Genius Sports Limited

Good day and welcome to the Genius Sports fourth quarter 2022 earnings results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again press the star one. Thank you. I will now turn the call over to Genius Sports. You may begin your conference.

Good morning, and thank you for joining us today. 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 20F, filed with the SEC on March 18, 2022, as amended by Form 20FA, filed with the SEC on November 10, 2022. 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. 2023 is an exciting year for Genius Sports, and our position strategically, technologically, and financially is the best it has ever been during my time as CEO of the company. Before we get into the year ahead, I'd first like to revisit the objectives that we outlined in our investor day at the beginning of 2022. As you may recall, we disclosed several financial and operational targets as part of our strategic plan. In particular, we outlined 25 different financial targets to provide clear benchmarks for success and to hold ourselves accountable to our shareholders throughout the year. With the year now behind us, I'm pleased to share that our team has delivered or exceeded all 25 of those targets throughout the year, while at the same time executing on our strategy to deliver our long-term goals. Among the highlights, we delivered 41% constant currency revenue growth to $341 million and $16 million in adjusted EBITDA, each outperforming our guidance. All this despite strong macro headwinds, including the significant FX challenges and the cessation of business in Russia. We continue to execute on our plan across the globe, supporting hundreds of leagues and sportsbook partners in every time zone. Our highly profitable and cash-generated core underlying business outside of the U.S. continued to scale, both in times of size, and margin, which is now in the high 30% range. We still see plenty of profitable growth ahead. In our second full year in the high-growth US market, we've established ourselves as the dominant player, with market-leading competitive advantage and revenue growth of 108%, far outpacing the growth of the broader industry. Keep in mind, the US is still a relatively new market within our global business. We expect this region will continue to be a long-term driver of significant growth for Genius, particularly as our losses continue to narrow year over year and we approach profitability in the US in 2024. We have continued to consolidate our technology position at the heart of the ecosystem by deploying technology across the highest profile leagues, sportsbooks, and broadcasters, including the NFL, CBS, ESPN, and Amazon. just to name a few. Our media business has also outperformed, and we have achieved our objective of not only growing revenues in excess of 50%, but also diversifying our client base to include long-term partnerships with major global brands, including Pepsi, American Express, Audible, Destination Canada, and much more. And this business really is just getting started. And finally, We have proven beyond argument the operating leverage of our business model. Our core underlying business is generating strong and improving free cash flow, and we expect meaningful inflection in group cash flow starting in H2 of 2023. Given our revenue growth and predominantly fixed cost base, we expect to nearly triple our growth EBITDA from $16 million in 2022 to $41 million in 2023. and generate positive free cash flow in the second half of the year. More importantly, we expect to deliver these results with the partnerships and assets that we have today. In other words, we are comfortable achieving our 2023 forecast without the need for any new rights deals, the opening of any geographical markets, M&A, or any other exceptional factor. And therefore, With $159 million of cash on our balance sheet as of the year end, no debt financing and the move to positive cash flow in H2, Genius is extremely well positioned. 2023 marks a key turning point. In the years ahead, we expect to continue along our path towards our long-term objective of group-adjusted EBITDA margins in excess of 30%. Given the strong and improving margins in the core underlying business, we feel confident in reiterating our long-term objectives. What gives us confidence is our second to none position at the heart of the ecosystem, which has only strengthened since going public. We are the technology partner of choice for leagues, bookmakers, sponsors, brands, and broadcasters. We have pioneered official data rights, deployed technology that makes us a sticky long-term partner to leagues, provided mission-critical data and services to bookmakers, developed the most effective sports-focused digital advertising technology and inventory, and implemented Second Spectrum's AI and computer vision technology to deliver the next generation of sports broadcasts. In essence, Genius is the trusted technology partner for anyone seeking to engage and monetize a sports audience in a personalized and cost-effective way. Our CFO, Nick Taylor, We'll provide more detail on our financials and guidance later on. But first, I'll walk you through the headlines. To recap, Q4, and starting at the top of the page, we delivered $105 million in group revenue and $3 million in adjusted group EBITDA. This represents 36% constant currency growth in revenue and a $15 million improvement in adjusted EBITDA compared to Q4 of 2021. Again, this brings our full year revenue in adjusted EBITDA to $341 million and $16 million respectively, exceeding our guidance for the year. This represents 41% constant currency revenue growth and a significant uplift in adjusted EBITDA from the $2 million reported in the full year of 2021. The outperformance in 2022 was multifaceted. First, we won new business throughout the year with a total of 71 customers in 2022. Second, among existing customers, we continue to expand our value-add services, having successfully competed contract renewals and renegotiations with large global sportsbooks. And third, in the US specifically, we've seen an increase in total sports betting volume, improvement in operator win margins, and strong growth of in-play betting. Each of these factors resulted in US revenue more than doubling in 2022. Additionally, our league relationships have strengthened throughout the year as our tech integrations were on full display this past quarter. More on this shortly. Looking ahead, Our execution in 2022 and strong tailwinds entering the new year gives us confidence in our guidance of $391 million in revenue and $41 million in adjusted EBITDA in 2023. Turning to slide six of the presentation, I'd like to point you to the table on the right-hand side showing our net revenue retention, which is an important metric that measures growth among our customers. You'll see that we have continued to execute on our land and expand strategy across all tiers of our sports betting customers, evidenced by the gradual increase in net revenue retention over the last few years. We've done this by successfully maintaining growth through the contract for renewals and renegotiations, alongside additional products and services, all while keeping our customer churn consistently near zero. Any churn that we do experience is typically a byproduct of low revenue customers dropping out of sports betting altogether. Now, it's important to keep in mind that 68% of our revenue is still generated from customers outside the US in more mature markets like Europe and the UK. Therefore, our net revenue retention over the last few years is heavily weighted towards these customers. Although sports betting is more mature in these regions, The concept of official live data, which we pioneered, is still very new and therefore still relatively undervalued, given its importance to bookmakers. Therefore, continued growth in our net revenue retention will be driven by a steady pace of contract renewals and contract renegotiations. This will also be supported by cross-selling content and other services, as well as customer expansion into new geographies, such as Brazil, for instance. This is an exciting new region, now introducing legislation to legalize sports betting. And Genius is extremely well positioned, particularly as we have just launched an association with industry leaders to preserve the integrity of Brazilian sport. Turning to slide seven, I'll stay on the topic of sports betting, but shift focus to the US more specifically. In the fourth quarter, which captures three full months of NFL betting, we've seen many encouraging developments relative to last year. First, we continue to see a rapid expansion of the US sports betting market as a whole. In Q4, online sports betting handle increased approximately 40% year on year. This is a function of successful new state launches in 2022, like New York, Maryland, and Louisiana, in addition to growth from more mature states. Looking to 2023, we expect growth to continue with new exciting state launches in Ohio and Massachusetts. As a reminder, our revenue share contracts with US Sportsbooks mean that every new state launch results in immediate revenue uplift for Genius with little additional cost. Growth in overall betting volume will continue to drive our profitability from years to come. We've also seen an improvement in NFL betting in play. Our in play handle or total dollar volume of bets increased by nearly 50% year on year. The combination of increased handle and better win margins has translated to in play GGR growth of over 60% year on year. We also saw NFL pre-match handle and win margins improve year on year, resulting in nearly 70% growth in pre-match TGR. As you may be aware, sportsbook operators are currently earning strong win margins on pre-match betting products like parlays and same-game parlays. We are often asked what this means for our business, and to be clear, Genius absolutely benefits from this positive trend. since we take 1.5 to 2% on NFL pre-match gaming revenue. As we have seen this NFL season, we expect the popularity of in-play betting in the US to grow for years to come, much like it has in mature markets. 50% growth this year is a fantastic start, and we think this growth year on year will remain a long-lasting tailwind for our business. In the meantime, genius benefits from growth in all areas of the market, including pre-match parlays and same-game parlays, which have driven recent success for operators. No matter the product, these bet types rely on our official data. So we are positioned to share in the upside as operators continue winning in this area. Each of these growth drivers have translated to 108% revenue growth in the U.S. in 2022, which will now enable us to reach profitability in the market in 2024. As a percentage of overall revenue, the U.S. is proportionally becoming more significant, now representing nearly one-third of our revenues in 2022. And while isolating our top 25 U.S. Sportsbook customers, we've achieved net revenue retention of 271% in 2022. demonstrating massive growth from our largest customers. The last piece I'll touch on before turning to Nick is the successful execution of our long-term strategy to become the digital sports technology partner of choice, not only for leagues and sportsbooks, but also to broadcasters, sponsors, and brands. Our fundamental goal is to develop technology to help leagues attract and engage the next generation of fans who want to consume sport in entirely new and personalized ways. This is why leagues want to work with Genius. Not because we write the largest check for data rights, but because we bring unique technology powered by computer vision and AI that unlocks the new fan experience that have never existed before and brings real value to partners across the entire digital sports ecosystem. This won't happen overnight, but in 2022, we began to significantly demonstrate how we turn this vision into reality. We've continued winning business with best-in-cast broadcasters such as CBS, Amazon Prime Video, TSN, Nickelodeon, and ESPN, just to name a few, developing and innovating across second screen experiences, broadcast augmentation, and much more. Every time you see our technology on screen, you should understand this as proof that we are providing value to our lead partnerships beyond rights fees, significantly strengthening and deepening our relationships. The result of successful execution here and why we continue to invest in this area is because this opens up and accelerates our position in massive new towns outside of online sports betting in broadcast technology and sponsorship, harnessing the unique position that we have today to deliver innovative and personalized experiences. I'll come back to this point in my closing remarks, but for now, I'll hand the call to Nick. to cover our financials.