Good day, ladies and gentlemen, thank you for standing by. Welcome to the Rush Street Interactive Second-Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note that this conference call is being recorded today July 31, 2024. I will now turn the call over to Kyle Sauers, Chief Financial Officer. Kyle you may proceed.

Thank you, operator and good afternoon. By now everyone should have access to our second quarter 2024 earnings release, that 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. In particular, we'll be discussing adjusted EBITDA, which we define as net income or loss before interest, income taxes, depreciation and amortization, share-based compensation, adjustments for certain one-time or non-recurring items and other adjustments that are either non-cash or are not related to our underlying business performance. A reconciliation of these non-GAAP measures to the most directly comparable GAAP measure is available in our second quarter 2024 earnings release and our Investor deck, which is available in the Investors section of the RSI website at rushstreetinteractive.com. For purposes of today's call, unless noted otherwise, when discussing profitability, EBITDA or other income statement measures other than revenue were referring to those items on a non-GAAP adjusted EBITDA basis. With me on the call today, we have Richard Schwartz, Chief Executive Officer, who 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 welcome to our second quarter 2024 earnings call. Looking back over the past 12 months, our results have been a clear sign to us that our approach is working. We have consistently exceeded expectations and this quarter is no exception. As we continue to innovate, grow and deliver value to our customers, I remain confident that we are well on our way to achieving our goals being a leader in online gaming across America. Second quarter revenue was 220 million, up 34% year-over-year and EBITDA was $21.4 million, representing a $20 million improvement year-over-year. Both of these were quarterly records, and I'm very proud of our team for continuing to generate these excellent results. Consistent with trends from the last couple of quarters, we are adding new players to the platform faster. We are doing it more efficiently and we are maintaining high payer value for offering a differentiated experience that keeps players coming back time and again. All of this leads to solid top line growth and strong flow through to the bottom line. As we see in our recent quarterly results, we are continuing to post strong growth across both iCasino and sports, with iCasino revenue growing more than 40% year-over-year and online sports betting more than 25%. Underlying the growth is a solid mix of increasing player accounts with improving player value trends that we attribute to our high quality and differentiated user experience. It engages and retains players on our platform. For the second quarter, MAU growth in the United States and Canada was 24% year-over-year. This is the 6th consecutive quarter in which we have seen our year-over-year MAU growth in North America accelerate. In Latin America, rapid MAU growth continued during the second quarter, as we were up 79%…

Thanks Richard. Second quarter revenue was $220.4 million, up 34% year-over-year with balanced growth once again in both iCasino and online sports betting product. Our growth was also strong across our different geographies and market vintages. As the business continues to scale further, top line expansion is resulting in growing profitability. We had record EBITDA again this quarter coming in at $21.4 million, up over $20 million from last year's Q2 EBITDA of $1.2 million. As our business scales, we continue to drive improvements in profitability with strong flow-through. As Richard discussed, our revenue was driven by strong growth in our player base in combination with a nice improvement in player values in North America. In North America, MAUs were 164,000, up 24% year-over-year, while ARPMAU was up 6% year-over-year to $380. In Latin America, MAUs were up 79% to 288,000, while ARPMAU was down 2% compared to the prior year period. We are bringing in players efficiently, retaining them well, and driving strong player value by offering them a unique and fun experience. In the second quarter, gross profit margin increased around 100 basis points sequentially to 34.6%. Revenue from markets other than Pennsylvania and Illinois accounted for 59% of revenue during the second quarter, while gross profit margin in markets other than Pennsylvania and Illinois reached 47% during the quarter, the highest point in our history. We're also very pleased with our marketing investments for the quarter. As Richard mentioned, we set records for new players in both the U.S. and Latin America, but we also did so, while cutting our cost to acquire players by more than half compared to the year prior. Marketing spend during the quarter was $36.3 million, down 10% compared to the prior year quarter. As a percentage of revenue, marketing was 16%…

We will now begin our question-and-answer session [Operator Instructions] Our first question comes from Ryan Sigdahl with the company Craig-Hallum Capital. Ryan, your line is now open. Q – Ryan Sigdahl: Good afternoon, Richard, Kyle nice job. Good quarter here. And maybe Kyle sticking on the last point talking about Illinois and the tax increase. Can you talk through the puts and takes and I guess who's ultimately burden given your managed service agreement with Rush Street Gaming with ultimately the higher taxes in the state? And then secondly, how do you think about strategy as it relates to the competitive intensity and how the marginal tax rate may impact, are your larger competitors in this state relative to yourself?

Yes, I'll go on that first part, Ryan. And I'll let Richard chime in. And so the way the tax rate was finalized being a graduated tax was better for us. As you point out, more of the burden of that is on our partner in Illinois. The impact on us ends up being less than we originally expected under the construct that was put forward initially. So at current revenue levels, it's less than a $2 million annual impact on us. Obviously, we hope for that to increase as we increase the business there. And as I think I pointed out in the prepared remarks, we've built that impact into our guidance already.

And from a competitive standpoint, from being one of the most reasonable tax rate markets in the market in the country to one of the more highest ones. So you can imagine that there will be a change of effort and investment made in the state because of that, and therefore, I think the competitive intensity will decline. And I think that actually probably bodes well for companies that are less aggressive in their spend in terms of just trying to create experience that players like and treat them well and retain the customers which is where we have done well historically. Q – Ryan Sigdahl: And moving up north to Ontario. Any comments on performance and if you're willing to comment on growth rates relative to the overall industry figures that we see?

Sure. We're really excited by a marketing campaign running right now during the Olympics, which is essentially exclusive around the entire country, really making sure our brand is front and center. During the Olympics, we're really the only brand that's in the category that's being broadcast in association with all the Olympic broadcast. And so given a lot of interest in the basketball team up there with a lot of NDAs, some star NBA players and obviously, sports like tennis and soccer performed really well for us in outside of Olympics, and we're expecting it to do well for us during the Olympics. We think it's a great opportunity for us to head into the second half of the year to continue growing the way we have. We aren't going to really break out specific market performance as though would like we never do. Q – Ryan Sigdahl: Very good. I'll turn it over to the others. Thanks, guys. Good luck.

Thanks, Ryan

Next question comes from Daniel Politzer with the company Wells Fargo. Daniel, your line is now open. Q – Daniel Politzer: Hi, good afternoon, everyone. Thanks for taking my question. The first one on flow through, the first half this year has been really strong. Obviously, you've been selected profitably and positively in terms of your profitability. But as we think about the back half of the year, I think your guidance is implying something like 20% flow through. To what degree is there some conservatism baked in there? Or is that more reflective of market launches or Illinois or something else altogether?

Yeah, Dan, thanks for the question. This is Kyle. I'll take it. So some of the improvements in EBITDA compared to last year in the first half relates to lower marketing spend. And based on what we've indicated today, we're actually -- we're expecting to increase marketing spend year-over-year in the second half. So that impacts the flow-through during those quarters. I think it's probably more useful to look at the full year and takes out some of the seasonality of the business and seasonality of our marketing investments. And I think if you look at it that way, the guidance puts us in a low to mid-30% range for flow-through for the year.

Got it. And then in terms of the customer acquisition environment, have you seen any changes in terms of the cost to acquire sports betting customer versus iGaming?

Yeah, we've seen for us, we've been able to deliver reductions across all categories of marketing. I think we had irrational market for a period of time. And it's become a lot more rational. And I think we've been improving quite a bit with our investments in technology and marketing tools as well as investing in capabilities to make sure that we find the right players in the right places that are valuable for us, ultimately, you'll see -- and what I shared is that we're getting more players for less spend, which means we're becoming extremely efficient in what we do, and we think there's opportunities to continue to improve in that area. So I would say we have seen some improvements, and we're excited by the opportunity to kind of invest some more in marketing moving to the second half of this year.

Got it.

Yeah. And just maybe put a fine point on it, Dan. It's improved very nicely in both sports-only markets and markets with both products.

Understood. Thanks so much.

Thanks, Dan.

Our next question comes from Bernie McTernan with the company Needham.

Great. Thanks for taking the questions. Maybe just to start a follow-up on Ryan's question on Illinois. Have you actually just -- I know it's only been a month since the actual tax rate increase. But have you seen any change in behavior from any of the operators thus far as a result of tax situation?

No, I think we really haven't seen anything that I would comment on here.

Okay. Understood. And then just given the success in the strong MAU trends that you've seen, would there be any thought of revisiting states that you aren't currently in where only online sports betting legalize like in North Carolina, for example, does that make more sense now given all the success that you're having?

Well, we look at those markets all the time. The ones that were the ones that were out. We're always constantly evaluating with opportunities for the best ROI. And we think the mix we have right now is really strong. What we're seeing is that a larger percentage of our overall market footprint are now moving to casino markets. In fact, 9 out of our 19 states are now casino market, I should say, globally have casino in it. So I think the combination really gives us twice the value to be to acquire players to sports is cross-border casino. So while it's possible, we are getting much better in sports constantly. Our products improving, our user experience is improving. We're bringing some innovation to the market in the last year that have worked really well. We have some additional ones we're working on for later this year. So I think it's never something we don't consider, but I would say that we're really glad that we are growing in the way that we are in all of our markets. We're very balanced in the casino and sports. And the sport is a big part of our business still and it's something that we're excited to keep growing. But I don't think it's something that we're spending for us to be jumping into another sports-only market.

Understood. That's all for me. Thanks, Richard.

Our next question comes from David Katz with the company Jefferies. David, your line is now open.

Good evening, everyone. Thanks for taking my questions. I -- and I apologize if I missed it in your prepared remarks, I wasn't on time. But Delaware is a market really that has been one of the important engines of growth. Like, could you just give us some updated color on sort of how that's doing and put some context around just how big it is in the grand scheme of things potentially?

Sure. I mean, it continues to be a real strong performance for us. I think the quality of the technology and our user experience really has resonated with the audience there. They're almost immediately, and we're continuing to improve our performance there to the point where we shared that we are generating four times more what the prior operator had achieved over the same prior year timeframe. So really a strong result. We are adding live dealer. We did add live dealer at the end of this last quarter and as you know is a very popular product category. One that brings a lot of trust to the users who like to play table games. And so we're excited for that to have been live and we'll get the benefit of that. We think during the football season when you have a lot of cross-sell between the sports and the and the live dealer type of products here in the US and we're just really excited for the first time to have a ever in the state of Delaware to offer an online sports product that's getting a football season. So I think, those two things live dealer and football season are going to be opportunities for us to continue to expand our customer base and we remain really excited about the opportunity in Delaware.

And is it fair to classify it as I assume it's growth outgrowing kind of the Company as a whole at this point. So it's sort of accretive to the growth. Any context we could put around that?

Well, it's I'll make sure I answer your question David and it's all it's all new for us. So obviously it's all growth. We did as a reminder exit Connecticut late last year. So that's a bit of an offset, but it's been a nice contributor for us in the first half of the year about $37 million in GGR. Obviously there's some bonus in there that brings that number down to the financial statement revenue number, but we'd expect it to continue to grow nicely in the back half of the year, as Richard pointed out for reasons being first football season and the addition of live dealer.

Okay. That will work. I have more but I'll come in the back end. Thanks.

Thanks, David.

Our next question comes from Chad Beynon with the company Macquarie. Chad your line is now open.

Afternoon. Thanks for taking my question and nice results. I wanted to ask about hold rates I guess related to both high gaming and OSB. Anything major to call out in the quarter? And then I guess going forward there's a couple of things. Obviously, the euro Copa finals were here in the third quarter. So wondering if you could provide a little color around that. And then more importantly as we kind of get into NFL season kind of where's the product now? And how are you thinking about potential hold rate increases versus what you had last football season or in Q4 2023? Thanks.

Thanks. All right. Chad I'll start. I think there's about six questions in there. So I hope I can get all of them on Q2 hold both high iCasino and sports margins were within our expected range. Sports was probably the lower end of our range. I'd point out that that our expectation is that of all of our hold ranges for both iCasino and sports that that continues to improve which I think answers another of your question that we'd expect the improvements in our product mix. Our new product central came in late last year. The squares are the improvement in our parlay product and Same Game Parlay product should drive improvement in hold this year. But that's the same across the business and on the Copa and the EUR I think Richard highlighted just how helpful that was for acquiring new players. A lot of great activity both at the end of Q2 and the beginning of Q3. We'll probably wait until we release Q3 results to give a whole lot of details on the on the outcomes. I think as you know Argentina beat Colombia in the finals. So that was that was certainly a good outcome for us.

Thanks. That's great. Appreciate all that on hold. And then separately just on Mexico I know you mentioned that the business is at a better point at its own it's time since launch compared to where Colombia was. So how should we think about Tom when a business like this scales up or can you just remind us how long it took for Colombia which is still growing now to really get to a significant amount of contribution? Thank you.

I'll start and then maybe Kyle add in. And so Mexico is growing very nicely. So really fun opportunity for us. It's a really fun opportunity for us. You have to get all the globalization customization right, which we're almost at the prop time where we have that. We have a couple more payment integrations we're finishing up that I think is going to make an improvement as well. But we're real excited for that. We have a casino audience down there that I think really understands the casino category and obviously gets to appreciate the variety and the quality of our casino experience. So it is a market that we're investing more in because we do see larger opportunities for growth. In terms of the actual timeline of where we are, well, let's see.

Yes, so I'll just, without absolute specifics, it took Columbia several years before we started to really hit our stride and accelerate growth. But as you've seen over the last several years, once we got to, I don't know if tipping point would be the right term, but brand awareness product was really where it needed to be in Columbia, growth has really accelerated. And we think we have a similar opportunity in Mexico, as we start to build that base and develop some brand awareness. Product is certainly in a better place today than it was in Colombia five years ago. So we think the opportunity is really, really nice for us there.

Sure. Thank you both very much.

Thanks, Chad.

Next question comes from Jed Kelly with the company Oppenheimer. Jed, your line is now open.

Hey, great, great for taking my questions and great quarter again. Just a question on promotional velocity and iGaming. Have you seen a material difference in the industry? And then just on improving CAC trends, I think we've heard from multiple operators now they're seeing lower CAC on a similar level of marketing. So is there something in the industry that's going on that's driving lower CAC? And then I have a follow-up.

Right. So a couple questions in there. First, as I referenced earlier, we're in a more rational market than we've been before. We sustained and grew in the prior irrational market, so it's easier for us to improve and perform, I think, in the rational market that we're experiencing now. In terms of our approach, we look for good value ourselves based on our own positioning in the marketplace, and we have a little less concern with what others are doing. Obviously, we pay attention, but we make our own decisions and strategies based on what's in our best interest. And so I'll say there's always going to be competitiveness there. There's always someone in there coming in aggressive, spending a lot, and we've over many years now been able to sustain and grow in that environment where others are outspending us because ultimately it comes down to the putting players first and the quality of the user experience. I would say that the CAC for us, as we've shared, has continued to improve and reduce. I think it's possible that some other of our competitors are spending less than they did historically, a lesser percentage of their revenues on marketing. I also think it's possible that some of the smaller operators that we're still spending that exited the market, so that provides opportunity for those that are still here. I know we've improved massively in terms of our maturity as an organization and knowing where to get the players, what players are valuable, and how to make sure we're getting players that are long-term viable for us. And so I think that investment we've made is really delivering for us the better value, and I can't really speak to how others are doing it, but I would say that I think the whole industry is probably getting better as well.

Yes, and the only thing I would add to that, Jed, is Richard's all of his points about our marketing and how much better we've gotten in finding high-value players in the right places and doing it at an appropriate cost. The same goes on the bonusing that you referenced is we've gotten a ton better at making sure that the right bonuses are going to the right players and that we're giving value to the players that deserve it most. I'm sure others in the industry have gotten better at that as well, but we're very pleased with how much better we are both on the bonusing side and on the marketing efficiency. Having said that, I think we've got the ability to be even better still.

One other thing to add on the marketing efficiency concept is that, there were some recent articles about us that recently came out a day or two where we decided to pull back some affiliate spend in some markets. The reason why we did that is ultimately we want to have the flexibility to spend more with affiliates in other markets, make sure we focus on the markets where we get the best ROI. And secondly, there are other channels in the markets where we may have pulled back that we see opportunities to do other types of channels to acquire customers. So we're constantly looking at the data and evaluating the right opportunities to deliver the best ROI for us in those markets.

Great. And then just real quick on the back half guidance, should we and the fourth quarter is going to be your high watermark for EBITDA in the year.

So just maybe a couple of things we do. We expect marketing spend to be higher in Q3 and Q4 than it was in Q2. For all these reasons that Richard talked about, we just see a lot of opportunity to acquire more players that are at very reasonable prices. And I'd expect that revenue in Q3 our midpoint of guidance the revenue in Q3 would be lower than Q2. And then Q4 would be the high watermark for revenue and certainly possible that Q4 could be the high watermark and EBITDA for the year as well.

Thank you.

Thanks, Jed.

Our next question comes from Jordan Bender with the Company's Citizens JMP. Jordan, the line is now open.

Good afternoon, everyone. I want to follow-up on Chad's question there on spending money to gain more customers. Is the talk around marketing increasing in the back half of the year or just you being opportunistic based off of kind of some of those trends where you're acquiring easier or was this planned spend just ahead of when the more important periods of the year? Thank you.

Well, I think it's a combination of things. As you point out. Some of it is kind of event and seasonally driven as Richard pointed out in his prepared remarks. And then I think we highlighted it again the Olympic campaign that we have going on in Canada here in Q3 and that is, so that's driving some increased costs. Obviously there's a lot of opportunity around the start of football season to put money to work. And it is -- I'd say it's more dynamic than it is opportunistic. We've done -- our marketing team has done such a fantastic job of driving down costs and finding the right place to get new players that makes sense for us to make some additional smart investments in marketing and its not in a response to any competitive forces as much as it is leaning into what's going really well for us and driving more user count for future year growth.

And just to add Jordan, we keep it simple. We just modify based on the value of the players and the cost to attract them.

Got it. Okay. And then, from my question, just given the relative size and scale of the company now and the inflecting free cash flow, are you getting to a point where it makes sense to start bringing in some of your tech stack that you don't own in-house? Thank you.

Well, we actually are off almost all the Tech stack. And we're really heavily invested in all kinds of technology and features from the apps, the player account management system. We built poker. We have our promotional rewards engine in-house. It's really innovative and unique in the industry. The only thing we haven't brought in house is Sportsbook platform which we integrate through can be for many years. And as I've shared previously is private awhile. Our philosophy on that relationship is that we'd like to go sort of yet the bread and butter from can be. But we have a development team internally that at their Own flavor of Twist, our own innovation at the top with the Sportsbooks we get the benefit, I think of a core fund fundamentally strong core technology. And we differentiate by building our own features on top of it which is things like the squares of works and the player props things we did last year that really worked well as well as new ones underdevelopment. So there really isn't a plan to bring in and at the moment certainly our Sportsbook in-house. But everything else we have developed in-house. And as you may know we are the poker platform we've been developing as well. So again we have almost all parts. We have our own jackpot system and other companies have gone out and bought and tire companies to build to have a jackpot system. We built it in house. So we have a very robust, very thorough, very broad-based technology system in-house. Really I would say 95% of everything is in-house really. And we don't have in house and maybe some others do is Sportsbook, whereas we have a lot more in-house and other areas that I think most of our competitors do.

Understood. Thank you very much.

Thanks, Jordan.

Our next question comes from Mike Hickey with the Company's, Benchmark Company. Mike, your line is now open.

Thank you. Hey Richard, Kyle. Great job on the quarter guys. Two topics. I guess the first topic is Latin America Africa sorry if I missed this, but can you give us some color on sort of LatAm as a segment in terms of revenue and EBITDA contribution whether it's a quarter for the first half or maybe how you're thinking about it for the year. If you can't give EBITDA obviously comment maybe just if it's plus or minus would be helpful. And then before I jump in there kind of just the last piece on Latin America which are in Pannon like maybe you're incrementally more cautious on the entry into Brazil. Curious if that's the right read through there and maybe any sort of update on the regulatory framework and maybe the challenges that you see in that market? And I have a follow-up, guys.

Great. Thanks Mike. So, on Latin America obviously been highly successful for us. We're really excited about the Pru launch that just happened here. But the main driver of our growth right now is Colombia. And I'm also very excited about Mexico. So today or at least in Q2, I think Latin America makes up close to 15% of our revenue now, so really nice contributor. That's been growing faster than our North American business. And I think that is likely to continue for some time, certainly given the launch of Peru and Mexico it's starting to pick up some momentum. In terms of profitability, Latin America absolutely is nicely profitable for us. Latin American total has higher gross margins than most of our North American markets, so strong growth in Latin America is nicely incremental for us and incremental for the bottom line. But I'll stop short of splitting out your EBITDA by market or by territory. And then Richard, you want to comment on.

Sure. Yes. For Brazil, Brazil is a large and exciting market. There's lots of moving parts there. And it's very important that we sort of remain disciplined and more thoughtful about how we approach the market. I think we've demonstrated and have it's very clear and proven approach for how and when we enter new markets. So, we'll plan to update you as time goes on. And on Brazil, I will say that, being first to launch in that market as a regulated operator is it like winning a gold medal in the Olympics, because there's a lot of operators already operating there for many years that are already unregulated gray market that I can make this transition already were the first ones in the market. So rather being first support to us to be the best when we do decide to enter a market and we'll keep you updated on our plans.

Nice. Very helpful. The second topic, just on the regulatory piece, thinking sort of Delaware and Illinois. Delaware, obviously a huge success for you guys. Do you feel like now, Richard, you sort of have a sustained licensing advantage? I mean, it was sort of challenged to bring in multiple operators. It looks like that was shot down. Do you feel like you're in a position here where you're comfortable, or are we going to have to worry about sort of a continual flow of challenges on sort of the monopoly that you have? And then on the Illinois side, I guess just more on the tax side, are you guys more comfortable today that the idea that there could be a contagion here with other states also raising taxes? Like, do you think that's still a concern for investors, or do you think we're more in a comfortable spot than maybe a month or two ago? Thanks, guys.

I'll take, I guess, both those questions, and maybe Kyle can add in something else if there's something to add. In terms of Delaware, given our success, it's really prudent for us to anticipate that there'll be further lobbying efforts in the future. But we remain really confident that the best and highest outcome for the state will be to continue along the current path, and we remain committed to working closely with the lottery and the other key stakeholders in the state to demonstrate that the current operating model there has been and continues to be the best interest of Delaware. The bottom line is that if we continue to perform in the way we have and the way we believe we will in the future, it makes it that much more compelling for the same structure to remain in place for the future. In terms of Illinois and the possibility that the tax impact, the graduated tax could be a trend as opposed to a sort of a one-off, I've been in this industry a long time, and every state is completely unique with their own set of political considerations, competitors, strategies, financial needs, et cetera. So I think what I will say, though, is that I don't think -- I think it's a one-off, and one of the concerns is that you will see in some states where when you raise taxes, it will have the opposite effect as impacted in that it will lead to less revenues in some cases by the state, because you will empower the unregulated operators and the sweepstakes companies to be more aggressive in these markets, therefore really limiting the capital that the states generate. So it's very important to be very cautious when you do this, and I think as you start to look at this example, you might start to see that it doesn't deliver the outcome that everybody hopes it would. So I would just say that every state is unique, and I don't think there's any trend that's been established. I think it's more of a one-off.

Thanks, guys.

Thanks, Mike.

At this time, there are no other questions registered in the queue. [Operator Instructions]. There are no questions registered in queue at this time. I'd like to pass the conference back over to our hosting team for closing remarks.

We appreciate the time today and we'll look forward to having our next conference call for Q3.

That will conclude today's conference call. Thank you for your participation and enjoy the rest of your day.