Gambling.com Group Limited Q3 FY2025 earnings call

• Generated record third quarter revenue and adjusted EBITDA with revenue up 21% and adjusted EBITDA up 3% year-over-year.
• Sports data services business grew over 300% year-on-year in Q3, with OpticOdds' third quarter revenue doubling year-over-year, reflecting growth in both customers and revenue per customer.
• Marketing business was impacted by low-quality search results outside the U.S., but won the EGR Affiliate of the Year Award for an unprecedented third time in October, and expects to return to growth with diversification efforts.
• Third quarter gross profit increased 17% to $35.6 million, operating expenses grew 30% to $25.7 million, adjusted EBITDA grew 3% to $13 million, free cash flow was $9.6 million.
• Revised full-year guidance to revenue of approximately $165 million and adjusted EBITDA of approximately $58 million, affected by search dynamics and higher cost of sales.

Third quarter revenue grew 21% year-over-year to $39 million. Sports data services revenue quadrupled to $9.2 million, accounting for 24% of total revenue. Subscription revenue was 24% of total revenue. Recurring revenue, inclusive of revenue share arrangements in the marketing business, was 49% of total third quarter revenue. The marketing business was flat year-on-year due to less favorable search rankings outside the U.S., while sports data services grew over 300% year-on-year.

• Revised full-year guidance to revenue ~$165M and adjusted EBITDA ~$58M, reflecting continued headwinds from poor search dynamics affecting Q3 and Q4, and higher cost of sales related to traffic diversification strategy.
• Midpoint of revised revenue guidance represents 30% year-over-year growth, midpoint of adjusted EBITDA guidance represents 19% year-over-year growth.
• Guidance assumes an average euro to USD exchange rate of $1.15 for the year.

• Marketing business affected by low-quality search results in the gaming space, primarily outside the U.S., which has held back revenue. Potential delays in Google addressing spam issues could continue to impact results.

Q: I want to stay on Google search, just given the impact to results and kind of the transitory impact of the business right now. I guess what gives you confidence to step out on a ledge with confidence and say you're positioned to grow that business in 2026? Specifically, I know you gave some comments, but I guess, secondly, to that or more specifically, has Google changed their algorithm where you've actually seen rankings start to change? Or have you guys refined internally to make things better? But what exactly has happened in recent weeks that gives you that confidence?

A: Ryan, so towards the end of October, some of these spammy results started to get thinned out, rankings improved. We saw better rankings. We saw better traffic, and we immediately saw more revenue. So Google search is still working exactly in the way it has frankly always worked. I know we talked a lot about AI headwinds on the Q2 call. I think we maybe over -- put a little too much emphasis on that. The reality of the situation right now is that this is absolutely a business-as-usual search situation. It's not anything to do with AI. It's just rankings at the end of the day. And as we've seen rankings come back, it has immediately translated to revenue as we would have expected it to. So that gives us great confidence that, frankly, it is business as usual with Google. And we've always managed to get past any sort of ranking challenges in the past, and I don't have any doubt that this time will be different. But it is a little bit -- what is different this time is it's a little bit more dependent on Google than us. We're not -- I'm not responsible for clearing the spam out of the search results. That's obviously the search engine's job. And we think that there is possibly -- Google -- certain Google people have telegraphed that there could be another update coming end of the year in December and a focus of that update could be on dealing with some of these sort of spam results. And therefore, we, in general, expect this to come back around, and we have reason to believe it could meaningfully change in December, if not before December. This has taken longer than it normally takes. Obviously, that's affected our results and guidance today, but there's -- we don't have any reason to believe that anything has fundamentally changed.

Q: Maybe hanging on Ryan's second question, but switching more to the enterprise side of the data services business. Charles, could you just give us a little bit more color on progress to date on OpticOdds commercialization? Sort of what inning are you in of having that new sales team attack sort of some of the opportunity in Europe, bring more customers into trial? What's been the conversion rate on those trials? Just any sort of additional metrics or color that can help us think about sort of what point on the J-curve you're at today would be helpful?

A: Yes. I mean, as I said in the prepared remarks, we've got a tight product market fit with the offering we have today with OpticOdds. I think there's a very clear and long runway to grow the business just with that offering. Now having said that, we've got a great team there. They're very ambitious and very keen to build additional features and expand the capability of the product as we all are. And so I think when you look out over '26, '27, there's a lot of opportunity there beyond just pure data and bet settlement. There's an entire kind of category of services called managed trading services. Some people call that sportsbook operations, but you've got personalization of content, player profiling, active risk management, bet acceptance. There's a whole kind of suite of problems that need to be solved before you get to being a platform provider. We don't want to do that. That I think operators need to do that themselves. They need that last step where the UI touches the user. I mean that's the critical place where an operator differentiates their offering. But everything kind of behind the scenes, especially around risk management, bet acceptance is very interesting to us. And I think it was Bezos that said, your margin is my opportunity. There's quite a lot of margin out there between Sportradar and Genius and others that are doing very well with this category. And I think we've just got the team, the tools and the platform to be extremely competitive in more than just data and bet settlement. So that's where our heads are at when you look at the next kind of 1 to 2 years.