Rush Street Interactive (NYSE:RSI) reported third-quarter financial results on Wednesday. The transcript from the company’s third-quarter earnings call has been provided below.
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Summary
Rush Street Interactive reported Q3 revenue of $385.9 million, up 39% YoY, with adjusted EBITDA at $62.2 million, up 73% YoY.
The company’s online casino strategy remains the core driver, representing 75% of revenue, with online sports betting contributing 25%.
Monthly active users in North America grew by 34% YoY, reaching over 300,000, while Latin American MAUs increased by 46% YoY.
The company highlighted successful player acquisition during the World Cup, with a strong cross-sell to online casino games.
In Latin America, revenue grew 218% YoY; no new gaming taxes in Colombia were included in the 2027 budget, maintaining a favorable outlook.
The company sees significant long-term opportunities in the U.S. for online casino legalization, as states face fiscal pressures.
Rush Street Interactive reiterated its full-year 2026 revenue guidance of $1.56 billion to $1.6 billion and adjusted EBITDA guidance of $245 million to $265 million.
Management noted a more competitive environment in Michigan and a slight moderation in overall market growth in North America.
Full Transcript
Kyle (Investor Relations)
Prepared in accordance with GAAP, we will be discussing adjusted EBITDA, which we define as net income or loss before interest, income taxes, depreciation and amortization, share-based compensation, adjustments for certain one-time or non-recurring items, and other adjustments that are either non-cash or not related to our underlying business performance. A reconciliation of these non-GAAP measures to the most directly comparable GAAP measure is available in our third quarter 2026 earnings release and our Investor Deck, which is available in the Investor section of the Rush Street Interactive website at rushstreetinteractive.com for purposes of today’s call. Unless noted otherwise, when discussing profitability, EBITDA, or other income statement measures other than revenue, we’re referring to those items on a non-GAAP adjusted EBITDA basis.
With me on the call today we have Richard Schwartz, Chief Executive Officer, who will first provide some opening remarks and then open the call for questions. With that, I’ll turn the call over to Richard.
Richard Schwartz (Chief Executive Officer)
Thanks, Kyle, and good afternoon, everyone. In the third quarter we generated revenue of 385.9 million, up 39% year over year, and adjusted EBITDA of 62.2 million, up 73% year over year. Our casino-first strategy and strong performance in Latin America were the two cornerstones of our third quarter results, supported by the consistent execution across the entire business. Kyle will walk you through the financial results in greater detail, but we’re proud of the growth and scale we have achieved over the last few years.
Online casinos remains the foundation of our business model, and it was once again the core driver of growth and profitability this quarter. We are also pleased with the continued engagement we see across our platform in both online sports and poker. These complementary products allow us to expand upon our brand awareness and reach a wider base of players that are looking for a high-quality, engaging, and customer-centric gaming experience while also contributing to our overall profitability.
Online casino represented 75% of our revenue this quarter, while online sports betting contributed most of the remaining 25%. We have found this mix as a strength for our business, as the retention, engagement, and lifetime values of our online casino players are key drivers of our consistent growth. Turning to player counts, year-over-year growth remains solid across both regions. Monthly active users in North America reached over 300,000, a record quarterly high representing 34% year-over-year growth and once again driven by the strength of our North American online casino markets. Latin American MAUs were up 46% year over year to over 607,000. As you would expect, this is below the World Cup-driven peak in the second quarter, but still our second highest quarterly level of all time.
First-time depositors for the company also came in at our second highest level of all time, which is encouraging results of our targeted marketing efforts that we strategically ramped up in the quarter due to attractive player acquisition costs. Taking a step back, I think it’s important to put our results in context of what we are seeing in the broader industry trends. During the third quarter, North American online casino and sports markets saw a more measured pace of growth, as publicly available state data shows this affected the industry broadly. Within our player cohorts, this moderation in growth has been broad-based rather than concentrated in any one segment of players. We feel good about the fact that we have continued to not only grow fast but to grow our share of the North American online casino market year over year.
Online casino remains a large and attractive category, and we continue to see meaningful opportunities for further growth ahead. With respect to the World Cup, as the finals took place in July, our third quarter results included some contribution from this worldwide event. The key takeaway isn’t the tournament itself, but rather the player acquisition opportunity it represented. It was a highly successful event for us, driving significant growth in our player base. When compared to the Copa América from two years ago, we acquired significantly more players, retained them at a similar rate, but the average value of these players post-event has been more valuable from World Cup acquisition than those acquired during the Copa América two years ago.
We’ve also seen much better cross-sell to online casino, driving continued outsized growth in our product category during Q3. More broadly in Latin America, we continue to see healthy performance across Colombia, Mexico, and Peru. Net revenue in LATAM held steady with the record level we set in Q2 while also growing more than 200% year over year, though keep in mind last year’s results were impacted by the headwinds created by the VAT-related bonusing we offered in Colombia. Regarding gaming taxes in Colombia, on October 20, the Colombian government approved the country’s 2027 budget, which did not include any new taxes on the gaming industry.
We will continue to actively monitor for any new legislation that could impact our industry. However, as of now, the gaming tax is expected to revert back to the original gaming tax rate of 15%. We are still operating under the assumption that the 16% excise tax will be in place through the remainder of 2026. Because this tax was imposed via an emergency decree, it is scheduled to expire at year end. Last quarter we announced our launch in Alberta. We are now more than three months past our July 13 launch, and we remain encouraged by what we are seeing on a population-adjusted basis. First-time depositors and daily active users are tracking at over two times the levels we saw in Ontario at the same point following its launch, and our player acquisition economics remain attractive, similar to our experience in Ontario. We expect this market to be a gradual build and revenue development will take time, but we continue to view Alberta as a meaningful long-term opportunity.
Looking beyond our existing footprint, online casino legalization remains one of the most meaningful long-term opportunities for RSI. Only approximately 12% of the U.S. population currently has access to regulated online casino, and states are facing increasing fiscal pressure, including from reductions in federal financial support. Historically, when states have taken action, online casino has proven to be a very significant and reliable source of tax revenue, generating many multiples more than online sports betting.
At the same time, unregulated sweepstakes and other gray market products continue to proliferate, creating enforcement challenges for regulators, failing to protect consumers, and generating no tax revenue for the states. As I’ve shared before, prediction markets are also raising awareness among lawmakers about the importance of protecting state revenue streams, which we view as another potential catalyst for new legislation. We continue to work to educate legislators on the benefits of regulated online casino, not only for licensed operators such as ourselves, but most importantly for consumers and states.
As we look to the fourth quarter and beyond, we remain confident in the strength and momentum of our business. We’re executing well across our core markets, and we see continued opportunities ahead in North America and Latin America. With that, I’ll turn it back to Kyle to discuss the financial details.
Kyle (Investor Relations)
Thanks, Richard. Now let me walk through the details of our third quarter performance. We generated revenue of 385.9 million in the third quarter, representing 39% year-over-year growth. Continued execution in two of our primary areas of focus, online casino and Latin America, helped drive this growth. Online casino revenues, which represent 75% of our total revenue, grew 32% year over year. Online sports betting, which represents almost 25% of our total revenue, also showed strength, growing 70% year over year, driven primarily by Latin America and the World Cup.
Regionally, revenue in North America grew 14% and revenue in Latin America grew 218%. Notably in Latin America, year-over-year growth surpassed 200% in both online sports and online casino. Gross margins for the quarter came in at 36.4%, up 240 basis points from the prior-year period and up over 90 basis points from the second quarter. Our continuing margin expansion is reflective of our faster growth in higher-margin markets where we are making more of our marketing investments. As discussed on our prior call, our strong marketing efficiency and attractive player acquisition costs have driven us to increase our marketing spend in the second half of 2026.
During the third quarter, marketing expenses were 54.7 million, reflecting an increase of 44% year over year and representing 14.2% of revenue compared to 13.7% in the prior-year period. We continue to see attractive returns on spend with cost to acquire players still at the lowest rates we’ve seen. Even with new player expected values being lower than in previous years, we are still well within our anticipated payback periods. G&A for the third quarter was 23.6 million, or 6.1% of revenue, compared to 7.3% in the prior-year period. One item to note within our G&A this quarter was a gain of approximately 4.3 million related to foreign currency exchange. The gain resulted from converting cash held in Colombia from Colombian pesos into U.S. dollars at favorable exchange rates, and this cash remains on our balance sheet. Absent this gain, G&A would have been 27.9 million, or 7.2% of revenue.
And turning to profitability, adjusted EBITDA was 62.2 million in the third quarter, representing 73% year-over-year growth and 16.1% margins, or 57.9 million and 15% margins when excluding the foreign currency gain. In either case, representing very solid margin expansion year over year. The net income for the period was 28.7 million, an increase of 93% compared to 14.8 million in the prior-year period. Our player counts, first-time depositors, and retention were all strong during the period. In North America, MAUs grew 34% year over year to a new record of over 300,000 MAUs, and online casino markets continue to fuel this growth, up 42% year over year during the period. In Latin America, MAUs grew 46% year over year to over 607,000. North America ARPMAU was $309 in the third quarter, down 15% year over year, and in Latin America ARPMAU was $58, up 113% year over year, reflecting continued strength across the region, the elimination of bonusing in Colombia that last year offset the VAT on deposits, and favorable movements in the Colombian pesos.
Our balance sheet remains strong with $382 million in cash on hand as of September 30, up from 340 million at the end of the second quarter, and we remain debt-free. During the third quarter we repurchased approximately $14 million of our shares under our $100 million share repurchase program. Since the quarter end, we have repurchased an additional $11 million, leaving us with $75 million of repurchase capacity. In total, we have purchased almost 1.2 million shares at just under $21 a share.
We anticipate continuing to be opportunistic with our share repurchases moving forward. Now, turning to guidance, we are reiterating our full-year 2026 revenue and EBITDA guidance. We continue to expect revenue in the range of 1.56 billion to 1.6 billion, representing year-over-year growth of 38% to 41%. Operating trends thus far in October would put us closer to the low end of revenue guidance. For adjusted EBITDA, we continue to expect a range of 245 million to 265 million, representing year-over-year growth of 59% to 72%. The adjusted EBITDA range includes the $4.3 million foreign currency gain I described earlier.
And operating trends thus far in October put us near the midpoint of EBITDA guidance. And as a reminder, our guidance includes only operations in the jurisdictions that are live as of today and assumes we continue to operate in our current markets under similar tax structures, including the temporary 16% excise tax in Colombia through year end. And with that, operator, we’re ready to take questions.
OPERATOR (Moderator)
We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one. Again, we ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question from the line of David Katz with Jefferies.
David, your line is open. Please go ahead.
David Katz (Analyst at Jefferies)
My question, appreciate all the commentary, which is quite clear on sort of where you’re at. Just thinking, you know, a bit more broadly with respect to growth. You know, the Brazil market has always been one of active debate, recognizing, you know, it’s not the same as your other Latin American markets, but, you know, what updated thoughts, you know, do you have about, you know, potential entry strategies and if there are any at this point for Brazil.
And then I have one quick follow-up.
Richard Schwartz (Chief Executive Officer)
Hi, David, this is Richard. I’ll take the question. We were disappointed by the decision to restrict a regulated market that was maturing, in our view, making a lot of progress. If the ban remains in place following the legal congressional challenges that are going to be following very soon, I strongly believe it will ultimately be counterproductive, pushing consumers towards unregulated operators and crypto casinos. So, but specifically to your question, I think that for us, we look at the market very closely. We’ve been very thorough, very cautious about anything, and we always have to remain open-minded about, if there are opportunities on a risk-adjusted basis, to consider that market. You know, that’s something we will look at. I think certainly it’s hard to ignore the size and population of the market, but we are very seasoned and experienced in understanding fluctuations.
And there was a lot of very clear rhetoric at the time of the election that sort of gave some indications that there was some risk there. And so, like I said, anything that we would consider would have to be done on a risk-adjusted basis.
David Katz (Analyst at Jefferies)
Understood. And then of course, you know, U.S. states, we obviously are monitoring a lot of different places. Would you mind giving us just a, you know, walk across on how you’re thinking about potential legalization opportunities for 2027?
Richard Schwartz (Chief Executive Officer)
Sure. And we remain optimistic about the opportunity. And in the script, just in our prior remarks, we shared a little bit about that. But ultimately I think that, as you saw last year, Virginia is a really exciting near-term opportunity heading into 2027. There were some companion bills that advanced through both chambers in ’26, but they failed to reach a final compromise, as you know. So there’s going to be a lot of meaningful achievement that occurred last year.
We’re expecting that to resume in 2027. We look at Ohio where we think there’s an exciting opportunity with either of the governor candidates that could provide a path forward, though their approaches may be different, but we are excited and watching that very closely. D.C. has a very near-term opportunity for online casino legislation at the end of this year, so we’re actively monitoring and involved there. And, you know, Indiana is another attractive market.
There were some recent Republican primary results that created a more constructive political backdrop for online casino legalization. So we’ve been focused on that market as well, and there’s an opportunity heading into 2027 there. And then, you know, the big states of Illinois and New York are facing very large potential Medicaid funding restrictions or reductions, frankly, under the one big, beautiful bill. So, you know, that impact will begin building in 2027 with more pressure emerging from 2028 onwards.
So I think when you talk about billions of dollars in Illinois and, you know, annual funding impacts as these provisions start to phase in, and New York’s also likely to face tens of billions of dollars in Medicaid funding reductions over the next decade, you know, there is some added pressure for the state budgets to find solutions, and we think there’s an increased interest in alternative revenue sources such as online casino.
David Katz (Analyst at Jefferies)
Thanks very much.
OPERATOR (Moderator)
Your next question from the line of Ryan Sigdal with Craig-Hallum. Ryan, your line is open. Please go ahead.
Ryan Sigdal (Analyst at Craig-Hallum)
Hey, good afternoon, Kyle, Richard. Want to dig into the industry slowdown and if you guys have any greater thoughts of kind of what changed in August, September really until now. While we still have good growth, it’s certainly decelerated after years and years and years of what seemingly was very durable, consistent industry growth. You guys performing well, but curious more from an industry standpoint.
Richard Schwartz (Chief Executive Officer)
Yeah, Ryan, I’ll take that one. I agree with you. Obviously we’ve had some really strong growth in the industry, and even here in Q3 our online casino business continues to grow really nicely and across all the different markets. So we’re confident this is still a really significant long-term growth opportunity for us. But to your point, online casino growth did moderate a little bit in Q3. We’ve seen growth rates ebb and flow from month to month before.
The category has been pretty consistent and resilient, and I think you said it. But we held up really well in Q3 with our share and certainly relative to the publicly traded peers, growing market share year over year across all the markets ex-Michigan, where we saw more competitive intensity from the newer privately held entrants. So we’re continuing to monitor the player behavior and the cohort trends, and we’re using insights from that to inform the approach that we’ve got on promotions and customer acquisition.
So I think you’re going to continue to see growth rates fluctuate from month to month and quarter to quarter. But we’re really confident that we’ve got a nicely growing iCasino business. It’s highly profitable and it’s got great long-term fundamentals. So hopefully that helps a little bit.
Ryan Sigdal (Analyst at Craig-Hallum)
Yeah, certainly helpful and certainly understanding in Michigan with that 365 and Hard Rock launching there within the past year. For my follow-up question, just kind of segues into marketing investment. You guys leaned in a little harder this quarter with some investment, got good returns. But as you kind of reevaluate where the current industry is, where the opportunity is, does it make sense to lean in harder from a customer acquisition and a marketing standpoint again, given your relative very strong metrics and performance?
But given the industry, if it’s slowing, does it make sense to lean in harder or to hunker down a little bit more?
Kyle (Investor Relations)
Yeah, it’s a good question. It’s one that we deal with all the time and pretty dynamically, and it depends on the market. We reallocate resources from one market to another when it makes sense, or as we talked about on our last call, leaning in a little bit more in the back half here. So I think we executed on what we intended to in the third quarter. I think we mentioned in the prepared remarks the cost to acquire players are still at the lowest levels they’ve been, so we’re seeing really good value with that spend.
But we have to monitor the value of new players, or expected value of new players, that are coming in, and we continue to do that. It’s different from market to market, so we’re going to continue to adjust and move up that spend if we see opportunities, or if the paybacks aren’t as good or relatively aren’t as good, maybe there’ll be places where we’ll pull back. So I don’t want to signal one direction or another. I don’t think I would imagine it being a dramatic change in either direction, but we’re going to continue to be dynamic with the way we spend while we look at the returns.
Thank you. Thanks.
OPERATOR (Moderator)
Your next question from the line of Dan Pulitzer with JP Morgan. Dan, your line is open. Please go ahead.
Dan Pulitzer (Analyst at JP Morgan)
Hey, good afternoon, everyone. Thanks for taking the question. I want to go back and just kind of talk about the competitive and promotional environment a little bit in the U.S. You know, my math could be a little bit off. It’s a little bit of, you know, a little bit of rounding. But I think the promotions were up a tad in the third quarter. Can you talk about was that part of the marketing strategy, or is that in response to maybe the evolving environment that we’re in, and maybe how should we kind of think about the promotionality on a go-forward?
Kyle (Investor Relations)
Yeah, thanks, Dan. I’m not sure exactly how you’re getting to the math. I think a couple things to think about: we had the Alberta launch, which does mean more bonusing when you have a market launch. I wouldn’t suggest that our increased marketing spend necessarily meant that we were stepping on the gas for promotions. Our bonusing as a percentage of GGR or handle, however you want to measure it, has gone up a little bit over the last year or so, but that’s largely due to all the new players that we’re bringing in.
So I wouldn’t suggest that it’s been any significant change or there’s a shift in strategy. We’re always looking at the best ways to offer generosity to our players and trying to manage that to the best effect to improve retention and improve time on our app.
Dan Pulitzer (Analyst at JP Morgan)
Got it. That’s helpful. And then just turning back to Colombia, it sounds like we’re pretty much over the hump in terms of uncertainty and the tax backdrop there. Could you, just for housekeeping purposes, remind us of what the tax impact was in 2026 so we can think about the benefit in 2027?
Kyle (Investor Relations)
Yeah. So I don’t want to, let’s say, spike the ball just yet. You know, it’s a good sign that there was no new tax included with the budget that was recently approved, so that’s a really good sign. It’s a good sign that the new administration is pro-business and has suggested that, you know, borrowing to fill revenue holes could be the way forward. But we’re going to continue to monitor and see what happens here between now and the start of 2027.
Just as a reminder, and I think Richard said it earlier, the temporary tax does go away at the end of the year. So what we’re monitoring for is any change in the tax structure that might be proposed for 2027. In terms of the impact, we haven’t given guidance for next year or specific to Colombia, so maybe I’ll look backwards a little bit. One of the things that we’ve shared is that for about two and a half months in the first quarter of 2026, it represented about $7 million in cost.
So you could annualize that, apply some sort of growth factor on what you’d expect for our business next year, and that would give you a rough idea of what the impact could be.
Dan Pulitzer (Analyst at JP Morgan)
That’s really helpful. Thank you so much.
Kyle (Investor Relations)
Thanks, Dan.
OPERATOR (Moderator)
Your next question from the line of Zach Silverberg with Wells Fargo. Zach, your line is open. Please go ahead.
Zach Silverberg (Analyst at Wells Fargo)
Good afternoon. Thanks for taking my question. You guys gave some color in the prepared remarks and had some solid growth and good monetization on Latin America user growth. Could you kind of unpack how the customers you acquired during the World Cup—how they behaved post-World Cup and maybe how they performed against your expectations—and any color on payback periods or lifetime values for these customers?
Kyle (Investor Relations)
Thanks, Zach. Yeah, World Cup was a great event for us—very exciting. As we’ve said, it’s the World Cup. I think we talked about this on the last call a little bit. It was a really good event for incremental activity on the platform, but more important, particularly in Latin America, was the player acquisition and brand awareness opportunity. Probably the most exciting element of it is that about 50%—five-zero—so about half of our World Cup first-time depositors have also placed a wager in iCasino. That’s great for cross-sell and it’s great for engagement, and that’s well above what we saw from Copa America first-time depositors. Kind of to the point about the value of the players, as you’d expect when you acquire players during an event like this—more of a pop-culture event—you’re going to have a bit lower retention than you would from your normal acquisition.
But we’re really pleased with how it went and how the trends continue post-World Cup.
Zach Silverberg (Analyst at Wells Fargo)
Got it. Appreciate that. And just a follow-up on, Kyle, your remarks on October. You mentioned revenue kind of trending towards the low end and EBITDA towards the middle. Could you help us bridge that? What could get you guys to the mid or to the high end of guidance? What would you need to see in November and December or for the rest of the year? Thanks.
Kyle (Investor Relations)
Yeah, thanks. So obviously a lot goes into the range. I think for us to outperform where the current trends are, we’d need to see some combination of the industry iCasino growing a little bit faster—rebounding a little bit—us taking more share whether that market is growing faster or not, continued good results in Latin America or some acceleration there, and obviously sports results across the business can matter as well. So I think for us the focus is always on execution, and there are little things that we’re doing all the time and all those can add up to good things. If any or all of those things happen, we’d have a chance to move above that lower end of the range.
Zach Silverberg (Analyst at Wells Fargo)
Thanks for the color.
OPERATOR (Moderator)
Your next question from the line of Brandt Montour with Barclays. Brandt, your line is open. Please go ahead.
Brandt Montour (Analyst at Barclays)
Hello everyone. Thanks for taking my question. I want to ask another question about that guidance commentary. You didn’t specify in the prepared remarks, but is it fair to assume that sort of the delta between the midpoint of your revenue range and the low end of your revenue range that you’ve moved to was all linked to the U.S. slowdown that you commented on, and was that all market growth or was that also market share? And then this will be my final follow-up question, but when you think about that exit rate for leaving the fourth quarter, is that a fair building block or base assumption for how we should kind of think about the new run-rate growth for this business looking into next year?
Kyle (Investor Relations)
Yeah. So I’ll try to tackle all those—make sure I get them all. If I don’t, let me know. I think the answer to your first question—your assumption is fair—that where we’re expecting Q4 revenue to come in at the moment is largely attributable to North American iCasino growth. That’s the biggest driver of the difference. And I think part of the question was whether that was share or the market, and I think it’s more about the market than it is the share.
We feel good about how we performed and, as I mentioned, certainly relative to public company peers and being able to take share there, so we were pleased with that result. And then thinking about run rate exiting Q3 going into Q4—specifically on iCasino trends—year-over-year growth in October so far, and obviously the first four weeks don’t make the quarter, but so far here in October the growth looks a lot like September did. I think our trends generally were similar to the industry in that we saw a drop in growth rate from July to August, but a smaller difference between August and September. So I guess the point is that October looks a lot like September.
In terms of going into next year, I think we’ll certainly offer guidance on our next call for 2027, and we’ll have views at that point about the industry growth, but also what we think we can do with that industry growth. So we’ll wait until that time to give more thoughts on 2027.
Brandt Montour (Analyst at Barclays)
Excellent. Thanks everyone.
Kyle (Investor Relations)
Thank you.
OPERATOR (Moderator)
Your next question from the line of Joe Stoff with Susquehanna. Joe, your line is open. Please go ahead.
Joe Stoff (Analyst at Susquehanna)
Thank you. Good evening, Richard, Kyle. Can I ask about 2027? Naturally, in terms of what you’ve executed thus far in 2026, there’s a big step-function up in advertising and marketing spend, and we saw that in pretty substantial user growth in North America. I’m wondering how you think about ARPMAU in 2027. Do you expect that to grow in 2027, and how to think about, again, that total advertising and marketing line in 2027? Should it be a more normalized growth relative to the step-function increase this year?
Just whatever you can share with us?
Kyle (Investor Relations)
Yeah, no, I appreciate the question. I don’t want to—certainly not ahead of our 2027 guidance—I don’t want to necessarily guide to ARPMAU and MAU trends. I think it’s more likely that our growth comes from player-count growth in 2027 than expansion of the average player value, in North America at least. And the second part of your question—just how that circles with advertising and marketing—yeah. So we did spend a lot more on marketing this year. I agree with you there, and we stepped that up quite a bit. A little bit of that is the launch in Alberta. I’ll give the next thought ex any new market launches. So if we have some good luck with the legislative cycle in the U.S. here coming up and there happened to be a launch or more than one launch late in the year, as an example, that would change this view a little bit.
But I would expect that our growth in marketing spend will be quite a bit less than it was in 2026. We’d expect that we’ll get operating leverage over the marketing line once again in 2026. That doesn’t mean an absolute reduction in dollars of spend in 2027, but we do expect to be able to get leverage over that cost.
Joe Stoff (Analyst at Susquehanna)
Great. Thanks a lot.
Kyle (Investor Relations)
Thanks, Joe.
OPERATOR (Moderator)
Your next question from the line of Stefanos Chris with Needham. Stefanos, your line is open. Please go ahead.
Stefanos Chris (Analyst at Needham)
Hi, I just wanted to ask a follow-up on World Cup customers. Can you talk about why you think it drove more player growth and better LTVs? Is it something you did differently, or maybe just the World Cup drove better engagement overall? We’d just love to hear your thoughts there.
Richard Schwartz (Chief Executive Officer)
Yeah, I think so. I think the comparison you’re making is to Copa. I think a lot of it goes to our team and execution and how much better we’ve gotten over the years and certainly over the last couple of years. We also, just from what we know, our brand awareness is far stronger than it was a year or two years ago, and that certainly helps as well. We’ve become—I don’t know if I should go so far as to say a household name down there—but we’re a very well-known brand.
So I’m sure that’s helped as well. Thank you.
OPERATOR (Moderator)
Your next question from the line of Mike Hickey with Stonex. Mike, your line is open. Please go ahead.
Mike Hickey (Analyst at Stonex)
Hey Richard and Kyle, thanks for taking our questions. Just first question, I know you were asked specifically what you thought was driving the weakness in the North American iCasino market. And obviously it’s a market that you have a tremendous amount of experience in. I’m not sure I heard the answer exactly. Do you have sort of an idea on exactly what’s driving the weakness, whether it’s maturity, maybe a consumer or emerging competition?
Kyle (Investor Relations)
Yeah. So I think the one that is more clear on a market-specific basis, at least, would be competition. We highlighted that for Michigan. That doesn’t necessarily address what’s happening in that market in total. So I’m not sure that we’d want to be the ones to give absolute conclusions. I think one thing we shared, just to make sure you heard it, is that generally across the board for our different player cohorts and levels of player, we’ve seen just a little bit lower activity.
So it’s fairly broad-based from our perspective. But I’m not sure that we can speak for the entire market, the iCasino market, given that we’re, you know, 8 or 9% of the total market.
Mike Hickey (Analyst at Stonex)
Okay, thank you. And then second question, last question. Just given the scenario—sort of slowing growth here, but the expectation for margin expansion—how are you thinking about, one, opportunities around maybe some cost cutting initiatives and, two, I think historically most of your games have been third party. How are you thinking about the opportunity over time to build out a bigger first-party game portfolio?
Kyle (Investor Relations)
Yeah, I’ll start on the first, Mike. So we still feel very confident about the growth profile of the business and continuing to get operating leverage next year and beyond. I mean, our expectation is that we will improve gross margins next year. As I mentioned on a previous question, we’ll get leverage over the marketing line item—maybe not so much at the G&A line. We’re continuing to invest there in the long-term growth of the business. There’s a lot of growth left in the markets that we’re in.
We also need to be set up well to perform when we have new markets that launch. So I wouldn’t anticipate any sort of cost-cutting initiative on our side. Certainly we always look at ways to spend money appropriately. And I think that if you look at our financials and what we spend in different areas relative to our revenue growth and our revenue generation, we size up pretty well with the industry, so we haven’t overinvested. But we’re not at a point here where we should be cutting costs at the risk of hurting our ability to grow and grow profitably.
And maybe I’ll let Richard chime in
Richard Schwartz (Chief Executive Officer)
on the—yeah, just to reinforce what Kyle said. You know, we really focus on efficiency and despite the efficiencies that we operate within, we’re delivering strong growth, EBITDA and MAU performance. So we feel very positive about the growth. While the business, still growing very quickly, may have slowed a little bit, if you look at the record MAUs and the growth we’re still seeing in new players, it’s great because we have so many players that aren’t familiar with us already, and we’re continuing to be able to attract those customers and grow our overall business.
Specifically about the games. We have our own games being developed. We have our own in-house remote game server. We have our own game studio. We’re excited for the roadmap. We’re already getting ready to launch some games in the future and excited for the results that we expect to deliver from those. It took us a long time to decide on, ultimately, the right teams and the right strategy because, as you know, we’re very thorough, very diligent, and want to make sure we put together the pieces that would allow us to deliver games that really outperform the industry and ones that our players want to play because they enjoy it, as opposed to games that you’re kind of encouraging your customers to play because it’s a little better margin for yourself.
I’d like to get to a point where I like to believe the games that we build are going to be desirable by the players, and ultimately it’s a win-win in that case because they’re playing games that are unique and differentiated at the same time they’re playing games they really prefer to play over other games. If you do that, then you get the benefit of naturally designed games that are popular but also ones that help our margins. So definitely been growing that part of our business, and there’ll be more to come on that in the new year.
Mike Hickey (Analyst at Stonex)
And for first party, can you give us what percentage of the mix it is today?
Richard Schwartz (Chief Executive Officer)
Oh, it is—almost all of our revenue is coming from games from our partners, Mike. But remember we have a large suite of proprietary games that we build across all of our library of games. So our differentiation is touched by players at every touch point while they play with us. So I think the differentiation element that games provides we certainly already bring. But I certainly appreciate the point of adding some of the additional library games is helpful too.
Mike Hickey (Analyst at Stonex)
All right, thanks guys. Good luck.
OPERATOR (Moderator)
Your next question from the line of Jordan Bender with Citizens. Jordan, your line is open. Please go ahead.
Jordan Bender (Analyst at Citizens)
Hey everyone, good afternoon. Thanks for the question. To start in Alberta, you know there is that three-month period that the legacy operators needed to transition into the legal market. And I think in some instances those operators might have acted differently just in terms of how they were promoting during that three months. So, you know, it’s only been a couple weeks now, but have you seen anything different in terms of the competitive environment post that three-month period in Alberta?
Kyle (Investor Relations)
I don’t think we would comment on anything specific that we see. I think we generally agree with the way you saw it and the way others were behaving. I don’t know that we have enough details yet to say exactly how much it’s changed, but it is one of the reasons that market will, we would expect, build for us over time because of some of those advantages that others have coming into the legalization of this market. So we’re really excited about Alberta, but it’s going to take a while for the revenue to build.
Richard Schwartz (Chief Executive Officer)
I would just add, I think you’re specifically talking about the signup offers that the other operators were able to offer during this three-month period that those who are regulated like us were unable to offer. It felt like a competitive disadvantage and sort of unfairness or uneven application of the opportunity. But as you noted, that’s been removed, and so now everyone is playing with the same set of rules.
Jordan Bender (Analyst at Citizens)
Great, thank you. And then my follow-up—and maybe to beat the dead horse here—but just on some of the softness that we’re seeing in the iGaming market here in the U.S. There’s a thought out there that maybe the World Cup pulled forward some of the wallet spend from some of those players that would have otherwise been spending in August, September. I mean, as you look across your cohorts of those customers, do you think you’re seeing any of those customers that did enter the World Cup market that aren’t really showing up today and that might just revert back to the mean over the next couple months?
Kyle (Investor Relations)
So I think it’s a reasonable theory, Jordan, and we’ve talked about that one. I don’t know that we would have conclusive data or evidence that would point us to that for sure. But I agree with you that it’s certainly a possibility.
Richard Schwartz (Chief Executive Officer)
You know, I’m also excited about the fact that we’re heading into prime season with, you know, climate as a factor on the East Coast and the busyness of the sports calendar for a lot of the men, and certainly we have, you know, half our player base are females. So certainly we think that’s an exciting time of the year for us coming up, and just want to also make the obvious comment that our category goes through periods of slowdowns for short periods of time, but it’s always come back stronger, and I expect the same thing will happen here.
Jordan Bender (Analyst at Citizens)
Great, thank you.
OPERATOR (Moderator)
Your next question from the line of Chad Banon with Macquarie. Chad, your line is open. Please go ahead. I’m sorry, can you start your question again? We didn’t hear the first part of it.
Chad Banon (Analyst at Macquarie)
Yep. Sure, yeah. Just wanted to ask about your updated view on prediction markets, given some of the volumes that we’re seeing thus far. And then my second question is around just updated views on M&A given where some of the valuations are in the industry. Thank you.
Richard Schwartz (Chief Executive Officer)
Hey Chad, I’ll talk to prediction markets. As you know it’s evolving very fast. It’s a roller coaster following it, but we do very closely and ultimately, you know, focusing on the sports-first approach isn’t something we do in the regulated market, isn’t something we plan to do in the prediction markets. As you know, we have filed for our licenses with the CFTC, so we’re prepared for any potential outcomes at the regulatory level or as the legal landscape evolves.
We want to make sure we’re not caught flat-footed. You know, in terms of a lot of questions we’ve been asked the last year talked about, you know, casino-style gaming potentially. And I think what you’ve seen in the recent CFTC communications is that they appear to be moving away from supporting casino-style gaming within prediction markets, which we view as a positive development for regulated online casino and ourselves included. We do think that, you know, as we’ve said multiple times, we believe online casino remains a compelling option for states, and I think that it’s very possible that as this thing continues to evolve you will see more of an appetite for casino to generate the kind of very substantial revenues and consumer protections that will make states sort of want to embrace this opportunity. So I think at this point I would just continue to say we’re monitoring the space closely.
By this stage, we haven’t seen any reason to change our approach.
Kyle (Investor Relations)
Yeah. And then on M&A, Chad, I think we certainly get your point on valuations changing for companies. We continue to look at different opportunities—things that would accelerate entry into markets in the Americas—and we look at complementary technologies that could help further differentiate our product and/or bring things in-house. So we continue to look at things, and definitely noted on the valuation change in the industry.
Chad Banon (Analyst at Macquarie)
Thank you both.
Richard Schwartz (Chief Executive Officer)
Appreciate it. Thank you.
OPERATOR (Moderator)
Your next question from the line of Jeff Stanchel with Stifel. Jeff, your line is open. Please go ahead.
Jeff Stanchel (Analyst at Stifel)
Hey, good afternoon, guys. Thanks for taking our questions. Maybe starting on Brazil, obviously you weren’t involved there directly, thankfully, when the ban was announced, but curious if you have any views on potential derivative impact, if you think you might see some of the operators in the broader region maybe scale up or scale down investment in some of your core Latin American markets, just given the loss of what I would call a key market in the region.
Richard Schwartz (Chief Executive Officer)
Well, we, you know, Brazil has been An ongoing issue for years now. It’s always been the topic of people, our industry sort of talking about unpredictability, Brazil in particular. So we don’t view that situation as indicative of any broader shift across our other markets, including those in Latam. You know, each country in Latam has its own political and regulatory dynamics. You know, for example, in Colombia, the new president’s pro-business approach provides a constructive backdrop for us and we’re positive about that. As you heard earlier in the remarks, Mexico, another important market for us. You know, the current administration there has really focused on strengthening enforcement to protect the existing legal framework, which ultimately we believe is better for the consumers and the country. So we think generating sustainable tax revenues and protecting consumers will win out ultimately.
And I think what you saw in Brazil is a little bit unorthodox and certainly something that we’re monitoring closely to see if there’s potential to change back, revert back to the way it was before, or maybe with a different type of framework that could be regulated. So I think that’s a unique market and we kind of look at it very, very carefully. But I don’t think we’ve seen that kind of conversation or other types of negativity about the industry the way we have seen from the current president in Brazil.
Jeff Stanchel (Analyst at Stifel)
Sorry, I think I might have misphrased my question a little bit. I was more asking in terms of competitor changes in competitor behavior and investment. If you think Brazil goes away, you lose a beachhead market. Do you think some of the global operators that you compete against might pull some of the investment in the region? Or conversely, do you think they could reallocate some of the customer acquisition spend that they were investing into Brazil into some of the other markets?
Richard Schwartz (Chief Executive Officer)
No, it’s a good question and it’s something that we’re monitoring because certainly there were some competitors in Brazil that had a big, big operation that have been, you know, making progress in places like Colombia. So I don’t think it’s clear to us yet exactly what their approach will be. I think you could make an argument that if, if you’ve got a big business going away and you’ve got to kind of hunker down a little bit, that you don’t invest as much, but you also could take the other side of that, that you need to find a new place to try and grow in.
So I’m not sure it’s clear yet what position some of those competitors are going to take. And a lot of those larger competitors in Brazil also have very big businesses and opportunities that are expanding over other European markets as well. So I think you have to balance between all the different jurisdictions, including some of the markets where they would consider the core markets. I think when things like that happen, you might have a tendency to want to reinforce and invest in your core markets.
Jeff Stanchel (Analyst at Stifel)
That’s helpful. Thank you. Then for our follow-up, maybe just two quick housekeeping items. First, was there, you know, any material impact from hold in the quarter worth calling out? And then second, Kyle, can you just confirm for us the 4.3 million one-time gain in G&A, was that included in the guidance that you put forth last quarter or not?
Kyle (Investor Relations)
So on that, on your second piece, it was not included in that—in the guidance that we had offered up in July. And then on hold, as you can imagine, as usual, there’s not much fluctuation. Hold on iCasino; on the sports side, for the full third quarter, it was generally in line with expectations. It was far more house friendly in July than it was in August and September, where outcomes were much more player friendly. In fact, September was the worst sports hold that we’ve seen this year in both Latin America and the US.
Just to put that in perspective,
Jeff Stanchel (Analyst at Stifel)
That’s helpful. Thank you very much.
Kyle (Investor Relations)
Thank you.
OPERATOR (Moderator)
Your next question from the line of Jed Kelly with Oppenheimer. Jed, your line is open. Please go ahead.
Jed Kelly (Analyst at Oppenheimer)
Hey, great, thanks for taking my question. Just on all the new players you’ve acquired in North America, is there anything different you’re seeing in their playing behavior relative to some of your older cohorts?
Richard Schwartz (Chief Executive Officer)
So I think we’ve talked about this before, but I’d say generally the expected player values are lower on these newer players than they would have been a year or two years ago. There’s no question about that. And I think it’s what you’d expect as markets mature and you’re digging a little deeper for new players to come on. But nothing else notable that I’d share there. I guess maybe the one little piece that’s probably clear is that, you know, relative to several years ago in North America, almost all of our players are coming in as casino-first players because that’s where we’re investing those dollars. So that would be some element of change from several years ago, but not necessarily from, say, last year.
Jed Kelly (Analyst at Oppenheimer)
Got it. And then, you know, just as a product question, you know, we’ve sort of seen a popularity with, you know, ripped digital cards. Is that something you would explore for loyalty or putting in your product?
Richard Schwartz (Chief Executive Officer)
Yeah. So it’s an interesting category. And what you’re seeing is that when states don’t legalize the product consumers want, ultimately companies look for alternative ways to meet that demand. And so what you’re starting to see with things like the cards on a standalone basis, some operators are essentially giving players a mystery chance to buy cards, and then they guarantee a buyback at 90 or 95% of the price, which does introduce some legal risks that we obviously are very aware of.
But what I will say is that there are some mechanics to those products and features there that are interesting. And clearly there’s demand there. So we are looking at options for how we can incorporate features like that into our ecosystem—do it in a clearly legal and regulated fashion.
Jed Kelly (Analyst at Oppenheimer)
Thank you.
OPERATOR (Moderator)
There are no further questions at this time. I will now turn the call over to Richard Schwartz, Chief Executive Officer, for closing remarks.
Richard Schwartz (Chief Executive Officer)
Thank you again for joining us today. We’re encouraged by the strength of our business and the opportunities ahead. And we look forward to updating you on our progress when we share our fourth quarter and full year results.
OPERATOR (Moderator)
This concludes today’s call. Thank you for attending. You may now disconnect.
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