DraftKings Inc.

Ladies and gentlemen, thank you for standing by and watching the DraftKings Q3 2021 earnings call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to turn the call over to your host, Denton Dodge, Chief Legal Officer. You may begin.

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 quarterly report on Form 10Q filed today with the SEC and in our earnings presentation, both of which are 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'll now turn the call over to Jason Robbins.

Good morning, everyone. On today's call, I will cover the following topics. First, we are very pleased with our Q3 performance. Revenue in the third quarter grew 60% year over year and met our guidance due to continued excellent customer acquisition and engagement. Lower than expected sports betting hold, primarily due to NFL game outcomes, impacted revenue in EBITDA in the quarter. Strong customer acquisition performance in new state launches, particularly Arizona, drove additional promotional investment, which also impacted third quarter revenue in EBITDA. In addition to mobile sports betting launches in Arizona and Wyoming in Q3, We also launched mobile sports betting and iGaming in Connecticut in October. Second, looking forward, the pipeline of new states and Canadian provinces continues to be healthy. Louisiana, Maryland, New York, and Ontario have all authorized mobile sports betting, and Ontario has authorized iGaming. We expect these jurisdictions to launch in the coming months. Third, the migration to our in-house bet engine and proprietary sports betting technology is complete. We are thrilled with the early performance and our new ability to rapidly add innovative features and functionality to our top ranked mobile sports betting app. I'm also very proud of the team for delivering ahead of our scheduled deadline. Fourth, our new growth initiatives, which include DraftKings Marketplace and our content media business are seeing promising earlier results. Fifth, we are very excited about the pending acquisition of Golden Nugget Online Gaming and are working towards closing in early 2022. I will also comment on the discussions we had with Entain. And before turning it over to Jason Park, I will also provide an update on our ongoing responsible gaming and corporate and social responsibility initiatives. We delivered strong revenue growth of 60% in the third quarter of 2021, which met our guidance from our Q2 earnings call. On a same-state basis, as well as adjusting for lower-than-expected hold primarily due to NFL game outcomes, revenue would have been $40 million higher than our guidance. I'm very pleased with our market share in Q3 as well, which reflects the success of our technology migration and the strength of our overall business. Our handle share for mobile sports betting across all active states improved from an average of 31% in July and August to 33% in September. For iGaming, our GGR share improved from an average of 15% in July and August to 17% in September. Third quarter monthly unique payers increased 31% versus Q3 2020 to $1.3 million. which includes a record MUPS of more than 2.1 million in September. Average revenue per monthly unique payer increased 38% to $47. We are particularly proud of the growth in MUPS and ARPMUPS, given that Q3 of 2020 had a jam-packed sports schedule with two months of basketball and hockey that did not occur in this year's third quarter. Fundamental user acquisition, retention, and engagement trends are all tracking better than we had projected last quarter, which sets us up well for the rest of the year in 2022. This was true across all of our products. In week one of the NFL season, we had more than two times the number of mobile sports betting paid actives than we had for NFL week one last year. And in the third quarter of 2021, OSB paid actives on a same-state basis increased 50% compared to the third quarter of 2020. iGaming gross revenue has grown sequentially on a same-state basis in each quarter of 2021, and we expect that sequential growth to accelerate in the fourth quarter. iGaming gross revenue grew 154%, year over year in Q3 2021, including all states, and 82% on a same-state basis. In DFS, we set a single-day record for paid entries on September 12th, and NFL Sundays for weeks two and three were our second and third largest days, reinforcing that our DFS product continues to grow and provide an ongoing cash advantage as new states launch. Looking at New Jersey, our most mature state where we launched mobile sports betting and iGaming in 2018, our MUPS continue to grow at an impressive rate, In the third quarter of 2021, despite not having basketball and hockey, combined OSB and iGaming MUPS grew 23% year over year. MUPS in New Jersey increased 124% versus the third quarter of 2019. We had very successful OSB launches in Arizona and Wyoming in Q3 and launched OSB and iGaming in Connecticut in early Q4. Our launch in Arizona went extremely well and exceeded our internal underwriting case. Our data-driven and highly disciplined marketing approach resulted in much higher than expected new user acquisition in September, which has given us the confidence to continue to invest in acquiring new customers. The result is that we are set up very well to be a leader in the state. We are also very excited about Wyoming, which is a smaller state but offers a meaningful opportunity with visitors to the state. To put the ramp up of Arizona in perspective, it took DraftKings just 17 days to acquire 100,000 first-time paid bettors. compared to 170 days for New Jersey, 312 days for Pennsylvania, and 344 days for Indiana. This was despite the fact that DraftKings did not have DFS in Arizona until August 28, only 12 days before we launched mobile sports betting. In New Jersey, Pennsylvania, and Indiana, DFS was operational for more than six years prior to launching mobile sports betting in those states, which makes our customer acquisition success in Arizona even more impressive. Our business momentum has continued into Q4. For DFS, October 3rd, which was the NFL Sunday featuring the Tampa Bay versus New England game, was the highest gross revenue day in our history. For OSB in New Jersey, the October 5th wildcard playoff game between the Yankees and the Red Sox was the highest MLB handle game in our history, beating the previous all-time high by 12%. For iGaming, October was our strongest GGR month of the year by more than 10%, even when excluding the launch of iGaming in Connecticut. We announced on October 13th that as the exclusive odds supplier, DraftKings will provide sports betting information and daily fantasy content across Turner Sports telecast and Bleacher Report digital channels, including the BR app related to Turner's NHL content. On October 18th, we continued to lay the groundwork for our vision of DraftKings Marketplace by announcing a blockchain collaboration with Polygon, which provides us a scalable, eco-friendly blockchain solution that enables added throughput and expanded capabilities. Also, DraftKings now has the option to potentially contribute to Polygon's governance and help secure the network as a validator node. On October 19th, we launched mobile sports betting and iGaming in Connecticut. In Connecticut, DraftKings is one of only three sportsbook operators and two iGaming operators authorized in the state. And on November 4th, we announced an expanded multi-year relationship with the NBA to make DraftKings a co-official sports betting partner of the league. This agreement grants DraftKings expansive NBA rights and assets to integrate within its sports betting, daily fantasy, iGaming, and free-to-play products and promotional offerings. As has been widely publicized, NFL game outcomes have been favorable to players this year for a number of reasons. Primetime NFL games played on Thursday, Sunday, and Monday nights typically have high viewership and therefore high handles. Through Week 7, 71% of NFL primetime favorites and 57% of NFL primetime overs have won in 2021. There also have not been as many big upsets across all NFL games. Before Week 8, there was not a single upset by an underdog of at least 7.5 points. Additionally, we have had four NFL weeks where more than 66% of the favorites won. A very popular parlay bet is to pair a large favorite on the money line with other bets. Therefore, when large favorites win consistently, parlays hit more frequently. Of course, game outcomes can also swing the other way. The last week of October had very favorable results for the house. Between last Thursday and this Monday alone, draft teams generated a positive variance of more than $25 million of revenue compared to our forecast due to favorable event outcomes. While we had a great finish to the month, we still ended October close to $25 million below our forecast due to lower-than-expected hold resulting from player-friendly event outcomes. Despite these outcomes and due to the continued momentum of our business, we are increasing the midpoint of our 2021 revenue guidance, which Jason Park will cover in more detail later on the call. Turning to legalization trends, we have continued to see momentum in mobile sports betting and iGaming. In 2021, 25 state legislatures have introduced legislation to legalize mobile sports betting. Five state legislatures have introduced legislation to expand their existing sports betting frameworks. and two state legislatures have introduced legislation to legalize sports betting limited to retail locations. In addition, four states have introduced iGaming legislation, and three states have introduced online poker legislation. In total, nearly 13% of the U.S. population saw laws passed in their state legalizing competitive online sports betting markets in 2021, demonstrating continued momentum three years after the overturn of PASPA. Following our launches in Wyoming, Arizona, and Connecticut, DraftKings is live with online sports betting in 15 states that collectively represent 29% of the U.S. population. Additionally, DraftKings is now live with five iGaming states, representing approximately 11% of the U.S. population. Three of the states where DraftKings has the potential opportunity to participate via market access agreement or direct license, New York, Maryland, and Louisiana, authorized mobile sports betting this year. These three states represent 9% of the U.S. population and bring the percentage of the population with legalized mobile sports betting to 39%. We are actively preparing to be able to launch in these jurisdictions pending the necessary licensing and regulatory approvals to do so. I also want to comment on California and Florida. In California, we are working with a number of leading online sports betting operators in support of a campaign to bring a well-regulated, safe, and responsible online sports betting market to the states. Legal online sports betting will bring hundreds of millions of dollars in tax revenue annually to the state, directly funneled to two of its biggest challenges, homelessness and mental health, by providing permanent shelter and housing, as well as addiction services for those in need. The California Solutions to Homelessness and Mental Health Support Act ensures a comprehensive licensing process, one that requires extensive vetting of experienced operators and creates a competitive marketplace as competition for market share will ensure the best products and experience for consumers. In Florida, we continue to work with FanDuel and the Florida Education Champions to collect the signatures required to have a mobile sports betting question on the ballot in November 2022. We are excited for the potential prospect of Florida voters deciding to have a safe, legal, regulated, and competitive market for online sports betting in the state, with a market-leading and technologically advanced product offering. If enacted, all tax revenues from mobile sports betting conducted pursuant to this referendum will be dedicated to defunding the state's public education system. Turning to Canada, Ontario continues to establish parameters for the launch of the online gaming market in the province. We look forward to further progress in Ontario and Canada as a whole. For context, Ontario represents about 40% of Canada's population and would be the fifth largest U.S. state by population were it in America. Moving on to product and technology, I am very proud of all that our team accomplished in the third quarter. For mobile sports betting, we completed the full online and retail migration to our own in-house bed engine in the third quarter. The migration went very smoothly and was completed ahead of schedule. This was the largest technology project we have ever undertaken. It consumed resources that are now free to focus more on innovation, and we are already experiencing benefits from the transition to our own technology. To provide context for our recent product improvement, over the first three weeks of the NFL season, new users bet nearly 20% more on average than new users did during the same period in 2020. and their mix of handle on any type of parlay, as opposed to single event bets, increased to 23% from 15%. We now price approximately 80% of our combined pre-match and live bet handle in-house and aim to increase that percentage over time. In August, we announced the launch of micro-betting across the DraftKings Sportsbook. Integrating micro-betting technology allows our customers to engage even further with the sports they love by betting play-by-play throughout a sporting event. we are particularly proud of the depth of the futures markets and player props that we now offer. For example, in NBA, we are now offering micro bets on approximately 40 different players, covering statistics such as points, assists, and rebounds for each. For iGaming, we continue to benefit from the games we have developed internally. 79% of our iGaming users that played in the third quarter at some point played a DraftKings-developed game. We also added DraftKings Rocket to our mobile iGaming suite in New Jersey on September 1st. Built entirely in-house, DraftKings Rocket is the latest game that our team has developed and follows the addition of both Spanish 21 and DK Crafts earlier this year. In New Jersey, Rocket set a new launch month record for most gross revenue by a DraftKings developed game, improving on the debut of DraftKings Blackjack in New Jersey by 46%. DraftKings is the only provider of Rocket in the United States, and developing this game is further evidence of us bringing ongoing innovation to our consumers. Following our April acquisition of Blue Ribbon Software, jackpots are now live in New Jersey, Pennsylvania, West Virginia, and Michigan. We are continuing to add to this functionality, including launching a feature that allows multiple games to be attached to a jackpot. In the third quarter, research firm Eilers and Krycheck tested 34 sports betting apps and ranked each on user experience, betting interface, features, core, and aesthetics. As part of this survey, Eilers and Krychek evaluated the new DraftKings app post-migration based on our own in-house technology. I am pleased to say that we ranked number one overall, and we were also ranked in the top three across four of the five criteria, including user experience, betting interface, features, and aesthetics. We are continuing to make significant progress with several exciting new organic growth sectors. The launch of DraftKings Marketplace has been amazing. I'm proud of the highly accessible and easy-to-use experience that we've built, which combined with compelling content has driven positive user engagement. Marketplace is a large opportunity given our ability to cross-sell existing customers and acquire new ones by offering a new way for fans to interact with their favorite athletes and sports moments. The 70 drops on DraftKings Marketplace provided by our partner Autograph were oversubscribed 14 to 1 on average, and the secondary transactions market has seen strong engagement by users seeking to collect their favorite NFTs. In the third quarter, more than one-third of Marketplace users were new to DraftKings. These users completed over 120,000 primary and secondary transactions, totaling approximately $20 million of gross merchandise volume. Since the initial drops, which featured Tom Brady, Wayne Gretzky, Tony Hawk, Derek Jeter, Naomi Osaka, and Tiger Woods, we have added drops by Usain Bolt and Rob Gronkowski. Recently, Autograph teamed up with Lionsgate and Twisted Pictures to release on DraftKings Marketplace exclusive digital collectibles from Saw, one of the most successful horror franchises in history. Our media business continues to grow as sports betting content is in demand, and we recognize the importance of reaching a wider audience through our own channel. Since we acquired VEASAN, it has expanded its talent lineup and broadcasting footprint. In September, we scaled up production to offer a full 24-7 lineup. We also landed our first nationwide content distribution deal with YouTube TV that delivers VEASAN's leading sports betting news and insights to subscribers as part of YouTube's TV Sports Plus add-on package, and will introduce millions of subscribers to VEASAN's premium content. VEASAN's podcasts and iHeartRadio are also experiencing incredible success as we surpass 4 million downloads in the month of September. We will continue to invest in these exciting and differentiating growth factors into 2022, with the approach that each of them will continue to drive the LTV to cat flywheel that we are creating along with our existing DFS, OSB, and iGaming offerings. I'd also like to provide an update on our acquisition of Golden Nugget Online Gaming. In Q3, we made significant progress towards closing the acquisition of Golden Nugget Online Gaming and have strong plans in place to integrate the business and capture the synergies we outlined in the presentation materials from August. For more information on the strategic rationale for this deal, please refer to the materials on our investor relations website and our filings with the Securities and Exchange Commission. I also want to make a few comments on the discussions we recently concluded with Entain. We are continuously looking at multiple organic and inorganic growth opportunities that are accretive to our shareholders, most of which never come to fruition but offer great learning opportunities for me and the team. This situation was unique. Because there was a leak, pursuant to the UK takeover code, it had to be disclosed that we were in discussions, even though the discussions were very early. We had the chance to meet with the leadership of Entain in order to explore the merits of the combination. Entain has a very impressive team, and we have a great deal of respect for the business they have built. However, after carefully assessing a potential transaction and weighing various considerations, including our own organic growth plans as well as other deal flow, we decided not to make an offer. We continue to be very excited about the vision we have for growing DraftKings. We have the industry-leading brand, a vertically integrated technology stack, top-ranked apps across our verticals, a robust and innovative product roadmap, and the best team in the world. We are very well positioned to maintain and grow our leadership position in North America and beyond. We recognize that we are very fortunate and have worked very hard to get to where we are, a company with a strong balance sheet and a clear path to many years of very high growth in a market with tens of billions of dollars of still unrealized hands. The bar for changing that trajectory is incredibly high, and it would take a lot for us to decide to pursue any large asset with a slower growth profile. At the same time, we felt obligated to look at this deal, but just because we look at something doesn't mean we will decide to do it. Turn into corporate social responsibility. DraftKings serves as a catalyst to facilitate meaningful relationships between our employees and customers and the communities and causes they feel passionate about in order to create a better world for everyone. Keeping with our focus on responsibility, we integrated the American Gaming Association's Have a Game Plan, Bet Responsibly public service campaign across our retail sportsbook and into our team partner stadium. Along with our own responsible gaming tag, it's more fun when it's for fun. Last month, our partners at the NFL announced a new responsible gaming initiative in collaboration with the National Council on Problem Gambling. We commend the NFL's commitment to this important work and look forward to our future collaborations to advance safe play. We quickly mobilized our customers to raise funds for Feeding Louisiana in the aftermath of Hurricane Ida. We raised funds for the Larry Fitzgerald Foundation in support of breast cancer research. And we supported three mission-driven organizations for Hispanic Heritage Month with total donations of $625,000. to further our commitment to equity and entrepreneurship. This week, we also announced a relationship with the Pat Tillman Foundation, which honors NFL great turned military hero Pat Tillman. The foundation carries on Pat Tillman's legacy by giving military service members, veterans, and their spouses the educational tools and community support to reach their fullest potential as leaders. We are proud to support the foundation's work and all military personnel, veterans, and their families. I will now turn the call over to drafting CFO Jason Park, who will discuss our third quarter results and revised 2021 guidance.