Record Revenue and Powerful Business Model Drive 30 Percent Operating Margin; Announces Immediately Accretive Acquisition of Digital Vision
SEATTLE --April 20, 2005 -- Getty Images, Inc. (NYSE:GYI), the world's leading imagery company, today reported results for the first quarter ended March 31, 2005. The company also announced today the all-cash acquisition of Digital Vision for $165 million.
For the first quarter, revenue grew 13.8 percent to $178.1 million, compared to $156.5 million in the first quarter of 2004. Excluding the effects of changes in currency exchange rates, revenue grew 11.1 percent. Operating income for the first quarter of 2005 grew 24.7 percent to $53.5 million, or 30.1 percent of revenue, compared to $42.9 million, or 27.4 percent of revenue, in the same quarter last year.
Net income grew 30.8 percent to $34.1 million from $26.1 million the prior year. Earnings per diluted share grew 25.6 percent to $0.54 from $0.43 the prior year.
Gross margin for the first quarter was 71.2 percent, down slightly from 72.0 percent in the first quarter of 2004. Selling, general and administrative expenses (SG&A) totaled $60.1 million, up $5.3 million from the first quarter of 2004. As a percentage of revenue, SG&A declined to 33.7 percent in the first quarter of 2005, its lowest level in company history, compared to 35.0 percent in the same quarter last year.
Cash and short-term investment balances were $572.7 million at March 31, 2005, up from $520.7 million at December 31, 2004.
For the first quarter of 2005, net cash provided by operating activities rose 24.0 percent to $54.1 million compared to $43.7 million for the same period of 2004. The acquisition of property and equipment totaled $8.1 million, compared to $9.1 million for the first quarter of 2004.
Digital Vision Acquisition
The company today also announced the acquisition of privately-held Digital Vision for $165 million in cash.
London-based Digital Vision is one of the leading providers of royalty-free imagery in the world. Getty Images' PhotoDisc collections, the world leader in royalty-free imagery, pioneered the royalty-free licensing model for stock photography. The majority of Digital Vision's image collection is already available at gettyimages.com through Getty Images' Image Partner program.
"The acquisition of Digital Vision is a home run -- strategically, commercially and financially," Klein continued. "Digital Vision is the largest of our Image Partners and also the most successful. This transaction unequivocally confirms our leadership position in royalty-free imagery, a licensing model which is accelerating in all our major segments and geographies. Also, much of Digital Vision's imagery content is wholly-owned, which will help us to explore further innovative offerings such as subscription licensing models and content for emerging broadband-enabled platforms, such as wireless."
The acquisition is expected to be immediately accretive to earnings and at least five percent accretive to 2006 earnings per diluted share, post synergies. The company estimates the purchase price represents less than five times expected incremental 2006 EBITDA (earnings before interest, taxes, depreciation and amortization), post synergies.
Business Outlook
The following forward-looking statements reflect Getty Images' expectations as of April 20, 2005. The company currently does not intend to update these forward-looking statements until the next quarterly results announcement.
For the second quarter of 2005 the company expects to report revenue in the range of $178 million to $183 million and earnings per diluted share of $0.51 to $0.54. For 2005, the company expects revenue in the range of $720 million to $730 million and earnings per diluted share of $2.17 to $2.30. Guidance includes estimated amortization of intangibles related to the Digital Vision acquisition of approximately $1.5 million for the second quarter (or $0.01 per diluted share after tax) and $5.3 million for the full year (or $0.05 per diluted share after tax). The number of fully diluted shares assumed in the earnings per share guidance is approximately 65 million.
Web cast information
The company will host a conference call today at 2:00 p.m. PT. The dial-in number is 800-289-0544 (North America) or 913-981-5533 (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 www.gettyimages.com. The company will also provide a replay of the conference call at 888-203-1112 (North America) or 719-457-0820 (international), confirmation number 3042960, until April 22, at 9:00 p.m. PT. The web cast will be archived on the Getty Images Web site and will be available until April 20, 2006.
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 Getty Images and its industry 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 the company as well as from risks and uncertainties beyond the company's control. These risks and uncertainties include, among others, the risks associated with currency fluctuations, 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 Getty Images with the Securities and Exchange Commission, in particular our Annual Report on Form 10-K for the year ended December 31, 2004. Except as required by law, Getty Images undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future developments or other events.
Business Outlook
The following forward-looking statements reflect Getty Images' expectations as of April 20, 2005. The company currently does not intend to update these forward-looking statements until the next quarterly results announcement.
For the second quarter of 2005 the company expects to report revenue in the range of $178 million to $183 million and earnings per diluted share of $0.51 to $0.54. For 2005, the company expects revenue in the range of $720 million to $730 million and earnings per diluted share of $2.17 to $2.30. Guidance includes estimated amortization of intangibles related to the Digital Vision acquisition of approximately $1.5 million for the second quarter (or $0.01 per diluted share after tax) and $5.3 million for the full year (or $0.05 per diluted share after tax). The number of fully diluted shares assumed in the earnings per share guidance is approximately 65 million.
Web cast information
The company will host a conference call today at 2:00 p.m. PT. The dial-in number is 800-289-0544 (North America) or 913-981-5533 (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 www.gettyimages.com. The company will also provide a replay of the conference call at 888-203-1112 (North America) or 719-457-0820 (international), confirmation number 3042960, until April 22, at 9:00 p.m. PT. The web cast will be archived on the Getty Images Web site and will be available until April 20, 2006.
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 Getty Images and its industry 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 the company as well as from risks and uncertainties beyond the company's control. These risks and uncertainties include, among others, the risks associated with currency fluctuations, 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 Getty Images with the Securities and Exchange Commission, in particular our Annual Report on Form 10-K for the year ended December 31, 2004. Except as required by law, Getty Images undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future developments or other events.
About Getty Images
Getty Images is the world's leading imagery company, creating and providing the largest and most relevant collection of still and moving images to communication professionals around the globe. From news and sports photography to contemporary and archival imagery, Getty Images' products are found each day in newspapers, magazines, advertising, films, television, books and Web sites. Gettyimages.com is the first place customers turn to search, purchase and download powerful imagery. Seattle-headquartered Getty Images is a global company with customers in more than 100 countries. -0- *T CONSOLIDATED STATEMENTS OF INCOME (unaudited) THREE MONTHS ENDED MARCH 31, 2005 2004 ---------------------------------------------------------------------- (In thousands, except per share amounts) Revenue $178,094 $156,512 Cost of sales 51,254 43,806 -------- -------- Gross profit 126,840 112,706 -------- -------- Selling, general and administrative expenses 60,054 54,718 Depreciation 12,035 13,823 Amortization 1,222 1,094 Other operating (income) expenses (16) 129 -------- -------- Operating expenses 73,295 69,764 -------- -------- Income from operations 53,545 42,942 Interest expense (962) (1,067) Investment income 2,889 1,743 Exchange losses, net (490) (708) -------- -------- Income before income taxes 54,982 42,910 Income tax expense (20,874) (16,824) -------- -------- Net income $ 34,108 $ 26,086 ======== ======== Earnings per share Basic $ 0.56 $ 0.45 Diluted 0.54 0.43 ======== ======== Shares used in computing earnings per share Basic 60,944 57,666 Diluted 63,692 60,157 -------- -------- CONSOLIDATED BALANCE SHEETS (unaudited) MARCH 31, DEC. 31, 2005 2004 ----------- ----------- (In thousands) ASSETS Current assets Cash and cash equivalents $ 274,589 $ 194,752 Short-term investments 298,154 325,958 Accounts receivable, net 100,632 89,272 Prepaid expenses 8,382 10,651 Deferred income taxes, net 8,335 8,335 Other current assets 2,687 2,894 ---------- ---------- Total current assets 692,779 631,862 Property and equipment, net 107,666 112,501 Goodwill 628,073 628,717 Identifiable intangible assets, net 12,567 13,874 Deferred income taxes, net 41,844 54,652 Other long-term assets 9,801 9,978 ---------- ---------- Total assets $1,492,730 $1,451,584 ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 74,108 $ 67,362 Accrued expenses 31,209 42,810 Income taxes payable 5,252 3,608 ---------- ---------- Total current liabilities 110,569 113,780 Long-term debt 265,000 265,000 Other long-term liabilities 10,254 9,692 ---------- ---------- Total liabilities 385,823 388,472 ---------- ---------- Stockholders' equity Common stock 611 607 Additional paid-in capital 1,227,877 1,210,203 Unearned compensation (2,506) -- Accumulated deficit (134,495) (168,603) Accumulated other comprehensive income 15,420 20,905 ---------- ---------- Total stockholders' equity 1,106,907 1,063,112 ---------- ---------- Total liabilities and stockholders' equity $1,492,730 $1,451,584 ---------- ---------- CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) THREE MONTHS ENDED MARCH 31, 2005 2004 ------------------------------------------------- -------- --------- (In thousands) Cash flows from operating activities Net income $ 34,108 $ 26,086 Adjustments to reconcile net income to net cash provided by operating activities Deferred income taxes 17,329 14,636 Depreciation 12,035 13,823 Amortization of identifiable intangible assets 1,222 1,094 Bad debt expense 691 1,421 Amortization of debt issuance costs 590 477 Other changes in long-term assets and liabilities 675 1,021 Changes in current assets and liabilities, net of effects of business acquisitions Accounts receivable (14,429) (11,154) Accounts payable 7,452 7,024 Accrued expenses (12,143) (8,035) Income taxes payable 2,606 (3,144) Changes in other current assets and liabilities 4,004 424 -------- --------- Net cash provided by operating activities 54,140 43,673 -------- --------- Cash flows from investing activities Acquisition of available-for-sale investments (65,641) (113,952) Proceeds from sale of available-for-sale investments 90,947 77,782 Acquisition of property and equipment (8,102) (9,097) -------- --------- Net cash provided by (used in) investing activities 17,204 (45,267) -------- --------- Cash flows from financing activities Proceeds from the issuance of common stock 9,748 12,448 Debt issuance costs paid (133) (136) -------- --------- Net cash provided by financing activities 9,615 12,312 -------- --------- Effects of exchange rate differences (1,122) 1,250 -------- --------- Net increase in cash and cash equivalents 79,837 11,968 Cash and cash equivalents, beginning of period 194,752 57,018 -------- --------- Cash and cash equivalents, end of period $274,589 $ 68,986 -------- --------- *T
