Rush Street Interactive, Inc. — Fiscal 2023 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2023. The filing is an annual report, not a standalone fourth-quarter filing; quarterly Q4 results are not separately presented in the supplied text.
Business context
RSI operates online casino, online sports betting, retail sports betting and social gaming businesses under the BetRivers, PlaySugarHouse and RushBet brands. It operates in 15 U.S. states and three international markets: Colombia, Ontario, Canada and Mexico. More than 98% of revenue is generated through the business-to-consumer model. RSI operates as an Up-C structure, with substantially all operating assets held by Rush Street Interactive, LP; non-controlling holders owned 67.51% of RSILP units at year-end.
Financial performance and liquidity
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Revenue | $691.2 million | $592.2 million | +17% |
| Online casino and online sports betting revenue | $674.1 million | $576.6 million | +17% |
| Retail sports betting revenue | $12.8 million | $11.7 million | +10% |
| Social gaming revenue | $4.3 million | $3.9 million | +8% |
| Loss from operations | $(51.6) million | $(124.8) million | Loss reduced 59% |
| Net loss | $(60.1) million | $(134.3) million | Loss reduced 55% |
| Net loss attributable to RSI | $(18.3) million | $(38.6) million | Loss reduced 53% |
| Adjusted EBITDA | $8.2 million | $(91.8) million | Improved by $99.9 million |
| Net cash used in operating activities | $(5.9) million | $(60.3) million | Improved by $54.4 million |
Margins: Costs of revenue were 67% of revenue versus 70% in 2022. Advertising and promotions declined to 23% of revenue from 37%, while general and administrative expense increased to 13% from 11%. The operating margin was approximately negative 7.5%, the net margin was approximately negative 8.7%, and Adjusted EBITDA margin was approximately 1.2%.
Cash and liquidity: Cash and cash equivalents were $168.3 million at December 31, 2023, excluding legally restricted customer cash. Total cash, cash equivalents and restricted cash were $171.0 million, compared with $206.1 million at the prior year-end. Working capital was $90.9 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.
Debt and obligations: RSI had no outstanding debt or letters of credit at December 31, 2023. Surety bonds totaled $32.6 million, including $28.0 million supporting customer funds and $4.6 million supporting regulatory requirements. Non-cancellable contractual obligations totaled $64.0 million, including $46.9 million of license and market access commitments, $11.1 million of marketing commitments and $6.0 million of lease obligations.
Material changes versus the prior comparable period
- Revenue increased $98.9 million, primarily from continued growth in existing markets and expansion into markets launched during 2022 and 2023.
- Costs of revenue increased 12%, slower than revenue growth, benefiting reported cost leverage. Gaming taxes, market access costs and payment processing costs were the largest contributors to the increase.
- Advertising and promotions declined $59.8 million, reflecting management’s strategy to rationalize marketing spending as the North American and Latin American markets matured.
- General and administrative expense increased 29%, and depreciation and amortization increased 108% to $29.8 million, mainly because of greater investment in gaming licenses, internally developed software and other assets.
- Adjusted EBITDA turned positive, and operating cash burn narrowed materially, but the company remained GAAP unprofitable.
- U.S. and Canada revenue increased to $611.9 million from $539.9 million, while Latin America revenue increased to $79.3 million from $52.3 million. Management stated that Latin American ARPMAU declined because of foreign exchange effects.
- Non-controlling interest ownership declined from 70.55% to 67.51%, primarily due to RSILP unit exchanges and equity award-related changes.
Guidance, outlook, commentary and risks
The filing does not provide formal quantitative revenue, profit or Adjusted EBITDA guidance. Management’s stated strategy is to pursue long-term profitability through market expansion, selective marketing investment, continued platform and product development, personnel investment and targeted strategic transactions. Management expects capital expenditures and working capital needs to increase as RSI expands its geographic footprint and invests in technology and personnel.
Key risks include intense competition and potential margin pressure; dependence on continued legalization and favorable regulation of online gaming; licensing, suitability and regulatory compliance requirements; gaming tax and market access cost increases; volatility in sports betting hold rates and progressive jackpot payouts; reliance on local casino, lottery, tribal and other partners; cybersecurity, privacy, platform and third-party service disruptions; dependence on payment processors, geolocation and identity-verification providers; foreign exchange and international operating risks; customer acquisition and retention challenges; and continued operating losses.
The Tax Receivable Agreement requires payment of 85% of certain realized or deemed realized tax benefits to eligible holders. No material payments have been made to date, but the unrecognized TRA liability was $63.7 million at December 31, 2023 and future payments could be substantial or accelerate under specified circumstances. Related-party royalties paid to affiliated land-based casinos were $49.6 million in 2023, compared with $39.8 million in 2022.
Cybersecurity threats were described as routine, including distributed denial-of-service, phishing and social-engineering attacks; none had materially affected results through the filing date. Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2023. As an emerging growth company, RSI was not required to obtain an auditor attestation report on internal control effectiveness.
On March 5, 2024, RSI amended the employment agreements of its CEO and COO. The agreements provide, among other terms, annual base salaries of $613,000 and $440,000, respectively, target bonuses and significant equity award eligibility, as well as severance and change-in-control provisions.
Investor verification checklist
- Verify the quarterly composition of 2023 revenue and whether Q4 growth and profitability trends differed materially from the full-year results.
- Reconcile Adjusted EBITDA to GAAP net loss and assess the sustainability of positive Adjusted EBITDA after share-based compensation, depreciation and amortization and other excluded items.
- Review cash burn, capitalized software and license spending, and the timing of the $64.0 million of contractual obligations.
- Assess the amount and timing of future Tax Receivable Agreement payments, including potential acceleration and liquidity effects.
- Review affiliated-casino royalty arrangements, the $33.5 million due from affiliates and related-party governance risks.
- Monitor regulatory developments, licensing renewals, gaming tax changes and legalization activity in current and prospective markets.
- Evaluate customer acquisition costs, marketing efficiency, MAU and ARPMAU trends, sports betting hold volatility and foreign exchange effects.
- Review cybersecurity, payment-processing and third-party platform incidents, including the adequacy and limits of available insurance coverage.