Good afternoon, and welcome to Getty Images First Quarter 2024 Earnings Conference Call. Today's call is being recorded. We have allocated 1 hour for prepared remarks and Q&A. At this time, I would like to turn the conference over to Steven Kanner, VP of Investor Relations and Treasury at Getty Images.

Good afternoon, and welcome to the Getty Images First Quarter 2024 Earnings Call. 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. Links to these filings and today's press release can be found on our Investor Relations website at investors.getimages.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 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.

Thanks, Steven, and thank you to everyone for joining Getty Images' first quarter earnings call. I will touch on our performance and progress at a high level before Jen takes you through the full first quarter financial results. As expected, our financial performance in the first quarter was soft due to macroeconomic challenges we outlined in our last call, residual impacts from the Hollywood strikes, and the pressured agency business. Within editorial, we also faced a tougher year-on-year comparison with Q1 of 2023 being the only quarter of year-over-year editorial growth before the strike impacted the balance of the year. For the first quarter, 2024 revenue was $222.3 million, representing a year-on-year decrease of 5.7% on a reported and currency-neutral basis. Adjusted EBITDA came in just over $70.2 million for the quarter, down 7.9% reported or 7.7% currency-neutral and representing 31.6% of revenue. On April 1, we closed on and funded the acquisition of Motorsport images. Motorsport images represents a truly iconic archive of automotive imagery and video that augments Getty Images' existing offerings. Motorsport images also brings deep relationships across racing series such as FormulaE, teams such as McLaren Racing, races, and sponsors. In combination with Getty Images' established position as the official photographic partner of Formula One, we are excited for what this addition can offer the growing number of Motorsports stakeholders. Continuing on the content front, we were pleased to announce renewals with Bloomberg and the English Football Association. Earlier this week, we exclusively covered the Met Gala for its sixth consecutive time. We also added new content partnerships with the Saudi Pro League, Visual Capitalist Film pack, spec, and niche sports media. The Motorsport acquisition and these partners stand as a testament to our continued commitment to deliver the very best visual content to our customers. Looking forward, the Olympic Torch is now lit and on its way to Paris, where we are once again the official photographic agency of the International Olympic Committee. But before Paris, we have the upcoming UEFA Euro 2024 tournament, where we are the official photographer supplier for UEFA. Add in the global election cycle, and our teams are busy doing what they do best. On the topic of doing it best, our expert team was recognized by industry peers across a range of categories and award ceremonies during the quarter. This year, our team was honored with over 40 awards of excellence in categories including news, sport, and politics and ceremonies such as the White House News Photographers Association awards, the SGA British Sports Journalism Awards, and the NPPA's Best Photojournalism awards. We were excited to add Southern University in A&M College in Louisiana, Lincoln University in Pennsylvania, and Delaware State University as partners in our historically Black colleges and universities, HBCUs program that provides funding towards the digitization of HBCUs' photographic libraries. This program continues to preserve and surface rarely seen archival photography as well as contemporary news, sport, and entertainment coverage that is additive to our customers. On the generative AI front, we continue to expand our commercially safe generative AI offerings in partnership with NVIDIA, adding the tool to iStock, launching new capabilities such as in-painting and out-painting, and we started rolling out June AI capabilities across our free shop-created library, a powerful combination that allows customers to quickly secure the exact imagery to meet their needs while benefiting from the quality, depth, breadth, and creativity embedded in our creative libraries. It is still early days, but we're seeing positive engagement, hearing positive feedback, and seeing early signs of how this adds to our business; about half of those purchasing AR plans not having previous spend with the business. At NVIDIA's GTC conference in March, we announced our upcoming custom fine-tuning capabilities. Starting this month, we will offer enterprise services to custom fine-tune the NVIDIA 5 Foundation model to a company's brand and visual style. As a part of custom fine-tuning, we will also release a collection of APIs that provide finer control over image output, one of the biggest challenges in generative AI. Our regenerative API tools are already being used by leading creatives and advertisers at Dentsu, McCann, and WPP. We're excited for the balance of the year. And now I'll turn the call over to Jen to take you through the more detailed financials.

Our Q1 results broadly reflect the slow start to the year that we anticipated and described on our Q4 earnings call. We expected some of our known challenges to be most acute in the first quarter with continued headwinds from the residual effects of last year's Hollywood strike, ongoing pressures in our agency business, and the broader macroeconomic environment. We also had a challenging year-on-year comparison in editorial in Q1, with Q1 of last year being the only quarter of growth for our editorial business, as the remainder of 2023 was adversely impacted by the strike. All of that said, looking ahead, we remain steadfastly confident in our ability to return to growth in 2024 as our headwinds turn into tailwinds and we flip the calendar to a robust editorial season in the second half of the year. I'll start by highlighting some of our KPIs, which are reported on the trailing 12-month basis or LTM period ended March 31, 2024, with comparison to the LTM period ended March 31, 2023. Total purchasing customers were 769,000, down from 829,000 in the comparable LTM period. This decrease can be attributed to lower à la carte transaction volume, primarily due to both the ongoing shift of our customers into more committed annual subscription products and a still pressured agency business, which is primarily consumed on an à la carte basis. Importantly, the shift into more committed solutions continues to have a positive impact on annual revenue per purchasing customer, which grew by 4.5% to 1,174 from 1,123 in the comparable LTM period. We again saw tremendous growth in our active annual subscribers, up 79% to 262,000 from 147,000 in the 2023 LTM period. This is now the sixth consecutive quarter with growth well in excess of 50%. This performance continues to largely be driven by growth of our e-commerce subscriptions, including our iStock annual and Flash subscriptions. In addition, the growth continued to be fueled by customers brand new to Getty Images. Out of the 262,000 annual subscribers, over 60% were new customers, worth nearly half of those in our growth markets across LATAM, APAC, and EMEA. In a world of ever-increasing visual content supply and demand, we continue to reach new customers and tap into new markets with the power of our content. Our annual subscriber revenue retention rate was 90% compared to 99.8% in the 2023 LTM period. The decline was due primarily to both an expected lower revenue retention rate for some of our smaller e-commerce subscribers and also a reduction in incremental à la carte subscriber revenue due to residual Hollywood strike impacts across some of our media, broadcast, and production customers, as well as a decline related to one-time project spending in the prior period from certain corporate customers. Broadly speaking, we believe our subscription business is very healthy, with revenue renewal rates generally averaging over 90%, and with our enterprise customer subscriptions generally averaging north of 100%. Paid download volume was flat at $95 million, an ever compelling proof point that our content remains relevant and in demand. Our video attachment rate rose to 14% from 13.4% in LTM Q1 2023, another quarter of steady year-over-year growth. We continue to see plenty of opportunity to drive more meaningful growth across our video business. Turning to our financial performance. Total revenue was $222.3 million, down 5.7% on both a reported and a currency-neutral basis. Included in these results are certain impacts of the timing of revenue recognition, which reduced year-on-year growth by approximately 360 basis points. Annual subscription revenue was 55.4% of total revenues, up from 50.7% in Q1 2023 and 53.2% for the full year of 2023. In total, subscription revenue increased 3.1% on a reported basis and 3% currency-neutral, driven by growth across e-commerce subscription solutions. Creative revenue was $138.9 million, down 5.2% on both the reported and currency-neutral basis. Agency, which is accounted for entirely within Creative and is largely an à la carte business model, was down double digits largely due to declines in smaller independent agency customers. Encouragingly, we saw improvements across our larger holding company or network agency customers, which stabilized to flat year-on-year. Creative à la carte was also pressured by lingering impacts from the Hollywood strikes. Annual subscription revenue within Creative was up 7.7% on both a reported and currency-neutral basis. Our iStock annual subscriptions maintained strong momentum, growing over 27% on both a reported and currency-neutral basis, marking this the 11th consecutive quarter of double-digit growth. In addition, our Flash subscription, the first paid subscription for Unflashed, delivered another quarter with strong double-digit growth, and custom content, which leverages Getty Images' global network of contributors to create cost-effective, customized, and exclusive content to meet specific customer needs, grew 11.2% year-on-year or 11.6% currency neutral. So overall, absent the impacts of the agency, we believe our creative business is healthy, and our e-commerce business is growing. Editorial revenue was $79.4 million, a decrease of 6.2% year-on-year and 6.4% on a currency-neutral basis. The decline was driven by results across our news, archive, and entertainment verticals, which are up against challenging comparisons with double-digit growth in Q1 of 2023, with some offset from a strong Q1 2024 for sports. Again, Q1 of 2023 was the only quarter of growth for editorial in 2023 at over 11% currency-neutral growth, with the balance of 2023 staying down every quarter due to Hollywood strike impact. Across our major geographies on a currency-neutral basis, we saw a year-on-year decrease of 9.4% in the Americas, 0.2% in EMEA, and 2% in APAC. Revenue less our cost of revenue as a percentage of revenue remained consistently strong at 72.9% in Q1 compared with 73.1% in Q1 of 2023. Total SG&A expense was $100.9 million in Q1, down from $102.2 million in the prior year. As a percentage of revenue, our expense rate was 45.4%, up from 43.4% last year. The higher expense rate was driven primarily by lower revenue in the quarter. Excluding stock-based compensation, SG&A decreased year-on-year 4.5% to $91.8 million in the quarter. The decrease reflects our disciplined approach to cost management of lower spend, driven primarily by marketing savings. As a percentage of revenues, SG&A excluding stock-based compensation was 41.3% compared to 40.8% in the prior year period, with the increased rate due primarily to the decrease in revenue. Adjusted EBITDA was $70.2 million for the quarter, down 7.9% year-over-year and 7.7% on a currency-neutral basis. Our adjusted EBITDA margin was 31.6%, down from 32.4% in Q1 of 2023. Capital expenditures totaled $14.5 million in Q1, down $1.1 million year-over-year. CapEx as a percentage of revenue was 6.5% compared to 6.6% in the prior year period and well within our expected range of 5% to 7% of revenue. Free cash flow was $7 million in Q1 compared to $16.4 million in Q1 2023. The decline in free cash flow during Q1 was driven by our adjusted EBITDA decline and working capital changes related to the timing of receivables and payables, including our semiannual interest payment on our senior notes, which is due every March and September. Free cash flow is stated net of cash interest expense of $39.3 million and cash taxes paid of $5 million in the first quarter. We finished the quarter with $134.2 million of balance sheet cash, up $17.4 million from our ending balance in Q1 of 2023 and down $2.4 million from the end of 2023. This includes a $2.6 million voluntary debt repayment in the first quarter of 2024. As of March 31, we had total debt outstanding of $1.386 billion, which included $300 million of 9.75% senior notes, $634.4 million term loan with an applicable interest rate of 9.99%, and $451.9 million term loan converted using exchange rates as of March 31, 2024, with an applicable rate of 8.875%. We also have a $150 million revolver that remains undrawn. Our net leverage was 4.2x at the end of Q1, unchanged from year-end 2023. In early May, we used $30 million of our balance sheet cash to repay a portion of our USD term loan. This voluntary repayment demonstrates our ongoing commitment to utilize our cash flow to further deleverage the balance sheet. We also continue to look for the optimal opportunity and market conditions to refinance our debt. Based on the foreign exchange rates and applicable interest rates on our debt balance as of March 31, and taking into account the $30 million debt repayment we just made in May, our 2023 cash interest expense is expected to be approximately $131 million. Of course, our actual annual interest expense remains subject to changes in the interest rate environment, which we outlined in more detail within our SEC filings. In summary, we have navigated through what we expect to be the most challenging quarter of our financial year. We remain fiscally disciplined. We continue to be laser-focused on execution, and we are well positioned to see a return to top line growth as we navigate through the remainder of 2024. Turning now to our outlook for the full year 2024. We continue to expect revenue of $928 million to $947 million, representing growth of 1.3% to 3.3% year-on-year and currency-neutral growth of 1% to 3%. This is unchanged from prior guidance. We also continue to expect adjusted EBITDA of $298 million, down 1.2% year-over-year and down 1.5% currency-neutral. This is also unchanged from our prior guidance. Please note, we have not updated estimated foreign exchange impacts at this time given the recent volatility in the currency market. Our guidance continues to assume the euro at $1.09 and the GBP at 1.27. We will keep a close eye on foreign exchange rates. And if appropriate, we'll provide an update on our next earnings call.

Our first question is from Ron Josey with Citi.

Craig, I wanted to start out with you. I think you talked about some macro challenges in 1Q, and this is a few things, but Hollywood Strikes was also in there as those are now finished and winding down. I guess, can you talk to us about the progress here? When do you think things sort of normalize to a certain extent going forward? Is that going to be Q2 or maybe in the back half? And then, Jen, I wanted to follow up. You had some interesting comments on the subscriber retention rate. I think you talked about smaller e-commerce subs, lower à la carte, one-time spending changes. But maybe if you could unpack those a little bit more to better understand this retention rate? And do you think these can level off at this 90% level? Or should we expect continued declines?

So I'll take first and then defer to Jen on the retention side of things. So macro, I'd say in the production side of things, we continue to see a bit of slowness throughout Q1 as those schedules try to realign after the strike. I would say we probably expect maybe a little bit more of that into Q2, and then we probably expect it to be kind of back at what I'd say normal levels within the second half of the year. I don't think we fully expect, given some of the streaming items and such, to necessarily come back to where it was fully pre-strike. But in terms of what we expected within our guidance and budgeting this year, I think we're largely tracking to kind of expectations from a timing standpoint.

Ron, on the revenue retention rate, yes, so there's a few things to unpack in there. I'll start with, I think, the end of your question, which is where do we see this kind of trending to or normalizing back to. And I think the answer there is that we'll start to see this over time start to tick back up into that mid-90% range. The reason for that is, as we're talking about that's really phenomenal subscriber growth, where we're seeing that growth, as we commented on, is really in those smaller e-commerce subscriptions, with a lot of that coming from brand-new customers and markets of the world that we're just starting to tap into. So with that comes those, which are lower commitment, lower price point subscription products; newer customers, as you can imagine, those do come at the start with lower revenue retention rates. Now each and every one of those provides an opportunity for us to upsell and grow with the customer over time as their content needs expand as their budgets expand. So they start off low, but that is a really nice opportunity for us to grow those customers over time. But that mix to what we're seeing to 90% now, a good chunk of that driver is that mix of growth in those smaller e-commerce, predominantly new customers. The other thing I commented on there to this metric, as you know, it counts not just the subscription revenue but revenue that these subscribers are spending outside of their subscription. So what we're seeing here is a bit of a contraction in essentially à la carte spend outside of the subscription in this period. We think that's largely due to some of that residual impact from Hollywood strikes, some macro impacts just a contraction of budgets related to some of those dynamics. So a little bit less spend outside of subscription, which, again, as Craig just commented, we start to see those conditions improve. We'd expect to see that improve as well.

We'll take our next question from Mark Zgutowicz with the Benchmark Company.

Jen, could you provide a quick follow-up on your comments about the subscription returning to the mid-90s? Should we incorporate that into your guidance, or is it more relevant to the 2025 timeframe? Additionally, can you confirm that enterprise remained around 100% in Q1?

Yes. So I think that's something that we'd expect to see more as an exit rate as we start to come out of 2024. We really start to unwind some of these bigger strike and macro impacts. So I don't think we'd expect to see that really jump right back up in Q2 per se, but something that we start to see picking up as we exit the year. And then on enterprise, yes, as we noted, we see the revenue renewal rates for enterprise subscribers still averaging north of 100%.

And then maybe just a couple of quick follow-ups. Looking at corporate and agency separately in terms of how they trended in the quarter, corporate re-accelerated in Q4. I was just curious whether that moderated a bit this quarter, and then agency, which was down mid-single digits year-over-year exiting the year. Did that stabilize in Q1? And then one just last one, if I could, on the video attach rate. I noticed that was sort of flattish in the quarter. Just curious, given that's a nice upsell opportunity for you guys, how we should be thinking about that trend line over the next, call it, two years or so?

Yes, sure. So on corporate, good memory, Mark. We exited 2023 with Q4 corporate back in growth. I'm happy to say that Q1 corporate remained in growth. So continuing to see those trend lines. For agency, Q1 was back down low double-digit declines again, so more or less in line with what we were receiving as we exited the year. We saw that improve a bit to higher single-digit declines in Q4, but that 11% decline is broadly speaking what we saw. Just remind me again what your other question was.

Yes, sorry. It's on the video attach rate. Curious that... So what are the drivers of that climbing up over what period of time should we be thinking about maybe milestones of that growing?

Yes, yes. So that's one where we have seen pretty much every quarter we've seen that pick up this quarter kind of flattening out a bit. So there's a few things there. When we think about what the opportunities are, I mean, that's really an upsell opportunity for us to make sure our customers know we have videomaker merchandising video well, and make sure all of our subscription customers know that video is an option. I'll be talking about video. When you come to the site, you see video, you see imagery—all of those things that just come with sort of packaging, marketing, upselling, customer conversations. So that continues to be a focus for us. I think when we think about the math that goes into this equation, you have to correlate this back to some of that annual subscriber growth, where we commented a big amount of that growth is new customers. A big amount of that growth is sitting in e-commerce subscriptions. Broadly speaking, those smaller e-commerce subs don't have video turned on yet, right? So there's a bit of a math equation here as you bring in some of those new customers who are just not in video yet within the Getty ecosystem. That plays into the math of that attach rate. And again, that's an opportunity for us over time to migrate those customers as they grow in both budget and content needs.

I would just add to that, that the unplaced subscription doesn't have video as an option today on the site. So as Jen's point, as we continue to grow those subs we basically don't have a current opportunity for attachment. Although we did launch illustrations this week as part of that subscription, and that initial take-up is going well, and you can certainly expect video downstream at some point. But those are all opportunities.

We have no further questions in the queue at this time. I would like to thank everyone for your participation. You may disconnect at any time. This does conclude today's program. Thank you all.