Genius Sports Limited

Good morning, my name is Krista and I'll be your conference operator today. At this time, I would like to welcome everyone to the Genius Sports fourth quarter 2023 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'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. And if you'd like to withdraw that question, again, press star one. Thank you. I would now like to turn the conference over to Genius Sports. You may begin your conference.

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 20F filed with the SEC on March 30, 2023. 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 over to our CEO, Mark Locke.

Good morning, and thank you for joining us today as we conclude another year of consistent execution and outperformance. Over the last few years, we have carried out many strategic and commercial objectives, position our business for structural and sustainable success. The results of these objectives are now clear in our financials as we announce our eighth consecutive quarter ahead of expectations and present a business that is strong, well positioned and profitable today as it has ever been. To recap, we reported Q4 revenue of $127 million, beating our guidance of $126 million and representing 21% growth year on year. This brings our full year revenue to $413 million, which is $22 million ahead of our guidance at the start of the year and represents a 21% growth compared to full year 2022. Anchored to a cost base that does not grow in line with revenue growth, we converted 52% of every incremental dollar to our adjusted EBITDA in 2023, demonstrating the clear operational leverage of our business model. Our Q4 adjusted EBITDA of $12 million is also ahead of guidance, and it brings our full year adjusted EBITDA to $53 million, representing nearly three and a half times growth, over 800 basis points of margin expansion compared to 2022. Importantly, this led to $11 million of positive free cash flow in the second half of 2023, as we have guided to throughout the year. This marks a meaningful inflection point for the business as we expect to maintain positive free cash flow on an annual basis in 2024. There are several growth drivers that have contributed to our outperformance in 2023, and these same dynamics will continue in 2024. Therefore, we expect to grow our 2024 revenue by at least 16% to $480 million and our adjusted EBITDA by at least 41% to $75 million. We expect these near-term growth dynamics to persist over the long term as well. And with each passing year, we grow more confidence in our long-term strategic and financial goals. Our lead partnerships are growing from strength to strength as we expand our suite of technology solutions, empowering new forms of fan engagement and monetization. This ultimately gives us confidence in not only retaining, but also expanding our technology delivery relationships over time. A few notable examples from this year are the extensions of our NFL and Football Data Co partnerships. Most recently, we also announced a 10 year strategic partnership with FIBA, where we plan to deliver our computer vision technology and AI powered capabilities across the 200 plus national federations worldwide, covering tens of thousands of global basketball events per year. With our scale and best in class technology suite, We have a diverse number of channels to monetize our different league relationships. This includes opportunities unlocked with broadcasters, content distributors, sponsors, advertising, and of course, Sportsbook customers. For our Sportsbook customers, this same technology creates new value enhancing products to better engage their audiences and drive more betting activity. BetVision is a great example of this, which we will cover shortly. Each of these different touch points solidifies our position at the heart of the digital sports ecosystem, and more importantly, translates to sustainable improvement in the financial metrics that we are most focused on. This includes consistent revenue growth, disciplined cost control, margin expansion, and free cash flow generation. Given the multitude of growth drivers and high visibility of our cost base, we are more confident than ever in achieving our long-term EBITDA margin target in excess of 30%. Now let's review how some of these fundamentals performed in the quarter. We'll start with the positive trends we've seen in the U.S. sports betting market through the full NFL regular season. As a reminder, our revenue share agreements with U.S. sports book operators enable us to benefit from multiple growth drivers, including broader market expansion, improvements in operator win margins, and higher in-play betting, where we earned three times higher revenue share relative to pre-match betting. In our third NFL season, each one of these variables have fueled growth in our overall betting revenue and in the US, where we expect significant growth over time. The diverse multitude of growth drivers helped us exceed expectations in the quarter, which is a proof point of our rock solid business model, which insulates us from unfavorable sports outcomes that you may have heard about from our customers. First, we continue to see impressive growth in the total US sports betting GGR, which increased by approximately 50% in 2023. This has come in the form of new state launches, as well as continued growth in existing states. It is worth calling out Genius is market share agnostic, meaning as long as the market grows, we will grow with it, regardless of which operator ultimately wins. For instance, in Florida, where Hard Rock is the only operator at the moment, we realized immediate revenue uplifts off the back of their online sports betting relaunch in the quarter. For the NFL more specifically, it has been another spectacular year across the board, and particularly on the betting front, with in-play handle and GGR increasing by 60% and 140% year-on-year, respectively. What's more encouraging is that we've also seen a meaningful improvement in in-play win margins compared to our first NFL season in 2021. We have always said that in-play betting would naturally increase as the market matures, and we are beginning to see that now. We also believe that this would be a product-led evolution, and our introduction of BetVision this season is now a proof point of highly engaging product that activates more in-play betting on NFL games. Last quarter, when we first launched BetVision, we discussed how this product simplifies and enhances the discoverability of in-play betting. BetVision brings together many of Genius' best tech assets, live odds players and team stats and the next gen augmentation to name a few to deliver a differentiated in-play betting experience and we expect that this will be critical for sportsbook to attract and engage a valuable sticky customer base we also provided some early data points to demonstrate how it helps sportsbooks increase their in-play betting volume it was a small sample size then But now, with a full season behind us, we're happy to say those numbers held up consistently throughout to the end of the season. To summarize, 50% of the total number of bets made by BetVision streamers were in-play bets. Of the total betting handle, or dollar volume bet, from BetVision streamers, 76% was from in-play betting. And when comparing the first half of the season to the second half, we've also seen total betting handle and in-play betting handle tripled over that time. We are very happy with the early success of this product and the value we have created for our sportsbook partners and to the NFL. However, what excites us most is the innovation roadmap still ahead and the opportunity to develop new features for the NFL and expand this product to even more sports. We have created a platform that now generates millions of eyeballs which presents a vast opportunity to monetize in many different ways. As the world of sports, betting, media, and broadcast are rapidly converging, we are providing key solutions to keep our partners at the forefront of this trend. We expect to launch even more features to the BetVision product to create a fully personalized and interactive experience. So stay tuned for much more to come. BetVision is just one of the many initiatives that we have delivered on to empower our Sportsbook customers to succeed. As such, we view ourselves as a true value-add partner to Sportsbooks, providing more tools to help them win and grow their businesses. Consequently, our business model positions us to grow alongside our customers, and the output of this has been steady net revenue retention over the last few years. On slide eight, you'll find updated net revenue retention metrics, which highlight a successful track record of increasing customer value over time. It's important to remember that there are multiple inputs contributing to growth with each customer. For example, when we have revenue share agreements, predominantly in high growth markets like the US, the values have naturally increased based on a handful of factors, including large in TAM, high in play betting, and improving win margins. However, growth has also come in the form of new product offerings like BetVision or digital advertising services, for example, or simply just offering a wide range of content from our rights portfolio. We aim to provide differentiated tools and content to help our sportsbook partners grow over time. Our commercial arrangements then enable us to share in that growth. We have a long history of partnering with hundreds of sportsbooks in this fashion, and we expect to continue to success over time. In the context of our frequent ongoing contract renewals and new negotiations, you should view these as opportunities for us to provide new value added products and services to help sportsbook enhance their offering to customers. This is exactly how we have achieved our strong net revenue retention historically. and how we expect to sustain that success going forwards. Importantly, many of these growth drivers I mentioned have resulted in immediate revenue benefit with little or no incremental cost, which is exactly how we've been able to improve our profitability and cash flow profile in 2023. Equally, these same dynamics that supported our financial success in 2023 will continue to drive profitability growth in 2024. particularly as we continue developing innovative products and have many opportunities to bring them to market. With that, I'll now pass the call to Nick to discuss the financial results and initial 2024 guidance in more detail.