Rush Street Interactive, Inc. quarterly report, Q2 FY2023

Rush Street Interactive, Inc. — 2023 Q2 Form 10-Q Summary

Business context and reporting period

Rush Street Interactive, Inc. operates online casino, online sports betting, retail sports betting and social gaming businesses in the United States, Canada and Latin America through its RSILP operating structure. The filing covers the three and six months ended June 30, 2023, compared with the corresponding 2022 periods. The company operated real-money offerings in 15 U.S. states, Colombia, Ontario and Mexico. Management stated that the Connecticut online and retail sports betting partnership was expected to wind down during the second half of 2023.

Financial performance and key metrics

Metric	Q2 2023	Q2 2022	Six months 2023	Six months 2022
Revenue	$165.1 million	$143.7 million	$327.4 million	$278.7 million
Loss from operations	$(14.3) million	$(25.8) million	$(36.4) million	$(75.8) million
Net loss	$(16.7) million	$(28.3) million	$(41.2) million	$(80.6) million
Net loss attributable to RSI	$(5.1) million	$(8.3) million	$(12.4) million	$(23.0) million
Adjusted EBITDA	$1.2 million	$(18.6) million	$(7.4) million	$(62.0) million
Net cash used in operating activities	Not separately provided	Not separately provided	$(37.2) million	$(61.3) million

Q2 operating margin was approximately (8.7)% and net margin was approximately (10.1)%. Six-month operating margin was approximately (11.1)% and net margin was approximately (12.6)%. Q2 Adjusted EBITDA margin was approximately 0.7%; the six-month margin was approximately (2.3)%.

Online casino and online sports betting revenue increased 14% year over year to $160.7 million in Q2 and 17% to $318.4 million for the six months.
Retail sports betting revenue increased to $3.3 million in Q2 from $1.7 million and to $6.9 million for the six months from $4.0 million.
U.S. and Canada generated $146.6 million of Q2 revenue and $293.3 million for the six months; Latin America generated $18.5 million and $34.1 million, respectively.
Costs of revenue represented approximately 67% of Q2 revenue and 66% of six-month revenue, compared with 73% in both 2022 periods.
Advertising and promotions declined 8% in Q2 and 19% for the six months, reflecting reduced marketing and bonusing spending in selected markets.
General administration and other expenses increased 24% in Q2 and 31% for the six months, while depreciation and amortization increased 143% and 128%, respectively.

Balance sheet, cash flow, debt and liquidity

Cash and cash equivalents were $127.8 million at June 30, 2023, excluding segregated customer cash. Restricted cash was $23.6 million, resulting in cash, cash equivalents and restricted cash of $151.4 million.
Total assets were $295.0 million and total liabilities were $128.2 million. Total stockholders’ equity was $166.8 million.
The company had no debt outstanding. It had a $2.1 million undrawn letter of credit related to Colombia.
Six-month investing cash outflows were $19.1 million, including $11.4 million for internally developed software and $6.4 million for gaming licenses.
Cash, cash equivalents and restricted cash decreased by $54.7 million during the first six months, compared with a $72.0 million decrease in the prior-year period.
Management expects existing cash and operating cash flows to fund operations and capital expenditures for at least the next 12 months, but cautioned that additional financing could be required if conditions change.
Contractual obligations totaled $74.5 million, including $51.8 million of license and market-access commitments, $19.4 million of marketing commitments and $3.3 million of lease commitments. The filing identifies $19.2 million of material cash requirements over the next 12 months.

Material changes versus the prior comparable period

Revenue growth accelerated through market expansion, including Mexico and new offerings in West Virginia and Virginia.
Losses narrowed substantially, with six-month net loss improving by $39.4 million and six-month Adjusted EBITDA improving by $54.5 million.
Marketing efficiency improved as advertising and promotions declined to 25% of Q2 revenue from 31%, and to 28% of six-month revenue from 40%.
Average monthly active users declined, primarily because of reduced advertising, marketing and bonusing in certain sportsbook-only markets. The filing text does not provide the chart’s underlying MAU values.
Average revenue per monthly active user increased, which management attributed to casino offerings in newer markets, targeted marketing and retention of higher-quality players.
Non-controlling interest holders owned 69.57% of RSILP units at June 30, 2023, compared with 70.55% at December 31, 2022. Consequently, most consolidated net loss was attributable to non-controlling interests.
Share-based compensation increased to $15.2 million for the six months from $7.8 million, and approximately $55.5 million of unrecognized equity compensation remained at June 30, 2023.

Guidance, outlook, risks and unusual items

The filing does not provide formal quantitative revenue, EBITDA or profitability guidance. Management expects continued investment in technology, personnel, market access, licenses and marketing as the company expands, while continuing to rationalize spending in mature markets.

The company expects capital expenditures and working capital requirements to increase in the near term and may seek equity or debt financing if existing resources become insufficient.
The business is exposed to intense competition, customer acquisition and retention challenges, regulatory and licensing requirements, changing gaming laws, technology disruptions, cybersecurity risks and reliance on third-party providers.
Results may be volatile because of sports calendars, betting outcomes, progressive jackpot payouts, customer engagement, foreign exchange rates, inflation and discretionary consumer spending.
The company has a history of losses and remains dependent on achieving sufficient scale and operating leverage to sustain profitability.
The Tax Receivable Agreement generally requires payment of 85% of certain realized tax benefits. The unrecognized TRA liability was $60.4 million at June 30, 2023; management stated that no material payments are expected in the near term.
The company recorded a $0.7 million write-off of long-lived assets during the six months and reported higher amortization from gaming licenses, software and other intangible assets.
No material legal proceedings were disclosed, and management reported no material changes to previously disclosed risk factors.
Management concluded that disclosure controls and procedures were effective as of June 30, 2023, with no material change in internal control over financial reporting.

Facts investors should verify

Whether revenue growth and positive Q2 Adjusted EBITDA persist after seasonal sports volatility and the planned Connecticut wind-down.
The actual MAU trend and whether higher monetization is offsetting the decline in active users.
Progress toward positive sustained operating cash flow, given the six-month operating cash burn of $37.2 million.
The timing and amount of future market-access, license, marketing and technology commitments.
Whether increased amortization, share-based compensation and other noncash charges affect the path to GAAP profitability.
Potential future cash payments under the Tax Receivable Agreement and the company’s need for external financing if losses continue.