Getty Images, Inc. (NYSE:GYI), the world’s leading creator and distributor of visual content and other digital media, today reported results for the first quarter ended March 31, 2008.
Revenue increased 9.7 percent to $233.2 million from $212.7 million in the first quarter of 2007. On a currency neutral basis, growth in the first quarter was 4.2 percent. This increase came mainly from increasing licenses of editorial and micropayment imagery. This increase was partially offset by lower revenues in the company’s traditional creative stills business when compared to the prior year. Sequentially, the traditional creative stills business achieved growth of about 1% over the fourth quarter of 2007 on a reported basis and was flat on a currency neutral basis.
As a percentage of revenue, cost of revenue was 28.6 percent, compared to 25.8 percent in the prior year. This increase was due to changes in the composition of the company’s royalty-free business, mainly increases in licenses of micropayment imagery that bears higher costs of revenue, as well as the impact of growth in editorial imagery revenue, primarily due to the acquisition of MediaVast in 2007.
Selling, general and administrative expenses (SG&A) totaled $96.5 million or 41.4 percent of revenue for the first quarter of 2008, compared to $81.4 million or 38.3 percent of revenue in the first quarter of 2007. Costs associated with the potential merger totaled approximately $5.3 million during the first quarter of 2008. Excluding these costs, SG&A was $91.1 million or 39.1 percent of revenue. The remaining increase over the prior year is attributable mainly to acquisitions made since that time, investments made by the company in areas of the business that we expect to drive future revenue growth and the negative impact of changes in foreign currency exchange rates. In the first quarter of 2007, SG&A included non-recurring costs of approximately $4.2 million.
Income from operations was $44.7 million or 19.2 percent of revenue in the first quarter of 2008 compared to $55.7 million or 26.2 percent of revenue in the first quarter of 2007.
Net income for the first quarter of 2008 was $23.9 million with diluted earnings per share of $0.40, compared to $38.0 million and $0.63, respectively, for the first quarter of 2007. The costs noted above relating to the potential merger had a $0.06 per diluted share negative impact on the current quarter. The effective tax rate for the first quarter of 2008 was 45.5 percent compared to 34.2 percent for the first quarter of the prior year. The effective tax rate for the current quarter was impacted primarily by lower profit in low tax jurisdictions and to a lesser extent the non-deductibility of costs related to the potential merger. Other non-operating expenses increased in the first quarter of 2008 as a result of foreign exchange losses, primarily related to the weakening of the US dollar against the euro and the impact of this currency movement on the revaluation of certain assets and liabilities.
Total cash and cash equivalents and short-term investments were $336.5 million at March 31, 2008, compared to $364.5 million at December 31, 2007. The decline is due to the repayment of $80.0 million of borrowings under our senior credit facility during the quarter. Net cash provided by operating activities during the first quarter of 2008 was $62.3 million.
As previously disclosed, the company is required to maintain certain financial results on a trailing four quarter basis as one condition of the closing of the merger. The financial results reported herein exceed that condition for the trailing four quarters. The company expects the transaction to close during the second quarter or early in the third quarter of 2008.
Some of the statements in this press release may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management’s expectations, assumptions and projections about our business as of the time the statements are made. These forward-looking statements are not guarantees of future performance and are subject to certain risks and uncertainties that could cause our actual results to differ materially from our past performance and our current expectations, assumptions and projections. Differences may result from actions taken by us as well as from risks and uncertainties beyond our control. These risks and uncertainties include, among others, risks associated with our ability to close our previously disclosed merger with an affiliate of Hellman & Friedman, the risks associated with currency fluctuations, risks associated with our ability to integrate and grow recently acquired businesses and pursue new business strategies, changes in the economic, political, competitive and technological environments, and the risks associated with system security, upgrades, updates and service interruptions. The foregoing list of risks and uncertainties is illustrative, but by no means exhaustive. For more information on factors that may affect future performance, please review the reports filed by us with the Securities and Exchange Commission, in particular our Annual Report on Form 10-K for the year ended December 31, 2007.
About Getty Images
Getty Images is the world’s leading creator and distributor of still imagery, footage and multimedia products, as well as a recognized provider of other forms of premium digital content, including music. Getty Images serves business customers in more than 100 countries and is the first place creative and media professionals turn to discover, purchase and manage images and other digital content. Its award-winning photographers and imagery help customers produce inspiring work which appears every day in the world’s most influential newspapers, magazines, advertising campaigns, films, television programs, books and Web sites. Visit Getty Images at http://www.GettyImages.com to learn more about how the company is advancing the unique role of digital media communications and business, and enabling creative ideas to come to life.
|CONDENSED CONSOLIDATED STATEMENTS OF INCOME|
|THREE MONTHS ENDED MARCH 31,||2008||2007|
|(In thousands, except per share amounts)|
|Cost of revenue (exclusive of items shown separately below)||66,786||54,836|
|Selling, general and administrative expenses||96,465||81,403|
|Other operating expenses||350||934|
|Income from operations||44,677||55,707|
|Other non-operating expenses||(1,905||)||(796||)|
|Income before income taxes||43,748||57,771|
|Income tax expense||(19,884||)||(19,741||)|
|Earnings per share|
|Shares used in computing earnings per share|
CONDENSED CONSOLIDATED BALANCE SHEETS
|Cash and cash equivalents||$||316,069||$||333,134|
|Accounts receivable, net||128,658||117,326|
|Deferred income taxes, net||—||6,290|
|Other current assets||3,956||1,984|
|Total current assets||484,968||504,489|
|Property and equipment, net||154,873||156,110|
|Identifiable intangible assets, net||108,646||116,611|
|Other long-term assets||1,903||1,872|
|LIABILITIES AND STOCKHOLDERS’ EQUITY|
|Income taxes payable||6,740||13,797|
|Other current liabilities||58,858||20,357|
|Total current liabilities||439,320||480,846|
|Deferred income taxes, net||11,531||39,904|
|Other long-term liabilities||67,037||63,477|
|Additional paid-in capital||1,347,236||1,343,103|
|Common stock repurchased||(207,676||)||(207,676||)|
|Accumulated other comprehensive income||90,693||78,712|
|Total stockholders’ equity||1,467,907||1,427,928|
|Total liabilities and stockholders’ equity||$||1,985,795||$||2,012,155|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|THREE MONTHS ENDED MARCH 31,||2008||2007|
|Cash flows from operating activities|
|Adjustments to reconcile net income to net cash provided by operating activities|
|Amortization of identifiable intangible assets||8,180||5,226|
|Bad debt expense||545||875|
|Other changes in long-term assets, liabilities and equity||14,270||5,992|
|Changes in current assets and liabilities, net of effects of business acquisitions:|
|Income taxes payable||(7,714||)||2,616|
|Changes in other current assets and liabilities||1,913||(467||)|
|Net cash provided by operating activities||62,336||64,974|
|Cash flows from investing activities|
|Acquisition of property and equipment||(14,232||)||(16,196||)|
|Acquisitions of businesses, net of cash acquired||—||(4,263||)|
|Proceeds from available-for-sale investments||10,543||—|
|Net cash used in investing activities||(3,689||)||(20,459||)|
|Cash flows from financing activities|
|Repayment of debt||(80,000||)||—|
|Proceeds from the issuance of common stock||360||1,792|
|Other financing activities||3||(572||)|
|Net cash (used in) provided by financing activities||(79,637||)||1,220|
|Effects of exchange rate changes||3,925||1,318|
|Net increase in cash and cash equivalents||(17,065||)||47,053|
|Cash and cash equivalents, beginning of period||333,134||339,466|
|Cash and cash equivalents, end of period||$||316,069||$||386,519|