||||||||||
Intrinsic value of stock options is calculated as the excess of market price of the Company’s common stock over the strike price of the stock options, multiplied by the number of stock options. The intrinsic value of the Company’s stock options is as follows (in thousands):
| March 31, | December 31, | ||||||||||
| 2023 | 2022 | ||||||||||
| Stock options outstanding | $ | $ | |||||||||
| Stock options exercisable | $ | $ | |||||||||
| Stock options vested and expected to vest | $ | $ | |||||||||
The intrinsic value of stock options exercised for the three months ended March 31, 2023 was approximately $2.6 million. The intrinsic value of stock options exercised in the three months ended March 31, 2022 was insignificant.
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| Three Months Ended | |||||
| March 31, 2023 | |||||
| Weighted average grant date fair value per award | $ | ||||
| Valuation model used | Black-Scholes | ||||
| Expected award price volatility | % | ||||
| Risk-free rate of return | % | ||||
| Expected life of awards | |||||
| Expected rate of dividends | None | ||||
The stock volatility assumption for award-based compensation is based on historical volatilities of the common stock of several public companies with characteristics similar to those of the Company since the Company’s common stock has only been trading in the public market for a short period of time.
The risk-free rate of return represents the implied yield available during the month the award was granted for a U.S. Treasury zero-coupon security issued with a term equal to the expected life of the awards.
The expected life is measured from the grant date and is based on the simplified method calculation.
As of March 31, 2023 there was $9.5 million of total unrecognized compensation expense related to outstanding stock options, which the Company expects to recognize over a weighted average period of approximately 2.60 years.
Restricted Stock Units (including PRSUs) — The following table presents a summary of RSU activity (in thousands except weighted average data):
| Number | |||||||||||
| of | Weighted Average | ||||||||||
| awards | Grant-Date Fair Value | ||||||||||
| Outstanding — December 31, 2022 | $ | ||||||||||
| Granted | $ | ||||||||||
| Vested | ( | $ | |||||||||
| Cancelled | ( | $ | |||||||||
| Outstanding – March 31, 2023 | $ | ||||||||||
As of March 31, 2023, the total unrecognized compensation expense related to restricted stock units is approximately $32.7 million, which is expected to be recognized over a weighted average period of approximately 2.84 years .
Performance Stock Units — The following table presents a summary of PSU activity (in thousands except weighted average data):
| Number | |||||||||||
| of | Weighted Average | ||||||||||
| awards | Grant-Date Fair Value | ||||||||||
| Outstanding — December 31, 2022 | $ | ||||||||||
| Granted | $ | ||||||||||
| Vested | $ | ||||||||||
| Cancelled | $ | ||||||||||
| Outstanding – March 31, 2023 | $ | ||||||||||
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10. INCOME TAXES
The Company recorded an income tax expense of $3.2 million for the three months ended March 31, 2023, as compared to income tax expense of $13.1 million for the three months ended March 31, 2022. The decrease in tax expense compared to the prior year is primarily due to a change in valuation allowance. The provision for income taxes for interim periods is determined using an estimate of the Company’s annual effective rate. Any changes to the estimated annual rate are recorded in the interim period in which the change occurs.
The Company’s effective income tax rate for the three months ended March 31, 2023 is 50.2 %. The most significant drivers of the difference between the Company’s 2023 statutory U.S. federal income tax rate of 21.0% and the Company’s effective tax rate are primarily due to jurisdictions with losses for which no tax benefit can be recognized and foreign withholding tax expense not analogous to pre-tax income. The effective income tax rate for the three months ended March 31, 2022 was 34.3 %. The most significant drivers of the difference between the Company’s 2022 statutory U.S. federal income tax rate of 21.0% and the Company’s effective tax rate are primarily due to jurisdictions with losses for which no tax benefit can be recognized and foreign withholding tax expense not analogous to pre-tax income.
11. NET INCOME PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS
The following table sets forth the computation of basic and diluted income per share of Class A common stock (amounts in thousands, except share and per share amounts):
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| NET INCOME | $ | $ | |||||||||
| Less: | |||||||||||
| Net income attributable to noncontrolling interest | |||||||||||
| Redeemable Preferred Stock dividend | |||||||||||
| NET INCOME ATTRIBUTABLE TO GETTY IMAGES HOLDINGS, INC. | $ | $ | |||||||||
| Weighted-average Class A common stock outstanding: | |||||||||||
| Basic | |||||||||||
| Effect of dilutive securities | |||||||||||
| Diluted | |||||||||||
| Net income per share of Class A common stock attributable to Getty Images Holdings, Inc. common stockholders: | |||||||||||
| Basic | $ | $ | |||||||||
| Diluted | $ | $ | |||||||||
The following are excluded from the computation of diluted net income per share of Class A common stock for the three months ended March 31, 2023 as their effect would have been anti-dilutive:
| March 31, | |||||
| 2023 | |||||
| Common stock options | |||||
| Restricted stock units | |||||
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12. SUBSEQUENT EVENTS
On May 4th 2023, the Company amended the existing senior secured credit facility to among other things, (i) upsize the total amount of commitments under the revolving credit facility capacity from $80.0 million to $150.0 million; and (ii) extend the maturity of the revolving credit facility until May 4, 2028. The revolving credit facility remains undrawn.
In addition, on May 10, 2023, the Company used $20.0 million of cash to repay a portion of the USD Term Loans.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Unless otherwise indicated or the context otherwise requires, references in this section to the “Company,” “Getty Images,” “we,” “us,” “our” and other similar terms refer to Getty Images Holdings, Inc. and its subsidiaries after completion of the Business Combination (as defined below) and Griffey Global Holdings, Inc., a Delaware corporation ("Legacy Getty"), prior to the completion of the Business Combination. The following discussion and analysis of the financial condition and results of operations of Getty Images should be read together with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. The discussion should also be read together with the "Cautionary Note Regarding Forward-Looking Statements" in this Quarterly Report on Form 10-Q, and the “Item 1.A. Risk Factors” section and historical audited annual consolidated financial statements of Getty Images Holdings, Inc. as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020 and the respective notes thereto, included in our most recently filed Annual Report on Form 10-K (the "2022 Form 10-K").
Business Overview and Recent Developments
In 1995, Mark Getty and Jonathan Klein co-founded the predecessor to Getty Images, Inc. in London. In September 1997, Getty Communications, as it was called at the time, merged with PhotoDisc, Inc. to form Getty Images, Inc. Legacy Getty was incorporated in Delaware on September 25, 2012, and in October of the same year, indirectly acquired Getty Images, Inc.
On July 22, 2022 (the “Closing Date”), the Company consummated the transactions in the Business Combination Agreement, dated December 9, 2021 (the “Business Combination Agreement” and the consummation of such transactions, the “Closing”), by and among CC Neuberger Principal Holdings II, a Cayman Islands exempted company (“CCNB”), the Company (at such time, Vector Holding, LLC, a Delaware limited liability company and wholly-owned subsidiary of CCNB), Vector Domestication Merger Sub, LLC, a Delaware limited liability company and wholly-owned subsidiary of the Company (“Domestication Merger Sub”), Vector Merger Sub 1, LLC, a Delaware limited liability company and a wholly-owned subsidiary of CCNB (“G Merger Sub 1”), Vector Merger Sub 2, LLC, a Delaware limited liability company and a wholly-owned subsidiary of CCNB (“G Merger Sub 2”), Griffey Global Holdings, Inc., a Delaware corporation (“Legacy Getty”), and Griffey Investors, L.P., a Delaware limited partnership (the “Partnership”). On the day prior to the Closing Date, the Company statutorily converted from a Delaware limited liability company to a Delaware corporation (the “Statutory Conversion”). On the Closing Date, CCNB merged with and into Domestication Merger Sub, with Domestication Merger Sub surviving the merger as a wholly-owned direct subsidiary of the Company (the “Domestication Merger”). Following the Domestication Merger on the Closing Date, G Merger Sub 1 merged with and into Legacy Getty, with Legacy Getty surviving the merger as an indirect wholly-owned subsidiary of the Company (the “First Getty Merger”). Immediately after the First Getty Merger, Legacy Getty merged with and into G Merger Sub 2 with G Merger Sub 2 surviving the merger as an indirect wholly-owned subsidiary of the Company (the “Second Getty Merger” and together with the First Getty Merger, the “Getty Mergers” and, together with the Statutory Conversion and the Domestication Merger, the “Business Combination”).
Getty Images is a preeminent global visual content creator and marketplace. Through Getty Images, iStock, and Unsplash, we offer a full range of content solutions to meet the needs of any customer—no matter their size—around the globe, with over 534 million assets available through its industry-leading sites. New content and coverage is added daily, with 8-10 million new assets added each quarter and over 2.7 billion searches annually. The Company had more than 828,000 purchasing customers, with customers from almost every country in the world with websites in 23 languages bringing the world’s best content to media outlets, advertising agencies and corporations of all sizes and, increasingly, serving individual creators and prosumers.
In support of its content, Getty Images employs over 115 staff photographers and videographers, distributes the content of over 527,000 contributors and more than 310 premium content partners. Over 80,000 of our contributors are exclusive to the Company, creating content that can’t be found anywhere else. Each year, we cover more than 160,000 global events across news, sport and entertainment, providing a depth and breadth of coverage that is unmatched. Getty Images also maintains one of the largest and best privately-owned photographic archives in the world with over 135 million images across geographies, time periods and verticals.
Through our content and coverage, Getty Images moves the world — whether the goal is commercial or philanthropic, revenue-generating or society-changing, market-disrupting or headline-driving. Through our staff, our exclusive
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contributors and partners, and our expertise, data and research, Getty Images’ content grabs attention, sheds light, represents communities and reminds us of our history.
We offer comprehensive content solutions including a la carte (“ALC”) and subscription access to our pre- shot content and coverage, custom content and coverage solutions, digital asset management tools, data insights, research, and print offerings.
For over 28 years, Getty Images has embraced innovation; from analogue to digital, from offline to e-commerce, from stills to video, from single image purchasing to subscriptions, from websites to application programming interfaces (“APIs”). With quality content at the core of our offerings, we embrace innovation as a means to better service our existing customers and to reach new ones.
Creative
Creative, is comprised of royalty free (“RF”) photos, illustrations, vectors and videos, that are released for commercial use and cover a wide variety of commercial, conceptual and contemporary subjects, including lifestyle, business, science, health, wellness, beauty, sports, transportation and travel. This content is available for immediate use by a wide range of customers with a depth, breadth and quality allowing our customers to produce impactful websites, digital media, social media, marketing campaigns, corporate collateral, textbooks, movies, television and online video content relevant to their target geographies and audiences. We primarily source Creative content from a broad network of professional, semi-professional and amateur creators, many of whom are exclusive to Getty Images. We have a global creative insights team dedicated to providing briefing and art direction to our exclusive contributor community. Creative represents 62.2% and 64.2% of our revenue of which 49.4% and 45.2% is generated through our annual subscription products, for the three months ended March 31, 2023 and 2022, respectively. Annual Subscription products include products and subscriptions with a duration of 12 months or longer, Unsplash API and Custom Content.
Editorial
Editorial, is comprised of photos and videos covering the world of entertainment, sports and news. We combine contemporary coverage of events around the globe with one of the largest privately held archives globally with access to images from the beginning of photography. We invest in a dedicated editorial team which includes over 115 staff photographers and videographers to generate our own coverage in addition to coverage from our network of content partners. Editorial represents 35.9% and 34.1% of our revenue, of which 53.4% and 54.3% is generated through our annual subscription products, for the three months ended March 31, 2023 and 2022, respectively. Annual Subscription products include subscriptions with a duration of 12 months or longer.
Other
Other represents 1.9% and 1.7% of our revenue for the three months ended March 31, 2023 and 2022, respectively. This includes music licensing, digital asset management and distribution services, print sales and data licensing.
We service a full range of customers through our industry-leading brands and websites:
Getty Images
Gettyimages.com offers premium creative content and editorial coverage, including video, with exclusive content, and customizable rights and protections. This site primarily serves larger enterprise agency, media and corporate customers with global customer support from our sales and service teams. Customers can purchase on an ALC basis or through our content subscriptions, including our “Premium Access” subscription, where we uniquely offer frictionless access across all of our content in one solution.
iStock
iStock.com is our budget-conscious e-commerce offering our customers access to creative stills and video, which includes exclusive content. This site primarily serves SMBs, including the growing freelance market. Customers can purchase on an ALC basis or through a range of monthly and annual subscription options with access to an extensive amount of unique and exclusive content.
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Unsplash
Unsplash.com is a platform offering free stock photo downloads and paid subscriptions targeted to the high-growth prosumer and semi-professional creator segments. The Unsplash website reaches a significant and geographically diverse audience with more than 99 million image downloads every month. This acquisition, which closed on April 1, 2021, expanded our presence across the full spectrum of the world’s growing creative community. On October 4, 2022, Unsplash launched Unsplash+, an unlimited paid subscription providing access to unique released content, in an ad-free environment and with expanded legal protections.
***
In addition to our websites, customers and partners can access and integrate our content, metadata and search capabilities via our APIs and through a range of mobile apps and plugins.
We are a critical intermediary between content suppliers and a broad set of customers. We compete against a broad range of stock licensing marketplaces, editorial news agencies, creative agencies, production companies, staff and freelance photographers and videographers, photo and video archives, freelance marketplaces and amateur content creators, creative tools and services and free sources. Getty Images’ unique offering and approach offers a strong value proposition to our customers and content contributors.
For customers:
•We offer a comprehensive suite of high quality, authentic content, purchase and licensing options and services to meet the needs of our customers, regardless of project requirements, needs or budgets.
•Our content sourcing and production, rights oversight, websites and content distribution are all supported by a unique, scalable cloud-based unified platform with powerful artificial intelligence/machine learning and data addressing all customers at scale.
•Customers can avoid the costly investment and environmental impact of producing content on their own. This can include costs incurred from staffing, travel and access, model and location, hardware and production, and editing.
•Customers do not have to wait for content to be produced and distributed and can avoid the difficulties and pitfalls of searching across the internet to locate and negotiate for rights to license or use specific content. Our best-in-class, scaled infrastructure offers customers a one-stop shop for instant content access and maneuverability.
•Customers licensing from Getty Images and iStock receive trusted copyright claim protections, model and property releases and the ability to secure the necessary clearances for their intended use of the content.
For content contributors:
•Access to a marketplace that reaches almost every country in the world, across all customer categories and sizes and generated annual royalties in excess of $220 million for the twelve months ended March 31, 2023.
•We maintain a dedicated and experienced creative insights team focused on understanding changes in customer demand, the visual landscape, the authentic portrayal of communities and cultures, and the evolution of core creative concepts. We work closely with leading organizations to augment our proprietary research and understanding of communities and cultures to provide content with authentic depiction. We convey this research to our exclusive contributors via actionable insights allowing them to invest in and create content that accurately caters to changing consumer demand and up to date market trends.
•Not only do we provide exclusive contributors with scaled access to end markets and proprietary information, but we also provide premium royalty rates. This allows our exclusive contributors and partners to confidently invest more into their productions with the potential to generate higher returns.
•Partnering with Getty Images allows contributors to focus on content creation and avoid time and financial investment in the marketing, sales, distribution and management of their content.
Russia and Ukraine Conflict
Getty Images does not maintain a direct business or employee presence within Russia or Ukraine. Our in-country presence is limited to our editorial staff covering the conflict and broader consequences. Revenues generated through e-commerce and third-party licensing of our content within Russia and Ukraine represent less than 1% of our business. We do work with creative contributors within Ukraine and Russia, of which, the majority are non-exclusive to Getty Images. We continue to license their content and are complying with all sanctions and trade rules.
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Closing of the Business Combination
In connection with the Business Combination, on the Closing Date, Getty Images issued, (a) an aggregate of 66,000,000 Class A Common Shares for aggregate gross proceeds of $660.0 million and (b) 20,000,000 Class A Common Shares and 3,750,000 Forward Purchase Warrants (as defined in the notes to the consolidated financial statements included elsewhere in this Annual Report) for an aggregate purchase price of $200 million. The foregoing transactions resulted in aggregate gross proceeds to the Company of approximately $864.2 million, which included approximately $4.2 million remaining in the trust account. The Company used the proceeds, in addition to cash on hand, to repay a portion of its outstanding indebtedness and retire the Redeemable Preferred Stock of Legacy Getty. Each option to purchase shares of common stock of Legacy Getty (whether vested or unvested) was converted into a comparable option to purchase shares of Class A Common Stock of Getty Images.
In addition to the consideration paid at Closing, in the third quarter of 2022, in accordance with the Business Combination Agreement, the Company issued 58,999,956 shares of Class A Common Stock (Earn-Out Shares) to equity holders of Legacy Getty. See also “Note 5 — Common Stock Warrants” and “Note 16 — Stockholders’ Equity Deficit” in our consolidated financial statements included in our 2022 Form 10-K for additional information on transactions related to the Business Combination.
Key Performance Indicators (KPI)
The Key Performance Indicators outlined below are the metrics that provide management with the most immediate understanding of the drivers of business performance and our ability to deliver shareholder return, track to financial targets and prioritize customer satisfaction. Note, KPI comparisons to periods prior to trailing twelve-months March 31, 2023 reflect some COVID-19 impact.
Beginning with the three months ended September 30, 2022, the Company made two changes to its reporting that has some impact on reported KPI’s. First, activity for LATAM, Turkey and Israel, which was previously excluded from these metrics, is now included due to completion of a system migration. Additionally, the method by which we aggregate our customer accounts was updated to better align with our internal sales CRM system. We have not restated historical periods given the immaterial impact to the KPI’s, except for LTM total active annual subscribers and LTM annual subscriber revenue retention rate for which the legacy reporting format is detailed below.
Twelve Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
LTM total purchasing customers (thousands)1 | 829 | 825 | |||||||||
LTM total active annual subscribers (thousands)1 | 150 | 81 | |||||||||
LTM paid download volume (millions)1,2 | 95 | 89 | |||||||||
| LTM annual subscriber revenue retention rate | 99.8% | 104.6% | |||||||||
Image collection (millions)1 | 510 | 466 | |||||||||
| Video collection (millions) | 25 | 21 | |||||||||
LTM video attachment rate1,3 | 13.4% | 12.0% | |||||||||
________________________
1 The Company launched Unsplash+ during the three months ended December 31, 2022. This new Unsplash subscription will now be included within these KPIs from the launch date forward. The impact is not yet material.
2 Excludes downloads from Editorial Subscriptions, Editorial feeds and certain API structured deals, including bulk unlimited deals. Excludes downloads starting in Q3’22 tied to a two-year deal signed with Amazon in July 2022, as the magnitude of the potential download volume over the deal term could result in significant fluctuations in this metric without corresponding impact to revenue in the same period.
3The underlying calculation of this metric was changed versus previously reported metrics. This change was made to exclude the impact of downloader activity from our free trial subscriptions, which are skewed entirely to stills-only content.
Total purchasing customers is the count of total customers who made a purchase within the reporting period based on billed revenue. This metric provides management and investors with an understanding of both how we are growing our purchasing customer base and combined with revenue, an understanding of our average revenue per purchasing customer. This metric differs from total customers, which is a count of all downloading customers, irrespective of whether they made a purchase in the period. The increase in total purchasing customers reflects growth in new customers, consistency of purchasing patterns of our existing customers and our ability to produce relevant content for our customers.
Total active annual subscribers is the count of customers who were on an annual subscription product during the LTM reporting period. This metric provides management and investors with visibility into the rate at which we are growing our
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annual subscriber base and is highly correlated to the percentage of our revenue that comes from annual subscription products. Growth in annual subscribers reflects the Company’s deliberate focus on expanding its subscription offerings for customers to provide comprehensive content solutions across all price points. Absent the reporting changes noted above, LTM total active annual subscribers under legacy reporting would have been 135 thousand, up 66% from March 31, 2023 to March 31, 2022.
Paid download volume is a count of the number of paid downloads by our customers in the reported period. This metric informs both management and investors about the volumes at which customers are engaging with our content over time. Growth in paid download volumes is a signal that our content is continuing to meet the evolving needs of our customers. Paid download volume increased in the LTM ended March 31, 2023, as compared to the LTM ended March 31, 2022.
Annual subscriber revenue retention rate calculates retention of total revenue for customers on annual subscription products, comparing the customer’s total booked revenue (inclusive of both annual subscription and non-annual subscription products) in the LTM period to the prior twelve month period. For example, LTM annual subscriber booked revenue (the amount of revenue invoiced to customers) for the period ended March 31, 2023 was 99.8% of revenue from these customers in the period ended March 31, 2022. Revenue retention rate informs management and investors on the degree to which we are maintaining or growing revenue from our annual subscriber base. As we continue to focus on growing subscriptions as percentage of total revenue, revenue retention for these customers is a key driver of the predictability of our financial model with respect to revenue. LTM annual subscriber revenue retention rate decreased for the period ended March 31, 2023, as compared to the period ended March 31, 2022. This decrease was largely due to the LTM ended March 31, 2022 benefiting from the COVID impacted LTM ended March 31, 2021. Absent the reporting changes noted above, LTM annual subscriber retention rate under legacy reporting would have been 99.0%.
Image and Video collection is a count of the total images and videos in our content library as of the reporting date. Management and investors can view growth in the size, both depth and breadth, of the content library as an indication of our ability to continue to expand our content offering with premium, high quality, contemporary content to meet the evolving needs of our customers. Image and video collections increased during the period ended March 31, 2023 as compared to the period ended March 31, 2022.
Video attachment rate is a measure of the percentage of total paid customer downloaders who are video downloaders. Customer demand for video content continues to grow and represents a significant opportunity for revenue growth for Getty Images. The video attachment rate provides management and investors with an indication of our customers’ level of engagement with our video content offering. Our expansion of video across our subscription products is focused on further increasing the attachment rate over time. The increase in video attachment rates from the LTM period ended March 31, 2022 to the period ended March 31, 2023 reflects the increase in video demand from our customers.
Executive summary
Revenue
We generate revenue by licensing content to customers through multiple license models and purchase options, as well as by providing related services to our customers. The key image licensing model in the pre-shot market is RF. Content licensed on a RF basis is subject to a standard set of terms, allowing the customer to use the image for an unlimited duration and without limitation on the use or application. Within our video offering, we also offer a licensing model known as Rights-Ready. The Rights-Ready model offers a limited selection of broader usage categories, thus simplifying the purchase process.
In addition to licensing imagery and video, we also generate revenue from custom content solutions, photo and video assignments, music content in some of our subscriptions, print sales, data licensing and licensing our digital asset management systems to help customers manage their owned and licensed digital content.
References to “reported revenue” in this discussion and analysis are to our revenue as reported in our historical audited consolidated financial statements for the relevant periods and reflect the effect of changes in foreign currency exchange rates. References to “currency neutral” (“Currency Neutral” or “CN”) revenue growth (expressed as a percentage) in this section refer to our revenue growth (expressed as a percentage), excluding the effect of changes in foreign currency exchange rates. See “— Non-GAAP Financial Measures” for additional information regarding Currency Neutral revenue growth (expressed as a percentage).
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Cost of revenue (exclusive of depreciation and amortization shown separately below)
The ownership rights to the majority of the content we license are retained by the owners, and licensing rights are provided to us by a large network of content contributors and content partners. When we license content entrusted to us by content suppliers, we pay royalties to them at varying rates depending on the license model and the use of that content that our customers select. Suppliers who choose to work with us under contract typically receive royalties of 20% to 50% of the total license fee we charge customers, depending on the basis on which their content is licensed by our customers. We also own the copyright to certain content in our collections (wholly-owned content), including content produced by our staff photographers for our editorial product, for which we do not pay any third-party royalties. Cost of revenue includes certain costs of our assignment photo shoots, but excludes amortization associated with creating or buying content. Cost of revenue consists primarily of royalties owed to content contributors, comprised of photographers, filmmakers, third-party companies that license their collection of content through us (“Image Partners”) and third party music content providers. We expect our cost of revenue as a percentage of revenue to vary modestly based on changes in revenue mix by product, as royalty rates vary depending on license model and use of content.
Selling, general and administrative expenses
Selling, general and administrative expenses (“SG&A”) primarily consists of staff costs, marketing expense, occupancy costs, professional fees and other general operating charges. We expect our selling, general and administrative expenses to increase in absolute dollars but remain relatively constant as a percentage of revenue in the near term. Absolute dollar spending will increase as we continue to expand our operations and hire additional personnel to invest in our growth, in addition to incurring incremental expenses to comply with the additional requirements of being a public company. Lastly, we expect our marketing to increase in absolute dollars but to stay relatively constant as a percentage of revenue. However, the Company will continue to evaluate opportunities to incrementally invest in marketing as may be appropriate.
Depreciation
Depreciation expense consists of internally developed software, content and equipment depreciation. We record property and equipment at cost and reflect Balance Sheet balances net of accumulated depreciation. We record depreciation expense on a straight-line basis. We depreciate leasehold improvements over the shorter of the respective lives of the leases or the useful lives of the improvements.
We expect depreciation expense to remain stable as we continue to innovate and invest in the design, user experience and performance of our websites.
Amortization
Amortization expense consists of the amortization of intangible assets related to acquired customer relationships, trademarks and other intangible assets. We expect amortization expense to decrease in the coming years as some of our intangibles become fully amortized.
Factors affecting results of operations
A shift in the product mix of our revenue may affect our overall cost of revenue as a percentage of revenue. Our revenues and profitability are also subject to fluctuations in foreign exchange rates. The weakening or strengthening of our reporting currency, the U.S. dollar, during any given period as compared to currencies that we collect revenues in, most notably, the Euro and British pound, impacts our reported revenues.
Our future financial condition and results of operation will also be dependent upon various factors that generally affect the digital content industry, including the general trends affecting the media, marketing and advertising customer bases that we target, protection of intellectual property, and new and expanding technology such as generative artificial intelligence technologies. In addition, our financial condition and results of operation will continue to be affected by factors that affect internet commerce companies and by general macroeconomic factors such as the global uncertainty caused by, among other things, the military conflict between Russia and Ukraine, high interest rates, currency fluctuations, high inflation and labor shortages.
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| Results of Operations | ||
Consolidated statements of operations
| (In thousands) | Three Months Ended March 31, | increase (decrease) | ||||||||||||||||||||||||
| 2023 | 2022 | $ change | % change | |||||||||||||||||||||||
| Revenue | $ | 235,642 | $ | 230,978 | $ | 4,664 | 2.0 | % | ||||||||||||||||||
| Cost of revenue (exclusive of depreciation and amortization shown separately below) | 63,286 | 61,894 | 1,392 | 2.2 | % | |||||||||||||||||||||
| Selling, general and administrative expenses | 102,395 | 93,153 | 9,242 | 9.9 | % | |||||||||||||||||||||
| Depreciation | 13,023 | 12,512 | 511 | 4.1 | % | |||||||||||||||||||||
| Amortization | 7,207 | 12,205 | (4,998) | (41.0) | % | |||||||||||||||||||||
| Other operating expense – net | 279 | 2,706 | (2,427) | (90) | % | |||||||||||||||||||||
| Operating expense | 186,190 | 182,470 | 3,720 | 2.0 | % | |||||||||||||||||||||
| Income from operations | 49,452 | 48,508 | 944 | 1.9 | % | |||||||||||||||||||||
| Interest expense | (30,497) | (29,600) | (897) | 3.0 | % | |||||||||||||||||||||
| (Loss) gain on fair value adjustment for swaps and foreign currency exchange contract – net | (2,085) | 12,126 | (14,211) | (117.2) | % | |||||||||||||||||||||
| Unrealized foreign exchange (loss) gains – net | (10,922) | 7,043 | (17,965) | NM | ||||||||||||||||||||||
| Other non-operating expense – net | 488 | 157 | 331 | 211 | % | |||||||||||||||||||||
| Total other expense – net | (43,016) | (10,274) | ||||||||||||||||||||||||