Q3 2022 Rush Street Interactive Inc Earnings Call
We are creating more ways for people to win and giving them more reasons to keep coming back to the platform.
With that I'll turn the call over to Kyle.
Thanks Richard.
Third quarter revenue was $148 million up 20% year over year as Richard mentioned, there are two items affecting revenue this quarter that are worth, noting first and online casino, we had lower hold during the quarter.
And while I casino does not typically experienced the same volatility and hold rates as online sports betting.
We had our lowest hold since early last year, which negatively impacted revenue by an estimated $4 million.
Eventually third quarter art mouths were up a bit over 6% from where they were in the June quarter and this follows a 23% increase in queue to <unk>.
Compared to Q1, as we moved away from the initial New York launch these.
These consistently higher art miles continue to reflect strong online casino results and the high quality players we attract our platform.
Starting to about a year ago, we entered a string of new market launches, which required significant investment.
We're now about a year out from the beginning of this cycle, we're able to begin to see some benefits in our cost base.
As Richard touched on we continue to target adjusted EBITDA profitability for the second half of next year.
Our third quarter adjusted EBITDA loss was $12.5 million much improved from the second quarter, which in its own right was vastly better compared with the first quarter.
Adjusted advertising and promotions expense was $44.7 million for the third quarter up only 1% compared to Q too and.
And down 2% from last year's third quarter.
We continue to find ways to efficiently and creatively put our marketing investments to work as evidenced by lower marketing costs and strong mental growth.
We remain committed to spending rational amounts to acquire players monitoring the value of those players and the channels through which we acquire them investing more when we see solid returns and reducing or eliminating marketing or it doesn't make sense.
Having said all that is Richard mentioned, we spent less than we originally anticipated during the third quarter and we expect our marketing costs to increase sequentially in the fourth quarter.
But they still aren't expected to be as high as the fourth quarter of last year or Q1 of this current year.
Our gross margins improved again sequentially in the third quarter, and we expect them to continue to improve further during the fourth quarter.
Adjusted G&A costs decreased sequentially in Q3 to $12.7 million during the quarter. This is down from $13.5 million in the second quarter.
We continue to make prudent investments and the growth of corporate and technology teams. So we expect G&A to continue to grow modestly over the coming quarters.
Turning to the balance sheet, we ended the quarter with $195 million and run unrestricted cash on hand, and know that and.
In our balance sheet physicians as well to comfortably get to adjusted EBITDA and cash flow positive.
Looking at the rest of 2022, we're adjusting our range on our full year revenue guidance to be between 580 and $600 million.
This change reflects the impact of the third quarter actual results.
Foreign exchange headwinds anticipated through the fourth quarter and modestly lower growth in queue for due to lower marketing spend than originally anticipated in the third quarter.
At the midpoint of the current range. This implies revenue growth of 25% for the fourth quarter.
As we continue to balance our path to profitability with revenue growth, we're very pleased with our progress year to date.
For the full year, we expect to see lower losses, and a stronger cash position than we had anticipated at the beginning of the year.
We continued to execute well continuing to grow the topline consistently while managing our costs appropriately we have almost $200 million cash on our balance sheet no debt and very little in the way of long term marketing commitments.
This gives us significant flexibility to make investments, where we see the best returns and pullback where we don't all this gives US a continued clear path to profitability at a market level and from an overall business perspective.
And we'll look forward to sharing expectations about 2023, and our cadence towards profitability on our next call.
With that operator.
Open the line for questions.
We will now begin became a session.
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Again to ask a question Quest star wine.
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Pausing briefly to allow questions to dinner.
The first question is from the line of Dan with Wells Fargo. Please proceed.
Alright, Zac Silverberg here again, thanks for taking my questions. The first one.
So you have given it some incremental color on profitability.
Can you just talk about the.
Profitability outlet for both online Sportsbook and high gaming at sort of atmosphere at eight for these businesses in the United States.
Yeah. So.
We haven't given long term targets for profitability in each in particular, I think what I would point you to us some of the trends we've talked about and the success. We're seeing I think Richard pointed out that are.
Or lost this quarter from from the sports book only markets was was under $5 million and gets half or so of.
What it was the quarter before so real progress there and I think it is notable that.
All but one of the markets that we've.
Told everyone that we're profitable and.
Include casino and maybe one other data point of things interesting is the last two markets that got to profitability for us from Michigan in West, Virginia, and they both got there in the matter of four quarters.
All that lead you to conclusion that that you can get to profitability sooner or we can get to profitability sooner when casino is part of the equation.
And we haven't been shy about the fact that the casino is more profitable than sports and we really don't have any markets that are full maturity.
Even as we watch the cadence of these markets build casino is is always profitable and profitable sooner than sports booger.
Gotcha, Thanks, and one follow up.
What have you seen in terms of the promotional environment and has it sort of rationalize versus last year.
During this NFL season, given there's been fewer state opening.
Less low hanging created cuts of opposition.
Sure I would say that the competitive intensity is lower than it was last year.
But more competitive in Q3 than it was in queue to.
Which is not surprising given the seasonality of the opening of the football season, where.
Many operators, including ourselves are obviously is focusing on.
Trying to activate the players that are interested betting on the football games for the season with us.
Thank you.
Thank you.
The next question is from the lineup burning Mcdearmon with medium company. Please proceed.
Great. Thank you for taking the questions.
<unk> double click on sales and marketing spend so return your prepared remarks, you mentioned measured marketing approach a few times.
And then also seeing that the average cost to acquire players 50% lower year over year is there any <unk>.
And then also the next piece of that sales and marketing expense to be up in four Q sequentially at least is there any change in strategy, that's happening here or or is it.
Or does it have to go with the market being less aggressive and less promotion like you guys. Just mentioned to answer the last question.
Sure I would say that.
Following up our our.
Our strength and casino is that we've been really leaning into the casino category in states, where you have both the sports and casino alive, which is increasing number of states for us and markets internationally. So we're really leaning in on the casino category.
Allocating more of our spend and.
Q for and more spent overall in queue for to attract these players during a great personality for casino, which is a a winter months, especially in the northeast program, a large percentage of our casino markets.
We also are spending on rebranding.
New Jersey, which Warren Q4 than we did previously because we were in the middle of a rebranding wanted to wait for the rebranding be complete before spending more and more investment on that they call even probably have additional closet I think you've covered it for the most part I mean, it really is just seen opportunities to spend more in the fourth quarter.
No opportunities, we think we can get good value.
Talked about plenty that we look at each market on its own merits.
That.
It's tax rate that's competition.
How well we think we can we can do in those markets and that that helps us determine how much we're going to spend in each given market.
When when we when we have more opportunities, we're doing more than when in markets, where it doesn't look as attractive at a given point will pull back and that's it just goes to the kind of the dynamic nature of our marketing spend and being able to pivot pretty quickly. So that's why we wanted to make sure that it's cleared in queue for that we'd be doing more in the casino areas.
And particularly in New Jersey.
Don't expect it to get as high as it was in the first quarter of this year or or.
The fourth quarter last year.
Got it and then just a follow up to that since you guys are talking about spending more casino market. So those are markets that have been opened.
Is that does that mean that you're allocating more dollars to retention marketing or is it still going after user acquisition.
It's really a combination of both.
There are some markets, we're still seeing really strong growth existing markets, such as Michigan and and then of course, we mentioned in Ontario.
Exciting around excitement around Ontario, and the growth opportunity. There we have other casino markets in Latin America, with Columbia, which continues to perform extremely well for us and Mexico wishes, we've mentioned as in launching periods still that we have great expectations for in the future. So I think there is ample markets, where we have large populations, where casinos attractive but it also comes down to reactivation.
Of existing customers and make sure that your existing players are treated well youre vips are allocated appropriate amounts of reinvestment to ensure they stay loyal with us.
Got it makes sense, thanks for taking questions.
Thanks.
Thank you.
The next question is from the lineup David Katz Jeffries. Please proceed.
Hi, This is Sandra asking on behalf David Thank you for taking my question.
I understand that I gaming and.
And it's a big country appear to be an entertainer of all business, but they're all players have 0.23rd unexpected hold and points. So far this N F L season.
Wondering if you could help us quantify it well I understand that tell lind quite a company.
Yeah, so et cetera, thanks for the question.
You're you're right that it doesn't impact us likely as much as it does others. When there is movement in the sports hold just because it's not as as big of an impact.
In in the third quarter Sports all was was within within our expected range.
There had been there have been some good weekends.
And the NFL. There is no question about that but it does it gets balanced out with a lot of different sports and activities.
So it's probably be too early in.
In the quarter to predict where that's going to where it's going to end up for the full quarter.
But certainly there's been there's been some nice outcomes and NFL so far.
Great. Thank you and if I may ask another one can I talk about legislative momentum and any potential state I'm like jurisdictions that cause orange I gaming.
In 2023.
Sure.
No.
There's been a lot of momentum growing for Igaming legalization in part driven by the recognition from our competitors in ourselves, which is how valuable it is to compliment sports betting with igaming being legalized with that in mind, you are seeing states like Iowa, Indiana, and Illinois, <unk>, let's call them are really.
Showing some momentum in terms of having opportunities to legalize igaming over the next year or so New York is also a market where we think there is an opportunity we remain focused on exploring ways to legalize igaming I think what's really important to note is that.
All of our peers, where there's large land based casinos or maybe Sportsbook first daily fantasy type of companies are all aligned around fund.
Funding not just supporting verbally, but really putting some money to work to lobby for gaming legislation for the first time really.
And the history of this industry in the us market, so with that focus and funding and alignment I think it's very possible that you will start to see some movement and legalization efforts in the states that I mentioned, perhaps others.
For us obviously, we've been outside benefit.
Gaming is legalized in any of these markets because of our strength and casino.
Great. Thank you very much.
Thank you.
The next question is from the lineup Jordan been terribly K M. P Securities. Please proceed.
Great. Thanks, Thanks for taking my question.
Several states looking to launch in the next several months.
We expect the state 50, a similar path to being contribution positive or as a fundamental shift in profitability, maybe keep a net return curve.
Yeah. So the question is.
Are we looking at a.
A new launch in say, Maryland, Ohio different than we would have looked at a launch a year ago or two years ago.
Correct.
Yeah. So I think there's still a lot of excitement for us around around sports markets and.
And sports markets can certainly be profitable for us and we have we have many that are headed headed in that direction. I think we're very mindful of how much we allocate to sports markets.
What the economics are around each of those markets that we enter and what the tradeoff is between investing their versus investing in casino market. So.
We will look at it closely will monitor the competitive situation will monitor what the cost is in any given market and as we only doable monitor.
What the player values look like.
Early and often and make sure we are investing in the right way and.
And we're not going to get caught up in a game of trying to to hit a certain market share target and Ah Osb's state and spend to that we spend too the economics that are appropriate for for the cost of require players and the value that they generate.
Great. Thanks, and then May follow up when you talk about Mexico can you just kind of talk about we don't live there for a few months now I just kind of lighten you've seen in terms of maybe market dynamics compare that to what you saw it may be in Columbia, When you launch and I think you mentioned in the past.
Close to 20% share in Colombia.
Okay, possibly get something like that in Mexico.
Sure Yeah. So it's we're also quicker startup Mexico that we were in Colombia and.
And we expect that pays to continue.
As I've mentioned before on this call as well, we like to we Wanna take the time, we take the time necessary to ensure our product and brand reputation are top notch is not as different launching in the market with a bunch of competitors all at the same time and as a land grab for sure day, one it's really the opportunity for us to do little things right improve the user flows an experienced <unk>.
Will we needed to be added to feel like we are the best price in the market and we think we have a clear line of sight to achieving that and it won't be very long before we feel free confident to be able to spend more marketing on the product to ensure that when we do start to create greater awareness of the product to consumers in that country that they are going to feel right away that were very high quality.
And really be.
Become the home of those better.
So we do with the longterm, we have the chance to be <unk>.
<unk> successful in Mexico, as we are in Columbia.
Great. Thank you.
Thank you.
The next question is from the lineup chat Danielle.
Sorry. Please go ahead.
Hi, This is Aaron <unk>, thanks for taking my question.
And I apologize if this has been after video got dropped from the call.
So I wanted to touch on your social product today will be set you apart from other operators.
Are there are synergies on the development side in terms of bringing the game the vacation from social into the real minigame product to drive engagement and retention.
If only we should ask that question because the answer is yes, there are ample things to learn from when the social space and things that are done there that we think are quite relevant in terms of how you gamify the playing experience online and in the room. When he casino market. We are one of the unique operators that has the same technology built in our platform for social and Roma.
<unk> and the development is done on the same platform and updates are during the same frequency. So there is a a very close alignment between the two and we build something in social to test things out and social it's quite easy to them bring it over to real money. Afterwards. So it is a great testing vehicle for us to use as well as being a great asset to help us convert players in a casino market.
Before the market's regulated into being real money customers in the future as we've mentioned we did successfully in Michigan. So social is a dynamic innovative category of gaming and it's something that we have a team and myself included in a very familiar with those products in categories and how they've delivered.
Native experiences where players and there's certainly some inspiration that we received from what's worked there that we plan on and have in the past used for our success and casino.
That's great. Thanks.
And then as a quick follow up.
You mentioned the rebranding New Jersey that rivers brand can you discuss what the early response or results have been and how this tracking relative to your expectations.
Willow started with the launch of the football in Q3.
But due to being a really casino first market for us in the cold weather months being the prime time for casino players.
We're really intensifying the marketing efforts for New Jersey.
The rebranding really in queue for.
Cause of the attractiveness of that seasonality for that opportunity. So I would say that was exciting for us is that the players.
They're obviously didn't have to revisit a new brand or go sign up on a new brand new we're able to continue playing other favorites site and naturally we had a co branding for some period of time to ensure players were familiar with the transition that was happening and subsequent now we do have the sight branded rivers and so certainly it's a great benefit to have the efficiency.
Cross the restaurant that rivers footprint around the country, which is our dominant brand in the in the U S.
Canada for that matter. So it's been it's been our our goals certainly we have a lot of effort to.
To put in this quarter and a big opportunity in Q4, and Q1 to really take advantage of that new branding their to really utilize that opportunity during the cold winter months, when we feel the seasonality a casino is strongest.
Awesome. Thank you very much.
Thank you.
Question. It comes from the lineup, Mike Hickey with the benchmark company. Please go ahead.
Hello, Richard.
<unk>, thanks for taking my questions.
Obviously have referred you say before that the gaming industry is pretty resilient resistant to economic downturns, but just curious if you can update us.
And what are you seeing on the macro if you're seeing any weakness on the consumer of that is all that the new numbers at all I guess as you bring them down.
Behavioral changes that.
We are impacting your business and how you think about.
23, and your profitability goals given that everyone thinks we're going to be in a recession. Thanks Scott.
Hey, Mike I'll start with the first question did call maybe.
The rest of the second one so the truth is we've looked at all of our data and we haven't seen any indications.
Have any impact to our online player based based on deposits frequency deposit volumes average size et cetera. So we think we're going to continue to be in a.
A position where nothing has changed from our outlook in terms of the the health of the players of ours on our platform.
Yeah, I think it <unk>.
Second piece.
Thinking about profitability for next year, and our plans to be profitable for the second half.
It's a fair question because everywhere you turn people are are talking about the consumer and what might happen next.
The.
The really nice thing about our our model and the way. We have operated is that we have a lot of flexibility with how much we spend <unk>.
Spend on marketing we.
We have not built out a.
Big Cross cost structure to manage the business and you'll see that in our G&A line.
So if if that were to happen manifest itself and it starts to impact revenue in growth and engagement with players.
That also likely impacts how much we would be willing to spend on marketing to driving those players that have those certain values. So I think we're.
Outside of something.
Much much bigger I think we'd still feel good about that.
Profitability for the back half.
Nice thank thanks, guys, maybe one more.
I guess is thinking about the headwind speed.
B.
For you when you sort of let me sort of look at your business you have the most bars seems like you've got a pack now.
You certainly have market access leading market access.
And the U S and.
Your reputation.
That you're a great.
Great operators so.
Sort of.
That being said how influential is the lack of <unk>.
Brand recognition on the relative days, you think impacting your <unk>.
Sure opportunity in the U S and when you see sort of rumors of.
<unk> looking for a home and of course, you're in Connecticut.
Nice I mean, how do you think about.
Stepping up.
Your brand recognition through partnerships with an E. S. P N or some others that maybe has allowed me to get into the space.
Sure and I appreciate the question.
We're we've been able to grow a brand in Columbia from scratch and it's been very successful for US. We are the top three operator out of many operatives in that market and over time here in the U S are brand awareness has been growing but one thing that we recognize that.
It certainly isn't the level of brand awareness. So we would like it to be and one thing that we've done is to respect rivers.
Rivers network, which is in house internally developed bedding content network. That's had hired a bunch of very talented and well respected in local legend essentially in different markets I think someone like Mike Francesca and New York is a great example of that and where he's reaching Connecticut and New York.
New Jersey really with great content, that's really.
Desirable for the audience and so when you actually sharing content that is produced we have produced over 126000 hours of content.
In October .
On Youtube and so when you quit that kind of volume of content you get a lot of subscribers a lot of interest in what those talented people have to say and so we're building a brand awareness by investing rivers network and really getting a large volume of views on our content we had.
2.7 million views on Youtube alone. So we can see that is really working as a way to grow brand awareness and of course, some other projects. We've done when it comes to investments with different teams, whether it's to Detroit Pistons deal that we did where we have a great innovative thing that hasn't been done before we did it where it behind the back where you have a sweet has it beggars brand in every <unk> telecast around.
And.
Teams or it's doing things up in Canada on Rogers media with with the really promoting our brand in front of a raptor is basketball game on Rogers media, we're being very selective and thoughtful and really investing in those partnerships and those types of high visible.
Brand building opportunities in markets, where we also have casinos. So we do get the sports players we are able to cross hill those players into casino as well, so I would say that.
Point that our brand awareness as it is highest.
The starting position is not as high as some others are but as we have shown in markets like Ontario, without having a brand to start with we were able to build it into someone that has a significant share and expect to continue to have success in that market. So that's sort of the high level of thoughts on that question.
Thank you and good luck.
Thanks Bye.
Thank you.
The next question comes from the lineup average in glass with Roth capital. Please proceed.
Hi, Thanks for taking my question Uhm, It's Ed I'm going to try to rephrase when the prior question that was asked rather.
Relative to Navy last year when the start of this year has there been any pivot in your strategy or even your LTV assumption that maybe prioritizes profitability over <unk>, maybe last year.
It just seems like the trajectory of your marketing costs have have diapers a lot relative to what you got it.
Yeah. Thanks, Thanks that I think I think everybody has has across the industry is dug in deeper we have a lot more information.
And markets as they mature than we did a year ago or two years ago.
I think there is a lot of focus on profitability across the industry across the investor base.
I think <unk>.
Behavior hasn't changed all that much I think what you're seeing with.
The prudent spending and marketing.
Is a reflection of us measuring the value that we get from what we spend.
It's also a reflection of coming out of a period, where we had a significant number of new market launches. If you go back to the fall of last year, you had Arizona, Connecticut.
New York, Louisiana.
Ontario.
That's a long list of big Big launches.
Where money was being put to work.
Are we buying.
Or acquiring players at cheaper rates than we were at some of those periods of time for sure.
That is partly partly probably behavior on us it's more about the competitive situation. So I think we're we've always been very mindful of.
Of getting to profitability I.
I think everybody else is talking about it more in investors are more keen to discuss it. So it gets a lot more attention and we ended up talking about it more but.
But we are very focused on it but I don't know that that's a a massive change from where we were.
A year ago or two years ago, and when we were actually profitable in 2020.
Great. Thanks, that's helpful. And then you've talked about a less competitive environment does that mean, maybe the pricing of some of these advertisements or something that they're marketing assets has maybe trended lower relative to even the start of the year or even maybe the past couple of months.
Sure I'll take that one that the truth is yes assets have.
In many cases reduced.
Cost for us to utilize certainly in the past there were not offered there were many opportunities where if you didn't accept commercial terms from from.
Marketing acid owner, you would certainly be the next person in line willing to step in and take that obviously without any questions, whereas now.
Assets coming back to us that are multiple times or looking for maybe a better value and we have a chance to negotiate or to have an opportunity to secure in a more favorable pricing for his room. We've seen a lot of that having said that you still have some of the major operators that are still spending and how the front and the pedal pretty aggressively, especially during the football season.
Great. Thank you.
Thanks.
Thank you.
The next question is from the line of <unk> like Craig Hallum Capital You May proceed.
We explained I guess why was online casino hold that normally low I think of the head.
Hey, Ryan regimes and very consistent.
Yeah, Hey, Ryan could would you mind starting your question over you were cut out at the beginning for us.
I think I know, where you're headed but I just want to make sure I hear the whole question.
Yeah can you hear.
I was just wondering just for better detailed explanation on why online casino full both abnormally low and I think of that as a random number generator games and really good control and consistency and very little volatility historically within those games.
Yes, you are right about the about the math behind those games and that is.
That's exactly why we are we are calling it out here because it it was particularly different than we've seen in quite some time and usually the variances quite quite tight on.
Across the casino games.
And certainly relative to sports.
And it just so happened, but there is still luck involved right and in this case, our luck wasn't as good as the players.
For the quarter.
And and it ended up hurting us a little bit this quarter, but it's the first time, we've seen that.
Outside the range is much in quite some time.
Okay.
Okay, and then an MBA us today.
They were down sequentially.
For the second consecutive quarter, despite positive sports seasonality. So I guess what was the main driver of that.
Yeah, I think obviously nicely up year over year and I mentioned in September it was up.
Actually up 40%.
Roughly.
I think probably a big driver of us and we.
Probably discuss this in the past, but the other mouths are driven a lot by sports players.
Even though the casino players are more valuable you have this you can have the seasonal shift and miles and one thing that.
Happened this year versus last year as the July and August sports calendar because of the Covid shift last year. The July and August sports calendar was not as robust.
So you had less active users.
In July and August probably because of that.
Gotcha.
And then one last one you guys change your promotional offering from $250.
Mac deposit matched to one that was up to $500 in free.
Free bat, which face value sounds like a lot more but I think my back of the envelope suggest that actually et cetera, Roy in Karachi last but curious.
Wow that resonated with the consumers and what you are seeing from an rois standpoint with that change.
Sure Yeah, you're right, we did try some additional new bonus offering options for our players and the second chance back with something that we believed was gift.
It would be attracted to the consumer.
Actually it was a risk free.
Where to lose the first pet they get it back as a free bet to try again and so we would find is that the.
The value to us was stronger in this area that Roy was a better results for us by using this program here. So we have tested out we wrote it out across a bunch of markets and we liked the results that we're seeing so far on that new promotion.
Great. Thanks, Good luck.
Thanks. Thanks.
Thank you.
Again to ask me a question police Quest Star one.
There are no additional questions at this time I will pass it back to the management team for closing remarks.
Well. Thank you everyone for joining us today. It was a pleasure speaking with you we look forward to doing it again soon thanks.
That concludes today's conference call. Thank you you may now disconnect your line.