Q2 2022 Rush Street Interactive Inc Earnings Call
We reached profitability.
<unk> in Michigan.
As for the remainder of the year, we are tightening the range on our guidance to between 600 $630 million.
Which reflects a few key considerations.
First we are taking a conservative view around any potential headwinds from our consumer.
Heading into the busy fall season.
But I want to be clear that as of today.
We are not seeing any headwinds with our consumer when we look at things like average deposit that side, where even metrics such as handover player.
Second since the start of the last football season, and added seven markets, where we operate online sports book.
This creates a lot of opportunity, but also some unknowns as we learn how those markets will respond during a full football season.
And how the competitive dynamics intensity will play out.
And lastly.
As you ramp up in Mexico.
Our approach will be disciplined and gradual.
We expect a modest contribution and investment during the initial six months of operations in 2022.
But over the longer term expect this market can be a significant growth contributor for resi.
As we move into the second half of 2022, we are building a global business that continues to scale with.
With the recent launches in Ontario, Canada, and Mexico, We are now live in four countries.
We operate combined online casino and sports putting now in four U S States, Ontario in Canada in all of Mexico and Colombia.
In addition, we operator online sports book and nine other states in the U S.
Giving us a diverse set of growth opportunities.
With that I want to provide some thoughts on a few of our recent launches.
First in New York, we continue with our more measured approach in the market.
Which is evident in our second quarter results compared to the prior quarter.
We remain focused on targeting and attracting high quality customers.
And retaining them with a world class user experience as opposed to financially incentivizing short term behavior.
We look forward to the upcoming football season, as more and more players have learned about the bad reverse platform and our customer friendly approach.
And our existing customers will experience the excitement of betting our football during the opening months of the season for the first time.
Next during the beginning of the quarter, we launched in Ontario.
As a reminder for the preceding 10 plus years. This has been a great market, meaning we entered a market where a number of operators already had established brands and equally important existing player databases.
Although it was unclear until relatively close to launch exactly how the transition from grade white market would play out.
Previous operators in the market were ultimately able to smoothly migrate their existing players deregulated market.
This meant a portion of the operators started with a notable advantage.
From our vantage point, we knew it would be important to invest in our brand awareness early with a broad television campaign during the Winter Olympics in February .
The awareness began to pay off with the market opened in April .
Ontario is also an online casino market also plays to our strength.
As we really shine and casino markets, given the innovation built into our product and user experience.
In fact since operators can't promote inducements for players to register ever Science in Ontario, and operator, like us, but as a wide range of unique selling points has an advantage because we can promote our differentiated experiences as an effective way to attract new customers.
In the near term. This is an approach that will result in a more gradual build to get players in the door, but ultimately.
It will lead to consistent growth over the next number of years.
We think we can grow substantially in Ontario over time and feel very good about our start there.
We are seeing good progress at Ontario, where july's revenues per day is up over 30% compared to June .
Even with a lighter sports calendar.
In late June we went live in Mexico.
A bit of history, we think is informative.
<unk> is a market with a population of about 50 million people.
We entered that market without a brand without a database.
Without any experience in the region.
And we operated for almost a full year with only online sports book before adding online casino.
Yet we went from a standing start to a top three player in the market and have consistently build share over time.
In Mexico, we.
Enter in a better position.
It is a larger country with a population of approximately 130 million people.
And we were able to launch out of the gate with both casino and sports book.
In terms of building our brand we have a great local media partner that is well known and respected.
In addition, we have a technology that's already proven in both North American and Latin American markets.
We are really excited about Mexico, and believe that our high quality user experience will stand out and appeal to players in Mexico as it has to Colombian players, enabling us to grow market share with a measured approach.
Looking ahead we.
We are planning to launch online sports betting in Ohio in January .
<unk> is a state that we're excited about given the demographics, the sizeable population and adjacency to for other markets, where we are already operating at that reversed sports book.
So there is a lot of media overlap.
Maryland is another exciting market, where we are preparing to launch online sports betting whenever the regulators allow.
And just earlier this week, we launched a retail location in the state with our partners have bingo World, which is located just outside of Baltimore.
Lastly, it's exciting to see Massachusetts become our newest U S state to approve sports betting.
We have an agreement with a market access partner that is included in the recent legislation.
And we will share more details about our plans in the future.
Turning to marketing, we are seeing a more rational environment develop with what appears to be a continuation of a fundamental shift away from a singular focus of generating revenues at any cost.
We saw this pullback start during Q1 and continue into Q2.
With somewhat of a pullback likely reflective of seasonality and a lighter sports calendar.
However, even compared to the year ago Q2 period, our cost to acquire players are down by around 35%.
Looking ahead to the fall when the sports calendar picks up again.
We're mindful that we may see another phase of aggressive sports advertising during the football season, but we will remain prudent with our marketing dollars.
That said, we continue to be data driven and plan to continue to invest in customer acquisition had viable cost levels and at times of the year. When those customers are most prone to begin betting with us.
Such as the upcoming football season.
We expect we will continue to grow our share by earning the loyalty of customers by treating them well being thoughtful developing high quality experiences.
<unk> friction every possible points.
The recent shift to a more rational environment plays to our advantage.
A focus on earning rather than buying customers and really earning their trust.
Is where our platform and customer service shines.
For the long run our approach has been and will remain to emphasize user experience first.
As opposed to how much financial incentive is offered to players.
As new markets continue to launch.
To be profitable in our view you need to get players in a door at a reasonable cost.
And focus on strong retention and customer service.
We have built our platform and culture around this philosophy.
We believe it is paying off.
On our movement towards profitability and cash flow generation.
From a product and technology perspective.
During the last quarter of laser focused on improving the customer experience and scalability.
While these initiatives may not always be evident on the surface to the end user.
Ensuring a frictionless and high quality experience with minimal disruption.
Is an evergreen effort on the backend.
These continued improvements and the many features we've talked about over the last year have been validated by our significant operating improvements over the last year.
Our average operating it's up over a full point from this time last year.
I'm also excited to way you know that we recently completed the acquisition of Poker Night in America <unk>.
Leading content provider of live and recorded a poker tournaments and events.
<unk> has a strong following and a deep library of poker TV content and media creation capabilities.
That will help to further build out the debt reverse network and.
And engage our target audience on an ongoing basis.
Recall that two quarters ago, we also purchased an online poker platform.
Together these two tuck ins will position us well for when we eventually launch online poker.
And the associated strong cross sell opportunities a poker will bring to our casino and sports book verticals.
The acquisition was paid for with approximately $2 2 million of cash and $2 $7 million of resi stock.
Don't expect this acquisition to have any near term impact on either revenues or profitability, but rather it will serve as a growth enabler for our business.
With that I will turn the call over to Kyle.
Thanks, Richard second quarter revenue was $143 $7 million up 17% year over year, we continue to see strong growth in player acquisition and retention as measured through our monthly active users as well as player engagement and monetization is evident in our average revenue per monthly active user.
A quick note regarding disclosure with the launch of Ontario during the second quarter, our reported mile in our metrics now include both Canada and our U S markets.
Our monthly active users were 133000 up 35% year over year.
The increase reflects steady player acquisition and retention across our online casino and sports betting plus the expansion of casino and sports betting into new jurisdictions.
Looking sequentially Q2 miles illustrated the typical seasonality of the second quarter, although our decline this year was smaller than it was in 2021.
Our <unk> were $325. During Q2, we saw a 23% increase from the first quarter with art miles being positively impacted as we moved away from the initial New York launch.
These consistently higher our malls are a reflection of strong <unk> results and the high quality customers, we attract to our platform.
As we've called out for the past few quarters. The string of recent new market launches since last fall, including New York had us in a heavy investment mode. While investments in new markets will continue we are on track towards our plans of adjusted EBITDA profitability for the second half of next year.
Our second quarter adjusted EBITDA loss was $18 6 million vastly better compared with the first quarter.
Our five markets that were profitable in Q1 produced higher profitability in Q2, as Richard mentioned earlier.
West, Virginia also turn profitable during the quarter and all of our other markets that were alive. During the first quarter were closer to profitability during the second quarter.
Advertising and promotions expense was $44 2 million for the second quarter, well below the mid $60 million level, we've been running during the two prior quarters.
As we touched on last call, we've been very focused on lowering our cost to acquire new players and retain and engage existing players.
This quarter's results highlight the success, we've been seeing as we continue to refine our marketing efforts to be more targeted and thus more efficient.
Consistent with our flexible marketing approach and finding ways to invest marketing dollars to bring the best returns we were able to find ways to reduce marketing spend in the second quarter with plans to take advantage of more opportunities in the back half of the year.
<unk> said that we expect marketing cost to increase again in the third quarter and again sequentially from Q3 to Q4 due to the football season.
But we still plan for Q1 of 2022 to be the high point for marketing spend during the year.
As expected gross margins improved modestly in the second quarter compared to Q1, and we expect them to continue to improve further in the back half of the year.
G&A cost increased to $13 $5 million during the second quarter up from $12 4 million in the first quarter.
We will continue to invest in our technology teams and corporate infrastructure. So we expect that this line item will continue to grow in the back half of the year.
Turning to the balance sheet, we continue to be in a positive net cash position, we ended the quarter with $202 million in unrestricted cash and no debt.
We believe we're well positioned to comfortably comfortably returned to adjusted EBITDA and cash flow positive with our existing cash position.
Looking at the rest of 2022, we've tightened the range on our full year revenue guidance to between 600 $630 million as Richard mentioned, we haven't seen any signs of consumer weakness from our customers, but we want to be mindful of that possibility in the back half of the year. So we've built some of that into our latest thinking on revenue.
Also have a large number of states that haven't been through a full football season, which creates a lot of opportunity, but also some unknowns about how fast those markets will grow and what the competitive dynamics will look like at the midpoint of our tightened range. This implies revenue growth of 33% in the back half of the year, which is very exciting.
As a quick reminder, our policy towards revenue guidance is to only include those markets, which are currently live.
While some high level thoughts on profitability, we saw significant progress from Q1 to Q2, but as I mentioned, we expect marketing cost to increase in the back half as we increase investment in casino markets and head into football season for the first time in many markets.
But that should also be accompanied by a nice increase in revenue.
The net result will be a second half loss that is substantially less than the first half while losses in Q3, and Q4 could be somewhere in the range of what we saw in the second quarter.
We continue to execute well and see a clear path to profitability on a market level and from an overall business perspective, and we'll be excited to share additional details with you as we get closer to that Mark in the meantime, we remain excited by all the new markets and industry growth ahead of us.
And with that operator, please open the line for questions.
Certainly ladies and gentlemen, the floor is now open for questions. If you have any questions or comments. Please press star one on your phone at this time.
You asked a while posing your question. Please pickup your handset if you're listening on speaker phone to provide optimal sound quality.
Once again, if you have any questions or comments. Please press star one on your phone.
Please hold while we poll for questions.
Your first question is coming from David Katz from Jefferies. Your line is live.
Hi afternoon, Thanks for taking my question.
Can we go back to.
Richard your comment about the guidance.
This call also so.
Youre, making a provision.
Just in case can you just talk about what you've assumed in there and sort of how you decided upon how much to take off at the top end.
And kind of how you thought about it just.
Recognizing it's an incredibly complex circumstances for everyone but.
Just a little more elaboration would help.
Sure David I'll take take us one and thanks for the question.
I wouldn't say there is theres a lot of excuse me big changes in their thinking since last quarter.
Just tightening up some of the assumptions.
We now have a half of the year under our belt and relative to I guess, the second half consensus the new midpoint of guidance is I think it's less than 2% lower than the previous guidance.
Tried to highlight in the remarks to some of the thinking on that.
<unk> tightened revenue range.
We do want to be mindful of potential headwinds from consumer weakness.
Obviously, everybody is talking about that certainly in the investment community.
Richard said is we havent seen signs of that in the data that we're looking at but it's on our radar. So we want to be want to be mindful. There. Then we're just we're thinking about going into football season, which is very exciting I think at seven markets that haven't been through a full football season.
That's exciting but it also has some some unknown so we want to account for that.
Then.
Mexico is a new addition for us since last quarter, but we just want to make sure that people realize that is going to be a.
On a more modest investment.
Not a big impact on revenue and expenses out of the gate here and we'll take our time to build that market, but we're really excited about it.
So those are kind of the factors that went in.
I wouldn't point to one that dominated but we as you can imagine we look at the entire portfolio of all the markets and re look at how they're all performing and where we think they're going to head to and and so we just tightened it up a little bit.
Understood and if I can.
Can I ask you to humor me.
Kyle and some of your commentary you talked about <unk> and <unk> marketing expense and I thought you said.
<unk> ramps up again, and so the loss there.
Would go back would widen.
And I thought you may have said for Q widens, even a bit more.
Would you mind, just sort of setting me straight there.
Sure.
So.
Maybe I'll focus on on marketing to start here, but we spent so we spent less on marketing in the second quarter than we probably originally anticipated doing.
Which I think that it really speaks to our ability to be super flexible with the marketing spend in and cater that spend to the opportunities that we see and invest where where it makes the most sense, but we're also when it makes the most sense, but also we want to dial it back we can if we choose to or if it was necessary.
<unk>.
We shifted some of that spend from Q2 to the back half of the year.
Expecting that to provide better returns for us.
And majority of that increase in the back half that we shifted really in markets, where we have a casino.
Of course, we're also keen in on the football season.
<unk> sports betters.
But I guess if I.
Just look at where the sell side has pegged us for marketing spend in the back half I think as a group analysts are already generally near the range for what were kind of thinking although.
You can imagine.
We will have some flexibility as I, just pointed out and how we spend and which quarter.
Put that money to work and depending on the opportunities we see.
Alright, and just one more you should.
The back half is approximately what youre, what youre thinking, but the cadence between <unk> and <unk>.
Oh, yes, sorry.
So I'd say, our initial thinking and again. This can change is that we will see we will see a decent step up from Q2 to Q3.
And then and then probably.
Spend a little more in Q4 than we do in the third quarter even.
And that's that probably.
Coincides well with the cadence of our revenue growth as well and I'm not trying to suggest that they should be exactly matched up but we would expect Q4 to be quite a bit higher revenue quarter than Q3, and then the last piece that I. Just I think was in my prepared remarks was.
We do expect the first quarter of 2022 to still be the high Mark for.
For marketing expense for the year.
Got it okay I appreciate it if I could just add one.
Two quick comments one is that.
We're really excited about a lot of the integrations that we secured in Ontario, but many of those are really not ready in the second half of this year. So we've already secure them, but a lot of those investments are going to be coming in the second and third period, sorry, third and fourth quarter of the year, which would be great for us given that we have a lot of excitement for that market and in addition in New Jersey, We also allocated.
The second quarter marketing spend to third quarter and fourth quarter, because we were actually in the process.
Planning to rebrand that New Jersey site.
Sugarhouse two rivers coming soon so we wanted to sort of make sure that we would spend more of that investment in that market.
After the rebrand, which will be occurring in Q3, Q4, and so that's a little bit of a further explanation of why some of the Q2 marketing unallocated to later in the year.
Got it thank you very much I appreciate it.
Thanks, David.
Thank you. Your next question is coming from Dan <unk> from Wells Fargo.
Your line is live.
Hey, good afternoon, everyone. Thanks for taking my questions.
So I wanted to hit first on gross margin in the quarter I know it was up a little bit sequentially, but it was it was still down year over year.
Theres any way to just kind of unpack the components of that in the second quarter and just as we think about it flowing through the rest of the year.
That kind of still mid 30 range that I think you talked about last quarter is still a reasonable expectation for the fourth quarter.
Yes, I think it's an.
Excuse me I think we can work work back up to close to that range.
The fourth quarter so yes.
Permian on that thinking still.
I think that.
The reason for the year over year decline.
Two two primary pieces, one was and we talked about this on our last quarter in New York was a drag on.
On margins in the first quarter negative revenue associated with with New York in the first quarter.
A lot of costs that go along with that.
That's still a headwind heading into the second quarter, but not nearly as much. But then we also we also launched Ontario in Q2, and then what we've talked about before margins improve over time as markets mature and right at the beginning of a market launch youre going to have to.
Some headwind on.
On your margins and looking ahead to Q3 and Q4 absent something different happening than then we might currently expect there are there are new launches that'll be dramatically impacting margins. So we would expect them to improve.
Got it and then as you think about the upcoming states that that you might launch in Maryland, and Ohio, Massachusetts, Kansas is out there.
All of these states.
None of these states have sports or all of these states have sports, but none have I gaming right now so how do you think about your launch strategy and how imperatives.
Have a major presence in each of these states or do you think that there's a path for some of these states that maybe have I gaming down down the road later thanks.
Sure I'll take that one is certainly every state is unique and we don't just have a single approach to every state. When we are considering the likelihood of adding I casino in those markets as well as overlaps with other states. For example, we've mentioned earlier on the prepared remarks that.
I'll have a lot of <unk>.
For adjacency markets your costs in that market will be efficient because youll be offering autumn overlap from other markets.
When it comes to markets like main youre going to have we haven't announced any plans there, but certainly we will.
It changes, but certainly one thing that we look at is how many competitors will be where we are.
Will there be and in the case, there will be relatively limited number of them. So in cases of Maryland and.
Places like in Ohio, we are planning to enter those markets and of course.
Strategy is to typically.
Look around the competitive set look at the tax rate.
ACC markets look at the time of the year when the launch is happening and make those decisions based on all those criteria, but certainly.
We recognize that casino markets, our strength for us and certainly we want to prioritize those when we can.
Thanks, so much.
Thank you. Your next question is coming from Bernie Mcternan from Needham Your line is live.
Thank you for taking the question just on competition in Colorado as a headwind that you are factoring in your guide, but just wanted to see if you are seeing any signals yet that would point you to think that that debt.
We will go back and that the market will go back to a more competitive environment.
Yes, I'll start that and then the second question. If you had to ballpark. It when do you think Mexico could become the same size as Colombia in terms of revenue generation for you guys.
Okay, Brian Hi, I'll take the first question and then Carl will take the second one in terms of the competitive environment.
The vibrant remains very competitive, but not as aggressive as last year.
We've heard many of our peers say theyre going to be investing less in marketing and being a little more modest than rational in their approach, but we'll be watching what actually happens to ensure that certainly that is reflected in what we're seeing our strategy is to sort of focus on players acquisition of players at reasonable rates, where we can be confident that we'll get a positive return on that.
Those investments.
Yeah, maybe I'll jump in on the Mexico piece Bernie.
I'll first I'll give you a bit of a non answer but.
The answer is faster than Columbia, I would say give us give us a quarter or two to let.
Let us start building some momentum and maybe we will give you.
Little better answer around that we are I think as Richard highlighted we are entering Mexico with just a lot of advantages infrastructure that we have set up for Columbia, with obviously done really well down there in that.
A lot of that is being leveraged for Mexico, We've got a great a great partner, which gets us access to some really good assets.
Down there and obviously, it's a bigger a much bigger population so.
It will be faster, but.
We'll give some more details and thoughts on that.
As we move a little further away from US a month and a half or so from from the launch and just to give a little bit of extra context, we're just really starting to marketing campaigns now for the first time. It took us as we said it went a little bit of time to launch and configure all the payments in the right way and get the product up to where we needed it to be we're very excited about the quality of the experience we offer we.
Its first rate and we're really optimistic about the opportunity to grow in a significant business in Mexico over the longer term.
Okay.
Thank you. Your next question is coming from Mike Hickey from benchmark. Your line is live.
Hey, Richard Kyle line.
Thanks for taking my questions guys good job on the EBITDA number.
Yes.
I guess the first question is if you are see.
A weakening consumer obviously sort of baked into your guidance what would sort of be.
Early indications that.
What's happened is it sort of.
Last last new players coming into the app or transactions and transaction size.
What would you need them.
The early signs that that was happening if you do start to see a weakening consumer are there ways that you can adjust the app experience to sort of compensate in that whether it's promotional activity.
All right.
Yes, so I'll start and let Richard Richard jump in and I just wanted to make sure that what we said was clear.
Just because.
I wasn't sure on your question, we have we have not seen any weakening.
And we've been looking at.
A bunch of different data points and you can look at it from a lot of different ways. You can segment you can segment your player base.
Between your your more valuable players and are those who don't don't wager as much you can look at average deposit size you can look at the average bet size the frequency the number the number of bets.
And then you.
We're in a.
A much slower part of the sports calendar, so you've got to factor in seasonality, but so those are a lot of things.
Look at to see if theres any cracks, we we haven't seen that yet, but we did we did want to make sure we are factoring it in.
A couple of things I think certainly the things we mentioned that we're.
Prepared remarks like average deposit size, you might see an impact there, which we haven't seen that size right. If someone's lowering their bedside through a more smaller amount that would be an indication, which again, we have not seen any indication of that and the handover players frequency as well as the play or factors that you look at.
One thing I want to note is that from the online gaming perspective, it's a very affordable way to have a high quality entertainment experience from home and it's unique in that you are not really incurring any incremental expenses for consumers to participate and not having to drive for gas costs without having to go to.
Restaurant incurring enhanced fees.
Service fees, and so not having to travel anywhere and obviously overnight. So I think there's a lot of things about this product category and service category, that's very attractive in terms of providing a really compelling experience where a user can stay home.
On a night for four hours would be entertained for 20 or $40 and have a great experience in a way that's unparalleled really in other types of the out of home entertainment.
Fair enough.
You mentioned that and Kyle Thank you.
And that you're seeing a more rationalized.
Spend in Latin.
From your peer set.
Maybe that sticks, maybe it doesn't but I'm just curious what are you seeing in terms of client retention trends.
Are they getting better.
Given that backdrop on more disciplined scan.
No. It's a good question, but probably not a lot of a lot of change there.
And we haven't disclosed specific retention metrics, but I think when you when you look at what we spend on marketing.
And the revenue that's generated from our players I think that tells you have we have some some really strong retention.
Within this industry. So we're really we're really proud of that we haven't given specific metrics.
But we haven't seen that yet.
A negative for us in any way recently.
Thanks Scott.
Thank you. Your next question is coming from Ryan <unk> from Craig Hallum. Your line is live.
Good afternoon guys.
And Brian just one for me I guess trying to bring all this together.
You mentioned guidance assumes 33% year over year growth in the second half, which would be a reacceleration versus the 19% year over year growth you had in the first half of the year, but then again your commentary seems more cautious on assumptions on the consumer et cetera, et cetera, So I guess what.
Included in there that's going to drive that Reacceleration given those.
Are there more conservative assumptions.
Yes, I think Theres a few things one is.
Ontario continues to build I think Richard highlighted in his comments we have seen.
July is 30% higher than June .
Net revenue per day metrics. So that's that's exciting to see continued progress in Ontario, and then another big part of it is we've got all of these markets that haven't seen.
Many of which haven't seen a football season at all.
And a couple that haven't seen a full football season. So that's that's exciting for us as well and there is all.
All of these markets that we're in are still growing so.
We feel we feel good about that.
Great. Thanks, guys. Good luck.
Thank you. Your next question is coming from Joe Stauff from Susquehanna. Your line is live.
Thank you.
Richard.
Martin.
Good afternoon, I had a couple of questions on your Kpis, if I could just talking about.
So your core strengths and a casino.
And the monetization Kpis I was wondering.
What.
It might look like.
Actually it's down on <unk> basis.
Jesse.
Launched in a number of OSB states.
But I'm wondering if you can give us a read or an assessment of how that looked just say within your eye casino.
<unk> in particular.
So I just want make sure I'm understanding the question Youre talking about when Youre, saying the kpis there youre talking about are the mouse and the art miles that we referenced.
Specifically I'm talking about sort of your average revenue per Mou.
And what that looked like again for your core competitive advantage within casinos it more flattish.
The down 14% year over year.
Yes so.
We don't we arent breaking it out specifically between the two and you have to remember that we also have players that that crossover which is a real valuable segment for us I will tell you that theres less.
Less of the variability in our quarterly art mile from.
From one quarter to the next is from the casino side it's.
It's more about.
What type of markets, we've launched more recently and where we're seeing the growth from and if thats sports only or sports and casino.
And then it's also.
Like we referenced on the last call with with New York, We actually had a large number of miles that came in in Q1, but actually generated negative revenue.
You can do the math and figure out that's not real positive for the outbound number so thats why it why it pop back up sequentially. So those those factors impacted quite a bit more.
We'll see what the rest of the year brings here I think.
We're going to we're going to see growth in the MAU number I feel very good about that.
We'll see how the casino markets Bill, what Ontario looks like and what all of these new betters that are that are coming on board for the first football season bring to us in all of these new markets.
And.
And that makes sense and I guess as we think about the second half of this year maybe.
Isolating on this particular metric.
User growth as you suggested it seems likely.
Given.
Kind of.
Again, the number of new markets, how the market growth is.
Is evolving but would you expect.
<unk>.
Our MAU to maybe moderate in terms of its year over year changes.
Youre asking if I would expect it to go down in the back half of the year, Yes, yes.
Yes.
Sure.
I don't want to give you a.
Our guide on that necessarily we haven't it's not something we've guided to what I'll tell you I think theres. Some theres some opposing forces on that that could cause it to go either way one is that.
We should see more concentration in sports.
That can be a negative to the art mile because of so many more players and some of them that at lower dollar amounts.
But on the positive side, we do have a lot of these markets that are that are building and as markets build the players become more valuable.
They're spending more time on your App.
They arent enjoying as many of the.
Initial bonus in that impacts that number as well so those.
Those two things will work against each other.
But I don't want to tell you that.
I am confident that it'll be uptown or downtown because it could move either direction.
Fair enough. Thank you.
Thank you. Your next question is coming from Jordan Bender from JMP Securities. Your line is live.
Hey, good afternoon, Thanks for taking my question.
So your <unk> per user for both IBM and sports betting continues can move up over time. So when you think about investment in the player are you finding that the returns are more attractive when youre spending towards here.
Your customer base.
About potential acquisition.
Great diversity of potential acquisition.
Okay.
Can you ask that one more time to and I'm not sure we understood exactly what you are getting that.
Yes.
Your <unk> per user continues to go up over time.
Would you would you rather use your cash and reinvest it back into the player.
Or would you rather kind of go down the acquisition routing grow the beach outlet.
Youre, saying, if we just think about the total investment whether that would be in external marketing dollars or.
Promotional dollars that you put in front of existing players which is.
Where do we lean.
I'll, let Richard jump in I mean, it's definitely a balance and one that changes over time as markets mature and it depends on whether its casino our sports, but I'll, let you yes sure. Thanks sure, yes, so consistent with what Carl just said it really varies depending on the market, but certainly we know.
Focused a lot on the retention of existing players and obviously a player who has been with you for a year plus or over multiple years is worth more and more valuable over time. So you want to make sure you properly segmenting investments towards those players I think we do a very nice job of.
Ups.
The segmentation of our players and making sure the right players get the right incentives, which has driven.
A big part of our ability to retain the customers certainly, though when you have a substantial marketing budget.
You are going to be balancing those costs out on the retention side with the bonuses for the first time for sign up deposits and those become very significant part of your bonuses amount.
Amount right because every new player that comes signs up your offer them an incentive to join you. So I think obviously the more successful you are getting players in the door you do have that increase in that bonus seem to reflect its reflected in the GTR and not reflected the geographies you don't deduct bonus income to GR. So I think at the end of the day is a balance between the two and I think we do.
Nice job segmenting, the right bonuses the right players who are lapsed, but also making sure that we continue to reduce our cost to acquire players with a goal of may.
Being affordable in terms of our acquisition, but ensuring that we also then.
Recognize that when we do acquire new customers you do have a bonus that you Brian that was a sign up but it does have some significant costs associated with it.
I'll just throw one more on top of that.
It's probably probably seems relatively obvious, but there's a very clear pattern for us that as markets become more mature we're spending less marketing dollars as a percentage of the revenue that's being generated so that's part of where the the leverages in the model.
And then as Richard pointed out you also have a lot more.
Bonus and that occurs early on because of that.
The acquisition process, so not only are you.
Pain external dollars to help get yourself in front of those players and attract them to your platform. You are also given them incentives to sign up and start enjoying the bad reverse platform. So.
So that shifts and dissipates over time, but youre shifting it to more of that.
Incentive is going to your your great players that are that are sticking sticking with you and where youre going to get the best return. So I think both of those provide leverage points.
For our business and probably probably the entire industry as time goes on.
Great.
And then turning back to South America for a second Peru looks like it just legalized online gaming is this a market that you guys would have interest in entering.
Sure I'll take that one we certainly have invested a lot of energy and time over the years, establishing a really strong foundation in Latin America, and certainly prove the large population market.
Certainly not too far from Colombia, Hasnt fact has some TV over media overlap between the two markets. So certainly that's a market that we have in iron ion and are monitoring it very closely as we.
The legislature passed a bill and we are waiting for the.
President too.
To sign it.
Great. Thank you.
Thank you. Your next question is coming from Edward Engel from Roth Capital. Your line is live.
Okay.
Hi, Thank you for taking my question and I'm hopping on maintenance side. This was addressed but youre marketing expense ticked down a lot sequentially.
<unk>, despite launching in both Ontario, and Mexico and.
How do you see marketing cost to kind of trend throughout the back half of the year should we expect kind of flattish for QQ are continued kind of sequential declines that you've kind of said last quarter, yes.
Yes sure.
There was a decent amount of good stuff maybe to go back and review, but I. Appreciate the question. So marketing was down quite a bit in Q2.
We.
Delayed or shifted some of our spend.
From Q2 pull back to be able to allocate a little more to Q3 and Q4. So what we're expecting is to see a decent uptick in the third quarter.
From the second quarter, and then probably even a little bit further.
Increase into Q4 from Q3.
With that higher Q4 still being less than our high watermark of Q1.
Marketing spend from this year.
So that's kind of the cadence.
We're expecting there is a lot of opportunities we see obviously, you've got football season, starting but putting investment into casino casino markets that we think we can get really strong returns from.
Okay perfect. Thank you and then as.
As you're kind of expanding into some of these newly regulated markets outside the U S, whether that Latam or Canada, and how important is it to be kind of first to market windows New territories launch.
As Dave one as much of a priority as <unk> or a little bit less so.
So it really depends on the market I'll give you two examples of Ontario, Mexico.
The grain market existed for 10 years in Ontario, yet there was a opening other regulated market at the same time, we were one of a handful of operators that we are ready and able to launch day, one which I think is helpful. Because those that are looking to play on a more secure safe environment is regulated or the audience tend to be pretty invested.
Customers and folks that want to be playing.
Playing with a regulated side. So we wanted to be there for day, one to capture those players and I think we did a nice job of getting some high quality customers very early on but it is certainly at this point in time, it's really in that market. The key for that market was just showing up one day and the market opening but really spending the year before trying to secure the right marketing assets that are relative.
Limited in that market in terms of the mainstream marketing assets to reach that those consumers in a meaningful way. So we spent a lot of time.
Bearing in that market so that when the market is open it now not just in the last quarter, but really as we move forward to be able to continue to grow their buy.
Having some great assets, many of which are not yet live in and the integrations are not yet complete that we are still working on when it comes to Mexico and that market has also been sort of operating for years and there wasn't really any additional competitor entering around the same time that we are so we're taking our time in Mexico to make sure that we.
We build it the right way and build the brand at a high and a high quality and make sure that we're setting.
It's up for long term success.
You don't have the same pressure in Mexico of having a large number of competitors launching at the same time within aggressiveness that you saw in Ontario. So we are able to as we are doing take a little bit of time to do it the right way make sure that all the systems are working on the payments and the registration flows are working exactly as we want them to then we started applying a larger <unk>.
<unk> effort towards that Youre going to get players that are really satisfied with the first impression.
That's helpful. Thank you.
Thank you. Your next question is coming from Chad Beynon from Macquarie. Your line is live.
Hi, good afternoon, Thanks for taking my question.
You launched live dealer in West Virginia in the quarter.
How has the customer response been and what's the potential rollout to other states look like thanks.
Alright five dealers.
Great products, you know the company that really pioneered an evolution as many of you know is one of the more successful online gaming.
<unk> gaming companies globally of any any type of company really because players trust.
And when you see Youre, playing blackjack and you see a.
The cars being dealt for me.
<unk> person at.
Card shoots you have a tendency to believe the outcome more than you would if you just saw a random number generator from a computer program that shows you the outcome and of course, you're always starts a dialogue of 16 in and you get six.
The RMG solution you might be willing to believe it's trustworthy than if you saw dealer pull up six out of the chute. So because of that the category is very popular very successful and so we've been very.
Proactive and we have a great partnership with it with our suppliers in this space and we've been able to grow that not just in West Virginia.
Very helpful, but we're seeing in markets like Ontario is a very popular product category for us.
Added some additional dedicated tables for our brands in markets like Pennsylvania, and other markets like Michigan or coming soon so it's a category that we believe is very important for us and we've invested in it and continue to invest in it and I think as it really exciting because it's really brings a different experience.
You still need to have the R&D table games as well <unk> random number generator table games, because those are going to offer players at a lower price point as well if you want to play for smaller size youre going to play the RMG automated systems, what do you want to play the live table typically the entry fee is a little bit higher. So I think you have to have something for everybody and that's what we offer.
Great. Thanks, and then not to hold you to any specific state prediction, but given the high gaming success that you've talked about in some of your competitors and the tax revenues that states are generating from this do you believe that after the midterm elections.
This fourth quarter, maybe they will start to be a little bit more progress as legislators just get a better understanding of the risks and the benefits of.
The growth of this industry.
Yes sure. Thanks. Good question previously we had shared increasing support by peers to legalize online casino floor.
From our vantage point. These efforts are actually accelerating and momentum is building. So we're very excited by these developments and I think as you start to see states considering additional.
Incremental needs for taxes.
Nothing easier really adding I casino because the regulations the regulators already in place the products and brands are already live.
To be honest regulating a sports book are typically more challenging the regulating a casino because so many of the casino products are really just computer integrations between computers, which are already proven in other markets. So adding adding I casino is an easy thing to do it can be done quickly and youre starting to see.
Not just lip service provided a real desire for investment and focus from our industry to try to make some additional states happening over the next couple of years. So I think youre going to see that trend happening where you saw it in global markets in Europe , you saw sometimes that sports started early and then you added I Casino I've mentioned before we saw that happen in West Virginia here, where it started with sports but currently in.
<unk> added I casino a year later, so you are starting to see the combination of a lot of positive things all work aligns even see some additional new studies and white papers coming out really showing that even a small number of additional states legalize casino will generate substantially more than many more states legalize sports betting so everyone's recognizing that the.
<unk> for states to generate additional incremental revenue is really being driven by more states, adding I casino.
Thanks, Richard I appreciate it.
Thanks.
Thank you once again, ladies and gentlemen, if you have any questions or comments. Please press Star then one on your phone at this time.
Thank you that concludes our Q&A session I will now hand, the conference back to Richard Schwartz for closing remarks. Please go ahead.
Thank you again for joining us today.
A pleasure speaking with you and we look forward to doing again soon.
Thank you ladies and gentlemen. This concludes today's event you may disconnect at this time and have a wonderful day. Thank you for your participation.
Yeah.