Rush Street Interactive, Inc.

Good afternoon, thank you for attending today's Rush Street Interactive fourth quarter and year end 2021 earnings call. My name is Hannah and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad. I would now like to pass the conference over to our host, Lauren Siler with Rush Street Interactive. Please go ahead.

Thank you, Operator, and good afternoon. By now, everyone should have access to our fourth quarter and year-end 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 here 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 and relying on 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 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 measures are available in our fourth quarter and year-end 2021 earnings release, which is available on the investor relations section of the RSI website at www.rushstreetinteractive.com. With me on the call today, we have Richard Schwartz, our CEO, and Kyle Sowers, Chief Financial Officer. We will first provide some opening remarks, and then I'll turn the call over to questions. With that, I'll turn the call over to Richard.

Thanks, Lauren. Good afternoon, everyone, and welcome to the RSI fourth quarter and year-end earnings call. As we begin our second year as a public company, we are going to spend some time discussing our approach to profitability, priorities, reviewing our results, I'm looking forward to where we see RSI in 2022 and beyond. To begin with, I'd like to comment on the recent shift to investor sentiment and the focus on past profitability. We've been focused on building a sustainable, long-term business, with profitability as our central goal since founding RSI nearly 10 years ago. For those who have followed us through our public company life, to recognize our competency of purpose towards achieving profitability. In fact, we were adjusted EBITDA positive as recently as calendar year 2020. We have a track record of doing what we say we're going to do. We've gained market access in all key markets and consistently grown revenues quarter after quarter. We've delivered on our technology roadmap and consumer experiences. We've been transparent on where and when we plan to make marketing investments and why. We attract high-quality players and create player loyalty. As an increasing number of competitors reduce marketing and promotional spend, the cost for our side to attract players has diminished, and visibility for our marketing efforts has increased. We will continue to invest in new markets where we see opportunity, but only do so prudently with a clear line of sight to profitability. The founders that run this business own more than 50% of the company. They've built their careers being trusted stewards of capital for their investors and achieving long-term profits. We will continue to focus on strong returns here at RSI. In a few minutes, we will share some exciting data points about our profitability milestones. But first, I'd like to share some information on some of our most recent results. 2021 was an incredible year of growth and accomplishments for our company. We continue to position ourselves for long-term growth and success as we accomplish a lot. More specifically, during 2021, We grew our top line by 75% year over year and maintained our disciplined approach to investing marketing and promotional dollars into player acquisition. We launched online gaming in Michigan and West Virginia and online sports studying in Michigan, Virginia, Arizona, and Connecticut. We grew our monthly active users 67% compared to last year. while maintaining one of the leading monthly revenue per user rates of $346 per player. We've made significant improvements in our proprietary technology platform, particularly in our online gaming platform for sports study, where we've been recognized as having one of the leading apps in the industry. And we ended the year in a strong cash position with $281 million of cash on the balance sheet and no debt. leaving us well-funded to continue to invest in technology and products while supporting new market launches over the coming years. We ended 2021 with our 10th consecutive quarter of sequential revenue growth. We generated $131 million in revenue, up 31% over the prior year. Sequentially, from quarter three to quarter four, we grew revenue in every one of our markets. In addition, we grew sequentially in both casino and sportsbook, demonstrating our strength in both categories. As you may recall, over the last two quarters, we mentioned that with a number of new market launches that started in the fall, that we'd be in investment mode this quarter. And as we said, with the recent market launches, we increased our marketing investment in the quarter to $64 million, and our adjusted EBITDA loss for the quarter was $31 million. As most investors now know, there was extreme competition for marketing assets during the fourth quarter. We weren't immune to the impact, but we continue to be prudent with our marketing spending consistent with our focus on attracting high-quality customers. The good news is that we've seen some relief in quarter one in existing markets as there is less competition for marketing assets and our costs to acquire players have come down nicely in the last couple of months. While there's a lot of enthusiasm surrounding the recent launches of New York and Louisiana, we are also extremely excited about our expected entry into Ontario and Mexico in the second quarter, both of which include online casinos in addition to online sportsbooks. A combined population of these two new markets is around 145 million people, more than four times the number of people that have access to our casino product today in North America. We've demonstrated great success in markets with both casino and sports betting, and we expect to replicate that success in these new markets. While existing markets continue to mature, the newly launched markets of New York and Louisiana and the anticipated launch of Ontario and Mexico will keep us in investment mode for the next couple of quarters We will continue to be disciplined and dynamic with our marketing spend and look forward to the long-term returns in these new markets. As we've shared before, our strategy isn't simply to chase market share and the high volume of players. Instead, we focus on attracting quality players who will play and stay loyal to us for the right reasons. We offer a premium user experience to reduce player friction, and we target players who appreciate and respond to our product offering and customer service approach. We continue to expand the business by growing the top line while strategically investing in marketing and technology that we believe will drive meaningful revenue growth and long-term value. Heading into 2022, we are more convinced than ever that our consistent approach is the right one and will provide long-term value creation for our shareholders. We are introducing 2022 full-year revenue guidance of between $580 and $630 million, implying 24% year-over-year top-line growth at the midpoint. As a reminder, this guidance only covers existing markets for real life today. As I referenced earlier, investor attention has shifted recently to a strong focus on the path to profitability. For those that have followed us from the beginning, we know that profitability has always been a focus of ours, and that hasn't changed. While predicting an exact point at when we will report consistent, positive adjusted EBITDA would require greater certainty on the timing of new launches in new regulated markets, which always requires investment, there is content around our profitability that is useful to consider. We expect each of our markets that launched during or before the first half of 2021 to be profitable or near break-even for the fourth quarter of 2022? To be clear, when we think about profitability in a specific market, it includes all operating costs for that market. It includes allocation of all marketing costs incurred by the company and excludes our G&A costs. In addition, how do we not launch another market after Q2 of 2021? we would have expected to be adjusted to give it a positive as an entire business for the full year of 2022. There are a few takeaways from this that I think are important. First, we have a path to profitability in all markets where we are live. The pace at which we get there and the magnitude of profitability in each market is going to depend on whether it includes both casino and sports, our market share, the competitive intensity, and tax rate. Second is that even at a more modest market share than some others, we are able to achieve profitability of markets relatively quickly because of our prudence, promotional marketing spend, and strong player retention. Third is that over time, new market launches will become a smaller part of the total pie for us, and the impact of new market investments will be outweighed by the mature markets that are profitable. Next, I'd like to discuss market launches. We now operate real money gaming in 14 markets, five of which have online casino, 13 that have online sports betting, and six with retail sports betting. To put this in perspective and to further my comments about investments, at the end of 2020, we were alive in only six markets. Today, this makes us live with approximately 31% of the U.S. population for online sports and 10% for online casino. A great achievement, but a lot of opportunity remains ahead. In the U.S. state where we operate, in terms of GGR for the fourth quarter, we have 10.5% market share for online casino and 4.5% share for online sports betting. We are the clear number four in the United States, whether measured by GGR or reported revenue, with reported revenue being the better determinant of the ability to attract and retain players. Now I want to quickly recap our most recent market launches that I've been referencing thus far. We began the recent string of launches in mid-October with the launch of our online sportsbook in Connecticut in partnership with the Connecticut Lottery. The online launch in Connecticut was followed up by the opening of 9 and 15 retail sportsbooks in the state, also in partnership with the CLC as their exclusive retail sportsbook partner. A few weeks after Connecticut, we launched the Bett Rivers online sportsbook in Arizona. Then, early this year, we were among a small group of operators who launched day one in New York, and the same was true when we also went live day one in Louisiana later in January. I also want to touch briefly on how we look at early results and provide context from our vantage point as investors continue to evaluate and assess the state-provided numbers over the short term. To do this, I will use New York as an example. As many are aware, the overall market in terms of handle is off to a blistering start. As we expected, New York is on path to be among the largest of the online sports betting markets in the United States. That said, there's a large amount of promotional froth reflected in the early results from the state. And the early results are following the promotional spend. Similar to RSI's other state launches, we've been more measured with our promotional offerings and expect to earn market share over time as the high-quality customers we target enjoy the experience we bring to them. For example, in Connecticut, we've seen our handle share grow from 6% in the opening months and to 7%, 8% in December and almost 10% in January. In Arizona, where we started a little later than some and launched in October, our December handle is almost 80% greater than it was in November. New York is much newer, but as we all know, the bonusing has been significant. Although still relatively small, our handle share has grown each of the six weeks the market has been open, despite three more entrants coming in since initial launch. There is still a long ways to go in all these recently launched markets, but we're encouraged by the trends we are seeing to continue to believe the path to profits will be through the user experience, which is a combination of great product and operational excellence. Moving beyond the recent launches, we are thrilled that Ontario has been working hard on their framework and regulatory process, and have announced a targeted launch date of April 4th. Pending all the typical approvals, we plan to be ready to launch in Ontario with our Vet Rivers Casino and Sportsbook app. We've been focused on generating brand awareness in the province and building an early database of players through our social product and pre-registration. We've talked a lot about our success in Michigan with converting our pre-launch social players to real money players, and we believe we will have similar success in Ontario with people who want to be ready to join BetRivers when we go live. Ontario will look different than many of the U.S. states we have launched in since online gaming has been in the region for a while. But we are no strangers to entering a market later and building share over time. Columbia is a great example where we now have close to 20% market share of Handel. This past month, we announced another exciting international opportunity in Mexico. We have partnered with Mexican media conglomerate, Grupo Multimedios, for market access and to bring our online gaming platform to Mexico. Under the terms of the 25-year agreement, we will operate online casino and sports betting countrywide and be able to leverage Grupo Multimedios' vast array of media assets and distribution channels for promotional and content integration purposes. Our partners' portfolio of media assets encompasses television, radio, print, billboards, and digital, and includes Medio Tiempo, a digital sports property which attracts more than 7 million unique users per month and growing at a 29% compounded annual growth rate. Also, our partner owns Millennial, the number one digital national news information source in Mexico, with 27.7 million unique users per month. and its network of 22 television stations and 63 radio stations. Needless to say, we are very excited by this opportunity and anticipate launching our online casino and sports club during the second quarter of 2022. With regard to market access in the states with planned future launches, we are very pleased to have access partners lined up in both Ohio and Maryland, which we anticipate will be the next opportunities to go live in the United States. We are often asked about our thoughts about future jurisdictions for both online casino and sportsbook. While it is challenging to predict the legislative process and timeline of future states, we have been very pleased to obtain market assets wherever desired and remain committed to growing our presence in both online sportsbook and iCasino states as they regulate. Now I want to switch gears and talk about some of our marketing initiatives, investments, and the results we are seeing from them. To start, We recently signed several new brand ambassadors to Bett Rivers, including tennis great and respected tennis TV analyst James Blake, three-time Super Bowl champion and NFL broadcasting veteran Mark Soros, baseball legend Bobby Valentine, and Chicago television personality Brittany Payton, also daughter of former Chicago Bears great Walter Payton. In Canada, we have signed Dan O'Toole, a broadcasting legend north of the border. who has worked for Fox Sports in the United States. Together with Dan, we launched the Boondies podcast, which very quickly achieved the number one spot on all sports podcasts in Canada to the end of January and continues to be a top draw. We are very proud to have all of these ambassadors join our team as we create new and exciting betting content for our players to enjoy. We also announced an exciting multi-year exclusive partnership with La Liga, to be their exclusive wagering partner for our RushBed brand in Columbia. More recently, in conjunction with our launch in Louisiana, we also announced our new relationship as an official sportswear partner of the New Orleans Pelicans. As we previously stated, our ability to market effectively is critical to our success. We remain a data-driven organization using dynamic learning 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, and behaviors of customers across various product offerings. This efficiency dynamic approach shows through in our ability to attract and retain high-quality players. We grew our monthly active users during the year by 67%, and we grew monthly active users sequentially from Q3 to Q4 by 24%. All of this was done while maintaining what we believe to be an industry-leading art now of $327, despite entering two new online sports only markets in the fourth quarter. Just as exciting as the Q4 fiscal year 2021 trends are what we've been seeing so far in 2022, with monthly active users already up 27% from where we were in Q4. Our increased marketing investments during Q4 helped us to reach a wider sports audience during the most intense sports season of the year. and resulted in a temporary increase in CPA across our markets. However, the increased brand awareness that resulted from the increase in marketing investment is already bearing fruit in Q1 this year, where our CPAs have come down to significantly lower levels. Now turning to product and technology. First off, I'm pleased to let you know that as planned, we released the ILS app and PA Michigan, and West Virginia during the fourth quarter. We are seeing great reception to the product, and it's a huge improvement. It reduces friction at signup through geolocation and throughout the entire user experience. In fact, we are finding that new players using the iOS app are generating greater than 50% more handle for new iOS users that are not using the app. Also noteworthy is that we plan to have the iOS app available in both Ontario and Mexico, which will mark our first launches into casino markets with an iOS app available for all new players. In addition to a ton of improvements and functionality enhancements during recent months, I don't want to lose sight of how important it is that our technology team has built and continues to refine the world-class and robust products has allowed us to scale and launch in more markets in the last year than we had previously in the company's history. Congratulations to our continually growing technology team and all of their incredible work. I also want to update you on the success we've been seeing with our newly released multiplayer slot tournaments. As you recall from our last call, we have released this exciting new feature in Columbia and West Virginia And now we've added it to Michigan and soon Pennsylvania. To tell you how exciting this is for our players, the average number of sessions has gone up by almost 10% for those players engaged in tournaments. And those players who engage in slot tournaments spend greater than 30% more time per session at that resource. This is a double win. Players visit more often and they spend more time with us each time they visit. Now that we have mobile apps live in all of our U.S. markets, the next major milestone in our tech journey will be the release of a single app for the app stores across all states. This will improve our marketing efficiency and ensure a better user experience. We plan to have a single app released by the third quarter of this year. In an effort to diversify our business and enhance cross-selling opportunities, to both online casino and sportsbook over the long term. RSI recently acquired the technology platform and team of Run At Once Poker. We really were impressed by the management team, including the company's principal, Phil Galfond, who is one of the most respected poker players in the world. Our plan is to leverage the innovative poker mind from the Run At Once team, along with RSI's product team, is led by executives with many years of experience developing industry-leading and highly scalable poker platforms. Our goal is to improve upon the tremendous foundation and user experience the Run at Once team has created, and over time, integrate the poker vertical into our proven platform when the market is ready. The cost of the acquisition was $3.3 million in cash and $2.5 million in stock. There will be no near-term impact on our revenues, and it will add a modest amount to our ongoing G&A costs. Welcome to all of you at Run at One, and we're happy to have you join the RSI family. With that, I'll turn the call over to Kyle.