Q4 2022 Rush Street Interactive Inc Earnings Call
Where revenue continues to expand at very substantial growth rates year over year.
In the fourth quarter on a year over year basis, Colombia grew a remarkable 89% in Colombian pesos.
Which amounts to 53% growth in our reported U S dollars.
Also during the fourth quarter, we announced the opening of new offices in Bogota and that again to support the expansion of our Latin American presence.
In Bogota, we opened a new location to serve as the headquarters for our Latin America operations team.
While in the mid <unk>, we extended our technology hub to house a team of the area's top tech talent to support our global technology platform and maintain a healthy roadmap of product development.
Moving to Ontario, we remain pleased with our progress and performance.
Ontario is obviously a competitive market.
With an additional 26, either launching or transitioning to regulated during the fourth quarter up over 60% from the end of the third quarter.
However, our strength in online casino is certainly helping us during these early days.
<unk> is continuing to grow nicely.
Evidenced by sequential growth of almost 30% during the fourth quarter as.
As we continue in ramp up mode.
In a rapidly expanding market due to transitioning aggregators.
Our market share remains the mid single digits for our magazine.
And low single digits for online sports book.
Turning to Mexico.
We remain very deliberate and measured in our ramp.
The focus continues to be on building the foundation that will support stable long term growth and profitability.
We are continuing to work with and leverage our media partner to build brand awareness and further localize our platform and user experience.
As we have said prior we expect to see a more significant contribution from Mexico, beginning towards the back half of this year.
That said, we are pleased with the foundation, we've established thus far.
Looking forward there are.
More conversations across our industry about online casino legislation than we've ever before witnessed.
In fact, our account is that five online casino bills have been introduced already this year.
Regardless of the outcomes this demonstrates a greater legislative effort being made in this area.
As we have mentioned prior the facts are straightforward.
Online consumer market and even the online slot market by itself.
As to the pension will be significantly larger than the sports betting market.
But more importantly.
Could benefit Rsi in an outsized way given that we often earned three to five times the market share in online casino compared to sports betting in those same states.
On the marketing front.
We increased spend heading into the winter months, specifically in our casino markets.
We also increased spend in new Jersey, specifically supporting our rebranding of bet rivers in the states.
I remind investors that we had previously pulled back spend there in anticipation of the rebrand.
For the full year marketing spend was down about 140 basis points compared to last year when measured as a percentage of net revenue.
And this is with an investment heavy first quarter of this year.
If we were to look at marketing spend as a percentage of net revenue over the last three quarters.
We've seen an improvement of 560 basis points year over year.
Looking forward, we remain disciplined in our approach we see this in our results.
Marketing efficiency as measured by our cost to acquire players improved by one third in the second half compared to the same period last year.
We are data driven and focused on what we get for the spend.
We continue to focus on earning and retaining customer loyalty by treating them well being thoughtful and by leveraging our development expertise to create seamless experiences.
And reduce friction at every possible touch point.
We will remain efficient in both existing and any new markets we enter.
We have built our platform and culture around as operating philosophy, and we believe it is imperative to achieving sustained long term profitability.
Turning to product and innovation.
Our teams are major Mendes progress once again this quarter.
Many of the improvements we make each quarter our building on efficiencies.
And making the user experience more seamless.
I think it was like player onboarding and payment options and speed.
Areas, where we've been leaders in the industry.
But we also continue to innovate and bring new features to market.
Argos here lobby now supports custom lobby layouts are different player segments.
This allows us to provide a more personalized experience incorporate the games and banners display in the lobby. According to players gained preferences and lobby usage behavior.
We've also introduced machine learning to further advance our recommendation engine to improve the lobby experience for our players and get them to the games and excite them and improve their entertainment experience.
And sports are single again part of their product is dramatically better and we've significantly improved the merchandizing of our party products.
To put options front and center for our players and offer a chance for larger payout.
These efforts are translating nicely as a percentage of female can parlay bets.
NFL season increased by 30%.
On our last call we previewed a new feature that was soon to be released.
Our proprietary squares game.
Something I can do what you all likely participated in at your Super Bowl parties.
This new fully integrated feature allows us to offer free randomized squares to our players for games they better.
And to boost the size of the winnings based on bedding criteria, we can configure for each promotion.
In the case of NFL games.
Seemingly can partly wages trigger the boost the payouts.
Squares had been tremendously well received.
Separately to launching squares, which was partway through the football season.
25% of our football Betters, who are never places you can parlay itself.
Our average bets hasnt football is up 10%.
And we saw strong reactivation activity.
On the heels of this success the squares innovation has been transitioned to basketball where.
Where we just launched a functionality for NBA games.
With that I'll turn the call over to Kyle.
Thanks Richard.
Fourth quarter revenue was $165 5 million up 27% year over year and up 12% quarter over quarter full year 2022 revenue was $592 2 million up 21% year over year.
This marks our 15th consecutive quarter of revenue growth.
For the full year, we experienced solid revenue growth in all of our markets, except for one of our smaller U S States. As a result, we grew nicely in both online casino and online sports during the year.
We continue to see positive signs in our player acquisition and retention as measured through monthly active users.
Fourth quarter, North American miles were 149000 up 22% year over year.
The increase reflects our successful efforts in player acquisition and retention across online casino and sports betting plus the addition of new jurisdictions compared to the same period last year.
In terms of player engagement and monetization.
Average revenue per monthly active user was $327 during the fourth quarter, which is stable compared to the same period last year. We remain very pleased with our healthy art miles as we continue to attract and retain high quality players to the platform.
As a reminder, the new states, we launched last year required various levels of investment. During 2022. However, we are beginning to see some benefits.
As Richard touched on we continue to target adjusted EBITDA profitability for the second half of this year.
Our fourth quarter adjusted EBITDA loss was $17 3 million, which is a 45% improvement from the fourth quarter last year for.
For the year, our EBIT loss was $91 8 million, which is an increase over 2021, primarily due to the new market investments. We made in the 11 markets that launched during 2021 and 2022 and in fact, those 2021 and 2022 vintage launches accounted for about $80 million of.
Our $92 million loss during this past year.
As these markets mature and build our marketing expenses coming down and our margins improve our anticipation is that these 11 market launches in aggregate will be contribution positive for 2023.
Advertising and promotions expense was $63 2 million for the fourth quarter down slightly from last year's fourth quarter.
As we previewed on our last call our marketing spend for the fourth quarter was up sequentially from the third quarter.
That being said, we expect this figure to go lower over the coming quarters as we move closer to adjusted EBITDA profitability.
For 2023 marketing costs should be lower than 2022, both as a percentage of revenue and in absolute dollars. We.
We expect to spend more during the first half and the second half as a result of the recent launches in Mexico, Maryland, Ohio, and Ontario market that is still less than a year old and the rebranding efforts in new Jersey that Richard mentioned earlier.
We remain committed to spending rational amounts to acquire players monitoring the value of those players in the channels through which we acquire them investing more when we see solid returns and reducing or eliminating marketing where it doesn't make economic sense.
Gross margins improved sequentially again in the fourth quarter and ended the full year at 31%.
Gross margins should improve again in 2023, where we expect to see a full year benefit of several hundred basis points.
G&A costs increased slightly in the fourth quarter to $13 3 million up from $12 7 million in the third quarter we.
We continue to make prudent investments in the growth of corporate and our technology and product teams. So we expect G&A to continue to grow modestly over the coming quarters.
Our balance sheet remains pristine and as Richard highlighted we believe we are fully funded to profitability we.
We ended the year with $180 million in unrestricted cash and no debt.
We've initiated full year revenue guidance for 2023, we currently expect revenue to be between 630 and $700 million.
As a reminder, our guidance includes only those markets better live as of today.
We continue to execute well on our growth strategy, while managing our costs appropriately we have a strong balance sheet, no debt and a strong position and our new and existing markets as such we have the flexibility to make investments, where we can generate the best possible returns for our shareholders and reducing or eliminating initiatives, where we don't see solid returns.
All of this gives us a continued clear path to profitability.
With that operator, please open the line for questions.
If you would like to ask a question. Please press star followed by one on your telephone keypad.
For any reason you'd like to remove that please press star two once again to ask a question. It is star one.
Our first question is from Chad Beynon with Macquarie. Your line is now open.
Hi, Good evening. This is Sam on for Chad, Thanks for taking my questions.
First question wanted to touch on the World Cup.
And what you guys saw in Latin America as it relates to.
Customer engagement acquisition and how it played out relative to your expectations.
And if there was any major differences with what you saw in North America during that same time period.
Sure Sam Hey, this is Richard.
Yes, as you can imagine the impact for our business was much stronger.
So America, particularly Colombia.
The interest in the sport is soccer is tremendous.
It was a great opportunity for us to acquire a large number of new players and engage existing customers and it was a very successful World Cup for US we feel we're running on all cylinders in the Colombian market.
In fact, we would say that the quality of the customers were strong and everything about it was a real positive experience I think I just wanted to caution as we have once before that in.
During the World Cup, the rest of the soccer leagues take a break for several weeks.
Multiple weeks and that does impact also.
It has an impact on some of the revenues because they're not having the same schedule you normally would have having said that the strength and the growth of the of the World Cup does make up that difference. So overall as a real positive for us in that business in that market in the U S. It was a lesser impact for us although still positive.
Okay awesome. Thank you for that.
As a follow up just wanted to touch on hold generally for both gaming and sports.
I'm wondering how much of an impact it had on your quarter positive or negative.
And if you see hold as that potential.
Upside opportunity for the business over the next couple of years as it relates to single game Parlays for sports.
And just sort of how youre thinking about it long term and balancing.
Customer retention and so forth.
Yes, so I'll take the first part just on the specific impact of really.
Lack thereof in Q4, and then maybe Richard a weigh in on.
Longer term and strategies player experience.
But as I alluded to we really didn't have.
Much of an impact positive or negative from hold in the Q4, either in casino or sports they both.
<unk> fell into the range of possibilities that we expect when we're doing our planning and when we offer guidance so nothing.
Nothing real exciting to share there.
In terms of the long term goal is always an opportunity to look at margin opportunities for improvement I think we've always been very clear, though that we think there's limits to how aggressive you want to be with some customers certainly we value the long term value of the customer and the retention for years not months and we do think.
With experience brings awareness that for.
For some customers and you're too aggressive towards the setting with the margins that you end up having a shorter lifecycle with you was actually diminished the amount of profits from those customers. So I think it is.
Item to balance we look at it very carefully and it's a subject that we often talked about and there are opportunities certainly to increase.
Some betting on some higher margin sports products in particular the.
Parlays, assuming it parlays is something that we focus a lot of energy on it we're starting to see some positive results in that area from our efforts.
Awesome, Thanks for the color.
Our next question is from Jud Kelly with Oppenheimer. Your line is now.
Hey, great. Thanks, Thanks for taking my question.
Just circling back to online.
Casino could you give us an update on the legislative.
On the legislative potential Legislative I think new York's having like.
Potential meeting at Midwest, So could we get an update on that and then just just going into your Latin American.
Growth growth strategy can you just give us an update on how your share gains are progressing and Mexico relative to your competitors. Thank you.
Sure I'll talk about the online casino legislation in color on sort of some color on the Mexico comp question as well.
First of all a casino.
Industry is aligned in a way that I haven't seen before and you're starting to see a lot of investments being made in loving efforts to legalize online casino in a way that you haven't seen over the last decade.
That's extremely exciting I think it's clear why casino as a larger more profitable category.
The industry and legislator are realizing the value of the combination how effective it is.
While it's tricky to predict exact timelines for when legislation may drop there is clear movement and as an example that I'll share that conversations are now turning into drafts.
And drops in five cases that actually turn into introduction of bills and the states of New York, Illinois, Indiana.
<unk>.
New Hampshire is the fifth what we've had legislation introduced this year so far as we've mentioned.
So there's two <unk>, there's opportunity now is going to happen overnight probably not.
But the first step is to get US a sponsor of the bill excited interest interested in introducing a bill and we're starting to see that and you're starting to see a lot of effort being made and lobbing dollars being applied towards this goal. So I think youre starting to really get momentum being built which of course is outstanding for us because of all the companies in the industry. We think we may be one of the ones.
<unk> average disproportionately large share of casino revenues, and we do particularly well in the casino market. So for US. This type of momentum is very welcomed.
In terms of Mexico, Yes, maybe I'll jump in on the on the Latin American question Jed So.
In Colombia.
Obviously, Richard highlighted just the fantastic success, we've been having down there in the fourth quarter.
We get sporadic information on our market data.
So the last data we had we were approaching 20% share a solid solid third placed on there it would be hard to imagine that with close to 90% growth in the fourth quarter and the Colombian currency that that.
We lost any.
We lost any momentum there.
In Mexico, it's still early days really not no changes from what we said before that we're expecting to see kind of more meaningful and increasing contributions from Mexico towards the back half of this year, So really nothing nothing to share on on market share there yet maybe just for a little more color.
With respect to the growth plans there the opportunity that we see is very very large.
Comparing that to Colombia first year in Colombia, we did something like $4 million in revenue second year was $15 million, we expect a faster pace in Mexico, It's a bigger market demographics are more favorable.
We feel like we've got a <unk>.
Advantage launching in that market with our media partner that we didn't have when we started off in Colombia.
And even though we're really just getting going in Mexico. When you look at it relative to the early growth pattern at Columbia in Columbia, We are well ahead of that so.
We're really excited about Mexico.
Just to add one quick thing on Mexico, our focus really as I've said before is to localize the user experience to make it a top rated experienced because of the quality really matters.
And so we've been doing that very effectively in fact.
Ratings on our App and our feedback from our customers has gone extremely improves dramatically since we've entered the market and we've been putting the effort in to make sure. We do a little things that matter to the customer and we feel we're in a very strong position there to be able to take that effort and start to deliver long term value from it in the future.
Thank you.
Thanks, Jeff.
Our next question is from Bernie Mcternan with Needham <unk> co. Your line is now open.
Thanks for taking the questions, maybe just start to dovetail off the last one just any additional color you could.
Provided on the guidance between international versus domestic growth.
International or at least Colombia is going to have some pretty significant headwinds on FX for the rest of the year and maybe any thoughts on U S market share versus first market growth and then second Richie how that market efficiencies improving by a third.
How much of that was just lower cost to acquire customers versus anything you guys are doing differently, whether it be data science or change in strategy just any additional insights there would be helpful.
Yes, so I'll take the first part.
And thinking about just kind of our revenue build in.
The growth in revenue this year, and where we expect that to come from.
I'll, probably stop short of just breaking it down international versus versus U S or North America.
So we talked a little bit about this in the opening remarks.
Being in the range of 80% to 90% of our growth is likely to come from the markets that have been live for more than a year. So if youre thinking about on a same store basis. That's.
That's a rough a rough guideline.
Most of the growth in 2023 is going to come from our.
Our North American markets that launched after 2020, and Latin America, I think I think.
Prepared remarks, Richard mentioned.
That group of markets grew 95% last year, so at the midpoint of our guidance.
Latin America and then these later U S markets after 2020 those could grow.
In the neighborhood of 35% this this upcoming year.
A lot of you estimate closely from the state data that's reported.
Very.
A nice portion of our revenue about two thirds of our revenue last year came from Pennsylvania, Illinois, and New Jersey.
Pennsylvania, Illinois are both markets, where we had a really strong start after the launch.
All three of those markets have continued to get more competitive so are expected to grow in those markets is more modest, but I think that the.
The takeaway from all of that is the markets that we were we didn't enter with a known brand or our casino database to leverage.
Growing really nicely and that's a great sign for new markets that.
Our newer markets, but also new markets that launch over the coming years.
In terms of your.
Your second question.
Our maturity of the organization as a marketing team allows us to know what works better and what doesn't work and so obviously, we're applying more efforts towards the marketing strategies and marketing channels that deliver the best results. We've also always been very disciplined.
And that continues to be the case, where we have defined paybacks.
For each market and each vertical and so while it is true that we are getting some opportunities back from other operators, who may be were investing in certain channels and no longer continue investing there many times in those opportunities come back to assist still at a higher rate than what we were willing to pay at the highest level for that market. So I would say that there is a combination of some things are coming.
More affordable, but a lot of it is the investment we've made in data science as you referenced combined with our team developing maturity and experience to know what works and doesn't work in continuing to be disciplined in making sure that we only invest in the in.
The markets are going to give us the best return on our capital.
Great. Thank you both.
Thank you.
Our next question is from Dan <unk> with Wells Fargo. Your line is now open.
Hey, good afternoon Richard.
I just wanted to piggyback on the on the guidance a bit on revenue can you talk maybe about some of the moving pieces between the low end and the high end. The range is it new competition coming in these markets the level of promotions.
Is it the ramp in Mexico is kind of.
That way, we can kind of better think about kind of low end and the high end of the range and kind of what the moving pieces might be to get us there. Thanks.
Sure. Thanks, Dan.
I think you called out some of the things that that we model.
Obviously competition is a little harder to model.
Other than the way you apply that to what you think a market size might be and what your share of that is going to be.
But it's really about.
<unk>.
The cost that we're going to acquire players for which we've got some some standards for.
The value that those players are going to produce the new players.
The retention that we have with our existing players and the value the value that those players bring.
Then another piece that.
That impacts us and others in this space is going to be it's going to be hold.
Which can have.
A difference in any given given quarter more volatile in sports.
I'm sure you're aware and then probably the other pieces in newer markets you mentioned, Mexico, I think Thats a fair example.
We probably don't have as strong a visibility into how that could turn out.
Relative to a market that's been around for a couple of years that we've been operating into so the variability.
On a on a market like Mexico, we could do far better or maybe not quite as well as we would expect to.
So.
All of those factor into this to this range and the different the different inputs that.
That go in.
Got it and then.
On the marketing and advertising and marketing stuff I know some of your peers have mentioned that they have some sponsors.
Sponsorships and things like that that may not be economical and that would roll off in the coming years can you just give some color on the extent that you have.
Mostly short term or medium term contract in the next.
The next few years as we're trying to think about the EBITDA ramp.
What the benefit might be from some reduced or more rational.
Advertising and marketing.
Yes.
Good question, it's obviously been a hot topic in the in the industry.
We have we've tended not to make.
Really large or long term investments in those types of partnerships that I think are often often talked about I think we've been more more strategic in.
Localized with with the endorsed endorsers that ambassadors that we're bringing in.
Sponsorship deals, we do with with local teams.
None of which are.
Individually or even in aggregate.
A really big part of our our marketing spend.
Our commitments for next year.
Or I shouldn't say for next year for 2023 in kind of those areas are sub $20 million. So it's not it's not a huge piece of our spend so I wouldn't think about it as something thats going to roll off in a dramatic way, but I would also think about it that we have we have a lot of flexibility in the way we are.
Put marketing dollars to work and can be nimble.
Doubling down in places, where we're seeing good results are pulling back in other areas because we do have.
Most of our marketing spend is variable.
Understood. Thanks for all of that.
Okay.
Thanks, Dan.
Our next question is from David Katz with Jefferies. Your line is now open.
Hi, good evening gentlemen.
Thanks for all the detail.
Hi.
I wanted to maybe just take a little longer term view.
Looking at the revenues growing right in the double digits out for a couple of years and I know you're on the cusp of pivoting to profitability.
But is there an aspirational margin level, you think you can get to for this business one day like people looking.
Europe right, 25% I mean are those kinds of things achievable and do you have what you need over time to get to that place.
Yes, David Thanks, Thanks for the question I think we do see.
A real opportunity to have this this business drive.
Long term consistent and sustainable profitability and I think the range you talk about is not unreasonable.
I think.
Our view is we're in the very early innings still of this industry, our company's growth profile.
We're going to get leverage over time.
We're as we've talked about we've continued to invest in our technology team and our corporate infrastructure and we're doing that still this year, but we'll get leverage over that.
Those costs over time.
A ramp a ramp in marketing costs over the last couple of years has been really significant it has for the industry, but it's been significant.
Because we've got so many new market launches and so many new market launches relative to the total markets that we had live at the time. So that's impactful on the revenue relative to our the marketing spend relative to your net revenue.
That headwind decreases as each market launch becomes less impactful and total cost base.
Youll see marketing as a percentage of revenue decline.
As markets mature and as you have less new markets launching relative to the total.
And we've also talked about gross margins should continue to improve over the coming years due to scale and cost improvements and as our revenue mix changes.
And we grow more in some of our higher margin state some of our earlier states that.
That are larger for us have lower gross margin profile.
An example.
No surprise to you, but Pennsylvania has very very high tax rate of course.
So I think all of those things give us.
A lot of a lot of excitement about the leverage we'll get in driving.
Stronger EBIT margins over the long term.
Okay perfect. Thank you.
Thanks, David.
Our next question is from Ryan <unk> with Craig Hallum. Your line is now open.
Good afternoon, guys. This is will on for Ian Thanks for taking our questions.
First I wanted to touch on you talked a bit about partly mix and it being up 30% year over year. I was wondering if you had any insight into how in claim mix trended during the quarter.
Yes, we haven't typically disclosed that one.
I'd actually have to look I don't know if it was a huge difference.
<unk>.
On the NFL.
It is generally trending up but I don't have that number in front of me, we can get back to you on that.
Perfectly fine.
One more for me.
With the potential for new competitors in Pennsylvania, especially in the gaming market theres been a bit of talk about.
Some opening up bidding to new operators curious what you guys are going to do to defend your leading share there.
Yes, I'll take that one.
Since we started this business over 10 years ago, we faced consistent competition, new and existing competition coming to markets, leaving markets and I think we've done a really nice job of maintaining our share well above our fair share based on our invested capital in these markets. So I think in Pennsylvania is a great example, where for for years, we've had a large shares up to the market early.
Have a great brand, there and been able to develop a great experience for the players and we've been able to retain larger leading share for example, the online slots in that market. Despite constant new entrants come into the marketplace. So I do agree that the intensity of Pennsylvania, We will continue to be there from a competitive standpoint.
Online casino I think was unlimited licenses there so theres something that doesn't have a relatively high tax rate is.
College's alluded to but it isn't a day what we do is we make sure that we stay ahead by constantly innovating and developing a better user experience. That's what we can control. We can control are the competitors that we can control, how well, we execute and how well we innovate to create experiences that players want to stay with us and we've been very successful delivering that over the years.
And we're actually very focused on that now and have a lot of great ideas. We're working on that we think are going to really help us in that area.
Great. Thanks, guys.
Thanks, a lot.
Our next question is from Jordan Bender with JMP. Your line is now open.
Great. Thanks for taking my question.
With all the talk around gaming legalization coming out.
Steve Youre, primarily.
Already have online sports betting so youre established footprint in the states.
Can you just kind of remind us that payback period, if we were to get <unk>.
Introducing to an existing OSB state.
Yes, Jordan.
You're right it is.
All the talk is around but for the most parts around states, where we're already active.
Certainly.
It's going to depend on the on the state tax.
Tax rate and the competitive landscape in.
And maybe even.
If we're in there with a partner or market access partner or if it's an open opportunity.
I think that.
There is a huge advantage to already being open in the market. We've got a database of players we've got.
We've got a brand that people are aware of.
So those are big advantages and if you just look at.
Two recent U S States most recent U S States that launched four with casino. It was it was Michigan and West Virginia that we participated in.
And both of those were profitable after four quarters.
For the entire market. So I don't know that I would want.
So necessarily commit to that.
If new York, or Illinois or <unk>.
Indiana wherever it is where to launch, but I think we've got a lot more advantages than we do starting cold like we did in Michigan and West Virginia.
So those are some of the history on how it's played out.
I think we'd be pretty excited about that opportunity I think one thing to remember is in most markets that have both casino and sports.
We typically carry three to five times the share in casino that we do in sports. So if we've got.
In Illinois, if you've got double digit share in AR and in Indiana or in New York, We've got.
Low single to mid single digit share in sports, if we could get three times that in.
In any of those states, that's pretty darn meaningful for us. So we're obviously very excited about the legislation and the the movement by the industry to be if you're talking about I casino a lot more.
Great and then my follow up looking at the MAU number I'm not sure if you'll give this but I'll try it anyway are you able to parse out kind of the quarter over quarter growth in users from the U S versus what those contributed in Canada.
Yes, I think we'll probably.
Stop short of that one it is a good try.
Yes.
Obviously the growth in Q4 in Ontario is all incremental for us.
And it's certainly.
<unk>.
Meaningful to the number.
And then just because you raised I think it's important to remind everyone. Although we disclosed this that those MAU numbers are our only for North America.
In Canada It doesn't include.
Our Latin American countries, where the where the mouse are much much higher than the art mouse.
Sure then in our North American markets.
Great. Thank you.
Thanks Jordan.
Our next question is from Edward Engel with Roth.
Your line is now open.
Hi, Thank you for taking my question it looks like on the gross margin side. The fourth quarter. There is a really nice sequential uptick Q on Q and that's kind of despite.
<unk> been a pretty big.
Be quicker.
What's kind of driving that Q on Q.
And I guess is that a kind of sustainable rate kind of in the mid thirty's.
For next year, maybe excluding.
The first quarter when there is some new market launches.
Yes, Thanks Ed.
So we talked about on our last call that we were expecting higher gross margins during the fourth quarter and Theres a lot of different things that can impact our merge margins from quarter to quarter. It's the geographic mix of business is a big one since we've got different margins and that can vary quite a bit from one market to the next.
<unk> mix as I think you pointed out between OSB and casino, but we can also have <unk>.
Alex mix within casino that can impact it.
And then most of our costs.
Our variable with revenue.
<unk>.
And but we do have some fixed costs in that margin cost structure. So those can have an impact as well.
Margins in total for 2022 were 31% I wouldn't I would not extrapolate Q4 out into the full year 'twenty three and what we had mentioned in the prepared remarks is we expect full year improvement in 2023 to get US a few hundred basis points over.
For the full year of 2022, so more in the the 33% range.
Maybe a little higher than that obviously, there is going to be some variability I would also think about.
As you pointed out we've got a couple of new market launches early in the year late last year and early this year. So I think our gross margins. While I gave you what I think our full year 'twenty three.
Target should be for gross margins it will probably build as the year goes on so a little lower in the front half of the year.
Stronger in the back half of the year on the back of some economies of scale and pricing benefits that we've got.
Throughout that cost structure.
Really helpful. Thanks, and then on the marketing cost 208.
$18 million for the full year is there a way to break out against what percent of that is fixed marketing expense versus what percent is kind of your external more discretionary marketing expense and I guess, what I'm trying to get.
In a scenario, where where entry year, maybe not this year, but maybe next year you ask here.
New dates Latina OCI gaming I guess, how low.
Could that go.
Yes so.
They're a very small percentage as specs.
Just to make sure I understand when you say fixed you are referring to.
Multi year commitments.
Two with sponsorships or endorses and things like that.
Yeah, even head count within your marketing Department.
Gotcha, Okay, yes, yes, so we certainly think about that as a pretty fixed cost we've got a great marketing team here at ISI.
So.
The team and long term commitments makeup.
It's probably 10% to 15% of our of our total costs something now it's not even it's not even that much I'm sorry.
Robert Blake.
Yes, no it's in that range, 10% to 15% is the right number.
So we've got a lot of flexibility in that spend.
To be able to be nimble and think about where we want to where we want to spend more because we are getting good returns or back away.
And then I guess is there kind of way to think about how low that marketing cost can go during the year, where there is no new state launches.
You are saying relative to to revenue if we go out three years from now.
Yes.
Yes.
Yes.
Think I'd want to put a percentage or an absolute number on that one just yet since we havent offered.
Long term guidance in that in that respect so.
I think that Theres, a lot of room for spar.
Spend as a percentage of revenue to go down as markets mature.
Obviously, some of Thats going to depend on the competitive environment, it's going to depend on.
Whether.
There's more legislation with sports or casino in how much we want to invest because we see the opportunity. So I think we will remain flexible on how we how we invest in marketing, but I think we've proven that we have.
We've been modest with our investments and achieved a lot while doing so.
Great I appreciate the color.
Thanks, Ed.
Okay.
There are no more questions I will pass the call back over to the management team for closing remarks.
Thank you again for joining US today, we look forward to updating you on our progress when we share our first quarter results in a couple of months.
That concludes the conference call. Thank you for your participation you may now disconnect your lines.