Rush Street Interactive, Inc. (RSI) Earnings Call Transcript & Summary

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Rush Street Interactive Third Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note that this conference call is being recorded today, October 28, 2026. I will now turn the call over to Kyle Sauers, President and Chief Financial Officer.

Thank you, operator, and good afternoon. By now, everyone should have access to our third quarter 2026 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. We will 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 onetime or nonrecurring items and other adjustments that are either noncash or 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 third quarter 2026 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, we're 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 for questions. With that, I'll turn the call over to Richard.

Thanks, Kyle, and good afternoon, everyone. In the third quarter, we generated revenue of $385.9 million, up 39% year-over-year and adjusted EBITDA of $62.2 million, up 73% year-over-year. Our casino-first strategy and strong performance in Latin America were the 2 cornerstones of our third quarter results, supported by the consistent execution across the entire business. Kyle will walk you through the financial results in greater detail, but we're proud of the growth and scale we have achieved over the last few years. Online casino remains the foundation of our business model, and it was once again the core driver of growth and profitability this quarter. We are also pleased with the continued engagement we see across our platform in both online sports and poker. These complementary products allow us to expand upon our brand awareness and reach a wider base of players that are looking for a high-quality, engaging and customer-centric gaming experience while also contributing to our overall profitability. Online casino represented 75% of our revenue this quarter, while online sports betting contributed most of the remaining 25%. We have found this mix as a strength for our business as the retention, engagement and lifetime values of our online casino players are key drivers of our consistent growth. Turning to player counts. Year-over-year growth remained solid across both regions. Monthly active users in North America reached over 300,000, a record quarterly high, representing 34% year-over-year growth and once again driven by the strength of our North American online casino markets. Latin American MAUs were up 46% year-over-year to over 607,000. As you would expect, this is below the World Cup-driven peak in the second quarter, but still our second highest quarterly level of all time. First-time depositors for the company also came in at our second highest level of all time, which is encouraging result of our targeted marketing efforts that we strategically ramped up in the quarter due to attractive player acquisition costs. Taking a step back, I think it's important to put our results in context of what we are seeing in the broader industry trends. During the third quarter, North American online casino and sports markets saw a more measured pace of growth. As the publicly available data shows, this affected the industry broadly. Within our player cohorts, this moderation in growth has been broad-based rather than concentrated in any one segment of players. We feel good about the fact that we have continued to not only grow fast, but to grow our share of the North American online casino market year-over-year. Online casino remains a large and attractive category, and we continue to see meaningful opportunities for further growth ahead. With respect to the World Cup, as the finals took place in July, our third quarter results included some contribution from this worldwide event. The key takeaway isn't the tournament itself, but rather the player acquisition opportunity it represented. It was a highly successful event for us, driving significant growth in our player base. When compared to the Copa America from 2 years ago, we acquired significantly more players, retained them at a similar rate, but the average value of these players post event has been more valuable from World Cup acquisition than those acquired during the Copa America 2 years ago. We have also seen much better cross-sell to online casino, driving continued outsized growth in that product category during Q3. More broadly, in Latin America, we continue to see healthy performance across Colombia, Mexico and Peru. Net revenue in LatAm held steady with the record level we set in Q2, while also growing more than 200% year-over-year. Though keep in mind, last year's results were impacted by the headwind created by the VAT-related bonusing we offered in Colombia. Regarding gaming taxes in Colombia, on October 20, the Colombian government approved the country's 2027 budget, which did not include any new taxes on the gaming industry. We will continue to actively monitor for any new legislation that could impact our industry. However, as of now, the gaming tax is expected to revert back to the original gaming tax rate of 15%. We are still operating under the assumption that the 16% excise tax will be in place through the remainder of 2026. Because this tax was imposed via an emergency decree, it is scheduled to expire at year-end. Last quarter, we announced our launch in Alberta. We are now more than 3 months past our July 13 launch, and we remain encouraged by what we are seeing. On a population-adjusted basis, first-time depositors and daily active users are tracking at over 2x the levels we saw in Ontario at the same point following its launch, and our player acquisition economics remain attractive. Similar to our experience in Ontario, we expect this market to be a gradual build and revenue development will take time, but we continue to view Alberta as a meaningful long-term opportunity. Looking beyond our existing footprint, online casino legalization remains one of the most meaningful long-term opportunities for RSI. Only approximately 12% of the U.S. population currently has access to regulated online casino and states are facing increasing fiscal pressure, including from reductions in federal financial support. Historically, in the states that have taken action, online casino has proven to be a very significant and reliable source of tax revenue, generating many multiples more than online sports betting. At the same time, unregulated sweepstakes and other gray market products continue to proliferate, creating enforcement challenges for regulators, failing to protect consumers and generating no tax revenue for the states. As I've shared before, prediction markets are also raising awareness among lawmakers about the importance of protecting state revenue streams, which we view as another potential catalyst for new legislation. We continue to work to educate legislators on the benefits of regulated online casino, not only for license operators such as ourselves, but most importantly, for consumers and states. As we look to the fourth quarter and beyond, we remain confident in the strength and momentum of our business. We're executing well across our core markets, and we see continued opportunities ahead in North America and Latin America. With that, I'll turn it back to Kyle to discuss the financial details.

Thanks, Richard. Now let me walk through the details of our third quarter performance. We generated revenue of $385.9 million in the third quarter, representing 39% year-over-year growth. Continued execution in 2 of our primary areas of focus, online casino and Latin America helped drive this growth. Online casino revenues, which represents 75% of our total revenue, grew 32% year-over-year. Online sports betting, which represents almost 25% of our total revenue, also showed strength, growing 70% year-over-year, driven primarily by Latin America and the World Cup. Regionally, revenue in North America grew 14% and revenue in Latin America grew 218%. Notably, in Latin America, year-over-year growth surpassed 200% in both online sports and online casino. Gross margins for the quarter came in at 36.4%, up 240 basis points from the prior year period and up over 90 basis points from the second quarter. Our continuing margin expansion is reflective of our faster growth in higher-margin markets where we are making more of our marketing investments. As discussed on our prior call, our strong marketing efficiency and attractive player acquisition costs have driven us to increase our marketing spend in the second half of 2026. During the third quarter, marketing expenses were $54.7 million, reflecting an increase of 44% year-over-year and representing 14.2% of revenue compared to 13.7% in the prior year period. We continue to see attractive returns on spend with cost to acquire players still at the lowest rates we've seen. Even with new player expected values being lower than in previous years, we are still well within our anticipated payback periods. G&A for the third quarter was $23.6 million or 6.1% of revenue compared to 7.3% in the prior year period. One item to note within our G&A this quarter was a gain of approximately $4.3 million related to foreign currency exchange. The gain resulted from converting cash held in Colombia from Colombian pesos into U.S. dollars at favorable exchange rates, and this cash remains on our balance sheet. Absent this gain, G&A would have been $27.9 million or 7.2% of revenue. And turning to profitability. Adjusted EBITDA was $62.2 million in the third quarter, representing 73% year-over-year growth and 16.1% margins or $57.9 million and 15% margins when excluding the foreign currency gain, in either case, representing very solid margin expansion year-over-year. The net income for the period was $28.7 million, an increase of 93% compared to $14.8 million in the prior year period. Our player counts, first-time depositors and retention were all strong during the period. In North America, MAUs grew 34% year-over-year to a new record of over 300,000. MAUs and online casino markets continue to fuel this growth, up 42% year-over-year during the period. In Latin America, MAUs grew 46% year-over-year to over 607,000 North America ARPMAU was $309 in the third quarter, down 15% year-over-year. And in Latin America, ARPMAU was $58, up 113% year-over-year, reflecting continued strength across the region, the elimination of bonusing in Colombia that last year offset the VAT on deposits and favorable movements in the Colombian peso. Our balance sheet remains strong with $382 million in cash on hand as of September 30, up from $340 million at the end of the second quarter, and we remain debt-free. During the third quarter, we repurchased approximately $14 million of our shares under our $100 million share repurchase program. Since the quarter end, we have repurchased an additional $11 million, leaving us with $75 million of repurchase capacity. In total, we have purchased almost 1.2 million shares at just under $21 a share. We anticipate continuing to be opportunistic with our share repurchases moving forward. Now turning to guidance. We are reiterating our full year 2026 revenue and EBITDA guidance. We continue to expect revenue in the range of $1.56 billion to $1.6 billion, representing year-over-year growth of 38% to 41%. Operating trends thus far in October would put us closer to the low end of revenue guidance. For adjusted EBITDA, we continue to expect a range of $245 million to $265 million, representing year-over-year growth of 59% to 72%. The adjusted EBITDA range includes the $4.3 million foreign currency gain I described earlier, and operating trends thus far in October put us near the midpoint of EBITDA guidance. And as a reminder, our guidance includes only operations in the jurisdictions that are live as of today and assumes we continue to operate in our current markets under similar tax structures, including the temporary 16% excise tax in Colombia through year-end. And with that, operator, we're ready to take questions.

[Operator Instructions] Your first question from the line of David Katz with Jefferies.

I appreciate all the commentary, which is quite clear on sort of where you're at. Just thinking a bit more broadly with respect to growth, the Brazil market has always been one of active debate, recognizing it's not the same as your other Latin American markets. But what updated thoughts do you have about potential entry strategies? And if there are any at this point for Brazil? And then I have one quick follow-up.

Sure. David, this is Richard. I'll take that question. We were disappointed by the decision to restrict the regulated market that was maturing in our view, making a lot of progress. if the ban remains in place following the legal and congressional challenges that are going to be following very soon, I strongly believe we will ultimately be counterproductive, pushing consumers towards unregulated operators in the crypto casinos. So -- but specifically to your question, I think that for us, we look at the market very closely. We've been very thorough, very cautious about anything. And we always have to remain open-minded about if there are opportunities on a risk-adjusted basis to consider that market, that's something we will look at. I think certainly, it's hard to ignore the size and population of the market, but we are very seasoned and experienced in understanding fluctuations, and there was a lot of very clear rhetoric at the time of the election that sort of gave some indications that there was some risk there. And so like I said, anything that we would consider what has to be done on a risk-adjusted basis.

Understood. And then, of course, U.S. states, we obviously are monitoring a lot of different places. Would you mind giving us just a walk across on how you're thinking about potential legalization opportunities for 2027?

Sure. And we remain optimistic about the opportunity. And in the script, just in our prior remarks, we shared a little bit about that. But ultimately, I think that as you saw last year, Virginia is a really exciting near-term opportunity heading into 2027. There were some companion bills that advanced through both chambers in '26, but they failed to reach a final compromise, as you know. So there's going to be a lot of meaningful achievement that occurred last year. We're expecting that to resume in 2027. We look at Ohio, where we think there's an exciting opportunity with either of the governor candidates could provide a path forward. Other approaches may be different, but we are excited and watching that very closely. D.C. has a very near-term opportunity for online casino legislation at the end of this year. So we're actively monitoring and involved there. And Indiana is another attractive market. There were some recent Republican primary results that created a more constructive political backdrop for online casino legalization. So we've been focused on that market as well, and there's an opportunity heading into 2027 there. And then the big states of Illinois and New York are facing very large potential Medicaid funding restrictions or reductions, frankly, under the One Big Beautiful bill. So that impact will begin building in 2027 with more pressure emerging from 2028 onwards. So I think when you talk about billions of dollars in Illinois and annual funding impacts as these provisions start to phase in and New York is also likely to face tens of billions of dollars in Medicaid funding reductions over the next decade, there are some -- there is some added pressure for the state budgets to find solutions, and we think there's an increased interest in alternative revenue sources such as online casino.

Your next question from the line of Ryan Sigdahl with Craig-Hallum.

I want to dig into the industry slowdown and if you guys have any greater thoughts of kind of what changed in August, September, really until now, while we still have good growth, it's certainly decelerated after years and years and years of what seemingly was very durable, consistent industry growth. You guys are performing well, but curious more from an industry standpoint.

Yes, Ryan, I'll take that one. I agree with you. Obviously, we've had some really strong growth in the industry. And even here in Q3, our online casino business continues to grow really nicely and across all the different markets. So we're confident this is still a really significant long-term growth opportunity for us. But to your point, online casino growth did moderate a little bit in Q3. We've seen growth rates ebb and flow from month-to-month before. The category has been pretty consistent and resilient. And I think you said it, but we held up really well in Q3 with our share and certainly relative to the publicly traded peers, we're growing market share year-over-year across all the markets ex Michigan, where we saw more competitive intensity from the newer privately held entrants. So we're continuing to monitor the player behavior and the cohort trends. and we're using insights from that to inform the approach that we've got on promotions and customer acquisition. So I think you're going to continue to see growth rates fluctuate from month-to-month and quarter-to-quarter. But we're really confident that we've got a nicely growing iCasino business, highly profitable and it's got great long-term fundamentals. So hopefully, that helps a little bit.

Yes, certainly helpful and certainly understand in Michigan with the bet365 and Hard Rock launching there within the past year. For my follow-up question, just kind of segues into marketing investment. You guys leaned in a little harder this quarter with some investment, got good returns. But as you kind of reevaluate where the current industry is, where the opportunity is, does it make sense to lean in harder from a customer acquisition and a marketing standpoint, again, given your relative very strong metrics and performance. But given the industry if it's slowing, does it make sense to lean in harder or to hunker down a little bit more?

Yes, it's a good question. It's one that we have to -- we deal with all the time and pretty dynamically, and it depends on the market. And we reallocate resources from one market to another when it makes sense or as we talked about on our last call, leaning in a little bit more in the back half here. So I think we executed on what we intended to in the third quarter. I think we mentioned in the prepared remarks, the cost to acquire players are still at the lowest levels they've been. So we're seeing really good value with that spend. But we have to monitor the value of new players or expected value of new players that are coming in, and we continue to do that, and it's different from market to market. So we're going to continue to adjust and move up that spend if we see opportunities or if the paybacks aren't as good or relatively aren't as good, maybe there'll be places where we'll pull back. So I don't want to signal one direction or another. I don't think I would imagine it being a dramatic change in either direction, but we're going to continue to be dynamic with the way we spend while we look at the returns.

Keep your options open and nice execution in a dynamic and evolving industry.

Our next question is from the line of Daniel Politzer with JPMorgan.

I want to go back and just kind of talk about the competitive and promotional environment a little bit in the U.S. My math would be a little bit off. It's a little bit of rounding, but I think the promotions were up a tad in the third quarter. Can you talk about -- was that part of the marketing strategy? Or is that in response to maybe the evolving environment that we're in? And maybe how should we kind of think about the promotionality on a go forward?

Yes. And I'm not sure exactly how you're getting to the math. I think a couple of things to think about. The -- we had the Alberta launch, which does mean more bonusing when you have a market launch. I wouldn't suggest that our increased marketing spend necessarily meant that we were stepping on the gas for promotions necessarily. Our bonusing as a percentage of GGR or handle, however you want to measure it, has gone up a little bit over the last year or so, but that's largely due to all the new players that we're bringing in. So I wouldn't suggest that there's been any significant change or there's a shift in strategy. We're always looking at the best ways to offer generosity to our players and trying to manage that to the best effect to improve retention, improve time on our app.

Got it. That's helpful. And then just turning back to Colombia. It sounds like we're pretty much over the hump in terms of uncertainty and the tax backdrop there. Could you just for housekeeping purposes, remind us of what the tax impact was in 2026 so we can think about the benefit in 2027?

Yes. So I don't want to, let's say, spike the ball just yet. It's a good sign that there was no new tax included with the budget that was recently approved. So that's a really good sign. It's a good sign that the new administration is pro-business and has suggested that borrowing to fill revenue holes could be the way forward. But we're going to continue to monitor and see what happens here between now and the start of 2027. Just as a reminder, and I think Richard said it earlier, but the temporary tax does go away at the end of the year. So what we're monitoring for is any change in the tax structure that might be proposed for 2027. In terms of the impact, so we haven't given guidance for next year or specific to Colombia. So maybe I'll look backwards a little bit. And one of the things that we've shared is that for about 2.5 months in the first quarter of 2026, it represented about $7 million in revenue. So -- or I'm sorry, $7 million in cost. So you could annualize that, apply some sort of growth factor on what you expect for our business next year, and that would give you a rough idea of what the impact could be.

Your next question is from the line of Zach Silverberg with Wells Fargo.

You guys gave some color in the prepared remarks, but -- and had some solid growth and good monetization on Latin America user growth. Could you kind of unpack the -- how the customers you acquired during the World Cup, how they behaved post World Cup and maybe how they performed against your expectations? And any color on payback periods or lifetime values for these customers?

Sure. Yes, World Cup, it was -- that was a great event for us, very exciting. As we've said, it's the World Cup, I think we talked about this in the last call a little bit. It was a really good event for incremental activity on the platform, but more important, particularly in Latin America, was the player acquisition and brand awareness opportunity. Probably the most exciting element of it is that about 50% 5-0. So about half of our World Cup first-time depositors have -- at this point, have placed -- also placed a wager in iCasino. So that's -- I think that's great for cross-sell. It's great for engagement, and that's well above what we saw from Copa America first-time depositors. Kind of to the point about the value of the players, as you'd expect, when you acquire players during an event like this, more pop culture event, you're going to have a bit lower retention than you would from your normal acquisition. But we're really pleased with how it went and how the trends continue post World Cup.

Got it. I appreciate that. And just a follow-up on Kyle, your remarks on October. You mentioned revenue kind of trending towards the low end and EBITDA towards the middle. Could you help us bridge that? What could get you guys to the mid or to the high end of guidance? What would you need to see in November and December or for the rest of the year?

Yes. So obviously, a lot goes into the range. I think for us to outperform where the current trends are, we'd need to see some combination of the industry iCasino growing a little bit faster, rebounding a little bit, us taking more share, whether that market is growing faster or not, continued good results in LatAm or some acceleration there. And obviously, sports results across the business can matter as well. So I think it's -- for us, there's -- the focus is always on execution, and there's little things that we're doing all the time and all those can add up to good things. So I think if any or all of those things happen, we'd have a chance to move above the -- that lower end of the range.

Your next question is from the line of Brandt Montour with Barclays.

I want to ask another question about that guidance commentary. You didn't specify in the prepared remarks, but is it fair to assume that sort of the delta between the midpoint of your revenue range and the low end of your revenue range that you've moved to was all linked to the U.S. slowdown that you commented on? And was that all market growth? Or was that also market share? And then this will be my final follow-up question. But when you think about that exit rate for sort of leaving the fourth quarter, is that a fair sort of building block or base assumption for how we should kind of think about the new run rate growth for this business looking into next year?

Yes. So I'll try to tackle all those and make sure I get them all. If I don't, let me know. I think the answer to your first question, your assumption is fair that the -- kind of where we're expecting Q4 revenue to come in at the moment is largely attributable to North American iCasino growth, and that's the biggest driver of the difference. And I think part of the question was whether that was share or the market. And I think it's more about the market than it is the share. I think we feel good about how we performed. And as I mentioned, certainly relative to public company peers and being able to take share there. So we were pleased with that result. And then thinking about kind of run rate exiting Q3 going into Q4, just specifically on iCasino trends, year-over-year growth in October so far. And obviously, the first 4 weeks don't make the quarter. But so far here in October, the growth looks a lot like September did. And I think our trends generally were similar to the industry and that we saw a drop in growth rate from July to August but a smaller difference between August and September. So I guess the point is that October looks a lot like September. In terms of going into next year, I think we'll certainly offer guidance on our next call for 2027, and we'll have views at that point about, I'm sure the industry growth, but also what we think we can do with that industry growth. So we'll wait until that time to give more thoughts on 2027.

Your next question is from the line of Joe Stauff with Susquehanna.

Can I ask about '27? And naturally, in terms of what you've executed thus far in '26, there's a big step up -- step function up in advertising and marketing spend, and we saw that in pretty substantial user growth in North America. I'm wondering how you think about ARPMAU in '27. Do you expect that to grow in '27? And how to think about, again, that kind of total advertising and marketing line in '27? Should it be a more normalized growth relative to the step function increase this year? Just whatever you can share with us?

Yes. No, I appreciate the question. I think I don't want to -- and certainly not ahead of our 2027 guidance. I don't want to necessarily guide to ARPMAU and MAU trends. I think it is -- it's more likely that our growth comes from player count growth in 2027 than expansion of the average player value in North America, at least. And the second part of your question, remind me, Joe.

Just how that circles with the advertising and marketing and...

Yes. So we did spend a lot more on marketing this year. I agree with you there, and we stepped that up quite a bit. A little bit of that is the launch in Alberta. So I'll give -- the next thought will be ex any new market launches. So if we're -- if we have some good luck with the legislative cycle in the U.S. here coming up and there were -- there happened to be a launch or more than one launch late in the year as an example, that would change this view a little bit. But I would expect that our growth in marketing spend will be quite a bit less than it was in 2026. We'd expect that we would get -- we'll get operating leverage over the marketing line once again in 2026. That doesn't mean an absolute reduction in dollars of spend in 2027, but we do expect to be able to get leverage over that cost.

Your next question is from the line of Stefanos Crist with Needham.

I just wanted to ask a follow-up on World Cup customers. Can you just talk about why you think it drove more player growth and better LTVs? Is it something you did differently or maybe just the World Cup drove better engagement overall? Would just love to hear your thoughts there.

Yes. I think -- so I think the comparison we're making is to Copa. I think a lot of it goes to our team and execution and how much better we've gotten over the years and certainly over the last couple of years. We also -- just from what we know, our brand awareness is far stronger than it was a year or 2 years ago, and that certainly helps as well. We've become -- I don't know if I should go so far as to say a household name down there, but we're a very well-known brand. So I'm sure that's helped as well.

Your next question from the line of Mike Hickey with StoneX.