DraftKings Inc.

Ladies and gentlemen, thank you for standing by. And welcome to the DraftKings Q4 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 to your speaker today,

Tanton Dodge chief legal officer please go ahead sir good morning everyone and thanks for joining us today statements we make during this 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 that 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 annual report on Form 10-K, filed today with the SEC and in our earnings presentation, which is available on our website at investors.draftkings.com. Hosting the call today, we have Jason Robbins, 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 Jason Robbins.

Good morning, everyone. Before I begin my remarks, I would like to let everyone know that we published our first ESG report on Monday, February 22nd. The purpose of this report is to share with our stakeholders how we think about different environmental, social, and governance factors and highlight those that are most relevant to our business. We are committed to creating a long-term positive impact for our stakeholders and ensuring that we are aligned with our shareholders. Our board and management team are also committed to further integrating ESG considerations into how we set and reach our goals. The report discusses the key ESG topics that impact our operations and stakeholders. These topics include, among others, human capital management and responsible gaming. Our business success is driven by our highly skilled workforce. We believe it is very important to create and foster a culture of inclusion and belonging that makes each of our employees feel engaged, empowered, and safe. In addition, DraftKings became a flagship brand by providing a responsible way for gaming and sports enthusiasts to interact with our products, and we continue to lead and innovate in all areas of responsible gaming. Our ESG report is posted on our investor relations site. This is the first step of our ESG journey. We look forward to working together to achieve meaningful environmental, social, and governance progress. On today's call, we will cover the following topics. First, I will share some insights into our accomplishments for the full year and fourth quarter. Next, I will provide an update on our recent state launches. Third, I will provide an update on the migration to our in-house proprietary sports betting engine, as well as updates on some other important marketing and product-related initiatives. 2020 was a remarkable year for DraftKings. I couldn't be more proud of our employees for all their hard work and contributions to our success. The excitement and pride we have for our company's success over the last year is balanced with the recognition of how fortunate we are to be able to make such statements. Our priority continues to be the health and safety of our global workforce and their families. The successes achieved by drafting in 2020 would not have been possible without our employees, all of whom were impacted by COVID, including some who lost family members. Each and every one of our employees played incredible fortitude and flexibility. Our list of accomplishments in 2020 is impressive. We completed the business combination with SB Tech and became a publicly traded company in April. We are well on our way to completing the integration of the two companies from a team organization and business standpoint and are progressing with the migration to our own in-house sports betting engine, which we expect will be complete by the end of the third quarter in 2021. We also completed capital raises in June and October, raising net proceeds of approximately $1.7 billion. We launched mobile sports betting in Iowa, Colorado, Illinois, and Tennessee, and iGaming in Pennsylvania and West Virginia. With the Match 2 in May, We engaged with our customers in new ways through broadcast integrations that showcase live odds for event winners and other in-game markets. We continued this innovative approach to the content integration we did with other events such as the Match 3 and the Mike Tyson vs. Roy Jones Jr. Boxing Match in November. We built relationships with major media companies, including ESPN and Turner Sports, as well as with professional sports teams, including the Chicago Cubs, the New York Giants, the Philadelphia Eagles, the Nashville Predators, the Detroit Pistons, and most recently the Charlotte Hornets. We also expanded our relationships with major sports leagues and organizations in 2020, including Major League Baseball and the PGA Tour. We strengthened and diversified our board by welcoming Jocelyn Moore and Valerie Mosley as board members and Michael Jordan as a special advisor to the board. And yesterday, we announced the appointment of baseball legend and entrepreneur Cal Ripken Jr. as an additional special advisor to the board of directors. Earlier this month, we promoted Jennifer Aguirre to be our Chief Compliance Officer reporting directly to me. Jennifer joined DraftKings in 2016 as Head of Compliance and Risk and led the development of our internal compliance program. As our Chief Compliance Officer, she will be responsible for overseeing corporate compliance and enterprise risk management and will continue to play a pivotal role in our growth. Turning to our financial performance, we exceeded our expectations in 2020. Proforma revenue grew nearly 50%, to $644 million versus $432 million last year. Both MUPS and ARTMUPS grew 29% in 2020. We had a strong close to the year with Q4 revenue growing almost 100% year-over-year and MUPS and ARTMUPS growing 44% and 55% respectively in the quarter. Revenue for the year was almost $95 million higher than the midpoint of our guidance. These results were due to overperformance in our core business, as well as multiple assumptions on external factors that broke our way, such as the sports calendar, the extension of mobile registration in Illinois, and better-than-expected whole percentage in online sportsbooks. Looking ahead, I remain very confident in the continued growth of the online sports betting and iGaming markets in the U.S. Even in a market like New Jersey, where we've been live for two and a half years, substantial growth continues. Our handle in New Jersey grew over 100% in 2020, and we are profitable in the state despite the impact of the COVID pandemic. We are raising our revenue outlook for 2021 due to our expectation for continued growth, the outperformance of our core business, and newly launched states that were not included in the guidance we shared in November. Jason Park will provide more details in a few minutes. Turning to new U.S. states for drafting and legalization trends, in the fourth quarter we launched sports betting in Tennessee. In January, Iowans were able to register via our mobile app rather than in person at a retail casino. We also launched mobile sports betting and iGaming in Michigan, and we launched mobile sports betting in Virginia. As you can see from the Tennessee Lottery's monthly sports gaming report, the state has gotten off to a very strong start. The state of Tennessee had the best two-month launch in U.S. sports betting history with over $300 million in handle on its first two months of operation, including 38% month-over-month growth in December. As a result, sports betting has also generated several million dollars in tax revenue for the state. As you can tell, Tennessee is off to a great start, and we are pleased with our position in the state. While we have been live in Iowa for more than a year now, the state began to allow mobile registration on January 1, 2021. This change had a significant positive impact. In fact, more customers registered on our app on their mobile devices by 3 p.m. on January 5 than we registered through the entirety of 2020. In January, we launched mobile sports betting and iGaming in Michigan and sports betting in Virginia. We continue to be live with mobile sports betting in more states than any other operator. Our launch in Michigan is going very well. Early results are consistent with our goal to always maximize overall user engagement and monetization across our product offerings. Draft teams achieved 25% share of mobile sports betting handle and GGR and 24% share of iGaming GGR in the first 10 days of a highly competitive market. Our iGaming handle per capita in Michigan on Super Bowl Sunday was 1.9 times the average of our iGaming handle per capita in New Jersey, Pennsylvania, and West Virginia on their first Super Bowl. Important to note, these other three states were live an average of 179 days before their first Super Bowl, while Michigan was live for 17 days. In addition, games created in-house by DraftKings have generated over 75% of our iGaming handle in Michigan. Our sports betting handle per capita in Michigan on Super Bowl Sunday was 1.1 times the average of our sports betting handle per capita in 2018 and 2019 launch dates on their first Super Bowl. These dates, which include New Jersey, Indiana, West Virginia, Pennsylvania, and New Hampshire, were live for an average of 118 days before their first Super Bowl. In addition, our cross-selling efforts are really working, with 70% of Michigan sportsbook players also engaging with our iGaming product offering. In Virginia, our sports betting handle per capita on Super Bowl Sunday was 90% of the average of our sports betting handle per capita in our 2018 and 2019 launch dates on their first Super Bowls, despite Virginia being live for only 15 days. As a reminder, those dates were live for 118 days on average prior to their first Super Bowl. We are proud to have been one of the first five operators to have launched in Virginia, and we expect it to be a great state for us. We are now approaching three years since PASPA was struck down by the U.S. Supreme Court, 23 jurisdictions representing 41% of the population have legalized sports betting, and 15 jurisdictions representing 27% of the population have legalized mobile sports betting, all of which are currently live. DraftKings is now live with online sports betting in 12 states, which is more than any other operator. These 12 states collectively represent 25% of the U.S. population. Six states representing approximately 11% of the U.S. population have legalized some form of iGaming. DraftKings is live in four of these states, representing approximately 10% of the U.S. population. The outlook for further legalization is also very promising. So far in 2021, 19 state legislatures have introduced legislation to legalize online sports settings. Five state legislatures have introduced legislation to expand their existing sports wagering framework, and one state legislature has introduced legislation to legalize sports betting limited to retail locations. In addition, four states have introduced iGaming legislation, and two states have introduced online poker legislation. I'd now like to comment on our progress with the integration and migration to our own in-house bet engine technology and discuss our new product and content initiatives, as well as some of the recent business relationships we have established. I continue to be pleased with the progress we are making with our organizational integration and the migration to our proprietary in-house back-end and trading technology. Our technology migration is on track to be complete by the end of the third quarter of 2021. Owning our own technology is important. It will help with innovation, speed to market, site stability, and availability of markets. We will also realize gross margin synergies associated with the migration starting in the fourth quarter of this year. We look forward to discussing the migration further at our investor day. In December, we announced an agreement with IncomPayments to launch an industry-first retail gift card. The launch expands DraftKings presence in convenience stores and also enables consumers to gift the DraftKings experience to others in $25 and $50 denominations. It gives our customers another way to fund their accounts and engage with our products while at the same time expanding our brand across retail locations nationwide. In January, we furthered our relationship with Turner Sports after the successful broadcast integrations with the Match 2 and Match 3. DraftKings collaborated with Turner to create a first-of-its-kind show, which streamed on the Bleacher Report mobile app, YouTube channel, and Twitter feed. Customer engagement was tremendous and shows the strong demand that is developing for sports betting content and advice. In the first 24 hours of streaming, the DraftKings prop reveal show received over a million views across the app and social handles. 16,000 people made comments on the video during the live stream, placing it second in terms of engagement for videos in this app's history. We also reached an agreement with the NFL to expand our daily fantasy sports and content partnership to Canada. Previously, this marketing and content deal was limited to the United States. Our announcement earlier this month of an expanded deal further deepens our relationship with the NFL. Turning to the Super Bowl, DraftKings offered fans a free-to-play fourth quarter prop pool called the $55 million Prediction Challenge, which was featured during our in-game Super Bowl commercials. This promotion, which is our biggest free pool ever with over 1 million entrants, gave the Super Bowl audience a fun, free way to get in on the excitement of the Super Bowl. We had more people engage with our apps on Super Bowl Sunday by entering a free pool or DFS contest or placing a Sportsbet or Casino wager than on any day in DraftKings history. We also acquired more new paying players on Super Bowl Sunday than any previous day in our history. Our investments in developing mobile apps that offer a consistent and engaging user experience continue to pay off. I am pleased to report that we have maintained the highest EFS app store ratings for both iOS and Android, as well as the highest iOS rating for Casino and Sportsbook. As sports betting and iGaming continue to expand across the United States, We are excited that DraftKings Sportsbook and Casino apps will soon be available to download for Android users via the Google Play Store. Starting March 1st, Google is expanding the number of countries where developers can publish licensed real money gaming apps to include the United States. I will now turn the call over to DraftKings CFO, Jason Park, who will discuss our fourth quarter results and how we are currently thinking about 2021.