Good afternoon and welcome to the Getty Images Fourth Quarter and Full Year 2022 Earnings Conference Call. Today's call is being recorded. We have allocated 1 hour for prepared remarks and Q&A. At this time, I'd like to turn the conference over to Steven Kanner, Vice President of Investor Relations and Treasury at Getty Images. Thank you. You may begin.

Good afternoon and welcome to the Getty Images fourth quarter and full year 2022 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 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 thanks to everyone for joining Getty Images Fourth Quarter and Full Year 2022 Earnings Call. I will address the full year business performance and progress before Jen takes you through the full fourth quarter financial results and 2023 outlook. I want to start with context on the evolving macroeconomic environment and its impacts on getting images. 2022 was a challenging year, particularly as we move through the second half of the year. As I said last quarter, like other global businesses, the strengthening U.S. dollar relative to foreign currencies negatively impacted our results. We also experienced a slowdown in some parts of our business during the year as businesses exercise caution given the macroeconomic conditions, this being most pronounced in certain parts of Europe and with our agency customers. For the 2022 fiscal year, Getty Images exceeded $926 million in revenue, representing year-on-year growth of 0.8% and currency-neutral growth of 5.7%. Our adjusted EBITDA finished just shy of $304 million for the full year. This reflects a reported year-on-year decline of 1.7% and currency-neutral growth of 4.8% as our costs are heavily weighted towards the U.S. dollar and we took on new costs as a public entity. While we experienced slowing over the year, Getty Images generated year-on-year currency-neutral growth in each quarter of 2022. We grew our purchasing customers by over 5% year-on-year. We grew our annual subscription customers by more than 50,000 to $129,000. Our paid downloads grew more than 6% to $95 million. Our revenue retention rates for our annual subscribers continued in excess of 100%. We continue to grow our video attachment rate as the number of customers using our video offering within the period. These metrics speak to the strength of Getty Images offering and how we continue to deliver more value…

Our operational performance in the fourth quarter and the full year 2022 is a testament to the resiliency we have built into our business and to the strength of the Getty Images offering. I'll start off today by reviewing some of the key operating metrics, or KPIs that underpin that financial performance. Please note today's press release contains information on all of our KPIs, but I'll highlight just a few here to further expand on PEG's comments. All KPI metrics are as of the trailing 12 months, or TTM period ended December 31, 2022, with comparison to the comparable TTM period ended December 31, 2021. As discussed in our Q3 earnings call, beginning with those Q3 results, we made 2 go-forward changes to our customer data and reporting. I will highlight the impact of these changes on total active annual subscribers and annual subscriber revenue retention rate, the 2 KPIs impacted by those changes. I will note that our Q4 KPI metrics point to a healthy, resilient business, even absent these 2 reporting changes. We continue to see growth in customer engagement with our total purchasing customers rising to $835,000 from $794,000, an increase of 5.2% over 2021. This growth is fueled by our ability to consistently produce and deliver the highest quality authentic content that our customers need and demand to tell their visual stories and to amplify their visual presence. We meaningfully grew our active annual subscribers to $129,000 and from 75,000, an increase of approximately 73% over 2021. Absent the customer data reporting changes, this increase would have still been an impressive 56%. This metric helps the number of customers on one of our annual subscription products which are products with a duration of 12 months or longer and now also includes our Unsplash plus subscription. This…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] And our first question is from Mark Zgutowicz with Benchmark Company.

I have a micro one for Jen and then perhaps a bigger picture one for Craig. Jen, if we look at your creative revenue which is down modestly in fourth quarter, year-over-year, I think up about 2.7% is organically in '22. If we were to hold a la carte growth, the decline that you're seeing there as we transition to subscription static, what would those organic growth numbers look like? I'm just trying to get a sense of how much weight that has been putting on your creative business growth which is obviously optical here as you move from a la carte to subscription.

Did you want to get with your second question? Or do you want me to just jump in there.

Sure. I'll save my second question here. It's maybe a little bit more or but good.

Yes. So I just want to make sure I'm understanding your question correctly. So I think you're trying to quantify the impact of some of that a la carte shifting on the creative performance. Am I understanding that correctly?

Yes, yes. And I guess maybe more high level, just trying to get a sense of when there's an inflection perhaps in your growth where that weight of a la carte sort of leading your business is lighter relative to the subscription growth?

Got it. Okay. Let me tackle that a few different ways and thank you for the question. So I think just to frame up creative, there's a couple of things happening there with that performance. That is where we are seeing some of that macro headwind certainly in the second half of the year, we'd see that more pronounced in the creative side of the business. That is going to be driven within the creative space by some softness, both in our agency business as well as some softness on the e-commerce side of things. Now within that, I think what you're pointing to is some RF a la carte decline also sitting within that creative space. Where does that go? When does that transition and, if you will, I think it's going to go on for a bit. We've quoted -- we have not given a goal per se for where we think subscription revenue should be. We think we can get to a place where subscriptions make up roughly 60% of our revenues, so up from 50% now. So there's still some migration to happen, right, from RF, a la carte or from non-committed solutions into committed solutions. So I think we're soon going through some of that migration; so we should expect to see that. The other piece is that this business continues to drive massive amounts of new customers coming into this business, right? So as you can imagine, not every new customer starts on a bigger subscription. So there's always going to be a little bit of a push and pull with a la carte whether that be new customers, pressure from the agency business shift from RF all apart into subscription. So, I think we still have some of that shift going on from a la carte to subscription. Hopefully, that answered your question. There were a few different answers in there.

Yes. Thanks, Jen. That's super helpful. And Craig, on the top of AI, obviously, something that has been increasingly in the news here and you signed a partnership with BRIA. I just wanted to cover that from both angles sort of how you intend to use AI to your benefit. And then on the flip side, how you protect your existing exclusive IP from the purposing of content that AI models certainly will be used for. Appreciate any thoughts there.

Well, thanks, Mark, for the question. And I lost the poll, I had the AI questions first. You put them up and I'm on a few dollars. I'm going to come after you for that. Look, I just thought I'd address the AI topic a bit more holistically. First, I think it's really important to note that while generative models have made quite the splash over the recent months, this is something that Getty Images has been tracking closely, both the progress and the potential of these models for many, many years now. We think about generative models really in AI, really across 4 dimensions. So, for the first dimension, we believe Getty Images represents unique assets and data that is valuable to these generative and other computer vision models, applications, cloud-based services, et cetera. We see that as a new revenue opportunity that extends far beyond the license imagery space. And our legal action with Stability AI expresses our strong belief that companies need to license those assets. So that's the first dimension. The second dimension is the degree to which general models threaten our creative -- existing creative business, okay? Models in current form have some very real limitations and I'll speak to those a bit more in a second. But we see general models continuing to improve and to where when developed and used responsibly, they will add yet another source of imagery to what is already an ever-expanding sea of imagery. Since the emergence of digital, Getty Images has always competed against what is essentially an unlimited universe of imagery and there are literally trillions of images out there. And we've successfully done that, right? Today is our 28th anniversary and we've done that successfully for 28 years. And we will continue to do this by…

Our next question is from Tim Nollen with Macquarie.

I've got a couple of questions about your KPIs related questions -- interrelated questions, I should say. So your customer count was up nicely year-over-year. It looks like it was down quarter-over-quarter. Can we assume there might have been some macro impact that affected that? And then also, you had some nice -- very nice rise, especially in your active annual subscriber count, also your video attachment rate. It looks like maybe not fully layering into revenue growth yet but maybe I'm not clear on that. If it looks like it's not factoring in yet, is it a matter of it just takes time to build the ARPU, if that's the metric you use in terms of the revenue that you get on those customers? Or is it maybe some Unsplash customers that are just lower cost? Maybe if you could just help clarify how that works.

Sure. I'll take this and then Jen, you can layer on anything over the top. So on the account side of things, we are seeing a slight macro impact, as we mentioned, kind of in certain geographies and within certain parts of our business. But I would say the bigger thing that you're really seeing there, Tim, is we are pushing to drive that annual subscription number more aggressively. And we do trade off some level of purchasing as a result of that but it's a very net positive trade-off to the business overall. With respect to video and subs, we do see attachment rate there. We're not growth in annual sub growth. Again, back to my comments, we're pushing that more aggressively. Unsplash layers into the annual subside of things, it doesn't layer into the video. But even its impact on the annual sub figure is kind of minimal. It's not overly material at this point. We only launched that subscription in October of last year. So what you're really seeing there is we are seeing solid bookings and it takes a while for those bookings to flow through into recognized revenue. We have been introducing smaller subscriptions, smaller subscriptions that include video, smaller subscriptions that include the transition customers on the e-commerce side of things to annual. So maybe the ARPU of some of these subscriptions isn't quite what it's historically been but it's highly additive to the business. And again, we kind of book it up front and then we flow that through over the next 12 months. So that is some of the impact that we expect to see coming into this year. Jen, anything that you would add?

No.

Our next question is from Ron Josey with Citi.

I have two. And maybe, Craig, starting off on the AI question or topic following some of your comments on the 4 dimensions. Can you just talk a little -- talk a little bit more about the new revenue opportunity you talked about that might go far beyond licensing as companies need to license the content. Where are we -- I'm assuming we're very early days here but talk to us about what needs to happen for that to just start implementing or seeing that in the model? And then, Jen, you talked about softness in agency base and e-commerce side of things. I wanted to hear a little bit more on the corporate side of the business. And as it relates to revenue retention, I think that declined in the quarter and the year, I think we heard earlier COVID comps but any insights on current cohort trends as we think about maybe retention rates going forward would be helpful.

You got it. So Jen, I'll take the first and then you can take the second. So on the revenue side of things in terms of licensing, again, I think we have litigation with stability under the search and that we believe fundamentally people should pay for the assets that we possess as they apply them into generative models or other AI systems. And we think our assets are quite unique. We have been doing some licensing for those that have chosen to approach us and have that conversation. We have reached certain license agreements. But when we look at the space and we look at the potential for computer vision and generative AI, it's massive. And it's much broader than simply image licensing. I mean, this has to do with the creation of any creative editing platforms across the board. This has to do with self-driving vehicles. The application of this technology and the need for these technologies to train themselves up on a significant corpus of imagery with highly relevant metadata. And ongoing flows that kind of reflect the contemporary and where the world is moving, right? So think about how technology changes over time. Think about how fashion changes over time. Think about how simple things like landscapes and Cityscapes change over time. So what we are focused on is trying to establish clear parameters around that in terms of the need to license and then ultimately, applying our data out into this field to create a new revenue stream for the business, again, or at least a much larger revenue stream than it's historically been given recent kind of activities. Does that make sense, Ron?

It does. Craig. Appreciate it.

All right. Jen, do you want to pick up the other?

Yes, I'll pop in. So on corporate, corporate actually was really strong for us in 2022. We had another year of double-digit year-on-year growth in the corporate space. That continues to be an opportunity for us. So it's definitely one of our growth levers. We think we can drive even harder into the corporate space but a strong finish relatively speaking, with double-digit growth year-on-year. With respect to revenue retention, so we finished just over 100%, 100.1% to be exact. The -- I think step down you're mentioning that, that rate dipped to about 88% in 2020 that purely being driven by COVID impact. We saw the rate jump back up in 2021 to just under 105%. So that jump 2020 to 2021, 88% to 105%. That is the benefit of a year-on-year compare coming off of a COVID impacted 2020. That said, historically, we have seen this rate average 100% plus. That is where we finished 2022 and that is where we would expect to see this continue to be around that 100% plus range.

That's helpful, Jen. And then on corporate growing double digits, any insights on percentage of revenue or things along those lines. And thanks again for the answers here.

You are welcome. So yes, we -- our corporate now makes up north of 50% of our revenue with the agency making up well under 20% of our revenue.

Our next question is from Brett Feldman with Goldman Sachs.

The first one just has to do with getting a little more insight into your guidance for the year. So I look at your revenue guidance range on a currency-neutral basis, the 1.9% to 4.9% growth. How do we think about the swing factors between the high and the low end of that range? Or maybe another way of thinking about the question would be if the current operating conditions were to persist for the remainder of the year, where would that put you in the range? And then I'm curious, the range you have for EBITDA, is that really driven exclusively by the low and the high end of revenue? Or is there something else further down the P&L that would create that variability? And then I have one more follow-up question after we get to this one.

Jen, do you want to take that?

Yes. So I think for revenue 1% to 4%, I think that low end 1% would really be this business starting to see sustained worsening macroeconomic pressures. The higher end of 4% to get it embedded within this guidance full stop is some assumption of macroeconomic, right? So that 4% is some continuation of macroeconomic impact but the business continuing to execute. When we roll through to EBITDA, what we have assumed in here is that we can maintain our revenue less cost of revenue that maintains holds around 72%. That can waver slightly off of 72%, plus or minus, entirely based on product mix. but we assume 72% of the good starting point there and then maintaining our EBITDA margins north of 30%. So really, it's a top line revenue story for us in terms of holding through to that EBITDA margin. In our prepared remarks, we certainly say and we certainly mean we will, Craig and I, the whole executive team, we will watch that top line performance, right? We have a proven history when this business needs to pull back and how it's spending and what it's spending on, we will do that, right? We will deliver this EBITDA performance. We will monitor top line performance. We will moderate spend as needed but we feel pretty comfortable with these ranges.

I appreciate the color. Then the other question I had is, can you just remind us what you're striving towards in terms of your net leverage profile and how you're thinking about prioritizing excess capital allocation this year? Is it really just all towards delevering. I got to imagine there may be some assets that are available at pretty attractive prices. I just don't know how much of a priority that might be right now.

So I can pick that one because there's a bit of quick even -- we're targeting somewhere around 3x to 2.5x on a leverage basis in terms of where we feel like that's a point where we reopened the question about what do we do with capital? We will look to pay down debt going forward to get to that target. If there are opportunities that present themselves, obviously, I can't speak to any here and we'll look at. If they make good sense for the business, we will evaluate them. And if there are opportunities to play offense in downside scenarios, we're open to it. So -- but ultimately, we are highly focused in on paying down additional debt to create more operating flexibility in the business. And -- but we're not going to ignore opportunities that might occur over the coming quarters and years.

There are no further questions at this time. I would like to turn the floor back over to management for closing comment.

Great. Thanks, Mila. And so just thank you, everybody, for taking time out of your busy days to spend some time with us. We really appreciate it. And I just want to reiterate to all the employees that are listening in, happy 20th anniversary for if you got the champagne pop it, we got more to do over this year and into the next 28 years. So get excited for it. Thanks, everybody.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.