Genius Sports Limited Q1 2023 Earnings Call

[music].

[music].

[music].

To conclude as you continue to want to deliver on our financial targets like you have for the past five quarters and see increased adoption of our technology. You should recognize this is a clear sign that we are proceeding exactly to plan on our near term and long time growth and profitability targets.

And on that note I'll now hand, the call to Nick to discuss our financials in more detail.

Thank you Bob.

As mentioned at the start we have consistently delivered on our strategic and financial plan.

This marks the fifth consecutive quarter of meeting or beating expectations.

Our strong execution in Q1 led to another period of outperformance relative to our guidance.

The largest outperformance within all betting product.

Well, we grew revenue by 30% year on year to $65 million exceeding our guidance of $61 million.

On a constant currency basis. This represents even greater growth of 13, 9%.

Given this is high margin revenue for us.

It contributed meaningfully to our group adjusted EBIT dollar in the quarter.

Our major revenue was also ahead of expectations, having generated $22 million of revenue versus our guidance of $20 million.

As we pointed out previously.

The pricing landscape has changed since Q1 of last year amidst an evolving macroeconomic backdrop.

This is particularly true for sports betting customers.

So we monitored that reservoir promotional spend more closely.

Q1 of last year.

It was a period of heightened promotional intensity to sports books.

This was also characterized by a handful of one off marketing events such as the launch of online sports betting in New York for instance.

Which was unique to Q1 2022.

Nevertheless.

Our guidance implies meet your revenue growth in excess of 10% this year.

Pleased to be tracking ahead of that forecast.

Lastly.

I spoke with Tech revenue was in line with our expectations spending $11 million in revenue.

This equates to total revenue of $97 million for the quarter.

Well ahead of our guidance of $92 million.

And representing 19% year on year constant currency growth.

Importantly, this $5 million revenue outperformance.

Contributed to group adjusted EBITDA and nearly 100% margin.

As a result, we reported group adjusted EBITDA of $8 million. This is our guidance was $3 million reps.

Representing an $11 million increase from Q1 of last year.

The results from the quarter are evidence of the operating leverage and scale that exist in our business model.

We have achieved sizable growth without the need to materially increase our operating expenses.

Going forward the.

The business can support substantially higher revenue with the fixed cost base, we have today.

Based on everything you've heard today.

You can like do you feel the sense of excitement in the business.

And therefore, we are raising our 2023 guidance accordingly.

We are increasing our revenue guidance from $391 billion to $400 million based on our outperformance in Q1 and the positive trends, we expect will persist through the remainder of the year.

Similarly, we are raising our group adjusted EBITDA guidance from $41 million to $49 million.

Much of this additional revenue should drop through to our adjusted EBITDA, We do not anticipate any incremental changes to our cost base.

Just to be clear.

Unless indicated otherwise.

Guidance will typically assume an exchange ratio that is consistent from the time of our first issuing guidance.

Which in this case.

One point to GBP to U S dollars.

We understand the foreign exchange rates will fluctuate throughout the year.

However, as it relates to our public guidance, we do not in terms of predicting fluctuations.

In other words.

We are focused on guiding the molecule and I like to like basis.

Crestwood Luckily short term movements are truly material in nature much like we experienced last year.

We will continue to guide based on a consistent currency.

Looking beyond EBITDA and into our cash position.

We finished the quarter with $131 million in cash, which was slightly above guidance of $130 million.

As a reminder.

Our first quarter cash flow typically include seasonal working capital outflow and an annual cash payment related to our CSL investments.

Looking ahead to Q2.

We expect our cousin cash balance to be approximately $115 million.

Which would represent a cash low point for the year.

We expect Q3 will be roughly cash flow breakeven.

Before flipping positive in Q4.

Overall, we expect to generate positive free cash flow in the second half of this year as guided last quarter.

Again.

Our Q1 outperformance and increased guidance demonstrate the profitability potential of the business model.

In 2023 is the year in which this begins to accelerate in the form of rapid margin expansion.

We're excited about the progress we've made this quarter and for the strong momentum we have through the remainder of the year.

With that we will conclude our prepared remarks and <unk>.

On the line to Q&A.

We will now begin the Q&A session. If you have a question. Please press star one on your telephone keypad one moment. Please for your first question.

Your first question comes from the line of Jordan Bender of JMP Securities. Please go ahead.

Great. Thanks for taking my question and nice quarter.

Look out to the 2023 updated guidance can you just kind of remind us how you are thinking about some of the shifting factors impacting your guidance that you kind of walk you on page six of the slide.

Kind of how should we think about the take rate in play.

And hold throughout the year. Thank you.

Hey, Jordan, it's Nick.

Yeah.

I guess the headline answer to that is.

Yeah, we're thinking about it for the rest of the how we've seen it really in Q1 and just to remind everybody. What we've done is we've seen a really strong NFL season.

Q4, and Q1 this year.

A lot of tailwind in our favor and you've heard that from the sports book operators over the course of the last.

We can all through their own earnings season, it's just to give you a.

An idea of what that growth looks like for NFL, what we've seen is the.

The in play has been growing the fastest.

Of all the different betting metrics, we've got total anatol handle it is been up 21% season on season, and actually implies up 40% of that basis. When you look at it on a <unk> basis, I think mark touched on this in the interim.

Prepared remarks.

Total NFL GTR was up 86%.

Total <unk> was 100% so they're the sort of key tailwind that we're forecasting through to the end of the season, but we know in order to hit our numbers and our revised guidance, we're not looking at any material changes in those underlying metrics.

Great and then for my follow up.

Want to talk about the U S business, I guess, where you guys EBITDA positive in the first quarter. There and then maybe how we should think about.

Is that kind of trending throughout the year as well. Thank you.

Yeah.

<unk> gave you a geographical split doesn't partly because it's very difficult because a lot of our contracts are obviously a lot of our REIT sell entirely multinational.

What we said at year end and I think it still is true today is that the losses that we founded the U S have certainly got less and will continue to reduce.

Through 2020, we Werent EBITDA positive I think that's fair.

Commented I think I said at year end, we will be looking at around about single digits EBIT.

Loss in the U S for 2023, which is considerably better than it was in 2022 and I expect that to continue to progress to a breakeven and positive position for 2024.

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

Hey, great. Thanks for thanks for taking my question.

Just two if I may you've had a lot of nice announcements with us second spectrum and yet very nice tech demo back in March on the technology. So can you just remind us.

Where we'll see that start.

Sort of help some of the other revenue line items and how that will impact the financials and then.

Just looking out over the next 12 months are there any contracts up for bid or up for renewal that we should be aware of thank you.

Hey, Doug it's Bob.

Yes.

Yes, it's a good question on satisfaction.

Just to recap what we've spent all time doing the second spectrum is.

Really focusing on on an investment size I mean, satisfactions had 10 plus years of investment.

One of the important things that we need that we think is worth focusing on is that the second spectrum is fully cost it will fully budgeted in the numbers that we put out both now and our guidance and I think that's a really important differentiating factor for genius.

The second spectrum impacts us it is very similar to the way that we've used technology in the rest of our business, we've got a long history.

Building and delivering technology for sports and using that to acquire rights and drive revenues in all aspects of our business. So what youre seeing now and again, it's already dropping through.

D C.

Significantly more over the coming over the coming period.

Is it revenue.

Increases in all aspects of our business as a result of second spectrum, new rights deals or potential renewals of rights deals that we that we may have one.

A lot of that is driven by our second spectrum relationship as well now the.

The relationships, we've got with the sports books, we got something with that basic saga, while the guy that.

We'll start to drop through over time and again.

Way that we engage with the needs in all sorts of different areas and I guess the final area is the sort of broadcast and the media side.

I think made it pretty clear that my focus so as that inspection. We wanted to focus a second spectrum is to distribute our technology into as many broadcasters as possible I think we've done a good job of that so far we've got some Amazon and then CBS .

We're doing stuff in the U K with Premier League and and all of that is coming is coming through really nicely in our business and gives us an enormous.

Revenue potential from from from that side as well. So I think we're feeling pretty good about.

About where we are on a commercial basis and we're feeling.

Pretty good about.

The lead that we have in this space.

The investments that we've already made.

Yeah.

Thanks.

Your second question, sorry, Chad I think your second question was around <unk>.

Renewals, yes.

A few of them right when Youll conversations I mean, the main one is the data rights renewal conversation.

That's up shortly.

Referring slightly back to the answer I've, just given you we've got a very strong relationship with the.

Lots of different rights holders, we using them second spectrum to really drive a lot of their strategy and their growth.

We're feeling pretty good about where we're sitting in a position we have with them.

Any of the major rights renewals that we've got on the horizon.

Okay.

Thank you. Your next question comes from the line of Bernie Mcternan.

Of Needham <unk> Company. Please go ahead.

Great. Thank you for taking my questions.

We'd love to just get some thoughts on with the recent investor presentation on second spectrum has really advanced any conversations with stakeholders in the industry for bringing this technology to market and maybe a follow up to that.

In the letter it talks about <unk> benefiting from higher take rates in part driven by contract renegotiations.

We're second spectrum of catalysts to revisit those contracts and if not why.

What drove kind of like the early renegotiation of those contracts.

Yes.

Take that question back front, if you like the renegotiations of the clause of the contract. So the part of normal course of business. So we're constantly renegotiating our contracts.

The way that that operates the business has been pretty consistent for years. So that's really what we're doing obviously when we've got new technologies, such second spectrum and it really does have that sort of differentiating factor and that advantage.

It becomes a big part of those.

Of course, a bit just compensation and so it gives us a significant.

Significant opportunity to expand those relationships and really work more closely with our clients.

On the on the sort of previous question.

The way that we're thinking about.

Some of the some of the sports.

<unk>.

Sorry, so the way we are thinking about that in the second spectrum with the rights negotiation.

Basically touched on that on the last answer as well all of the conversations that we're having with all rights holders all of the conversations that we have with our partners include.

I think without exception.

Youth is all second spectrum and rollout of that technology has become a really cool part of the business.

One of the things that Steve.

Talking about the position is that Israel and it exists.

It's already out there in the market that is driving technology and driving a lot of those relationships. So yes. It's the common integral part of our strategy and has become an integral part of our strategy is really working and really delivering delivering revenues at the moment.

Just following on as well.

Mark's answer in relation to the renegotiation of the contract is worth just remembering that.

30% of our revenues are from the U S. A lot of those renegotiations in Q1.

The non U S contracts as you know the U S contract.

In.

Mid 2024, it's also not just renegotiation is the sort of classic land and expand.

Position that we have with <unk> with <unk>.

Global Sports books, well, it's about adding additional services and that's exactly what <unk> inspection comes into play with the new additional products on the new additional technology that theyre as interested as any sports leagues and federations.

Okay.

Thank you. Your next question comes from the line of Clark Clamping of BTG. Please go ahead.

Hi, Thanks, Good morning, I had a question on the programmatic AD business, maybe for Mark or if he's on the line Josh I was hoping you guys could update us on what youre seeing with customer growth.

And demand trends I guess between the respective sports betting and non statin non sports betting markets and maybe also some context on how you are what youre seeing right now with the broader AD market. How that's trending do you feel like it's sort of weakened or improve relative to when you set guidance earlier in the year.

Hi, Clarke, it's Josh.

In terms of.

Overall programmatic business, we continued to be really happy with its progress.

To date the majority of the revenue still are aligned on the sports book side of things, but we continue to win new business with the non bedding.

Advertisers and we're really really happy with how Thats progressing I mean as a reminder, that's coming from a very low base.

18 months ago that was a very very new area for us and where we're happy with the number of new brands that we brought on over the course of <unk>.

Most of the last 18 months and that continues to go from strength to strength, obviously, it's early days and it's the <unk>.

Start with these with these with these advertisers.

Like the sports betting business, we have a land and expand strategy here.

And we are feeling really good about it in terms of the overall AD market I think some of those initial <unk> are starting to ease a little bit.

And where we're seeing new test budgets come in from various brands, though.

We're we're we're certainly happy about it we don't see the market stopping us from progressing Yeah, Hey, Clarke as Nick just to add to that as well as the actual adjusted just said is because of that is why we've upped our guidance. For example in Q3 on major by a couple of million dollars, because we start to have some pretty pretty interesting and favorable conversations and relationships, particularly.

<unk> starts in the U S sports season at that time.

When we set that guidance initially we will be relatively conservative because of the visibility we have in that space.

Media.

Yes, still look Amit numbers year on year.

Implies a growth rate of 11%, which we are pretty happy with particularly given what Josh just said about the overall market position.

Thank you again, if you would like to ask a question press star followed by the number one on your telephone keypad. Your next question comes from the line of Brian signal of Craig Hallum Capital Group. Please go ahead.

Good morning, guys.

You mentioned price increases that you took on several of the global Sports book contract renewals curious if there was any churn in those customers as part of that negotiation.

Okay.

Yeah, Hey, Ron No no churn as you know one of the fundamentals that genius is given the number of sports and given our long tail and given the marquee products. We have is that if you run a legalized sports book globally.

Youll have to work with genius.

Well, Jonathan the commercial team have done over the last 12 months and continued to do is make sure that we continue to drive value for permits from the services. We provide this is not just about taking price although pricing improvement as mark talked about the prepared remarks is going to be a certainly a large lever of our growth going forward, but this is also about.

Land and expand.

Expanding our services not just on the five or six key U S sports books, but obviously on a global basis.

And then for a follow up so you raised your EBITDA guidance for the year good to see that the cash low point is now a bit lower than what you were previously expecting last quarter I guess what are the puts takes on the cash reconciliation versus the EBITDA guidance.

Yeah, Hey, Ron Yes, we didn't actually give a previous cash flow number so it's actually pretty much in line with what we had previously said so say around about $158 million.

And then.

We are certainly what we said last quarter and indeed, I think what will be the quarter before that is that will be positive.

Cash in H, two and then expect it to be positive cash in 2020 for Es.

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

In March Nick Good morning, guys, Congrats on a strong quarter.

Your updated guidance here, Nick I had trouble getting my line here, but did you talk about for Q1.

Looks like you raised every quarter above four Q, if I saw that right just curious.

Why do you why you Didnt bump up <unk>.

Yeah.

You are right. So we've raised Q2 by a couple of million dollars, we always have been.

The visibility of.

Quarter, two and some of the tailwind that we're seeing particularly in the betting sector in Q1 was saying.

Again in quarter two.

Just and then on the previous answer has talked about.

And confidence around media spend at the start of the Spa.

Sports season in Q3.

Q4 is purely just visibility right now we're only we're only just one quarter and we're pretty confident of those numbers were delighted to raise our guidance two.

<unk> hundred 49, and we will continue to monitor it will come back once our Q2 performance is in the bag to discuss what the rest of the year looks like.

Okay cool.

And then also I'm not 100% contribution margin for the quarter exceptional you raised your.

EBITDA guide for the year, so it's sort of contribution margin maybe 56% for the year can you just talk about sort of your success here.

Controlling expenses like you have and how you think about sort of the progression from <unk> into <unk>.

The range for the remaining quarters here in terms of.

Our expense control.

Yes, I mean, Mike you and everybody else has heard us talk quite a lot in the past around our operating leverage in our business and these leaders.

We have at our disposal.

To increase revenues come with a zero increased cost base that we have.

Always said that that requires a certain level of scale and we were at that tipping point, not which is why we are.

We're going to go from a $50 million EBIT <unk> positioned to 49 million EBIT to help position in 2023 and those conditions, we should see continue to exist in 2024 and beyond.

If you look at Q1 year on year position and you look at our cash operating expenses.

They were actually in total it's $24 million this quarter versus $27 million in there.

The previous quarter last year so the.

Our business is very focused on driving profitability.

Driving cash profitability as well and we're really beginning to see that happen in this quarter and expecting that to continue through for the rest of the year.

Yeah.

Thank you.

No further questions at this time.

This concludes today's conference call you may now disconnect.

Yeah.

[music].

Yeah.

Yeah.

[music].

Yeah.

Yes.

[music].

Okay.

[music].

Thanks.

[music].

Okay.

[music].