DraftKings Inc.

The conference will begin shortly. To raise your hand during Q&A, you can dial star 1 1. Ladies and gentlemen, thank you for standing by and welcome to the DraftKings Q3 2022 earnings call. At this time, all participants are in 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 1-1 on your telephone. I would now like to turn the call over to your host, Stanton Dodge, Chief Legal Officer. You may begin.

Good morning, everyone, and thanks for joining us today. Certain statements we make during this call may constitute forward-looking statements that are subject to risks, uncertainties, and other factors as discussed further in our SEC filings that could cause our actual results to differ materially from our historical results or from our forecasts. We assume no responsibility to update forward-looking statements other than as required by law. During this call, management will also discuss certain non-GAAP financial 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. Reconciliation of these non-GAAP measures to the most directly comparable GAAP measures are available in our earnings presentation, which can be found on our website and in our quarterly report on Form 10Q, followed with the SEC. 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 the line to questions. I will now turn the call over to Jason Robbins.

Good morning, everyone. I hope you've all enjoyed the first two months of NFL and college football as much as I have and are excited about all of the other sporting events going on, including the MLB playoffs and the first few weeks of the season for the NBA and NHL. We're also getting ready for the start of college basketball and the World Cup later this month. As you know, the fall is always a very exciting time of the year for DraftKings with a packed sports calendar featuring the four major North American sports active at the same time, as well as many other exciting events. I want to discuss a few topics today, starting off with our very strong third quarter. In short, our product and technology, trading, customer service, and marketing teams all executed extremely well, which resulted in the best multi-state NFL kickoff in our history based on our September handle and gross revenue share. We were very well prepared, and I'm very proud of the team for executing so effectively. Customers have enjoyed the new features that we rolled out around the start of NFL season, such as quick parlay, quick same-game parlays, and the ability to combine multiple same-game parlays. Our parlay handle mix increased 500 basis points year-over-year in Q3, and our parlay bet mix increased 1,500 basis points. And our innovative early payout capability, otherwise known as 7-up or 10-up, engaged both new and existing customers. We had an excellent launch in Kansas on September 1st with more rapid customer acquisition on a population-adjusted basis than we had with any other state launch, resulting in very attractive caps. For the month of September, we led the state in handle share with more than twice that of the second-largest operator. And based on the state's reported operator-level handle and GGR data through September, we are capturing GGR share that is at or above our long-term targets as industry activity continues to coalesce towards a very limited number of operators. We announced in September that Amazon selected DraftKings as a sponsor and exclusive pregame odds provider for Thursday Night Football and Prime Video. This is a unique opportunity to engage with customers in a true digital environment. Our multi-year collaboration with Amazon will deliver fans engaging pregame content and unique betting offers on Thursday throughout the NFL season. As part of our agreement with Amazon, Thursday Night Football features DraftKings integrations in its live pregame show, including odds and additional sports betting insights. DraftKings and Amazon will also collaborate on TNF-themed offerings, including same-game parlays, which are available on the DraftKings Sportsbook app. Our content will be featured in all 15 Thursday night football games on Prime Video during the 2022 NFL season. In terms of financials, our third quarter revenue is $502 million, much higher than expected, supported by favorable sport outcomes as well as the aforementioned excellent execution across product technology, trading, customer service, and marketing. Adjusted EBITDA was negative $264 million, also much better than anticipated due to flow through from higher revenue and expenses shifting out of Q3 and into Q4, despite marketing investments into our Kansas launch that had not been included in the expectations that we provided in early August. 2022 has been a transformative year for DraftKings. We have shifted more attention towards cost controls in our past profitability. We identified over $100 million of annual cost savings. and a significantly slowed year-over-year fixed cost growth as evidenced by our Q3 results. What I am most proud of, though, is that we've been able to do all of this while continuing to focus heavily on top-line growth, winning competitively, and most importantly, on retaining and growing engagement with our customers. We are also seeing a benefit to our marketing efficiency from shifting towards national advertising and away from local spending, considering we're now live with mobile sports betting in 18 states that collectively represent 37% of the U.S. population. In the third quarter, we acquired more new customers at a 10% lower average CAC relative to the third quarter of 2021. And looking ahead, we'd expect CACs to decline as our state footprint continues to expand. The progress we have made over the past year on our product, customer service, and internal operations has been tremendous. And our Q3 results demonstrate all of these points, with both revenue and adjusted EBITDA significantly exceeding our expectations. It is evident that the hard work of our team this year is paying off. We believe we are striking a great balance between maintaining an aggressive and customer-focused growth plan while simultaneously working to manage expenses. This combination of revenue growth and expense management creates a clear path of profitability that is consistent with the long-term growth margins and adjusted EBITDA margins that we have consistently articulated. Now I'd like to move on to our financial outlook. For 2022, we are excited to be raising the midpoint of our revenue guidance by $45 million. We are also increasing the midpoint of our 2022 adjusted EBITDA guidance by $10 million. Our guidance now includes our launch in Kansas, as well as our expected launch in Maryland in Q4, and pre-launch marketing investment for Ohio that we expect to launch on January 1, 2023, with both Maryland and Ohio pending licensure and regulatory approval. These three states were not included in our prior adjusted EBITDA guidance. Therefore, we are improving our guidance despite the addition of these additional marketing investments. We are also excited to share our initial 2023 outlook today, which reflects our core principles of maintaining strong growth and customer engagement while also continuing on our path to profitability, as well as having a cost structure that supports our long-term margin goals. For 2023, we are introducing revenue guidance of $2.8 to $3 billion and adjusted EBITDA guidance of negative $575 million to $475 million. Unlike our prior guidance, our outlook now reflects our existing state footprint, including Kansas, as well as expected launches subject to licensure regulatory approvals in Maryland, Ohio, and Massachusetts, as well as Puerto Rico. As we've stated previously, we expect that the fourth quarter of 2023, only one year away from now, will be our first quarter with positive adjusted EBITDA. Additionally, as previously stated, we are well positioned from a balance sheet standpoint to reach profitability under most reasonable legalization scenarios without needing to raise any additional capital. We expect to end 2022 with a cash balance that is roughly double the high end of our guidance for our adjusted EBITDA loss in 2023. And while it's too early to guide full-year 2024, our current multi-year plan suggests that we'll be approximately break-even on a full-year adjusted EBITDA basis in 2024, assuming legalization and launch trends remain consistent with prior years. Looking ahead, the outlook for state launches continues to be positive. We anticipate launching OSB in Maryland in the fourth quarter of 2022. and Ohio, Massachusetts, and Puerto Rico in 2023, which would bring our penetration of the U.S. population to 45%. Californians will vote on whether to legalize OSB on November 8th. We are still deploying grassroots efforts, but the most recent polling suggests a likely unfavorable outcome for our coalition. The DraftKings has discontinued additional cash investment in the campaign. Please note that DraftKings' 2022 cash investment in California was approximately $17 million. And lastly, while it's still too early to know which states may pass OSB and iGaming legislation in 2023, we expect that several states will actively consider legislation. So there's a lot to be excited about on the regulatory front. We remain confident in our long-term outlook that states comprising 65% of the U.S. population will ultimately permit legalized OSB, and states comprising 30% of the U.S. population will ultimately permit legalized iGaming. Now I'd like to spend a few more minutes providing additional detail on our recent product enhancements. We have continued to expand the content and functionality of our Sportsbook product, which drives efficient customer acquisition as well as long-term engagement and retention. The wagering content we launched for the 2022 NFL season included head-to-head matchups, several new multiplayer props, and flash player markets, and full-time and anytime squares. Head-to-head matchups include spreads, money lines, and totals on all our player prop subcategories. to improve the depth of our derivative player offering. Multiplayer props include game and highest total from a list of options to increase the variety of player prop that type. Player flash props include player-specific next drive and next play markets to increase the depth of our player performance offering. And full-time and anytime squares is our model-driven squares product, which we've now extended to every game of the season. DraftKings also added new functionality, such as early payout for Moneyline wagers, quick parlay, and quick same-game parlay. as well as the ability for users to combine multiple same-game parlays. Early payout is a newly introduced mechanic to settle money line bets once a team reaches a certain point lead. Quick Parlay is a new interface for customers to build larger parlays with more cross-sport play as well. Quick SGP features dozens of prepackaged same-game parlay bets per game for all same-game parlay sports. And SGPX allows customers to parlay same-game parlays with other same-game parlays and singles from different games, which increases the size and average leg count of parlays. It has been an exciting 12 months of product and technology innovation enabled by our vertical integration with much more to come. For iGaming, we recently introduced player-contributed JASPOTs in response to customer demand and are the only operator in the U.S. with this in-house capability. Players can opt in for an additional modest wager for a chance to win potentially hundreds of thousands of dollars. We believe this product functionality will increase customer engagement and demonstrates our continued differentiation from competition. And now we'll turn the call over to Drafting CFO, Jason Park, who will discuss our third quarter results and refreshed outlook.