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spk04: Good afternoon and welcome to the Getty Images second quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. We have allocated one hour for prepared remarks and Q&A. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. At this time, I would like to turn the conference over to Tessa O'Neill, Director of Treasury at Getty Images. Thank you. You may begin.
spk00: Good afternoon and welcome to the Getty Images second quarter 2022 earnings call. I am Tessa O'Neill and joining me on today's call are Craig Peters, Chief Executive Officer, and Jen Layden, Chief Financial Officer. Before we begin, we would like to remind you that this call will include forward-looking statements. within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to various risks, uncertainties and assumptions which could cause our actual results to differ materially from these statements. These risks, uncertainties and assumptions are highlighted in the forward-looking statements section of today's press release and in our filings with the SEC, including the final prospectus proxy statement filed with the SEC in connection with our business combination with CC Neuberger Principal Holdings too. Links to these filings and today's press release can be found on our investor relations website at investors.gettyimages.com. We undertake no obligation to revise or update any forward-looking statements or information except as required by law. During our call today, we'll also reference certain non-GAAP financial information, including adjusted EBITDA, adjusted EBITDA margin and free cash flow. We use non-GAAP measures in some of our financial discussions as we believe they represent our operational performance and underlying results of our business. The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for or superior to the financial information prepared and presented in accordance with GAAP and our non-GAAP measures may be different from non-GAAP measures used by other companies. Reconciliation of gap to non-gap measures, as well as the description, limitations, and rationale using each measure can be found in our other filings with the SEC. After our prepared remarks, we'll open the call for your questions. With that, I will hand the call over to our Chief Executive Officer, Craig Peters.
spk03: Thanks, Tessa, and thanks to all of you for joining us for Getty Images' second quarter 2022 earnings call. our first earnings call since returning to the public markets. We began trading on the New York Stock Exchange as G-E-T-Y on July 25th, and we're excited to be back in the public markets with a strong balance sheet. Before we take you through our Q2 results, I'd like to take a moment to share a quick introduction of our business for those who may be newer to our story. For more than 27 years, Getty Images has been a leading visual content creator and marketplace. We believe that we represent and produce the very best visual content. Quality, authentic content that is born from our unique expertise, creativity, and partnerships. Content that meaningfully engages those audiences our customers are targeting in an otherwise cluttered world. We do this through over 300 premium content partners, over 496,000 contributors, of which over 80,000 are exclusive to Getty Images, some amazing staff, and a recurring investment in our photographic archives that dates back to the beginning of photography and film. We believe we represent the largest and best path to market for visual creators. Through our premier brands, Getty Images, iStock, and Unsplash, we reach customers from some of the largest enterprise entities to the smallest businesses and individual creators. Just under half our revenue comes from annual subscription products with strong customer loyalty and revenue retention. We maintain deep integrations with internet platforms, and we do all of this on a global scale. We categorize our content and services into three categories, creative, editorial, and author. Creative represents around two-thirds of our revenue and includes photos, illustrations, vectors, and videos that are released for commercial use, covering a wide variety of subjects, including lifestyle, business, science, health, and audience. Editorial, which represents the other third of our revenue, includes photo, video, and our unmatched archive spanning the world of news, sports, and entertainment from red carpet events to sports to conflict zones and beyond. We continue to invest to generate our own coverage through an award-winning editorial team of nearly 300 dedicated staff. And we combine this with the coverage from our network of contributors, including over 50 premium editorial content partners. Other includes music licensing, digital asset management and distribution services, wall decor sales, and data products revenue. Getty Images is highly differentiated in its space through the depth, breadth, and quality of its offerings. We are deeply embedded with our customers And we believe we have a highly attractive business model positioned to deliver sustained profitable growth over the long term. Our market is driven by the needs of all businesses to maintain a vibrant digital presence. Businesses need to be on more platforms than ever before. They need to publish on these platforms more frequently than ever before. And these platforms are visual, with video increasingly at the forefront. It is a digital and visual world, and businesses need relevant, high quality, and authentic visual content to engage their target audiences wherever they are. Whether a big business or a small business, Getty Images provides its customers with a simple and convenient, powerful, high quality solution which enables creativity and innovation at lower costs and at reduced risk. Now I'll briefly outline some of the key areas where we are focused to continue to drive growth. As businesses struggle with the frequency of publishing across more platforms and doing so at lower costs, we are seeing corporations bring large parts of their marketing in-house. This is creating new customers and direct relationships for Getty Images. Much of this is via our attractive subscription offerings. We've been able to generate very high ROIs on our digital marketing, targeting small and medium-sized businesses through our iStock brand. We expect this to continue, and we see significant opportunities outside our traditional geographic markets where we are already experiencing accelerated growth as we direct marketing resources to these markets. We are well positioned to take advantage of the positive secular trend of video demand and our focus on cross-selling our video to our existing customers with subscriptions at the forefront of those efforts. Fueled by the gig economy and platforms that simplify creation and distribution, there is a new and rapidly expanding creative economy, and we are monetizing this opportunity through our Unsplash acquisition. As Web 3.0 continues to take shape, We see relevance for our owned archive, exclusive contributor community, exclusive partners and rights, our editorial capabilities, and our licensing capabilities. We recently partnered with Candy Digital to launch our own NFT offering. And we are increasingly licensing our content and providing our services in support of third-party Web 3.0 needs and offers. And lastly, we continue to enhance our market-leading position through continuous growth in content and innovation powered by scaled proprietary data and our investments, including on the artificial intelligence and machine learning front, which help us to differentiate from our competitors. So now, turning to a few of our second quarter highlights. In the second quarter, we saw continued growth in both top and bottom line. Reported revenue was $233.3 million, up 4.1% year-over-year, and 8.3% on a currency-neutral basis, with our reported growth impacted by the strengthening dollar. Our adjusted EBITDA finished at $74.1 million, up 5.5% year-over-year, and 11.6% on a currency-neutral basis. Our editorial business had a very strong quarter, up almost 20% year-on-year on a currency-neutral basis, with entertainment continuing to regain momentum post-pandemic. We recently announced Penske Media had returned to partnering with us, announcing a multi-year agreement including content representation, production, and licensing. Commencing this fall, Getty Images will be the exclusive global distributor partner for Penske's content from their most iconic brands, including Women's Wear Daily, The Hollywood Reporter, Rolling Stone, Variety, Billboard, and others. And our award-winning entertainment staff photographers and specialists will also create and distribute content from Penske's industry-leading events, galas, and summits. We were also, again, pleased to work as the official photographers for Tribeca Festival, the Met Gala, Billboard Music Awards, the BET Awards, and many more. Our coverage of the Queen's Platinum Jubilee, led by our Royal Staff Photographer, Chris Jackson, and supported by our Deep Archive, drew great customer interest. Not to be outdone, sports also had a great quarter. with our partnerships with some of the biggest sporting events across the globe contributing to our performance. Including our standing as official photographer for British tennis, NHL Stanley Cup, NBA Finals, preferred supplier of UEFA Champions League, exclusive photo licensing partner of the PGA of America and the PGA Championship Tournament, and official photographer of the Commonwealth Games, which is the second largest multi-sports event in the world after the Olympic Games. Coming off being awarded the Pulitzer Prize for their coverage of the January 6th Capitol siege, our news team continues to provide the very best coverage of global events, including the ongoing war in Ukraine, continued impact of the COVID-19 pandemic, environmental disasters, political elections and government changes, and all impacts to the world economy. Drawing on our unique archives and our commitment to move the world and building on our grant program to preserve the historical archives of historically Black colleges and universities, last month we launched the Black History and Culture Collection, which provides free, non-commercial access to content from the 1800s to present day to educators, academics, and researchers to enable them to tell untold stories around Black history and culture. This collection was carefully curated from content wholly owned by Getty Images in partnership with internationally recognized researchers, historians, and educators. And I'm proud to say there's no other resource like it, containing almost 30,000 images going back over 100 years, covering such a vast area of Black history. On the product front, we released Visual GPS Insights. a new interactive tool designed to help our customers choose the right imagery backed up with data and visual guidance. For the first time, our customers can analyze data from over 2.6 billion annual searches and download queries from Getty Images and iStock. They can see what imagery and topics over 825,000 brands around the world are using to communicate with their audiences. It allows our customers to access proprietary data at their fingertips that fuels insights that are most relevant to them, their brand, and their audience. Going forward, all of the employees at Getty Images maintain our focus on delivering the very best visual content and services to our customers and executing on our plans to drive profitable growth. And with that, I will pass the call over to Jen to discuss our financial results in more detail.
spk01: Thanks, Craig. I'm pleased to share that we've continued our strong financial performance into Q2. I'd like to begin by introducing some of our key operating metrics or KPIs that underpin that strong financial performance. Please note today's press release contains information on more of our KPIs, but I'll highlight a few here. Please also note all KPI references here will be as of the trailing 12 months or TTM period ended June 30, 2022, with comparisons to the comparable TTM period ended June 30, 2021. We increased our total purchasing customers to 843,000, up from 749,000, an increase of 12.6%. This metric is a measure of the volume of customers that made a purchase during the 12-month period. This growth of 12.6% reflects continued growth in new customers and strong retention of our existing customers. Annual subscription product revenue made up just over 48% of our total revenue. For our customers on those annual subscription products, which are products with a duration of 12 months or longer, we retained revenue at approximately 102%. This metric measures the total spend for these customers in the current 12-month period as compared to the prior 12-month period. The TTM June 30th figure is incredibly strong at approximately 102%, up from just under 99% in the prior year period. As a reminder, the TTM 2021 retention rate does reflect some COVID impact. We increased our active annual subscribers to 89,000, up from 66,000. an increase of approximately 35%. This metric is a count of the number of customers on one of our annual subscription products and is highly correlated to our growing mix of revenue in annual subscription products, which, as noted, was just over 48% in Q2. We also increased our paid download volume by approximately 9.4% to 93 million. This is a measure of the volume of paid downloads across all product and content types, and it is indicative of increased customer consumption and engagement, as well as our ongoing ability to deliver the high-quality, relevant content that our customers need and want. And finally, our video attachment rate, now at 12.2%, a slight uptick from 11.9%. This KPI measures the percentage of total paid downloaders who are video downloaders. Limited growth in this metric during the quarter is largely due to the strength of our acquisition of new customers who largely start as stills-only customers. These are customers we look forward to continuing to develop over their lifetime cycle. In addition, we continue to introduce video-inclusive subscriptions across our brands to drive this metric. Before I begin the discussion on our financial performance, I'll start by reiterating Craig's earlier comment with respect to FX impact on our business. We, like many other global businesses, are experiencing headwinds from foreign exchange rates, primarily with respect to the euro and pound, driving meaningful differences between our reported and our currency-neutral year-on-year performance. While this is not an overly material impact to our global performance, we continue to monitor and manage the impact. With that, let's jump into the Q2 numbers. Revenue was $233.3 million and grew 4.1% year-on-year or 8.3% on a currency-neutral basis. We saw strong performance across our business with growth in both creative and editorial, across all major geographies and in our subscription business, as well as continued contribution from our April 2021 acquisition, Unsplash. Given that we have now cleared the one-year mark since that Unsplash acquisition, our revenue performance is reflective of organic growth. Our annual subscription revenue as a percentage of total revenue grew to 48.2% in Q2, up from 44.3% in Q2 2021 and up from our 2021 finish of 45.6%. We continue to focus on growing our subscription business and offering our customers the right solutions for their content needs, with our subscriptions offering access to quality, depth, and breadth across our image, video, and music content library. Creative revenue was $146.7 million in Q2, down 1% and up 3% on a currency-neutral basis. Leading this currency-neutral creative growth was our annual subscription product, Premium Access, which continues to thrive with double-digit growth of 10.3% or 14.3% currency-neutral sales. Premium access is a flexible solution that gives customers the best imagery and videos from Getty Images and iStock spanning our full spectrum of content across creative and editorial. Our overall e-commerce business is strong as we continue to grow new customers across our traditional core regions and our international growth markets with the biggest gain seen in our subscription products. New customers grew 17% year-on-year on a trailing 12-month basis. We also saw 51.7% growth, or 55% currency neutral, in our custom content offering. As our corporate customers increasingly see the value proposition of this solution for their business, custom content is considered a subscription product that leverages Getty Images' global network of photographers and videographers to create customized and exclusive project-specific content and enables Getty Images to produce cost-effective content to meet the specific needs of our customers. Editorial was $82.9 million, up 15% year-on-year and 19.8% on a currency-mutual basis. This is the largest-ever year-on-year quarterly growth in our editorial business. excluding our 2021 results, which compared against the COVID-impacted 2020 period. This is a phenomenal result for our editorial business, driven by the full return to pre-pandemic levels of our entertainment business, which has continued to see lingering COVID impact through to Q1 2022. Q2 was also one of the strongest historical quarters of reported revenue for our sports business in the past decade. We also had continued performance across news and archives. Revenue grew across all major geographies on a currency-neutral basis with year-on-year growth of 8.4% in the Americas, 6.6% in EMEA, and 12.6% in APAC. Revenue left our cost of revenue as a percentage of revenue with 72.1% in Q2, down from 72.8% in Q2 2021, with that decrease driven primarily by variations in our product mix. This is in part driven by the resurgence in our editorial assignments business, which had contracted during the course of the COVID pandemic and has a slightly higher cost base. Adjusted SG&A inclusive of non-recurring SG&A was 94.1 million for Q2. a year-on-year increase of 1.1% or 3.9% on a currency-neutral basis. Total FG&A as a percentage of revenue was slightly down at 40.3% compared with 41.5% in Q2 2021. The higher year-on-year costs are largely due to a planned increase in headcount to support our continued investment in top-line growth. Other increases included our continued investment in marketing. Although our marketing spend is higher in dollar terms, we continue to benefit from optimization and efficiency of our marketing deployment, with marketing as a percentage of revenues remaining steady at approximately 6%. Adjusted EBITDA was $74.1 million. an increase of 3.9 million year-on-year, representing growth of 5.5% or 11.6% currency neutral. Adjusted EBITDA margins was 31.7%, up from 31.3% in Q2 2021, as we continue to see consistently strong margins. CapEx was 14.1 million, up 0.5 million year-on-year, driven by costs associated with our London office relocation, as well as increased capitalization of wages, driven by unsplash headcount. Adjusted EBITDA less capex was $59.9 million, up $3.3 million year-on-year, representing an increase of 6% or 13.2% on a currency-neutral basis. This is driven by revenue growth outpacing the increase in costs during the quarter. Our adjusted EBITDA less capex margin was 25.7% in Q2, up from 25.2% in Q2 2021. Free cash flow was 16.8 million in Q2, compared to 32.9 million in Q2 2021. Free cash flow is stated net of cash interest expense of 20.3 million, and cash taxes paid of $14.7 million in the quarter. Our ending cash balance on June 30th was $213.8 million, an increase of $97.6 million from Q2 2021 and an increase of $27.5 million from our ending balance on December 31st. The June 30th balance is net of $2.6 million in debt payments. The balance of our term loan on June 30th was 1.432 billion, consisting of 992.6 million in USD and 438.9 million in USD equivalent of euros converted using exchange rates as of June 30th, 2022. We also had 300 million of outstanding senior notes and an undrawn revolver. With the business combination with CC Neuberger Principal Holdings 2 completed and incremental cash to our balance sheet, we plan to use approximately $275 million of cash to repay a portion of our outstanding indebtedness, inclusive of any applicable prepayment premium. We are currently evaluating which indebtedness we will repay, but have not yet made a determination. Our net debt to adjusted EBITDA leverage was 4.8 times as of June 30th. And following completion of the business combination agreement, this ratio improved to 4.3 times. This also represents a strong improvement from our net leverage position as of the end of 2021, which was 5.1 times. We are a highly free cash flow generative company. This provides us substantial flexibility from a capital allocation standpoint. Our capital priorities continue to be further reduction in our leverage, reinvestment in the business across marketing, data capabilities, and technology to drive product innovation, targeted M&A, and delivering shareholder return. For the full year 2022, we expect currency-neutral revenues of $955 million to $980 million, which equates to currency neutral year-on-year growth range of 4% to 6.7%. For adjusted EBITDA, $310 million to $320 million, also on a currency neutral basis, which equates to year-on-year growth range of between 0.2% and 3.5%. We expect FX to continue to have an impact on our financial results. Based on our visibility, we anticipate that impact to be approximately $43 million on revenues and $19 million on adjusted EBITDA, assuming current FX rates hold for the balance of the year. Please note, embedded within our guidance are the incremental costs tied to operating as a public company. With that, operator, we are happy to open the line for questions.
spk05: Thank you.
spk04: At this time, we will be conducting our question and answer session. If you wish to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pose for questions. Ladies and gentlemen, to ask a question, please press star 1 on your telephone keypad now.
spk05: We have a first question from the line of Mark Zagudovic with the Benchmark Company.
spk04: Please go ahead.
spk02: Thank you. Good evening, Craig and Jen. Congrats to you both and your team for getting to the finish line here. I'm sure a big sigh of relief, but nice to talk with you tonight. I was hoping to talk, Craig, just first at a very high level, nice sequential uptick in annual subscribers and perhaps, you know, starting there at a high level. What's real in this, you know, I guess would sort of parlay your comments about, you know, in-house content management and sort of what's been driving the growth there and what are the key drivers of revenue per subscriber and sort of maybe the trajectory that you see both in subscribers as well as the revenue per subscriber over the next couple of years. Thanks.
spk03: Great. Thanks, Mark, and thanks for making time and appreciate your comments. On the subs growth, we continue to see really strong renewal rates, as Jen highlighted. And obviously, you know, strong growth starts with a strong base of renewals and strong demonstrated customer loyalty. So that's kind of the basic, you know, starting point there. To that, we continue to really drive additional subscription fees volume and growth through our e-commerce side of things, and most notably our iStock business. We've been introducing new subscriptions there, and the take-up has been really strong. And again, these are annual subscriptions. So we're really pleased with how we're driving that through the e-commerce portion of our business. And then I would add that we continue to really drive video within our subscriptions. So we're seeing strong benefits from that in that revenue renewal rate, but we're also seeing that being attractive to our customers as they seek video increasingly on a go-forward basis. So I would say those are kind of the core drivers of our sub-growth. With respect to revenue per customer, and again, it's really two things that are kind of core to that. One of those is just volume. Jen touched on our paid download growth. We see and have continued to see really strong paid download growth, which is a core metric from our standpoint that tells us we're delivering value back to our customers and they continue to demonstrate a really strong need for our product. And that allows us to right-size that subscription over time to their needs and often drive additional upsell, as well as the addition of video. To a lesser degree, music, but our focus is on both, but primarily video, given the trends that we've talked about there and our incredibly strong offering that we have on video with you know, amazing content coming from partners like the BBC and ITN and others across the board. So those would be the key drivers I would be able to highlight.
spk02: Super. Thanks, Craig. And maybe just shifting to Unsplash, which has obviously pointed out the creator economy. I'm curious sort of how you see the KPIs today sort of evolving over time. I mean, there's obviously engagement today on the platform itself. That's very important, but, uh, you know, this is also an upsell channel. Um, and there's, uh, certainly adjacent advertising opportunities here. So I was curious to kind of walk through how you should be thinking about KPIs there today and perhaps evolving over time.
spk03: Yeah, I think it's going to evolve over time and we were really happy with the unsplash acquisition. We made that acquisition on April 1st of last year. So we're just over five quarters. into it. I'm really happy to state that they achieved their first performance earn out exactly on the on the one year anniversary, which is, you know, the earliest that they could have earned that. And that was performance driven and revenue driven. So we're really excited about how they're performing and contributing to the business. But we are in the process of taking what was largely a free, unmonetized website. There was some advertising aspects to the model. and adding those over time. And so we'll be talking more about kind of some of the key metrics that we're looking as we bring those revenue models to market. Obviously, we need to be a little sensitive to strategic kind of visibility to what our plans might be there. But know that we're really pleased with that acquisition. We're pleased not only with the assets that we acquired, but we're really pleased with the team that we acquired and the talent that we acquired with it.
spk02: Super. That's helpful. And just one or two for Jen. Jen, you talked about adding headcount. I was just curious if you could talk about sort of where you're adding headcount. Certainly, it's an interesting topic today as you're seeing a number of other companies perhaps trimming inefficiencies in the current macro environment. So, appreciate if you could address that. And then also on the video attachment, You touched on earlier the 12.2% KPI. Is that more important today from a retention standpoint, a revenue, growing revenue standpoint, or maybe you can talk about sort of how that particular KPI may evolve in terms of its importance over time and sort of what the trajectory looks like there. Thanks.
spk01: Yeah, thanks, Mark. Good to talk to you. I'll start with the second question on video attachment. So it's both. It's important for revenue retention. It's important for revenue growth. I think, you know, at the top of your question, Craig touched on subscription and what will drive growth there and what's driving retention. Part of that plan is the continued emphasis on video and subscription. So I think, you know, your question, is it retention? Is it revenue? It is definitively both of those. There is demand for video amongst our customers. We know that. The more we tap into it, the more we make it readily available, accessible, front and center to our customers, the more we will see that retention rate grow and the more we'll see top line growth. Second question on headcount. So, yeah, it is a fair question. I think there's a couple of things at play here. You know, we, similar to many other businesses, had a bit of a delay in hiring towards the end of last year, the Great Resignation, whatever you want to call it. So we definitely encountered some challenges with bringing on new talent. So a lot of the headcount that we're bringing on in 2022 is simply of a delay of planned hires for 2021. In addition to that, we obviously have the addition of unsplash headcount and continued investment in that business to drive the growth of unsplash and the monetization plan but broadly speaking you know when we think about where we're adding headcount we're pretty deliberate to be adding it where we're going to see top line growth impact so you know technology product sales where we need more more product focus that would be the primary drivers of headcount increases excellent
spk05: Super helpful. Thanks, Jen. Craig, appreciate it. Thank you, Mark. Thank you. Participants who wish to ask a question, press star 1 on the telephone keypad now. Anyone who wishes to ask a question, press star 1. Thank you.
spk04: Ladies and gentlemen, we have reached the end of the question and answer session, and I'd like to turn the call back over to Craig Peters, CEO for Closing Remarks. Over to you, sir.
spk03: Thank you. I'd like to end by thanking you all for joining our first earnings call since returning to the public markets. But I also want to extend a big thank you to our committed shareholders, our partners at CCMD, our hardworking employees, our long standing contributors and content partners, and last but not least, our loyal customers who really helped us reach this point. I and the team are even more excited about the opportunities ahead of us as we continue to focus on being the very best visual content licensing and services provider, building a durable culture and team, being prudent with our financial resources and crisp in our execution, and ultimately moving the world, which is our mission. So we look forward to updating you on our progress on our next call, and thank you again.
spk04: Thank you very much. Ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
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