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Kyle Sauers; CHIEF FINANCIAL OFFICER; Rush Street Interactive, Inc.
Richard Schwartz; CEO; Rush Street Interactive, Inc.
Bernie McTernan; Analyst; Needham
Josh Marin; Analyst; Oppenheimer
Jordan Bender; Analyst; JMP Securities, LLC Citizens
Chad Beynon; Analyst; Macquarie Capital (USA) Inc.
Ara Masías; Analyst; Jefferies LLC
Ryan Sigdahl; Analyst; Craig-Hallum Capital Group LLC
Mike Hickey; Analyst; The Reference Company, LLC
Operator
Good morning and gentlemen. Thank you for being here. Welcome to Rush Street Interactive’s year-end and fourth-quarter 2023 earnings conference call. (Operator Instructions) Please note that this conference call is recorded today, March 6, 2024. Now I’ll hand it over to Kyle Sauers, Chief Financial Officer. You can continue.
Kyle Sauer
Thank you, operator, and good afternoon. By now, everyone deserves access to our 2023 Q4 and Year-End Earnings Release, which can be discovered under the heading Quarterly Financial Results in the Investor Segment of RSI’s online page at rushstreetinteractiveArraycom. Some of our comments constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are not old news and are sometimes known by the use of words such as “expect” and other similar expressions that are subject to a number of dangers and uncertainties that could cause actual effects to differ materially from those anticipated. the ones we wait for. We undertake no obligation to update any forward-looking advertising. Therefore, you must be careful when interpreting and depending on them. We refer you to our filings with the SEC for a more detailed discussion of the risks that could affect our long-term effects of operations 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 are not worth considering in isolation or as a replacement for our monetary papers prepared in accordance with GAAP. In particular, we will discuss adjusted EBITDA, which we describe as net earnings or loss before interest, income, taxes, depreciation and amortization, changes to share-based payment for certain one-time or non-recurring items, as well as other changes that are non-recurring or non-recurring. -in money or are not related to our underlying business performance. A reconciliation of those non-GAAP measures to the maximum directly comparable GAAP measure will be made in our fourth quarter and year-end 2023 earnings release and in our investor presentation, which will be found in the Investors segment of the page at RSI line. at rushstreetinteractive. com. For the purposes of today’s call, unless otherwise noted, when we talk about profitability, EBITDA or other measures of non-revenue revenue streams, we mean those pieces in a non-GAAP adjusted EBITDA. Today I’m joined by Richard Schwartz, CEO. We’ll first give some opening remarks and then open the call for questions. And with that, I give way to Richard.
Richard Schwartz
Kyle Sauer
Thanks Richard. Fourth quarter coins were $193. 9 million, up 17% year-over-year, leading to coin revenue of $691 million for the full year 2023, also up 17% year-over-year. We continue to see well-balanced functionality in both iCasino and online sports betting, with a 19% year-on-year increase during the quarter. Geographically, we are also very well balanced with double-digit expansion in our positions in the US, Canada and Latin America markets. We continue to improve coin entry and money flow as we grow the business. We recorded our third consecutive quarter of positive EBITDA, and in the fourth quarter we achieved a record $11. 5 million. As Richard mentioned, our full-year EBITDA improved by $100 million driven by similar coin accumulation. Behind those effects, we are very encouraged by the trends in player acquisition and retention, measured by active users per month. North American MAUs for the fourth quarter were approximately 160,000, reaching a quarterly record. In fact, MAUs grew 7% year over year, our most powerful MAU expansion of the year. The majority of this build-up reflects our past efforts of acquiring and retaining lucky online casino and sports betting players in our existing market positions. We also continue to see better trends in ARPMAU. During the fourth quarter, our US and Canada ARPMAU of $345 increased 5% year over year and reached its highest point for the fourth quarter in the 3 years since its initial public offering in December 2020. With our strong and continued fortune in Latin America and our expected expansion into new Latin American market positions in the coming years, now is the right time to start sharing insights on the pricing of users and players in our LATAM market positions. MAUs in the fourth quarter were 204,000, a year-over-year increase of 33%. If we go back to the fourth quarter of 2021, after two years, our MAUs have increased by an incredible 144% and this is the majority of what was already a significant player base. Our ARPMAU in LATAM was $42 in the fourth quarter, an increase of 28% year-over-year. In our investor presentation, you will also find more past knowledge on Latin America MAU and ARPMAU to give you an attitude about the trajectory of our expansion in this country. Changing the total percentage as a company, iCasino was within our expected diversity during the quarter. In online sports betting, we were below the expected participation rate given the sometimes unfavorable sports effects during the quarter. Despite the lower influence of sport, our monetary functionality forged during the previous quarter demonstrates the stability of our activity and the lower dependence on sporting effects. Our gross profit margin was 32. 1% for the quarter and 32. 9% for the full year, an increase of 270 foundation issues over full year 2022. Our gross margin outside of Pennsylvania buildings and Illinois increased by 900 foundation issues to 44%, our coins overall As a whole, they continued to pull away from Pennsylvania and Illinois, rising from 45%. to 52% for market positions other than Pennsylvania and Illinois during the fourth quarter. For those who follow us closely, you will remember that our operating margins are relatively constant given the design in which we operate with our ground partners in those two states. There is a reverse dating between our market positioning expenses and our payment for access to market position expenses. Therefore, as our market positioning prices are minimized in Pennsylvania and Illinois as those market positions mature, our royalty rate increases, which minimizes our gross margins, but our operating margins remain stable. This creates very consistent profits for us in those two market positions, but also less dependence on them as other market positions develop. In fact, 52% of coins coming from other market positions in the fourth quarter produced more than 70% of our profitability. Looking forward to 2024, we expect our currencies as a whole to continue to build market positions outside of Pennsylvania and Illinois and improve gross margins in those other market positions, with some offsetting decline in gross margins in Pennsylvania and Illinois with a net benefit. The effect is expected to be a slight buildup. as a percentage of the company’s overall gross margin for the full year 2024. As far as market positioning goes, we remain active and are seeing increased spending power. Advertising and promotion spending in the fourth quarter was $34. 6 million, up from $63. 2 million last year. For the full year, advertising and promotion spending was $158. 4 million, up from $218. 4 million last year. We see the effectiveness evident in our growing number of active users and gaining a greater percentage of our players’ wallets, measured through the expansion of ARPMAU. Looking ahead to this year, we will see continued scope and precision in our market positioning efforts. And while we won’t hesitate to invest when we see opportunities, we plan to leverage our market positioning spend in 2024. Therefore, marketing spend is growing at a slower rate than the currencies of the year. General and administrative expenses for the fourth quarter were $16. 2 million, or 8. 4% of revenue, and for the full year they were $60. 6 million, which was equivalent to 8. 8% of revenue. The Billing. By 2024, we plan to achieve modest leverage on our general and administrative expenses and that will be lower than the 8. 8% we had in 2023. I will note that much of the increase in the run rate of general and administrative expenses will be positioned in the first quarter, because we did it. Our annual pay changes for employees. Looking at the balance sheet, we ended the quarter with $168 million in unrestricted cash and no debt. We had low cash burn in the fourth quarter due to working capital timing, and we expect positive cash flow for the full year 2024. We are releasing our full-year currencies as a guide. year 2024, reflecting our strong momentum in the fourth quarter. and here in early 2024. Lately we forecast that coins for 2024 will be between $770 million and $830 million, which is $800 million at the midpoint, up 16% year over year than the other. We remind you that our forecasts only include active market positions as of today. Additionally, in 2024, we upload adjusted EBITDA forecasts to the combined. For full year 2024, we ultimately expect adjusted EBITDA to be between $35 million and $45 million, which represents $40 million at the midpoint. That said, operator, open the lines for questions.
Operator
(Operator’s Instructions) Bernie McTernan, Needham
Bernie Mc Ternan
Thank you for answering the question. I was just looking to get started with LATAM. Assuming that at this point Colombia has a positive adjusted EBITDA, we are just asking ourselves what is the time and path to EBITDA profitability in Mexico. And then I also have a follow-up.
Kyle Sauer
Hi Brent, thanks for the question. You’re right about Colombia. Colombia has been a success for us for some time now. You’d have to go back and see exactly when we’re going through to be successful, but it’s been a long time now. In Mexico, Mexico is close. I think we’re having a very smart fortune there. As we discussed in the ready comments, a lot of things are happening well there and are starting to build well. So we’re going through to keep you updated on Mexico’s profitability, yet it’s definitely not a big deal for us right now.
Bernie Mc Ternan
Then, there was news about the governor of Illinois, who was contemplating converting gambling taxes in the state. I wonder if you have any idea about the possible effect this could have on Rush Street, and so what payment levers could you use if taxes went up?
Kyle Sauer
Of course. So, as you point out, the governor’s budget is more than double the tax rate on sports betting. Therefore, it is clearly not something that we would be in favour of. We’re at the beginning of the session, but I think so. It is important to note that due to the design of market access spouse dating in Illinois, the effect on us of this potential replacement is much less than some expected, perhaps to frame it. effective for the recently completed year 2023. The negative effect on our EBITDA would have been less than $3 million. My guess is that the prospective end results are that there is discussion about iCasino in Illinois and the much larger effect on iCasino may simply have effects on state revenues, rather than expanding the OSB tax rate.
Bernie Mc Ternan
They gave it to me. Thank you. Thank you.
Operator
Jed Kelley, Oppenheimer.
José Marín
Hi, I’m Josh Marin of Judge Kelly. Thank you for answering our questions. I have one about the regulation of iGaming. La speed of the iCasino law has slowed down a bit. So I’m curious to know what you think about that and RSI’s stance on it. he.
Richard Schwartz
Of course. Hi Josh. This is Ricardo. So, yes, we can’t wait for the time when those things will happen, but we do know that our peers and our industry are developing an enthusiasm to help with this and generate more tax gains for the states. What I will say is that this year more expenses have been generated than in a long time. Some of them will cross the finish line, but others are gaining momentum. And in fact, we think a market like Alberta is something we pay a lot of attention to, because we think there’s been very positive public feedback from some stakeholders there. What excites us is that we have so much expansion in Latin America lately that while we are impatient, we are hoping and pushing for iGaming to be added to more states in the United States. In fact, we have no shortage of opportunities that excite us. So, markets like Peru and Brazil and other markets that have already legalized our regulatory procedure are there right now. So we have very gigantic populations there where we can build casinos. So we’re not missing out on opportunities, that’s why we’re really excited because we have so many features and our other peers in the United States don’t really have the same measure as us in terms of significant market opportunities in Latin America. Therefore, we will continue to advance legalization. States are beginning to feel the consequences of not having a sufficient tax base to justify some of their costs. And so, through those efforts, we are seeing a diversified tax base building. We are seeing more and more discussions surrounding iCasino as an imaginable way to unite and strengthen state tax bases.
José Marín
Okay, great. Thank you.
Operator
Jordan Bender, JMP Citizens.
Jordan Bender
Hello everyone. Some in Delaware. Me wondered how this style of operation differs from some of the more competitive states in which it operates, and what the era of payback will look like. And this, then, will definitely contribute to EBITDA according to your forecasts. , just with the presence of iCasino as well? Thank you.
Richard Schwartz
Yes. Thanks, Jordan. So in Delaware. First I would say that it seems like other North American iCasino markets have been for us. Delaware will pay for itself pretty quickly. Gross margins are expected to be equivalent to or perhaps less than our average gross margins, but the contribution margin or operating margin deserves to be above our average, so you’ll be a smart contributor to us. We’ve talked about it, we’ve already come out of Delaware pretty strong, so we’re really excited about this opportunity. It will be a significant contribution to us, in terms of profits and results. over time.
Jordan Bender
Including then simply with a loose cash flow, or at least 24, you talked about the ability to produce a loose cash flow. Naturally, this begs the question: what is this for? Are you thinking about a capital allocation?Do mergers and acquisitions make sense here? Do you have any thoughts on this?
Richard Schwartz
Well, look, we’re going to direct capital towards the highest returns and we’re comparing all the opportunities, whether it’s new investments in existing markets or new investments in newly regulated markets. We are still researching all the features on the table. . Certainly, we’re looking at tactics to create more prices and maximize the price for shareholders. Do you want to upload something else?
Kyle Sauer
No, I said I had the idea to go back to Richard’s consultation on iCasino laws and opportunities in Latin America. When new markets open up, we will have many places where we can make smart investments. So I think that’s the first priority for us.
Jordan Bender
Super. Nice neighborhood.
Richard Schwartz
Thank you Gerard.
Operator
Chad Beynon, Macquarie.
Chad Beynon
Afternoon. Nice neighborhood. Thank you for answering my question. According to forecasts, it turns out that the expected result of EBITDA expansion relative to earnings expansion will be a high in the 20s and a low in the 30s. Kyle, can we give us a little more detail or just why a 30% flow is the right number after a year where a 100 percent flow was reached. I know you’ve talked about some lines that are less than the gains, but is there anything else we want to take into consideration as new?Are markets rising? Just a little bit of extra color here. Thank you.
Kyle Sauer
Yes, no, enjoy it. And I think it’s vital to see a return of around 30% at the midpoint of our forecast. I think if we look ahead to 2023, that’s pretty significant. And that’s probably pretty vital for the industry and for us because of decreased marketing spend, fewer market launches, and more rational behavior. I think it was smart for us last year. This is the first time we have presented EBITDA forecasts. Therefore, I need to be careful when making long-term plans. However, I believe that we will be able to achieve this in time. We need to make sure we’re providing the right guidance. For the first time, we’re giving them as much as we can as the year progresses.
Chad Beynon
And then what about the main points that would take you to the lower end of the earnings forecast, which is 11%, compared to the high end, which is 20%?Thank you.
Kyle Sauer
Of course. So I probably wouldn’t give you the precise main points of either end, of course, but it’s still a pretty rapidly evolving industry. So there are many other points that come up when thinking about the income source guide. We saw a wonderful acceleration of expansion throughout the fourth quarter. We discussed that in the comments ready. The momentum has continued through 2024. So we have wonderful confidence in the range of $770 million to $830 million that we are proposing today. Sports diversity based on sports results, this will be a contribution. We talked about this in our opening remarks, but excluding our US markets introduced before 2021, we saw over 40% expansion in the fourth quarter. That’s why we have fast-growing markets. So there is more variability. So we are aware of that. And then maybe the last piece, but don’t forget we live in Connecticut for a smart part of 2023. That’s already over for us in 2024. But we added Delconscious, which is new. It started well, once again, it’s new. Therefore, it presents in itself a total diversity of potentials. So I think these are all things we’re thinking about as we expand this diversity of outcomes.
Chad Beynon
Are you in a position to contribute what Connecticut contributed in terms of profits in 2023?
Kyle Sauer
That’s about $20 million.
Chad Beynon
It is ok. Thanks a lot. Enjoy.
Operator
Ara Masías, Jefferies.
Ara Masías
Hi, guys. Thank you for accepting my question. Congratulations on the quarter. Could you explain a little more about the expansion of the overseas market, compared to the continued expansion of the U. S. online sports market?Is there a U. S. economy? Thank you.
Richard Schwartz
I believe that when it comes to foreign growth, the Latin American region is the fastest growing region at the moment, being the first globally in legalizing online betting. So the fact that we are noticeably strong in North America and Latin America gives us a lot of confidence that those margins are going to grow for decades, not just a few years here and there. So I would say that the sports betting market in the United States is notoriously very competitive. Some operators start each new market by already having a giant database of players in their systems. And this will move from fantasy betting to genuine cash sports betting. There is a situation where taxes are relatively higher in the United States, leading to greater competitive intensity. So I think for us, the opportunity that we have focused on is to be able to continue to grow our business in Latin America, because it is a very dynamic, high-growth, difficult-to-penetrate market that has evolved Secure experience to succeed. And there is something very difficult, as I mentioned in my notes in my previous comments. There are fewer people who have managed to succeed despite a lot of effort, because you have to offer it to the market as soon as possible, localize your technology, have a team with a lot of experience in the field and expand your logo. many years ago today. It gives you an advantage in other jurisdictions in that region when you start there. So for us, I think the opportunities we have in many of those markets also come with casinos and sports betting, which hasn’t been the case as much as in the United States. For those reasons, the tax rates and competitive intensity are a little different from our experience in this area. This is a domain that we have clearly focused more on, namely some of the newer sports betting markets, where we felt it was best for us to direct our capital towards markets that will give us a higher return.
Ara Masías
Super. Thanks a lot. That’s it for me.
Operator
Ryan Sigdahl, Craig-Hallum Capital Group.
Ryan Sigdahl
Hi, guys. Good afternoon. I’m curious about Delaware. Therefore, promotions for new users take advantage of initial deposits and app downloads from our point of view. But I’m curious to know what metrics you can percentage on the upcoming deposits and retention of those players once the promotional dollars have been used and I get it, it’s still very early here, but do you have anything notable that percentage?
Kyle Sauer
Yes, I mean, we’ve obviously had a clever success. I think we were getting close to promotions and bonuses there, make sure we are fair to our new players. But we are the only operator present on site. I think from the knowledge of the state that has been reported and from what we have said, you can see that we have made an intelligent start. When you take a look at our GGR or NGR, you’re probably not surprised that our daily numbers for February are higher than those for January. It’s still pretty early. Therefore, we need to make accurate predictions about where things are going to go; however, we are very positive about Delaware. I’m guessing there’s one thing I’d like to point out that’s likely helpful to those tracking state-reported knowledge trends: the knowledge the state released in January includes our five days of activity in December since our launch on December 27. Keep this in mind when looking for the trend from January to February, when this information will be released later in March.
Ryan Sigdahl
As you mentioned, is GGR’s $60 million execution what you assumed in your forecast or is there any assumption?
Kyle Sauer
Well, I don’t think so, I need to start analyzing the market through the market, which is supposed in the orientation, but surely there is a total diversity of results. I think there was a lot of excitement about the product we presented there and they received a smart commitment. Admittedly, I know Richard referred to this, but if you can compare iCasino’s winnings to what they were before we introduced it, it’s a pretty dramatic improvement. So, as I mentioned in one of the previous answers, the diversity of management includes a certain point of variability from what we might expect in Delaware simply because it’s so new. But again, we are optimistic, the start has been faster than expected.
Richard Schwartz
I will only add that we present to you that the players who visited your site beyond expected to enjoy the same pleasure that we have had for many years. And instead, they discovered an exciting new online experience with us that we’ve been talking about for years as truly differentiated and innovative. And I think the effects confirm it. When you see all this wonderful content, we will offer you all the exclusive features and capabilities that are not found in the afterlife and that are not found anywhere else in the country, only on our platform. You see an immediate effect: when you bring a player base to an exclusive, differentiated and high-quality user experience and that provides budget to those players, it immediately has a positive effect. And I think those were Kyle’s comments last quarter when we told him that. We thought it wouldn’t happen overnight. It’s good, but for us it happened overnight because the difference in quality is so significant that we think the players noticed it. And it’s clear that the numbers reflect this huge growth in gaming compared to what was happening in the 10+ years before we moved to our platform.
Ryan Sigdahl
Yes, right. The functionality here is no coincidence. The product surely matters. You’re doing a smart job. Let’s move on to Brazil after one last question, I’m just curious to know what your projects are that you can share. Is it getting the RushBet logo and doing it organically?Do you want to get a logo and then a knowledge in this country?
Richard Schwartz
Yes of course. So there really is a pretty giant contingent of our team visiting Brazil this week for a convention we’ve been attending for years and comparing all the opportunities as we mentioned. The recent addition of iCasino to this market has literally created more exciting opportunities for us. We spend time with all the local sports teams, retail corporations, stadium owners, media corporations, and other gaming corporations. Really get to know all the players in the market and literally compare what is the right strategy for us. And today we are literally not in a position to share that strategy, however, I can tell you that we are excited about Marketplaceplaceplaceplace and our logo resonates there, as well as based on our studies that we have done and the conversations that we have had. So one thing to keep in mind is that Marketplaceplaceplaceplace also allows multiple logos. That is something we are also contemplating. But I think overall our logo has been so successful in this region that you notice a lot of displays in other countries that recognize Brazil, it’s Portugal and not Spain. However, you’ll still get a lot of highlights from this type of thing, where you’ll see our logo in the background. So I think our logo is very strong there as one of the assets that we will bring to this market, but it is possibly not the only asset that we will bring to this market.
Ryan Sigdahl
Thank you, Ricardo. Kyle, that’s the homework guys.
Kyle Sauer
Thank you. Ryan.
Operator
(Operator Instructions) Mike Hickey, Benchmark Company.
Mike Hickey
Hi Richard, Kyle. Congratulations to everyone on the forged Q4 of the 23rd. Thank you for answering our questions. I’m just curious about the Brazilian market. Actually, I just wanted to confirm that your planned access to this market is built into your 24 guide, Kyle. And I’m also a little curious, I think Brazil has a pretty established gray market. Marketplace with fairly large operators. Just out of curiosity, how competitive are you looking at in this Marketplace and how much do you think it’s already established in the grey market and how are you positioning yourself for that?Thank you all.
Kyle Sauer
Yes, thanks, Mike. I’ll take the first component and then let Richard comment on the second component. So we don’t have any indications. Revenue or EBITDA forecasts don’t come with any new markets. So we communicated earlier about Peru and expectations for a release later this year. When that happens, if it makes sense or if there’s a desire to update the guidelines, we’ll do it. with new ideas. And the same for Brasil. Si happens later in the year or if you want to postpone to next year, we’ll update you at that time. For clarity, only the markets we’re in today’s data are part of our earnings and profitability forecast. So, I’ll let Richard communicate about the competitive landscape.
Richard Schwartz
Hi Mike. As for the competitive landscape, there are quite a few gray market operators operating in this market for several years, focusing mainly on sports betting, some of them also offer casinos. But one of the things that hasn’t happened in a market is that they haven’t really supported local bills for those offshore corporations. They couldn’t invest in local media. They have not been able to use Google and other types of media components to generate higher reading volumes. So while some will have merit and a mark on a database, it remains to be seen how that database will translate into a regulated market. The regulatory leader who oversees our efforts here recently resigned until he can find a replacement. So even the timing of the release is a bit confusing. But what I will say is that I know that even some of our competition have purchased legal horse racing corporations looking to take advantage of the merit of being able to market locally within one’s own country in a more standardized way over the last couple of years. So I think one of the benefits is that the local market will be open for the first time, and the companies that have licenses will probably be part of that. We will have some merits in being able to succeed among the public in a more direct way. than in the past.
Mike Hickey
Thank you ricardo. Maybe just a quick step to catch up on your internal affairs. It is clear that it has optimised its market access arrangements. You may have taken that away from Connecticut and made the decision not to move on to Massachusetts for the better. Obviously, I’ve had some bad luck here at Delaware. Al same time, you have the perfect moneyArray. Your money is positive, it looks like in 2024. So I guess this was all kind of an idea, Richard, I think you’re moving on to focus on the markets that offer you sports betting. and iGaming, I’m curious to know that now that you’ve optimized here and see new states like North Carolina opening next week, it turns out you have a pretty big CAM opportunity. Do you think you’ll keep forgetting about states like that as they become legalized nationally or do you start looking for those opportunities one by one as you move forward here?THANK YOU.
Richard Schwartz
GOOD. Yes, we compare each new market on a case-by-case basis and it is actually a very rigorous evaluation process. We take a look at tax rates, competition, adjacencies to other nearby markets we operate in, and permitted products. And so, in the case of some of those sports bets, just the markets where we take a look at all the considerations that you decide, we will get a greater return on the investment of power and time as those markets continue to grow. One way or another. The other markets we offer in are those where there is a higher return on investment. So, ultimately, we should expect a quick return on our investment. The markets allow you to recover your investments much more quickly. We’ve noticed this with iCasino markets, how we typically get profitable in the 4th or 5th quarter after launching much earlier than in sports with just one market. So for these reasons, we have been very careful and very selective, and I think we are exclusionary in the sense that we have the global regional total that we have the opportunity to address and we are not just dependent on the expansion of more sports. only in US markets.
Mike Hickey
Thanks guys. Good luck.
Kyle Sauer
Thanks Mike.
Operator
At the moment, we don’t have any other questions stored in the queue. I will give the floor to Richard Schwartz to make some concluding remarks.
Richard Schwartz
Well, thank you for being with us today. As you can see, we are experiencing strong momentum in all facets of our business. It’s not hard to see why I’m now more excited than ever about the fact that we have so many long-term opportunities ahead of us. keeping you updated on our progress when we percentaged our first quarter effects in a few months.
Operator
That concludes today’s appeal. Thank you all for your participation, you can now disconnect your lines.