Yahoo Finance Genius Sports Limited (NYSE:GENI) Q3 2023 Earnings Call Transcript
Genius Sports Limited (NYSE:GENI) Q3 2023 Earnings Call Transcript November 13, 2023
Genius Sports Limited misses on earnings expectations. Reported EPS is $-0.06 EPS, expectations were $-0.03.
Operator: Good day. My name is Rob, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Genius Sports Third Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I will now turn the conference over to Genius Sports. You may now begin.
Unidentified Company Representative: Thank you, and good morning, everyone. Before we begin, we'd like to remind you that certain statements made during this call may constitute forward-looking statements that are subject to risks that can cause our actual results to differ materially from our historical results or from our forecast. We assume no responsibility for updating forward-looking statements. Any such statement should be considered in conjunction with cautionary statements in our earnings release and risk factor discussions in our filings with the SEC, including our annual report on Form 20-F, filed with the SEC on March 30, 2023. During the call, management will also discuss certain non-GAAP measures that we believe may be useful in evaluating Genius' operating performance.
These measures should not be considered in isolation or as a substitute for Genius' financial results prepared in accordance with U.S. GAAP. A reconciliation of these non-GAAP measures to the most directly comparable U.S. GAAP measures is available in our earnings press release and earnings presentation, which can be found on our website at investors.geniussports.com. With that, I'll now turn the call over to our CEO, Mark Locke.
Mark Locke: Good morning, and thank you for joining us today. We're happy to report quarterly financial results ahead of expectations for the seventh consecutive quarter. And for the third time this year, we are once again raising our full-year guidance. For the full year, we are now expecting adjusted EBITDA growth of over 230% to $53 million, an 830 basis point margin improvement over last year, along with a step into positive free cash flow territory, as we start to demonstrate this quarter. We have achieved these significant financial milestones ahead of expectations due to our disciplined execution throughout the year, balancing growth and profitability whilst continuing to strengthen our long-term position with our most important partners.
Our position, now even more secured through high-profile new partnerships and renewals that we announced recently, provides us with the opportunity to reiterate with confidence for near-, medium-, and long-term strategic and financial path forward. On today's call, we will cover a few key topics to emphasize these points. We will discuss how our league relationships are growing stronger through the deployment of new technology. We will provide more detail on our innovative product set, including the launch of BetVision, which is completely unique in the market and revolutionizes the way sports bettors engage with the NFL and its sportsbook partners. And we will review how this accrues to our benefit in the form of steady revenue growth, EBITDA margin expansion and free cash flow generation.
To start, let's recap the financial results from the quarter. We reported group revenue of a $102 million, beating our guidance of $100 million and representing a 29% year-on-year growth. This translated to $18 million of group adjusted EBITDA, exceeding our guidance of $17 million, and representing nearly 2.5 times growth versus last year. We have also consistently expanded our group adjusted EBITDA margins in each quarter this year. This quarter, our margins improved to 17%, up from 10% in quarter three 2022, further demonstrating the operating leverage of our business model. Nick will cover in greater detail in his section, but you will see how we, again, remain disciplined on costs and reported lower GAAP operating expenses in this quarter compared to the prior year, even as we grew top-line by nearly 30%.
This type of quarterly performance is exactly what makes the business model unique in the market. Looking ahead, we are also raising our full-year 2023 revenue and EBITDA guidance to $412 million and $53 million, respectively, well above our initial expectations of $391 million and $41 million at the start of the year. This represents meaningful EBITDA margin improvements from 5% in the full-year 2022 to 13% in 2023. Importantly, we have also reached a critical inflection point in free cash flow generation. Throughout the year, we have reiterated our expectation to become free cash flow positive in H2, and after reporting a positive quarter, we are reaffirming this outlook. As we look ahead to the outer years, we also remain confident in our ability to achieve the long-term EBITDA margin target in excess of 30%.
As I mentioned earlier, what gives us confidence is the high visibility of our fixed cost base going forward, particularly as we have just renewed and extended our NFL rights agreements through 2028, along with a growing demand for our products and services from all customer segments in our business, leagues, sportsbooks, broadcasters, and brands and sponsors. As we discussed last quarter, it is critical to understand that Genius' technology is the reason why leagues renew, extend and expand our partnerships, often without even running a competitive tender process. To put it simply, the more deeply integrated we are within the league's digital ecosystem, the stickier we become as a partner to that league, offering them greater value beyond the fees we pay to data rights alone.
The more time we have to integrate technology, the stronger our position becomes, which gives us greater confidence in our ability to maintain those relationships over time. Through the deployment of new technology, Genius is already an integral partner of the digital infrastructure supporting the sports ecosystem. Leagues like the NFL or English Premier League, for instance, are utilizing Genius tech-enabled solutions to drive forward their key initiatives across sports betting, fan engagement, and broadcast innovation, to name a few. This technological entrenchment is a key pillar of our partnership and reinforces our competitive advantage. It is exactly how we continue to strengthen our moat and gain more confidence in our ability to renew deals and deliver on our long-term financial model.
Whenever you see us expand our technology offering in partnerships with leagues, you should understand this is not only incremental revenue, but also as Genius becoming even more deeply ingrained with our partners. On Slide 6, you will find just a few examples of this from the quarter. For instance, with the NFL, we have added new features to each of the broadcasts we have been working with this season, including Amazon Prime, CBS, TSN, or the NFL's streaming subscription service called NFL+, who we recently announced a deal with to power AI-driven data visualizations and graphics. One example that you may have seen on Thursday Night Football is our AI and machine learning technology now identifying potential defensive blitzers or open receivers, bringing even more insights into the viewing experience and all in real time.
At the start of the year, one of our goals was to distribute this technology as wide as possible as we aim to make these features ubiquitous with live sports broadcast. We have executed on this plan throughout the year as Genius is now augmenting every single NFL game on one platform or another. On one hand, this demonstrates the importance of our technology to the NFL broadcast, but equally this represents a critical milestone for the broadcast: distribution of this technology. Similarly, we have also signed a new partnership with Premier League Productions to enhance live broadcasts of English Premier League matches across 185 countries with rich insights and data-driven augmentations. The ultimate broadcast called Premier League Data Zone allows viewers to see player names, passing accuracy, shot speeds and pitch maps, all interwoven into the live broadcast through the unique L-bar.
This is currently being utilized by 19 different broadcasts across the EMEA and APAC regions as well as the Americas, and reinforces our wide-ranging partnership with Football DataCo. We encourage anyone listening on the call to explore this new innovation in broadcasts and see for yourselves how we're helping leagues and their broadcast partners better engage their fans in new creative ways. Each week brings a new wave of positive public responses to these innovations, which further validates the idea that fans enjoy having the option to watch live sports with these enhanced features. The technology integration with leagues across the globe is the most effective way for us to protect our data rights, strengthen our competitive moat, create more ways for leagues to better activate their partners and fans and, of course, drive new pools of revenue for our business.
This brings us to BetVision. BetVision is a first-of-its-kind product that is differentiated from anything else in the market. While live streaming has existed on sportsbook apps for several years, the key difference in BetVision is the combination of all our best technology assets that are unique to Genius: real-time NFL stats, live betting markets, computer vision and augmentation capabilities, and integrated bet slips. This sets us up on the path to revolutionize sports betting experience and represents the first genuine example of the convergence of sports betting media and broadcast. For those who have not yet seen the product, BetVision is a single platform where users can view the lowest latency stream of NFL games, find real-time data, control the level of broadcast enhancements, and place bets, all from within the video player.
In other words, users can find everything they need all in one place, giving our sportsbook customers and league partners a critical tool to attract the sticky, engaged fan that they all want. Importantly, it also simplifies and enhances the discoverability of in-play betting. BetVision now delivers many of the features that users want to see alongside their in-play betting experience. And although it's still in early days and early in the season, the initial results in September have been very encouraging. First, 54% of the total number of bets made by BetVision streamers were in-play bets. Of the total betting handle, or dollar volume bets, from BetVision streamers, 83% was from in-play betting. This compares to the 20% to 25% we have seen historically in the U.S. We've also seen that in-play handle from streamers increased by 121% since week one, and overall handle per streamer has increased by 87% in that same time period.
These data points should highlight how BetVision drives higher engagement and more betting volume for our sportsbook partners. The growth of in-play volume from BetVision is a clear demonstration that we can achieve our longer-term expectations of 70% to 80%, like we have seen in more mature markets. This is important to us because we own 5% to 6% share of in-play gaming revenue, which is roughly 3 times higher than our pre-match revenue share. So, as we continue to increase the in-play betting, we directly benefit from this higher revenue share at no incremental cost, therefore contributing to our profitability at near 100% margin. To close, you should hopefully have a better understanding of how our technology is solidifying our position with the leagues and helping all of our partners better engage fans and drive profitability.
We are delivering on our strategic objectives and this is translating into consistent financial results ahead of expectations. I'll now hand the call to Nick to cover these financial results in more detail.
Nick Taylor: Thank you, Mark. You've already heard that the group level numbers from Mark, and we're pleased to report revenue and adjusted EBITDA ahead of expectations for the third time this year. Much of the outperformance was in our betting product, which contributed $66 million of revenue in the quarter. This exceeded our guidance by $2 million and represented 34% year-on-year growth, the highest annual growth rate in almost two years. We exceeded our expectations despite operator win margins being lower than the comparable period last year, as you have heard them discuss over the previous few weeks. Our performance was driven by multiple tailwinds in the sports betting industry across the globe, new customer wins, and continued growth with our global sportsbook partners through the cross-sell of additional services and higher utilization of content.
Our media revenue was $23 million in the quarter, only slightly behind our guidance of $24 million, mostly due to sportsbooks pulling some of their advertising spend forward in Q2, as we mentioned on the last call. That said, our major segment returned to the type of strong growth we expected against more normalized comps with growth of 28% year-on-year. On a group adjusted EBITDA basis, we've reported $18 million, beating our guidance of $17 million and representing nearly 2.5 times growth compared to Q3 of 2022. On the right-hand side of Slide 10, I'd like to highlight the consistent growth in adjusted EBITDA we have demonstrated throughout the year. Year-to-date, we have grown our adjusted EBITDA by $28 million compared to last year, representing a 56% incremental margin of the revenue growth of $50 million.
You will see how our adjusted EBITDA margins have expanded in each quarter this year, beginning in Q1, where we improved by nearly 1,200 basis points year-on-year to the Q2 improvement of over 600 basis points and the Q3 improvement of 770 basis points. This is true on a group margin basis as well. In each quarter, our gross margins have materially improved year-on-year. Most recently, in Q2 and Q3, we improved our gross margins by 1,500 basis points to 1,600 basis points. This is driven by a cost structure that, as we've said before, can support significantly higher revenues. If you look at Page 15, you will see for the nine months ended the 30th September, our cost of revenue, sales and marketing, R&D and G&A are all down on a GAAP basis over the comparable timeframe from 2022.
We have long discussed the operating leverage of this business and we are now proving this in our year-to-date results. Looking ahead, we expect to finish the year well ahead of where we initially guided, and now aim to deliver $412 million in group revenue and $53 million in group adjusted EBITDA. And this assumes an exchange rate of 1.25, consistent with our assumptions last quarter. Importantly, we also finished the quarter with $116 million of cash on the balance sheet ahead of our closing balance in Q2, and we maintain our expectation to be cash flow positive in H2. And with that, we will conclude our prepared remarks and open the line to Q&A.
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