Genius Sports Limited (NYSE:GENI) Q1 2024 Earnings Call Transcript

Genius Sports Limited (NYSE:GENI) Q1 2024 Earnings Call Transcript May 8, 2024

Genius Sports Limited isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Thank you for standing by. My name is Pam, and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Genius Sports First Quarter 2024 Earnings Results. 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] I would now like to turn the conference over to company. You may begin.

Unidentified Company Representative: Thank you, and good morning. 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 could 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 15, 2024. 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 as we begin another year on a positive note, with strong momentum across the business. Before we dive into the results, we’d like to begin by thanking our partners at Apax for their support and investment over the last six years. You may have seen last month that Apax reduced their holdings in Genius to a level where they now have stepped down from our Board of Directors. The Board representatives from Apax have provided valuable insight and expertise as we went through a period of transformative growth, expanding from $88 million of revenue in 2018 to $0.5 billion forecasted in 2024. We have spent the last three years as a public company working very hard to cultivate a great Group of public equity investors who we are proud to call shareholders in Genius Sports, and we look forward to working with them and many others over the years ahead.

And with that, we are very happy to report our ninth consecutive quarter of outperformance relative to our guidance, once again demonstrating our consistent and predictable business model and strong execution. In the first quarter, we grew revenue by 23% year-on-year to $120 million, beating our guidance of $117 million. Our Group adjusted EBITDA was $7 million in the quarter, also exceeding our guidance of $6 million. We remain focused on consistently outperforming financial targets, whilst delivering on our core strategic objective of becoming the must have digital partner for leagues, sports content distributors, sportsbooks and brands. The first quarter was an excellent example to highlight each of these areas, as we continue our wide scale distribution of technology and value-enhancing products across the sports ecosystem.

This is exactly how we have retained key league partnerships over the years and positioned our commercial model for sustainable growth and profitability and cash flow. Our strong start to the year makes us even more confident in our outlook, so we’re raising our 2024 Group revenue and adjusted EBITDA guidance to $500 million and $82 million respectively, up from $480 million and $75 million to begin the year. This implies year-on-year Group revenue and adjusted EBITDA growth of 21% and 54%, respectively, and raises our Group adjusted EBITDA margin to 16.4%, representing 350 basis points of improvement. We are also reaffirming our cash flow positivity for the full year, which will continue to strengthen into 2025. As we reach this important annualized milestone, we may be more proactive in deploying capital across a range of potential initiatives such as M&A, share repurchase or otherwise.

Therefore, we want to position ourselves for any opportunity that may arise in the future, as we continue to mature as a public company. As such, we are carrying out a few steps to optimize our overall financial flexibility with relatively low cost capital. Firstly, we have closed a $90 million revolving credit agreement with Citibank and Deutsche Bank, which combined with our cash on balance sheet, gives us greater flexibility to access additional capital, if ever necessary. Second, as a matter of general corporate housekeeping, Genius Sports is now WKSI eligible following our three year anniversary listing. Therefore, in accordance with customary market practice, we intend to file an F3 shelf registration statement this week. Our intention with this filing is simply to follow ordinary best practice and SEC housekeeping now that Genius is WKSI shelf eligible.

We are taking these steps towards greater financial flexibility, because we want to be nimble when these potential opportunities arise in the near to medium-term, particularly as our business fundamentals continue to improve and we gained further clarity on our long-term growth and profitability prospects. Our confidence in the underlying business fundamentals is reinforced not just by our financial results, but from the successful execution of our core strategic objectives. For example, we continue to reach wide scale distribution of our computer vision and AI technology with leagues and federations around the globe. The broader our reach, the more we establish Genius Sports Technology as the standard for next gen data collection. Foundation with leagues across the globe is strong and continuing to expand and we’ve successfully launched several new betting and media products on that basis.

Most notably, in the last few months, we struck long-term technology partnerships with the likes of FIBA, Lithuanian Basketball League and the WNBA, which is the first women’s professional sports league in the U.S. to utilize league-wide optical tracking. We also deployed optical tracking technology for the NCAA Women’s Final Four last month, further empowering the explosive growth in women’s sports. Each new deal marks an important proof point for how leagues are increasingly focusing on capturing rich data and enabling new forms of analytical insights for broadcasters, media outlets and fans, all built on a Genius Sports technology. This then becomes the foundation on which we are launching new products such as BetVision and real time broadcast augmentation solutions, which are being monetized today.

One really exciting example of how we’ve taken this as a step forward is our new partnership with Premier League Team Brentford Football Club and one of its sponsors, Gtech, to power augmented highlights to fans in stadia and on social media. We have now combined our player tracking and broadcast augmentation tools with our advertising technology to create entirely new sponsorship inventory for Brentford’s stadium’s naming partner. Now an interesting data point like shot speed becomes a new responsible asset to Brentford and for Gtech, it represents an opportunity to associate their brand with the most engaging moments of the match, Shots On Goal. Our ability to automatically capture this data through computer vision and AI and to transform it into a creative graphical overlay all in real time is completely unique to Genius Sports Technology, creating another level of connectivity for leagues, sponsors and fans.

In summary, the greater our distribution, the more product we can monetize at scale and the more integral we become to the leagues themselves. This is how we have successfully retained key league partners like the NFL and English Premier League over time. Technology is increasingly front and center in our league relationships, and this is the type of differentiated value that we provide. For instance, last summer, we extended our two most important data rights agreements, the NFL and Football DataCo, which governs all of UK football, including the English Premier League. In March, we also announced that we’re now in exclusive discussions to extend our Football DataCo agreement through the ’28-’29 season. While this agreement is still under final negotiations, we are delighted that, they have chosen to work with us for another four years.

Given the massive importance of UK football on a global basis, this relationship has materially improved our commercial offering in the global sports betting market over the years. Looking ahead, we expect that this will continue to be a key pillar of our growth strategy, through the end of the decade. While we obviously cannot disclose specific terms of the deal, we want to address head on, what we expect from our business over the length of this relationship. Like what we have proven with our NFL partnership, a strong and long-term relationship with FTC will enable us to continue expanding margins and increasing cash flows with the trajectory that we had always envisaged. We are now more confident than ever in our ability to sustain strong revenue growth for this foreseeable future and don’t envisage this growth slowing in the near-term, given the positive structural tailwinds and the momentum in our business.

In fact, now having our two largest data rights deals secured for the next four or five years, gives us an even greater visibility of our cost base and a higher degree of confidence in the trajectory and the pace, at which we reach our long-term EBITDA margin target of at least 30%, ultimately converting to increased cash flow. The increased guidance we announced for the remainder of 2024 should be indicative of our momentum into 2025. Not to mention, this also affords us four to five years more to become even more deeply integrated with the digital infrastructure of the leagues. This enables more ways for leagues to access next gen data and apply it in many different ways spanning broadcast, fan engagement, advertising, sponsor activation and sports betting.

Ultimately, the access to this data enables us to continue fueling growth in our core business model. These rights agreements gives us access, not just to live data feeds to power sports betting markets, but to the broader sports ecosystem where we can leverage data and technology to activate audiences with data-driven content, marketing services and immersive viewing experiences. Year-after-year, we are proving how our commercial model is built to benefit from the multiple tailwinds that exist in the world of sports. Whether it’s growth in the online sports betting market, growth in its in-play betting, growth in sports digital advertising spend and increased engagement in sports as a whole, we are poised to benefit in many different ways.

This is how we’ve been able to achieve our strong results over the years. I’ll now turn the call to Nick to discuss the Q1 results in more detail.

Nick Taylor: Thank you, Mark. We are very happy to report another quarter of outperformance relative to our expectations. Each quarter, we discuss the many ways in which we can outperform, whether that’s from a growing sports betting town, higher in-play betting, improving win margins, cross sell of additional products and content, or higher demand for digital advertising services. This quarter our outperformance was primarily driven by our media business, which increased by 63% year-on-year, marking a significant reacceleration of growth and our strongest quarter in nearly two years. This was driven by meaningful spend from major U.S. sports book operators around the key sporting events, namely the NFL playoffs, the Super Bowl and March Madness as well as the launch of online sports betting in North Carolina in the quarter.

As you’ve just seen on Slide 8, we are executing digital advertising campaigns for many non-betting brands around these key sporting events as well, ranging anywhere from food and beverage brands to individual leagues and teams themselves. Betting revenue also increased year-on-year by 14%, largely driven by strong revenue share performance in the U.S., albeit a relatively small contributor to overall betting revenue in the quarter. We also reported group adjusted EBITDA of approximately $7 million, slightly ahead of our $6 million guide. As it relates to our adjusted EBITDA this quarter, there are two points worth noting. First, as I mentioned last quarter, we expanded our NFL partnership last summer to include domestic streaming rights, which powers our BetVision product to sportsbooks and was entirely new in the 2023-2024 NFL season.

These rights were expensed equally in each month during the season, including January and February. As a result, this has an outsized effect on our Q1 2024 profitability, simply because there are fewer NFL games to generate revenue, despite this new set of rights being accretive over the course of the fall season. Second, our adjusted EBITDA is largely a function of the mix between betting and media revenue, with betting outperformance typically contributing to profitability to higher incremental margins. Media significantly outperformed in Q1, and therefore, the incremental flow through of this outperformance was approximately 32%. Turning to cash. We finished the quarter with $93 million on the balance sheet, roughly in line with where we expected to finish the quarter and we are confidently reaffirming our expectation to be cash flow positive in H2 and for the full year 2024.

To conclude, our results from the quarter and our increased revenue and EBITDA guidance to $500 million and $82 million respectively, sets us on a steady path to our long-term adjusted EBITDA target of 30% plus. We are more confident than ever about our trajectory. We continue to execute on our core strategic objectives. As a result, we are working to extend our relationship with arguably the most important sports asset globally. Therefore, we are feeling very optimistic about 2025 as well. While we are not issuing formal guidance just yet, we believe, our increase in 2024 guidance should be broadly representative of our structural momentum into 2025, as we expect continued revenue growth, margin expansion and increasing cash flow. With this strong momentum and additional financial flexibility, we have a heightened sense of excitement across the business, and we look forward to sharing future updates.

With that, we now conclude our prepared remarks and open the line for Q&A.

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Q&A Session

Operator: [Operator Instructions] Our first question comes from the line of Jed Kelly with Oppenheimer.

Jed Kelly: Great. Thanks for taking my questions. Just two, if I may. Just on the increase in back half guidance, is that undercut, is that implying confidence around some of the contract renewals coming up or more momentum in the betting tech services or in the media tech and content services? And then Mark, appreciate the opening comments on potentially raising capital. Where do you actually see the most opportunity in your technology portfolio or where is the most opportunity for growth that you would potentially do in acquisition?

Mark Locke: Hey, Jed. Good to hear from you. On your first question, the increase in the back half, I mean, what we’re seeing in the business at the moment, we’ve got an awful lot of momentum. Things are going extremely well. We’re not really focusing too much on contract renewals as part of it. This is about general momentum in the business and it’s not really stuff that we’re taking into account in the back half. In terms of capital, look, business, as I said, it’s in a strong place, and I think businesses that are performing well want to have optionality and firepower, which is why we’ve progressed with the revolver. I mean, the two main areas that we see as potentially is really M&A and potentially sort of share buybacks in the future, but we’re taking this one step at a time.

Operator: Your next question comes from the line of Bernie McTernan with Needham.

Bernie McTernan: Great. Thanks for taking the questions. Just wanted to talk about the data rights and get a sense maybe to start how competitive it was to get the exclusive negotiating rights for a Football DataCo. And then Mark, just given your comments on long-term profitability and getting to a 30% plus EBITDA margins, just any insights into the rights costs and commentary on the impact on cash flow and profitability? Basically, I want to ask, if these contracts generally have large year one step-ups and should we expect EBITDA to be going backwards for a given year, when those step-ups — if those step ups occur if they do happen?

Mark Locke: Yes. Thanks, Bernie. Look, we settled on that and we’re in a really strong position with DataCo and that’s been proven on the basis we’ve won it, and we’re absolutely delighted. We’re very, very happy with the deal that we’ve done. We’re feeling good about the impact on the business. One thing that is becoming clear as we listen to the market and talk to people is that people, I guess, don’t totally appreciate that, the deal and the relationship we have with DataCo is a lot broader than just the data rights relationship. We’re a technology-led business. We’ve said all along that technology deployment and the use of that technology strengthens our position in the market, and that has become a really key part of these negotiations. Again, we’re feeling really good about that technology deployment and a lot of the opportunity and a lot of sort of partnership-led drivers that are coming from that.

Nick Taylor: Hey, Bernie. It’s Nick. I’ll just pick up that second part, I think. We said in the prepared remarks, Bernie, that, we’ve been very optimistic, not just about ’24, but actually about ’25 and ’26. The great thing about the deal, the FTC deal, although albeit it’s obviously for negotiation, so I can’t comment specifically on those terms, is it gives us really strong visibility now all the way out to kind of 2029, 2030 on our major rights deals. As I said in the prepared remarks, what we’ve done in 2022 to 2024, we expect it to continue through ’25 and ’26, which is continued double-digit revenue growth, continued margin expansion and continued increased cash flow throughout this year and then the following years as well.

Mark Locke: I mean, one other thing, I guess, is worth adding is that, when we did the NFL deal, we were pretty clear about the opportunities that the NFL gave to us all those years ago. Off the back of that, I think we’ve categorically proven that, that was a very strong deal and has allowed us, as Nick said, to continue on our profitability and margin expansion. We see data coming exactly the same way. We’re delighted with it and I’m really excited about the future.

Operator: Your next question comes from the line of Ryan Sigdahl of Craig-Hallum.

Ryan Sigdahl: Good day, Mark, Nick. Maybe just a direct follow-up to Bernie’s last question, but with the new data rights contract with Data Football Co, Do you expect to get operating leverage on data rights as a percent of revenue next year?

Nick Taylor: Hey, Ryan. I guess the first one, just to remind everybody, any new data rights deal that we’re currently in exclusive relationship impacts the second half of 2025. The current deal obviously runs since ’25. But to some extent, Ryan, I’m going to slightly repeat myself on what I said to Bernie. The three key things that I’m concentrating on, Ryan, and we as a business financially are concentrating on is double-digit revenue growth, continued margin expansion and cash profitability increases. As you know, we’ve had some success in that over the last couple of years, and we continue to expect all those three to continue to expand through ’25, ’26 and beyond.

Mark Locke: Also, I think just to add to that as well, I mean, winning DataCo on a long-term basis from a commercial point of view is a really strong position for us to be in. We’ve got the two largest sports in the world in our stable. That gives us a really good basis for long-term partnership conversations with our clients and really puts us in a leading position there.

Ryan Sigdahl: Very good. Just for my follow-up. Second spectrum, a lot of great products and innovation coming kind of in partnership with leagues, NFL, ETL, so on. You had an exploratory partnership with bet365, so switching to kind of the operator side. But any update there and kind of the potentials to really accelerate second spectrum and some unique stuff you can do more so from an operator customer standpoint?

Nick Taylor: Yes. Great question. I mean, the operator side of this is a big part of our focus at the moment. We’re spending an awful lot of time and investment on BetVision. That’s really proven. I mean, it’s actually delivered results that we’re ahead of what we anticipated initially. I think, I’ve said that before in one of these calls. We’re putting a lot of focus on that and I think the proof point of that vision has been made. Our job now is just to focus on execution, focus on delivering additional product and rolling this out to the bookmaker community on a wider basis.

Operator: Your next question comes from the line of Robin Farley with UBS.

Robin Farley: Looking back to ask about the Football DataCo agreement and maybe asking a slightly different way than the previous questions. When we think about the increase in revenue in the UK, right, I generally expect it to be at a much lower rate of growth than U.S. revenues. Should we think about the increase in EPL sports rights expense, which I realized has not been finalized yet? But, you would not be expecting to pay more of an increase in sports rights expense that not faster than the revenue growth that you expect in the UK. Is that reasonable to conclude from your commentary about margin expansion that the sports cost rights wouldn’t be increasing more than your expectation of what UK betting revenues would be growing at?

Nick Taylor: Hey, Robin. It’s Nick. Let me start on that and then I’ll hand over to Mark to give you a bit more sort of color. The thing that I guess, I think I understand the question was. You must remember UK Soccer rights is the largest betting sport in the world and is not a UK-centric betting, right? It is a global betting, right? A great example for that, of course, as you know, is LatAm is opening up. The latest numbers that are coming out of Brazil where we’ll be earning revenues this year, the back half of the year was significant. UK soccer will be a major attraction and a major marquee event for that part of the world, as well as many other parts of the world, not just UK. I think that’s perhaps the bit, that’s missing in your hypothesis.

Robin Farley : Maybe to phrase it more specifically that your sports rights expense would not grow faster than you expect revenue growth from those rights, whether it’s the UK or I should have been more clear that, obviously, you would get revenue from it in other countries, but that they increase in those other markets, in revenue would not be — your increase in sports rights would not be greater than that revenue increase globally. Is that is that a reasonable expectation?

Nick Taylor: I guess. First of all, just to be clear, obviously, we don’t go to market with just one set of rights. As you know, we package those rights up. UK soccer is the same way NFL is no different to anything else. I don’t envision that changing over the course of the extended contract out to 2029 for UK soccer. I mean what I’d say is a little bit what I said to really to Ryan and Bernie is that, we’ve expanded our margins through ’22, ’23 and ’24. Indeed, our guidance that we just iterate our guidance has moved our margins from 15.6% to 16.4% in this year. I’m fully expecting that margin to continue to increase in ’25 and increase again in ’26 and beyond. To that extent, then therefore, I’m expecting any new rights deals for FTC to be more than covered and that shouldn’t stop us continuing to have a strengthening EBITDA margin across the life of the FTC contract.

Robin Farley: And then just one quick follow-up. Can you give us a change in play as a percent of total?

Nick Taylor: In terms of in play, I specifically can give you kind of NFL in play. If you look at it on a year-on-year basis, NFL in play GTR was up 140% year-on-year. If I look at the mix, which I think is probably you’re asking for, is the NFL in play mix, GGR was 22%.

Operator: Your next question comes from the line of Ben Miller with Goldman Sachs.

Ben Miller: With the Football DataCo negotiations ongoing, I’m curious how you think more broadly about the data rights portfolio today and any other holes that you’d like to fill. An industry level, how you see consolidation of data rights playing out over time, whether that’s through organic wins or through inorganic consolidation?

Mark Locke: Ben, in short, we’ve got everything we need. If anything, the number of rights that we sort of feel like we need to own and have on a long-term basis is actually decreasing, not increasing. The more we distribute our technology, the more that we roll out the products of second spectrum into other sports and the position that we’ve got through the relationship we have with the NFL and with DataCo means that, actually, we sort of feel the opposite effect that I guess you’ve seen over previous years in terms of the number of rise that we want to be going after we feel in these holes. We feel in a really, really strong position on this stuff.

Ben Miller: Thanks. Just as a follow-up on BetVision. I’m curious, in terms of, like, how you’re prioritizing that? Is it more to grow the number of sportsbooks that are adopting that product? Or, do you see the larger opportunity of expanding to additional sports that utilize the BetVision product?

Mark Locke: Great question. The answer is both. We are increasingly focused on rolling new sportsbooks with the BetVision products. If you watch this space, you’ll see news over the over the coming months on that. But at the same time, it can’t just be a one trick one-trick only. Therefore, what we’re actively doing is adding additional content to BetVision, additional products. We’ve got to get it right. We’re being cautious about our execution. But again, that’s a big focus for the business.

Operator: Your next question comes from the line of David Bain with B. Riley.

David Bain: Great. Thanks, everyone. Just had one question. I’m not sure if I missed this, but nice beat in wake of what I believe was low 1Q OSB hold for the industry. I’m wondering if you can quantify the impact of the quarter from that.

Nick Taylor: Hi, Dave. You’re right. Obviously, we hear the same calls through the quarterly results that you’d be listening to. I think somebody used the word underwhelming, I think, on a previous call. You are right, Dave. That clearly does impact us because, as you know, we take a position of gaining revenue. Having said that, Dave, and I’ve said this many times. The great thing about Genius is the different levers of growth that we have in this business. Obviously, operating win majorly is one. But as you know, in clay mix, TAM, not just in the U.S. but outside of the U. S, just name checked Brazil in one of the previous questions, as well as media, which has allowed us to over deliver on guidance for this quarter. Yes, operating win margins is helpful for us, but we’ve got a number of different levers that allow us to perform on our guidance that we give.

Operator: Your next question comes from the line of Clark Lampen with BTIG.

Clark Lampen: Thanks for taking the question. I have one on the Media business. I guess specifically as it relates to the outlook, a lot of the momentum that, Mark, you talked about earlier in your prepared remarks seems to be showing up, I guess, from a number standpoint in that business. Could you help us understand, I guess, maybe what you’d attribute that to and how much this is idiosyncratic rather than systematic? For my second question, could you just remind us on renegotiations? It sounds like that’s obviously not a focus right now. But remind us based on the past cycles, when exactly we could expect you to start to engage with your partners in earnest to nail down a contract? Is that late 3Q or in conjunction with the football season? Does that mean with step-ups that eventually come that most of that will be realized in 4Q? Or is it later down the road?

Nick Taylor: Clark, it’s Nick. I’ll start and then I’ll perhaps hand over to Mark about second part of the question. Look, we do absolutely delight the reacceleration of 63% growth in the Media business year-on-year. There’s a number of things really that have driven that. I think we’ve seen some really good strong spend in Florida, for example. We’ve seen some great spend in places like launches of North Carolina, particularly in March Madness. As you know, there’s a lot of product support based in that state. Also, if you remember, when we talked in December, we said that there was some timing of spend that was moved from the Christmas holiday season through into January and things like the Super Bowl playoffs. Very strong and definitely sustainable.

Now I agree that, I think probably 63% is running very hot into your view on growth, but if you look at the increase in guide, that’s still guiding us to a north of 30% year-on-year on a Media space. Really, as I said previously, the increased margin, the increased double-digit revenue growth, the increased cash generation through ’25 and ’26 that we’ve been talking about. Clearly, media will continue to play a significant part of that.