Genius Sports Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 13, 2023

There are 15 speakers on the call.

Operator

Good day. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the Genius Sports Third Quarter 2023 Earnings Conference Call. 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

Thank you. I will now turn the conference over to Genius Sports. You may now begin.

Speaker 1

Thank you, and good morning, everyone. 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 20 F 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.

Speaker 1

These measures should not be considered in isolation or as a substitute for Genius' and Financial Results Prepared in accordance with U. S. GAAP. A reconciliation of these non GAAP measures to the most directly comparable U. S.

Speaker 1

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.

Speaker 2

Good morning and thank you for joining us today. We are happy to report quarterly financial results ahead of expectations for the 7th consecutive quarter. And for the 3rd time this year, We are once again raising our full year guidance. For the full year, we are now expecting adjusted EBITDA growth of over 2 30% to $53,000,000 an 830 basis point margin improvement over last year, along with a step strengthen our long term position with our most important partners. Our position, now Even more secured through high profile new partnerships and renewals that we announced recently, provides us with the opportunity to reiterate with confidence On today's call, we will cover a few key topics to emphasize these points.

Speaker 2

We will discuss how our league relationships are growing stronger through the deployment of new technology. We will provide more detail on our innovative product sets, including the launch of BetVision, which is completely unique in the market and revolutionizes the way sports betters engage with the NFL and its sportsbook partners. And we will review how this accrues to our benefit in the form of steady revenue growth, EBITDA margin expansion and free cash flow generation. To start, let's recap the financial results from the quarter. We reported group revenue of $102,000,000 beating our guidance of $100,000,000 and representing a 29% year on year growth.

Speaker 2

This translated to $18,000,000 of group adjusted EBITDA, Exceeding our guidance to $17,000,000 and representing nearly 2.5 times growth versus last year. We have also consistently expanded our group adjusted EBITDA margins in each quarter this year. This quarter, Our margins improved to 17%, up from 10% in Q3 2022, further demonstrating the operating leverage of our business model. Nick will cover in greater detail in his section, but you will see how we, Again, remained disciplined on costs and reported lower GAAP operating expenses in this quarter compared to the prior year, even as we grew top line by nearly 30%. This type of quarterly performance is exactly what makes the business model unique in the market.

Speaker 2

Looking ahead, we are also raising our full year 2023 revenue and EBITDA guidance to $412,000,000 and $53,000,000 respectively, well above our initial expectations of $391,000,000 $41,000,000 at the start of the year. This represents meaningful EBITDA margin improvements from 5% in the full year 2022 to 13% in 2023. Importantly, we have also reached a critical inflection point in free cash flow generation. Throughout the year, we have to become free cash flow positive in H2. And after reporting a positive quarter, we are reaffirming this outlook.

Speaker 2

As we look ahead to the outer years, we also remain confident in our ability to achieve the long term EBITDA margin target in excess of 30%. As I mentioned earlier, what gives us confidence is the high visibility of our fixed cost base going forward, Particularly as we have just renewed and extended our NFL rights agreement through 2028, along with a growing demand For our products and services from all customer segments in our business, leagues, sportsbooks, broadcasters and brands and sponsors. As we discussed last quarter, it is critical to understand that Genius Technology is the reason why leagues new extend and expand our partnerships, often without even running a competitive tender process. To put it simply, the more deeply integrated we are within the league's The more time we have to integrate technology, the stronger our position becomes, which gives us greater confidence in our ability to maintain those relationships over time. Through the deployment of new technology, Genius is already an integral partner of the digital infrastructure supporting the sports ecosystem.

Speaker 2

Leagues like the NFL or English Premier League, for instance, are utilizing Genius tech enabled solutions to drive forward their key initiatives across sports betting, Fan engagement and broadcast innovation to name a few. This technological entrenchment is a key pillar of our partnership and reinforces our competitive advantage. It is exactly how we continue to strengthen our moat and gain more confidence in our ability to renew deals and deliver on our long term financial model. Whenever you see us expand our technology offering in partnerships with leagues, you should understand this is not only incremental revenue, But also as Genius becoming even more deeply ingrained with our partners. On Slide 6, you will find just a few examples of this from the quarter.

Speaker 2

For instance, with the NFL, we have added new features To each of the broadcast we have been working with this season, including Amazon Prime, CBS, TSN, Or the NFL's streaming subscription service called NFL Plus, who we recently announced a deal with to power AI driven data visualizations and graphics. One example that you may have seen on Thursday Night Football is our AI, a machine learning technology, Now identifying potential defensive blitzes or open receivers, bringing even more insights into the viewing experience and all in real time. At the start of the year, one of our goals was to distribute this technology as widely as possible As we aim to make these features ubiquitous with live sports broadcast, we have executed on this plan throughout the year As Genius is now augmenting every single NFL game on one platform or another. On one hand, this demonstrates the importance technology to the NFL broadcast, but equally this represents a critical milestone for the broadcast distribution of this technology. Similarly, we have also signed a new partnership with Premier League Productions to enhance live broadcast of English Premier League matches across 185 countries with rich insights and data driven augmentations.

Speaker 2

The ultimate broadcast called Premier League Data Zone allows viewers to see player names, passing accuracy, shot speeds and pitch maps all interwoven into the live broadcast through the unique L bar. This is currently being utilized by 19 different broadcasts across the EMEA and APAC regions as well as the Americas and reinforces our wide ranging partnership with Football Data Co. We encourage anyone listening on the call To explore this new innovation in broadcast and see for yourselves how we're helping leagues and their broadcast partners better engage their fans in new creative ways. Each week brings a new wave of positive public responses to these innovations, which further validates the idea that fans enjoy having the option to watch live sports with these enhanced features. The technology integration with leagues across the globe Is the most effective way for us to protect our data rights, strengthen our competitive moat, create more ways for leads to better activate their partners and fans, and of course, drive new pools of revenue for our business.

Speaker 2

This brings us to VetVision. BetVision is a first of its kind product that is differentiated from anything else in the market. While live streaming has existed on sportsbook apps for several years, the key difference in BetFision is the combination of all our best technology Assets that are unique to Genius. Real time NFL stats, live betting markets, computer vision and augmentation capabilities and Integrated BetSlips. This sets us up on the path to revolutionize sports betting experience and represents the first Genuine example of the convergence of sports, betting, media and broadcast.

Speaker 2

For those who have not yet seen the product, BetVision is a single platform where users can view the lowest latency stream of NFL games, find real time data, Control the level of broadcast enhancements and place bets all from within the video player. In other words, users can find everything they need all in one place, giving our sportsbook customers And lead partners, a critical tool to attract the sticky engaged fan that they all want. Importantly, it also simplifies and enhances the discoverability of in play betting. PetVision now delivers many of the features that users want to see alongside their in play betting experience. And although it's still in early days and early in the season, the initial results in September have been very encouraging.

Speaker 2

First, 54% of the total number of bets made by BetVision streamers were in play bets. Of the total betting handle or dollar volume bets from BetVision streamers, 83% was from in play betting. This compares to the 20% to 25% we have seen historically in the U. S. We've also seen that in place handle from streamers increased by 121% since week 1 and overall handle per streamer has increased by 87% in that same time period.

Speaker 2

These data points should highlight how Bet The growth of in play volume from BetVision is a clear demonstration We can achieve our longer term expectations of 70% to 80%, like we have seen in more mature markets. This is important to us because we own 5% to 6% share of in play gaming revenue, which is roughly 3 times higher than our pre match revenue share. So as we continue to increase the in play betting, we directly benefit from this higher revenue share at no incremental cost, therefore contributing to our profitability at near 100% margin. To close, You should hopefully have a better understanding of how our technology is solidifying our position with the leagues and helping all of our partners better engage fans and drive profitability. We're delivering on our strategic objectives, and this is translating into consistent financial results ahead of expectations.

Speaker 2

I'll now hand the call to Nick to cover these financial results in more detail.

Speaker 3

Thank you, Mark. You've already heard that the group level numbers from Mark, and we're pleased to report revenue and adjusted EBITDA ahead of expectations for the 3rd time this year. Much of the outperformance was in our betting product, which contributed $66,000,000 of revenue in the quarter. This exceeded our guidance by $2,000,000 and represented 34% year on year growth, the highest annual growth rate in almost 2 years. We exceeded our expectations despite operator win margins being lower than the comparable period last year, As you have heard them discuss over the previous few weeks, our performance was driven by with our global sports book partners through the cross sell of additional services and higher utilization of content.

Speaker 3

Our media revenue was $23,000,000 in the quarter, only slightly behind our guidance of $24,000,000 mostly due to Sportsbooks pulling some of their advertising spend forward in Q2, as we mentioned on the last call. That said, our Media segment returned to the type of strong growth we expected against more normalized comps with growth of 28% year on year. On a group adjusted EBITDA basis, We've reported $18,000,000 beating our guidance of $17,000,000 and representing nearly 2.5 times growth compared to Q3 of 2022. On the right hand side of Slide 10, I'd like to highlight the consistent growth in adjusted EBITDA we have demonstrated throughout the year. Year to date, we have grown our adjusted EBITDA by $28,000,000 compared to last year, representing a 56% incremental margin of the revenue growth of $50,000,000 You will see how our adjusted EBITDA margins have expanded in each quarter this year, beginning in Q1, where we improved by nearly 1200 basis points year on year to the Q2 improvement of over 600 basis points and the Q3 improvement of 7 70 basis points.

Speaker 3

This is true on a group margin basis as well. In each quarter, our gross margins have materially improved year on year. Most recently, in Q2 and Q3, We improved our gross margins by 1500 to 1600 basis points. This is driven by a cost structure that, as we've said before, can support significantly higher revenues. If you look at Page 15, you will see for the 9 months ended 30th September, Our cost of revenue, sales and marketing, R and D and G and A are all down on a GAAP basis over the comparable time frame from 2022.

Speaker 3

We have long discussed the operating leverage of this business, and we are now proving this in our year to date results. Looking ahead, We expect to finish the year well ahead of where we initially guided and now aim to deliver $412,000,000 in group revenue and $53,000,000 in group adjusted EBITDA. And this assumes an exchange rate of 1.25 consistent with our assumptions last quarter. Importantly, we also finished the quarter with $116,000,000 of cash on the balance sheet, Ahead of our closing balance in Q2, and we've maintained our expectation to be cash flow positive in H2. And with that, we will conclude our prepared remarks and open the line to Q and A.

Operator

Your first question comes from the line of Ryan Sigdahl from Craig Hallum. Your line is open.

Speaker 4

Hey, guys. Good morning, afternoon. I Want to start with Florida, so Seminole Tribe via the Hard Rock app relaunched last week. Are they a Genius Data customer? And how do you think about that opportunity?

Speaker 5

Hey, everybody. It's Mark. Yes, they are a Dave's customer. And obviously, it's very good news.

Speaker 3

We supported them this weekend

Speaker 5

With their launch, they've given some sort of nuance to the launch at the moment. They've gone live only with Customers that historically downloaded their app. So at the moment, we're sort of viewing it very, very positively No, a significant opportunity, but just been cautious to begin with. And overall, we think this is very positive. The other thing is probably worth just mentioning is it really sort of demonstrates our operational leverage and the underlying business model that as a new State comes on board, we're immediately able to support that State with additional product at virtually no extra cost.

Speaker 5

So it drops through at near 100% margin for us.

Speaker 4

And then just on BetVision, appreciate those 1st couple of week metrics you gave on the prepared remarks. Given that, I guess, has that changed your asking price or negotiating leverage with the other sports books besides that original 3 that you launched with? And then kind of second to that, I guess, what needs to happen to get the big 2 sportsbooks to use it?

Speaker 5

Look, I said right from the beginning, this is about not only with VetVision, but with our wider augmentation products. It's about ubiquity and it's changing user behavior. I think this is a really positive start and we've got close relationships with those sportsbooks. I've said a number of times that we're going through a process at the moment of contract renewals that will be coming up over the next period. And obviously, any negotiations that we have are going to be part of those wider renewals.

Speaker 5

The other part of your question was Sorry, remind me the second question you had.

Speaker 4

Yes, you kind of answered it. It was mainly just the big 2 sports books. And if there's anything, I guess,

Speaker 5

Yes. Look, we feel super positive about our position. We're feeling good about that.

Speaker 4

Great. Thanks, Mark. Nice results and execution. Good luck, guys.

Operator

Your next question comes from the line of Bernie from Needham and Company. Your line is open.

Speaker 6

Great. Thanks for taking the question. Maybe just a follow-up on the Hard Rock question, same thing, but for ESPN Bet Launching this week, any thoughts on how that will impact the business and what's contemplated in the 4Q guide?

Speaker 5

Yes. I mean, good question Again, and thanks for sort of highlighting that, but it's bluntly the same answer. They are a customer and we see the opportunity It's very exciting for the business. And again, underlying operational leverage

Speaker 3

that we've got. Yes. Hi, Bernie, it's Nick. And Specifically on the Q4 guide, look, I think Mark alluded to it in the last call. These were very positive long term trends for us.

Speaker 3

They don't make any significant difference in the short term given we're dealing with, what, 5 or 6 weeks of the season when as you know as well, Bernie, 7% of our revenues are still outside of the U. S.

Speaker 6

Understood. And then with the hire of Manny Quintas, former CTO of MediaMath. Can you just talk about some of the changes or developments that be happening in the advertising product?

Speaker 5

Yes. Look, I mean, I think I've been And clear about our strategy in the advertising market over time. It's obviously growing very nicely. You've seen that come through in our results. Manny is, I mean, a fantastic hire for us.

Speaker 5

He's very well respected in the ad tech market.

Speaker 6

He's been the pioneer of a

Speaker 5

number of in the ad tech market. He's been the pioneer of a number of the ad tech platforms out there, and he's a big He's a big part of what we're focusing on. Clearly, brands, agencies are a big focus For us, for the business and the development of our ad tech platform and the development of the technology in that, that Really, it's incremental growth in the business. There's no sort of big bangs we're expecting. It's a big part of our strategy.

Speaker 5

And again, we're seeing real value coming from it. So we're Frankly, Manny is a great hire and we're really excited to be working with him.

Speaker 6

Great. Thanks, Mark. Thanks, Nick.

Operator

And your next question comes from the line of Jordan Bender from JMP Securities. Your line is open.

Speaker 7

Great. Thanks for taking my question. Good morning. Are you seeing for BetVision, are you seeing the incremental player, those People watching, are they coming from traditional cable viewing or is there kind of enough evidence to say, those are 2 screen watching betters? Thank you.

Speaker 5

Yes. I mean, just to be clear, we obviously don't have any specific data about the crossover between cable and VetVision, This is about 2nd screen experience. There's a lot of value, a lot of that like incremental Additional product sets that we rolled out with VetVision with the augmentation. And whilst we're treating it cautiously Because they are sort of small sample sizes and we want to be very cautious about what we're saying that the initial results are Incredibly positive. One thing that's probably worth, I think, is a sort of interesting take that you may not sort of be too focused on is we've obviously Talked historically about the shift of in play, we expect a much higher the U.

Speaker 5

S. Market to be a large In play market in the same way that the European market is just to remind people on the call, roughly sort of 70% to 80% of all bets In a mature market are made in play. And what we've sort of said consistently is that A lot of the growth is going to come from product led growth. And if you remember FanDuel announced in their results A few months ago, 67% of their NFL bets were made from by people who didn't leave the homepage. My comment at the time, I think, was that we're very much focused on helping the bookmakers, helping the sportsbooks to drive their players to in play betting through better products.

Speaker 5

That's how we're helping those That transition. And this is a really good example of that. And frankly, it's also a really good proof point The bookmakers are taking the transition of players from pre match or from even home page betters To sort of more sophisticated in play players is something that we're sort of Seeing very positively. So we're incredibly excited about this product. It demonstrates the strength of the augmentation product line, strength Spectrum and again, we're seeing it very well received in the market.

Speaker 7

Great. And then you guys are having several board members leave the company. Can you just kind of talk to what you're looking forward to fill those seats? Thank you.

Speaker 5

Sorry, can you say it again? We're looking

Speaker 2

Yes. Can you guys just kind

Speaker 7

of talk to who you're looking for, the qualities of the

Speaker 5

Yes. Look, I mean, we've had a very strong Board and It's done a very good job for the company. This is a natural transition as Board members come to the end of their terms. Going forward, we're looking for, I guess, all the sort of obvious stuff, people to support the growth of the company, provide us with The continued ability to scale and leverage the business in public markets And continue to mature as a public company. So, I mean, it's an active process that we are now running and we're excited about some of the quality of the candidates coming through.

Speaker 7

Thank you very much.

Operator

Your next question comes from the line of Joshua Marin from Oppenheimer. Your line is open.

Speaker 8

Hi. Could you remind us on your exposure with European Soccer Holds The other sportsbooks and competitors have called out. Is there any color to add there?

Speaker 3

Hey, Josh, it's Nick. Our European business isn't massively exposed to holds. As you know, most of our European business is on what's known as a sort of fixed fee basis. And therefore individual results or individual weekends don't have any significant issues for us in terms of our revenue recognition.

Speaker 8

Okay. Thank you.

Operator

Your next Question comes from the line of Mike Heggie from Benchmark and Company. Your line is open.

Speaker 9

Hey, Mark, Nick, Charles, Brandon, good morning guys. Good afternoon. Great quarter. Nice to see that free cash flow. Congratulations.

Speaker 9

Just two questions. One on that vision, just curious if you could double click there on how you think about Scaling the product, obviously, you can add more operators. I get that you asked that. But how you think about, I guess, scaling Within the operators that you have or and or maybe other sports leagues, Mark, you could And over time besides NFL, obviously it's a compelling product and how you think about Materiality as you scale it, whether it's impactful for 'twenty four or we should think beyond that. Second question is on your model.

Speaker 9

I mean, clearly, it's working here, incremental margins off the charts, margins are growing Obviously, but curious how you think about efficiency. Your primary peer here is taking another look at Their OpEx are optimizing, they're reducing headcount. Just curious how you're thinking about your overall OpEx and if you think there's efficiencies Fine. Thanks guys.

Speaker 5

Okay. Let's sort of take those backwards because there's quite a lot in there. So, look, in terms of incremental margin, I mean, yes, you're right. I mean, they're coming through really nicely. It really is demonstrating, as I said before, I'm sort of Kind of reading myself the operational leverage in the business and we're really happy about that.

Speaker 5

In terms of the scale of the business, we feel we're right sized. We've been very careful about cost control. We've managed the business very well over the period. And I think at the moment, we're seeing the underlying cost base and right size, if anything, We may even look at sort of potentially a small reduction in some of the capital outlay. And a lot of the reason that we're able to do that is because a lot of the growth in the future, a lot of the focus in the business It's 2nd spectrum and what we've been doing there and really when we bought that business, we bought a business that had an awful lot of investment in there's a lot of companies out there that are trying to move into the AI machine learning computer vision space.

Speaker 5

I think it's very difficult To do that, but certainly it's the case if you are even trying to do that, you need to spend a lot of money. Now we've already spent a lot of money. We know Over $250,000,000 I think has been invested in 2nd spectrum, that computer vision machine learning, AI augmentation Technology that's now really delivering hard revenues and really delivering growth, which I'll come on to in a second with that vision. But I think that from our point of view, we're not foreseeing any sort of Major material changes in the way we're operating the business. We feel we're doing it in the right way.

Speaker 5

We feel we're right sized And we will if anything be with the way it's operating at the moment be potentially reducing some of those cost lines. On the VetVision product, there was a lot in that question and so it gives me a bit of space to talk about it. I mean, look, In terms of scaling, I think there are 2 main areas, and you correctly highlighted them that are obvious. 1 is a number of operators. And again, our model here is about making sure that we distribute the VetVision product in the same way that we're trying to do with the augmentation products and frankly Having a lot of success with that augmentation product to as many different customers as possible.

Speaker 5

And again, that changes customer behavior, It gets ingrained and people are starting to see real value and that value again has been highlighted in some of the metrics that we've shared today with the results, although We are being cautious about that. In terms of the sports, clearly, our technology is not only focused on the NFL. I mean, obviously, NFL He's part of our partnership base, but also the work that we've done with Premier League Productions recently is worth highlighting It's maybe not always obvious to people. We have a very sophisticated soccer product that, again, Premier League Productions, which is the commercial arm That distributes European sorry, U. K.

Speaker 5

Soccer to global broadcasters. They have taken 2nd Spectrum and they have used or they are using 2nd Spectrum to augment That soccer broadcast to multiple different jurisdictions that they're selling their streams in and including in the States, you'll see on Peacock. So, what the reason that's interesting is, firstly, it goes to our 2nd spectrum technology, which is, again, the broadcast market is good for us. But also in terms of specifically BetVision, it gives us it shows you the capabilities that we have with additional sports. So soccer is something that we've done.

Speaker 5

Basketball is obviously something we're very sophisticated in as well and is available to us. So we've got the ability to augment there. The sort of final area that's probably less sort of obvious with the VetVision stuff is around some of the advertising and sponsorship work. Now clearly, putting out these augmented streams gives us the ability to create new content And that new content is open for either the bookmakers to advertise effectively to themselves, retarget, reactivate their own customers, But also potentially bringing partners there. So that's another stream of business that we'll be looking into over the coming period.

Speaker 5

Hopefully, that sort of answers the question on that, Mike.

Speaker 9

Yes, Mark. The only other piece Thank you for that. That was great. The only other piece was how you think about maybe it's too early days here, but if we should be thinking about Some level of impact. Obviously, you've got the stickiness and the rights fee impact that's More qualitative, I guess, but we'll obviously feed math, but just how you're thinking about whether or not this can be a driver for you in 24 or if we should be thinking more medium term?

Speaker 5

Yes. Look, I mean, there's sort of 2 parts to that, I guess. The first is the shift of U. S. Sports betting in play is a clear focus for us.

Speaker 5

I mean just to remind We take about 1.25 percent pre match and somewhere between 5% 6% of in play betting. So not only through the VetVision product do you see An increase in the volume or increase in handle as I went through in my remarks, but you were also taking somewhat 2, 3 times the amount of So there's a compounding effect there that's obviously material to our business. And in terms of what Some of the growth that's coming out of the business and some of the numbers that we'll indicate in the future that will obviously be contained within that.

Speaker 9

Thanks, Matt. Thanks, guys.

Operator

Your next question comes from the line of Jason Bazinet from Citi. Your line is open.

Speaker 10

Hi, good morning. You guys have a very good track record in terms of Delivering financials that are consistent or ahead of your guidance. And I guess my question is, as we think about sort of next quarter and you Offering up guidance for 2024. I'd be curious the 1 or 2 things that are swing factors next year. Like what are 1 or 2 things that could break your way or work against you as we think the 24?

Speaker 3

Yes. Look, there's a number

Speaker 5

of sort of, I guess, the underlying business is reasonably predictable. And I appreciate you saying that we've got a good track record and I think That's a function of us having really strong visibility over the underlying cost base, but Really over the way that we structured our contracts. 2024, to make sure that right, you're right It is an important year for us in terms of renegotiations with our bookmaker clients. The addition of new products That vision combined with the cycle of NFL renewals that we've talked about coming through with the U. S.

Speaker 5

Sportsbooks. So, those Contract negotiations are very important to us. Again, we've got a very good track record with our partners of Doing deals, we've been doing this for a long time. So we understand how to Structure mutually beneficial partnerships on an ongoing basis. So that pricing is a function is a focus of us.

Speaker 5

I think on the cost side, it's reasonably straightforward. Again, we've got a very good grip of our underlying cost base. We've got incredibly good visibility. And I think One of the important things to highlight again here is that our rights deals that we've got, They go out into the future and we've got really good visibility. We know how much we're going to be paying our partners over the coming years.

Speaker 5

And what that allows us to do is to be very diligent with our cost management. And I think that combined with the fact that we don't need to do any other rights deals, we've got everything we need. I've said it many, many times, I'll say it again, It means that we don't expect there to be if a right deal comes up or something comes up that we think is particularly important, And obviously, we will participate in it, but frankly, we are only going to do that if it marries with the strategy of generating Profitable Growth. So, again, we feel quite good about that. So, at the moment, we feel like 2024 It's a highly predictable year for us.

Speaker 5

We understand where we are at our commercial partnerships. It's not without some risk around some of the renegotiations. But equally, we've got Incredible strength of product. So I would think that we will have a lot of success in that on that basis.

Speaker 10

Can I just ask one follow-up? The timing of those contract renewals on the revenue side, will those contracts sort of be known knowns by the time you give '24 guidance or it will be a known unknown?

Speaker 5

They are known unknowns. We will not we know that we don't know. So and that will be the case, frankly, until a lot further into the year.

Speaker 10

Okay. Thank you.

Operator

Your next question comes from the line of Clark Lampton from BTIG. Your line is open.

Speaker 11

Thanks very much. Good morning. I've got 2. I'll ask another, I guess, sort of known unknown question. Nick, you're back to generating free cash.

Speaker 11

You highlighted value exchange with new services as part of that partner renegotiation process. I guess I'm just curious as we're thinking about these Future stages of renegotiation approaching, how you might think about product and that sort of value exchange? Would you look to build More of this sort of incremental product internally with your own resources, is this something you could use the balance sheet

Speaker 3

It's about balance, I guess, is probably the headline to that answer. We absolutely We'll continue to develop new product. We are a technology business. I mean, one of the great things about BetVision that Mark touched on the answer just earlier to Mike's question Was getting it out there and getting it used by all the sports books is then enables us really to use that as a platform to then develop further products and ingrain ourselves and drive further revenues on it. So that's kind of how we're looking at it from the betting side and it's exactly the same really from the media side.

Speaker 3

Indeed, Again, Mark answered the question earlier about our recruitment in the senior leadership of that area. That's a really good example where We're looking we will develop more products, but going back to my headline is it's going to be about balance, making sure that we're Financially disciplined in doing so and making sure we live within our means.

Speaker 11

Understood. And then maybe on the ad business, for Josh, it sounds like 3rd quarter was a little bit more front loaded in terms of endemic customer spending. As we're thinking about the sort of implied acceleration for the current quarter, Have you seen a pickup in customer spend that sort of underpins or supports that? Are you seeing maybe more of a seasonal push with brand customer cohorts? Thank you.

Speaker 12

Hi, Clark. It's Josh here. Yes, to answer your question, I mean, it's pretty Consistent in terms of the spend that we're seeing, I mean Q4 outside Q4 is big for the is significant quarter for the sports book business Advertising, it always has been and will continue to be so. And then as we look to continue to grow the sort of Brand space and as people have touched on the hiring there and us sort of very much focused on that, we're seeing Some good progress in that area of the business, particularly with it being Q4 and a big spend quarter for a lot of Sort of traditional endemic brands around sport and I expect the seasonality that we see in the betting business around sport to be in that area as well because that's our specialism.

Operator

Your next question comes from the line of Eric Martinuzzi from Lake Street. Your line is open.

Speaker 13

Yes. On the cash flow projections, I was just curious to know what your expectation is for CapEx for the year, I think the capitalized software number you said historically around $40,000,000 for the year, but those two numbers would be helpful.

Speaker 3

Yes. Hi, Eric. Yes, you're right. We've been spending around about $10,000,000 of capitalized development costs Really for the last sort of 2 or certainly probably 24 months has been running at that and expecting this quarter to be of a similar level on that position. So it's going to be around about $40,000,000 CapEx for the quarter is going to be relatively might be $1,000,000 or $2,000,000 in the quarter, but nothing more than that.

Speaker 13

Got it. Thank you.

Operator

Your next question comes from the line of Brett Knoblauch from Cantor Fitzgerald. Your line is

Speaker 8

open. Hi, guys. Thanks for taking my question and congrats on the quarter. I guess I have 2. First, on the bedding Technology segment, the kind of revenue outperformance there.

Speaker 8

Could you maybe parse out the drivers behind that a little bit more? Was it maybe NFL Forming better from a GGR perspective or was it a win rate perspective or was there other factors at play? And then on the Ryder Cup and the Rugby World Cup announcements, could you maybe highlight what that means for your business over maybe the medium To long term, is that maybe more of building a base to drive additional media revenue or how should we think about that? Thank you.

Speaker 3

I'll take the first part and I'll hand over to Josh for the second piece. On the first piece, look, we've always talked about, particularly in the betting business, about the multiple levers of growth, Brett, and you've heard us talk about that before. And we're seeing really seeing this right across 2023. So it's and the encouraging thing for us is also growth across the world as well. I think both European and Americas business are up 30% year on year.

Speaker 3

And that's really coming from a mix of things that's coming from new customer wins, it's coming from pricing in the European markets, but it's also coming from additional services and utilization we're seeing. So we're seeing it right across the board and we're very happy with that growth. There's a small benefit of tailwind of foreign exchange within the international business That accounts for a small proportion of the from the growth. I think the underlying growth is around about 26% once you strip out foreign exchange. And I'll let Josh pick up the specific around those biannual events.

Speaker 12

Hi there. Yes, I mean, It's really for us, those relationships with the Rugby World Cup and Ryder Cup are just a continuation of us having sticky relationships with our sports As a reminder, we build the FIFA World Cup platform. We do a ton of stuff for the NFL. And there's a whole host of reasons that people take those products from us. But around helping our partners understand their audience and feeding that back into the sponsorship models and being able

Operator

Your next question comes from the line of Robin Farley from UBS. Your line is open.

Speaker 14

Great. Thank you. I had two questions. One is, last quarter you had updated the FX rates that you use in your revenue guidance and I think it had added to your full year outlook. This quarter you didn't change, you didn't update for current FX rates and so I'm just wondering if you did, can you Quantify, what impact that would have on the revenue guidance, which I guess at this point would just be for Q4.

Speaker 14

And then also I wanted to clarify the earlier comment about the known unknowns. You were talking about the you won't know New negotiated terms until later in 2024, are those terms that would not be effective Until 2025 or would they impact 2024 and we just wouldn't know in your initial guidance? In other words, when do those new

Speaker 3

Hey, Robin. I'll just take this one the other way while I remember the second part of the question. Mark's right. In terms of the unknowns, I think in Jason's question, he was talking around about Easter, around about the end of Q1. Most of the negotiations, the contracts roll out in midsummer really for the start of the new NFL season.

Speaker 3

So they will be effective For 'twenty four, but it will be the last few months in 'twenty four rather than knowing about them when we give 'twenty four guidance, which we'd anticipate doing at the full year results. On the FX piece, Robin, your question was so we Given the guidance right now, they're round about 1.25. Actually, current foreign exchange is actually below that now. It's round about 1.22. So there's a sort of 1 $2,000,000 risk on those numbers in relation purely to foreign exchange, which is why we've not moved Q4's position.

Speaker 3

When I look at the Q3 position that we've just reported, I think we originally had it at 90 7 was the original guide at the start of the year, and we've got that to 100, I think, over the course of the last couple of quarters, which I think I called out was mainly Foreign exchange related, so the outperformance to 102 to 100 is this underlying outperformance of the business.

Speaker 14

Okay. That's super helpful. Thank you very much.

Operator

And there are no further questions at this time. This concludes today's conference call. Thank you for your participation. You may now disconnect.

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Earnings Conference Call
Genius Sports Q3 2023
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