Rush Street Interactive, Inc. — Q3 2022 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 through RSILP. The filing covers the three and nine months ended September 30, 2022; financial statements are unaudited. The company operated real-money offerings in 14 U.S. states, Colombia, Ontario and Mexico, primarily under the BetRivers, PlaySugarHouse and RushBet brands.
Financial results and key metrics
| ($ in millions, except per-share data) | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 |
|---|---|---|---|---|
| Revenue | 148.0 | 122.9 | 426.7 | 357.5 |
| Loss from operations | (20.6) | (17.7) | (96.4) | (57.2) |
| Net loss | (22.7) | (18.9) | (103.3) | (33.0) |
| Net loss attributable to RSI | (6.6) | (5.3) | (29.6) | (9.1) |
| Adjusted EBITDA | (12.5) | (12.2) | (74.5) | (33.9) |
| Net cash used in operating activities | Not provided for quarter | Not provided for quarter | (52.6) | (16.7) |
- Revenue increased 20% year over year in Q3 and 19% for the first nine months. Q3 revenue comprised $143.7 million from online casino and online sports betting, $3.3 million from retail sports betting and $1.1 million from social gaming.
- Q3 gross margin was approximately 30.2%, compared with 33.9% in the prior-year quarter. Nine-month gross margin was approximately 27.8%, compared with 31.3%.
- Q3 operating margin was approximately negative 13.9%, versus negative 14.4% in Q3 2021. Nine-month operating margin was negative 22.6%, versus negative 16.0%.
- Q3 net margin was approximately negative 15.3%; nine-month net margin was negative 24.2%. Adjusted EBITDA margins were approximately negative 8.4% and negative 17.5%, respectively.
- Advertising and promotions were $45.2 million in Q3, down 2% year over year, but $156.8 million for the first nine months, up 25%. Costs of revenue rose 27% in Q3 and 25% for the first nine months, outpacing revenue growth in both periods.
- At September 30, 2022, cash and cash equivalents were $195.3 million and restricted cash was $30.0 million. Combined cash, cash equivalents and restricted cash were $225.3 million.
- The company reported no debt outstanding and no off-balance-sheet arrangements. It had a $1.7 million letter of credit related to Colombia, with no amounts drawn.
- Total contractual obligations were $84.1 million, including $28.7 million of marketing commitments and $52.7 million of license and market-access commitments.
- Total assets were $344.8 million and total liabilities were $127.5 million at September 30, 2022. The company owned 29.07% of RSILP, while non-controlling interests represented 70.93%.
Material changes versus the prior comparable period
- Revenue growth reflected continued expansion in existing markets and launches in Arizona, Connecticut, Louisiana, Maryland, New York, Ontario and Mexico after September 30, 2021.
- Q3 operating loss increased by $2.9 million despite higher revenue. Costs of revenue increased to 70% of revenue from 66%, while advertising declined to 31% of revenue from 37%.
- For the first nine months, operating loss widened by $39.2 million and net loss increased by $70.3 million. The prior-year period benefited from $41.8 million of warrant fair-value gains and included a $13.7 million earnout-interest fair-value loss; both liabilities had been settled by September 30, 2021.
- Operating cash use increased to $52.6 million from $16.7 million, while investing cash use increased to $20.1 million from $10.9 million. The prior-year financing inflow of $126.9 million primarily reflected warrant exercises; 2022 financing cash use was $0.5 million.
- Internally developed software costs increased to $12.0 million from $3.0 million for the first nine months. Depreciation and amortization increased to $10.1 million from $2.6 million.
- In June 2022, the company acquired Rush Street Productions, LLC and related poker assets in an approximately $4.7 million transaction, including cash, equity and assumed liabilities. The transaction was accounted for as an asset acquisition and produced a $5.1 million trademark intangible asset.
Guidance, outlook, commentary, risks and unusual items
- The filing does not provide specific revenue, EBITDA or profitability guidance.
- Management expects existing cash and cash equivalents, together with operating cash flows, to fund operations and capital expenditures for at least the next 12 months and the foreseeable future, but notes that additional financing could become necessary if conditions change.
- Management expects near-term cash requirements of approximately $17.0 million for marketing purchase obligations, $8.5 million for license and market-access fees and $0.9 million for lease payments. Additional non-cancellable obligations after the next 12 months total approximately $57.6 million.
- The company expects continued investment in technology, personnel, market expansion, marketing, licenses and market-access arrangements. Management is also rationalizing marketing spend as the industry matures.
- Key risks include intense competition, continuing losses and negative cash flow, regulatory and licensing uncertainty, dependence on third-party technology and payment providers, cybersecurity threats, sports-season volatility, inflation and reduced discretionary spending, foreign-exchange exposure, and the potential impact of COVID-19 disruptions.
- Progressive jackpot payouts and sports betting outcomes can create quarterly volatility. The company does not insure against progressive jackpot payouts.
- The Tax Receivable Agreement could require payment of 85% of certain realized or deemed-realized tax benefits. The unrecognized TRA liability was $52.6 million at September 30, 2022, but management does not expect material payments in the near term because the related tax benefits are not currently more-likely-than-not to be realized.
- A previously disclosed lawsuit involving Todd Anderson was dismissed with prejudice in June 2022 in connection with the RSP acquisition. Management stated that other ordinary-course proceedings are not expected to materially affect financial condition or liquidity.
- Management concluded that disclosure controls and procedures were effective as of September 30, 2022, with no material changes in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether revenue growth in new markets can outpace rising gaming taxes, market-access fees, payment costs and other variable costs.
- The company’s path to positive Adjusted EBITDA and operating cash flow, given the $74.5 million nine-month Adjusted EBITDA loss and $52.6 million of operating cash use.
- Cash burn, contractual commitments and the adequacy of the $225.3 million of cash, cash equivalents and restricted cash to fund expansion.
- Customer growth and monetization trends, including the reported increase in monthly active users and decline in average revenue per monthly active user; the filing text does not provide clear chart values for these metrics.
- The impact of market launches, sports betting seasonality, promotional intensity and regulatory changes on margins.
- Potential future payments under the Tax Receivable Agreement and the effect of the company’s substantial non-controlling interest on consolidated results and cash flows.