Hello, everyone. Thank you for joining us, and welcome to Genius Sports' Third Quarter 2026 Earnings Results. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Genius Sports. Please go ahead.
Good morning, and thank you for joining. Before we begin, we'd like to remind you that certain statements made during this call may constitute forward-looking statements that are subject to risks that could cause our actual results to differ materially from our historical results or from our forecast. We assume no responsibility for updating forward-looking statements. Any such statements should be considered in conjunction with cautionary statements in our earnings release and risk factor discussions in our filings with the SEC, including our annual report on Form 20-F filed with the SEC on March 17, 2026. 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 the call over to our CEO, Mark Locke.
Thank you, and good morning, everyone. This is an important and exciting quarter for Genius Sports. Against a backdrop of significant attention on prediction markets, the Legend acquisition, and our cash flow potential, we're pleased to report our first full quarter as a combined business. This earnings report proves our critical position in the ecosystem, our successful ongoing integration of Legend, and our ability to generate meaningful cash flow. Our strategy is working, and it's translating to financial outperformance. Group revenue of $270 million exceeded our guidance of $260 million, and group adjusted EBITDA of $87 million also beat our guidance of $85 million. This resulted in a 32% adjusted EBITDA margin, or 12 percentage point expansion compared to last year. Importantly, we generated $54 million of free cash flow, representing 61% conversion from adjusted EBITDA.
From here on out, you will hear me reference free cash flow as an important metric to demonstrate the earnings power of the combined business. I am holding my team and myself accountable to free cash flow generation because we are confident that today's results set a foundation that we will build upon in the quarters and years ahead. This performance reflects the strength of our commercial model, predictable revenue, multiple opportunities to grow across the sports ecosystem, and increasing operating leverage as we scale. Today, we will cover four key topics. One, the rapidly growing demand for sports wagering, spanning traditional online sports betting and prediction markets. Two, an update on Legend, which is continuing to perform strongly. Three, our continued momentum in the combined media space.
Finally, four, the importance of free cash flow as a key measure of operating performance and the value that we create for shareholders. I will start with our betting business, which increased 33% year-over-year. This remains a highly reliable and predictable revenue stream, with approximately 70%-80% of betting revenue coming from contractually fixed minimum revenue guarantees. Our contracts have always provided strong downside protection while preserving the upside, creating more consistent and durable revenue streams as the market evolves. That upside is driven by a diverse set of factors, each of which moved in our favor this quarter. The NFL season started late, so this quarter only captures three weeks of it. But looking at our first four weeks of the NFL season year-over-year, gross gaming revenue is up nearly 60%.
In-play betting was a particularly strong contributor, as improving bookmaker win margins translated to nearly 50% growth in in-play GGR. BetVision, our watch-and-bet product, is part of that. We are seeing record levels of engagement through our BetVision product, including with the NFL's in-market and national games on mobile. During the first four weeks of the NFL season, minutes per user increased by nearly 50% year-over-year. This means fans are spending more time with the product and engaging more deeply with the live game experience. This creates more opportunities for in-play betting, an area driving significant value for Genius and its bookmaker partners. Our bookmaker contracts, many of which we recently renewed, provide a stable base of reoccurring revenue, with opportunities for both parties to benefit from future growth. We have been intentional about building a strong foundation to support a predictable and resilient betting business.
We are now leveraging that same foundation of data and infrastructure to capture new growth opportunities, most notably in prediction markets. We believe this is the biggest opportunity in our industry right now, and in financial markets more broadly. The scale of investor interest is already evident in the private market. Kalshi and Polymarket have a combined valuation of approximately $60 billion based on their latest funding rounds. That is a striking indication of the expectations surrounding this category. For the public market, we believe Genius offers a differentiated way to invest in this growing category. The reason is simple. As dollars flow through prediction market ecosystem, we generate revenue at every step along the way. It starts with customer acquisition. Prediction market operators are competing aggressively to acquire customers, establish their brands, and gain market share.
This is an area where our media business already has proven track record, helping sportsbooks acquire customers at scale. The combination with Legend strengthens these capabilities considerably. Legend owns and operates established products that attract highly engaged sports fans, representing some of the most valuable audiences in gaming. As operators and prediction exchanges compete for those customers, our media properties and marketing capabilities become even more valuable. Importantly, we support nearly every operator across traditional sports betting and prediction markets. Therefore, as customer acquisition spend increases across the industry, Genius takes a share regardless of which platform wins. Once acquired, those customers trade sports contracts on the exchanges, where liquidity is critical. Much of that liquidity is provided by institutional market makers who rely on real-time data to set the price for those contracts.
This is particularly important in live trading, which we estimate accounts for roughly two-thirds of total sports volume. As more market makers enter the space and as trading activity grows, demand for our data increases. We already supply many of the major institutional market makers providing that liquidity, meaning Genius shares in the growth of the market regardless of where that liquidity comes from. The final step is in settlement, the moment a contract pays out. Exchanges rely on official data, a single source of truth sanctioned by the league, to settle contracts quickly and accurately. So, as more sports contracts are traded, Genius takes a share regardless of where those trades occur. Customer acquisition, trading, settlement, three critical stages of the prediction market ecosystem, with Genius already monetizing all three with over 50 new customers this year and counting.
We are doing it using the same data, technology, and infrastructure that have underpinned our sports betting business for 25 years. That is the operating leverage of our business model. The rise of prediction markets reinforces our original investment thesis. Genius provides data and services to the entire regulated sports wagering ecosystem and is positioned to benefit regardless of which platforms ultimately succeed. The thesis hasn't changed, only the size of the opportunity has. I want to build on that point and clarify how we think about the size of that opportunity. Genius serves regulated sportsbooks, major prediction market exchanges, and the market makers that provide liquidity to those exchanges. Our opportunity is therefore linked to the total dollars legally wagered on sports, regardless of the platform. Prediction markets have clearly proven the demand that exists for sports wagering in America.
These platforms are simply bringing more dollars into the sports wagering ecosystem, which increases our TAM and reinforces our confidence in the potential upside to our 2028 guidance. This brings me to the question surrounding the regulatory future of prediction markets. After 25 years in the industry, my view is that today's structure will evolve. Rules around access products and taxation will change. Some of today's advantages will shift, and some of today's winners may not be tomorrow's. We often get asked what it would mean for Genius if oversight moves from a federal to a state-by-state model. Our view is that the underlying opportunity remains meaningful either way. We are already seeing states take steps towards taxing or regulating this activity. North Carolina is taxing exchange trading fees. Illinois has proposed a transaction levy, and tribes in California have signaled interest in gaming regulation.
These are early indicators of how oversight could evolve. Given the scale of the activity, we believe governments will have strong incentives to establish a regulatory and taxation framework. Whether that framework ultimately operates at the federal or state level, we expect the activity to continue in some regulated form. The question is how it will be governed, not simply whether it will exist. To put it simply, the ground is shifting, but we do not need it to land any particular way. If it flows back to the sportsbooks we already serve, we win. If it stays on prediction market exchanges, we are already there too. There is no version of this that does not pay Genius. Our business is built to engage fans and provide our partners with the mission-critical tools to monetize that engagement. Prediction markets give us an opportunity to expand that role.
This has always been the core investment thesis for Genius. What has changed is the size of the opportunity in front of us. Now, Legend. We are even more excited today by the asset that we acquired, the talented people and longstanding customer relationships that underpin its superb track record of cash generative growth. We are now proving this through execution and results. Integration is progressing as planned across commercial, technology, and culture. As a result, we are realizing revenue synergies ahead of schedule. Our deals with Kalshi and Polymarket are high-profile examples of what the combined business can achieve. They demonstrate how Genius and Legend create greater commercial value together than either could independently. While these deals make the headlines, we are applying the same approach across a long tail of operators in sports betting, iCasino, and prediction markets. We are also seeing the strength of Legend's audience firsthand.
Since closing the acquisition, Legend has set multiple engagement records, first during the World Cup and more recently across the NFL and college football weekends. It is a consistent pattern, and it is converting to results, particularly as competition for prediction market customers intensifies. The timing of the acquisition could not have been better for Genius to capitalize on these competitive dynamics and capture a share of the increasing advertiser spend. We are also building on this success with the launch of Prediction.com, a dedicated destination for prediction markets, offering a compelling suite of tools and data. It is another example of how we combine Legend's audience and technical capabilities with Genius Sports official data to create differentiated products. For instance, one product brings real-time data for live sporting events together with a live feed of trades that are taking place on exchanges for those events. The results are encouraging.
Users who engage with this product are five times more likely to transact. That is proof that the combination works better than either business alone. Prediction.com also gives us deeper understanding of sports fans, the leagues and teams they follow, and the products and content that resonate with them. Over time, these insights can help deliver better outcomes for advertisers and attract additional advertising spend. This represents another important area of potential synergy across the combined business. Taken together, these early results reinforce our conviction in the strategic and financial value of the acquisition. As discussed, our media business has a strong foundation in gaming, with reoccurring revenue and contractual minimums providing meaningful visibility. We are building on that foundation by expanding the Moment Engine to a broader range of consumer brands beyond the gaming space. The opportunity is clear.
Live sports gives brands access to large, highly engaged audiences in real time. By combining real-time sports data with first-party audience data, we help advertisers understand fan behavior and reach the right audiences in the moments that matter the most. We are seeing growing demand for the Moment Engine, and our integrations across major supply-side and demand-side platforms allows us to capture that demand at scale. Advertisers can tap into our data and technology through the channels that they already use, giving us broad access to advertising budgets without relying on any single platform or buying channel. The proof is in our customer growth since launching the Moment Engine. We added 174 advertisers in Q2 and another 279 in Q3, including a wide range of non-gaming brands such as Toyota, State Street, Whoop, and Domino's, to name a few.
Additionally, what is most encouraging is that the existing advertisers are returning to the platform and increasing their spend. In Q3, our net revenue retention was 224% compared to Q2. While the product is still in its early stages, we believe these metrics demonstrate the value that the Moment Engine can deliver. We recognize that the growth may vary over time as advertiser adoption and spending patterns evolve, but we are pleased with the early traction and remain very excited about the opportunity to build on this foundation. Beyond helping brands make better use of existing advertising inventory, we are also creating new inventory through our data and technology. This expands the ways that we can engage sports fans and creates additional opportunities for brands to reach them. Two developments this quarter illustrate the opportunity.
First, we announced a new partnership with the NBA All-Star Chris Paul to create original athlete-led sports content powered by GeniusIQ. This is more than a content partnership. It is a powerful demonstration of how we are translating our proprietary computer vision and AI technology into differentiated fan experiences and new commercial opportunities. GeniusIQ captures and transforms next-generation data into insights and stories that brings fans closer to the game, allowing them to see and understand basketball through the eyes of its most accomplished players. At the same time, this model creates a compelling opportunity for brands to connect with highly engaged audiences through premium athlete-led content and sponsorship. What makes this particularly exciting is the way that it brings together our technology, data, and commercial capabilities to unlock new opportunities for monetization.
Second, our partnership with Univision, the largest broadcaster of Liga MX, brings a new level of insight to live broadcasts. GeniusIQ turns real-time tracking data into insights and visualizations that gives fans a deeper understanding of the game. Through our Moment Engine, these moments also become premium sponsorship opportunity, allowing brands to connect with fans directly on screen as the action unfolds. Together, these initiatives demonstrate how we are extending the value of our data, creating more engaging experiences for fans, more valuable inventory for advertisers, and additional ways to monetize our technology across the sports ecosystem. Taking a step back, the story is clear. We have built a differentiated position across the sports ecosystem, and Legend makes that position even stronger. Our data and technology underpin predictable betting business, position us to capture growth in prediction markets, and power our expanding media business.
Legend extends our reach, creates new commercial opportunities, and adds further diversification of our revenue. These businesses reinforce one another, allowing us to generate more value from the same underlying infrastructure and drive greater operating leverage as we scale. We have talked about what this business could become. We are now demonstrating what it can deliver. We are beating expectations, generating significant free cash flow, and proving the earnings power of the combined company. Our strategy is delivering, our opportunity is growing, and we are just getting started. Before I turn to Bryan, a personal point. I am the largest individual shareholder in Genius. In September, I sold about 800,000 shares, around 4% of my vested holding, and arranged, at my own cost, a collar over a further 4.4 million shares.
The collar sets a floor under those shares and is structured in a way that allows me to keep those shares.
Maintaining those shares is of paramount importance to me because I believe in the future of this company. The cash is for my growing family and personal tax planning. You can expect me to collar further shares as that planning requires and to handle any other transactions thoughtfully in a similar vein. My intention is to unwind the collars as liquidity arrives from elsewhere. I remain substantially invested in Genius, and my confidence in the business has never been higher. We have invested heavily for the future, and that investment is clearly delivering, and I am committed to seeing it through. As a founder, I take a long-term view. As CEO, I am accountable for meeting our commitments, generating cash, and being disciplined with your capital.
We will keep growing Genius and turn that growth into lasting value per share. Hold us to both. With that, it is over to Bryan.
Thanks, Mark. As we just outlined, this quarter was another strong quarter for Genius Sports. What I want to focus on in my remarks is not just the growth we are delivering, but how that growth is translating into higher margins, stronger free cash flow, and an increasingly attractive financial profile. First, let us start with revenue, where we saw continued growth across both product groups. In betting, revenue increased 33%, matching our strongest quarter of growth this year. This was driven by multiple factors, including a strong start to the NFL season, increased in-play betting, improving operator win margins, and pricing uplift on recent contract renewals. This growth was also supported by new monetization opportunities across prediction markets, which Mark highlighted earlier.
In media, revenue increased 126% year-over-year, which was supported by the Legend acquisition, along with underlying strength in prediction market and online sportsbook spend, plus the increasing adoption of the Moment Engine. One important point to keep in mind when assessing our media performance is the mix of our revenue. An increasing portion of media revenue is now generated through our self-serve platform, where revenue is recognized on a net basis. As a result, the reported revenue figure is lower than it would be under a gross presentation, but the margin profile is higher. Importantly, we are growing group revenue significantly faster than our cost base, driving greater operating leverage and allowing more of that revenue growth to flow through to profitability. On that note, one area worth highlighting is data rights costs.
The increase we reported in the first half of the year reflected the timing of new rights acquired in the fall of 2025. With those additions now behind us, cost growth is normalizing, and data rights are declining significantly as a percentage of revenue. With long-term agreements in place for our major rights, we have good visibility into these costs over the next several years and expect the rate of growth to continue declining. We are already seeing the benefits of this operating leverage in our results. Gross profit more than doubled year-over-year, with gross margin expanding to 34% from 25% in the prior year quarter. Stock-based compensation was $15 million in the quarter, representing 6% of revenue, down from 16% a year ago. We achieved $10 million of GAAP operating profit, which we expect to continue building on.
Finally, adjusted EBITDA margin expanded to 32%, up from 20% a year ago, reflecting the growing profitability of our combined business as we scale. Importantly, this profitability is converting to free cash flow. This quarter demonstrates the quality of our earnings and the cash-generating power of the combined business. We converted 61% of adjusted EBITDA into free cash flow, which, in line with market practice, reflects operating cash flow, less capital expenditure, capitalized software development costs, and purchases of intangible assets. Excluding $16 million of cash interest expense incurred in the quarter, our unlevered free cash flow conversion was approximately 80%. As we are discussing free cash flow and unlevered free cash flow, I want to make sure that we are clear that we are focused on free cash flow as a key financial metric going forward.
For completeness, and to be clear, we previously guided to over 60% unlevered free cash flow by 2028. That target remains unchanged, and we expect to progress materially towards that target in 2027. This strong cash-generating profile gives us significant financial flexibility, and our capital allocation priority remains debt repayment. We are committed to delevering, and we expect net leverage to fall to approximately two times by the end of 2026 and even further in 2027. Moving on to guidance, the outperformance in Q3 reinforces our confidence in the business and our outlook for the full year. Therefore, we are raising our group revenue guidance to a range of $1.015 billion-$1.035 billion, and adjusted EBITDA to a range of $287 million-$297 million.
Additionally, we expect a year-end cash balance of approximately $260 million, representing free cash flow of more than $100 million across the second half of the year. With strong revenue growth, expanding margins, increasing cash generation, and a strengthening balance sheet, we believe our results continue to demonstrate the financial strength and scalability of our business. We enter 2027 with significant momentum, a strong foundation for continued profitable growth, and increasing financial flexibility to capitalize on the opportunities ahead. We look forward to sharing more details on our 2027 outlook next quarter. With that, I will hand it back to Mark for closing comments.
Let me close summarizing how we have delivered on our key objectives for the year. We have outperformed the guidance we set in the first two quarters with Legend. We reported $10 million of GAAP operating income, and we have generated $54 million of free cash flow, which underpins our confidence in our deleveraging path. We are the infrastructure layer that our customers rely on, and we supply every regulated channel in which people bet on and watch sport. We take no view on which way the ball bounces. Our financial profile is now reflecting that. We have contracted revenue, a predictable cost base, and multiple upside opportunities, resulting in significant operating leverage. This is what gives us confidence in achieving our 2028 targets of 35% adjusted EBITDA margins and at least 60% unlevered free cash flow conversion.
We believe that this quarter demonstrates the progress we have made, and we look forward to updating you as we continue to execute. We will now open the line for questions.
We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Josh Nichols with B. Riley. Your line is open, Josh. Please go ahead.
Yeah, appreciate you taking the time to answer my question. Look, it is great to see the really strong free cash flow generation here to kick off the second half. The betting revenue accelerated pretty meaningfully, up 33%, despite some more better favorable outcomes at the start of the NFL. I am kind of curious if you could give a little bit more granularity on what is driving that in terms of the breakdown for the renewal mix in play and prediction markets that is leading that growth.
Yeah. It is Mark. So obviously, we talked a lot before about the way that our underlying deals have locked in revenue. We are not particularly exposed to the wins or losses that any particular team or sport may experience at any time. That is coming through pretty clearly in the numbers, and that exposure is not there. Prediction markets, obviously a strong growth area for us. We are seeing revenue that we make through deals with the likes of Kalshi and Polymarket, but also through the market makers as well. We are selling to all the market makers. Just to remind everybody, we take a profit share from those market makers, as well as charging a data fee in the same way that we sort of charge OSBs. From our point of view, the betting business is growing particularly strongly.
I think you said it is 33% growth, so we are very, very happy with that. That we expect to continue all the way through 2027 towards 2028, and we are very happy with where we are on that.
Appreciate it. Just for my one follow-up, the Legend acquisition seems to be performing quite well. You previously talked about there is a multitude of synergies that really are not into the 2028 guidance number. If you could just provide a little bit of update on how the company has been executing on those synergies relative to plan and things like customer acquisition pricing that you are seeing today.
Yeah. I mean, look, the acquisition is going brilliantly. We are really happy with it. From a cultural point of view, the teams are working really closely, and the business is getting fully integrated on that side. The main areas that we are focused on are obviously the commercial side. I think the evidence of that was the Kalshi and the Polymarket deals that we originally did, but there is also a number of other areas that are coming through on the commercial synergies. We are looking at doing more close work on OSBs, as well as other prediction market players. The other area that probably is not so visible, but from our point of view is pretty exciting, is the technical integration. We are bringing data in to both businesses. Prediction.com is a really good example of that.
And I think the most interesting sort of, and it's early days, but the most interesting piece of work we're doing at the moment is on the Prediction.com, where the Legend engine that we talked about a lot when we bought the deal, when we bought the business, has really been put out to use in that particular project. And we're seeing really strong initial results from that. So overall, integration is going, I would say, fairly well ahead of schedule, and we think there's a lot more opportunity still to come.
Thanks, Mark. Looking forward to continued progress and seeing that free cash flow KPI continue to improve over time.
Your next question comes from the line of Sam Nielsen with JP Morgan. Your line is open, Sam. Please go ahead.
Hey. Good morning, guys. Congrats on the quarter, and thanks for taking our question. We've heard some other industry participants talk about increasing CPAs in the space as a result of an increasingly competitive customer acquisition environment. Obviously, we assume you sell, but wondering if you could talk about this more specifically in the scope of your performance in the quarter and maybe what your outlook is for that to continue going forward here.
Yeah, I think that is right. I mean, I think it goes without saying that as the market becomes more competitive, CPAs go up. I think I have said before, we have seen CPAs double on the prediction market side since we bought Legend, which has been good. Again, we see a strong trajectory for growth over the coming time. Yeah, I mean, I think what you are hearing is pretty much what we are seeing.
Makes sense. As a follow-up, appreciating that it is early and you are not yet got into 2027, is there any way you could kind of give us a sense of some of the puts and takes and building blocks to kind of be thinking about for next year between maybe the core business, Legend, prediction markets, and maybe some offsets in Brazil or elsewhere?
Sure. Hey, it is Bryan. We are early in planning for 2027. We will share more of that in March. As we look to the growth, it is the consistent building blocks. When you think about just the expanding TAM, both behind betting, prediction markets adds further, iGaming continuing to grow, and the Legend acquisition gives us exposure to that. That coupled with our continued product penetration, and we are always adding and negotiating new deals and able to drive pricing uplift as well. So, a number of things helping drive the top line. As we look to margins, and you are seeing it come through this quarter and this year with operating leverage, where the cost base grows lower than the revenue base, and so you get the compounding effect and the expanding margins.
Additionally, as you can see how we have highlighted our focus on free cash flow, that flowing through there and continuing that ramp to our 2028 guidance, and building 2027 will reflect that. So, we are positioned well. The continued momentum sets us up, and we will share more on the next call.
Yeah, I think it's also probably worth adding that we've got a lot of visibility on this already because of the way the business operates and because of the deals that we've got locked in, especially on the betting side. We've got very strong, very clear visibility of what the revenues look like, but also on the rights side, what the cost base is. The rights market has acted as we predicted and is coming down. So, I think from our point of view, we feel increasingly confident about our 2028 guide.
Thank you very much. Congrats and good luck.
Your next question comes from the line of Jed Kelly with Oppenheimer. Your line is open, Jed. Please go ahead.
Hey, great. Thanks for taking my question. Just going back to your earlier comments on the net revenue on media now, I think it's pretty important. You look at the leverage there. I think it's now media direct cost as a percentage of media revenues, mid-20s. How much of that is being driven by Legend versus how much of that is being driven by more people in your core FANHub experience choosing to do self-service advertising? How should we think about those margins going forward?
Yeah, sure. I mean, look, we think about Legend as a component of our broader media business, and obviously, that allows us to cover the full funnel of all the operators. CTV and video are building awareness on that at the top of that funnel, and that's powered by the sports data and, of course, by the Moment Engine. Programmatic display and native keep operators in front of those players through the consideration. From our point of view, Legend's properties, Covers, Sportsbook Review, Oddspedia, and Casino Guru reach the players with the highest intent and drive the lower funnel from comparison to deposit. So, yeah, we're feeling pretty good about it.
Got it. Then just as a follow-up, we are seeing market makers or smaller market makers starting to have to pay the exchanges higher fees, particularly for RFQs. Do you think this is a business model where market makers, it starts to consolidate for a handful of larger-scale players, and how does that impact your How does that impact? Is it more higher volume, but you're getting lower rev share because it's higher volume market makers? Can you talk about that dynamic and the impact of higher fees? Thanks.
Yeah, I mean, the key dynamic we think about is liquidity. Obviously, the TAM in our space has expanded enormously and very rapidly with the addition of prediction markets. I think I've said this before, Jed, the way we think about the business and the way we think about the market is about the total amount that's bet. Whether it's bet through OSBs or whether it's bet through prediction markets, we're fairly agnostic. So, I think the expansion that we're seeing in the TAM and the way that we make money on every bet is becoming pretty clear. The way that prediction markets evolve is going to be quite interesting. You've seen case studies in other countries with exchanges about the way that they charge, and I think we've all got a keen eye on that. But overall, from our point of view, it's just really about liquidity.
The more liquidity in the market, the more money we're making, as we're basically taking a slice of every bet.
Thank you, and nice job.
Your next question comes from the line of Eric Sheridan with Goldman Sachs. Your line is open, Eric. Please go ahead.
Thanks so much for taking the question. It was great to see the level of growing advertiser adoption that you called out. Can you talk to us a little bit about both the seasonality and the structural long-term potential for growth in the advertiser pipeline and the revenue retention as well? Just so we understand some of that being either seasonal and also how you continue to possibly have confidence interval about the pipeline longer term. Thanks so much.
Yeah, thanks. Look, we're super happy with it. The strategy on media is really about land and expand. We're looking to acquire and add in as many new customers as we can, and I think we went from 174 last quarter. We added another 279 this quarter. So, we're up at 450-odd customers running through that. Once we've got those customers, there's obviously a period of time where they're testing the results, making sure that we're actually delivering what we said we were going to deliver, and we're seeing net revenue retention come through very well there. Our job now is to expand the amount of money that they're spending with us. So, they've got through the test campaigns. We've got a lot of customers, so it's really a case of working with those customers to drive usage over time.
Great. Thank you.
Your next question comes from the line of Jordan Bender with Citizens. Your line is open, Jordan. Please go ahead.
Morning, everyone. Thanks for the question here. One of the key themes here during Q3 has just been around some of the decelerating iGaming growth across North America. It sounds like the Legend business is performing great here, but can you just remind us how much Legend is kind of tied to market growth? Then maybe a separate question on that is, just in terms of the Legend properties, what are you seeing in terms of traffic to those sites as we start the NFL season?
Yeah. I mean, just to remind you how we get paid on Legend, over half of Legend's money comes from historic deals that have already been signed. So we're getting paid, in some cases, from customers that were signed up 15 years ago. So the annual dynamics, they're important on some basis, but not that it really affect the overall macro view of Legend. The majority of Legend's customers is iGaming, as I said, but we're adding many new channels. Obviously, Covers, launch Prediction.com, some of the RIP stuff that's been coming out, I think provides an exciting opportunity going forward. So we see fairly significant growth opportunities across the market. As I said, from Legend's point of view, we've got a very stable, solid, and reliable historical revenue stream that's delivering as we would expect.
I just wanted to add in that the diversity within Legend, there's diversity geographically. It's not tied to any one market or significant region. The other point is, there is the Covers and the sports business, so there is iGaming and also exposure to online sports betting and prediction markets. There's diversity within it, and then certainly, as Mark hit upon, the recurring revenue within those contracts also provides predictability as well. So, less tied to any one market or any one change in the regulatory environment.
Great. Thank you. Just maybe one quick follow-up here. On the implied guidance for 4Q, how much was Brazil maybe part of the old guide that isn't in there anymore? I guess, more broadly, just how much was Brazil a percentage of revenue, or how should we be thinking about that in the model? Thank you.
Yeah. Just to remind you, the way we get paid is we have very strong contracts that don't have us exposed to any particular regulatory environment. So in the same way that we don't take risk on the outcome of sporting events, we also don't take regulatory risk. So from our point of view, the closing of Brazil didn't really have any material impact on the underlying business. Admittedly, it's probably got a little bit of It's taken some of the upside that we may have had going forwards and probably mutes that a little bit, but that doesn't really affect our view on any of the numbers through to 2028.
Great. Thank you.
Your next question comes from the line of Chad Beynon with Macquarie. Your line is open, Chad. Please go ahead.
Morning. Thanks for taking my question. Bryan, you mentioned that leverage will be at two times at the end of the year and then further decline here as we move forward. Given the growing free cash flow and your confidence in the earnings power, how are you guys thinking about share repurchases versus debt reduction in the near term? Thanks.
Hey, thanks, Chad. That's right. As we grow our free cash flow and the operating leverage, the path to two is clear further down in 2027 and 2028. We prioritize it, as we continue to say, delevering and debt repayment. We think as we get into 2027, 2028, we'll be well on the path of that, and that will give us optionality. But right now, the focus is that debt repayment and getting the net leverage down.
Thank you. Then with respect to further BetVision or in-play adoption, why do you think you're seeing so much growth this year? The product's been out there. Is this just an evolution of the customer, kind of what they like, and how do you think this could portend for future years? Is there still upside in terms of in-play percentage from your customers? Thank you.
Yeah. I mean, look, we've always said there'd be a shift from pre-match to in-play. I mean, the benefits to customers are pretty obvious. The margins are significantly higher, and I think the customers are pretty focused on that now. So that aligns with us really well. Obviously, things like BetVision, where we've seen a significant increase in the viewing minutes on that, I think helped change user behavior, and ultimately, the products are getting better. So I think the combination of all of those things is taking us to the place that, frankly, we sort of thought would come over time.
Thank you very much.
Your next question comes from the line of Ryan Sigdahl with Craig-Hallum. Your line is open, Ryan. Please go ahead.
Hey. Good day, Mark, Bryan. Want to start on that last question you just answered for Chad, but you mentioned kind of the benefits from an in-game standpoint and what's driving adoption and growth there, BetVision being one of those. But how do you think about that from a prediction market standpoint, evolution of the product and services, and the ability to help drive even accelerated volume from the current growth they have there, namely BetVision and ways to drive in-game betting?
Yeah, prediction market, I mean, already it is about two-thirds of the volume, so it is already a very significant part, and that kind of marries with what you see in Europe and some of the more mature betting markets, although it is slightly higher in Europe, to be fair, it is maybe up to 70%. Obviously, prediction market product set suits in-play betting really well, and the adoption of the products, things like BetVision is something that we are clearly in conversations about and watch this space.
Maybe a question for Bryan. Free cash flow was better in Q3. Kudos on that, and good to see it flow through. You reaffirmed your $100+ million target in the second half. The cash target actually implies like $105 million in the second half. You got some EBITDA upside, a couple million. It appears like that flowed to free cash flow, which is good to see. I guess, would you agree with that? Then when you say you are going to exit the year with $260 million of cash, I guess my question is, why not proactively pay down debt quicker? Maybe it is as simple as just talking to net debt targets going forward so you can utilize that cash faster. Thanks.
We remain consistent on the second half in generating over $100 million in free cash flow. So you saw the 54 in Q3. Q4 will be at a comparable absolute level, and sets us up well. Obviously, there can be timing across quarters, but generally, we are consistent on that second half and poised well for 2027 to ramp that towards our 2028 guidance.
Your next question comes from the line of Barry Jonas with Truist Securities. Your line is open, Barry. Please go ahead.
Hey, it's Jeremy on for Barry. Thanks for taking our questions. I believe the guidance raise implies no change to Q4 assumptions. Can you just walk us through the puts and takes, if there's any upside over there, given the strong in-play GGR growth and new prediction market revenue contribution?
Hey, it's Mark. Look, last quarter, we took it up about $15 million on revenue, $15 million on EBITDA, which equates to about a 34.5% EBITDA margin for Q4. Incidentally, that's the, I think, the highest Q4 margin that the business has ever had. Obviously, that's been done off the back of good momentum for prediction markets, strong integration with the Legend product. I think we're feeling quite good about the Q4 setup, and more importantly, we're feeling very good about the setup into 2027.
Got it. With the NBA embracing prediction markets, do you think that changes anything in terms of timing for the NFL to sign on as well? Curious your thoughts there. Thank you.
Look, I don't speak for the NFL. I don't know if it does or not, but all I can say is that it's not in our guidance for this year, next year, or 2028.
Your next question comes from the line of Jeff Stantial with Stifel. Your line is open, Jeff. Please go ahead.
Hey, good morning, Mark, Bryan, team. Thanks for taking our questions. Maybe just starting off on the media business. A lot going on there. Bryan, you mentioned some of the changes in self-service and how that impacts revenue growth from an accounting perspective. There's also Legend flowing in. Is there anything you could do to sort of quantify or help us think about sort of underlying organic rates of growth during Q3 for both the Legend business as well as media, if you sort of normalize out for some of the accounting changes? I guess you can look at it on a gross margin basis, but just anything to sort of better frame for us sort of underlying organic growth in that business would be helpful. Thanks.
Yeah. As Mark kind of walked through how we think about the business, and Legend's a component of the overall and being able to work from the top of the funnel down to the bottom with operators and advertisers and marketers. We are growing that Moment Engine, just launched in March. Really, really good traction and ramp, coming off small base, and now up to over 400 cumulative advertisers. So good indicators there. And you're right that the more we drive into that programmatic and curation or self-serve business, that it is a net accounting where our take is lower, but our margin is higher. And so that will start to flow in more as it grows and ramps. But good traction there, and we're excited about it.
Got it. Thanks for that, Bryan. And then maybe, I'll stick with you, Bryan. You said something in the prepared remarks on, I think it was that you have line of sight to moderating rate of growth in sports rights costs. Can you just expand on that point? Are your contracts structured in a way where the annual escalator steps down later on in the contract? Or is this more in regards to sort of a more rational betting environment between you and your main player if that's kind of new contracts come up and extensions and things of that nature?
Yeah, shall I pick that up? I mean, look, there's a few dynamics going on in the rights space. We have a very rational market these days with us and our main competitor, which is good news. We've kind of got our lanes, and I think we're operating well in those respective lanes. I think the technology investment that we've made over the last few years is really paying significant dividends in our rights negotiations now. All of our rights deals, right across the board, are starting to include GeniusIQ in some way or another, and that's giving us a real position and helping the partnerships that we've got with the leagues, which again, is reflecting directly in the rights fees. Obviously, the majority of our rights fees go to the NFL and Premier League.
Those are locked in to the end of the decade, so we've got good visibility on that. But the rest of the market, we've got very strong position with the technology stack that we've got, and I think we feel pretty clear about the direction continuing as we'd outlined previously.
The other thing I would add, and just a reminder, last summer, we added a couple of rights agreements. Now that those are lapped, that also contributes to the moderating rate of growth. As Mark said, our major contracts are locked in. We know what those are, and so line of sight and predictability gives us confidence in that.
There's one other point which is probably worth making as well, is we don't actually need any more rights deals. We've got an incredible portfolio of rights. We've got the two largest sports in the world for sports betting, and we've got a very strong long tail. From our point of view, we can be very discerning about the rights deals that we do, and we've obviously got a very high bar from a profitability and accretive point of view to any deals that we would choose to do in the future.
Thank you both.
Your next question comes from the line of Trey Bowers with Wells Fargo. Your line is open, Trey. Please go ahead.
Hey, guys. Appreciate the question. Mark, maybe a big-picture question for you. I think one question investors have in mind these days is just kind of the durability of the prediction markets. I think you did a good job kind of lining up that the whole market should continue to grow, but if we do get a Supreme Court decision sooner rather than later, and the prediction market sports betting is kind of reversed, how quickly do you think the states can move? And just any sense of what that means for you guys' business, given how strong kind of the tailwinds are right now of that being replaced on more of a state-regulated environment? Thanks so much.
Yeah, I mean, look, I think we, frankly, everyone on this call probably would welcome the clarity. But I sort of stand by what we've said a number of times, that we believe that the market is proving its demand. There's a huge demand for prediction markets or betting liquidity to be placed somewhere in the market, and at the moment, that's through betting on the prediction markets. But ultimately, the thing that I keep coming back to is I think the thing that's going to change is the regulatory wrapper around it. Do I think that prediction markets will look exactly like they do in three years' time as they do today? I think it will evolve, but I think what is going to be durable is that betting volume. We've seen it in other countries.
I think the opportunity for us through the TAM expansion is really quite significant because not only is this a catalyst for sort of growth in our business, but I think it is a catalyst for states to change. If you have seen, there is a number of states that are already taxing prediction markets, they are looking at ways of working with them. You have got the tribes who have already indicated that they would like a regulated betting space to move forward. You are seeing those sort of dynamics, which I think are very beneficial. Ultimately, if you look at it from a taxation point of view, you can now quantify the taxation level that these states will be turning down because they know how much prediction markets are generating.
I think the argument is a very different argument to one that is previously been where everyone has been slightly blind on this.
You know how much money is going through these markets, and you know what the taxation rates could be. I think it becomes a very different conversation. I think the other thing that is going on is it is a sort of bipartisan issue. It used to be, I think, something that I think the Republicans were pushing pretty hard, but Kalshi and Polymarket have done a very good job of making that a bipartisan issue with some of the hires and some of the work they have done on the political side. I think all of these benefit pretty well the sort of durability of the markets going forwards.
Awesome. Then quick follow-up question, Bryan. Great to see the free cash flow really turn a corner this quarter and expected next. You provided the 60% unlevered free cash target by 2028. I think you have maybe given this before, but could you remind us what the interest expense or leverage assumption against that is, just so we could kind of bridge from unlevered to free cash conversion by 2028? Thanks.
Yeah. On an unlevered basis, as we have said, it is over 60%. Our interest is between $50 million- $60 million a year, and so that over 60, I would tell you, becomes over 50% on a free cash flow basis.
Perfect. Thank you.
Your next question comes from the line of Greg Gibas with Northland Securities. Your line is open, Greg. Please go ahead.
Great. Thanks for taking the questions. Congrats on the results. I know you likely don't want to speak for them, but to the degree that you can share what you're hearing from the NFL as it relates to their updated stance on prediction markets and if anything has changed there from your perspective?
Look, I can't speak. I don't speak for the NFL. I can't speak for the NFL, and you're right, I don't want to speak for the NFL. Look, I think the biggest clues in the market that you should look at are what's going on in the other sports, and some of the conversations that have been sort of made public that the NFL have put out there. I think, as I said in the sort of last comments, we're going to welcome some clarity with the Supreme Court. But from Genius's point of view and bringing it back to what we do, we haven't assumed it in any of the numbers that we have put out there and what we think is going to happen at any point. Our guide for 2028 stands without the NFL.
Got it. Fair enough. And wanted to follow up on a previous question, but as it may be related to the upside in relation to your prior expectations or your expectations going in, was it mostly prediction market and/or market maker derived versus OSB derived based on GGR growth, or would you say just generally broad-based?
Yeah, I mean, look, it's broad-based and it's Legend. We're seeing strong growth across the business. Legend is integrating really well. We're super happy with the product sets that we're putting out. The market dynamics are good for us as well. There's some tailwinds. So, overall, the business is performing, frankly, as we expected it to.
Got it. Thanks very much.
We have reached the end of the Q&A session. This concludes today's call. Thank you for attending. You may now disconnect.