Rush Street Interactive, Inc.

Good day to you, ladies and gentlemen. Thank you for standing by. Welcome to the Rush Street Interactive First Quarter 2024 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, May 1st, 2024. I would now turn the call over to Kyle Sowers, Chief Financial Officer.

Thank you, Operator, and good afternoon. By now, everyone should have access to our first quarter 2024 earnings release. It can be found under the heading financial score to the results in the investor section of the RSI website at rustreetinteractive.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. In particular, we will be discussing adjusted EBITDA, which we define as net income or loss before interest, income taxes, depreciation, and amortization, share-based compensation, adjustments for certain one-time or non-recurring items, and other adjustments that are either non-cash or not related to our underlying business performance. Reconciliation of these non-GAAP measures to the most directly comparable GAAP measure is available in our first quarter 2024 earnings release and our investor deck, which is available in the investor section of the RSI website at ruststreetinteractive.com. For purposes of today's call, unless noted otherwise, when discussing profitability, EBITDA, or other income statement measures other than revenue, we're referring to those items on a non-GAAP adjusted EBITDA basis. 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. And with that, I'll turn the call over to Richard. Thanks, Kyle.

Good afternoon, and welcome to our first quarter 2024 earnings call. We are pleased to report that we began 2024 with the same strong momentum with which we ended 2023. First quarter revenue was $217 million, up 34% year over year, and EBITDA was $17 million, representing a $26 million improvement year over year. Both of these figures represent quarterly records by a wide margin, something our team is very proud of. We were able to achieve these milestones by continuing to focus on the quality of our product experience and the ability to efficiently acquire and retain high-value players. Said simply, We are adding players to our platform more quickly. Players on average are higher value. We are finding these new players more efficiently than ever. And we are driving meaningful profitability from this impressive growth. During the quarter, both iCasino and online sports grew over 35%, demonstrating balanced growth across our product verticals. This is a continuation of what we saw last quarter and continues to be driven by both rapidly increasing player counts and improving player values. The results of efforts to continually differentiate our user experience and offer a high quality experience that engages and retains players on our platform. In North America, we again achieved a new record in monthly active users. For the first quarter, MAL growth was 20% year over year. Going back to the beginning of Q4 last year, we have seen our growth in North American MALs accelerate monthly in each of the last six months. In Latin America, our MALs continued to grow rapidly during the first quarter as we were up 72% year over year. It is noteworthy that this growth in users across our markets did not come at the expense of player value, as we increased both North American and LATAM ARPMAL in the first quarter. Next, there are a few market-specific takeaways to highlight. While we experienced growth across all market vintages, our newer markets continue to drive outsized revenue growth. In Latin America and in U.S.-Canadian markets launched since 2021, Revenue grew 78% year-over-year in quarter one. This growth across newer markets led to our revenue contribution for markets other than Illinois and Pennsylvania to reach 57%, up from 47% during the first quarter of 2023. As a reminder, our operating margins in Pennsylvania and Illinois are lower due to the arrangements with our land-based partners in these states. Thus, as our percentage of revenue contributed from other markets increases, our overall margin should expand, which is what we saw in Q1. Our newest market, Delaware, continued its strong early performance that we highlighted during our last earnings call. For Q1, our annual GGR run rate increased and was nearing $70 million. The $10 million increase from the $60 million level we shared on our last call was driven by a strong end to the quarter. We ran over four times the rate of the previous operator during the month of March, with around 75% of this TGR attributed to iCasino, similar in market proportion to other states where both iCasino and online sports betting are allowed. We achieved this level of scale with a focused marketing spend and approach. validating our belief that players appreciate our differentiated product and respond to our focus on a high-quality and trustworthy customer experience. While on the topic of Delaware, many of you have seen that there has been a bill introduced to expand online sports betting to additional operators. We are actively involved in discussions on this topic and have support from key stakeholders in this state. leading us to feel positive on the current structure remaining in place. In the event there is a change, I'll remind you that the lobbying effort only applies to online sports betting. While our newer markets continued to strong growth, we also saw a resurgence from some of our more mature markets. During the quarter, our three largest online casino markets in North America, Michigan, New Jersey, and Pennsylvania, Each had their highest year-over-year revenue growth rates in the last two years. Our focus on the iCasino experience is resonating with new and existing customers, driving very solid growth in these existing markets. Turning to our LATAM operations, we continue to be extremely pleased with our performance in Colombia and Mexico. Our Rush Vet brand is resonating with customers, as evidenced by our year-over-year MAO and ART MAO growth. This translated to year-over-year revenue increases of 84% in Latin America, with a lot of room for continued growth as we invest in both these markets. In terms of marketing approach, while our strategy has not wavered, our execution continues to improve. We target the highest ROI opportunities with an emphasis on attracting the highest value players to our platform and retaining them by offering them a high-quality experience. And this is working. Specifically, I'm very proud that we have continued to deliver results in driving greater efficiency in our marketing costs. In fact, in Q1, we had our highest number of first-time depositors ever as a company. and the highest in North America since our launch in New York in the first quarter of 2022. And we've been able to do this while lowering our CPAs to less than half of what they were a year ago. One of our unique strategies for acquiring customers is our BetRivers network, which we use to engage players and keep the BetRivers brand top of mind for our players. In light of the strategy, we were excited to recently announce the renewal of our partnership with sports broadcasting legend Mike Francesa, who is a staple on our Bent Rivers network. Subsequent to quarter end, we were also proud to announce our partnership as a title sponsor for the NASCAR Xfinity Series Dash 4 cash raise. The Bent Rivers 200, which took place on April 27th at Dover Motor Speedway, marked the first time in Delaware history that fans could place mobile sports wagers from inside a sporting event. This historic event came on the heels of our online sports betting launch in the state and served as a unique opportunity to promote our brand while also investing locally in Delaware and supporting an unforgettable event at its famed Raceway. Lastly, we furthered our commitment to returns-based marketing through the announcement of the hiring of Brian Sapp, as the company's first Chief Marketing Officer. Throughout his career in the gaming and mobile industries, Brian has repeatedly led marketing teams to deliver successful brand and data-driven campaigns that scale businesses while achieving growth and profitability goals. Our entire team is very excited to have Brian on board. On the new markets front, We continue to be excited about a variety of opportunities opening up across the Americas. Our next likely market launch will be Peru, which we anticipate to be later this summer. We are finalizing our plans and strategy, and we are very excited about this opportunity. As a reminder, Peru is about two-thirds the population of Colombia, with a slightly higher GDP per capita. We believe we are well positioned for success there, given the market adjacencies and overlap with Colombia and the established teams in Colombia we will leverage. As for other regulating markets in LATAM, we continue to evaluate a range of opportunities. The regulations for Brazil have been beginning to roll out, so as they are published, we are reviewing and assessing them. We will continue to share updates about these markets, which, as noted in the past, typically include both online casino and online sports betting, playing to our demonstrated strength of multi-product markets and Latin America.