Earnings Call Transcript - GENI Q2 2022

Operator, Operator

Welcome to the Genius Sports Second Quarter Earnings Results 2022. Throughout the call, all participants will be in a listen-only mode and afterward, there will be a question-and-answer session. Today, I'm pleased to present Genius Sports. Please go ahead with your meeting.

Brandon Bukstel, CEO

Good morning, and thank you for joining us. 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 last Annual Report on Form 20-F filed on March 18 of this year. During the call, management will also discuss certain non-GAAP measures that we believe may be useful in evaluating Genius's operating performance. These measures should not be considered in isolation or as a substitute for Genius's financial results prepared in accordance with U.S. GAAP. A reconciliation of these non-GAAP measures to the most directly comparable U.S. GAAP measures is available in our earnings press release and earnings presentation, which can be found on our website at investors.geniussports.com. With that, I'll now turn the call over to our CEO, Mark Locke.

Mark Locke, CEO

Good morning, and welcome to our second-quarter earnings call. On today's call, I will discuss business highlights from the quarter, recent wins, and key metrics to look out for as we continue to accelerate both revenue and EBITDA growth for the rest of the year. I will then pass the call to our CFO, Nick Taylor, who will discuss our financial results and outlook in more detail. To begin, we're pleased to announce that we've exceeded our guidance for the second consecutive quarter, demonstrating our successful execution through the first half of the year. Our Group revenues increased by nearly 30% year-on-year to $71 million ahead of our $68 million forecast despite currency headwinds which Nick will cover shortly. Using the same exchange rate as our initial guidance, our Group revenues were $75 million, exceeding our guidance by an even wider margin. Group adjusted EBITDA was $8 million in the quarter, in line with our expectations of $8 million. Using the exchange rate at the time of our initial guidance, this figure came in slightly higher at $9 million. Q2 marked another period of strong execution across all three product lines: sports, betting, and media. We continued to acquire data and streaming rights, albeit in a disciplined manner where we see strategic or financial value. In Q2, this included certain professional basketball leagues across Australia, Brazil, and Switzerland, along with other leagues such as Brazilian beach volleyball and Vietnamese professional football. Many of our rights deals are led by our suite of technology solutions designed to help leagues and federations collect and distribute live data, maintain integrity, and establish meaningful connections with their fans. Our portfolio of content is only as good as our ability to monetize it. Consistent with past quarters, we continue to win new sportsbook customers and increase our utilization of available content with existing customers. Nick will explain how this drove outperformance in our betting segment in the quarter. Our media revenues far outpaced our guidance this quarter. Despite sportsbook operators scaling back their overall promotional budgets, we have not seen a slowdown in our business. Our ability to consistently deliver favorable results on performance-based digital advertising has led to a higher average spend per customer. We have also diversified our customer base beyond gaming, providing advertising services to new brands such as Heineken, PepsiCo, and Mondelez this quarter. Our quarterly forecasts are meant to serve as near-term milestones to demonstrate our progress throughout the year. Our outperformance in the first two quarters, along with strong momentum in the business, gives us confidence in hitting our full-year target despite currency headwinds. Therefore, we are reaffirming our 2022 outlook of $340 million in revenue and $15 million in adjusted EBITDA. Similarly, we feel confident in our 2023 guidance of $430 million to $440 million and $40 million to $50 million in adjusted EBITDA, respectively. Genius's technology is the bedrock of our partnerships with leagues and federations around the world. Recently, the NFL and CBS won a Sports Emmy award for the use of RomoVision powered by Second Spectrum technology. We are excited to continue our work with the NFL and CBS to develop exciting new features. We also earned several technology wins this quarter, including our Second Spectrum division providing Premier League Football Club Benfica with AI-powered tracking, performance analysis, and video augmentation tools. We launched a new CFL game zone, which is a central hub for fans to engage with exclusive CFL products and contests. Genius also launched multiple free-to-play games ahead of the World Cup. In summary, we continue to expand our relationships by implementing a full suite of tech-driven fan engagement solutions. What excites us about our business model is that Genius benefits from EBITDA margin accretion alongside accelerated revenue growth. We have multiple revenue opportunities at little extra cost. Our relationships with sportsbook operators are critical for our strategy, and as we execute our land and expand strategy, we do so in a manner that ensures sportsbooks generate real value and returns. Thank you. With that, I'd like to turn the call to Nick.

Nicholas Taylor, CFO

Thanks, Locke. As a quick reminder, in our January Investor Day, we disclosed our full-year guidance for profitable 2022. Q2 marks the second successive quarter in which we executed on our plan ahead of forecast despite currency fluctuations. To be clear, the fluctuating Sterling-U.S. dollar exchange rate poses an operational risk to the business itself, but rather just to the conversion of revenues in Sterling to our presentation currency in U.S. dollars. For this reason, we have provided a constant currency view into our business to remove presentational currency volatility and give a true apples-to-apples view of year-on-year revenue growth. In our betting segment, revenues grew 23% on a constant currency basis to approximately $45 million, slightly ahead of our guidance of $44 million. The major segment continues to grow at a phenomenal pace, nearly doubling year on year to $15 million, coming in well ahead of our $12 million guidance. Q2 media revenue was predominantly organic, driven by our performance-based programmatic advertising. Our sports product grew 75% at constant currency, generating $11 million in revenue, coming in line with our expectations. In summary, we are tracking well ahead of our guidance through the first half of the year, having reported $71 million in group revenue this quarter, translating to $8 million in adjusted EBITDA. We are reaffirming our full-year 2022 guidance of approximately $340 million in revenue and $15 million in adjusted EBITDA despite currency fluctuations. We also remain confident in our 2023 guidance, maintaining our current outlook. Our media business is predominantly U.S. dollar-focused, and most of the currency-related risk is in our betting revenue. Given continued volatility, we are reaffirming our outlook. We expect to be adjusted EBITDA positive this year and to generate positive cash flow by the second half of 2023.

Operator, Operator

And our first question comes from Bernie McTernan from Needham. Please go ahead.

Bernie McTernan, Analyst

Great, thank you for taking the questions. You guys signed a number of contracts last year with U.S. betting operators. How should we think about the potential to expand upon those initial contracts, especially in the media technology services revenue segment?

Jack Davison, Chief Commercial Officer

Hi, Bernie, it's Jack Davison. We think about all our relationships with our U.S. operator partners as a large and expand strategy. When we started our U.S. conversations, we were firm that this wasn't just about the NFL. We were successful in securing an all-encompassing relationship with Genius Sports. My job is to continue to sell land and expand those relationships. We're seeing growth in both sports betting and media engagement. Our business is evolving and we're excited about the opportunities.

Mark Locke, CEO

It's Mark. It's great to hear from you. The relationships we maintain with our sportsbook operators are incredibly important. When we execute our land and expand strategy, a lot of what we do in the media space is performance-based. It's crucial to recognize the value generated by the sportsbooks, ensuring they receive tangible returns from our services.

Bernie McTernan, Analyst

Understood. Just as a follow-up, Mark, you mentioned the win rates as a lever for EBITDA margin accretion, but can you speak specifically about parlays and whether they have an increasing focus on the tech roadmap?

Jack Davison, Chief Commercial Officer

Hi, Bernie, this is Jack again. Parlays are significant drivers of margin for operators. We see increasing demand for parlays, not only in the U.S. but globally. We're expanding our offerings and have relationships in place to support growth in this area, both for pregame and in-game parlays.

Ryan Sigdahl, Analyst

Good morning, guys. I want to start with operating leverage. Can you break down the OpEx lines related to sales and marketing, technology investment, and G&A? Is the current infrastructure able to support growth?

Nicholas Taylor, CFO

Yes, hi, Ryan. Pretty much we have everything in place. Our operating expenses decreased from $26.5 million in Q1 to $24 million in Q2. We're not needing to increase our costs to service the increased revenues we anticipate.

Ryan Sigdahl, Analyst

Good. Then just moving over to college sports, how are you approaching negotiations with college conferences?

Mark Locke, CEO

We have a lot of opportunities with the college conferences. We're excited about building relationships not just focused on sports betting but on a holistic approach. We will engage in discussions in a disciplined way and make investments that align with the long and short-term needs of the business.

Jack Davison, Chief Commercial Officer

Yes, I would add we're seeing an evolution in how rights conversations are happening with sports rights holders. Technology is playing a much more significant role, leading to wider conversations about fan engagement and value delivery.

David Bain, Analyst

Great, thank you. Can you clarify your guidance for the remainder of the year as NFL comes on, specifically regarding EBITDA margin?

Nicholas Taylor, CFO

Yes, hi, David. On the 2022 guidance, we're guiding to approximately $340 million on a revenue basis and $15 million in EBITDA. If we were using the fixed exchange rate assumed in our initial guidance, we would feel confident lifting our target to about $351 million in revenue.

Jed Kelly, Analyst

Hi guys, thanks for taking my questions. Just going back to the media segment. Do you have any sense of how your media segment is doing compared to your competitors?

Jack Davison, Chief Commercial Officer

Hi, Jed. I can't provide exact figures, but in terms of conversations with partners, Genius is seen as a preferred vendor in programmatic advertising, which gives us a significant market share.

Nicholas Taylor, CFO

It's early to tell how the New York market is reacting to promotional pullbacks. We cap the amount of marketing spend in relation to discounts, so it's not expected to create significant changes.

Jason Bazinet, Analyst

I'm curious about your guidance and the state legalization assumptions. What cadence is embedded in your guidance for this year and next?

Nicholas Taylor, CFO

Our GGR forecast for 2022 is $5.5 billion and $7.7 billion for 2023. This is based on market analyses and average views, rather than reliance on specific state legalization timelines.

Mike Hickey, Analyst

Just curious about your view on the macroeconomic conditions impacting sportsbooks. Are you seeing differing behaviors due to economic conditions?

Nicholas Taylor, CFO

Gaming generally remains resilient during economic downturns. Most sportsbooks have reported solid customer retention, and we are less exposed to inflationary pressures given our fixed long-term rights costs.

Jack Davison, Chief Commercial Officer

Live betting is increasingly being prioritized by sportsbooks. We're optimistic about the live betting space, especially with our plans to enhance technology to support this growth.

Robin Farley, Analyst

Can you clarify the $36 million in restricted cash for rights agreements? Why did that come about this quarter?

Nicholas Taylor, CFO

This cash is secured against a guarantee for certain rights agreements, replacing a more expensive letter of credit. It reduces over the next two years and returns to our balance sheet.

Jason Bazinet, Analyst

Can you discuss the state legalization assumptions embedded in your guidance?

Operator, Operator

Ladies and gentlemen, that concludes today's session. You may now disconnect your telephone. Thank you for joining and have a pleasant day.