Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Rush Street Interactive Second Quarter 2023 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, August 2, 2023. I will now turn the call over to Kyle Sauers, Chief Financial Officer. You may proceed.

Thank you, Operator, and good afternoon. By now, everyone should have access to our second quarter 2023 earnings release. It can be found under the heading Financials Quarterly Results in the Investors 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 fact and are usually identified by the use of words such as will, expect, should or other similar phrases and 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 any forward-looking statements. Therefore, you should exercise caution in interpreting and relying on them. We refer you to our SEC filings for a 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 second quarter 2023 earnings release and our investor deck, which is available on the Investors section of the RSI website at rushstreetinteractive.com. With me on the call today, we have Richard Schwartz, Chief Executive Officer. We will first provide some opening remarks and then open the call to questions. With that, I’ll turn the call over to Richard.

Thanks, Kyle. Good afternoon. And thank you for joining us today as we discuss our second quarter 2023 results. As an organization, we are executing very well and have achieved positive adjusted EBITDA during Q2, ahead of expectations. We continue to deliver topline growth, while capturing meaningful operating leverage and efficiencies that are driving our bottomline. I want to touch on a few topics today. Let me start off with a few high level takeaways from the quarter. We’re really pleased with our overall performance. We generated $165.1 million in revenue, which was up 15% from last year and which again exceeded the street consensus. Additionally, in the first half of 2023, we’ve improved our adjusted EBITDA by over $54 million relative to the first half of 2022. We are proud that almost two-thirds of our improved profitability was driven by revenue growth and improving operations with the remaining one-third for more efficient marketing spend. These results set us up well for the second half of the year, where we continue to expect to be adjusted EBITDA positive. From my perspective, our results reflect our commitment to innovation, customer satisfaction and sustainable growth and profitability. The ability for us to achieve these results also about its quality and commitment of our team, which I believe is one of the best in the industry. We continue to build upon our strong foundation as we have solidified our position as a top five operator of online gaming and sports betting in the United States. Growth in our domestic markets was broad-based. As in the prior quarter, we experienced year-over-year growth in both our online casino and sportsbook-only markets. In fact, when looking at U.S. markets launched after 2020, along with our international markets, we grew over 35% year-over-year in the second quarter.…

Thanks, Richard. Second quarter revenue was $165.1 million, up 15% year-over-year, ahead of expectations and with well-balanced growth across the business. As Richard highlighted, we’re excited to have reached adjusted EBITDA profitability in the second quarter, coming in at a positive $1.2 million. This is significant progress compared to last year’s second quarter of $18.6 million EBITDA loss and last quarter’s EBITDA loss of $8.7 million. We’re in an excellent position to continue this adjusted EBITDA profitability for the second half of 2023 and into next year. Now I’ll dive a little further into our outperformance during the quarter where we performed better than expected on revenue with growth across the Board in iCasino, sports in both U.S. and international markets. We get asked often about our approach to sportsbook markets. We have a great product and a well-established presence in those markets and this gives us an impressive opportunity when iCasino gets legalized in sports betting markets. To put it in perspective, in the second quarter, in sportsbook-only markets, when we lost a little more than $1 million in aggregate, providing minimal drag on our results. In fact, excluding New York, our sportsbook-only markets in the aggregate were profitable in the second quarter. Looking ahead, we have a great opportunity to be profitable in all of our markets as we continue to execute on our strategy. We also continue to attract and focus on high quality players and our industry-leading ARPMAU of $359 in Q2 reflects the strategy. In total, our North American ARPMAU was up over 10%, both year-over-year and sequentially, validating the high quality experience we offer. Consistent with our past statements, we’ve continued our focus on investments in markets with iCasino with U.S. and Canadian MAUs, up over 9% year-over-year in those markets. Regarding hold percentage,…

Absolutely. [Operator Instructions] Our first question comes from the line of Dan Politzer with Wells Fargo. Your line is now open.

Hey. It’s Zach Silverberg on for Dan. Thanks for taking my questions and congrats on the quarter. Just seeing some of your recent success in the international markets and some of your past comments and some of the recent legislative momentum in Brazil. Can you just kind of talk about that market and other similar international markets that you guys are looking at the potential for growth there?

Sure, Zach. Hey. This is Richard. Yeah. I mean, we’re looking to take advantage of the head start we have in Latin America. As you know, we’ve been having a lot of success there and it’s not a short-term program we put in place, it is really long-term focused and we have a tremendous amount of talent and sophistication in how we operate down there. So when you look at these other market opportunities, they’re sizable when you look at the populations. We use reference that Brazil finally just issued their regulations after several years. So that’s a market with over 200 million people, which is larger than Colombia and Mexico combined, which is about 180 million combined. So you have a really large opportunity there in Brazil. Peru has 33 million people. They just legalized online casino and issues the first draft -- not -- first they issue the regulations and that market is going to be going to a regulatory process with expectations perhaps as early as half middle of next year, they should be launching in a regulated environment. Chile is making progress. Argentina is making progress. So we have ample opportunities and are evaluating each of them and identifying the ones that make the most sense for us to enter. But we’re really excited about that region and we think we have a head start over most of the sophisticated operators in the industry and a chance to really deliver some outsized results in that region.

Thanks. And just one follow-up. In your prepared remarks, you talked about some of the state legislative agendas. Just recently, we saw Ohio double their sports betting tax rate. There’s been some chatter on other states. Can you just maybe relay anything you’re hearing about potential states increasing the tax rates or anything of that sort, either the sports betting reg…

Yeah. I know…

…had?

I certainly think that in some of the sportsbook-only markets, there wasn’t a lot of generation of taxes perhaps meeting up with some of the expectations that were sold to the states. I think that’s probably what happened in Ohio. But certainly, we haven’t heard much more on that topic and certainly think that in the markets where we have online casino, which is an area where we have a lot of strength. And you are seeing that the vast majority of taxes being generated are coming from the casino category and we think that bodes well for the ability for that category to continue to be legalized in additional markets to create some tax flow for states like Ohio. We are pretty active in moving towards progress towards that legalizing iCasino, which would then add to the tax basis that is generated from online gambling.

Thank you.

Thank you for your question. The next question comes from the line of Jordan Bender with JMP Securities. Your line is now open.

Great. Good afternoon and thanks for taking my question. So last quarter, you talked about revenue kind of following quarter-on-quarter and with actual results coming up quarter-over-quarter. Just kind of making the assumption that you maybe beat that guidance by $5 million or so, it’s about the same amount you raised your guidance for the full year. Is it kind of fair to assume that your guidance raise for the year was just kind of on the back of that beat or are you actually seeing improvement kind of in the back half that’s causing that optimism?

Yeah. Thanks for the question, Jordan. As we talked about, we did have really good performance across the whole business. We had a little help from sports outcomes in the second quarter. It’s still early in Q3, but we’re tracking well against our plans. And to your point, I think, we’d beat consensus by about $7 million raised the full year by $5 million. So that I think the second half for us in terms of the guidance looks similar to where we were before. I don’t know that I would equate it exactly the same way you did, because we do, as you can imagine, go through and reforecast the back half of the year. We look at all the different markets. We look at how things are trending. We look at player values and ended up in this range that we’re comfortable with for the $650 million to $690 million.

Okay. Great. And then just for the follow-up kind of, you talked about you originated your EBITDA positive in the back half of the year. Just given the better-than-expected EBITDA result in the second quarter, is there a situation or a scenario where you can be EBITDA positive for the full year of 2023?

Yeah. There’s -- certainly within that guidance range that we offer and then some of the other context we gave with kind of the trends for marketing expenses and G&A expenses, there would be scenarios that would cause us to be profitable or adjusted EBITDA profitable for the full year and thinking about the back half of the year, specifically. In the prepared remarks, we did -- we commented still very confident in profitability for the second half. Very excited about what we achieved here in the second quarter. Q3 could well be profitable as well. It kind of depends on where revenue comes in. Seasonally, it wouldn’t be unusual for Q3 revenue to be flat or potentially down from Q2. We’ll see where it shakes out, particularly considering we had some good sports outcomes in the second quarter. So -- having said all that, if revenue comes in, let’s say, even with the second quarter, Q3 could be profitable from an EBITDA perspective. And then if revenue is a little lower than that, maybe it starts to get a little tighter, but still very excited about profitability for the back half of the year. And to your original question, certainly, within the guidance range we’ve given, it’s possible for us to be profitable for the full year.

I appreciate the questions and nice results.

Thanks, Jordan.

Thank you. The next question comes from the line of Chad Beynon with Macquarie. Your line is now open.

Hi. Good afternoon. This is Aaron on for Chad. Thanks for taking my question and congrats on the really strong quarter.

Thank you.

So, obviously, positive EBITDA in the quarter was a great result. I’m curious, has anything changed in terms of your expectations around the magnitude of your profitability in the second half, just given some of the operating leverage and operational improvements you called out? And it seems like there’s more confidence out there just generally that the U.S. can avoid a hard recession. So just curious whether that plays into your views for the rest of the year? Thanks.

Yeah. So thanks for the question. I think we haven’t offered a magnitude of profitability in the back half publicly. As you can imagine, we have our own internal expectations. But for sure, we’ve felt really good about the results to-date. Obviously, the second quarter profitability came in quite a bit better than the street expected and certainly better than we expected as well. I think we’re -- revenue was strong. We’re more efficient with marketing. Our gross margins were good. G&A costs were kept under control. So I think if all those things continue to trend and there’s no signs that we’re not operating well and not achieving those and won’t continue to. I think our expectations are higher. And to the point of the last question, is it possible that we could be profitable for the full year? It is possible in that guidance range. So that -- I think that alone tells you that we’re optimistic about the back half and the future.

Okay. That’s great. As a follow-up, I just want to touch on iGaming competition for a second. There’s a major competitor who recently reported that they’ll be introducing an upgraded iCasino product in the near future. Can you just talk about what you’re doing or areas you’re really focused on to protect your position and continue to grow? Thank you.

Sure. Yeah. That’s an area of expertise for our business and we’re investing a lot of energy to ensure that we stay ahead of the industry trends, and in fact, pioneer a lot of things that are new to the industry, not just in the U.S. but even globally. So it starts with obviously content. We’re very quick to launch new content and add new content libraries and bring -- be the first to launch new libraries is something that’s very attractive to our consumer audience. We’re focusing a lot on personalization and using all kinds of algorithms to ensure that we have recommendation engines to ensure that players are playing the right type of games. They like a certain style of game. We want to make sure we serve up another game like that. We’ve been enhancing the user experience as well on the flows of the games, the game lobby itself, adding animations and all kinds of ways for players to sort of engage in the games in a way that makes it easier for them to access the games and to play the games they’re interested in playing. We’ve also really continue to really emphasize these. We’ve built a lot of tools ourselves that are proprietary technology, promotional game engines that are unique in the industry, and we build these and we continue to evolve and improve them. So, for example, we have a slot tournament engine that’s really compelling and we’re really the only ones operating it the way that we are and it’s delivering a lot of value to the players, because they want to constantly come back and visit us, because we’re giving them actual chances to win from there. So I think we’re adding some additional exclusive content, continuing to innovate in terms of the types of ways we add value to players. We have a bonus store that’s unique in the industry, where players are able to pick out different fund activities to do. So, for example, they can redeem their loyalty points for a wheel spin or an entry into a high-stakes bingo game. These are again features that are unique to our industry, to our company in our industry. We also have a community. We pioneered community play, community chat room in our industry across all casino games. So what we have -- we have a staff that’s very heavily involved in engaging with the players and offering them a types of fun, entertaining experiences that delivers a retention that’s very helpful for us, too. So I think along all these areas, we continue to invest in bringing out new features, new games, new meta games and try to constantly stay ahead of the industry. So we feel very strong about our product and it’s getting better at a very fast rate as well.

Thank you, Richard. Thank you, Kyle. Appreciate the color and create again on the strong quarter.

Thanks, Aaron.

Thank you. Our next question comes from the line of Jed Kelley with Oppenheimer. Your line is now open.

Hey. Great. Thanks for taking my question. Looking at your presentation, it looks like U.S., Canada high grade gaming grew 21%. And then you mentioned in your remarks how the underlying profitability of the sports betting markets, but can you give us taking out your international markets, where are the -- what’s the underlying profitability of your iGaming and sports betting states combined, those states which you’re operating?

Yeah. So, Jed, I’ll take it and I want to make sure I understood your question. But one of the things we shared in the prepared remarks is that, our sports betting markets in total lost around $1 million this quarter and without -- if you take New York out of that, sports-only markets would have been positive. So when we think about contribution profit from any given market, that’s including all our marketing expenses, obviously, all of our costs to operate in those markets. And then we’ve got our corporate overhead that largely ends up in the G&A line. So you could do some back-of-the-envelope math and get close to what the other markets are doing outside -- that include casino that gets -- that covers that G&A cost essentially to get us to profitability here in this quarter.

Got it. And then you talked about a lot in your prepared remarks about the potential to cross-sell the OSB database to when iGaming legalizes. Are you getting more incrementally more confident that we’ll see some legislation break your way in the next 12 months?

Yeah. I mean, I’d say that, it’s always hard to predict, right? But you are seeing more states introducing legislation and putting really serious lobbying efforts towards making, having some movement. I mean in Canada, you have a couple of jurisdictions there, in particular, Alberta is one that really seems to be moving fairly fast in terms of appreciating the tax benefits, the consumer protections available from the regulation of Ontario and you’re starting to see that other jurisdictions there are being marketed to right now consumers in those jurisdictions. They’re not by operators who aren’t paying taxes there. So they certainly would like to sort of take that lead of Ontario and be able to generate some taxes up in Canada from those jurisdictions as Quebec and British Columbia as well that are showing various signs of interest. When it comes to the United States, we mentioned in this -- in our prepared remarks, a range of states, including New York, Indiana, Illinois. And the ones that we mentioned when you add those together, it’s about 60 million -- over 60 million of population in states that are working actively on legalizing iCasino. Currently for comparison, iGaming is really only -- we’re only active in a population in the U.S. of 34 million people. So there’s almost 50% more available -- more than 50% more available that’s being worked on. So we certainly think there’s opportunity. Of course, we don’t know the timing as no one really does, but I can tell you that, as we talked about, with a lot of efforts to be made, preliminary work is being done. The studies that are being prepared are being used -- as prepared are being used potentially to then drive a quicker adoption by the legislators. So we’re feeling good about the progress we’re seeing across the different North American markets.

Thank you. Thanks, Jed.

Thank you. The next question comes from the line of Edward Engel with ROTH MKM. Your line is now open.

Hi. Thanks for taking my question. It was nice to see the marketing expense down 9% year-on-year. I was just wondering, it was also a sequential decline, too. Is this a fair run rate you think for the rest of the year, the kind of $40 million per quarter?

Yeah. So good question. Thanks. We came in a little better in the second quarter compared to probably where we originally expected and so it’s likely that the spend is closer to flattening out from here from that Q2 run rate, maybe a little uptick into Q4. So I think you’re on the right path there. Obviously, we’re going to remain flexible with the spend. We’ll see where we get the best value and best opportunities for returns in acquiring players. But I think that’s generally the right way to think about it.

Great. And then as I kind of think for next year, again, marketing expense down 9% year-over-year, would it be fair to assume that state which have been around for over a year, that marketing expense is actually down a lot lower and I guess is there any kind of range you could maybe give us?

Yeah. I don’t think I’ll go as far as giving a range today. We haven’t given any guidance for next year yet. I do think we would expect to get leverage over the marketing line in 2024. We expect to grow revenue. So as a percentage of revenue, I would expect to see some leverage there, but I don’t think I’d want to put a specific number on it just yet this far ahead.

Okay. Great. And then if I could sneak one more in. Similarly, on the G&A side, only up 3% year-on-year, but down sequentially. Is there any lumpiness as we think of the year, I think, I remember you talking about maybe G&A coming a bit higher, but it seems like it’s trending pretty well?

Yeah. So I think, as you know, you followed us for quite some time. We’ve been pretty conservative with the way we build costs over the years here and we’re always mindful of the investments we’re making. One thing I mentioned in the prepared remarks, we did have a little bit of a benefit from foreign exchange rate that lowered G&A costs in the second quarter. So we probably expect Q3 and Q4 to be back near or maybe even above the Q1 G&A rate that was closer to $14.7 million, I think, it was. So there was a little bit of a benefit in Q2 that wouldn’t necessarily repeat.

Really helpful. Thanks, guys, on the positive EBITDA.

Thanks a lot.

Thanks, Ed.

Thank you. The next question comes from the line of Ara Masias with Jefferies. Your line is now open.

Hey. Good afternoon. Congrats on the quarter and thanks for taking my question. On the slide deck, you talk about the prop bet list views which has helped drive 60% year-over-year growth for MLB. Will you be expecting a similar also NFL as well? And what else may you be introducing that new for the NFL? Thank you.

Sure. Yeah. No. We are -- we put a lot of investment into really surfacing the right type of bets for the right players and the right mix of wagers for them and really make it easier for them to find the bets they really want to place. And so this list view change that we made a change to really improve the ability for our players to discover the bets they want. And in fact, we’re going to be doing the same thing for football season and we’re going a step further. We’re actually going to be introducing a really beautiful new feature for football season. It’s going to be really highlighting the props, we call, Prop Central and really allowing our players to find all player props in a single place right now, players have to go to an individual game and click on the game and find all the players that are in that game and bet on those player props. So instead, we’re going to sort of unify it and create it. So that’s a single place where all the players can visit together at one time, a player better convince one time and see other players at the same time. So that kind of thing is going to be a real game changer, we think, in terms of improving the volume of prop bets. I think if you heard us talk before, player props are very popular in the U.S. I think the fantasy industry kind of create a lot of interest in the player statistics and player results in the U.S. market, even relative to some other international markets. And so we’ve been really putting a lot of effort into not just growing the parlay bets as we talked about earlier, especially the Same Game Parlay, but also the player props are really expanding the lineup of props and adding more features, including also for football season, we’ll be adding more things like live facilities in props, more live bets on things like touchdown scores and other player statistics that will be able to be made up as part of Same Game Parlays. So we’re improving the Same Game Parlays offering and the player props in particular. We’re also adding some more personalization capabilities to our platform. So, again, we’re really trying to innovate in this area and ensure that we get those volumes on the player bet on the bet types that we’re interested in.

Okay. Great. That’s all. Thank you.

Thank you.

Thank you.

Thank you. There are no additional questions in the queue at this time. [Operator Instructions] There are no additional questions waiting at this time. So I’d like to pass the call back to Richard Schwartz for closing remarks.

Thank you again for joining us today. With a solid financial position, a strong technology platform and effective operational discipline. As I just said, it’s -- we’re very well equipped to continue to successfully execute our strategy and position ourselves for further revenue growth and profitability in the future. We look forward to updating you on our progress when we share our third quarter results in a couple of months. Thank you.

This concludes today’s call. Thank you for your participation. You may now disconnect your lines.