Rush Street Interactive, Inc. — FY2022 Form 10-K Summary
Business context and reporting period
Rush Street Interactive, Inc. (RSI) operates online casino, online sports betting, retail sports betting and social gaming businesses under the BetRivers, PlaySugarHouse and RushBet brands. Operations span 14 U.S. states and Colombia, Ontario and Mexico as of December 31, 2022. More than 98% of revenue is generated through the business-to-consumer model. This filing covers the fiscal year ended December 31, 2022; it does not provide a separate fourth-quarter income statement.
Financial performance and liquidity
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Revenue | $592.2 million | $488.1 million | 21% |
| Costs of revenue | $414.7 million | $332.1 million | 25% |
| Advertising and promotions | $220.5 million | $190.5 million | 16% |
| Loss from operations | $(124.8) million | $(94.3) million | Loss increased 32% |
| Net loss | $(134.3) million | $(71.1) million | Loss increased 89% |
| Adjusted EBITDA | $(91.8) million | $(65.1) million | Loss increased $26.7 million |
| Net loss attributable to RSI | $(38.6) million | $(19.5) million | Loss increased 98% |
| Basic loss per Class A share | $(0.61) | $(0.35) | — |
Revenue increased primarily from growth in existing markets and launches in Ontario, New York, Mexico and Maryland. Online casino and online sports betting revenue increased by $96.5 million, retail sports betting revenue increased by $7.9 million, and social gaming revenue decreased by $0.3 million.
- Costs of revenue were approximately 70% of revenue versus 68% in 2021.
- Advertising and promotions were approximately 37% of revenue versus 39% in 2021.
- Operating margin was approximately negative 21.1%, compared with negative 19.3% in 2021.
- Net margin was approximately negative 22.7%, compared with negative 14.6% in 2021.
- Depreciation and amortization increased to $14.3 million from $4.2 million, primarily due to additional property, equipment and intangible assets.
- Foreign operations generated most of the $9.0 million income tax expense; the Company maintained a substantial valuation allowance against deferred tax assets.
Net cash used in operating activities was $60.3 million, compared with $48.2 million in 2021. Net cash used in investing activities was $29.0 million, including $16.8 million for internally developed software and $5.5 million for gaming licenses. Financing activities used $1.2 million, compared with $125.6 million of cash provided in 2021, when warrant exercises generated $131.6 million.
Cash and cash equivalents were $179.7 million at year-end, excluding segregated customer funds. Cash, cash equivalents and restricted cash totaled $206.1 million. The Company reported no debt outstanding and intends to fund operations from its balance sheet and operating cash flows. Working capital was approximately $120.5 million.
Material changes versus the prior comparable period
- Revenue grew 21%, but operating expenses grew faster overall, resulting in a larger operating and net loss.
- Market expansion, particularly in Ontario, Mexico, New York and Maryland, increased revenue and customer reach but required additional marketing, market access fees, gaming taxes, personnel and technology investment.
- The Company’s U.S. and Canada revenue increased to $539.9 million from $452.6 million; Latin America revenue increased to $52.3 million from $35.5 million.
- Intangible assets increased to $69.0 million from $53.4 million, driven principally by software development and a trademark acquisition.
- Total assets declined to $350.3 million from $408.7 million, while total liabilities increased to $159.5 million from $101.0 million, largely reflecting accrued expenses, accounts payable and player-related liabilities.
- Non-controlling interests declined to $134.8 million from $222.3 million as RSI’s ownership of RSILP increased to 29.45% from approximately 27.80%.
- The Company acquired Rush Street Productions in 2022 for approximately $4.7 million of aggregate consideration, including cash, RSILP units, Class V shares, Class A shares and assumed liabilities. The transaction was accounted for as an asset acquisition.
- Prior-year warrant and earnout fair-value items were fully settled; consequently, 2022 included no comparable warrant or earnout fair-value gains or losses.
Guidance, outlook, commentary and risks
Management expects existing cash and operating cash flows to fund operating and capital requirements for at least the next 12 months and thereafter for the foreseeable future. The Company expects continued investment in its platform, personnel, market expansion, marketing and customer acquisition. Management also stated that it may require additional equity or debt financing if business conditions, acquisitions, partnerships, regulatory developments or competitive pressures increase cash needs.
Expected cash requirements during the next 12 months included $21.6 million of non-cancellable marketing purchase obligations, $7.9 million of license and market access fees and $1.1 million of lease payments. Additional non-cancellable obligations after the next 12 months totaled $65.3 million. The notes disclose total contractual obligations of $96.0 million, including leases, marketing contracts and license or market access commitments.
- The Company has a history of operating losses and negative operating cash flow and does not provide a clear timetable for achieving profitability.
- Competition is intense, and customer acquisition costs, promotional activity and market access expenses may pressure margins.
- Results are exposed to sports betting volatility, seasonality, jackpot payouts, erroneous odds, customer fraud and changes in customer behavior.
- Gaming licenses, market access arrangements, tax rates and regulatory interpretations are material to the business and may change by jurisdiction.
- The Company depends on land-based casino, tribal, sports team, payment processor, cloud, geolocation, identity verification, content and risk-management partners.
- Cybersecurity incidents, privacy-law compliance failures or platform outages could result in operational disruption, regulatory penalties, litigation and reputational damage.
- The Tax Receivable Agreement requires payment of 85% of certain realized or deemed realized tax savings. No material payments had been made as of filing, but the unrecognized liability was $58.7 million at December 31, 2022 and payments could materially reduce future liquidity or accelerate upon specified events.
- RSI is a controlled company under NYSE rules, and controlling holders retain significant voting influence. A new voting agreement executed March 2, 2023 preserved controlled-company status.
- Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2022. As an emerging growth company, RSI was not required to obtain an auditor attestation on internal control effectiveness.
Important facts for investors to verify
- Whether revenue growth can outpace costs of revenue, marketing and other operating expenses sufficiently to reduce the recurring Adjusted EBITDA loss.
- The pace of operating cash burn and whether $179.7 million of unrestricted cash is adequate after contractual commitments, market expansion and potential Tax Receivable Agreement payments.
- Customer growth, monthly active users, ARPMAU and the mix between casino customers and sports betting-only customers; the filing text does not provide clear chart values for these metrics.
- Exposure to affiliated casinos, including $39.8 million of 2022 net royalties and $35.9 million of receivables from affiliated land-based casinos.
- The timing and amount of future Tax Receivable Agreement payments, including possible acceleration or payments exceeding realized tax savings.
- Renewal and economics of licenses, market access agreements and other non-cancellable vendor commitments.
- Regulatory, cybersecurity, payment-processing and responsible-gaming developments in the United States, Canada, Colombia and Mexico.