Rush Street Interactive, Inc. — Q3 2023 Form 10-Q Summary
Business context and reporting period
Rush Street Interactive, Inc. operates online casino, online sports betting, retail sports betting and social gaming businesses in the United States, Canada and Latin America. The filing covers the three and nine months ended September 30, 2023, compared with the corresponding 2022 periods. The company operated real-money offerings in 15 U.S. states, Colombia, Ontario and Mexico. As of September 30, 2023, RSI owned 31.87% of RSILP units, with the remaining 68.13% represented as non-controlling interests.
Financial performance and key metrics
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Revenue | $169.9 million | $148.0 million | $497.3 million | $426.7 million |
| Revenue growth | 15% | — | 17% | — |
| Loss from operations | $(11.7) million | $(20.6) million | $(48.1) million | $(96.4) million |
| Net loss | $(13.4) million | $(22.7) million | $(54.6) million | $(103.3) million |
| Net loss attributable to RSI | $(4.2) million | $(6.6) million | $(16.6) million | $(29.6) million |
| Adjusted EBITDA | $4.1 million | $(12.5) million | $(3.3) million | $(74.5) million |
| Net loss per Class A share | $(0.06) | $(0.10) | $(0.25) | $(0.47) |
Q3 revenue consisted primarily of online casino and online sports betting revenue of $165.3 million, retail sports betting revenue of $3.5 million and social gaming revenue of $1.1 million. U.S. and Canada revenue was $150.9 million, while Latin America revenue was $19.0 million.
Q3 operating expenses were $181.6 million, including costs of revenue of $116.2 million, advertising and promotions of $34.6 million, general administration and other expense of $22.4 million, and depreciation and amortization of $8.4 million. Approximate Q3 revenue margins were 31.6% after costs of revenue, negative 6.9% at the operating level and negative 7.9% at the net-loss level. Nine-month margins were approximately 33.0% after costs of revenue, negative 9.7% operating and negative 11.0% net.
Average monthly active users declined year over year, primarily because of reduced advertising, marketing and bonusing in certain markets, particularly online sportsbook-only markets. ARPMAU increased, primarily due to continued operations in markets offering online casino in addition to sports betting, targeted marketing and a focus on retaining higher-quality players. The filing text does not provide clear numerical MAU or ARPMAU values in the supplied excerpt.
Cash flow, liquidity, debt and balance sheet
- Cash and cash equivalents were $171.2 million at September 30, 2023, excluding legally restricted customer deposits. Cash, cash equivalents and restricted cash totaled $176.2 million.
- Net cash used in operating activities was $6.8 million for the first nine months of 2023, versus $52.6 million in the prior-year period.
- Net cash used in investing activities was $26.1 million, including $17.2 million for internally developed software and $6.8 million for gaming licenses.
- Net cash used in financing activities was $0.4 million. The company had no debt outstanding and had a $2.0 million undrawn letter of credit related to Colombia.
- Total liabilities were $152.5 million and total stockholders’ equity was $162.3 million at September 30, 2023.
- The company had $28.0 million of surety bonds securing customer funds and an additional $4.6 million of surety bonds supporting regulatory requirements.
- Management expects existing cash and operating cash flows to fund operating and capital expenditure requirements for at least the next 12 months and the foreseeable future, while noting that additional financing could be required if conditions change.
Material changes versus the prior comparable period
- Revenue increased 15% in Q3 and 17% for the nine-month period, driven by growth in existing markets and markets launched after or during 2022.
- Advertising and promotions declined 23% in Q3 and 20% year to date as management rationalized marketing spend. Marketing expense fell to 20% of Q3 revenue from 31% and to 25% of nine-month revenue from 37%.
- Costs of revenue increased 12% in Q3 and 8% year to date, but declined as a percentage of revenue to 68% from 70% in Q3 and to 67% from 72% year to date.
- General administration and other expense increased 40% in Q3 and 34% year to date, primarily from higher personnel and administrative costs.
- Depreciation and amortization more than doubled in the nine-month period to $22.1 million, reflecting increased investment in gaming licenses, internally developed software and other definite-lived intangible assets.
- Adjusted EBITDA improved to positive $4.1 million in Q3 from negative $12.5 million, although it remained negative $3.3 million for the first nine months.
- Non-controlling interests’ share of RSILP declined to 68.13% from 70.55% at December 31, 2022, primarily due to exchanges of RSILP units and equity award vesting.
Outlook, commentary, risks and unusual items
Management emphasized continued expansion of online gaming offerings, investment in the platform, product development, engineering and operations, and further market expansion in North America and Latin America. The company stated that it expects capital expenditures, working capital, marketing, market access and license costs to increase as it pursues growth. No formal quantitative revenue, EBITDA or profitability guidance is provided in the filing text.
The company and its Connecticut partner intend to wind down their online and retail sports betting partnership in Connecticut, which management expected to occur in the fourth quarter of 2023 or shortly thereafter.
Non-cancelable contractual commitments totaled $69.7 million, including $49.1 million for license and market access commitments, $17.5 million for marketing contracts and $3.1 million for leases. Expected obligations during the next 12 months included $13.6 million of marketing commitments, $3.1 million of license and market access fees and $1.4 million of lease payments.
The company recorded a $0.7 million long-lived asset write-off during the first nine months. The unrecognized Tax Receivable Agreement liability increased to $65.2 million from $58.7 million, primarily because of RSILP unit exchanges; management does not expect material TRA payments in the near future because related tax benefits are not considered more likely than not to be realized.
Key risks include intense competition, customer acquisition and retention, regulatory and licensing changes, dependence on technology and third-party providers, cybersecurity and data breaches, sports-event volatility, macroeconomic pressure on discretionary spending, foreign currency exposure, continuing losses and the need to maintain adequate liquidity. The filing states that there were no material changes to previously disclosed risk factors, no material legal proceedings, and no material changes in internal control over financial reporting. Disclosure controls were deemed effective as of September 30, 2023.
Investor verification points
- Verify whether positive Q3 Adjusted EBITDA can be sustained while MAUs are declining and marketing investment remains reduced.
- Assess the quality and durability of higher ARPMAU, including the contribution from casino-heavy markets and customer mix changes.
- Monitor operating cash flow, software and license investment, and the company’s ability to meet $69.7 million of contractual commitments without debt financing.
- Track the Connecticut wind-down and its effect on revenue, costs and market access arrangements.
- Review the allocation of consolidated losses between RSI and non-controlling interests and the implications of the 68.13% non-controlling ownership of RSILP.
- Evaluate regulatory, licensing, responsible-gaming, cybersecurity and third-party platform risks across the company’s jurisdictions.