RUSH STREET INTERACTIVE, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

The following dialogue and evaluation of our monetary situation and outcomes of
operations ought to be learn along with, and is certified in its entirety
by, our Annual Report on Form 10-Okay for the yr ended December 31, 2020, as
amended, and our unaudited condensed consolidated monetary statements and
associated notes included elsewhere on this Quarterly Report on Form 10-Q (this
"Report"). In addition to historic monetary info, the next
dialogue and evaluation accommodates forward-looking statements that contain dangers,
uncertainties and assumptions. Our precise outcomes and timing of chosen occasions
could differ materially from these anticipated in these forward-looking statements
in consequence of many elements, together with these mentioned underneath the sections of
this Report captioned "Cautionary Note Regarding Forward-Looking Statements" and
"Risk Factors." For a dialogue of limitations in measuring sure of our key
metrics, see the part of this Report captioned "Limitations of Key Metrics
and Other Data."
This Management's Discussion and Analysis of Financial Condition and Results of
Operations accommodates sure monetary measures, particularly the presentation
of Adjusted EBITDA, which aren't introduced in accordance with typically
accepted accounting rules of the United States ("GAAP"). We current these
non-GAAP monetary measures as a result of they supply us and readers of this Report
with extra perception into our operational efficiency relative to earlier
durations and relative to our opponents. These non-GAAP monetary measures are
not an alternative choice to any GAAP monetary info. Readers of this Report
ought to use these non-GAAP monetary measures solely along with the
comparable GAAP monetary measures. Reconciliations of Adjusted EBITDA to Net
Loss, essentially the most comparable GAAP measure, are supplied on this Report.
Unless the context requires in any other case, all references on this Report to the
"Company," "we," "us," or "our" consult with: (i) the enterprise of Rush Street
Interactive, LP and its subsidiaries previous to the consummation of the beforehand
disclosed enterprise mixture between dMY Technology Group, Inc. and Rush
Street Interactive, LP on December 29, 2020 (the "Business Combination"); and
(ii) Rush Street Interactive, Inc. and its subsidiaries after the consummation
of the Business Combination.
Our Business
We are a number one on-line gaming and leisure firm that focuses primarily
on on-line on line casino and on-line sports activities betting within the U.S. and Latin American
markets. Our mission is to supply our prospects with essentially the most player-friendly
on-line on line casino and on-line sports activities betting expertise within the trade. In
furtherance of this mission, we try to create a web-based neighborhood for our
prospects the place we're clear and sincere, deal with our prospects pretty, present
them that we worth their time and loyalty, and hearken to suggestions. We additionally
endeavor to implement trade main accountable gaming practices and present
our prospects with a cutting-edge on-line gaming platform and thrilling,
customized choices that can improve their person expertise.
We present our prospects an array of main gaming choices akin to real-money
on-line on line casino, on-line sports activities betting, and retail sports activities betting (i.e., sports activities
betting providers supplied at bricks-and-mortar casinos), in addition to social
gaming, which includes free-to-play video games that use digital credit that
prospects can earn or buy. We launched our first social gaming web site in
2015 and started accepting real-money bets in the United States in 2016.
Currently, we provide real-money on-line on line casino, on-line sports activities betting and/or
retail sports activities betting in twelve U.S. states as outlined within the desk beneath.
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                                          Online Sports        Retail Sports
U.S. State           Online Casino           Betting              Betting
Arizona                                         ü
Colorado                                        ü
Connecticut                                     ü                    ü
Illinois                                        ü                    ü
Indiana                                         ü                    ü
Iowa                                            ü
Michigan                   ü                    ü                    ü
Pennsylvania               ü                    ü                    ü
New Jersey                 ü                    ü
New York                                                             ü
Virginia                                        ü
West Virginia              ü


In 2018, we additionally turned the primary U.S.-based on-line gaming operator to launch in
Colombia, which was an early adopting Latin American nation to legalize and
regulate on-line on line casino and sports activities betting nationally. In addition, we launched
our social gaming providing in Canada throughout October 2021.
Our real-money on-line on line casino and on-line sports activities betting choices are supplied
underneath our BetRivers.com and PlaySugarHouse.com manufacturers in the United States and
underneath our RushGuess.co model in Colombia. We function and/or help retail sports activities
betting for our bricks-and-mortar companions primarily underneath their respective
manufacturers. Many of our social gaming choices are marketed underneath our companions'
manufacturers, though we additionally supply social gaming underneath our personal manufacturers as properly. Our
resolution about what model or manufacturers to make use of is market- and partner-specific, and
relies on model consciousness, market analysis, advertising effectivity and
relevant gaming guidelines and rules.
Impact of COVID-19
The COVID-19 pandemic has adversely impacted world industrial exercise,
disrupted provide chains and contributed to important volatility in monetary
markets. In 2020 and persevering with into 2021, the COVID-19 pandemic continued to
adversely affect many various industries. The ongoing COVID-19 pandemic may
have a continued materials hostile affect on financial and market circumstances and
set off a interval of world financial slowdown. The speedy growth and fluidity
of this case precludes any prediction as to the extent and the length of
the affect of COVID-19. The COVID-19 pandemic subsequently presents materials
uncertainty and danger with respect to us and our efficiency and may have an effect on our
monetary leads to a materially hostile approach.
The COVID-19 pandemic has considerably impacted our enterprise. The direct affect
on our enterprise, past disruptions in regular enterprise operations, is primarily
by way of the change in shopper habits in consequence of folks being ordered or
requested to remain residence and prohibit their touring or in any other case voluntarily
selecting to remain at residence or prohibit journey. During the durations affected by
authorities imposed stay-at-home orders, our enterprise quantity considerably
elevated and has since continued to stay sturdy as many of these orders have been
lifted. COVID-19 has additionally instantly impacted sports activities betting because of the
rescheduling, reconfiguring, suspension, postponement and cancellation of main
sports activities seasons and sporting occasions or exclusion of sure gamers or groups from
sporting occasions. While most main skilled sports activities leagues resumed their
actions primarily beginning within the second half of 2020, the third quarter of
2021 was nonetheless impacted by the COVID-19 pandemic. For instance, the quantity of
video games within the NBA's 2020-2021 and NHL's 2021 season have been diminished and practically each
main skilled sports activities league has skilled postponed, rescheduled or
canceled video games, or gamers or groups being excluded from sure video games or occasions
as a consequence of COVID-19, COVID-19 protocols or native COVID-19 vaccine necessities.
The return of main sports activities and sporting occasions throughout the second half of 2020,
in addition to the distinctive and concentrated sports activities calendar, generated important
buyer curiosity and exercise in our sports activities betting choices. However, sports activities
seasons and calendars proceed to stay unsure and could possibly be additional
suspended, cancelled or rescheduled as a consequence of extra COVID-19 outbreaks.
The alteration of sports activities seasons and sporting occasions, together with the postponement
or cancellation of occasions, throughout the third quarter of 2021 diminished our
prospects' use of, and spending on, our sports activities betting choices and from time
to time
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precipitated us to subject refunds for canceled occasions. Additionally, whereas many
bricks-and-mortar casinos the place we function retail sports activities betting have reopened,
visitation at these casinos continues to be typically beneath their pre-COVID-19 ranges.
Ongoing or future closures of bricks-and-mortar casinos and sure ongoing
limitations on visitations to such casinos as a consequence of COVID-19 could present
extra alternatives for us to market on-line on line casino and sports activities betting to
conventional bricks-and-mortar on line casino patrons.
Our revenues fluctuate primarily based on sports activities seasons and sporting occasions, amongst different
issues, and cancellations, suspensions or alterations ensuing from COVID-19
have the potential to adversely have an effect on our income, probably materially.
However, our on-line on line casino choices don't depend on sports activities seasons and sporting
occasions, thus, they might partially offset this hostile affect on income.
The final affect of COVID-19 and the associated restrictions on shopper
conduct is at the moment unknown. A big or extended lower in shopper
spending on leisure or leisure actions would doubtless have an hostile
impact on demand for our choices, decreasing money flows and revenues, thus
materially harming our enterprise, monetary situation and outcomes of operations.
In addition, an uptick in COVID-19 instances or an emergence of extra variants
or strains may trigger different widespread or extra extreme impacts relying on
the place an infection charges are highest. As steps taken to mitigate the unfold of
COVID-19 have necessitated a shift away from a conventional workplace setting
for a lot of workers, we have now enterprise continuity packages in place to make sure that
workers are protected and that the enterprise continues to perform with minimal
disruptions to regular work operations whereas workers work remotely. We will
proceed to observe developments regarding disruptions and uncertainties
attributable to COVID-19.
Trends in Key Metrics
Monthly Active Users
MAUs is the quantity of distinctive customers monthly who've positioned at the least one
real-money wager throughout a number of of our on-line on line casino or on-line sports activities betting
choices. For durations longer than one month, we common the MAUs for the months
within the related interval. We exclude customers who've made a deposit however haven't
but positioned a real-money wager on at the least one of our on-line choices. We additionally
exclude customers who've positioned a real-money wager however solely with promotional
incentives. The numbers of distinctive customers included in calculating MAUs embrace
U.S.-based customers solely.
MAUs is a key indicator of the dimensions of our person base and consciousness of our
manufacturers. We imagine that year-over-year MAUs can also be typically indicative of the
long-term income progress potential of our enterprise, though MAUs in particular person
durations could also be much less indicative of our longer-term expectations. We count on the
quantity of MAUs to develop as we entice, retain and re-engage customers in new and
current jurisdictions and develop our choices to attraction to a wider viewers.
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The chart beneath presents our common MAUs for the 9 months ended September
30, 2021 and 2020:
                     [[Image Removed: rsi-20210930_g1.jpg]]
The improve in MAUs was primarily as a consequence of our continued progress in current markets
akin to Pennsylvania, New Jersey, Illinois, Indiana, Colorado and Colombia, as
properly as our enlargement into new markets akin to Michigan, West Virginia, Virginia
and Iowa, that had not launched till after September 30, 2020. Additionally, we
proceed to attain a constructive response from our strategic promoting and
advertising efforts.
Average Revenue Per Monthly Active User
ARPMAU for an relevant interval is common income divided by common MAUs. This
key metric represents our skill to drive utilization and monetization of our on-line
choices.
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The chart beneath presents our ARPMAU for the 9 months ended September 30, 2021
and 2020:
                     [[Image Removed: rsi-20210930_g2.jpg]]
The year-over-year improve in ARPMAU was primarily as a consequence of a good combine of
on-line on line casino MAUs, as on line casino prospects typically generate extra income per person
than sports activities betting prospects. Additionally, as our product choices proceed
to be out there in additional mature markets, participant bonusing volumes have decreased,
thus leading to increased ARPMAUs.
Non-GAAP Information
This Report contains Adjusted EBITDA, which is a non-GAAP efficiency measure
that we use to complement our outcomes introduced in accordance with GAAP. We
imagine Adjusted EBITDA supplies helpful info to buyers concerning our
outcomes of operations and working efficiency, as it's just like measures
reported by our public opponents and is frequently utilized by securities analysts,
institutional buyers and different  events in analyzing working
efficiency and prospects. Non-GAAP monetary measures should not supposed to be
thought-about in isolation or as an alternative choice to any GAAP monetary measures and,
as calculated, is probably not similar to different equally titled measures of
efficiency of different firms in different industries or inside the similar trade.
We outline Adjusted EBITDA as web earnings (loss) earlier than curiosity, earnings taxes,
depreciation and amortization, share-based compensation, changes for sure
one-time or non-recurring gadgets and different changes. Adjusted EBITDA excludes
sure bills which are required in accordance with GAAP as a result of sure
bills are both non-cash (for instance, depreciation and amortization, and
share-based compensation) or should not associated to our underlying enterprise
efficiency (for instance, curiosity earnings or expense).
We embrace Adjusted EBITDA as a result of administration makes use of it to guage our core
working efficiency and traits and to make strategic choices concerning the
allocation of capital and new investments. Management believes that Adjusted
EBITDA supplies buyers with helpful info on our previous monetary and
working efficiency, allow comparability of monetary outcomes from
period-to-period the place sure gadgets could fluctuate unbiased of enterprise
efficiency, and permit for better transparency with respect to metrics utilized by
our administration in working our enterprise. Management additionally believes this non-GAAP
monetary measure is helpful in evaluating our working efficiency in comparison with
that of different firms in our trade, as this metric typically eliminates the
results of sure gadgets that will fluctuate from firm to firm for causes
unrelated to total working efficiency.
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The desk beneath presents our Adjusted EBITDA reconciled from our Net loss, the
closest GAAP measure, for the durations indicated:
                                                Three Months Ended                     Nine Months Ended
                                                   September 30,                         September 30,
($ in hundreds)                              2021               2020               2021               2020
Net loss                                  $ (18,939)         $ (26,494)         $ (32,969)         $ (90,027)

Interest expense, web                            11                 16                 41                101
Income tax expense                            1,225                  -              3,781                  -
One-time cost from Affiliated on line casino           -             (9,000)                 -             (9,000)
Depreciation and amortization                 1,007                452              2,595              1,368
Change in honest worth of warrant legal responsibility         -                  -            (41,802)                 -
Change in honest worth of earnout pursuits
legal responsibility                                         -                  -             13,740                  -
Share-based compensation expense              4,468             36,023             20,705            103,282
Adjusted EBITDA                           $ (12,228)         $     997          $ (33,909)         $   5,724


Key Components of Revenue and Expenses
Revenue
We supply real-money on-line on line casino, on-line sports activities betting and/or retail sports activities
betting in twelve U.S. states and Colombia. We additionally present social gaming (the place
permitted, together with Ontario, Canada), the place gamers are given digital credit
to get pleasure from free-to-play video games.
Our income is predominantly generated from our U.S. operations, with the
remaining income being generated from our Colombian operations. We generate
income primarily by way of the next choices:
Online Casino
Online on line casino choices usually embrace the complete suite of video games out there in
bricks-and-mortar casinos, akin to desk video games (i.e., blackjack and roulette)
and slot machines. For these choices, we perform equally to
bricks-and-mortar casinos, producing income by way of maintain, or gross winnings,
as prospects play towards the home. Like bricks-and-mortar casinos, there may be
volatility with on-line on line casino, however because the quantity of bets positioned will increase, the
income retained from bets positioned turns into simpler to foretell. Our expertise has
been that on-line on line casino income is much less risky than sports activities betting income.
Our on-line on line casino providing consists of a mix of licensed content material from
main suppliers within the trade, personalized third-party video games and a small
quantity of proprietary video games that we developed in-house. Third-party content material is
often topic to straightforward revenue-sharing agreements particular to every
provider, the place the provider typically receives a proportion of the online gaming
income generated from its on line casino video games performed on our platform. In trade, we
obtain a restricted license to supply the video games on our platform to prospects in
jurisdictions the place use is accredited by the regulatory authorities. We pay a lot
decrease charges on income generated by way of our in-house developed on line casino video games such
as our multi-bet blackjack (with facet bets: 21+3, Lucky Ladies, Lucky Lucky) and
single-deck blackjack, which primarily relate to internet hosting/distant gaming server
charges and sure mental property license charges.
Online on line casino income is generated primarily based on whole buyer bets much less quantities
paid to prospects for successful bets, much less incentives awarded to prospects, plus
or minus the change within the progressive jackpot reserve.
Online Sports Betting
Online sports activities betting includes a person putting a wager on the end result of a sporting
occasion, or a sequence of sporting occasions, with the possibility to win a pre-determined
quantity, also known as fastened odds. Online sports activities betting income is
generated by setting odds such that there's a built-in theoretical margin in
every sports activities wager supplied to prospects. While sporting occasion outcomes could end result
in income volatility, we imagine that we are able to obtain a long-term betting win
margin.
Integrated into our on-line sports activities betting platform is a third-party danger and
buying and selling platform at the moment supplied by sure subsidiaries of Kambi Group plc.
In addition to conventional fixed-odds betting, we additionally supply different sports activities
betting
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merchandise together with in-game betting and multi-sport and same-game parlay betting.
We have additionally integrated dwell streaming of sure sporting occasions into our
on-line sports activities betting providing.
Online sports activities income is generated primarily based on whole buyer bets much less quantities
paid to prospects for successful bets, much less incentives awarded to prospects, plus
or minus the change in unsettled sports activities bets.
Retail Sports Betting
We present retail sports activities providers to sure land-based companions in trade for
a month-to-month fee that's calculated primarily based on the land-based retail
sportsbook income. Services typically embrace ongoing administration and oversight
of the retail sportsbook (i.e., inside a bricks-and-mortar location), technical
help for the associate's prospects, danger administration, promoting and promotion,
and help for third-party sports activities betting tools.
In addition, sure relationships with enterprise companions present us the power
to function the retail sportsbook on the land-based associate's facility. In this
state of affairs, income is generated primarily based on whole buyer bets much less quantities paid to
prospects for successful bets, much less different incentives awarded to prospects, plus or
minus the change in unsettled retail sports activities bets.
Social Gaming
We present social gaming (the place permitted) the place gamers are given digital
credit to get pleasure from free-to-play video games. Players who exhaust their credit can
both buy extra digital credit from the digital cashier or wait
till their digital credit are replenished without spending a dime. Virtual credit haven't any
financial worth and can solely be used inside our social gaming platform.
Our social gaming enterprise has three important objectives: constructing on-line databases in
key markets forward of and post-legalization and regulation; producing revenues;
and rising engagement and visitation to our bricks-and-mortar associate
properties. Our social gaming merchandise are a advertising software that retains the
relevant manufacturers current within the minds of our gamers and engages with gamers
by way of one other channel whereas offering the leisure worth that gamers
search. We additionally leverage our social gaming merchandise to cross-sell to our
real-money choices in jurisdictions the place real-money gaming is allowed.
We acknowledge deferred income when gamers buy digital credit and income
when the digital credit are redeemed. We pay a proportion of the social gaming
income derived from the sale and redemption of the digital credit to content material
suppliers in addition to to our land-based companions.
Costs and Expenses
Costs of Revenue. Costs of income consist primarily of (i) income share and
market entry charges, (ii) platform and content material charges, (iii) gaming taxes, (iv)
cost processing charges and chargebacks and (v) salaries, advantages and
share-based compensation for devoted personnel. These prices are variable in
nature and ought to, largely, correlate with the change in income. Revenue
share and market entry charges consist primarily of quantities paid to native
land-based companions that maintain the relevant gaming license, offering us the
skill to supply our real-money on-line choices within the respective
jurisdictions. Our platform and content material charges are primarily pushed by prices
related to third-party on line casino content material, sports activities betting buying and selling providers and
sure components of our platform expertise, akin to geolocation and
know-your-customer. Gaming taxes primarily relate to state taxes and are
decided on a jurisdiction-by-jurisdiction foundation. We incur cost processing
prices on participant deposits and often chargebacks (i.e., when a cost
processor contractually disallows buyer deposits within the regular course of
enterprise).
Advertising and Promotions Costs. Advertising and promotion prices consist
primarily of prices related to advertising our choices by way of totally different
channels, promotional actions and the associated prices incurred to accumulate new
prospects. These prices additionally embrace salaries, advantages and share-based
compensation for devoted personnel and are expensed as incurred.
Our skill to successfully market is crucial to operational success. Using
expertise, dynamic learnings and analytics, we leverage advertising to accumulate,
convert, retain and re-engage prospects. We use a spread of earned media and
paid advertising channels, together with compelling presents and distinctive recreation
and website options, to draw and have interaction prospects. Furthermore, we constantly
optimize our advertising spend utilizing information collected from our operations. Our
advertising spend relies on a return-on-investment mannequin that considers a
selection of elements, together with the merchandise and providers supplied within the
jurisdiction, the efficiency of totally different advertising channels, predicted
lifetime worth, marginal prices and bills and conduct of prospects throughout
varied product choices.
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With respect to paid advertising, we use a broad array of promoting channels,
together with tv, radio, social media platforms, sponsorships, associates
and paid search, and different digital channels. We additionally use different types of
advertising and outreach, akin to our social media channels, first-party web sites,
media interviews and different media spots and natural searches. These efforts are
primarily concentrated inside the particular jurisdictions the place we function or
intend to function. We imagine there may be important profit to having a versatile
strategy to promoting spending as we are able to rapidly redirect our promoting
spending primarily based on dynamic testing of our promoting strategies and channels.
General Administration and Other. General administration and different bills
consist primarily of administrative personnel prices, together with salaries, bonuses
and advantages, share-based compensation expense, skilled charges associated to
authorized, compliance, audit and consulting providers, lease and insurance coverage prices.
Depreciation and Amortization. Depreciation and amortization expense consists of
depreciation on our property and tools and amortization of market entry
licenses, gaming jurisdictional licenses, internally developed software program, and
finance lease right-of-use asset amortization over their helpful lives.
Results of Operations
The following tables set forth a abstract of our consolidated outcomes of
operations for the interim durations indicated and the modifications between durations. We
have derived these information from our unaudited condensed consolidated monetary
statements included elsewhere on this Report. The outcomes of historic durations
should not essentially indicative of the outcomes of operations for any future
interval.
Comparison of the Three Months Ended September 30, 2021 and 2020
                                        Three Months Ended
                                          September 30,                  Change
($ in hundreds)                       2021           2020            $            %
Revenue                             $ 122,920      $  78,237      $ 44,683        57  %
Costs of income                       81,221         47,107        34,114        72  %
Advertising and promotions             46,077         17,506        28,571       163  %
General administration and different       12,318         39,650       (27,332)      (69) %
Depreciation and amortization           1,007            452           555       123  %
Loss from operations                  (17,703)       (26,478)        8,775       (33) %
Interest expense, web                     (11)           (16)            5       (31) %
Loss earlier than earnings taxes              (17,714)       (26,494)        8,780       (33) %
Income tax expense                      1,225              -         1,225       100  %
Net loss                            $ (18,939)     $ (26,494)     $  7,555       (29) %


Revenue. Revenue elevated by $44.7 million, or 57%, to $122.9 million for the
three months ended September 30, 2021 as in comparison with $78.2 million for a similar
interval in 2020. The improve was primarily as a consequence of and instantly correlated with our
continued progress in our current markets akin to Pennsylvania, Illinois, New
Jersey, Indiana, Colorado, New York, and Colombia, in addition to our enlargement into
new markets akin to Michigan, West Virginia, Virginia and Iowa, that had not
launched till after September 30, 2020. The improve displays increased
period-over-period on-line on line casino and sports activities betting income of $44.4 million and
retail sports activities betting income of $0.3 million.
Costs of Revenue. Costs of income elevated by $34.1 million, or 72%, to $81.2
million for the three months ended September 30, 2021 as in comparison with $47.1
million for a similar interval in 2020. The improve was primarily as a consequence of and instantly
correlated with our enlargement and continued progress in current and new markets.
Market entry prices, working bills, gaming taxes and cost processing
prices contributed $13.1 million, $5.8 million, $11.9 million and $3.1 million,
respectively, to the period-over-period improve in prices of income, with
personnel prices and different prices of income contributing to the rest of the
period-over-period improve. Costs of income as a proportion of income
elevated to 66% for the three months ended September 30, 2021 as in comparison with
60% for a similar interval in 2020.
Advertising and Promotions. Advertising and promotions expense elevated by
$28.6 million, or 163%, to $46.1 million for the three months ended
September 30, 2021 as in comparison with $17.5 million for a similar interval in 2020. The
improve was primarily as a consequence of new and elevated advertising efforts and methods in
newly entered and current markets to
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improve buyer consciousness and use of our choices, akin to executing
strategic advertising or sponsorship preparations with the Chicago Bears, Mike
Ditka, Field of 68, Field of 12, James Blake, Mark Schlereth, and podcast
organizations. Advertising and promotions expense as a proportion of income
elevated to 37% for the three months ended September 30, 2021 as in comparison with
22% for a similar interval in 2020.
General Administration and Other. General administration and different expense
decreased by $27.3 million, or 69%, to $12.3 million for the three months ended
September 30, 2021 as in comparison with $39.6 million for a similar interval in 2020. The
lower was as a consequence of a discount in share-based compensation expense of $31.6,
which was partially offset by a rise in different normal and administration
bills of $4.2 million. General administration and different expense as a
proportion of income decreased to 10% for the three months ended September 30,
2021 as in comparison with 51% for a similar interval in 2020.
Depreciation and Amortization. Depreciation and amortization expense elevated
by $0.6 million, or 123%, to $1.0 million for the three months ended
September 30, 2021 as in comparison with $0.4 million for a similar interval in 2020. The
improve was primarily as a consequence of extra purchases of property and tools and
associated depreciation expense, and extra acquisition of gaming licenses,
quantities paid for internally developed software program, and capitalization of sure
leases and associated amortization expense. Depreciation and amortization expense
as a proportion of income was 1% for the three months ended September 30, 2021
and 2020.
Interest expense, web. Interest expense, web was lower than $0.1 million for every
of the three months ended September 30, 2021 and 2020.
Income tax expense. Income tax expense was $1.2 million for the three months
ended September 30, 2021 and nil for a similar interval in 2020. Income tax expense
for the three months ended September 30, 2021 associated to overseas operations for
which each present and deferred taxes are recorded. The Company didn't file a
tax provision for the three months ended September 30, 2020 primarily as a consequence of
RSILP's standing as a pass-through entity for U.S. federal earnings tax functions.
Income tax expense as a proportion of income elevated to 1% for the three
months ended September 30, 2021 as in comparison with nil for a similar interval in 2020.
Comparison of the Nine Months Ended September 30, 2021 and 2020
                                                  Nine Months Ended
                                                    September 30,                             Change
($ in hundreds)                               2021               2020                $                   %
Revenue                                    $ 357,540          $ 178,452          $ 179,088                 100  %
Costs of income                             245,668            118,774            126,894                 107  %
Advertising and promotions                   125,836             33,421             92,415                 277  %
General administration and different              40,650            114,815            (74,165)                (65) %
Depreciation and amortization                  2,595              1,368              1,227                  90  %
Loss from operations                         (57,209)           (89,926)            32,717                 (36) %
Interest expense, web                            (41)              (101)                60                 (59) %
Change in honest worth of warrant legal responsibility     41,802                  -             41,802                 100  %
Change in honest worth of earnout pursuits
legal responsibility                                    (13,740)                 -            (13,740)                100  %
Loss earlier than earnings taxes                     (29,188)           (90,027)            60,839                 (68) %
Income tax expense                             3,781                  -              3,781                 100  %
Net loss                                   $ (32,969)         $ (90,027)         $  57,058                 (63) %


Revenue. Revenue elevated by $179.1 million, or 100%, to $357.5 million for the
9 months ended September 30, 2021 as in comparison with $178.4 million for a similar
interval in 2020. The improve was primarily as a consequence of and instantly correlated with our
continued progress within the majority of our current markets, in addition to our
enlargement into new markets akin to Michigan and West Virginia, that had not
launched till after September 30, 2020. The improve displays increased
period-over-period on-line on line casino and sports activities betting income of $177.1 million,
retail sports activities betting income of $1.3 million and, social gaming income of $0.7
million.
Costs of Revenue. Costs of income elevated by $126.9 million, or 107%, to
$245.7 million for the 9 months ended September 30, 2021 as in comparison with
$118.8 million for a similar interval in 2020. The improve was primarily as a consequence of and
instantly correlated with, our enlargement and continued progress in current and new
markets. Market entry prices, working
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bills, gaming taxes and cost processing prices contributed $28.5 million,
$20.9 million, $61.0 million and $14.2 million, respectively, to the
period-over-period improve in prices of income, with personnel prices and different
prices of income contributing to the rest of the period-over-period
improve. Costs of income as a proportion of income elevated to 69% for the
9 months ended September 30, 2021 as in comparison with 67% for a similar interval in
2020.
Advertising and Promotions. Advertising and promotions expense elevated by
$92.4 million, or 277%, to $125.8 million for the 9 months ended
September 30, 2021 as in comparison with $33.4 million for a similar interval in 2020. The
improve was primarily as a consequence of new and elevated advertising efforts and methods in
newly entered and current markets to extend buyer consciousness and
acquisition for our choices, akin to executing strategic advertising or
sponsorship preparations with the three-time NBA champion Detroit Pistons, corridor
of famer Jerome Bettis, legendary NBA coach George Karl, nine-time First
Division/Premier League champions, Everton Football Club, the Chicago Bears,
Mike Ditka, Field of 68, Field of 12, Mark Schlereth, and podcast organizations.
Advertising and promotions expense as a proportion of income elevated to 35%
for the 9 months ended September 30, 2021 as in comparison with 19% for a similar
interval in 2020.
General Administration and Other. General administration and different expense
decreased by $74.2 million, or 65%, to $40.7 million for the 9 months ended
September 30, 2021 as in comparison with $114.8 million for a similar interval in 2020.
The lower was as a consequence of a discount in share-based compensation expense of
$82.6, which was partially offset by a rise in different normal and
administration bills of $8.4 million. General administration and different
expense as a proportion of income decreased to 11% for the 9 months ended
September 30, 2021 as in comparison with 64% for a similar interval in 2020.
Depreciation and Amortization. Depreciation and amortization expense elevated
by $1.2 million, or 90%, to $2.6 million for the 9 months ended September 30,
2021 as in comparison with $1.4 million for a similar interval in 2020. The improve was
primarily as a consequence of extra purchases of property and tools and associated
depreciation expense, and extra acquisition of gaming licenses, quantities
paid for internally developed software program, and capitalization of sure leases and
associated amortization expense. Depreciation and amortization expense as a
proportion of income was 1% for the 9 months ended September 30, 2021 and
2020.
Interest expense, web. Interest expense, web was lower than $0.1 million for the
9 months ended September 30, 2021 as in comparison with $0.1 million for a similar
interval in 2020.
Change in honest worth of warrant liabilities. Change in honest worth of warrant
liabilities was $41.8 million for the 9 months ended September 30, 2021 due
to honest worth modifications within the warrant liabilities. We didn't have comparable
devices within the 9 months ended September 30, 2020 and subsequently no acquire or
loss on remeasurement was recorded within the prior interval.
Change in honest worth of earnout pursuits legal responsibility. Change in honest worth of
earnout pursuits legal responsibility was $13.7 million for the 9 months ended
September 30, 2021 as a consequence of honest worth modifications within the earnout pursuits legal responsibility.
We didn't have comparable devices within the 9 months ended September 30, 2020
and subsequently no acquire or loss on remeasurement was recorded within the prior interval.
Income tax expense. Income tax expense was $3.8 million for the 9 months
ended September 30, 2021 and nil for a similar interval in 2020. Income tax expense
for the 9 months ended September 30, 2021 associated to overseas operations for
which each present and deferred taxes are recorded. The Company didn't file a
tax provision for the 9 months ended September 30, 2020 primarily as a consequence of
RSILP's standing as a pass-through entity for U.S. federal earnings tax functions.
Income tax expense as a proportion of income elevated to 1% for the 9
months ended September 30, 2021 as in comparison with nil for a similar interval in 2020.
Seasonality and Other Trends Impacting Our Business
Our outcomes of operations can and typically do fluctuate as a consequence of seasonal traits
and different elements akin to degree of buyer engagement, on-line on line casino and sports activities
betting outcomes and different elements which are outdoors of our management or that we
can't fairly predict. Our quarterly monetary efficiency is determined by our
skill to draw and retain prospects. Customer engagement in our on-line
choices could fluctuate as a consequence of, amongst different issues, buyer satisfaction with our
platform, the quantity and timing of sporting occasions, the size of skilled
sports activities seasons, our choices and these of our opponents, our advertising
efforts, local weather and climate circumstances, public sentiment or an financial
downturn. As buyer engagement varies, so could our quarterly monetary
efficiency.
Our quarterly monetary outcomes may additionally be impacted by the quantity and quantity of
betting losses and jackpot payouts we expertise. Although our losses are
restricted per stake to a most payout in our on-line on line casino providing, when
trying
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at bets throughout a interval of time, these losses could be important. As half of our
on-line on line casino providing, we provide progressive jackpot video games. Each time a buyer
performs a progressive jackpot recreation, we contribute a portion of the quantity wager to
the jackpot for that recreation or group of video games. When a progressive jackpot is received,
the jackpot is paid out and is reset to a predetermined base quantity. As successful
the jackpot is decided by a random mechanism, we can't foresee when a
jackpot can be received and we don't insure towards jackpot payouts. Paying the
progressive jackpot decreases our money place and relying upon the dimensions of
the jackpot it could have a big detrimental have an effect on on our money stream and
monetary situation.
Our on-line sports activities betting and retail sports activities betting operations expertise
seasonality primarily based on the relative recognition and frequency of sure sporting
occasions. Although sporting occasions happen all year long, our on-line sports activities
betting prospects are most lively throughout the American soccer season in addition to
throughout the NBA and NCAA basketball seasons. In addition, the suspension,
postponement or cancellation of main sports activities seasons and sporting occasions as a consequence of
COVID-19 could adversely affect our quarterly outcomes. See "- Impact of COVID-19."
From a legislative perspective, we're persevering with to see sturdy momentum to
legalize and regulate on-line sports activities betting in new U.S. jurisdictions. As
anticipated, in lots of instances these new U.S. jurisdictions are first making an attempt to
legalize and regulate on-line sports activities betting earlier than contemplating whether or not to
legalize and regulate on-line on line casino. However, given the tax era success
of on-line on line casino in markets the place it has been legalized, we're additionally persevering with
to see sturdy momentum for on-line on line casino in a number of U.S. jurisdictions which are
on the lookout for extra income sources to fund increasing budgets.
We function inside the world gaming and leisure trade, which is
comprised of various merchandise and choices that compete for shoppers' time and
disposable earnings. We face and count on to proceed to face important
competitors from different trade gamers each inside current and new markets
together with from opponents with entry to extra assets or expertise. Customer
calls for for brand spanking new and modern choices and options require us to proceed to
spend money on new applied sciences and content material to enhance the shopper expertise. Many
jurisdictions during which we function or intend to function sooner or later have distinctive
regulatory and/or technological necessities, which require us to have strong,
scalable networks and infrastructure, and agile engineering and software program
growth capabilities. The world gaming and leisure trade has seen
important consolidation, regulatory change and technological growth over
the previous couple of years, and we count on this development to proceed into the foreseeable
future, which can create alternatives for us however may additionally create aggressive
and margin pressures.
Liquidity and Capital Resources
We measure liquidity in phrases of our skill to fund the money necessities of
our enterprise operations, together with working capital and capital expenditure
wants, contractual obligations and different commitments, with money flows from
operations. Our present working capital wants relate primarily to supporting our
current companies, the expansion of these companies of their current markets
and their enlargement into different geographic areas, in addition to our workers'
compensation and advantages.
We had $346.6 million in money and money equivalents as of September 30, 2021
(excluding buyer money deposits, which we segregate from our working money
balances on behalf of our real-money prospects for all jurisdiction and
merchandise). On February 22, 2021, we introduced the redemption (the "Redemption")
of all of the Company's warrants to buy Class A typical inventory ("Class A Common
Stock") that have been issued to 3rd events in reference to dMY Technology
Group, Inc.'s preliminary public providing (the "Public Warrants"), which have been
exercisable for an combination of roughly 11.5 million shares of Class A
Common Stock at a worth of $11.50 per share. During the nine-months ended
September 30, 2021, 11,442,389 Public Warrants have been exercised at a worth of
$11.50 per share, leading to money proceeds of roughly $131.6 million. We
intend for the foreseeable future to proceed to finance our operations with out
third-party debt and completely from working money flows and proceeds from the
Redemption.
In reference to the Business Combination, we executed a Tax Receivable
Agreement, dated as of December 29, 2020 (the "TRA"), by and amongst RSI ASLP,
Inc. (the "Special Limited Partner"), Rush Street Interactive, LP ("RSILP"), the
sellers within the Business Combination (the "Sellers") and the Sellers'
consultant, which typically supplies for the cost by the Special Limited
Partner of 85% of sure web tax advantages, if any, that the Company and its
consolidated subsidiaries, together with the Special Limited Partner, realizes (or
in sure instances is deemed to appreciate) in consequence of the will increase in tax foundation
and tax advantages associated to the transactions contemplated underneath the settlement
governing the Business Combination and the trade of sure widespread items in
RSILP retained by the Sellers for Class A Common Stock (or money) and tax
advantages associated to coming into into the TRA, together with tax advantages attributable
to funds underneath the TRA. Although the precise timing and quantity of any funds
made underneath the TRA will fluctuate, such funds could also be important. Any funds
made underneath the TRA will typically cut back the quantity of total money stream that
may need in any other case been
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out there to us and, to the extent that funds required underneath the TRA are
unable to be made for any purpose, the unpaid quantities typically can be deferred
and will accrue curiosity till paid. To date, no funds underneath the TRA have
been made, and no materials funds or accrued funds thereunder are anticipated
within the close to future as funds underneath the TRA should not owed till the tax advantages
generated thereunder are more-likely-than-not to be realized.
We count on our current money and money equivalents, proceeds from the Redemption
and money flows from operations to be enough to fund our working actions
and capital expenditure necessities for at the least the subsequent 12 months and
thereafter for the foreseeable future. We could, nonetheless, want more money
assets as a consequence of modified enterprise circumstances or different developments, together with
unanticipated regulatory developments, important acquisitions and aggressive
pressures. We count on our capital expenditures and working capital necessities
to proceed to extend within the rapid future to help our progress as we search
to develop our choices throughout extra of the United States and worldwide, which
would require important funding in our on-line gaming platform and personnel,
particularly in product growth, engineering and operations roles. We additionally
count on to extend our advertising, promoting and promotional spend in current
and new markets, in addition to market entry charges and license prices as we proceed
to enter into new market entry preparations with native companions in new
jurisdictions.
In explicit, we're get together to a number of non-cancelable contracts with distributors and
licensors for advertising and different strategic partnerships the place we're obligated
to make future minimal funds underneath the non-cancelable phrases of these
contracts. To the extent that our present assets are inadequate to fulfill
our money necessities, we might have to hunt extra fairness or debt financing.
If the wanted financing will not be out there, or if the phrases of financing are much less
fascinating than we count on, we could also be pressured to lower our degree of funding
in new services or products launches and associated advertising initiatives or to scale
again our current operations, which may have an hostile affect on our enterprise
and monetary prospects.
Debt
As of September 30, 2021, we had no debt excellent. We have an impressive
letter of credit score for $0.45 million in reference to our operations in
Colombia, for which no quantities have been drawn as of September 30, 2021.
Cash Flows
The following desk exhibits our money flows from working actions, investing
actions and financing actions for the 9 months ended September 30, 2021
and 2020:
                                                                         Nine Months Ended
                                                                           September 30,
($ in hundreds)                                                      2021                2020
Net money (utilized in) supplied by working actions              $   (16,677)         $    2,559
Net money utilized in investing actions                                (10,943)             (4,696)
Net money supplied by financing actions                            126,916               7,150

Effect of trade charge modifications on money, money equivalents and
restricted money

                                                       (1,075)               (441)

Net change in money, money equivalents and restricted money $ 98,221 $ 4,572

Operating actions. Net money utilized in working actions for the 9 months
ended September 30, 2021 was $16.7 million, as in comparison with $2.6 million supplied
by working actions for a similar interval in 2020. The distinction of $19.3
million displays a decrease period-over-period web loss totaling $57.1 million and
enchancment in working capital totaling $34.6 million, which was greater than
offset by a lower in non-cash bills totaling $109.6 million. The lower
in non-cash bills of $109.6 million was pushed primarily by a lower in
share-based compensation expense totaling $82.6 million and a change in honest
worth of warrant liabilities totaling $41.8, which was partially offset by a
change in honest worth of earnout pursuits legal responsibility totaling $13.7 million and
a rise in different non-cash bills totaling $1.1 million.
Investing actions. Net money utilized in investing actions for the 9 months
ended September 30, 2021 elevated by $6.2 million to $10.9 million, as in contrast
to $4.7 million throughout the identical interval in 2020. The improve displays increased
period-over-period money paid for internally developed software program prices totaling
$2.9 million, a rise in property and tools purchases totaling $1.0
million, a $1.5 million funding in fairness, a rise in short-term advances
totaling $0.8 million and extra investments in long-term time deposits
totaling $0.3 million, which was partially offset by decrease period-over-period
money paid to accumulate gaming licenses totaling $0.3 million .
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Financing actions. Net money supplied by financing actions for the 9
months ended September 30, 2021 elevated by $119.7 million to $126.9 million,
as in comparison with $7.2 million for a similar interval in 2020. The improve displays
the proceeds from the train of Public Warrants totaling $131.6 million,
partially offset by repurchases of Class A Common Stock totaling $3.5 million,
principal funds of finance lease liabilities totaling $0.9 million, and
distributions paid to non-controlling curiosity holders totaling $0.3 million.
Cash supplied by financing actions for the 9 months ended September 30,
2021 contains member contributions totaling $6.5 million and proceeds from a
related-party mortgage totaling $0.7 million.
Contractual Obligations
Refer to Note 13 of our unaudited condensed consolidated monetary statements
included elsewhere on this Report for a abstract of our commitments as of
September 30, 2021.
Critical Accounting Policies and Estimates
We have ready our unaudited condensed consolidated monetary statements in
accordance with GAAP. In doing so, administration is required to make estimates and
assumptions that have an effect on the reported quantities of property, liabilities, income and
bills throughout the reporting interval. Management bases estimates on historic
expertise and different assumptions it believes to be affordable underneath the
circumstances and evaluates these estimates on an on-going foundation. Actual outcomes
could differ from these estimates.
Other than as indicated beneath, there have been no modifications throughout the 9 months
ended September 30, 2021, to the crucial accounting insurance policies mentioned in our
Annual Report on Form 10-Okay for the fiscal yr ended December 31, 2020, as filed
with the SEC on March 25, 2021 and as amended by Amendment No. 1 on Form 10-Okay/A
and Amendment No. 2 on Form 10-Okay/A, as filed with the SEC on April 30, 2021 and
May 7, 2021, respectively (collectively, our "Amended Annual Report"). For a
full dialogue of our crucial accounting insurance policies, consult with our Amended
Annual Report.
Share-based Compensation
We have issued stock-based awards with service-based circumstances or market-based
circumstances. Our historic and excellent share-based compensation awards are
described in Note 9 to our unaudited condensed consolidated monetary
statements, included elsewhere on this Report.
Share-based compensation expense is measured primarily based on the grant-date honest worth
of the stock-based awards and is acknowledged over the requisite service interval of
the awards. Following the Business Combination, the honest worth of our Class A
Common Stock is now decided primarily based on the quoted market worth. To estimate the
honest worth of inventory choice awards, we used the Black-Scholes mannequin, and we used
a Monte Carlo simulation to find out the honest worth of grants with market-based
circumstances. Both the Black-Scholes mannequin and the Monte Carlo simulation require
administration to make a quantity of key assumptions, together with anticipated volatility,
anticipated time period, risk-free rate of interest and anticipated dividends. The risk-free
rate of interest is estimated utilizing the speed of return on U.S. treasury notes with
a life that approximates the anticipated time period. The anticipated time period assumption utilized in
the Black-Scholes mannequin represents the interval of time that the choices are
anticipated to be excellent and is estimated utilizing the midpoint between the
requisite service interval and the contractual time period of the choice.
The assumptions underlying these valuations characterize administration's finest
estimates, which contain inherent uncertainties and the applying of
administration judgment. As a end result, if elements or anticipated outcomes change and our
administration makes use of considerably totally different assumptions or estimates, our
share-based compensation expense for future durations could possibly be materially
totally different, together with in consequence of changes to share-based compensation
expense recorded for prior durations.
Emerging Growth Company Accounting Election
Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012 ("JOBS
Act") exempts rising progress firms from being required to adjust to new
or revised monetary accounting requirements till non-public firms are required
to adjust to the brand new or revised monetary accounting requirements. The JOBS Act
supplies that an organization can select to not take benefit of the prolonged
transition interval and adjust to the necessities that apply to non-emerging
progress firms, and any such election to not take benefit of the prolonged
transition interval is irrevocable. We are an "rising progress firm" as outlined
in Section 2(a) of the Securities Act of 1933, as amended, and have elected to
take benefit of the advantages of this prolonged transition interval. We stay an
rising progress firm and are anticipated to proceed to take benefit of the
advantages of the prolonged transition interval. This could make it troublesome or
unattainable to check our monetary outcomes with the monetary outcomes of
one other public firm that's both not an
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rising progress firm or is an rising progress firm that has chosen to not
take benefit of the prolonged transition interval exemptions for rising progress
firms as a result of of the potential variations in accounting requirements used.
Item 3.  Quantitative and Qualitative Disclosures about Market Risk
We function primarily in the United States and Latin America. As such, we have now
been uncovered previously and could sooner or later be uncovered to sure market
dangers, together with rate of interest, overseas foreign money trade and monetary
instrument dangers, within the atypical course of our enterprise. Currently, these dangers
should not materials to our monetary situation or outcomes of operations, however they
could also be sooner or later.
Interest Rate Risk
As of September 30, 2021, we had money, money equivalents and restricted money of
$360.3 million, which consisted primarily of financial institution deposits and cash market
funds. Such interest-earning devices carry a level of rate of interest danger;
nonetheless, because of the comparatively short-term nature of these devices,
historic fluctuations of curiosity earnings haven't been important. The
main goal of our funding actions are to protect principal and
present liquidity with out considerably rising danger. A ten% improve or
lower within the rates of interest of these interest-earning devices wouldn't
have a fabric impact on our unaudited condensed consolidated monetary
statements for the 9 months ended September 30, 2021.
Foreign Currency Exchange Rate Risk
We have been uncovered to overseas foreign money trade danger associated to our
transactions in currencies aside from the U.S. Dollar, which is our reporting
foreign money. We search to naturally hedge our overseas trade transaction publicity
by matching the transaction currencies for our money inflows and outflows.
Currently, we don't in any other case hedge our overseas trade publicity however could
think about doing so sooner or later. Our overseas foreign money publicity is primarily with
respect to the Colombian Peso. Colombia accounted for lower than 8% of our
income for the three and 9 months ended September 30, 2021 and 2020. A ten%
improve or lower within the worth of these currencies in comparison with the U.S.
Dollar wouldn't have a fabric impact on our unaudited condensed consolidated
monetary statements for the three and 9 months ended September 30, 2021.
Item 4.  Controls and Procedures.
Management's Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), underneath the supervision and with the participation of
administration, together with our Chief Executive Officer and our Chief Financial
Officer, we have now carried out an analysis of the effectiveness of the design
and operation of our disclosure controls and procedures (as outlined in Rule
13a-15(e) underneath the Exchange Act) as of the tip of the interval lined by this
Report. Our disclosure controls and procedures are designed to supply
affordable assurance that info we're required to reveal in experiences
which are filed or submitted underneath the Exchange Act is gathered and
communicated to our administration, together with our Chief Executive Officer and our
Chief Financial Officer, as applicable to permit well timed choices concerning
required disclosure and is recorded, processed, summarized and reported inside
the time durations specified by the SEC. Our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures have been
efficient as of September 30, 2021.
Changes in Internal Control Over Financial Reporting
As beforehand reported, the Company recognized a fabric weak point in our
inner management over monetary reporting associated to the accounting for a
important and uncommon transaction associated to the warrants we issued in
reference to our preliminary public providing in February 2020 and the closing of
the Business Combination in December 2020. A cloth weak point is a deficiency,
or a mix of deficiencies, in inner management over monetary reporting
such that there's a affordable risk {that a} materials misstatement of our
annual or interim monetary statements is not going to be prevented or detected on a
well timed foundation. As a end result of this materials weak point, our administration concluded
that our inner management over monetary reporting was not efficient as of March
31, 2021.
To remediate this materials weak point, we expanded and improved our evaluate course of
for complicated securities and associated accounting requirements. We additionally additional
improved this course of by enhancing entry to accounting literature, figuring out
third-
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get together professionals with whom to seek the advice of concerning complicated accounting
purposes and hiring extra employees with the requisite expertise and
coaching to complement current accounting professionals.
The Company has concluded, by way of testing, that its inner controls are
designed and working successfully and that the beforehand recognized materials
weak point has been absolutely remediated as of September 30, 2021.
Other than the merchandise famous above, there was no change within the Company's
inner management over monetary reporting as of September 30, 2021, that has
materially affected, or is fairly prone to materially have an effect on, the Company's
inner management over monetary reporting.
Limitations on Effectiveness of Controls and Procedures
Our disclosure controls and procedures are designed to supply affordable
assurance of reaching their aims, as specified above. Our administration
acknowledges that any management system, irrespective of how properly designed and operated, is
primarily based upon sure judgments and assumptions and can't present absolute
assurance that its aims can be met.
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