Genius Sports Limited (NYSE:GENI) Q1 2024 Earnings Call Transcript May 8, 2024
Genius Sports Limited isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Thank you for standing by. My name is Pam, and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Genius Sports First Quarter 2024 Earnings Results. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to company. You may begin.
Unidentified Company Representative: 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 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 15, 2024. 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.
Mark Locke: Good morning, and thank you for joining us today as we begin another year on a positive note, with strong momentum across the business. Before we dive into the results, we’d like to begin by thanking our partners at Apax for their support and investment over the last six years. You may have seen last month that Apax reduced their holdings in Genius to a level where they now have stepped down from our Board of Directors. The Board representatives from Apax have provided valuable insight and expertise as we went through a period of transformative growth, expanding from $88 million of revenue in 2018 to $0.5 billion forecasted in 2024. We have spent the last three years as a public company working very hard to cultivate a great Group of public equity investors who we are proud to call shareholders in Genius Sports, and we look forward to working with them and many others over the years ahead.
And with that, we are very happy to report our ninth consecutive quarter of outperformance relative to our guidance, once again demonstrating our consistent and predictable business model and strong execution. In the first quarter, we grew revenue by 23% year-on-year to $120 million, beating our guidance of $117 million. Our Group adjusted EBITDA was $7 million in the quarter, also exceeding our guidance of $6 million. We remain focused on consistently outperforming financial targets, whilst delivering on our core strategic objective of becoming the must have digital partner for leagues, sports content distributors, sportsbooks and brands. The first quarter was an excellent example to highlight each of these areas, as we continue our wide scale distribution of technology and value-enhancing products across the sports ecosystem.
This is exactly how we have retained key league partnerships over the years and positioned our commercial model for sustainable growth and profitability and cash flow. Our strong start to the year makes us even more confident in our outlook, so we’re raising our 2024 Group revenue and adjusted EBITDA guidance to $500 million and $82 million respectively, up from $480 million and $75 million to begin the year. This implies year-on-year Group revenue and adjusted EBITDA growth of 21% and 54%, respectively, and raises our Group adjusted EBITDA margin to 16.4%, representing 350 basis points of improvement. We are also reaffirming our cash flow positivity for the full year, which will continue to strengthen into 2025. As we reach this important annualized milestone, we may be more proactive in deploying capital across a range of potential initiatives such as M&A, share repurchase or otherwise.
Therefore, we want to position ourselves for any opportunity that may arise in the future, as we continue to mature as a public company. As such, we are carrying out a few steps to optimize our overall financial flexibility with relatively low cost capital. Firstly, we have closed a $90 million revolving credit agreement with Citibank and Deutsche Bank, which combined with our cash on balance sheet, gives us greater flexibility to access additional capital, if ever necessary. Second, as a matter of general corporate housekeeping, Genius Sports is now WKSI eligible following our three year anniversary listing. Therefore, in accordance with customary market practice, we intend to file an F3 shelf registration statement this week. Our intention with this filing is simply to follow ordinary best practice and SEC housekeeping now that Genius is WKSI shelf eligible.
We are taking these steps towards greater financial flexibility, because we want to be nimble when these potential opportunities arise in the near to medium-term, particularly as our business fundamentals continue to improve and we gained further clarity on our long-term growth and profitability prospects. Our confidence in the underlying business fundamentals is reinforced not just by our financial results, but from the successful execution of our core strategic objectives. For example, we continue to reach wide scale distribution of our computer vision and AI technology with leagues and federations around the globe. The broader our reach, the more we establish Genius Sports Technology as the standard for next gen data collection. Foundation with leagues across the globe is strong and continuing to expand and we’ve successfully launched several new betting and media products on that basis.
Most notably, in the last few months, we struck long-term technology partnerships with the likes of FIBA, Lithuanian Basketball League and the WNBA, which is the first women’s professional sports league in the U.S. to utilize league-wide optical tracking. We also deployed optical tracking technology for the NCAA Women’s Final Four last month, further empowering the explosive growth in women’s sports. Each new deal marks an important proof point for how leagues are increasingly focusing on capturing rich data and enabling new forms of analytical insights for broadcasters, media outlets and fans, all built on a Genius Sports technology. This then becomes the foundation on which we are launching new products such as BetVision and real time broadcast augmentation solutions, which are being monetized today.
One really exciting example of how we’ve taken this as a step forward is our new partnership with Premier League Team Brentford Football Club and one of its sponsors, Gtech, to power augmented highlights to fans in stadia and on social media. We have now combined our player tracking and broadcast augmentation tools with our advertising technology to create entirely new sponsorship inventory for Brentford’s stadium’s naming partner. Now an interesting data point like shot speed becomes a new responsible asset to Brentford and for Gtech, it represents an opportunity to associate their brand with the most engaging moments of the match, Shots On Goal. Our ability to automatically capture this data through computer vision and AI and to transform it into a creative graphical overlay all in real time is completely unique to Genius Sports Technology, creating another level of connectivity for leagues, sponsors and fans.
In summary, the greater our distribution, the more product we can monetize at scale and the more integral we become to the leagues themselves. This is how we have successfully retained key league partners like the NFL and English Premier League over time. Technology is increasingly front and center in our league relationships, and this is the type of differentiated value that we provide. For instance, last summer, we extended our two most important data rights agreements, the NFL and Football DataCo, which governs all of UK football, including the English Premier League. In March, we also announced that we’re now in exclusive discussions to extend our Football DataCo agreement through the ’28-’29 season. While this agreement is still under final negotiations, we are delighted that, they have chosen to work with us for another four years.
Given the massive importance of UK football on a global basis, this relationship has materially improved our commercial offering in the global sports betting market over the years. Looking ahead, we expect that this will continue to be a key pillar of our growth strategy, through the end of the decade. While we obviously cannot disclose specific terms of the deal, we want to address head on, what we expect from our business over the length of this relationship. Like what we have proven with our NFL partnership, a strong and long-term relationship with FTC will enable us to continue expanding margins and increasing cash flows with the trajectory that we had always envisaged. We are now more confident than ever in our ability to sustain strong revenue growth for this foreseeable future and don’t envisage this growth slowing in the near-term, given the positive structural tailwinds and the momentum in our business.
In fact, now having our two largest data rights deals secured for the next four or five years, gives us an even greater visibility of our cost base and a higher degree of confidence in the trajectory and the pace, at which we reach our long-term EBITDA margin target of at least 30%, ultimately converting to increased cash flow. The increased guidance we announced for the remainder of 2024 should be indicative of our momentum into 2025. Not to mention, this also affords us four to five years more to become even more deeply integrated with the digital infrastructure of the leagues. This enables more ways for leagues to access next gen data and apply it in many different ways spanning broadcast, fan engagement, advertising, sponsor activation and sports betting.
Ultimately, the access to this data enables us to continue fueling growth in our core business model. These rights agreements gives us access, not just to live data feeds to power sports betting markets, but to the broader sports ecosystem where we can leverage data and technology to activate audiences with data-driven content, marketing services and immersive viewing experiences. Year-after-year, we are proving how our commercial model is built to benefit from the multiple tailwinds that exist in the world of sports. Whether it’s growth in the online sports betting market, growth in its in-play betting, growth in sports digital advertising spend and increased engagement in sports as a whole, we are poised to benefit in many different ways.
This is how we’ve been able to achieve our strong results over the years. I’ll now turn the call to Nick to discuss the Q1 results in more detail.
Nick Taylor: Thank you, Mark. We are very happy to report another quarter of outperformance relative to our expectations. Each quarter, we discuss the many ways in which we can outperform, whether that’s from a growing sports betting town, higher in-play betting, improving win margins, cross sell of additional products and content, or higher demand for digital advertising services. This quarter our outperformance was primarily driven by our media business, which increased by 63% year-on-year, marking a significant reacceleration of growth and our strongest quarter in nearly two years. This was driven by meaningful spend from major U.S. sports book operators around the key sporting events, namely the NFL playoffs, the Super Bowl and March Madness as well as the launch of online sports betting in North Carolina in the quarter.
As you’ve just seen on Slide 8, we are executing digital advertising campaigns for many non-betting brands around these key sporting events as well, ranging anywhere from food and beverage brands to individual leagues and teams themselves. Betting revenue also increased year-on-year by 14%, largely driven by strong revenue share performance in the U.S., albeit a relatively small contributor to overall betting revenue in the quarter. We also reported group adjusted EBITDA of approximately $7 million, slightly ahead of our $6 million guide. As it relates to our adjusted EBITDA this quarter, there are two points worth noting. First, as I mentioned last quarter, we expanded our NFL partnership last summer to include domestic streaming rights, which powers our BetVision product to sportsbooks and was entirely new in the 2023-2024 NFL season.
These rights were expensed equally in each month during the season, including January and February. As a result, this has an outsized effect on our Q1 2024 profitability, simply because there are fewer NFL games to generate revenue, despite this new set of rights being accretive over the course of the fall season. Second, our adjusted EBITDA is largely a function of the mix between betting and media revenue, with betting outperformance typically contributing to profitability to higher incremental margins. Media significantly outperformed in Q1, and therefore, the incremental flow through of this outperformance was approximately 32%. Turning to cash. We finished the quarter with $93 million on the balance sheet, roughly in line with where we expected to finish the quarter and we are confidently reaffirming our expectation to be cash flow positive in H2 and for the full year 2024.
To conclude, our results from the quarter and our increased revenue and EBITDA guidance to $500 million and $82 million respectively, sets us on a steady path to our long-term adjusted EBITDA target of 30% plus. We are more confident than ever about our trajectory. We continue to execute on our core strategic objectives. As a result, we are working to extend our relationship with arguably the most important sports asset globally. Therefore, we are feeling very optimistic about 2025 as well. While we are not issuing formal guidance just yet, we believe, our increase in 2024 guidance should be broadly representative of our structural momentum into 2025, as we expect continued revenue growth, margin expansion and increasing cash flow. With this strong momentum and additional financial flexibility, we have a heightened sense of excitement across the business, and we look forward to sharing future updates.
With that, we now conclude our prepared remarks and open the line for Q&A.
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