DraftKings Inc.

Good day and welcome to the DraftKings fourth quarter 2021 conference call. At this time, all participants are in listening mode. After the speaker's presentation, there will be a question and answer session. If anyone should require assistance during the conference, please press star then zero to reach an operator. As a reminder, this call is being recorded. I would like to turn the call over to Stanton 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 suited to risks, uncertainties, and other factors that could cause our actual results to differ materially from our historic 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, the manager 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 that was 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 at DraftKings, 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. I hope you are all doing well. Before I share my thoughts on the fourth quarter, I want to thank everyone at DraftKings for their tremendous effort and contributions to our success. We had an incredible 2021 and our dedicated employees continue to deliver during an ongoing and challenging pandemic. I also want to thank our loyal customers for their continued support. At DraftKings, we are always striving to put our customers at the center of everything we do. On today's call, I will cover the following topics. First, I'll discuss our financial achievements. We outperformed our expectations for both revenue and adjusted EBITDA in the fourth quarter, capping off a year in which five of our states were contribution profit positive. We're off to a tremendous start in 2022 as well. Customer acquisition in new states has been accelerating while continuing to pay back on a gross profit basis in the two- to three-year timeframe. As of today, 10 states are either already contribution profit positive or on track to achieve that milestone in 2022. Overall, we expect DraftKings to be contribution profit positive for FY22. And if we were to have frozen new state launches at the end of 2021, we expect that DraftKings would have been able to achieve even some profitability as an enterprise in Q4 of this year. Second, we continue to see rapid expansion of the OSB and iGaming TAM in the U.S. This is being driven by both new jurisdictions legalizing OSB and iGaming, as well as continued healthy growth in existing states. Overall in 2021, seven states enacted legislation for mobile sports betting, and we launched in five states last year, with the other two states subsequently launching in 2022. In iGaming, one state enacted legislation in which we subsequently launched. We also saw two new states open up for daily fantasy sports. Third, Additional product features and functionality for our mobile sports betting and iGaming apps are driving increased customer retention and monetization, as well as improved margins. Many of these benefits are now possible as a result of the migration to our in-house sports betting platform, which gives us the ability to diversify our bet types, optimize our in-game betting features, and expand the breadth and depth of our content offering. We also introduced our new Dynasty Rewards loyalty program and continue to expand our social functionality. And finally, adjacent verticals further increase our TAM with the added benefits of more efficient customer acquisition and higher customer LTV. Our new growth initiatives, such as DraftKings Marketplace and the media, are seeing promising early results, and we're optimistic about the potential for future growth. DraftKings' 47% year-over-year revenue growth to $473 million in Q4 exceeded our guidance by 8%. The strong fourth quarter brought our full year revenue to nearly $1.3 billion, representing 101% year-over-year growth. The IVTA in the fourth quarter also outperformed our expectations at minus $128 million. Fourth quarter monthly unique payers increased to about $2 million, up 32% versus Q4 2020. Average revenue per monthly unique player increased 19% year-over-year to $77. I'm very pleased with the market share we achieved in Q4, which reflects the success of our technology migration and the strength of our overall business and brand. Our handle share for mobile sports betting across all active states was 32% in Q4. For iGaming, our gross revenue share was 20% in Q4, including Connecticut, and our market share in New Jersey set a record in each of October, November, and December. We look forward to providing more color on a number of topics at our upcoming Investor Day, including our TAM, market share, product innovation, unit economics at both the player and state level, enterprise EBITDA, and new organic growth factors. Our key performance metrics, including user acquisition, retention, and engagement, continued to trend well in the fourth quarter and led to strong results across products. The fourth quarter was a record quarter for mobile sports betting handle on an absolute basis, as we were alive in more states compared to the fourth quarter of 2020, as well as on a same-state basis. In states where we were live for the entirety of Q4 2021 and Q4 2020, we saw a significant increase in engagement with handle up to 65% due to paid actives growing by 37% and handle per paid active growing by 20%. Compared to the fourth quarter of 2020, iGaming gross revenue grew 153% year-over-year, including all states, and 61% year-over-year on a same-state basis. Looking at New Jersey, our most mature state where we launched mobile sports betting and iGaming in 2018, our MUPS continued to grow at a healthy rate. In the fourth quarter of 2021, combined OSB and iGaming MUPS grew 18% year over year. MUPS in New Jersey were 78% higher relative to the fourth quarter of 2019. We had a very strong launch for mobile sports betting and iGaming in Connecticut, a state with only three mobile sports betting operators and only two iGaming operators. For mobile sports betting in Connecticut, our handle market share was 47%, our gross gaming revenue share was 51%, and our net gaming revenue share was 57% in the fourth quarter. For iGaming in Connecticut, our gross revenue share was 58%. Our business momentum has continued into Q1. On January 8th, we launched mobile sports betting in New York. It took DraftKings less than 24 hours to acquire 100,000 first-time paid bettors in New York compared to 17 days for Arizona, 170 days for New Jersey, 312 days for Pennsylvania, and 344 days for Indiana. In our first 30 days, we acquired over 300,000 users in New York, which was 2.3 times the average of our other states in their first 30 days on a population adjustment date. There is no question that customers are joining our platform faster than they did in states that we launched in previous years. As a result, our caps are fantastic, but overall spending for the first few months is higher than it was for a more mature state such as New Jersey. When the New York market launched, there was some aggressive promotional behavior by many operators, but DraftKings is committed to maintaining its disciplined approach to customer acquisition and is targeting a two- to three-year path to profitability for the state. We believe that product will be the key differentiator between operators over time. For example, our technology provides a seamless customer experience through a single integrated sign-in and wallet across product offerings and jurisdictions. We are already seeing this play out in the Northeast, where customers who travel between New York, Connecticut, New Hampshire, New Jersey, and Pennsylvania are able to play on the DraftKings app without having to open a new account. On January 12th, we announced that DraftKings would become the official Sportsbook provider of the Oregon Lottery. Pursuant to our exclusive agreement with the Oregon Lottery, DraftKings Sportsbook replaced the scoreboard app on January 18th. The DraftKings Sportsbook app offers additional betting markets and an overall superior customer experience. We look forward to serving all sports bettors in Oregon. On January 28th, we launched mobile sports betting for eligible customers in Louisiana's permitted parishes. With several professional franchises in addition to Division I collegiate athletics, there are ample hometown fan bases and opportunities in Louisiana to engage. And last Sunday, an exciting NFL playoff ended with another game that went down to the wire. It was also a great end to the season for DraftKings as on Super Bowl Sunday, our total actives across all products was nearly 1.7 million. In fact, this year's Super Bowl was our highest ever day for actives and handles both in total and on the same state basis. Looking ahead, we are raising our revenue guidance to incorporate the impact of New York and Louisiana as well as strong underlying performance in the states we were already live in last quarter. Jason Park will provide more detail. Turning to legalization trends, we have continued to see momentum. Following our launches in New York and Louisiana in January, DraftKings is live with online sports betting in 17 states that collectively represent approximately 36% of the U.S. population. Additionally, DraftKings is live with iGaming in five states, representing approximately 11% of the U.S. population. After the governor of Ohio signed into law a bill authorizing mobile and retail sports wagering, there are now three U.S. jurisdictions that have legalized where we are preparing to launch upon licensure and approval from regulators, Maryland, Puerto Rico, and Ohio. These jurisdictions represent approximately 7% of the U.S. population, and will bring the percentage of the population where DraftKings expects to offer legalized mobile sports betting to approximately 43%. So far in 2022, 10 state legislatures have introduced legislation to legalize mobile sports betting, and eight state legislatures have introduced legislation either to expand their existing sports betting frameworks, create referendums regarding sports betting legislation, or increase in-person sports betting opportunities. In addition, three states have introduced iGaming legislation, and three other states have introduced online poker legislation. We also made two announcements that position us for mobile and retail sports betting in Kansas and the state of Washington pending changes in state law, licensure, and receiving necessary approval from state regulators. I also want to comment on California and Florida. In California, We continue to work with a number of leading online sports betting operators in support of a campaign to bring regulated, safe, and responsible online sports betting to the state. Legal online sports betting is projected to bring hundreds of millions in tax revenue annually to the state to address two of the state's most pressing issues, homelessness and mental health. We are confident that the California Solutions to Homelessness and Mental Health Support Act will create a competitive market with the best products and experience for consumers. In Florida, we were unfortunately not able to get the required number of signatures in time for inclusion on the ballot this November. This is due to a variety of factors, including COVID, as well as the compressed timeframe given when signature gatherings started. We are very encouraged, however, by the over 1 million individuals who signed petitions in less than eight months, which shows that Floridians do want the opportunity to vote on a competitive mobile sports betting market in the state. We are exploring all options to ensure that Floridians get that opportunity. as soon as possible. And if we were to refile, we are very confident that given the extended timeframe, we will be able to qualify for the 2024 ballot. Ontario has announced that the province will launch the first competitive regulated and licensed online sports setting and iGaming market in Canada on April 4th, 2022. We look forward to launching in Ontario and competing in that market pending licensure and required approvals. For context, Ontario represents about 40% of Canada's population and would be the fifth largest U.S. state by population. Moving on to product and technology, we continue to add breadth and depth to our mobile sports betting and iGaming products. As we have mentioned in the past, we believe that the long-term winners in this industry will provide the best product experience to customers. With the completion of the migration to our in-house bet engines, we are now capturing the acquisition synergies we anticipated in our mobile sports betting cost structure and have turned a variable cost into a fixed cost. For mobile sports betting, we launched Parlay and Same Game Parlay insurance promotion capabilities in the fourth quarter. For those who are unfamiliar with this feature, Parlay insurance allows bettors to win something even if they lose legs within their Parlay bet. This new capability has had a great response from our users, and it has supported growth in our mix of mobile sports betting handle coming from Parlay. For same-game parlays, we also expanded our sport coverage beyond the NFL, college football, and the NBA with the launch of college basketball and the NHL in November. We invested in our in-play offering and in-play experience by introducing a new front-end user interface for FlashBet that allows for a more engaging wagering experience. FlashBet is an immersive live betting experience where users can follow what's going on in the game and get shown our flash markets, which refer to the next occurrence that will happen in the game. Markets supported by this functionality include next play results, drive results, and drive yardage for the NFL, and next team to score and type of score for the NBA. For iGaming, we continue to benefit from cross-selling in the games we have created in-house. In the fourth quarter, 49% of mobile sports betting users in our iGaming space also engaged with our iGaming product. When looking at draft teams' developed games, 56% of iGaming handle in the fourth quarter came from draft teams' developed games. which is important both for differentiation and from a gross margin rate perspective. As an example, DraftKings Rocket is now launched in Connecticut and in Michigan, in addition to New Jersey. This game continues to be very popular with our users. In the first 14 days following launch, 40% of Michigan's iGaming paid actives and 41% of Connecticut's iGaming paid actives played Rocket. This compares to 33% of New Jersey's iGaming paid actives in the first 14 days. We look forward to updating you on the DraftKings Develop games we will launch in 2022 on future earnings calls. DraftKings Social is an industry-first innovation that creates an integrated social community, allowing fans to interact with each other within a peer-to-peer environment. This functionality, which we began rolling out in Q2 of 2021, is now live across our sports betting and daily fantasy sports products, and it is driving customer engagement through features such as bet sharing. The average number of bets for users who have placed at least one bet through our social platform grew 67% from Q3 to Q4, which significantly outpaced quarter-over-quarter growth for users who have not placed a wager through our social platform. We will continue to add to our social functionality in 2022. For example, we're launching several additional social integration points across our Sportsbook and DFS products in the first part of the year. We're also building additional features such as betting groups. which allow friends to bet in private groups where everyone gets to see each other's bets in chat, as well as chat features for both DFS and our live casino games. We will also be launching a feature that allows any user to go live with video and audio, which broadcasts bets they make in real time to viewers. In November, we launched Dynasty Rewards, our all-new cross-product loyalty program that rewards players for their play across all DraftKings consumer products in all jurisdictions. Giant's Dynasty Rewards is the most comprehensive DraftKings loyalty program ever, featuring a wide spectrum of rewards curated for every kind of customer, from free credits to exclusive experiences. With the ability to earn on everything DraftKings and to choose how you're rewarded, we believe it will take the customer's experience to the next level, help drive retention, and cement DraftKings as a top gaming and entertainment brand. We have tapped into our deep roster of lead deals and strategic partnerships to craft these once-in-a-lifetime exclusive experiences, At the launch of Dynasty Rewards, we partnered with the NFL for an exclusive drafting Super Bowl getaway and the NHL for the Winter Classic with many more experiences to come. Engagement with the loyalty program has been phenomenal. Approximately 95% of customers in our highest two tiers have actively engaged with the Dynasty Rewards program since launch. And this is just the beginning. Over the months ahead, we will continue to enhance Dynasty Rewards with more ways to earn and redeem, deeper integrations, and utility within our core products, new perks with partners and retail locations, and more. DraftKings Marketplace had another dynamic quarter as interest and demand continues to be strong. We sit at the intersection of Web3 and sports culture as the only company to offer digital collectibles, sports betting, daily fantasy, and iGaming products. As the NFT space evolves, the broader DraftKings ecosystem will create more opportunities for our marketplace around utility gamification and custom offers that only we can provide. The fourth quarter featured drops from Usain Bolt, Rob Gronkowski, Wayne Gretzky, Simone Biles, Tom Brady, and Tony Hawk, as well as slam logo passes in the Saw Films franchise. We also revealed plans with the NFL Players Association and One Team Partners. the group licensing partner of the NFLPA, to launch gamified NFT collections that we anticipate debuting on DraftKings Marketplace during the 2022-2023 NFL season. The agreement grants DraftKings licensing rights for active NFL players, including the authentic use of name, image, and likeness. Initial anticipated features of DraftKings gamified NFL player NFTs include the ability for customers to use these collectibles within games against each other on the platform, as well as separate buying and selling functionality. It is expected that there will be a variety of NFT additions and tiers that incorporate different aspects of utility and digital rarity. DraftKings previously announced a strategic agreement with Polygon to provide a scalable, eco-friendly blockchain solution that enables added throughput, lower transaction fees, and expanded capabilities. We continue to add functionality and features to Marketplace. We launched options in conjunction with the exclusive drop of Dale Earnhardt Jr., NFT. and also offer an experiential element with one auction featuring an NFT couple with a chance to do a lap with Dale at Speedway. Our media vertical is seeing good momentum with month-over-month audience growth, driven in large part through our Dan Levitard and Beeson assets. Our goal is to continue to grow our audience and content, which is uniquely positioned across three dynamic industries, sports, entertainment, and technology. As part of that, we are excited to welcome Mike Golick Sr. to our roster of talents. and we have also been actively working closely with our partners at Metal Ark to greenlight several new shows that we expect will be announced in the coming months. And finally, last month we announced the addition of two new senior leaders with extensive media experience to bolster our team and add velocity to our efforts. We will continue to invest in adjacent growth sectors like DraftKings Marketplace and Media in 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 core DFS, OSB, and iGaming offerings. I'd also like to provide an update on our acquisition of Golden Nugget Online Gaming. In Q4, we made significant progress towards closing the acquisition, and upon closing, we are prepared to integrate the business and capture the synergies we outlined when we announced the transaction in August. We're excited to deploy a multi-brand strategy while accessing the millions of loyal Golden Nugget Online Gaming and Fertitta Entertainment customers. We anticipate multiple channels for cost savings by, among other things, recognizing enhanced returns on advertising spend through marketing efficiencies and eliminating platform costs by migrating to DraftKings in-house technology. I also want to provide some recent updates on responsible gaming. I am proud that DraftKings is playing the long game and refining the customer experience through a relentless focus on responsible gaming education and by supporting research in this area. In December, DraftKings announced a multi-year financial commitment to the KindBridge Institute for a new research program to study the nexus of veterans and responsible gaming, with the ultimate goal of advancing evidence-based research in this area and improving the lives of impacted veterans. And in January, we announced a multi-year financial commitment to assist the 35 state problem gaming councils across the country by providing critical funding, which will support the work of local nonprofit organizations. As part of the new initiative, entitled the State Council Funding Program, DraftKings has offered each state council $15,000 per year for three years, a total commitment of $1.575 million over the span of the three-year program. I will now turn the call over to DraftKings CFO, Jason Park, who will discuss our fourth quarter results and 2022 guidance.