Hello, and welcome to the Genius Sports Second Quarter Earnings Results 2023 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. [Operator Instructions] I'll now turn the conference over to the Genius Sports. Please go ahead..

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 risk 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 discussion in our filings with the SEC, including our annual report on Form 20-F, filed with the SEC on March 30th, 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 US GAAP.

A reconciliation of these non-GAAP measures to the most directly comparable US 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 over the call to our CEO, Mark Locke..

Good morning, and thank you for joining us today. We're pleased to continue our strong momentum through the first half of the year as we successfully executed on our strategic and financial plan. We began 2023 by telling you that this will be a key inflection year for our business as we expect to triple our adjusted EBITDA profitability.

With the first half of the year now behind us, the $24 million of adjusted EBITDA we delivered year to date is more than four times what we reported in the first half of 2022 and our latest full year guide, which we are again raising today to $52 million is now 27% higher than the $41 million guide to the start of the year.

Financial results from the first half of the year and the expansions of our marquee Football DataCo and NFL partnerships are a testament to the fact that our strategy is clearly working.

Our differentiated technology driven approach is solidifying our position at the heart of the sports media ecosystem, which is generating meaningful financial results across the entire organization.

As a result of our successful execution, we now have greater long-term visibility in our business and find ourselves further along the path to our long term adjusted EBITDA margin target in excess of 30% than we were when we started the year. We will discuss all of this in greater detail during today's call.

To begin, we increased revenue by 22% year-on-year to $87 million for the second quarter, well ahead of our $80 million target. This led to group adjusted EBITDA nearly doubling in the quarter to $16 million, also beating our guidance of $14 million. This represents an adjusted EBITDA margin of 18%, up from 12% in Q2 2022.

As mentioned in my earlier remarks, through the first half of this year, we have already more than quadrupled our adjusted EBITDA compared to the last year, demonstrating this rapid acceleration of profitability.

Given the results we've delivered to date and the operational milestones we achieved, we feel confident in raising our full year group revenue and adjusted EBITDA guidance to $410 million and $52 million respectively, significantly ahead of our initial 2023 guidance.

Additionally, we expect to reach an important inflection point as we turn cash flow positive in the second half of this year and plan to continue generating sustainable cash flow through 2024 and beyond. Among the highlights from the quarter was the extension of our two most important lead partnerships, Football DataCo and the NFL.

Our ability to retain and expand relationships with key lead partners is driven by our technology-led approach, which creates multiple points with various stakeholders within the sports digital ecosystem. This includes the league itself, teams, broadcasters, and sponsors.

This is fundamental to our strategy and a key reason why both organizations renewed our partnerships ahead of schedule and without a competitive bidding process. I'll touch on this again shortly.

By now, you should understand how our deep technology integration enable us to secure long term partnerships with leagues, which ultimately fuels growth across the entire business, not just in the betting, but also in the media. One of the long-term growth drivers of our media revenue is the expansion of our customer base.

While most of our media customers are still bookmakers today. We are gaining traction with non-betting consumer brands, representing a sizable long term opportunity.

Through the first half of the year, we have supported successful digital advertising campaigns for several new customers, including Puma, Bayer, Stellantis, Ram, Jeep, and Cobra, just to name a few. Our expanding footprint should support long term growth as we continue penetrating this market.

As a result of this strong momentum across the business, we have even greater confidence in our ability to achieve near and long-term results, particularly as we continue executing ahead of expectations and gave high visibility by securing long term rights renewal.

In other words, we now know the exact amount of fees payable to Football DataCo through 2025 and the NFL through 2028, and we feel confident in our ability to continue growing our profitability through that timeframe and beyond. To that end, I'd like to provide a bit more detail on recent rights renewals.

Our unique approach to lead partnerships has always been led by our suite of technology solutions. This is a key reason why leagues choose to work with us and stay with us over time.

While we'll focus on Football DataCo and NFL renewals today, it is this very same strategy that enables us to win the new deals with leagues of all sizes across the world on a frequent basis. We maintain over 400 league relationships globally, all of which are centered around our technology.

The recent renewals of our two most important partners now validate our core strategy and the quality of our technology, particularly as both sets of deals will renew without any RFP or competitive bidding process, further improving the strength of our relationships.

Importantly, they also strengthen our positioning as we negotiate contracts with sports book customers, so we continue to benefit from the tailwinds in the sports betting industry for many years to come. To quickly recap. First, we extended and expanded our partnerships with Football DataCo, which represents all professional UK football.

This includes the English Premier League, English Football League, and Scottish Professional League. Collectively, this amounts to approximately 4,000 events annually, which are among the most bet-on events in the world.

By securing the exclusive rights to these events through 2025, we have not only gained stronger visibility of our cost base, but we will also maintain our competitive position within the network of global sportsbooks who require this data, especially as we negotiate and renew these customer contracts on an ongoing basis.

On that basis, we remain confident in our ability to continue growing our profitability through the term of this partnership. It is also important to understand that Second Spectrum was a critical component of this deal. Second Spectrum has long been the official player tracking technology provider of Football DataCo.

Most recently, we also utilized this technology to fully augment broadcasts of Premier League matches towards the end of the last season.

As part of the latest extension, we've renewed this AI powered tracking technology partnership with the English Premier League and expanded this for the ESL championship, the fourth most watch lead in Europe, further broadening distribution of Second Spectrum. We also renewed and extended our strategic partnership with the NFL.

As a reminder, the initial turn of this partnership was a four-year period and years five and six renewal by the NFL in one-year increments.

Now, just two years into our partnership and with two full seasons still to go, the NFL has not only renewed years five and six, but also added a seventh, securing our exclusive partnership through the 2028 Super Bowl.

Again, this gives us high visibility of our rights fees through 2028, solidifies our commercial position in the sports betting market and reaffirms our view that we continue to grow our profitability through the life of our NFL partnership, much like we have in our first two seasons.

The fact that the NFL renewed and extended the deal so early and without intended process, should validate the strength of the relationship we've built in just two years and the potential it has for us, the NFL and its partners and fans over the next five years. Our strategic partnership with the NFL has technology at its core.

meaning it covers a wide range of initiatives beyond sports betting alone.

Among the many examples you can see on Slide 7, the main components of the deal include exclusive distribution of official live game data and next gen stats to global media and betting markets, exclusive distribution of our official Watch & Bet low latency feeds to sportsbooks globally, now including US and Canada, exclusive distribution of digital advertising industry and marks and logos to global sportsbooks, integrity monitoring services, and a broad-based technology partnership powering innovative broadcast through Second Spectrum augmentations and other interactive fan engagement tools, helping to grow the NFL's audience.

In just two years, we've established a strong foundation for innovation. For example, you have seen the exciting features we've created for NFL broadcast including the Sports Emmy award winning Amazon Prime, and CBS, or the free to play games we developed for the NFL’s international growth initiatives as another example.

The NFL has now expanded the scope of our partnership to also include long term domestic Watch & Bet rights, which represents another area for further innovation.

We're excited to leverage our technology on this platform to launch a unique set of products in partnership with the NFL, ultimately benefiting our sportsbook customers and their end users who can enjoy a one-of-a-kind betting experience.

We are thrilled for the opportunity to continue building this over the next five years to power the next generation of fan engagement and we are excited to share our progress with you along the way.

As we introduce new products or technology to amplify the NFL fan experience, you should interpret these as further proof points of our collaborative strategy working as planned.

The objective in all of this, not just for the NFL, but for any partner is to deploy tech enabled solutions to help them enter the digital age of personalized fan engagement, benefiting multiple stakeholders and making us an integral part of the technology infrastructure.

Many of these opportunities are driven by Second Spectrum technology, which remains front and center in many of our commercial conversations. This technology enables us to be an offensive winner with our AI strategy, considering that we have a massive head start in this space.

There has been significant investment made in Second Spectrum over the course of the last decade, all with the intention of meeting the demand of our partners and ushering them into a new era of sports digitalization and personalization.

As a result, we are best positioned to capture the significant future revenue opportunities that come with it, spanning across broadcast, sponsorship and sports betting. Our technology is already being used in live broadcast today with some of the biggest names in sports.

We're beginning to gain traction with consumer brands, creating digital, data-driven content and other fine engagement tools, helping us establish long-term partnerships with these new customers.

And of course, we have a rich history with bookmakers and plan to support their future success by developing next generation of betting products to drive in-play handle and improve overall customer experience.

In addition to the multiple future revenue opportunities in new addressable markets, one important byproduct of this technology, which also meaningfully benefits our business is the long-term cost savings. Today, we have a network of 7,000 staff positions collecting data in sports venues around the world.

Over time, a second spectrum is deployed globally. This data can be collected automatically using low-cost computer vision cameras, which we expect to lead to considerable cost savings in data collection. These computer vision cameras will also capture a higher fidelity of data that cannot be analyzed by humans with the same speed and accuracy.

For example, player speeds, relative positioning, shop probabilities and more. This is exciting to leagues because it unlocks new assets for them to monetize, therefore, making Genius a true value-add partner for any league looking to monetize next-gen data. This is one of the ways we will continue to protect and reinforce our key league partnerships.

As you can see, our technology plays a critical role in our growth strategy and Second Spectrum is a key pillar of our full offering, benefiting various initiatives across the business.

This technology is fundamental to maintaining our key partnerships and fueling the convergence of sports, betting, media and broadcast, placing Genius at the heart of the ecosystem for many years to come. This should help emphasize the importance of Second Spectrum technology, especially in the context of our recent rights renewals.

What gives us confidence in some of the aforementioned opportunities with brand sponsors is the work we have already done with this client base, mainly through our programmatic and creative advertising capabilities.

Our unique set of data and ad tech platform enables us to manage cost-effective sports-centric digital advertising campaigns on behalf of our customers. Historically, we've been most successful with bookmakers seeking to acquire customers. However, our capabilities are just as effective for any brand looking to engage a captive sports audience.

This represents a sizable opportunity for Genius as these brands have large marketing budgets that are increasingly being allocated to live sports. In most cases, these brands are partnering with Genius for the first time, giving us an opportunity to prove our value by delivering quality results.

Following the success of these initial campaigns, many customers are now booking their second or third campaign with Genius. We have had a few notable examples this quarter such as RCX Sports who first partnered with us in Q4 to promote their FLAG football program as part of their NFL partnership.

Of the back of that successful campaign, we executed another campaign this quarter to promote their Jr. Home Run Derby as part of their MLB partnership. Additionally, the Orange Bowl was another example of a returning media customer following the success of our initial campaign.

Last year, we helped drive ticket sales for the Orange Bowl college football game presented by Capital One. This quarter, the Orange Bowl partnered with us again to help sell tickets to their food and wine event in Florida, further demonstrating the breadth of content we can create on a wide range of capabilities.

Our retention of these media customers validates the strength of our ad tech platform, and every new customer represents an opportunity to land and expand. For instance, in this quarter alone, we've managed successful campaigns for Puma, Bayer, Jeep, PGA Tour and many others.

And on Slide 9, you can get a sense of the types of dynamic content we're creating on their behalf. The success is driven by a unique understanding of the sports target audiences and how these audiences interact with live events.

We are able to leverage this data to automatically deliver dynamic content on behalf of our customers that is contextually relevant during key moments of a game. This is an important first step in building long-term relationships with this new set of customers and it sets the foundation to continue working together over time.

Importantly, it also helps us establish a strong reputation in the broader digital advertising space with a niche focus in sports.

As we continue to build credibility with this client base, we believe this can support sustainable long-term growth within our media business, not only with our programmatic advertising services, but also with Second Spectrum products and other fan engagement tools we have to offer.

Equally, as we manage more projects for an increasing number of league sponsors, it gives us even more touch points in the digital ecosystem and greater stickiness with our key lead partners. In summary, I'm more excited than ever about the long-term potential for our business.

We are uniquely positioned to continue capturing the growth of the global sports betting market. We have greater visibility of our long-term fixed cost base following our recent rights extensions. We are distributing Second Spectrum technology with leagues and broadcasters across the globe to unlock new revenue streams.

We are quickly expanding our client base beyond sports betting, now generating revenue from broadcasters and sponsors and improving the operating leverage of the business model in the near-term as we rapidly expand our EBITDA margins and inflect on free cash flow this year and beyond.

These are just a few of the things that give us confidence in our ability to exceed our long-term EBITDA margin target in excess of 30%. And on that note, I'll now turn the call to Nick to discuss the financial results in more detail..

Thank you, Mark. We are pleased to report another quarter of outperformance across all areas of the business. We are also seeing further evidence of the operating leverage of our business model as our year-to-date revenue growth contributed to group adjusted EBITDA at a 67% incremental contribution margin over the first half of the year.

Most of the outperformance this quarter was in our betting product, which grew 27% year-on-year to $57 million, well ahead of our guidance of $53 million.

Our commercial contracts with bookmakers allow us to grow alongside our customers and mutually benefit from the secular tailwinds in the sports betting industry, including GGR growth, increased in-play betting and improving win margins, for instance.

Our major product also outperformed expectations, increasing by 22% year-on-year to $18 million, beating our guidance of $16 million.

You heard Mark touch on our success in winning new customers beyond our traditional sports betting clientele, and this has absolutely supported our growth in the quarter and will continue to do so over the next several years as our customer base expands.

Meanwhile, we are also continuing to execute successful major campaigns for our sports betting customers as well, providing them with creative and dynamic methods to acquire and engage customers. Lastly, our sports product reported $12 million in revenue, also slightly ahead of guidance.

Collectively, this resulted in $87 million in group revenue, well ahead of our guidance of $80 million and $16 million in group adjusted EBITDA, also beating our guidance of $14 million. As we reflect on the first half of the year, it's worth contextualizing our rapid acceleration of EBITDA profitability.

As you'll see on the right-hand side of Slide 11, we have more than quadrupled our adjusted EBITDA through the first half of the year. This has been a function of our multifaceted revenue growth, supported by a relatively flat cost base that enables revenue to drop through at a high margin.

In fact, through the first half of the year, our cost of revenue is down 8% year-on-year with operating expenses down 34%, driving our gross margins considerably higher. Because of this, through the first half of the year, our group adjusted EBITDA margins are approximately 13% compared to just 3% in H1 2022.

This steady improvement is evidence of our operating leverage, and we see a clear runway for continued profitable growth and margin expansion ahead. This, along with the exciting developments you've heard from Mark, gives us confidence in raising our guidance for the year.

We are increasing our revenue guidance from $400 million to $410 million based on the outperformance to date and the positive trends we expect will persist through the remainder of the year.

Similarly, we are raising our group adjusted EBITDA guidance from $49 million to $52 million as much of this additional revenue should drop through meaningfully to our adjusted EBITDA, and we don't anticipate any incremental changes to our cost base.

This implies 20% revenue growth and adjusted EBITDA margin of 13%, up from our initial guidance of 10% and significantly ahead of our 5% margin last year. We are also maintaining our expectation to begin generating positive free cash flow in the second half of the year.

On that note, I mentioned last quarter that we would finish Q2 with approximately $115 million in cash, and we closed the quarter exactly in line with expectations. Looking ahead, we expect our cash flow to be broadly breakeven in Q3 before turning cash flow positive in H2 and accelerating in 2024 and beyond.

This inflection point is an important milestone for the business as this marks the beginning of sustainable free cash flow generation going forward.

Many of the dynamics driving the inflection in H2 will remain in place going forward, and we feel an even greater sense of competence now that we renewed two of our largest rights deals, giving us increased visibility for the next several years.

As a final matter of housekeeping, we have received a few questions regarding the NFL warrants following the announcement of our renewal and extension. So we want to be as clear as possible since this is a slightly nuanced point.

As part of the original deal with the NFL, we issued them 18.5 million warrants, which are now fully vested, making them an 8% equity shareholder on a fully diluted basis. Under the original terms of the deal, we had agreed to issue an additional 2 million warrants for each of the years five and six upon renewal.

Under the new terms of the renewal of years five and six, we've now removed the additional 4 million warrants and replaced them with a fixed cash consideration. This incremental cash cost will be spread across the outer years of our deal and recognized as normal course data rights fees within our cost of revenue and our adjusted EBITDA position.

We believe that this is in the interest of our shareholders as it is less dilutive than it would have been otherwise, and we have agreed a predetermined cash amount, which will be included in our rights fees and leaves us confident in our ability to continue growing profitability through the life of the deal.

We're pleased with this outcome from a financial and strategic perspective as the NFL remains one of our largest shareholders and we've secured our position on mutually beneficial terms for the next five years.

Close, each of our financial and strategic updates you've heard today gives us an even greater sense of excitement for the outlook of the business. The runway for profitable growth and cash flow acceleration remains clear as we continue to execute and progress towards our long-term objectives.

With that, we will conclude our prepared remarks and open the line to Q&A..

[Operator Instructions] Your first question comes from the line of Jason Bazinet of Citi. Please go ahead..

Thanks. I just had one quick question on the long-term EBITDA margin targets. I think at your Investor Day, the targets were sort of 32% to 42% was the range, and I think I heard you say high 30s.

So I didn't know if that was a change or if I'm sort of making something out of nothing?.

Hi, Jason, it's Nick. No, there's no change in our long-term targets. I think we've previously said that it -- I think, March, as we had described it, it would be north of 30% and that remains our long-term position..

Okay. Great.

And then regarding sort of free cash generation, is there any sort of long-term way you could sort of frame the size of capitalized software expenses as we all try and model free cash out in '25, '26?.

Yeah. Hi, Jason. It’s Nick again. I mean, the first thing to say is in terms of free cash flow generation, we're at that inflection point now as we reiterated on this call just earlier that H2 expecting to be a cash positive. Capitalized software, I think I've said on previous calls is flat year-on-year.

So it's running at around about $10 million a quarter currently.

So as a percentage of revenue that's reduced year-on-year, I'm not expecting that to grow in 2024 and 2025, but then it’s been expected to come off a little bit and reduce -- and therefore, you'll get a sense of our operating leverage and revenues continue to grow, you get a sense of the widening gap in cash generation..

Thank you. Your next question comes from the line of Bernie McTernan of Needham & Company. Please go ahead..

Great. Thanks for taking the questions. So assuming it's not coincidence, the prepared remarks had confidence in the long-term margins after striking deals with the NFL and Football DataCo with the rights inflation just being a key focus for investors, especially over the long term.

After going through this round of renewals with your two most important partners, can you just talk about your position -- your confidence in your positioning between the leagues and your sportsbooks and why you think you'll be able to generate greater profitability over time?.

Hi, Bernie. It’s Nick. I'll start and Mark can join in if there's anything else to add. I mean as you know, Bernie, it's impossible to [indiscernible] specific rights by the way we go to market.

But I think it's fair to say the operating leverage dynamics that we're seeing right now in 2023 will continue not just the rest of this year, but way beyond 2024 and beyond that. I guess if you look at the last, I guess, last 12 months, which obviously both FDC and NFL within that, we've grown revenue significantly over the last 12 months.

And indeed, I think EBITDA got to account around 72%. So again, you can see that those operating leverage dynamics that we're having today will continue.

I think as far as the NFL is concerned, I think I said in the prepared comments that we're delighted with the NFL extension, both from a strategic and financial perspective and we are very confident in our ability to continue to grow profitably through that life of that deal..

Yeah, and just to add to that. I mean, I think we've always said the tech wins here, and I think this is a really good example of -- those rights renews as a really good example of that.

There was no RFP process there and it wasn't a competitive tender, and we had early rights renewals in the scenario where it wasn't actually necessary for them to do that. So we feel that, that's a very strong signal to the market. Separately, price increases, obviously coming through to the bookmakers.

That's something we've been pretty clear about in previous calls and obviously, the conversations we'll be having -- we're in the middle of a lot of conversations at the moment, which we're feeling very positive about. Again, that should see strong, strong growth in the margin over time..

Great. And maybe just a follow-up to that to bring it back to this quarter, betting technology revenue outperformed expectations and the increase of the guidance.

How much of this was attributed to better market growth versus a higher take rate?.

Yeah, we -- I mean, the answer is it's to do with both. I mean we don't break it down. We're seeing good market growth. We're also seeing operators operating more profitably, doing a better job, and that's coming through clearly and some of the recent earnings, including DraftKings. So all of that's flowing through.

I mean remember, we take a share of the bookmakers profitability on this stuff and their improved performance as well as the increase in market share comes directly to us..

Thank you. Your next question comes from the line of Ryan Sigdahl of Craig-Hallum Capital Group. Please go ahead..

Good morning, guys. Nice job. I want to ask on the process with Data FootballCo and NFL just going through the process, whose idea was it to extend earlier longer? And then I have a quick follow-up on each one..

Hi, Ryan, it's Mark. Look, I mean, these are always mutual conversations that get based around the relationship that we built over time, the technology providing -- sorry, that we're providing to them and sort of their view of the future requirements. In both cases, they are very productive conversations. We've got very strong partnerships.

Obviously, the NFL has also seen the addition of the Watch & Bet contract which is exciting. And we're taking that to market with some really exciting new features, which we will be sharing in due course.

So this has been a, I guess, part and course of the way that we operate the business, the way that we've presented this to the market over time, and it's really just a result of us doing what we said we were going to do..

Great. Then just on the EPL, I guess it was a one-year add-on to that contract. I guess, why not longer on that one? And then secondly, on the NFL, you reiterated your long-term EBITDA margin targets and now presumably that contract is shifting to an all-cash deal, at least for the last three years of this one.

But is that long-term margin assuming kind of full cash going forward for the NFL? Thanks..

So on the EPL, I mean, DataCo currently goes through to 2025. So it wasn't possible to extend longer than that..

Yeah. Hey, Ron, it's Nick. I guess on the NFL, it’s a little bit of a repetition of what I just spoke to Bernie about in terms of the operating leverage that we're having in the business today.

And as you know, the NFL rights have stepped up over the course of already the two seasons that we've had, and we've got a 72% drop through in the last 12 months. And those dynamics are not going to stop beyond 31st of December 31, 2023 to '24 and all the way out 2028.

What I will say on the warrants is that we felt it's the right thing to do, twofold. First of all, it means less dilution from a shareholder perspective. And also, it just means that we will live within our means as it were from an EBITDA perspective, and we're still very confident on those long-term margin projections that we've given..

Yeah. Sorry. Ryan, it's Mark. And just to clarify, just when I say DataCo doesn't go longer than 2025, I should be really clear the entity of Football DataCo itself doesn't go longer than 2025. Hopefully that helps..

Reasonable to assume some -- in some form or fashion, it will, it's just they have to extend the league first. That's it for me. Thanks guys..

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

Hey, thanks for taking my question. Just looking -- circling back on the on the NFL contract.

Two things, like, can you talk about the opportunity as more of their property descriptors go to streaming, thinking like YouTube, the ability to work closer with them? And then is there an opportunity to develop special products or special betting products where you can participate in more of the economics?.

Yeah. I mean, great question. And as usual, you're bang on the money, that’s -- I mean that's exactly where we're going. And it's really, Watch & Bet is the first step along that line, the Watch & Bet contract that we signed with the NFL, which we'll be bringing to market shortly.

When that product comes out, you'll see a lot of new features, a lot of actually really quite exciting innovations that we're able to do because of Second Spectrum and the work that we've done there.

So as those products come out to the market, clearly we're always, as you know, reviewing the way that we charge for this and the take rates that we are charging. So we expect to see that coming through.

The other aspect is probably worth, if we might not necessarily come straight to people's minds is there's a compounding effect from the Watch & Bet product to our NFL relationship. So what I mean by that is, clearly, sportsbook operators are now offering advanced streaming on their platform for the NFL.

That is compounding, that user's interaction with NFL bets on the site, which is also where we're making money. So we're sort of seeing this -- a strong future in certain sports where the compounding effect has an impact on our take rates..

Thank you. And then just one quick follow-up for, I guess, for Nick. Just looking at the 4Q growth rate for betting tech, implies like somewhat of a deceleration, still high teens growth. But I think if you look at like the US is going to grow probably in the 30s in the fourth quarter.

So can you just talk about some of the dynamics around the 4Q growth rate for betting tech and how much is conservatism? Thanks..

Hey, Jed. [indiscernible] we are conservative anyway, Jed. So I mean we're very confident about our Q4 position. We're confident with the guidance that we've just given.

We have strong growth rates both in Q3 and Q4 across, in fact, all three segments are running at a decent position, and the great thing is, as we've already talked about that in prepared remarks, the question is that those dynamics, both in terms of top-line revenue growth, but also in terms of operating leverage, doesn't stop at 31st of December 2023, but ongoing beyond '24 and further out..

Thank you. Your next question comes from the line of Clark Lampen of BTIG. Please go ahead..

Thanks. Good morning. Hopefully, I'm not misreading this with the sort of side-by-side comparison of the facts. But I guess as I sort of juxtapose some of the call commentary around customer wins and recurrence of campaign activity with an adjustment to the back-half expectations for the media business.

Could you give us a sense of maybe what's going on or what you're sort of experiencing within the ad market or spend from existing customers, spend from new customers? And then, Mark, on capital allocation, you guys have talked a lot on this call so far about improving visibility, improving margins, cash flow trends, what does that really translate to for you guys in terms of sort of flexibility, whether it's exploring opportunities to improve the business from an inorganic standpoint or if you can't, I guess, find those opportunities, would you look at other avenues for distributing some of that excess cash back to shareholders? Thanks..

Hi, Clark, this is Josh. I'll take the first question on the media fee. So there's a few things going on here. But first of all, there's sort of a seasonality impact that we're seeing on the sportsbook and sort of casino side of things. In Q2, we saw operators sort of shift budget in line with their ambitions of chasing profitability essentially.

So we were seeing some really strong results in terms of player values, overall conversion rates in the market. So we saw some operators shift budget into Q2 around NBA playoffs and just pushing casino products more heavily. So that's sort of the reason for the shift there.

And then also, as we mentioned in the prepared remarks, we also signed a number of new sort of non-betting sort of traditional brand sort of sponsors and reactivation of campaigns there. Those are slightly ahead of our expectations with a couple of new wins there that we're really, really happy about that we've mentioned.

But overall for the year, it's really just sort of a shift of budget and seasonality. Overall, the media business will end the year 15% up on last year. So we're feeling pretty good about it. And the overall ad market isn't really impacting us on the brand side of things. We're starting from a very low base here.

So there's plenty of stuff for us to go after. And all in all, we're feeling good about it..

Yeah. Just to add to that as well, we're sort of noticing a number of operators we think have a number of financial targets that they're looking to try and achieve before the end of the year.

And actually what we expect to happen is that spend generally in the advertising space will increase towards the end of the year, certainly into early next year as well, which will obviously be a net benefit to us.

To answer your second question about capital allocation and sort of what we're going to do with the money, well, I mean, look, I've said for a long time, we've got everything that we need in order to achieve the goals that we've stated and we feel very comfortable with the position we're in and the techs that we have.

You specifically asked if there are any plans to return to cash to shareholders and no, the answer to that is no, not at the moment. And so therefore, what will we use the money, the cash that we're generating and the cash and the balance sheet for. Well, as I said, we've got all of the tech that we need at the moment.

However, we continue to remain opportunistic about what's out in the market. We're in a very strong position from a balance sheet point of view, from a cash generation point of view, from a technology point of view.

And there are increasingly opportunities that we're seeing in the market come up, none that we have yet decided is sensible for us to complete on.

But I think the number of opportunities will continue to increase, and I'm feeling very comfortable with the position that we're in, which allows us, should we say wish, to get involved in some of those opportunities..

Thank you. Your next question comes from the line of Jordan Bender of JMP Securities. Please go ahead..

Great. Thanks for taking my questions. The 2030 guidance that kind of assumes flow-through of around 55%.

So with the two contracts now locked up longer term, is there anything saying that you shouldn't be hitting that 50% flowthrough in the coming years?.

Hey, Jordan. It’s Nick. Yeah, no, that's exactly how we think about it. As I said earlier to the previous question, the dynamics that we're seeing in 2023 don't stop on the 31st of December, and the great thing about doing these two contracts now and extending them is it gives us even greater visibility of what our future finances look like..

Great. And then, you didn't give it this quarter, but event center coverage has been coming down in the last 18 months or so.

As you're starting to prune some of those events, can you maybe just talk to the positive upside, whether it's the margin, cash flow or however you can kind of quantify scaling back some of these unprofitable events?.

Hey, Jordan, it's Nick. Yeah, you're right. I think we've come down from the sort of, I think it's 195,000 to 200,000 [indiscernible]. I think we announced this last quarter.

And if you think about it the right way, we've just -- we pruned some of the events that we believe are not profitable and indeed are substitutional, particularly if you think about the way our non-US contracts work, is that people sort of take packages from us.

And therefore, by removing these events, we've not seen any reduction in revenues on that basis. And therefore, what we're saving really is [double spending] (ph) cost because obviously, there is double deposition cost or a double trading cost.

So we're seeing a slight margin increase by dropping a small number of bets, I don't think we'll drop too many more from where we are today, but it's just sensible pruning of our portfolio..

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

Hey, Mark, Nick, Josh, Brandon. Good morning, good afternoon guys. Congrats on a strong quarter. Thanks for taking our questions. Just two questions or kind of baskets. So forgive me here, guys. But the first question or topic here. Just curious if you could double click on your US business.

Obviously, you're seeing pretty strong results from your operator partners in their June quarter. So we're sort of wondering the impact here on the strength of the US business and your partners.

In the quarter and through the rest of the year and then just thinking about -- you're seeing a lot of market share consolidation with the operators Mark, curious how that impacts your leverage on your take rate and the other pieces of your business moving forward? Second question on technology. Obviously, congratulations on your renewals.

It looks like -- it's a real proof point here, your tech is working. Just curious if you can remind us how your tech is different than your competitors, thinking Dragon here? And how are you ensuring you can keep this tech lead? Obviously, there's some investment from your peer set to try to catch up with you guys. Thank you..

Hey, Mike, it's Mark. Thanks for that. Look, in terms of US, as you have seen from the operators and [indiscernible] particularly helpful, we're giving them a lot of detail on it. The US opportunity is strong. It continues to be strong.

And obviously, we continue to be extremely well placed, especially with the recent renewal that we've announced and the additional products that we -- that we hinted out in this call. So I think we're feeling very good about that. Obviously, the more profitable an operator, the better it is for us.

So we're very excited to see these operators continue to improve and continue to raise the same customers and continue to shift customer spend from one sport to another sport to another sport. These are good trends for us.

And really, they align very much with the theory that we came to market with a while ago, which was around the shift from -- of players from a lot of the pre-match betting to ultimately to in-play very much to mimic the trends and what we see in the European market. So I think overall, we're happy with how the US is moving.

In terms of sorry -- so your -- your second question, Mark, was around?.

Yes. It was just the key to the US -- share consolidation, yeah..

Yeah. Look, the tech differential, I mean, we've talked about it quite a number of times. We've got some -- obviously, without question, the leading, if not the only, credible live machine learning, computer vision and AI sports video business in the market.

And that's becoming an increasingly powerful tool in our armory, which is allowing us to renew and retain customers as well as it’s pretty much involved in every single conversation we've got with any sport league anywhere. So that's a huge differentiation.

And what we're actually seeing now is we're seeing a much more active desire from sports to have AI, CV and machine learning solutions. I mean you've seen this in the sort of wider AI space where a lot of companies are now actively looking for solutions, looking for this. And the sports are no different. We're seeing this.

And again, it's giving us a real position of strength, a real differentiator. And I said it before, but I'll say it again, that's coming through in hard numbers. Already in our numbers, we have revenues coming in directly from this. We're already getting new contracts because of product that we have live and it's already costed into our future growth.

We don't need to spend hundreds of millions to develop this stuff. We've already spent hundreds of millions. So this is something that gives us a really, really strong competitive position in the market and gives us a lot of confidence going forward. You asked about Dragon. Dragon is going, I mean, brilliantly well.

We're really, really pleased with how well that's going, the conversations we're having with our operators are -- sort of our sports partners are going really, really well. And we hope to have some pretty exciting news coming down the line..

Thank you. Your next question comes from the line of Robin Farley of UBS. Please go ahead..

Thanks, and good morning. This is Artina for Robin. I have two quick ones.

Do you have any kind of quantification for in-play betting mix that you could share for this quarter specifically and how you expect that mix to play out in the back half?.

Yeah. I mean [indiscernible], but I mean, we saw about 100% growth year-on-year last year to this year. And again, as we've seen with DraftKings earnings and a lot of it -- the news that's coming out of the operators, there's definitely a shift to a lot of these new products going forward..

Okay. And for this, I actually tried to find this in your slide, but I couldn't. Apologies if we missed it, but FX has obviously been a tailwind for the quarter in general.

Wondering if your revised guidance for the year and the back half includes unchanged FX assumptions? Or is there some upside coming from FX that are changed from the [$1.35] (ph) in pound USD rate that you had given previously?.

Hey, Robin, it's Nick. So as long as our updated guidance is extended, it's around about 1.25:1. That obviously don’t follow through to GDP.

A couple of things that I think is probably worth just noting on that, Robin, if you don't mind, is that obviously, the second half of the year is less sensitive to US dollar business given the sort of US seasonality of the business.

We're trying to keep that as simple as possible, obviously, and particularly given the flexibility of the exchange rates as it is. But I guess the important thing to note is that the outcome in both the H1 and indeed the quarter just gone, is predominantly underlying performance of the business.

As you say, there is a small level of tailwinds for foreign exchange and that's been updated in our guidance, but the guidance also has an underlying increase in revenue from the business. The other point, Robin, that's just worth reminding anybody on the call is that exchange really only impacts revenues and not EBITDA.

And therefore, the lift on EBITDA -- adjusted EBITDA from, I think, original $41 million to the $52 million now [indiscernible] generation..

Thank you. And your last question comes from the line of Eric Martinuzzi of Lake Street Capital Markets. Please go ahead..

Yeah. Curious to see, you mentioned the -- in the betting technology, the increased customer utilization of available event content and growth in the business with existing customers.

Is this strictly -- or primarily a Tier 1 observation that you're making here? Or is this across kind of league agnostic?.

Yeah. I mean we -- look, this is really just a part of everyday management of our business. It's making sure that we're tight on what we're offering, where we're spending our shareholders' money and how we're running it.

So the way that we think about this is we think about it across all sports, obviously, we sort of treat Tier 1, there are a lot of Tier 1s, but we treat Tier 1s pretty differently. But we look at every sport, we look at every league, we look at every game. In fact, we cover -- we look at our obligations to those leagues.

In fact it's actually phenomenally complicated calculation, but it's something that we do on an active basis to manage our expenditure and make sure that the way that we are operating the business as efficient as possible..

Okay. And then in the Media Technology segment of the business, you talked about programmatic advertising services there.

Are you -- is there a concentration here with particular DSPs or seeing the richness of the targeting here? What's driving that upside?.

Hi, Eric, this is Josh here. The targeting of the upside is essentially the three main USPs that Genius brings to market in the technology group. And firstly, it's our access to unique fan data. Through our deep relationships with the sports leagues, we've got access to first-party fan data that we're able to apply to our campaign.

The second part is the fact that we've developed a lot of our own programmatic technology on top of the ecosystem, they're leveraging all the unique data points that Genius has as a business in terms of insight into betting handle, roster information, all this interesting stuff that ultimately can drive fandom.

We pull that into our sort of technology from a sort of bid decisioning perspective. And then lastly, we've been doing this for 15 years at this point. 10, 15 years. So we've got a lot of experience in-house with our team to actually trade this stuff. So it's those three things coming together that's driving our success here..

Thank you. There are no further questions at this time. And this concludes today's conference call. You may now disconnect..