Rush Street Interactive, Inc. — Q2 2022 Form 10-Q Summary
Business context and reporting period
Rush Street Interactive, Inc. (RSI) is an online gaming company offering online casino, online sports betting, retail sports betting and social gaming in the United States, Canada and Latin America. The report covers the three and six months ended June 30, 2022, compared with the corresponding 2021 periods. RSI operated real-money offerings in 14 U.S. states, Colombia, Ontario and Mexico. The interim financial statements are unaudited and prepared under U.S. GAAP.
Financial performance and key metrics
| ($ in thousands, except percentages) | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $143,736 | $122,800 | $278,674 | $234,620 |
| Revenue growth | 17% | 19% | ||
| Loss from operations | $(25,788) | $(12,185) | $(75,834) | $(39,506) |
| Operating margin | (17.9%) | (9.9%) | (27.2%) | (16.8%) |
| Net loss | $(28,346) | $(13,954) | $(80,616) | $(14,030) |
| Net margin | (19.7%) | (11.4%) | (28.9%) | (6.0%) |
| Adjusted EBITDA | $(18,618) | $(6,610) | $(61,990) | $(21,681) |
| Adjusted EBITDA margin | (13.0%) | (5.4%) | (22.2%) | (9.2%) |
| Net cash used in operating activities | $(61,264) | $(10,423) |
- Q2 revenue consisted of $141.2 million from online casino and online sports betting, $1.7 million from retail sports betting and $0.9 million from social gaming. U.S. and Canada revenue was $130.5 million; Latin America revenue was $13.2 million.
- Costs of revenue were $104.9 million in Q2 and $204.7 million for the six-month period, representing approximately 73% of revenue in both periods.
- Advertising and promotions were $44.7 million in Q2 and $111.6 million year to date, representing 31% and 40% of revenue, respectively.
- General and administrative expense was $16.6 million in Q2 and $32.2 million year to date. Depreciation and amortization was $3.3 million and $6.0 million, respectively.
- Basic and diluted net loss attributable to RSI was $0.13 per share in Q2 and $0.37 per share for the six-month period.
- Cash and cash equivalents were $201.7 million at June 30, 2022, excluding segregated customer deposits. Cash, cash equivalents and restricted cash totaled $228.3 million.
- RSI had no debt outstanding. It had a $1.0 million letter of credit related to Colombia, with no amounts drawn.
Material changes versus the prior comparable period
- Revenue increased $20.9 million, or 17%, in Q2 and $44.1 million, or 19%, for the six-month period, driven by growth in existing markets and expansion into Arizona, Connecticut, Louisiana, New York and Ontario.
- Costs of revenue grew faster than revenue, increasing 24% in Q2 and 25% year to date. Gaming taxes, operating expenses, payment processing and market access costs were significant contributors.
- Advertising expense increased 19% in Q2 and 40% year to date, reflecting customer acquisition and sponsorship initiatives in new and existing markets.
- Operating losses more than doubled in Q2 and increased 92% year to date. Net loss rose to $80.6 million for the six-month period, compared with $14.0 million in 2021.
- Six-month operating cash use increased to $61.3 million from $10.4 million. Investing cash use increased to $9.9 million from $5.3 million, primarily due to higher internally developed software costs, property and equipment purchases and the RSP asset acquisition.
- The prior-year six-month results included a $41.8 million gain from warrant-liability remeasurement and a $13.7 million loss from earnout-interest remeasurement. Both liabilities were fully settled by June 30, 2021; no comparable items occurred in 2022.
- RSI acquired Rush Street Productions, LLC in June 2022 for approximately $4.7 million through cash, equity and assumed liabilities. The transaction was accounted for as an asset acquisition and added a $5.1 million trademark intangible asset amortized over five years.
Outlook, liquidity, risks and unusual items
Management expects existing cash, operating cash flows and available capital-market alternatives to fund operations and capital requirements for at least the next 12 months and thereafter for the foreseeable future. RSI expects continued increases in capital expenditures, working capital, marketing, market-access fees, licensing costs, product development and personnel expenses as it expands geographically. No formal revenue or profitability guidance is provided in the filing.
- Upcoming 12-month cash requirements include approximately $7.5 million of non-cancellable marketing obligations, $7.7 million of license and market-access fees and $0.4 million of lease payments. Additional non-cancellable obligations after that period total approximately $61.0 million; total contractual commitments were $76.6 million.
- Operating cash use and continuing losses could require additional equity or debt financing if business conditions change, regulatory costs increase, acquisitions occur or competitive pressures intensify.
- The Tax Receivable Agreement generally requires payment of 85% of certain realized tax benefits. The unrecognized liability was $52.6 million at June 30, 2022, but no material payments are expected in the near future because the related tax benefits are not considered more likely than not to be realized.
- Key risks include intense competition, customer acquisition and retention, regulatory and licensing uncertainty, dependence on third-party technology and payment providers, cybersecurity and data breaches, sports-event seasonality, COVID-19-related disruption, economic weakness, foreign-currency exposure and continued operating losses.
- Sports betting revenue is affected by sports calendars and event outcomes, while progressive jackpot payouts may create volatility and reduce cash. Management states that it does not insure against jackpot payouts.
- A legal action alleging an unissued equity interest was settled and dismissed with prejudice in June 2022 in connection with the RSP acquisition. Management stated that other ordinary-course proceedings are unlikely to materially affect liquidity or financial condition, although individual-period results could be affected.
- Management concluded that disclosure controls and procedures were effective as of June 30, 2022, with no material change in internal control over financial reporting.
Most important facts for investors to verify
- Whether revenue growth and market expansion can outpace rising costs of revenue and customer-acquisition spending.
- The sustainability of the $201.7 million operating cash balance given $61.3 million of first-half operating cash use and continuing losses.
- The pace of progress toward positive Adjusted EBITDA and operating profitability.
- The amount and timing of future marketing, licensing, market-access and other contractual payments.
- Potential future Tax Receivable Agreement payments and the effect of the UP-C structure, including the 70.94% non-controlling interest in RSILP at June 30, 2022.
- Regulatory developments, license renewals, competitive intensity and the economics of new sports-betting-only markets.
- The methodology and comparability of MAUs and ARPMAU, which rely on internal estimates and exclude certain users and duplicate accounts.