Rush Street Interactive - Third Quarter 2026 Earnings Call - RUSH STREET INTERACTIVE INC

Financial Performance:

• Generated Q3 2026 revenue of $385.9 million, a 39% year-over-year (YoY) increase.
• Adjusted EBITDA reached $62.2 million, up 73% YoY, representing a 16.1% margin (15% margin excluding a $4.3 million one-time foreign currency gain).
• Net income was $28.7 million, a 93% increase YoY.
• Online casino revenue grew 32% YoY ($289.4M), accounting for 75% of total revenue; online sports betting revenue grew 70% YoY ($96.5M), accounting for 25%.
• Gross margins expanded 240 basis points YoY to 36.4% and 90 basis points sequentially, driven by higher margins in LATAM and efficient marketing spend.
• Marketing expenses increased 44% YoY to $54.7 million (14.2% of revenue), reflecting strategic investment to capture market share.
• G&A was $23.6 million (6.1% of revenue), excluding a $4.3M FX gain which would have resulted in 7.2% of revenue.
• Balance sheet remains strong with $382 million in cash and zero debt; $14 million in shares repurchased during the quarter under a $100 million program, leaving $75 million capacity.
• ARMAU in North America was $309 (down 15% YoY), while LATAM ARMAU rose 113% YoY to $58, driven by the elimination of VAT-related bonusing and favorable currency moves.

Guidance and Future Outlook:

• Reiterated full-year 2026 revenue guidance of $1.56–$1.60 billion (38–41% YoY growth); current October trends suggest a trajectory toward the low end.
• Reiterated full-year 2026 adjusted EBITDA guidance of $245–$265 million (59–72% YoY growth); trends suggest a trajectory toward the midpoint.
• Expects 2027 growth to be driven primarily by user count expansion rather than significant increases in average revenue per user (ARPU) in North America.
• Anticipates operating leverage on marketing spend in 2027, with total marketing investment growth expected to be significantly lower than the 2026 step-up, barring new market launches.
• Projected gross margin expansion for 2027 due to operating leverage and a shift in product mix.
• No specific 2027 guidance provided yet; management will offer views on industry growth and market share potential in the next quarter's call.

Business Segments and Product Lines:

• Online casino remains the core profit driver; retention and lifetime value (LTV) of these players are central to the business model.
• Online sports betting growth is bolstered by LATAM expansion and cross-sell from the World Cup event.
• Alberta launch (July 2026) exceeded early benchmarks; population-adjusted first-time depositors and daily active users are tracking over 2x levels seen in Ontario at a similar stage.
• LATAM performance remains robust with record net revenue; Colombia, Mexico, and Peru all showed healthy activity, with LATAM revenue growing >200% YoY.
• Developing proprietary game portfolio and in-house remote game server; currently, revenues are almost entirely from third-party partners, but the company aims to launch own games in the future to improve margins and differentiation.
• Exploring features related to digital cards and "sweepstakes" mechanics within legal frameworks to meet consumer demand.

Market and Competitive Landscape:

• North American online casino and sports markets showed a moderated growth pace in Q3, affecting the broader industry; growth rates ebbed and flowed from August to October.
• RSI continues to gain market share year-over-year, particularly against public peers, though Michigan faced increased competitive intensity from newer private entrants (365, Hard Rock).
• Alberta market saw a competitive advantage for RSI post the legacy operator transition period, leveling the playing field for regulated operators.
• Brazil's ban on regulated markets may cause some competitors to reallocate investment, but the impact on RSI's other LATAM markets is currently unclear.
• Prediction markets are evolving; CFTC communications suggest a move away from casino-style gaming within prediction markets, potentially serving as a catalyst for traditional online casino legalization.

Risks and Challenges:

• Regulatory uncertainty in Brazil, where the market is restricted, poses a risk to broader regional investment and competitor behavior.
• Colombian gaming tax landscape: While the 2027 budget excludes new taxes, the temporary 16% excise tax is expected to remain through year-end 2026; future tax structures for 2027 are being monitored.
• Market maturation in North America leading to lower expected values for new player cohorts compared to earlier years.
• Potential for sports betting hold volatility, as seen in September which was "far more player-friendly" than July.
• Competitive pressure from unregulated sweepstakes and gray market products in the U.S.

Management Commentary and Tone:

• Management expressed strong confidence in the business's long-term fundamentals despite short-term industry moderation.
• Tone was optimistic regarding the "casino-first" strategy, highlighting high retention and engagement metrics.
• Executing a "lean-in" strategy on marketing in the back half of 2026, citing attractive acquisition costs and payback periods despite lower new player values.
• Management emphasized the importance of regulated online casino legalization to protect state revenue and consumers, noting fiscal pressures in states like Illinois and New York.

Analyst Questions and Answers:

• Brazil Strategy: Management confirmed the ban on the regulated market was disappointing but will monitor legal challenges; any future entry would be strictly risk-adjusted.
• US Legalization Catalysts: Virginia, Ohio, D.C., and Indiana identified as near-term 2027 opportunities; Illinois and New York face Medicaid funding reductions that could force states to pursue online casino revenue.
• Market Slowdown: Analysts asked about the Q3 slowdown; management attributed it to broad-based cohort softness rather than competitive share loss, though they are monitoring monthly fluctuations.
• Marketing Spend: Confirmed marketing spend will remain dynamic; while 2026 saw a step-up, 2027 will see normalized growth unless new markets launch, focusing on operating leverage.
• World Cup Performance: Acquired players post-World Cup showed 50% cross-sell to iCasino (higher than Copa America), with slightly lower retention but high LTV potential.
• First-Party Games: No immediate revenue impact expected as the mix remains third-party; internal game studio development is progressing for future launches.
• Alberta Competition: The competitive landscape has stabilized post-legacy operator transition, with RSI viewing the market as a gradual build with strong long-term potential.
• M&A and Prediction Markets: M&A continues to be evaluated for market entry and technology differentiation; prediction markets are monitored but the company maintains a sports-first approach in regulated zones.

Other Key Points:

• The World Cup 2026 was a successful player acquisition event, significantly outperforming Copa America in terms of player value and cross-sell efficiency.
• Foreign currency exchange gains in Colombia contributed a non-recurring $4.3 million to Q3 G&A, which is excluded from underlying business performance discussions.
• Management highlighted that the temporary 16% excise tax in Colombia is scheduled to expire at the end of 2026, potentially improving 2027 margins if not replaced.
• The company is actively engaging with legislators on online casino legalization, leveraging the revenue potential of the category compared to sports betting.