Q4 2021 Rush Street Interactive Inc Earnings Call
Good afternoon. Thank you for attending todays Rush Street interactive fourth quarter and year end 2021 earnings call. My name is Anna and I will be your moderator for today's call all lines will be muted during the presentation portion of the call with an opportunity for questions.
Answers I'd be him if he would like to ask a question. Please press star one on your telephone keypad I would now like to pass the conference over to our host Warren Zeiler with Rush Street Interactive. Please go ahead. Thank you operator and good afternoon by now everyone should have access to our fourth quarter and year end 2021 earnings release it can be five.
Under the heading financial corridor is quarterly results in the investors section of the Rsi website at Rush Street Interactive Dot com.
Some of our comments here today will be forward looking statements within the meaning of the federal Securities laws forward looking statements are not statements of historical facts and are usually identified by the use of words, such as will expect should or other similar phrases and are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect we assume no response.
The ability for updating any forward looking statements. Therefore, you should exercise caution in interpreting and relying on them. We refer you to our SEC filings for more detailed discussion of the risks that could impact our future operating results and financial condition during.
During the call we will discuss our non-GAAP measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP.
A reconciliation of these measures to the most directly comparable GAAP measure are available in our fourth quarter and year end 2021 earnings release, which is available on the Investor Relations section of the Rsi website at Www Dot Rush Street Interactive dotcom.
With me on the call today, we have Richard Schwartz, our CEO and Kyle Sauers, Chief Financial Officer, We will first provide some opening remarks remarks, and then I'll turn the call over to questions with that I'll turn the call over to Richard.
Thanks Laurent.
Good afternoon, everyone and welcome to the Rsi fourth quarter and year end earnings call as.
As we begin our second year as a public company.
We're going to spend some time discussing our approach to profitability.
Priority <unk>.
Viewing our results.
Looking forward to where we see are as high in 2022 and beyond.
To begin with I'd like to comment on the recent shifts in investor sentiment and the focus on past profitability.
We've been focused on building a sustainable long term business with.
With profitability as our central goal.
Sounding rsi nearly 10 years ago.
For those who have followed us through our public company life.
Recognize a constancy of purpose towards achieving profitability.
In fact, we were adjusted EBITDA positive as recently as calendar year 2020.
We have a track record of doing what we say we're going to do.
We have gained market access in all key markets.
System, we've grown revenues quarter after quarter.
We have delivered on our technology roadmap and consumer experiences.
We've been transparent on where and when do you plan to make marketing investments.
Why.
We attract high quality players and create player loyalty.
As an increasing number of competitors reduced marketing and promotional spend.
Cost for RFID attract players has diminished.
And visibility for our marketing efforts has increased.
We will continue to invest in new markets, where we see opportunity.
When we do so prudently.
They clear line of sight to profitability.
The founders that run this business on more than 50% of the company.
They have built their careers being trusted stewards of capital for their investors and achieving long term process.
We will continue to focus on strong returns here at Rsi.
In a few minutes, we will share some exciting data points about our profitability milestones.
First I'd like to share.
Information on some of our most recent results.
2021 was an incredible year of growth and accomplishments for our company.
We continue to position ourselves for long term growth and success as we accomplished a lot.
More specifically during 2021 .
We grew our topline by 75% year over year.
And we've maintained our disciplined approach to investing in marketing and promotional dollars into player acquisition.
We launched online gaming and Michigan and West Virginia.
And online sports studying in Michigan, Virginia, Arizona in Connecticut.
Grew our monthly active users 67.
Compared to last year.
Containing one of the leading monthly revenue per user rates $346 per player.
We've made significant improvements in our proprietary technology platform.
Our online gaming.
Platform for sports study, where we've been recognized as having one of the leading apps in the industry.
And we ended the year in a strong cash position with $281 million of cash on the balance sheet and no debt.
Leaving us well funded to continue to invest in technology and products, while supporting new market launches over the coming years.
We ended 2021 with our 10th consecutive quarter of sequential revenue growth.
We generated 131 million in revenue.
Up 31% over the prior year.
Sequentially from quarter three to quarter four we grew revenue in every one of our markets.
In addition, we grew sequentially in both casino and sports book, demonstrating our strength in both categories.
As you may recall in the last two quarters.
Mentioned that with a number of new market launches that started in the fall and we'd be investment mode. This quarter.
And as we said with the recent market launches, we increased our marketing investment in the quarter to $64 million and our adjusted EBITDA loss for the quarter was $31 million.
As most investors know now.
Extreme competition for marketing assets during the fourth quarter.
We weren't immune to the impact.
But we continue to be prudent with our marketing spending consistent with our focus on attracting high quality customers.
Good news is that we've seen some relief in quarter, one and existing markets.
There is less competition from marketing assets.
And our cost to acquire players have come down nicely in the last couple of months.
While theres a lot of enthusiasm surrounding the recent launches of New York and Louisiana.
We are also extremely excited about our expected entry into Ontario, and Mexico in the second quarter.
Both of which include online casino.
In addition to online sports book.
The combined population of these two new markets is around 145 million people.
More than four times, the number of people who have access to our casino product today in North America.
We've demonstrated great success in markets with both casino and sports betting and.
And we expect to replicate that success and the agreement markets.
While existing market continue to mature the newly launched markets of New York in Louisiana.
The anticipated launch of Ontario in Mexico will keep us in investment mode for the next couple of quarters.
We will continue to be disciplined and dynamic with our marketing spend and look forward to a long term returns in these new markets.
As we've shared before our strategy isn't to simply chase market share in the high volume of players instead.
Instead, we focus on attracting quality players will play and stay loyal to us for the right reasons.
We offer a premium user experience to reduce player friction and we target players, who appreciate and respond to our product offerings and customer service approach.
We continue to expand the business by growing the top line, while strategically investing in marketing and technology that we believe will drive meaningful revenue growth long term value.
Heading into 2022, we are more convinced than ever that our consistent approach is the right one.
And we will provide long term value creation for our shareholders.
We are introducing 2022 full year revenue guidance of between 580 $630 million.
Implying 24% year over year top line growth at the midpoint.
As a reminder, this guidance only covers existing markets, we're realizing today.
As I referenced earlier.
Attention has shifted recently enjoy strong focus on the path to profitability.
For those that have followed us from the beginning no. The profitability has always been a focus of ours and that Hasnt changed.
While predicting an exact point of when we will report consistent positive adjusted EBITDA would require greater certainty on the timing of new launches and new regulated market.
Which always requires investment.
Content around our profitability and as useful and consider.
We expect each of our markets that launched during or before the first half of 2021 to be profitable or near breakeven for the fourth quarter of 2022.
To be clear when we think about profitability in that specific market.
Crudes, all operating costs for that market.
It includes allocation of all marketing costs incurred by the company.
And excludes our G&A costs.
In addition.
How do we not launched another market after Q2 of 2021.
We would've expected to be adjusted EBITDA positive.
I was doing this for the full year of 2022.
There are a few takeaways from this that I think are important.
First we have a path to profitability in all markets, where we are alive.
The pace at which we get there and the magnitude of profitability in each market is going to depend on whether it includes both casino and sports our market share the competitive intensity and tax rate.
Second.
Even at a more modest market share than some others.
We're able to achieve profitability, a market's relatively quickly because of our prudent promotional marketing spend and strong player retention.
Third is that over time, new market launches will become a smaller part of the total pie for us.
And the impact of new market investments will be outweighed by the mature markets are profitable.
Next I'd like to discuss market launch.
We now operate real money gaming in 14 markets.
Five of which have online casino 13 that have online sports betting and six with retail sports betting.
To put this in perspective and a further my comments about investments.
At the end of 2020, we were alive at only six market.
Today. This makes the lives of approximately 31% of the U S population in trauma and sports.
And 10% of online casino.
A great achievement, but a lot of opportunity remains ahead.
In the U S States, where we operate in terms of <unk> for the fourth quarter.
10, 5% market share for online casino and four 5% share for online sports betting.
We are the clear number four in the United States, whether measured by G. G R or reported revenue.
With reported revenue being the better determinants of the ability to attract and retain players.
Now I want to quickly recap almost recent market launches that I've been referencing thus far.
We began the recent string of launches in mid October with the launch of our online sports betting in Connecticut and partnership with the Connecticut Lottery.
My Mantra, Connecticut was followed up by the opening of my line of 15 retail sports books in this state.
Also in partnership with the plc as their exclusive retail sports for partner.
A few weeks after Connecticut, we lost about rivers online sports book in Arizona.
Then early this year, we were among a small group of offers to launch day, one in New York and the same was true when we also implied day one Louisiana later in January .
I also want to touch briefly on how we look at early results.
To provide context from our vantage point as investors continue to evaluate and assess the state provided numbers over the short term.
To do it I will use New York as an example.
As many are aware overall market in terms of handle is off to a blistering starch.
We expect this new Yorkers on Paas to be among the largest of the online sports betting markets in the United States.
That said there is a large amount of promotional front.
The early results from the state.
Early results are following the promotional spend.
Similar to our size other state launches.
We've been more measured with our promotional offerings.
Set to earn market share over time as the high quality customers, we target and enjoy the experience we bring to them.
For example in Connecticut.
Sooner handle shale grow from 6% in the opening months and.
7%, 8% in December and almost 10% in January .
And Arizona, where we started a little later than some in <unk>.
Launched in October or December handle is almost 80% greater than it was in November .
New York is much newer but as we all know the balancing is insignificant.
Although still relatively small our handle shares growth each of the six weeks the market is at all.
Despite three more entrants coming in since initial launch there is.
<unk> got long ways to go on all of these recently launched markets. We're encouraged by the trends, we're seeing and continue to believe the path to profits will be through the user experience.
The combination of great product and operational excellence.
Moving beyond the recent launches.
We're thrilled that Ontario has been working hard on their framework and the regulatory process and have announced a targeted launch date of April 4th.
Pending all the typical approvals we plan to be ready to launch in Ontario, with our debt rivers Casino and sports book out.
We've been focused on generating brand awareness in our province, and building early database of players through our social product and pre registration.
We've talked a lot of our success in Michigan with converting our prelaunch social players to real money players and we believe we will have similar success in Ontario with people, who want to be ready to join that reversed when we go live.
Ontario will look different than many of the U S States and we have launched an online gaming has been in the region for a while but we are no strangers to entering the market later and building share open time.
Colombia is a great example, where we now have close to 20% market share of handle.
This past month, we announced another exciting international opportunity in Mexico.
We have partnered with Mexican media conglomerate Grupo multi videos.
For market access and then bring our online gaming platform in Mexico under.
Under the terms of the 25 year agreement.
Offered online casino and sports betting countrywide and be able to leverage Grupo multi videos vast array of media assets and distribution channels for promotional and content integration purposes.
Our partners' portfolio of media assets, encompassing TV radio print Billboards and digital and includes Medio tiempo.
The <unk> property, which attracts more than 7 million users per month and growing at a 29% compounded annual growth rate.
Also.
Owens Millennial are number one digital national news information source in Mexico, with $27 7 million unique users per month.
And his network of 22 television stations 63 radio station.
Needless to say, we are very excited about this opportunity and anticipate launching our online casino and sports from during the second quarter of 2022.
With regard to market access in the space with plans future launches.
We are very pleased to have access partners lined up in both Ohio, and Maryland, which we anticipate will be the next opportunity is to go live in the United States.
We're often asked about our thoughts about future jurisdictions for both online casino and sports book.
While it is challenging to predict the legislative process and timeline of future states.
<unk> been very pleased to obtain market actions wherever desires and we remain committed to growing our presence in both airlines horsburgh of Isocyano space as they regulate.
Now I want to switch gears and talk about some of our marketing initiatives investments and the results we're seeing from them.
To start with.
We signed several new brand ambassadors did that reverse including tenants grades and respective tenants Pediatrics Jones like three times Super Bowl champion.
NFL broadcasting veteran March source.
Baseball legend, Bobby the onsite and Chicago television personality, Brent you pace and also lot of <unk>.
Our Chicago Bears right Walter Payton.
Canada.
I'm Daniel tool a broadcasting legend north of the border who has worked for Fox sports in the United States.
Together with Gan, we launched the balloons these podcasts.
Just very quickly achieved the number one spot on all sports podcast in Canada.
January and continues to be a top trough.
We are very proud to have all of these ambassadors join our team as we create new and exciting embedding content for our players to enjoy.
We also announced in Saudi multiyear exclusive partnership with <unk> to be their exclusive wagering partner for a rush that brand in Colombia.
More recently in conjunction with our launch in Louisiana, We also announced a new relationship as an official sponsor partners.
New Orleans Pelicans.
As we previously stated.
Our ability to market effectively is critical to us itself.
We remain a data driven organization.
Dynamic learning and analytics to acquire convert retain and reengage customers.
Real time insights from our business intelligence team allow us to continuously optimize our marketing spend based on a return on investment focused model.
This model considers a variety of factors, including the products offered in the jurisdiction.
Performance of diversified marketing channels predicted lifetime values and behaviors of customers across various product offerings.
This efficiency and dynamic approach shows through in our ability to attract and retain high quality players.
We grew our monthly active users during the year by 67%.
We grew monthly active users sequentially from Q3 to Q4 by 24%.
All of this was done while maintaining what we believe to be an industry meeting.
$327.
By entering two new online sports should only markets in the fourth quarter.
Just as exciting as our Q4 and fiscal year 2021 trends are what we've been seeing so far in 2022 with monthly active users already up 27%.
And where we were in Q4.
Our increased marketing investments during Q4 helped us to reach a wider sports audience. During the most intense fourth season of the year.
And results in a temporary increase in CPA across our markets.
However.
Increased brand awareness of resulted from increased marketing investment is already bearing fruit in Q1 this year.
Where our CPA have come down to a significantly lower level.
Now turning to product and technology.
First off I am pleased to let you know that as planned we released our iOS, App and Michigan and West Virginia during the fourth quarter.
We are seeing great reception to the product and let's say a huge improvement.
<unk> friction that sign up through geolocation.
The entire user experience.
In fact, we are finding that new players using the iOS app are generating greater than 50% more handle a new iOS users that are not using the app.
Also noteworthy is that we plan to have the iOS app available in both Ontario and Mexico.
Which will mark our first launches into casino markets with iOS apps available for all new players.
In addition to a ton of improvement and functionality enhancements during the recent months.
I don't want to lose sight of how important it is our technology team has built.
We continue to refine our world class and robust product.
It has allowed us to scale launch in more markets in the last year and we had frequency in the company's history.
Congratulations to our continually growing technology team and all of their incredible work.
I also want to update you on the success, we've been seeing with our newly released multi player slot tournament.
As you recall from our last call. We have released this exciting new feature in Colombia in West, Virginia, and now we've added it to Michigan and soon in Pennsylvania.
To tell you how exciting this is for our players.
Average number of session has gone up by almost 10% for those players engaged in tournaments.
And those players who are engaged in slot tournament spend greater than 30% more time.
Session at <unk>.
This is a double win.
Visit more often and spend more time with us each time they visit.
Now that we have mobile apps live in all of our U S market.
The next major milestone in our tech journey will be the release of a single out from the App stores across all states.
This will improve our marketing efficiency and ensuring better user experience.
We currently have a single App released by the third quarter of this year.
Human effort to diversify our business and enhanced cross selling opportunities to both online casino and sports book over the long term.
Orange by recently acquired the technology platform and team of run at once poker.
We really were impressed by the management team, including the company's principal fill golf phone.
Who is one of the most respected poker players in the world.
Our plan is to leverage the innovative poker mine once.
Once team along with our size product.
Led by executive with many years of experience developing industry, leading and highly scalable polka platforms.
Our goal is to improve upon the tremendous foundation and user experience.
Run it once team has created and overtime integrate the poker vertical into our proven platform when the market is ready.
Also the acquisition was $3 3 million in cash and $2 5 million in stock.
There will be no near term impact on our revenue.
Had a modest amount of our ongoing G&A costs.
Welcome to all of you are running one.
So we're happy to have you join the archive.
With that I'll turn the call over to Kyle.
Thanks Richard.
Fourth quarter revenue was $131 million up 31% year over year full year 2021 revenue was $488 million up 75% year over year.
As Richard mentioned with the recent new state launches, we finished the year in investment mode as our fourth quarter adjusted EBITDA loss was $31 million, resulting in a full year 2021, adjusted EBITDA loss of $65 million.
Adjusted advertising and promotions expense was $64 million during the fourth quarter of 2021 compared to $23 1 million in the prior year quarter and $45 4 million during the third quarter of 2021 as.
As we discussed on our previous earnings calls this reflects our commitment to accelerating marketing spend given the new state launches, but in a rational manner relative to the industry.
As Richard highlighted earlier, we're expecting to go live in both Ontario, and Mexico in the second quarter, assuming that happens, we'll be launching six new markets inside of three quarters, which is a big milestone for us.
With regard to marketing expenses for 2022, we expect continued growth as we invest in new markets and support those that have already launched.
As we've discussed in the past new market launches are an investment period for us and we've been making that investment in New York, Louisiana and also Ontario already during the first quarter.
Ontario, Mexico launch in Q2 as anticipated we would expect those investments to continue and we would expect a step up from our Q4 2021 marketing run rate in the first half of 2022.
And then some moderation in the back half assuming no major changes in the regulatory or state launch landscape.
Our adjusted G&A grew to $11 6 million during the fourth quarter up from $8 8 million in the third quarter, we continue to build out our technology teams and corporate infrastructure to support our continued growth and would expect this line item to continue to grow throughout the year in 2022.
We continue to be in a great position with $281 million in unrestricted cash on the balance sheet and no debt.
Positioned to allow us to continue growing our marketing investments and launching new markets quickly.
As Richard highlighted earlier, we're providing 2022 full year revenue guidance.
We expect 2022 revenue to range between $580 million and $630 million, implying 24% year over year topline growth at the midpoint.
As a reminder, some of our analysts include revenue growth from future market launches, we are only including those markets, which are already live. So specifically our revenue guidance includes New York, and Louisiana, but not Ontario, Mexico or other markets that may launch later this year.
With that operator, please open the lines for questions.
Currently if you would like to ask a question. Please press star followed by one on your telephone keypad. If for any reason you would like to turn that question. Please press star followed by two again to ask a question press Star one.
A reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question.
Pause here briefly as questions are registered.
The first question is from the line of David Katz with Jefferies. You May proceed.
Afternoon, everyone.
Thanks for taking my question.
We it's been sort of an eventful quarter in a number of ways.
And I Wonder what you think about the notion of scale versus.
Smaller than what the attributes are that are to your benefit as a result of that and how you sort of balance those issues about scale and candidly.
Weather.
There are some.
Power's Ottawa vertical integration at some point that may be productive.
Where you are today, which.
Is working as you've laid it out.
Hi, David Thanks for thanks for the question.
Yes.
I think the answer is that sports book in casino or both product verticals.
Where you don't play against other players you play against the house and because of that ultimately every player judges. The operator based on the quality of experience you offer them and the type of service you provide to them. So ultimately I think the scale comes down to can.
<unk> marketing officially continue to acquire players sometimes can be as a large scale or not being as efficient as you could be a bureau smaller scale I think ultimately our strategy is to look long term and to continue to find those opportunities where we know we're going to get back long term returns on those investments for new players why because it's the hardest part of this industry.
It's figuring out how to retain the players once they arrive once you invest in that which we've done over the last 10 years, you end up getting a much larger percentage of those players staying loyal to you for much longer and ultimately you build your scale over the long term by having the great experience. So when it comes to horizontal and vertical.
Gracious or opportunities there are always being considered are certainly I think that some product categories like daily fantasy.
Benefit from scale more than casino and sports book like I just mentioned.
The other data you can see youre already seeing a rationalization in our industry, which we welcome that because ultimately positive for companies like ours that will allow us.
Best product and the best user experience to gain the scale long term that we all want for our company.
Perfect. Thanks for that and can I, just follow up with respect to the product roadmap and if you could elaborate just a bit more on sort of how you see that evolving you know near term next year or so.
Sure.
For online casino, we have a three year head start in terms of investment in that product relative to where we were on sports book. So we've really done a big effort. This last year and as I mentioned in the remarks, we've actually really close the gap and actually it's been very strong and now achieving real parity with the market leaders in the quality of the product for sports betting.
What excites us more is that that's just the beginning.
What we've done in the online casino categories, we've innovated beyond what others do in this space and that involves creating all kinds of product features ourselves in house different types of policing engines and experiences that differentiate the player experience.
We pioneered it and online casino and we're taking all that infrastructure. That's already been built and we're now adding a sports centric themes and content to that experience to create a differentiated experience. So fundamentally we have the same features or functions that are necessary to be a leading product today, but we're not satisfied with that we want to go.
The limits on innovation and we've already done that to a large degree in casino and our team right. Now is focused on bringing those core functionality that already exists and applying a new level of.
Of content, a new type of gamification layer on top of our sports betting engine. So players that play with us feel a different experience and again anywhere else. So that's the highest priority for our development teams in terms of innovation and we're planning to roll. All these features out later this year and next year.
Thank you very much.
Thank you Mr Katz.
The next question is from the line of Chad Beynon with Macquarie You May proceed.
Hi, good afternoon, Thanks for taking my question.
Kyle you noted that the revenue outlook. The revenue guidance for 2022 does not include Ontario in Mexico, but I'm still going to ask you about those markets.
Try and.
Try and get a little bit of help on this.
I believe that a market like New York you may have actually been negative revenue just because of the promotions and kind of how that works through.
The accounting that you guys report.
When we think about a market like Ontario in Mexico that is different than in New York are there reasons or I guess could you kind of help us think about if those could actually be negative revenue markets or just because there won't be as much promotions as what we saw in New York.
You launch on time that should contribute to the revenue guidance that you gave.
Yes, Thanks Chad.
Appreciate the question I think I'll I'll start by validating your.
First part of your question on New York, and I think Youre right. Our expectation is that would be.
A headwind to revenue in the first quarter I wouldn't expect that going forward, but in the first quarter, yes, due to kind of promotions running running through.
Ontario, Mexico Youre right. We Havent included that in guidance I don't want to get too deep on that I think we would expect those too.
First.
They have a path to profitability, that's much faster than a sports only state because they'll both include casino.
And they also have a much.
Smaller cost structure.
Because of lower tax rates than the New York.
I think we feel really good about getting those to profitability sooner than a place like New York and then in terms of negative revenue really any market that you launch for some period of time.
Whether that's weeks or months youre going to have some some headwind on revenue, but what we've seen in the past is markets that look like.
Ontario, Mexico, having both both verticals that they move through that more quickly.
Okay, great. Thanks for that additional color understanding that.
That wasn't in the prepared our revenue guidance.
And then on the on the Tech side.
You talked about the the iOS launches just wondering if you could provide a little bit more color in terms of the users.
Did you see people convert over to iOS or did you actually see incremental players and some of the non iOS players are still playing on the the HTML. Thanks.
Sure No we've seen soon both.
New users and existing users, but I will say that we focus a little bit more on the new users coming in.
To give him a chance they were comparing how they are doing versus existing players also using the prior version available web browser and we've seen as we've reported a really strong improvement from those who come out and start with iOS App, which is what we expected. So we're going to be continuing to sort of.
Drive a larger percentage of our existing players to those apps in the months ahead.
Great. Thank you very much I appreciate it.
Thanks Chuck.
Thank you Mr Beynon.
The next question is from the line of Brian <unk> with Craig Hallum. You May proceed.
Good afternoon guys.
Karl maybe first question on guidance.
So revenue guidance does not include.
New jurisdictions that are launching but it sounded like the spend commentary did I guess can you clarify that and then how should we think about spend relative to Q4 in the first half of the year in existing markets. So apples to apples on the revenue side.
Yeah, Let me, let me try and take those apart and see if I've got all your questions in there so yes.
Youre right that the revenue guidance does not include any of any of the launches that will go live. After today. So it includes New York in Louisiana, but not Ontario in Mexico.
We aren't guiding to.
Our marketing expense number or an EBITDA loss number, but we did want to give some color around marketing spend and what drives those costs in and wanted to make sure. It was clear that <unk>.
Q1 already and will include costs from from Ontario.
There's a lot of excitement.
Brand awareness there we're already generating up there ahead of launch. So we think that's a that's a great opportunity. So I want to make sure you knew that was happening because it is it is a cost that were incurring and we also just wanted to give a little bit about the cadence of marketing expense, assuming that in Ontario in Mexico, both launch in Q2, which which is what we anticipate.
Got it and then just on the Mexico launch how is that contract with Grupo structured I guess is it a joint venture or is it b to b to C. Like a couple of states or is it full control in some payment structure.
Yes, So Mexico, obviously big opportunity for us it's a it's a BDC relationship it'll operate similar to other markets I'd say, except for notable exception a big advantage for us with this.
As the relationship with.
With <unk> they have a fantastic.
<expletive> variety of different media assets and distribution channels in Mexico, Richard talked about those.
There are really respected organization down there I've been around for a long time, so they're going to be there going be a great partner for us to help us enter in and operate down there.
So we're really really excited about that and some real advantages we have in Mexico compared to Colombia.
Which is going great for us.
Maybe just one follow up on that Kyle is is it a fixed fee structure or is it an affiliate kind of recurring participation based on sending users or some other metric and then also do they stick.
Yeah, we haven't disclosed any sort of equity stake and we havent, we havent gotten into the the terms. It is a it's a.
PTC relationship I liked like our other ones, so really nothing nothing new or exciting to share on that.
Great. Thanks, guys I'll turn it over to the others.
Thanks.
Thank you Mr. Gao.
The next question is from the line of Bernie Mcternan with Needham <unk> Company you May proceed.
Great. Thanks for taking the questions just wanted to start out on the MLB strike.
Been getting some questions from investors just how big of a potential impact that could be just wanted to see if you had any impact or any thoughts on.
How big the MLB is either as a percent handle for the year or concentrated in <unk> and <unk> I mean, how big of a swing factor could be within guidance for the year.
Yes, so obviously our guidance that we've given today includes includes the MLB season, no question about that.
And that's a it's an evolving situation.
Yeah at this point a cancellation of a.
First couple of series or a week of games isn't isn't enough to make us think that wed have to re look at our our guidance in any way at this point.
Obviously, just like other other people with online sports sports betting sites, we're keeping a close eye on that and we'll we'll update if we think there is there some change that needs to be made but I'd also remind you that.
In any given quarter.
Sports makes up a quarter to a third of our revenue in casino makes up the rest of them were not nearly as exposed there, but I think like everybody else, we'd love to see the MLB season gets started as soon as quickly as soon as it can.
Understood and then another kind of current events rumors that Apollo is looking to sell Yahoo sports and potentially a sports betting company not sure. If there's a comment there is that it can be an attractive target or not but maybe take the opportunity to remind us. If you think one media, which fit into your marketing strategy.
Yes, sure I'll take this one yes so.
I think anytime you have a media partner asset that could help you drive traffic.
And have some brand awareness in the marketplace, it's something that it's important for us to consider.
We consider all opportunities all.
Companies that maybe have opportunities. So that's certainly something that has worked for companies like us and others, taking a look at it because certainly they have been in the business for a long time.
We have some great some great assets.
Understood. Thank you.
Thank you Mr Mcfadden.
The next question is from the line of Jed Kelly with Oppenheimer. You May proceed.
Hey, great. Thanks for taking my questions. Two if I may can you just give us a sense, how we should think about your gross margin cadence for the rest of the year given new Yorks in Louisiana as launch should we expect a similar seasonality.
Then.
Just how should we view any impact from from Illinois going too.
Remote or online registration.
Yes, so I'll take the first one and then what let Richard chime in on on Illinois. So first I'd say, there's probably not.
A ton of impact of seasonality on our on our gross margins.
Although I would say generally casino is higher margin. So in heavy sports quarters, you might see a little bit of movement. There I think what will drive our gross margins over time is as the maturity of markets and adding markets that have lower tax rates than places like Pennsylvania.
Where we have a decent amount of share there I think specific to New York as you pointed out is that that will impact our Q1 margins they'll probably decline a bit in Q1 from where they were in Q4.
And then wed expect them to improve as the years go on and I think you are.
We already noticed since you asked the question, but just to be specific and clear about why that does impact margins.
Big market Big opportunity and there's a lot of bonuses involved with sign ups, although ours are lower than than others.
Your revenue can actually be negative for many weeks after launch and then that turns positive over time as you worked through the bonus dollars.
So and I mentioned this on an earlier question in our case, we expect to report revenue from New York, that's negative in the first quarter.
You have negative revenue and then you have costs that are associated with generating that revenue.
And generating that G. G are in New York, most notably the tax rate.
It creates a little bit of a headwind sequentially in the first quarter, but then that will improve as the year goes on.
In terms of Illinois aren't we performed really well in Illinois.
And we hope we've been able to hold our share which is a reflection of our of a great user experience and players really trusting an ex join the app that we offer.
I think with mobile registration can it be a big win for the state of Illinois and the industry.
It will increase the competitive.
The intensity in the market no doubt about that.
We have a very strong brand, though here locally which as we've shown we have a strong brand we performed well so.
So we expect to continue to do well in this new climate.
Thank you.
Thank you Mr. Kelly.
The next question is from the line of Dan Pulitzer with Wells Fargo. You May proceed.
Hey, good afternoon, everyone and thanks for taking my questions.
So I wanted to follow up one on Mexico on Ontario, and just how we should generally think about the contribution directionally.
I think broadly we don't worry about it.
Assume that there'd be positive revenue, but understand there's also a lot of startup costs. So I mean is it is it fair to say that these should at least be positive EBITDA contributors for the year or is there something else that we should be thinking about.
So let me just make sure I'm understanding. Your question you are asking if there if we would expect them to be contributing positive EBITDA for the year 2022.
Right acknowledging there is typically high startup costs when you until you enter into a new market.
And also along with that if you could touch touch on maybe how you're thinking about the competitive environment.
Those markets that you enter them.
Yeah. So.
I don't want to get into kind of forecasting specific profitability by by market necessarily.
One of the comments I made earlier that I think is relevant to that question is is when we are in a market that has both casino and sports.
We get to profitability sooner.
There's a good track record there.
The tax rates are the effective tax rates after any promotions or both.
Good in Ontario, Mexico for Us.
We would expect that the gross margins in Ontario in Mexico.
Immaturity youre going to be closer to the high end of our gross margin range.
So I am sure will I will.
Talk more about profitability in those markets on future calls, but we think we think they both have a great opportunity, but they will have those those initial cost that you you referred to where we spend a little more on marketing early on.
And where youre not generating as much revenue early.
Those players build and create more more revenue and stickiness over time.
And if I was just to add a couple of things for Ontario, specifically.
As a U S state it would be the largest online casino market in the country. So its <unk> population. So we're talking about a very sizable market.
We expect to have.
Brand awareness there because we've done substantial prelaunch marketing at a scale that we haven't done before and.
And importantly, I think there is a lot of discussion about the green market existing sites are already operating there.
How we think about that is that in several of our markets already in the past we've come into markets, where there are already our existing online regulated casinos operating for several years.
And we've done well and grown market share each of those markets I'm, referring to markets like New Jersey, Columbia, and West Virginia. So I think there's excitement for rest of the quality of our product in the online casino really stands out and Thats. Why we are as excited as we are about Ontario, and Mexico opening up because it gives us a chance to leverage our strengths.
Got it and then just for my follow up.
Some of your competitors have talked about marketing and media spend and I know you guys have been pretty pretty restrained there historically, but have there been any changes or tweaks as you think about kind of the go forward as you spend your marketing dollars, where you spend it.
Yes, so historically we have been.
Cautious and I would say a little more moderated as some of the others in our industry and we're excited by as I said earlier that there is a rationalization of spend occurring in the marketplace.
Tend to be very data, driven and nimble and dynamic and are shifting things frequently and we are when we see opportunities to increase spend because we're confident we're going to get a return on those invested players we do that and so.
The hard part is what we've already done which is getting the retention like I said earlier figure it out now.
Now it allows us to look at each market based on tax rate product vertical.
Competitive intensity and be able to have a high degree of confidence when we spend in a market we know what our.
What our tpa targets are.
Cost per acquisition targets are that are going to get us. The returns we want over the longer term. So allows us to be very I think thoughtful in our approach and continue to market and spend where it makes sense based on the returns that we expect to get.
Got it thanks, so much I appreciate the color.
Thank you Mr Cohen.
The next question is from the line of Edward Engel.
Capital You May proceed.
Yes.
Hi, Thank you for taking my question. It seems like your cost structure is a little bit different than competitors at least over the past two years.
We're a lager OSB focused peers, they kind of ramp their customer acquisition in <unk>, and then <unk> ends up being a big payback quarter I know the past two years have been a little bit impacted by a new state launches, but longer term should we expect <unk> to be kind of your biggest profit contributor for the year.
Yeah go ahead.
Yes.
Ill.
For us consistency is something that we built this business around and really because of our strength in casino, we havent really more of a consistent seasonality that I think the sport's first companies of course, we have a.
A large and growing sports book business that does rely on seasonality of Q4, but really what it comes down to mention.
Mentioned, a few times already is that when you invest in.
Current quarter Youre, not going to get a return from that player.
For months or in some cases, even longer many months and many quarters in some cases, depending on the market and the tax rate. So our philosophy is to.
Find the times when you can actually have a high awareness get our get our brand in front of the audience acquired was players, but really focusing on our high quality customer one that's with us for the right reasons not bonus hunting for example, because those aren't going to be the ones, who are really targeting so we target those customers refine that theyre going to stay for the full year and beyond that and.
Our goal is to make sure that when it comes to casino player that theyre going to be stable consistent and <unk> experienced a year round for the sports calendar you are going to find that you're going to spend more.
Like Q4, and Q1, where you have footfall in big basketball events that are really popular for the sports calendar.
I'd add just that.
When youre thinking about the cost structure and you mentioned kind of the there is an impact from these new new markets that are launching right and that that is a big factor here. In addition to some of the seasonal factors, but just to give a little perspective.
After we launch in Ontario were going to have 140% more population in North America that have access to our products than we did just at the end of 2020, and it's even it's 70% greater population than we had just five months ago. So the way we are.
Attacking this and going after it is impacted by by new launch. It. So I mean, that's a big increase it's a huge opportunity for us and it would be silly for us not to be taking advantage of that although in a in a measured way as we always have and as Richard talked about today.
So I just wanted and I guess I'd add that.
That population growth I'm talking about doesn't even include the Mexico opportunity with with a population of 130 million people. So a lot a lot of good things ahead, but I think in the in the nearer term market launches will impact costs far more so than seasonality will.
Great. Thank you for that and then if I could squeeze one more in here just kind of based on some of your commentary on your sales and marketing costs and advertising costs and maybe new state launches. It feels like we should expect EBITDA losses in 2022 to exceed those in 2021 is that fair and then a bunch of Europe .
Petersburg, and everyone's kind of guiding to positive EBITDA by the fourth quarter of 'twenty. Three is there any reason why that wouldn't be achievable for resi, especially assuming or I guess, assuming no states legalize.
It would be like I gaming or or something the California doesn't deregulate.
Yes, I think that's always the interesting thing about trying to predict profitability out out so far right and I think maybe I'll reiterate what we said about the.
The markets that we've been in up through the first half of 2021.
We expect those markets to be be positive by the by the end of this year and for the fourth quarter were very close to it on a market by market basis, and if we haven't launched any more markets.
And then we would've expected the whole business to be profitable in 2022. So that just tells you how.
Big of an impact the new markets are and kind of balancing that that investment with.
Youre maturing markets.
To manage that so I don't think I want to give a forecast for 2023 profitability. If we didn't launch anything more after Mexico and I think we've got a real good opportunity for for showing profitability in 2023.
Perfect. Thank you so much.
Thank you Mr Engle.
The next question is from the line of Stephen Grambling with Goldman Sachs. You May proceed.
Hi, Thanks for taking the question you've got now on the <unk> on for Stephen.
First question I have is the EBITDA margins in the core I mean, you mentioned have you not launched in new States Post 2021, you would be positive, but would you be able to give a margin that you were running at either nationally or any other core states like Pennsylvania, Illinois before including allocating.
Fixed cogs.
Yeah. So I'll start with just just I want to clarify something that you said just so it's it's entirely clear that the markets that we're talking about are launched up through the second quarter of 2021, so that that wouldn't include.
In that particular metric we're talking about it it wouldn't include Connecticut, and Arizona are in New York in Louisiana launches that have happened more recently.
And.
We're not going to get into.
Giving specific margins by state.
I think it's I think it's instructive enough to show that as a business enterprise as a whole we would have been profitable. This year had we not launched any any more states. After after the first half of last year and I think you can expect that that would continue to build in aggregate and over time that that offsets.
The investments, we're making in new market launches and that's how we build build a profitable business over the coming years.
Thanks, That's helpful. And then just a secondary question more on the long term margins I mean, you describe the dynamic where promos decline and so your gross margin would improve the are there any other levers that you can pull as you think about long term profitability.
Sure.
Obviously in the very early innings, and there's a lot of momentum in the industry. We're early in our company's growth profile. So.
There's a lot of places for leverage.
Over time, we're making a lot of investments in technology and the corporate infrastructure as we build the company and build out so over time, we'll get we'll get leverage there.
We're obviously ramping up marketing for these these new launches.
So that as you pointed out that subsides as as markets mature.
And as all of the competition starts to rationalize so that that normalizes and that'll that'll offer offer leverage also and then I think the other piece is as as markets grow for us and get more mature.
That can improve the gross margin profile in any given market that we're in and then we would also expect that there will be pieces of our cost of.
The new cost structure that we'll be able to reduce over time as well.
I would just add that in our industry customers are expensive to acquire so simply keeping your customers happy and playing with you for long term is really your best way to grow margin.
Grow market share over the longer term, it's a really simple concept, but it's really hard to execute on but ultimately any companies in globally over the past couple of decades that have achieved market positions of leadership have figured out how to get that user experience at the top level and that's what we spend a whole lot of our time on here.
That's helpful. Thanks Best of luck.
Thank you Mr Grambling that.
That concludes the question answer session. So I will pass the conference over to Richard Schwartz for closing remarks.
Well, thank you again for joining us today.
It was a pleasure speaking with you and we look forward to doing it again soon.
That concludes todays Rush Street interactive fourth quarter and year end 2021 earnings call. Thank you for your participation you may now disconnect your lines.
Yeah.
Okay.
Sure.