Rush Street Interactive, Inc. — Q1 2023 Form 10-Q Summary
Business context and reporting period
Rush Street Interactive, Inc. is an online gaming company offering online casino, online sports betting, retail sports betting and social gaming in 15 U.S. states, Canada, Colombia and Mexico. The report covers the three months ended March 31, 2023, with comparison to the three months ended March 31, 2022. The financial statements are unaudited and presented under U.S. GAAP.
As of March 31, 2023, the Company owned 30.35% of Rush Street Interactive, LP; holders of non-controlling interests owned 69.65%.
Key financial metrics
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $162.4 million | $134.9 million | +20% |
| Costs of revenue | $107.2 million | $99.9 million | +7% |
| Advertising and promotions | $49.9 million | $66.8 million | -25% |
| Loss from operations | $(22.1) million | $(50.0) million | Improved $28.0 million |
| Net loss | $(24.5) million | $(52.3) million | Improved $27.8 million |
| Net loss attributable to RSI | $(7.3) million | $(14.7) million | Improved $7.4 million |
| Adjusted EBITDA | $(8.7) million | $(43.4) million | Improved $34.7 million |
| Net cash used in operating activities | $(24.3) million | $(37.0) million | Improved $12.7 million |
Revenue increased primarily from growth in existing markets, launches in Ontario, Mexico and Maryland, and expanded services in West Virginia and Virginia. Online casino and online sports betting revenue was $157.7 million, retail sports betting revenue was $3.7 million and social gaming revenue was $1.0 million.
Revenue increased to approximately 20% year over year, while the operating loss margin improved to approximately 13.6% negative from 37.1% negative. Net loss margin improved to approximately 15.1% negative from 38.7% negative. Adjusted EBITDA margin improved to approximately 5.3% negative from 32.1% negative.
Costs of revenue declined to 66% of revenue from 74%, and advertising and promotions declined to 31% of revenue from 50%. General and administrative expense increased 39% to $21.6 million, while depreciation and amortization increased 110% to $5.8 million.
Balance sheet, cash flow, debt and liquidity
- Cash and cash equivalents were $147.3 million at March 31, 2023, excluding segregated customer deposits.
- Cash, cash equivalents and restricted cash totaled $175.6 million, down from $206.1 million at December 31, 2022.
- Total assets were $319.3 million and total liabilities were $144.9 million.
- The Company had no debt outstanding. It had a $1.7 million letter of credit related to Colombia, with no amounts drawn.
- Net cash used in operating activities was $24.3 million. Investing cash use was $6.5 million, including $5.8 million for internally developed software. Financing cash use was less than $0.1 million.
- Management expects existing cash and operating cash flows to fund operations and capital expenditures for at least the next 12 months and the foreseeable future, although additional financing could be required if business conditions change.
Material changes versus the prior comparable period
- Revenue grew $27.4 million, or 20%, driven by market expansion and continued growth in existing markets.
- Management rationalized marketing spending as North and Latin American online gaming markets matured, reducing advertising expense by $16.9 million.
- Operating loss, net loss and Adjusted EBITDA improved substantially, but the Company remained loss-making.
- Share-based compensation increased to $7.7 million from $3.9 million. The Company granted 3.9 million RSUs and 1.1 million stock options during the quarter.
- Capitalized internally developed software spending increased to $5.8 million from $1.4 million.
- The non-controlling interest percentage declined to 69.65% from 70.55%, primarily due to RSILP unit exchanges and equity awards.
- The Company adopted the current expected credit loss standard on January 1, 2023; adoption had no material impact.
Guidance, outlook, commentary and risks
The filing does not provide explicit quarterly or annual revenue, profitability or Adjusted EBITDA guidance. Management expects continued investment in product development, engineering, operations, marketing and expansion into additional markets. It also expects capital expenditures and working capital requirements to increase.
The Company has $80.6 million of contractual obligations, including $23.9 million of marketing commitments and $54.6 million of license and market access commitments. Management identified upcoming 12-month cash requirements of approximately $17.8 million for marketing purchase obligations, $3.2 million for license and market access fees and $1.0 million for lease payments.
The Company and its Connecticut partner intend to wind down their online and retail sports betting partnership in Connecticut, which management expects will likely occur in the second half of 2023.
- Competition in online casino and sports betting remains intense, and management has a history of losses and expects possible future losses.
- Operations depend on gaming licenses, evolving regulations and the legal status of real-money gaming across jurisdictions.
- Sports betting revenue is seasonal and can be volatile based on sporting events, customer outcomes and jackpot payouts.
- The Company relies on information technology, payment processors, geolocation and identity-verification providers; disruptions or cybersecurity incidents could materially affect operations.
- The Company’s tax receivable agreement liability was $60.4 million, although related tax benefits are currently subject to a full valuation allowance and no material payments are expected in the near term.
- The Company reported no material legal proceedings and no material changes to previously disclosed risk factors.
- Management concluded that disclosure controls and procedures were effective as of March 31, 2023, with no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether revenue growth and reduced marketing spending can continue while improving the path to positive Adjusted EBITDA and operating cash flow.
- The sustainability of the $147.3 million operating cash balance given continuing quarterly cash burn and contractual commitments.
- The timing and financial effect of the planned Connecticut partnership wind-down.
- The impact of market access fees, gaming taxes, platform costs and regulatory changes on future margins.
- The scale and timing of future share-based compensation, dilution and RSILP unit exchanges.
- Potential future obligations under the $60.4 million tax receivable agreement liability.
- Management’s internally calculated MAU and ARPMAU metrics, including assumptions regarding duplicate accounts and methodology changes.