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01/11 16:21
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call summary reflects strong financial metrics with optimistic guidance, particularly in sports data services and new digital marketing channels. The Q&A section reveals positive sentiment towards product development, especially in OpticOdds and OddsJam, despite some unclear responses. The company’s cautious capital allocation and strategic investments suggest a focus on sustainable growth. The positive outlook on revenue and EBITDA growth, coupled with the potential benefits from Google updates, supports a positive sentiment. However, some concerns about margins and the U.K. market temper the outlook, resulting in a 'Positive' rating.
Revenue Third quarter revenue grew 21% year-over-year to a Q3 record of $39 million. Sports data services revenue quadrupled to $9.2 million in the seasonally slower third quarter. Subscription revenue was 24% of total revenue. Inclusive of revenue share arrangements in our marketing business, recurring revenue was 49% of total third quarter revenue.
Gross Profit Gross profit increased 17% to $35.6 million. Cost of sales of $3.4 million compares to cost of sales of $1.7 million in the year-ago period, reflecting costs associated with the acceleration of our traffic sources diversification strategy for the marketing business and cost of sales from the acquired OddsJam and OpticOdds businesses. Gross profit margin was 91.2% compared to 94.7% in the year-ago period.
Operating Expenses Operating expenses adjusted for fair value movements and acquisition and restructuring related expenses grew 30% to $25.7 million. This growth is primarily associated with added headcount from this year's acquisitions, higher marketing costs associated with traffic source diversification and increased share-based payment expense. Headcount outside the acquired businesses is flat year-to-date.
Adjusted EBITDA Adjusted EBITDA grew 3% to $13 million. Adjusted EBITDA margin of 33% compared to 39% in the year-ago period, reflecting the higher cost of sales and marketing expenses associated with our traffic diversification strategy.
Adjusted Net Income Adjusted net income and adjusted net income per share for the third quarter fell 16% from the year-ago period to $9.3 million and $0.26, respectively, primarily because of increased interest expense.
Free Cash Flow Free cash flow was $9.6 million, reflecting strong cash conversion from adjusted EBITDA of 74%. Free cash flow was down from $14.2 million in the year-ago period as a result of timing differences in 2024, where we saw an atypically strong Q3 following an atypically weak Q2.
Cash and Credit Facility At the end of the quarter, we had total cash of $7.4 million, and we had $70.5 million of undrawn capacity on our credit facility.
Sports Data Services: Grew over 300% year-on-year in Q3, now responsible for 25% of 2025 revenue. OpticOdds, a key enterprise solution, doubled its revenue year-over-year. Expanded offerings include bet settlement services and partnerships with providers like Rimble and Pro League Network. Added 10 sports, 350 leagues, and over 1,000 betting markets to the platform.
OpticOdds: Expanded its offerings to include bet settlement services and dynamic pricing for same-game parlays. Partnered with Pragmatic Play to enhance U.S. player prop market coverage. Serves prediction markets, including Wall Street firms and market makers like Kalshi and Polymarket.
Market Expansion: OpticOdds expanded its global reach by adding sports, leagues, and betting markets. Partnered with Pragmatic Play to enhance U.S. market offerings.
Revenue Growth: Q3 revenue grew 21% year-over-year to $39 million. Sports data services revenue quadrupled to $9.2 million.
Cost Management: Operating expenses grew 30% due to acquisitions and marketing costs. Focused on cost control through team optimization and AI adoption.
Marketing Diversification: Shifted focus from SEO to non-SEO channels, which are now generating more revenue than SEO for the first time as a public company.
Strategic Shift to Sports Data Services: Positioning sports data services as the core of the business, given its high growth and predictable revenue potential.
Marketing Business Transformation: Diversified marketing channels to reduce reliance on SEO, with plans to launch a new line of business in Q1 2026.
Search Engine Optimization (SEO) Challenges: The company's marketing business has been negatively impacted by unfavorable search rankings, with Google's algorithms favoring low-quality spam content in the gaming space. This has led to flat marketing revenue and a 13% year-over-year decline in new depositing customers (NDCs). The issue persists despite some recent improvements, and the full recovery of SEO performance remains uncertain.
Increased Operating Expenses: Operating expenses grew 30% year-over-year, driven by higher marketing costs, added headcount from acquisitions, and increased share-based payment expenses. This has contributed to a decline in adjusted EBITDA margin from 39% to 33%.
Higher Cost of Sales: Cost of sales increased significantly due to the company's traffic diversification strategy and costs associated with acquired businesses. This has reduced gross profit margins from 94.7% to 91.2% year-over-year.
Interest Expense Impact: Increased interest expenses have contributed to a 16% decline in adjusted net income year-over-year, impacting overall profitability.
Dependence on Google Algorithm Changes: The company's marketing business remains vulnerable to changes in Google's search algorithms. While diversification efforts are underway, the business still relies on SEO for a significant portion of its revenue, making it susceptible to external factors beyond its control.
Market Perception and Share Price Pressure: The company's share price has come under substantial pressure due to underperformance in the marketing business and market perception that the business is in decline. This has created challenges in maintaining investor confidence.
Sports Data Services Growth: The sports data services business is expected to finish 2025 strong and continue to grow organically at a healthy pace in 2026 and beyond. The segment is seen as the future core of the company due to its attractive offering and multibillion-dollar total addressable market (TAM).
OpticOdds Expansion: OpticOdds, the enterprise solution for sportsbook operators, is experiencing rapid growth, with third-quarter revenue doubling year-over-year. The company plans to expand its offerings, including dynamic pricing for same-game parlays and early cash-out functionality. Partnerships with providers like Rimble and Pro League Network are enhancing distribution and value for customers.
Prediction Markets Opportunity: The company expects the prediction market ecosystem to grow significantly, driven by its advantages over state-regulated sports betting. OpticOdds is positioned to assist market makers and monetize this growth as prediction markets expand.
Marketing Business Outlook: The marketing business is expected to grow in 2026 and beyond, supported by diversification into non-SEO channels. A new line of business is planned for launch in Q1 2026, further diversifying offerings.
Revenue and Adjusted EBITDA Guidance for 2025: The company revised its full-year guidance to approximately $165 million in revenue and $58 million in adjusted EBITDA, reflecting 30% and 19% year-over-year growth, respectively. The guidance assumes an average euro to USD exchange rate of $1.15 for the year.
Share Buyback Program: During the quarter, the company repurchased approximately 562,000 shares for a total consideration of $4.7 million. Year-to-date, the company has acquired 672,000 shares for a total consideration of $5.6 million. The company has $14.4 million remaining with its share buyback authorization.
The earnings call summary reflects strong financial metrics with optimistic guidance, particularly in sports data services and new digital marketing channels. The Q&A section reveals positive sentiment towards product development, especially in OpticOdds and OddsJam, despite some unclear responses. The company’s cautious capital allocation and strategic investments suggest a focus on sustainable growth. The positive outlook on revenue and EBITDA growth, coupled with the potential benefits from Google updates, supports a positive sentiment. However, some concerns about margins and the U.K. market temper the outlook, resulting in a 'Positive' rating.
The earnings call summary shows strong financial performance with 39% revenue growth and 56% EBITDA growth, but the Q&A reveals concerns. The Google algorithm update negatively impacted EBITDA, and management avoided specific guidance for 2026, leading to uncertainties. While new partnerships and market launches are positive, the impact of AI on search revenue and lack of detailed financial metrics for Spotlight.Vegas are concerning. Overall, the mixed signals and lack of clear guidance suggest a neutral stock price movement over the next two weeks.
The earnings call reveals strong financial performance with significant year-over-year growth in revenue, EBITDA, and net income. The company's strategic acquisitions are driving growth, and there's a positive outlook on market expansion and product offerings. Despite increased operating expenses due to acquisitions, the company maintains a healthy cash position. The Q&A section reflects optimism, with no major concerns from analysts. The lack of a share repurchase program is a minor negative, but overall, the financial health and growth prospects suggest a positive sentiment, likely leading to a stock price increase of 2% to 8%.
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