Earnings Call Transcript - GETY Q2 2024

Operator, Operator

Good morning, and welcome to Getty Images Second 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, Vice President of Investor Relations and Treasury at Getty Images. Thank you. You may begin.

Steven Kanner, Vice President of Investor Relations and Treasury

Good afternoon, and welcome to the Getty Images Second 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 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 that 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 to your questions. With that, I will hand the call over to our Chief Executive Officer, Craig Peters.

Craig Peters, Chief Executive Officer

Thanks, Steven, and thank you to everyone for joining Getty Images' second quarter earnings call. I will touch on our performance and progress at a high level before Jen takes you through the full second quarter financial results. I am pleased to report, as expected, we returned to growth in the second quarter with revenue of $229.1 million, representing a year-on-year increase of 1.5%, on a reported basis, and 2.1% on a currency-neutral basis. Adjusted EBITDA came in at $68.8 million for the quarter, down 5.4% on a reported basis and 4.7% currency-neutral, but continuing to represent a healthy EBITDA margin of 30%. We continue to see some softness from our agency and production customers impacting both creative and editorial and most notably, our video revenues. However, we achieved growth across each of our Getty Images iStock and Unsplash brands and we continue to see strong utilization of our offerings reflected by growth in paid downloads with consumption centered on our exclusive creative and editorial content. It would not be an earnings call if the CEO did not speak to our embrace of AI, but I want to start by grounding us in what really sets Getty Images apart. Our partnerships and unique access, our deep expertise embedded across our staff and exclusive contributors, our comprehensive coverage and archive, our best-in-class search and our deep customer relationships. I was extremely fortunate to spend last week in Paris and observe how this uniqueness is demonstrated in an event like the Summer Olympics. We've been the official photographic agency of the International Olympic Committee for more than 25 years. Our experienced team of more than 140 individuals captured every moment across more than 70 sports for both men's and women's competitions. We captured the grandeur of the whole city and the celebrities and dignitaries performing and in attendance. We captured the action from every angle, including from the air and below the water. All told, we shot and edited more than five million images over the course of the games and we delivered this content to our customers with unmatched speed. Our archive allowed customers to tell deeper stories about Paris and tied the Paris games and its athletes to their rightful place in history. Our commercial team was also on the ground delivering best-in-class service to the International Olympic Committee and its family of partners and sponsors, including NBC Universal Comcast, Coca-Cola, Procter & Gamble, Visa, Toyota, AB InBev and Samsung Electronics, to name a few. And we did all of this while covering the world beyond Paris, global elections and conflicts, climate events, the latest concert performances and movie premieres, and major sporting events, such as Formula 1; we're also their official photographic partner. Remember in April, we announced the acquisition of motorsport images to deepen our footprint within the sport. And I'm pleased to report we added more than 300,000 images to our archive and worked closely to support new commercial partners such as McLaren Racing and Aston Martin. I am proud of the scale and scope of what our team accomplished. I am proud of the level of professionalism displayed. I'm reminded of what truly sets Getty Images apart and of the durable value we convey to our customers. On the technology front, we continue to innovate to bring true, commercially safe, high-quality Generative AI services to our customers. We launched an updated model of our commercially safe Generative AI services and tools in partnership with NVIDIA. It brings lightning-fast speed and higher quality visuals, including improved details for high-resolution 4K outputs. We rolled out capabilities allowing customers to use AI across our pre-shot creative library enabling customers to modify both Generative AI images and existing pre-shot creative images. We announced the option for customers to fine-tune the commercially safe foundational model using their own proprietary content. We announced our partnership with PixArt to offer a custom, commercially safe model to their millions of creators, marketers and small business customers. We announced the renewal of our longstanding Canva relationship, providing Canva's customers with access to millions of Getty Images’ award-winning creative images and video assets, and an agreement to collaborate to develop responsibly trained commercially safe Generative AI for their platform. I am proud of the progress we're making on this front. I am proud of the quality of our offerings and the legality and integrity of how they are trained. And by the company we keep, I'm reminded of the truly unique capabilities of Getty Images. I will end my remarks by saying that I'm excited to build on our momentum over the second half of 2024. I will now turn over to Jen to take you through the more detailed financials.

Jennifer Leyden, Chief Financial Officer

As Craig mentioned, our business returned to top-line growth in Q2 with headwinds turning to tailwinds. Our editorial business is back to the growth we have historically seen after four consecutive quarters of decline due to Hollywood strike impacts. Our subscription business continues to expand, now up to 52.9% of total revenue, and our key performance metrics continue to be healthy. Positive growth momentum across our business, in spite of a still challenged agency business and a slow ramp-up of post-Hollywood strike activity from our media and production customers, provides a solid foundation from which we continue to execute towards a strong second half of the year. Let’s begin by highlighting some of our KPIs, which are reported on the trailing 12-month basis or LTM period ended June 30th, 2024, with comparison to the LTM period ended June 30th, 2023. Total purchasing customers were 740,000, down from 830,000 in the comparable LTM period. The decrease is related to lower volume of à la carte transactions, which reflects both our continued shift into committed and annual subscriptions and a still pressured agency business, which consumes nearly entirely on an à la carte basis. Importantly, we continue to see the benefit of higher lifetime customer value as we shift into more committed solutions with the total annual revenue per purchasing customer growing 10.7% to $1,232 from $1,113 in the comparable LTM period. We added 100,000 active annual subscribers to reach 282,000, representing growth of 55% over the corresponding 2023 LTM period. This metric has grown north of 50% in each of the last seven quarters. This growth was fueled by our e-commerce offerings, including our iStock Annual and our Unsplash+ subscription, with the majority of this growth coming from customers who are brand new to Getty Images. Out of the 282,000 annual subscribers, over 60% were first-time purchasing customers. In addition, we continue to expand our geographic reach with over 96,000 new subscribers across our targeted growth markets in LATAM, APAC and EMEA. Our annual subscriber revenue retention rate was 89.4% compared to 98.5% in the comparable LTM period, but held relatively steady at 90% reported for the LTM Q1 ‘24 period. The year-on-year LTM decline was driven by the same factors that have impacted this metric over the past several quarters, including subscriber count growth in our lower retention smaller e-commerce subscribers. Our Hollywood strike impacted reduction in incremental à la carte subscriber revenue from some of our media, broadcast and production customers, and the decline related to one-time project spend in the prior periods in certain corporate customers. On a sequential basis, the impacts in some of these items does appear to be stabilizing and our subscription revenue renewal rates remain very healthy, averaging in the 90% range. Paid download volume was up 0.9% to $95 million, an ever-compelling data point demonstrating the continued demand for high-quality, differentiated commercially safe content. Our video attachment rate rose to 15.6% from 13.5% in the LTM Q2 2023 period, another quarter of year-on-year growth. Turning to our financial performance, revenue was $229.1 million, an increase of 1.5% and 2.1% on a currency-neutral basis. Included in these results are certain impacts of the timing of revenue recognition that reduced year-on-year growth by 100 basis points. Annual subscription revenue was 52.9% of total revenue, up from 51.1% in Q2 2023. This is our 7th consecutive quarter with subscription revenue comprising north of 50% of our total revenue. In total, subscription revenue increased 5.2% on a reported basis and 5.7% currency neutral, driven primarily by growth across our e-commerce subscription offerings. Editorial revenue was $83.6 million, an increase of 4.1% year-on-year and 4.6% on a currency-neutral basis. We are seeing a strong rebound in editorial with the business delivering its first quarter of growth since the Hollywood strikes began impacting our financial performance in Q2 of 2023. We saw growth across sports, news and entertainment with the largest gain in sports which was in double digits year-on-year growth. We are seeing lift from our impressive coverage of major events such as the European soccer season and the lead-up to the UEFA Championship, as well as our coverage of the US and UK election cycle. It is great to hear the editorial business back in growth and we are excited to continue this momentum into the second half of the year. Paid up revenue was $137.9 million, down 2.4% year-on-year and 1.8% on a currency-neutral basis. Paid up performance continues to reflect pressures in the agency business, which was down double digits, due primarily to decline at the smaller independent agencies. As we mentioned earlier, we are seeing a lag in recovery on the production side of things, which is also impacting creative results. Creative annual subscription revenue continues to grow at 5.7% year-on-year and 6.2% on a currency-neutral basis. Our customer acquisition efforts continue to drive growth in our iStock annual subscriptions, which grew 19% on both a reported and a currency-neutral basis, marking the 12th consecutive quarter of double-digit growth. In addition, our Unsplash+ subscription, the first paid subscription for Unsplash, delivered another quarter with triple-digit growth. As Craig mentioned, iStock and Unsplash, largely e-commerce sites, continue to grow. These sites on a combined basis, represent less than 20% of our revenue with over 50% sitting in annual subscriptions. Across our major geographies, on a currency-neutral basis, we saw a year-on-year increase of 1.7% in the Americas, 2.4% in EMEA and 3% in APAC, all of our major geographic regions were in growth. Fantastic to see. Revenue versus cost of revenue as a percentage of revenue remained consistently strong at 72.5% in Q2, up from 71.9% in Q2 of 2023. Total SG&A expense was $101.2 million, down from $101.5 in the prior year. As a percentage of revenue, our expense rate was 44.2%, down from 45% last year. The lower expense rate was driven primarily by the increase in revenues and lower stock-based compensation in the quarter. Excluding stock-based compensation, SG&A rose to $97.2 million in the quarter or 42.4% of revenue, up from $89.6 million or 39.7% of revenue in Q2 2023. The increase in spend reflects our planned reinvestments in the business, primarily across staffing and marketing in addition to higher commissions tied to revenue delivery and the inclusion of motorsport imaging operating cost. This quarter also included some elevated severance costs as we continue to optimize our resource allocation. These costs should be offset by savings in the balance of the year and higher net annualized savings going forward. Adjusted EBITDA was $68.8 million, down 5.4% year-over-year and 4.7% on a currency-neutral basis. Adjusted EBITDA margin was 30%, down from 32.2% in Q2 of 2023. CapEx was $15.4 million in Q2, up $1.5 million year-over-year. CapEx as a percentage of revenue was 6.7%, compared to 6.2% in the prior year period and well within our expected range of 5% to 7% of revenue. The year-on-year increase is largely tied to timing within the year. Free cash flow was $31.1 million, up from $27.9 million in Q2 of 2023. The increase in free cash flow reflects working capital changes related to the timing of receivables and payables. Free cash flow is stated net of cash interest expense of $26 million and cash taxes paid of $12.8 million in the second quarter. We finished the quarter with $121.7 million of balance sheet cash, down $12.5 million from Q1 2024 and up $0.4 million from Q2 2023. This includes $32.6 million in voluntary debt repayments in the second quarter of 2024. As of June 30th, we had total debt outstanding of $1.35 billion, which includes $300 million of 9.75% senior notes, $601.8 million USD term loan with an applicable interest rate of 9.94%, and 448.5 million euro converted using the exchange rate as of June 30th, 2024, with an applicable rate of 8.69%. We also have a 150 million revolver that remains undrawn. Our net leverage was 4.2 times at the end of Q2, unchanged from both Q1 and year-end 2023. We remain committed to utilizing our cash flow to further deleverage the balance sheet and we will continue to proactively explore opportunities to refinance our debt. Based on the foreign exchange rate and applicable interest rates on our debt balance as of June 30th, our 2024 cash interest expense is estimated to be $131 million. Of course, our actual annual interest expense remains subject to changes in the interest rate environment, which we outline in more detail within our SEC filings. In summary, it is good to see our business back in growth with healthy underlying key metrics. We remain fiscally disciplined. We continue to invest in this business and we look forward to building on our Q2 momentum. Now turning to the outlook for full year 2024, taking into consideration the estimated impact of the stronger US dollar and assuming current FX rates hold, we are updating our reported revenue guidance range to $924 million to $943 million, representing year-on-year growth of 0.9% to 2.9%. On a currency-neutral basis, this represents growth of 1% to 3%, which remains unchanged from our prior guidance. We now expect adjusted EBITDA of $290 million to $294 million, which translates to a year-on-year decrease of 3.8% to 2.5% or 3.6% to 2.3% currency-neutral. The update to our adjusted EBITDA outlook reflects a $2 million impact from current borrowing currency pressure, approximately $2 million of integration-related expenses that are more one-time in nature and some higher-than-expected employee health insurance costs. Please note the estimated FX impacts include an assumption that FX rates remain consistent with those as of August 1st, 2024, with the euro at 1.08 and the GBP at 1.29 for the remainder of the year. Despite these unplanned impacts, our operating efficiency remains strong with adjusted EBITDA margins expected to be north of 31%. With positive momentum building, we remain optimistic for our full year return to growth while maintaining the fiscal discipline that has long been embedded in our business. With that, operator, please open the call for questions.

Operator, Operator

We'll take our first question from Cory Carpenter with JPMorgan. Please go ahead.

Cory Carpenter, Analyst

Good morning. Thanks for the questions. Craig, one for you and one for Jen. Maybe Craig just on Generative AI, you rolled out a lot this quarter, you made a lot of progress. Hoping you could talk about the consumer engagement you are seeing and then also, I know it's still early, but your thoughts on the potential monetization of that over time. And Jen, for you, just could you touch more on the drivers of the acceleration in the second half of the year, any assumptions you're making, in particular around the agency channel. Thank you, both.

Craig Peters, Chief Executive Officer

Thanks for the question, Cory. On the Generative AI front, we continue to see really positive feedback from our customers across each and every segment of the business. That’s really due to the quality of the model and services that we’re providing, but also the truly commercially safe nature of how these are built and what they can do. It's still early days in the adoption curve within the commercial set. So, it's not material to the business yet. We expect over time it can be a meaningful contributor to the revenues of the business. But it's still early days and fairly limited contribution to the business at this point. However, it is on a growth trajectory and as that becomes more material, it will be something we'll probably report back to you. Jen?

Jennifer Leyden, Chief Financial Officer

Yeah, and on guidance and just as you know the acceleration into the second half. So there's a few things there for top-line performance. One, as we mentioned, we're still seeing certainly through the first half, particularly in Q2, some continued lag on the production side of things recovering. So, a bit of continued improvement there. We have seen those declines start to taper off but it remains a slower recovery than we anticipated. So, a bit of a pick up there. Agency side of things, we're not necessarily expecting any material changes there, but again a slow gradual improvement to those double-digit declines that we're seeing. Another significant piece of it, which we've spent some time talking about before, is the editorial side of our business. We are just moving into the second half of the year with a really favorable year-on-year comparison due to those strike impacts starting to affect us largely in Q3 and the second half of last year. So, we have built-in favorable comp there and then our editorial event calendar is largely stacked in the second half of the year. Major events like the Olympics and the US political cycle are shaping up to be pretty healthy size events for us. Those are the primary drivers of top-line performance in the second half.

Cory Carpenter, Analyst

Thank you.

Operator, Operator

Our next question comes from Ron Josey with Citi. Please go ahead.

Ron Josey, Analyst

Great, thanks for taking the question. I wanted to double down on the subscription side. Craig and Jen, specifically, clearly over 50% of revenue for the past four quarters—that’s a good thing here. I want to understand about the drivers. So, you mentioned iStock and Unsplash, now 20% of revenue, with 50% of that coming from subscribers. Just tell us more about what you're doing to drive that subscription from iStock, or what the contributing benefits from iStock and Unsplash are. But then also the strength in iStock and Unsplash. And then, back to the subscription side, there’s a good deceleration in Q2 from an annual active subscriber perspective. Can you provide any insights on the deceleration in growth, and then regarding the retention rate, it looks like the retention rate has been relatively steady. Should we assume this is the right rate going forward here? Thanks for the questions.

Craig Peters, Chief Executive Officer

Great. Thanks, Ron, and Jen, I’ll take a stab at this upfront and then Jen can fill in on anything that I might have missed. In terms of the Unsplash and iStock side of things, we've been making a concerted effort over the last really two years to drive more annual subscriptions across those products. It results in higher ARPU, it results in ultimately higher lifetime values, and then we think it delivers more value to our customers through those offerings and becomes more embedded in their day-to-day use and workflows. So we think it's a good thing for the customers, and it's a good thing for Getty Images overall. The way we've achieved that, obviously, Unsplash, we introduced a paid subscription in Unsplash+ that had not been there before and brings new value to those customers that includes indemnification and higher-end content that is fully released content. So, ultimately it’s providing additional value to the Unsplash universe. On iStock, we've introduced more SKUs within the paid subscription product side of things and we've been increasing the use of free trials for that. It’s been largely positive. There is a slightly lower retention coming out of the free trial, but we’re attracting people to try the product that are largely new to the iStock platform as Jen mentioned. We think that’s a good thing and it’s been largely net positive. We're obviously going through a testing cycle to continue to optimize that by geography and traffic source. That’s been a driver behind that in addition to lower annual subscriptions like 10 downloads per month. That has led to great growth across those two platforms in terms of their annual subscription revenues and ultimately as a percentage of the overall business. As mentioned on previous calls, they do come with lower net retention. Obviously, we’re dealing with small businesses and freelancers who have higher degrees of churn in and out of products. So that's impacted the retention rate you referenced, which has come down a bit. But again, I still think it’s a net trade positive for the business. Going forward, you should expect to see revenue retention rates for subscribers maintain in that 90% range while we continue to test and learn and optimize. But again, I want to emphasize that we had growth across Getty Images, growth across iStock, and growth across Unsplash in the quarter. I think the annual subscription component of that was a big driver of achieving growth across each of these brands. Jen, is there anything to add?

Jennifer Leyden, Chief Financial Officer

Yeah, I think the only thing I’d add is, Ron, you asked specifically if that 89-90% retention rate is a sustainable level going forward. I think probably, as we cycle through this year, it'll hover somewhere around there and then start to ramp up to low to mid-90s over time. One of the things we’re seeing is a little bit of contraction in spend from these subscribers outside of their subscription, and that is very much related to the Hollywood strike. Last year, the pre-Hollywood strike expense number was in those low to mid-levels. So, we’re starting to see that consumption level, that à la carte spend outside of subscriptions start to kick back up. Again, we're far from full recovery on that, but that’s one of the drivers of this. So, slowly over time, we'll see that come back a bit.

Ron Josey, Analyst

Super helpful on both. Could you - and one quick follow-up just talking to the writer strike and the recovery. We still have, I think we're still recovering, would you say we're beyond the heavy lifting, so to speak, and now it's a matter of time? Or would you have expected the recovery to be faster, slower? Any thoughts there would be helpful. Thank you very much.

Craig Peters, Chief Executive Officer

Yeah, Ron. I think we're beyond heavy lifting, but we're just in a gradual re-ramp over time. We're hopeful that we’ll continue to see that over the second half and into 2025. It's one where that will impact kind of all of our product lines. So, it's not just an editorial item; it's an editorial plus creative. A lot of the content consumed in productions is creative. So, we expect that we’ll see that clearly following the media sector, which has been a bit more gradual by all reports. All expectations are that by 2025, we should probably be back to where we were. But, we’re past the heavy lifting side of things and should be in a situation where it's just a gradual return over time. We have deep embedded relationships within that community, and those customers are in tight conversations with us. So, I think that expectation is one grounded in good solid customer communication and feedback.

Ron Josey, Analyst

Thank you, Craig. Thank you, Jen.

Jennifer Leyden, Chief Financial Officer

I’d just add there just to give some numbers. If we look specifically at that production side of things, when we were in the heart of strike impacts last year, we saw that industry down double digits. As we move into the first half of the year, it's still in decline, but now sort of in that lower single-digit range. From double-digit declines down to single-digit declines. So, seeing some improvement that, as Craig noted, we expect that recovery to continue on a bit longer.

Ron Josey, Analyst

Thank you.

Operator, Operator

Our next question comes from Mark Zgutowicz with Benchmark. Please go ahead.

Mark Zgutowicz, Analyst

Thank you. Good morning, Craig and Jen. A couple from me on one premium access, just curious how that performed in the quarter and your expectations for the e-commerce product. Basically, I think it's roughly a 20% base today. So just growth in the second half. And then, also curious, I might have missed it, but I was curious what drove the big quarter-over-quarter growth within the other segment. Thanks.

Craig Peters, Chief Executive Officer

Thanks, Mark. On the Premium Access side, it's our largest subscription offering. It includes a lot of our really premium content across editorial and creative and video and stills; it can bring our archive into play. We continue to see really strong performance in that product, not just in the uptake of new customers, but more importantly on the retention and the utilization side of things. It's a really strong product and we haven't seen moderation in its performance at any point in the last couple of years. It’s truly about building the strength of that deep customer embedded workflows and utilization. That’s what we're also bringing to the e-commerce side of the subscriptions on iStock and Unsplash. Regarding the performance going forward on iStock and Unsplash, we continue to expect them to be in growth. These are platforms that are offering a differentiated content offering relative to the competition, which we believe resonates with our customers. We see them consuming that content relative to non-exclusive or other sources at a much higher level. It’s a durable point of differentiation. Based on paid download metrics, revenue metrics, and customer metrics, we're taking share within those spaces due to those platforms' unique positioning and the content that underpins that, and we expect that to continue. Regarding the other segment, that includes our media management offerings and music, as well as some data licensing. We did some small data licensing deals that align with our vision of bringing our content into the data licensing market or burning our content in the data licensing market—essentially staying away from one-time perpetual licenses and trying to establish recurring revenue in a partnership model. So, there was slight data licensing that contributed to that in Q2 off a very small base historically. Jen, anything to add there?

Jennifer Leyden, Chief Financial Officer

No, I think you touched on it. There are some other smaller, individually immature, immaterial contributors there. Our French business, our music business, both of those also in growth, but again, these are fairly small numbers as is that other grouping overall.

Mark Zgutowicz, Analyst

That's helpful, and just on the license, the data licensing side, how would you characterize that growth as more one-time in nature versus carry-forward over the next 12 months? Just if you could frame that, Craig. And one last one for me, just in terms of political and the Olympics. If you could maybe quantify that your expected contribution relative to the last cycle to be durable. Thanks.

Craig Peters, Chief Executive Officer

Yes, thanks, Mark. It should be noted that there's a bit of accounting with ASC 606 and revenue recognition that makes some of the data licensing appear a bit pulled forward on some items. But these are structured within our model that we've always stressed, which is more recurring and partnership-based. Some level of lumpiness is expected from the different recognition in that aspect versus linear time-based recognition. For the most part, we’re focused on building recurring, durable revenue streams. As for the editorial calendar in terms of the elections and the Olympics, we expect that to be slightly lower than the historic contribution on a four-year cycle—Presidential election cycle—comparing 2020 versus 2024. We anticipate contributing around $8 to $10 million this year, primarily driven by our political side. This may be conservative considering how the 2024 elections are shaping up in the US. I can tell you, based on my experience coming out of Paris, that there is a lot of activity flowing from that. So, we remain hopeful for some upside relative to our initial guidance, but you can expect it in the $8 to $10 million range. We're certainly seeing consumption of that content out of that Premium Access subscription offering, which speaks to the quality of the content our team at Getty Images is delivering from Paris. The speed, quality, depth and breadth of the innovative coverage of the games by our team has been received exceptionally well, so.

Jennifer Leyden, Chief Financial Officer

One thing I would add there, specifically on the political side, is that incremental revenue for us; that will be a lift to both creative and editorial. Historically, when we look back at political spend, it's roughly 50/50 in terms of how it impacts creative and editorial. Sometimes, it skews even higher on the creative side of things. So, while we discuss it in the editorial side of the business, the political impact also influences our creative revenue.

Craig Peters, Chief Executive Officer

Good points.

Mark Zgutowicz, Analyst

Thanks, Jen.

Craig Peters, Chief Executive Officer

Yep.

Operator, Operator

Our next question comes from Tim Nolan with Macquarie. Please go ahead.

Tim Nolan, Analyst

Hi, I'd like to get back to the agencies topic, please. The agencies themselves that they kind of mixed results. Just wondering what gives you the optimism going into the second half of the year? I mean, I think it’s unstable overall, but I'm talking to larger agencies that we cover on the public side, maybe you're focused more on the smaller agencies. So, just wondering where the optimism comes from there. And then, secondly, and relatedly, I think last time we were talking a bit about agencies adopting more of the Generative AI tools, and I'm wondering if there's any indication yet that they are shifting away from an à la carte to more of a subscription payment model as they adopt these tools. Thanks.

Craig Peters, Chief Executive Officer

Thanks, Tim. On the agency front, I would say that what we’re really seeing is stabilization within that portion of the business. This was, again, a segment where we were experiencing double-digit declines. We're now seeing that start to moderate as the economic uncertainties improve, notably in sectors like technology that are beginning to reinvest and spend which translates to flows through agencies. So, it’s not a heroic change as Jen referenced in her remarks but rather trends normalizing. We’re observing improvement that leads out through the large network agencies while also noting early signs among the smaller agencies. However, we don't see a major shift to AI or subscription within those agencies, largely due to how they relate to their clients and what that implies regarding project billing. They still need to bill on a per-project basis. We’re not observing a transition to subscriptions or a significant reliance on AI for end projects yet, though experimentation is evident, and that’s often in partnership with Getty Images.

Tim Nolan, Analyst

Okay. Thank you.

Craig Peters, Chief Executive Officer

Thank you.

Operator, Operator

And this will conclude our Q&A session as well as our conference call. Thank you all for your participation and you may disconnect at any time.

Jennifer Leyden, Chief Financial Officer

Thank you.