Getty Images Holdings Inc

Note 1 - Description of the Company and Basis of Presentation

Description of the Company

Getty Images Holdings, Inc. (the “Company” or “Getty Images”) is a preeminent global visual content creator and marketplace that offers a full range of content solutions to meet the needs of customers around the globe, no matter their size. Through Getty Images, iStock, and Unsplash brands, websites, and APIs, the Company serves customers in almost every country. It is one of the first places people turn to discover, purchase, and share powerful visual content from the world’s best photographers and videographers. The Company brings content to media outlets, advertising agencies, and corporations and increasingly serves individual creators and prosumers.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Getty Images and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles in the United States of America (“U.S. GAAP”) for complete financial statements and should be read in conjunction with the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 15, 2024 (the “2023 Form 10-K”).

In the opinion of management, the accompanying unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements, and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the results of the interim periods presented. Operating results for the three and six months ended June 30, 2024 are not necessarily indicative of the results to be expected for any future period or the entire year.

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Certain prior year amounts have been reclassified to conform to the current year's presentation. The loss on litigation incurred during the three and six months ended June 30, 2023, previously included in “Selling, general, and administrative expenses,” has been reclassified to “Loss on litigation” on the condensed consolidated statements of operations. Certain prior year disaggregated revenue amounts have been reclassified to conform to the current year presentation. All intercompany accounts and transactions have been eliminated in consolidation.

Estimates and Assumptions

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Note 2 - Summary of Significant Accounting Policies

There have been no changes to the significant accounting policies described in the 2023 Form 10-K that have had a material impact on the Company’s condensed consolidated financial statements and related notes. The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Allowance for Doubtful Accounts

Accounts receivable – net, are trade receivables net of reserves for allowances for doubtful accounts totaling $6.5 million as of both June 30, 2024 and December 31, 2023. The Company recorded net bad debt expenses of $0.4 million and $0.6 million for the three months ended June 30, 2024 and 2023, respectively, and $0.7 million and $1.1 million for the six months ended June 30, 2024 and 2023, respectively. The allowance for doubtful accounts is calculated based on current expected credit losses, which includes consideration of historical losses, existing economic conditions, and analysis of specific older account balances of customer and delegate accounts. Trade receivables are written off when collection efforts have been exhausted.

Unrealized Foreign Exchange Gains (Loss) - net

The Company recognized foreign exchange gains - net of $2.4 million for the three months ended June 30, 2024 compared with net losses of $3.2 million for the three months ended June 30, 2023, respectively, and a $18.9 million net gain for the six months ended June 30, 2024 compared with net losses of $14.1 million for the six months ended June 30, 2023, respectively. These changes are primarily driven by fluctuations in the Euro related to the EUR Term Loans.

Minority Investments without Readily Determinable Fair Value

The carrying amount of the minority investments, which is included within “Other assets” on the condensed consolidated balance sheets, was $9.6 million and $10.0 million as of June 30, 2024, and December 31, 2023, respectively. The Company uses the measurement alternative for these equity investments, and their carrying value is reported at cost, adjusted for impairments, or any observable price changes in ordinary transactions with identical or similar investments. Revenue related to content consumed by the minority investees was not material during the three and six months ended June 30, 2024, and 2023.

On a quarterly basis, the Company evaluates the carrying value of its long-term investments for impairment, which includes an assessment of revenue growth, earnings performance, working capital, and general market conditions. As of June 30, 2024, no adjustments to the carrying values of the Company’s long-term investments were identified as a result of this assessment.

Recently Issued Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) or other standard-setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the issued standards that are not yet effective will not have a material impact on its condensed consolidated financial statements and disclosures upon adoption.

Note 3 - Acquisition

On April 1, 2024, the Company entered into a Unit Purchase Agreement with Motorsport Images LLC and Motorsport.com, Inc., to purchase 100% of the outstanding membership interests in Motorsport Images LLC, a Florida limited liability accompany (“Motorsport Images”) for $15.1 million in cash and approximately 1.2 million shares of the Company's Class A common stock.

The components of the fair value of consideration transferred are as follows (in thousands):

The transaction was accounted for using the acquisition method of accounting and, accordingly, the results of the acquired business have been included in the Company’s results of operations from the acquisition date. In connection with the acquisition, the Company incurred approximately$1.0 million of transaction costs for the six months ended June 30, 2024, recorded in “Other operating expenses – net” on the condensed consolidated statements of operations.

Motorsport Images has an extensive library of historic and contemporary motorsports photos and videos covering major racing events worldwide. With the addition of Motorsport Images’ photographic talent and premium motorsport content, this acquisition augments the Company’s customer offering in the motorsport area, bringing a greater depth and breadth of content and services.

The fair value of consideration transferred in this business combination was allocated to the intangible and tangible assets acquired and liabilities assumed at the acquisition date, with the remaining unallocated amount recorded as goodwill. Goodwill is primarily attributed to expected synergies from combining operations. Goodwill recognized for this acquisition was allocated to the Company'sone operating segment and the entire goodwill amount is deductible for U.S. tax purposes.

The aggregate purchase price was allocated to the assets acquired and liabilities assumed as follows (in thousands):

The customer relationships have a useful life of approximately 11 years and are being amortized on a straight-line basis. The fair value of the customer relationships was determined using a variation of the income approach known as the multiple-period excess earnings method. The fair value of the contributor content was determined using the cost-to-recreate method.

The revenue and operating loss from Motorsport Images included in the Company’s consolidated statements of operations for three months ended June 30, 2024 was not material.

Pro forma revenue and earnings amounts on a combined basis have not been presented as they are not material to the Company’s historical pre-acquisition financials.

Note 4 - Revenue

Revenue is derived from licensing rights to use images, video footage, and music delivered digitally online. Digital content licenses are generally purchased on a monthly or annual subscription basis, whereby a customer either pays for a predetermined quantity of content or for access to the Company’s content library that may be downloaded over a specific period of time, or, on a transactional basis, whereby a customer pays for individual content licenses at the time of download. Also, a significant portion of revenue is generated through the sale and subsequent use of credits. Various amounts of credits are required to license digital content.

The Company recognizes revenue under the core principle to depict the transfer of control to the Company’s customers in an amount reflecting the consideration to which the Company expects to be entitled. To achieve that core principle, the Company applies the following five-step approach: (i) identify the contract with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when a performance obligation is satisfied.

For digital content licenses, the Company recognizes revenue on its capped subscription-based, credit-based sales and single image licenses when content is downloaded, at which time the license is provided. In addition, management estimates expected unused licenses for capped subscription-based and credit-based products and recognizes the revenue associated with the unused licenses throughout the subscription or credit period. The estimate of unused licenses is based on historical download activity and future changes in the estimate could impact the timing of revenue recognition of the Company’s subscription products.

For uncapped digital content subscriptions, the Company has determined that access to the existing content library and future digital content updates represent two separate performance obligations. As such, a portion of the total contract consideration related to access to the existing content library is recognized as revenue at the commencement of the contract when control of the content library is transferred. The remaining contractual consideration is recognized as revenue ratably over the term of the contract when updated digital content is transferred to the licensee, in line with when the control of the new content is transferred.

Revenue associated with hosted software services is recognized ratably over the term of the license.

Disaggregation of Revenue

The following tables provide information about disaggregated revenue by major product line, primary geographic market, and timing of revenue recognition.

Revenue by major product:

Revenue by region:

The June 30, 2024 deferred revenue balance will be earned as content is downloaded, services are provided, or upon the expiration of subscription-based products, and nearly all is expected to be earned within the next twelve months.

During the six months ended June 30, 2024, the Company recognized revenue of $109.8 million that had been included in deferred revenue as of January 1, 2024.

Note 5 - Derivative Instruments

The Company was party to an interest rate swap agreement entered into to reduce the economic impact of interest rate fluctuations on outstanding debt. The swap matured in February 2024. These derivative financial instruments were not held or issued for trading purposes.

The interest rate swap of $1.5 million was included in “Other current assets” on the condensed consolidated balance sheet at December 31, 2023.

The Company didnot recognize any income or expense during the three months ended June 30, 2024 and incurred a net loss of $0.6 million on the derivative instruments for the three months ended June 30, 2023, and incurred a net loss of $1.5 million and $2.7 million on the derivative instruments for the six months ended June 30, 2024 and 2023, respectively. The amounts are included in “Loss on fair value adjustment for swaps – net” on the condensed consolidated statements of operations.

Note 6 - Fair Value of Financial Instruments

The Company’s financial instruments consist of cash equivalents, interest rate swaps, and debt. Assets and liabilities measured at fair value on a recurring basis (cash equivalents and interest rate swaps) and a nonrecurring basis (debts) are categorized in the tables below.

The fair value of the Company’s money market funds is based on quoted active market prices and is determined using the market approach. The fair values of the Company’s interest rate swap contracts were based on market quotes provided by the counterparty. Quotes by the counterparty were calculated based on observable current rates and forward interest rate curves. The Company recalculated and validated this fair value using publicly available market inputs using the market approach. The fair value of the Company’s Term Loans and Senior Notes are based on market quotes provided by a third-party pricing source.

The following tables summarize the Company's financial instruments by level in the fair value hierarchy as of June 30, 2024:

The following tables summarize the Company's financial instruments by level in the fair value hierarchy as of December 31, 2023:

The Company’s non-financial assets and liabilities, which include goodwill and long-lived assets held and used, are not required to be measured at fair value on a recurring basis. However, if certain triggering events occur or if an annual impairment test is required, the Company would evaluate the non-financial assets and liabilities for impairment. If an impairment was to occur, the asset or liability would be recorded at its estimated fair value.

Note 7 - Other Assets and Liabilities

The following table summarizes the Company's other long-term assets:

(1) During the six months ended June 30, 2024, a$2.2 million cash dividend was declared and paid by an

investee accounted for under the equity method, which reduced the value of the equity method investment.

The following table summarizes the Company's accrued expenses:

Note 8 - Debt

Debt included the following:

(1) The table above converted the EUR Term Loans to USD using currency exchange rates as of those dates.

The Company made voluntary prepayments of $32.6 millionon its outstanding USD term loans during the quarter ended June 30, 2024. The prepayments were made using cash on hand and did not result in any prepayment penalties. The prepayments reduced the principal balance and interest expense on the term loans.

The Company was compliant with all debt covenants and obligations at June 30, 2024 and December 31, 2023.

Note 9 - Equity-based Compensation

Equity Incentive Plan

Under the Getty Images Holdings, Inc. 2022 Equity Incentive Plan (“2022 Plan”), the Company has awarded restricted stock units subject to time-based vesting, performance stock units subject to time-based vesting and achieving future performance criteria, and stock options subject to time-based vesting. The Company granted 1.2 million awards under the 2022 Plan during six months ended June 30, 2024. Under the 2022 Plan, up to 51.1 million shares of Class Acommon stock are reserved for issuance, of which 9.3 million are available to be issued as of June 30, 2024.

The Getty Images Holdings, Inc. Earn Out Plan (“Earn Out Plan”) provides for the grant of restricted stock units, which generally vest upon grant. Under the Earn Out Plan, up to 6.0 million shares of Class A common stock are reserved for issuance, of which 21.3 thousand are available to be issued as of June 30, 2024. The Company granted 1.4 million awards under the Earn Out Plan during six months ended June 30, 2024.

Equity-based compensation expense is recorded in “Selling, general and administrative expenses” in the condensed consolidated statements of operations, net of estimated forfeitures. The Company recognized equity-based compensation - net of estimated forfeitures of $4.4 million and $14.4 million for the three and six months ended June 30, 2024, respectively. The Company recognized equity-based compensation - net of estimated forfeitures of $12.1 million and $19.0 million for the three and six months ended June 30, 2023, respectively. The Company capitalized $0.4 million and $1.2 million of equity-based compensation expense associated with the cost of developing internal-use software during the three and six months ended June 30, 2024, respectively. The Company capitalized $0.2 million and $1.0 million of equity-based compensation expense associated with the cost of developing internal-use software during the three and six months ended June 30, 2023, respectively.

Note 10 - Earnings per Share

Basic earnings per share is based on the weighted average number of shares outstanding and excludes the dilutive effect of common stock equivalents. Diluted earnings per share is based on the weighted average number of shares outstanding and includes the dilutive effect of common stock equivalents to the extent they are not anti-dilutive.

Diluted income (loss) per share of Class A common stock adjusts basic loss per share for the potentially dilutive impact of stock options.

The following table sets forth the computation of basic and diluted income (loss) per share of Class A common stock:

As the Company had a net loss for the three and six months ended June 30, 2023, the diluted net loss per share does not include 38.3 million in equity-based compensation awards as their effect would have been anti-dilutive.

Note 11 - Income Taxes

The provision for income taxes for interim periods is determined using an estimate of the Company’s annual effective rate as prescribed under ASC 740 “Income Taxes” (“ASC 740”). Any changes to the estimated annual rate are recorded in the interim period in which the changes occur.

The Company recorded an income tax expense of $12.5 million and $2.9 million for three months ended June 30, 2024 and 2023, respectively. The increase in tax expense compared to the prior year is primarily due to increases in pre-tax income (loss) and a release of valuation allowance in the prior year.

The Company recorded an income tax expense of $23.7 million and $6.1 million for six months ended June 30, 2024 and 2023, respectively. The increase in tax expense compared to the prior year is primarily due to increases in pre-tax income (loss) and a release of valuation allowance in the prior year.

The Company’s effective income tax rate is 77.2% and 57.8% for the three and six months ended June 30, 2024, respectively. The most significant drivers of the difference between the 2024 statutory U.S. federal income tax rate of 21.0% and the Company’s effective tax rate are primarily due to jurisdictions with losses for which no tax benefit can be recognized and foreign withholding tax expense not analogous to pre-tax income.

The Company’s effective income tax rate is (208.1%) and 121.3% for the three and six months ended June 30, 2023, respectively. The most significant drivers of the difference between the 2023 statutory U.S. federal income tax rate of

21.0% and the Company’s effective tax rate are primarily due to jurisdictions with losses for which no tax benefit can be recognized and foreign withholding tax expense not analogous to pre-tax income.

Note 12 - Legal Proceedings and Contingencies

The Company has been named as a defendant intwo lawsuits filed by former public warrant holders in the United States District Court for the Southern District of New York, Alta Partners, LLC v. Getty Images Holdings, Inc., Case No. 1:22-cv-08916 (filed October 19, 2022), and CRCM Institutional Master Fund (BVI) LTD, et al. (together the “Plaintiffs”) v. Getty Images Holdings, Inc., Case No. 1:23-cv-01074 (filed February 8, 2023). The Plaintiffs generally allege breaches of the Warrant Agreement, dated August 4, 2020, and alternative claims for violations of the federal securities laws, including claims under the Securities Act of 1933 and/or the Securities Exchange Act of 1934. The complaints seek, among other things, an award of money damages. On February 17, 2023, the Court consolidated the actions for purposes of discovery. The Company filed answers to the complaints, and discovery closed on August 28, 2023. On September 11, 2023, all parties filed cross-motions for summary judgment, which were fully briefed on October 2, 2023. On October 27, 2023, the Court issued its decision on the cross-motions for summary judgment and entered judgment in favor of Plaintiffs on their breach of contract claims in the amount of $36.9 million for Alta Partners, LLC and $51.0 million for the CRCM plaintiffs, plus, in each case, pre-judgment interest of 9% per annum. The Court entered judgment in favor of the Company on all other claims asserted by Plaintiffs. The Company has appealed that portion of the Court’s judgment in favor of Plaintiffs. Alta has cross appealed that portion of the Court’s judgment in favor of the Company, seeking substantial damages. The parties are currently briefing the appeals.

The Company has been named as a defendant insix additional lawsuits by former public warrant holders. Two of these suits were filed in the United States District Court for the Southern District of New York, Daniel Berner v. Getty Images Holdings, Inc., Case No. 1:24-cv-04483-JSR (filed June 11, 2024), and James Lapp v. Getty Images Holdings, Inc., Case No. 1: 24-cv-05129-JSR (filed July 5, 2024). Four additional suits have been filed in the New York State Supreme Court: CSS, LLC v. Getty Images Holdings, Inc. (filed July 12, 2024); Walleye Manager Opportunities et. al. v. Getty Images Holdings, Inc. (filed July 12, 2024); Funicular Funds LP v. Getty Images Holdings, Inc. (filed July 5, 2024); and MPF Broadway Convexity Fund I, LP et. al. v. Getty Images Holdings, Inc. (filed July 5, 2024). Each new complaint generally alleges breaches of the Warrant Agreement, dated August 4, 2020, and Berner has plead an alternative claim for violation of the federal securities laws. Each new complaint seeks an award of money damages. The Company’s response to the Complaints is not yet due. A scheduling conference for the cases in federal court has been scheduled for August 9, 2024. There is no schedule yet in place for the cases in state court. It is possible that additional purported former warrant holders of the Company could bring additional lawsuits against the Company alleging substantially similar claims. The Company is unable to estimate any potential additional loss or range of loss that may result from the ultimate resolution of these matters, which could be material to the Company’s business and results of operations.

Getty Images (US), Inc. is a plaintiff in a lawsuit filed in the United States District Court for the District of Delaware against Stability AI, Inc., Stability AI, Ltd. and Stability AI US Services Corp. The case, Getty Images (US), Inc. v. Stability AI, Inc., Case No. 1:23-cv-00135-JHL, arises out of the defendant’s alleged unauthorized reproduction of approximately 12 million in images from Getty Images’ websites, along with the accompanying captions and associated metadata, and use of the copied content in connection with various iterations of Stability AI’s generative artificial intelligence model known as Stable Diffusion. Getty Images (US), Inc. has asserted claims for copyright infringement; falsification of copyright management information; trademark infringement; unfair competition; trademark dilution; and deceptive trade practices. Getty Images (US), Inc. seeks, among other things, monetary damages and injunctive relief. The case was originally filed on February 3, 2023 against Stability AI, Inc., and an Amended Complaint adding Stability AI, Ltd. as a defendant was filed on March 29, 2023. On May 2, 2023, the defendants moved to dismiss or, in the alternative, to transfer the case to the Northern District of California. The defendants’ motion was premised on their contention that Stability AI, Ltd. is not subject to personal jurisdiction in Delaware. Getty Images served jurisdictional discovery requests on Defendants on May 12, 2023, and the parties agreed to extend Getty Images (US), Inc.’s time to respond to the motion to dismiss while the parties engage in discovery relating to the defendants’ activities within Delaware and other states in the U.S. On January 26, 2024, the court dismissed the defendants’ motion to dismiss without prejudice with leave to re-file upon the completion of jurisdictional discovery. Following substantial completion of jurisdictional discovery, Getty Images (US), Inc. filed an unopposed motion for leave to file a Second Amended Complaint, which was granted on July 8, 2024. The Second Amended Complaint added Stability AI US Services Corporation as a third defendant. On July 29, 2024, the defendants filed a renewed motion to dismiss premised on their contention that Stability AI, Ltd. is not subject to personal jurisdiction in Delaware and also filed a motion to transfer the case to the Northern District of California. Getty Images (US), Inc.’s opposition to these motions is due on August 12, 2024.

Arising out of similar alleged facts, Getty Images (US), Inc., Getty Images International U.C., Getty Images (UK) Limited, Getty Images Devco UK Limited and iStockphoto LP are Claimants in proceedings issued in the High Court of England & Wales against Stability AI Limited on January 16, 2023, claim number IL2023-000007, which, together with the Particulars of Claim (the Claimants’ statement of case) were served on the defendant on May 12, 2023. The Claimants assert claims for copyright infringement, infringement of database rights, trademark infringement, passing off and breach of the terms and conditions of the Claimants’ websites and seeks, amongst other things, monetary damages, injunctive relief and legal costs. In June 2023, Stability filed a motion to strike certain portions of the claim and grant summary judgment on Getty Images’ secondary infringement claim. The court conducted a hearing on the issues in October 2023. Following the hearing, the Judge issued an order denying Stability’s motion in its entirety and granted costs to Getty Images. The order became final and public in late January 2024. Stability has requested an appeal against that decision. The case schedule has been set for the next stages of the litigation, including disclosures and any additional changes to the parties' claims or defense. Stability has requested an appeal against that decision. The appeals court denied the request on July 22, 2024. The case schedule has been set for the next stages of the litigation, including disclosures and any additional changes to the parties' claims or defense. A trial date has been set for June 2025.

Although the Company cannot be certain of the outcome of any litigation or the disposition of any claims, or the amount of damages and exposure, if any, that the Company could incur, the Company does not currently believe that a material loss arising from the final disposition of existing matters is probable. Due to the inherent uncertainties of litigation and regulatory proceedings, we cannot determine with certainty the ultimate outcome of any such litigation or proceedings. If the final resolution of any such litigation or proceedings is unfavorable, our financial condition, results of operations and cash flows could be materially affected. Further, in the ordinary course of business, the Company is also subject to periodic threats of lawsuits, investigations and claims. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors.

In the ordinary course of business, the Company enters into certain types of agreements that contingently require the Company to indemnify counterparties against third-party claims. The nature and terms of these indemnifications vary from contract to contract, and generally a maximum obligation is not stated. Because management does not believe a material liability is probable, no related liabilities were recorded at June 30, 2024 and December 31, 2023.

The Company has open tax audits in various jurisdictions and some of these jurisdictions require taxpayers to pay assessed taxes in advance or at the time of appealing such assessments. One such jurisdiction is Canada, where one of the Company’s subsidiaries, iStockphoto ULC, recently received tax assessments from the Canada Revenue Agency (“CRA”) asserting additional tax is due. The position taken by the CRA is related to the transactions between iStockphoto ULC and other affiliates within the Getty Images group for the 2015 Canadian income tax return filed. The Company believes the CRA position lacks merit and intends to appeal and vigorously contest these assessments.

As part of the appeal process in Canada, the Company may be required to pay a portion of the assessment amount, which the Company estimates could be up to $17.5 million in 2024. Such required payment is not an admission that the Company believes it is subject to such taxes. The Company believes it is more likely than not it will prevail on appeal, however, if the CRA were to be successful in the appeal process, the Company estimates the maximum potential outcome could be up to $25.4 million.