Getty Images - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 delivered solid top-line growth with revenue of $247.3M (+9.5% YoY; +8.5% currency-neutral), subscription mix up to 54.9%, and strong adjusted EBITDA of $80.6M (32.6% margin), while GAAP net income margin fell to 10.0% due to non-operating items and lapping a prior-year tax benefit.
• Editorial strength (U.S. elections, global sports, entertainment recovery post 2023 strikes) offset a creative shift; management highlighted content deals including AI rights lifting “Other” revenue to $14.8M.
• FY2025 guidance: revenue $918–$955M and adjusted EBITDA $272–$290M, embedding FX headwinds (~$12.5M revenue, ~$5M EBITDA) and ~$8M one-off SOX acceleration in SG&A, plus production disruptions from L.A. fires; estimated 2025 cash interest ~$133M following refinancing.
• Near-term stock catalysts: regulatory progress and integration planning on the Shutterstock merger, deleveraging below 4x net leverage, and continued subscription retention strength; risks include agency softness, FX volatility, and higher interest expense post refinancing.

What Went Well and What Went Wrong

What Went Well

• Subscription momentum: Annual subscriber revenue grew ~11% and rose to 54.9% of sales; retention strengthened to 92.9% LTM, with 78k net adds to 314k annual subscribers and rising video attach rate to 16.5%.
• Editorial outperformance: Q4 Editorial revenue rose 19.0% (17.7% currency-neutral), driven by elections and major sporting events, and entertainment/archive recovery from 2023 strikes.
• Non-GAAP profitability: Adjusted EBITDA increased 11.7% to $80.6M (32.6% margin) with improved expense rate and favorable mix; adjusted EBITDA less capex up 14.8% to $65.5M.

What Went Wrong

• Creative softness: Creative revenue fell 2.4% YoY, pressured by a customer download shift toward editorial (~3.2 points impact); agency weakness re-emerged in Q4, consistent with broader agency softness (e.g., WPP Q4 commentary).
• GAAP net income decline: Q4 GAAP net income fell to $24.7M from $39.1M in Q4’23; prior-year benefited from a $58.0M tax benefit and had FX losses, while Q4’24 included a $45.9M FX gain and a $7.5M investment impairment—net margin fell to 10.0% from 17.3%.
• 2025 headwinds: Guidance embeds FX headwinds, L.A. fires production disruptions, odd-year event calendar comparisons, and ~$8M SOX-related SG&A one-off, with adjusted EBITDA guided down 9.5% to 3.3% YoY.

Transcript

Operator (participant)

Good afternoon and welcome to Getty Images' Fourth Quarter and Full Year 2024 Earnings Conference Call. Today's call is being recorded. We have allocated one hour for prepared remarks and Q&A. At this time, I'd like to turn the conference over to Steven Kanner, VP of Investor Relations and Treasury at Getty Images. Thank you. You may begin.

Steven Kanner (VP of Investor Relations and Treasury)

Good afternoon and welcome to the Getty Images' Fourth Quarter and Full Year 2024 Earnings Call. Joining me on today's call are Craig Peters, Chief Executive Officer, and Jen Leyden, Chief Financial Officer. Before we begin, we would like to note that due to the ongoing regulatory review process, we will not be able to comment on the status of the merger with Shutterstock or the fourth quarter Shutterstock operating results. We appreciate your understanding and will share updates as soon as we are able. This call will include forward-looking statements with a 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 statement section of today's press release and in our filings with the SEC.

Links to these filings and today's press release can be found on our investor relations website at investors.gettyimages.com. During our call today, we will also reference certain non-GAAP financial information, including adjusted EBITDA, adjusted EBITDA margin, adjusted EBITDA less CapEx, 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. Reconciliations of GAAP to non-GAAP measures, as well as the description, limitations, and rationale for using each measure, can be found in our filings for 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.

Craig Peters (CEO)

Thanks, Steven, and thanks to everyone for taking the time to join us today. I will touch on Q4 and full year 2024 business performance and progress before Jen takes you through the full results in more detail and the 2025 outlook. I want to start by briefly touching on the merger with Shutterstock. As announced earlier this year, Getty Images and Shutterstock entered into a definitive merger agreement that will result in a company with a strong financial foundation and opportunities for superior value creation for customers, creators, and our combined shareholder base. This is an exciting and transformational opportunity for our companies at a time when Getty Images is building positive organic performance momentum, as evidenced in the results we will take you through today.

I was also pleased to complete a refinancing on our term loans in this quarter, which extended maturities on $1 billion of debt to 2030. Jen will share more details on this transaction. Moving to results, in the fourth quarter, we grew revenue to $247.3 million, representing growth of 9.5% or 8.5% on a currency-neutral basis. The top-line performance was coupled with strong profitability, with adjusted EBITDA rising to $80.6 million, up 11.7% or 10.4% on a currency-neutral basis. For the full year 2024, revenue was $939.3 million, an increase of 2.5% on both a reported and currency-neutral basis. Our adjusted EBITDA finished at $300 million for the full year, with a healthy margin at 32% of revenue. With these results, we delivered on the full-year return to top-line growth, exceeding the midpoint of our guidance, and finished the year with a strong Q4.

Just this last week, Getty Images celebrated its 30th year in business. Over those 30 years, we built a respected brand. We produced and preserved iconic imagery. We cultivated deep customer and partner relationships, delivering real value in each instance, and we embraced a spirit of continuous evolution in the face of an extremely dynamic market. Over our 30 years, we've experienced and navigated immense change: the introduction and universal embrace of digital photography, the growth of the internet and e-commerce, the introduction of the smartphone and explosion of mobile photography, access to broadband, and the shift from print to digital media, now artificial intelligence. Throughout 2024, we continued to invest in core assets of our company and evolve. We renewed and added to our roster of long-standing world-class partnerships. We produced award-winning comprehensive photo and video coverage across the world of news, sport, and entertainment.

We added motorsport images, talent, relationships, and archive. We conducted deep and broad-based research across cultures, demographics, industries, and creative trends. We worked closely with our exclusive network of talented contributors to develop content that reflects this research. We launched natural language search across our websites. We expanded our integrations across the broader creative and editorial ecosystems. We rolled out new commercially safe AI capabilities to our customers. We continue to grow our annual base of annual subscribers. Our delivery in 2024 serves as a foundation for 2025 and the decades to come. 2025 has already delivered its own challenges, with the horrific fires in Los Angeles impacting so many individuals and businesses, just to name one.

I am confident in the future of Getty Images, given our unique position and assets and our unwavering focus on delivering sustainable customer value by helping our customers to create and engage end audiences, saving them time and money, and reducing their risk. I look forward to our announced merger with Shutterstock as a means to further deliver our balance sheet, increase our margins and cash flow, and accelerate investment where we see opportunity. I am extremely energized to take Getty Images into its fourth decade. With that, I will turn the call over to Jen to take you through more financial details.

Jen Leyden (CFO)

We continue to build momentum as we move through 2024, culminating in a strong finish to the year with a strong Q4 financial performance. We delivered high single-digit top-line growth while maintaining north of 30% adjusted EBITDA margins. We surpassed both the midpoint of the updated guidance we shared on our last call and the guidance we started the year with. Q4 revenue was $247.3 million, with year-on-year growth of 9.5% or 8.5% on a currency-neutral basis. Full-year revenue was $939.3 million, up 2.5% on both a reported and a currency-neutral basis. Geographically, the Americas region, our largest region with respect to revenue, was up 15.9% in Q4 on a currency-neutral basis, with APAC also up 0.4% and EMEA down just under 1%. Annual subscription revenue was 54.9% of total revenue in the fourth quarter. Subscription revenue grew approximately 11% on both a reported and a currency-neutral basis.

This growth was driven by our Premium Access and our e-commerce subscription offerings. We added 78,000 active annual subscribers to reach 314,000 in the Q4 LTM period, an increase of approximately 33% over the comparable LTM period. This was driven by our e-commerce businesses, iStock and Unsplash+. Of the 314,000 annual subscribers in the LTM period, 54% were brand new customers and 32% were customers in our key growth markets across LATAM, APAC, and EMEA. Our annual subscription revenue retention rate continues to strengthen at 92.9% in the 2024 LTM period, up from 92.4% in the corresponding 2023 period, and also up from 92.2% in LTM Q3 2024. Paid downloads were down slightly at 93 million, while our video attachment rate remains in growth, rising to 16.5% from 14.1% in the Q4 2023 LTM period.

Q4 editorial was $90.1 million, an increase of 19% year-on-year and 17.7% on a currency-neutral basis. This performance was a continuation of the trends we discussed last quarter, with elevated demand for our editorial content fueled by major even-year events, which drove a shift in downloads towards editorial amongst our Premium Access subscribers. Key drivers this quarter included our coverage of the U.S. elections, global sporting events, as well as good compares for our entertainment and archive verticals, which were materially impacted in 2023 by the Hollywood strikes. Creative revenue was $142.4 million, down 2.4% year-on-year and 3.1% on a currency-neutral basis. This decrease was primarily due to that shift in download consumption from creative to editorial, given the robust editorial event calendar, which I just mentioned. This is an impact we discussed last quarter as well.

In the fourth quarter, this represented approximately 3.2 percentage points of downward pressure on creative results. Adjusting for that impact on a pro forma basis, creative revenue was in growth. Digging in a bit further to some of the revenue performance trends we saw in Q4. Within our creative business, we continue to see positive momentum in our iStock annual subscriptions, which grew by 10.7% on a reported basis and 9.9% currency-neutral, while our Unsplash+ subscription grew once again by double digits as this newer subscription offering continues to thrive. Corporate remains healthy and in growth for the quarter. Within media, we saw double-digit growth across our broadcast and motion picture production customers, which reflects the ongoing recovery from the 2023 Hollywood strikes impact. Agency, which saw some strengthening in Q3, was in high single-digit decline in Q4, impacting our creative à la carte revenue.

While we did see a decline in Q4, this still represents improvement from the double-digit declines we have seen in agency over the past several years. Other revenue was $14.8 million, an increase of $10.4 million from Q4 2023, primarily due to two new multi-year creative content deals that included some level of AI rights. The growth was also driven by ongoing revenue recognition in the quarter from deals signed in previous quarters. Revenue less our cost of revenue as a percentage of revenue remained strong at 73.5% in Q4, compared with 72.3% in Q4 2023, and for the full year, 73.1%, up from 72.7% in 2023. Q4 SG&A expense was $105.5 million, up $3.9 million year-on-year, with our expense rate decreasing to 42.7% of revenue from 45% last year. The lower expense rate was due primarily to a $6 million decrease in stock-based compensation.

For the full year, SG&A increased by $5.3 million to 43.4% of revenue, down from 43.9% last year, with that decrease in rate also driven by the decrease in stock-based compensation. Excluding stock-based compensation, SG&A increased to $101.1 million in the quarter, or 40.9% of revenue, up from $91.1 million or 40.3% of revenue in Q4 2023. The higher year-on-year spend reflects an increase in incentive-based staff compensation and commissions tied to our strong financial performance. For the full year, adjusted SG&A increased to $385.9 million, or 41.1% of revenue, compared to 39.8% of revenue in the prior year. Adjusted EBITDA was $80.6 million for the quarter, up 11.7% year-over-year and 10.4% on a currency-neutral basis. Adjusted EBITDA margin was 32.6%, up from 31.9% in Q4 2023. For 2024, adjusted EBITDA was $300.3 million, down 0.4% reported and 0.3% on a currency-neutral basis.

Adjusted EBITDA margin was 32% compared to 32.9% in 2023. CapEx was $15.1 million in Q4, essentially flat to the prior year. CapEx as a percentage of revenue was 6.1%, down from 6.7% in the prior year period. For the full year, CapEx was $57.4 million, or 6.1% of revenue, again fairly flat to prior year and well within our range of 5%-7% of revenue. Adjusted EBITDA less CapEx was $65.5 million, up $8.4 million year-over-year, representing an increase of 14.8% or 12.2% on a currency-neutral basis. Adjusted EBITDA less CapEx margin was 26.5% in Q4, an increase from 25.2% in Q4 of 2023. For the full year, adjusted EBITDA less CapEx was $242.8 million, a decrease of 0.7% on both a reported and a currency-neutral basis. Free cash flow was $24.6 million in Q4, compared to $18.6 million in Q4 2023.

The increase in free cash flow during Q4 was largely driven by the increase in EBITDA. Free cash flow is stated net of cash interest expense of $22.7 million and cash taxes paid of $13.3 million in the fourth quarter. For the full year, we generated $60.9 million in free cash flow compared to $75.7 million in 2023, with that full year decrease primarily driven by an increase in cash paid for interest and taxes. We finished the year with $121.2 million of balance sheet cash, up $11.3 million from the end of the third quarter and down $15.4 million from Q4 2023. The lower cash balance relative to 2023 is due to $57.8 million of voluntary debt paydowns executed during the year. This includes $2.6 million in the fourth quarter.

As of December 31, we had total debt outstanding of $1.3 billion, which included $300 million of 9.75% senior notes, $579.2 million of USD term loan with an applicable interest rate of 8.85%, and EUR 435.2 million of euro term loan converted using exchange rates as of December 31, 2024, with an applicable rate of 7.88%. We also have a $150 million revolver that remains undrawn. We ended the quarter with a net leverage of 3.97 times. This is down from 4.2 times at year-end 2023. This marked the first time in over a decade that our net leverage has fallen below four times. While we remain focused on continuing to bring down our leverage, we are extremely proud of crossing below that four times net leverage mark, given that this company has in its 30 years seen its leverage be as high as 10 times.

As Craig mentioned, in February, we completed the refinancing of our existing term loan structure. We replaced our old term loans, which were set to mature in February 2026, with new loans now maturing in February 2030. We maintain roughly $1 billion of term loans outstanding. Our new facilities include $580 million of USD term loan with an 11.25% fixed rate and EUR 440 million of euro term loan with an applicable interest rate of 600 basis points plus Euribor equivalent to 8.63% as of February 21, 2025. We will continue to assess market conditions with respect to any future potential refinancing or redemption of our $300 million of bonds. In addition, as we advance on the regulatory front and gain clearer insight into the merger timeline, we will decide on any additional financing actions required to close the Shutterstock transaction.

Considering the foreign exchange rates and applicable interest rates on our debt balance as of December 31, and also factoring in the impact of the debt refinancing, including mandatory amortization on the euro term loan, our estimated cash interest expense for 2025 is projected to be EUR 133 million. To recap, we finished 2024 by delivering on the guidance we shared at the beginning of the year. We returned our business to top-line growth while maintaining strong profitability margins. We drove meaningful subscriber growth, and we ended the year with a net leverage below four times. As we approach the end of the first quarter of 2025, we are excited to continue to build on the momentum with which we closed 2024. With that, let's move into our 2025 guidance.

We anticipate revenue of $918 million-$955 million, down 2.3% to up 1.6% year-over-year and down 1% to up 3% on a currency-neutral basis. Embedded in this guidance is an assumption for FX rates with the EUR at 1.05 and the GBP at 1.26, which implies a headwind on revenue of $12.5 million, of which approximately $3 million is expected in the first quarter. However, in recent days, we have seen increased volatility in FX rates following the ECB rate decision, with the dollar weakening relative to both the EUR and the GBP. This change may lessen the impact of FX on our financial results in the Q2 through Q4 periods. We expect adjusted EBITDA of $272 million-$290 million, down 9.5% to 3.3% year-over-year, or down 8% to 1.7% currency-neutral.

Included in the adjusted EBITDA expectations is a similar cadence for estimated FX impact, with an approximate $5 million headwind in 2025, of which approximately $1.5 million is expected in the first quarter. Please note this guidance includes the anticipated impacts of the odd year versus even year event calendar comparisons, as well as impacts from disruptions in production activity due to the Los Angeles fires and some continued lag in a return to pre-Hollywood strike production levels. On the cost side, our guidance includes approximately $8 million in one-off increases in SG&A as we accelerate our SOX compliance efforts in 2025. This acceleration is to prepare for what we anticipate being a necessary shift in resources and focus on merger and integration-related activities upon the close of the transaction.

Please note all other merger-related costs are not included in this guidance as they are considered one-time in nature and therefore are excluded from adjusted EBITDA. With that, operator, please open the call for questions.

Operator (participant)

At this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may withdraw yourself from the queue at any time by pressing star two. For your questions, that is star and one. We'll take our first question from Cory Carpenter with J.P. Morgan. Your line is open.

Corey Carpenter (Internet Equity Research and Executive Director)

Good afternoon. Thank you. I think Craig, one for you and one for you, Jen. Craig, this is generative AI hoping for an update on the consumer uptake that you're seeing and your latest thoughts on how you expect monetization to ramp.

Jen, on the financials, could you expand a bit on what drove the outperformance in Q4 relative to the guide you gave last quarter on revenue, but especially on EBITDA? Thank you.

Craig Peters (CEO)

Great. Thanks, Corey. I will take the first and leave the second to Jen. On the AI takeup, we continue to see takeup of the AI service, both on Getty Images and on iStock. I would say it continues to grow, but at a relatively modest pace, which from all accounts seems to match kind of corporate adoption of generative generally in terms of end deployment within the business versus internal deployment within the business. Where we're seeing that takeup is largely with existing customers using the capability not to generate from a text prompt, but to utilize the technology to modify the imagery.

That has kind of exceeded our expectations in terms of how customers are adopting it and using it. In the fall, we launched the ability to insert products into the imagery. That has been really received well across the customer base. It is addressing something that they have not historically been able to do with our imagery on the creative side of things, at least do that without significant effort. This is something that really simplifies that down. It continues to be there. The core value that we continue to deliver is on a pre-shot. We see those two really being elementary with the customer base. We are pleased to kind of continue to roll out those capabilities, leveraging the technology that really helps our customers save time and money.

Jen Leyden (CFO)

Hey, Corey, I will take the question on Q4.

I mean, the good part about the Q4 performance is really it was driven by a strong top line. You mentioned a bit of improvement on EBITDA. That is really mostly about a drop through of strong top line performance, a bit of favorability on the gross margin side, which is almost always for us a product-based story. That can vary a bit quarter to quarter. As you know, we are always within roughly that 72-73% range. Some favorability there on margin. That top line was a few different things. Obviously, as we moved through the year, we continued, as we indicated, to see that production side of things start to come back. Still not quite fully back to pre-strike levels, but for sure, we saw that come back in Q3, Q4.

Some nice year-on-year comps there as we comp to the 2023 second half of 2023 that was really adversely impacted by the strikes. Event year calendar continued to see some strong momentum from that in Q4 as well as Q3. We mentioned some of the a couple of content deals that included an AI licensing element that also impacted Q4, as we've spoken about before. Those tend to come with heavy upfront revenue recognition. A few different things driving revenue, but ultimately that profitability story is a drop through of strong top line.

Corey Carpenter (Internet Equity Research and Executive Director)

Great. Thank you both.

Jen Leyden (CFO)

Yes.

We'll take our next question from Mark Zgutowicz with The Benchmark Company. Your line is open.

Mark Zgutowicz (Equity Research Analyst)

Thank you. Good evening, Craig and Jen. Maybe a three-part if I could on the outlook for 2025. Just looking for revenue growth by segment.

Jen, I do not know if you can provide a little color there. Also curious how much data licensing revenue is expected next 12 months. In terms of your visibility this year for agency, corporate, and media client spend, just if you can compare that to this time last year, that would be helpful. Thanks.

Craig Peters (CEO)

Jen, do you want to take the first two, and I can maybe provide some commentary on the agency on the front?

Jen Leyden (CFO)

Yeah. Hey, Mark. We do not guide at that segment or product level. Broadly speaking, I think agency for us, we have spoken before, we do not anticipate agency suddenly flipping into a growth part of our business. We would hope to see sort of a continued stabilization on that side of things. Media, I mentioned we are still not back to pre-Hollywood strike levels. That is more broadly the industry, not just us.

Probably still a little bit of improvement to go there as we navigate through that. We do have, unfortunately, the new impact from the Los Angeles fires on that segment. We will see what that does, but definitely seeing a bit of slowdown, delays on the production side of things as it relates to the impact of those fires. Of course, corporate for us, always our biggest opportunity for growth. We would expect to continue to see that into growth. On the data licensing side, again, we do not guide to a specific number there. Nothing heroic assumed in our guidance there. A bit of a continuation of the levels that we saw in 2024, which by all accounts is fairly modest. The guidance is not dependent on that becoming a very large piece of our business.

Craig Peters (CEO)

Thanks, Jen. Yeah. Low-single-digits there.

I would say just one of the things that we're watching is we are watching the creative agencies, Mark. WPP put out their performance for Q4 and for the full year. Their full-year creative agency part of their business was down about 4%, but their Q4 was down around 6.5%. It looked like it got a little softer in Q4. It seems like that we're still kind of processing across the full agency space, but that seems indicative, which aligns to kind of some of the commentary that Jen had about our Q4, where we continue to see that portion of our business down. We're kind of watching a little bit. Obviously, right now, there's a lot of uncertainty in the macro sense. That tends to show up first in the agency side of things.

As Jen highlighted, we have kind of factored those into our guidance to our best ability at this point. That is typically the area where we see impacts earlier and more acute, where the rest of our business is much more heavily weighted into subscriptions and much more stable in terms of the usage and everything there. That is helpful. Yeah, on the subscription side, it was nice to see that net retention number continue to improve. Appreciate all the color. Thanks. Yeah, that should continue again. As we kind of mentioned within our e-commerce business, we were pushing a lot into first-year cohorts and those cohorts just are not as—we do not retain at the same level as later-stage cohorts. We are seeing that already within the cohorts as we move into year two and such.

The cohorts look identical to more seasoned cohorts, older cohorts in the business. Yeah, should continue to see that.

Mark Zgutowicz (Equity Research Analyst)

Great. Thank you.

Operator (participant)

Once more, for your questions, that is star and one. We'll pause a moment to allow any further questions to queue. It does appear that there are no further questions at this time. This does conclude today's program. Thank you for joining. You may disconnect at any time.

Craig Peters (CEO)

Thank you.