Rush Street Interactive, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the RSI Third 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, November 10th, 2021. I will now turn the call over to Lauren Seiler, Associate Vice President of Investor Relations and Development.

Thank you, Operator, and good afternoon. By now, everyone should have access to our third quarter 2021 earnings release. It can be found under the heading Financials Quarterly Results in the Investors section of the RSI website at russiainteractive.com. Some of our comments will be forward-looking statements within the meeting of the Federal Security Blog. 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 and relying upon them. We refer you to our FCC filings for a more detailed discussion of the risks that could impact our future operating results and financial conditions. During the call, we will discuss our non-GAAP measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measure is available in our third quarter 2021 earnings release, which is available on the Investors section of the RSI website at www.rushstreetinteractive.com. With me on the call today, we have our CEO, Richard Schwartz, and our CFO, Kyle Sowers. We will first provide some opening remarks and then open the call to questions. With that, I'll turn the call over to Richard.

Thanks, Lauren. Good afternoon, everyone. Thanks for joining the call. I have several 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. This quarter represents the ninth quarter in a row of sequential revenue growth for RSI. Next, I'll give an update on our market access initiative and some exciting recent developments on new market opportunities. Then I'll talk about our operational and marketing excellence. And finally, I'll walk through product and technology rollouts that are helping drive our differentiated user experience. before handing it over to Kyle to dive deeper into our financials. Once again, our team delivered another solid quarter of year-over-year growth, as well as sequential revenue growth, demonstrating our continued ability to grow top line while strategically investing in marketing and technology areas that we expect will drive meaningful revenue growth and long-term value. Revenue was $123 million during the quarter, representing a year-over-year increase of 57%, which included revenue growth in all of our online casino and online sports market. With this continued success and growth in our business, we are once again raising our guidance. We now expect our 2021 full-year revenue to be between $480 million and $500 million, implying 76% yearly year top-line growth at the midpoints. This is up from the previous estimated revenue growth of 72% at the midpoint of a prior guidance range. Kyle will provide some additional details in his remarks. Before I get into recent launches, I want to first address the news that I'm sure many of you saw earlier this week. We are thrilled to have been selected to operate our award-winning online sports betting platform in the state of New York. RSI has a strong track record of success in New York, overseeing the operations of the Bett River Sportsbook in Schenectady, New York. But New York isn't the only exciting new market to discuss. Subsequent to quarter end, on October 12th, we announced the soft launch of the Play Sugarhouse online sportsbook in Connecticut. The full launch occurred on schedule on October 19th, and since then, we've been delighted to bring our award-winning product to the players of Connecticut as the exclusive sports partner of the Connecticut Lottery. We have subsequently launched four retail sportsbooks wagering locations in the state of Connecticut, in New Haven, Stanford, and Windsor, all of which we opened over two weeks ago. And most recently, yesterday, we opened our fourth book in New Britain. We expect another six locations to be open over the coming weeks. During the third quarter, we also announced our partnership with the Arizona Rattlers, as their partner for online sports betting in the state of Arizona. And we were eager to launch Brett Rivers in that state during October. We now operate Real Money Gaming in 13 jurisdictions, five of which have online casino, 11 that have online sports betting, and six with retail sports betting. We also announced that we've entered the Canadian market with the launch of our social gaming platform, Casino for Fun, in the province of Ontario. The free-to-play online casino and sportsbook is available now on all devices through the BetRivers platform. As we have shared before, we've had great success in markets like Pennsylvania and Michigan with converting pre-launch social players into real money bettors. In fact, in Michigan, more than 20% of our pre-launch social players have opened a real money account and made first deposits. We are hoping for similar results in Ontario, as we expect to launch real money online casino and sports betting in the coming months. We are really enthusiastic about the opportunity in Ontario, given the size of the market and the ability for us to offer both online casino and sports in the jurisdiction. I can now shift and talk about market access. While we have continued to make strong progress in launching several new states over the past year, we have also made significant strides in our new market access initiatives, We are now live with online sportsbook in states representing 24% of the U.S. population and live with online casino in states representing 10% of the population. The anticipated upcoming launches in Louisiana, Maryland, and New York will increase our sportsbook population by 9%, up to 33%. And our entry into Ontario will increase our addressable population of online casino players by over 40%. Our business development team is working to secure access in future markets. But we are excited to have put ourselves in a strong position already with market access plans in 21 online sports betting markets and 19 online casino markets. I now want to turn to some specific highlights from the quarter and exciting trends we are seeing. Connecticut is off to a strong start. While it's so early, we've seen really solid progress thus far. Over the last two weeks, in terms of the handle, Connecticut is already our third largest online sportsbook-only market. In Illinois, we continue to hold share very well, September data that came out earlier this week showed us with our largest share of close revenue in the last seven months, a great testament to user experience we provide and our ability to retain high quality players. In Michigan, we have held steady arc with our online casino market share and are looking forward to soon being able to offer our players an iOS app to remove friction and further improve the user experience. In West Virginia, We've continued to grow online casino shares since we entered the market back in April, and we are now approaching 10% market share. This is another market where launching iOS apps for the first time will be exciting for our players, and we expect to improve player satisfaction. Lastly, in Columbia during recent months, we are close to 20% market share of Handle for combined online casino and online sports, and we again grew revenue significantly. at greater than 100% year over year. This is a tremendous achievement given our entry into that market several years after it first opened. As I discussed earlier, there will be plenty of new markets to invest in over coming quarters, which will put us in investment mode for the time being. But we are proud of our ability to remain disciplined and calculated in the way we invest and ultimately generate substantial profitability for markets as they mature. Now I would like to switch gears to talk about some of our marketing initiatives, investments, and the results we have. To start, we recently signed two new brand ambassadors to Bett Rivers, tennis great and respected tennis TV analyst James Blake, and three-time Super Bowl champion and NFL broadcasting veteran Mark Schloreff. We are proud to have these two join our other ambassadors as we create new and exciting betting content for our players to enjoy. We're also excited to have launched several hyper local sports betting podcasts in major cities across the country via our CityCast programming, including in the cities of Chicago, Detroit, Pittsburgh, Philadelphia, New York, and Denver. Stay tuned for upcoming launches in many more cities in the future. This is an effective way to use local talent, talking about local hometown teams, to engage players and enhance loyalty, because we know many bettors prefer to bet on their local teams. We recently announced we've expanded our commitment to college football by signing an exclusive partnership for BetRivers.com with a field of 68 and a field of 12 media network. These shows, hosted by former college football and basketball stars, offer our players unique insights into betting and college sports. 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, performance of a diversified marketing channel, predictive lifetime values, and behaviors of customers across various product offerings. 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 year one and year three payback times and 5.6 times, respectively. Our marketing spend during the course of this year was 34% of our revenue. which we believe to be near industry lows, further demonstrating our ability to convert marketing investment dollars into top-line revenue. Given these strong results, we have accelerated our marketing investments and have extended the payback period slightly, but we'll only do so prudently and with an eye on long-term profitability. Now, turning to product and technology, as usual, it's been a very busy quarter from a technology and product development perspective here at RSI. as we continue to focus on providing a best-in-class user gaming experience. We recently launched our own dedicated and branded live casino studios for players in Pennsylvania and New Jersey, which concurrently provide blackjack tables exclusively for Vet Rivers and PlayStation Girls players to make it easier and faster for them to find a virtual seat at a popular online dealer table. Our focus on customer interaction and community responsiveness continue to set RSI apart from other casino platforms. We are also glad to have recently launched Rush Race, a proprietary multiplayer slot tournament for our casino customers. Rush Race is the first of many exciting experiences that are powered by Rush Arena, our innovative multiplayer tournament engine that will allow us to continue to stay ahead of industry and offer a differentiated product keep our players engaged and excited to play on our platform. We have also seen great interest in the Same Game Parlay feature we launched earlier this year. In fact, over 50% of our NFL bettors this year have made a Same Game Parlay wager. When it comes to Same Game Parlay functionality, we have a significant point of differentiation from our competitors. Unlike most of our peers, our players are able to combine multiple same-game parlays, or even a same-game parlay with another game outcome, or even bet on a different sport. This gives our players more ways to combine bets and create longer odds and bigger payouts. Mostly, it offers another product differentiation that creates loyalty and retention with our players. We're also very proud to be recognized by ours and CryCheck for improvements to our app, where our new Vet Rivers app is now ranked number three out of 35 brands tested. This is a strong for my respected and independent source as we continue to improve functionality and user experience of our app. As always, we pay close attention to the reception to our platform in new sportsbook and casino markets from first-time users when they experience our significantly upgraded app in conjunction with the new features and award-winning customer service. We are increasingly confident that we have built a market-leading Sportsbook app. We also remain on track to begin the rollout of our integrated Sportsbook and Casino iBus app during the fourth quarter. As previously shared, our tremendous success in Pennsylvania and Michigan, and recently in West Virginia, have all been achieved without an iOS app in those markets. We are really eager to see the benefit of enhanced player engagement through our iOS Casino app when we launch it in those markets. I also want to take a moment to congratulate all the employees of Rusty Interactive for being shortlisted for Casino Operator of the Year at the SVC Awards North America, as well as being nominated as the Social Operator of the Year in a prestigious recognition by online gaming peers. We are also very pleased to have won the Sports Victor of the Year at the 2021 SVC Latin American Awards just a couple of weeks ago. These awards, as voted by industry experts, are a testament to the efforts of the entire RSI team and a further recognition of our industry-leading player experience. With that, I'll turn the call over to Kyle.

Thanks, Richard. Before I dive into the numbers, there's one more very prestigious nomination RSI has been shortlisted for at the SPC Awards North America that Richard failed to mention. and that is Leader of the Year. A very special congrats to him, and this well deserves recognition of his hard work over the years in shaping RSI into the organization it is today, having taken the company from vision to fruition during time when many doubted whether online gaming would ever be a force in the U.S. Congrats to you, Richard. And now on to some financial data. As Richard mentioned, third quarter revenue was $122.9 million, an increase of 57% year over year. The adjusted EBITDA loss for the third quarter of 2021 was $12.2 million. Adjusted advertising and promotions expense was $45.4 million during the third quarter of 2021 compared to $17.5 million in the prior year quarter and $36.9 million during the second quarter of 2021. This reflects our commitment to accelerating 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 meaningfully in the fourth quarter. The football season has offered more opportunities to attract new players, and our recent launches in Connecticut, Arizona, and social in Ontario have also created an opportunity to further accelerate spend. Depending on launch timing of other markets, we could have further investments in the fourth quarter or heavier into the beginning of next year, as we think about markets like Louisiana, Maryland, real money in Ontario, in New York based on the exciting news earlier this week. Our adjusted G&A grew modestly from the second quarter to the third quarter, moving up to 8.8 million from 8 million in the second quarter. We expect this line item to continue to grow in the coming quarters as we continue to build out our development teams and corporate infrastructure to support the substantial growth we're experiencing and continuing to expect over the coming years. As a reminder, our adjusted EBITDA for the quarter removes the effects of share-based compensation, which was $4.5 million during the quarter, while our year-to-date results removed the effects of share-based compensation, a change in fair value of earn-out interest liability, and a change in fair value of outstanding warrants, which were all redeemed or expired during the first quarter. We continue to be in great position with $347 million in unrestricted cash on our balance sheet and no debt. This allows us to continue growing our marketing investments, launch in new markets quickly, evaluate potential bolt-on acquisitions, and remain opportunistic with regards to external investment opportunities. As Richard highlighted earlier, we are increasing our 2021 revenue guidance for the full year to be between $480 and $500 million, up from our prior range of $465 to $495 million. The revised range implies 76% year-over-year top-line growth This is up from the over-year revenue growth of 72% that we were expecting on our previous 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 new markets that are likely launching later this year or early next year, but as a reminder, our guidance only includes contributions from markets that are live as of today. And with that, operator, please open the lines for questions.

Certainly. We will now begin the question and answer session. If you would like to ask a question, please press star followed by 1 on your touchtone keypad. If for any reason you would like to remove that question, please press star followed by 2. 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 Chad Benun with Macquarie. You may proceed.

Hi, good afternoon. Thanks for taking my question. Congrats on the quarter. With respect to the fourth quarter guidance, can you elaborate a little bit in terms of what you've seen so far in October from iGaming competition, given some of the comments that we've heard from your peers, and given your approach towards disciplined promos, is this something that you're able to maintain given some potential irrational promos that we're seeing in the market? Thanks, guys.

Maybe I'll start on just the guidance and how we thought about the fourth quarter. And then I'll let Richard maybe talk a little bit about just the competitive environment and promos and the way we approach that. So as we talked about, we raised the guidance by $10 million at the midpoint. Pretty pleased that we're demonstrating the ability to set expectations and meet or beat them each time. A lot of different considerations obviously go into our range. More of the variability is on the sports side since the consistency of handle and volume is a little bit higher on the online casino business, which is a bigger part of our revenue. On the sports side, calendar looks a little different than last year. We're obviously excited about all the sports that are happening and lined up to happen in the fourth quarter here. Probably not unlike what you've heard from others. October had a tough start with COVID. Some low football hold for the first few weeks. It's gotten a little better over the last couple weeks We've got two new state launches in Connecticut and Arizona that we're very excited about as you know And there's an investment early in market launches and promotions really before any real revenue starts to be generated so that probably a significant factor in either direction on the fourth quarter and But having said all that, we're obviously excited to expect to have our 10th consecutive quarter of sequential revenue growth again here in the fourth quarter.

Hey, Chad, in terms of the – yeah, go ahead, Chad.

Oh, go ahead, Richard. I'm sorry I interrupted.

I was just referencing the second half about the competitive nature of the market. I just thought I would just comment on that. The market remains very competitive as new entrants come into the markets and existing – competitors increased their spend and aggressiveness. And so that we continue to perform well and we invested for years in developing all the elements of an experience that matter. So when it comes to your operations, your acquisition of players, your retention, Those are things you can't just create overnight or in a couple months. That takes years of development and expertise to build out. So we're very comfortable that we're prepared to compete, and we're seeing that we're continuing to have great results. And we think despite the competition, we operate with a very rational environment. We operate in a way that we believe is long-term, focused on efficient, flexible marketing, and I think we're seeing the results are still available for us because of the investment we've made in the past.

Great. Thank you. And then my follow-up, just in terms of the iOS app launches, do you believe that this will be incremental to the current desktop business? Are you expecting customers to kind of use both, maybe use mobile for some more snacking and then desktop for kind of longer sessions? Just trying to think about the building blocks of of your ARP DAO, and I guess this is mainly for 22 after the launches. Thank you.

Sure. We know mobile is king, and having a first-rated app is helping us in the sports market, and we know it's going to have only upside to provide to us in the casino market. The thing with the current setup is that players are able to play on their iOS devices, and they really – not a very clear and seamless way. And so by reducing friction from the user experience, you're going to deliver for them a much better experience. And when you're betting on things like sports and, you know, you want to be able to enter the app and do a very quick face ID, get in their play, have it available on your phone very easily and accessible, have geolocation integrated into the app instead of where we have it today in those markets. be able to communicate with messaging directly to the players whenever you have an update or a bonus or promotional offer. So there's lots of benefits that bringing the iOS app to those markets is going to bring. But I will tell you that the number one thing is that it's the only part of our user experience in a limited market where we have some friction that we're very eager to get rid of.

Thank you very much. Appreciate it. Thanks, Chad.

Thank you, Mr. Bainermans. The next question comes from the line of David Katz with Jefferies. You may proceed. Hi.

Afternoon, everyone. Thanks for taking my questions. I will admit I was a minute or two late, but I would love to just discuss the New York opportunity. You know, obviously the size and scale of the market in view of the tax rate involved and, you know, how you're thinking about that financially and strategically.

Yeah, so maybe I'll start on the financial side, and if Richard wants to add anything, he can do that. But, yeah, I mean, certainly we prefer a lower tax rate, but we're definitely confident in our ability to generate profits in New York. We think it's a market where competitors likely will be less aggressive with both marketing and promotions, certainly over the longer term. And I think, you know, just given our success that we've proven time and again with keeping marketing low and making efficient use of bonusing and promotions, it seems like New York will play very well to our strengths as an efficient operator.

Okay. And if I can just follow up on, you know, Illinois, right, the – The in-person registration is canceling next year, as I understand it. If you could just give us a couple of updated thoughts about, you know, how you maneuver in that context as well, that would be helpful.

Sure. You know, we've seen the in-person registration go back and forth a few times now. But what we have seen is that our market share has largely stayed consistent. And, in fact, just yesterday – The announcements came out, the revenues came out, and we were the highest number we've been at in seven months. So, clearly, what's exciting about the market now is because you've had sort of the influx of new players slow down, you've been able to really see who operates well. And in that market, you've seen that we've been able to deliver really strong growth and market share, even enhancements a little bit, especially most recently. So, when it comes to switching back off, probably in March or April, it appears, or March, I We're very prepared for it. Our product's a lot better than it was before, and we clearly have some strong marketing partnerships in place, including with Chicago Bears, and we feel that we've been able to earn and retain the player trust in this market we're playing with our product. So we're pretty excited to get to the chance to be able to open up the opportunity to increase the new player flow and be able to demonstrate to the players why we've been able to be so successful in our state with our products.

Perfect. Thank you very much.

Thank you, Mr. Katz. The next question is from the line of Ryan Siddall with Craig Halem. You may proceed.

Good afternoon. Congrats, Richard, on the nomination as well as all the other company nominations. I want to start with average revenue per monthly active user. It was up about 1% sequentially, but you have the benefit of the NFL season starting in September. I guess, was the NFL incremental to Arp Maul? And secondly, I guess, does that imply, you know, what does that imply for Q4?

Yeah, so it's a good question. And we talked a little bit about this on the last call, I think. But we actually expected our mile growth to be a little slower in Q3 due to the sports seasonality and the sports calendar that spread across Q3 last year. So that's on the miles. The fact is we saw a pretty meaningful increase in users in September at the start of the football season, and that's continued, again, nicely into Q4 in October and November. So I'd expect the miles to move up. Pretty nice in Q4. And then adjusting for any sports seasonality, we'd expect the miles to continue to grow meaningfully over time and really be the larger source of revenue growth. But to your art mile question, it's going to fluctuate a little more based on the mix of casino and sports and the launch of new markets. And to your point, it actually – it probably didn't impact Art Mao a ton in Q3 because it was only – the NFL, because it was only part of the quarter. It will probably pull it down more likely in Q4 because we'll have an influx of players who are lower Art Mao than our casino players. And then add to that the fact that we'll have a bunch of new players in Arizona and Connecticut – that will be incremental to the mouse, but won't be generating as much revenue in those new markets because of promotions.

Helpful. Thanks, Kyle. On Ontario, you launched Casino for Fun a few weeks ago. Any early user metrics you can share there?

Yeah, there really aren't any metrics that we're sharing, but I think the key to that market opportunity is to build our brand. and build those databases early. We're learning a lot about the market, making sure the registration flows are right, and making sure we're getting everything ready for the time when the market opens, because obviously we've shared before, we expect that to be one of our largest markets for next year.

How does the brand, I guess building the brand using Casino for Fun relative to your other real money brands, how does that resonate with customers and consumers?

So we're actually using the Bett Rivers brand in that market. So the platform is referred to as Casino for Fun platform, but it's actually the Bett Rivers brand being utilized in that market. So since the intent is to use that brand in Ontario, we then are investing right now in building out the brand that we're going to use so there is a nice awareness in the community and the consumers in that market to the brand at a time before others are really investing the same type of dollars in that brand awareness.

That makes sense. One more on the social casino. Revenues plateaued the last three quarters here. Can you remind me what states you guys are live in there? And then also as you convert those to real money, which I think you said 20% if I caught that right, do they keep playing on both or is that effectively good churn there? Thanks.

Right. So we're not really investing dollars in building out a social platform other than using it as a real money acquisition opportunity, as we described we're doing in Ontario right now. We did previously in Michigan and before that in Pennsylvania. You heard that data point right about the 20%. Certainly that's an exciting number. I think historically people would expect it to be under 5%. So the fact that we're generating that kind of conversion rate, I think, is a real validation of the strategy that works well for us. Having said that, there are some players that are switching between back and forth between the two. We've heard quite a few players when they feel like they want to be responsible with their budgets or they feel like they're spending their budget, entertainment budget, they basically switch to the free play model to engage with the product and experience at a more entertainment level without any risk. So we do see that players do go back and forth between the two of them, but we do know that generally the direction is to convert those players from social to real money when those markets are legal.

Great. I'll turn it over to the others. Thanks, guys. Good luck.

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

Hey, great. Thanks for taking my question. Just back on the Illinois numbers, you mentioned your GGR was the highest it's been in seven quarters. Can you talk about the impact the same game parlay had on that performance?

Sure. This has been pretty meaningful, although I would say the overall app experience improvement is probably even a larger driver. Why I say that is that we've gone through before all the improvements we made in the app, and there's just a tremendous amount of improvements where the product is getting better and better. But having said that, single game parlay is a valuable tool. As we indicated, over half of our players are better this football season have used it. We have some differentiation in that product that we're really excited about. Also, traditionally, most single-game parlay products in the competition really are limited to one game, and you can't really parlay those against other bets from other games. So if you want to bet on a Brady and the Bucs, you bet the Bucs to beat the spread and Brady to throw over 300 yards, that would be the extent of your single-game parlay. We allow those players to not only bet that parlay, but if they want to, They can combine that with a Green Bay Packers to beat the spread and – Rogers. He's got COVID. It's okay. He's a Cal Berkeley person, same place I went, of course. Rogers can go 300 yards as well. They're not playing this.

Right.

So we can combine single game parlays and one parlay for single game parlay against any other bet from any other sport. So that nimbleness and the fact that we're also opening up for college football single game parlays, which is really exciting. A lot of fans like to bet on their their favorite teams to win and beat the spread and maybe player props. We've been adding quite a few more of those to the offering. So it has been meaningful. It does even the playing field. And as I just said, the competition not only evens the playing field, but actually in some cases has accelerated our ability to differentiate in that critical area.

And adding the extra game to single game parlay, is that being done through your own technology or partnering with Canby? I mean, how are you powering that?

Right. So we are leveraging the Canby Spedding Engine for that. And one thing that we noticed was a big benefit is that some companies are outsourcing the Zoom Game Parlay from individual companies to help sort of supplement their existing core offering. But when you do that, you're really limited in your ability to cross-sell and do multiple parlays because you have the parlays coming from different sources. If you have two different platforms providing you a source, They're not organic. You can't really settle the bets as quickly, and you can't also allow you to do what we're doing, which is to sort of have multiple bets and extend the odds of the betting for the players. So it is driven in large part by Canby, but the way we've integrated it and the way we've unified the system, it makes it so it's really seamless for the user experience.

Got it. And then just two more. You sort of see the success that Michigan's having with iGaming recently. The numbers are phenomenal. I mean, where are we with neighboring states such as Indiana and Illinois potentially legalizing iGaming? And then back to New York. I mean, is there any way you can leverage your Schenectady property when you enter that market? Thank you.

Sure. So... iCasino is an exciting category, as you know. We're seeing a lot of the opportunities you mentioned in the Midwest, which is convenient for us given our location and And, you know, Illinois and Indiana are two markets that come to the top of our minds in terms of future markets that we think are showing some evidence of bills being dropped. And just last year, there were bills dropped in Indiana and Missouri as well and Illinois. We've seen some opportunity, I think, for those markets to move. So clearly the revenue success of the casino category vis-a-vis the sports betting category is giving the states extra fodder to really decide to move forward in that direction. So we're continuing to monitor these markets and lobby where we can to help encourage an accelerated rate. The nice thing about this is for the first time really in years, Our competitors are really all reaching out to each other, trying to focus on getting this category moving and legalized and regulated. So there's a lot of positive momentum. I think it's just a matter of time before a few additional markets start to open up. But in the meanwhile, we're very excited that Ontario, which will be the largest population of any online casino market in the U.S., if it was a state, is going to be opening up for us in the near future. So we're excited to have another casino market on the horizon. When it comes to New York, yeah, when it comes to New York, Yeah, we are working with the property on the opportunity to leverage some of the player base, as we've shared publicly. Of all the four commercial casinos in the state, that property has done the best in terms of commercial sportsbook revenues from the retail side, and that's not necessarily a given that it should perform that well because it's not the largest land-based commercial casino in the state by revenues. So it has a nice database, and there's plans to work with them to market our brand online in that state as well. Thank you.

Thank you, Mr. Kelly. The next question comes from the line of Bernie McTiernan with Needham & Co.

Great. Thanks for taking the question. Richard, just given the movement in the stock, can you just remind us of your M&A framework, any holes that you want or need to fill that you could maybe take advantage of given your equity is now worth more?

Sure. So we have really what we need to be successful long-term in this market. What we need is the market access, which we've shown we have that in all the markets that matter. Have your own in-house technology to drive the results that we're seeing. Strength in casino category, which is something that a lot of companies don't have the same quality of product that we do. And then just the scale that we have to really be able to do some investments and be able to justify some of the larger opportunities ahead of us. You know, things that we've mentioned that we continue to want to look for is diversification of our product portfolio, find ways to bring in some other product categories. There's some opportunities there, we think, potentially, that we're always looking at. The future, I think, we're brought up in a lot of discussions all the time because we have these great assets that are valuable, but they're valuable for us to be able to utilize to grow the business and industry. So we're always open-minded to explore all options, including companies that we may look at to help improve our opportunity, whether it's with brands or databases or product verticals would be the three categories that I think are of greatest interest to us.

Got it. And then for Kyle, comments on the heavy marketing investment in 4Q. Just wanted to see if you could provide any color on if you expect the EBITDA loss to be wider in 4Q relative to 3Q.

Yeah, thanks. So, as you point out, I mentioned in the prepared remarks, we do expect that the marketing expense is going to move up pretty meaningfully in Q4 from Q3. I would expect that given our guidance range and given the expectations currently for how some of these new states might launch and how we're spending in Connecticut and Arizona, that the increase in marketing spend in Q4 would outpace the margin benefit that we get from the sequential increase in revenue. So that probably means we're losing more in the fourth quarter than we are in the third quarter. You know, in the – just thinking more about the increase in spend, and I commented on some of it, but you've got the Q4 sports calendar, so a little heavier marketing related to football, trying to track new players in all the states that we're in. The Connecticut and Arizona launches, and that's always an investment when you launch in new states. And then really the other upcoming launches that we've talked about on the call, it's really going to depend on the ultimate timing of those when the states and the regulators are ready. So that'll impact how much we actually spend in Q4 or even into Q1 of next year. I would expect both Q4 and Q1 to be bigger than Q3. But to your specific point, I'd expect that the spend is bigger in Q4 on marketing and that is bigger such that the loss would be bigger in Q4 than it was in Q3.

Got it. Thanks for taking questions.

Thank you, Mr. McTernan. The next question comes from the line of Steven Grambling with Goldman Sachs. You may proceed.

Hey, thanks. Maybe that's a good place to jump to just any updated thoughts on the path to profitability and any kind of puts and takes to consider along that path.

Sure. So I'll take that one. I mean, the good news is we're already operating profitably in quite a few markets, and we've demonstrated an ability in the past to operate this business profitably. I think it's going to depend really largely on the pace and timing of rollout of new markets, sports and casino, and what the competitive situation looks like in those markets. And obviously, there's a lot of commentary around that, and we have We have competitors that are behaving in different ways in different markets, but it's definitely competitive at this point, both in terms of promotions that are offered and outright marketing dollars that are being put to work. We're operating in an environment that's aggressive, and we're really doing well. Revenue guidance has us getting near $500. or $200 million, $500 million this year at the top end of our guidance, which should make us the fourth largest operator in the market. So in the near term, I'd say we don't expect profitability here in the near term, but we're going to continue to invest in all the new markets that we've talked about today. Hopefully we're going to see a bunch more that get approved over the next year or coming years, and we'll continue to have opportunities to invest. And while more markets mature, and eventually we'll have less new approved states that are part of that mix, we're highly confident we're going to demonstrate strong profitability. But I think we'll wait until there's a little more clarity on when it will slow down or when we'll have less markets, new markets to focus on before we forecast a timing for profitability.

That makes sense. And then maybe changing gears, in the markets where you have iGaming and sports betting, any sense for what the split is, you know, in either revenues or users as we look at iGaming only versus sports only versus the overlap and how perhaps the path of customer acquisition may be evolving?

So we haven't broken out the split in states. We have shared in the past that overall our mix is has over several quarters, let's say. It's run between two-thirds and three-quarters casino, and we were near the higher end in Q3, but that's also probably reflective of the sports calendar, so I might expect that to shift a little bit towards sports in the fourth quarter. And the other thing we've pointed out is that in terms of revenue and value that's generated from our players, that a casino player is worth something like five times what a sports-only player is, and someone who's in both is even two times more value. So there's a lot of value to those states where we have both types of players. So it's one of the reasons we love markets like Ontario that will be going live here shortly, and we expect that to be a big contributor.

Makes sense. And then one last one just to clarify. I think you have this slide in the deck that shows different cohorts, I believe you referenced this last quarter, but I just want to make sure that I understand kind of what's going on there. The 2020 cohort looks like it still has been softening. So I guess what's driving that, and will that eventually reverse out?

Yeah, I think you and I talked about it on this call three months ago, and it's actually a good question and a fair one, and it's really mostly about Illinois. And there's two things – at play here that I'd point out. The first is that we had a head start in Illinois, as everyone knows, before some of our competition entered the market. So part of that is just sharing the market with others from part of the 2020 cohort of the acquired players there. So those were helping the chart back in 2020 and early 2021. The second piece, which should reverse itself to some extent, is more seasonal. So a lot of the acquired players in 2020 were from illinois and that's a sports only market so that means we'd expect to see a benefit from from that illinois 2020 cohort in the fourth quarter great thanks so much thank you thank you mr grambling

The next question is from the line of Dan Pulitzer with Wells Fargo. You may proceed.

Good afternoon, everyone, and thanks for taking my questions. So first, on just the promo stand, I want to drill in a little bit. You know, one of your competitors recently said, you know, there was a misalignment. between CACs and LTVs, and basically they're pulling back. I mean, as you've seen the level of competition and promotion certainly increase, you know, over the last few months, I mean, to what extent has your strategy pivoted or changed over this time period?

So we're still running at around six months payback, similar to since inception of the business. Over the last couple months of cohorts, we've seen an increasing little beyond that. So there is an additional competition edge, but we are seeing everything. that return on those players in a faster time period than what we hear others are announcing. So I think it comes down to having strong conversion rates and retention rates because if you get those conversion rates up, you're going to spend that money on marketing efficiently, get those players through the funnel and get them registering and making the first deposit. And, of course, once they're there, how you treat them and how well they like your experience you offer is going to get those retention numbers, which are going to drive up those LTVs. So I would just say that a lot of companies in the space are spending a lot of marketing and aggressiveness, but they don't have the product down to where it needs to be at, in our view, to be at the world-class level you need to be competitive here. And even if you get the product right, you have to get the service right as well. So I think it just comes down to the ability to execute at a world-class level on both the product and the service side to be able to deliver results. If you're missing one piece of the puzzle and you're not delivering that consistency across all interfaces with a customer, you do have a real risk of not getting back that invested capital and needing to take some more time to probably mature the product or the services to get to the point where you are going to get those returns.

Got it. Thanks, Richard. And then just this follow-up, you know, To what extent can you just give any color on Connecticut, any early signs, and maybe the competitive environment there, given it's effectively an oligopoly, and maybe how that is compared with other markets, such as Arizona that recently launched?

Right. So Connecticut's really exciting. It's a, as you know, only three operators have licenses, including us. I think what you'll see is, you know, FanDuel and DraftKings are two of the other competitors, and, you know, they have a large database starting out, and we expect them to jump off to a pretty strong lead in their positioning. But as we share on this call, we are very happy with the start in terms of our ability to already have the size that we have there being one of the, you know, after only being live for a few weeks, we're already, as we mentioned earlier, already at the top three site for us in terms of online sports-only markets. I think there's seven of those markets, so number three already after only a few weeks. It shows you we have scale there and opportunity to grow it. But I think what's really exciting about our market is over time we're going to be able to really grow that because players are going to try multiple sites and only have three. They're going to try our site. And I think they'll notice the difference in how we treat them when they try our site. On top of that, there's a great partnership with Sportec and the Connecticut Lottery with having these great retail locations that are opening up around the state. We actually mentioned yesterday there was a fourth retail sportsbook open and two more are actually opening tomorrow. So we'll have a total of seven sportsbooks opened by the end of this week on the retail side and three more coming soon after. So once those are open, we're going to work very closely with our partners there to drive traffic-based venues to the online site. And I think that's going to be a really useful strategy that will be successful based on seeing that strategy used in other markets. So we think it's going to be connected to the market where we may start off and just keep growing over time because we think that we have an opportunity to really put those assets to use in a way that will be really unique for us in that marketplace.

Got it. And then just one quick housekeeping item, and I apologize if I missed this, but did you get Columbia revenue for the quarter?

We did not give exact Columbia revenue. It'll be in our 10Q. It grew more than 100% compared to last year, but it's somewhere a little south of 10% of revenue. Got it. Thanks, everyone.

Thank you, Mr. Poults. The next question is from the line of Edward Engel with Ross Capital. You may proceed.

Hi, thank you for taking my question. I was wondering, has there been any interest in launching or in licensing or trying to make an agreement to license a third-party brand that might be more widely known among sports fans and then maybe use that for launching a complementary sportswear product?

So we have two great brands that we use in the United States, and they're both regional and national in nature. The Rivers is a little more national. The Sugarhouse brand is really regional. We've expanded it from New Jersey to Connecticut. And at the end of the day, we look at all options and consider everything. But what we're really excited about is we've proven that the local nature of our local marketing, local brands really resonates a lot with something that we are very comfortable with the current strategies working. As Kyle referenced earlier, we're number four in online gaming revenues in the country, spending a lot less than others are to get to that level. And we feel that as a company, we always have to evaluate all options available. But having said that, we're very comfortable and very excited by the ability to continue doing what we're doing.

Great. Thank you for that. And then just given some of the success that you've had with cross-selling the iGaming to some of your social gaming customers, I was just wondering, do you think there's any opportunity to make an acquisition on the social gaming side, which would maybe give you access to an even larger database to target with iGaming's products?

Yeah, that's definitely an interesting idea that we've definitely discussed internally. Certainly that's a worthwhile idea if you can find a product that appeals to a casino demographic. Certainly that's something that could be a nice fit with a company like ours, but you certainly have to look around for all the different options there. We have a really strong business development organization that evaluates those kinds of opportunities, and those are things that I think could be relevant in the future if you look to build databases, which is something that I mentioned earlier, something that we definitely would benefit from.

Great. Thank you.

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

Hey, Richard. Kyle, Lauren. Thanks for taking my questions. On Canada, just sort of curious how significant the gray market is there and how competitive the operators are?

Sure. That's a great question, and I think it comes down to, you know, really no one knows the answer for true, you know, no one really knows the answer on skill and size. What we do know is that most of the market historically there, the gray market, has really focused pretty heavily on the sportsbook side of things. So certainly I think there's going to be some players already in databases or platforms that may also be competing in the, quote, regulated market. On the casino side, though, one thing we're excited about is the ability to really promote the social casino product there to an audience that may not be as familiar with a casino brand as we're focusing on in the casino category, get players early exposure to the type of experience that we have. In a strange way, Michigan was the opposite, where Michigan had a very large retail database from several of the operators there. And right away you saw those players come online. The question will be how much of the gray market sites that are able to transition without any sort of delay. You've seen some European markets, you know, some of those European markets have delayed the ability to kind of launch a gray market site into a real regulated market here. There's going to be no delay. So I think it's going to be interesting to see how many of those brands are due cross-sell to the Sportsbook Real Money Marketing. But I think the advantage we have, as I said, is that the casino category really hasn't been one that's been heavily as promoted in that market in the past in the one year as much as Sportsbook. So for someone like us who obviously is very attracted to the casino opportunity there, we think that market will be exciting for us.

Nice. Thank you. Just to clarify, the existing operators – you would anticipate that they, in fact, would deprovincial licenses them as opposed to sort of staying under their, you know, their current construct? Is that sort of, or can they stay sort of, you know, in the gray market and continue to compete?

Well, it's kind of a hybrid. Our understanding is they will actually be able to convert from the gray market to a regulated legal market environment by applying for the same license that we will be applying for.

Okay. And then in New York, are you able to leverage the Rivers retail casino there in terms of, you know, the database or, you know, any other opportunities to sort of advantage in that market?

Yes, the plan is to do so.

Certainly. All right. Last question. You said 20% share in Columbia. You're a late, you sort of arrived on the seat late. You've had a lot of success. Does that sort of encourage you to look beyond Columbia and sort of the broader Latin America landscape, you know, for sort of expansionary growth? Thanks, guys.

Thanks. Yeah, it does really, it does give us extra confidence and validation that our strategy of going into that market and not giving it a short focus, not being short-term focus, but really building out the product, localizing it, localizing the teams, developing strong leadership teams, and really preparing ourselves for the next phase of expansion. We were correct when we anticipated years ago that that market would be one that would have a great opportunity for growth but also be a stepping stone for other markets in the region. Since then, you've seen Brazil's legalized sports betting. The regulations are still being worked on. But we're hearing some rumors that that may be nearing conclusion there, which would be a positive. Argentina has been legalizing. Mexico is legalizing. We're talking about large populations. And what's exciting is that the payment vendors, the banks we use, the location providers are the teams, the products, the language of the site, all the things that we invested so heavily in are going to work really well for those other markets. And so we think we have a real advantage to be able to take the success we've had in Columbia and export that or really leverage that to other markets in the region. So I would say that the answer is yes. That's an area of high interest for us, the region. And I think the strategy to go there early and really build a technology net market on our same platform that we're going to use for other markets was really helpful. A lot of companies now that kind of are coming into the market late are looking to buy local companies there. But then you have the local companies already on their own platforms. Different from the long-term global platform of the operator, the Asans coexists with two different platforms, which creates a lot of efficiencies. For us, we are confident that when we do go to other markets in that region, that obviously we'll be using the same platform that we use globally, which will create a lot of efficiencies for our development organization and making sure the marketing between all the different markets are all utilizing the same tools. So we're really excited for that region in the future, given the success we're having in Columbia.

Nice. All right. Thanks, guys. Best of luck. Thanks, Mike.

Thank you, Mr. Yickey. There are no additional questions waiting at this time. I would now like to turn the conference back over to Richard Schwartz for any closing remarks.

Great questions. In closing, I'd like to repeat what I shared last quarter. At no time in our history at RSI have I been more excited about how strongly we are positioned to succeed in this dynamic industry. We are strong, and we are growing stronger by the day. We'll continue to successfully gain market share across new markets, including very heavily contested ones like we just experienced in New York and Connecticut. We have ample growth opportunities ahead of us. For example, in the last six months, we entered two markets, Arizona and Connecticut, with a population of 11 million people. In the next six months, we're going to enter Ontario, New York, Maryland, Louisiana, which is about four times the population of 45 million people in these markets compared to 11 million in the last six months. So a lot of growth is ahead of us. We continue to demonstrate our ability to grow the top line while remaining flexible and prudent in how we invest in marketing. And when the rest of the industry begins to rationalize how they market and bonus players, we believe we will have a sustainable competitive advantage as nothing will change for us as we're already operating rationally today. This is why the best is ahead for RSI Thank you for joining RSI's third quarter 2021 call.

That concludes the Rush Street Interactive third quarter 2021 earnings call. I hope you all enjoy the rest of your day. You may now disconnect your lines.