Rush Street Interactive, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the RSI Second Quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Please note that this conference call is being recorded today, August 12th, 2021. I will now turn the call over to Lauren Siler, Associate Vice President of Investor Relations and Development.

Thank you, Operator, and good afternoon. By now, everyone should have access to our second quarter 2021 earnings release. It can be found under the heading Financials Quarterly Results in the Investors section of the RSI website at RushStreetInteractive.com. Some of our comments today will be forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are not statements of historical facts and are usually identified by the use of words such as will, expect, should, or other similar phrases, and are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. We assume no responsibility for updating any forward-looking statements. Therefore, you should exercise caution in interpreting them and relying upon them. We refer you to our SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition. During the call, we will discuss our non-GAAP measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measures are available in our second quarter 2021 earnings release, which is available in the Investors section of the RSI website at rustreinteractive.com. With me on the call today, we have Greg Carlin, Vice Chairman, Richard Schwartz, CEO, and Kyle Sowers, Chief Financial Officer. We will first provide some opening remarks and then open the call to questions. With that, I'll turn the call over to Greg.

Thanks, Lauren, and good afternoon, everyone. Thank you for joining the call today. Before we get into our quarterly results, I'm excited to announce that RSI has named Richard Schwartz, who co-founded the business with me and Neil, as CEO. I will become vice chairman of the board and I will continue in my role as CEO of Rush Street Gaming, which as most of you know, is a separately owned private company. It was obvious to me back in 2012 when we started RSI that the U.S. casino industry would expand to the digital channel. And I'm very proud of all that we've accomplished during my tenure as CEO. Since we launched our first online casino in New Jersey, RSI has been at the forefront of the online gaming industry. Richard has been a key partner to me and Neil in building RSI from the very beginning. His extensive knowledge of online gaming space and his understanding of the customer has been integral in establishing RSI as a leader in our industry. Now that we're operating in 11 jurisdictions and we've successfully transitioned to a public company, the time is right for Richard to become CEO and to assume day-to-day responsibilities for executing RSI's strategy. As the second largest shareholder and vice chairman of the board, I'm confident there is no one better suited to execute RSI's business plan. I'm excited to continue working with Richard and our highly talented management team to maintain our industry-leading position and to drive value for all of our shareholders. With that, I'll turn the call over to Richard to discuss our second quarter results.

Thank you, Greg, and good afternoon, everyone. To kick things off, I'd like to acknowledge Greg's partnership and leadership in establishing RSI as an industry leader. Together, over nearly a decade, he and Neil set forth a bold path for RSI right from the outset and had a vision to support developing our own platform in-house at a time when it was uncommon to do so. I am grateful for the trust and confidence of the board, and I'm honored to lead RSI during this time of tremendous growth for both our company and the industry. I'm further excited about all the prospects that lie ahead for RSI, not only in iCasino and online sports wagering, but also into new and expanded product verticals. I have several key topics I'd like to cover today. First, I'll highlight another quarter of record revenues and the raising of our full-year revenue guidance. Next, I'll give an update on our market access initiatives and some exciting recent developments. Then I'll talk about our operational and marketing excellence. And finally, I'll walk through product and technology rollouts that are helping to drive our differentiated user experience before handing it over to Kyle to dive deeper into our financials. Turning to our results, our team delivered another solid quarter of year-over-year and sequential revenue growth, demonstrating our continued ability to grow the top line while prudently investing in the marketing and technology needed to do so. Our revenue was $122.8 million during the quarter, representing a year-over-year increase of 89%. Just as impressive as our overall revenue growth was the balance in that growth. Not only did we grow casino revenue sequentially during the period, but also sportsbook revenues despite a lighter sports calendar. With this continued success and growth in our business, we are once again raising our guidance. We now expect our 2021 full-year guidance to be between $465 million and $495 million, implying 72% year-over-year top-line growth at the midpoint. This is up from the previous estimated revenue growth of 65% at the midpoint of our prior guidance range. Kyle will provide some additional details in his remarks. In terms of market launch, during the second quarter, we went live in West Virginia with our BetRivers online casino. This was on the heels of successful launches in Michigan, Virginia, and Iowa during quarter one. We now operate in 11 jurisdictions, eight that have online sports betting, five with retail sports betting, four have online casino, and Columbia with both online casino and sports betting. Ball Winner launched in several new states during the first half of the year, and since our last earnings update, we've continued to make significant progress in our market access initiatives. To start, we're very excited to announce earlier this afternoon that we have been selected by the Connecticut Lottery to be their exclusive sports betting partner, making RSI one of only three sports bet operators who will be authorized to operate in the states. This partnership will be inclusive of not only the operation of up to 15 retail sportsbook locations across the state of Connecticut, but also a statewide mobile sportsbook. The selection was a very significant milestone for us as it validated the strength of our product, services, and overarching organization in what was a very competitive process. In fact, the Connecticut Lottery has disclosed that we were selected from a pool of 15 other high-quality competitors. Although the state is currently working to finalize the sports betting regulations, we expect to launch in Connecticut this fall during football season. It is also worth noting that we believe our recognition for operational excellence by the Connecticut Lottery will open future doors to compete for opportunities in other lottery markets. As many of you are also aware, New York has recently accepted bids for mobile sports betting, and on Monday of this week, we formally submitted our bid as part of that process. We are excited about the opportunity to offer our online sportsbook in the state of New York. We also have recently applied for a mobile sports betting license in Arizona alongside our partner there, and are looking forward to the opportunity to launch that market during the NFL season. Another exciting development in yesterday's announcement was with Boom Entertainment. In addition to a minor equity investment in boom, we have gained market access opportunities in Louisiana, Mississippi, and New Mexico for both sports and casino subject to legislation and licensing approvals. Louisiana is the most imminent opportunity as enabling legislation passed in June and should go live soon after the mobile sports betting regulations are finalized. Lastly, We are continuing to plan our market entry into Ontario, which has an open market access structure and will be moving ahead with both casino and sportsbook. The RSI team has fantastic experience and relationships in that province, and we are really excited about the opportunity given the size of the Ontario market. As you can see, we have no shortage of near-term opportunities and expected state launches coming over the next couple of quarters, and our business development team is hard at work to continue the strong momentum to secure partnerships in many new jurisdictions. We also continue to be very encouraged by the legislative momentum for online sports betting, and the addition of online casino to many states already have approved sports betting. It's become very clear when looking at the numbers in New Jersey, Pennsylvania, and Michigan that online casino is a greater generator of tax revenue, and many state legislators are recognizing this opportunity. I now want to turn to some specific highlights from the quarter and exciting trends we are seeing. As I mentioned previously, we grew both online sports betting and online casino sequentially from quarter one to quarter two, including in each of our newly launched markets of Michigan, Virginia, Iowa, and West Virginia. Thus far into Q3, each of these states are continuing to see growth with our per day net revenue trending higher quarter over quarter. In Michigan, which is a highly competitive market, and West Virginia, where we entered a little later than some of our peers, we have seen a nice progression of market share gain since launch. In fact, we grew our market share in West Virginia from 2.6% when we first entered the market in April to over 8% in July, despite strong competition. This is just further evidence that once we introduce new players to the BetRivers platform and our superior user experience, we are able to win them over and retain their loyalty. I also think it's important to point out that we are now profitable in four of our markets. We talk a lot about marketing investments, payback period, and the retention of our customers. That positive contribution is strong evidence that as markets continue to mature, we can and we will drive strong profitability over time. As I discussed earlier, there will be plenty of new markets to invest in over the coming quarters, which will put us in investment mode for the time being. But we are proud of our ability to be disciplined and calculated in the way we invest and ultimately generate substantial profitability for markets as they mature. Now I'd like to switch gears to talk about some of our marketing initiatives, investments, and the results we are seeing from them. First, I'd like to highlight a very exciting partnership that we announced earlier this week with NFL legend Mike Ditka. We couldn't be more excited to have Mr. Ditka on our team as a Bett Rivers brand ambassador and look forward to working alongside him and our other ambassadors to create new and exciting content for our players to enjoy. From a marketing spend perspective, after going public, we accelerated our spend significantly in Q1, which was impacted by investments in new state launches, particularly in Michigan. In Q2, our spend decreased modestly compared to the first quarter as the sports calendar was a little lighter and we found ways to target our marketing spend more efficiently. As we head into football season and leading up to what we expect to be several notable state launches later this year and into early 2022, we expect our marketing spend to increase again as we see a lot of opportunities to add players to the platform. Our ability to market effectively is critical to our success. We remain a data-driven organization, using dynamic learnings and analytics to acquire, convert, retain, and re-engage customers. Real-time insights from our business intelligence team allow us to continuously optimize our marketing spend based on a return on investment-focused model. This model considers a variety of factors, including the products offered in the jurisdiction, the performance of diversified marketing channels, predicted lifetime value, marginal costs, and expenses, and behavior of customers across various product offerings. When it comes to the efficiency of our marketing, we continue to see great results. We still have an average payback period of six months for all of our cohorts since inception, with one-year and three-year payback of four times and nearly five and a half times respectively. Our marketing spend during the first half of the year was 33% of our revenue, further demonstrating our ability to convert marketing investment dollars into top-line revenue. Given the strong results, we are willing and able to increase the time period over which our cohorts pay back, but we'll only do so prudently and with an eye towards long-term profitability. These marketing efforts continue to pay off in terms of attracting new players, as our monthly active users, or MAUs, were up 128% year on year. Our average revenue per mile was up 25% sequentially to $377 during the quarter. Shifting gears a bit, I also want to take a moment to congratulate all the employees of Rush Reinteractive for being named Customer Service Operator of the Year, Casino Operator of the Year, and Social Gaming Operator of the Year at the 2021 EGR North America Awards. EGR is a highly respected organization that celebrates excellence in the industry by recognizing leading operators. These awards, as voted on by industry experts, are a testament to the efforts of the whole RSI team and a further recognition of our industry-leading player experience. Now for one of my favorite topics, product and technology. It's been quite a busy quarter from a technology perspective here at RSI. as we continue to strive to offer a best-in-class user experience. Our customers are loving many of the new features and content that we've done live in recent updates. For example, in the casino category, we see a very strong early response to our live dealer offering in Michigan. With live dealer already offered in New Jersey and Pennsylvania, we expect the product to drive similar excitement amongst players in Michigan. In fact, live dealer represents over one-third of Black Shot Candle in New Jersey and Pennsylvania. and we believe Michigan will trend towards similar results over time. We are also excited to soon be rolling out a slot tournament feature in our casino markets. In addition to those features, we launched several exciting new titles during the quarter, with the biggest being All Aboard Dynamite Dash in New Jersey, Pennsylvania, and Michigan, a very successful LAN-based game that was brought online. We also launched IGT's Mega Jackpot Games in New Jersey, and both AGS's Red Silk and Scientific Games' Endless Treasure in Pennsylvania. Finally, in Michigan, we went live with several canonic games, including China Shores, Dragon's Law Twin Fever, and Solstice Celebration. On the sports wagering front, we've added a wide array of new functionality to enhance our user experience, including a live match clock, live score updates, embedded betting tips, a staff center, enhanced player search capabilities, improved in-app game streaming capabilities, and a greater volume of streamed content. We also doubled our inactivity logout period saving over 200,000 logins and re-logins a month, further reducing player friction. These improvements are all incremental to those made in Q1, where we improved site navigation, usability, and performance with less reloading and dramatically shortened transition times between screens. Looking forward, we are on track to launch our single-game parlay product ahead of football season, which we expect to be very well received by our player base. A recent partnership that I want to mention here as it relates to enhanced online sportsbook content is with GPG for their best-in-class iSports Genius product, which is now live in every state where RSI operates in mobile sports programming. We are very excited to partner with GPG in bringing co-exclusive customer education, sports data, insights to our bettors, with facts covering all major sports, including the NBA, MLB, NFL, PGA, NHL, UFC, and NASCAR. Speaking of our sports betting improvements, Islanders in Christchurch recently released their Sportsbook app rankings, and our new Pet Rivers app moved up two and was rated number four out of 31 brands tested, validating from a respected and independent source that the improved functionality and user experience just described in our app is real. As we continue to launch in new Sportsbook markets, we are excited to see the reception from first-time Pet Rivers users when they experience our significantly upgraded app, in conjunction with new features and our award-winning customer service. As previously shared, we also remain committed to launching our combined Sportsbook and iCasino iOS app in Pennsylvania and Michigan in the back half of 2021. While we've seen significant success in both markets, an iOS app in these two markets, in addition to existing desktop, mobile, web, and Android app options, will help expand our reach to additional players. With that, I'll turn the call over to Kyle.

Thanks. As Richard mentioned, second quarter revenue was $122.8 million, an increase of 89% year-over-year, and the adjusted EBITDA loss for the second quarter of 2021 was $6.6 million, which is less than half of the loss in the first quarter, despite the sequential revenue growth this quarter. Our adjusted advertising and promotions expense was $36.9 million during the second quarter of 2021, compared to $7.4 million in the prior year quarter and $40.5 million during the first quarter of 2021. This reflects our year-over-year commitment to accelerating our marketing spend to take advantage of strong returns, but also our rational approach to ensuring we put our marketing investments to good use. We expect marketing investments to increase into the third and fourth quarters as we enter the football season and execute on the expected launches and new markets that Richard referred to earlier. Our G&A grew modestly from Q1 to Q2, moving up to $8 million from $7.6 million. We continue to build out our development teams and corporate infrastructure to support the substantial growth we're expecting over the coming years. We expect this line item to continue to grow in the coming quarters. As a reminder, our adjusted EBITDA for the quarter removes the effects of share-based compensation, which was $4.7 million during the second quarter, while our year-to-date results remove the effects of share-based compensation, the change in fair value of earn-outs interest liability, and the change in fair value of our outstanding warrants, which were all redeemed or expired during the first quarter of this year. We continue to be in great position with $361 million in cash on the balance sheet and no debt. This allows us to continue to increase our investment in marketing, launch in new markets quickly, and remain opportunistic with regards to external investment opportunities. As Richard highlighted earlier, we're increasing our 2021 revenue guidance for the full year to be between $465 million and $495 million, up from our prior range of $440 to $480 million. This revised range implies 72% year-over-year top-line growth at the midpoint, which is up from our year-over-year revenue growth at 65% that we were expecting on our last call. We're seeing strong results across the business, and this increase reflects our confidence in the continued strong trends we've been seeing so far during 2021. We've talked about many new market opportunities that are hopefully opening up later this year, But just as a reminder, our guidance does not include any contribution from markets that aren't live as of today. With that, operator, please open the line for questions.

We will now begin the question and answer session. If you would like to ask a question, please press star followed by one on your touch-tone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, please press star 1. As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly to allow questions to generate in queue. The first question is from the line of Bernie McKeon with Needham. You may proceed.

Great. Good afternoon, guys. Thanks for taking the question, and congrats on the new roles. Richard, I'm sure there won't be a huge deviation from the playbook with what you guys are running now, but are there any maybe one or two key priorities that you can lay out that you'll be focusing on over the next six to 12 months?

I appreciate it. Thank you. Our focus is really going to continue to be on innovation and differentiation. We're investing a lot more resources as we grow to ensure that we stay ahead of the curve and can continue to offer the user experience the players deserve. We are also planning to diversify our business as well in terms of bringing some additional product verticals into the industry. Obviously, we're strong in casino and sports betting, but some other product categories are of interest to us that we're going to be looking at. And I think you also see us just continue to make sure that we continue have market access in the markets that matter and able to be ready to enter those markets when they're first available. But I would say we're going to continue to be prudent with our marketing spend and continue this path in the future, which I think has worked really well for us in the past.

If I can just follow up on that market access point, you mentioned in your prepared remarks that many states are recognizing the opportunity for iGaming, and it certainly makes a lot of sense from what we're seeing on the per capita side. But is there anything that you're seeing that gets, you know, thinks greater momentum is happening behind the scenes for legislation and how we should think about potential iGaming legislation in 22? Well, every...

time every month when a state reports their revenues and you see the markets where you have casino and sports like Illinois, sorry, excuse me, like Michigan, New Jersey, Pennsylvania, you'll see that nearly 75% or more of the revenues are coming from casino, which really does convey the strength of that opportunity to raise incremental revenues for future states. Having said, in terms of specific examples, Indiana, Illinois are two markets that come to mind as ones that are – the land-based casino groups are supportive. The online companies are lobbying for it, and the states are recognizing the opportunity for increased revenues from the online gaming business. And, frankly, adding casino games is not a particularly challenging – way to increase revenues in a market or in a state. So we also are hearing about other states like Georgia, Alabama, North Carolina have potential interest as well. But I would say that it's something that we're tracking very closely, but don't have a particular stronger insight on that as I speak to you today.

Great. And then just lastly for me, could you just review the relationship that you have with Rush Street Gaming? And can you remind us if you have access to their customer data to be able to target iGaming and OSB customers? And if so, how helpful that has been?

Sure. We're a supplier to the RSG Rush Street Gaming land-based casinos. There's four of them, one in Schenectady, one in Illinois, and two in Pennsylvania. We're the supplier of retail sportsbook services and help support the operational support of their sportsbooks. We also supply them with a social gaming product. And when it comes to the online gaming, we operate and run the sites on their behalf in the way that we've described previously. When it comes to databases, yes, we are able to leverage it in collaboration with those properties, and that certainly helps to ensure that we have the omni-channel strategy working well. And we've seen a lot of success in being able to really approach online gaming from the understanding of a land-based casino. We were able to drive traffic from land-based properties online, but also reciprocate that, be able to bring the online players back to the land-based property, which starts to bring greater loyalty to the brand, both online and in retail environments.

Great. Thank you. I appreciate you taking the questions.

Appreciate it. Thank you, sir.

You're welcome. Thank you, Mr. McTiernan. The next question comes from the line of David Katz with Jeffrey. You may go, please.

Hi. Afternoon, everyone. Thanks for taking my questions. Congrats, everyone. I wanted to just talk about, you know, content capabilities and get your updated thoughts with respect to which of those as you go forward and how you think about, you know, developing and providing capabilities that you've developed yourselves versus, you know, B2B providers or tuck-ins, et cetera. And, you know, how do you think about whether to build, buy, or rent, I suppose, is the ultimate question.

Sure, that's a subject I'm really passionate about because I certainly understand the desire to always have world-class products. And what I've seen many times in the past in this industry is that you might buy something, but it may not be world-class. And so you're better off leveraging world-class products than owning something yourself that may be inferior in some ways to what's available. So that's always a challenge that we look at. And what I would tell you is that in our DNA as a company, we're unique in our space. Most of our competitors in our industry are really either marketing firms or IT companies that leverage third-party solutions. Our DNA is a gaming company. We know how to build experiences. We know how to manufacture fun. That's a challenging thing to do because you have to have your own technology stack like we do. An engineering team is very talented and actually know the insights of what to build and to execute it on the right way. And so that's something that we've done. We've built a couple of our own games in the past in the casino category in Blackjack, and they happen to be the strongest performing games that we've had in the New Jersey market that have been with us for years. We plan to do some additional development in the future. But what we really have as a core strategy is not to always feel like we have to create everything ourselves, but to take really high-quality, world-class products from our partners and add our own spin on top of it. Because we have the know-how and the resources and the technology in-house, we're able to take things that exist and build our own layer of innovation on top of them to create experiences that are unique, that a player playing those games on a different site won't have the same experience playing. So we want to continue to do that because that really differentiates the way we treat our players and experience they get when they play with us. So while we are looking for some tuck-in opportunities, I mean, all we will be evaluating ways to enhance content, we do continue to feel like the best resource effort is really on taking really high quality proven content and adding our own layer, middle layer of innovation on top of it that creates an experience that's unique to the players.

So if I may follow that up, because I think you sort of ended that right in the direction I was hoping to go, which is, you know, what's obviously happening around you very recently is, you know, some pretty big deals and acquisitions and big getting bigger. And, you know, is it always a content differentiation and an execution that's going to separate you or at some point, you know, does size matter? And how you're thinking about that, particularly in the past two weeks?

You know, if you look at the user experience, size matters more in product categories like poker or daily fantasy where you have a liquidity where the larger volume of players you have on a single site creates a lock-in effect that makes it harder to compete. In a market like casino and sports betting, which is the majority of the revenues being generated in the online U.S. markets, the player experience doesn't really get impacted whether you have five players on a site or five million players. So our focus is to continue to offer the best user experience. And at the end of the day, players are going to notice the way they're treated, the approach that you provide to them as an operator in terms of transparency and honesty, and the unique features you offer that other sites don't offer gives players a reason to stay with you. So I think that if we continue focusing on what we do really well, our products will continue to mature and improve. Our user experience will advance. And if we continue to have an award-winning customer service to make sure players feel like we care and that we're treating them with respect and in a high-quality way, we feel like we're going to continue to grow as we have been growing because of those qualities. So we don't think you have to buy your way to market share. Certainly, we are always looking at options and exploring every angle possible. But at the moment, we continue to feel like the best – course of action is to continue to do what we've done so far, which is to focus on the user experience and differentiating it.

Okay, thank you. Thank you, Mr. Kak. The next question is from the line of Ryan Fickdahl with Craig Halem.

Good afternoon, Richard. Congrats on the new role. Appreciate it.

Thanks, Ryan.

You mentioned four states that are profitable. Are you able to name which four those are?

Yeah, so this is Kyle. Thanks for the question, Ryan. I'm not going to go into it state by state. We did want to highlight that as an example of how when markets mature, we do get to profitability. So you could read into that a little bit about which markets we've been in a little bit longer. We did specifically talk about New Jersey a couple of months ago being profitable for the full year 2020, and that is one of those states. But I think I'll stop short of going state by state in talking about the profitability, but we thought it was instructive to make sure that you guys understand that we are getting profitable as markets mature, for sure, as new markets launch. And we've got no shortage of those coming up in the next couple of quarters here. There will be investments involved in launching those new markets, and that will outweigh the profitability we see in those more mature markets. But we're excited about that opportunity, no question around that.

Thanks, Kyle. And then one more for you. Just thinking about external marketing spend, I know you said increase back half. We're hearing some pretty aggressive plans from some of your competitors. Any way you can put any guideposts around that, either relative to the first half or percent of revenue or anything to help us out there?

Yeah, I'll try and give you a little bit without guiding specifically, and we see those competitors as well. And as we talked about, marketing spend decreased a little bit from the first quarter to the second quarter, which really is probably more reflective of a lighter sports calendar getting past the new market launch in Michigan. But we expect a pretty significant step up. and spend in Q3 and Q4 going into football season. And then also kind of depending on the timing of new markets that launch in the back half of the year that Richard highlighted on the call, you know, the timing of when those launch are going to impact whether that spends bigger in Q3 or Q4. But, you know, in any event, we've said, on the last few calls that we're willing to extend our payback metrics. We think we're seeing good returns from that spend. So the investments will be strong in the back half of the year.

Great. Then just great to see Connecticut licensed there. Any way you can quantify kind of your expectations for whether it's GGR between retail, online, as well as any general commentary on profitability potential for the state?

Yeah, it's probably too early to start talking about expectations for GGR and market share in the state. I think, you know, in terms of economics, it was a competitive process, as everyone knows, and we feel very proud that we were the ones selected in that very competitive process. But we feel good about the economics there. And, you know, I think it reflects just how big the opportunity is in the state of Connecticut, particularly with a limit of three operators and also in a state where we'll have 15 retail locations where we've had a lot of proven success. I'd say, you know, like... Many of our market access agreements, there's nuances around minimum guarantees, how those minimum guarantees or commitments ramp up, the credits you can take against taxes or partner revenue shares for things like marketing and promotions. And the terms of the agreement with Connecticut State Lottery haven't been disclosed. But you can imagine we entered this partnership with the plan for it to work well both for the state of Connecticut and for RSI. Okay.

Great. Thanks, guys. Good luck.

Thanks, Ryan.

Thank you, Mr. Sit-down. The next question is from the line of Chad Binion with Macquarie. You may proceed.

Hi. Good afternoon. Greg, Richard, Kyle, thanks for taking my question. Wanted to revisit your guidance. Can you just kind of help us think about, you know, how you're viewing seasonality of online casino? I know within the guidance you said that you're not expecting any new launches, and obviously some of the recent launches will contribute more in the back half of the year. But as the average person goes back to work, are you expecting any sequential declines in terms of, you know, art mop or just player behaviors? Thanks.

Sure. So there's obviously a few different things that will go into thinking about that guidance and that can cause it to vary from high end to low end. And, you know, one of those things would be hold percentage. And I'd point out that we had a little benefit from hold in Q2, not quite as much as we did in Q1, where we also had a little bit of benefit. On the seasonality, I think you're You're right that in casino, which is a larger portion of our revenue mix, we don't have as much seasonality like you do in online sports because of the calendar there. But we do have some modest seasonality, and we expect there probably to be some impact on that in Q3 in casino and then pick back up a little bit in Q4. And then, you know, as I said, on the sports side, seasonal impact is greater in Q3 until we get to Q4 heading into football season where we'll see that pick up again. So we're obviously pretty excited about the football season here in a few weeks, which will – potentially help the end of Q3. And then I guess the last thing, as you said, and just to remind everyone that we don't have included in our guidance any of these new state launches that will happen here in the coming months and quarters.

Great. Thanks. And then on slide 12 in your deck, you noted the strong player retention in the cohorts in terms of when people came into your system, which is pretty impressive. And you've talked about, you know, doing this with lower promotional credits. Are those older credits sticking around as you continue to, you know, reduce the promos? Could you shed a little light on that? Or is there a level where that needs to, you know,

set a foundation to retain those players thank you maybe just to clarify your question are you are you asking if promotions need to remain at higher levels with players that have been on the platform longer or does that uh the level of promotional activity dissipate over time Yes, please. Yeah, I think that's a fair point that you definitely see more promotional activity in the early stages of a market launching and also in the early stages of bringing customers on a platform. But, you know, as Richard talks about frequently, we have great retention because of great user experience and great customer service. So that promotional activity does not need to sustain at those levels as markets mature and as our players mature on the platform.

We're also very targeted where we feel we do a nice job of ensuring that once a player's been on a platform for a while, you're treating the players that are most valuable the right way and targeting them with the appropriate amount of bonusing. So you may not have to bonus all players at the same level like you might when they start with you.

Great. Thank you very much. Thanks for the questions.

Thank you, Mr. Bannon. The next question is from the line of Jed Kelly with Oppenheimer. You may proceed.

Hey, guys. This is actually Simon for Jed. And Richard, congrats on the new role. With the strong engagement you guys saw in the quarter, have you seen a larger mix of new online casino customers as the sports calendar softened? And then would you say that 2QRP was driven by higher online casino mix, or are you just gaining stronger wallet share because of all customers?

That's a good question. So I think you kind of hit it in the head. With seasonality and casino players being – Having a higher art now in a quarter like Q2 and probably the early parts of Q3, you're going to see a higher art now you're going to see lower lower mouths and you might see that trend the opposite direction as we head into football season. where the reactivation of players or new player engagement increases and mows increase more dramatically, and you might see the art mow reduce a bit. And I think in addition to the football season having an impact there. You can also see an impact from new market launches where you're going to see more new player attraction, bringing them online, likely higher growth in mows, and that will impact your art mow because you're doing more promotions, you're bringing those players onto the platform, you're starting to increase the retention over time. So hopefully that gives you a little context on the oven flow, and it is going to change over time. But I think you hit it on the head with Q2 in the way you were describing it.

Yeah, I guess what I'm trying to understand is are you bringing in like a lot more casino customers or are you seeing higher value customers across casino and sports betting?

Well, we actually noted in our comments that we did have sequential growth in both sportsbook and casino, so we're growing both verticals nicely. But I would say that one of the things in terms of absolute volumes, you are going to have some more of the newer markets are sportsbook only, so you do have some higher volume of sportsbook only players arriving, having said that, a market like Michigan, which is very large for us, does still have a more of a balanced item. So I think we're fairly balanced. I don't think it's extreme one way or the other. I think it's very market by market depending on the characteristics of what products are allowed.

That's great. Thank you. And then if I could just follow up on the CP partnership, should we think of that as a B2B2C revenue or should we think about that tucking in somewhere else or is that not disclosed?

No, it's not a B2B relationship. It's a B2C relationship where we, like other market access, we will be running the operation ourselves, obviously paying royalties and commitments to the state. As Kyle mentioned earlier, we're very excited about it because, as you noted, there's only one of three operators in the market. And in particular, it plays to our strength of having these 15 retail locations spread around the The state, really, most people living in Connecticut will be within a 30-minute drive from these retail sportsbooks. And we see that you can sign up a lot of players online from retail locations like that, which you've seen in markets like Pennsylvania. So we're excited about that potential, but we will be operating the site in close coordination with the Connecticut Lottery. It's a very efficient, very professional organization. run RFP process, and we were very proud that they really liked our responsible gaming approach, liked the quality of our product, the award-winning customer service, the uniqueness of our user experience, and all those things combined, I think, made it a very attractive proposition for both of us. All good stuff.

Thank you, guys.

Thank you, Mr. Cummings. The next question is from the line of Mike Hickey with Benchmark. You may proceed.

Hey, Greg, Richard, Kyle, Warren. Congrats on the quarter, guys. Nice to see that great guide, too. Two questions for me. I guess the first is on the competitive landscape when you look at sort of some of the innovation that's happening on the OSB side and how to looking at sort of media integration, streaming, in-game betting, social features. Now, obviously, then in that team marketplace. Now, I guess when you think about sort of the innovation there and the layering, how important is that to retention and ultimate share position and that follow-up?

Yeah, it's a great question. You know, innovation and differentiation is critical. I think some companies might be able to acquire traffic with a brand initially, and all brands are very valuable still. If you don't offer the right user experience, you're going to not sustain those players longer term, especially in a highly competitive market. So I think one of the keys is to know enough about the gambler mindset and study the psychology of players so you understand what to build, because you can build a lot of things and they won't work right. And so for us, it's, you know, yes, there's trendy things happening in the industry, and we certainly like to follow everything that's happening, but there's some areas where, you have to find a way to implement the features in a way that players really like. And so, for example, we really pioneered community in the online casino market, and we have a lot of ideas and thoughts and interest in how we're going to do something similar in the sportsbook industry online. So I think while you mentioned, you know, we also mentioned this call, we have some multiplayer tournaments that we've been building and developing, and that's another area of innovation that we're excited about. So I think it's important that you always spend time advancing the innovation, but making sure you do it in a thoughtful way with understanding of the audience, because a lot of things that a developer might think is a good idea really won't resonate with the players unless you really understand their psychology, and that's something that we have a large team here of folks that really have been in the industry a long time and really have a really good grasp over what works and what doesn't work, and a lot of the challenges are making sure you you avoid the things that don't work and make sure you invest in things that really are going to have a long-term impact on the company. So there's a couple of big things we're working on that we're excited about, and in the quarters ahead we'll be starting to release some of those features.

Nice. The second question, I think you kind of led into it, but obviously you're a real leader in the online casino side. I think you're probably sort of a casino first. Maybe that's not true anymore, but certainly that's where you started. When you look at what we're seeing, I guess, with the innovation on layers on the sportsbook side, do you expect that you'll have similar innovation on the online casino app over time as states expand, as some of the bigger sportsbooks look to get share in casino? Are there streaming opportunities? Are there media integration within the casino side? Or do you think that customer is just different, I guess? Maybe you don't need that. I guess that's the question. Thanks, guys.

Yeah, well, the sportsbook and casino categories are surprisingly different in how you build product, in our view. I mean, in the sportsbook, it's a transaction-based engine, and you have the ability to, you know, the actions on the field. So it's about having the speed and ability to deliver the little things to give players the insights into making better decisions and making sure that things move at a fast pace and that you offer the most fun experience possible. to bet on it. So bet and watch with the streaming is something we've invested quite a bit in, and we have one of the leading libraries of stream content, we think, in the market available today. And in our investor deck we posted this afternoon, you can see some information about some of the differentiated features we've been building on the sportsbook. And I think all those features together is really one of the reasons why recently the IOS and CryCheck study indicated that we had moved up from, I think it was number eight to number four in terms of the products out of 31 in the industry for online sportsbook. So a lot of us building things that really reduce friction. and enhanced trust with the player. When it comes to casino, you know, most companies have the same libraries of games as everybody else does. And a few companies might go out and buy a game studio. We certainly announced an exciting deal with Booms Entertainment earlier this week where we're going to have some exclusive games and some large quality library of games. And certainly that's helpful to have that. But at the end of the day, we think you have to manufacture fun in an online casino. You have to create ways to entertain players in unexpected ways that they haven't felt or experienced before. And that comes down to building your own game engines yourself. So you can offer something that's unique. There's nowhere else you can really go to go get this stuff off the shelf. It doesn't exist. What exists is a core base game. So if you want to build site-wide bonusing features that we've built with our real-time engines and things like that. You have to really build it yourself and know how to build it. So that's an area that we've focused on a lot in the past, and that's helped us, you know, propel ourselves to a leadership role in the online casino market. But we're continuing to invest in new ideas in that area, and like I said, we're excited to release some of these features in the quarters ahead. Awesome. Thanks, Dexter.

Thank you, Mr. Hackey. The next question is from the line of Stephen Grambling with Goldman Sachs. You may proceed.

Stephen Grambling Hi there. Thanks for taking the questions. I guess the first is a follow-up. So you were talking about, I think on exhibit or slide 12, you show kind of the yearly cohort. And it looks like the 2020 kind of peaked and came off in Q2. Is there anything unusual there to think through, or is there anything else that you can highlight in terms of why that kind of cohort looks a little bit different than the 2019 or 2016 to 18 cohort?

Yeah, I think the only thing I'd call out there is just the launch of Illinois in 2020 and the sports calendar impact on Illinois teams sports betting in Q2. So I think that'd be the one thing that I'd mentioned that probably impacts that a little bit differently.

Got it. And then maybe changing gears, how does the process in Connecticut and the outcome there inform how you think about New York and your strategy to try to win a bid there?

We don't think it really informed it very much because each state has a different decision-making process and there's different aspects being considered in what was the winning bid or winning RFP submission in the case of Connecticut. When it comes to New York, we obviously have submitted a response to a request for application by the New York Statement Commission, and we were excited by the opportunity to compete in that market. We haven't really planned to share much on the specifics of that bid on the basis that the New York Gaming Commission's procurement process is still ongoing, and we certainly are going to wait for a direction from them before we announce next steps there. But we certainly think that you being strong in the Northeast, though, we certainly think it's helpful.

Got it. And I know that you touched on this a little bit before, but I just want to make sure that I understand correctly that I guess, how do you generally think about quantifying what I've described as maybe like maintenance marketing for customers that you've already acquired but need to kind of keep engaged? Thanks.

Yeah, so, you know, we've seen that when you market to those players that are lapsed, you know, you have a really nice chance of reengaging. And we've seen over the last, couple quarters as we've ramped up marketing spend compared to where we were before we were a public company that you do get those benefits of reaching those players and maybe we're active with you at some point and for whatever reason sort of have stopped being an active player. You get a chance to reinvigorate that player, get them back to us. Certainly we feel very confident that the players have a positive experience with us, but for whatever reason they've decided to no longer remain active. So certainly as you increase your marketing spend as we've been doing, you do have an opportunity to re-engage players that perhaps have taken a break from using your site for whatever reason and have a chance to re-engage them. So we think that's one of the benefits of increased marketing spend that we're seeing is that it does give us a chance to reconnect with players that had a maybe positive experience with us at some point and for whatever reason have stopped playing with us and now we have a chance to regain their loyalty. Great. Thanks so much.

Thank you, Mr. Gramblin. There are no additional questions at this time. I would like to pass the microphone back to Richard George Floyd, CEO, for any additional remarks.

Well, thank you for all the great questions. I'm excited to be taking the CEO role at this incredibly exciting time for West Street Interactive. At no time in my history at RSI have I been more excited about how we are positioned to succeed in this rapidly evolving, growing market. We have proven that we are a market access partner of choice and expect to continue to add to a list of locations where we've already found market access partners. We have a proven operating model with fantastic player experience and retention, strong marketing returns, and ultimately profitability that is proving out in maturing markets. Lastly, as a few questions here raised today indicated, we are innovators. We are continuing to create experiences for players that keep coming back to our platform for the engaging and world-class experience we offer. We have proprietary technology that accelerates the development of exciting new features, while at the same time allowing speed of market and strong integrations with world-class partners. Thank you again for joining us today. It was a pleasure speaking to you. We look forward to doing so again soon.

Thank you for joining today's RSI second quarter 2021 conference call. You may now disconnect your lines and have a lovely day.