Getty Images Q4 2023 Earnings Call Transcript

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Provided by Quartr
March 14, 2024

There are 8 speakers on the call.

Operator

Good afternoon, and welcome to Getty Images' 4th Quarter and Full Year 2023 Earnings Conference Call. At this time, I'd like to turn the conference over to Stephen Canner, Vice President of Investor Relations and Treasury at Getty Images. Thank you. You may begin.

Speaker 1

Good afternoon, and welcome to the Getty Images 4th quarter and full year 2023 earnings call. Joining me on today's call are Craig Peters, Chief Executive Officer and Jen Laden, 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 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.

Speaker 1

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 with the SEC.

Speaker 1

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.

Speaker 2

Thanks, Stephen, thanks to everyone for joining Getty Images' 4th quarter and full year 2023 earnings call. I'll start by addressing the full year business performance and progress before Jen takes you through the Q4 financial results and 2024 outlook. Throughout 2023, we experienced a series of challenges across our business landscape. In Europe, across our agency customers and within certain technology sectors, we observed a cautious approach in customer spending given prevailing macroeconomic conditions. Additionally, starting in the second quarter, the writers and actors strike significantly impacted our media and entertainment segments.

Speaker 2

The strengthening of the U. S. Dollar relative to foreign currencies also negatively impacted our EBITDA as we have a significant share of revenue outside the U. S. With a smaller cost base in these currencies.

Speaker 2

These challenges were not unique to us and despite their impacts Getty Images remained relatively resilient as we adapted to mitigate the impacts. For the full year 2023, revenue was $916,600,000 representing a year on year decrease of 1% reported and down 0.5% on a currency neutral basis. Consistent with our history and our culture, the company adopted prudent cost measures without sacrificing our investment in the long term. As a result, adjusted EBITDA came in at just over $301,400,000 for the full year, down 1.2% reported and down 0.4% on a currency neutral basis, holding steady at 32.9% of revenue. Despite a tough climate and results below the expectations we had going into 2023, The Getty Images team continued to lay a strong foundation grounded in our core value propositions of helping our customers create at a higher level, saving our customers time and money and eliminating risk.

Speaker 2

That foundation starts with our exclusive content. It is one of the key differentiators for Getty Images. Content from over 80,000 creators and 300 partners represented exclusively by Getty Images. This translates to unique event access and rights. It translates to an unmatched archive and truly distinct quality.

Speaker 2

It translates to Istock being the only meaningful mid tier provider to offer an exclusive elevated quality level through its signature collection of more than 31,000,000 assets. In a long standing world of seemingly infinite supply of visual content, Getty Images has always stood apart on quality and that is reflected by approximately 2 thirds of our revenue being generated by content that customers can simply not get anywhere else, a statistic that has been durable over time. We successfully renewed each and every content partnership up for renewal within the year. This includes multi year renewals with Paris Match, Anadalo, Sky News, Sony Pictures and the DPA Picture Alliance. We also added new content and rights through partnerships with the U.

Speaker 2

S. Soccer Federation and College Football Playoffs to name just a couple.

Speaker 3

Through our staff, our partners and

Speaker 2

our contributors, we've produced a award winning extensive editorial coverage across the globe, representing more than 160,000 events from over 170 countries. Events such as the conflicts in Ukraine and GazaIsrael, Earthquakes, storms, the U. S.-Mexico border, all things Taylor Swift, Beyonce's Renaissance World Tour, the Women's World Cup, the PGA Tour, Formula 1, the Rugby World Cup, Sundance Film Festival and the Met Gala. I could go on. We mined our archives in support of important stories, stories such as the coronation of King Charles III, the 60th anniversary of the March on Washington, image celebrating the lives of Tina Turner, Matthew Perry and Harry Belafonte, and the all important build up to the Paris 20 24 Olympic and Paralympic Games.

Speaker 2

We conducted and conveyed deep research on societal and digital trends, enabling our customers to more effectively and deeply engage their targeted end audiences across the globe. Research around women and sport, sustainability, customer sentiment around AI, mental health, ageism, social media and the global cost of living crisis. We introduced natural language search on the Getty Images and iStock websites, enabling our customers to more deeply search our content and more efficiently find the content to meet their needs. We continue to invest in the growth of Unsplash Plus, our premium subscription offering on Unsplash, adding exclusive content, new languages and new features. These efforts are why we maintained our paid downloads at $95,000,000 despite a challenging macro environment.

Speaker 2

They are why we were able to increase customer commitment in the face of a challenging environment, with total annual subscribers increasing to 236,000, up from 120 $9,000 to start the year. And subscription as a percentage of total revenue reaching an all time high of 53.2%. While still early days with respect to adoption and contribution to our business performance, I'd be remiss if I would not be an earnings call where I didn't mention AI. In partnership with NVIDIA, we announced and launched a truly unique generative image offering, an offering that is trained on licensed and released data and rewards content creators for the training, an offering that respects 3rd party intellectual property rights and is socially responsible and that it cannot produce deep things, an offering that is commercially safe and indemnified, an offering that produces high quality outlets. We launched on Getty Images and Via API in Q4 and on Istock in January this year.

Speaker 2

Of course, with all things AI, the pace of innovation is breakneck. In recent weeks, we have already introduced expanded controls and capabilities such as in painting and out painting. We'll be releasing a newly trained model soon and we will also enable AI capabilities across our entire pre shot creative library. We also have big plans for video in partnership with NVIDIA and Runway, which we expect to launch later this year aligned to the commercial needs of our customers. While we continue to face macro challenges, as always, we remain focused on delivering real value to our customers and long term returns to our shareholders.

Speaker 2

As the core of Getty Images is high quality content and coverage that is derived from top notch talent, exclusive access, extensive research and rare expertise. We pair this with world class customer service across committed and long standing relationships and the delivery of technology that truly enhances the creativity, productivity and efficiency of our customers without risk. With our solid foundation and clear vision and focus, we're excited to return to growth in 2024. Thank you. And now turning the call over to Jen to take you through the more detailed financials.

Speaker 4

As Craig mentioned, our performance in the Q4 and for the full year of 2023 reflected the impacts of the various challenges we face, but also the proactive actions taken by the company to protect its bottom line and position us for a return to top line growth in 2024. I'll start by touching on some of our KPIs, and I'll note that today's press release contains information on all 7 of our KPIs, which are reported on the trailing 12 month basis or LTM period ended December 31, 2023, with comparisons to the LTM period ended December 31, 2022. Total purchasing customers were 799,000, down from 835,000 in the comparable LTM period. This decrease is tied to both our continued shift into subscription products and the continued contraction in our agency business, where customers consume nearly entirely on an a la carte or transactional basis. The continued shift into subscriptions, while driving the volume of purchasers down, has more importantly driven an increase in annual revenue per purchasing customer, up from 1109 to 11.47 for the LTM period.

Speaker 4

Active annual subscribers grew 83% year on year to 236,000, up from 129,000 in 2022, driven primarily by growth of our e commerce subscriptions, including our iStock Annual and Unsplash Plus subscription. This represents the 5th consecutive quarter with growth well in excess of 50%. While that growth rate is a strong metric on its own, the drivers of the growth, largely new customers and customers in our growth markets as well as in our core markets is even more compelling for us. In fact, of the 236,000 annual subscribers in the LTM period, 62% were brand new customers to Getty Images and 38% were customers in our growth markets across LatAm, APAC and EMEA. We are expanding our reach.

Speaker 4

Our annual subscriber revenue retention rate was 92.4%, down from 100.1% in the 2022 LTM period, due in large part to those lower revenue retention rates on some of our smaller e commerce subscribers, as we'd expect, and also a reduction in incremental a la carte revenue from annual subscribers. Paid download volume was flat at $95,000,000 And as Craig noted, that is a very strong outcome given the myriad of macroeconomic challenges we navigated through. Our video attachment rate remained in growth, rising to 14.1 percent from 13.1% in Q4 2022, with plenty of room for continued expansion. Turning to our financial performance. As we expected, this quarter's results were impacted by macroeconomic pressures, impacts from the 2 Hollywood strikes and continued pressure on our agency business.

Speaker 4

However, both revenue and adjusted EBITDA exceeded the upper end of our guidance range. As we exited the year, we saw strengthening across our corporate sector, a slight improvement in agency and FX, which had been a challenge for most of the year, provided a benefit in the quarter. Total revenue in the 4th quarter was $225,900,000 down 2.4% on a reported basis and 4% on a currency neutral basis. Included in these results are certain impacts of the timing of revenue recognition, which contributed approximately 130 basis points of year on year revenue growth in the quarter. Our annual subscription revenue made up 54.5 percent of total revenue in the 4th quarter, up from 50.2% in Q4 of 2022, and it was 53.2% of total revenue for all of 2023.

Speaker 4

In total, subscription revenue increased 6% on a reported basis and 4.4% on a currency neutral basis, driven by gains across our premium access and e commerce offerings. While the mix of annual subscription revenue has been above 50% for the past 5 quarters, we still have opportunity to drive the mix higher. Creative, which includes skills and video content for commercial use and accounts for approximately 2 thirds of our total revenue, was $145,800,000 up 0.5% on a reported basis and down 1% on a currency neutral basis. If you were to exclude our more challenged agency business, which sits entirely in Creative, On a pro form a basis, Creative revenue was in growth on both a reported and currency neutral basis, which highlights the underlying health of our corporate customer segment. Within Creative, continued strength in our annual subscription, up 13.1% or 11.6 percent on a currency neutral basis, led by our premium access subscription, the largest of our subscription offerings.

Speaker 4

Our e commerce business continued to see growth in our Istock annual subscriptions, which grew by 16% on a reported basis and 14.4% currency neutral, marking the 10th consecutive quarter with double digit growth. In addition, our Unsplash Plus subscription, one of our newest offerings, delivered strong double digit growth. Where we continue to see pressure was in our a la carte offering, which were pressured due to 3 factors: a mid single digit decline in our agency business the impact of the Hollywood strikes that left production houses dormant and a customer shift towards more committed products, driving lower a la carte purchases for growth in higher ARPU subscriptions. Editorial, which is 1 third of our total revenue, includes our coverage of global news, sports and entertainment events, as well as our extensive archive collection of historic images and videos, finished the quarter at 75,700,000 dollars a decrease of 7.9% year on year and 9.5% on a currency neutral basis. Our archive and entertainment verticals were negatively impacted by the slowdown related to the Hollywood strike, while sport and news were also up against challenging 2022 compares, including our coverage of the 2022 FIFA World Cup and the 2022 U.

Speaker 4

S. Midterm elections. Across our major geographies on a currency neutral basis, we saw a year on year decrease of 5.2% in the Americas, 1.8% in EMEA and 4.4% in APAC. Revenue less our cost of revenue as a percentage of revenue remained consistent and strong at 72.3% in Q4 compared with 72.4% in Q4 of 2022. Total SG and A expense was $101,600,000 in Q4, up $6,300,000 year on year, with our expense rate increasing to 45 percent of revenue, up from 41.2% last year.

Speaker 4

The higher year on year expense was due primarily to $10,500,000 of stock based comp related to the vesting of employee equity awards compared with $3,400,000 of equity based comp in Q4 of 2022. For the full year, SG and A increased by $26,900,000 to 43.9 percent of revenue, up from 40.5% last year, also driven by the increase in stock based compensation. Excluding stock based compensation, SG and A decreased year on year 0.9 percent to $91,100,000 in the quarter. The lower spend is the result of our deliberate cost management actions executed early in the year. As a percentage of revenue, SG and A, excluding stock based comp, was 40.3 percent of revenue, up just slightly from 39.7% of revenue in the prior year due primarily to the decrease in revenue.

Speaker 4

For the full year, adjusted SG and A decreased 0.4% to $364,900,000 or 39.8 percent of revenue compared to 39.5 percent of revenue in the prior year. Adjusted EBITDA was $72,200,000 for the quarter, down 4.5% year over year and 6 0.5% on a currency neutral basis. Our adjusted EBITDA margin was 31.9%, down from 32.6 percent in Q4 2022. For 2023, adjusted EBITDA was 301 $400,000 down 1.2% reported and 0.4% on a currency neutral basis. Our adjusted EBITDA margin was 32.9%, unchanged from the prior year, demonstrating the continued resiliency model.

Speaker 4

CapEx was $15,100,000 in Q4, up $1,900,000 year over year. CapEx as a percentage of revenue was 6.7% compared to 5.7% in the prior year period. For the full year, CapEx was $57,000,000 or 6.2 percent of revenue, down from $59,300,000 or 6 0.4 percent of revenue in 2022. CapEx continues to be within our expected range of 5% to 7% of revenue. Adjusted EBITDA less CapEx was $57,000,000 down $5,300,000 year over year, representing a decrease of 8 0.5% or 10.3 percent on a currency neutral basis.

Speaker 4

Adjusted EBITDA Less CapEx Margin was 25.2% in Q4 compared to 26.9 percent in Q4 of 2022. For the full year, adjusted EBITDA Less CapEx was $244,400,000 a decrease of 0.5% reported and an increase of 0.7% currency neutral. Free cash flow was $18,600,000 in Q4 compared with $20,600,000 in Q4 of 2022. The decline in free cash flow was largely driven by lower EBITDA and working capital adjustments related to timing. Free cash flow is stated net of cash interest expense of $24,200,000 and cash taxes paid of $8,900,000 in the 4th quarter.

Speaker 4

For the full year, we generated 75,700,000 dollars in free cash flow compared to $103,800,000 in 2022, with that full year decrease primarily being a result of the increase in interest expense related to the rise in interest rates and also driven by higher litigation related expense. We finished the quarter with $136,600,000 of balance sheet cash, up $23,100,000 from the 3rd quarter and up $38,700,000 from Q4 of 2022. Despite the tough climate, this business continues to generate healthy cash flow, continues to pay down debt, and we finished the year with higher cash balances and expanded liquidity. As of December 31, we had total debt outstanding of $1,400,000,000 including $300,000,000 of 9.75 percent senior notes, dollars 637,000,000 of USD term loans with an applicable interest rate of 9.95 percent, dollars 463,600,000 of euro term loans converted using exchange rates as of December 31, 2023, with an applicable rate of 8.875%. We also have a $150,000,000 revolver that remains undrawn.

Speaker 4

For the full year, we applied 50 point $4,000,000 toward debt pay down, including a voluntary $2,600,000 repayment in the 4th quarter. We ended the quarter with a net leverage of 4.2x, down from 4.4x@yearend2022. In early February, we opportunistically explored a debt refinancing with the primary goal of meaningfully reducing our interest expense and extending our term loan maturities. As we analyze the opportunity with our advisors, we ultimately decided against proceedings as the interest expense savings were not as meaningful as we desired. We would like to thank those in the lender community that spent time with us during this process.

Speaker 4

We will remain disciplined and we continue to look for the optimal opportunity and market conditions to refinance our debt. In the meantime, we will continue to deploy our capital to what we believe is its highest and best use with a continued focus on reducing our leverage. Management remains laser focused on execution. As of December 1, 2023, taking into consideration the foreign exchange rates and applicable interest rates on our debt balance at that time and the effect of $355,000,000 in interest rate swap agreements, which matured in February, our annualized estimated cash interest expense is $134,000,000 That said, our actual annual interest expense remains subject to changes in the interest rate environment, which we outline in more detail within our SEC filings. So we finished 2023 having delivered meaningful subscriber growth.

Speaker 4

We continued to pay down our debt. We expanded our AI generative offerings, and we nimbly navigated through several unexpected macro challenges. All throughout, we remained fiscally disciplined, we generated healthy levels of free cash flow, and we ended the year with a stronger balance sheet, and we are very well positioned to return to top line growth as we head into 2024. With that, let's shift into our 2024 guidance. We anticipate revenue of $928,000,000 to $947,000,000 representing growth of 1.3% to 3.3% year on year and currency neutral growth of 1% to 3%.

Speaker 4

Assuming current FX rates hold with the euro above 1.09 and the GBP above 1.27, we expect foreign currency to have a more muted impact on our financial results relative to what we experienced in 2023. For revenue, we estimate a benefit of about $2,500,000 for the year, of which approximately $2,000,000 is expected in the 4th quarter. We expect adjusted EBITDA of $298,000,000 down 1.5% year over year and down 1.2% currency neutral. Included in the adjusted EBITDA expectations is a similar cadence for FX with an approximate estimated $1,000,000 benefit in 2024, with almost all of it expected in the Q4. With that, operator, please open the call for questions.

Operator

Thank you. At this time, we will be conducting a question and answer session. Our first question comes from the line of Ron Josey with Citi. Please proceed with your question.

Speaker 5

Hey, team. This is Jake on for. Thanks for taking my questions. Craig, really great to hear about the Gen AI product rollouts on both Getty and iStock. I know last quarter you shared that it had it would have or you expected to have limited impact?

Speaker 2

Hello?

Speaker 3

Hello.

Operator

Jennifer and Craig, are you on line?

Speaker 2

Craig is on.

Speaker 4

Yes, I'm here. I think we might have blocked Jake. Can you hear me?

Speaker 2

We can now. We can now.

Speaker 4

We cut out pretty early into your questions, if you don't mind just repeating them all again.

Speaker 5

Sorry about that. Well, the first question was just on GenAI. Last quarter, you shared that you'd expect any more visibility you could share in terms of

Speaker 2

expectations or contributions for this year? And then the second question was just on corporate. You noted some continued macro challenges, but we look at like the resilience in the revenue per repurchasing customer and curious if you could share more about what you're seeing from corporate. Any specific verticals doing well or still showing signs of conservatism? Okay.

Speaker 2

Happy to take both of those. On the Gen AI front, I'd say that the expectations for contribution on a material basis are still going to still be much longer term in terms of that growth. We've taken a point of view of, again, really building the products, getting them to market and doing that in the subscription model. So it's going to take time for that adoption to accrue to something that's meaningful to the business. But with that said, I'd say that we are definitely having a lot of conversations on the sales front.

Speaker 2

We're getting really good feedback on the use of the product and where we are seeing adoption of the product. It's positive and aligned to kind of our expectations. So but I wouldn't expect significant contributions into this year that will have a meaningful material impact on our performance around the guidance stated. With respect to corporate, it's been a growth segment for this business for a long time. We saw that a little bit choppy in 2023 due to the macroeconomic items that we related.

Speaker 2

I think I specifically called out the technology segment, sub segment within that as kind of some of the areas that were a bit more choppy than maybe what we had experienced in prior years. But we expect that segment to continue to grow for us in 2024. It still continues to be one where internal marketing groups are bringing their sales and marketing in house in order to manage across their websites, their social media presence, their sales and marketing collateral, and that continues to be the driver behind that. So a little bit choppier in 2023. We will expect to see a little bit of choppiness in 2024, but again, the corporate segment should be wanting growth.

Speaker 2

Thanks so much.

Operator

Thank you. Our next question comes from the line of Cory Carpenter with JPMorgan. Please proceed with your question.

Speaker 6

Hey, thanks. I just wanted to ask about the agency business. You mentioned it improved a little down mid single digits. Maybe if you could just talk about your expectations for how that will trend in 2024? And then Jennifer, for you, just maybe within your 2024 revenue guide, anything you're willing to provide around creative versus editorial, what we should expect given the even year seasonality?

Speaker 6

Thank you.

Speaker 2

Jen, why don't you just take both of those?

Speaker 4

Yes, happy to. So I'll start backwards on guidance. So as you know, we don't guide specifically to editorial or creative, but we are heading into an even year. Normally, that would come with an expectation of a level of growth. However, this year will look a little bit different and what we would normally expect to see in terms of that even year impact will be a bit muted.

Speaker 4

The reasons for that, obviously, we're still seeing some lingering impact from the strike, and certainly as we navigate through Q1, likely to see a bit of that as we navigate through Q2. So we're still dealing with a bit of impact from that. And then the flip side of that is as we think about 2023, the first half of twenty twenty three was actually in growth for editorial. So we've got that comp that we're navigating through growth versus still navigating through some of those strike impacts in H1. We definitely do expect to see some good event revenue.

Speaker 4

We've got Olympics. We've got a U. S. Presidential election. We've got euros.

Speaker 4

We did have a bit of revenue event revenue in 2023. So we expect to see that bump. But again, that strike impact will lose that a bit for us relative to what we normally expect to see. And obviously, when it comes to something like a U. S.

Speaker 4

Presidential election, it's hard for us to size that with precision until we get a bit deeper into what all of it is going to look like. So it's a little bit of color of how editorial is playing into that top line and you can back in a little bit of what that might mean for Creative. On the agency side, so I don't think we're necessarily expecting a big reversal or agency to shift into growth right away in 2024. What we commented on in the prepared remarks is that we saw a bit of an improvement. I think specifically, I used the word flight.

Speaker 4

So that's coming off of pretty steady double digit declines on agency and ending the year, exiting the year in that mid single digit decline. So I don't think we're expecting a massive turnaround. That, as we've spoken about on these calls before, is largely a macro impact, right? So as customers are holding tight on to their creative and marketing budgets that flows through the agencies that flows through that. So we're cautious on that one.

Speaker 4

Again, we don't expect it to turn around, but it is well under 20% of our total revenue at this point as we exit in 2023.

Speaker 6

Great. Thank you. Thank you, Jennifer.

Speaker 4

You're welcome.

Operator

Thank you. Our next question comes from the line of Mark Zektowicz with The Benchmark Company. Please proceed with your question.

Speaker 3

Thank you. Good evening, Craig and Jen. Jen, a couple of questions for you, if I could. I was just hoping to get some visibility on Creative revenue retention expectations this year ex agency. And I was also hoping you could maybe comment on churn ex agency.

Speaker 3

And then the second question is just around the EBITDA guidance. I'm just curious what are the expense assumptions there, just given there's roughly $20,000,000 delta relative to your top line guidance. So any color there would be helpful. Yes.

Speaker 4

Mark, would you mind repeating the second question? I didn't quite hear that.

Speaker 3

All right. Second question is, if you could just talk about the expense assumptions within your 24% adjusted EBITDA guidance? Just

Speaker 4

Sorry, your second question, the agency item you

Speaker 3

Sorry. Just looking for if you could comment on churn ex agency.

Speaker 4

Right. Okay. So I'll start with EBITDA. So yes, I think what you're seeing there in our EBITDA guidance, we've talked quite a bit about how we employed some proactive cost actions pretty early on in 2023. So as we enter into 2024, you're seeing a little bit of a reset on our cost base.

Speaker 4

We're certainly not pulling back on all of that cost management. There are certain elements of the cost pullbacks that we made in 2023 that we've reset entering into 2024. And that's really just to set ourselves up to get back to top line growth. There are elements of employee incentive based compensation that as you can imagine are tied to the company's financial performance. So as we reset into 2024, at the start of any year, we'd have within our cost base an expectation of that incentive based comp coming back because there's an expectation of the company hitting its financial performance.

Speaker 4

So it's really just a bit of a reset. Again, not a full relieving of all of those cost actions, but we did go into 2024 pretty deliberately making sure we're investing in growth and setting ourselves up to get that growth. The question on revenue retention and churn, so we don't really give our revenue retention figure or stat on creative versus editorial. I think the way that I would answer that question, and I'm assuming you're talking a little bit more about the subscriber base, but we continue to see when we think about our large enterprise customers, we continue to see those retention rates pretty much at 100%, right? So the enterprise side of things, we continue to see that figure being really strong.

Speaker 4

As we start to grow that subscriber base, and we talked about a lot of that growth is coming from the smaller e commerce subscription side of things, those obviously come at least at the start with a lighter revenue retention rate. So you'll see that pull down a bit from something like 100% on the enterprise side of it. And those smaller e commerce subscriptions, those all do fit on the creative side of the business. So not sure if if that answers those questions, but we don't really give a creative versus editorial retention or turn element.

Speaker 3

That's helpful, Jim. Thank you.

Speaker 2

Okay.

Operator

Thank you. Our next question comes from the line of Tim Nollen with Macquarie Asset Management. Please proceed with your question.

Speaker 7

Hi. It's Tim from Macquarie Research, not Asset Management. But just curious, Craig, if you could give a bit more color on the potential revenue from AI. You said earlier that you expect it to be kind of a longer term ramp in revenues. But would we see this in a line like paid download growth?

Speaker 7

I mean, would there be a high demand for AI for images and for data behind that that people can use to generate their own images. I know I didn't say that very well, but I think you know what I mean. Would that come from the paid download side, which has basically been flat quarter over quarter, or would that come in somewhere else?

Speaker 2

Yes. So the first, let me just characterize how we are approaching AI. So we are licensing services to our end customers. Those services have been developed in partnership with companies like NVIDIA. We have not pursued to any meaningful degree licensing of our data on a basis that would generate revenue against the data side of things.

Speaker 2

So we believe long term that AI is going to be a fundamental tool of creatives and we want to build the business around offering those services versus licensing our data out to 3rd parties to build services. We fundamentally believe our data will be critical in differentiating those services as we go to market. And so that's the trade that we are making. It's a long term trade that we believe is the right one for the business in terms of, again, owning these services and the end customer relationships and delivery of those services to our customer. So you will see over time, you will see those result in our subscriber counts as customers subscribe into generative AI services on an annualized basis.

Speaker 2

You will see that show up into our paid download section as they generate imagery from those services and then download that imagery and use it within their marketing and sales and collateral and other parts of their marketing stack. So yes, you will see those start to accrue through the metrics. But it will take some time for those to have a meaningful this goes back to the comment I think Jake or question Jake asked. It's going to take a while for those to be meaningful relative to 95,000,000 paid annual downloads.

Speaker 7

Right. Okay. That makes sense. Thanks. Can I ask a separate question, which is looking at your subscription as a percentage of revenue, I think 54% in the quarter, which was up quite a bit from a year ago, but it was down a little bit from Q3?

Speaker 7

And I wonder if that is just a normal Q4 kind of a seasonal trend. It might be some more kind of seasonal related Q4 one off types of sales that might have actually brought that number down sequentially?

Speaker 2

Yes. We saw a little bit of in Q4, we saw a little bit stronger close to the year. A lot of that was through a la carte purchases in the business. Again, Jen kind of mentioned the rebound ameliorate on our business, most notably within our paid assignment business, which is not done within subscription. So those are some of the things that Q4 relative to Q3 took that percentage down a bit.

Speaker 2

I would say all those were good things though. Okay.

Speaker 3

Thank

Operator

you. Thank you. And we have reached the end of the question and answer session. I'll now turn it over to you. This also concludes today's conference and you may disconnect your lines at this time.

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Getty Images Q4 2023
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