Rush Street Interactive, Inc.

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Rush Street Interactive Third Quarter 2022 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 has been recorded today, November 2, 2022. I will now turn the call over to your host, Lauren Seeler, Associate Vice President of Investor Relations and Development. You may proceed.

Thank you, operator, and good afternoon. By now, everyone should have access to our third quarter 2022 release. It can be found under the heading Financials Quarterly Results in the Investors section of the RFI website at restrateinteractive.com. Some of our comments will be forward-looking statements within the meaning 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. 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 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 measure is available in our third quarter 2022 earnings release and our investor deck, which is available in the investors section of the RSI website at www.rushstreetinteractive.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 third quarter earnings call. We are pleased with our results and remain focused on acquiring and retaining players at levels consistent with our plans to achieve profitability. We are accomplishing this by continuously advancing our proprietary platform and offering a world-class user experience. We made fantastic progress towards our profitability goal of being EBITDA positive for the back half of 2023 through a combination of solid revenue growth, disciplined marketing spend, improving gross margins, and modest growth in our corporate G&A costs. Revenue for the third quarter was up 20% year over year to $148 million. Two items to keep in mind as you evaluate our results. First, in online casino, our hold rate was lower than normal, and as a result, negatively impacted revenue during the quarter by an estimated $4 million. Second, given the macro environment, we experienced foreign exchange headwinds that impacted revenue in both Colombia and Canada. We estimate foreign currency movements negatively impacted our revenue by approximately $2 million during the quarter. Absent these two headwinds, our revenue would have been within the range expected by the streets. Looking at adjusted EBITDA, we posted negative $12.5 million, a considerable improvement compared to last quarter's negative $18.6 million. We remain profitable in the six markets of New Jersey, Pennsylvania, Michigan, Illinois, West Virginia, and Columbia. We also made significant progress in our nine sportsbook-only markets, with the aggregated loss from those markets being less than $5 million during the quarter, representing less than half of what we lost in those same markets during the second quarter. These sports-only markets benefit from the lessening impact of new market launch costs. Growing revenues as markets mature and lower marketing costs as a percentage of revenue. As for the remainder of the year, we are revising our revenue guidance range to between $580 and $600 million, which reflects the impact of the third quarter's lower-than-normal iCasino hold, foreign exchange headwinds from Q3 and anticipated for Q4, and the impact of our disciplined marketing spend in the third quarter. With that, I want to shift to market insights and provide some thoughts on a few of our markets. First, at a high level, we continue to see strong volumes in markets where we are live with both online casino and sports betting. It remains a simple fact about our business. The online casino vertical is significantly larger and more profitable than sports betting in the markets where we are operating both. This is why our business model, including our platform design, functionality, and our approach to marketing and operations is driven first and foremost by our deep understanding of digital casino customers. Across our online sports only markets, we grew total revenues year over year in our existing states. And also had a significant revenue contribution from the four states that launched after the third quarter last year. This is even considering our more measured marketing approach, where we work to attract high-quality customers and retain them with a world-class user experience, as opposed to incentivizing short-term behavior. Internationally, our efforts in Ontario are progressing very nicely. The fact that this is an online casino and sports betting market plays to our strengths. This was the first full quarter of being live, and we are pleased with our ramp and overall market share. To put some numbers around our success, in the almost two full quarters of operation in Ontario, our market share has been approximately 7% for iCasino and 2% for Online Sportsbook. Given the number of competitors in the market and the advantage some of our competitors began with, In terms of existing high brand awareness and access to online player databases, we are pleased with the success and hope to continue to build upon that in the quarters to come. Turning to Mexico, this was our first full quarter of operations there. We remain enthusiastic about the market opportunity. As previously shared, we are taking a very deliberate and measured approach. We remain focused on building a strong foundation that will provide stable long-term growth and profitability. We are continuing to work with and leverage our media partner to build brand awareness and further localize our platform and user experience. This is similar to how we started in Colombia. With this in mind, we expect to see a more significant contribution from Mexico beginning towards the back half of next year. That said, we are pleased with how it's going thus far. Looking ahead, Maryland is another exciting market where we are preparing to launch online sports betting whenever approved by the regulators. As a reminder, we just recently launched a retail location in the state with our partners at Bingo World, which is located in Baltimore right off the I-95 corridor with strong visibility. We are also excited about our planned early January launch in Ohio, especially given the demographics, sizable population, and adjacency to four other markets where we are already operating the Bat River Sportsbook. Due to the media overlap between the adjacent states where we already operate, we expect Ohio will improve our marketing efficiencies. Turning to marketing, our approach remains data-driven as we are investing in customers at what we believe to be viable levels. In other words, we look hard at what we spend and what we get. We won't target market share, Rather, we continue to focus on earning and retaining customer loyalty by treating them well, being thoughtful, developing seamless experiences, and reducing friction at every possible interaction point. Our marketing efficiency continues to improve, validated by our cost per player in Q3 being down by over 50% from the same quarter last year. Looking forward to Q4 as we head into the winter months we have allocated increased marketing spend to our casino markets. We have also increased marketing spend in New Jersey to support our rebranding of Bett Rivers in New Jersey since we had previously pulled back marketing spend there in anticipation of the rebrand. As new markets continue to launch, we will remain mindful of which markets to enter and a need to acquire players at a reasonable cost and focus on retention and customer service. We have built our platform and culture around this philosophy, and we believe it is paying off on our movement towards profitability. When it comes to product and innovation, we've made significant advances once again in this quarter. In addition to the efforts I've gone into localizing the player experience in Mexico, rebranding in New Jersey, and preparing for launches in Maryland and Ohio, we've added a lot of great new functionality to excite users and keep them returning to the platform. Heading into the football and basketball seasons, we have significantly expanded menu of betting options for our players. We have a single game parlay for basketball for the first time. We've made our parlay bets more attractive by expanding the number of legs that can be bet on. And we have a great selection of new player props, including for in-game betting markets. In addition, We've enhanced our staff's integrations with a widget that provides statistics integrated seamlessly within our betting views for all the major sports leagues. We have also developed internally a new patent-pending squares game that will launch later this football season that I'm particularly excited about. Even if you've never placed a sports bet in your life, you've probably participated in a squares pool game in conjunction with watching the Super Bowl. We talk all the time about how we find ways to delight players and give them unique ways to engage, win, and have fun with our platform. Players will be awarded squares based on their activities and bets and will win prizes when their numbers hit. Just like the incredible success we've had with online casino innovations, we are creating more ways for people to win and giving them more reasons to keep coming back to the platform. With that, I'll turn the call over to Kyle.