Genius Sports Limited (NYSE:GENI) Q3 2024 Earnings Call Transcript

Genius Sports Limited (NYSE:GENI) Q3 2024 Earnings Call Transcript November 12, 2024

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

Brandon Bukstel : 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’s operating performance.

These measures should not be considered in isolation or as a substitute for Genius’s financial results prepared in accordance with the US GAAP. A reconciliation of these non-GAAP measures to the most directly comparable US 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 are very pleased to report another quarter of financial results, once again exceeding our expectations and highlighting the strength and predictability of our business model and our consistent execution to-date. To begin, we delivered group revenue of $120 million, representing an 18% year-on-year growth. This revenue growth contributed to our group adjusted EBITDA at a 43% incremental margin, as a result of our largely fixed cost base and disciplined control of operating expenses. This translated to group adjusted EBITDA of $26 million in the quarter representing 45% growth year-on-year and 400 basis points of margin expansion to 21%. Our consistent group adjusted EBITDA margin expansion over the last few years should demonstrate the operating leverage of our business model.

This is also evident in our year-on-year gross margin expansion this quarter of nearly 950 basis points to 33%, which is our highest quarterly gross margin since our public listing. Given the momentum in our business and our successful commercial execution to-date, we believe we are well-positioned to benefit from multiple growth drivers during the peak sporting calendar in Q4. As such, we are raising our 2024 guidance and expect to finish the year with $511 million in group revenue, up 24% year-on-year, and $86 million in group adjusted EBITDA up 61%, both significantly above our initial guidance of $480 million and $75 million respectively. Importantly, this also assumes no change to our Q4 guidance. This is despite the unfavorable game outcomes impacting the bookmakers in October.

This further demonstrates the resilience and differentiation of our business model and means that we can confidently reaffirm our Q4 guidance of nearly 40% revenue growth and 900 basis points of adjusted EBITDA margin expansion. Putting beyond 2024, our commercial execution this year now sets a solid foundation for profitable growth in 2025 and beyond. We have extended our largest rights deals through the end of the decade, giving us certainty of our fixed costs for the foreseeable future. This, combined with our sportsbook renewals, now reinforces our medium-term expectations for sustained annual revenue growth of 20% and continued progress towards an adjusted EBITDA margin target of at least 30%. Nick will cover the financial results in more detail shortly.

In the meantime, I would like to touch on three key topics from this quarter. First, as an update on our sportsbook renewals, we have agreed new commercial terms with every major US Sportsbook customer, along with many major sportsbooks outside of the US as well, who collectively represent most of our group revenue today and an important contributor to overall growth. Central to this was the distribution of our BetVision product and enhanced data feeds, along with a cross-sell of our advertising platform, both of which led to greater pricing up there. Through the start of this season, BetVision has proven to be a tremendous engagement and in-play betting tool for sportsbooks, and I’m excited to share a brief update shortly. The second point I’d like to touch on is how these successful renewals positioned us to benefit from the positive trends in the US sports betting market through the start of the NFL season, including strong market growth and in-play betting mix.

Third, I’d like to highlight the many ways we are leveraging our unique technology to monetize our rich data across the entire sports ecosystem. One area that’s particularly exciting is the launch of our new fan activation platform called FANHub. Now let’s review these topics, starting with an update on sports betting. As we discussed last quarter, we have a strong and improving commercial position in the global sports betting ecosystem, which enabled us to agree new commercial terms with major sports books over the summer and early autumn. Our strengthened suite of products amplifies the value of our data for the NFL, English Premier League and hundreds of thousands of other events that we offer annually and enable us to grow alongside our partners.

While every deal is different and I will not go into specific details, I can announce that we achieved the universal pricing uplift across all sportsbook renewals that we had previously committed to, while still maintaining upside in the form of market growth and in-play growth specifically. Additionally, our improved suite of media products, including our newly announced FANHub platform, was a core component of certain deals, allowing our customers to benefit from our increased scale and product offering. As for contract duration, we will have a variety of term lengths with US Customers, meaning our contract renegotiations going forward will be staggered and characterized as business as usual, much like our contracts globally, which should lead to sustained growth rates over time.

In sum, our sportsbook renewals are overwhelmingly positive, and we have delivered on every major objective we set out to achieve at the start of the year. This is exactly why I can confidently reaffirm our outlook for Q4, which is poised for multifaceted growth, despite the negative game outcomes to start the quarter. This brings me to early trends from the NFL season. First, we are encouraged by the strong start to the season, which continues to reach record highs in viewership, wagering, and overall engagement by nearly every measurable metric. For the third quarter, the broader US Sports betting industry increased by approximately 30% on a handle basis and 40% on a gross gaming revenue basis. So we remain confident in the strength of our overall market.

NFL wagering growth was largely in-line with the broader market. We have also seen a greater focus on in-play betting, which has been proven in the data points from the third quarter. Through the first four weeks of the NFL season captured in the quarter, we observed a nearly 80% increase in in-play GGR and a nearly 50% increase in in-play Handle. In-play wagering now represents 30% of total NFL Handle, up from roughly 25% in the prior season, representing a meaningful step in the right direction, which we always expected and communicated as a key growth driver for our medium and long-term projections. Major driving force behind this trend is an improving breadth of product. In-play is becoming a crucial component of bookmakers product offering as a tool to keep customers engaged and complement their successful parlay products with additional high frequency and high margin bet types.

One of the key additions to a bookmaker’s toolkit this NFL season is BetVision, which, as a result of our successful renegotiations, is available on the leading sports betting apps, including FanDuel, DraftKings, Caesars, bet365, and many others. This brings me to my next topic. You may recall we first introduced BetVision last NFL season, which attracted millions of unique eyeballs and increased the mix of in-play wagering. For those less familiar, BetVision is a platform that, amongst other things, includes low latency streams of NFL games, which can be accessed directly on your Sportsbook app. The stream itself integrates many of Genius’s best technology and data assets into a single platform, including team and player statistics, betting markets, and a data driven graphical augmentation layer enabling a full scale watch and bet experience all in one platform.

Since launching last year, we have developed new features and functionality, making this platform even more intelligent, interactive, and immersive. For instance, users can now enjoy an augmented version of the livestream with real-time graphical overlays of next-gen stats and other insights as part of the viewing experience. The experience is also becoming more personalized as we plan to launch a bet tracker, allowing users to monitor the progress of their bets directly within the video player. Additionally, we are utilizing our predictive technology to recommend contextually relevant bets based on the live action of the game. Another feature we’re excited to launch is a touch screen capability, allowing the user to touch a player directly in the video frame to access individual player markets.

Many of these features will be widely introduced over the course of the season with the goal of further engaging and monetizing NFL fans. In the meantime, we are proving the value of this product through results. First, we have expanded the distribution to nearly every major US sportsbook. As a result, there has been a significant increase in total viewership, with unique weekly streamers increasing by 12 times since the initial launch last season. Even within the current NFL season, the number of unique weekly streamers has doubled since week one, and we continue to reach record-highs in viewership in recent weeks. Although it’s still early in the season, the wagering data from BetVision’s viewers in Q3 has also been encouraging. In-play betting represents 59% of the total handle through the BetVision platform, which is consistent with last season and compares favorably to the 30% mix across all NFL wagering.

We’re very pleased with the near-term success of BetVision, but we are most excited by the long-term opportunity that’s still in front of us, especially as we continue to deliver additional enhancements and expand the product into new sports and new regions across the globe. This platform, which is completely unique to Genius Sports, is redefining the NFL betting experience and gradually becoming ubiquitous as it changes customer behavior and expectations. This ultimately sets a new standard of sports betting product, which strengthens our relationship with the NFL or any other league seeking a similar solution, whilst also contributing further value to our sportsbook partners. We have invested in this technology over the last few years, and BetVision is one of many outputs that are now paying off.

However, our product offerings found well beyond sports betting alone, which brings me to my third topic of how we’re expanding our services across the entire sports ecosystem. You know, Genius Sports has a rich source of valuable exclusive data. We also possess unique technology to enrich this data even further, activating a wide range of products well beyond the scope of sports betting alone. For instance, this quarter we announced an agreement with ESPN, allowing the network to access our real-time and player statistics to help transform their data-driven storytelling for live broadcasts of NCAA, NBA, and WNBA. Sticking with the WNBA, you may remember we announced a player tracking partnership earlier this year. This agreement includes powerful insights platform where teams can access rich data to support analytical coaching decisions.

Unsurprisingly, the two teams competing in the WNBA finals last month were among the most active users of this platform, proving this to be a valuable tool for teams to fundamentally improve the quality of sport. One more example I’ll leave you with is our recent partnership with the LA Rams. Fans in SoFi Stadium will get to experience data driven highlights on the big screen with augmentations displaying interesting and insightful next-gen stats. Not only does this provide fans with a unique way to experience teen highlights, but it also unlocks dynamic advertising inventory for the RAM’s longtime sponsor, Verizon. This empowers Verizon to seamlessly integrate their brand during key moments within the highlight in front of a highly engaged audience and thus strengthening their brand affinity with the RAM’s fans.

As we expand our technology distribution and launch new products, we are continuing to unlock diversified revenue streams across the world of sports. One area that’s particularly exciting to us is sports specific digital advertising. The partnership with the LA Ram’s in Verizon is a perfect example of how we’re enabling brands to reach engaged sports fans in a cost effective and impactful way. But this is only scratching the surface. This leads me to our most recent launch and the one I’m most excited about, FANHub. FANHub is a full-scale fan activation platform helping brands connect with sports audiences. To put it simply, FANHub is not just a single product, but a completely verticalized, sport-focused platform, helping advertisers to reach the right fans with the right message at the right time across multiple social and programmatic channels, including display, video, connected TV, and more.

The reason we’re so excited about this launch is because it will enable us to partner with a wide range of advertisers seeking to reach sports fans. Any brand who wants to be associated with sports will benefit from FANHub. Given the breadth and depth of the data we have exclusive access to, Genius Sports understands the behavior of sports fans better than anyone in the ad tech market. We believe this data combined with a FANHub platform makes us uniquely positioned to help brands manage and measure high impact cost effective campaigns. As we enter the new year we expect to unlock new high margin revenue in a large and growing addressable market of digital advertising. We believe that we will have significant advantage in the sports vertical.

Strategically, this also represents another example of how we’re leveraging technology to further monetize our existing data set and ultimately achieve greater scale. To close, we are very excited about the momentum in our business and believe we are reaching a critical inflection point, both strategically and financially. And with that, I will now turn the call to Nick to discuss the financials in more detail.

Nicholas Taylor : Thank you, Mark. We are pleased to have delivered another quarter of results ahead of expectations, characterized by continued growth and operating leverage to date. Much of the revenue outperformance in the quarter was driven by our betting product, which increased by 30% year-over-year and demonstrates the underlying strength in the core betting business. By now, you should appreciate the positive trends we’ve seen specifically in our US betting business to start the NFL season, which grew by 60% compared to Q3 of last year, far outpacing the growth of the broader US sports betting industry. This is a function of many growth drivers that exist in the model, including market-wide GGR growth, increased in-play betting, improving in-play win margins and of course, greater value from sportsbook renewals.

Each of these played a factor this quarter, not just in the US but also across the globe. In the third quarter, approximately 70% of our revenue is generated outside of the US. So despite today’s focus on the US and NFL season, our core business outside of the US continues to demonstrate strong profitable growth. Of note, our European revenue achieved year-on-year revenue growth of 22% in the quarter following the successful renegotiation of renewed commercial terms with non-US sportsbooks which contributed meaningfully to our betting revenue growth and our group level performance in the quarter. These renewals also set the foundation for the next phase of growth through the remainder of 2024 and beyond. Importantly, these growth drivers come with no incremental fixed costs, allowing much of this additional revenue to flow through to group adjusted EBITDA.

This is evident in our consistent margin expansion over the last few years, as you can see on the slide, and we expect to continue expanding our adjusted EBITDA margins towards our long-term target of at least 30%. Based on our observations through the start of the NFL season and of course, our sportsbook renewals across the globe, we are confident in our outlook through the end of the year despite US wind margins coming under pressure to begin the fourth quarter. Given the multiple growth drivers across the business, we remain confident in our Q4 guidance of 38% revenue growth, over 2.5 times growth of adjusted EBITDA, 900 basis points of margin expansion and significant cash flow, bringing us to a positive position for the full year. These growth drivers, combined with the high predictability of our business model and largely fixed cost base underpins our confidence in the guidance.

In fact, our predictability and multitude of revenue growth drivers are exactly the reasons we’ve consistently delivered or exceeded our guidance over the last several quarters, and we aim to continue on this path moving forward. We are also reaffirming our expectation to generate positive cash flow for the 2024 calendar year. Quickly on the topic of cash, I would like to address the decrease in cash compared to the last quarter. As you know, throughout the third quarter, we renegotiated commercial terms with our sportsbook customers, many of which were finalized close to the 30th of September, marking the quarter-end. Given the timing of these agreements, the cash inflow we would typically expect in Q3, is now expected in Q4. Consequently, this is purely a function of cash timing rather than anything fundamental.

As a final matter of housekeeping relating to foreign exchange, it is also worth noting that we achieved our Q3 revenue and adjusted EBITDA targets even at the FX rate at the time we last updated our guidance, meaning currency had an immaterial impact on group revenue and adjusted EBITDA in the quarter. As we approach the end of the year, it is a good time for us to reflect on how the full 2024 year is shaping up. Assuming our current guidance, we expect 2024 to be characterized by accelerating revenue growth of 24%, adjusted EBITDA growth of 61%, 391 basis points of margin expansion and an inflection to positive cash flow. As such, 2024 should mark our fourth consecutive year of 20% plus revenue growth. As we look ahead to 2025 and beyond, we remain confident in our ability to sustain this pace of growth whilst continue to expand our margins and increase our annual cash flow for the foreseeable future.

In fact, the extension of our largest rights deals on a fixed cost basis along with improved commercial terms with sportsbooks now reinforces our confidence and visibility for the next several years. To conclude, this quarter represents another successful period of strategic execution as we continue expanding our technology footprint and bolstering our product offering across the ecosystem of sports, betting, media and broadcast. We are reaching a critical inflection point financially, strategically and operationally, and we are excited to continue our execution through year-end and carry our momentum into the new year and beyond. But for now, we will conclude our prepared remarks and open the line to Q&A.

Q&A Session

Operator: Thank you. The floor is now open for questions. [Operator Instructions] Our first question comes from the line of Ben Miller with Goldman Sachs. Please go ahead.

Ben Miller: Great. Thank so much for taking the questions. I guess just on the sportsbook renegotiations, first, how should we think about the magnitude of change in blended commission rates relative to today and the timing of this flowing through the model? And then Mark, just on the Media segment, you guys have made a number of recent product announcements around that. So when we think about the building blocks for 2025, just talk about how you — how these product announcements feed into how you’re thinking about the qualitative drivers from here within that segment around number of advertisers, share of budget, pricing, all those things would be helpful. Thank you.

Nicholas Taylor: Ben, it’s Nick. Yes, I’ll take the first part and I’ll let Mark take the second part. On that first part, what I can say really, Ben, is that we’ve taken price on every deals, both in pre-match and in in-play. And you can — and I can say that — that’s a material amount that is what we’ve taken. Now Ben, I’m not going to give any specific details of that because every contract looks very different. But what I can say is that you’re already seeing the results of those new deals in our numbers. We talked today about US sports betting being up 60% year-on-year in Q3. And also, you can see that by us reiterating our Q4 guidance with revenue acceleration up to 37%.

Mark Locke: And on the second thing — Ben, it’s Mark. On the second question, yes, we’ve done a lot of work recently. We’ve been [Technical Difficulty] for the last few years. And as you rightly say, there’s a lot of product launches that have come down the line. Specifically on the media, the self-serve platform is providing a massive opportunity for us. And really, I guess we’re sort of starting to position ourselves in the world of being the sort of trade desk for sports. That’s probably the easiest way to think about it. We’ve got a lot of unique data, and obviously, we understand sports fans, but also we have a huge amount of sports data. And that’s going to give us a real advantage in being able to drive some of the efficiencies of those products.

So the coming period of time with our sportsbook renewals, I think the vast majority, if not all of those deals include — in fact, I think it is all of those deals include the requirement for — I’m getting nods around the table, requirement for the use of the marketing products. So we’ve got a really good launch pad for growth for not only the existing product set in media, but also the new product sets coming — that have come down the line and are still to come down the line. So we’re feeling really good about it.

Ben Miller: Great. Thanks so much.

Operator: Your next question comes from the line of Bernie McTernan with Needham & Company. Please go ahead.

Bernie McTernan: Great. Thanks for taking my questions. Maybe just to start, would love if you could just size the impact of the negative sports results on October on 4Q. And then for Europe, growing 22%, I believe it grew 10% last quarter. So great to see that kind of acceleration. And since these deals are, I believe, largely fixed, is that the right way of thinking about 4Q and 2025 as kind of 20% plus growth? And then lastly, just on the US sports renewals, would love just to get a flavor in terms of what you guys were pushing for and thought would be most important in terms of the — just the construct of those agreements, whether it’s last time there was a big minimum advertising commitment, there was different take rates for pre-match versus live betting. Just like any flavor you can give us in terms of if there is kind of any new revenue construction that we should be thinking about going forward here?

Mark Locke: Thanks, Bernie. There is a lot there. I’m actually going to take it in the reverse order. Look, the sportsbook renewals have been really key for us. I made a commitment to the market a while ago that we would try and revalue data in the market. We said for a while, we think it’s undervalued. And so a big part of these renewals has been sort of trying to rebalance some of that and really get data to a level that’s more commensurate with the value that it offers to the sportsbooks. And I think, overall, we’ve been very successful doing that, and we’re extremely pleased with where we’ve come out on that. The deal constructs have been quite specific. We’ve been very focused on exactly what the deals look like on an individual bookmaker by bookmaker basis.

We’ve been very careful to make sure that we’re working with our partners and with our clients to make sure we are delivering products that are adding value and are really making a difference. And the construct really involved the requirement for a rollout of BetVision across the term, which is something that we’ve universally succeeded with. So that is part of all of the deals. And again, that was a commitment I’ve made to the market previously about having ubiquity of product across the industry. So we are very happy with that. And then obviously, the other part of it is on the Media space, which I’ve just touched upon. So the rollout of our new Media products, the existing product stack that we’ve got and additional value there. So to summarize, we’ve been very focused on BetVision, we’ve been very focused on the Media, and we’ve been very focused on the increase in value.

The other thing that’s probably worth highlighting, I said it in my prepared remarks, was we’ve listened to the market, and we’ve got a very — a much more balanced mixture in terms of term lengths. So this — the renegotiation periods in future no longer have sort of the cliff effect, and we are in a much more rounded basis. I think I’ll let Nick pick up on the other 2 points.

Nicholas Taylor: Yes. Hi Bernie, yes. So Q4, I mean, you have heard me say this before, Bernie, I mean, I think Mark used the phrase resilience in business model, which I think is absolutely right in terms of what our Q4 position is. But the great thing about this company is the number of growth levers that we have. And yes, US sportsbook results is clearly a headwind for us, but it’s certainly not a material headwind given the other tailwinds that work in our favor, whether that’s in-play mix, whether that’s media, whether that’s price, whether that’s just product. And therefore, although there is obviously been a lot of noise in the market around October results for sportsbooks, we’re very confident of reiterating our Q4 position, which is a 37% revenue growth year-on-year.

That kind of plays slightly, I think into your other question, which was on the European position. There is still 70% of our revenues in the quarter come from Europe. Q4 will be a little bit more US slanted given just the seasonality of the sports. But yes, we’re delighted with a 20% growth in the European market year-on-year. One of the things that perhaps got lost in some of the noise around some of the US sportsbooks is some of the renegotiations we’ve been doing with the European sportsbooks on the back of renewing our UK soccer deal out until 2029. And therefore, you’re beginning to see that as well as the new products that will also continue to drive and upsell into the European market. So, yes, I’ve always said and continue to expect double-digit growth from the European sportsbooks going forward.

Bernie McTernan: Great. Thanks guys.

Operator: Your next question comes from the line of Jed Kelly with Oppenheimer. Please go ahead.

Jed Kelly: Hi, great. Thanks for taking my questions. Just two, if I may. Just on the 4Q guide, is that thing going to be — is that reacceleration going to be driven more by media or sports betting results? And then just following up on the media and trying to think about next year, as you kind of transition more into self-service, do we see a sort of one-time decel in revenue because it’s recognized on net, but the gross profit actually goes up because the margins are higher? Thank you.

Mark Locke: Yes. I think we might do the same and take them in reverse order again, if that’s all right. On the media, the self-service, these are additional revenue pools that we’re going after. So I mean, to remind you all, the existing revenue stack that we’ve got through the programmatic is the managed services. So that — we expect that to continue, although longer-term, that revenue will probably end up getting somewhat replaced. But a lot of the self-service is really new revenue that’s going to be coming as a result of new products, new brand positioning, working with the agencies as well as obviously with the sportsbooks. So we don’t see initially one cannibalizing the other, even though longer-term, we think that the managed services will fade out.

Nicholas Taylor: Jed, it’s Nick. Just on your first question, which I think was in relation to Q4 growth and where that will be coming from. The answer is Jed, actually, it’s coming from both what we anticipate in Q4. Clearly, we are set up well from a sportsbook perspective based on the deals that we have agreed with the sportsbooks that Mark’s already talked about. So that positions us well together with a good tailwind in terms of GGR and TAM growth. But we are also expecting media growth in Q4 as well and actually also anticipating some sports-tech growth as well, given the deals that we’ve announced over the last four, five months, things like the US deal and the UK soccer deals.

Jed Kelly: Can you provide a full year free cash flow range number?

Nicholas Taylor: Hi, Jed, what I’ve done is I’ve just reiterated really in the prepared remarks, and I’ll do it again here in terms of 2024 that we anticipate to be positive cash flow in the year. That’s a very important moment for Genius Sports. As you know, we are expecting that dynamic to continue now on an ongoing basis, which is particularly important given the strength of our balance sheet. I’m not giving a specific guide because as you know, cash receipts and cash payments can have an impact as you get towards the year-end, but we are fully confident of getting that positive cash position and then letting the operating leverage in the business model work its magic through ’25 and beyond.

Jed Kelly: Thank you.

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

Ryan Sigdahl: Hi, guys. Congrats on all the business success and renewals here. I want to start with FANHub. You mentioned kind of expanding beyond the traditional sportsbooks for who this appeals to and where you can add value. But can you talk through that pipeline and how much you’ve seen versus maybe expect and where that can go from across more consumer and outside of the sports books specifically?

Mark Locke: Yes, sure. I mean the — look, as I said previously, probably the easiest way to sort of think about the FANHub product is really the trade desk for sports. You’ve got to understand when you’re looking at this market, what are US peers? Why are we able? Why do we have a right to compete in this market? What’s our differentiator? And I think if you focus in on that, that’s the key thing. The differentiator that we have is that we understand sports, and we understand the moments in sport. We have a huge amount of data, as you guys know. So therefore, we’re able to trigger interesting adverts and important events during a game, which goes to renewals and — sorry, goes to reactions and how well that’s received. The other thing that we have is we have a huge amount of information on sports players.

So we understand sports fans, we understand how they’re going to work and what makes them tick. So the combination of that allows us to approach anyone really who wants to be present in the sports space. So if you are a brand and you want to target sports audience, if you’re people like, I don’t know, Coca-Cola, Gatorade, if you’re an agency that’s got clients that wants to do it on a national basis or indeed a local basis around some of the team stuff, you’re able to come — and we’re able to access those players for you. So it’s really about utilizing the USPs that we have in the business, unique data sets, unique understanding in order to target sports fans.

Ryan Sigdahl: Then just bigger picture on the costs side. You have really strong momentum on the commercialization revenue side. But on the cost side, how do you feel about the structure, resources, people, everything to support kind of this multi-leg and all these growth initiatives you have as you look into ’25 and beyond?

Nicholas Taylor: Yes. Ryan, let me talk and then Mark, please come over the top of any more sort of directional comments. Yes, I mean, as you know, Ryan, the key to this business is the operating leverage that it drives. All the tailwinds that we’ve talked about, whether that’s in-place sports betting, whether that’s growth of TAM, whether that’s price, whether that’s additional product, most of that flows through at a pretty high margin. You’ve seen that this quarter. I think you’ve got a drop through in the quarter at around about 44% drop through. And I think the implicit guide for Q4 is also in the 40s. So we are feeling pretty good about the operating leverage.

Ryan Sigdahl: That’s all guys. Good luck.

Operator: Your next question comes from the line of Jason Bazinet with Citi. Please go ahead.

Jason Bazinet: So you guys obviously made a big commitment to the NFL a few years back. I would just be curious, is there anything that’s going better than expected and anything that’s going worse than expected as it relates to sort of NFL revenues and betting behavior?

Mark Locke: Yes. I mean with specifics to the NFL, is that the question, Jason?

Jason Bazinet: Yes.

Mark Locke: Look, the relationship with the NFL is very strong. As you know, we renewed our agreement early with them previously, and we’ve got a long runway. We are working with them across multiple product sets. Clearly, they are a major shareholder in the business. And they’re very active as well. They’re very active in working with them. We have a very good relationship all the way through the organization, and they’re a fantastic partner. We’ve got a lot of access to very rich data. That data is driving some of the product innovation. Obviously, you’ve seen BetVision, which is one of the biggest innovations, I think, that’s been seen in the market for a very long time, and that’s been spearheaded by the NFL content and that low latency feed. So the relationship with the NFL is very strong. We are a super supportive shareholder. And we feel like we — and I think they would say the same and delivering really good results based on a strong partnership.

Jason Bazinet: Great. Thank you.

Operator: Your next question comes from the line of Chad Beynon with Macquarie. Please go ahead.

Unidentified Analyst: This is Sam on for Chad. Thanks for taking my question. I wanted to touch on the 30% EBITDA margin target. Any color on what needs to happen to get there? Is it dependent on new state launches or more in-play? Anything you could add there? Thanks.

Nicholas Taylor: Hi, Sam, it’s Nick. There’s nothing specific in truth Sam. I think it’s just more of the same, I guess, what I’d say. I mean one of the great advantages of being – might see is the predictability and visibility that we get. Ryan just asked a question in terms of cost base. And you’ve seen that really our cost base hasn’t really moved at all really over the course of the last 36 months. And obviously, rights are fixed, and therefore, I noted the exact dollar, the rights cost that I’m paying, for example, to the NFL or for example, to U.K. soccer really until the end of the decade. And therefore, that gives us significant visibility. And you’ve seen that move — you’ve seen that play out really over the last probably 12 to 16 quarters, really, Sam, as the EBITDA margin continues to move.

I think we are right now in terms of guide is around about 16%, 16.5%, 17% EBITDA margin of around about 12% margin last year. And therefore, you’re seeing healthy margin accretion, and we’re expecting that to continue over the medium-term towards that 30%.

Mark Locke: The other thing to kind of bear in mind as well is — and this was touched upon in one of the previous questions is we’ve launched a lot of products recently. Over the — we invested aggressively over the last few years in a number of different areas. Obviously, we’ve got the self-serve FANHub platform. We’ve got Edge, which is our risk product. We’ve obviously done a lot of stuff in Dragon and the rollout of Dragon, which is going really, really well on a sort of quite a wide global basis. We’re into UK football in a very big way. We’re into basketball leagues. We’re into UEFA. We are doing an awful lot of rollouts there. And a lot of those product sets are still really yet to deliver material revenues. A lot of the growth you’re seeing in the business and you have seen in the business historically is off of existing product sets.

Again, there is been a lot of self-serve focus on this call. There’s pretty much no revenue there or very little revenue so far from that. And yet we’re still managing to expand our margin and create that growth. So we — Nick always talks about growth levers and to put a bit of meat on the bones and what that really is, it’s really about a lot of these product sets, and it’s bringing these product sets to life that are going to give us a lot of opportunity for some of that revenue growth. The other thing, again, and sorry, this is quite a long answer, but I think it’s quite useful to give a bit of color on some of this stuff is we’re pulling together a lot of disparate products. We’ve very much built the business by rolling out individual products on a sort of individual basis.

And I’ve always been a fan of never wanting to kind of do a big bang, sit in a room, develop a product, roll out and hope it works. We’ve always been about incremental growth in each of the product areas. But what we’ve never really been in a position to do because we’ve never had the products finished is pull them all together and generate leverage from one product to another. And that’s really what’s coming through now with the rollout of Dragon, the rollout of FANHub, some of the Edge, BetVision, all of these products that are going out into the market. What we’re now starting to be able to do is get this sort of compounding effect from these multiple products to really drive some of the growth between them. And that’s something that we’re really excited about.

So we look at this 30% EBITDA margin target. And again, we feel very confident just from the visibility, again, Nick said this a second ago, from the visibility he’s got it’s something that’s very tangible, and it is a very clear path to it. But on top of that, there is a huge amount of opportunity in this business. It’s why I remain so excited about where we are and what we can do in terms of being able to pull all this stuff together and really deliver sort of exceptional value to our shareholders.

Unidentified Analyst: Awesome. Thanks for that color. And then just as a follow-up, is it possible to get the in-play NFL hold rate so far this year and just the upside that you guys can get simply from, I guess, the sportsbooks improving the in-play hold and kind of how you see the time line of that evolving?

Mark Locke: We’re not going to give the hold rates, but I will give you the fact that it’s improving. But I think the more interesting thing to focus on and the thing that we’re taking, again, going back to my previous answer and Nick’s previous answer about growth is where in-play is. When we went out to market a few years ago, we were a bit north of 20%. We’re now — last year, I think we were 25%. We’re now 30% of markets in-play. Obviously, everybody knows and everyone understands that in-play is a much higher margin business. There’s a much bigger focus from the bookmakers on in-play. And you guys, I’m sure, are hearing a lot more about in-play, and that’s coming. Now in-play is driven by BetVision. BetVision is driving a lot of this sort of interest in live betting.

And again, if you look at the latest BetVision targets, I said them in my prepared remarks, but I’ll pull them out again now. I think it’s 59% of all in-play betting handle is in-play through BetVision. So there’s definitely an appetite for the market to grow. And I think as BetVision becomes more ubiquitous as the product sets to grow, I think you’ll see an increase in in-play share going from the 30%. It is now, again, heading towards where it is in Europe, which is kind of around 70%, which again increases the margin that the sportsbooks makes, obviously increases our share, increases our take of hold and really gives us a huge opportunity for growth. So that’s really where I’d be focused if I was looking at this business from an external point of view.

Unidentified Analyst: Awesome. Thanks. Congrats on the quarter.

Operator: Your next question comes from the line of Eric Martinuzzi with Lake Street Capital Markets. Please go ahead.

Eric Martinuzzi: Yes. The terms getting staggered on the sportsbook renewals. Just curious as to how you achieved that. Did you — was this more of a Genius-led discussion as to where you wanted some of the larger sportsbooks to be as far as maybe a shorter term for them and smaller sportsbooks maybe went longer or vice versa? Take me through the logic.

Mark Locke: Sure. I mean the short answer to your question is, yes, it’s Genius-led. I mean, obviously, we talk to our customers, and we will discuss both of our desires. But ultimately, our goal is to stagger our contract terms. I mean, to give you some idea, we signed — I think, in the last three months, we signed over 500 new contracts. I mean some of them are small and some of them are sort of marketing related, but there’s an awful lot of business that’s been done and a lot of new deals that have been signed. So we’re in a very — sort of very busy period for the business, and it’s been very successful. But our goal here was to sort of de-risk the business in terms of the contract renewals. We understood from our shareholders that, that was something that they were focused on. So we’ve listened. And again, we have staggered contract terms, which again put us in a strong place for the next few years of growth.

Eric Martinuzzi: Right. But take me back to the larger, more meaningful sportsbooks. Were you — was the goal to get them on a longer-term commitment and therefore, potentially giving away margin? Or is it the other way around?

Mark Locke: Yes. I mean, look, obviously, we’re not going to comment on any of the individual sportsbook deals. Suffice to say that where we’ve ended up, I think, is a good result for us and I think the sportsbooks as well. We’ve got a long path to growth. We’ve got a lot of product distribution. They’re working with us across multiple different areas. And again, having a sort of staggered renewal phase across the larger sportsbook is something that we set out to achieve, and I can say that we have achieved it. So we’re pretty happy with where we are.

Eric Martinuzzi: Got it. Thank you.

Operator: Due to time constraints, our final question comes from the line of Jordan Bender with Citizens JMP. Please go ahead.

Jordan Bender: Good morning everyone. When thinking through the 20% medium-term revenue growth target, next year, we’ll see Brazil, Missouri, potentially Alberta. But beyond this wave, is there any incremental legalization to hit that 20% number outside of just the normal course of business like product and pricing? I guess the question is, what’s the legalization assumption baked into that medium-term number?

Mark Locke: Yes, it’s a good question. I mean, like it’s pretty much the same as we’ve always said. We built a model which is based on market consensus. We strip out the top most aggressive and the least aggressive. We take a bit of a kind of consensus view on how the market is going to grow, and that obviously takes into account legalization. I — obviously, everyone has been very excited about Brazil for a long-time, and I am excited about Brazil. Don’t get me wrong. I am — as I have said a number of times on these calls, I am more skeptical about how long some of this is going to take to come through. There is some interesting and varied views on the size of the market. And again, from our point of view, we are fairly conservative with the way that we think about Brazil.

I think there’s a big opportunity there. I think there’s still a bit of a way to go before this — it actually really comes through to money in the door and hitting our bottom-line. So from our point of view, I think you can look at our growth estimates on a I guess — fairly conservative basis when it comes to outside of the US. And when it comes to the US, a fairly consensus view on it. Europe is pretty straightforward and the rest of the world as well. So hopefully, that kind of covers our view.

Jordan Bender: Yes. And if I can follow up on that. I mean, as we think through Brazil, it seems like it’s going back and forth at this point. But as we think about modeling 2025, should we assume that, that’s something that happens January 1, like we’ve always believed? Or is it more now pushing into the middle part or even the back part of the year?

Mark Locke: Yes. Look, again, we took a pretty conservative view. I mean, if you look back at the last earnings transcripts and my Q&As on this stuff, I’ve said, I don’t hold your breath too much. And I think that’s proven to be pretty right. I think Brazil will happen in ’25. I again, take a slightly conservative view. I’m happy to be pleasantly surprised on when it comes through, but I’m not sure I would be banking on too early in 2025. But that’s just my view.

Jordan Bender: Awesome. Thank you very much.

Operator: This concludes today’s call. Thank you for joining. You may now disconnect.