Getty Images Reports Financial Results for the Third Quarter of 2007

Company achieves important strategic milestones during the quarter

Nov 01, 2007, 01:00 ET from Getty Images, Inc.

    SEATTLE, Nov. 1 /PRNewswire-FirstCall/ -- Getty Images, Inc. (NYSE:  
 GYI), the world's leading creator and distributor of visual content, today
 reported results for the third quarter ended September 30, 2007.
     Quarterly Highlights
      *  Revenue increased 5.5 percent to $209 million compared to the third
         quarter of 2006
      *  Earnings per diluted share were $0.43 or $0.47 excluding a
         restructuring charge
      *  Cash provided by operating activities was $57 million in the quarter
      *  Re-engineered search with launch of new site
      *  Expanded multi-site strategy
      *  Entered commercial music licensing business
      *  Launched revolutionary low-resolution web use product
     "We have made tremendous progress expanding beyond our traditional
 creative stills imagery business on our way to becoming a complete digital
 media company," said Jonathan Klein, co-founder and chief executive
 officer. "During the last few months, we have re-engineered search with the
 launch of the new, cemented our leadership position in the
 fast growing entertainment imagery business, expanded our multi-media and
 editorial footage offerings, launched an innovative new web-resolution
 product, entered the music industry, and launched our new Soundtrack
 digital music service. We are seeing tremendous growth in many parts of our
 business, have excellent potential in large addressable markets for music
 licensing and consumer, and are realistic about the challenges as we lead
 our industry forward through a time of change and opportunity."
     Revenue increased 5.5 percent to $208.9 million from $197.9 million in
 the third quarter of 2006. Excluding the effects of changes in currency
 exchange rates, revenue grew 2.1 percent. Revenue growth came from
 increasing licenses for editorial and micropayment imagery, digital asset
 management, photo assignments, and publicity distribution. This growth was
 partially offset by lower revenues in the company's traditional creative
 stills business.
     As a percentage of revenue, cost of revenue was 26.9 percent, compared
 to 25.4 percent in the prior year due to changes in the composition of the
 company's royalty free business. Other royalty free revenue is growing fast
 and has a lower gross margin than the traditional single image royalty free
     Selling, general and administrative expenses (SG&A) totaled $84.0
 million or 40.2 percent of revenue for the third quarter of 2007, compared
 to $73.6 million or 37.2 percent of revenue in the third quarter of 2006.
 The increase over the prior year is directly attributable to recently
 acquired companies, the impact of changes in foreign exchange rates and
 investments that the company is making in areas that will drive future
 growth. The company undertook a restructuring during the quarter to reduce
 certain expenses resulting in a charge of $4.2 million.
     Income from operations was $39.8 million. Excluding the restructuring
 charge of $4.2 million, income from operations was $44.0 million or 21.1
 percent of revenue in the third quarter of 2007 compared to $54.2 million
 in the third quarter of 2006.
     Net income for the third quarter of 2007 was $25.7 million with
 earnings per diluted share of $0.43, or $0.47 excluding the restructuring
 charge, compared to $37.3 million and $0.62 in the third quarter of 2006.
     Cash balances were $303.0 million at September 30, 2007. During the
 quarter, the company paid down $40 million on its senior credit facility
 from existing cash balances leaving $80 million outstanding. Net cash
 provided by operating activities during the third quarter of 2007 was $56.9
     Business Outlook
     The following forward-looking statements reflect Getty Images'
 expectations as of November 1, 2007. The company currently does not intend
 to update these forward-looking statements until the next quarterly results
     For the full year 2007, the company expects revenue of approximately
 $850 million. This implies revenue of approximately $210 million for the
 fourth quarter of 2007.
     The company expects full year diluted earnings per share of
 approximately $2.10, which includes about $0.10 per share for non-recurring
 items, comprised of the costs associated with a terminated acquisition in
 the first quarter of 2007, professional fees associated with the stock
 option review in the first and second quarters, and the restructuring
 charge in the third quarter. Excluding these items, the company would have
 expected diluted earnings per share of approximately $2.20.
     Assuming fully diluted shares of approximately 60 million for the
 fourth quarter and the full year, the implied guidance for diluted earnings
 per share for the fourth quarter of 2007 is $0.48.
     For 2008, the company expects revenue of approximately $900 million.
     Web cast information
     The company will host a conference call today at 2:00 pm PT. The
 dial-in number is 800.432.7890 (North America) or 913.312.0958
 (international). There will be a live web cast of the conference call,
 which can be accessed from the Investors page in the About Us section of
 the Getty Images Web site at The company will also
 provide a replay of the conference call at 888.203.1112 (North America) or
 719.457.0820 (international), confirmation number 4196288, until November
 3, at 9:00 pm PT. The web cast will be archived on the Getty Images Web
 site and will be available until November 1, 2008. Supplemental statistical
 information referenced in the conference call will be available in the
 Investors section of the Web site.
     About Getty Images
     Getty Images is the world's leading creator and distributor of visual
 content and the first place creative professionals turn to discover,
 purchase and manage imagery. The company's award-winning photographers and
 imagery help customers create inspiring work which appears every day in the
 world's most influential newspapers, magazines, advertising campaigns,
 films, television programs, books and Web sites. Headquartered in Seattle,
 WA and serving customers in more than 100 countries, Getty Images believes
 in the power of imagery to drive positive change, educate, inform, and
 entertain. Visit Getty Images at
     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, 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 Quarterly
 Report on Form 10-Q for the quarter ended June 30, 2007 and Amended Annual
 Report on Form 10-K/A for the year ended December 31, 2006. Except as
 required by law, we do not intend to update or revise any forward-looking
 statements until our next quarterly earnings release.
      Alan Pickerill
      Director, Investor Relations
      Bridget Russel
      Director, Communications
                                       THREE MONTHS ENDED   NINE MONTHS ENDED
                                          SEPTEMBER 30,       SEPTEMBER 30,
                                        2007      2006       2007      2006
     (In thousands, except per share
     Revenue                          $208,860  $197,917   $639,468  $602,955
     Cost of revenue (exclusive of
      items shown separately below)     56,232    50,298    169,256   153,245
     Selling, general and
      administrative expenses           84,003    73,624    249,497   225,761
     Depreciation                       15,995    13,899     45,622    39,416
     Amortization                        8,353     5,507     20,669    14,420
     Restructuring costs                 4,192         6      4,719    16,818
     Other operating expenses (income)     330       391      1,166      (692)
     Operating expenses                169,105   143,725    490,929   448,968
     Income from operations             39,755    54,192    148,539   153,987
     Investment income                   2,851     2,295      8,466     5,108
     Interest expense                   (2,630)     (394)    (4,778)   (1,128)
     Other non-operating (income)
      expenses                            (224)      185       (749)     (437)
     Income before income taxes         39,752    56,278    151,478   157,530
     Income tax expense                (14,073)  (18,952)   (54,116)  (57,997)
     Net income                        $25,679   $37,326    $97,362   $99,533
     Earnings per share
     Basic                               $0.43     $0.62      $1.64     $1.63
     Diluted                              0.43      0.62       1.62      1.60
     Shares used in computing earnings
      per share
     Basic                              59,364    59,791     59,263    61,200
     Diluted                            59,905    60,577     59,995    62,231
                                                    SEPTEMBER 30,  DECEMBER 31,
                                                         2007          2006
     (In thousands)
     Current assets
      Cash and cash equivalents                        $303,025      $339,466
      Accounts receivable, net                          126,378       121,232
      Prepaid expenses                                   14,959        13,685
      Deferred income taxes, net                          8,886        11,142
      Income taxes receivable                             1,186             -
      Other current assets                                1,768         1,500
       Total current assets                             456,202       487,025
     Property and equipment, net                        158,083       147,133
     Goodwill                                         1,234,240     1,001,027
     Identifiable intangible assets, net                124,563        77,234
     Other long-term assets                               1,905         1,965
       Total assets                                  $1,974,993    $1,714,384
     Current liabilities
      Accounts payable                                  $76,841       $74,297
      Accrued expenses                                   30,444        39,412
      Income taxes payable                                   33         6,353
      Deferred revenue                                   18,273        12,897
      Short-term debt                                   345,000             -
      Other current liabilities                             290           242
       Total current liabilities                        470,881       133,201
     Long-term debt                                           -       265,000
     Deferred income taxes, net                          45,170        11,596
     Other long-term liabilities                         63,495        56,350
     Total liabilities                                  579,546       466,147
     Stockholders' equity
      Common stock                                          630           626
      Additional paid-in capital                      1,337,224     1,321,645
      Common stock repurchased                         (207,676)     (207,676)
      Retained earnings                                 184,649        91,459
      Accumulated other comprehensive income             80,620        42,183
       Total stockholders' equity                     1,395,447     1,248,237
       Total liabilities and stockholders' equity    $1,974,993    $1,714,384
     NINE MONTHS ENDED SEPTEMBER 30,                         2007        2006
     (In thousands)
     Cash flows from operating activities
     Net income                                           $97,362     $99,533
     Adjustments to reconcile net income to net cash
      provided by operating activities
       Depreciation                                        45,622      39,416
       Amortization of identifiable intangible assets      20,669      14,420
       Deferred income taxes                               14,634       8,665
       Stock-based compensation                             9,931      11,459
       Restructuring costs                                  4,719      16,818
       Bad debt expense                                     3,712       3,056
       Change in unrecognized income tax benefits               7       4,476
       Loss on sale of available-for-sale investments           -       3,956
       Other changes in long-term assets and liabilities,
        net                                                 1,961      (4,369)
     Changes in current assets and liabilities,
      net of effects of business acquisitions
         Accounts receivable                                2,259      10,911
         Accounts payable                                 (13,072)    (14,265)
         Accrued expenses                                 (21,806)    (17,811)
         Changes in other current assets and
          liabilities, net                                  4,613       5,268
     Net cash provided by operating activities            170,611     181,533
     Cash flows from investing activities
       Acquisition of businesses, net of cash acquired   (252,403)   (196,018)
       Acquisition of property and equipment              (49,189)    (49,603)
       Acquisition of available-for-sale investments            -      (9,330)
       Proceeds from available-for-sale investments             -     304,443
       Other investing activities                               -         300
     Net cash (used in) provided by investing activities (301,592)     49,792
     Cash flows from financing activities
       Senior credit facility borrowing                   120,000           -
       Repayment of debt                                  (41,297)          -
       Proceeds from the issuance of common stock           5,917       6,826
       Common stock repurchased                                 -    (175,082)
       Other financing activities                            (520)      2,492
     Net cash provided by (used in) financing activities   84,100    (165,764)
     Effects of exchange rate changes                      10,440       2,009
     Net (decrease) increase in cash and cash equivalents (36,441)     67,570
     Cash and cash equivalents, beginning of period       339,466     223,084
     Cash and cash equivalents, end of period            $303,025    $290,654

SOURCE Getty Images, Inc.