Good day, ladies and gentlemen. Thank you for standing by. Welcome to 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 is being recorded today November 02, 2022. I'd now turn the call over to your host Lauren Seiler, 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 RSI website 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 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 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 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 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 Sauers 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're pleased with our results and remain focused on acquiring and retaining players that level is 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 $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 Columbia 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've been within the range expected by the street. 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 sports book 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…

Thanks, Richard. Third quarter revenue was $148 million up 20% year over year. As Richard mentioned, there are two items affecting revenue this quarter. They're worth noting first in online casino, we had lower hold during the quarter and while I casino does not typically experience the same volatility and hold rates as online sports betting. We had our lowest hold since early last year, which negatively impacted revenue by an estimated $4 million. Second, we experienced an elevated level of foreign exchange movement in both Columbia and Canada during the quarter. All in foreign currency movements negatively impacted our revenue line by an estimated $2 million. This continued currency headwind is built into our updated guidance for the remainder of the year. It's important to note that the vast majority of our operating costs are denominated in the local currency for the markets in which we operate, so gross margins are largely unaffected by any currency fluctuations. We continue to see positive signs in player acquisition and retention as measured through monthly active users. Third quarter miles we're 130,000, up 31% year over year and equally exciting is that September MOU we're up 40% year over year. The increase reflects our successful efforts in player acquisition and retention across online casino and sports betting, plus the addition of new jurisdictions compared to the same period last year. In terms of player engagement and monetization, was $345 during the third quarter sequentially. Third quarter art mouths were up a bit over 6% from where they were in the June quarter, and this follows a 23% increase in Q2 compared to q1. As we moved away from the initial New York launch, these consistently higher art mouths continue to reflect strong online casino results and the high quality players we attract…

We will now begin the Q&A session. [Operator instructions] The first question is from the line of Dan Pleasant with Wells Fargo. Please proceed.

Hi, it's Zach Silverberg with Dan. Thanks for taking my questions. The first one, so you've given some incremental color on profitability. Maybe can you just talk about the profitability outlet for both online sports book and eye gaming sort of at maturity for these businesses in the United States?

Yeah, so we haven't given long term targets for profitability in each in particular, I think what I'd point you to is some of the trends we've talked about and the success we're seeing, and I think Richard pointed out that our loss this quarter from, from the sports book only markets was, was under $5 million. I think that's half or so of what it was the quarter before. So real progress there and I think it's, it's notable that all but one of the markets that we've told everyone that we're profitable in I include casino and maybe one other data point I think is interesting is the last two markets that that got to profitability for us for Michigan and West Virginia, and they both got there in the matter of four quarters. So I think all, all that leads you to conclusion that, that you can get to profitability sooner or we can get to profitability sooner when casino is part of the equation. And, and we haven't been shy about the fact that that casino is more profitable than sports. We really don't have any markets that are full maturity but e even as we watch the cadence of these markets build casino is always profitable and profitable sooner than sports book.

Thanks. And one follow up. What have you seen in terms of the proportional environment and has it sort of rationalized versus last year during this NFL season, given there's been some fewer state openings and less low hanging through it in custom acquisition?

Sure. I would say that the competitive intensity is lower than it was last year but more competitive in Q3 than it was in q2. Which is not surprising given the seasonality of the opening of the football season where many operators including ourselves, are obviously focusing on trying to activate the players that are interested in betting on the football games for the season with us.

Thank you. The next question is from the line of Bernie McTernan with Needham Company. Please proceed.

Great. Thank you for taking the questions. Why don't you just double click on sales and marketing spend. So Richard, in your preparing marks, you mentioned measured marketing approach a few times and then also seeing that the, the average cost to acquire players 50% lower year over year. Is there any, you know, cha and then also the, the next piece was that sales and marketing expense to be up in four q sequentially at least. Is there any change in strategy that's happening here or, or is the mark or does it have to go with the market being less aggressive and less promotional like you guys just mentioned?

To answer the last question, sure, I would say that following up on our, our strength and casino is that we've been really leaning into the casino category in the states where you have both sports and casino live, which is an increasing number of states for us and markets internationally. So we're really leaning in on the casino category and allocating more of our spend in Q4 and more spend overall in Q4 to attract these players during a great seasonality for casino, which is winter months, especially in the Northeast where we have a large percentage of our casino markets. We also are spending on, on rebranding in New Jersey which more in Q4 than we did previously because we were in the middle of a rebrand and wanted to wait for that rebrand and be complete before spending more and more investment on that.

I think Kyle, you probably have additional cost.

No, I think you covered it for the most part. I mean, it really is just seeing opportunities to spend more in the fourth quarter casino opportunities. We think we can get good value. You know, we've talked about plenty that we, we look at each market on its own merits that that's tax rate, that's competition. It's how well we think we can, we can do in those markets and that that helps us determine how much we're going to spend in each given market. So when, when we, when we have more opportunities, we're doing more and when in markets where it doesn't look as attractive at a given point we'll pull back and it's, it, it just goes to the kind of the dynamic nature of our marketing spend and being able to pivot pretty quickly. So it's why we've, we wanted to make sure that it was clear in Q4 that we'd be doing more in the casino areas and, and particularly in New Jersey but don't expect it to get as high as it was in the first quarter of this year or the fourth quarter last year.

Got it. And then just the follow up to that, since you guys are talking about spending more casino markets, so those are markets that have been open is there, does that mean that you're allocating more dollars to retention marketing or is it still going after user acquisition?

It's really a combination of both. There are some markets where we're still seeing really strong growth that existing markets such as Michigan and, and then of course we mentioned Ontario exciting around excitement around Ontario and the growth opportunity there. We have other casino markets in Latin America with Columbia, which continues to perform extremely well for US and Mexico, which as we've mentioned is in a launching period still that we have great expectations for in the future. So I think there's ample markets where we have large populations where casino is attractive, but it also comes down to reactivation of existing customers and making sure that your existing players are treated well, your VIPs are allocated appropriate amounts of reinvestment to ensure they stay loyal with us. Got it. Makes sense. Thanks for taking the questions.

Thank you. The next question is from the line of David Katz with Jeffries. Please proceed.

Hi, this is Sandra [ph] asking on behalf of David. Thank you for taking my question. We understand that eye gaming is a bigger contributor, contributor to the overall business, but other operators have point to better than expected hold in sports so far this NFL season. I'm wondering if you can help us quantify or understand that tailwind for the company.

Yeah, so Sandra, thanks for the question. I think you're, you're, you're right that it doesn't impact us likely as much as it does others when there's movement in the sports hole just because it's not as big of an impact. In the third quarter sports hold was within our expected range. There have been some good weekends in the NFL, there's no question about that, but it does, you know, it gets balanced out with a lot of different sports and activities. So it's probably, it'd be too early in the quarter to predict where that's going to end up for the full quarter. But certainly there's been there's been some nice outcomes in NFL so far.

Great, thank you. And if I may ask another one can we talk about legislative momentum and any new potential states or jurisdictions that could launch eye gaming in 2023?

Sure, there's been a lot of momentum growing for eye gaming legalization in part driven by the recognition from our competitors and ourselves. So just how valuable it is to complement sports betting with eye gaming being legalized. With that in mind, you're seeing, states like Iowa and Indiana and Illinois, the three eyes, let's call them, are really showing some momentum in terms of having opportunities to legalize eye gaming over the next year or so. New York is also a market where we think there's an opportunity. We remain focused on exploring ways to legalize eye gaming. I think what's really important to note is that all of our peers, whether it's large land based casinos or maybe sports book first daily fantasy type of companies are all aligned around funding, not just supporting verbally, but really putting some money to work to lobby for eye gaming legislation for the first time really in the history of this industry in the US market. So with that focus and funding and alignment, I think it's very possible that you will start to see some, some movement in legalization efforts in the states that I mentioned, perhaps others. You know, for us, obviously we've been outside's benefit. If eye gaming is legal, I gave me his legalized in any of these markets because of our strength and casino.

The next question is from the line of Jordan Bender with JMP Securities. Please proceed.

Great, thanks. Thanks for taking my question. With several states looking to launch in the next several months should we expect these states to see a similar path to being contribution positive or has the fundamental shift in profitability maybe steepened that return curve?

Yeah, so you're -- the question is, are we looking at a new launch in say, Maryland, Ohio, different than we would've looked at a launch a year ago or two years ago?

Correct.

Yeah. So I think there's still a lot of excitement for us around, around sports markets and sports markets can certainly be profitable for us, and we have, we have many that are headed, headed in that direction. I think we're very mindful of how much we allocate to sports markets what the economics are around each of those markets that we enter and what the trade-off is between investing there versus investing in iCasino markets. So we we'll look at it closely, we'll monitor the, the competitive situation, we'll monitor what the cost is in any given market and as we always do, we'll monitor what the player values look like early and often and make sure we're investing in the right way and we're not going to get caught up in a game of trying to, to hit a certain market share target in a state and spend to that we spend to the economics that are appropriate for, for the cost to acquire players and the value that they generate.

Great, thanks. And then my follow up you talked about Mexico. Can you just kind of talk about, you know, we've been live there for a few months now, just kind of what you've seen in terms of maybe market dynamics. Compare that to what you saw maybe in Columbia when you launched, and I think you've mentioned in the past you have close to 20% share in Columbia. I mean, is it conceivable to possibly get to something like that in Mexico?

Sure, yeah. So it's -- we're off to a quicker start in Mexico than we were in Columbia, and we expect that pace to continue. As I've mentioned before on this call as well, we like to want to take the time, we take the time necessary to ensure our product and brand reputation. Our top notch is not as if we're launching in a market with a bunch of competitors all at the same time and there's a land grab for share day one. It's really the opportunity for us to do the little things right, improve the user flows and experience the level we need it to be at, to feel like we are the best products in the market. And we think we have a clear line of sight to achieving that, and it won't be very long before we feel pretty confident to be able to spend more marketing on the product to ensure that when we do start to create greater awareness to the product, to our consumers in that country, that they're going to feel right away that we're very high quality and really be, become the home of those betters. So we do think long term we have the chance to be as successful in, in Mexico as we are in Columbia.

Great. Thank you.

Thank you. The next question is from the line of Chad Beynon with Macquarie. Please go ahead.

Hi, this is Aaron, not for Chad. Thanks for taking my question. I apologize, this has been asked already. I got dropped from the call. So wanted to touch on your social product, which I believe sets you apart from other operators. Are there synergies on the development side in terms of bringing the gamification from social into the real money gaming product to drive engagement and retention?

It's funny you should ask that question because the answer is yes, there are ample things to learn from on the social space and things that are done there that we think are quite relevant in terms of how you Gamify the playing experience online. In the real money casino market we are one of the unique operators that has the same technology built in our platform for social and real monies and like development is done on the same platform and updates are done the same frequency. So there's a very close alignment between the two and when we build something in social to test things out in social, it's quite easy to then bring it over to real money afterwards. So it is a great testing vehicle for us to use as well as being a great asset to help us convert players in a casino market before the market's regulated into being real money customers in the future. As we've mentioned, we did successfully in, in, in Michigan. So social is a dynamic, innovative category of gaming and it's something that we have a team and myself included that are very familiar with those products in those categories and how they've delivered innovative experiences for players. And there's certainly some inspiration that we see from what's worked there that we plan on and have in the past used for our success in Casino.

That's great, Thanks and then as a quick follow up, you mentioned the rebranding in New Jersey to the Be Rivers brand. Can you discuss what the early response or results have been and how that's tracking relative to your expectations?

Well, it started with the launch of the football in q3 but due to it being a really casino first market for us and the cold weather months being the prime time for casino players we're really intensifying the marketing effort for New Jersey for the rebrand really in q4 because of the attractiveness of that seasonality for that opportunity. So I would say that what's exciting for us is that the players that were there obviously didn't have to a new brand or, or go sign up on a new brand, and we were able to continue playing at their favorite site. And naturally we had a co-branding for some period of time to ensure players were familiar with the transition that was happening. And subsequent now we do have the site branded Rivers. And so certainly it's a great benefit to how the efficiency across the rest of our Vet River's footprint around the country, which is our dominant brand in the, in the US and Canada for that matter. So it's been, it's met our, our, our, our goals. Certainly we have a lot of effort and to put in this quarter and a big opportunity in Q4 and Q1 to really take advantage of that new branding there to really utilize that opportunity during the cold winter months when we feel this's an Audi of casino as strongest.

Thank you. The next question comes from the line of Mike Hickey with the Benchmark Company. Please go ahead.

Hey Richard. Kyle thanks for taking my questions. O obviously we've heard you say before that the gaming industry is pretty resilient resistant to economic downturns. But just curious if you can update us on what you're seeing on, on the macro, if you're seeing any weakness on the consumer, if that is all, if that's in your numbers at all, I guess as you bring them down or, or any behavioral changes that are impacting your business and, and how you think about 23 and your profitability goals given that everyone thinks we're going to be in a recession. Thanks guys.

Hey, Mike, I'll start with the first question and I think Kyle maybe will ask answer the rest or second one. So the truth is we've looked at all of our data and we haven't seen any indications of any impact to our online player base based on deposits, frequency, deposit volumes, average size, et cetera. So we think we're in a continue to be in a position where nothing has changed from our outlook in terms of the, the health of the players of ours on our platform.

Yeah, I think just on the second piece, just thinking about profitability for next year and our plans to be profitable for the second half, it's a, it's a fair question because everywhere you turn people are, are talking about the consumer and, and what might happen next. I think the really nice thing about our, our model and the way we've operated is that we have a lot of flexibility with how much we spend on marketing. We have not built out a big cross cost structure to, to manage the business, and you see that in our G&A line. So if that were to happen, that manifests itself and it, and it starts to impact revenue and growth and, and engagement with players that also likely impacts how much we would be willing to spend on marketing to draw in those players that, that have those certain values. So I think we're you know, outside of, of something much, much bigger I think we'd, we'd still feel good about that profitability for the back app.

Nice. Thanks guys. And maybe one more I guess just thinking about the headwinds and for you, when you sort of, when we sort of look at your business, you have the, for the most part it seems like you've got great tech now. You certainly have market access, leading market access in in the US and your reputation is that you're great operators. So with sort of that being said, you know, how, how influential is the lack of brand recognition on a relative base you think impacting your share opportunity in the US and when you see sort of rumors of looking for a home, and of course you're in Connecticut, which is nice, I mean, how do you think about stepping up your brand recognition through partnerships, whether it's whether PNR or some others that may be looking to get into this space?

Sure, I appreciate the question. We are, we're been able to grow a brand in Columbia from scratch and it's been very successful for us. We're a top three operator out of many operators in that market. And over time here in the US heart brand awareness has been growing, but one thing that we recognize is that is certainly isn't the level of brand awareness. So we would like it to be, and one thing that we've done is to trade inspect River's Network, which is an in-house internally developed betting content network that's hired a bunch of very talented and well respected and local legends essentially in different markets. I think someone like Mike Eska in New York is a great example of that. And where he is reaching Connecticut, New York New Jersey, really with great content that's really desirable for the audience. And so when you're actually sharing content like that, he's produced, we have produced over 126,000 hours of content in, in October on, on YouTube. And so you create that kind of volume of content, you get a lot of subscribers, a lot of interest in what those talented people have to say. And so we're building a brand awareness by investing with Vet Rivers Network and really getting a large volume of views on our content. We had $2.7 million views on YouTube alone, so we could see that's really working as a way to grow brand awareness. And of course some of the other projects we've done when it comes to investments with different teams, whether it's the Detroit Pistons deal that we did where we have a great innovative thing that hasn't been done before we did it, where you're behind the back court, you have a suite that has the BET rips brand on every telecast around their teams, or it's doing things up in Canada on Rogers media with the, with the really promoting our brand for in front of every Raptor's basketball game on the Rogers media. We're being very selective and thoughtful and really investing in those partnerships and those types of high visible brand building opportunities in markets where we also have casinos. So we do get the sports with players, we are able to cross sell those players into casino as well. So I would say that it, it is a fair point that our brand awareness isn't as high as some of our, as a starting position. It's not as high as some others are, but as we've shown in markets like Ontario, without having a brand to start where we were able to build it into, you know, some that has a significant share and expect to continue to have success in that market. So that's sort of the high level thoughts on that question.

Thank you. The next question comes from the line of Edward Engel with ROTH Capital. Please proceed.

Hi. Thanks you for taking my question. It's Ed. I'm going to try to rephrase one of the prior questions I was asked relative to maybe last year, even the start of this year, has there been any pivot in your strategy or even your LTV assumptions that maybe prioritizes profitability over user growth, at least relative to maybe last year? It just seems like the trajectory of your marketing costs have diapered a lot just relative to what you initially guided.

Yeah. Thanks, Ed. I think I think everybody has, has across the industry, has dug in deeper we have a lot more information in markets as they mature than we did a year ago or, or two years ago. I think there is a lot of focus on profitability across the industry, across the investor base. I think our behavior hasn't changed all that much. I think what you're seeing with the prudent spending in marketing is a reflection of us measuring the value that we get from what we spend. And it's also a reflection of coming out of a period where we had a significant number of new market launches. If you go back to the fall of last year, you had Arizona, Connecticut, New York, Louisiana, Ontario. I mean, that's a, that's a long list of big, of big launches where money was being put to work. Are we buying or acquiring players at cheaper rates than we were at some of those periods of time for sure. And that, that's, that's partly, partly probably behavior on us. It's more about the competitive situation. So I think we're, we're, we've always been very mindful of getting to profitability. I think everybody else is talking about it more and investors are, are more keen, keen to discuss it. So it gets a lot more attention and, and we, we end up talking about it more. But we are, we're very focused on it, but I don't know that that's a, a massive change from where we were a year ago or two years ago and when we were actually profitable in, in 2020.

Great. Thanks. That's helpful. And then you've talked about a less competitive environment. Does that mean maybe the pricing of some of these advertisements or some of these other marketing assets has, has maybe trended lower relative to even the start of the year or even maybe the past couple months?

Sure, I'll take that one. The truth is yes assets have, you know in many cases reduced the cost for us to utilize certainly in the path there were not op there were many opportunities where if you didn't accept commercial terms from a, from a marketing asset owner, you would certainly be the next person in line willing to step in and take that asset without any questions. Whereas now there are assets coming back to us that are multiple times that are looking for maybe a better value and we have a chance to negotiate or, or to have an opportunity to secure at a more favorable pricing. So certainly you've seen a lot of that. Having said that, you still have some of the major operators that are still spending and have their foot on the pedal pretty aggressively, especially during this football season.

Thank you. The next question is from the line of Ryan Sigdahl with Craig-Hallum Capital. You may proceed,

Please explain, but I guess why was the online casino hold that normally low? I think of that as, you know, random generated games and very consistent.

Yeah. Hey, Ryan, would you mind starting your question over? You were cut out at the beginning for us. I think I know where you're headed, but I just want to make sure I hear the whole question,

Yeah, can you hear all right. I was just wondering on the, just for better detail and explanation on why online casino hold was abnormally low and I think of that as, you know, random member generated games and really good control and consistency and, and very little volatility historically within those games.

Yeah, you're right about the, about the math behind those games, and that is, that's exactly why we're, we are calling it out here because it was particularly different than we've seen in quite some time. And usually the variance is quite, quite tight on across the casino games and certainly relative to sports and it just so happened. But there is still luck involved, right? And, and in this case our luck wasn't as good as the players for, for the quarter and it ended up hurting us a little bit this quarter, but it's the first time we've seen that be outside the range as much in quite some time.

Okay. And then on MAUs so they were down sequentially for the, the second consecutive quarter, I guess despite positive sports seasonality. So I guess what was the main driver of that?

Yeah, I think obviously nicely up year over year, and I mentioned in September it was up actually up 40% roughly. I think, I think probably a big driver of it and, and we've probably discussed this in the past, but you know, the MAs are driven a lot by sports players. Even though the casino players are more valuable, you have this, you can have this seasonal shift in mos. And one thing that happened this year versus last year is the July and August sports calendar because of the COVID shift last year, the July and August sports calendar was not as robust. So, so you had less active users in July and August probably because of that.

Got you. And then one last one, you guys changed your promotional offering from $250 deposit match to one that was up to $500 in free bets. Which base value sounds like a lot more, but I think my back of the envelope suggests that actually has better ROI and costs you less. But curious kind of how that resonated with the consumers and what you're seeing from an ROI standpoint with that change.

Sure. Yeah, you're right. We did try some just additional new bonus op options for our players. And the second chance bet was something that we believed was give, would be attractive to the consumer, where essentially it was a risk free bet where if they were to lose the first bet, they get it back as a free bet to try again. And so what we would find is that the value to us was stronger in this area. The ROI was a better result for us by using this program here. So we have tested it out, we wrote it out across a bunch of markets, and we like the results that we're seeing so far on that new promotion.

[Operator instructions] There are no additional questions at this time. I will pass it back to the management team for closing remarks.

Well, thank you again everyone for joining us today. It was a pleasure speaking with you. We look forward to doing it again soon. Thanks.

That concludes today's conference call. Thank you. You may now disconnect your line.