DraftKings Inc.

Good day, and thank you for standing by. Welcome to DraftKings' first quarter 2024 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 need to press star 1-1 on your telephone. You will then hear an automated message device, and your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised, today's conference is being recorded. I would now like to end the conference over to Speaker Day. Stanton Dodge, Chief Legal Officer, please go ahead.

Good morning, everyone, and thank you 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. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are available in our earnings release and presentation, which can be found on our website and in our quarterly report on Form 10-Q filed with the SEC. Hosting the call today, we have Jason Robbins, co-founder and chief executive officer of DraftKings, who will share some opening remarks and an update on our business, and Alan Ellingson, 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, and thank you all for joining. DraftKings is off to an outstanding start in 2024, and we're excited to be raising our outlook for the year. There are five important takeaways as we reflect on our first quarter results and the rest of the year. First, our revenue growth is strong as we continue to efficiently acquire new customers, deepen our engagement with existing customers, improve our structural sportsbook hold percentage, and optimize promotional deployment. Revenue grew 53% year-over-year in the first quarter, and our increased revenue guidance midpoint implies 34% year-over-year growth for fiscal year 2024. Secondly, we delivered successful sportsbook launches in Vermont and North Carolina. We acquired customers efficiently and at population penetration rates consistent with prior launches. We expect both states to contribute positively to adjusted events for the second half of 2024. Third, we continue to focus on driving product innovation and customer centricity. Our platform and overall customer experience are rapidly improving, and as a result, we are achieving excellent customer retention and participation across sports and gaming. Fourth, we continue to focus on driving operational efficiency across the organization. We expect adjusted EBITDA flow-through percentage of 53% for fiscal year 2024 due to our largely at-scale fixed cost structure and our continued optimization of marketing and promotion. Fifth, we are continuing to explore capital allocation options given the strong trajectory of our free cash flow. Beyond our financial highlights, there are two important topics I'd also like to briefly discuss. The first is responsible gaming. There have been several recent headlines on responsible gaming, a topic that has always been very important to DraftKings. Building products that our customers can enjoy responsibly is rooted in our DNA, and we believe that we are at the forefront in responsible gaming initiatives, including technology, processes, industry affiliations, and internal leadership. We will continue to drive these initiatives in conjunction with our regulatory partners and industry participants to responsibly grow this industry to its full potential. Second, we continue to innovate on our products while focusing differentially on proprietary technology solutions. In Sportsbook, we made substantial progress on our efforts to shift our highest impact content into our in-house technology and modeling platforms, while also expanding unique offerings like our Progressive Parlay products across all states and all major sports. We are also launching Cash Out for Same Game Parlay, which is a critical addition to our offering. In iGaming, with the completion of the migration of the GNOG platform onto our in-house technology stack, we achieved important milestones touching both content and technology expansion. We launched Must Hit by Jackpot, another popular variant powered by our proprietary Jackpot platform. And we also continued to expand our homegrown casino games portfolio with the launch of eight new unique to DraftKings titles in the first quarter of 2024, including Rocket 2, the sequel to our popular original Rocket game. In closing, 2024 is shaping up to be another fantastic year for DraftKings. With that, I will turn it over to Alan Ellingson.

Thank you, Jason. I'll hit the highlights, including our first quarter 2024 performance and our updated guidance for the year. Please note that all income statement measures discussed except for revenue are on a non-GAAP adjusted EBITDA basis. As Jason mentioned, we are off to an outstanding start to the year. In the first quarter, we generated $1,175,000,000 of revenue, representing 53% year-over-year growth and $22 million of adjusted EBITDA representing adjusted EBITDA flows to a percentage of 60%. We achieved strong results across our core value drivers. Customer acquisition, retention, and engagement were excellent and resulted in higher than expected handle in the first quarter. Our structural sportsbook hold percentage was slightly ahead of expectations at 9.8% and increased approximately 150 basis points year over year. Promotional reinvestment for OSD and iGaming continued to become more efficient year-over-year and improved by more than 700 basis points as a percentage of TGR. Adjusted gross margin increased more than 550 basis points year-over-year to 44% in the first quarter as a result of higher structural sportsbook hold and improved promotional efficiency. Sales and marketing declined 11% on a year-over-year basis and was consistent with our expectations. Both products and technology, as well as general and administrative expenses, were consistent with our expectations. As you are all aware, we are continuing to exert cost discipline across the organization while simultaneously increasing revenue on a year-over-year basis. Moving to our full-year 2024 guidance, we are poised for a rapid increase in adjusted EBITDA due to continued strong revenue growth coupled with our efficient fixed cost structure. On February 15, 2024, we guided fiscal year 2024 revenue of $4.65 billion to $4.9 billion and adjusted EBITDA of $410 million to $510 million. Today, we are improving our fiscal year 2024 revenue guidance to a range of $4.8 billion to $5 billion and our fiscal year 2024 adjusted EBITDA guidance to a range of $460 million to $540 million. Importantly, The midpoints of our updated 2024 revenue and adjusted EBITDA guidance ranges implies a year-over-year adjusted EBITDA flow-through percentage of 53%. This attractive flow-through percentage is based on continued excellent performance across our core value drivers as we rapidly expand our gross margin and exert discipline on our cost structure while simultaneously investing in promotion and marketing in accordance with our LTV to CAC targets. We will continue to focus on our dual goals of improving our financial expectations while also investing in customer acquisition and our product and technology capabilities. The $125 million improvement in our fiscal year 2024 revenue guidance midpoint and $40 million improvements in our adjusted EBITDA guidance midpoint break down as follows. Customer acquisition, retention, and engagement continue to exceed expectations due to marketing optimization initiatives and product advancements. These trends account for $165 million of the revenue improvement and $68 million of the adjusted EBITDA improvement. Structural sportsbook hold percentage increasing primarily as a result of momentum into our stay-in-game parlay offering. We now expect our structural sportsbook hold percentage to approach 10.5% in fiscal year 2024, which counts for $20 million of the revenue improvement and $14 million of the adjusted EBITDA improvement. Customer-friendly outcomes in late March and April were a headwind of $60 million and $42 million to our fiscal year 2024 revenue and adjusted EBITDA guidance, respectively. We continue to expect our adjusted gross margin to be in the range of 45% to 47% for the year, an improvement of 350 basis points at the midpoint compared to fiscal year 2023. We also continue to expect adjusted sales and marketing expense to decline modestly in fiscal year 2024. Finally, we expect to generate approximately $400 million in free cash flow in fiscal year 2024 based on approximately $120 million of annual capitalized expenditures and capitalized software development costs, as well as a modest source of cash from changes in networking capital combined with interest income. As a result, we expect our year-end 2024 cash and cash equivalents will be approximately $1.6 billion before our expected use of approximately $413 million in cash to fund our proposed acquisition of Jack Pocket upon closing. That concludes our remarks. We will now open the line for questions.

Thank you, ladies and gentlemen. If you have a question or a comment at this time, please press star 1-1 on your telephone. If your question has been answered or you wish to move yourself from the queue, please press star 1-1 again. We will pause for a moment while we compile our Q&A roster. Our first question comes from Sean Kelly with B of A. Your line is open.

Hi, good morning, everyone. Welcome, Alan, and thanks for taking my questions. Jason or Alan, just wanted to see if we could dig in on the hold side a little bit. Obviously, a couple puts and takes both in the quarter and just for, I think, relative to investor expectations out there. So, Jason, if you could talk about the evolution of your theoretical hole. You actually said that overall, I think it came in a little bit better than management's expectations. So, what's driving that? And, you know, how do you think about the product evolution? Maybe, you know, both this year and in the out years, what's sort of a good baseline for investors to think about improvement as we get out into 2025 and beyond? Thank you.

Yeah, I think this has been obviously a big topic for a few years now, and our understanding of it is better than ever. So First, just to explain, when we say we think that structural hold is XYZ, that is based on expected hold and then any differences are bet mix driven. So what that really means is that our bet mix came in better than we expected as it relates to projected hold. As far as how we're thinking about it going forward, I think we continue to believe that there's a lot of upside here. I know everybody wants to know what's the ceiling. I think the answer is we don't know. We continue to monitor metrics and all customer behavior, handle per active rates all look healthy as we continue to drive and increase parlay mix and average leg count. So I think that'll continue to be the focus as long as we continue to see healthy customer metrics and get positive feedback that our customers are enjoying the products we're putting out there. You know, we'll see how far we can get it, but right now we do believe there's a good bit of upside still remaining. Thank you.

One moment for our next question. Our next question comes from Steven Grambling of Morgan Stanley. Your line is open.

Hi, thanks. I guess one of the big debates seems to be around flow through versus some of your peers. So I'd love to hear your thoughts on where the company is capturing marketing efficiencies in the first quarter and then where the biggest opportunities are longer term and whether your philosophy around marketing channels or even national versus local has changed.

Yeah, I mean, we had an unbelievably efficient first quarter and it really continued to April. In fact, April, we had a 40%, roughly 40% year over year decrease in our CAC. So, I think it's just optimized performance and also, you know, really strong growth in the TAM and addressable markets. So I think all of that is contributing to really healthy and efficient marketing. And I give the team a lot of credit. They've worked hard over the last year or two to optimize. And if anything, I think we see maybe some opportunities now to invest a bit deeper. So I'm really excited about the work that's been done there.

Great. Thank you. I'll go back to the queue.

One moment for our next question.

Our next question comes from Joe Greff with the JPMorgan.

Your line is open.

Good morning, everybody. Jason, I was hoping you can update us with your views on M&A from here. Obviously, you have Jack Pocket pending and closing in short order here. One, how do you think about Is it still more domestically focused versus international? And then could you do multiple M&A simultaneously? My question is kind of generated by, you know, within the quarter, you know, there was some, you know, industry chatter, you know, with regard to one publicly traded iCasino operator. Thank you.

Yeah, so first, we, I hope, have been very consistent in saying that we have a very high bar for M&A. We understand there's a lot of ways that we can deploy capital return value to shareholders, and M&A and going on an M&A spree is not something that we're like, hey, this is all we can do with our capital. I do think that M&A will be a lever for us, but we're also practical about, one, you know, how much, to your question, we can bite off at a time. I do think it is, you know, obviously a question of size, but to do two, you know, materially sized transactions simultaneously would be very challenging. So that's certainly something that will weigh in our mind. And I think secondly, we feel like our organic growth path is really strong right now. So we don't really feel particularly compelled to do M&A as a source of growth. If anything, We understand that the integration and other work required with M&A is actually a distraction from that organic growth. So I think a long way of saying bar will continue to be high. Never say never, but I think two at exactly the same time of size would be challenging. And I think for us, really, we look at capital allocation as a broader question, as well as resource and time allocation. And we don't just look at it as, hey, M&A is the answer on that. It's also what are all the other things, whether it's organic investments we can be making or other methods of earning capital and creating value for our shareholders. So that's something that we're mindful of as well. Thank you.

One moment for our next question. Our next question comes from Ben Miller with Goldman Sachs. Your line is open.

Thanks so much for taking the questions. I'm curious how you think about the playbook around iGaming cross-sell to OSB users over time as we potentially see more states go live with iGaming that currently have OSB. Are there any updated views on how to think about any incremental investments needed in that scenario and how you think about reinvestment of likely better LTVs and share of wallet into faster customer acquisition versus the flow through to incremental margins? Thanks.

Yeah, it's a great question. I mean, first, anytime we have multiple products in a market, it's a huge boon to LTV. And, you know, the cost is you already acquired the customer. So there might be, you know, a promo or something associated with getting them to adopt a new product. But it's really a fraction of what it costs to acquire the customer on the platform. And once you've already acquired them, cross-selling is incredibly effective. And very fast payback means of increasing not only LTV, but also short-term gross profit as well. The main funnel we're seeing is really sports to iGaming. We do see some iGaming to sports cross-sell be effective. And of course, we are cross-selling between all of our products. But really, when we find markets have both iGaming and sports, the much more effective funnel is to acquire them on sports and cross-sell them to iGaming. And actually, what I'm really excited about, once we close Jackpocket, is I think that'll be a really effective funnel as well, a really efficient funnel acquiring on lottery and cross-selling into OSB and iGaming. So very excited about that one. But the short answer is we try to cross-sell between all of our products, and it doesn't cost that much more once you've acquired the customer onto the platform to get them to try new products.

Great. Thanks so much.

One moment for our next question. Our next question comes from Robin Farley with UBS. Your line is open.

Great. Thank you. I was originally going to ask how you balance your thoughts about capital allocation with M&A, but it sounds like you already sort of clarified that M&A is kind of not a major priority right now. So I wonder if you could talk a little bit about capital allocation options and what types of things you're considering. Thanks.

Yeah, Robin, I'll speak to that. I think in the last few months, We've developed a lot more confidence than ever in our free cash flow trajectory for 2024 and beyond. To add some color, we recently kicked off our multi-year planning process. This is an exercise that touches all the functions and verticals of the organization, and as part of this, we do evaluate potential uses of cash within our core business. We reevaluate the growth trends of the business, and we look to maximize shareholder value. That does include potentially returning capital to our shareholders. So we anticipate we'll be able to share more specific details with you in the next quarter, but we're very comfortable with where we're at right now.

Okay, thanks.

One moment for our next question. Our next question comes from Carlos Santorelli with Deutsche Bank.

Hey, guys, thanks. If you guys look out over kind of 2024, 2025, what are kind of the key focal points or items that you're looking at from a legislative perspective where you think, whether it's iGaming or sport betting, you think it will be kind of worth the efforts from your end to kind of make a push, and what are maybe the focus states and or focus opportunities in your view?

Yeah, I think it's a great question. You know, obviously... having gotten up and running in 50% of the country population-wise, also roughly 50% of the states in only a little over five years is fast. And so I think naturally you're going to see a little bit of a slowdown on the sports side. And also when you consider the fact that about a little less than half of the remaining population resides in three states, you know, that'll kind of give you a sense of where the focus is. There's a lot of states left for sure, but There's only a handful of really big ones, and when you extend beyond the top three into five, six, seven states, you're going to capture a lot of that. Obviously, we made a push in Georgia this year. It came up a little short in several other states as well. I do think you'll see a couple bills done later in the year on OSB. As far as thinking out into 2025, I think the big focus will be on Texas. Texas, I think, has a real shot. It got through one chamber last year. And as you may know, the Texas legislature doesn't meet in 2024, so we're really gearing up for 2025. Also, I think that if you shift over to iGaming, that's probably where there's going to be a little bit more rapid once I think you start to see some momentum legislation because still just a lot of untapped population there. We're still only alive in about 11% of the population. So I think that once the states in certain regions start moving on iGaming more, you'll see a more rapid succession of them. And I also think that the need for tax revenues is going to increase. I think there's a little bit of a delay in that with some of the COVID relief money that was sent to states. So I do expect to see some momentum pick up in iGaming, and I think that's where you might see the next kind of wave of states really quickly. And then, as I noted, I think the focus in sports betting will be on the handful of large states. Obviously, we'll try to get bills passed wherever we can, but the real needle movers will be not just the top three I mentioned, but states like Georgia that are also very large states population-wise. And then I guess the last thing I'd note is, you know, obviously, as you know, we're in the process of completing our Jack Pocket transaction. And I think there's a ton of state expansion opportunity there. And the vast majority of it doesn't have to be legislative. It's done without legislative action. So really excited about the prospects of getting, you know, that business up and running in a lot of different states. And I think you'll see some additional states get up and running for Jack Pocket before the end of the year.

Great, Jason. Thank you very much.

Thank you. One moment for our next question. Our next question comes from Clark Lampin with BTIG. Your line is open.

Hey, good morning. Thanks for the question. I wanted to come back to marketing efficiency, especially since, Jason, you noted that there's It seems like now there's an opportunity to invest a little bit deeper. Can you help us understand what's sort of driving some of the improvements that you noted in the shareholder letter? And I guess maybe more importantly, whether what we're seeing now is indicative of ongoing improvements you guys think you can draw out? I guess if I look at the numbers for the year, it seems like the OPEX guidance went up a little bit. And I'm wondering specifically, are you guys seeing better payback periods right now that are leading you to lean in a little bit more aggressively on marketing. Appreciate it.

You nailed it. I think I mentioned earlier the CAC for April was roughly 40% lower year over year. We are seeing as efficient marketing as we've seen since basically launching Sportsbook. Really, really excited about that. I mean, just to be clear, we're not going to have a massive increase. I think this is like optimization around the edges where we see an opportunity to maybe invest a little bit deeper in a couple areas. But this isn't going to be like a major shift in strategy by any means. I think we're going to continue to focus on as markets mature, seeing lower and lower external marketing spend. And at the same time, it's not going to be a straight line. There'll be periods where we find good, solid things that we can cut or just natural kind of market conditions lead to us cutting certain spend. And then There will be other times we identify windows where we can increase. And I think given some of the efficiency we've been seeing, we think there's an opportunity maybe for a little bit of deeper investment. But, you know, like I said, it's a little bit. As you mentioned, it was not a huge move. It was just a slight increase in OPEX versus where we were before. And I think that's a sign of the strong revenue growth and unbelievable caps that we're seeing. Thank you.

One moment for our next question. Our next question comes from Joe Stauff with Susquehanna.

Your line is open.

Thank you. Good morning. I wanted to ask maybe, Jason, if you can discuss your more recent customer acquisitions or cohorts versus, say, a year ago or whatever kind of time period ago, and the lifetime value or the LTVs that you calculate for those. Are you Are you seeing an improvement largely because of marketing efficiency, or are the economics or the spending levels for the more recently acquired customers similar to, say, a year ago? I was wondering if you could discuss that.

It's really both sides of the LTV and CAC equation. As I noted a moment ago, we had a really sharp decrease, about 40% better CAC in April this year than last year, and as a continuation of really strong CACs through Q4 and Q1. And at the same time, we've also made a tremendous number of improvements to our product, to our CRM, to our customer experience overall, which has led to stickier customers. Our activity rates are higher than ever, and our handle and spend per customer is up. So I think we're just in a period of industry growth and still very early stage of the industry where a lot of things are just out there to be optimized and improved upon and where I think the team is executing really well against both sides of the LTV and CAC equation right now.

Thank you. One moment for our next question. Our next question comes from Robert Fishman with Moffitt Nathanson. Your line is open. Hey, good morning.

On media rights partnerships, I'm wondering if you can talk about your Amazon relationship and how that's helped drive incremental opportunities for Thursday Night Football, and then really any early thoughts on how that partnership can be expanded if they're able to secure a big NBA package, or maybe any other comments you want to make on NBA's new media deal and how that could impact drafting. And then just separately, if I can add, I'm wondering if you could just speak to Jason Park's new role and how you could characterize the biggest near-term versus longer-term opportunities with that. Thank you.

Yeah, great question. So on the first one, Amazon's been a great partner of ours. We've really gotten a lot of value, and I think they have, too, out of the relationship. And, you know, if there's ways we can expand it, depending on what their future plans are, then, you know, that's certainly a discussion we would welcome. And, you know, I'd also note we have great relationships with a number of different parties that are rumored to be involved in the bidding. So, you know, wherever it lands, I look forward to, you know, hopefully finding ways to build relationships and bring great content to customers and partner with other great organizations. So, we'll have to see how that plays out. And then, you know, in terms of Jason Park's role, as you may know, Jason actually just turned the reins over to Alan officially, I think, like a day or two ago. So, He's been working hard on the queue and on everything else, just like the rest of us. And I think where he's had some spare bandwidth, he's really dove into the Jack Pocket integration, which obviously is a very immediate term thing that we need to really make sure we do a good job with. So that's been his immediate term focus. I think as he rolls off this CFO role and Alan rolls in, I think you'll see him start to have more time free up. And my expectation is that areas like payments and AI will be a major focus for him in the next six to 12 months. So more to come there, but really, you know, I think looking at things that, hence the title, can be, you know, more medium to long-term transformational for DraftKings, as well as obviously making sure, you know, given how important the Jack Pocket integration is, that we do a great job there.

Thank you. One moment for our next question. Our next question comes from Dave Katz with Jefferies.

Your line is open.

Hey, guys. This is for David Katz. Congrats on the quarter, and thanks for taking my question. I wanted to ask how you're thinking about AI, maybe high level, but in terms of range of uses and responsible gaming. Thanks.

Yeah, I'm excited you asked that. This is one of the areas that I know a lot of companies are talking about, and we certainly agree, really be impactful in a significant and transformational way to DraftKings in the future. So we're all in on it. I think some of the early momentum we've gotten and really the focus for us is utilizing best-in-class third-party applications. Right now we're using multiple tools from about five to ten vendors, and we're testing a variety of different use cases across the company. things that improve our product, like rapid prototyping and sprint metrics reporting, and also initiatives that improve efficiency, like code refactoring, code review, and marketing asset creation. And then obviously being customer-centric, customer experience is at the center of our AI initiatives, including using AI to help model and detect signs of problem gaming so that we can properly flag things for our player intervention team to go and investigate. So Lots of really good stuff there. And, you know, I think we're just scratching the surface. It's super early, but our focus is not on trying to build proprietary tech as much as it is. I mean, we've built some on top of it, but it's really getting in there and using best in class third party tools and figuring out the proper applications to drive value for DraftKings.

Great. Thank you.

One moment for our next question.

Our next question comes from Michael Graham with Canon Corriginuity. Your line is open.

Good morning. Thank you. I wanted to ask you to help us think through the platform becoming more of a mass market entertainment product in some of your more mature states like New Jersey. Are you seeing penetration slow down there? Is it hitting a J curve type of dynamic? Could you also address what's going on with GGR concentration at the top end of the customer base? Is it becoming a little more spread out or more concentrated or just, you know, hit on some of those dynamics?

Yeah, it's a great question. I mean, all of our older states and, you know, we have to remember there's still, even New Jersey is still only five and a half years in. So they're all still really growing nicely. In fact, if you take sort of a same store view of of our 2018 to 2022 states, we grew net revenue about 40% year-over-year in Q1. So really healthy growth in our existing states, and I think we'll continue to see that as we improve product and also just as the industry develops and the TAM increases. As far as the concentration, we're seeing it actually trend a little bit away from that. Definitely, as with any industry, there is a cohort of customers that spends a lot, and that drives a decent amount of the revenue. But I think especially relative to other companies in the industry, we're much more diversified, and the trend we're seeing is more and more casuals coming to the market, particularly, as you noted, in older states. I think as more people come into the market, that percentage of casuals increases. So definitely something that we're seeing trend in that direction.

Okay, thank you, Jason.

One moment for our next question.

Our next question comes from Ben Chaiken with Mizuho.

Your line is open. Hey, thanks for taking my question. You mentioned promo expense was down over 700 basis points year over year, which is clearly generating a lot of operating leverage on net revenue. We'd love to hear your thoughts around maybe what's driving the improvement. Is it just the natural evolution of the existing customers who are happy to use the product? Is DraftKings becoming more accurate and efficient in how you target? Or is it a function of just kind of entering less states? It'd be great to hear any color on what you think the biggest drivers are of the traction and then the largest opportunities going forward. Thanks.

I think the biggest thing is the natural evolution. You mentioned this in your last point. A lot of that comes from entering some new states. Last year in Q1, we launched Ohio and Massachusetts. This year, we launched North Carolina and Vermont, which are still two big states, but combined population in North Carolina and Vermont is definitely lower than in Massachusetts and Ohio. Secondly, Just as the customer base matures, we're seeing an increase in the ratio of existing customer volume to new customer volume, which is naturally bringing down the promo rate. So a lot, in fact, the majority of it is just the natural maturity of states and, as you noted, having a lower percentage of the population launching Q1 this year than last year. Secondly, we always are working to optimize, and the team has done a fantastic job over the last year really finding ways to lean in in places that are working and cut in places that aren't. And I think that's made a lot of improvement also in the year-over-year drop. And there's still a ton of opportunity there. I mean, we're just scratching the surface on some of this stuff. And I think the level at which we can kind of personalize the experiences will also help us increase return and optimize promo. And we're just scratching the surface there, too. So there's a lot of upside on that line item.

Thank you. One moment for our next question. Our next question comes from Brett Montoya with Barclays. Your line is open.

Hey, everybody. Thanks for taking my question. So the iGaming market accelerated in the 1Q, the growth rate for the overall market. You guys accelerated your iGaming growth rate. Jason, I'm wondering if you have any thoughts on, you know, what was driving that at the market level, if it was you and your peers, you know, better marketing, better cross-sell, and if you think you saw more, or you guys at least, if you saw more acceleration on the MAU, you know, the MAU side or the ARP up side.

Yeah, it's a great question. You know, I think that a lot of it is just momentum of the industry, and we're seeing it in sports too, just a lot of new customers coming in and a lot of people that are Justin Cappos- crossing over from sports into iGaming. I also do think that some of it has been product driven. We made a lot of improvements to our product, many of which we noted on our earnings call earlier. So on the scripted part of the earnings call earlier, so Justin Cappos- definitely a combination of those things. And then, you know, I think certainly On the marketing side, we've improved as well. You know, that's definitely been a little more recent, so I don't know how much of that's driven the industry growth, but I think we've found some wins in the recent days that have helped us acquire customers more efficiently as well. Great.

Thanks so much.

One moment for our next question. Our next question comes from Barry Jonas with Truister. Your line is open.

Good morning, guys. First off, congrats, Alan, on the new role. I wanted to ask about technology. Smaller competitors talk about narrowing the gap, and we know you're not standing still, but are there more specific parts of the product you think you'll be able to maintain your competitive edge over time better than others? Thank you.

Absolutely. I mean, first, Sports in particular, but really all online gaming products are incredibly complicated. There's a ton going on. I think first and foremost, having a lot of scale and a very wide customer base gives us an advantage because we have more data and more data points to model and to improve personalization and make other decisions off of. Secondly, as you noted, we continue to invest, and being at scale gives us a much larger revenue base to invest in product and engineering. And so we continue to lean in there, and I think that there's a ton we can do to improve the product that will hopefully be revenue additive and certainly will be competitively differentiated. The other thing that I would say is that a lot of what we're focused on now is Yes, we continue to focus on customer-facing features, but a lot of what we're focused on now are kind of behind-the-curtain type of things, things that help us optimize hold rate and trading, things that help us personalize experiences that retain and create stickier customers. Those things are harder to copy because it's not an obvious consumer-facing feature that somebody could say, oh, yeah, I'm just going to figure out how to do that. oftentimes, you know, it's invisible to the front end. So I think there's a lot of advantage that can be maintained long-term in those sorts of things, as well as sort of just the inherent advantages of scale and robustness of data size and size and efficacy of product and engineering team.

That's great. Thank you.

One moment for our next question. Our next question comes from Dan Pulitzer with Wells Fargo. Your line is open.

Hey, good morning, everyone. I want to touch a bit on iGaming again. One of your closest competitors in that market seems to be gaining some share and momentum. Could you maybe talk about the promotional environment and how you think about kind of the share outlook for yourselves as we look forward? Thanks.

Yeah, I mean, I think what you're seeing, which probably isn't surprising, is the same dynamic emerging in iGaming as in OSB. So on the one hand, I think that that gives a lot of sort of clarity in terms of investors of what long-term market structure could look like, which is good. And I think for us, we just continue to focus on trying to deliver the best customer experience and I think if we do that, we'll maximize our long-term share of the pie. But I do want to note that share is not the only metric. Obviously, everybody follows that, and that's a lot of questions. But we're focused on being the most profitable company in the space and making the most money. So I think that's ultimately how we define share of the space, not GGR share. Obviously, GGR share is a helpful metric to look at, but bottom line, share is the most important thing.

Thanks. And then just one quick housekeeping. Did you guys give an actual hold for first quarter? I know you gave the structural, but if you could provide actual, that'd be helpful.

Yeah, I think we've said about nine and a half percent.

Got it. Thanks so much.

One moment for our next question. Our next question comes from Jed Kelly with Oppenheimer. Your line is open.

Hey, great. Thanks for taking my question. Just can you talk about MAU trends? I saw it was down in the first quarter, realized you were copying some state launches. But can you speak to that? And then just as a follow-up, you're launching your new PIC6 product. Can you talk about how that can help you build your database in states where sports betting is not yet legal thank you um so on the first one i i are you talking about like versus consensus because we were up on mops here no i'm just i'm talking i'm talking it was down sequentially just oh from last quarter that was

Yeah, that's just seasonality. Yeah, that's just seasonality. That typically happens. And, you know, I think the biggest thing also that drove that was the state launches. Actually, probably even more than seasonality, to be honest. That's what you're seeing there is the state launches. We had Ohio and Massachusetts launch in Q1 of last year. So that drove a lot of MAU in that quarter. So, you know, there's nothing kind of other than that going on there. And then, sorry, what was your second question?

Just on how does your PIC6 product help you build up your databases in states where sports betting is not yet legal?

Great question. I mean, PIC6 is our latest fantasy product. I think we're pretty excited about it. We think it's something that could definitely, as all of our fantasy products have, help us build a database in states that aren't yet legal and also just create additional revenue and new ways to engage with our customers. you nailed it. That's kind of the goal there. And I think, you know, we haven't done a lot to innovate in fantasy until, you know, the last year or so. And I think the team is energized and focused on, you know, getting back to innovation in the fantasy space as well. And this is a great example of that.

Thank you.

One moment for our next question. Our next question comes from Bernie McTiernan with Needleman Company. Your line is open.

Great. Thanks for taking the question. Jason, given the increased news flow this year about state tax rates potentially going higher in some areas, if there was an existing or relatively mature state to increase taxes, what would the impact be? And then what levers would you have to offset that and over what timeframe?

Yeah. So first I do think states understand that there is still a very large illegal market that's not going away. And in order for us to continue to be able to be competitive, and not drive customers back to that market and also continue to take customers out of that market because there's still quite a few, even in the most mature states, that they need to keep tax rates at a reasonable level. So I do expect that that will be the case. But we're prepared either way. I mean, in the end, you know, the cost has to get absorbed by the consumer if the government raises taxes. So there's various levers to do that. You know, also, we could lower external marketing, which I think will be also, you know, partially just driven by the fact that if taxes go up, you know, we're going to have to create better margins, and that will be a lever that we'll have to pull as well. But, you know, like I said, I think that states do understand that any sort of negative impacts to the consumer offering that companies would have to take where tax rates increase would really be, you know, counter to the notion that, you know, we're trying to drive activity from the illegal market to the legal market, which has an enormous number of benefits, only one of which is generating taxes. So I think states get that. And I expect that, you know, maybe there'll be one or two here and there that look to do that, but I don't think many of them will. And I even think the ones that are getting a lot more information now and, you know, my expectation is that we'll be able to convince them that it's not a good policy decision.

Thanks, Jason.

One moment for our next question. Our next question comes from Jordan Bender with Citizens JMP. Your line is open.

Great. Good morning. Thanks for taking my question. Going off of Jason Park's new role in the payment processing, how should we be thinking about what that looks like to bring your payment costs more in line with your long-term goal? Is it coming through initiatives like bringing down the interchange rate that you're paying or more strategic like bringing some or all of that technology in-house? And then, Jason, I just have a follow-up. In your prepared remarks, I think you said the new state launch should add the EBITDA in the back half of the year. Is that to say that the paybacks are just way ahead of any states that have been launched in the past? Thank you.

Yeah, so on the first question, It's still early, so I don't have a lot of specifics, but I think the types of things that Jason will be looking at are consumer-facing optimizations, like are there ways that we can motivate consumers to use lower-cost payment methods, as well as other sorts of medium- to longer-term solutions, like in-housing of certain pieces. really don't know where it's going to go because it's very much an exploratory. And, you know, as I noted earlier, he just turned over the reins to Alan in the last day or two. So I haven't really, you know, had a chance. He hasn't really had a chance to dig in there yet. But I do expect there's a lot of opportunity there. And just to clarify one thing you mentioned, you know, in order to reach our long-term levels, right now we are tracking to where we have set expectations long-term as far as payment costs go. I think this is really looking for opportunities for upside above and beyond that. But we feel like already we're, you know, based on the trajectory of our current business, you know, and this isn't just for payment processing. It's across all the different metrics, the KPIs that we have. We feel good about that trajectory. So this is really about looking for additional upside above and beyond what we shared in Investor Day last year. And then, I'm sorry, what was the second question?

Yeah, just to follow up, in your prepared remarks, I thought you said that the two new states that were just launched should add to EBITDA in the back half of the year. Did I hear that correctly?

You did, yeah. So that is baked into our guide, and you're right. I think the last, you know, it's really been a trend not just with these two, but with the last, you know, year or two of states. Last year, you know, we noted Ohio and Massachusetts both contributed positively by Q4. I think this year our expectation is that the two that we launched, North Carolina and Vermont, will actually contribute positively for the entire back half of the year. So I think it's just another example of how we continue to get better and better at optimizing our state launch playbook. We're able to capture a tremendous amount of value in a much shorter period of time with a much more efficient level of investment than we did, you know, say three, four years ago. Thank you very much.

One moment for our next question. Our next question comes from Chad Bannon with Bequery. Your line is open.

Morning. Thanks for taking my question. Jason, I wanted to ask really what gave you the confidence to raise the structural hold to 10.5%. Obviously, it's early in the year. Is that just kind of a combination of what you're seeing with pre-match, legs of parlays, in-play, et cetera? Any color around that would be helpful. Thanks.

That's exactly right. It's really a function of some of the product enhancements we've made and what we're seeing, you know, that due to our parlay mix and average leg count. You know, progressive parlay, as an example, is a much higher average leg count than a typical parlay. So that's been one of the many examples of contributors. We also are right now in the process of rolling out a cross-states cash out for SGP, which is another lever, I think. So it's really a testament to the work the team has done to drive that mix and average life count.

Thank you. One moment for our next question. Our next question comes from Ryan Sigtel with Craig Howland Capital Group. Your line is open.

Hey, good morning, guys. How do you think about pricing going forward? Our checks indicate DraftKings offers the most competitive or best odds for consumers while also generating industry plus hold due to the bet mix. So kind of a win-win there. But how much of a competitive advantage do you think that is as it relates to customer retention?

You know, I think for most markets, the price is the price. So, you know, I think when it comes to, like, being able to have optimal pricing for say some of the lesser bet markets. There are some customers that may line shop. I don't think it's the majority of them, but some do. And then there's other bet types that tend to have more line shopping like futures bets. But most of the mainstream bets, the player props, the game lines, the over-unders are typically fairly comparable That said, we always make sure that we're competitive. And so we're not trying to win on price, but we're also not trying to have worse pricing than anyone else out there. And I think you noted this, but the real sweet spot is if you have great models and your pricing's tight, you can actually hold better and continue to be super competitive on the pricing side. Those things are not at odds at all. And the other thing I would mention is And this is also a really important part about having great models and tight pricing. The market uptime can be much higher, which I think particularly for live betting is a significant advantage. If customers are trying to live bet and can't get through, then they're going to go somewhere else. So that's another real advantage to having tight pricing and strong models.

Thank you. One moment for our next question. Our next question comes from Jeff Stantel with Stifel. Your line is open.

Hey, good morning, everyone. Thanks for taking our question. Jason, it's been several quarters now of pretty meaningful upside from user acquisition retention and monetization trends. As time goes on, are you seeing sort of the relative impact for each of those individual drivers shift around? In other words, are you seeing user acquisition surprise to the upside? more so than monetization relative to trends last year, or the inverse, or is the relative contribution of each state mostly constant? Thanks.

You know, at any point in time, there's definitely something that you're more like, wow, that is just crushing what we expected. But I will say last few years, really the last two years in particular, it's been across the board. I mean, this last, you know, sort of quarter, and particularly in April, it's been customer acquisition for sure. which I think was true for Q4 and Q1, but I also have seen significant increases to LTVs made over that period of time too. Our player activity and retention levels have been higher than ever. So I think as we improve the product and also as we just get more data and continue to do the analysis, continue to optimize, continue to build better tools that allow the teams to trade and also tools on the marketing side that allow the teams to get data to optimize the marketing better, Same thing with promos. We're just, you know, again, we're at that stage, I think, of the industry of the company where there's just so much that's obvious that we can do and it's just cranking through all of it. And it's really moving metrics across the entire value chain. So I can't point to any one thing, you know, overall, but you are correct that at any point in time, you might be like, wow, we had a great quarter from a customer acquisition standpoint. But often that comes with a great quarter from a retention standpoint, too, because a lot of times the same things that you're doing that drive acquisition also drive great activation and retention.

Thanks very much.

And I'm not showing any further questions at this time. I'd like to turn the call back over to Jason Robbins for any closing remarks.

Thank you all for joining us on today's call. As you can see, DraftKings is off to a fantastic start for 2024, and we're really excited about the rest of this year and beyond. I look forward to speaking with you over the coming weeks and hope you all stay safe and well. Thank you. Ladies and gentlemen, this concludes today's presentation. You may now disconnect and have a wonderful day.