Genius Sports Ltd Q2 FY2023 Earnings Call

Hello and welcome to the Genius Sports Second Quarter Earnings Results 2023 Call. All lines have been muted to minimize background noise. Following the speaker's remarks, there will be a question-and-answer session. Now, I will hand the conference over to Genius Sports. Please proceed.

Thank you, and good morning. Before we begin, we would like to remind you that certain statements made during this call may constitute forward-looking statements that are subject to risk 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 statements should be considered in conjunction with cautionary statements in our earnings release and risk factor discussion in our filings with the SEC, including our annual report on Form 20-F, filed with the SEC on March 30th, 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 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 over the call to our CEO, Mark Locke.

Good morning, and thank you for joining us today. We're pleased to continue our strong momentum through the first half of the year as we successfully executed on our strategic and financial plan. We began 2023 by telling you that this will be a key inflection year for our business as we expect to triple our adjusted EBITDA profitability. With the first half of the year now behind us, the $24 million of adjusted EBITDA we delivered year to date is more than four times what we reported in the first half of 2022 and our latest full year guidance, which we are again raising today to $52 million, is now 27% higher than the $41 million guidance at the start of the year. Financial results from the first half of the year and the expansions of our marquee Football DataCo and NFL partnerships are a testament to the fact that our strategy is clearly working. Our differentiated technology-driven approach is solidifying our position at the heart of the sports media ecosystem, which is generating meaningful financial results across the entire organization. As a result of our successful execution, we now have greater long-term visibility in our business and find ourselves further along the path to our long-term adjusted EBITDA margin target in excess of 30% than we were when we started the year. We will discuss all of this in greater detail during today's call. To begin, we increased revenue by 22% year-on-year to $87 million for the second quarter, well ahead of our $80 million target. This led to group adjusted EBITDA nearly doubling in the quarter to $16 million, also beating our guidance of $14 million. This represents an adjusted EBITDA margin of 18%, up from 12% in Q2 2022. As mentioned in my earlier remarks, through the first half of this year, we have already more than quadrupled our adjusted EBITDA compared to last year, demonstrating this rapid acceleration of profitability. Given the results we've delivered to date and the operational milestones we achieved, we feel confident in raising our full-year group revenue and adjusted EBITDA guidance to $410 million and $52 million respectively, significantly ahead of our initial 2023 guidance. Additionally, we expect to reach an important inflection point as we turn cash flow positive in the second half of this year and plan to continue generating sustainable cash flow through 2024 and beyond. Among the highlights from the quarter was the extension of our two most important lead partnerships, Football DataCo and the NFL. Our ability to retain and expand relationships with key lead partners is driven by our technology-led approach, which creates multiple points of connection with various stakeholders within the sports digital ecosystem. This includes the league itself, teams, broadcasters, and sponsors. This is fundamental to our strategy and a key reason why both organizations renewed our partnerships ahead of schedule and without a competitive bidding process. I'll touch on this again shortly. By now, you should understand how our deep technology integration enables us to secure long-term partnerships with leagues, which ultimately fuels growth across the entire business, not just in betting, but also in media. One of the long-term growth drivers of our media revenue is the expansion of our customer base. While most of our media customers are still bookmakers today, we are gaining traction with non-betting consumer brands, representing a sizable long-term opportunity. Through the first half of the year, we have supported successful digital advertising campaigns for several new customers, including Puma, Bayer, Stellantis, Ram, Jeep, and Cobra, just to name a few. Our expanding footprint should support long-term growth as we continue to penetrate this market. As a result of this strong momentum across the business, we have even greater confidence in our ability to achieve near and long-term results, particularly as we continue executing ahead of expectations and gain high visibility by securing long-term rights renewal. In other words, we now know the exact amount of fees payable to Football DataCo through 2025 and the NFL through 2028, and we feel confident in our ability to continue growing our profitability through that timeframe and beyond. To that end, I'd like to provide a bit more detail on recent rights renewals. Our unique approach to lead partnerships has always been led by our suite of technology solutions. This is a key reason why leagues choose to work with us and stay with us over time. While we'll focus on Football DataCo and NFL renewals today, it is this very same strategy that enables us to win new deals with leagues of all sizes across the world on a frequent basis. We maintain over 400 league relationships globally, all of which are centered around our technology. The recent renewals of our two most important partners now validate our core strategy and the quality of our technology, particularly as both sets of deals will renew without any RFP or competitive bidding process, further improving the strength of our relationships. Importantly, they also strengthen our positioning as we negotiate contracts with sportsbook customers so we continue to benefit from the tailwinds in the sports betting industry for many years to come. To quickly recap. First, we extended and expanded our partnerships with Football DataCo, which represents all professional UK football. This includes the English Premier League, English Football League, and Scottish Professional League. Collectively, this amounts to approximately 4,000 events annually, which are among the most bet-on events in the world. By securing the exclusive rights to these events through 2025, we have not only gained stronger visibility of our cost base, but we will also maintain our competitive position within the network of global sportsbooks who require this data, especially as we negotiate and renew these customer contracts on an ongoing basis. On that basis, we remain confident in our ability to continue growing our profitability through the term of this partnership. It is also important to understand that Second Spectrum was a critical component of this deal. Second Spectrum has long been the official player tracking technology provider of Football DataCo. Most recently, we also utilized this technology to fully augment broadcasts of Premier League matches towards the end of last season. As part of the latest extension, we've renewed this AI-powered tracking technology partnership with the English Premier League and expanded this for the ESL championship, the fourth most-watched league in Europe, further broadening distribution of Second Spectrum. We also renewed and extended our strategic partnership with the NFL. As a reminder, the original term of this partnership was a four-year period and years five and six were to be renewed by the NFL in one-year increments. Now, just two years into our partnership and with two full seasons still to go, the NFL has not only renewed years five and six but also added a seventh, securing our exclusive partnership through the 2028 Super Bowl. Again, this gives us high visibility of our rights fees through 2028, solidifies our commercial position in the sports betting market, and reaffirms our view that we can continue to grow our profitability through the life of our NFL partnership, much like we have in the first two seasons. The fact that the NFL renewed and extended the deal so early and without a tender process should validate the strength of the relationship we've built in just two years and the potential it has for us, the NFL, and its partners and fans over the next five years. Our strategic partnership with the NFL has technology at its core, meaning it covers a wide range of initiatives beyond sports betting alone. Among the many examples you can see on Slide 7, the main components of the deal include exclusive distribution of official live game data and next-gen stats to global media and betting markets, exclusive distribution of our official Watch & Bet low-latency feeds to sportsbooks globally, now including the US and Canada, exclusive distribution of digital advertising industry marks and logos to global sportsbooks, integrity monitoring services, and a broad-based technology partnership powering innovative broadcasts through Second Spectrum augmentations and other interactive fan engagement tools, helping to grow the NFL's audience. In just two years, we've established a strong foundation for innovation. For example, you have seen the exciting features we've created for NFL broadcasts including the Sports Emmy award-winning Amazon Prime, and CBS, or the free-to-play games we developed for the NFL’s international growth initiatives as another example. The NFL has now expanded the scope of our partnership to also include long-term domestic Watch & Bet rights, which represents another area for further innovation. We're excited to leverage our technology on this platform to launch a unique set of products in partnership with the NFL, ultimately benefiting our sportsbook customers and their end users who can enjoy a one-of-a-kind betting experience. We are thrilled for the opportunity to continue building this over the next five years to power the next generation of fan engagement, and we are excited to share our progress with you along the way. As we introduce new products or technology to amplify the NFL fan experience, you should interpret these as further proof points of our collaborative strategy working as planned. The objective in all of this, not just for the NFL, but for any partner, is to deploy tech-enabled solutions to help them enter the digital age of personalized fan engagement, benefiting multiple stakeholders and making us an integral part of the technology infrastructure. Many of these opportunities are driven by Second Spectrum technology, which remains front and center in many of our commercial conversations. This technology enables us to be an offensive winner with our AI strategy, considering that we have a massive head start in this space. There has been significant investment made in Second Spectrum over the course of the last decade, all with the intention of meeting the demand of our partners and ushering them into a new era of sports digitalization and personalization. As a result, we are best positioned to capture the significant future revenue opportunities that come with it, spanning across broadcast, sponsorship, and sports betting. Our technology is already being used in live broadcasts today with some of the biggest names in sports. We're beginning to gain traction with consumer brands, creating digital, data-driven content and other fan engagement tools, helping us establish long-term partnerships with these new customers. And of course, we have a rich history with bookmakers and plan to support their future success by developing the next generation of betting products to drive in-play handle and improve overall customer experience. In addition to the multiple future revenue opportunities in new addressable markets, one important byproduct of this technology, which also meaningfully benefits our business, is the long-term cost savings. Today, we have a network of 7,000 staff positions collecting data in sports venues around the world. Over time, with Second Spectrum deployed globally, this data can be collected automatically using low-cost computer vision cameras, which we expect to lead to considerable cost savings in data collection. These computer vision cameras will also capture a higher fidelity of data that cannot be analyzed by humans with the same speed and accuracy. For example, player speeds, relative positioning, shot probabilities, and more. This is exciting to leagues because it unlocks new assets for them to monetize, therefore, making Genius a true value-add partner for any league looking to monetize next-gen data. This is one of the ways we will continue to protect and reinforce our key league partnerships. As you can see, our technology plays a critical role in our growth strategy and Second Spectrum is a key pillar of our full offering, benefiting various initiatives across the business. This technology is fundamental to maintaining our key partnerships and fueling the convergence of sports, betting, media, and broadcast, placing Genius at the heart of the ecosystem for many years to come. This should help emphasize the importance of Second Spectrum technology, especially in the context of our recent rights renewals. What gives us confidence in some of the aforementioned opportunities with brand sponsors is the work we have already done with this client base, mainly through our programmatic and creative advertising capabilities. Our unique set of data and ad tech platform enables us to manage cost-effective sports-centric digital advertising campaigns on behalf of our customers. Historically, we've been most successful with bookmakers seeking to acquire customers. However, our capabilities are just as effective for any brand looking to engage a captive sports audience. This represents a sizable opportunity for Genius as these brands have large marketing budgets that are increasingly being allocated to live sports. In most cases, these brands are partnering with Genius for the first time, giving us an opportunity to prove our value by delivering quality results. Following the success of these initial campaigns, many customers are now booking their second or third campaign with Genius. We have had a few notable examples this quarter such as RCX Sports, who first partnered with us in Q4 to promote their FLAG football program as part of their NFL partnership. Off the back of that successful campaign, we executed another campaign this quarter to promote their Jr. Home Run Derby as part of their MLB partnership. Additionally, the Orange Bowl was another example of a returning media customer following the success of our initial campaign. Last year, we helped drive ticket sales for the Orange Bowl college football game presented by Capital One. This quarter, the Orange Bowl partnered with us again to help sell tickets to their food and wine event in Florida, further demonstrating the breadth of content we can create on a wide range of capabilities. Our retention of these media customers validates the strength of our ad tech platform, and every new customer represents an opportunity to land and expand. For instance, in this quarter alone, we've managed successful campaigns for Puma, Bayer, Jeep, PGA Tour, and many others. And on Slide 9, you can get a sense of the types of dynamic content we're creating on their behalf. The success is driven by a unique understanding of the sports target audiences and how these audiences interact with live events. We are able to leverage this data to automatically deliver dynamic content on behalf of our customers that is contextually relevant during key moments of a game. This is an important first step in building long-term relationships with this new set of customers, and it sets the foundation to continue working together over time. Importantly, it also helps us establish a strong reputation in the broader digital advertising space with a niche focus on sports. As we continue to build credibility with this client base, we believe this can support sustainable long-term growth within our media business, not only with our programmatic advertising services, but also with Second Spectrum products and other fan engagement tools we have to offer. Equally, as we manage more projects for an increasing number of league sponsors, it gives us even more touchpoints in the digital ecosystem and greater stickiness with our key lead partners. In summary, I'm more excited than ever about the long-term potential for our business. We are uniquely positioned to continue capturing the growth of the global sports betting market. We have greater visibility of our long-term fixed cost base following our recent rights extensions. We are distributing Second Spectrum technology with leagues and broadcasters across the globe to unlock new revenue streams. We are quickly expanding our client base beyond sports betting, now generating revenue from broadcasters and sponsors and improving the operating leverage of the business model in the near-term as we rapidly expand our EBITDA margins and inflect on free cash flow this year and beyond. These are just a few of the things that give us confidence in our ability to exceed our long-term EBITDA margin target in excess of 30%. And on that note, I'll now turn the call over to Nick to discuss the financial results in more detail.

Thank you, Mark. We are pleased to report another quarter of outperformance across all areas of the business. We are also seeing further evidence of the operating leverage of our business model as our year-to-date revenue growth contributed to group adjusted EBITDA at a 67% incremental contribution margin over the first half of the year. Most of the outperformance this quarter was in our betting product, which grew 27% year-on-year to $57 million, well ahead of our guidance of $53 million. Our commercial contracts with bookmakers allow us to grow alongside our customers and mutually benefit from the secular tailwinds in the sports betting industry, including GGR growth, increased in-play betting, and improving win margins, for instance. Our major product also outperformed expectations, increasing by 22% year-on-year to $18 million, beating our guidance of $16 million. You heard Mark touch on our success in winning new customers beyond our traditional sports betting clientele, and this has absolutely supported our growth in the quarter and will continue to do so over the next several years as our customer base expands. Meanwhile, we are also continuing to execute successful major campaigns for our sports betting customers as well, providing them with creative and dynamic methods to acquire and engage customers. Lastly, our sports product reported $12 million in revenue, also slightly ahead of guidance. Collectively, this resulted in $87 million in group revenue, well ahead of our guidance of $80 million and $16 million in group adjusted EBITDA, also beating our guidance of $14 million. As we reflect on the first half of the year, it's worth contextualizing our rapid acceleration of EBITDA profitability. As you'll see on the right-hand side of Slide 11, we have more than quadrupled our adjusted EBITDA through the first half of the year. This has been a function of our multifaceted revenue growth, supported by a relatively flat cost base that enables revenue to drop through at a high margin. In fact, through the first half of the year, our cost of revenue is down 8% year-on-year, with operating expenses down 34%, driving our gross margins considerably higher. Because of this, through the first half of the year, our group adjusted EBITDA margins are approximately 13% compared to just 3% in H1 2022. This steady improvement is evidence of our operating leverage, and we see a clear runway for continued profitable growth and margin expansion ahead. This, along with the exciting developments you've heard from Mark, gives us confidence in raising our guidance for the year. We are increasing our revenue guidance from $400 million to $410 million based on the outperformance to date and the positive trends we expect will persist through the remainder of the year. Similarly, we are raising our group adjusted EBITDA guidance from $49 million to $52 million, as much of this additional revenue should drop through meaningfully to our adjusted EBITDA, and we don't anticipate any incremental changes to our cost base. This implies 20% revenue growth and an adjusted EBITDA margin of 13%, up from our initial guidance of 10% and significantly ahead of our 5% margin last year. We are also maintaining our expectation to begin generating positive free cash flow in the second half of the year. On that note, I mentioned last quarter that we would finish Q2 with approximately $115 million in cash, and we closed the quarter exactly in line with expectations. Looking ahead, we expect our cash flow to be broadly breakeven in Q3 before turning cash flow positive in H2 and accelerating in 2024 and beyond. This inflection point is an important milestone for the business as this marks the beginning of sustainable free cash flow generation going forward. Many of the dynamics driving the inflection in H2 will remain in place going forward, and we feel an even greater sense of confidence now that we renewed two of our largest rights deals, giving us increased visibility for the next several years. As a final matter of housekeeping, we have received a few questions regarding the NFL warrants following the announcement of our renewal and extension. So we want to be as clear as possible since this is a slightly nuanced point. As part of the original deal with the NFL, we issued them 18.5 million warrants, which are now fully vested, making them an 8% equity shareholder on a fully diluted basis. Under the original terms of the deal, we had agreed to issue an additional 2 million warrants for each of the years five and six upon renewal. Under the new terms of the renewal of years five and six, we've now removed the additional 4 million warrants and replaced them with a fixed cash consideration. This incremental cash cost will be spread across the outer years of our deal and recognized as normal course data rights fees within our cost of revenue and our adjusted EBITDA position. We believe that this is in the interest of our shareholders as it is less dilutive than it would have been otherwise, and we have agreed on a predetermined cash amount, which will be included in our rights fees and leaves us confident in our ability to continue growing profitability through the life of the deal. We're pleased with this outcome from a financial and strategic perspective as the NFL remains one of our largest shareholders, and we've secured our position on mutually beneficial terms for the next five years. Close, each of our financial and strategic updates you've heard today gives us an even greater sense of excitement for the outlook of the business. The runway for profitable growth and cash flow acceleration remains clear as we continue to execute and progress towards our long-term objectives.

Your first question comes from Jason Bazinet of Citi. Please go ahead.

Thanks. I just had one quick question on the long-term EBITDA margin targets. I think at your Investor Day, the targets were sort of 32% to 42% was the range, and I think I heard you say high 30s. So I didn't know if that was a change or if I'm sort of making something out of nothing?

Hi, Jason, it's Nick. No, there's no change in our long-term targets. I think we've previously said that it would be north of 30% and that remains our long-term position.

Okay. Great. And then regarding free cash generation, is there any sort of long-term way you could sort of frame the size of capitalized software expenses as we all try and model free cash out in '25, '26?

Hi, Jason. It’s Nick again. The first thing to mention is that we are at an inflection point regarding free cash flow generation. As we noted earlier in this call, we expect to be cash positive in the second half of the year. The capitalized software expenses have been stable year-on-year, currently running at about $10 million per quarter. As a percentage of revenue, this has decreased year-on-year. I do not anticipate growth in 2024 and 2025, and it is expected to decline slightly. This should highlight our operating leverage; as revenues increase, you will notice a widening gap in cash generation.

Thank you. Your next question comes from the line of Bernie McTernan of Needham & Company. Please go ahead.

Great. Thanks for taking the questions. So assuming it's not coincidence, the prepared remarks had confidence in the long-term margins after striking deals with the NFL and Football DataCo with the rights inflation just being a key focus for investors, especially over the long term. After going through this round of renewals with your two most important partners, can you just talk about your confidence in your positioning between the leagues and your sportsbooks and why you think you'll be able to generate greater profitability over time?

Hi, Bernie. It’s Nick. I'll start and Mark can join in if there's anything else to add. I mean, as you know, Bernie, it's impossible to ascertain specific rights by the way we go to market. But I think it's fair to say the operating leverage dynamics that we're seeing right now in 2023 will continue not just for the rest of this year but way beyond 2024 and further out. I guess if you look at the last, I guess, last 12 months, which obviously both Football DataCo and NFL renewals within that, we've grown revenue significantly over the last 12 months. And indeed, I think EBITDA got to account around 72%. So again, you can see that those operating leverage dynamics that we're having today will continue. I think as far as the NFL is concerned, I think I said in the prepared comments that we're delighted with the NFL extension, both from a strategic and financial perspective, and we are very confident in our ability to continue to grow profitably through the life of that deal.

I’d like to add that we believe technology is key in this regard, and the recent rights renewals showcase this well. There was no request for proposals or competitive bidding involved, and we achieved early rights renewals even when it wasn't strictly necessary. This sends a strong message to the market. Additionally, we are implementing price increases for bookmakers, something we've been transparent about in past discussions. We are currently engaged in numerous positive conversations, which we anticipate will lead to significant margin growth over time.

Great. And maybe just a follow-up to that to bring it back to this quarter, betting technology revenue outperformed expectations and the increase of the guidance. How much of this was attributed to better market growth versus a higher take rate?

The answer is that it's due to both factors. We don’t break it down, but we are seeing strong market growth and operators are becoming more profitable, which is evident in some recent earnings, including that of DraftKings. All of this is benefiting us. It's important to remember that we take a share of the bookmakers' profitability, and their improved performance along with the increase in market share directly impacts us.

Thank you. Your next question comes from the line of Ryan Sigdahl of Craig-Hallum Capital Group. Please go ahead.

Good morning, guys. Nice job. I want to ask about the process with Data FootballCo and NFL just going through the process, whose idea was it to extend earlier and longer? And then I have a quick follow-up on each one.

Hi, Ryan, it's Mark. These discussions are always collaborative and are centered around the relationship we've developed over time, the technology we are providing, and their perspective on future needs. In both instances, these conversations have been highly productive. We have strong partnerships. Additionally, the NFL has welcomed the new Watch & Bet contract, which is an exciting development. We're launching that with some innovative features that we will share soon. This approach has been a consistent part of our business operations and is simply the outcome of us following through on our commitments.

Great. Then just on the EPL, I guess it was a one-year add-on to that contract. I guess, why not longer on that one? And then secondly, on the NFL, you reiterated your long-term EBITDA margin targets and now presumably that contract is shifting to an all-cash deal, at least for the last three years of this one. But is that long-term margin assuming kind of full cash going forward for the NFL? Thanks.

So on the EPL, I mean, DataCo currently goes through to 2025. So it wasn't possible to extend longer than that.

Yeah. Hey, Ryan, it's Nick. I guess on the NFL, it’s a little bit of a repetition of what I just spoke to Bernie about in terms of the operating leverage that we're having in the business today. And as you know, the NFL rights have stepped up over the course of already the two seasons that we've had, and we've got a 72% drop-through in the last 12 months. And those dynamics are not going to stop beyond December 31, 2023, to '24 and all the way out to 2028. What I will say on the warrants is that we felt it's the right thing to do, twofold. First of all, it means less dilution from a shareholder perspective. And also, it just means that we will live within our means from an EBITDA perspective, and we're still very confident on those long-term margin projections that we've given.

Yeah. Sorry. Ryan, it's Mark. And just to clarify, when I say DataCo doesn't go longer than 2025, I should be really clear that the entity of Football DataCo itself doesn't go longer than 2025. Hopefully, that helps.

It's reasonable to assume that it will happen in some way, but they need to extend the league first. That's all from my side. Thank you, everyone.

Thank you. Your next question comes from the line of Jed Kelly of Oppenheimer. Please go ahead.

Hey, thanks for taking my question. I wanted to follow up on the NFL contract. Can you discuss the opportunities as more of their property descriptors move to streaming platforms like YouTube and the potential for closer collaboration? Also, is there a chance to create special products or unique betting products that would allow you to engage more in the economics?

That’s a great question, and you’re absolutely right about our direction. Watch & Bet represents the initial step in that journey, particularly with the contract we signed with the NFL, which we will soon launch. When we introduce this product, you can expect a variety of new and exciting features stemming from our partnership with Second Spectrum. As these products enter the market, we continually assess our pricing strategies and take rates. Additionally, there's an interesting compounding effect arising from the Watch & Bet product in relation to our NFL partnership. Essentially, sportsbook operators are now offering enhanced streaming for the NFL, which increases user engagement with NFL bets on their platforms, contributing to our revenue. We anticipate a promising future in specific sports where this compounding effect positively influences our take rates.

Thank you. And then just one quick follow-up for, I guess, for Nick. Just looking at the 4Q growth rate for betting tech, implies like somewhat of a deceleration, still high teens growth. But I think if you look at like the US is going to grow probably in the 30s in the fourth quarter. So can you just talk about some of the dynamics around the 4Q growth rate for betting tech and how much is conservatism? Thanks.

Hey, Jed. We are conservative anyway, Jed. So, I mean, we're very confident about our Q4 position. We're confident with the guidance that we've just given. We have strong growth rates both in Q3 and Q4 across, in fact, all three segments are running at a decent position, and the great thing is, as we've already talked about in the prepared remarks, the question is that those dynamics, both in terms of top-line revenue growth, but also in terms of operating leverage, don't stop at December 31, 2023, but will continue beyond 2024 and further out.

Thank you. Your next question comes from the line of Clark Lampen of BTIG. Please go ahead.

Thanks. Good morning. Hopefully, I'm not misreading this with the sort of side-by-side comparison of the facts. But I guess as I sort of juxtapose some of the call commentary around customer wins and recurrence of campaign activity with an adjustment to the back-half expectations for the media business. Could you give us a sense of maybe what's going on or what you're sort of experiencing within the ad market or spend from existing customers, spend from new customers? And then, Mark, on capital allocation, you guys have talked a lot on this call so far about improving visibility, improving margins, cash flow trends, what does that really translate to for you guys in terms of sort of flexibility, whether it's exploring opportunities to improve the business from an inorganic standpoint or if you can't, I guess, find those opportunities, would you look at other avenues for distributing some of that excess cash back to shareholders? Thanks.

Hi, Clark, this is Josh. I'll take the first question on the media fee. So there's a few things going on here. But first of all, there's sort of a seasonality impact that we're seeing on the sportsbook and sort of casino side of things. In Q2, we saw operators sort of shift budget in line with their ambitions of chasing profitability essentially. So we were seeing some really strong results in terms of player values, overall conversion rates in the market. So we saw some operators shift budget into Q2 around NBA playoffs and just pushing casino products more heavily. So that's sort of the reason for the shift there. And then also, as we mentioned in the prepared remarks, we also signed a number of new sort of non-betting sort of traditional brand sponsors and reactivated campaigns there. Those are slightly ahead of our expectations with a couple of new wins there that we're really, really happy about that we've mentioned. But overall for the year, it's really just sort of a shift of budget and seasonality. Overall, the media business will end the year 15% up on last year. So we're feeling pretty good about it. And the overall ad market isn't really impacting us on the brand side of things. We're starting from a very low base here. So there's plenty of stuff for us to go after. And all in all, we're feeling good about it.

Yeah. Just to add to that as well, we're noticing a number of operators we think have a number of financial targets that they're looking to try and achieve before the end of the year. And actually what we expect to happen is that spend generally in the advertising space will increase towards the end of the year, certainly into early next year as well, which will obviously be a net benefit to us. To answer your second question about capital allocation and sort of what we're going to do with the money, well, I mean, look, I've said for a long time, we've got everything that we need in order to achieve the goals that we've stated and we feel very comfortable with the position we're in and the technology that we have. You specifically asked if there are any plans to return cash to shareholders, and no, the answer to that is no, not at the moment. And so therefore, what will we use the money, the cash that we're generating and the cash and the balance sheet for? Well, as I said, we've got all of the technology that we need at the moment. However, we continue to remain opportunistic about what's out in the market. We're in a very strong position from a balance sheet point of view, from a cash generation point of view, and from a technology point of view. And there are increasingly opportunities that we're seeing in the market come up, none that we have yet decided is sensible for us to complete on. But I think the number of opportunities will continue to increase, and I'm feeling very comfortable with the position that we're in, which allows us, should we see the wish, to get involved in some of those opportunities.

Thank you. Your next question comes from the line of Jordan Bender of JMP Securities. Please go ahead.

Great. Thanks for taking my questions. The 2030 guidance that kind of assumes flow-through of around 55%. So with the two contracts now locked up longer term, is there anything saying that you shouldn't be hitting that 50% flow-through in the coming years?

Hey, Jordan. It’s Nick. Yeah, no, that's exactly how we think about it. As I said earlier to the previous question, the dynamics that we're seeing in 2023 don't stop on December 31, and the great thing about doing these two contracts now and extending them is it gives us even greater visibility of what our future finances look like.

Great. And then, you didn't give it this quarter, but event center coverage has been coming down in the last 18 months or so. As you're starting to prune some of those events, can you maybe just talk to the positive upside, whether it's the margin, cash flow or however you can kind of quantify scaling back some of these unprofitable events?

Hey, Jordan, it's Nick. You're correct. We've reduced the number of events from around 195,000 to 200,000, which we mentioned last quarter. If you look at it from the right perspective, we've trimmed some events that we consider unprofitable and even substitutional, especially in terms of how our non-US contracts operate, where clients often take packages from us. By eliminating these events, our revenues have remained stable. Consequently, the primary savings are from avoiding double spending costs, such as double deposit or trading costs. This has resulted in a slight increase in our margins by eliminating a small number of bets. I don't anticipate dropping many more from our current total, but it’s a reasonable adjustment to our portfolio.

Thank you. Your next question comes from the line of Mike Hickey of Benchmark Company. Please go ahead.

Hey, Mark, Nick, Josh, Brandon. Good morning, good afternoon. Congratulations on a strong quarter and thank you for taking our questions. I have two topics to discuss. First, could you provide more details about your US business? It seems your operator partners had strong results in their June quarter, and I’m wondering about the impact of this strength on your business and your partners for the remainder of the year. Additionally, how does the market share consolidation among the operators affect your leverage on your take rate and other aspects of your business moving forward? For my second question on technology, congratulations on your renewals; it's clear that your technology is effective. Can you remind us how your technology differentiates from your competitors, particularly in relation to Dragon? How are you ensuring that you maintain this technological advantage, especially considering that some of your peers are investing to catch up? Thank you.

Hey Mike, it's Mark. Thanks for that. In terms of the US, as you have seen from the operators, we're providing them with a lot of details. The US opportunity remains strong and we are well positioned, especially with the recent renewal we announced and the additional products we mentioned in this call. We feel very positive about this. The more profitable an operator is, the better it is for us, so we’re excited to see these operators improve and continue to engage the same customers while shifting spending between different sports. These are positive trends for us and align with our initial market theory, which was focused on the transition of players from pre-match betting to in-play betting, following the trends we observe in the European market. Overall, we are pleased with the progress in the US. Your second question, Mark, was about?

Yes. It was just the key to the US share consolidation.

We have discussed the technology differential multiple times. We are clearly the leading, if not the only, credible live machine learning, computer vision, and AI sports video business in the market. This is becoming a more powerful tool for us, enabling customer renewal and retention, and it plays a crucial role in every conversation we have with sports leagues. This creates a significant differentiation. We are now observing a stronger desire from sports organizations for AI, computer vision, and machine learning solutions, similar to the wider AI industry where many companies are seeking these solutions. This puts us in a strong position with a clear competitive edge, which is reflected in our revenue numbers. We are already seeing revenues coming in from this area and have new contracts based on our live products, which are factored into our future growth. We do not need to invest hundreds of millions more to develop these technologies, as we have already made that investment. This solidifies our competitive position and boosts our confidence moving forward. Regarding Dragon, it is performing exceptionally well, and we are very pleased with our discussions with our sports partners. We anticipate some exciting announcements in the near future.

Thank you. Your next question comes from the line of Robin Farley of UBS. Please go ahead.

Thanks, and good morning. This is Artina for Robin. I have two quick ones. Do you have any kind of quantification for in-play betting mix that you could share for this quarter specifically and how you expect that mix to play out in the back half?

Yeah. I mean, we saw about 100% growth year-on-year last year to this year. And again, as we've seen with DraftKings' earnings and a lot of the news that's coming out of the operators, there's definitely a shift to a lot of these new products going forward.

Okay. I tried to find this information in your slide, but I couldn't. I apologize if I missed it, but foreign exchange has clearly been beneficial for the quarter overall. I'm curious if your updated guidance for the year and the second half includes the same foreign exchange assumptions, or if there is any upside from foreign exchange that differs from the previously stated $1.35 USD to pound exchange rate.

Hey, Robin, it's Nick. So as long as our updated guidance is extended, it's around about 1.25:1. That obviously don’t follow through to GDP. A couple of things that I think is probably worth just noting on that, Robin, if you don't mind, is that obviously, the second half of the year is less sensitive to US dollar business given the sort of US seasonality of the business. We're trying to keep that as simple as possible, obviously, and particularly given the flexibility of the exchange rates as it is. But I guess the important thing to note is that the outcome in both the H1 and indeed the quarter just gone is predominantly underlying performance of the business. As you say, there is a small level of tailwinds for foreign exchange, and that's been updated in our guidance, but the guidance also has an underlying increase in revenue from the business. The other point, Robin, that's just worth reminding anybody on the call is that exchange really only impacts revenues and not EBITDA. And therefore, the lift on EBITDA, adjusted EBITDA from, I think, original $41 million to the $52 million now generation.

Thank you. And your last question comes from the line of Eric Martinuzzi of Lake Street Capital Markets. Please go ahead.

I'm interested to know if your observation about increased customer utilization of available event content in betting technology is primarily based on Tier 1 data, or if it applies more broadly across different leagues.

We view this as a fundamental aspect of managing our business effectively. It's essential to ensure we're being precise with our offerings, responsible with shareholder funds, and efficient in our operations. We analyze sports comprehensively, treating various Tier 1 sports differently while evaluating every sport, league, and game. We pay attention to our commitments to these leagues. This involves complex calculations that we actively engage in to control our spending and optimize business operations.

In the Media Technology segment of the business, you mentioned programmatic advertising services. Is there a focus on specific DSPs or is the effectiveness of targeting contributing to the growth? What factors are driving this increase?

Hi, Eric, this is Josh here. The targeting of the upside is essentially the three main USPs that Genius brings to market in the technology group. And firstly, it's our access to unique fan data. Through our deep relationships with the sports leagues, we've got access to first-party fan data that we're able to apply to our campaign. The second part is the fact that we've developed a lot of our own programmatic technology on top of the ecosystem, leveraging all the unique data points that Genius has as a business in terms of insight into betting handle, roster information, all this interesting stuff that ultimately can drive fandom. We pull that into our sort of technology from a sort of bid decisioning perspective. And then lastly, we've been doing this for 15 years at this point, 10, 15 years. So we've got a lot of experience in-house with our team to actually trade this stuff. So it's those three things coming together that are driving our success here.

Thank you. There are no further questions at this time. And this concludes today's conference call. You may now disconnect.