Good afternoon, everyone. Thanks for joining us. My name is Bernie McTernan. I am the internet and consumer tech analyst here at Needham & Company. My pleasure to introduce Richard Schwartz, CEO of Rush Street, and Kyle Sauers, CFO. Thank you both so much for joining us this afternoon.
Thanks for having us, Bernie. Great to see you.
Thanks, Bernie.
Great. Maybe just to start, would love, you know, early part of the year, what's at the top of the priority list for 2024 for you guys?
So there's three things I think I can think of that I would like to share. One is casino innovation, particularly, innovation as a company, particularly in the iCasino space. We've built over 11 years our casino experience, and I would say the last few years we were launching a lot of new markets very quickly in sports betting. We weren't able to apply all the energy, focus, to this roadmap we have that we're really excited about. So now we have been doing that, and we have a lot of new innovation coming to marketplace and differentiation. So I think that's been a foundation of our company from day one. We have a DNA in our business is to really understand the consumer psychology, and we're building a lot of unique features we're really excited about to differentiate our user experience.
So players stay with us, and find us, they stay with us. That's been a big key of our, our focus of ours. That's been a big focus for us. Second thing is really growing our North American markets, particularly casino markets. There's been some new market opportunities that we've recently launched December 27th in Delaware. It's been a successful launch. We're pleased so far. I'm sure we'll discuss it more later in the discussion. We're also continuing to focus on getting new markets in North America legalized. You know, New York just dropped a bill for legalizing online casino. We're very excited about that opportunity. Maryland's gonna be doing the same.
Alberta in Canada, it looks like they're putting into their budget possibly this year to have a commercial framework in place, so that's another exciting development in North America. But what I think is also the third priority for us, which is very unique to us, is that we are very focused on Latin America and growth there. We have a great business there already. It's growing at a very, very fast rate in Colombia and Mexico, and we're excited that a couple of major other markets have legalized online casino and sports betting at reasonable tax rates, and the intensity of the competition isn't as it is in the US. So we feel very excited about the ability to go after some of those new and profitable market opportunities.
So expansion is on the horizon, and we don't have to wait necessarily for U.S. states to legalize. We have other levers to pull that allow us to have a lot of growth opportunity moving forward. So all the output of all these, these, these areas of casino innovation, new markets in North America and Latin America, the output of all this is that we see a significant opportunity to improve profitability compared to 2023. You know, for context, in 2023, you know, we had a major improvement of profitability compared to 2022. In fact, we announced in our Q3 earnings call that we had improved year-over-year Adjusted EBITDA by over $70 million.
So we've already demonstrated an ability to really improve our profitability, and the things I described to you above are all things that we expect to continue the same.
That's great. Maybe shifting over to competition certainly has moved back to a front-burner issue for many investors following the online sports betting industry. Would love to get your thoughts on just categorizing the competitive intensity of the industry at the moment, maybe especially in the second half of the NFL season once ESPN BET launched.
Sure. I mean, Bernie, this business is always very competitive, and so we're very proud of how we compete and achieve a lot more with less investment. It's hard to really tell where, you know, who the, who the growth might be impacted in referring to ESPN. I can tell you that we're very pleased with our Q4 results, so I wouldn't suspect it had any negative impact on us so far. It's. I'm not really sure there's enough evidence yet to conclude anything on the ESPN BET impact on the market size or the value per player, things that we track. But I believe it's true that they are bringing players into this space, new customers, that may not otherwise have been in there before.
That's a positive for us, especially since we know new players over time are gonna try multiple brands, and so we expect some of them are gonna play with us and bet with us. You know, it has forced us over our... as we mature as a business, to become more and more efficient with our player acquisition. So we haven't seen any impact on cost to acquire, so we feel pretty good about the competitive environment right now.
Got it. And then, you know, another issue that investors are focused on right now, is just sports outcome within the Q4 . I think particularly November and Thanksgiving was a difficult month for a lot of operators. Is that something you saw? Or, yeah, we'd just like to get your thoughts in terms of just the NFL game result as a, you know, transitory impact in the quarter.
Sure. We haven't reported Q4 results yet, so we haven't commented, you know, publicly on Q4 hold. But as usual, you know, there were some tough weekends in November, and there were some good ones the rest during the quarter. You know, but what I think is important to note, for a business like us, with 70% of our revenue coming from iCasino, the hold percentage on sports is less impactful for us, and the hold in general is more consistent for us than it is for others in the space.
Yep. Makes sense. Maybe just the last one on competition here, you know, maybe the 10,000-foot view. Just in terms of, you know, would love to get your view on what, like, what you think the ultimate market structure of the industry is. I mean, you guys are a top four operator for iGaming, top five for sports betting. How does that, you know, opportunity change, and do you see the, you know, shifting of the market structure in the, in the coming years, or do you think it's gonna be more of the same?
So we're really focused on things that we can control, of course, which is our own, own business, and making sure we're improving and getting better and stronger in all aspects of it. You know, and our strategy has been to provide a unique and differentiated casino experience, and to always be very competitive in our sports book, and always improving the sports book product, which we've been able to do in recent quarters. So we're very pleased with our continued growth in revenue and the user accounts in Q4. You know, while there's likely some attrition in the industry from smaller operators that just can't make it work, you know, there's room for many of us in both online sports betting and iCasino space.
So I think we've demonstrated ability to achieve a top position in the market with spending a fraction of what others have invested in the past, which does go to user experience. I've been in this industry for over 20 years. At the end of the day, user experience wins, and when everyone else is pulling back on marketing costs and bonusing and things like that, the players are gonna spend their wallet share at those operators they trust, and the ones that deliver a high-quality user experience and where they feel comfortable. And that's what we've constantly positioned ourselves to be, and from day one of building the business, we focused on retention of players. So that's something that's not showing up one day, saying, "Okay, now we've gotta get profitable.
Let's focus on retaining the customers." This is an 11-year development of product, experience, features, functions, seamlessly creating a seamless, frictionless experience for players, automating things for players that other sites don't do, things that make their experience with us better. So ultimately, that's how we've done it, and I think you're gonna still see FanDuel and DraftKings continuing to invest in sports and casino, and everybody is. But you'll see from our performance that we continue to perform very strongly, very consistently because of the quality of our experience.
I think, and Bernie, I'd add on that, and you'll recall from our last earnings call, that despite reducing the amount of investment in player acquisition year-over-year pretty significantly, in Q3 we grew market share in the majority of the markets that we're in, including, I think, eight online sports-only markets. So we're continuing to hold our own, as Richard said, very happy with the way Q4 has played out, and I'd expect us to continue to show really well in market share, as the Q4 results roll in or those months roll in.
And just thinking about that, 'cause those were... I remember those were some impressive stats you gave on the market share standpoint. I mean, do you think it's, Richard, what you were talking about before, where it's you're able to kind of pivot in terms of just launching as, you know, in all the states to then focusing on the product, or is there anything else going on that we should be aware of that's that you think is driving market share?
I think it comes down to user experience and getting better and better. Remember, we came into sports years behind others when they were starting, and some of the daily fantasy companies have been operating for years, and the, you know, fantasy sports that had relationships with all the sports teams, the leagues, the media personalities. So it's taken us time to develop those relationships ourselves and to grow the user experience to the point where we have. So we have a lot of things working for us in a really strong way as we mature.
I think we've improved our experience at a faster rate than I'd seen anybody else really do that, which now makes us very strong as a competitor in the online sports betting market, which is why we've been able to grow share in many markets, despite spending less on marketing, which is an unusual thing to see happening in the market, which does show you that players are happy with us. So I think there's a lot of things we're working on improving as a business constantly. One thing is CRM. That's the player messaging, communicating with players, making sure you hit them with the right message at the right time. Well, we always have done it. We've actually elevated our focus on investing in the right resources to deliver even stronger results in that area.
So you combine that with a better focus on fewer markets, but delivering better results in those existing markets, focusing more on casino markets, Latin America, I think the story starts to tell you about a business that's performing very well and has a lot of advantages in terms of the user experience that others haven't been able to replicate.
Got it. Understood. Maybe shifting over to some of the financials more, and in particular with the U.S. revenue. So I, I think one of the tough things for investors looking at any online sports betting company is that we just get, you know, NGR, you know, that's the revenue that's reported to us, but there's a lot of different factors that are moving, you know, hold, handle, like, MAU growth, lower promotions. What were some... For, for Rush Street, what were some of the, you know, levers that contributed to growth in 2023, if we think of maybe some of the, the major variables that, that drove it in the U.S.?
Right, you mean, you mentioned that monthly users, the handle per user, the lower promo, the higher hold. Honestly, it's all those things are working for us. You know, we're growing active users in existing markets. We're consistently reporting the highest player values in the industry, which is in the form of, you know, ARPMAU. You know, you're right, that the promos have continued. You know, I've heard you say promos are declining in the industry. And that's true, which is a good thing for us, and it's a good thing because it improves the conversion from gross revenue, gross gaming revenue to net gaming revenue. And so, you know, we've been improving our hold percentage in sports in particular.
We've made a big concerted effort over the last year to focus on things like product mix and player mix to achieve those results, and we've seen that paying dividends for us. In addition to improving the product, right? So it's player mix, focusing them on the right player, the betting mix of the players as well. We've put a lot of focus into not just the old parlays, like the rest of the industry, but we really have led the industry on creating a consolidated, easy-to-use way for player prop bets. We've seen how popular player prop bets are, so we've now unified them into a single, easy-to-access location to make a lot of player prop bets in a way that other sites don't do.
And that's helped to elevate the number of player prop bets we have, which is, again, a higher margin bets. We're also, as I briefly mentioned a few minutes ago, continuing to invest resources in people and technology, including the CRM space, which ultimately improves player retention, which is all that matters in our industry, is how do you retain those customers that find you? And when they find you, do they stay with you? So all these things working together will have a positive impact on revenue growth, obviously.
Just because you mentioned a few times, the CRM system, so is that like emailing, messaging players or just you know push notifications? Like, would love to just get some tangibles-
It's a combination of all, of all of those, actually. You're having different players in different cohorts by different sports, different types of player levels, and you're microsegmenting them so different players get customized messages. There's all kinds of user flows. If a player signs up and doesn't deposit, they get this set of messaging. That's the thing that's things we've done forever. But it's really the real-time ability to hit different player segments at different time periods with real-time messages, whether through email or most likely these days, it's more often through mobile push or text messaging.
But to make sure you're giving the right players the right promos that are gonna activate them, knowing what teams they've bet on in the past, and making sure you're giving a promotion on odds was relevant for something they care about, and being very personal with your CRM. Those are the things that we think have some growth opportunities for us, and we're investing a lot in the tools and technology to implement some real-time capabilities beyond what we've been using in the past, and to continuously invest in resources and high-quality talent to be able to deliver better results in that. And that just goes to retention of customers, which, as I said earlier, is the financial engine of our industry.
Right. Right. And then, you know, we talked about kinda what some of the growth levers were for 2023. As you know, I'm not asking for guidance here, Kyle, so don't worry. But in terms of what, you know... Like, where is there still, like, a lot of room to grow in terms of, like, you know, either promos coming down more, sports hold going higher? Like, what kind of those operating levers get you, you know, most excited about for 2024?
Yeah, I mean, there are a lot of things to be excited about. You know, we've closed the gap pretty nicely on sports hold that Richard was referencing. We think there's room to improve that further. I think the player engagement and re-engagement back to the CRM activities, we think there's a lot of opportunity to grow our user base and drive a lot of revenue growth there. And then obviously, we've got the new markets that Richard's talking about that could open up. But then we also launched in Delaware just a few weeks ago, which is an exciting development for us.
Yeah. Why, why don't we stick on Delaware? You know, how is it going? I know it's early, but how is it going so far?
Yeah, I mean, it's off to a fantastic start. You'll recall we took over from an existing operator that was offering online casino only in the marketplace, exclusively. We're very proud of our iCasino product and the unique and differentiated experience, as I referenced earlier. We think the players really notice it and appreciate it. We think Delaware players are going to appreciate just how special our online casino product is in a way that maybe is easier for our investors to recognize, right? Because we're swapping out one platform for another, and if you see a disparity, then I think you start to realize the quality of what we offer.
As for player acquisition, you know, we can work—we're gonna work to bring in some additional customers in Delaware, and we have previously put some efforts in. So, we're doing some marketing. We're gonna start marketing pretty soon, so we'll have the opportunity to really showcase our new product. We are also offering in Delaware, for the first time, online sports betting through us. So it's exciting to get the first chance to engage with an audience that's currently really only betting on sports in adjacent states like Maryland and Pennsylvania. Now they have a chance to bet on sports with BetRivers in Delaware. So, we've taken a very measured approach with marketing. Haven't really started the marketing yet, but we plan to, which will even grow our opportunity size in that market.
But I would say that, you know, it's been a really strong launch. They've been working closely with the racinos there in the state, working with the lottery and the marketing and the messaging, and we're just rolling things out and we're excited for the growth ahead. But I think, you know, it's been a really, really-
Yeah, you-
... great start.
Maybe I'll give some context just on financially or metrics, how it started off here. So, just as a reminder for those that don't know, the prior 12 months of iCasino revenue that was reported in Delaware, but this is prior to us launching, generated about $13-14 million in GGR. We launched on December 27th, so we'll set aside the first 5 days of December and just focus on January. If you look at just the first 2 weeks of January, we're on an annual run rate of over $60 million in GGR. About two-thirds of that GGR is iCasino, and the other third is online sports betting.
So if you just compare the online casino results so far, essentially, you know, the replacement and upgrade to our online casino platform, we're running at about 3x what the previous operation was. And then obviously showing really strong results so far in online sports betting. So, you know, we're only a few weeks in here, and there's a lot of additional game content to come on the platform. We'll be bringing players on, as Richard was talking about, and revving up the marketing engine a little bit more, but really excited about how it's starting out. We'll share more context on our earnings call about trends with a little more time baked in, and talk about maybe the impacts on profitability.
We said this before, that, you know, Delaware will be a profit contributor for us very quickly here.
Great. That's great. And then, so thinking about, you know, being the exclusive operator in the state, how does that change your customer acquisition strategy? And especially thinking about, you know, the potential, you know, EBITDA profitability of that state relative to others.
... Well, I think it just, we're working very closely with the lottery on the marketing. I think being able to market to the players and deliver messages, and there's three different brands there that are operating, and we're working very closely with each of the local racino, casino operators there to get messaging that is appropriate for their brand and to deliver the kind of value they want in the state. And so I think we're really excited about the potential to have the online business work really closely with the land-based casinos in the state to help generate tax revenues between the two, the convergence between the two.
I think being exclusive, you know, you do have different offers at different sites, and there's a lot of opportunity for us to leverage the fact that we have multiple brands on running on the same platform. We've had a lot of success doing the same thing in Pennsylvania, where we have two brands running off the same platform. So in Delaware, the thing that's unique is there's now, you know, three of them instead of two. But again, we are working with the lottery on the strategies for the marketing of that and how we wanna promote it, the products, given the unique situation that exists in that market.
Got it. And then, you know, Kyle, the numbers that you mentioned, the $60 million annual run rate in the first two weeks, I mean, that's obviously significant because you haven't even started marketing yet, right?
Yeah, we're, like we said, and I'm sure you can tell from our tone, we're pretty, pretty excited about the results there. And it's... There'll certainly be some marketing that kicks in. We've done, we've done a tiny bit, but it's not material yet. And so we think there's a real opportunity to show people what we have and get them excited about a new-and-improved iCasino platform, but also online sports betting that they didn't have access to before.
Right. That's great. Want to, if unless there's anything else on Delaware, just wanted to shift over to temperature on just getting your temperature on the other potential new states coming on board. So, Richard, you mentioned some in the beginning, but so do you think this is the year of New York? I mean, we've been talking about it for a while. Do you think that we, they will finally have access to iGaming?
Well, there's a real serious effort being made, and a lot of the stakeholders are really supportive of it and have been. It's been a long process to get to this point. You know, I think the legislation is really smart and thoughtful and addresses a lot of the needs of the various stakeholders. The online industry, our competitors online, have never been as unified as they are now about legalizing online casino. You know, FanDuel and DraftKings previously were maybe more focused on sports. I think recognizing the economic benefits of casino has really changed their momentum even more towards supporting iCasino. And then you have other large operators that have large land-based casino businesses in this country, also recognizing the value of having online players in their ecosystem.
So MGM and Caesars, and PENN and others are also lobbying in favor of it. So you have a real strong opportunity there that seems realistic. And don't forget, the state of New York is, you know, $4 billion in the budget shortfall. And, you know, you're not getting additional revenues from the federal government for things like the COVID that you had for several years. It worked its way through the system. And adding online casino is one of the easiest and quickest ways to add tax base without really incurring a lot of additional costs for the regulatory environment, because online casino is relatively easy to regulate versus, you know, sports betting even.
So it feels like it's a real opportunity there, and I've learned years ago not to predict, but it feels like a real exciting opportunity. And for us, we will get an outsized benefit if New York legalizes it because of the stability and our strength in iCasino. In fact, we're already one of the few operators operating in that market. And we've been seeing some nice growth in our sports betting business in New York as well. Despite having a very limited budget, no budget, really, in the marketing there, we've been able to grow our share there and see some strong results in New York. So we're very excited by the opportunity there, and we're hopeful that there is progress that is made as hoped this year.
Great. And what's the other side of the argument? Because, you know, we're as investors, we always hear from the sports betting operators in terms of what the benefits are, but I mean, clearly there's another side of the argument. So what is the opposition or the latest on the opposition to-
Well-
- online sport or to iGaming?
No, there's a couple. I think one of them is labor unions were concerned that maybe investing a lot in online could hurt the job for land-based casinos. Now, the good news is that, if you really look at the data from all the other states that have gone ahead of New York in legalizing, you'll see that online casinos still stay the same or grow after online gaming is introduced. So you don't have a need for less employees or labor market supporting those casinos. I think it's pretty clear that those jobs are safe. Now, you know, you can bring additional jobs, not as many as you do in a land-based casino, but if you put live dealer and things like that in a state, then you do create some additional jobs, which is another counterpoint to that.
Another reason why I think there's the other sort of factor in New York that I think has in the past been a concern, is there an impact or not? Now, we've seen across the country that the counterpoint is that it doesn't impact, and online grows the pie for the state, and both can be very healthy together for many years. Even if you look at a market like British Columbia, where they have the lottery running online and land-based casinos for years, both have grown consistently for decades. So you see they both coexist really well and grow together.
The state makes the most money ultimately from having both, but I can see there is some opposition potentially from companies wanting to sort of know who's gonna win those licenses and what is their view on online gaming.
Got it. Okay, great. And then you mentioned Maryland, Alberta. Anything else to discuss on this one, or happy to move on as well too, if that's it?
I think that's enough. Listen, I'll just say that... All the money is being spent by our competitors on sports for the years, and now they're allocating real funding towards, you know, lobbying for iCasino, which makes a big difference. Because when you go to a legislator's office and you have our own industry disagreeing over priorities, it's hard for them to act. When you have everybody aligned as you do now, things will start to happen in a way that you haven't seen before, and you have some suppliers in this space that have a lot of interest in having more iCasino legalized that are also stepping up and involved in trying to lobby as well. So all in all, I think it's a very positive trend compared to where it has been. Whether it takes a year or two, it's hard to know.
The good news for us, as I said earlier, is that we'd love it to happen and to get profitable within a year, usually in all these new iCasino markets. So for us, it's a huge opportunity. On the flip side, we have these big markets in Brazil and Peru and others down in Latin America that are legal today, or legalized recently, that now we have a chance to grow into. So we have plenty of markets ahead of us to be able to attack.
Great. Well, I think that's a great segue into Latin, which I wanted to hit on next. And I certainly want to talk about Brazil, but maybe just to set the stage, if you can talk about your operations in Colombia. You know, revenue growth over the past, you know, call it handful of months and quarters have been great. So what are you guys doing right to be able to take share there?
Right. I mean, it's an amazing story with Colombia. We came in there starting from scratch, with no one even speaking Spanish in our company, and no one having no brand, no relationships, no database, nothing. And when we got in the market, there was two dominant players, each had about 45% market share, but 90% was aggregated in two operators who had started before regulation in that market, so they had advantages built in as well. And so there's about 18 or so competitors. We launched back in 2018, and we've grown consistently, and now we're at the point where we actually are passing the second-largest operator in that market, and now we've become one of the two largest moving forward.
What we've done is we invested in the foundation and did the fundamentals right from the very beginning. We invested in having a local team, not just a couple of marketers, but an entire organization down there from top to bottom, from all the operations, marketing, payments, legal, finance, development teams are down there. We developed relationships with very powerful and strong companies there that really were adverse to working with gambling companies because of the history in the industry. Because of our credibility, our background, our only being ever operating in legal and regulated markets where we pay local taxes, that's unique for our industry, and so we do things the right way. That resonated with a lot of companies there, banks and retail operators.
We have a partnership with the largest retailer in the country, almost like a Walmart, Amazon combination company, and, you know, they want to work with us because of our reputation. So I think doing things the right way, building the foundation, and now that we've done as well as we have, we're growing very, very fast in that market. Our product has been, you know, is the strongest product in that market, we think in, by, by a long shot in both sportsbook and casino. And what's interesting is that several of our competitors from global competitors have come in the market the last couple of years, spending very, very aggressively, trying to really get in there and capture market share, and they've been unsuccessful. And the reason why, in many cases, is because of the fraud that is hit upon new entrants there.
We spent 10 years refining our technology platform to build all kinds of sophisticated and robust anti-fraud protections, and we have a very secure system. So it allows us to really be able to invest in the right customers and not be blown away by fraudsters, which is something that's a very magnified issue in that country and in all of Latin America. A couple of last things I'll just share. I think that in Colombia, we have a moat that's sort of been established recently from the regulator, where they basically are now, as of this year, they're sort of limiting some of the marketing from companies in the space based on how much revenues you generate in the past year.
So we'll be able to spend a lot more marketing than almost everybody else in the market, and it really will hurt the chances of a newer company coming in, assuming they can figure out how to get all the product right and all the fraud right, and the branding. It actually hurts the ability for them to spend enough to get to the shares that you would need to be more meaningful. So I think Colombia, for us, is a is exciting market. It's growing fast, but it gave us the foundation to be ready for the other countries as we were going to talk about, I hope, you know, Mexico and other countries. And I think what's unique is that you can't just show up there one day. It's much more difficult than people realize.
It's much harder, and it takes years and years and years of development and improvement and building up an infrastructure and a team that's really smart and knowledgeable to be able to deliver those kind of results. So we think we're way ahead of everybody else, and it's at the right time. For the first time in the history of these countries, they're all going through the process of legalizing online gambling. And the margins are higher, typically, for us in those regions because they don't have the same fees from the leagues or the same responsible gaming fees. You don't have to do market access. The tax rates are typically very reasonable, and the quality and intensity of the competition is typically lower than what we see in the U.S.
So for us to be there as we are, is a very exciting, is a very exciting thing for our company and our investors.
Great. That's, that's a great overview. And then, so yeah, shifting over to Brazil, you passed legislation at the end of 2023. I mean, we'd love to get your thoughts in terms of what the timeline is to go live there. And just, you know, thoughts on what the opportunity is, if it's just rinse and repeat, same playbook as Colombia or, or how, how you guys are, are thinking about it.
Right. So, and we got a holiday gift on Christmas when the president finally signed the legislation in Brazil. Just to make sure everyone's understanding, it was really, for years, going to only be sportsbook-only market, and they literally, at the very end, they added online casino. So that is a exciting thing for us, given what I've described earlier, and that really makes the market size even larger. So it is a, you know... Third-party analysts have been predicting that market to be a multi-billion-dollar market. It's a huge market, and we are ready to be able to be successful in the market based on all of our investment we've made in the region. Is it different from other countries? Sure, it is. It's almost like its own continent within South America, given its size.
You know, over 200 million people there are in population of Brazil. And you compare that with Mexico, which is 130, and Colombia, which is, you know, 50. So together you have about 180 million in Mexico and Colombia. You have over that alone in Brazil. You add another 33 million for Peru, and you have a really large population there that's ripe for someone like us to be able to expand into over the in the future. In terms of the actual approach to Brazil, we're not ready to share that yet. Obviously, one key reason why not is that there is regulations that haven't yet been published.
They're being worked on now, and there's a lot of, I saw today even there, there's an announcement the government's gonna hire a large number of staff to support that effort. So it's a very serious effort being made by the government to make this happen and make it happen at a faster rate. We don't know if it'll be a 2024 event or not. Certainly, we, you know, we will be paying very close attention to that. We already have an entity set up down there. That takes some time to process. We already have a lot of strategies, and we're already talking to a lot of potential partners down there that we might wanna work with to get scale faster. So, it's a really exciting market.
Couldn't come at a better time for a company like us, where we've now proven ourselves and have that robustness in that, that part of the world that we're able to leverage into in Brazil. The product will be very similar, which is the most important thing. A lot of companies that are operating there today in the gray market have less quality lesser quality products than what we have. But so when you switch... You don't need it in a gray or unregulated market. You know, everyone just kind of competes with what they have. But I think when it gets regulated, though, you'll see that you need a higher quality technology system and user experience to compete, and that's where obviously we feel we're already top-notch in.
Great. And then just to round out the region, would just love to hear your thoughts on Mexico and maybe, you know, compare and contrasting the opportunity in Mexico versus Colombia, versus Brazil even. And I think, you know, it was really the expectation that it would start to ramp in the second half of the year, and if that has, you know, come to fruition or not.
I'll take the first part, and then I'll let Kyle talk to the second part of the question. Yeah, so Mexico is another super exciting market, casino and sports and legal. The effective tax rate at the end of all the deductions is a very good market for us, so it improves our margins, as does Colombia, for all the rest of our business. The competition there, there's one dominant operator named Caliente, private operator, been there for, you know, 10-15 years. So a lot of smaller operators there that, you know, is not...
Which gives us a chance to really, really be able to tackle the larger one and be able to figure out what their weaknesses are and try to focus on those things to try to deliver results. It did take us, Mexico has a lot of requirements that are not regulatory-mandated requirements in the product, but you see the market competitors are doing certain things that we knew we needed to do as well to be competitive. So we spent a lot of part of last year adding some functionalities and features to our product that isn't required by the regulations, but is required to be competitive in the marketplace.
We completed that, and that's why we've been feeling increasingly confident and sharing openly that we are really excited about the market, because we now feel like our product is ready to go as a top-notch solution in that market, and to really make a run at it. And so I'll let Kyle speak to, you know, performance, information.
Yeah. So Mexico, as you pointed out, Bernie, we've been talking about expectations for Mexico to start to pick up growth in the back half. And we in Q3, we grew revenue sequentially, quarter-on-quarter, 85%-90%, something in that range. Obviously haven't reported on Q4 yet, but seen really nice growth again from Q3 to Q4, and good momentum going into next year. So very excited about how that's trending. The other thing we mentioned on our last call was we're you know, running at about 2x what Colombia was from a revenue generation perspective relative to launch date. So a lot of opportunity ahead there for us.
Yeah, that's great. Especially, yeah, with the product being top-notch now, that's, that's good. You're in a good spot then. Okay, and maybe just, moving over to more the financials and margins, you know, incremental margins, you know, always a focus for investors, but this year, I mean, it's basically like each dollar of, of revenue growth is coming with a dollar of EBITDA growth as well, too. I think a lot of that sales and marketing coming down in, in the back half, but would just love to, you know, get some puts and takes in terms of what's really driving the, the growth and profitability in, in 2023, and, you know, if, if we should expect more of the same in 2024.
Yeah. So your point about reduction in our marketing investments is absolutely true. We're finding ways to attract as many or more players and spending less money, so that's obviously a good trend to see. If you look at the improvement in profitability, Richard mentioned, through the Q3 , over $70 million in profit improvement compared to the prior year. You know, if you just take what we said about being profitable for the full year of 2023, on our last call, that means we'll have even further improvement as we get through the Q4 .
So that's, you know, in rough strokes, probably a little more than half of that is reduction in marketing, and the other half is revenue growth and improved gross margins, and then, you know, all that offset by some modest increases in our G&A investments. I think if you look out to 2024, you know, we'll give more context and more guidance on our earnings call when we talk about 2024, but, certainly we're expecting some nice revenue growth next year. From a marketing perspective, there's some great opportunities for us to invest in a lot of these markets that are still growing. We'd expect that we'll get leverage over our marketing spend once again in 2024.
And we'll continue to invest in growing the business, and so that means some G&A increase, but it's gonna be at a modest level, as we've put a pretty good framework in place to build out this business.
Got it. Okay. And then if we think about, you know, let's say Brazil happened to be a 2024 event, like are we thinking about those being year one a drag on EBITDA and then profitable in year two? Like, is that the right way to think about those potential investments?
Yeah. So one of the things we've shared in the past, obviously, we love the markets that have both iCasino and sports, right? And those markets, historically for us, certainly in the U.S. and Canada, we've been profitable in those markets 4-5 quarters after launch. In the Latin American countries, probably a little bit longer investment, but not a big drag on earnings. But we're gonna make sure that we're investing the right amount of money because, as we've proven with Colombia and on the path with Mexico, there's just great returns from those investments given the advantages we have.
So, there's probably something modest there as an impact, but we'd expect to see good things to come in year two and three.
Got it. And, you know, getting to EBITDA profitability, then we get to talk about free cash flow as well too. Can you just remind us of some just puts and takes in terms of the free cash flow conversion from EBITDA? Like how we should be thinking about working capital, I think CapEx, you know, is pretty small. NOLs, you guys have, like, just, a nice framework for investors to think about would be helpful.
Sure. So, the primary difference between our Adjusted EBITDA that we report and free cash flow, it's gonna be CapEx, which, you know, maybe runs $25 million-$30 million annually. A good chunk of that is internally developed software. We don't have a lot of other, you know, hard asset CapEx investments that we need to make. Another piece of the difference between the two would be taxes that we need to pay. Income taxes are—just to clarify, our gaming taxes run through our cost of revenue on the financials, but income taxes, right now, for the most part, those are only being paid in Colombia. So that's reflected in the free cash flow that you see today.
And then, our working capital, generally, we get a benefit there with growth, as our payables and accruals grow, and we don't have any receivables. You mentioned NOLs. We do have some fairly sizable NOLs that we'll be able to use over the coming years, kind of depending on where our income is generated from. But I think it's fair to assume there's not a significant U.S. income tax impact for the next several years here.
Great. Well, it looks like we're pretty much out of time, guys. So, thank you so much, Richard and Kyle. I really appreciate you guys being part of the Needham Growth Conference, and thanks for everyone who tuned in.
Thanks for having us. Thanks, Bernie.