Q1 2021 Draftkings Inc Earnings Call
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Ladies and gentlemen, please standby your conference call will begin momentarily once again, ladies and gentlemen, the please stay on the line.
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Okay.
Good day, and thank you for standing by and walk through the draft Kings Q1, 2021 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask the question during the session and you had the press star one on your telephone if you require any further assistance. Please press Star then zero.
I would now like you do shows for each conference call Stanton Dodge you may begin.
Good morning, everyone and thank you for joining us today statements. We make during this call that are not statements of historical fact constitute forward looking statements and theyre subject to risks uncertainties and other factors.
That could cause our actual results to differ materially from our historical results for.
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.
Debt, we believe may be useful and evaluating draft kings operating performance.
These measures should not be considered in isolation or as a substitute for GAAP King's financial results prepared in accordance with GAAP.
A reconciliation of these non-GAAP measures to the most directly comparable GAAP measures is available and our quarterly report on form 10-Q filed today with the SEC and in our.
Our earnings presentation, which is available on our website.
And investors got draft Kings Dot com.
Hosting the call today, we have Jason Robins co founder and Chief Executive Officer, and Chairman of Draft Kings, who will share some opening remarks, and an update on our business and adjacent park Chief Financial Officer, <unk>, <unk>, who will provide a review of our financials.
And then open up the lines for questions.
I will now turn the call over to Jason Robins.
Good morning, everyone.
The start today's call I want to touch on a few recent examples of how drafting our employees and our customers and giving back to our communities.
And March drafting calibrated International Women's day, our newest global company holiday and launch of free to play pools celebrating female athlete.
About 100000 people participated and each entry raised money for U S and global organization supporting and empowering female leaders and entrepreneurs.
We also recently announced the appointment of GSL bunch, and environmental activist and philanthropist and the special adviser to me and our board of directors for ESG initiatives.
And all of the global icon and utilize the platform, she established and fashion and entertainment to lead and advocate for vital and environmental causes and social causes.
Strategic counsel and unique global perspective that your Dell brings and the board will be indispensable.
She is already making an impact as we have collaborated to set a goal of printing and 1 million trees buyer of day 2022.
We launched several opportunities for customers to directly support the effort, including through charity Daily Fantasy sports content and free to play pool, and and coordination with the Arbor Day Foundation tracking to the pledge to plan for the first 100000 treat and several U S States.
Many of military appreciation month, and the U S. During this month, we also recognized military spouse day and Memorial day tracking is proud to continue to support service members veterans and their families. We are on.
Our second tech breaking the class of 2021, providing veterans and military spouses of three high tech skills and training to support their posts service critical drag.
<unk> customers will also have the opportunity to show their support the charity DFS contest the benefit of our tech for heroes and initiatives.
All of these initiatives and part of our overarching CSR program, <unk>, which is the catalyst that facilitate meaningful relationships between our employees our customers and the causes they feel passionate about and in order to create a better world for everyone.
And tracking we're committed to creating an inclusive pathways for people to build create imagine and innovate.
Drapkin serves we're advancing that Michigan with a focus on service equity responsibility.
<unk> entrepreneurship and sports.
And I'm very proud of these initiatives and our ability to encourage of global community of customers to really make an impact where it is needed.
On today's call we will cover the following topics.
First quarter results and recent accomplishments are.
A recent state launches and legalization trends.
Our product and technology investments as well as the migration to our in house debt engine.
And before turning it over to Jason Park, I will talk about the acquisitions, we have completed.
Draft Kings is off to an outstanding start in 2021.
Revenue for the first quarter increased 175% year over year to $312 million on a pro forma basis, <unk> grew 114% and grew 48%.
These results reflect continued over performance of our core business due to strong customer acquisition and retention as well as the successful launches of the mobile sports betting and gaming and Michigan and mobile sports betting and Virginia.
Our first quarter results also benefited from external factors that once again broke our way, including better than expected online sports betting hold percentage and the extension of an executive order through April and that allowed for mobile registration and Illinois, which was our largest online sports betting state and it turns to handle and the first quarter.
Please note that the executive order was not renewed following April up there, which may negatively affect the growth rate of the overall, Illinois sports betting market, though we are relatively well positioned given the large number of mobile registrants, we have already captured.
And the first quarter, we continued to make progress with the migration to our own in house debt engine and are on track to complete the migration by the end of the third quarter of 2021.
We expanded our relationships with the NFL and PGA tour.
As an official sports betting partner of the NFL draft wins, a lot of the right to integrate relevant sports betting content directly into the NFL and media properties, including NFL Dot com and the NFL.
We will also be able to enhance the fan experience with the NFL highlights and footage.
We also renewed our rights as the official and exclusive daily fantasy sports partner of the NFL as part of the.
Continued DFS the agreement, we will have exclusive rights to the NFL of IP and marks of plans to collaborate with the lead on a variety of content and product offerings that fans can engage with on the drafting of TFS that.
Following the legalization of sports betting and fantasy sports and Arizona, we expanded our existing commercial relationship with the PGA tour to provide market access for retail and mobile sports betting and Arizona pending necessary approvals.
We also plan to operate with the PGA tour of premium retail sports book of TPC Scottsdale home of the waste management Phoenix open pending necessary approvals.
We secured partnerships with the UFC and WWE to reach broader fan bases across sports.
Draft Kings of Usg's first sports book, and Daily Fantasy partner, and the United States and Canada.
And on bad sports and UFC, and particular have grown into a high demand category.
The draft anything Youll see of previously collaborate and specific events, we are proud to become official partners and launch impactful and integration.
We became an official gaming partner of WWE.
Our collaboration with WWE centers on a free to play pools product and launch with the inaugural of free to play pools at Wrestlemania on April the had over 100000 combine entries.
In March we raised approximately $1 $1 billion of net proceeds by selling the zero percent coupon convertible notes that will mature in 2028.
We will not see any dilution until our stock is at $135 50 per share.
This capital raise is another example of our proactive approach to ensuring we are well financed to pursue our growth objectives.
In terms of acquisitions, we announced and closed two.
Biggest sports information Network, Inc, or <unk>, which is the multi platform broadcasting content company that is delivering trusted sports betting news analysis and data to use sports betters and 2017.
And Blue Ribbon and software, which is a leading global jackpot and gamification company and to provide the platform agnostic of real time game of education tools that allow for fully customizable jackpot promotions.
I also want to provide a few highlights from three significant sporting events in 2021.
Super Bowl, the Masters and March Madness.
For the Super Bowl DFS entry fees grew 66% and paid active users grew 60% compared to the Super Bowl and 2020.
Also for the Super Bowl, New Jersey, OSB handle grew 70% and active users grew 44% compared to the Super Bowl and 2020.
For the Masters the.
The FX entry fees grew 21% there were only five months separate this year's Masters from last year's event in November 2020.
Also for the Masters and New Jersey handle grew 30% and active users grew 9% compared to the event held the five months earlier in November of 2020.
For March Madness, and New Jersey handle grew 181% and 2021 versus 2019 and active users grew 80 per cent.
We are raising our revenue outlook for 2021 due to our expectation for continued growth and the outperformance of our core business.
Jason Park will provide more details and a few minutes.
Turning to new U S states for drafting for legalization and trends in the first quarter, we launched mobile sports betting and gaming and Michigan, and we launched mobile sports betting and Virginia.
When comparing our mobile sports betting handle and Michigan from a launch on January 22 at March 31, 2021 on a per capita basis with New Jersey mobile sports betting for the same time period, and 2019, Michigan outperformed New Jersey by 3% and OSB and 291% and I gaming.
As a reminder, by this time and 2019, we were already live in New Jersey for five months prior to this period, including the entire NFL season, which is the very important time for customer acquisition.
The same is true for our mobile sports betting handle the per capita and Virginia from January 24th to March 31 2021 the.
The state outperformed New Jersey by 7% for the same time period and 2019.
As of Michigan, Virginia had just launched on New Jersey was already live for five months, including the entire NFL team.
When considered with the information we presented at our Investor Day on March These results and non New Jersey States further confirm our view of that New Jersey is the reasonable and perhaps conservative proxy for the performance of other states and the U S.
Also by generating $95 million and only its second full month, and Michigan I gaming market is on an annual run rate of over $1 1 billion and gross revenue on Mark that New Jersey did not hit until December 2027 years after its launch.
And Michigan, our cross selling efforts are also working well with 56 per cent of sports book players and the state also engaging with that I gave me and product offering from launch through March 31st.
And is now just about three years since passport was shut down by the U S Supreme Court.
On the sixth jurisdictions, representing 44% of the population of legalized sports betting and 18 jurisdictions, representing 35 per cent of the population of legalized mobile sports betting 15 of which are currently live representing 27 per cent of the population.
Drafting just live with online sports betting and 12 state the collectively represent 25 per cent of the U S population.
Six states, representing approximately 11% of the U S population of legalized some form of Viking Draft Kings is live and four states, representing approximately 10% of the U S population.
We believe the outlook for further legalization is very promising.
And 2021 more than 20 state legislatures have introduced legislation to legalize online sports betting five state legislatures of introduced legislation to expand their existing sports wagering and framework and one state legislature introduced legislation to legalize sports betting and limited to retail locations.
In addition for states of introduced I gaming legislation and three states of introduced online poker legislation.
Three of the states and introduced legislation to legalize mobile sports betting and the sheer Wyoming, Arizona and New York have already enacted mobile sports Wagering law.
Maryland has made significant progress of the mobile and retail sports wagering and bill passed by the legislature and now pending action from the government.
The three states that have enacted laws the sia represent 8% of the U S population and bring the percentage of population with legalized sports betting to 35%.
We also continue to believe the Canada represents the very meaningful opportunity for drafting.
Most of progress to date and had been made and Ontario is the government 2020 provincial budget, it's been adopted and the men's existing loss of removed the Ontario Lottery and gaming Corporation statutory and monopoly on the Internet gaming and the province.
We look forward to further progress in Ontario, and in Canada as a whole.
I would now like to comment on our progress with the integration and migration to our in house that engine and discuss our new product and content initiatives.
And continue to be pleased with the progress we are making with our organizational integration and the migration to our proprietary in house backend technology for trading.
We have been testing our in house debt engine on an ongoing basis. The migration remains on track to be complete by the end of the third quarter and 2021.
As we have previously discussed being vertically integrated is important and will help with the innovation speed to market state stability and availability. We will also realized gross margin synergies associated with the migration starting in the fourth quarter of this year.
In terms of the product innovation, we announced the agreement with dish network to bring drafting sports book and daily fantasy experiences directly to customers nationwide.
The service launched on March 3rd, but the first of its kind of patent pending draft Kings App integration on the dish TV Hopper platform.
Since launching more than 600000 unique devices of use the draft Kings App on the dish Bock.
The agreement also provided for the subsequent launch of Sling, TV and new exclusive sports betting information channels and collaboration with drafting.
<unk> TV subscribers and sling for users can now view of real time game scores and betting odds on the drafting basketball and baseball and hockey channel.
So and TV will continue to bring the draft Kings sports betting experience the customers, it's more sports and expanded offerings and the future.
We continued to build differentiation I gaming content to increase engagement with our customers and.
In April we added Spanish 'twenty, one of drafting built unique casino game to our product suite. Spanish 21 was available immediately to customers and New Jersey, and we plan to expand it to Michigan, Pennsylvania, and West Virginia pending regulatory approval.
Spanish 21 has always been of popular land based casino game.
We are currently the only operator offering Spanish 'twenty, one and are proud to bring the blackjack variant exclusively to our casino product.
We are also very excited to announce the upcoming launch of the first of its kind of social functionality to both our DFS and sports book at.
The launch of drafting social which as expected the rollout over the next few weeks marks and industry first innovation to create and integrated social community across sports betting and daily fantasy sports as fans can interact with each other within the share peer to peer environment.
With daily fantasy and sports betting already being predominantly online.
Launch both enhances the digital engagement possibilities for these products, while also leaning further into the inherently social spirit of sports fandom and competition.
The product is particularly unique because it amplifies our ability to create and interconnected ecosystem across our consumer products.
In addition, the functionality like shared logging and wallets that we already offer features like Universal profiles friends list, commenting and loyalty Flash of awards will also allow draft kings to connect users across products and a weighted no. Other company is currently doing.
Turning to M&A or acquisition of East and allows us to benefit from the explosion and the appetite for sports betting content as more states legalize and to participate and media content creation for this rapidly growing adjacency to the sports betting market.
And not only provides additional revenue streams through subscriptions and advertising, but also has the highly engaged and growing audience that may provide CAC advantages and help with engagement of sports betting customers.
We welcome Brian and less Burger and his team for the drafting family.
We broadened our sports and entertainment footprint by completing of content distribution and monetization and sponsorship agreement with the metalwork media as part of the deal metalwork media and draft Haynesville distribute the Dan Loeb of card show of <unk>, and the Lebron tired and friends network across the wide range of audio television and digital and social channels.
Additionally, the network of shows were prominently featured draft Kings odds betting trend and general Sports book and Daily Fantasy information.
We continue to be big believers and the intersection of content and gaming is the consumption of each benefits together with.
With the hiring of Brian Angela <unk> as our Chief Media Officer, we are accelerating our plans to establish ourselves as both the product provider and resource for fans.
As our media presence grows with the acquisition of visa and partnership with the Meadowlark media and integration of agreements with Turner sports and ESPN.
Ian and creative ideas, and we'll expand the possibilities for draft Kings content, and we look forward to sharing more and the coming quarters.
We also completed the acquisition of Blue Ribbon and software.
And our teams will now be able to enhance the customer experience by integrating blue ribbons unique jackpot functionality, including personalized promotions and reward tailored for the individual customer of jackpots across draft kings various product offerings.
We expect to launch our jackpot technology and the second half of 2021, and our I gaming product.
We are strengthening our capabilities to rapidly integrate these acquisitions, while also staying focused on winning in this rapidly growing industry and migrating to our in house debt engine.
In conclusion, we are off to a great start in 2021, we performed exceptionally well and the first quarter saw a legislative advancements and several states continued to make progress of the migration to our own and house that engine expanded and initiated relationships with important organization and advance new product technology and content initiatives.
I will now turn the call over to drafting CFO, Jason Park, who will discuss our first quarter results and revised expectations for 2021.
Thank you Jason Good morning, everyone before I begin I want to remind everyone that we will be discussing our results on the combined company pro forma basis to improve comparability as if we owned our BW bits of starting on January one 2020 rather than on April 23, 2020.
We are pleased to announce that we generated $312 million and revenue for the quarter, representing a 175% increase for Q1 and 2020 revenue of $113 million a portion of this amazing growth is due to the sports postponements that occurred in Q1, 2020 due to COVID-19.
Our <unk> business generated $281 million for the quarter, representing a 217% increase versus prior year beat of see monthly unique payers and the quarter increased 114% year over year to $1 5 billion. The increase reflects strong unique player retention and acquisition across DFS OSB and I gaming.
And as well of the lack of traditional sports and the last three weeks of March 2020.
Average revenue per monthly unique payer or art from up.
The $61 and Q1, representing a 48% increase versus the same period and 2020.
Our arm up was positively impacted by increasing engagement with our I gaming and online sports book product offerings, and our excellent cross selling capabilities.
Our b to B business generated $31 million for the quarter up 26% versus prior year due to the positive impact of FX as well as the last March being impacted by COVID-19.
First quarter revenue exceeded our expectations due to a number of factors, including the extension of an executive order that allowed for continued mobile registration and Illinois through Q1 higher than forecast of OSB hold percentage over performance on our core business as the results of continued strong customer acquisition retention and monetization and strong long.
And the Michigan and Virginia.
We generated $155 million of gross profit dollars on an adjusted EBITDA basis for the entire business in the quarter, representing a 135% increase versus the prior year period.
Gross margin rate on an adjusted EBITDA basis for the business declined as expected to 50% and the quarter as we have noted in the past our gross margin rate has been impacted and we will continue to be impacted by a mix shift out of our more mature and thus higher margin DSS product offerings and into higher growth rates and lower margin OSB and high gaming product off of.
In addition, gross margin rate within a period of impacted by promotional intensity typically most of intense when the new state launches and not the beginning of the major sports season, as we aim to acquire customers.
Gross margin rates will be positively impacted by the conversion to our own bet engine, which will be complete by the end of Q3 as well as several of gross margin rate improvement initiatives.
Our sales and marketing expenses were $220 million, which include our external marketing external marketing was higher than prior year due to being live and 12 total seats versus southern and Q1, 2020, including the launch of mobile sports betting and gaming and Michigan, and mobile sports betting and Virginia, which occurred in the quarter.
The Governor of Illinois, also extending and the executive order, but allow for mobile registration and Illinois through April 3rd which allowed us to continue to acquire during that period.
<unk>, we continued to see accretive LTV to CAC opportunities, which allowed us to invest deeper and marketing and part due to the stay at home nature of COVID-19.
Our general and administrative and product and technology costs on an adjusted EBITDA basis were $41 million and $34 million, respectively. As we continue to invest to achieve scale and our back office functions, such as finance and accounting legal and human resources as well as adding to our technology team.
Adjusted EBITDA for the quarter was negative $139 million as we rolled out of new state playbook, and multiple jurisdictions and continue to invest and our product technology and G&A functions.
In the quarter, we expense $186 million and items that we exclude from adjusted EBITDA, but are included in GAAP operating income, notably $152 million for stock based compensation and 34 million for amortization of acquired intangibles depreciation and other amortization as well as transaction related expenses.
Yeah.
Our stock based compensation expense reflects accruals related to the equity awards based on our anticipated revenue performance in 2020 one.
Moving onto our balance sheet and liquidity, we ended the quarter with $2 $8 billion of cash on our balance sheet. Following our issuance of zero percent coupon convertible notes that will mature in 2028, we raised approximately $1 1 billion and net proceeds from this offering were.
We're well capitalized to execute our multiyear plan and address our key priorities of taking advantage of this unique time for customer acquisition entering new states legalize continuing to lead the market on product innovation and exploring opportunistic and accretive M&A.
Looking at the rest of the 2021 on our fourth quarter earnings call in February we provided a range for 2021 revenue of 902 1 billion.
Given our strong start for 2021 and underlying acquisition retention and monetization of players we are increasing and our guidance of one 5 billion to 1.15 billion of revenue for 2021, which equates to year over year growth of 63% to 79% and the a 16% increase compared to the midpoint of our prior guidance.
And.
The 16% increase from the midpoint of our 2020. One revenue guidance reflects strong performance in Q1, which has continued in Q2 continued strong user activation due to our marketing spend well executed launches of mobile sports betting in Michigan, and Virginia, and I gave me and Michigan and a modest impact of decent and Blue ribbon on 2020 one revenue.
We assume that all professional and college sports calendar, if that have been announced coming to fruition and that'll be continue the operating in states and which we are allowed to day.
The states collectively represent 25 per cent of the U S population for mobile sports betting and 10 per cent of the U S population for IGN.
Wyoming, Arizona, and New York have legalized and we do not know the exact date, these faithful launch and or not including them in our revenue guidance. In addition for.
For the past several quarters, our financial results benefited from the stay at home and nature of COVID-19 and the unique sports calendar and the second half of 2020.
We expect both months and art mumps to grow in 2021 with mumps, increasing at a higher rates and art months.
Regarding our 2021 quarterly revenue cadence, all things being equal, which means no new states launch beyond Michigan, and Virginia, We expect Q1 to represent 28% of full year 2021 revenue Q2 to be slightly more than 20% and Q3 to be slightly below 20% of full year revenue. We currently have.
For the fourth quarter to account for slightly more than 30% of our revenue for the year.
While we are not providing guidance for 2020, one of adjusted EBITDA sales and marketing expenses of key input and as discussed sales and marketing and older vintage of seats will begin to moderate as we continue to invest and accretive LTV to CAC opportunity.
2000, and 2020 'twenty, one vintage of seats, we'll have increased sales and marketing as we lap partial year for 2020 launches execute our new state playbook, and the Michigan, and Virginia, well into the second quarter, and invest and customer acquisition and Iowa, given the launch of mobile registration on January one.
We have also announced the new relationships, including our expanded agreement to become into the official sports betting partner of the NFL.
The net effect is that we continue to expect to spend significantly more on sales and marketing and 2021 compared to 2020 the.
Significant number of customers. We are acquiring also resulted in an increase in variable costs such as customer service.
From a quarterly perspective, we continue to expect our Q3 adjusted EBITDA loss to be deepest and meaningfully wider than last year's Q3 loss as we ramp up at certain marketing and substantially for the start of the NFL season, especially since we will have three states and their first full NFL season.
We expect our Q2 loss to be somewhat better than Q1, theres still heavily impacted by investments associated with our launches and Michigan and Virginia.
And the fourth quarter, we expect of slightly narrower loss and the second quarter as we benefit through higher seasonal revenue.
And as a reminder, our marketing spend is impacted by the launch of these states are.
And it's also highly flexible and can be reduced or pulse altogether, if the sports calendar shifts.
That concludes our remarks, and we will now open the line for questions.
Ladies and gentlemen, if you of a question of our comment at this time. Please press. The Star then the one key on your Touchtone telephone. If your question has been answered you were still move yourself from the queue. Please press the pound key and we also rest of that you limit yourself to one question on.
Our first question comes from Stephen Grambling with Goldman Sachs.
Hey, good morning, Thanks for taking the questions.
Good morning, and and the release you highlighted the launch of social aspects on the App can you just help us maybe think longer term about may.
And maybe social and and what do you envision as the potential opportunity does this include effectively user led content.
Thanks.
Thanks, Steve and Great question. So we're very excited about some of the new social features we will be releasing we of a dedicated team on that led by a guy named Jordan Mendell and we're very excited that we'll be able to really be and innovator in this space I think the idea is to yes allow us some user generated content that obviously.
There will be moderation.
And then the bigger picture is just to allow people to connect specifically around the experience. They are having on draft Kings and obviously you know a lot of social platforms out. There. This is an and tempting to substitute for you know, what the Facebook and Twitter and Instagram and the world are doing and it's really more and maintain enhance the actual experience on draft kings and the a lot of requests we get from people.
How do I better see what my friends are betting on and what Theyre, playing how do I interacted by like a bat and my friend makes and let them know how do I understand you know what my friends are playing so I can play contest against them on our private leagues products. So lots of requests we've gotten and we're trying to do our best to facilitate those interactions and a way that makes these are stickier.
But more importantly improves the customer experience.
That's great. Thanks, I'll jump back in the queue.
The next question comes from Jed Kelly with Oppenheimer.
Great. Thanks, and thanks for taking my question.
And so we're seeing a big media push by by all of the sports books and and and.
And the industry. So Jason just just a bigger picture question for you.
I mean, how do you see <unk> media transforming drafts and I mean, do you kind of see yourselves eventually becoming more of a spurt sports entertainment product and just how should we view of how you look at the media opportunity over the next two to three years.
It's a great question Jed and re.
Really it starts with two important principles, one theres a ton of synergy between media and content and what our core products offer.
I'll know that you know clearly there is a demand and it gets driven for our content by our products and then turn content drives further demand on the gaming products, so tremendous synergy there.
<unk>, we have a good track record of being able to launch new product lines and monetize our customer base as well as utilized for them to acquire a broader customer base, we've done that with multiple products now. So we think between our data science capabilities and other analytics that we've employed we're gonna be a really effective and targeting the right content to the right.
Customers at the right time and also using what we see consumption on content looking like to be able to better target of gaming offers and so that's really the crux of the strategy is to be able to take advantage of those synergies and to be able to add new revenue streams and new sources of user acquisition and engagement.
And then as a follow up I guess with the visa and acquisition I mean, do you plan to create your own channel or put it on more streaming services I know, it's on messenger and a couple of other services, but how do you view visa and.
And of that overall strategy.
Oh of visa and provides a really important capability, creating content around sports betting, which is obviously a very core area that our audiences and focuses on and they do have of channel currently and we're exploring broader distribution and will also be creating content for a variety of other services. So lots of plans with them and they have an incredibly tam.
Wanted team and we're really lucky and fortunate to have them on our side now and look forward to collaborating with them to create great content for our customers.
Thank you.
Your next question.
Sorry, our next question comes from venture kind of with credit Suisse.
Hey, How's it going just to just to follow up on the biggest sports network is there a plan to work some of that functionality and.
And to the sports betting platform itself, so whether it's news analysis helped making picks.
Or is it towards the sort of thinking about it as being kind of on a separate entity that helps drive traffic.
You know I think it'll be a little bit of both I do think that the.
Nice thing about the thing is that we get of capability. So that capability can be utilized as you've noted in multiple ways. Some of it can be utilized directly within the gaming experience in order to enhance that other ways can be utilized the as you noted are to drive customer acquisition engagement and adoption of new products through external mean.
And and other channels that will distribute through so we're going to use it and both ways and.
Really the important thing we look at it is we got the capability to create great content and an area, that's very meaningful and important to our customers and our target customers.
Doctors is the is there any and is there any like hesitation with adding more functionality to the OSP platform or is it more price of our gaming or get more just kind of like.
On the on the comp I guess.
Well, we always test everything so you never know him on.
The routinely surprised the things that I thought would perform and a certain way on good or bad and don't and.
And that's why we always let the day to day the talking so we'll test the adding different things and if we find that it's enhancing the customer experience and not distracting people and we'll add more and if not and we will pare back and.
Really it will be and evolution based on what we're seeing and the data.
Thanks appreciate it.
Our next question comes from Thomas Allen with Morgan Stanley.
Thank you so just on the revenue first quarter revenue was obviously really strong.
The fourth quarter earnings.
The first quarter revenues would be and the low twenty's per cent and now you're saying 28 per cent.
Are you more like tempered on the rest of the year because of the results you're seeing.
And the second quarter. So far is it seasonality is it.
Carrying on.
Lock it a little bit more.
Sure. So I think it really starts with Q1 with and absolutely amazing quarter for us.
And some of the reasons why you know certainly there were a strong performance and the business and.
And that should carry through for the rest of the year, but there are other reasons such as higher hold and we typically get that just random fluctuations and supporting outcomes on really can't count on that for the rest of the year and also of course of the Illinois Executive order, which ran through Q1, but and the first few days of Q2 was not renewed Illinois as we noted.
And it had become our largest state for sports betting handle and while we think we're continuing to be really well positioned there in terms of market share I don't expect the overall market to grow substantially as it could have otherwise and absence of new legislation or or a renewal of that executive order. So.
That's another example of something that we know won't continue through the rest of the year and Thats skewing a little bit how much Q1 will be as a percentage of the overall year and then just in general when you have a great quarter like that and we think it's prudent not to assume every single quarter will be a blowout.
And we're taking a cautious approach and saying that we think that you know other quarters there'll be more in line with what a typical quarter might look like and obviously, if some things break our way or just of the underlying business continues to perform as strongly as it has been and we might see some upside there.
And just a quick one what was the whole benefit.
So and sorry.
Sorry, the question was on the hold.
How much of it.
I don't think we've shared now and we haven't shared exactly what those numbers as well, but we can consider of sharing some more detail. There on what we have said is that there is definitely a higher than average hold rate due to random fluctuations and sports outcomes and.
I think that that's something the generally we've seen evens out over the course of the year, but can definitely month to month or quarter to quarter, sometimes have some lumpiness.
Thank you.
Our next question comes from Michael Graham with Canaccord.
Yes, Thanks, and impressive results I wanted to ask about MEP growth you know I think typically Q1 would be seasonally a little bit down sequentially and you were able to grow and.
And do you have a few things under the hood, there between new Activations and retention engagement and potentially threatening and more gaming.
Acquisitions, and so I just wanted to ask like if you could deconstruct the MEP performance, a little bit and as of as a follow on when Youre out there and the marketing, especially in digital channels.
You just make a comment on how crowded some of those channels are from OSB and <unk>.
I mean competitors or are you more competing against other types of players or just any color you can provide on that environment would be great.
Thanks, Mike So first on the mobs question, certainly we saw much stronger activation and customer acquisition and Q1 for both had pretty significant contribution to the increase.
I think that what we're seeing and if theres just a lot of momentum and the industry right now and I.
Thank debt, we are finding that our marketing is performing just as it did towards the back half of last year really at record levels and our.
The response is incredibly high our tax continued to be low. Despite the fact that we've ramped up our spend and we're just getting excellent return on our marketing. So that is helping to drive a lot of activation of new users as well.
So really those of the main drivers.
And then sorry.
Sorry, what was the second question.
Just wanted to ask if you could comment on the marketing environment when youre out there acquiring players and digital channels like how how intense the competition from your competitors.
Well, it's interesting on digital channels.
Yes, there is certainly competition within our core market, but also a lot of where we are competing previously for impressions was with mobile games and those games I think had been hurt more so than maybe we would be by the idea of FA changes, so we've actually seen and softening.
And the digital markets due to some of the traditional mobile games companies pulling back a bit and that's created a favorable environment for us I wouldn't say it's tremendously.
Favorable, it's really kind of more similar to what it looked like before.
But to answer your question directly we are not really seeing a hybrid of competitor competitive environment right now relative to anything we've seen before it looks pretty normal and.
I think it's kind of an offset of yes, you are seeing better performance for companies like draft Kings, but it's also offset by maybe some pullback and the traditional mobile gaming companies.
Okay. Thanks, Jason.
Thank you.
The next question comes from Carlos Centurylink with Deutsche Bank.
Yes.
Hey, guys, thanks, and good morning.
I appreciate it and the types of you guys don't don't want to disclose the whole benefit and the period. If we could kind of just breakdown the old guidance midpoint and kind of that low twenties range. It would it would apply you can kind of be.
The implied guidance within the guidance by about $100 million and in the quarter.
Any chance you guys will be willing to and maybe bucket where that outperformance came and I.
And I casino relative to OSB relative to the DFS on assuming the two former categories of the lion's share, but maybe even just if you could split out kind of the delta of the upside in relative to that guidance between kind of OSB and and and I casino and the period given the very strong start in Michigan.
Thanks, Carla I appreciate the nice words.
Not disclosing any breakout of.
The gaming versus OSB revenue right now.
Given some of the trends that have occurred recently with Michigan being so strong on the gaming side. We certainly saw some benefit from that I think that really exceeded our expectations and as we noted and the earnings call.
The growth of the.
The revenue per capita and Michigan on the gaming side greatly outperform new Jersey and of similar time period and its first year.
And OSB did too, but not nearly as much. So that was certainly a factor and we mentioned the hold rate on that drove OSP revenue a little bit higher than what we would normally have seen based on the bedding volumes.
And so we're not breaking it out but I would say I think it's fair to say that you know really all products across the board, including DFS, We had record numbers for the last several years for DFS. If you look at some of the stat that we disclosed from the Super Bowl and March Madness, and otherwise and we haven't seen growth in them and that product at these levels. Since 2015, so really pleased with how everything.
Performing across the board and everything contributed to the beat.
Great. Thank you and I could just just one follow up as it pertains to the to the integration of the SB Tech stuff at the end of the <unk> well that basically for the for tier B, you're functioning back and for for every state or does it kind of go state by state and you take it slowly.
Well, we are going state by state, but we are saying by the end of Q3, we will be fully complete with every state and so.
To answer your question in the fourth quarter, we will be on our own proprietary platform and every state.
And between now and then we will we will take it on a state by state basis distance of of course, assuming we get all of the necessary regulatory approvals and Thats, obviously, a process and thats part of why we are going state by state.
But assuming we get all of the approvals from the pure product and tech standpoint, and we feel like we're well on track for end of Q3, and maybe even a little bit earlier.
Great and then guys I'm sorry, if you could just take one more.
Any commentary around the New York and the strategy there given the.
And the cloudy.
Regulation as it currently stands.
Well first of all really exciting and New York as move forward with mobile sports betting legislation and I know for years Theres been speculation about it and.
It's really great to see that it got done and not only got done that has strong support from the legislature from the Governor's office and.
And really want to thank the legislature and governor Cuomo for from moving that bill through.
And through the budget.
And as far as our strategy and how we're going to wait and see when the RFP comes out what it looks like and we're going to put our best foot forward and.
Think we feel like I said very excited about the opportunity and New York and we're looking forward to participating in the process and.
Hopefully it'll be a good outcome.
Great. Thank you very much guidance.
Thank you.
Our next question comes from Bernie Mcternan with Needham and company.
Yeah.
Okay.
You mentioned the 600000 unique devices with dish I was just wondering how the customer is using this product do you think it's going to be the important part of the customer experience of long term or for more niche just because youre watching TV already everyone's already has the second screen next to them with access to the App and then within that.
Is the mvpds and more advantageous position to be able to execute the strategy relative to of cable that workers at the other way around.
I think that there's different ways you can execute the strategy of the device makers provide potentially in other way in addition to the ones the named and.
I think the cable networks are a little more challenging and would have to be something that we're more directly connected to the device or to the network I would think the.
And the first part of your question.
I think really what we're trying to do is to create something that makes the convenience of being able to consume whatever youre watching sports on the screen as well as playing the games and checking your fast and all of that and easy as possible I think people will have a mix of things. They use part of the sort of proliferation of devices all around us has been.
People don't net typically just do things one way or in other even you know as I think about my own behaviors, sometimes I use my phone the term ITV on because of connected sometimes they just grabbed the remote and it just sort of whatever feels convenient and at the moment. So I think you'll see some people exclusively using that are primarily using that I think you'll see some people not using it at all and I think youll see from <unk>.
<unk> gone back and forth, but.
We're going to do is just keep looking at the data keep optimizing the customer experience and listen to what our users are saying and what makes the experience more entertaining and more convenient.
Thanks, Jason.
Thank you.
As a reminder, ladies and gentlemen, please limit yourself to one question on <unk>.
Next question comes from David Katz with Jefferies.
Yes.
For a moment.
Good morning, I know, we're still a couple of quarters away.
But I wondered if there were any testing or any learnings or any interesting.
Surprises one way or the other.
Around that kind of events. Thank you.
Sorry, if around what.
The SP check a lot of which is still a couple of quarters the way yes.
And so we have begun the process, we've done a tremendous amount of testing.
We test everything internally and then of course as we go state by state and we'll get more and more data.
And so far what we're seeing is very encouraging theres been really only kind of minor.
Things around the edges that we've had the cleanup otherwise our internal testing has been really strong and predicting things and we've been able to get everything and order.
And so so far so good and its still early.
And as you know to answer your question, yes, as we get closer to the full migration will have more and more states. They're migrated over and we will have more and more data to look at and be able to get a sense of how things are going on but from what we're seeing so far everything is going great.
Okay. Thank you I appreciate it.
Thank you.
Our next question comes from Steven <unk> with Cowen.
Hi, Thanks for the question and I, just wanted to touch base on Illinois, a little bit more it.
It seems like the end of Q1 with the number one market share in terms of handle.
And with remote registration and then in early April have you seen any impact on your market share so far and.
Do you expect to maintain that share throughout the year until it goes back to remote registration and early 2022.
And it's a great question I think.
Really hard to say for sure but.
And given I don't expect there to be nearly the volume of sign ups and I can use.
Iowa for example, with the comparison and Iowa, where for the first 18 months after going live there was no mobile registration and the first and I think it was like five days of January of this year when mobile registration was turned on and we exceeded the entire previous year in terms of registering and so I think the.
The volume that comes in when there is mobile registration is just so significant compared to when there is not debt.
And my suspicion would be the market share has sort of stabilized until that returns and hopefully when it returns if it returns and.
As you noted we've been number one and handle I think since August every month and Illinois. So we feel like we're on a great position obviously disappointing.
We won't be able to take mobile registering for at least for some time, but.
I think if we you know.
If that were to be the case as it is then.
I think we couldnt be and a stronger position and feel very good about where we are from a market share standpoint and that state.
Alright, Thanks, Jason.
Our next question comes from the Sally Carousel of the Cannonball research.
Thank you good morning, I wanted to follow up on your comments about.
Online sports betting and media content converging, so they're sort of situations developing and I'm sure you're very aware of that between the flood of Fox broadcast Corporation.
Which could lead to all kinds of structural outcomes and the market. So with founder of becoming a standalone publicly traded company and the U S. Maybe some combinations with the.
And pokerstars folks better and so on so I was wondering if you are.
If you could share your thoughts with us how that would impact the.
Your and your strategy and.
And your market position.
Thank you so.
I know, there's a lot of rumor and speculation about that right now.
On one.
And we don't really have any insight. So it's hard for me to really have any opinion, but even if I did we.
We don't really think debt what others are doing in terms of corporate structure and.
And how that all plays out really has much of anything to do with our strategy.
We're going to continue to pursue the strategy that we've set out that we believe will position us to have the best long term value and continue to be able to consistently.
Meet or exceed the expectations that we set and I think being able to focus internally on driving those types of the result has been part of what's driven our previous strong performance. So we're going to continue down that path and.
And there'll be a lot of activity and the market I think when you have and exciting industry with so much of potentially on tens of billions of dollars maybe more of a potential.
Youre going to see a lot of different moves by competitors, obviously, we pay attention to them, but it doesn't really change what we're doing.
Thank you.
Our next question comes from Joe Stauff with Susquehanna.
Good morning, Jason.
Wondering if you could comment or.
On overall engagement, maybe thus far and in the quarter second quarter April may and.
Early may.
And the reason I ask obviously is that I realize online sports betting is seasonally softer just given the number of sporting events and just wondering kind of where engagement is or how it changes maybe commenting specifically on the casino engagement and in terms of just how that may change.
And it's a great question you are right that there is seasonality to the sporting calendar typically back half of the year is always greater it's been a little bit.
And disruptive whatever that typical seasonality has been by all of the calendar shifts and so there's a little bit of a unique year for sure.
And I think as a result of some of that there is actually quite a bit on the slate for Q2.
NBA and NHL regular seasons are ending and the next week and two or two and that will begin to play offs.
This year, the NBA and NHL playoffs, theyre going to run into July, which I don't think has ever happened before so.
And that will create some additional content that hasnt been there and previous years, obviously baseball is off to a great start.
The PGA has two majors and Q2 the.
The PGA championship and May in the U S open in June.
The two major is also on the tenant front with the French open and May going into early June and then.
Wimbledon and it's obviously starting towards the end of the quarter.
And then there are some exciting things going on and other sports as well UFC and we recently signed a partnership with has two big fights coming up one on May 15th and one on June 12th UFC, 262, and $2 63, respectively and initiated a lot going on on the soccer side of Euro Cup is happening and start towards the middle of June and obviously run into Q3.
The Champions League Premier League, so lots of exciting stuff on the sports calendar I think more so maybe this year than prior years youre going to get a full quarter because of the season, the shifting excuse me of the sport calendars and.
And we're going to have to see how that all plays out and much like last year, where and a bit of uncharted territory with how the sports of overlapping and obviously a little tough to predict how.
Does and July when and.
And the final is do I should say in July and that's never happened before.
And so it'll be fun to see and we're just excited and Theres a lot of great content out there to provide our customers with.
Thank you.
The next question comes from Shaun Kelly with Bank of America.
Hi, good morning, everyone.
Just wanted to ask about some of the marketing efficiency and in the quarter it looked like.
The things were a lot more efficient on sort of of per.
For user basis sequentially from the fourth quarter and from what we saw throughout last year and I'm just wondering on.
Is that of direct product of of efficiency gains or.
Is there some seasonality attached to that as we just think about the balance of 2021.
Theres always seasonality to marketing performance typically, though with that result, and as us just dialing up or down.
We're investing based on the ROI, we're seeing I think Q1 was very similar to Q3 and Q4, where we spent more than we thought and had lower tax and we thought so it was almost like we couldnt spend enough to hit our cap targets and.
Think that efficiency with consistent but a lot of what you see is that the customers that were acquired in Q3 and Q4 that remained active into Q1 boosted the mops numbers and obviously, we continue to add more but more exciting to me is the retention and we're seeing of the customers. We acquired in the back half of last year and I think that was the largest driver of.
What we saw on them upfront.
And as far as future quarters, and seasonality go I think youll see typical seasonal patterns, but as I mentioned, there is still the wildcard of the shift and for calendar.
So I think it'll be a bit different this year than in previous years. Typically for example, we've seen good activity during the NBA and NHL playoffs.
And that overlap with baseball should provide better than I think typically what we've seen activity and the July timeframe and late June timeframe, and then I think also.
And we'll have to see and the back half of the year of what the leagues do the NBA and NHL and particular in terms of when they start their new season.
Do they try to go back to the typical schedule and early Q4 or do they go with the late December January schedule of that they went with this past year or so.
I think that will also drive some activity and then of course the NFL.
Assuming that goes according to plan, which right now we see no reason to believe it won't and now and.
And that's obviously going to be a big driver of activity as well.
Thank you very much.
Our next question comes from Chad went on with Macquarie.
Good morning, Thanks for taking my question.
Even with your recent acquisitions of visa and and Blue ribbon and which are sub $100 million on the quarter. Following your convertible raise you're still sitting with a ton of cash at the end of the quarter and <unk>.
Just on your projections for 2021, and how the business should ramp to become more profitable. How are you thinking about the best use of this cash whether it be bigger acquisitions more partnerships or even considering something like a.
The share repurchase given the sell off thank you.
And it's a great question I think right now we're actively exploring multiple opportunities on some of what you mentioned and I think that really.
We're going to try to do whatever returns best on that capital of that.
And when you take and capital even when we did the note at zero percent.
Not a high bar there, but still we have our own internal thresholds for what we want to get return on what level of return, we want and get on the capital we deploy and we're very disciplined about that so.
I think really it's going to come down to us just rigorously evaluated and different opportunities and if we see great uses of capital that drive really strong returns and we will do it if not we'll be patient and deploy the capital of those things emerge.
Thanks, and then separately I just wanted to revisit Canada I understand that Theres, a federal Bill that's kind of hung up right. Now there is a separate one and Ontario and it seems like from a provincial standpoint, they're extremely interested if the federal Bill doesn't pass is there a path for you guys to be in the onto.
The market just from a limited basis it won't be.
The comprehensive product, but it still could have some type of of parlay.
Or would you wait for of federal build of past for you guys to enter that market. Thank you.
And it's a great question I think you noted parlays are still possible under current federal obviously it'd be great to get single event betting on.
For the federal lots of change, but parlays are still obviously very popular and I think.
And perhaps more importantly, I gaming will be allowable and Canada or at least sorry, excuse me in Ontario and.
And that does not have any impact from federal law. So I think those two things both parlay sports betting and gaming our products and we intend to launch regardless of what happens, we're not waiting and assuming the federal law does change and will also offer a single event and wagering as well.
And I appreciate it nice result.
Thank you. Our next question comes from Daniel Adam with Loop capital markets.
Hi, Good morning, Thanks for taking my question the.
Jason when you think about the long term opportunity for draft Kings does it make sense at some point to start thinking about the the global Tam instead of just North America.
And just for context, there was a daily fantasy company in India.
And that.
And that reported of 100 million users in March so when I think about your floor and a half million mark it.
It would seem that the international opportunity for draft Kings could be massive which no. One is really talking about right now is that something that factors into your long term vision.
Absolutely and it's a great question so.
As you noted there is a huge global opportunity and as excited as we are on the U S.
And as much as we believe the U S will be the largest and the world. The rest of world will certainly be larger combined and.
Our ambitions are to be of global company. So we think theres a lot of exciting opportunity out there and we're obviously closely following the daily Fantasy Company, you mentioned and also following regulatory developments and markets around the world lots of things are opening up not just the U S.
And so I think that provide the huge runway for our growth and.
And it's something we haven't talked as much about because we have been so focused on the U S. But I think youre very smart to point out that there is a huge opportunity there that can keep our growth rolling for many years to come.
Okay, great. Thanks.
Thanks.
And last question comes from Ryan and Cigna with Craig Hallum capital.
Good morning, guys.
Just curious you mentioned, Michigan and Virginia, the ramping faster than New Jersey really strong GTR per capita but other states haven't ramped quite as well and Indiana, Pennsylvania, West, Virginia et cetera. So I guess, what gives you confidence that Michigan and Virginia are the better proxies for future states versus.
And the other ones that metric thanks.
And it's a great question I mean, what we showed in our Investor day in New Jersey is kind of right around the middle of the pack so.
There will be states the grow faster there'll be state of the growth slower, but I think what.
Really interesting with both the Michigan and Virginia, the kind of further validates this notion that new Jersey is not some outlier that just bigger than everything else and we didn't have those two states and our investor day, even without those two new Jersey was already and slightly below the median for the other states.
And so this just kind of brings that up even a little bit more and widen that gap more and gives us further confidence in new Jersey.
Worst of a good proxy and if that's maybe a conservative proxy when youre trying to size of the rest of the states and then Theres a few examples where it's hard to compare apples to apples and you mentioned in Iowa. For example of Io is tough to compare because the Iowa for the first 18 months had no mobile registration. So clearly that would make it get off to a slower start and I think once we sell on mobile.
Our registration kicked in earlier this year and Iowa, we started to see really strong ramp there.
So I think it will definitely depend on Pennsylvania is another interesting one, Pennsylvania, we have not invested as deeply and from a customer acquisition standpoint due to the tax rates. There. It's just not as profitable of the market for us so.
And that's another one where I think perhaps in a different setup. It might've been the place that we could invest more.
But really if you look at it like I said from the macro standpoint, and New Jersey is right around the middle of the pack and.
And that was just the question we used to get a lot and the earlier days when everybody of the DC, New Jersey as a proxy for what the rest of the U S could look like and I think the data that we've seen emerge further validates that it's a pretty good proxy of maybe even a conservative one.
Thanks, and good luck guys.
Thank you.
Ladies and gentlemen, so to conclude the Q&A portion of the call I'd like to turn the call back over to our host for any closing remarks.
Thank you and thank you all for joining us on today's call. We really appreciate your questions and look forward to continuing our conversations with you. We had a very strong start to 2021 and continue to be excited about the future draft Kings is well positioned with $2 8 billion and cash to enter new states as soon as practicable to drive continued product innovation too.
Acquire customers and to explore opportunistic M&A and I hope you all stay safe and well and we look forward to speaking with you on our next earnings call on August.
Ladies and gentlemen, this does conclude today's presentation and you may now disconnect and have a wonderful day.
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