Rush Street Interactive, Inc. (NYSE:RSI ) Q2 2022 Earnings Conference Call August 4, 2022 5:00 PM ET

Lauren Seiler - Associate Vice President, Investor Relation & Development

Richard Schwartz - Chief Executive Officer

Kyle Sauers - Chief Financial Officer

Dan Politzer - Wells Fargo

Jordan Bender - JMP Securities

Edward Engel - ROTH Capital

Good afternoon, ladies and gentlemen and welcome to Rush Street Interactive Second Quarter 2022 Earnings. [Operator Instructions] It is now my pleasure to turn the floor over to your host Lauren Seiler. Ma'am the floor is yours.

Thank you, operator and good afternoon. By now everyone should have access to our second quarter 2022 earnings release. It can be found under the heading Financials Quarterly Results in the Investors section of the RSI website 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 facts 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 upon 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. A reconciliation of these measures to the most directly comparable GAAP measure is available in our second quarter 2022 earnings release and our investor deck which is available in the Investors section of the RSI website at www.rushstreetinteractive.com.

With me on the call today we have Richard Schwartz Chief Executive Officer; and Kyle Sauers Chief Financial Officer. We will provide some opening remarks and then open the call to questions.

With that I'll turn the call over to Richard.

Thanks Lauren. Good afternoon, everyone and welcome to our second quarter earnings call. This quarter's results reflect a balanced performance between topline growth and efficient customer acquisition and retention with a focus on sustainable returns. We are well positioned to continue growing and growing profitably as we remain on target to be adjusted EBITDA positive for the back half of 2023.

We continue to see opportunity for further growth in existing markets, while also continuing to launch in new markets such as Ontario, Mexico and West Virginia where we recently added online sports to our existing online casino product. When we combined our extended market access with our sophisticated technology and a world-class user experience, we feel great about how we are positioned within the industry and for the future.

Revenue for the second quarter was up 17% year-over-year to $144 million. Monthly active users in the US and Canada were up 35% year-over-year with growth derived from both new and existing markets. We grew our average active users in all markets year-over-year other than just one which was flat a great sign that our brand continues to grow in our markets.

Looking at adjusted EBITDA. We posted negative $18.6 million a considerable improvement compared to last quarter. The improvement was driven by a combination of higher revenue, lower marketing costs, improving gross margin and only a modest increase in our G&A costs.

In line with last quarter, we were profitable in the five markets of New Jersey, Pennsylvania, Michigan, Illinois and Columbia. And their combined profitability improved for the first quarter to second quarter, validating our continued progress towards corporate-wide profitability. In addition, West Virginia turned positive for us in the second quarter after only four full quarters of operation. As a reminder this is the same short time period in which we reached profitability in Michigan.

As for the remainder of the year we are tightening the range on our guidance to between $600 million and $630 million, which reflects a few key considerations. First, we are taking a conservative view around any potential headwinds from our consumer heading into the busy fall season. But I want to be clear and as of today we are not seeing any headwinds with our consumer when we look at things like average deposit bedside or even metrics such as handover player.

Second, since the start of the last football season, we have added seven markets where we operate online sportsbook. This creates a lot of opportunity, but also some unknowns as we learn how those markets will respond during a full football season and how the competitive dynamics intensity will play out.

And lastly, as we ramp up in Mexico our approach will be disciplined and gradual. We expect a modest contribution and investment during the initial six months of operations in 2022. But over the longer term expect this market to be a significant growth contributor for RSI. As we move into the second half of 2022, we are building a global business that continues to scale with the recent launches in Ontario, Canada and Mexico we are now live in four countries.

We operate combined online casino and sportsbook now in four US states, Ontario in Canada and all of Mexico and Colombia. In addition, we operated our online sportsbook in nine other states in the US, giving us a diverse set of growth opportunities.

With that I want to provide some thoughts on a few of our recent launches. First in New York, we continue with our more measured approach in the market which is evident in our second quarter results compared to the prior quarter. We remain focused on targeting and attracting high-quality customers and retaining them with a world-class user experience, as opposed to financially incentivizing short-term behavior.

We look forward to the upcoming football season as more and more players have learned about the Bay Rivers platform and our customer-friendly approach. And our existing customers will experience the excitement of bending our football during the opening months of the season for the first time.

Next, during the beginning of the quarter we launched in Ontario. As a reminder, for the preceding 10-plus years, this has been a great market. Meaning, we entered a market where a number of operators already had established brands and equally important existing player databases. Although it was unclear until relatively close to launch, exactly how the transition from gray and white market would play out previous operators in the market were ultimately able to smoothly migrate the existing players in the regulated market. This meant a portion of the operator started with a notable advantage.

From our vantage point, we knew it would be important to invest in our brand awareness early with a broad TV campaign during the Winter Olympics in February. The awareness began to pay off when the market opened in April. The fact that Ontario is also an online casino market also plays to our strength, as we really shine in casino markets, given the innovation built into our product and user experience.

In fact, since the operators can't promote inducements from fires to register other sites in Ontario, an operator like us that has a wide range of unique selling points has an advantage because we can promote our differentiated experiences as an effective way to attract new customers.

In the near term, this is an approach that will result in a more gradual build to get players in the door. But ultimately, it will lead to consistent growth over the next number of years. We think we can grow substantially in Ontario over time and feel very good of our start there. We are seeing good progress in Ontario, where July's revenues per day is up over 30%, compared to June, even with a lighter sports calendar.

In late June, we went live in Mexico. A bit of history we think is informative. Colombia is a market with a population of about 50 million people. We enter that market without a brand, without a database and without any experience in the region. And we operated for almost a full year with only online force book before adding online casino. Yet we were from a standing start to a top three player in the market and have consistently built share over time.

In Mexico, we enter in a better position. It is a larger country with a population of approximately 130 million people and we were able to launch out of the gate with both casino and sportsbook. In terms of building our brand, we have a great local media partner that is well known and respected. In addition, we have a technology that's already proven in both North American and Latin American markets. We are really excited about Mexico and believe that our high-quality user experience will stand out and appeal to players in Mexico as it has to Colombian players enabling us to grow market share with a measured approach.

Looking ahead, we are planning to launch online sports betting in Ohio in January. Ohio as a state that we are excited about given the demographics, the sizable population and adjacency to four other markets, where we are already operating at that River sports book. So there is a lot of media overlap.

Maryland is another exciting market, where we are preparing to launch online sports betting, whenever the regulators allow. And just earlier this week, we launched a retail location in the state with our partners at Bingo World, which is located just outside of Baltimore.

Lastly, it's exciting to see Massachusetts to become the newest US state to approve sports betting. We have an agreement with a market access partner that is included in the recent legislation and we will share more details about our plans in the future.

Turning to marketing. We are seeing a more rational environment develop with what appears to be the continuation of a fundamental shift away from a singular focus of generating revenues at any cost. We saw this pullback start during Q1 and continue into Q2 with somewhat a pullback likely reflective of seasonality and a lighter scores calendar. However, even compared to the year ago Q2 period, our cost to acquire players are down by around 35%.

Looking ahead to the fall when the sports calendar picks up again, we are mindful that we may see another phase of aggressive sportsbook advertising during the football season but we will remain prudent with our marketing dollars. That said, we continue to be data-driven and plan to continue to invest in customer acquisition at viable cost levels and at times of the year, when those customers are most prone to begin betting with us, such as the upcoming football season. We expect, we will continue to grow our share by earning the loyalty of customers by trading them well, being thoughtful, developing high-quality experiences and reducing friction at every possible point. The recent shift to a more rational environment plays to our advantage, a focus on earning rather than buying customers and really earning their trust is where our platform and customer service shines.

For the long run, our approach has been and will remain to emphasize user experience first as opposed to how much financial incentive is offered to players as new markets continue to launch, to be profitable in our view you need to get players in the door at a reasonable cost and focus on strong retention and customer service. We have built our platform and culture around this philosophy and we believe it is paying off on our movement towards profitability and cash flow generation.

From a product and technology perspective, we have spent the last quarter a laser focus on improving the customer experience and scalability. While these initiatives may not always be evident on the surface to the end user, ensuring a frictionless and high-quality experience with minimal disruption is an evergreen effort on the back end. These continued improvements and the many features we've talked about over the last year have been validated by our significant app rating improvements over the last year. Our average operating is up over a full point from this time last year.

I'm also excited to let you know and we recently completed the acquisition of Poker Night in America, a leading content provider of live and recorded poker tournaments and events. Poker Night has a strong following and a deep library of poker TV content and media creation capabilities that will help to further build out the BetRivers network and engage our target audience on an ongoing basis.

Recall that two quarters ago, we also purchased an online poker platform. Together these two tuck-ins will position us well for when we eventually launch online poker and the associated strong cross-sell opportunities that poker will bring to our casino and sportsbook verticals. The acquisition was paid for with approximately $2.2 million of cash and $2.7 million of RSI stock. We don't expect this acquisition to have any near-term impact on either revenues or profitability but rather it will serve as a growth enabler for our business.

With that I'll turn the call over to Kyle.

Thanks Richard. Second quarter revenue was $143.7 million, up 17% year-over-year. We continue to see strong growth in player acquisition and retention as measured through our monthly active users as well as player engagement and monetization as evident in our average revenue per monthly active user.

A quick note regarding disclosure with the launch of Ontario during the second quarter, our reported mile and Art Miles [ph] metrics now include both Canada and our US markets. Our monthly active users were 133,000, up 35% year-over-year. The increase reflects steady player acquisition and retention across online casino and sports betting plus the expansion of casino and sports betting into new jurisdictions.

Looking sequentially, Q2 miles illustrate the typical seasonality of the second quarter, although our decline this year was smaller than it was in 2021. Art Miles were $325 during Q2. We saw a 23% increase from the first quarter with Art Miles being positively impacted as we moved away from the initial New York launch. These consistently higher Art Miles are a reflection of strong iCasino results and the high-quality customers we attract to our platform

As we have called out for the past few quarters, the string at recent new market launches since last fall including New York had us in a heavy investment mode. While investments in new markets will continue, we are on track towards our plans of adjusted EBITDA profitability for the second half of next year.

Our second quarter adjusted EBITDA loss was $18.6 million vastly better compared with the first quarter. Our five markets that were profitable in Q1 produced higher profitability in Q2 as Richard mentioned earlier. West Virginia also turned profitable during the quarter in all of our other markets that were live during the first quarter were closer to profitability during the second quarter. Advertising and promotions expense was $44.2 million for the second quarter, well-below the mid-$60 million level we have been running during the two prior quarters.

As we touched on last call, we've been very focused on lowering our cost to acquire new players and retain and engage existing players. This quarter's results highlight the success we've been seeing as we continue to refine our marketing efforts to be more targeted and thus more efficient. Consistent with our flexible marketing approach and finding ways to invest marketing dollars that bring the best returns, we're able to find ways to reduce marketing spend in the second quarter with plans to take advantage of more opportunities in the back half of the year.

Having said that, we expect marketing costs to increase again in the third quarter and again sequentially in Q3 and Q4 due to the football season. But we still plan for Q1 of 2022 to be the high point for marketing spend during the year. As expected, gross margins improved modestly in the second quarter compared to Q1 and we expect them to continue to improve further in the back half of the year.

G&A costs increased to $13.5 million during the second quarter, up from $12.4 million in the first quarter. We'll continue to invest in our technology teams and corporate infrastructure, so we expect that this line item will continue to grow in the back half of the year.

Turning to the balance sheet. We continue to be in a positive net cash position. We ended the quarter with $202 million in unrestricted cash and no debt. We believe we're well positioned to comfortably return to adjusted EBITDA and cash flow positive with our existing cash position.

Looking at the rest of 2022, we've tightened the range on our full year revenue guidance to between $600 million and $630 million. As Richard mentioned, we haven't seen any signs of consumer weakness from our customers, but we want to be mindful of that possibility in the back half of the year, so we've built some of that into our latest thinking on revenue. We also have a large number of states that haven't been through a full football season, which creates a lot of opportunity, but also some unknowns about how fast those markets will grow and what the competitive dynamics will look like.

At the midpoint of our tightened range, this implies revenue growth of 33% in the back half of the year, which is very exciting. As a quick reminder, our policy towards revenue guidance is to only include those markets, which are currently live.

Now some high-level thoughts on profitability. We saw significant progress from Q1 to Q2. But as I mentioned, we expect marketing costs to increase in the back half as we increase investment in casino markets and head into football season for the first time in many markets, but that could also be accompanied by a nice increase in revenue.

The net result will be a second half loss that's substantially less than the first half, while losses in Q3 and Q4 and could be somewhere in the range of what we saw in the second quarter. We continue to execute well and see a clear path to profitability on a market level and from an overall business perspective, and we'll be excited to share additional details with you as we get closer to that mark. In the meantime, we remain excited by all the new markets and industry growth ahead of us.

And with that, operator, you can please open the line for questions.

Certainly. Ladies and gentlemen, the floor is now open for questions. [Operator Instructions] Your first question is coming from David Katz from Jefferies. Your line is live.

Hi, afternoon, and thanks for taking my question. Can we go back to the, Richard, your comment about the guidance, and I guess Kyle also. So you're making a provision sort of a just in case, can you just talk about what you've assumed in there and sort of how you decided upon how much to take off of the top end and kind of how you thought about it. Just recognizing it's an incredibly complex circumstances for everyone, but just a little more elaboration would help?

Sure. Yes, Dan, I'll take this one, and thanks for the question. I wouldn't say, there's a lot of big changes in the thinking since last quarter. It's really just tightening up some of the assumptions. We now have half the year under our belt. And relative to, I guess, the second half consensus, the new midpoint of guidance is, I think, it's less than 2% lower than the previous guidance. We tried to highlight in the remarks just some of the thinking on the tight revenue range.

We do want to be mindful of potential headwinds from consumer weakness. Obviously, everybody is talking about that certainly in the investment community. Richard said this, we haven't seen signs of that and the data that we're looking at, but it's on our radar, so we want to be mindful there. Then we're just we're thinking about going into a football season, which is very exciting. We have -- I think, it's seven markets that haven't been through a full football season. So that's exciting, but it also -- it has some unknown, so we want to account for that.

And then Mexico is a new addition for us since last quarter, but we just want to make sure that people realize that's going to be a more modest investment, not a big impact on revenue and expenses out of the gate here, and we'll take our time to build that market, but we're really excited about it. So those are kind of the factors that went in. I wouldn't point to one that dominated, but we -- as you can imagine, we look at the entire portfolio all the markets and relook at how they're all performing and where we think they're going to head to. And so we just tightened it up a little bit.

Understood. If I can ask you to humor me. And Kyle in some of your commentary you talked about 3Q and 4Q marketing expense and I thought you said ramps up again and so the loss there would go back -- would widen. And I thought you may have said 4Q widens even a bit more, would you mind just sort of setting me straight there?

Sure. So maybe I'll focus on marketing to start here. But we spent less on marketing in the second quarter than we probably originally anticipated doing, which I think that really speaks to our ability to be super flexible with the marketing spend and cater that spend to the opportunities that we see and invest where it makes the most sense, where and also when it makes the most sense. But also if we want to dial it back we can if we choose to or if it was necessary. So we shifted some of that spend from Q2 to the back half of the year expecting that to provide better returns for us. The majority of that increase in the back half that we shifted in markets where we have a casino. But of course, we're also keen on the football season to track sports betters.

But I guess then if I just look at where the sell-side has pegged us for marketing spend in the back half. I think as a group analysts are already generally near the range for what we're kind of thinking although you can imagine we will have some flexibility as I just pointed out in how we spend and which quarter we put that money to work in depending on the opportunities we see.

Right. And just one more. You said the back half is approximately what you're thinking but the cadence between 3Q and 4Q?

Yes. Sorry. So I'd say our initial thinking and again this can change is that we'll see a decent step-up from Q2 to Q3 and then probably spend a little more in Q4 than we do in the third quarter even. And that probably coincides well with the cadence of our revenue growth as well.

I'm not trying to suggest that they should be exactly matched up but we'd expect Q4 to be quite a bit higher revenue quarter than Q3. And then the last piece that I just -- I think was in my prepared remarks was we do expect the first quarter of 2022 to still be the high mark for marketing expense for the year.

Got it. Okay. I appreciate it.

And if I could just add two -- one quick additional comments. One is that we're really excited about all of the integrations that we've secured in Ontario, but many of those are really not ready to the second half of this year. So we've already secure them but a lot of those investments are going to be coming in the second and third period -- sorry third and fourth quarter of the year which would be great for us given that we have a lot of excitement for that market. In addition in New Jersey we also allocated some of the second quarter marketing spend to third quarter and fourth quarter because we were actually in the process of planning to rebrand that the New Jersey site from sugar house BetRiver is coming soon. So we wanted to sort of make sure that we would spend more of that investment in that market in -- after the rebrand which will be occurring in Q3,l Q4. So that's a little bit of a further explanation of why some of the Q2 marketing got allocated to later in the year.

Got it. Thank you very much. Appreciate it.

Your next question is coming from Dan Politzer from Wells Fargo. Your line is live.

Hey. Good afternoon, everyone. Thanks for taking my questions. So I wanted to hit first on gross margin in the quarter. I know it was up a little bit sequentially but it was still down year-over-year. If there's any way to just kind of unpack the components of that in the second quarter. And just as we think about it flowing through the rest of the year is that kind of still mid-30 range that I think you talked about last quarter still with a reasonable expectation for the fourth quarter? Thanks.

Yes. I think, -- excuse me, we can work back up to close to that range by the fourth quarter. So – yes, confirming on that thinking still. I think the reason for the year-over-year decline there's probably two primary pieces: one was and we talked about this on the last quarter. New York was a drag on margins in the first quarter negative revenue associated with New York in the first quarter and a lot of costs that go along with that. That's still a headwind heading into the second quarter but not nearly as much. But then we also launched Ontario in Q2.

And as I know we've talked about before margins improve over time as markets mature. And right at the beginning of a market launch you're going to have some headwind on -- on your margins. And looking ahead to Q3 and Q4 absent something different happening than we might currently expect there are new launches that will be dramatically impacting margins. So we'd expect them to improve.

Got it. And then as you think about the upcoming states that you might launch in Maryland, Ohio, Massachusetts, Kansas out there, all these states they don't have none of these states have sports -- all of these states have sports but none have iGaming right now. So how do you think about your launch strategy? And how imperative is it to have a major presence in each of these states, or do you think that there's a path for some of these states to maybe have iGaming down the road later?

Sure, I'll take that one. Certainly every state is unique. We don't just have a single approach for every state and we are considering the likelihood of adding eye Casino in those markets as well as overlaps with other states. For example, we've mentioned earlier on the prepared remarks that Ohio has a lot of adjacency markets your cost in that market will be efficient because you'll be having a lot of overlap from other markets.

When it comes to markets like Main, you're going to have a -- we haven't announced any plans there. But certainly we will if it changes. But certainly one thing that we look at is how many competitors will be will there be? And in the case there will be a relatively limited number of them.

So in cases of Maryland and places like Ohio we are planning to enter those markets. And of course the strategy is to typically look around the competitive set, look at the tax rate, look at the adjacency markets look at the time of the year when the launch is happening and make those decisions based on all those criteria. But certainly, we recognize that casino markets are a strength for us and certainly we want to prioritize those when we can.

Thank you. Your next question is coming from Bernie McTernan from Needham. Your line is live.

Great. Thank you for taking the question. Just on competition call it out as a headwind that you're factoring in your guide, but I just want to see, if you are seeing any signals yet that would point you to think that that we'll go back – that the market will go back to a more competitive environment. I'll start then. And then the second question if you had a ballpark it when do you think Mexico could become the same size as Colombia in terms of revenue generation for you guys?

Okay Bernie. Hi. I'll take the first question, and then I think Kyle will take the second one. In terms of the competitive environment, the vibe remains very competitive, but not as aggressive as last year. We've heard many of our peers say they're going to be investing less in marketing and being a little more modest and rational in their approach. But we'll be watching what actually happens to ensure that certainly that is reflected in what we're seeing. Our strategy is to sort of focus on players – acquisition of players at reasonable rates, where we can be confident that we'll get a positive return on those investments.

Maybe, I'll jump in on the Mexico piece, Bernie. I'll first, I'll give you a bit of a non-answer, but the answer is faster than Colombia, I'd say give us a quarter or two to let, let us start building some momentum. And maybe we'll give you a little better answer around that. We are – I think as Richard highlighted, we're entering Mexico with just a lot of advantages. Just infrastructure that we had set up for Colombia we've obviously done really well down there in that a lot of that is being leveraged for Mexico. We've got a great partner, which gets us access to some really good assets down there.

And obviously, it's a much bigger population. So it will be faster, but we'll give some more details and thoughts on that as we move a little further away from 1.5 months or so from the launch.

And just to give a little bit of extra context, we're just really starting some marketing campaigns now for the first time. It took us as we said way a little bit of time to launch and configure all the payments in the right way and get the product up to where we needed it to be. We're very excited about the quality of the experience we offer. We think it's first rate and we're really optimistic about the opportunity to grow a significant business in Mexico over the longer term.

Thank you. Your next question is coming from Mike Hickey from Benchmark. Your line is live.

Hey, Richard, Kyle, Lauren, thanks for taking my questions, guys. Good job on the EBITDA number. I guess, the first question is, if you are seeing a weakening consumer obviously sort of bake that into your guidance. What would sort of be the early indications that that was happening sort of less new players coming into the app or the transactions transaction size? I guess, what was given the early signs that that was happening? And if you do start to see a weakening consumer, are there ways that you can adjust the app experience to sort of compensate Richard, whether it's promotional activity your hold rate or otherwise?

Yeah. So I'll start and let Richard jump-in. I just want to make sure that, what we said was clear, just because that – I wasn't sure on your question. We've not seen any weakening yet and we've been looking at a bunch of different data points. And you can look at it from a lot of different ways. You can segment, you can segment your player base between your more valuable players and – or those who don't wager as much you look at average deposit size, you can look at the average bet size the frequency the number of bets. And then, we're in a much slower part of the sports calendar, so you've got to factor in seasonality. But those are a lot of things they look at to see, if there's any cracks. We haven't seen that yet but we did want to make sure we were factoring it in.

Add a couple of things. I think certainly the things we mentioned in the prepared remarks like average deposit size, you might see an impact there, which we haven't seen. Bet size right if someone is lowering the bet size to a more smaller amount, that would be an indication, which again we have not seen any indication of that. And the handover players the frequency, as well of the player are factors that you look at. One thing I want to note is that, from the online gaming perspective, it's a very affordable way to have a high-quality entertainment experience from home. And it's unique in that you're not really incurring any incremental expenses for consumers to participate, and not having to drive incur gas costs.

I have to go to a restaurant incurring enhanced fees service fees, and so not having to travel anywhere, and obviously overnight. So I think, there's a lot of things about this product category and service category that's very attractive in terms of providing a really compelling experience where a user can stay home on a night for four hours, it'd be entertained for $20 or $40 and have a great experience in the way that's unparalleled really in other types of the at-home entertainment.

Fair enough. Richard, you mentioned that -- hey, Kyle, thank you. You mentioned that you're seeing a more rationalized spend environment from your peer set maybe that sticks, maybe it doesn't. But I'm just curious what are you seeing in terms of player retention trends? Are they getting better? Are they staying the same given the backdrop on more disciplined spend?

No, it's a good question. Probably not a lot of change there. And we haven't disclosed specific retention metrics. But I think when you look at what we spend on marketing and the revenue that's generated from our players, I think that tells you we have some really strong retention within this industry. So we're really proud of that. We haven't given specific metrics. But we haven't seen that be a negative for us in any way recently.

Thank you. Your next question is coming from Ryan Sigdahl from Craig-Hallum. Your line is live.

Just one for me. I guess trying to bring all this together. You mentioned guidance assumes 33% year-over-year growth in the second half, which would be a reacceleration versus the 19% year-over-year growth yield in the first half of the year. But then again your commentary seems more cautious on assumptions, on the consumer et cetera, et cetera. So I guess what's included in there that's going to drive that reacceleration given those other more conservative assumptions?

Yeah. I think there's a few things. One is Ontario continues to build. I think Richard highlighted in his comments, we've seen July is 30% higher than June net revenue per day metric. So that's exciting to see continued progress in Ontario. And then another big part of it is, we've got all these markets that haven't seen, many of which haven't seen a football season at all and a couple that haven't seen a full football season. So that's exciting for us as well. And there's all these markets that we're in are still growing. So I think we feel good about that.

Great. Thanks guys. Good luck.

Thank you. Your next question is coming from Joe Stauff from Susquehanna. Your line is live.

All right. Thank you. How are you? Richard, Kyle Sauers, good afternoon. I had a couple of questions on your KPIs if I could. Just talking about say your core strength in iCasino and the monetization KPIs. I was wondering what it might look like naturally it's down on a year-over-year basis as you suggested you launched in a number of OSB states. But wondering if you can give us a read or an assessment of how that looked just say within your iCasino product in particular?

Yeah. So I just want to make sure I understand the question. You're talking about -- when you're saying the KPIs there, you're talking about the MAUs and the ARPMAUs that we referenced?

Yeah. Specifically here, I'm talking about sort of your average revenue per MAU.

And what that look like again, for your say core competitive advantage within iCasino, is it more flattish versus the down 14% year-over-year?

Yeah. So we don't -- we aren't breaking it out specifically between the two. And you have to remember that we also have players that cross over, which is a real valuable segment for us. I will tell you that there's less of the variability in our quarterly ARPMAU from one quarter to the next is from the casino side. It's more about what type of markets we've launched more recently and where we're seeing the growth from and that's sports only or sports and casino. And then it's also -- like we referenced on the last call with New York, we actually had a large number of MAUs that came in, in Q1 but actually generated negative revenue.

So you can do the math and figure out, that's not real positive for the ARPMAU number. So that's why it popped back up sequentially. So those factors impacted quite a bit more. We'll see what the rest of the year brings here. I think we're going to see growth in the MAU number. I feel very good about that. ARPMAU, we'll see how the casino markets build, what Ontario looks like and what all these new betters that are coming on board for the first football season bring to us in all these new markets.

And that makes sense. And I guess as we think about the second half of this year, maybe just kind of isolating on this particular metric. User growth as you suggested it seems likely right given kind of again the number of new markets how the market grows is evolving, but would you expect ARPMAU to maybe moderate in terms of its year-over-year changes?

You're asking, if I'd expect it to go down in the back half of the year?

Yeah. So I don't want to give you a guide on that necessarily. We haven't found something we've guided Joe. But I'll tell you I think there's some opposing forces on that that could cause it to go either way. One is that we should see more concentration in sports. So that can be a negative to the [indiscernible] because of so many more players and some of them at lower dollar amounts.

But on the positive side, we do have a lot of these markets that are building. And as markets build the players become more valuable as they're spending more time on your app and they aren't enjoying as many of the initial bonusing that impacts that number as well. So those two things will work against each other. But I don't want to tell you that I'm confident that it will be up 10% or down 10% because it could move either direction.

Thank you. Your next question is coming from Jordan Bender from JMP Securities. Your line is live.

Good afternoon. Thanks for taking my question. So your GGR per user for both IDMA and sports betting continues to move up over time. So when you think about investment in the player are you finding that the returns are more attractive when you're spending towards your customer base as you think about potential acquisitions – very diverse as potential acquisitions?

Can you ask that one more time Jordan, I'm not sure we understood exactly what you're getting at.

Yes. So your GGR per user is continues to go up over time. Would you rather use your cash and reinvest it back into the player, or would you rather kind of go down the acquisition around and grow the base that way?

You're saying if we just think about the total investment whether that would be in external marketing dollars or promotional dollars that you put in front of existing players, which is where do we lean, I'll let Richard jump in. I mean it's definitely a balance and one that changes over time as markets mature and depends on whether it's casino or sports. But I'll let you..

Yes sure. Thanks, Jordan. Yes so consistent with what Kyle just said, it really varies depending on the market. But certainly we know and are focused a lot on the retention of existing players. And obviously a player that's been with you for a year plus or over multiple years is worth more and more valuable over time. So you want to make sure you're properly segmenting investments towards those players.

I think we do a very nice job of segmentation of our players and making sure the right players get the right incentives, which has driven a big part of our ability to retain the customers. So any – when you have a substantial marketing budget, you are going to be balancing those costs out on the retention side with bonuses for the first for sign of deposits and those become a pretty significant part of your bonusing amount, right? Because every new player that comes signs up you're offering them an incentive to join you.

So I think obviously the more successful you are we're getting players in the door, you do have that increase in that bonus in it's reflected in the GGR, not reflected the GGR because you don't deduct bonusing from GGR. So I think at the end of the day, it is a balance between the two. And I think we do a nice job with segmenting the right bonus is the right players who are lapsed but also making sure that we continue to reduce our cost to acquire players with the goal of being affordable in terms of our acquisition by ensuring that we also then recognize that when we do acquire new customers you do have a bonus that you're providing them with a sign up that does have some significant costs associated with it.

And maybe I'll just throw one more on top of there that probably seems relatively obvious, but there's a very clear pattern for us that as markets become more mature, we're spending less marketing dollars as a percentage of the revenue that's being generated. So it's part of where the – the leverage is in the model.

And then as Richard pointed out, you also have a lot more bonusing that occurs early on because of the acquisition process. So not only are you paying external dollars to help get yourself in front of those players and attract them to your platform, you're also giving them incentives to sign up and start enjoying the Bed Rivers platform.

So that shifts and dissipates over time but you're shifting it to more of that incentive is going to your great players that are sticking with you and where you're going to get the best return. So I think both of those provide leverage points for our business and probably the entire industry as time goes on.

Great. And then turning back to South America for a second. Peru looks like it just legalized online gaming. Is this a market that you guys would have interest in entering?

Sure, I'll take that one. We certainly have invested a lot of energy and time over the years establishing a really strong foundation in Latin America. And certainly, Peru is a large population market. Certainly, not too far from Colombia, has in fact had some TV over media overlap between the two markets. So certainly that's a market that we have an eye on and are monitoring it very closely as we the legislator path the bill and we're waiting for the President to sign it.

Thank you. Your next question is coming from Edward Engel from ROTH Capital. Your line is live.

Hi. Thank you for taking my question and I'm hopping on a bit late, so sorry if this was addressed. But your marketing expense ticked down a lot sequentially in the 2Q despite launching in both Ontario and Mexico. How do you see marketing costs kind of trend throughout the back half of the year? Should we expect kind of flattish versus 2Q or continued kind of sequential declines that you kind of said last quarter?

Yes, sure. So there is a decent amount of good stuff maybe to go back and review, but I appreciate the question. So the marketing was down quite a bit in Q2. We delayed or shifted some of our spend from Q2 pull back to be able to allocate a little more to Q3 and Q4.

So what we're expecting is to see a decent uptick in the third quarter -- from the second quarter and then probably even a little bit further increase into Q4 from Q3 with that higher Q4 still being less than our high watermark of Q1 marketing spend from this year.

So that's kind of the cadence that we're expecting. There's a lot of opportunities we see. Obviously, you've got football season starting, but putting investment into casino -- like casino markets that we think we can get really strong returns from.

Okay. Perfect. And then, just as you're kind of expanding into some of these newly regulated markets outside the US, whether that's flagged AMR or Canada. How important is it to be kind of first to market when those new territories launch? Is day one as much of a priority as it is in the US or a little bit less so?

So it really depends on the market. I'll give the two examples of Ontario and Mexico. The gray market existed for 10 years in Ontario yet, there was an opening of a regulated market at the same time where we were one of a handful of operators that were ready and able to launch day one, which I think is helpful, because those that are looking to play at a more secure safe environment as regulated or the audience.

It tends to be pretty invested customers and folks that want to be playing with the regulated sites. So we want to be there for day one to capture those players. And I think we did a nice job of getting some high-quality customers very early on.

But, it certainly -- at this point in time, it's certainly in that market -- the key for that market wasn't just showing up one day market opening but really spending the year before trying to secure the right marketing assets that are relatively limited in that market in terms of the mainstream marketing assets to reach those consumers in a meaningful way.

So, we spend a lot of preparing in that market when the market is open, and now not just for the last quarter but really as we move forward to be able to continue to grow there by having some great assets many of which are not yet live and the integrations are not yet complete that we are still working on.

When it comes to Mexico that market had also been sort of operating for years and there wasn't really any additional competitor entering around the same time that we are. So, we're taking our time in Mexico to make sure that we build it the right way and build a brand at a high quality and make sure that we're setting ourselves up for long-term success.

You don't have the same pressure in Mexico of having a large number of competitors launching at the same time with the aggressiveness that you saw in Ontario. So we are able to as we're doing, take a little bit of time to do it the right way, make sure that all the systems are working on the payments and the registration flows are working exactly as we want them. So then, we start applying a larger marketing after towards it, you're going to get players that are really satisfied with the person pressure.

That’s helpful. Thank you.

Thank you. Your next question is coming from Chad Beynon from Macquarie. Your line is live.

Hi. Good afternoon. Thanks for taking my question. You launched Live Dealer in West Virginia in the quarter. How is the customer response been? And what's the potential rollout to other states look like? Thanks.

Right. Live dealer is a great product. The company that really pioneered it in evolution, as many of you know, is one of the more successful really gaming companies globally of any type of company. Really, because players trust what they see.

And when you see that you're playing Blackjack and you see the car is being dealt from a live person at a card shoot, you have a tendency to believe the outcome more than you would, if you just saw a random number generator from a computer program that shows you the outcome.

And of course, you always start to doubt if you have 16 and you get 6 from the RNG solution you might be less willing to believe its trustworthy than if you saw a dealer pull up a 6 out of the chutes. So because of that, the category is very popular, very successful.

And so, we've been very proactive and we have a great partnership with our suppliers in this space. And we've been able to grow that, not just in West Virginia, but where it's very helpful, but we're seeing in markets like Ontario, is a very popular product category too for us. We've added some additional dedicated tables, it's for our brands in markets like Pennsylvania and other markets, like Michigan are coming soon.

So it's a category that we believe is very important for us and we've invested in it and continue to invest in it. And I think it's really exciting, because it really brings a different experience. And you still need to have the RNG table games as well.

RNG means random number generator table games, because those are going to offer players at a lower price point as well. If you want to play for a smaller bet size, you're going to play the RNG automated systems. But if you want to play it a live table, typically the entry fee is a little bit higher. So I think you have to have something for everybody and that's what we offer.

Great. Thanks. And then, not to hold you to any specific state prediction, but given the iGaming success that you've talked about in some of your competitors and the tax revenues that states generating from this.

Do you believe that after the mid-term elections this fourth quarter, maybe there will start to be a little bit more progress, as legislators just get a better understanding of the risks and the benefits of the growth of this industry? Thanks.

Yes, sure. Thanks. Good question. Previously, we had shared increasing support by peers to legalize online casino. From our vantage point, these efforts are actually accelerating and momentum is building. So we're very excited by these developments. And I think as you start to see states considering additional incremental needs for taxes, there's nothing easier really to adding iCasino because, regulation -- the regulator is already in place. The product and brands are already live.

To be honest, regulating a sportsbook is typically more challenging than regulating a casino, because so many of the casino products are really just computer integration between computers, which are already proven in other markets. So adding iCasino is an easy thing to do. It can be done quickly.

And you're starting to see, not just lip service provider, but real desire for investments and focus from our industry to try to make some additional states happening over the next couple of years. So I think you're going to see that trend happening the way you saw it in global markets in Europe, you saw sometimes that sports started early and then you added iCasino.

I've mentioned before, we saw that happen in West Virginia, here, where they started with sportsbook only and they added iCasino a year later. So you are starting to see the combination of a lot of positive things all work-aligned, and even see some additional new studies and why people is coming out really showing that even a small number of additional states legalize iCasino, would generate substantially more than -- many more states that legalized sports betting. So everyone is recognizing the opportunity for states to generate additional incremental revenue is really being driven by more states adding iCasino.

Thank you. [Operator Instructions] Thank you. That concludes our Q&A session. I’ll now hand the conference back to Richard Schwartz for closing remarks. Please, go ahead.

Thank you, again, for joining us today. It was a pleasure speaking with you. We look forward to doing it again soon.

Thank you, ladies and gentlemen. This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.