Genius Sports Limited (NYSE:GENI) Q2 2022 Earnings Conference Call August 16, 2022 8:00 AM ET
Company Participants
Brandon Bukstel – IR
Mark Locke – Co-Founder and CEO
Nicholas Taylor – CFO
Jack Davison – Chief Commercial Officer
Conference Call Participants
Bernie McTernan – Needham
Ryan Sigdahl – Craig-Hallum Capital Group
David Bain – B. Riley
Jed Kelly – Oppenheimer
Ben Chaiken – Credit Suisse
Robin Farley – UBS
Jason Bazinet – Citi
Mike Hickey – The Benchmark Company
Operator
Welcome to the Genius Sports Second Quarter Earnings Results 2022. Throughout the call, all participants will be in a listen-only mode and afterward, there will be a question-and-answer session. [Operator Instructions]
Today, I’m pleased to present Genius Sports. Please go ahead with your meeting.
Brandon Bukstel
Good morning, and thank you for joining us. 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 last Annual Report on Form 20-F filed on March 18 of this year.
During the call, management will also discuss certain non-GAAP measures that we believe may be useful in evaluating Genius’s operating performance. These measures should not be considered in isolation or as a substitute for Genius’s financial results prepared in accordance with U.S. GAAP. A reconciliation of these non-GAAP measures to the most directly comparable U.S. GAAP measures is available in our earnings press release and earnings presentation, which can be found on our website at investors.geniussports.com.
With that, I’ll now turn the call over to our CEO, Mark Locke.
Mark Locke
Good morning, and welcome to our second-quarter earnings call.
On today’s call, I will discuss business highlights from the quarter, recent wins, and key metrics to look out for as we continue to accelerate both revenue and EBITDA growth for the rest of the year. I will then pass the call to our CFO, Nick Taylor, who will discuss our financial results and outlook in more detail.
To begin, we’re pleased to announce that we’ve exceeded our guidance for the second consecutive quarter, demonstrating our successful execution through the first half of the year. Our Group revenues increased by nearly 30% year-on-year to $71 million ahead of our $68 million forecast despite currency headwinds which Nick will cover shortly.
Using the same exchange rate as our initial guidance, our Group revenues were $75 million exceeding our guidance by an even wider margin. Group adjusted EBITDA was $8 million in the quarter, in line with our expectations of $8 million, again using the exchange rate at the time of our initial guidance this figure came in slightly higher at $9 million.
Q2 marked another period of strong execution across all three product lines, sports, betting, and media. To start, we continued to acquire data and streaming rights, albeit as a disciplined place where we see the strategic or financial value. In Q2, this included certain professional basketball leagues across Australia, Brazil, and Switzerland, along with other leagues such as Brazilian beach volleyball and Vietnamese professional football.
It’s important to remember that many of our rights deals are led by our suite of technology solutions designed to help leagues and federations collect and distribute live data, maintain integrity, establish reach meaningful connections with their fans, and much more.
On the next slide, I’ll provide a few examples from this quarter to help bring these concepts to life. Our portfolio of content is only as good as our ability to monetize it. Consistent with past quarters, we continue to win new sportsbook customers and increase our utilization of available content with existing customers. In a few minutes, Nick will explain how this drove outperformance in our betting segment in the quarter.
Finally, our media revenues far outpaced our guidance this quarter, despite sportsbook operators scaling back the overall promotional budgets in the quarter, we have not seen a slowdown in our business. Our ability to consistently deliver favorable results on performance-based digital advertising has led to a higher average spend per customer. Even in acquire to Sports Calendar in Q2, we’ve seen sportsbooks customers shift advertising spend from sports betting to casinos, showcasing the breadth of our advertising solutions.
We have also diversified our customer base beyond gaming providing advertising services to new brands such as Heineken, PepsiCo, and Mondelez in the quarter, just to name a few. As I’ve mentioned before, our quarterly forecasts are meant to serve as near-term milestones to demonstrate our progress throughout the year. Our outperformance of these forecasts in the first two quarters, along with strong momentum in the business gives us confidence in hitting our full-year target even despite currency headwinds.
Therefore, we are reaffirming our 2022 outlook of $340 million of revenue and $15 million in adjusted EBITDA. Similarly, we feel confident in our 2023 revenue and adjusted EBITDA guidance of $430 million to $440 million and $40 million to $50 million respectively, again using the exchange rate at the time of our initial guidance in January.
As I mentioned earlier, Genius technology is the bedrock of our partnerships with leagues and federations around the world. I’d like to give a few examples of how our technology helped strengthen our partnerships in the last quarter. Firstly, on our last call, we mentioned how the NFL and CBS was nominated for a Sports Emmy award for the use of RomoVision powered by Second Spectrum technology. This quarter, we are proud to announce that that award was won, which is a testament to our ongoing innovation in sports broadcasts.
We’re excited to continue our work in partnership with the NFL and CBS to develop exciting new features in the months and years ahead. We also earned a few other technology wins this quarter but it is worth quickly noting. Our Second Spectrum division will provide Premier League Football Club Benfica with AI-powered tracking, performance analysis, and video augmentation tools. As part of our continued work with the CFL, Genius launched a new CFL game zone, a central hub for fans to engage with exclusive CFL products and contests. CFL games zone is the official home of all free-to-play games including CFL Fantasy, Preseason Futures predictor, CFL Pick ‘Em, and other games. Genius also launched MLB Diamond Derby and Beat the Streak, as well as a renewed MLS All-Star Game.
Lastly, Genius developed and launched multiple free-to-play games with FIFA’s landmark new FIFA+ platform, including weekly predict games Trivia and Bracket Challenges designed to engage fans ahead of the World Cup while integrating activations from sponsors like com [indiscernible], Hyundai, and Budweiser.
And looking ahead, Genius will provide a suite of free-to-play games for the Malaysian Football League which builds upon the official data integrity partnership we announced last year. In summary, we continue to expand our relationships by implementing a full suite of tech-driven fan-engagement solutions.
What excites us so much about our business model and where we sit in the ecosystem is the Genius benefits from EBITDA margin accretion alongside accelerated revenue growth. In other words, we have multiple revenue opportunities at little extra cost. I want to spend a few minutes discussing these with you because they are critical in understanding how Genius becomes profitable in 2022 and significantly more profitable in the years ahead.
As you see, these are not far-flung growth drivers that require further investment to realize. These are opportunities that exist today, especially in the U.S., a business that is nearly quadrupled year after year. There are multiple ways Genius wins. Let’s start with Handle.
We discussed last earnings, the unique characteristic of our business model, especially relative to our operative partners, which is our ability to capture revenue without any meaningful increase in costs every time a new market opens up. When New York launched in January or Ontario in April, or when Massachusetts hopefully launches next along with California, Ohio, or any other market in the coming months and years ahead, Genius’s revenue share arrangements means that we start to receive revenue the moment wages are placed on any of the roughly 200,000 events Genius provides sportsbooks. Whether we are supplying data to a handful of states or to all 50, our costs remain relatively fixed meaning no additional rights fees, no sales and marketing dollars, no increase in data collection costs. It is as simple as flipping a switch and allowing the revenue share contracts to work in our favor.
As a side note, our media business also benefits from new markets launched online sports betting, this is because our customers will utilize our advertising services to acquire new players locally in that region. So, that media revenue will increase completely unrelated to our revenue share from betting.
The next factor that drives near-term profitability is the shift In-Play Betting, as the mix of In-Play Betting increases so too does Genius’s profitability. Consider the NFL as an example, under our current revenue share contracts genius earns an average take rate of 1.5% to 2% on pre-match gaming revenue and 5% to 6% on In-Play gaming revenue. In other words, Genius earns three times higher revenue on In-Play bets, again without having to change our cost structure.
This incremental revenue generated on a fixed cost base contributes to our EBITDA profitability as a high margin without having to do anything more. As a reminder of our 2022 guidance assumes In-Play Betting will represent approximately 13%, that’s 13% of NFL GDR, as we discussed in our January Investor Day.
While our hope is that In-Play trends improve in our second NFL season, this assumes no change from our last season. If these trends happened to exceed our assumptions, it should theoretically present upside potential to our revenue and EBITDA guidance all else being equal. We’ll be sure to communicate any early indications as we start to see actual In-Play betting data. Over time, we have every expectation that large matured markets, the U.S. will ultimately move towards a greater shift to In-Play betting.
Next consideration is operative win rates, otherwise known as a hold. This is essentially the margin, the operators earn on every dollar of Handle. Genius earned its revenue as a percentage of operators’ winnings. So, as operators win more, Genius takes a slice of the larger pie, thus expanding our EBITDA margin alongside revenue growth.
Last season’s operating experienced lower than expected hold rates. As this normalizes and indeed improves over time this will incrementally be helpful to our bottom line. The other important variable to consider is take rates. This is the percentage that we earn on gaming revenue generated from Genius powered content.
In my previous example, this is 5% to 6% revenue share earned on NFL in play stats. Remember, that Genius operates a global business and sells our data to 500 plus regulated sports betting operators around the world. Contracts are constantly won or renewed and given the importance of official data which is historically under-monetized, Genius is able to increase take rates over time. And, since these contract renewals have no impact on our fixed cost base, these increases directly benefit our margins.
We talked frequently about the operating leverage in the business. This is exactly what we mean by it. We have invested in putting ourselves in the best possible position in the U.S. and we sit here today at the precipice of this profitability inflection point. The infrastructure is in place and we are confident in our ability to capitalize on this opportunity.
With that, I’d now like to turn the call to Nick who will discuss our results from the quarter and what to expect moving forward.
Nicholas Taylor
Thanks, Locke.
As a quick reminder, in our January Investor Day, we disclosed our full-year guidance for profitable 2022. Within that guidance, we also included targets for each product group on a quarterly basis. Q2 marks the second successive quarter in which we executed on our plan ahead of forecast despite currency fluctuations.
As we noted on our last call, foreign exchange rates remained volatile throughout the quarter. To be absolutely clear, the fluctuating Sterling U.S. dollar exchange rate poses a little operational risk to the business itself, but rather just the conversion of revenues in sterling to our presentational currency in U.S. dollars.
For this reason, we have provided a constant currency view into our business to remove the presentational currency volatility and give a true apples-to-apples view of year-on-year revenue growth. Separately, we will also reference our revenue figures, using the exchange rates at the time of setting our guidance in January.
Again, as a reminder, our guidance set out in January Investor Day assumed a sterling U.S. dollar exchange ratio of 1.35. Therefore, given the subsequent currency movements, we will also aim to give an apples-to-apples view of our performance. This is our guidance by removing the impacts of the U.S. dollar appreciation against sterling in the second quarter. And of course, you will always have our actual U.S. GAAP reported figures as well.
So to begin, in our betting segment, revenues grew 23% on a constant currency basis to approximately $45 million slightly ahead of our guidance of $44 million. Using the same exchange rate assumed in our initial guidance, betting revenue was $48 million in the quarter further exceeding our target. Performance in this product group were driven by high utilization of available data and streaming content, strong growth from revenue share contracts, a new customer wins.
Our major segment continues to grow at a phenomenal pace, nearly doubling year on year to $15 million in the quarter, coming in well ahead of our $12 million guidance. Since much of the Q2 media revenue was U.S. dollar generated, the FX impact was negligible in this segment. Once again, growth in this business was predominantly organic driven by our performance-based programmatic advertising.
Our solutions continue to deliver strong results for our sportsbook and other advertising customers, which led to a higher average spend in the quarter. Of note, given the light sporting calendar during the quarter, our customers have shifted spend to areas beyond sports betting, such as casinos for instance, demonstrating the range of solutions we have to offer.
Lastly, our sports product grew 75% at constant currency, generating $11 million in revenue in the quarter. Using the same exchange rate as our initial guidance, revenue was $12 million, which is in line with our expectations. Like past quarters, this was primarily driven by the ongoing rollout of Second Spectrum technology as well as our expanded services provided to existing sports league and federation customers.
In summary, we are tracking well ahead of our guidance through the first half of the year having reported $71 million in group revenue this quarter or $75 million as our guidance exchange rate versus our $68 million guidance. This also translated to the group adjusted EBITDA at a pace we expected. This quarter, we reported $8 million in adjusted EBITDA or $9 million at a guidance exchange rate which is slightly ahead of the $8 million guidance for the quarter. This is a function of Group level revenue outperformance and continued cost discipline in the business.
The first-half results relative to our guidance demonstrate our progress along the plan we outlined in our Investor Day and we remain confident in our execution as we look ahead to the remainder of the year. Therefore, we are reaffirming our full-year 2022 guidance of approximately $340 million in revenue and $50 million in group-adjusted EBITDA despite the currency fluctuations I mentioned earlier.
As noted last quarter, our media business is predominantly the U.S. and therefore U.S. dollar focused. So, most of this currency-related presentational risk is in our betting revenue which you can see in the segmental guide provided on the page.
Again, the 2022 guidance set out in January, assumed a sterling U.S. dollar exchange ratio of 1.35. We believe that by using this fixed exchange rate as presented on the Investor Day, our strong results in the first half of the year would enable us to raise our guidance to approximately $350 million in revenue and $17 million in group adjusted EBITDA. Given the continued volatility of exchange rates, however, we are reaffirming our current outlook.
We also remain confident in our 2023 guidance and are maintaining our current 2023 outlook, using the same exchange rate as our initial guidance at the time of our January Investor Day. As we have more clarity on the direction of exchange rates and approach the end of this calendar year, we may update this outlook accordingly.
We are committed to profitable growth well beyond this year and next and believe that the operating leverage of the business sets us on a clear path to achieve our long-term margin in excess of 30% this remains our North Star.
What that means in the medium term, it’s a company-wide commitment to our goals of continued margin expansion and EBITDA with triple digits driven by our strong position powering is still massively growing sports betting and media ecosystem. Our investments made to date, particularly in the U.S., now position the business to reap the benefits of the multiple ways to win as Mark has described earlier. And we remain laser-focused on a disciplined cost structure that will not grow in line with revenues.
Before moving on, I’d also like to provide a brief update on our performance under the geographic view that we set out on our Investor Day, split between the core underlying business outside the U.S., and our U.S. expansion. When viewing the business through these lens, we are also performing as expected, and we are on track to achieve the full-year target set out in our Investor Day.
To be clear, the underlying business outside the U.S. remains highly profitable and while the U.S. is in an area of investment today, we expect it to follow a similar path to profitability in due course as the market matures. We’ll be sure to revisit this to provide a detailed view of our actual full-year results versus the forecast under this geographical view.
Lastly, I’d like to conclude with an update on our liquidity position. I noted last quarter, that we expected net cash flow to be broadly breakeven in quarter two. Just as we protected, we finished the quarter with $175 million in cash and restricted cash in line with our closing Q1 balance. In fact, in Q2, we generated $11 million in cash flow before the effect of exchange rates.
On this note, I’d like to quickly flag as well a technical accounting disclosure in relation to cash. Our cash is split between the $138 million of cash and cash equivalents, you can see on the balance sheet, and also includes $36 million recognized as restricted cash for accounting purposes.
This relates to some uses a guarantee for certain rights agreements, which will reduce over time, I will turn to our cash and cash equivalents line on the balance sheet. I also mentioned last quarter that we expected a total closing cash balance of roughly $150 million by year-end including the restricted cash, and we remain confident in that prediction.
It is worth noting that we expect the majority of this cash outflow to occur in Q3, given the timing of our rights payments and collection of cash under our revenue share contracts, particularly in the U.S., we then expect cash flow to be roughly flat in Q4, bringing us to $150 million in total cash and restricted cash at the year-end.
Again, we are comfortable with our strong capital position and have ample liquidity to continue funding the growth of the business under the plan as it exists today, particularly as we expect to be adjusted EBITDA positive the remainder of this year and to generate positive cash flow by the second half of 2023.
That concludes our prepared remarks, and we look forward to answering any questions.
Question-and-Answer Session
Operator
[Operator Instructions] And our first question comes from the line of Bernie McTernan from Needham. Please go ahead.
Bernie McTernan
Great, thank you for taking the questions. You guys signed a number of contracts last year with U.S. betting operators. How should we think about the potential to expand upon those initial contracts, especially in the Media Technology services’ revenue segment?
Jack Davison
Hi, Bernie, it’s Jack Davison, Chief Commercial Officer. I think how we think about all our relationships in the U.S. operator partners is no different. It is a large and expand strategy. So, when we started out with our U.S. conversations, which were centered around the NFL as you know, we were pretty firm that wasn’t only about the NFL and we were selling kind of an all-encompassing relationship with Genius Sports.
In all the postings, we were pretty successful in doing so, and we’re seeing some of the fruits of that now, but that don’t entail everything that we do as a business. So, my job as Chief Commercial Officer is to make sure we continue to sell land and expand those and the way that we do that, it’s sort of in the way that we’ve talked about some of the things that Mark touched on in the presentation really like their business is growing, the size of the market is growing, we get the benefit of all of that, we sell them more content — additional content in terms by data, but also our streaming content, which we’re selling now increasingly to the U.S. operators.
So, like it’s not one specific thing that will drive the growth of those relationships, but it’s a continuous effort on our part to keep pushing ahead and that’s not in the sports betting sector, you’re right to touch on the media and engagement stuff, that’s obviously going very well. We’re very happy with where that’s going, but for us, that’s not just about the simple things like that we do so every day like equity, acquisition, and retention marketing, but really beyond that in terms of how we help them evolve on their journey from sports betting operator to sports betting operator or a media company and all of these sort of different things that they’re trying to achieve.
So, we’ve got a pretty wide product set as you know, and lots of opportunity across the piece there.
Mark Locke
It’s Mark, it’s going to hearing from you. I’m just going to ask for that. But one of the things that we have been quite sort of — we’ve said a few times and it’s kind of worth us reinforcing is that the relationships we have with our sportsbook operators when we are executing on this land and expand strategy that Jack has outlined, a lot of the stuff in the media space is really performance base. And I think this is really important to focus on, it’s really — when we doing these deals, when we’re selling additional products, yes, as a business, we think a lot of our leverage, and we think a lot about leverage sales, but also we do that in a way where the sportsbooks are setting their own targets for acquisition costs of customers and things like that.
So, we’re making sure that at all times, yes, we’re using the leverage and we’re using the position that we have to sort of pushing those relationships forward. But we’re always doing it in a way where the sportsbooks are actually generating real value and getting real returns from the services that we’re offering. So, it’s just sort of worth thinking about that when you think about our overall strategy.
Bernie McTernan
Understood. And just as a follow-up, Mark, you mentioned the win rate in the slide deck in your prepared remarks as a lever for EBITDA margin accretion, but just wanted to maybe focus specifically on Parlays whether you listen to DraftKings or FanDuel Parlays seem like there an increasing focus on the tech roadmap. Can you just talk about how Parlays or the puts and takes on how Parlays impact Genius?
Jack Davison
Yes. Hi, Bernie, this is Jack again. Look, it is a really interesting thing going in Parlays, and gain Parlays a big driver of margin for operators. We are seeing that — you’re not just in the U.S., actually, all over the world whether it will focus on, this is a bank product initially a lot of it’s driven by customer demand and the customer wanting to have this sort of flexibility, as well as it pushes the other way.
How, well, I guess two-fold really we have [indiscernible] that’s something that we continue to expand on. We have some relationships in the U.S. and all over the world. And so that is a successful thing for us. We’ve got some development. We’ve talked about pushing forward about moving that into not just the pregame Parlay, but in-game Parlay. So, these sort of products are coming down the line.
On top of that, even if operators on spying our products then driving high margin, high take rate products with their customers, we see the benefit that is Genius because as you know, we get a share – for example on the NFL, we get a share of all of those facts and so that’s something that we encourage.
So, we’re trying to both support the industry by providing products, which we think are valuable and can drive that performance and be successful organizations. But on top of that, where the customer decides to not use our product will build their own because customers make their own decisions on these things we still get the benefit from that sort of evolution that’s happening in the market. So, we are supportive and excited and we get the benefit of that as we go.
Bernie McTernan
Great, thank you both.
Operator
The next question is from the line of Ryan Sigdahl from Craig-Hallum Capital Group. Please go ahead.
Ryan Sigdahl
Good morning, guys, afternoon. Want to start with operating leverage. So, you mentioned kind of comfortable with infrastructure is in place, but can you break that down between the OpEx lines you have the sales and marketing, you have the technology investment, you have G&A but are all of those, I guess the current infrastructure able to support growth over the next couple of years or do you see places where you need to add more headcount more on the fixed cost side of the business?
Nicholas Taylor
Yes, hi, Ryan. It’s Nick. I mean, the quick answer to that is that will pretty much in place. If you look at our position in the quarter, I think if you look at those operating expenses we were $24 million on a cash basis, that’s actually down 10% from the quarter before in Q1, which was $26.5 million. So, you’re seeing it right now that we’re not needing to put on any additional cost to service the business. So, as you know, we’ve invested in all of those areas, that various points either because becoming a list business with the SG&A or whether from the U.S. perspective for sales and marketing in R&D, but we don’t need to do so to service the increases in revenues that we’re anticipating.
Ryan Sigdahl
Good. Then just moving over to college sports. So, you have a recent deal with the Mac. It seems like other conferences are potentially going to make some decisions on sports betting here relatively soon. But first, how are you approaching these negotiations given your past relationship with NCA more broadly? And then second, is it a priority to try and win all of these or the majority of them or just certain leagues but help us think through that.
Mark Locke
Good question. I mean, I think we’ve touched on some of the stuff before there were lots of opportunities you’re right. In that some of been today, every competency are beginning to move in this area and there’s lots of discussions and these things going on. And as we’ve said a few times and we were excited about some of those opportunities. And we’re not just excited about them from sports betting data rights perspective, we’re excited about them because of the holistic relationship that they can become for Genius.
Some of these organizations are obviously significant organizations and when we think about those relationships they’re not just about sports betting like there were about all the other things that we’ve touched on and I came through our NFL deal, and these silly things.
However, for us to succeed here, we’ve got enough, we’ve got what we need in order for us to succeed as a business. And so, although we clearly will be part of these conversations going forward, we’ll do that in a very disciplined way and we’ll make good investments based on the right time horizons to suit this sort of short-term and long-term needs of the business.
So, you’re right, there are discussions going on and these things there and will and we feel pretty good about all of those. And to answer your specific question, no. I don’t think you need to win them all to be successful. That’s not the way the market is going to revolve. As we said before, we’ve got some really great pillars in our large portfolio and we’re very happy with that. One or two more would always be helpful, but one or two more at the right price and with the right structure relationship so.
Jack Davison
Yes. And just to add to that as well, it’s also quite interesting, we’re seeing an evolution in the way that a lot of these rights conversations are happening with the sports rights holders. And I think historically, it was around the money end and to an extent and the technology play that we had in some of the bigger rights put organizations. But now as all technology stack becomes increasingly sophisticated and each of these rights holders see the real value in that especially, with the acquisitions that we’ve made recently Second Spectrum, and the like.
We’re actually seeing much wider conversations with each of those rights holders and I feel from Genius’s point of view we are in an incredibly strong position to do that. We have unique technology, we have a unique approach, we’re able to package a log together in a way that really adds value to rights holders over and above some of the – I guess more traditional or historic ways that rights deals have been done.
And I think because the college environment evolves and some of these other rights become available that’s going to become an increasingly important part of the way that those deals are struck.
Ryan Sigdahl
Thanks, Mark, Nick, and Jack. I appreciate it. Good luck, guys.
Operator
The next question is from the line of David Bain from B. Riley. Please go ahead.
David Bain
Great, thank you. First, Nick, I know you hit on this, but just to clarify, looking at 2Q result of $8 million of EBITDA, think about guidance for the remainder of the year as NFL comes on. I know we get a jump in revenue, but you also guide the margin compression, which obviously may or may not occur, depending on the real-time betting mix, but can you remind us as to kind of the flow through for the second half of the differential there? And then just to confirm again, second half guide assumes FX holds from 2Q levels but then you reset it to 1.35 in January, ’23. So just a quick guide cleanup —
Nicholas Taylor
Yes. Hi, David. Yes, on the 2022 guidance, you’re right, we’re guiding to 340 on a real currency basis, an actual currency basis, at a revenue basis, and $15 million in EBITDA, but let’s be clear, if we were still at our guide rate, which is set as you know, in the Investor Day in January, we will be confident lifting that to the $351 million revenue position and the $17 million EBITDA.
So, that’s 2022 and 2023, we are not exchanged fundamentally in the business, we’re very confident at our range of $430 million to $440 million at revenue basis and $40 million to $50 million in EBITDA basis. And as you say that’s currently at our guidance rate that we set in January, ’22.
David Bain
Okay, great. And then wanted to follow up on your response to Ryan’s question because that was actually the second question I had, I’m hoping to get a little bit more depth on when you’re sort of negotiating now with, in particular, flagship contracts obviously this used to be, I don’t know what percentage on price maybe you could help us with that and you’re beginning to see kind of a rationale change evolve. So, I’m trying to understand, is it gone from 90% price to 60% or anything like that, and if that makes you begin to be more positive on sort of your long-term rights costs being 25% to 30%, does that make you think maybe it could be at the lower end of the spectrum, as we go forward.
Nicholas Taylor
Yes. It’s a great question and I wish I could quantify as you sort of outlined it. At the moment, we sort of starting, I mean we’re at the beginning of a journey really, a lot of the technology these rights holders are now seeing is brand new, it’s cutting edge. And there’s sort of evolution — in the ways that deals are struck, I guess, but more about how rights holders see themselves and what they see their role lives in terms of the role they play in terms of fan engagement and that going forward. So, what we’re doing with the rights holders is really educating them and they’re educating us and we sort of starting to really learn a lot more about how they value our help and therefore where our technology can really sort of make a difference.
What we are seeing though without any doubt is a real value for the technology that we have in these rights deals. So, you mentioned the Mac conference, there is real value that we got in exchange for some of the technology that we put in there, some of the newer tech I mean. And we’re certainly seeing that becoming a more important and frankly a much if I see — it’s a huge differentiator for us in those conversations because we’re unique in that — our ability to provide them.
So I can’t tell you at the moment, whether it’s 90% or 60%. But what I can tell you is, is making the difference and I think over the next, I would think 12, 18 months, we will start to really be able to quantify well, exactly how much of the value that is going to be attributed to that going forward.
David Bain
That’s very encouraging. Thank you.
Operator
The next question is from the line of Jed Kelly from Oppenheimer. Please go ahead.
Jed Kelly
Hi guys, thanks for taking my questions. Just going back to the media segment. Just a couple of things to dive into, it seems that you’re gaining share, and one thing that was encouraging to hear what that you picked up more clients that are not that sportsbook operators. So, does that kind of give you more encouragement going into like 4Q where you actually would see more seasonality in your business? I know you give 4Q guidance on your media revenue but where — there is potential upside that 4Q could actually be much higher than your 1Q was — just how should we think about the extra contribution from non-sportsbook clients?
Jack Davison
Hi, Jed. It’s Jack.
Mark Locke
Hi, Jed. Sorry to jump. Before you jump in I’ll hand over it to you. Just on the, I think the immediate thing to recognize is that at the moment, a lot of the revenue you’re seeing in the — what we’re looking for is the outturn for the rest of the year. Is it last sports betting focus, not that stuff is locked in, because that was part of the initial conversations we had with the operators. Yeah, when we signed our longer-term deals with them. So, a lot of that spend, if you like is touched on of sort of locked in the business already.
But you’re right, and that we are also excited about our ability to move outside of the sports betting market. So, Jack, I will hand it over to you now if you want to just pick up on a bit of color there.
Jack Davison
Yes, sure. Hi, Jed. I mean the only other thing I would add to that is, we’re not expecting it to significantly impact sort of Q4 this year, but I think over time with this new segment of the business grows and will naturally we’ll have more seasonality there in line with the larger advertising ecosystem and these other verticals where they tend to spend more in Q4, but no change for this year.
Jed Kelly
Got it. And then can you just two more follow-ups, just on the media, do you have any sense on how your media segment is doing compared to your other competitors and its sportsbooks? And then just an update on New York, it’s kind of sees that we seemed like the promotional environment dissipate there and I know you get paid on net GGR basis. So, can you talk about how you sort of seen a — have you seen a lot of revenue benefit from New York as the operators have pulled back on promotions? Thanks.
Jack Davison
Sure. On the first one, in terms of market share. I mean I can’t give you an exact quantum, but in terms of the conversations that we have with our partners on the programmatic side of things, I know the Genius is one of the main vendors, if not the preferred vendor, and in some cases the exclusive vendor to provide that technology. So, in those instances, we’re taking the lion’s share of the budget, but of course, that’s one marketing channel. But when you compare us to other vendors, a large chunk of that overall programmatic bucket that bookmaker has certainly flows through into Genius.
Nicholas Taylor
Yes. Thanks, so, I’ll pick up the second part of that, it’s a bit early to tell it from honest with you on that stuff on the New York behavior. I think the thing to remember is even though operators will be spending less money in New York as you rightly point out that in theory should flow through to the revenue that we receive. Actually, we cap the amount of marketing spend they can discount along the way. So, it’s a bit early to tell, but actually, I’m not expecting that to make a big, big huge driver in terms of where we end up through the upcoming NFL season and beyond.
Jed Kelly
Got it. And just one more housekeeping question. Are you expecting in your third Q guidance similar NFL holds for last year?
Nicholas Taylor
Yes, I mean, yes, that’s exactly what we all that’s as I think Mark touched on it in his early remarks. And we are, we clearly —
Mark Locke
We’re assuming it’s actually the same as we put in our Investor Day. So, we’re not assuming any growth obviously we’re hoping forward, and we hope we’re being conservative at the moment on numbers are assuming what we put in the Investor Day.
Jed Kelly
So, the favorite dynamic that occurred last year in the first nine weeks or eight weeks is implied in the guidance, if you’re comping that revenue.
Jack Davison
At — in Investor Day, yes, I think we’ll have a look back quite detailed view of what hold rates and implied proportions. We haven’t changed our view as yet on the 2022, 2023 season, so that’s still relevant.
Jed Kelly
Thank you.
Operator
The next question is from the line of Ben Chaiken from Credit Suisse. Please go ahead.
Ben Chaiken
Hi, how’s it going? As you guys alluded to, there is a handful of states going live at the beginning of ’23 potentially you mentioned Massachusetts may be a few others. And I know in the deck and in the prepared remarks you talked about no material operating expenses, I think is the way you phrased it. But can you help us maybe bracket, can you help us maybe bracket what the EBITDA flow-through or gross margin, gross profit dropped down in percentage terms should be on new state revenue?
Jack Davison
I’ll take that if that’s okay with you guys. So, I mean I think Mark touched on a little bit but let’s just reiterate, I mean it dropped through at close to 100% is what it drops through in those specific examples. If you think about our major cost base, rights for example, or the cost of having people in stadiums, collecting the data, or the cost of those individuals trading that data, it doesn’t change at all based on the number of people betting on those.
So, when the good people of Massachusetts start betting on a Saturday afternoon, we get an immediate uptick of revenues dropping through at 100% with as Mark said earlier, close to zero cost increase on the back of that. And that’s exactly the same pool and the example Mark gave for implant and pre-play for example, as you know, we get almost three times as much revenue from an In-Play but there is absolutely zero change in cost on that basis.
Mark Locke
It’s also worth touching upon something else as well. And I’ve said this before, but I think it’s worth emphasizing when new states come online that — Nick is obviously just given the breakdown on one side of the business. But on the media side, the business, that presents us with a massive opportunity because obviously, the operators start moving into those states they start spending money, and as a provider of media services in those new states to those sportsbooks then becomes a new revenue stream for us.
So, the dynamics that occur when new states come online for sportsbooks, where sportsbooks have to go into those states and it could be quite difficult for those sportsbooks because they have to spend money to market. For us we don’t have that dynamic, we have a dynamic where the marketing money then partly flows into us and not just increases our revenues and our flows through to EBITDA as well. So, we see new states as very, very exciting and a very strong driver of growth on both sides of the business.
Ben Chaiken
Got it. I appreciate that. Yeah, I was just kind of thinking about that in the context of the implied flow-through for ’23 versus ’22. But all that color was super helpful. And then on the previous question, going back to Investor Day, you could — one was healing energetic you could kind of back into what the embedded assumptions were for the NFL in-game margins. I know you said you haven’t changed your view. But I guess as you’re looking at the environment — the operating environment, there’s anything you’re seeing in the behavior of sportsbooks or players different than when you originally made those assumptions for a multi-year period? And again, I know that’s not a Genius-specific variable because we’re talking about the in-game win rates, that’s more of an industry question for you. That didn’t make sense. I can — we can take it offline.
Jack Davison
Yes.
Mark Locke
Sorry, Jack, you want to go?
Jack Davison
Go for it.
Mark Locke
Well, we will always going to say is, we say early sales of the season hasn’t started, but there’s definitely a different approach for the sportsbooks. I mean, if you listen, I mean as you guys do to the earnings calls that they’re doing in the releases that they are putting out their approach to this new season is very much focused around in-game promotions, focusing on handle, or focusing on profitability. Those are areas that they’re really driving towards and that for us means obviously increased profitability, which we take a share of.
So, we are seeing, I guess a change in attitude in terms of how they’re operating or how they want to be operating their sportsbooks but obviously to temper that the NFL is still a bit of an unknown. And I think it’s DraftKings said directly in their remarks that can swing both ways. I think we welcome that change of I guess attitude towards and some of that but it’s still to be seen whether that’s going to flow through in the way that we hope.
Jack. Did you want to say something?
Ben Chaiken
Understood. I appreciate it.
Operator
The next question is from the line of Robin Farley from UBS. Please go ahead.
Robin Farley
Great, thanks. I wanted to just get some clarification, Nick, you mentioned the $36 million in restricted cash for certain rights agreements. And I guess that was a new line item this quarter and $36 million is kind of a large sum for rights with that a newly signed contract or kind of why did that come about this quarter that new $36 million? Thanks.
Nicholas Taylor
Yes, hi, Robin. It’s not a new product. So, what we previously had, we have a letter of credit in place to secure the U.K. soccer. So, with FTC and that letter of credit with cost of the business — not insignificant amount in interest and cash after the business. Given the strength of our balance sheet, we’ve been able to swap that letter of credit out with this secured cash, which means that cash, which is still our cash still sitting on our balance sheet is just secured against those that guarantee and will reduce over the course of next two years of the FTC and then return to our cash and cash equivalents line in May 2024.
Robin Farley
So sort of essentially kind of drawing down on the letter of credit is that the way to think?
Nicholas Taylor
Yes, previously there was a letter of credit in place, I think all the details are in — will be in our filing documents that was in place previously for the last three or four years of the FTC deals that has now gone away. That was costing us north of about $1 million in interest to a year in actual cash payments by doing it this way, that saves that money, deal it’s actually a much better deal for us that cash is still our cash and it reduces in size over the course of the next 18 months, towards a zero petition for May 2024 and returns to our cash and cash equivalents line.
Robin Farley
Okay, great. Thank you. And then just one other follow-up, on the adjusted EBITDA figure. There is always been like another — you explain what the numbers are they could add it back to that adjusted EBITDA. There’s always been another line, it’s usually been sort of single-digit millions, and this quarter it was $28 million getting added back to adjusted EBITDA. Just wondering if — what was driving that big kind of add-back this quarter? Thanks.
Nicholas Taylor
Yes, of course, I mean, the quick answer is, it’s a foreign exchange movement. That is actually reducing EBITDA not hit back, but it – of that 90% of it is in relation to foreign exchange, the gain that’s in the foreign exchange in the income statement, there is a small amount in relation to the deferred consideration in relation to our Spirable acquisition but 95% of it is foreign exchange related.
Robin Farley
Okay, all right, thank you.
Operator
The next question is from the line of Jason Bazinet from Citi. Please go ahead.
Jason Bazinet
I’m sure there’s dozens of assumptions that go into your guidance for revenue for this year and next. But would you mind just elaborating on what state legalization assumptions or what cadence is embedded in your guidance for this year and next?
Nicholas Taylor
Yes, hi, Jason. Let me have first go, and then I’ll let the guys jump into that. What we did, we set this out in the Investor Day was rather than coming up with our own fine review of state-by-state timings, what we did was we took almost all of the forecasts out in the market probably, including fuel stations around what the TAM looks like over the course of the next five to 10 years and we took an average view of that.
For precisely the reasons why I suspect you asked is, we didn’t want to be the hold on any particular state legalizing or not. So, where we’ve got to is I think, we forecast our GGR in the U.S. for 2022 is $5.5 billion, and for 2023 it’s $7.7 billion. So I think, based on current positions, I think they are relatively prudent but there are an average of everybody else in the market for precisely the reasons that I think you’re alluding to.
Jason Bazinet
Understood, super helpful. Thank you.
Operator
And the last question is from the line of Mike Hickey from The Benchmark Company. Please go ahead.
Mike Hickey
Hi, Mark, Nick, and Jack. Good morning, guys. Good afternoon, wherever you’re at. Thanks for squeezing me in. Two questions. First, just on the macro, obviously your global business you serve most of the sportsbooks, just curious what you’re hearing, what you’re seeing in terms of economic condition impacting your players, their players, I guess different [indiscernible] obviously, we’re hearing some say no impact, all others are saying, they are seeing inflation in that sportsbooks. Just curious, broadly speaking where incrementality you add on the macro conditions impacting players out there and related P&L.
Nicholas Taylor
Hi Mike, it’s Nick. Let me have first go that. I’ll answer it probably in a little bit more of a Genius related, but I’ll let Jack or Mark talk about anything specific on a macro basis. I think what — I guess Mike, you know that way was traditionally the gaming sector has been relatively immune from an economic downturn and certainly we’ve been listing in closely as I’m sure you guys have over the last six weeks, as we’ve been through the latest earnings cycle and most of the sportsbooks have been relatively optimistic about the strength of their customer and how that’s holding up very well.
Specifically for Genius, obviously outside of that inflationary pressures are not something that — we have a particularly exposed to, on the most significant cost, as you know is rights costs and the long-term most material ones are fixed over really the course of the next five to six years, and that will short-term inflation doesn’t really have an impact in that space.
As you also know we’re debt free and therefore interest rates is not something that we’re exposed to and energy prices are relatively immaterial to us. I don’t know if that helps from the Genius
Mike Hickey
Good enough, Nick, thanks. Second last question on the live betting U.S. market, it sounds like you being conservative in the board assumption. I’m just curious how that’s tracking. I don’t think you specifically called it out. How impactful latency has been to the case [indiscernible] betting in the U.S. and thought a lot, you think about the sports rights progression streaming platforms mainly seems to be at a bigger disadvantage versus broadcast payable powered by latency upstreaming could also piece potentially a challenge and my best adoption in the U.S. as it relates to. Thank you.
Jack Davison
Yes, hi, it’s Jack, again, I think you sort of two parts of that. You’re right. What we’re seeing from industry perspective is a bit of an increasing interest and engagement in the live betting space, we’re seeing that from some of the operator goals and what’s happening now. So you’re across that stuff.
We are obviously excited about that, but playing cautious, taking a cautious view, and where we stay and where we – we don’t base on — somewhat from last year, particularly around the NFL and that’s why we’re saying until we know more because that’s the prudent thing for us to do.
I think what you’re also seeing from an industry perspective is the industry starting to think about how it solves some of these challenges and helps to drive in-game engagements with lots of ways of doing that, there is product perspective, there is marketing, and how that’s going to evolve over time. Things are beginning to happen or not just for us, I mean I think we mentioned on our last call, we are selling live streaming through operators for the upcoming season in Ontario into that market.
So, if you are in Ontario, you are one of our customers in Ontario, you’re having the possibility to watch live streaming on the sportsbooks site. So you’re more news on that in due course. But that’s the sort of the evolution of the market where are you starting to think about in-game and trying to solve some of those problems.
My view is some of those latency challenges will exist for a period of time, but actually, over time the market and technology will begin to sort that out and that will be a bit more harmony between those two things. So, I’m quite a lot going on but mostly positive from our perspective.
Mike Hickey
Thank you.
Operator
Ladies and gentlemen that concludes today’s session. You may now disconnect your telephone. Thank you for joining and have a pleasant day. Goodbye.
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