Good day, ladies and gentlemen. Thank you for standing by. Welcome to Rush Street Interactive Fourth Quarter and Year-End 2023 Earnings Conference Call. [Operator Instructions]. Please note that this conference call is being recorded today, March 6, 2024. I will now turn the call over to Kyle Sauers, Chief Financial Officer. You may proceed.

Thank you, operator, and good afternoon. By now, everyone should have access to our fourth-quarter and year-end 2023 earnings release that can be found under the heading financials quarterly results in the Investors 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 and other similar phrases 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 nonrecurring items, and other adjustments that are either non-cash or are not related to our underlying business performance. A reconciliation of these non-GAAP measures to the most directly comparable GAAP measure is available in our fourth-quarter and year-end 2023 earnings release and our investor deck, which is available in the Investors section of the RSI website at rushstreetinteractive.com. For purposes of today's call, unless noted otherwise, when discussing profitability, EBITDA or other income statement measures other than revenue, were 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 fourth-quarter and year-end 2023 earnings call. I'd like to start with how proud I am of our team at Rush Street Interactive. What we've accomplished this year and how we've set ourselves up for success for years to come. We exceeded the high end of our revenue guidance for the year and achieved EBITDA profitability far ahead of our targets. Through strong execution by our team, we improved year over year EBITDA by $100 million. We initially set out to be profitable for the second half of 2023, though, as a result of our focused efforts, we delivered better results and were profitable for the full year. We ended the year with a record-setting quarter and have starting 2024 with strong momentum. Our investments and know-how in creating differentiated and high-quality user experiences are paying off as we simultaneously achieved our growth and profitability targets with increased contribution from all geographies from both iCasino and sports and from both our newer and more mature markets. Our 2023 outperformance and the momentum in the new year are the result of us continuing to execute on three key operating principles. First, the customer. I've said it time and again, product and user experience wins in the end. We have felt this way since we started business in 2012, and we continue to feel that today. We feel we have the competitive advantage not easily replicated and that we have spent the past 10-plus years focused on enhancing the user experience as our top priority. We are all about offering customers a world-class user experience and minimizes friction and drives retention. This ethos is fundamental to our success. Second is technology, investing and continuously improving our best-in-class technology platform, which allows us to support our…

Thanks, Richard. Fourth quarter revenue was $193.9 million, up 17% year over year, leading to full-year 2023 revenue of $691.2 million, also up 17% year over year. We continue to experience well-balanced performance across both iCasino and online sports betting, both up 19% year over year during the quarter. Geographically, we're also were very well balanced with double-digit growth in both our US, Canadian and LATAM markets. We continue to achieve improved flow through the earnings and cash flow as we scale the business. We posted our third consecutive quarter of positive EBITDA with the fourth quarter coming in at a record of $11.5 million. As Richard mentioned, our EBITDA for the full year improved by $100 million on a similar dollar increase in revenue. Underlying the results we're very encouraged with the trends in our player acquisition and retention as measured by monthly active users. Fourth quarter North American MAUs were nearly 160,000, reaching a quarterly record. In fact, MAUs were up 7% year over year, our highest MAU growth for the year. Most of this increase reflects our successful efforts in player acquisition and retention across both online casino and sports betting in our existing markets. We also continue to see improved trends in ARPMAU. During the fourth quarter, our US and Canadian ARPMAU of $345 was up 5% compared to last year and at the highest level for Q4 in the three years since going public in December 2020. With our continued strong success in Latin America and anticipated growth in the new Latin American markets in the coming years, we feel this is the right time to start sharing user-and-player value data about our LATAM markets. MAUs during the fourth quarter were 204,000, up 33% year over year. If we look back to Q4 of 2021,…

[Operator Instructions]. Our first question will come from the line of Bernie McTernan with Needham & Company.

Great. Thanks for taking the question. Just wanted to start with LATAM. Assuming at this point, Colombia is positive adjusted EBITDA, just wondering on the timing and the path to profitability on EBITDA in Mexico. And then I have a follow up as well.

Yes. Hey, Brent, thanks for the question. You're correct on Colombia. Colombia has been profitable for us for quite some time. I'd have to go back and look to see exactly when we turn profitable, but it's quite a while ago. In Mexico, Mexico is getting real close. I think we're having some real nice success there. As we mentioned in the prepared remarks, a lot of things going well there, starting to build nicely. So we'll keep you updated on Mexico's profitability, but it's certainly not a big burn for us at this point.

Understood. And then on, there's been some news flow in terms of the Illinois governor, considering a change to the gaming taxes in the State. Just wondering if there's any thoughts in terms of the potential impact that that could have on Rush Street and then any offsetting levers that you could pull if taxes did, in fact, go higher.

Sure. Yes. So as you point out, the governor's budget includes more than doubling of the sports betting tax rate. So obviously, not something that we'd be in favor of. It's early in the session, but I think it's important to note that because of the structure of the relationship with our market access partner in Illinois, the impact on us of that potential change is much smaller than maybe some have expected, maybe to frame it if the new proposed rate had been in effect for the recently completed 2023. Negative impact on our EBITDA would have been less than $3 million. I suppose the potential upshot is that there's conversation happening around iCasino in Illinois and how much bigger impact that could have for state revenue then increasing the OSB tax rate.

Got it. Thanks. Thank you.

Our next question will come from the line of Jed Kelley with Oppenheimer.

Hi. It's Josh Marin for judge Kelly. Thanks for taking our questions. So I have one on the iGaming regulation. iCasino legislation pacing has slowed a bit. So just curious on how you guys are thinking about that and RSI's position on it.

Sure. Hi, Josh. This is Richard. So yes, it's a -- we can't predict timing of these things, but we do know is that there's a growing enthusiasm from our peers and our industry to support this and to generate more tax revenues for the States. What I will say that there's more bills introduced this year than there have been in a long time. Some of them will make it past the finish line, but there's others that are gaining momentum. And we think certainly market like Alberta is something that we're paying very close attention to because we think there's been some very positive public comments by some of the stakeholders there. What we're excited about is that we have so much growth available for us in Latin America right now that while we certainly are eager, we hope and are pushing for iGaming to be added to more states in United States. We certainly don't have a shortage of opportunity that were exciting to us. And so markets like Peru and Brazil and other markets that have already legalized right on our process of regulating are in there right now. So we have very large populations available for us there where we can do casino there. So we have no shortage of opportunities, which is why we're really excited because we have as great of option and our other peers in the United States don't really have to the same extent we have in terms of having large market opportunities down in Latin America. So we will continue to push forward legalization. The states are starting to feel the impact of not having sufficient tax basis to justify some of their costs. And so because of that efforts, we see that there's a diverse increased tax base. We see more and more conversation around iCasino as a possible means to bridge and increase tax bases for states.

Our next question will come from the line of Jordan Bender with Citizens JMP.

Good afternoon, everyone. A few on Delaware. I was just wondering how does that operating model differ from some of the more competitive states that you operate in as well as what is the payback period look like? And then should that be a positive contributor to EBITDA within your guidance just with iCasino being in there as well? Thank you.

Yes. Thanks, Jordan. So on Delaware. So I'd say first, it seems like other North American iCasino markets have been for us. Delaware will be profitable for us quite quickly. Gross margins should be at or maybe a little below our average gross margins. But contribution margin or operating margin should be higher than our typical. So it will be a nice contributor for us. We talked about, already we came out of the gate pretty strong in Delaware. So we're very excited about the opportunity there. It's going to be -- it will be a meaningful contributor for us, the top and bottom line over time.

Understood. And then just with free cash flow or at least in '24, you talked about the ability to produce free cash flow. Naturally that just kind of begs the question, what is the best use of that? Would you think capital allocation? Does M&A make sense here? Anything you can opine on that?

Well, listen, we're going to direct the capital to the highest returns, and we are evaluating all opportunities, whether it's more investment in existing markets or additional investments in the newly regulated markets. We always are looking at all options on the table. Certainly, we're always looking for how do we create more value, maximize shareholder value. If you want to add anything else?

No, I said I think I'd go back to Richard's question about iCasino legislation, Latin American opportunities. There'll be plenty of plenty of places for us to make smart investments when new markets open up. So I think that's the first priority for us.

Our next question will come from the line of Chad Beynon with Macquarie.

Afternoon. Nice quarter. Thanks for taking my question. On the guidance, it looks like the expected flow through from EBITDA growth versus revenue growth is high 20s, low 30s. Kyle, can can we just get a little bit more clarification or just color around why 30% flow through is the right number following a year when you did 100% flow through. I know you talked about some of the line items being below revenues, but is there anything else that we need to be mindful of new markets ramp?Just a little extra color there. Thanks.

Yes, no, appreciate. And I think you've got to get the math right there on flow through around 30% at the midpoint of our guidance. I think if you look back at 2023, pretty significant. And that probably for the industry and us pretty significant from a pullback in marketing expenses, less markets launching, more rational behavior. So I think that that was good for us this past year. This is the first time we're offering EBITDA guidance. So I want to be careful about offering a long term flow through plans, but I think we can improve that over time. We want to make sure we're putting the right the right guidance out there. First time, we're offering it something that we can work towards improving as the year goes on.

Okay, that makes sense. And then what about the main factors that would drive you to the low end of the revenue guidance, which is 11% versus the high end, which is a 20%? Thanks.

Sure. So I probably won't give you exact specifics at each end, of course, but it's still a pretty quickly evolving industry. So a lot of different factors that go into thinking about the revenue guide. We saw really nice acceleration in growth throughout the fourth quarter. We mentioned that in the prepared remarks. The momentum has continued into '24. So we've got a lot of confidence in this $770 million to $830 million range that we put out there today. Sports hold ranges due to sports outcomes, that's always going to be an input. We mentioned in the opening remarks, but excluding our US markets that launched before 2021, we grew over 40% in the fourth quarter. So we've got some fast-growing markets. So there's there's some more variability there. So we're mindful of that. And then maybe the last piece, just recall that we had Connecticut live for and a good chunk of 2023. Now, that's gone for us in 2024. But we added Delaware, which is new. It's had a great start, but again, it's new. So it has a range of potentials in and of itself there. So I think those are all things that we think about in crafting that, that range of outcomes.

Okay, thanks. Are you willing to provide what Connecticut contributed from a revenue standpoint in '23?

It was round about $20 million or so.

Okay. Thank you very much. Appreciate it.

Our next question will come from the line of Ara Masias with Jefferies.

Hey, guys. Thanks for taking my question. Congrats on the quarter. Could you please give some further color on international market growth as it compares to further expansion in US online sports betting market?Thanks.

I think when it comes to the international growth, the Latin America region is really the second fastest growing region in a world first for legalize online betting. So the fact that we're obviously strong in North America and as well as in Latin America gives us great confidence that those are going to be margins that are going to grow for for decades, not just a couple of years here and there. So I would say that the sports betting market in the US is obviously a very heavily contested. Some operators start every new market with having a large database of players already in their systems. And that are going to be converted from fantasy to real money sports betting. You have a scenario where you have relatively higher taxes in the US, so a higher competitive intensity. So I think for us, the opportunity that we've been focused on is to be able to continue to grow our Latin America business because it's such a dynamic high growing, challenging market to break into, developed some expertise to do well. And there is something that's very challenging as I mentioned in my notes in my earlier comments. There are fewer people who have been able to be successful there despite a lot of effort because it does take being in the market early, localizing your technology, having a very experienced team on the ground and really developing a brand from many years ago that now gives you a lift in other jurisdictions in that region as you launch there. So for us, I think the opportunity we have many of these markets are also including casino and sports betting, which it hasn't been the case as much as the US. So for those reasons, the tax rates, the competitive intensity being a little bit different and our expertise there. It's an area that we've obviously focused on more so that we have on some of the newer sports betting markets, where we felt like it was better for us to direct our capital to markets with higher return to us.

Great. Thank you so much. That's all for me.

Our next question will come from the line of Ryan Sigdahl with Craig-Hallum Capital Group.

Hey, guys. Good afternoon. Curious on Delaware. So new user promos get initial deposits and app downloads from our standpoint. But curious what metrics you can share on follow-on deposits and retaining those players after those promo dollars have been utilized and I get it, it's still very early here, but anything notable you guys can share?

Yes, I mean, obviously, we've had really good success. I think we were approaching the promotions and bonusing there, make sure we're fair to our new players. But we're the only operator there. I think you can see from the state data that's been reported and what we said that we're off to a really nice start. When you look at either our GGR or NGR, you won't be surprised that our February daily numbers are higher than they were in January. So still pretty early. So we do want to make predictions exactly on where things are headed, but we're very optimistic about Delaware for sure. I guess one thing I'd point out that is probably useful for those that follow trends of state reported data, the January data that was put out by the state does include our five days of December activity since we launched on December 27. So just you want to keep that in mind when you look at the trending from January to February, when that data comes out later here in March.

Helpful. As you mentioned, $60 million GGR run rate is that what you guys assumed in guidance or is there some are there assumptions?

Well, I don't think, I want to start parsing out market by market what's assumed in the guidance but certainly there's a range of outcomes there. I think there's been a lot of excitement about the product that we launched there and we've gotten really good engagement. Certainly, I know Richard referenced it, but if you could just compare iCasino revenue compared to where it was before we launched, it's a pretty dramatic improvement. So as I mentioned in one of the earlier answers, the range of guidance includes some level of variability from what we could expect happening in Delaware just because it's so new. But again, we're certainly optimistic, it's been a faster start than we anticipated.

I'm just adding on, we launched the players visited their prior site expected to see the same experience we've been having for many years. And instead, they found a new and exciting online experience from us that we've talked about for years being really differentiated innovative. And I think the results are reflective of that. When you see all this great content, we offer all the unique features and functionalities that aren't available in the past and aren't available anywhere else in the country, just on our platform. You're seeing immediate impact that when you bring a player base to a really high quality user experience that's unique and differentiated and delivers fund for these players, it immediately had a positive impact. And I think that's the Kyle's comments the last quarter when we sort of suggested this. Thought was going to launch that it wasn't going to happen overnight. It's good, but it really did happen overnight for us because the quality differential is so significant that we think that the players noticed it. And clearly the numbers are reflective of this massive increase in play relative to what it was the case in the prior 10 years before we switch to our platform.

Yes, for sure. Performance isn't a coincidence there. Product absolutely matters. You guys are doing a nice job. Moving over to Brazil from a last question, just curious what your plans may be that you can share. Is that to launch with the RushBet brand and organically do it? Do you need to acquire brand and then know-how in that country?

Yes, sure. So there's actually a pretty large decent-sized contingent of our team visiting Brazil this week for a conference that we've been there for years and evaluating all the opportunities as we mentioned. iCasino addition to that market recently that really created more exciting opportunity for us. We have spent time with all of local sports teams, retail companies, stadium owners,media companies, other gaming companies. Really getting to know all the players in the market and really trying to assess what the right strategy is for us. And we're not really prepared today to share with that strategy is, but I can tell you that we're excited by the market and our brand does resonate there as well from our research that we have done and the conversations we have had. And so one thing to keep in mind though is that the market does allow multiple brands as well. So it's always something that we're considering as well. But I think overall, our brand really has done so well in that region that a lot of the broadcasts are viewed in other countries that recognize in Brazil, it's Portugal as opposed to Spanish. But nonetheless, you still get a lot of highlights of things like that where you will see our brand in the background. So I think our brand is very strong there as one of the assets that we will bring to play in that market but may not be the only asset we bring play in that market.

Thanks, Richard. Kyle, that's job guys.

Thanks. Ryan.

[Operator Instructions]. Our next question will come from the line of Mike Hickey with Benchmark Company.

Hey, Richard, Kyle. Congrats guys on the strong Q4 for in '23. Thanks for taking our questions. Just curious also on the Brazil market. Just wanted to confirm, in fact, that your planned entry into that market is baked into your '24 guide, Kyle. And I'm also sort of curious, I think Brazil has a pretty established gray market with some fairly large operators. Just curious, the competitive intensity you see in that market and how much share you think you've already been established from the gray market and how you position for that? Thanks guys.

Yes, thanks, Mike. I'll take the first part and then let Richard comment on the second part. So we do not have any of the guidance. The revenue or the EBITDA guidance do not include any new markets. So we talked earlier about Peru and the expectations for sometime later this year to launch. When that happens, if it makes sense or where it is necessary to update guidance, we will with any new thoughts. And same for Brazil. If that happens later in the year or if it would move out to next year, we'll update at that time. So just for clarity only the markets we're in today are part of our guidance for revenue and profitability. And so then I'll let Richard talk about the competitive landscape.

Hey, Mike. In terms of the competitive landscape, there are quite a large number of gray market operators operating in that market for a number of years, primarily focused on sports betting, although some offer casino as well. But one of the things that hasn't happened in a market is that they haven't really supported local payments for those offshore companies. They haven't been able to invest in local media assets. They haven't been able to use Google and other types of media partners as well to drive larger volumes of play. So while there are some that will have an advantage and having a brand in a database, it's yet to be seen how that database will be translated into a regulated market. The chief regulator overseeing the effort to us here recently resigned until they are in the middle of finding a replacement. So even the timing of the launch, a little bit unclear. But what I will say is that I've known, even some of our competitors have purchased legal horse racing companies trying to find the value in being able to market locally in the country itself in a more normalized way the last couple of years. So I think one of the benefits is that the local marketing will be opened up for the first time, and companies that have licenses presumably would be one of them.We'll have some benefits of being able to reach audience in a more direct way than you have in the past.

Thanks Richard. Just maybe a quick follow-up on your domestic business. You've obviously sort of optimized your market access agreements. You might pulled that at Connecticut, decided not to go in the Massachusetts to improve. Obviously, had some success here in Delaware. Same time, you've got great cash position. Your cash flow positive, it looks like in '24. So I guess all of that was sort of an idea, Richard, I think that you're going to focus on markets that offer you both sports betting and iGaming, I'm just curious that now that you optimized here and you see new states like North Carolina opening next week, that seems like has a pretty big CAM opportunity. I don't think over tax do not over licensed. Do you think still sort of skip out on states like that as they legalize domestically or do you start to sort of entertain these these opportunities on a one-by-one basis as you move forward here? Thanks.

Right. Yes, so each new market, we evaluate on a case-by-case basis and it truly is a very rigorous evaluation process. We're looking at the tax rates, competition, the adjacencies in terms other markets nearby that we're operating in, permitted products. And so in the cases of some of these Sportsbook, only markets we're looking at all those considerations that you're deciding, are we going to get a better return on investing the energy and time when those markets are continuing to grow some of the other markets we're in where we feel there's a better ROI. And so ultimately, we want to look for a fast recovery of our investment. And so markets gives you a much faster recovery on investment. We've seen that with a iCasino markets, how we typically will get a profitability in the fourth or fifth quarter after we launch much sooner than you get for sports with only market. So for those reasons, we've been very cautious and very selective, and I think we're unique in that we have all of the regional world that we have opportunity to tackle that we're not relying only on growth from additional sports would only markets in the United States.

Thank you. At this time, we do not have any further questions registered in the queue. So I will turn the call back over to Richard Schwartz for some closing remarks.

Well, thank you for joining us today. As you can see, we're experiencing strong momentum across all aspects of our business. It's not hard to see why I'm more excited today than I've ever been about the future opportunities are as high as in front of us. We look forward to updating you on our progress when we share our first quarter results in a couple of months.

That concludes today's call. Thank you all for your participation, and you may now disconnect your lines.