Rush Street Interactive, Inc. current report, 29 December 2020

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Business Context and Reporting Period

Rush Street Interactive, Inc. (RSI) filed this Form 8-K on January 5, 2021, reporting the completion of its business combination with dMY Technology Group, Inc. on December 29, 2020. The transaction converted dMY into RSI, a publicly traded online gaming and sports wagering company. RSI’s Class A common stock and warrants began trading on the NYSE on December 30, 2020 under the symbols RSI and RSI WS.

The filing is primarily a transaction-closing and Form 10-type disclosure. It does not present a new quarterly or annual operating-period earnings release.

Financial Metrics, Capitalization, and Liquidity

  • dMY contributed approximately $266.2 million of cash to RSI at closing.
  • Approximately $28.3 million of the contribution was applied to transaction expenses.
  • $125 million was paid to sellers for the purchase of 12.5 million RSI units.
  • The PIPE financing generated $160.43 million from the issuance of 16,043,002 Class A shares at $10.00 per share.
  • Following the transaction, approximately 44.79 million Class A shares and 160 million Class V voting shares were outstanding, subject to the assumptions and exclusions described in the filing.
  • The filing does not provide a clear current value for revenue, net income, operating cash flow, free cash flow, margins, debt, cash balances after closing, or other current-period operating metrics. Historical RSI financial statements and unaudited pro forma information are incorporated by reference or filed as exhibits.
  • No cash dividends had been paid by dMY. Future dividends are subject to the Company’s revenues, earnings, capital requirements, financial condition, and Board discretion.

Material Changes Versus the Prior Comparable Period

  • dMY changed its name to Rush Street Interactive, Inc. and ceased to be a shell company.
  • The transaction resulted in a change of control. Based on the filing’s assumptions, former dMY public stockholders held approximately 11.2% of voting power, Founder Holders 2.8%, sellers 78.1%, and PIPE investors 7.8%.
  • The Company issued 160 million shares of Class V voting stock to sellers, including 15 million shares subject to earnout restrictions.
  • RSI adopted an amended and restated partnership agreement, giving RSI GP sole authority to manage RSI, subject to applicable law and gaming regulation.
  • Sellers may generally exchange RSI units for Class A shares on a one-for-one basis, together with cancellation of corresponding Class V shares, beginning six months after closing and subject to specified limitations.
  • The Company reserved 13.4 million Class A shares for issuance under its 2020 Omnibus Equity Incentive Plan.

Guidance, Outlook, Commentary, Risks, and Unusual Items

  • The filing does not provide formal revenue, earnings, cash flow, or margin guidance.
  • An earnout is tied partly to 2021 net revenue: 25% to 100% of the earnout interests may vest depending on whether 2021 net revenue reaches or exceeds thresholds from $270 million to $300 million. Additional vesting triggers include a change of control and specified share-price targets of $12.00 and $14.00.
  • The Tax Receivable Agreement generally entitles sellers to receive 85% of net tax savings realized from specified tax basis increases and related benefits.
  • RSI entered into a two-year services agreement with Rush Street Gaming and its affiliates covering legal and compliance, human resources, information technology, and other services. RSI will reimburse specified costs, including an allocable payroll, benefits, and overhead amount calculated at 150% of applicable employee costs.
  • Key risks include intense competition, dependence on gaming licenses and changing gaming laws, regulatory and compliance requirements, cybersecurity and technology disruptions, COVID-19-related changes in sports schedules and consumer spending, reliance on third-party service providers, litigation, the ability to achieve profitable growth, and the costs of operating as a public company.
  • Gregory Carlin became Chief Executive Officer. His initial base salary is $500,000, with a target bonus of 80% of base salary and potential severance of $600,000 upon termination without cause, subject to the employment agreement.
  • The filing describes potential forfeiture of up to 1,205,937 Founder Holder shares and a corresponding number of RSI units if the specified closing cash amount is not achieved.

Important Facts for Investors to Verify

  1. Review the historical RSI financial statements and the unaudited pro forma condensed combined financial information referenced in Item 9.01 and Exhibit 99.1.
  2. Verify post-closing cash, transaction expenses, working capital, debt, and liquidity, because the filing does not provide a complete current balance sheet.
  3. Assess the dilution and economic effects of the 160 million Class V shares, outstanding warrants, earnout interests, exchangeable RSI units, and the 13.4 million-share equity plan reserve.
  4. Review the Tax Receivable Agreement for the potential magnitude and timing of payments representing 85% of realized tax benefits.
  5. Monitor 2021 net revenue and the share-price and change-of-control conditions governing earnout vesting.
  6. Evaluate gaming-license status, regulatory developments, cybersecurity controls, third-party service dependence, and the Company’s ability to scale profitably.