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

Great. Good morning, everyone. Thanks for joining us. My name is Bernie McTernan, I'm the Internet Analyst here at Needham & Company. My pleasure to be joined this morning by the team at Rush Street. We have Richard Schwartz, CEO; and Kyle Sauers, CFO. Thank you both so much for joining us.

Thanks, Bernard.

So a lot's happened in the last year. Really, maybe just wanted to start, what do you think has been maybe catch investors up in terms of what's been the most impactful to the story?

Yes. So I would say that our consistency and our stability as a digital leader. It's been something that's really caught attention of the investor community. We're now 4 years of consistency of executing our goals of expected financial objectives, gaining market share in North America iCasino despite that being a highly contested market with everyone focusing a lot more energy on that as still continuing to outperform, setting records in terms of new volumes and new customers at record low prices for us. So having success acquiring customers when others are, I think, struggling and then, of course, delivering the revenues per active user at the highest rates in the industry. So North America just goes from strength to strength. And then we have the Latin American business also, which has continued to grow at extremely fast rate, faster than I think most people expected. And we've now seen that not only can we can and continue to grow as fast as we have in a market like Colombia, but other markets we've entered like Mexico also having similar growth profiles and are ahead of where they -- where we were at the same time years ago with Colombia. So there's a lot of optimism about our path to continue to grow all parts of our business.

No, that's great. Let's focus on -- start by focusing on the U.S., record first-time depositors in the first quarter. I'm assuming it's a lot of different things stacking up on top of each other, but what's working in particular?

Yes. Maybe I'll jump in, Richard. I think you're right, it is everything. We've gotten asked the same question on the earnings call the last several quarters. Like is there some -- is there some magic bullet or one thing that you've gotten access to or started doing differently? And the reality is, it's all kinds of things. So Richard, talk plenty about the differentiated user experience and retention and how we keep people around and all the promotional tools we use that we think are very unique. But the reality is we're filling the top of the funnel faster than we ever have. We've got record first-time depositors for many quarters in a row now. And that's in an environment where we haven't launched any new markets, which is usually when you see all of the incremental player adds at a faster pace. And we're doing so at record costs. So by the record, I mean, the lowest they've been to acquire players. So we've actually been starting to spend more in marketing recently than we previously had and kind of reaccelerating there because we see the value to be so good, both the value of the acquisition, but then the value of the players that we're bringing on. And I think as you mentioned, our player growth rate in iCasino markets being over 50% for a few quarters in a row here being at very high levels and expectations for us to see really strong continued growth in player count, that's just such a good leading indicator for what's to come. And I think the Q1 results on revenue beat was an example of how those players drive revenue for us over time.

Yes. And so there's clearly a ton of momentum in the business. When you guys were -- and it's almost investors are in amazement in terms of like how fast you're growing U.S. MAUs right now, was there any leading indicator that gave you insight that you would be able to grow? I mean you said North America iCasino MAU is growing over 50%. Like what was the leading indicator there that gave you insight that this could be possible?

Yes. I mean, I think -- so first of all, I think you know us well enough that we're not going to get on a call and pound our chest and say this is going to continue at these fast rates forever. But we have so much opportunity because there are so many players out there who just have never heard about Rivers or have never tried us. We have that advantage. I think what I'm saying leading indicator, I'm really more referring to the growth in our players very rapidly, which in the near term, actually decreases the average value of the player because you're diluting it so quickly, but that should reverse course over time. I think the indicators are what we've been doing with reactivations, what we've been doing with new adds and the value of the players that are coming on to the platform today being still very, very solid. And that we've been pretty dynamic and iterative with how much we are spending on marketing and which channels we spend it in because when we see things working, we can generally adjust those things pretty quickly and put more to where good things are happening. So I think that's been part of the excitement over the last year or so is that we're seeing places where we can win more players, and we're putting more dollars to it. So we are remaining pretty flexible on that because it's fairly obvious when we get on a quarterly call, if we spent our money well or not, based on what's happening with new players coming on to the platform, and the active players that we keep coming back.

Yes. Makes a lot of sense. And maybe from like a modeling standpoint. Obviously, we're in this period now we are adding so many first-time depositors. It's weighing on ARPU. But how should we think about sort of MAUs thinking about revenue growth in the future, thinking about that balance of continuing to add MAUs but then also ARPU as well?

Yes. It's interesting. If we went back a year ago, I firmly would have said player count's going to be the bigger driver, not as much from the average player value. And I think to the extent we're able to grow players at a really significant rate relative to the market like we have been, that's going to continue to be true. I mean if we're growing players at 30%, 40%, 50%, 60%, the player -- the revenue growth is going to come from that, but there will be at a point in time at some point, no new markets launching in that scenario, player growth will slow at some point. And then I think that's when you see the player value start to contribute more to the revenue growth. But we're very confident that as that player growth slows down at some point in the future that the player values are going to come back because you just have so much bonus seen early on, you have players who are only around for a part of the new month and aren't contributing as much. It takes a while for retention to build with new players. So all of those should move us towards continued solid growth. We're very, very optimistic about the growth opportunity in North America, even without new market launches.

Yes. And maybe talking about new market launches. I think the most recent, Delaware, how is Delaware going? Is it still a significant contributor to growth?

It is. So I think the I think the latest state data that it's been out has shown Delaware growing at 50% to 60% year-over-year. There's some point where that's going to slow down. But we've had -- we continue to have really nice player acquisition there. Player retention is strong, obviously, as the only operator on 3 different partner brands, our co-partner brands. We don't have the competition there that we need to deal with. But I think there's a lot of growth left there. I think when we launched Delaware or shortly thereafter, we talked about it being a -- at some point, being a potentially $300 million GGR opportunity. And we're not there yet, but we've been getting there pretty quickly. So maybe there's a chance we've underestimated the longer-term opportunity in that market.

Got it. I want to make sure we hit on LTV to CAC and there's a lot of maybe increased spending on the online sports betting side of the industry. I mean, Kalshi just raised $1 billion. Where are you seeing CACs trending? And is this -- what's going on in prediction markets impacting maybe your CACs where you're traditionally spending on iGaming first customers?

Yes, it's a good question. And I think there's -- we've had a few of our peers talk about some pressure around marketing that's centered around sporting events, right? And that just in North America, that just isn't where we are putting a lot of capital to work. Most of our marketing spend is going into markets that include iCasino, it's generally iCasino-led. And I think we are just in different places going after, generally different audiences will all work to cross-sell, the prediction market folks, but the traditional operators we're all working to cross-sell after we bring players onto the platform. But we -- I mean we had our lowest CACs that we've had since going public this last quarter again in North America. So we're not -- we're simply not seeing pressure from that at least today.

And so therefore, if CACs are record low, your LTV to CAC must be through the roof.

It's very solid. You could certainly -- I mean, we have been spending more on marketing and to the extent it's working, we're going to continue to keep spending more because the values are very strong. It may have been one of your firesides or somewhere else, but I recall a year ago talking about how much our CACs have come down and how we felt like they were probably somewhat industry-leading and then we get a year later and they're far lower than they were. So that's what our marketing team said they'd be able to do, but we don't like to build that level of optimism into our guides.

Yes. No, understood. And so I wanted to transition over to prediction markets, it seems like we can't have an investor conversation with investors on the online sports betting that was talking about prediction markets right now. How do you -- is this a competitive threat to RSI? Just how do you view this? How do you view this kind of increased new players in the market?

Yes, as a casino-first operator, we're staying extremely focused on what matters to us, which is the casino market space. And as you see in Kalshi and Rob had a group of others in that coalition. The leaders in prediction came out recently and said, hey, casino is not something they're going to focus on, it's not off the table. It doesn't have the same legal justification as trading on sports market. So as others are distracted and focusing on that part of the business and having to spend a huge amount of money and executive attention on that. We're focusing on executing and innovating further in the casino-first space. And frankly, it's given us a great chance to legalize online casino in some jurisdictions that are at risk of losing in the perception of some of the revenues from sports betting and having less certainty on the future of that revenue stream as a tax stream. So it's giving us a chance to go in there and say, hey, it's a disruptive moment in time, let's try to legalize online casino at accelerated rates. And so I think that's actually going to be helpful for us. So we feel really good about the fact that others are having to have higher cost to acquire customers, as you heard Kyle mentioned from marketing, having a lot of others distracted on the sports category, while we are just continuing to be executing on the things that matter most. And I think we have a structural advantage over others and a product advantage and that we're focusing on our iCasino, which is the most attractive segment of online gaming. In states like Pennsylvania, where you have both sports and casino, 80% plus the taxes are coming from casino. It's a larger market. Slot audience alone is large as sports betting, but everyone is spending all their money and time in sports, and we're happy to have them do that. So we can continue focusing on what matters and continuing to differentiate our experience to continue to advance the reasons why players stay loyal with us, which ultimately is the most important thing is the player finds us, we needed to keep them with us. So how do you do that? You treat them well. You offer them experiences that are fun, that are unique and that they feel like you're there being thoughtful with them and treating them well and then you have the retention that comes from that. So I think that's just a good opportunity for us, which we're taking advantage of right now.

Yes. No, that all makes a lot of sense. And I certainly want to touch on regulation, but just sticking on prediction markets for one more second. What would get you to launch your own prediction market service? Or is that just off the table?

I think we're always monitoring the situation where there's nothing that's happened in the last 2 years in the space that we weren't aware of in advance or following closely. Certainly, if anything was to change where the market became attractive for a business with our profile, then we would certainly be able to put steps in place then to execute on that. So we certainly are never going to be caught flat-footed. So we're always monitoring and have strategies in place. There'll be an opportunity that makes sense for us.

Okay. Understood. And so moving over to legalization and regulation. Will this finally be the year that we can get more material legalization of online sports betting and iGaming because it makes -- with the rise of prediction markets, at least to me, it makes all the sense in the world that you would have increased market access, states losing or realizing potential lost tax revenue. But we just haven't seen it yet. So what's your view here?

Right. I think right now is a great moment. And I'd say now I'm not suggesting it's going to happen in this calendar year, but the work's been put in right now, Virginia came very close. Recently, there's still opportunity in Virginia this year through the budget process. That's not getting a lot of attention, but it's an opportunity that we're still following and involved with. Certainly, if not this year, next year looks promising. But there's also a large thing. We have Alberta opening very soon in July, so another nice, very attractive market for casino opening in North America that we're going to be targeting. But there are other jurisdictions too. You have a few things happening. One is you have all our competitors and us aligning around the desire to have online casino legalized. Like I said, only 12% of the U.S. population today as online casino. Whereas over 50% of sports, there's a big differential between catching up for some of the casino offerings with the states that have sports. And as they have the risk of losing some of the revenues from sports. But more interesting, I think, is the fact that the federal government will be reducing a lot of the Medicaid matching funds come after the elections in November. So states are going to start to have a shortage of a material amount of funds that they've had in the past through to other matching programs to the federal government on Medicaid and so states like New York, Illinois, are going to have even greater surpluses in this area, and they all recognize the value of online casino, being a meaningful, proven, reliable method to raise taxes at a large volume, a large amount. You look at Michigan, they've generated a couple of billion dollars of revenue in the last 5 years. It's a meaningful move the needle number for all these states. And I think the other thing that historically has been a challenge is some of the legislators members of Congress will sort of say -- legislators will say, things like, well, we don't want someone have a slot machine in the purse or in the phone or in the pocket, carrying it around. And what you start to realize with gamification happening around the industry everywhere that you already -- every individual can already play sweepstakes, casinos or crypto casinos on their phones. So the idea that we're going to sort of ban something that already exists proliferated everywhere isn't really as strong argument as it was in the past or maybe this didn't exist. So now, hey, this is already existing. You might as well protect your consumers, to have responsible marketing and responsible gaming tools in place. And obviously generate huge tax revenues that I just mentioned earlier are very real improvement in this category. It's not a guess. If it's going to happen, it will deliver the results of the predictions and the projection show. So I think all these things collaborators -- competitors collaborating big opportunity with the deficits proven and more reliable and the other sources of tax generation and the prediction market and the competition, I think are all things that bode well for us and as we try to lobby for more states to legalize it faster. And by the way, we have all these Latin American market that are legal today already that we can enter. So we're -- we don't have a shortage of opportunities, which is exciting for a company like ourselves or others maybe are waiting for another U.S. State as their primary strategy for expansion. We have multiple other markets in Latin America that are attractive that we're looking at opportunities to expand into and giving our success in existing markets down there, that's something that I think investors should be really excited about long term for us.

Yes. And I was just going to add in on since Richard was talking about Virginia, in particular, just -- so it's a good example, a good comparable to Virginia would be Michigan, where we've continued to grow share over time, but didn't start with any database or a real brand awareness or a partner there that had a database that we could use. And Michigan's approaching like a $300 million GGR run rate for iCasino for us. So you take a place like Virginia, a little lower population, probably a little higher average player value. We would have strong brand awareness, partner with a database. It could be a very meaningful market for us. And if we're able to layer in New York and in Illinois over a few years after the that, you're still in a pretty small percentage of the population, but the benefit to us is pretty outsized and could be very meaningful.

Yes. No, it makes a lot of sense. One state you didn't mention it was Maine. What's the opportunity -- what's the latest there? Is that an opportunity for Rush Street?

Yes, I think it is. For sure, we're engaged in opportunity discussions there, but it's a little bit of a slow process because there's a lawsuit happening there. And I think there's a lot of efforts going into sort of preserving the legislation as a viable regulatory scheme. So I think we're waiting for that to kind of evolve and mature and certainly actively involved in the opportunity there.

Okay. Let's move on to Lat Am. The player growth has been phenomenal. And then obviously, what's going on with just like the lapping of the tax dynamics in Colombia. Can you just talk, though, to the competitive dynamics? This is a question we get a lot from investors is just who you're competing with particularly in Colombia? But just, yes, I would love to know more about the competitive dynamics in the region.

Sure. Kyle, maybe I'll start. There's -- in Colombia, there's 2 competitors that when we entered the market, they own 90% plus of the market combined. So reminding me of the early days of FanDuel DraftKings in the U.S. where they were kind of dominant brands that had evolved from unregulated business and has already had brands and databases similar to what you saw with the Daily Fantasy in the U.S., where the brands that came from those backgrounds already had brand awareness and players already playing with them. So they became an easier transition for them to become leaders in that market. The other competitors, probably about 20, none of them had any market share of any size. And to this day, it's still the same case where there really hasn't been anybody else who's been able to grow their share in a meaningful market share other than us. So we came in the market and consistently grown from day 1, every quarter after quarter we grow. And we've now, last year, passed the #2 operator. And so we've now become the #2 player in the market, and we're growing share on the top player. They're good companies. They're strong teams, but we think what we bring to the table is so unique. And I think relative to what we have to compete with in the U.S. market where we have a lot of other operators that are even pushing the limits as well. I think it's been -- our product was received really well. I think it stands out even more from the casino player standpoint. And the sports book, frankly, is equally strong there for us. So I think this is the product experience we brought, we built as a company to compete in North America, helps us to also even be stronger in Lat Am. And in Mexico, there's another company named Caliente that's been the dominant player themselves with 70% plus market share for a decade before we enter the market. And we and a couple of others have been growing share at their expense, I would say, the last couple of years. And when we launched in Mexico, we have probably 60, 70 companies and little by little, every quarter, we've been growing share, reflecting a similar experience we had in Colombia, where there are a large number of competitors, and we kind of emerged as one of the top ones. And I'm proud to say that, as we shared in our earnings call 2 weeks ago, we're now mentioned that we're probably #5, top 5 in that market. So in Mexico, so again, we are able to compete successfully against the very best in these markets. And I think that's something that is exciting for investors to know that we've done not able -- we've been able to do it in multiple markets there, multiple markets in North America. Market even like Latin America, but even in the West Virginia market, we come in late a year after everybody else launched, we don't have any database or any brand awareness there, and we're able to grow to become double digit share in casino in that market. It just shows that I think the quality of what we offer is stands above what most of our competitors and ultimately in the players' minds at least.

Yes. And you said on the earnings call, but you just reiterated that Mexico is tracking ahead of Colombia right now which is -- I mean, which is pretty exciting, but what's working well in Mexico? You mentioned the significant competitor, but yes, I would love to know more about that.

Yes. So we have spent a lot of time localizing the registration flows to make sure we reduce friction. There's other things that are required by the government there. The process they regulate us fairly closely. So we have to sort of make sure that everything was compliant yet we wanted to make sure that we had all the localization needed. So the payment methods, the registration flows. But ultimately, I think what's been nice is that we are a casino-first brand there as well, and the largest operator, Caliente really is a sports-first brand historically. And so I think by us to be able to bring a wide variety of games to the market. They use a supplier there who also builds their own games and so times maybe they favor the games that are available from the supplier where we don't have that same constraints as we're able to offer the greatest variety of games from all suppliers without favoring one versus others, which I think is helpful at times. And so at the end of the day, I think it just comes down to that we are marketing to an audience, a very fun experience that is unique to the players. And again, we've now become better as an organization at communicating what our unique selling points are. But ultimately, we keep stacking new feature up to new feature. What's really exciting for Latin America, frankly, is that a lot of the most exciting features we brought to the U.S. market or haven't even been launched yet there, and they're actually getting very close to being launched down there. So when we launched some of these new features down there, we would hope that they would have the same positive impact on those businesses that we saw in the U.S.

No, that's great. And so maybe another question that we always get on Lat Am, but just taxes in Colombia. Can you just maybe refresh in terms of where we currently are? What's embedded in the guidance? And is this now a nonissue at this point? Or is there still stuff that we should be paying attention to?

Well, I think it's always important to pay attention. But we certainly do so we can keep everyone updated. But you'll recall, so last year, there was a 19% tax on deposits. There was no emergency decree that ended at the end of the year. That had the effect last year of a lot of extra bonusing, which reduces net revenue relative to GGR. So we had very solid player growth in GGR growth last year because we were generous with players and took the brunt of that. Moving into 2026, there was a 19% emergency decree on GGR that the court overturned in April. They suspended it in January or returned it in April, said it was not legal. President in anticipation of that, we believe, put a new 16% incremental emergency tax in place in mid-March. So the result of all of that is that we did not have any extra emergency tax for the first 2.5 months of the year. We have built into our guidance a 16% tax on GGR from mid-March through the end of the year. The Constitutional Court will review this tax as well. So it has the possibility to be overturned. But for the sake of guidance, we're not including that opportunity. And then there is a presidential election that happens in the coming months here that could also be another opportunity for that tax -- emergency tax to go away with the change of administration. That's a possibility. And in any event, this temporary tax goes away at the end of the year. So 16% on a very nicely growing revenue base in Colombia. If it were to go away mid-year or the end of the year, certainly incremental for us for sure.

Okay. Understood. Can we touch on the World Cup. We're about a month away now from the World Cup starting. What's the opportunity for Rush Street and particularly thinking about Lat Am and Colombia and in Mexico, just the potential, not only player engagement but revenue opportunity that brings along with it.

Yes. So maybe I'll start and then Richard can chime in where he wants. But it is -- maybe I'll start with guidance because we've included the extra games because the World Cup 100-plus games is generally incremental to the world soccer schedule this year. So we've built in a little bit for that, probably not so much, if at all, for the potential for significant player growth that impacts revenue in the back half of the year. So maybe I would start with the reference point of the Copa América, which was 2 summers ago, big soccer tournament, but certainly not on the scale of the World Cup. And certainly, if you look at the ticket prices, it wasn't -- but the beauty of this World Cup is we know it's all in this region, we've got host cities in markets where we have operations. It's a big event. There's certainly a revenue opportunity in June and July because of the extra games because of the number of people that we'll be watching and wagering on those games. But really, the bigger opportunity is about long-term player count growth, where Copa, we grew 170% year-over-year player count in June and July. We're off of a much bigger base of players today, but there's a lot of room for us to grow pretty significantly in those player accounts. I'll also say we had a nice inflection in our casino growth in Colombia, post Copa. So bringing on all these players, most of who are were there to watch this big event that's culturally very exciting but then to be able to keep them around and cross-sell them in casino or other sports. So soccer will start back up relatively quickly, right? And so it's not like the Super Bowl where the fun has ended in football unless you're going to bet on arena. So it's a really big opportunity. It's a big opportunity in Mexico as well. the investment has already started for us. We're already using World Cup-related creative and campaigns. We've got great strategies and assets lined up. You've also got an opportunity in the U.S. where we won't put as much behind it in terms of extra marketing in sports-only markets. But it's -- because of the relatable nature of this overall event, it's a great way to use that to attract both sports betters but also casino players. And then the last piece of that in North America is in sports, we actually over-indexed to soccer. We've always had a great soccer product. We traded it really well. We partner with Kambi for our risk and odds. And we've always had a very deep offering in soccer around the world. So we've built a really nice following of soccer players -- or soccer betters in North America. So it's an opportunity all around. I think we've been modest about the way we've thought about it for guidance. But if things go as well as they possibly could, it could -- it's certainly a source of upside for us this year.

Okay.

I want to make my comments -- this one real quick. The fact is in the same time zone is prime time for all our players across the Americas is fabulous, right? It's going to create engagement and, of course, the fact that they're going to be hosting games in Canada, Mexico, U.S. markets we operate in, brings an extra level of attention to this event. And so we're going to be able to acquire a large volume of customers, and we expect to be able to cross-sell them to the other products like casinos kind of mentioned. So anyway, really excited for that.

Yes. That's great. And so you mentioned Canada, I know we only have a couple of minutes left here, but launching Alberta in July. What's your expectations for this market launch and maybe if you could speak to the, a, how competitive do you think it will be maybe relative to the Ontario launch, but then b, just the shape of the investment? And when do you think you'll be able to generate positive EBITDA in the province?

Sure. So when we raised guidance in -- on our call a few weeks ago, we increased the midpoint of revenue by $115 million in the midpoint of EBITDA by $20 million. There's a little bit of revenue built in for Alberta. So we just added in Alberta, the impact of Alberta to that guidance. I should be clear on that. So a little bit of that revenue is expected -- increase is expected to come from Alberta. And we've anticipated kind of a $10 million headwind for the year from Alberta. So that's the investments in the market launch and the marketing player acquisition offset by some margin generated from that increased revenue. We're going to remain flexible. And if there's opportunities to invest more because things are going well in Alberta, we will certainly do that. As probably everybody has, we had a lot of learnings from Ontario. So we think we're much better positioned going into this launch versus Ontario, but it will be competitive, right? There's a lot of players that will launch on day 1. There are gray market operators that have significant player bases that we'll try and attract away. And then we're all obviously going to try and grow that market, which certainly happened with Ontario. So it's a good opportunity. I think it will be slower building. We'll keep everyone updated. I think in terms of profitability, one of the things we've talked about in the past is every iCasino market in North America has been profitable for us by the fourth quarter of operations. So assuming that, that trend continues, there's probably a little bit of a headwind in the first half of 2027, but not a whole lot in terms of profitability in that market. And then should turn profitable in the back half of the year. So we're very excited about Alberta, for sure.

Yes. No, it makes a lot of sense. I think we're at time there. So gentlemen, thank you so much for all the time this morning. Thanks, everyone, for joining us on the webcast and talk to you guys soon. Thanks again.

Thanks, Bernard.