Rush Street Interactive, Inc. (NYSE:RSI) Q4 2023 Earnings Call Transcript
Rush Street Interactive, Inc. (NYSE:RSI) Q4 2023 Earnings Call Transcript March 6, 2024
Rush Street Interactive, Inc. beats earnings expectations. Reported EPS is $0.01, expectations were $-0.06. Rush Street Interactive, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: 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.
Kyle Sauers: 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.
Richard Schwartz: 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 wide and ever-growing range of differentiated product features and functions and accomplish our customer and financial goals. Third is operating leverage that grows as we scale. With each year as we drive growth in a diversified set of markets, we expect to deliver improving earnings and cash flow. This past year, not only did we improve EBITDA by $100 million that I referenced earlier, but we did sell on a $100 million increase in revenue. We saw continued progress in each of these areas throughout the year, culminating in a very strong fourth quarter.
Turning to our results, revenue for the fourth quarter was $194 million, up 17% from the prior year. Quarterly EBITDA improved $28.8 million, coming in at $11.5 million compared to negative $17.3 million last year. For the full year, we grew revenue 17% to $691 million, which as I mentioned, resulted in improved EBITDA of $8.2 million. A large part of the improvement is that we continue to grow revenue much more efficiently. Kyle will provide more detail on the numbers soon. There are a few things to take away from the quarter and the year. Topline performance was strong once again as we are seeing our customer centric approach and our ability to innovate translate into results. We saw strength across products for iCasino online sports betting and also across geographies, US, and Canada, and also LATAM.
When looking at different market vintages, it's exciting to note that excluding our US markets launched before 2021, our revenue growth was an impressive 44% during the fourth quarter. We continued to go faster in our higher margin markets. A couple of highlights of note in the US and Canada, higher user counts are driving increased revenue even as we grow player values. In fact, during the fourth quarter, we achieved our highest year-over-year MAU growth in the last four quarters at 7%, which was well balanced between iCasino and online sports betting only market. Even more important, that growth accelerated throughout the quarter and has continued nicely into Q1 of this year. Looking at Q4 highlights for a few specific markets. Michigan has seen a strong acceleration in revenue, and Q4 was our highest growth rate in the past year.
New Jersey has also seen nice progress in recent quarters, and we hit a new high for revenue in that market since we rebranded to BetRivers in Q3 of 2022. In Ontario, we continued to have great success with the year over-year-growth of 50%. West Virginia continued its strong pace as well, where we grew revenue by 80% compared to the prior year. Delaware is a market that in a short time has already validated the impact of our high quality user experience. As a reminder, we are the sole igaming and online sportsbook platform in the state, powering online casino and sports betting for each of the states three land-based casinos. It has only been a little over two months, but nevertheless, we are extremely pleased with the start. Over the first 60 days, we are at a run rate that would imply over $60 million in annual GGR.
The prior operator only had iCasino, so for comparison purposes, over two-thirds of the GGR is iCasino and the rest being online sports betting. Comparing apples to apples, the online casino results, which at this point was simply our replacement of their prior online casino platform and operations, is running above three times what the previous operator was doing. And then obviously, we are seeing strong initial results in online sports betting, which has never been offered to players in this state prior to our launch. These initial results, in our view, highlight our differentiated product and user experience and why time and again, we are able to sell in markets that include iCasino. Moving south, we continue to execute extremely well demonstrated by the fact that LATAM continues to show very strong performance.
Revenue in Colombia grew over 65% year over year, while in Mexico, it was up approximately 60% quarter over quarter. This brings fourth quarter LATAM revenue contribution to over 13% of total revenues, the highest level in our history. Latin America remains topical both for us as well as within the broader industry landscape as several countries are planning for iCasino and online sports betting expansion. Simply stated, we are a proven leader in Latin America. We have a demonstrated track record of success powered by significant infrastructure investment; technology, localized and customized for the region; and the know-how that only comes from on the ground experience. Nowhere demonstrates our capabilities in LATAM better than Colombia. Our results in Colombia continue to grow at a very rapid pace as fourth quarter revenue growth accelerated to its highest rate of the year.
We've come a long way and expect a lot of growth ahead. Five years ago, we set out in Colombia with no brand recognition, no databases, no employees, no relationships, essentially nothing. No one in our company even spoke Spanish fluently. By focusing on the fundamentals and building the business in a sustainable way, we've grown to the point where we believe that we've recently become the second largest operator in Colombia. We have achieved the success by investing in the business and executing on the fundamentals from the very beginning. We have built an entire organization locally, including the full operations, marketing, payments, legal, compliance, finance, HR, and development teams. Our strong presence has allowed us to develop local relationships and more importantly, earn and retain credibility in the market with our employees, partners, and customers.
This approach has served us well as several competitors, some global operators, entered the market in the last couple of years. Despite their initial efforts and aggressive marketing spends, they have not been able to capture meaningful market share. Bottom line, Colombia remains an exciting market for us. It is both fast growing in itself with years of growth ahead, while at the same time providing us the foundation to expand in LATAM as we are doing in Mexico. In Mexico, as we shared after we launched in late 2022, our expectations were to begin seeing a meaningful ramp up in the second half of 2023. We were able to deliver on this as represented by the 185% revenue growth in the second half compared to the first half of last year. When compared to our start Colombia, we have generated about two times the revenue since launch in Mexico over the same time period, coupled this with our app being one of the highest rated in Latin America and we are poised for continued success.
Beyond our current footprint, LATAM is the region where there are several opportunities that play to our strengths. Many investors are aware that in late December, the President of Brazil signed legislation authorizing the regulatory framework for both Online Casino and Sportsbook. This is the conclusion of a lengthy legislative process that for much of the time was thought would only lead to legalization of Sportsbook. Fortunately, especially for our site, at the end of the process Online Casino was added. For us, this inclusion of online casino certainly makes the market opportunity bigger and it is in other aspects of legislation that plays to our strengths. There are many regulations complexities that we work through for the Brazilian market, but we have settled a long time preparing to leverage our technology capabilities in the country and plan to participate.
We look forward to updating you on our progress in coming quarters. There's also Peru, which gets a lot less attention, which we are very excited about as well. Last year, Peru not only approved laws governing online gaming and sports betting, but it also published online gaming regulations. This is an exciting market for us given its adjacency to Colombia and shared media markets, meaning that many of the soccer TV broadcast that we market on in Colombia are viewed by consumers in Peru. In fact, our research has shown that our RushBet brand is already widely recognized in Peru. As our timing becomes more clear on the Peru launch, we will share more details. Notwithstanding, we expect to launch later this year. In terms of how we see the market size of both countries, the population of Brazil is over 200 million people, and Peru is about $35 million; compared with Mexico, which is 130 million, and Colombia, which is 50 million.
Safe to say between ramping Mexico and then with Brazil and through legislative activity, we are seeing significant near and intermediate term opportunities to target a population of over 425 million people and over an estimated $6 billion total addressable market in these four regulated LATAM markets alone. Shifting to the North American legislative outlook, we're at the beginning of 2024 as legislative sessions around the country. And there are a host of states on our radar and we are watching closely for iCasino opportunities. We certainly discussed that at length on past calls. While we are not laying off the legislative outcomes, some of the states that we are watching include New York, Maryland, Illinois, as well as provinces in Canada, most notably Alberta.
As we look ahead, these, along with exciting growth initiatives I've mentioned regarding Latin America have us very excited about the future. There is no shortage of near and long-term opportunities in our universe. We remain confident over the long term given the beneficial economics to government budgets especially as compared to inflows from online sports betting. That expansion in iCasino legislation is increasingly a question of when not if. More and more positive momentum is building, some quite visible to the public and more behind the scenes as the online industry ratchets up its focus and investments in legalizing iCasino in more markets. Now I'll hand it over to Kyle to talk in more details about the financials.
Kyle Sauers: 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, two years ago, our MAUs are up an incredible 144% and that's on top of what was already a sizable player base. Our ARPMAU in LATAM was $42 during Q4, up 28% year over year. In our investor deck, you'll also find some additional historical Latin American MAU and ARPMAU data to give you a perspective on the trajectory of our growth there. Switching the whole percentage as a company, iCasino was in line with our expected range during the quarter. In online sports betting, we were below our expected hold percentage given generally unfavorable sports outcomes during the quarter. Despite the lower sports hold, our strong financial performance in the quarter further demonstrates the stability of our business and the lower reliance on sports outcomes.
Our gross profit margin was 32.1% for the quarter and 32.9% for the full year, up 270 basis points compared to the full year 2022. Our gross margin outside of Pennsylvania and Illinois increased by 900 basis points to 44% as our total revenue mix continued to shift away from Pennsylvania and Illinois,increasing from 45% to 52% for markets other than Pennsylvania and Illinois during Q4. For those that follow us closely, you'll recall that our operating margins are relatively fixed given the structure under which we operate with our land-based partners in those two states. There's an inverse relationship between our marketing spend and our market access royalty expense. Therefore, as our marketing cost decreases in Pennsylvania and Illinois as those markets mature, our royalty rate increases, which decreases our gross margins, but our operating margins remain steady.
This creates very consistent profitability for us in those two markets, but also less dependence on them as other markets grow. In fact, the 52% of revenue that came from other markets in the fourth quarter produced more than 70% of our profitability. When it comes to 2024, we expect our revenue mix to continue to increase towards non Pennsylvania and Illinois markets and to improve gross margins in those other markets with some offsetting decrease in Pennsylvania and Illinois gross margins with a net effect expected to be a small increase in total company gross margin percentage for the full year 2024. On the marketing side, we continue to stay disciplined and are seeing greater efficiency with spend. Fourth quarter advertising and promotion spend was $34.6 million, down from $63.2 million last year.
For the full year, advertising and promotion spend was $158.4 million, down from $218.4 million last year. We see the efficiencies evident in our growing active user count and getting a larger share of wallet from our players, measured by increasing ARPMAU. Looking forward to this year, we'll see continued discipline and precision from our marketing efforts. And while we won't be shy about making investments when we see opportunities, we do expect to get leverage over our marketing spend again in 2024. So marketing spend that grows at a lower rate than revenue for the year. G&A for the fourth quarter was $16.2 million and 8.4% of revenue, and for the full year was $60.6 million, which equated to 8.8% of revenue. For 2024, we expect to get some modest leverage over our G&A expense and come in less than the 8.8% that we had in 2023.
I'll note that much of the run rate increase in G&A will come in the first quarter as we have our annual compensation adjustments for employees. Turning to the balance sheet, we ended the quarter with $168 million in unrestricted cash and no debt. We had a small use of cash during Q4 due to working capital timing, and we do expect to be cash flow positive for the full year 2024. We are initiating full-year revenue guidance for 2024, which reflects our strong momentum in the fourth quarter and here in early 2024. We currently expect 2024 revenue to be between $770 million and $830 million, which represents $800 million at the midpoint, up 16% year over year. As a reminder, our guidance includes only those markets that are live as of today. In addition, during 2024, we are adding adjusted EBITDA guidance to the mix.
For the full year 2024, we currently expect adjusted EBITDA to be between $35 million and $45 million, which represents $40 million at the midpoint. With that, operator, please open the lines for questions.
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