DraftKings Inc.

Ladies and gentlemen, thank you for standing by and welcome to the DraftKings second quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Stanton Dodge, Chief Legal Officer. Please go ahead, sir.

Good morning, everyone, and thanks for joining us today. Statements we make during the call that are not statements of historical fact constitute forward-looking statements that are subject to risks, uncertainties, and other factors that could cause our actual results to differ materially from our historical results or from our forecast. We assume no responsibility for updating forward-looking statements. For more information, please refer to the risks, uncertainties, and other factors discussed in our SEC filings. During the call, management will also discuss certain non-GAAP measures which we believe may be useful in evaluating DraftKings operating performance. These measures should not be considered in isolation or as a substitute for DraftKings financial results prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to the most directly comparable GAAP measures is available in our quarterly report on Form 10-Q and our current report on Form 8-K filed today with the SEC. and our earnings presentation, which is available on our website at investors.draftkings.com. Hosting the call today, we have Jason Robins, co-founder, chief executive officer and chairman of DraftKings, who will share some opening remarks and an update on our business, and Jason Park, chief financial officer of DraftKings, who will provide a review of our financials. We will then open up the line to questions. I will now turn the call over to DraftKings co-founder, chief executive officer and chairman, Jason Robins.

Good morning, everyone. Before I begin my remarks, I want to thank all of the healthcare providers across the country who continue to help fight the COVID-19 pandemic, the essential workers who keep our lives moving forward, as well as our employees for their continued focus and dedication during this unprecedented and challenging time. I continue to be tremendously impressed with the productivity of our employees across all of our functions, especially our product and technology teams, and we are driving our priorities forward even in a work-from-home world. We at DraftKings have had many conversations with our employees, our executive team, and our board to listen, learn, and reflect on how we as an organization can do better to support and foster racial equality in the fight against injustice in America. We believe that the best innovation comes from diverse perspectives, thoughts, beliefs, ideas, and experiences. We work hard to foster a culture of inclusion and belonging that makes our employees feel safe, empowered, engaged, championed, and inspired to be the very best. As a first step, we hired a head of inclusion, equity, and belonging just under a year ago and together have committed to allocating at least $1 million annually to support our company's goals, with progress already being made. Some examples include ongoing inclusive leadership training at all levels of the company, including training to better understand behavioral and conscious bias, micro-messages, and signals. Enhancing our support and fostering of diversity within the organization through more targeted efforts on college campuses and increased partnerships for non-traditional pipelines, among other things, such as boot camps. And we have established global business resource groups to ensure our employees feel supported and heard across the organization. We will continue to grow our efforts to support our employees, our fans, and our communities. I'd also like to thank our investors, large and small, and give a special welcome to those investors who joined to support us on our journey with our follow-on equity offering in June. On today's call, I will cover four main topics. First, I would like to share a little insight into our performance over the last few weeks since major sports have begun to return. Second, I will share an update on our recent state launches and the pipeline of new states. Third, I will review our recent product innovations and exciting new releases. and finally I'll provide an update on the integration of our B2B business and the migration to our in-house proprietary technology platform. We had a strong second quarter given the limited sports calendar with second quarter pro forma revenue of $75 million. As sports have started to return, we saw revenue improve sequentially each month in the quarter with June revenue increasing 20% year over year on a pro forma basis. The strong overall results and improvement are due to our product innovation, our entry into new jurisdictions and pent-up demand for sports betting as live sports like golf, European soccer, NASCAR and UFC started to return. To give you a sense of demand in the absence of major sports, I wanted to provide a couple of highlights. Top NASCAR races, which has traditionally been a niche sport for us, saw similar action to popular NBA regular season games. In golf, prior to this year, our top event of all time was the 2019 US Open. Since the restart of the PGA Tour, The momentum we saw in June accelerated with the return of MLB, the NBA, and the NHL in late July and early August. As a result, we are seeing continued year-over-year revenue growth in the first part of Q3. Not only did the Yankees-Nationals game on opening night set records at DraftKings It was also ESPN's most watched opening night baseball game ever and the most watched regular season baseball game on any television network since 2011. In the first two weeks of MLB's return, we saw three times the handle compared to the first two weeks of the 2019 MLB season. In the first week of the NHL's return, our handle was more than twice the handle of the first week of the 2019 NHL playoffs. With the NBA, Christmas Day 2019 was our highest handle day All of these statistics I've provided are just to give you a sense of this unique period and are on a normalized basis in that they do not include the effect of new states and are not necessarily indicative of our future performance. As you can see from these fantastic statistics, there is clearly pent up demand that is compounded by a truly unique sport calendar. A byproduct of this demand is that we are seeing very strong marketing response rates in return on advertising spend. And in response to these great returns, we intend to invest to expand our leadership position in the market. We are really excited that sports have begun to return, but we all realize that there have been and may continue to be hiccups in the sport calendar in the back half of the year. We think leagues and associations are doing a great job ensuring the safety and health of the athletes and staff, and we are optimistic that sports will continue to be played as scheduled. Even if there are short-term hiccups, we have more conviction than ever in the long-term prospects of this industry and of our competitive position. Turning to legalization trends, we are extremely excited to have been one of the first to launch sports betting in Colorado. We also launched iGaming in Pennsylvania in the second quarter. More recently, we launched iGaming in West Virginia and sports betting in Illinois. With these launches, DraftKings is now live in nine states for mobile sports betting and in three states for iGaming. and as you know, Virginia and Tennessee have already legalized online sports betting and Michigan has legalized both online sports betting and iGaming. These three states account for 8% of the U.S. population. Separately, we are working together with state officials on regulations and licensing and look forward to launching as soon as possible. Finally, we are seeing great momentum across multiple states and continue to work to bring legal sports betting to more Americans. In the second quarter, We continued to develop innovative content and products. This is a key component of our long-term strategy and has been critical to keeping our existing users engaged if sporting events were suspended or postponed. With the Match 2, we elevated our content to engage consumers during a time when very few sports were being played. This event broke new ground in terms of integrations and customer engagement, with the broadcast showing live odds for the event winners as well as a variety of exciting in-game markets. The Match 2 is our biggest golf betting day ever, and we believe that event just scratches the surface of potential possibilities for similar integrated content. As another example, we significantly expanded our esports offering and have seen exponential growth in this category. We added popular Madden-simulated games and began to include streaming sports within our app, which has become a very popular feature. In fact, since the return of the NHL, the NBA, and Major League Baseball, Users have continued to engage with esports, which gives us confidence in that product's future. We launched a variety of free-to-play pools that covered everything from politics to the NFL draft as well. And more recently, we continued to align ourselves with fun moments in American culture, like the 2020 Nathan's Famous Hot Dog Eating Contest that was held in July. We also launched our standalone casino app for iGaming in New Jersey, Pennsylvania, and West Virginia. This app is geared towards the casino-first player and features the same seamless single-platform wallet experience that users are accustomed to from DraftKings. As we think about the future, we know that the best product and technology combined with innovation focused on the U.S. sports fan will be the winning combination in this industry, and I am excited about the continued innovation that we see from our team of approximately 850 engineers. Our engineers are delivering on an innovation-laden product roadmap empowered by our own vertically integrated technology staff. In terms of our organizational migration and integration of that technology stack, I could not be more pleased with our progress. We are on track with the technology migration and our business integration and are working together extremely well as one company. Our technology migration is on track to be completed by no later than the end of September 2021. When the migration is complete, our vertically integrated proprietary sports betting technology will create a sustainable and differentiated advantage for DraftKings. Looking forward, with over $1.2 billion in cash on our balance sheet and zero debt, DraftKings is well positioned to build upon the growth of the online sports betting and iGaming market in the U.S. We will continue to bring new and innovative products to the market that strengthen our engagement with customers and maintain our competitive differentiation. Our second quarter performance validates this approach and is a testament to the company's resiliency and our ability to respond in real time to changes to the sports calendar. The U.S. market is still in the early stages with many years of growth ahead. We will continue to invest in our core competitive advantages to grow and lead the way in the digital sports, entertainment, and gaming industries. These competitive differentiators include our mobile-first DNA and our relentless focus on user experience. Our commitment to the development of innovative products is the primary means of engaging and retaining users built on our proprietary vertically integrated technology platform. Very high brand awareness and trust in addition to a large and growing customer base that includes potential customers in states which have yet to legalize online sports betting and or iGaming. Our proven technology allows us to enter new jurisdictions quickly and effectively, including our single wallet and scalable regulatory platform. Our strong data science and capabilities around cross-sell and our ability to operate a highly analytical and data-driven marketing machine at scale. These strengths have served us well as a DFS operator and will also differentiate us as a digital sports entertainment and gaming company. From a financial perspective, our business model features compelling unit economics due to our strong LTV and CAC metrics, which are driven by our DFS database and strong brand recognition, as well as our marketing and cross-sell capabilities. Additionally, we have a state entry playbook that has proven to be both successful and supportive of long-term profitability in each jurisdiction we enter. Our focus areas for the company remain the same. We are lasered in on entering new states as soon as possible. We believe that the best product is what will ultimately win with the US sports fans. As a technology-first organization, we will continue to invest in our capabilities as we look to stay ahead of the competition and truly differentiate our products. Also, we continue to work towards migrating to our own proprietary technology platform. We will be taking advantage of unique CAC opportunities in the second half of 2020 as we are seeing strong response rates signaling what could be a very productive NFL season from a customer acquisition and activation perspective. And lastly, we will continue to explore opportunistic M&A. By executing on these focus areas, we will build the best, most trusted, and most customer-centric destination for skin-in-the-game fans, offering the most entertaining real-money gaming products that will forever transform the way people experience sports. I will now turn the call over to DraftKings CFO, Jason Park, who will discuss our second quarter results and outlook for the rest of 2020.