Rush Street Interactive, Inc.

Good day, ladies and gentlemen. Thank you for standing by and welcome to the Rush Street Interactive First Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow with a formal presentation. Please note that this conference call is being recorded today, May 4, 2022. 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 first quarter 2022 earnings release. It can be found under the heading financials, quarterly results, in the investors section of the RSI website at RussChuteInteractive.com. Some of our comments will be forward-looking statements within the meeting of the federal securities laws. Forward-looking statements are not statements of historical fact 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. Therefore, you should exercise caution in interpreting and relying upon them. We refer you to our SEC filings for more detailed discussion of the risks that could impact our future operating results and the 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 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 first quarter 2022 earnings release and our investor deck, which are available in the investor section of the RSI website at restreetinteractive.com. With me on the call today, we have Richard Schwartz, Chief Executive Officer, 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 Richard.

Thanks, Lauren. Good afternoon, everyone, and welcome to our first quarter earnings call. We are off to a great start in 2022 as we continue on the path towards building a sustainable and long-term profitable business. We continue to execute our strategy in a disciplined manner, balancing revenue growth with our prudent approach to generating sustainable long-term returns on the dollars we invest into customer acquisitions. Consistent with our goal to launch in new markets early, during the quarter, we launched our online Sportsbook app on the first possible day in both New York and Louisiana. In addition, across the portfolio, we continue to experience strong growth in customer acquisitions at reduced costs per customer. In fact, we acquired more than twice as many new US customers in Q1 as we did in Q4. and did so with a similar marketing investment. We have a solid history of attracting high quality players that produce meaningful revenues over time. So we are excited about this trend of adding more players at lower costs. As a result of our customer acquisition success and strong retention program, average monthly US active users grew 32% year over year. and 24% compared to the fourth quarter. In fact, we grew active users in every market during Q1 compared to Q4. In addition to our success in the US, outside of the US, shortly after quarter end on April 4th, we launched our online casino and online sportsbook app in Ontario on the first day possible and have been receiving a strong reception. We are now live in three countries and plan to launch soon in a fourth country, Mexico. First quarter results represent our 11th consecutive quarter of sequential growth. We posted $135 million in revenue, up 21% over the prior year. This growth came despite a headwind from New York, where as forecasted, we experienced negative revenue during the quarter. Naturally, negative revenue in one state reduces the collective positive revenue growth we generated in our other markets. We talk a lot about investments in new market launches. Accordingly, I think it's important to point out, excluding the impact of the New York launch during the first quarter, our adjusted EBITDA loss would have been just inside of $15 million. As we discussed in our last call, With an impressive run of successive market launches over the past seven months, plus the launch of Ontario and anticipated launch of Mexico, we've been making many investments in the long-term growth of our business. We are laser focused on adding and retaining customers in a disciplined manner, and we continue to allocate marketing capital with an eye towards generating appropriate long-term returns. With that goal in mind, we are still expecting to have all except our most recent market launches from the last couple of quarters, will reach profitability as measured by adjusted EBITDA by the end of 2022. To be clear, when we discuss market-level profitability, we define it as adjusted EBITDA before corporate G&A. In fact, we are excited to let you know that we already reached profitability for the first quarter of Michigan, after only our fourth full quarter of operations. demonstrating once again the value of online casino markets and our ability to ramp up in new markets while also achieving profitability quickly. A combination of improving profits in our now five profitable markets, our expectation that many newer markets will reach profitability by year-end, and lower amounts of new market investments relative to our rapidly growing base of existing business gives us confidence that RSI will be profitable for the second half of next year, 2023, on an adjusted basis. I expect to get there comfortably with our current cash position. Looking forward, with the Ontario launch on April 4th, we are increasing our 2022 full-year revenue guidance. At a high level, our revised revenue guidance implies 28% year-over-year top-line growth at the midpoint all in we currently operate real money gaming in 15 markets which includes six that have online casino 14 with online sports betting and six with retail sports betting this equates to us being live with approximately 31 of the u.s population for online sports but only 10 for online casino that means Even with all the growth that we've seen, there is still plenty of growth opportunity in front of us. In particular, the opportunity for continued growth in online casinos is tremendous, especially since we deliver a top-quality user experience with strong differentiation, have demonstrated larger profitability, and achieved it more quickly. Measured by handle in our live market, We estimate our overall market share in the US remains stable at around 10% for online casinos and just inside 5% for online sports betting. Yet, as a management team, we continue to view financial statement revenues as being the best indicator of the ability to attract and retain players. It is important to keep in mind when evaluating our performance that our strategy is centered on achieving profitability in markets relatively quickly. As such, on a relative basis, we are generally disciplined and prudent in initial promotion and marketing spend. We estimate the last year we bonused at 35% less than our largest competitors. We believe firmly that players will come to, and more importantly, stay with, the brands like ours that they enjoy and trust and to bonus them in a fair and consistent way. We don't believe loyalty is achieved by bonusing heavily for early action. and then pulling back on that bonusing down the road. Rather, we believe loyalty is achieved through the user experience and how we treat our customers. As a result, our strategy leads us to target new customers who we believe over the long term will place a greater value on experience rather than bonusing. Aside from targeting the right type of players, another key driver of player retention is a top notch customer service operation. This has been a focus of ours from the very beginning and one in which we continue to invest in from both an internal training and development perspective, as well as technologically in employing the tools needed to continuously measure satisfaction levels. Customers notice when we reduce friction for them, when we address their issues in a professional and timely fashion, and do the little things to delight and earn their trust. This is why we are very proud to have won the Customer Service of the Year Award at last week's eGaming Review Awards in North America, the gold standard for industry awards. In fact, this is the only online gaming award that we're aware of in North American market that focuses purely on the quality of customer service. RSI has now won it all three times it has been awarded in its history. We are very proud of this fact as we believe it reinforces our focus and dedication on engaging and retaining players, a differentiator for us that we see as a sustainable competitive advantage. After all, we have invested 10 years into our technology platform and product features aimed to reduce player friction, including automating many processes that we believe many of our peers still manage manually. In addition to our recognition for exemplary customer service, we were thrilled to have won the top award at the EGR North American Awards event last week for Operator of the Year in North America in 2022, as voted on by independent panel of industry experts. This award is a reflection of our growth, commercial success, operational excellence, innovation, product differentiation, and influence on the larger online gaming ecosystem. This is quite an achievement given the large number of competitors. We actually scored a hat trick at the event as we added a third award too. That award was for Social Casino Operator of the Year, a validation of the quality of our differentiated cross-platform free-to-play social gaming product that we've used over the years to acquire customers in pre-regulated markets. Of course, the awards of recognition by the industry is nice. However, more importantly, We think the recognition is reflective of our unmatched focus and effort on the hardest part of the business, retaining players. We measure our return on our investment by looking at financial statements' net revenue growth over time, rather than publish revenue reports by state regulators, which typically don't account for bonusing. To that end, I want to follow up on a couple of more significant recent launches to provide a sense of how we view these markets. I'll start with Connecticut, where we launched in October and have since opened nine of 15 retail sportsbooks in the state. During the first couple of months after launch, we were seeing 6% to 7% online AMBO share. In the last two months, we were running around 11%. Underlying these top line results, we continue to grow mouths in the state, which represent a balanced combination of growth and retention. Shifting to New York, the market is quickly becoming one of the largest online sportsbook states in the country. Though down from what we viewed as irrational during January and February, there still remains substantial promotional spend at a rate above what we've seen in other states. We touched on this last call, but I will repeat it again. We have taken a more measured approach on a relative basis though our spend is above what we have typically spent at other online sportsbook-only market states. However, even with a higher spend, our focus remained on targeting and attracting high-quality customers and retaining them by delivering a premier experience. In New York, we purposefully decided to focus on quality over quantity and not run with more aggressive sign-up offers like some of our peers. as we thought those offers would attract an opportunistic group of bonus shopping customers, who in many cases would not be long-term profitable customers. Similar to other markets, we expect to expand market share over time. During the first quarter, we saw this play out. Although still relatively small, since opening in January, we grew our New York handle share each month during quarter one. Next up is Ontario. On April 4th, we launched our online casino in Sportsbook in Ontario. It is still very early. However, we have seen a strong start over the first month. Obviously, Canada has a great market for many, many years. So many brands have existing strong awareness and large existing online gaming customer databases. Given that Ontario has offered licenses to those great market brands and operators, it is a highly competitive market from day one. That said, we are seeing a strong appetite for our regulated product, and we offer a very competitive and high-quality product that is resonating well with customers. We had a very seamless launch and strong start to building our brand and reputation in the market. We believe we have achieved our goal of establishing the Bett Rivers brand as one of the most trusted in the market, an attribute that we expect will help us grow in that market over the longer term. The most recent comparable market to Ontario in our view would be Michigan due to both markets offering both online casino and sportsbook. Interestingly, during the first 10 days in Ontario, we were running about 33% of the daily handle that we saw in the first 10 days in Michigan. But for the most recent 10 days, we are running closer to 50%. There are a couple of key differences that are worth pointing out. First, is that advertising content and promotions in Ontario are materially more restrictive than we've seen in other new markets. In large part, you aren't allowed to advertise any bonus offers or inducements for customers to sign up with your brand, meaning the initial rate of customer acquisition by regulated operators may be slower than in other markets. Second, is that with a well-established and long 10-year gray market, there isn't the same level of initial pent-up demand for online gaming at launch, as we've experienced in other markets. This means it's likely that it will take longer for this market to build, but the demand exists, especially for high-quality betting experiences like the ones we offer. Our strategy during the pre-launch period to generate brand awareness and excitement around our rivers has allowed us to get off to a quick start and establish ourselves as a premium option for customers. We are very familiar and comfortable with entering a market after others who have existing databases, and building shares steadily over time. And unlike what we saw in New York, we expect Ontario to contribute positive revenue from the beginning. Turning to marketing, we remain data-driven, applying a dynamic approach to acquiring, converting, retaining, and reengaging players. We are optimizing spend based on real-time data and insights around the specific jurisdictions in which we operate. marketing channel, predictive long-term values, and player behaviors to yield a return on investment focused model. This allows us to be nimble and reallocate spend to those channels that work most efficiently. The results we are seeing are what we would like to see. As I mentioned, we grew mouths from Q4 to Q1 by 24%. The approach is working as we are steadily attracting and retaining the types of high quality customers we seek. Given the four new online sports pick launches since last fall, which includes New York, an aggressive level of marketing investment in the state during Q1, ArtMail predictably came in a little lower sequentially at $265 for the quarter. A reminder as we look ahead in general, online casino ArtMail are higher compared to online sports pick ArtMail. In addition, in new states such as New York and Louisiana during Q1, It is not unusual for us to see negative art mail around a launch, which naturally depresses art mail in the shorter term. We also continue to see benefits from the convergence of content and gaming. In Q1, we laid the groundwork for our brand new Bett Rivers Network. With the network, our aim is to deliver unique voices in sports, lifestyle, and casino entertainment with exclusive content and podcasts. A key highlight during the first quarter was the signing of New York sports broadcasting legend Mike Francesa to an exclusive brand and content deal. He will provide network and social media content through hosting a twice-weekly podcast series, as well as hosting a series of digital videos that will appear on Vet Rivers and Play Sugar Owls' various platforms. Francesa will also be appearing at select sporting events throughout the year. where he will create special on-the-scene videos for fans. We also had our first major release of the Boomsies with Dan O'Toole podcast. Dan, a longtime Canadian television sports anchor for TSN's SportsCenter, has been featured in many of our Ontario ads. In fact, a launch of his podcast corresponded with our investment in Ontario in our Olympics campaign, which also featured Dan. During that time period, the podcast shot up to top of all podcasts in Canada on Apple Podcasts. We could not be happier with the quality and substance of both podcasts, and we see a bright future for both us. Listener response has been overwhelming. Between our major launches, we've also been building up our betting weekly studios, which focuses on niche sports and leagues and speaks more to the core better. All of these content efforts are geared towards brand building, satisfying a wide range of our core customers, giving our customers a chance to enjoy quality sports content or to get expert analysis for the sports they like to bet on. We look forward to giving our customers more quality programming and to innovate casino and sports content as we go, making our BetRivers and PlaySugarhouse brands not only reliable for their gaming needs, but also for branded content that they can enjoy listening to, watching, and engaging with outside of the app. We continue to invest in improving the quality of our online sportsbook and iGaming products. As an operator focused on the customer experience and continually reducing any friction, we see continual improvement in product and tech as a great source of consistent revenue growth. As we reviewed on our last call, we continue to see great reception to our recently launched iOS app in combined casino and sportsbook markets. This is reflected in the feedback we received directly from our users, and rapidly improving app store ratings are now more closely reflecting the positive experience we know our players experience betting with us. The constant stream of improvements we make to our user experience we know is both appreciated and noticeable to our players, and we will continue to focus on improving the user experience. As an example, in Michigan, our iOS app users are generating 50% more handle, but no supply on other devices. With that, I'll turn the call over to Kyle.