Rush Street Interactive Inc

Previous wording

This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains certain financial measures, in particular the presentation of Adjusted EBITDA, which are not presented in accordance with generally accepted accounting principles of the United States (“GAAP”). We present these non-GAAP financial measures because they provide us and readers of this Report with additional insight into our operational performance relative to earlier periods and relative to our competitors. These non-GAAP financial measures are not a substitute for any GAAP financial information. Readers of this Report should use these non-GAAP financial measures only in conjunction with the comparable GAAP financial measures. Reconciliations of Adjusted EBITDA to Net Loss, the most comparable GAAP measure, are provided in this Report.

Current wording

This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains certain financial measures, in particular the presentation of Adjusted EBITDA, which are not presented in accordance with generally accepted accounting principles of the United States (“GAAP”). We present these non-GAAP financial measures because they provide us and readers of this Report with additional insight into our operational performance relative to earlier periods and relative to our competitors. These non-GAAP financial measures are not a substitute for any GAAP financial information. Readers of this Report should use these non-GAAP financial measures only in conjunction with the comparable GAAP financial measures. Reconciliations of Adjusted EBITDA to Net Income (Loss), the most comparable GAAP measure, are provided in this Report.

Previous wording

The chart below presents our average MAUs in the United States and Canada for the six months ended June 30, 2024 and 2023:

Current wording

The chart below presents our average MAUs in the United States and Canada for the nine months ended September 30, 2024 and 2023:

Previous wording

The chart below presents our average MAUs in Latin America (including Mexico) for the six months ended June 30, 2024 and 2023:

Current wording

The chart below presents our average MAUs in Latin America (including Mexico) for the nine months ended September 30, 2024 and 2023:

Previous wording

The chart below presents our ARPMAU in the United States and Canada for the six months ended June 30, 2024 and 2023:

Current wording

The chart below presents our ARPMAU in the United States and Canada for the nine months ended September 30, 2024 and 2023:

Previous wording

The chart below presents our ARPMAU in Latin America (including Mexico) for the six months ended June 30, 2024 and 2023:

Current wording

The chart below presents our ARPMAU in Latin America (including Mexico) for the nine months ended September 30, 2024 and 2023:

Previous wording

The table below presents our Adjusted EBITDA reconciled from our net loss, the most directly comparable GAAP measure, for the periods indicated:

Current wording

The table below presents our Adjusted EBITDA reconciled from our net income (loss), the most directly comparable GAAP measure, for the periods indicated:

Previous wording

With respect to paid marketing, we use a broad array of advertising channels, including television, radio, social media platforms, sponsorships, affiliates and paid search, and other digital channels. We also use other forms of marketing and outreach, such as our social media channels, first-party websites, media interviews and other media spots and organic searches. These efforts are primarily concentrated within the specific jurisdictions where we operate or intend to operate. We believe there is a significant benefit in maintaining the flexibility to reallocate advertising spending across channels based on the latest marketing data, ensuring continuous alignment with our overall marketing strategy.

Current wording

With respect to paid marketing, we use a broad array of advertising channels, including television, radio, social media platforms, sponsorships and ambassadorships, affiliates and paid search, and other digital channels. We also use other forms of marketing and outreach, such as our social media channels, first-party websites, media interviews and other media spots and organic searches. These efforts are primarily concentrated within the specific jurisdictions where we operate or intend to operate. We believe there is a significant benefit in maintaining the flexibility to reallocate advertising spending across channels based on the latest marketing data, ensuring continuous alignment with our overall marketing strategy.

Previous wording

Revenue. Revenue increased by $55.3 million, or 34%, to $220.4 million for the three months ended June 30, 2024 as compared to $165.1 million for the same period in 2023. The increase was mainly due to and directly correlated with our continued growth across existing markets and expansion into the new market of Delaware, which launched after June 2023. The increase reflects higher period-over-period online casino and sports betting revenue of $58.1 million. This was partly offset by a decrease in retail sports betting revenue of $2.8 million, which was attributable to the Company’s exit from the Connecticut market.

Current wording

Revenue. Revenue increased by $62.2 million, or 37%, to $232.1 million for the three months ended September 30, 2024 as compared to $169.9 million for the same period in 2023. The increase was mainly due to and directly correlated with our continued growth across existing markets and expansion into the new market of Delaware, which launched after September 30, 2023. The increase reflects higher period-over-period online casino and sports betting revenue of $64.9 million. This was partly offset by a decrease in retail sports betting revenue of $2.7 million, which was attributable to the Company’s exit from the Connecticut market.

Previous wording

Costs of Revenue. Costs of revenue increased by $34.6 million, or 32%, to $144.5 million for the three months ended June 30, 2024 as compared to $109.9 million for the same period in 2023. The increase was mainly due to and directly correlated with our expansion and continued growth as noted above. Market access costs, gaming taxes, operating expenses, and payment processing costs contributed $13.3 million, $12.4 million, $6.0 million and $2.2 million, respectively, to the period-over-period increase in costs of revenue. Personnel costs contributed to the remainder of the period-over-period increase. Costs of revenue as a percentage of revenue decreased to 66% for the three months ended June 30, 2024 as compared to 67% for the same period in 2023.

Current wording

Costs of Revenue. Costs of revenue increased by $35.3 million, or 30%, to $151.4 million for the three months ended September 30, 2024 as compared to $116.2 million for the same period in 2023. The increase was mainly due to and directly correlated with our expansion and continued growth as noted above. Market access costs, gaming taxes, operating expenses, and payment processing costs contributed $17.0 million, $9.9 million, $4.5 million and $3.2 million, respectively, to the period-over-period increase in costs of revenue. Personnel costs contributed to the remainder of the period-over-period increase. Costs of revenue as a percentage of revenue decreased to 65% for the three months ended September 30, 2024 as compared to 68% for the same period in 2023.

Previous wording

American online gaming markets continue to mature. Advertising and promotions expense as a percentage of revenue decreased to 17% for the three months ended June 30, 2024 as compared to 25% for the same period in 2023.

Current wording

America and the Olympics). Advertising and promotions expense as a percentage of revenue decreased to 17% for the three months ended September 30, 2024 as compared to 20% for the same period in 2023.

Previous wording

General and Administrative. General and administrative expense increased by $6.6 million, or 32%, to $27.2 million for the three months ended June 30, 2024 as compared to $20.6 million for the same period in 2023. The increase was primarily due to higher personnel and other administrative costs, which is consistent with the ongoing growth of our business. General and administrative expense as a percentage of revenue remained flat at 12% for the three months ended June 30, 2024 and 2023.

Current wording

General and Administrative. General and administrative expense increased by $4.1 million, or 18%, to $26.5 million for the three months ended September 30, 2024 as compared to $22.4 million for the same period in 2023. The increase was primarily due to higher personnel and other administrative costs, which is consistent with the ongoing growth of our business. General and administrative expense as a percentage of revenue decreased to 11% for the three months ended September 30, 2024 as compared to 13% for the same period in 2023.

Previous wording

Depreciation and Amortization. Depreciation and amortization expense decreased by $0.4 million, or 5%, to $7.6 million for the three months ended June 30, 2024 as compared to $8.0 million for the same period in 2023. Depreciation and amortization expense as a percentage of revenue decreased to 3% for the three months ended June 30, 2024 as compared to 5% for the same period in 2023.

Current wording

Depreciation and Amortization. Depreciation and amortization expense increased by $0.1 million, or 1%, to $8.5 million for the three months ended September 30, 2024 as compared to $8.4 million for the same period in 2023. The increase was mainly due to the amortization of other intangibles acquired during the three months ended September 30, 2024. Depreciation and amortization expense as a percentage of revenue decreased to 4% for the three months ended September 30, 2024 as compared to 5% for the same period in 2023.

Previous wording

Interest Income, Net. Interest income increased by $1.6 million, or 566%, to $1.9 million for the three months ended June 30, 2024 as compared to $0.3 million for the same period in 2023. The increase in interest income was mainly attributed to higher interest rates on cash and cash equivalents accounts as compared to the same period in 2023.

Current wording

Interest Income, Net. Interest income increased by $1.3 million, or 169%, to $2.0 million for the three months ended September 30, 2024 as compared to $0.8 million for the same period in 2023. The increase in interest income was mainly attributed to higher amounts of cash held in interest-bearing accounts and money market funds as compared to the same period in 2023.

Previous wording

Income Tax Expense. Income tax expense increased by $3.7 million, or 135%, to $6.4 million for the three months ended June 30, 2024 as compared to $2.7 million for the same period in 2023. Income tax expense is attributable to the profitability of our foreign operations for which both current and deferred taxes are recorded. Income tax expense as a percentage of revenue increased to 3% for the three months ended June 30, 2024 as compared to 2% for the same period in 2023.

Current wording

Income Tax Expense. Income tax expense increased by $2.8 million, or 117%, to $5.3 million for the three months ended September 30, 2024 as compared to $2.4 million for the same period in 2023. Income tax expense is attributable to the profitability of our foreign operations for which both current and deferred taxes are recorded. Income tax expense as a percentage of revenue increased to 2% for the three months ended September 30, 2024 as compared to 1% for the same period in 2023.

Previous wording

Revenue. Revenue increased by $110.4 million, or 34%, to $437.8 million for the six months ended June 30, 2024 as compared to $327.4 million for the same period in 2023. The increase was mainly due to and directly correlated with our continued growth across existing markets and expansion into new market of Delaware, which launched after June 2023. The increase reflects higher period-over-period online casino and sports betting revenue of $116.1 million and social gaming revenue of $0.1 million, which was partially offset by a decrease of retail sports betting revenue of $5.8 million due to the Company’s exit from the Connecticut market.

Current wording

Revenue. Revenue increased by $172.6 million, or 35%, to $669.9 million for the nine months ended September 30, 2024 as compared to $497.3 million for the same period in 2023. The increase was mainly due to and directly correlated with our continued growth across existing markets and expansion into new market of Delaware, which launched after September 30, 2023. The increase reflects higher period-over-period online casino and sports betting revenue of $180.9 million and social gaming revenue of $0.1 million, which was partially offset by a decrease of retail sports betting revenue of $8.4 million due to the Company’s exit from the Connecticut market.

Previous wording

Costs of Revenue. Costs of revenue increased by $72.0 million, or 33%, to $289.0 million for the six months ended June 30, 2024 as compared to $217.0 million for the same period in 2023. The increase was mainly due to and directly correlated with, our expansion and continued growth as noted above. Market access costs, gaming taxes, operating expenses, payment processing costs, and personnel costs contributed $28.7 million, $24.0 million, $12.1 million, $5.9 million and $1.3 million, respectively, to the period-over-period increase in costs of revenue. Costs of revenue as a percentage of revenue remained flat at 66% for the six months ended June 30, 2024 and 2023.

Current wording

Costs of Revenue. Costs of revenue increased by $107.2 million, or 32%, to $440.4 million for the nine months ended September 30, 2024 as compared to $333.2 million for the same period in 2023. The increase was mainly due to and directly correlated with, our expansion and continued growth as noted above. Market access costs, gaming taxes, operating expenses, payment processing costs, and personnel costs contributed $45.6 million, $34.0 million, $16.6 million, $9.0 million and $2.0 million, respectively, to the period-over-period increase in costs of revenue. Costs of revenue as a percentage of revenue decreased to 66% for the nine months ended September 30, 2024 as compared to 67% for the same period in 2023.

Previous wording

Advertising and Promotions. Advertising and promotions expense decreased by $15.6 million, or 17%, to $75.3 million for the six months ended June 30, 2024 as compared to $90.9 million for the same period in 2023. The decrease was mainly due to management’s strategy of rationalizing marketing spend as the North American and Latin American online gaming industries continue to mature. Advertising and promotions expense as a percentage of revenue decreased to 17% for the six months ended June 30, 2024 as compared to 28% for the same period in 2023.

Current wording

Advertising and Promotions. Advertising and promotions expense decreased by $10.9 million, or 9%, to $114.6 million for the nine months ended September 30, 2024 as compared to $125.5 million for the same period in 2023. The decrease was mainly due to management’s strategy of rationalizing marketing spend as the North American and Latin American online gaming industries continue to mature. Advertising and promotions expense as a percentage of revenue decreased to 17% for the nine months ended September 30, 2024 as compared to 25% for the same period in 2023.

Previous wording

General and Administrative. General and administrative expense increased by $10.9 million, or 26%, to $53.1 million for the six months ended June 30, 2024 as compared to $42.2 million for the same period in 2023. The increase was primarily due to higher personnel and other administrative costs, which is consistent with the ongoing growth of our business. General and administrative expense as a percentage of revenue decreased to 12% for the six months ended June 30, 2024 as compared to 13% for the same period in 2023.

Current wording

General and Administrative. General and administrative expense increased by $15.0 million, or 23%, to $79.6 million for the nine months ended September 30, 2024 as compared to $64.6 million for the same period in 2023. The increase was primarily due to higher personnel and other administrative costs, which is consistent with the ongoing growth of our business. General and administrative expense as a percentage of revenue decreased to 12% for the nine months ended September 30, 2024 as compared to 13% for the same period in 2023.

Previous wording

Depreciation and Amortization. Depreciation and amortization expense increased by $0.9 million, or 7%, to $14.7 million for the six months ended June 30, 2024 as compared to $13.8 million for the same period in 2023. The increase was mainly due to additional costs to acquire definite-lived intangible assets such as internally developed software and media content. Depreciation and amortization expense as a percentage of revenue decreased to 3% for the six months ended June 30, 2024 as compared to 4% for the same period in 2023.

Current wording

Depreciation and Amortization. Depreciation and amortization expense increased by $1.0 million, or 4%, to $23.1 million for the nine months ended September 30, 2024 as compared to $22.1 million for the same period in 2023. The increase was mainly due to additional costs to acquire internally developed software and other definite-lived intangible assets. Depreciation and amortization expense as a percentage of revenue decreased to 3% for the nine months ended September 30, 2024 as compared to 4% for the same period in 2023.

Previous wording

Interest Income, Net. Interest income increased by $2.8 million, or 420%, to $3.5 million for the six months ended June 30, 2024 as compared to $0.7 million for the same period in 2023. The increase in interest income was mainly attributed to higher interest rates on cash and cash equivalents accounts as compared to the same period in 2023.

Current wording

Interest Income, Net. Interest income increased by $4.1 million, or 286%, to $5.5 million for the nine months ended September 30, 2024 as compared to $1.4 million for the same period in 2023. The increase in interest income was mainly attributed to higher amounts of cash held in interest-bearing accounts and money market funds as compared to the same period in 2023.

Previous wording

Income Tax Expense. Income tax expense increased by $6.2 million, or 112%, to $11.7 million for the six months ended June 30, 2024 as compared to $5.5 million for the same period in 2023. Income tax expense is attributable to the profitability of our foreign operations for which both current and deferred taxes are recorded. Income tax expense as a percentage of revenue increased to 3% for the six months ended June 30, 2024 as compared to 2% for the same period in 2023.

Current wording

Income Tax Expense. Income tax expense increased by $9.0 million, or 114%, to $17.0 million for the nine months ended September 30, 2024 as compared to $7.9 million for the same period in 2023. Income tax expense is attributable to the profitability of our foreign operations for which both current and deferred taxes are recorded. Income tax expense as a percentage of revenue increased to 3% for the nine months ended September 30, 2024 as compared to 2% for the same period in 2023.

Previous wording

From a legislative perspective, we continue to see momentum to legalize and regulate online sports betting in new jurisdictions in the Americas. As expected, many of these new jurisdictions are first trying to legalize and regulate online sports betting before considering whether to legalize and regulate online casino. However, given the tax generation success of online casino in markets where it has been legalized, we also continue to see momentum for online casino in several jurisdictions in the Americas that are looking for additional revenue sources to fund governmental budgets. Additionally, we have seen governmental officials or legislative or regulatory bodies in certain jurisdictions in which we operate consider, and in limited cases to date, approve, increases in gaming-related taxes. While it is unclear at this time if this will continue, any proposed legislation or other similar actions to increase existing taxes on online sportsbook and/or casino could negatively impact our business, profitability and cash flows.

Current wording

From a legislative perspective, we continue to see momentum to legalize and regulate online sports betting in new jurisdictions in the Americas. As expected, many of these new jurisdictions are first trying to legalize and regulate online sports betting before considering whether to legalize and regulate online casino. However, given the tax generation success of online casino in markets where it has been legalized, we also continue to see momentum for online casino in several jurisdictions in the Americas that are looking for additional revenue sources to fund governmental budgets. Additionally, we have seen governmental officials or legislative or regulatory bodies in certain jurisdictions in which we operate consider, and in limited cases to date, approve, increases in gaming-related taxes or other types of taxes on companies operating in the gaming industry. While it is unclear at this time if this will continue, any proposed legislation or other similar actions to increase existing taxes on online sportsbook and/or casino could negatively impact our business, profitability and cash flows.

Previous wording

We had $193.8 million in cash and cash equivalents as of June 30, 2024 (excluding legally restricted customer cash deposits, which we segregate from our operating cash balances). We intend to continue to finance our operations without third-party debt and entirely from operating cash flows and cash on our balance sheet.

Current wording

We had $216.3 million in cash and cash equivalents as of September 30, 2024 (excluding legally restricted customer cash deposits, which we segregate from our operating cash balances). We intend to continue to finance our operations without third-party debt and entirely from operating cash flows and cash on our balance sheet.

Previous wording

We expect our material cash requirements during the upcoming 12-month period to include $11.4 million of non-cancellable purchase obligations with marketing vendors, $3.7 million of license and market access fees, and $2.5 million of lease payments. In addition, we will continue to pursue expansion into new markets, which is expected to require significant capital investments. We have $44.2 million of additional non-cancellable purchase obligations including arrangements with marketing vendors, obligations for license and market access fees, and lease payments subsequent to the upcoming 12-month period. See Note 12 to our unaudited condensed consolidated financial statements included elsewhere in this Report. Management believes our current cash holdings and, if necessary or desirable, various avenues available to pursue funding in the capital markets will suffice to fund these obligations.

Current wording

We expect our material cash requirements during the upcoming 12-month period to include $6.7 million of non-cancellable purchase obligations with marketing vendors, $3.0 million of license and market access fees, and $2.6 million of lease payments. In addition, we will continue to pursue expansion into new markets, which is expected to require significant capital investments. We have $43.5 million of additional non-cancellable purchase obligations including arrangements with marketing vendors, obligations for license and market access fees, and lease payments subsequent to the upcoming 12-month period. See Note 12 to our unaudited condensed consolidated financial statements included elsewhere in this Report. Management believes our current cash holdings and, if necessary or desirable, various avenues available to pursue funding in the capital markets will suffice to fund these obligations.

Previous wording

We had been issued $30.0 million and $28.0 million in surety bonds as of June 30, 2024 and December 31, 2023, respectively, that are used to satisfy regulatory requirements related to securing cash held for the benefit of customers.

Current wording

We had been issued $31.2 million and $28.0 million in surety bonds as of September 30, 2024 and December 31, 2023, respectively, that are used to satisfy regulatory requirements related to securing cash held for the benefit of customers.

Previous wording

We had been issued $4.6 million in surety bonds as of June 30, 2024 and December 31, 2023 to satisfy regulatory requirements necessary to operate in certain jurisdictions.

Current wording

We had been issued $6.3 million and $4.6 million in surety bonds as of September 30, 2024 and December 31, 2023, respectively, to satisfy regulatory requirements necessary to operate in certain jurisdictions.

Previous wording

The following table shows our cash flows from operating activities, investing activities and financing activities for the six months ended June 30, 2024 and 2023:

Current wording

The following table shows our cash flows from operating activities, investing activities and financing activities for the nine months ended September 30, 2024 and 2023:

Previous wording

Operating activities. Net cash provided by operating activities was $51.1 million for the six months ended June 30, 2024 as compared to $37.2 million used in operating activities during the same period in 2023. The increased provision of cash reflects a lower period-over-period net loss totaling $38.7 million, increased non-cash expenses of $2.4 million and an increase of $47.2 million due to the change in working capital. The increase in non-cash expenses was driven primarily by additional share-based compensation expense totaling $2.9 million, and depreciation and amortization totaling $0.9 million, which was partially offset by deferred income taxes of $0.8 million and write-offs of long-lived assets of $0.7 million.

Current wording

Operating activities. Net cash provided by operating activities was $80.6 million for the nine months ended September 30, 2024 as compared to $6.8 million used in operating activities during the same period in 2023. The increased provision of cash reflects a higher period-over-period net income totaling $55.3 million, increased non-cash expenses of $4.7 million and an increase of $27.2 million due to the change in working capital. The increase in non-cash expenses was driven primarily by additional share-based compensation expense totaling $4.0 million, depreciation and amortization totaling $1.0 million, deferred income taxes of $0.2 million, and noncash lease expense of $0.2 million, which was partially offset by fewer write-offs of long-lived assets of $0.7 million.

Previous wording

Investing activities. Net cash used in investing activities for the six months ended June 30, 2024 decreased by $0.2 million to $18.9 million, as compared to $19.1 million during the same period in 2023. The decrease reflects lower period-over-period cash paid for acquisition of gaming licenses totaling $3.0 million and purchases of property and equipment totaling $0.1 million. This was partially offset by higher internally developed software costs totaling $1.0 million, increase in short-term investment of $1.9 million, and increase in cash paid for the development of media content totaling $0.1 million.

Current wording

Investing activities. Net cash used in investing activities for the nine months ended September 30, 2024 increased by $0.2 million to $26.2 million, as compared to $26.0 million during the same period in 2023. The increase reflects higher short-term investment of $1.9 million, internally developed software costs totaling $1.2 million, and acquisition of other intangibles totaling $1.1 million. This was partially offset by lower period-over-period cash paid for acquisition of gaming licenses totaling $3.2 million, investment in equity totaling $0.5 million, and purchases of property and equipment totaling $0.3 million.

Previous wording

Financing activities. Net cash used in financing activities for the six months ended June 30, 2024 increased by $0.2 million to $0.5 million, as compared to $0.3 million during the same period in 2023. The period-over-period difference reflects higher principal payments of finance lease liabilities.

Current wording

Financing activities. Net cash used in financing activities for the nine months ended September 30, 2024 increased by $0.3 million to $0.7 million, as compared to $0.4 million during the same period in 2023. The period-over-period primarily reflects higher principal payments of finance lease liabilities.

Previous wording

Effect of exchange rate changes on cash, cash equivalents and restricted cash. The effect of exchange rate changes decreased cash, cash equivalents and restricted cash by $3.9 million for the six months ended June 30, 2024 as compared to an increase of $1.9 million for the same period in 2023. These changes were due to fluctuations in foreign currency exchange rates from period to period.

Current wording

Effect of exchange rate changes on cash, cash equivalents and restricted cash. The effect of exchange rate changes decreased cash, cash equivalents and restricted cash by $4.3 million for the nine months ended September 30, 2024 as compared to an increase of $3.3 million for the same period in 2023. These changes were due to fluctuations in foreign currency exchange rates from period to period.