Rush Street Interactive, Inc. — FY2021 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2021; filed March 7, 2022. The filing is an annual report, not a standalone fourth-quarter filing. RSI operates online casino, online sports betting, retail sports betting and social gaming businesses primarily in the United States, with operations in Colombia and social gaming launched in Canada during October 2021. The company operated in 13 U.S. states and Colombia at year-end.
Financial Performance and Liquidity
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Revenue | $488.1 million | $278.5 million | +75% |
| Costs of revenue | $332.1 million | $190.9 million | +74% |
| Advertising and promotions | $190.5 million | $56.5 million | +237% |
| General administration and other | $55.5 million | $162.4 million | -66% |
| Loss from operations | $(94.3) million | $(133.4) million | Improved by $39.1 million |
| Net loss | $(71.1) million | $(131.6) million | Improved by $60.6 million |
| Adjusted EBITDA | $(65.1) million | $4.4 million | Declined by $69.5 million |
| Net cash from operating activities | $(48.2) million | $16.2 million | Declined by $64.4 million |
| Net cash used in investing activities | $(37.0) million | $(6.2) million | Higher investment |
| Net cash from financing activities | $125.6 million | $241.1 million | Declined by $115.5 million |
Revenue mix: Online casino and online sports betting generated $480.1 million, retail sports betting $3.8 million and social gaming $4.2 million. U.S. revenue was $452.6 million, or approximately 93% of total revenue; Colombia contributed $35.5 million.
Margins: Costs of revenue were 68% of revenue versus 69% in 2020, implying gross margin of approximately 32% versus 31%. Advertising and promotions increased to 39% of revenue from 20%. General and administrative expense decreased to 11% of revenue from 58%, primarily because 2020 included $144.7 million of share-based compensation compared with $24.9 million in 2021. Operating margin was approximately negative 19% and net margin approximately negative 15% in 2021.
Balance sheet and liquidity: Cash and cash equivalents were $281.0 million, and total cash, cash equivalents and restricted cash were $300.3 million at December 31, 2021. Working capital was approximately $257.8 million. RSI had no debt outstanding and had a $1.0 million undrawn letter of credit related to Colombia. Management expects existing cash, operating cash flows and warrant proceeds to fund operating and capital requirements for at least the next 12 months and the foreseeable future, subject to changing conditions.
Material Changes Versus FY2020
- Revenue grew 75%, driven by continued growth in existing markets and launches or expansion in Michigan, West Virginia and Connecticut.
- Advertising and promotional spending rose 237% as RSI increased customer acquisition and market-launch activity, causing the company to return to negative Adjusted EBITDA.
- Operating loss and GAAP net loss improved substantially, but the comparison was affected by unusually high 2020 share-based compensation and changes in warrant and earnout liability fair values.
- Operating cash flow turned negative, largely because lower non-cash expenses, particularly share-based compensation and warrant remeasurement effects, more than offset the lower net loss.
- RSI received approximately $131.6 million from the exercise of 11.4 million public warrants. Public and private warrants were fully settled by year-end, eliminating related warrant liabilities.
- Earnout interests became fully earned in January 2021 after the stock-price condition was met. The related $364.8 million liability was settled and reclassified to equity.
- Investing activity increased, including $23.5 million for gaming licenses, $4.1 million for internally developed software, $3.3 million for developed technology and $3.8 million for property and equipment.
- On December 21, 2021, RSI acquired assets from Run It Once for $3.3 million in cash and $2.5 million of Class A shares; the transaction was accounted for as an asset acquisition.
Outlook, Commentary, Risks and Unusual Items
Management plans to continue expanding into newly legalized jurisdictions, investing in its proprietary platform and personnel, and increasing marketing and promotional activity where projected customer economics support the investment. RSI anticipated launching real-money online casino and sports betting in Canada and Mexico during 2022, including a planned Mexico launch in the second quarter; these plans remain subject to licensing, regulatory and market conditions.
Expected material cash requirements for the upcoming 12 months included approximately $0.8 million of lease payments, $10.0 million of license and market-access fees and $18.4 million of non-cancellable marketing purchase obligations. Additional non-cancellable purchase obligations after that period totaled $56.5 million. Total contractual obligations disclosed in the notes were $85.7 million, including leases, marketing commitments and license or market-access commitments.
- Gaming regulation is extensive, unsettled and jurisdiction-specific. Failure to obtain or maintain licenses, regulatory changes or higher gaming taxes could impair expansion and profitability.
- Competition is intense, and customer acquisition costs, promotional spending and market-access fees may continue to pressure margins.
- Sports betting revenue is exposed to sporting-event schedules, outcomes, hold rates, erroneous odds, cancellations and COVID-19-related disruptions. Online casino may partially offset sports-related volatility.
- Cybersecurity, platform outages, payment processing, geolocation and identity-verification failures could cause regulatory, financial and reputational damage.
- RSI relies on land-based partners, affiliates and third-party technology, content, cloud, payment and risk-management providers.
- The Tax Receivable Agreement requires payment of 85% of certain realized or deemed realized tax benefits to the sellers. No material payments had been made through year-end, but the unrecognized TRA liability was $46.2 million and future payments could be substantial or accelerated.
- The company is controlled by holders with majority voting power and uses exemptions available to controlled companies under NYSE governance rules.
- The Anderson litigation remains pending. The company disclosed that the potential loss could not be estimated and recorded no accrual; management intends to defend the case.
- Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2021. The filing notes that a material weakness related to warrant accounting had existed in prior periods and had been remediated.
Most Important Facts to Verify
- Whether revenue growth can continue without advertising and promotions rising faster than revenue.
- The path to positive operating cash flow and Adjusted EBITDA, given the FY2021 operating cash burn of $48.2 million.
- Customer growth and monetization trends, including MAUs and ARPMAU; the filing text supplied here does not provide clear chart values for those metrics.
- Actual 2022 launch timing, licensing status and economics in Canada, Mexico and other potential jurisdictions.
- The size, timing and liquidity impact of future Tax Receivable Agreement payments.
- The status and potential exposure of the Anderson lawsuit and other regulatory or legal matters.
- Execution of contractual marketing, license and market-access commitments totaling $85.7 million.
- Reliance on affiliates, including $41.6 million of net royalties paid to affiliated casinos in 2021 and $1.1 million of related-party support-service expense.