Q3 2022 Getty Images Holdings Inc Earnings Call
Ladies and gentlemen, thank you for your patience the teleconference will begin momentarily.
[music].
Ladies and gentlemen, thank you for your patience to teleconference will begin momentarily.
[music].
Good afternoon, and welcome to Getty images third quarter 2022 earnings conference call. Today's call is being recorded we have allocated one hour for prepared remarks and Q&A at this time I would like to turn the conference over to Steven Cantor VP of Investor Relations.
Treasury at Getty images. Thank you you may begin.
Good afternoon.
And welcome to the Getty images third quarter 2022 earnings call.
Joining me on today's call Greg Peters.
Keith Executive Officer.
And Jen Leighton 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 Litigation Reform Act of $19 95.
These statements are subject to various risks.
Uncertainties.
And assumptions.
It could cause our actual results to differ materially from these statements.
These risks uncertainties and assumptions.
Well highlighted and the forward looking statements section of today's press release.
And in our filings with the SEC.
Links to these filings and in today's press release.
Can be found on our Investor Relations website.
Investors.
Scott Getty images.
Tom.
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.
We believe they represent our operational performance and underlying results of our business.
Reconciliation of GAAP to non-GAAP measures.
As well as the description.
The limitations and rationale.
We're using each measure can be found in our filings with the FCC.
After our prepared remarks.
Well open the call for your questions.
With that I will hand, the call over to our Chief Executive Officer, Craig Peters.
Thanks, Steven and thanks to everyone joining Getty images third quarter 2022 earnings call.
I will address high level business performance and progress before John takes you through the more detailed third quarter financial results.
Third quarter reported revenues were $235 million.
This is down two 8% year on year on a reported basis, but up two 8% on a currency neutral basis.
Our adjusted EBIT dollars finished at 77 7 million down four 8% year on year.
Two 3% on a currency neutral basis.
As Jen will highlight in more detail, we continued to see positive operating performance.
We are driving purchasing customer growth.
We are growing our annual subscriptions.
Our revenue retention for our annual subscribers continues to exceed 100%.
Our customers are deriving more value from our offerings and our paid downloads continue to increase.
More customers are downloading video as our video attachment rate continues to increase.
From what we see we believe we are taking market share based on the quality of our offerings.
With that operational foundation as a backdrop, our third quarter results were impacted by a number of factors.
First and foremost the strength of the U S dollar.
We are a global business with almost half of our revenues in local currencies.
Like other global businesses, we are seeing the strength of the dollar impact our results in our case the impact is almost 6% on our topline revenue growth.
We also faced a challenging year on year compare in the third quarter due to revenue recognition on certain uncap subscription deals.
And due to the shift in timing of the Tokyo Summer Olympics to Q3 2021 from 2020 due to the pandemic.
These items combined to reduce reported revenue growth by four 6%.
Lastly, like other businesses, we are seeing some macroeconomic headwinds.
These are most pronounced in certain parts of Europe and within our agency segment.
Again, our overall reporting metrics remained positive and we continue to see opportunity as our products can be countercyclical across many end customers and use cases, as we help them create more efficiently.
Enhance their offerings.
And consistent with our history, we're being prudent in our expense and margin management.
Within the quarter, we announced several multiyear agreements that speak to how our content enhances our customer offerings.
These included Amazon embedding our award winning imagery within Amazon Alexa services and their fire TV software stack.
Microsoft, including our creative content within M 365, new editing service.
And the renewal of our long standing Candida integration.
The foundation of Getty images is in its content.
In the quarter were extremely excited to renew our exclusive global distribution partnership with BBC studios to represent their iconic and world class quality punished.
We're so pleased to be named the official house photography partner to the British Academy Film Awards or Baptist provides.
Providing us with unique access to their prestigious event.
And staying on the UK team, we're extremely proud of our comprehensive coverage of the events surrounding the passing of Queen Elizabeth the second.
It really spoke to the strength of our archive, our unique access and coverage capabilities across news sports and entertainment and our ability to seamlessly support our global customers as they covered the story from all angles.
On this side of the Atlantic.
Collegiate sports continues to evolve and we're excited to partner with the leading collegiate trademark licensing company CLC.
And leverage our unique capabilities to simplify and commercial content licensing for brands and companies across more than 150 CLC affiliated collegiate institution.
On the product front in October we launched <unk> plus to further service the content needs advanced glass users.
Splash plus is an unlimited subscription providing access to unique released content and an AD free environment and with expanded legal protections.
We're excited by the potential of this product and its ability to reach and serve an expanded customer base.
We also announced a partnership with bria to embed their state of the art AI editing capabilities across our websites and subscription.
This partnership aligns to our core value proposition of enabling our customers to create at higher levels with greater efficiency.
Lastly, the topic of AI generative content has certainly been in the news.
We announced that we would not accept this content on our platform at this time.
As our partnership with brand demonstrates is not because we are learning.
While the customer demand is still very much unknown, we believe AI generated content capabilities are likely to have a place.
Our current stance is driven by the very real unsettled questions about the copyright for this imagery and whether the proper permissions were obtained with respect to the content.
Metadata and the likenesses of individuals' on which these models were trained.
These questions present real risk for those using these services and the associated content.
Any images as always focus on eliminating risk for our customers.
We look forward to working to help resolve some of these risks and exploring how ethical and responsible development and adoption of these capabilities can further unlock and enhance the power of our imagery and creative customers.
And with that I'll hand, the call over to Jan who will take you through the more detailed financials.
As Greg highlighted we continued to execute well and delivered solid performance in Q3 across both our financial and operating metrics.
I'd like to begin by discussing some of our key operating metrics or kpis that.
Underpinned our financials that appointment please.
Note today's press release contains information on all of our Kpis.
But I'll highlight just a few here.
Okay metrics are as of the trailing 12 month or TTM period ended September 30th 2021.
Comparison to the comparable TTM period ended September 32021.
In addition, beginning with Q3 results, we did make two updates to our customer data reporting.
First we completed the integration of data from Atlanta in Turkey, and Israel region.
Previously not reported in our Kpis.
Second we updated the method used to aggregate our customer data to better align with our internal Val CRM system. We.
We have not restated historical period, given an immaterial impact across all of these kpis.
That said I will highlight the impact of the change in total active annual subscribers.
Subscriber revenue retention rate kpis.
While these reporting changes do you have some impact on our kpis and the year on year comparison, I point out that our Q3 kpis metrics trended positively even absent these two reporting changes.
First total purchasing customers, which measures every customers who made a purchase with us in the past 12 months, whereas to 837000 from 766000, a year on year increase of nine 3%.
Next total active annual subscribers finished at 107000 up from 70000, an increase of approximately 53% over the corresponding period in 2021.
Absent the reporting changes I mentioned this increase would have still been 43%.
Very strong performance that is hardly that's for a growing mix of revenue in annual subscription product, which grew to over 49% of total revenue.
For our customers on those annual subscription products, which are defined as products with a duration of 12 months or longer we retained revenue at an impressive 103% up 70 basis points from the prior year period.
Excluding those reporting changes it would have been 101%.
We increased our paid download volume by approximately seven 4% to $94 million driven by growth across both editorial and creative.
And finally, our video attachment rate moved up to 12, 7% an increase from 12, 1% in Q3 'twenty one it.
This is an important metric for us because it highlights the opportunity at hand.
We believe will drive further growth in this metric by continuing to prove awareness about our video offerings across all of our channels.
Deepening our high value differentiated video content in partnership with her contributors and identifying opportunities as we help our customers find solutions for their contact me.
Turning now to our financial performance.
As Craig mentioned our results this quarter were impacted by foreign currency headwinds from a stronger U S dollar relative to foreign currency.
In particular, the euro and the pound.
These headwinds drove meaningful differences between our reported and currency neutral performance.
We expect this to be on scaling factor for the remainder of 2022.
Total revenue was down low single digits or two 8% in the quarter compared to the prior year.
Do you have in large part to 560 basis points of foreign currency headwind.
Absent the FX pressure, we grew revenue by two 8% in Q3.
As Craig noted our results also reflect a challenging year on year comparisons due to certain impact of the timing of revenue recognition and the shift of the Tokyo Summer Olympics into Q3 of 'twenty, one as a result of the pandemic.
Items total approximately 460 basis points.
Our annual subscription revenue as a percentage of our total revenue grew to 49, 4% in Q3 up from 47, 1% in Q3 21 and also up from our 2021 finished which was 45, 6%.
The progress this quarter was driven by further gains across our premium assets ISR and custom content offerings.
These numbers suggest we continue to see strong momentum in our subscription business and we.
We see further opportunity for expansion, but these products, including our newest subscription offering on slashdot.
Our subscriptions offer our customers the right contact for their visual needs with access to unmatched quality depth and breadth.
Cros are image video and music content library.
Creative revenue was $145 2 million.
Down two 1% and up three 2% on a currency neutral basis.
Within creative are annual subscription products delivered a strong performance led by premium access our largest subscription product.
Our overall e-commerce business posted solid results with the biggest gains seen in our icebox subscriptions, partially offset by softer results in our Ala Carte product.
Overall, we continue to add customers and absent the foreign currency headwinds, we delivered growth across each of our major geographical region.
We also saw a 53, 7% gross or 62% currency neutral growth in our custom content subscription offering.
Customers increasingly see the value proposition of this product for their business.
Hudson content Leverages Getty images global network of photographers and Videographers to create customized cost effective.
Use of project specific content to meet the specific needs of our customers.
Editorial revenue was $81 8 million in Q3.
Down 3% year on year and up three 1% on a currency neutral basis.
Reflecting a return to a more normalized currency neutral growth rates for our editorial business. That's worth a solid result, driven by our entertainment and archived vertical.
Partially offset by those tougher year on year comparisons sport, which has previously mentioned.
Due to the delay of sporting events, most notably the Tokyo Olympics in Q3 21.
Revenue grew across all major geographies on a currency neutral basis with year on year growth of two 8% in the Americas.
7% in EMEA and nine 2% in APAC.
Revenue less cost of revenue as a percentage of revenue remained consistently strong at 72, 2% in Q3.
This was down from 73, 6% in Q3, 'twenty, one with that decrease driven primarily by the revenue recognition timing impacts I mentioned earlier.
Our total SG&A expense of $91 6 million, which is inclusive of stock based compensation of $2 8 million was down $2 9 million next quarter.
With our expense rate improving by 20 basis points.
The 39, 7% of revenue from 39, 9% last year.
Primarily driven by higher bonus expense in 2021.
Adjusted EBITDA was $77 7 million for the quarter down four 8% or $3 9 million year on year on a currency neutral basis, adjusted EBITDA increased two 2%.
Our adjusted EBITDA margin was 33, 7% down from 34, 4% in Q3, 'twenty, one due primarily to FX pressure on our top line revenue.
But still in line with our historically strong margins.
Capex was $15 7 million up $4 3 million year on year, driven by costs associated with our London office relocation acquisition of imagery related to the launch of our Unflashy plus subscription product and our cyclical purchases of camera equipment for editorial photographers.
Yes.
Capex as a percentage of revenue was six 8% compared to four 8% in the prior year period.
Adjusted EBITDA less Capex was 62 million down $8 2 million year over year, representing a decrease of 11, 7% or five 4% on a currency neutral basis.
Adjusted EBITDA less Capex margin was 26, 9% down from 29, 6% in Q3 21.
Free cash flow was $33 2 million in Q3 compared to $31 2 million in Q3 21.
Free cash flow is stated net of cash interest expense of $35 8 million and cash taxes paid in the quarter of $4 7 million.
Turning to our balance sheet.
We ended the quarter with $71 9 million of balance sheet cash.
This is a decrease of 71 4 million from Q3, 21, and a decrease of $114 4 million from our ending balance on December 31st.
Decrease in our cash balance was driven in large part by the voluntary Q3 $300 million Paydown of our U S D term loan debt.
Debt pay down meaningfully reduced our net leverage to four three times from five one times as of 12 31 21.
None of that Q3 debt pay down as of September 30th we had total debt outstanding of $1 399 billion.
This includes $300 million of 975% senior notes.
$690 million of U S. T. A term loan with an applicable interest rate of 762, 5% and $409 million of Euro term loan converted using exchange rates as of September 30th 2022, with an applicable rate of five six to five first half.
I think September 30th taking into consideration the applicable interest rates on our debt balance and the effect of 355 million of interest rate swap agreements.
Our annualized estimated cash expense is $104 million.
That said, our actual annual interest expense remains subject to changes in the interest rate environment, which we outline in more detail in our SEC filings.
Before turning to guidance I do want to reiterate that following the business combination we are in a much stronger financial position.
We have reduced our total liabilities by approximately $1.1 billion, including the redemption of our preferred equity in the U S. D term loan debt pay down.
Altogether, we believe this new structure combined with our company's ability to generate high levels of free cash and consistently strong adjusted EBITDA margins will enable us to continue to improve our leverage.
Strategically investing in our growth continuing to execute against our long term priorities and driving shareholder value.
Turning to our outlook for the full year 'twenty 'twenty. Two we continue to expect currency neutral revenues of 955 to 980 million representing year on year growth of four to six 7%. This remains unchanged from our prior guidance.
Taking into consideration the estimated impact of the stronger U S dollar and broader FX volatility.
Equates to total reported revenue guidance of 929 million to 953 billion a growth of one 1% to three 8% over 2020 one.
We continue to expect adjusted EBITDA on a currency neutral basis of 310 million to $320 million, which translates to year on year growth of 2% to three 5%.
It's also remains unchanged from our prior guidance.
Including the estimated impact of ongoing FX headwinds, we expect adjusted EBITDA of 297 million to $307 million or year on year decline of 4% to 9%.
Please note the estimated FX impact included an assumption that FX rates remain consistent with those as of November one 2022.
In addition embedded within our guidance are the incremental costs tied to operating as a public company.
With that operator, we're happy to open up the call for questions.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment it may be necessary.
To pick up your handset before pressing the star keys.
Your first question comes from Raw DOZ with Citi. Please go ahead.
Thanks for taking the question Craig I've got two actually Craig one for you just I wanted to follow up on your commentary around macro I think you highlighted some pressures from agency revenue in Europe , but then also the counter cyclicality of the business. So would love to hear the puts and takes here and adoption of corporates or do you think about maybe the mix shift in the business and why it is countercyclical.
And John Thanks for the updates on the financials on the balance sheet, just help us or are they are.
Are there any updated plans around.
The debt size in terms of.
Retiring more debt over the next several years with that pulled forward are still about the same timeline. Thank you.
Great. Thanks, Thanks, Ron and I will take the first and then sort of Gen. On your second so with respect to macro.
Yeah, I think we called out.
So the softness in certain geos, most notably within in Europe .
As well as the agency segment of the business.
And we did highlight some counter cyclical I think if you really think about the core of our business. It's about it's about saving our.
Customers money right relative to alternative methods of producing or sourcing imagery and I think that shows up.
Clearly within the callout to cost content.
That is a product that's growing it's growing strong it's focusing on the corporate market and it's one that is much more cost efficient for companies in order to produce libraries bespoke content that is specific to their products or specific to their brands.
And we think that those types of products can play very well into really a downturn I would also highlight and clearly some of them are options on things like ice stock an on slash that kind of play into the broader SMB and and and.
Freelance world.
Clearly also tend to benefit from counter cyclical trends as we saw over over the Covid period.
Dan do you want to pick up on the on the balance sheet side of things with that.
Sure. Thanks for the question Ron So yeah, we definitely remain committed to continuing to pay down debt. Our long term goal of getting that leverage down to about two and a half to three times over 24 to 36 month period is still the goal.
As you know this business generates tremendous free cash flow so.
So we'll continue to prioritize that debt pay down obviously with an eye.
It's a broader macro economic conditions, when they make that assertion.
Thank you correct. Thank you John .
Sure.
Next question, Mark Goudeau with with the Benchmark company. Please go ahead.
Thank you Hi, Craig and Jen good evening.
Just two questions one on custom content.
Greg you were just talking.
The counter cyclicality there I'm just curious if you could maybe talk just generally speaking about demand that youre seeing there.
As you sort of think about the incremental investments, you're making there, particularly on the outbound sales.
Side of the equation sort of how you are.
Sort of contemplating that build out of that investment as you look to some of the macro.
Pressures out there thanks.
Great well I think.
Thanks for the question.
The beautiful thing about the custom content portion of our business as it really leverages all of the fundamental.
And found elements of Getty images. So we are selling that product to our existing established sales team.
We are fulfilling that product through our exclusive contributor base.
Leveraging.
All of the systems and in technology that we've put in place in order to kind of not only communicate outreach to them, but feel their briefs and then go through the editing process.
So it's one that.
We can be very competitive in terms of the pricing.
That product relative to alternative methods of delivery. The quality is extremely high in terms of what gets them back the creativity is extremely high and it does it consistent with our margin model. So.
As we book revenue into that product has a very high contribution margin.
Again, because it's leveraging all of the existing infrastructure and teams and staff that we have embedded within the business.
Got it and perhaps.
Second question for either you or John but average revenue per customer.
There are some nuances in looking at that number itself with our card.
I guess subscription removed from Alterra to subscription and I'm. Just curious if you can tell us how we.
Perhaps should look at that trend line growth either quarter over quarter or year over year.
And how.
How we should think about how that transition is going and impacting that particular metric. Thanks.
Yeah, well there is we have three brands.
And so we have the Getty images brand, which is very much focused in on the enterprise with the <unk> stock brand that is focusing on small and medium size businesses and now we will launch a band Splash plus we have a brand and product offering and the subscription basis focused in on kind of freelancers and that created a long tail.
Per customer economics of those.
Can it can differ.
Significantly.
As you would expect the enterprise spend per customer can be quite high.
The stocks then for personal business and medium sized customers going to be down from that and the new <unk> offering is going to be lower so I think one of the things.
As we kind of put these out youre going to see.
Basically higher growth in annual subscribers, you're going to see higher growth in purchasing customers.
And probably over time, that's going to basically result in lower spend per customer.
In each and every case, we want to be growing customers across each of those three brands and growing annual commitment and ultimately <unk> and LTV across each of those brands.
However, we do see the volume of customer growth.
Being.
Historically, driven higher through the ice stock brand and that will with the launch of an slash costs will come in even more robustly.
The volume of potential customers that sit on that space. So as we kind of move forward. We will continue to try to give you some commentary over that but I think generally we add more new customers into the ice stock increasingly will add more new customers into the on splash and that's going to over time drop that revenue per customer figure on it.
Aggregate basis.
I mean, the one other thing I'd add.
It's just you know if you take a look at our numbers.
This quarter, we remain consistently.
Revenue per customer on average we remain consistently north of $1000. So even absent some of those dynamics, that's a pretty consistent metric for us this quarter.
I think one of the things that we really tried to reporting on as that revenue retention per subscriber that annual revenue retention per subscriber and historically have given you some guidance between kind of our top clients and maybe what sits.
Down more into the ice stock World and we will try to continue to give you some guidance there, but the good news in all of this as we kind of mentioned in our operational metrics were really strong.
In the quarter, we saw new purchasing customers. We saw you know a lot of ads into annual subscriptions that it really strong economics.
We saw really strong revenue retention within our annual subscription base and we increasingly see that video consumption and take up.
Overtime, and we know that our customers are getting value out of the subscription is not just due to the.
Renewal metrics, but also through the downloads of consuming. So these are active customers that are consuming the product.
Got it both of your comments are very helpful. Thank you.
Next question comes from Brett Feldman with Goldman Sachs. Please go ahead.
Yeah. Thanks two.
Two questions. If you don't mind. The first one is I believe that the on slash product. It's a dominant predominantly AD supported so I was hoping you could just remind us at a sort of aggregate level. What degree of revenue exposure you have to advertising and maybe any context you can provide in terms of what the trend lines has been like in that business, you've obviously some jason.
Broader weakness across various advertising markets.
And then on the guidance.
How do you think about the swing factors between what is at the low end and what's at the high end up putting aside currency just thinking about you know pure operations.
The better outcomes versus the more challenging outcomes and it looks like.
On the FX adjusted annual guidance.
At the midpoint you'd have pretty healthy sequential revenue growth in the fourth quarter, but it looks like EBITDA would still probably stepped down I'm. Just wondering if you can maybe explain the denies the dynamic there in terms of what's going on to operating expenses in the fourth quarter. Thank you.
Sure Joe I'll, let John pick up on the last with respect to the fourth quarter and guidance there I'll pick up on the on slash.
A thing so on slash up until October was predominantly an AD model. There is that we do run.
End of <unk>.
Site add on on the platform, but we also.
Run kind of integrated advertising, so kind of native advertising within that.
It's been a really.
Strong part of the on Slash business model in terms of how unique that model is and the value it delivers back to our customers.
Well, it's not a material portion of our revenue is well north of a five well less than 5% of our business.
It has been one that's been showing strong growth throughout the year.
And we see good strong renewals within that so we've been certainly monitoring the AD business more broadly.
But I would say, we haven't seen those trends within the on slash portion.
But we're really excited to add the subscription model into an slash.
I announced we launched in October and excited to bring that new monetization online so that platform to continue its growth overall.
Okay.
Yeah.
Uh huh.
Yeah on that guidance question. So it's a good question the swing factors in that range I mean, even though you said kind of ignoring macro and FX I think so those are some of the swing factors for us that we think about it I think that the most important one internally for us which is largely always our answer is execution.
And just executing against our plans in the fourth quarter as we close out the year.
Question on just.
Kind of what the implied guidance says there for Q4, so you're right looking looking out the revenue implied guidance, there, it's really kind of maintaining.
What we're doing there were no implied heroics there from Q4 to hit that to hit that guidance on the EBITDA side of things, we do have a little bit more of a conservative view to our revenue less cost of revenue.
As a percentage of revenue figure and that's purely because we do have some of the larger sporting events, most notably the World Cup in Q4, so that's a little bit of a higher cost.
So we've factored that in as well as just again that continued FX impact flowing through.
Top line down to two that EBITDA bottomline guidance number.
Got it thank you.
Okay.
Next question, Tim Nolan with Macquarie. Please go ahead.
Hi, Thanks, very much I've got two or three is well.
First off maybe because we're a new I guess were all fairly new at covering this as a public company would you mind walking us through what are the.
Seasonal versus perhaps structural <unk> cyclical effects on some of your kpis.
<unk> for example, your total purchasing customers.
We're we're.
We were down sequentially in the quarter, if I got that right, but your active annual subscribers were up quite a lot and your <unk>.
Subscriber retention rate was also up although maybe it was a little bit down given some of those accounting changes are reporting changes you mentioned, so I'm just kind of curious are there seasonal factors, we should know about in here or could you point to any structural or cyclical effects on those and then I've got one or two more for that.
Thanks.
So on the seasonal front I wouldn't say that there is seasonal.
Items in the quarter.
The level of the quarter.
Clearly, we see some a little bit more on when we look at things on a month to month to month basis.
One is inner plays though it does come in is is that purchasing customer metrics.
And then annual subscriber growth so as we.
Drive more customers into our annual subscriptions, obviously theyre purchasing volume.
In any given quarter goes down because they're typically buying wants from us on an annual subscription.
And so that reduces the volume of purchases that would be made.
By customers and corresponding so there is some interplay there.
But it's one that we drive the business to a net increase in overall spend per customer and obviously, we love the economics servicing those annual customers.
In terms of the ability to grow them upsell them cross sell them and do that on a very efficient basis through our sales and customer service teams.
Okay, yes that makes sense. Thanks.
One more.
Looking at your.
Subscription rate 49.
And also your video attachment rate both of them going up I wonder.
If you could speak to where those what the trends might be and what numbers those might eventually get to thinking in terms of.
A recession in front of us whatever scope that may be.
Often can accelerate trends and if these are important trends for you I'm just wondering what might we expect to see in both of those two lines for the next let's say year.
Well I think there are certainly elements.
That we think could be driven and accelerated in any economic climate, but so just to start.
We think about subscriptions in this business.
We've talked about how we see a lot of opportunity to continue to drive the business towards annual subscriptions.
We've been making some changes and optimizations on the ice stock front to put those products more front and center.
Similarly, we just launched again what is.
Focused annual subscription on splash, so we're driving that number up into the right and we're using EV testing and such in order to optimize on that to the benefits of <unk> and LTV, but that's what we're seeing right now and we think that that could be something that we see.
See some level of acceleration over time again as people are looking for alternative sources to content and in our services make a lot of sense and that economic climate and they want to lock in what is lower per per download pricing.
So thats.
One area of business that we're driving to what can it get too I've always thought if we've got.
We have certain parts of our business like segment.
Agency segment it.
It doesn't lend itself to subscription and given their business model.
Have new customers coming into the business don't start tend to start an annual subscriptions they might start in olive garden or monthly, but we kind of think we can push that up towards around 60% or so in the coming years and I kind of think about an absolute coding towards towards that type of level over the next call. It five years.
Yes.
On the video side of things.
Yes, I think that's one where we know.
A large portion of our customers intend to use video are using video, but still aren't using our video offering.
We think.
As budgets become tighter and timeframes to become constrained we think our offering can play incredibly well across those needs. So we expect to kind of continue to tick that up and to the right. It's been going up in about a percentage point a year.
We've taken actions to try to accelerate that a bit more.
And that includes bundling video into our subscriptions were now testing mixed grids on search returns between video and still.
Clearly, we're orienting a lot of our sales force towards video intensive end markets like broadcast in production. So we expect that to continue to go up into the right where does it where does it.
<unk>.
I don't know that I would expect it.
To be a very long term trend that can drive growth in this business ultimately.
I don't see a business that isn't producing video at some level and I don't see a business that doesn't have some need for content.
And where we can benefit them in one scenario. So ultimately I think it goes we're talking very very high percentage of our customers are using video, but I don't think it's one that it transforms that dramatically overnight. Although there are things that we're working on to drive that more aggressively.
And Tim if I can just chime in here you you rightly pointed out that the kpis are purchasing customers looks like a sequential step down.
Q2 to Q3 that is actually some of that customer grouping change. So if we looked at that without that change it's actually sequential growth.
It's a bit of that noise from some of our reporting changes there.
Okay, Okay I got it.
Can I add one more question, please and thats about it.
This is bria arrangement and it's interesting talking about bringing this.
This business and with the AI editing capability, but then also talking about how youre not going to accept AI content on your platform from I guess from outside maybe you can just explain a bit more of what <unk> does for you and how it's different from from that.
Aspect of it that you are concerned about.
Sure Maria is.
It's a platform that is basically an editing platform.
It doesn't create imagery from training sets.
And from <unk>.
Put.
Text input and to generate completely.
Standalone imagery, what it can do is it can take existing imagery and allow that to be easily transformed.
A very simple example of that is now live with our subscribers is we can allow our customers to remove back backgrounds from imagery.
Very quickly.
Extremely high quality and take what used to take a lot of work and a pixel by pixel basis using any of them.
<unk> allows them to do that at the snap of a finger.
Now you can think about how over time, we can allow for objects to be inserted into an image objects to be removed from an image that it could be brands that could be products et cetera, but allowing the customer to take an image.
And do what has historically been quite time consuming and in some cases.
Capability prohibited.
And allow them to do that very quickly.
We think we have an amazing corpus of imagery that is incredibly unique.
It delivers a high degree of quality delivers on conceptual relevance and audience relevance and authenticity and allow our customers to take that image as they always have and.
And produce it into the specific imagery that best meets their needs.
And Thats, what <unk> really done so it is not.
Text to image generation clock.
Platform, it's really a platform that allows an existing image to be quickly and easily transformed and high quality.
Great. Thanks very much.
Thank you we've come to the end of the Q&A session concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.
Thank you.
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