Business Context and Reporting Period
Genius Sports Limited filed a Form 20-F shell company report following the consummation of its business combination with dMY Technology Group, Inc. II on April 20, 2021. Genius is a Guernsey-incorporated B2B provider of sports data, technology, betting services, streaming and media/advertising solutions. The historical financial statements are those of Maven Topco Limited and its subsidiaries, the accounting predecessor, for the years ended December 31, 2020 and 2019. The statements use U.S. GAAP and distinguish Successor and Predecessor periods because of the September 2018 Apax acquisition.
Genius listed its ordinary shares and warrants on the NYSE under GENI and GENI WS. The filing reports approximately 178.6 million ordinary shares outstanding after the transaction. The business combination was accounted for as a reverse recapitalization, with no new goodwill or intangible assets recognized for the transaction.
Key Financial Metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Revenue | $149.7 million | $114.6 million | Up 31% |
| Gross profit | $35.7 million | $25.3 million | Up 41% |
| Gross margin | 23.8% | 22.1% | Up approximately 170 bps |
| Operating loss | $21.0 million | $36.2 million | Improved by $15.2 million |
| Net loss | $30.3 million | $40.2 million | Improved by $9.9 million |
| Adjusted EBITDA | $17.5 million | $(6.2) million | Improved by $23.7 million |
| Operating cash flow | $17.1 million | $2.5 million | Improved by $14.6 million |
| Investing cash flow | $(22.7) million | $(24.6) million | Lower use by $2.0 million |
| Cash and equivalents | $11.8 million | $8.2 million | Up $3.6 million |
| Total debt | $93.0 million | $73.2 million | Up $19.8 million |
Adjusted EBITDA is a non-GAAP measure and excludes interest, taxes, depreciation and amortization, acquired-intangible amortization, transaction expenses, litigation-related costs and other unusual items. It is not directly comparable to similarly titled measures used by other companies.
Revenue by product group was $110.6 million from Betting Technology, Content and Services, $16.1 million from Sports Technology and Services, and $23.1 million from Media Technology, Content and Services. More than 60% of fiscal 2020 revenue was associated with contractual minimum revenue guarantees.
At December 31, 2020, total assets were $391.0 million, total liabilities were $179.8 million, temporary equity was $350.7 million and shareholders’ deficit was $139.4 million. Remaining performance obligations were $260.9 million, of which approximately 36% was expected to be recognized within one year.
Material Changes Versus the Prior Comparable Period
- Revenue increased 31%, led by a 25% increase in Betting Technology, Content and Services and a 94% increase in Media Technology, Content and Services.
- Revenue growth reflected customer expansion, contract price increases, new customers, greater event utilization and expanded product offerings. These benefits were partly offset by approximately $6.1 million of one-time COVID-19-related customer discounts.
- Events under official sports data and streaming rights increased from 142,083 to 162,078, while exclusive events increased from 83,462 to 101,906.
- Cost of revenue increased 28% to $114.1 million, primarily due to higher data rights costs and amortization of capitalized software. Data rights costs increased to $41.9 million from $23.8 million.
- Operating expenses decreased 8% as sales and marketing and research and development spending fell during the pandemic. General and administrative expense increased 7%, partly due to implementation of a new ERP system.
- Gross margin improved despite higher rights and software costs. Management expects margin improvement over the medium term as acquisition-related intangible assets become fully amortized.
- Genius acquired Sportzcast in December 2020 for approximately $4.4 million in cash. Investing cash flow also included $15.9 million of internally developed software costs.
- The company repaid approximately $96.6 million of investor and related-party debt, including accrued interest, at the business combination closing.
Liquidity, Debt and Capitalization
Historical cash at December 31, 2020 was $11.8 million. Pro forma cash after the transaction was estimated at $157.5 million, including approximately $330 million of gross PIPE proceeds, less approximately $13 million of PIPE placement fees and other transaction-related uses. Total transaction costs were estimated at approximately $60 million.
Historical debt consisted primarily of unsecured investor loan notes bearing 10% interest and a $10.2 million related-party loan bearing 4% interest. These obligations were repaid at closing. Pro forma debt was approximately $114,000, primarily reflecting the remaining mortgage balance.
Contractual commitments at December 31, 2020 totaled $250.6 million, including $137.2 million of data license commitments, $20.4 million of operating lease obligations and $93.0 million of debt. Genius also had approximately $40.9 million of bank guarantees outstanding, primarily associated with sports data rights obligations.
Outlook, Management Commentary and Unusual Items
- Management expects growth from expansion of regulated sports betting, particularly in the United States and other newly liberalizing markets; increased customer utilization; additional sports data rights; value-added services such as streaming and risk management; media and advertising; and selective acquisitions.
- The company expects operating expenses and capital requirements to increase as it expands products, geographic coverage, data rights and public-company infrastructure. Management stated that available cash, operating cash flow and transaction proceeds were expected to fund requirements for at least twelve months from the filing date, while noting that additional financing could become necessary.
- COVID-19 caused event cancellations and postponements, reduced available sports data and led to customer discounts. Management reported recovery as major leagues resumed, but identified continued pandemic-related uncertainty.
- On April 26, 2021, after the reporting date, Genius announced a multi-year NFL license agreement providing exclusive worldwide distribution rights for NFL official data to regulated betting and media markets, international live digital video rights in specified markets, and exclusive sports betting and iGaming advertising rights. The agreement provides for up to 22.5 million warrants exercisable at $0.01 per share, with 11.25 million issued and immediately vested.
- The pro forma 2020 combined statement of operations showed a $338.4 million net loss, largely due to transaction-related stock compensation, warrant remeasurement and other pro forma adjustments. This amount is not representative of historical Genius operating performance or necessarily indicative of future results.
- The filing discloses pending BetConstruct and Sportradar litigation. The company cannot estimate the possible loss or range of loss from an unfavorable outcome in the Sportradar matter.
- dMY identified a material weakness in internal control over financial reporting related to accounting for its IPO warrants and restated affected financial statements. Genius planned remediation after closing but provided no assurance that remediation would be successful.
Principal Risks
- Dependence on sports events, sports organizations and exclusive or official data rights, including the risk of losing rights or facing higher renewal costs.
- Continuing operating losses, negative accumulated deficit and uncertainty regarding sustained profitability and positive free cash flow.
- COVID-19, seasonality, consumer spending, foreign exchange volatility and broader economic conditions.
- Extensive and changing sports betting, gaming, advertising, privacy, data transfer, licensing, anti-money laundering and competition regulation.
- Pending litigation and investigations, including competition-law and database-rights disputes.
- Cybersecurity, technology infrastructure, cloud-service, data quality and business continuity risks.
- Customer concentration, competition from Sportradar, Stats Perform and IMGArena, and dependence on key personnel.
- Potential dilution from public and private warrants, restricted shares, equity compensation and the NFL warrants.
- Guernsey incorporation, foreign private issuer status and reduced U.S. reporting and governance requirements compared with U.S. domestic issuers.
Facts an Investor Should Verify
- Reconcile the reported ordinary-share counts, which differ in places in the filing, including 178,587,357 shares reported at April 20 and April 23, 2021 versus 178,512,357 shares used in one beneficial-ownership table.
- Confirm post-closing cash, transaction costs, debt repayment and the final capitalization after all PIPE shares, warrants, restricted shares and incentive awards are reflected.
- Assess the sustainability of the $17.5 million 2020 Adjusted EBITDA and reconcile it to GAAP net loss and cash flow.
- Review the terms, renewal dates and economics of major data rights, particularly the U.K. soccer agreement and the NFL license agreement.
- Monitor the Sportradar and BetConstruct proceedings, bank guarantees, data-rights commitments and any resulting financial or operational exposure.
- Confirm remediation of dMY’s material weakness and the effectiveness of Genius’s post-combination internal controls.
- Evaluate the effect of COVID-19 recovery, sports-event volumes, customer discounts and seasonal utilization on future revenue and cash flow.