Genius Sports Ltd Q3 FY2025 Earnings Call

Thank you for joining us. I am pleased to welcome everyone to the Genius Sports Third Quarter 2025 Earnings Results Call. I will now hand the call over to Genius Sports. Please proceed.

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 statements 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 14, 2025. 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.geniusports.com. With that, I'll now turn the call to our CEO, Mark Locke.

Good morning, everyone and thank you for joining us today to discuss our Q3 results. We will keep our prepared remarks relatively brief this morning as we look forward to hosting many of you at our upcoming Investor Day next month. There, we will share with you a detailed overview of our business, product demonstrations, industry trends and our strategic and financial outlook. With that in mind, I will quickly touch on the key highlights from this quarter. First, we increased our group revenue by 38% year-on-year, making our strongest quarter of revenue growth since Q1 2022. This was led by our Media segment, up nearly 90% year-on-year, further validating our investment and excitement in the space. We also increased our group adjusted EBITDA by 32% year-on-year to $34 million, representing a 20% margin. Both Betting and Media contributed meaningfully to our revenue growth this quarter. I'll touch quickly on Betting to start. Betting revenue increased 28% year-on-year, predominantly driven by growth with existing customers and there are a few specifics that are worth highlighting. First, we secured the exclusive rights to the European Leagues and Serie A this quarter, further strengthening our existing portfolio of the highest quality football content globally. With our scale and distribution across hundreds of the world's largest regulated betting operators, we were able to generate immediate revenue uplift in this quarter through this additional content. Additionally, we announced the expansion of our partnership with Hard Rock Bet this quarter. As part of our renewal, we are now providing Hard Rock with additional content and live trading services across the Premier League, Serie A, European Leagues, NFL and more. Hard Rock is also now the latest Sportsbook partner to utilize our BetVision product across Serie A, NFL and over 23,000 other live betting streams. Our Hard Rock relationship is another example of how our picks and shovels positioning in the U.S. betting market enables our revenue growth to outpace others in the ecosystem. Whether it is in a state like Florida or through a competing product, our portfolio of data and advanced product set is essential to the success for all operators and we are confident this positioning will afford continued opportunities in an ever-changing and evolving industry. We've also expanded our partnership with ESPN BET this quarter, which now, for the first time, includes BetVision, not just for NFL, but for our full suite of soccer and basketball content as well. And finally, we have seen positive in-play betting trends to start the NFL season. Through the first 6 weeks of the season, in-play represented 30% of total NFL handle, right in line with our expectations. We are encouraged by the continued growth of in-play betting and expect this will continue to drive betting revenue growth through the remainder of this NFL season and beyond. This growth is a function of the continued evolution and maturity of the U.S. market, but equally, it's driven by an improving set of in-play betting products. Our sportsbook partners have done an excellent job of offering a much wider range of in-play betting markets this year, and we are realizing the direct benefits of that. To add to this, we are empowering more in-play betting volume through the continued distribution of BetVision, which is now available on nearly every major sportsbook in the U.S. and continuing to drive more viewership, increased in-play betting and more engagement overall. For instance, through the first 6 weeks of the NFL season, we have seen a 35% increase in the number of unique devices streaming NFL on BetVision. Additionally, we've seen a 25% increase in the average time spent on BetVision per device. So we aren't just seeing growth in the overall numbers, but also growth in the actual time spent interacting with the platform. This, as you know, is critical for the integration of our advertising solutions into the BetVision product, which I will touch upon shortly. And most importantly is that BetVision continues to be a consistent enabler of greater in-play betting, which represented 74% of total handle through the BetVision platform so far this season. And within the last 6 months, we have launched BetVision for soccer and basketball, meaning that we are now providing over 23,000 events per year, more than 200 global competitions through BetVision, representing a rapid expansion of the product. As a result of this expansion, the number of sportsbook customers utilizing BetVision has exploded. This time last year, we had 6 Sportsbook customers integrated with BetVision. As of today, that number has grown to over 100 Sportsbooks, representing more than 350 brands. This kind of growth in just 1 year demonstrates our scale and distribution. So BetVision continues to drive more engagement in in-play wagering, which compounds our Betting revenue growth. And as we have proven consistently, our Betting revenue growth continues to exceed the growth of the overall market. This was the case again in Q3 with the growth of our Betting revenue nearly doubling the growth of our U.S. GGR. Now as it relates to BetVision, this increasing engagement is also enabling opportunities in Media, both as a source of audience information and as a source of unique advertising inventory, each of which makes our advertising services unique in the market. As such, our Media business was the largest contributor this quarter with revenue increasing nearly 90% year-on-year to $42 million. I'll pause for a moment to let that register. $42 million marks a new quarterly record of Media revenue in absolute terms and 89% growth is our strongest year-on-year increase since Q1 2022, the quarter of our first Super Bowl for perspective. When we raised our guidance last quarter, we expected 50% to 60% revenue growth based on minimum commitments. So we are happy to see that level of spend in the quarter exceed even our own expectations. I want to take a moment to quickly remind you of what makes our advertising platform unique. We understand sports better than anyone. We know sports fans better than anyone and we are leveraging our technology to create the next generation of fan experiences. So these are 3 distinct factors that differentiate us and we strengthened each of these even further over the last few months. The first is live sports data. We understand the exact moment of a heightened fan engagement and emotion and use real-time data to trigger advertising content, improve campaign pacing and inform bid optimization strategies, all leading to better return on investment for our customers. The second is audience data, our understanding of who the fans are. We have several sources of first-party data and now we've acquired Sports Innovation Lab, which brings an even deeper understanding through their proprietary fan graph, which is built on real spending patterns compiled from billions of transactional data points. When combined with our league relationships, existing data sets and media buying platform, we can reach fans with even greater precision and at exactly the right moments, generating a higher return for our advertising customers. Third is our unique inventory. We're creating new ways for brands to reach sports fans that can only be executed through Genius Sports. Last quarter, we mentioned new inventory that now exists on BetVision and how quickly that was monetized. Our latest example of new and unique inventory was seen on FanDuel Sports Network for select WNBA games. We delivered broadcast augmentations to showcase next-gen stats such as real-time shot probabilities, 3-point distances and more. We transformed these augmentations into high-impact sponsorship opportunities, empowering brands like Shopify, NBA 2K and Point3 to own these key moments of the game, fully integrated live on the broadcast. This has been highly successful for broadcasters and advertisers alike, so we expect more of this to come. So we are continuously improving each of the factors that make us unique and we have built the most comprehensive real-time fan activation platform in the industry. Our Media revenue growth this quarter is evidence of the progress that we've made. As always, our Media revenue is driven by two important factors: growth in the number of advertisers and increase in total advertising spend. This is exactly why it's important for us to sign deals with advertising agencies because they aggregate a large amount of spend across several individual brands. So our recently signed agency deals, including our new partnership with P&G, are driving significant growth in the Media revenue through the second half of the year. We plan to cover the Media business in more detail at our up-and-coming Investor Day on December 3. But in the meantime, the key takeaway is simple. We have a unique set of sports data, audience data and inventory and that enables us to deliver superior return on ad spend for our partners. We're gaining significant momentum with brands and agencies and remain optimistic about the long-term potential of this business. Before we conclude, I want to briefly address prediction markets, a topic of frequent discussion over the last few months. In an effort to preemptively address questions, let me share our perspective. We are observing the developments around prediction markets carefully. We must always comply with applicable laws and regulatory requirements and we place a great deal of importance on the views of our regulators and commercial partners. As they evolve and mature, prediction markets may provide a meaningful new opportunity for Genius Sports in expanding the addressable market. While these products are nascent, they are evolving rapidly and the need for Genius official league data, marks and logos and integrity solutions will only grow as prediction markets become more sophisticated. This means that we are extremely well placed should we decide to engage. With regard to timing, we are being extremely considered and deliberate in our approach. We will work closely with key stakeholders across the ecosystem, our league partners, regulators, existing customers and indeed, the prediction markets themselves to determine the next steps and we are confident in our ability to capitalize on this opportunity in a responsible and sustainable way if we feel all of the requirements we need to be in place to participate in this market are met. Given the early and evolving nature of this market, we won't be providing additional detail on this call, but I want to be clear, if we are confident that prediction markets will meet our robust regulatory and commercial thresholds, these developments could result in positive developments for Genius Sports and our future growth. And with that, I'd like to officially welcome Bryan Castellani to his first earnings call for Genius. And I'll now turn the call to Bryan to discuss the financial results in more detail.

Thank you, Mark. I'm very happy to be joining Genius at such an exciting moment in the company's journey, and I look forward to working with the analyst and investor community. To pick up where Mark left off, I will also keep my comments relatively brief this morning since we are planning to cover a lot of financial detail in our Investor Day. As you've heard from Mark, we benefited from multiple revenue growth drivers this quarter across both Betting and Media. Even if we take a step back and review our year-to-date position, we are delivering well-balanced growth across each of our product groups and tracking well ahead of our initial expectations to start the year. As you'll see on Slide 14, we are also seeing strong growth from each geographic region globally. As you can imagine, the U.S. is driving most of the growth this year and this quarter in particular, especially given most of our Media revenue is derived in the U.S. But even in our more mature European business, we have still increased our revenue by 19% year-to-date, which speaks to our long-term value creation and growth with sportsbook partners who operate in more mature markets. You'll notice our Group adjusted EBITDA margin was roughly in line with Q3 of 2024 and it's worth quickly touching on a few one-off factors. First, we just secured the official data rights to Serie A and the European Leagues in August. As we outlined last quarter this partnership is built on the broad deployment of our technology platform across Europe, which enabled us to obtain these rights on attractive financial terms. Because rights fees are recognized over the course of the season, we recognized 2 full months of expenses in August and September. However, on the revenue side, a few sportsbook contracts were finalized shortly after the quarter-end, resulting in a temporary timing mismatch between expense and revenue recognition. This will naturally resolve in Q4 as the revenue from those contracts are recognized. With that in mind, we have generated strong growth in Group adjusted EBITDA, increasing 32% in Q3 and 65% through the first 9 months. And as it relates to cash, our operating cash flow this quarter was $27 million, demonstrating the seasonality of our cash flow, which typically flips positive in the second half of the calendar year. Taking a step back from the quarter and looking across the full year, we are continuing to demonstrate strong annual top line growth and group adjusted EBITDA margin expansion. We feel confident in the underlying trends across both Betting and Media, as you heard earlier from Mark. In Betting, we're seeing strong product adoption, increased in-play betting and favorable pricing in our fixed contracts, giving us good visibility for approximately 30% growth for the full year. In Media, we're even more optimistic. We started the year expecting full year growth in the low to mid-teens. Last quarter, we raised our growth expectations to 20% and now we expect growth of nearly 30%. As such, we are raising our group revenue guidance from $645 million to $655 million representing 28% growth for the full year. We are also raising our group adjusted EBITDA guidance to $136 million representing 59% growth and 400 basis points of margin expansion for the full year to 21%. This further emphasizes our consistent growth and margin expansion on an annual basis. To conclude, the business is firing on all cylinders. We're continuing to improve our position in the online sports betting industry through expanded content coverage, increased product adoption and favorable commercial terms, enabling durable revenue growth. We're also proving the value of our advertising platform, evidenced by a growing number of unique capabilities and new client wins. This success is reflected in the results we've delivered to date and our raised expectations for the rest of the year. We're looking forward to sharing more detail with you in our upcoming Investor Day on December 3. We'll now conclude our remarks and open the line to Q&A.

Our first question today comes from Ryan Sigdahl with Craig-Hallum Capital Group.

I want to start on Serie A, European leagues. You mentioned kind of the straight-line expensing delayed revenue recognition from a few sportsbooks. One, can you quantify that? And then two, the impact on the quarter that is? And then two, anything you've learned from those two specific contracts now that you've taken them over from the commercial negotiations to working with the leagues to just anything that may have surprised you with either of those?

Ryan, it's Mark. I'll address your questions in reverse order. Regarding the commercial negotiations, I believe the key point is that the rights market is evolving in a way that benefits us. We are witnessing the changes we've discussed over the past few years, with declining rights fees in many leagues, which allows us to utilize technology and build meaningful partnerships with them. The recent rights deals we’ve announced exemplify this. We’ve successfully implemented a significant amount of technology and established relationships with these leagues that enable us to leverage our technology, access new markets, and see returns on the investments we’ve made in recent years.

Ryan, it's Bryan. I want to add that we contracted those early in the quarter, but we are experiencing a revenue timing mismatch, which means it will take some time for us to monetize them. As a result, there is an impact on timing expenses.

Are you willing to quantify that?

No.

Fair enough. Switching over to the Media segment, nice outperformance in the quarter. It seemed like better on the revenue line than kind of the flow-through to EBITDA. Curious if that was more the legacy, let's call it, programmatic advertising, lower-margin business or if it was kind of FanHub, higher-margin, self-serve DSP and just kind of bifurcating that strength in the quarter and then also the raise in guidance and if there's any difference in that mix in Q4?

Yes. Ryan, it's Bryan again. Just on the margin flow-through, again, we have the rights timing impact there, Serie A and EPFL coming online early in the quarter and we will monetize in Q4. And so that will start to unwind itself a bit. The revenue mix, as you noted, Media was heavily weighted there with strong growth, almost 90%. That flows through at a lower margin than our Betting business but all the trends in Media going the right way and growing that business. And for the full year, while the margin may be a little lower this quarter, but it was where we expected, everything performed in line with our expectations. Looking at the full year as well as year-to-date, you have roughly 60% growth on the EBITDA and high 20s on the revenue. So you'll see there year-to-date, there's 460 basis points of margin growth. And for the full year, we're projecting 400. So the quarter really just impacted more by timing and mix.

And our next question comes from the line of Clark Lampen with BTIG.

Mark, I wanted to go back to growth in the Betting Tech business for a moment. You talked about performance sort of exceeding the U.S. benchmark. Is it possible to contextualize for us as the market is evolving and it's sort of coalescing around you and your next largest competitor sort of on a go-forward basis, is it reasonable to think about sort of growth holding and above market, i.e., 20% to 30% range for the foreseeable future?

Yes, there's a lot to discuss. We are witnessing a significant product rollout, and as I noted earlier, we are now handling around 23,000 events. The products we are introducing to the market are evolving rapidly and creating numerous revenue opportunities. We are noticing a consolidation in how we run our business. Our BetVision product is being launched, and its integration with Media is enabling us to compound growth. We anticipate strong growth in the upcoming period. We have set a long-term target of a 30% margin, which we still regard as our guiding principle. The current product rollout aligns perfectly with what we have been communicating over the past few years.

That's helpful. And if I could, just as a quick follow-up, I apologize if I missed it, but did you call out sort of the delta in performance between the sort of 50% to 60% plan and the north of 80% growth that you realized for the Media business? What led to, I guess, sort of more spend materializing in the quarter? Was it customers seeing a better return? Or was this perhaps timing related? Any color you can provide would be helpful.

The short answer is that agencies and strong returns are key. Our products are demonstrating their effectiveness, and we're achieving the desired outcomes. Additionally, the agency announcements we've made are contributing to significant growth in that sector.

And our next question comes from the line of Mike Hickey with The Benchmark Company.

Mark, Bryan, congrats guys on a great quarter. Welcome, Bryan. Great to hear your voice this morning and seeing you at G2E. Just two quick ones. Mark, just curious on the prediction market here, obviously creating a lot of excitement for the industry. Do you think this could be a driver of legalization across the U.S. and some key states here that have been kind of sticky and not legalizing? And then the follow-up, Mark, would be, do you have any concerns where the prediction markets are competing against some of your partners today that they could take some market share in the near term or long term?

Yes, to address the question, we believe that anything that expands the total addressable market is beneficial for us. We recognize a growing need for official Genius data, league data, trademarks, logos, and integrity solutions. In regard to prediction markets, as mentioned earlier, we see potential opportunities that could be very promising. However, we maintain a strong focus on regulatory matters. We are committed to operating within a highly regulated environment and collaborating with regulators and the appropriate market participants. Currently, we are closely monitoring this situation, which is a frequent topic of discussion both externally and internally. Overall, we feel well-positioned for a significant opportunity, but we must stay vigilant regarding the evolving regulatory landscape.

Mark, I guess a quick follow-up. Just on the integrity piece. We're seeing a lot of issues here, obviously, NBA, UFC and there's some international pieces too. Can you just talk about how the integrity piece of your business and how vital you think it is to the ecosystem?

Yes. I mean it's how we entered the market in the U.S. If you remember all those years ago, we sort of led with the focus around integrity. And again, it sort of comes down to the concept of official data, the thing we've been talking about for many years. It's increasingly important as we're seeing that the operators and the market coalesces around one focus around official data, one source of truth and making sure there's full transparency in the market. So there's nothing particularly new here from our point of view. Again, we came to market in the late teens of 2000 with an integrity product that was focusing on making sure that there was real transparency and real understanding of what the original results are and how the markets are working. And again, we're just seeing the evolution of that coming through in the market as we predicted.

And our next question comes from the line of Bernard McTernan with Needham & Company.

I would like to know if the ESPN blackout on YouTube TV and Monday Night Football had any positive effect on BetVision viewership. If that was the case, what strategies could you or your sportsbook partners implement to ensure that consumers return or continue using BetVision after the blackout ends?

Yes. I mean, look, I mean, not to comment specifically on that but I think the overall point is around the growth of BetVision as you've seen, I think I can't remember which slide number it is. But we've put it out there where the number of sportsbooks has grown. I'm just putting the numbers up. Yes, I think we're up at what we published about 120 BetVision customers and the amount of content that we're putting through it has gone up to north of 20,000 global events. So we're seeing strong growth. We expect that product to continue to deliver decent viewership. And again, internationally, we're seeing a lot of success there. So we don't know how the viewership and I won't comment on ESPN specifically but we don't know how that's going to affect it. But overall, we think getting content in front of sports punters is good for the sports leagues, increases the number of eyeballs, increases the focus on those competitions and we think it's good for the sportsbooks. And again, we're seeing good results from them.

Yes. Makes a lot of sense. And secondly, can you just talk to the advertiser response to the Sports Innovation Lab data? This seems like a pretty significant upgrade. And so when do you think you'll start to benefit from this data in the identity graph?

Yes. Well, we're already benefiting from it. It was a company that we've been doing some work with and the integration has been very, very smooth and pretty much immediate. So we knew what we were getting when we bought the business and we're already using it and we're already getting very strong results from doing so and good response from the customers.

And our next question comes from the line of Jordan Bender with Citizens.

Something that's front and center again is kind of the bad game outcomes that are happening across the NFL. As we've learned your business model, there's this understanding that higher gaming margins for the NFL leagues to more upside in your estimates via your variable gaming revenue. So the question is, do you start to think any differently about how you view your upside with respect to variable revenue as we are now in what's the third consecutive month of poor results and what looks like the third consecutive year of bad outcomes in the NFL?

Yes. I would say that we had communicated a while and we did what we said in terms of a round of renegotiations and renewals where we increased our fixed composition. And so while that has decreased the variable component, it still exposes us to the upside and it also gives us more predictability and consistency. And so the week-to-week holds, we don't really feel that variability, that noise. And we obviously like the model we have and we continue to grow our value for the sportsbooks in terms of just the adoption of products and helping them engage more deeply with their audience.

Got it. And then just a follow-up. The in-play mix at 30% from what I see in my notes here, that's roughly flat year-over-year. Maybe something more to discuss at your Investor Day but curious if there's any change on how you're thinking about the shift into in-play over time.

Yes. I think it's partly too, we're early in the season here. The parlay mix matters. And so as we've seen around the world, it's likely that will grow over time, but I think we're early in the season here to judge it too finely as staying flat.

And our next question comes from the line of Jed Kelly with Oppenheimer.

Just two. Touching on the Media segment, obviously, good growth, recent acquisitions. Can you just talk about how your go-to-market strategy is evolving with your sales force? And then following up on Jordan's questions around the 30% live Betting mix. Are you seeing more better start to go into the higher-margin products such as TV props? We've seen the sportsbooks push that. So is some of this that they're just going into higher GGR products, which is actually a benefit for you guys?

So the answer to the first question is the go-to-market strategy is pretty much in line with what we've been saying for a while. Our focus is agencies. Our focus is deploying the product through them and the acquisition of large brands and proving value through the initial campaigns that we run and making sure we're getting results and it's all coming through. And again, it was touched on the last questions, SILs have really helped a lot with that. We're getting strong results off the back of that. So we expect our relationships with our agencies to continue to grow and we'll touch upon that in the upcoming Investor Day.

On the in-play, as we said, overall, we're seeing that roughly flat. What I would say, and we've called it out in the slides, is that in BetVision, where you might say that is a deeper fan engagement, that in-play mix is closer to 70%, 75%. So we do see that the deeper they go, the more in-play there is. So I hope that helps.

And our next question comes from the line of Steve Pizzella with Deutsche Bank.

Just going back to the advertising business, I believe you mentioned increased spending in the quarter, which drove growth above your expectations. Can you discuss how much visibility you have into the Media business compared to the shorter-term demand for the quarter?

Yes. Our business continues to grow beyond our expectations this quarter. As I mentioned earlier, we started in the teens, moved to 20%, and now we're projecting nearly 30% for the year. The acquisition of the Sports Innovation Lab provides us with more data and deeper insights. We are currently collaborating with our new agencies and partners on annual planning and events like the World Cup. We look forward to discussing this further at Investor Day.

Okay. And then can you just help us how we should think about free cash flow in the fourth quarter?

Yes. We had a strong performance in 2024 with $82 million in operating cash. A significant portion of this will be allocated towards discretionary investments, along with some timing of rights. Additionally, we have some one-time litigation expenses that we have mentioned before. When looking at it organically, we expect strong results. Historically, the latter half of the year is when our cash flow turns positive and robust.

And our next question comes from the line of Barry Jonas with Truist.

I wanted to follow up on an earlier question. In relation to the ongoing NBA scandal, we all recognize the potential benefits of integrity solutions and the importance of official data. Can you clarify any risks associated with broader betting restrictions, such as limiting player props or micro betting?

Yes, I believe the answer remains the same. We have seen this situation frequently in Europe and have experienced similar cycles, particularly in the U.K. The main focus is on official data and ensuring that the leagues are well connected, while regulators have clear visibility on how the markets are changing concerning official data. As long as the market continues to evolve in conjunction with the sports leagues to safeguard consumers, we do not see significant risks in this area.

Great. That's helpful. And then Bryan, congrats on the new role. I didn't have a chance to meet you at G2E, but I was just curious if you could spend a minute talking about how you'll approach the role with any new lenses and how you think your background can most help add value here.

Thank you. I don't want to focus too much on myself, but I have a long background in sports, media, and entertainment, and I find what we're doing at Genius to be very exciting. Genius is currently at a fascinating stage, as our scale and distribution continue to grow significantly. My focus has been on driving top line growth, particularly in terms of EBITDA and cash flow, while also ensuring that we manage our capital responsibly. I believe we have demonstrated effective capital allocation and have set high standards for our expenditures.

And our next questions come from the line of Eric Handler with ROTH Capital.

I'm curious, as the NFL continues to expand internationally, have gains into new markets this year. Are you seeing any impact on bets being made overseas with the NFL?

Yes. Yes, we're seeing the NFL a real success internationally. I mean you saw, I think, Flutter announced their news with the NFL on an international basis. I think it's the third most bet on sport with Paddy Power. So they're making real traction, and it's certainly piquing the interest of the players in the European market.

Okay. And then I know it's still very early, but I wonder if you have any sort of early insights on BetVision with your new soccer and basketball rollouts.

Yes, we've got over 100 customers using it now, which shows extremely strong growth. We're receiving positive feedback and seeing good results. The addition of new events is interesting; people often focus on sportsbooks, but for sports leagues, the goal is to engage viewers and promote their sport. The way sports are consumed is changing significantly. My kids watch sports differently than I did, and I believe this product is beneficial for leagues, which is why they support it. Additionally, the advertising market is evolving, with advertisers seeking emotionally driven content. Our technology allows us to highlight emotionally charged moments in the game, leading to high returns for advertisers. We can display brand logos during key events, and we're seeing impressive results from that, which is capturing the attention of advertisers and agencies and contributing to our Media business growth.

And our next questions come from the line of Josh Nichols with B. Riley Financial.

I just want to briefly discuss the gross margin. I understand there were some additional expenses in the third quarter, with revenue expected to come in during the fourth quarter. Considering this, how should we view the margin profile for the fourth quarter? Do you anticipate it will return to year-over-year growth in the fourth quarter, given that normalization?

We've indicated that we expect to finish the year at $136 million, compared to $655 million, with a margin of approximately 20%, which represents a 400 basis point increase year-over-year. Regarding the cost of sales, part of that increase is attributed to higher rights costs.

That makes sense. And then last question, you'll probably touch on a little bit more detail at the upcoming Investor Day. But if you look like the Media business now, you've taken the growth expectations up there to like 30% this year. And you've mentioned previously that you thought the company as a whole was able to deliver 20% plus growth for multiple years. Fair to assume, not just looking at this year but a little bit beyond that, that you would expect the Media business, given the traction you're seeing to grow at above that pace for at least the foreseeable future?

Yes, we will discuss this further at Investor Day. As I mentioned earlier, the focus is primarily on the U.S., especially in the latter half of the year when the NFL significantly contributes. We anticipate strong growth this year and are currently planning for how next year's calendar will unfold. We will provide more details at Investor Day.

And our next questions come from the line of Chad Beynon with Macquarie.

This is Sam on for Chad. Mark, last quarter, you mentioned that a big focus for the company was on trying to create more NFL ad inventory for your partners. Just curious now that we're a couple of months into the season, if there are any updates or new plans on that front for this NFL season or for the next?

Yes. I mean we've managed to do that and we've sold it out actually. It's all sold out. So that's a pretty good place to be. It gives us opportunity to create more inventory going forward as well since we can evolve the product sets as they go. And as you'll have seen, again, I don't have the slide number, but the slide entitled New Inventory creating more ways for brands to reach sports fans, I think, is a really good example of that.

And then bigger picture question. I wanted to ask about the 30% margin target. It seems like the growth for the company keeps getting better. So as a company, how are you guys thinking about the balance of growth versus profitability and the timeline to reach that target?

We will provide a multiyear view at Investor Day. This year, we're adding 400 basis points and we believe our margins will continue to rise over the next few years. I don't want to get ahead of our future guidance, but we remain optimistic about our direction and are excited for the December 3 Investor Day to discuss it further.

Yes. I mean there's sort of two main focuses. We've got our North Star out there at 30% margin, which we're still targeting and feel very good about. And we're focusing increasingly and certainly will in '26 on cash flow conversion and increasing the cash flow from the business. So we've had a good couple of years on that front and we are hyper-focused on that. And again, it's one of the reasons I'm so excited to have Bryan join us to focus on driving that.

And our final questions today come from the line of Greg Gibas with Northland Securities.

Congrats on the quarter. Similar to what you accomplished with ESPN BET to, I guess, expand to the full suite of BetVision sports coverage, could you maybe discuss the opportunity with your broader sportsbook customers that maybe don't use or use it for perhaps just the NFL? I guess just kind of how underpenetrated you would say that, that product is relative to the full adoption opportunity?

They're still in the early stages. The products are being distributed widely, and there's a good uptake in the sportsbooks, as we previously mentioned, but there is still a long way to go. I think it's important to focus on the results we're seeing. As we've said for some time, we want to encourage a shift to in-play betting, which offers higher margins, better returns, and improved engagement from fans. From our perspective, we achieve much higher returns through our commercial deals—three times the amount, to be precise. There's a strong emphasis within the business on expanding that distribution, and the sportsbooks are equally focused on it because it benefits both parties. We believe we're still in the early parts of this journey, and we anticipate strong product adoption in the coming years.

Got it. Great. And I guess for clarification and I apologize if you already addressed but regarding the temporary timing mismatch between revenue recognition and the increased cost basis from rights, fair to say no impact expected or carry over into Q4?

That's right. It should start to unwind as we begin to monetize the deals for Serie A and EPFL in particular.

All right. Thanks for the questions, Greg. And that does conclude our Q&A session, and it also concludes today's earnings call. Thank you so much for joining and you may now disconnect. Have a great day, everyone.