Good day, ladies and gentlemen. Thank you for standing by. Welcome to the RSI Fourth Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note that this conference call is being recorded today, March 10, 2021. I will now turn the call over to Kyle Sauers, Chief Financial Officer.

Thank you, operator and good afternoon. By now everyone should have access to our fourth quarter 2020 earnings release that can be found under the heading Financials Quarterly Results in the Investor section of the RSI website at rushstreetinteractive.com. Some of our comments will be forward-looking statements within the meaning of the Federal Securities Laws. Forward-looking statements are not statements of historical facts and are usually identified by the use of words such as will, expect, should, or other similar phrases are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. We assume no responsibility for updating the forward-looking statements. Therefore, you should exercise caution in interpreting and relying it. We refer you to our SEC filings for more detailed discussion of the risks that could impact our future operating results and financial condition. During the call, we will discuss our non-GAAP measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measure is available in our fourth quarter 2020 earnings release, which is available on the investors section of RSI website at rushstreetinteractive.com. On the call today we have Greg Carlin, Chief Executive Officer; and Richard Schwartz, President. We'll first provide some opening remarks and then open the call for questions. With that I'll turn the call over to Greg.

Thanks, Kyle and good afternoon everyone. Welcome to our first official earnings calls as a public company. Before we start, I would like to thank RSI's incredible team and all of our owners and shareholders whose support has been critical to our transition from private to public company, 2020 was a monumental year for RSI and 2021 is off to a very strong start. Both RSI and the online gaming industry experienced significant growth in 2020. And we don't see that trend ending anytime soon. With the success of online gaming in markets where it's been legalized, and with state governments looking for new revenue sources, online casino and online sports betting remained front and center during 2021 state legislative sessions. While more states have legalized sports betting than online casino, online casino generates more revenue than sports betting and we anticipate that many states that have legalized sports betting will consider legalizing online casinos as well similar to West Virginia. Our experience in New Jersey and Pennsylvania is that the online casino vertical is significantly larger and more profitable than the sports betting vertical. In fact during 2020, online casino generated three times the revenue of online sports betting in those two states. In 2020, RSI was the second largest online casino company in the United States according to Eilers & Krejcik. Our goal is to remain a leader in the online casino market and our business model, including our platform design and our approach to marketing is driven first and foremost by our deep understanding of casino customers. During 2020, we grew total revenue by 337% to $278 million. We achieved that growth as a private company with modest capital and with a small advertising and promotion expense of $56.5 million. Fourth quarter revenue alone was $100 million,…

Thanks, Greg and good afternoon, everyone. I'll begin by describing our key operating metrics before touching on our geographic presence, our recent Michigan launch, and concluding with update about our technology advancement. As you shared before, our strategy isn't to have the highest volume players but to focus on quality players who will bet and stay loyal to us for the right reasons and not because for example, we over bonus them on sustainable level. We target players who appreciate the premium user experience that we offer, our leading selection of betting content, and all the little things we do for our users to reduce player friction. Greg highlighted these important data points earlier, but I want to reinforce them because it's really important. Our average revenue per monthly active user in the United States was $328 during the fourth quarter, and $341 for the full-year, up 73% and 53% for the fourth quarter and full-year 2020. This validates the success of our strategy to attract and retain high quality players. As importantly, we aim to be efficient with our marketing spend, and unit economics and believe that we register, convert and retain players extremely well relative to many of our peers. In New Jersey, for example, an intensely marketed state where we don't have a land based casino or retail sportsbook driving new online players to us. We have seen cohorts pay back for marketing spend in approximately six months. Based on our strong unit economics, we believe as we ramp-up our marketing spend in 2021 and beyond, we'll continue to show strong return on marketing spend. RSI will continue to pursue a highly dynamic, data driven approach to marketing with a focus on acquiring players that we believe will meet our return on investment targets. As such, when…

Thanks, Richard. Turning to our financial results, we posted fourth quarter revenue of $100 million, which brings our total 2020 revenue to $278.5 million. Our adjusted EBITDA loss for the fourth quarter of 2020 was $1.3 million, which brings our full-year 2020 adjusted EBITDA to a positive $4.4 million. Our adjusted EBITDA for the fourth quarter and full-year periods of 2020 and 2019 removes the effects of share based compensation, the change in fair value of the earn-out liability and the one-time payment from an affiliated casino partner which occurred in the third quarter of 2020. As such, our cost of revenue was $72.1 million during the fourth quarter or 72% of revenue up from $16.6 million a year-ago and for the full-year 2020, cost of revenue adjusted for the one-time affiliated casino payment was $199.9 million also 72% of revenue, compared to $32.9 million for the full-year of 2019. Advertising and promotions expense was $23.1 million during the fourth quarter of 2020 compared to $8.7 million in the year-ago quarter, and $56.5 million for the full-year 2020 compared to $28.3 million a year-ago. G&A adjusted for share based compensation was $6.2 million for the fourth quarter of 2020 compared to $3.8 million a year ago, and $17.7 million for the full-year 2020 compared to $10.2 million a year-ago. As was previously mentioned, our public listing was completed on December 29 of 2020 and we ended the year with $255 million of unrestricted cash on the balance sheet with no debt. On February 22, we announced the redemption of our publicly held warrants. Holders have until March 24 to exercise their warrants at the exercise price of $11.50 per share. The public warrants are exercisable for an aggregate of 11.5 million shares of Class A common stock representing $132.25 million…

[Operator Instructions] Your first question comes from Jed Kelly from Oppenheimer.

Great, thanks for taking my questions. Just one on the guidance, just what gave you the confidence to sort of do the increase in the sales and marketing? And then Kyle, could you provide like a quarterly cadence on how we should view the guidance? And can you give us any sort of guidance around what you're expecting for EBITDA loss this year?

Yes, so maybe I'll start with the revenue guide, and the cadence and then let Greg or Richard talk about just the confidence of continuing to build on the marketing increase, so I'd say on the revenue guide, just to think about how we're going at it from a high level, we're expecting to grow our revenue year-over-year in all the markets that we're live today, we obviously have a set of assumptions for each market, thinks about the impact of how that growth looks like, building some variability for the pace of returns, from the marketing investments that we're really excited about. And there's just a ton of growth momentum in the market as a whole. And we're going to fuel that with our increased marketing effort. And that's going to, as we've said, several times here, it's going to accelerate our customer acquisition, we want to take advantage of that. If you think about Illinois, where we did not have a full-year of contribution last year. So that's exciting for us to add that additional revenue on Pennsylvania, New Jersey should still be nice growth drivers for us. And then we've already talked a little bit about Michigan and while it takes a little while for these new states to ramp-up, we’re really excited about how that'll contribute in ‘21 as the year goes on, just kind of thinking about where we were in Q4, and walking that forward into the start of 2021 in Q1, Q4 had a really good sports calendar, which was helpful with a little higher hold percentage in Q4, that we might have expected otherwise. So I just factor that into your thinking in terms of the cadence as we jump into Q1. But it gives us a lot of confidence about the range, and then in seasonality, or cadence throughout the year without putting it into percentages by quarter. In general, we'd expect revenue to grow throughout the year. We've got new markets coming online, got a lot of exciting things happen. So I'd expect it to just kind of build as the year goes on.

And then on Michigan, pretty interesting. Just on the March KPIs. Do you know how your growth compared relative to the overall industry in Michigan?

No, we haven't seen that data yet. I think the only numbers released out of Michigan were for the month of January, which was the first 10 days. And it's hard to predict trends from 10 days of the launch just based on promotional expense and everything else.

All right. And then just one more for me. On the New York State agreement you did with Penn, I guess it was sort of you gave them access to New York, you got access, I think in three other states. If New York adopted a single skin per casino, would your skin override the Penn skin?

When you say our skin, the RSI skin, yes RSI has the first skin in New York and Penn has the second skin.

Got it. Thank you, and congrats on the results.

Thanks.

Your next question comes from Ryan Sigdahl from Craig-Hallum Capital.

Good afternoon, guys. Congrats on the results, as well as the guidance.

Thank you, Ryan.

Just want to dig in helpful on the sequential commentary on guidance. Kyle, as we sit at $100 million in Q4, realized there's some unique things in Q4, it implies kind of minimal sequential growth throughout the year, despite two new states in Q1 West Virginia, Q2 coming online, et cetera. So I guess it implies a fairly sizable sequential decline from Q4 to Q1. Is that the right read?

Yes, I think we'll stick to full-year revenue guidance rather than guide into Q1. But I think I go back and think about the comments that we made about Q4 that are probably relevant for us, relevant for the industry is that there was a really good sports calendar and hold percentage in sports for us was a little better than expected. I think I saw that from others as well. So I don't know that I would think about it in exactly those terms. And since we're not guiding to a specific number for Q1, I don't want to say up or down necessarily. But we're obviously very excited about how Q1 is trending, relative to what we were doing last year.

And then just on the app, strong performance in Pennsylvania, without an app Michigan, you don't have one there. I guess, what's the timing to get an app live in Michigan? And then secondly on that, why isn't, why didn't you have one there day one?

I'll take that one, this is Richard. The timing for the casino markets like Michigan and Pennsylvania as the second half of this year. We do have an app for casinos sportsbook in New Jersey for many years. But Apple had a change of its policy not too long ago. And we decided to revamp our entire app to address their sort of long-term needs of Apple's goals. And so we're now building out the product from scratch essentially the way we want it to be long-term. So we're excited the development of that path. And we decided to focus on long-term success by investing and building something new, as opposed to trying to leverage something that already existed and may not actually serve the long-term goals of our company.

Good. And then one follow-up on Google. Good to see the application, any thoughts on what are you hearing on timing to get that approved? And then what states can you be live and or can you be in all of them, kind of once you're approved day one?

So there's, we have applied for all the markets that Google's supporting at day one, there are a couple of states, such as Michigan, and West Virginia that are not authorized yet to submit an app store. So applications were to go live. So as soon as those are available, we'll be submitting in those markets. But the timelines are a little bit out of our control, because there's a back and forth process and approvals that are going through the new processes, and it's not completely on us. But I can tell you that we're very aggressive and staying very focused on making sure we're doing everything we need to be to be one of the first ones to launch once it's available.

Last question for me, just you mentioned acceleration in marketing spend, any change in thought on promotional spend?

Yes, on promotional spend, we continue to really like to focus on the quality players. And we're seeing that our retention in these players is really strong and we like it they're with us for the right reasons that they're not there because as we showed in our deck, let's post on our website for Pennsylvania we have bonus under the average market, and players are obviously joined a premium experience that we offer. So while we're considering as new markets open and different markets, which are we'll be modifying our strategy in each market, we're just certainly always looking at what the competition is doing. We do believe strongly that it's important that we focus on the experience of the user, and not the bonusing players to the extent where perhaps it becomes non-viable longer-term. And then at some point, we have to pull back we'd rather sort of offer the players experience they're going to get and retain loyalty on that basis.

We've said this is the past that you're experiencing the bricks and mortar world is that, higher promotional spend doesn't necessarily lead to increased lifetime value of a customer. That doesn't lead to increased wallet share. So I think that our promotional strategies is consistent with that.

Thanks guys, good luck.

Your next question comes from Stephen Grambling from Goldman Sachs.

Hey, I guess a couple of quick follow-ups first on the guidance. Can you give us any thoughts around the split between [mails and hotmails]. And then in terms of what's embedded in the guidance and then what are the guardrails to think about it as it relates to how much you're willing to invest in marketing? And then one quick follow-up on that marketing side, just - can you just remind us of what your target ROIs are as we look to that ramp in marketing and the theoretical benefit to 2022 and beyond?

Yes, so I'll start just in terms of the [mails and hotmails], probably not going to break down that specifically, what we expect the impact of each to be on 2021. On the marketing spend, as I know we didn't give a specific number for the year. We're going to remain flexible on how we execute on the marketing plans. And we're going to take advantage of opportunities that are available and accelerate when we're seeing good results. We talked about this before, but what's holding us back in 2020 on marketing was not certainly not a lack of good opportunities to put money to work and drawing additional customers. It was, the restriction was capital and that restriction or impediments gone now. So we're going to see a real healthy increase in '21 in that marketing spend. And we'd expect it to grow faster than our revenue, as we invest there. I'll let Richard or Greg add to that, if they'd like.

What I'll add is that we focus very heavily on our payback for each market in different markets at different payback goals based on what product categories are allowed, and different tax rates in different markets. But we at a high level, we really focus very heavily on our net revenues, and a percentage of marketing as a percentage of our net revenues. And as one can look at our model, this last year, we spent over $15 million on marketing, we ended up with a very strong, a very low percentage of marketing budget was spent relative to our net revenue. So we have an opportunity, as Kyle mentioned to substantially increase that marketing spend, to get much more substantial marketing budgets flowing now that we have confidence that our unit economics are performing well. And it can justify a larger marketing spend.

And just a very quick clarification. So with that ramp, I guess the expectation would be that we would see customer acquisition first and potentially some additional ramp in that spending in the next year or thereafter?

In terms of timing, we're beginning and have been plying a larger marketing spend, and as others in the industry of course, so when you increase marketing spend in the current quarter, you typically will see the benefit in subsequent quarters and years. So that is going to take some time to ramp-up. But the key is to increase spend, acquire a higher quantity of players, and hopefully keeping very quality and targeted as well.

Understood, thanks so much. I'll jump back in the queue.

[Operator Instructions] The next question comes from Mike Hickey from Benchmark Company.

Hey, Greg, Richard, Kyle, congrats guys. First quarter, great results, great guide. Thanks for taking my questions. I guess the first one back to Michigan here just sort of curious on the, I realize this is just 10 day of results. Obviously you've seen more than we have. I think one of the surprises maybe for some, certainly for us was the success of a sportsbooks like DraftKings and FanDuel in terms of share within the online casino market. Just sort of curious, your thoughts there on the competitiveness of those sportsbooks in casino. And the second part of that is I'm hearing that at least one of them is also sort of making their own games and having a lot of success. And I think you guys have really identified that on the casino side, your app is sort of differentiated and provides a lot of value. I'm just sort of curious what you're seeing on the competitiveness as some of your peers games, and a quick follow-up. Thanks guys.

Rich, do you want to take that one?

Sure. On the first question about the sportsbook brands performance in New Jersey, of course, we've seen some data points showing that 40% to 60% of the fantasy databases, converts to sports betting. So certainly there's a head start at some companies are having in terms of very fancy databases, and in some cases, land based casino databases at very large Detroit casinos that in past years have generated many multiples of hundreds of millions of dollars of database value. So we truly started from scratch in that market. But ultimately, we think that the growth is strong, and as we indicated, we're seeing some very, very fast growth in that market. But I would say that a lot of the players that may convert from sports betting will be playing table games, where of course we will have that as well. But we also in addition to it have a lot of online flap play as well, which really is exciting for our business because that's a big part of our growth engine. In terms of the [indiscernible] games, we actually sort of pioneer that concept several years ago. We did create couple of our own Blackjack games in New Jersey. And in fact it's a top performing random number generator game in that market for table games for us is our own game. So we definitely are advocate of your own content. But of course, it has to be at a higher quality than you can get from third-parties. Otherwise, you're offering players to play an inferior product potentially, because it's yours. We'd rather make sure that we offer content that it's really world class. And so there are opportunities for us to bring additional content that we're looking at, as something that we continue to explore.

Thanks, the second question is on Illinois. Obviously, you guys have had a lot of success there initially. It looks like during Q4, you may have swap some share with FanDuel. But obviously still strong performance. Now we're seeing Barstool I think enter the market maybe tomorrow, or definitely near-term, can you just speak to sort of the competitive scenario you're seeing in Illinois on the sports bet side. And then also you talked a lot about sort of making some enhancements, or improvements maybe innovation on your sports betting app. Just curious if you think that will be beneficial on regaining some share in Illinois?

I can take that. So we do think it'll be beneficial in Illinois and actually all the markets where we were going to watch with our upgraded sports, iOS sportsbook app. But as far as Barstool launching in the market, we think it's still early days of Illinois, you're going to see tremendous growth in the sports betting market this year. And we still think, we'll maintain our share. And, if you look at our customer in Illinois, it generally skews a little bit older. And if you look at our average betting per customer, it's higher than the other operators. And so we think we're positioned a little differently than Barstool's and some of the other competitors. So, I mean, but we do think it will grow the market when they launch.

All right, thanks guys. Best of luck.

That was our last question. I'll turn the call back over to Greg Carlin for closing remarks.

Thanks everybody for joining our first quarterly call. We look forward to providing an update on our continued progress when we report our first quarter results in May. Thanks.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.