Good day. My name is Rob, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Genius Sports Third Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. I will now turn the conference over to Genius Sports. You may now begin.

Thank you, and good morning, everyone. Before we begin, we'd like to remind you that certain statements made during this call may constitute forward-looking statements that are subject to risks that can cause our actual results to differ materially from our historical results or from our forecast. We assume no responsibility for updating forward-looking statements. Any such statement should be considered in conjunction with cautionary statements in our earnings release and risk factor discussions in our filings with the SEC, including our annual report on Form 20-F, filed with the SEC on March 30, 2023. During the call, management will also discuss certain non-GAAP measures that we believe may be useful in evaluating Genius' operating performance. These measures should not be considered in isolation or as a substitute for Genius' financial results prepared in accordance with U.S. GAAP. A reconciliation of these non-GAAP measures to the most directly comparable U.S. GAAP measures is available in our earnings press release and earnings presentation, which can be found on our website at investors.geniussports.com. With that, I'll now turn the call over to our CEO, Mark Locke.

Good morning, and thank you for joining us today. We're happy to report quarterly financial results ahead of expectations for the seventh consecutive quarter. For the third time this year, we are once again raising our full-year guidance. For the full year, we are now expecting adjusted EBITDA growth of over 230% to $53 million, an 830 basis point margin improvement over last year, along with a step into positive free cash flow territory, as we start to demonstrate this quarter. We have achieved these significant financial milestones ahead of expectations due to our disciplined execution throughout the year, balancing growth and profitability while continuing to strengthen our long-term position with our most important partners. Our position, now even more secured through high-profile new partnerships and renewals that we announced recently, provides us with the opportunity to reiterate with confidence our near-, medium-, and long-term strategic and financial path forward. On today's call, we will cover a few key topics to emphasize these points. We will discuss how our league relationships are growing stronger through the deployment of new technology. We will provide more detail on our innovative product set, including the launch of BetVision, which is completely unique in the market and revolutionizes the way sports bettors engage with the NFL and its sportsbook partners. We will review how this accrues to our benefit in the form of steady revenue growth, EBITDA margin expansion, and free cash flow generation. To start, let's recap the financial results from the quarter. We reported group revenue of $102 million, beating our guidance of $100 million and representing a 29% year-on-year growth. This translated to $18 million of group adjusted EBITDA, exceeding our guidance of $17 million, and representing nearly 2.5 times growth versus last year. We have also consistently expanded our group adjusted EBITDA margins in each quarter this year. This quarter, our margins improved to 17%, up from 10% in quarter three 2022, further demonstrating the operating leverage of our business model. Nick will cover in greater detail in his section, but you will see how we again remain disciplined on costs and reported lower GAAP operating expenses in this quarter compared to the prior year, even as we grew top-line by nearly 30%. This type of quarterly performance is exactly what makes the business model unique in the market. Looking ahead, we are also raising our full-year 2023 revenue and EBITDA guidance to $412 million and $53 million, respectively, well above our initial expectations of $391 million and $41 million at the start of the year. This represents meaningful EBITDA margin improvements from 5% in the full-year 2022 to 13% in 2023. Importantly, we have also reached a critical inflection point in free cash flow generation. Throughout the year, we have reiterated our expectation to become free cash flow positive in H2, and after reporting a positive quarter, we are reaffirming this outlook. As we look ahead to the outer years, we also remain confident in our ability to achieve the long-term EBITDA margin target in excess of 30%. As I mentioned earlier, what gives us confidence is the high visibility of our fixed cost base going forward, particularly as we have just renewed and extended our NFL rights agreements through 2028, along with a growing demand for our products and services from all customer segments in our business: leagues, sportsbooks, broadcasters, and brands and sponsors. As we discussed last quarter, it is critical to understand that Genius' technology is the reason why leagues renew, extend, and expand our partnerships, often without even running a competitive tender process. To put it simply, the more deeply integrated we are within the league's digital ecosystem, the stickier we become as a partner to that league, offering them greater value beyond the fees we pay to data rights alone. The more time we have to integrate technology, the stronger our position becomes, which gives us greater confidence in our ability to maintain those relationships over time. Through the deployment of new technology, Genius is already an integral partner of the digital infrastructure supporting the sports ecosystem. Leagues like the NFL or English Premier League, for instance, utilize Genius tech-enabled solutions to drive forward their key initiatives across sports betting, fan engagement, and broadcast innovation, to name a few. This technological entrenchment is a key pillar of our partnership and reinforces our competitive advantage. It is exactly how we continue to strengthen our moat and gain more confidence in our ability to renew deals and deliver on our long-term financial model. Whenever you see us expand our technology offering in partnerships with leagues, you should understand this is not only incremental revenue, but also Genius becoming even more deeply ingrained with our partners. On Slide 6, you will find just a few examples of this from the quarter. For instance, with the NFL, we have added new features to each of the broadcasts we have been working with this season, including Amazon Prime, CBS, TSN, or the NFL's streaming subscription service called NFL+, with whom we recently announced a deal to power AI-driven data visualizations and graphics. One example that you may have seen on Thursday Night Football is our AI and machine learning technology now identifying potential defensive blitzers or open receivers, bringing even more insights into the viewing experience, all in real time. At the start of the year, one of our goals was to distribute this technology as widely as possible as we aimed to make these features ubiquitous with live sports broadcasts. We have executed on this plan throughout the year as Genius is now augmenting every single NFL game on one platform or another. On one hand, this demonstrates the importance of our technology to the NFL broadcast, but equally represents a critical milestone for the broadcast: the distribution of this technology. Similarly, we have also signed a new partnership with Premier League Productions to enhance live broadcasts of English Premier League matches across 185 countries with rich insights and data-driven augmentations. The ultimate broadcast called Premier League Data Zone allows viewers to see player names, passing accuracy, shot speeds, and pitch maps, all interwoven into the live broadcast through the unique L-bar. This is currently being utilized by 19 different broadcasts across the EMEA and APAC regions as well as the Americas, reinforcing our wide-ranging partnership with Football DataCo. We encourage anyone listening on the call to explore this new innovation in broadcasts and see for yourselves how we're helping leagues and their broadcast partners better engage their fans in new creative ways. Each week brings a new wave of positive public responses to these innovations, which further validates the idea that fans enjoy having the option to watch live sports with these enhanced features. The technology integration with leagues across the globe is the most effective way for us to protect our data rights, strengthen our competitive moat, create more ways for leagues to better activate their partners and fans, and drive new pools of revenue for our business. This brings us to BetVision. BetVision is a first-of-its-kind product that is differentiated from anything else in the market. While live streaming has existed on sportsbook apps for several years, the key difference in BetVision is the combination of all our best technology assets that are unique to Genius: real-time NFL stats, live betting markets, computer vision and augmentation capabilities, and integrated bet slips. This sets us on the path to revolutionizing the sports betting experience and represents the first genuine example of the convergence of sports betting media and broadcast. For those who have not yet seen the product, BetVision is a single platform where users can view the lowest latency stream of NFL games, find real-time data, control the level of broadcast enhancements, and place bets, all from within the video player. In other words, users can find everything they need all in one place, giving our sportsbook customers and league partners a critical tool to attract the sticky, engaged fan that they all want. Importantly, it also simplifies and enhances the discoverability of in-play betting. BetVision now delivers many of the features that users want to see alongside their in-play betting experience. Although it's still early in the season, the initial results in September have been very encouraging. First, 54% of the total number of bets made by BetVision streamers were in-play bets. Of the total betting handle, or dollar volume bets, from BetVision streamers, 83% was from in-play betting. This compares to the 20% to 25% we have seen historically in the U.S. We've also seen that in-play handle from streamers increased by 121% since week one, and overall handle per streamer has increased by 87% in that same time period. These data points should highlight how BetVision drives higher engagement and more betting volume for our sportsbook partners. The growth of in-play volume from BetVision is a clear demonstration that we can achieve our longer-term expectations of 70% to 80%, like we have seen in more mature markets. This is important because we own 5% to 6% share of in-play gaming revenue, roughly three times higher than our pre-match revenue share. As we continue to increase in-play betting, we directly benefit from this higher revenue share at no incremental cost, contributing to our profitability at near 100% margin. To close, you should hopefully have a better understanding of how our technology is solidifying our position with the leagues and helping all our partners better engage fans and drive profitability. We are delivering on our strategic objectives, and this is translating into consistent financial results ahead of expectations. I'll now hand the call to Nick to cover these financial results in more detail.

Thank you, Mark. You've already heard the group level numbers from Mark, and we're pleased to report revenue and adjusted EBITDA ahead of expectations for the third time this year. Much of the outperformance was in our betting product, which contributed $66 million of revenue in the quarter. This exceeded our guidance by $2 million and represented 34% year-on-year growth, the highest annual growth rate in almost two years. We exceeded our expectations despite operator win margins being lower than the comparable period last year, as you have heard discuss over the previous few weeks. Our performance was driven by multiple tailwinds in the sports betting industry across the globe, new customer wins, and continued growth with our global sportsbook partners through the cross-sell of additional services and higher utilization of content. Our media revenue was $23 million in the quarter, only slightly behind our guidance of $24 million, mostly due to sportsbooks pulling some of their advertising spend forward in Q2, as we mentioned on the last call. That said, our major segment returned to the type of strong growth we expected against more normalized comps with growth of 28% year-on-year. On a group adjusted EBITDA basis, we've reported $18 million, beating our guidance of $17 million and representing nearly 2.5 times growth compared to Q3 of 2022. On the right-hand side of Slide 10, I'd like to highlight the consistent growth in adjusted EBITDA we have demonstrated throughout the year. Year-to-date, we have grown our adjusted EBITDA by $28 million compared to last year, representing a 56% incremental margin of the revenue growth of $50 million. You will see how our adjusted EBITDA margins have expanded in each quarter this year, beginning in Q1 where we improved by nearly 1,200 basis points year-on-year to the Q2 improvement of over 600 basis points and the Q3 improvement of 770 basis points. This is true on a group margin basis as well. In each quarter, our gross margins have materially improved year-on-year. Most recently, in Q2 and Q3, we improved our gross margins by 1,500 basis points to 1,600 basis points. This is driven by a cost structure that, as we've said before, can support significantly higher revenues. If you look at Page 15, you will see for the nine months ended September 30th, our cost of revenue, sales and marketing, R&D, and G&A are all down on a GAAP basis over the comparable timeframe from 2022. We have long discussed the operating leverage of this business, and we are now proving this in our year-to-date results. Looking ahead, we expect to finish the year well ahead of where we initially guided, and now aim to deliver $412 million in group revenue and $53 million in group adjusted EBITDA, which assumes an exchange rate of 1.25, consistent with our assumptions last quarter. Importantly, we also finished the quarter with $116 million of cash on the balance sheet ahead of our closing balance in Q2, and we maintain our expectation to be cash flow positive in H2. And with that, we will conclude our prepared remarks and open the line to Q&A.

Your first question comes from the line of Ryan Sigdahl from Craig-Hallum. Your line is open.

Hey, guys. Good morning, afternoon. I want to start with Florida, so the Seminole Tribe via the Hard Rock app relaunched last week. Are they a Genius data customer? And how do you think about that opportunity?

Hey, Ryan, it's Mark. Yes, they are a data customer. Obviously, it's very good news. We supported them this weekend with their launch. They've made some nuances to the launch at the moment. They've gone live only with customers that historically downloaded their app. So, at the moment, we're viewing this very positively. It was a significant opportunity, but we've just been cautious to begin with. Overall, we think this is very positive. The other thing that's worth mentioning is it really demonstrates our operational leverage and the underlying business model that as a new state comes on board, we're immediately able to support that state with additional product at virtually no extra cost, so it drops through at near 100% margin for us.

And then just on BetVision, I appreciate those first couple of week metrics you gave on the prepared remarks. Given that, has that changed your asking price or negotiating leverage with the other sportsbooks besides that original three that you launched with? And then, what needs to happen to get the big two sportsbooks to use it?

I've mentioned from the start that this is not just about BetVision, but also about our broader enhancement products. It's focused on widespread availability and changing user behavior. I believe this is a great initial step, and we maintain strong relationships with those sportsbooks. I've noted several times that we are entering a period of contract renewals. Naturally, any discussions we have will be part of those larger renewals. What was your second question?

Yeah, you kind of answered it. It was mainly just the big two sportsbooks, if there's anything to put them along.

Yeah, look, we feel super positive about our position. We're feeling good about that.

Great. Thanks, Mark. Nice results and execution. Good luck, guys.

Your next question comes from the line of Bernie McTernan from Needham & Company. Your line is open.

Great. Thanks for taking the question. Maybe just a follow-up on the Hard Rock question, same thing but for ESPN BET launching this week. Any thoughts on how that will impact the business and what's contemplated in the Q4 guide?

Yeah, I mean, good question again, and thanks for highlighting that. But bluntly, the same answer. They are a customer, and we see the opportunities as very exciting for the business, and again, the underlying operational leverage that we've got.

Yeah. Hi, Bernie, it's Nick. On the Q4 guide, Mark alluded to it in the last call. These are very positive long-term trends for us. They don't make any significant difference in the short term, given that 70% of our revenues are still outside of the U.S.

Understood. And then, with the hire of Manny Puentes, former CTO of MediaMath, can you just talk about some of the changes or developments that's going to be happening in the advertising product?

Yeah. Look, I think I've been fairly clear about our strategy in the advertising market over time. It's obviously growing very nicely. You've seen that come through in our results. Manny is a fantastic hire for us. He's very well respected in the ad tech market. He's been the pioneer of a number of the ad tech platforms out there. He's a big part of what we're focusing on. Clearly, brands and agencies are a big focus for us for the business. The development of our ad tech platform and the technology in that really is incremental growth in the business. There's no sort of big bangs we're expecting as a big part of our strategy. Again, we're seeing real value coming from it. So, frankly, Manny is a great hire, and we're really excited to be working with him.

Great. Thanks, Mark. Thanks, Nick.

And your next question comes from a line of Jordan Bender from JMP Securities. Your line is open.

Great. Thanks for taking my question. Good morning. For BetVision, are you seeing an increase in players, and are those individuals coming from traditional cable viewing, or is there evidence to suggest they are two-screen watching bettors? Thank you.

Yeah, I mean, just to be clear, we obviously don't have any specific data about the crossover between cable and BetVision. But this is about the second screen experience. There's a lot of value, a lot of incremental additional product sets that we've rolled out with BetVision with augmentation. While we're treating this cautiously, because they are sort of small sample sizes and we want to be careful about what we say, the initial results are incredibly positive. One thing that's worth mentioning is we've talked historically about the shift of in-play; we expect the U.S. market to be a large in-play market like the European market. Just to remind people on the call, roughly 70% to 80% of all bets in a mature market are made in-play. And what we’ve said consistently is that a lot of the growth is going to come from product-led growth. FanDuel announced in their results a few months ago, that 67% of their NFL bets were made by people who didn't leave the home page. My comment at the time was that we're focused on helping the bookmakers drive their players to in-play betting through better products. This is a good example of that. Frankly, it also proves that bookmakers are transitioning players from pre-match or home page bettors to more sophisticated in-play betting players, which we are seeing very positively. We’re incredibly excited about this product. It demonstrates the strength of the augmentation product line, and we’re seeing it very well received in the market.

Great. And then, you guys are having several Board members leave the company. Can you just talk to what you're looking for to fill those seats? Thank you.

Yeah, look, I mean, we've had a very strong Board and it's done a very good job for the company. This is a natural transition as Board members come to the end of their terms. Going forward, we're looking for all the obvious traits, people to support the growth of the company, providing us with continued ability to scale and leverage the business in public markets and continue to mature as a public company. It's an active process that we are now running, and we're excited about some of the qualities of candidates coming through.

Thank you very much.

Your next question comes from the line of Joshua Marin from Oppenheimer. Your line is open.

Hi. Could you remind us on your exposure with European soccer holds that other sportsbooks and competitors have called out? Is there any color down there?

Hey, Josh, it's Nick. Our European business isn't massively exposed to holds. As you know, most of our European business is on what's known as a fixed fee basis, therefore, individual results or weekends don't have any significant issues for us in terms of our revenue recognition.

Your next question comes from a line of Mike Hickey from Benchmark Company. Your line is open.

Hey, Mark, Nick. Great quarter. Nice to see that free cash flow. Congratulations. Just two questions. One on BetVision. I'm curious if you could double-click there on how you think about scaling the product. Obviously, you can add more operators who provide valuable assets. But how do you think about scaling within the operators that you have and/or maybe other sports leagues, Mark, you could add over time besides the NFL? Obviously, it's a compelling product. How do you think about materiality as you scale it, whether it's impactful for '24 or should we think beyond that? Second question is on your model. Clearly, it's working here. Incremental margins are off the charts. Margins are growing, obviously. But I'm curious how you think about efficiency. Your primary peer here is taking another look at their OpEx, optimizing, and reducing headcount. I'm just curious how you're thinking about your overall OpEx and if you think there are efficiencies you can find?

Okay, let's take those backwards because there's quite a lot in there. So look, in terms of incremental margin, I mean, you're right, they're coming through really nicely. It's demonstrating the operational leverage in the business, and we're really happy about that. In terms of scaling the business, we feel we're right-sized. We've been very careful about cost control. We've managed the business very well over the period. I think at the moment, we're seeing the underlying cost base right-sized. If anything, we may look at potentially a small reduction in some of the capital outlay. A lot of the reason we're able to do that is because a lot of the growth in the future, a lot of the focus in the business is Second Spectrum and what we've been doing there. When we bought that business, we acquired one with a significant amount of investment in it. So, there are a lot of companies trying to move into AI, machine learning, computer vision space. It's tough to do that, and it requires a lot of investment. We've already spent a lot of money; probably over $250 million has been invested in Second Spectrum, and that computer vision, machine learning, AI, and augmentation technology is now really delivering hard revenues and growth. Regarding the BetVision product, scaling involves two main areas. One is the number of operators and making sure we distribute the BetVision product in the same way we are with the augmentation products. We're having a lot of success. This also changes customer behavior and they start seeing real value. The second aspect is additional sports; clearly, our technology is not only focused on the NFL. We have a sophisticated soccer product. Premier League Productions are using Second Spectrum to augment their broadcasts globally, including in the U.S. on Peacock. This shows the capabilities we have with more sports. The final area is advertising and sponsorship work. Augmented streams give us the ability to create new content; our bookmakers can effectively advertise to themselves, re-target, and reactivate customers or bring in their partners. That's another revenue stream we'll be looking into over the coming period. I hope that answers your question.

Thank you, Mark, that was great. The only other thing I'm wondering about is how you view potential impacts, even if it's still early to tell. I understand the stickiness and rights impact are more qualitative and will influence the numbers, but I’m curious if you see this being a driver for you in 2024 or if you're thinking more about the medium term.

Yeah. Look, there are sort of two parts to that. The first is the shift of U.S. sports betting to in-play is a clear focus for us. Just to remind you, we take about 1.25% pre-match and somewhere between 5% and 6% of in-play betting. So not only does BetVision increase the volume or handle as I went through, but we also take two to three times the amount of share of that. So, there's a compounding effect that's material to our business. In terms of the growth that's coming out of the business and the numbers we'll indicate in the future, that will obviously be contained within that.

Thanks, Mark. Thanks, guys.

Your next question comes from the line of Jason Bazinet from Citi. Your line is open.

Hi, good morning. You guys have a very good track record in terms of delivering financials that are consistent or ahead of your guidance. I'd be curious the one or two swing factors next year. What are one or two things that could break your way or work against you as we think of '24?

Look, there are several factors. The underlying business is reasonably predictable. I appreciate you saying we've got a good track record; that's because we have strong visibility over the cost base and contracts. 2024 is important for us in terms of renegotiations with bookmaker clients, new products like BetVision, and NFL renewals coming through with U.S. sportsbooks. Contract negotiations are significant. We've got a good track record of structuring mutually beneficial partnerships. Cost management is straightforward; our rights deals go into the future, which provides good visibility. This means we're diligent with cost management. We expect '24 to be highly predictable; we understand our commercial partnerships, not without some risk around negotiations. Still, we have a very strong product and anticipate success.

Can I just ask one follow-up? Will those contracts be known knowns by the time you give '24 guidance, or will it be known unknowns?

They are known unknowns. We know that we don't know. That will be the case until later in the year.

Okay, thank you. Your next question comes from the line of Clark Lampen from BTIG. Your line is open.

Thanks very much. Good morning. I have two. I'll ask another sort of known unknown question. Nick, you're back to generating free cash. You highlighted value exchange with new services as part of that partner renegotiation process. I'm curious how you might think about product and the value exchange. Would you look to build more incremental product internally with your resources? Could you use the balance sheet to boost improvements over time?

Yeah. Hey, Clark, it's Nick. It's about balance, I guess, that’s the headline. We will continue to develop new products; we are a technology business. One great thing about BetVision is that getting it out there allows us to further explore product development. So that's the approach from the betting side. The same applies to the media side. There's real value here, and investing accordingly while being disciplined is essential.

Understood. And then maybe on the ad business. For Josh, the third quarter was a little more front-loaded in terms of endemic customer spending. As we think of the acceleration for the current quarter, have you seen a pickup in customer spend that supports that? Are you seeing more of a seasonal push with brand customer cohorts?

Hi, Clark. Yes, it's consistent in terms of the spend we're seeing. Q4 is significant for the sportsbook business for advertising, as it always has been. As we grow the brand space, and we've noted the hiring there and our focus, we're seeing good progress, especially in Q4 with significant brand spending around sports. I expect the seasonality around betting to be reflected in that area as well.

Your next question comes from the line of Eric Martinuzzi from Lake Street. Your line is open.

Yeah. On the cash flow projections, I was just curious about your expectation for CapEx for the year. I believe the capitalized software number you historically mentioned is around $40 million for the year, but those two numbers would be helpful.

Yeah. Hi, Eric. You're right, we've been spending around about $10 million of capitalized development costs for the last sort of two or certainly the last 24 months. We expect this quarter to be at a similar level. So it's going to be around $40 million. CapEx for the quarter will be around $1 million or $2 million at most.

Your next question comes from the line of Brett Knoblauch from Cantor Fitzgerald. Your line is open.

Hi, guys. Thanks for taking my question, and congrats on the quarter. I have two. First, on the betting technology segment, could you parse out the revenue outperformance? Was it the NFL performing better from a GGR perspective, or win rate perspective? Were there other drivers?

Hey, Brett. I'll take the first part, and then I'll hand over to Josh for the second piece. We've always talked about multiple growth levers in the betting business, and we've really seen them right across 2023. Encouragingly, both the European and Americas business are up 30% year-on-year. That's coming from new customer wins, pricing in European markets, and additional services. Our growth is wide-ranging, and we're very happy with it. There's a small tailwind in foreign exchange from the international business, but the underlying growth is around 26%. I'll let Josh cover those bi-annual events.

Hi, there. Those relationships with the Rugby World Cup and Ryder Cup are a continuation of us having sticky relationships with our sports partners. We build platforms for significant events and offer our partners insights on audiences, which feeds back into sponsorship models, allowing better communication with their fans. It's all part of our overall strategy.

Your next question comes from Robin Farley from UBS. Your line is open.

Great. Thank you. I had two questions. One is, last quarter, you updated the FX rate you use in your revenue guidance, and I think it had added to your full-year outlook. This quarter, you didn't change it. Can you quantify what impact that would have on the revenue guidance, which I guess at this point would just be for Q4? Also, I want to clarify the known unknown comment. You mentioned terms that wouldn't be effective until 2025; would they impact 2024, or will we just not know on your initial guidance?

Hi, Robin. I'll handle this one. Mark's right regarding the unknowns in Jason's question. Most negotiations roll out mid-summer for the new NFL season — they will impact '24 but will only be available towards the end of '24. Regarding FX rates, we are giving guidance around 1.25, but current rates are below that, around 1.22. So, there’s a small risk of $1 million to $2 million concerning foreign exchange, which is why we haven't moved Q4's position. Our outperformance to $102 million from $100 million demonstrates underlying business strength.

Okay, that's super helpful. Thank you very much.

And there are no further questions at this time. This concludes today's conference call. Thank you for your participation. You may now disconnect.