Rush Street Interactive, Inc.

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Rush Street Interactive Third Quarter 2023 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 1st, 2023. I'll now turn the call over to Kyle Sowers, Chief Financial Officer. Please go ahead.

Thank you, Operator, and good afternoon. By now, everyone should have access to our third quarter 2023 earnings release. It can be found under the heading Financials, Quarterly Results in the Investor section of the RSI website at RushStreetInteractive.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 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 condition. During the call, we will discuss our non-GAAP measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation, or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measure is available in our third quarter 2023 earnings release and our investor deck, which is available in the investor section of the RSI website at RushStreetInteractive.com. With me on the call today, we have Richard Schwartz, Chief Executive 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, Kyle. Good afternoon and thank you for joining us today as we discuss our third quarter 2023 results. We have spent more than a decade building and continuously refining and operationalizing our technology platform to support our product suite and offer a frictionless experience for customers. Our goal from the beginning has been to develop an experience that retains customers. In today's landscape, we are unique a digital-first operator with an iCasino and customer-centric approach. We've consistently maintained that as the industry grows and matures, consumers will naturally gravitate toward the best products. As the playing field levels, with the tide of marketing and aggressive bonusing dollars slowly washing away, that is what we are seeing. Consumers are being more discerning and deciding where they want to play based on product and user experience. Our third quarter results offer further evidence that we continue to grow in very competitive markets with remarkable success and resilience. Revenue for the quarter was $170 million, up 15% versus the prior year quarter. We are seeing that growth come from both increasing handle across products and higher sports hold, due largely to our ability to innovate. which I will get to shortly. We're also growing our revenue much more efficiently as our adjusted marketing spend was 24% lower compared to the same quarter last year. The result is we were increasingly profitable on an adjusted EBITDA basis and significantly improved compared to a year ago. In fact, for the nine months year to date, we've improved our adjusted EBITDA by over 70 million compared to last year. the majority of which was driven by revenue growth and improving operations. Given our outperformance during each of the three quarters of this year, we now expect to be adjusted EBITDA positive for the entire year, well ahead of our original plans. We will continue to innovate and leverage our insights to develop and offer our customers differentiated and fun experiences that appeal to them. while continuing to achieve sustainable growth and profitability. Our customer-centric focus is working. We maintain market-leading ROIs driven by industry-leading unit economics with growth opportunities via access to future iCasino markets in North America combined with our leading Latin American business and additional opportunities in new markets in the region. We remain excited for what lies ahead. There are a handful of large population countries in the region who have legalized or are in the process of legalizing online gaming. So we're glad to be in the right place at the right time. We continue to see growth across our markets, demonstrating that our approach to building a platform in business with an unrelenting focus on the player experience is working. For those of you that track the publicly available state casino data, the trends are evident. While we focus on profitable growth as a priority over market share, it's nice that despite our marketing spend decreases, we've continued to grow market share in a meaningful number of U.S. markets. Our quarterly online casino share in the states of New Jersey and Michigan are higher than at any time over the past year. And our online casino share in West Virginia is at the highest level since we launched two and a half years ago. We are also seeing similar trends in eight of our online sports markets this quarter. For example, our shares in the states of Michigan, Virginia, New York, Maryland, and Ohio are all at the highest level since launch, with the first three of those launching roughly two to three years ago. In addition, our shares in the states of Pennsylvania and Indiana are the highest they've been in a year and a half. The end result This quarter is the first time in the company's history that our Sportsbook-only markets are profitable. This sets us up well when iCasino gets added and supports our plans for long-term sustainable profitability. It is interesting to note that we continue to experience success in very competitive markets. Markets that were launched in periods of heightened competition with irrational promotional spend as those unsustainable spending levels of bait and product and customer experience have begun dictating where people play or which online gaming operator they choose to spend the largest share of their wallet with. We have been faring increasingly well. Markets launched after 2020, along with our international markets, grew approximately 40% year over year during the quarter. Domestically, as the US markets mature, We are very pleased with the balance we are achieving in our top line growth and the efficiency of the marketing investment required to maintain that growth and retain customers. We are seeing improved efficiencies that will set us up well for 2024 and beyond to grow revenue and further expand profitability. I'll share just a few highlights. West Virginia continues to be a great story for us. It's a market where we launched later than our competitors. and without any starting database or meaningful brand awareness. But we've been able to build to over 14% market share in iCasino during the third quarter. This is our third market where we've accomplished this, in addition to Columbia and Pennsylvania. In fact, our West Virginia year-over-year revenue was up over 100% during the quarter. And this follows year-over-year growth of 98% during the second quarter. In Ontario, we are proud of our performance in a highly competitive market. Year-over-year growth continues to be very high, around 60%. Our brand and customer experience are resonating well. As we've seen in the prior quarters from earlier in the year, we are maintaining a significantly higher art mal versus the competition. This is in a market that is roughly three quarters weighted to iCasino, which plays to our strengths. In New Jersey, We posted our second-highest level of quarterly revenues since launch in 2018, as the results reflect the benefits of our rebranding efforts in the state. The year-over-year growth in this quarter was the highest level we've achieved since introducing the Bett Rivers brand in New Jersey last summer. In our U.S. online sportsbook-only markets, we are continuing to see double-digit year-over-year growth and market share growth in many of those states, despite coming up against more difficult comparisons in the prior year and reduced marketing by hours high in those markets. In Latin America, we continue to perform well, with revenue contribution now over 11% of total revenues. In Colombia, we continue to expand at a rapid pace. Revenue grew 41% compared to last year. In Mexico, we remain on schedule with our ramp, as we started to be more assertive during the quarter. Of course, we were beginning with a small base, very similar to what Colombia looked like several years ago. Thus, the sequential growth this quarter was very high, near 90% compared to the June quarter. As we've conveyed prior, the approach in Mexico takes the playbook from Colombia, where over a several-year period, we cultivated the RushBet brand by consistently localizing the platforms, and creating a great player experience that consistently improves. As a comparison, Mexico has generated more than two times the revenue of Colombia when measured from launch date. Needless to say, we remain bullish on the Mexican opportunity for RSI. Looking ahead at expanding our footprint, we announced some very exciting news in August. we share with the market that we were selected by the Delaware Lottery as their exclusive online provider. We are targeting to launch by early winter. For those that are not familiar with Delaware, we will be the sole iGaming and online sports platform in the state, powering online casino and sports betting for each of the state's three casinos. We are very excited for this opportunity as we see Delaware as a market that plays to our iCasino strengths The results from Delaware's online casinos are publicly available. As it stands today, before we launch, we see a market that is doing a little above $13 million annually of GGR, of which over 80% of that is online slot revenues. These levels do not include any online sports betting, which has never been offered in this market. In addition to adding online sportsbook, another change will be how the digital business will be marketed. Our agreement with the lottery provides for an earmarked digital marketing budget, which is different compared to how the market has operated historically. We believe this will help us grow the market. Additionally, when customers log into the apps and sites, we expect them to find a leading online casino experience. We think we will be able to showcase our ability to deliver a unique and differentiated iCasino experience by bringing new functionality and features not previously available to online players in Delaware. We are also planning to bring a wider selection of vendors and a greater variety of content to the market. Thus, when we consider the per capita results of other iCasino markets combined with how we expect to approach the market, we are very excited to partner with Delaware and grow its iCasino and online sportsbook businesses. We think it can become a meaningful contributor for us, both in terms of revenue and adjusted EBITDA. We'll continue to keep the market posted as we launch. Shifting gears from a legislative standpoint, as we move into 2024, we will begin to see the legislative sessions around the country reconvene. There are a host of states on our radar that we will be watching closely. Most recently, Senator New York has indicated plans to reintroduce legislation for online casinos in 2024. Additionally, there continues to be activity in additional provinces in Canada, particularly Alberta. At the same time, we have several jurisdictions we are following closely in Latin America. There is no shortage of near and long-term opportunities in our universe. We remain confident over the long term, given the potential economics to government budgets, especially as compared to inflows from online sports betting. That expansion in iCasino legislation is increasingly a question of when, not if. In our focus on customer engagement and retention, we have made tremendous progress on the product and technology front, recently in both iCasino and sports betting. We spent time in the past referencing our unique approach to the online casino player experience, whereby we build bespoke and gamified features on top of the core game libraries supplied to us by third-party game studios. Over the past 10 years, we've consistently developed a wide range of casino innovations that offer our players unique ways to play, have fun, and win when they play with us. Whether it's our unique to the industry community features or our flagship casino promotional engine, our goal has always remained constant, to increase ARPU retention by offering players fun, and unexpected best-in-class experiences developed in-house by our talented product and engineering teams. While our understanding of casino player mindsets and motivations are important, so too is our ability to leverage our experience and expertise to develop these new-to-the-world experiences. Together, this is a big reason why we have and continue to achieve success in the online casino vertical. However, I'd also like to point out that strong execution on game integrations and launches also matters for players. Execution terms are offering a great breadth and quality of content, so our players have a leading selection of content to play and can easily find the games they prefer to play based on our recommendations. In the third quarter alone, we launched more than 1,000 new slot titles. We were first to market with many important titles, demonstrating the seamless way we work with game providers to integrate games quickly, but in a way that also optimizes a consistent and fast user experience. We are the first to market with a differentiated, authentic live dealer table games in Michigan, which is exciting for us as we continue to focus on expanding live dealer selection for our customers. In sports betting, we kicked off the football season with the launch of Prop Central, to offer our customers an easy-to-reach menu to access a wide range of player prop wagering options in a single location. Historically, the merchandising of popular props betting content was decentralized throughout the app. A customer had to go to the relevant sports event to access prop bets. With Prop Central, we have entirely changed how we merchandise these popular bets. Now, there is a central hub for all player props across all major sports. and it is presented in an easy-to-use and uncluttered format. The results have been very positive thus far, with a year-over-year increase in prop bet handle of 87%. That is not all that we've added to the sportsbook. We continue to leverage the success of our bespoke squares game. Starting with this football season, we have made squares available on every NFL game and most college football games. We are giving customers more chances to win bonuses and achieve profit boosts. We've even added a bad beat mechanic to Square to drive increased engagement with sports bettors. We feel really good about where we are positioned. As we've been saying from the beginning, in our view, product and experience will win the day. As we continue to successfully retain customers and reactivate customers efficiently, We continue to expect to deliver profitable growth. We remain well capitalized as we advance our platform. We maintain the fiscal and operational discipline to be able to keep growing our profitability over time. With that, I'll turn the call over to Kyle.