Q2 2021 Draftkings Inc Earnings Call
[music].
Good day and thank you for standing by welcome to the draft key second quarter 2021 earnings conference call.
At this time.
Participants are in a listen only mode. After the speaker presentation and there will be a question and answer session to ask the question. During the session you will need to press star 1 on your telephone.
Today's conference is being recorded and if you require any further assistance. Please press star zero, Oh, and I like to hand, the conference over to speak of today.
And John <unk>, Chief Legal Officer, Please book.
Good morning, everyone and thanks for joining us today.
The statements we make during this call that are not statements of historical fact constitute forward looking statements that are subject to risks uncertainties and other factors that could cause our actual results to differ materially from our historical results or from our forecast.
We assume no responsibility for updating forward looking statements.
The information please refer to the risks uncertainties and other factors discussed in our SEC filings.
During the call management lots of discuss certain non-GAAP measures that we believe may be useful in evaluating drought King's operating performance.
These measures should not be considered in isolation or the substitute for <unk> financial results prepared in accordance with GAAP.
A reconciliation of these non-GAAP measures to the most directly comparable GAAP measures is available in our quarterly report on form 10-Q filed today with the SEC and in our earnings presentation, which is available on our website at investors got draft Kings Dot com.
Hosting the call today, we have Jason Robins co founder Chief Executive Officer, and Chairman of the drought Kings, who will share some opening remarks and an update on our business adjacent Park Chief Financial Officer, <unk> will provide a review of our financials. We will then open up the line of questions I will now turn the call over to Jason Robins.
Good morning, everyone on today's call I will cover the message.
First we generated $298 million of revenue in Q2 due to excellent engagement from our customers and no discernible adverse impact from the reopening of the economy.
Second we saw positive legislative momentum continued with the central States authorize the mobile sports wagering in the here.
Third we continued to make big strides in the product and technology, including the migration to our in house.
Fourth we are laying the foundation for our media and content business.
Fifth we are launching an exciting new vertical on the non fungible coke in the industry under the brand of drafting the marketplace.
And before turning it over to Jason Park I will also provide an update on our ongoing responsible gaming initiatives.
We continued to deliver strong and healthy revenue growth in the second quarter of 2021.
For the quarter increased 297% year over year to $298 million on a pro forma basis non.
The unique players increased 281% to $1.1 million and average revenue per month per unique buyer increased 26% to $80.
While year over year comparisons were obviously impacted by Covid. Our results were very strong relative to our expectations.
At this stage, we're not seeing any signs of the economies reopening impacting demand from mobile product offering.
We continue to acquire customers efficiently with cash at or below our targets.
And as the data driven company, we will dial up or down on investments according to the numbers.
Art map is also outperforming our expectations, which may be an indication that player ltvs could be even better than we thought as of now we are not making any adjustments to our models of our internal cash target.
Engagement in the quarter was outstanding across all of our products, particularly during the NBA and NHL playoffs and final major Golf Tournament Champions League Copa America, and the Euro Cup.
We're also very excited about the continued traction we are seeing in combat sports such as the USD.
Can you give a sense of the engagement we saw on the quarter, excluding new state NBA playoffs handle on paid accurate of increased 82% from 47% compared to the 2020.
The giving a sense of engagement on a more normalized basis handle on payback of the NBA playoffs grew 293% and 119% New Jersey compared to the NBA playoffs in Q2 of 2019.
Also excluding new states handle for the Masters increased 47% with paid App is up 35% compared to the 2020 Masters in November.
Handle on paid active from the Masters grew 241% of 78% in New Jersey compared to the Masters in Q2 of 2019.
In fact overall OSB handle on New Jersey grew 196% and paid actives increased 111% in the second quarter of 2021 compared to the second quarter of 2019.
I gaming growth revenue also continued to grow at an impressive rate in the quarter. Despite retail casinos reopening the full capacity in all of the 4 states, where we operate with the.
The overall, New Jersey gaming market grew 33% in Q2, which is even more impressive when considering net new Jersey I gave me is kind of available for almost 8 years.
More importantly, drafting of that gaming gross revenue in New Jersey grew more than 2.5 times the rate of the overall market in the second quarter, which is outstanding given the tailwind as we experienced in the same period last year due to COVID-19.
Our business momentum has continued into Q3 on.
On July 9th we announced an expansion and extension of our existing inclusive of daily Fantasy sports and sports betting relationship with major League baseball as.
As an official sports betting partner of MLP, our brand will be visible throughout the digital displays and virtual of signage within the MLB games.
The expanded relationship also includes the rights to an innovative debt and watch streaming integration of our fans at the open enacted and there'll be dot com and drafting of the accounts will be able to watch of free lie the MLB game within the drag from that.
July 10th was an all time top 10 day for acquiring new mobile sports betting customers, even though July is traditionally our slowest acquisition months of the year.
This critical day included the Wimbledon Women's Championship, Brazil versus Argentina on the Copa America final and the Pori versus Mcgregor fight.
On July 15th we received the license in the Louisiana Gaming control Board to launch our fantasy sports product and approved parishes in the state.
We move forward with the launch on July 16th.
Arizona also recently legalized fantasy sports and we are actively preparing to launch in the state pending receipt of licensure on regulatory approvals.
And on July 21st we revealed plans for launch drafting the marketplace, which I'll comment on in a few minutes.
Looking ahead due to the continued outperformance of our core business, we are raising our revenue guidance, which Jason Park will cover in more detail a little bit later on the call.
Turning to legalization trend, we are seeing continued momentum in both mobile sports betting and gaming legislation.
In 2021, 25 state legislators of introduced legislation to legalize mobile sports betting 5 state legislators of introduced legislation to expand their existing sports wagering frameworks and 2 state legislatures have introduced legislation to legalize sports betting limit at the retail location in.
In addition, 4 states of introduced I gaming legislation in 3 states of introduced online poker only legislation.
6 of the states, we're drafting has the potential opportunity to participate the market access agreement of a direct license, Wyoming, Arizona, New York, Maryland, Louisiana, and Connecticut have already authorized mobile sports wagering this year.
The 6 states represent 13% of the U S population and brought the percentage of the population with legalized mobile sports betting to 39%.
<unk> is live with online sports betting in 12 states. The collectively represent 25 per cent of the U S population. Additionally.
Additionally, drafting the drive with I gaming in 4 states, representing approximately 10% of the U S population, Connecticut has also authorized by gaming, which would add about 1 percentage of the population.
I want to provide a bit more color on Florida, and New York and Florida, We have teamed up with handle on Florida Education champions to collect approximately 900000 fair if I take the true if we were able to successfully collect those signatures. We will have a mobile sports betting question on the ballot in November 2020 channel.
It is our share goal to have the state legal regulated and competitive market for online sports betting in the Sunshine State.
Radiant deserve a market, leading and technologically advanced product offering.
In New York, the RFA from mobile sports betting with issued in July and we are prepared to respond on assortment of timely manner.
Look forward to the potential of offering mobile sports betting in New York.
Turning to Canada, we continue to believe that the country represents the very meaningful opportunity and we've seen strong legislative progress this year at.
At the federal level, the bill to repeal the single game Sports Wagering Prohibition has passed the legislature and received Royal effect. So it is now law on parlays on no longer required.
At the provincial level, Ontario is enacted a law the creates the regulatory framework for our competitive gaming mobile sports wagering market. The context, Ontario represents about 40% of Canada's population, if Ontario, where of U S state of it would be the fifth largest state by population growth.
Cited about this momentum and we look forward to further progress in Ontario in Canada at the Port.
Moving on to product and technology I'm very pleased to announce another quarter of significant progress as we have mentioned in the past we believe that the long term winners in this industry. We will have a relentless focus on bringing the best product experience the customer.
For mobile sports betting we have completed our backend migration of 11 States NAV just 1 state last pending final approval.
Being vertically integrated will greatly enhance our ability to continuously drive differentiated products and customer experiences and offer market you need to drafting.
For example, we are happy to announce that we have launched same game parlayed same gained parlays or of thought after feature from our customers that we are now able to offer <unk> vertical integration. In addition, we are on track to bring other new features including new in game markets to our customers by the start of the NFL season.
We signed a multi year support data supplier agreement with genius sports, which gives us access the genius of full portfolio of global sports data and content, including official NFL data and content.
Of this deal are consistent with our long term gross margin expectations.
For I gaming, we added Dk Kraft to our mobile casino suite in New Jersey, with Pennsylvania, Michigan, and West Virginia to follow of pending approval.
The game is the draft teens exclusive and built in house.
After the challenging game to develop given the seemingly endless past players can take and our internal teams were able to deliver an authentic and truly differentiated craft the experience.
In addition, we have launched our jackpot technology, which is enabled by our prior acquisition of Blue River.
Over the past quarter, we have taken additional meaningful steps to begin building out our media business. We firmly believe the drafting has an exciting opportunity to play in the media space, given our brand recognition and trusted relationship with millions of paying customers across the DFS OSB in our gaming vertical we.
We also have tremendous relationships across the industry with sports partners and media entities as well as newly acquired assets.
And our distribution relationship with metalwork.
When analyzing the media vertical we see 3 critical factors that will lead to our success in both the short and long term.
Media is the logical adjacent vertical the DFS OSB and gaming given the clear LTV to CAC benefits for our core business.
We have the potential to acquire DFS, the OSB and gaming customers through our content assets, such as eastern and distribution relationships such as metalwork we.
We believe we will also be able to improve retention of our existing DFS OSB ni gaming players as the result of our differentiated media content.
Given our well known brand millions of paying customers ownership of proprietary content in the form of gaming in DFS data and the recent platform. We will have the opportunity to be of unique content provider in the sports and entertainment space.
Media and of itself is a great business, which has the potential to diversify our revenue streams through AD sales content distribution deals and potentially even recurring subscription revenue.
Suffice it to say we are very excited about the future of our media and content business and we will continue to update you on this topic in the coming quarters.
We are continuing to explore exciting new growth sectors, some of which we can pursue organically inorganically.
On July 21, we reveal plans to launch drafting of the marketplace of digital collectibles ecosystem design from mainstream accessibility tracking.
Tracking marketplace offers curated NFC drops for the U S dollar purchases and support the secondary market transactions are first pent up the drop will be in the near future and instantaneously millions of customers will have the ability to seamlessly buy and sell digital collectibles across sports entertainment and culture using their existing drafting of the accounts.
This first drop is enabled by our exclusive sports content distribution relationship with autograph with established exclusive relationships of comment iconic athletes such as Tom Brady Wayne Gretzky, Tony Hawk, Derek Jeter nanometers, Docker Tiger Woods and more.
We are pursuing this vertical because it fits the criteria we've outlined to you in the past, notably that nfc's offer of logical cross sell opportunity with our existing customers.
As a result, this vertical can enhance customer stickiness and LTV as well as the potential for new customer acquisition through affiliation with these iconic athletes fan base.
It also has very attractive economics, given the large potential revenue opportunity based on transaction fees modest initial investment and excellent EBITDA margin.
We also continue to explore other vectors, including deepening and strengthening our existing product offerings. The geographic expansion outside of the U S.
I also want to provide some recent updates on 1 of our highest ESG priorities responsible gaming drafting.
<unk> responsible gaming mission is to leverage technology employee training and evidence based research to protect consumers and the second quarter, we announced 3 ways. We are advancing as critical mission.
In May we made of financial commitment to the International Center for responsible gaming phone to support research on the sports wagering.
As a result of drafting contribution the <unk> was able to proceed with the competitive request for applications from researchers around the world who have interest in pursuing groundbreaking research.
In June we collaborated with the American Gaming Association to promote the AG as have the game plan debt responsibly public service campaign.
<unk> is committed to publicize the campaign in many of the companies owned channels, including vaccines retail gaming properties to promote the pay for play is.
This collaboration marks the first time in the industry. The haven't gained brand campaign will be comprehensively rolled out across the national retail sports book footprint.
Most recently, we finalized the strategic consulting agreement with the division on addiction at Cambridge Health Alliance, which is affiliated with Harvard Medical School and coordination with the draft teams responsible gaming team. The division on addiction will create an innovative systems base pay per play approach to training employees across the business and responsible gaming.
Responsible gaming is an area in which we will continue to work with the industry and investing that we.
We are committed to continually improving and evolving how we can best support our customers at the gold standard tools for proactively identifying intervening in providing guidance of players can debt limit effectively utilized cool off period and self excluded.
I will now turn the call over to drafting CFO, Jason Park, who will discuss our second quarter results and revised expectations for 2021.
Thank you, Jason and 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 BTB bids the starting on January 1.2020, rather than on April 23.2020.
We are pleased to announce that we generated $298 million in revenue for the quarter, representing a 297% increase versus Q2.2020 revenue of $75 million or be the C business generated $270 million per the quarter, representing a 383% increase versus prior year, we continued to drive.
Strong growth in players and player retention as measured through months as well as player engagement and monetization as measured through our model.
The monthly unique payers in the quarter increased 281% year over year to $1.1 million. The increase reflects strong unique pay of retention and the acquisition across DFS. What's the end I gave me the expansion of our OSB and <unk> product offerings as the new state and the lack of traditional sports from much of the second quarter of 2020 Q.
<unk> represented the typical seasonality with Q2 being a slower sports quarter than Q1.
Average revenue per monthly unique payer or our per month was $80 in Q2, representing a 26% increase versus the same period in 2020, our art muscle of positively impacted by the return to a more normal sports schedule, which resulted in stronger and more consistent customer engagement across our DFS. The sports book product offerings with the launch of.
Our sports book in the high gaming product offerings and the additional states also positively impacted our product mix.
We also continued to drive engagement across our <unk> product offerings as we cross sell our users into more product.
Clearly a portion of the tremendous year over year growth of our <unk> businesses due to the sports cancellations and postponements that occurred in Q2.2020 due to COVID-19.
Second quarter 2021 revenue also exceeded our expectations.
Not only due to the over performance of our core business. As a result of continued strong customer acquisition retention of the monetization, but also due to higher than forecast the OSB hold percentage, which contributed about $20 million to our outperformance in the quarter year to date in 2021 higher than forecast OSB hold percentage has contributed approximately $40 million to our output.
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<unk> revenue was $27 million per the quarter up 44% versus prior year, which was negatively impacted by COVID-19.
We generated $139 million of gross profit dollars on an adjusted EBITDA based on for the entire business in the quarter, representing a 223% increase versus the prior year period gross margin rate on an adjusted EBITDA basis for the business was 47% in the quarter as we have noted in the past our gross margin rate is impacted by of.
The mix shift out of our more mature and thus higher margin GFS product offering and into higher growth rate and lower margin OSP and other gaming product offerings.
In addition, gross margin rate with an up period is impacted by promotional intensity typically most intense when the new state launches and not the beginning of a major sports season, as we aim to acquire customers.
Gross margin rate for OSB will be positively impacted by the conversion to our own debt engine, which is now complete in all states, but 1 pending approval. So we will continue to pay our third party by the engine provider through the end of Q3.2021.
Adjusted EBITDA for the quarter was negative $95 million as we invested in external marketing and in our product technology and G&A functions.
Our sales and marketing expenses were $157 million, which included our external marketing external marketing was higher than prior year due to there being a full force calendar in Q2.2021 versus the Covid impact the calendar in Q2.2020 as well as being live on 12 total states versus 8 in Q2.2020.
We are continuing to see very attractive tack opportunities the support this investment in marketing.
Our general and administrative and product and technology costs on an adjusted EBITDA basis were $41 million and $36 million, respectively. As we continue to invest to achieve scale in our back office functions, such as customer service finance and accounting legal and human resources as well as adding to our technology team on the.
Jewelry of the combined $17 million of year over year growth from these 2 expense line was from compensation.
Each of the head count growth was in our customer experience Department, where we are focused on providing best in industry customer experience and it's largely of variable costs impacted by our rapid growth in mobile.
In the quarter, we expense 226 million in the items that we exclude from adjusted EBITDA, but are included in GAAP operating income, including $172 million per stock based compensation and 54 million for amortization of acquired intangible depreciation and other amortization and other nonrecurring expense.
The expense associated with our stock based compensation awards is based on the defined service period for our time based brands and of probability based model for performance based the long term incentive plan the group.
Our board granted equity awards to retain motivate and incentivize key employees align their interest with the other shareholders and tie a significant amount of their competition the working together to produce outstanding company performance.
Moving on to our balance sheet and liquidity, we ended the quarter with $2.6 billion of cash on our balance sheet, we are very well capitalized to execute our multi year plan and address our key priorities of customer acquisition entering new states as they legalize continuing to lead the market on product innovation and exploring opportunistic and accretive M&A.
Yeah.
Looking at the rest of 2021 on our first quarter earnings call in May we increased our 2021 revenue guidance of 1.5 billion to $1..1.5 billion from $900 million to $1 billion. Given our continued strong performance in 2021 and underlying acquisition retention and monetization of players we are increasing our guidance of.
<unk>, 2.1 billion to $1.2.9 billion of revenue for 2021, which equates to year over year growth of 88% to 100%.
We are raising the midpoint of our 2021 revenue items, which resulted an implied second half growth of more than 40% based on our strong results from Q2, and Q3 to date as well as our demonstrated and continued plan for strong user engagement and efficient customer acquisition.
We expect both of them up and <unk> to grow in 2021 with months of increasing at a higher rates on heart muscle.
We also assume that all professional and college sports calendars that had been announced coming to fruition and that we continue to operate in the states in which we are alive. Today. These states collectively represent 25% of of the U S population for mobile sports betting and 10% of the U S population for I gave you.
The Wyoming, Arizona, Maryland, Louisiana, Connecticut, and New York have authorized mobile sports Wagering, we do not know the exact dates of these states will launch nor in the case of New York the results of the selection process.
As such we are not including them in our revenue guidance and the underlying strength in our business is responsible for the revenue guidance increase.
Regarding our 2021 quarterly revenue cadence, we have of high conviction plan in place for the start of the NFL season, and have incorporated sensitivity is on a variety of internal and external factors the largest being fort outcome variability based on this analysis, we expect Q3 to be roughly 17% of the midpoint of our new 2021.
The new guidance, which is similar in dollar terms to the guidance. We shared with you on may 7th due to ongoing absolute customer retention the efficacy of our customer acquisition of investments and new product features we expect Q4 to account for approximately 34% of our revenue for the year based on the midpoint of our robots GAAP guidance range.
While we are not providing guidance for 2021 adjusted EBITDA, our investment in sales and marketing of the key inputs, we always use fax to inform our decision on where how and how much to invest in the external market. Our results since the economy fully reopened the confirmed that our cash continue to be very attractive.
Based on the attractive LTV to CAC ratio opportunities, we're seeing we plan to continue to invest in sales and marketing to take advantage of these circumstances.
From a quarterly perspective, we plan to deploy and optimize but overall similar promotional and marketing campaign as we did in Q3 of 2020, including more activity in the later part of the quarter, which will disproportionately affect adjusted EBITDA in Q3 in the fourth quarter, we expect a slight improvement compared to adjusted EBITDA in the second quarter as we monetize.
Our Q3 promotional and marketing investments and the benefit from higher seasonal revenue.
As a result, we expect our adjusted EBITDA loss from the second half of 2021 to be approximately 60% of our total annual loss for 2021.
Before wrapping up I wanted to touch on the state level unit economics as you know our business model is predicated on states turning profitable after 2 to 3 years due to underlying LTV to CAC dynamics at this point I want to affirm our outlook for our most mature state New Jersey, which we said would generate $210 million and net revenue of 60.
5 million of the contribution profit at our March Investor Day, our other states are on the similar trajectory and I look forward to providing you updates on those in the near future. As a reminder, our marketing spend is highly flexible and can be reduced or pauls altogether, if the <unk>.
Of course calendar shifts or of LTV to CAC opportunities become less attractive. Our spend is also impacted by the launch of new states.
That concludes our remarks, and we will now open the line for questions.
Yeah.
As a reminder to ask the question you will need to press star 1 on your telephone.
And to withdraw your question Chris of the penalty.
And by the only compile the Q&A roster.
The first question will come from the line of Shaun Kelley from Bank of America May begin.
Hi, Good morning, everyone. Thanks for taking my question on.
Was wondering if we could just dig in a little further on the customer acquisition spending outlook for the.
The third quarter of the back half, maybe just help us a little bit with the timing it looks like you've got very good cost leverage this quarter.
On the sales and marketing line and those numbers coming down sequentially. So just what is the right expectation for thinking about that investment, especially into the NFL of giving the timing of probably some of your larger broadcast contracts on the like.
Thank you, Sean so really we're going to start with we've seen recently that while we kind of expected or at least thought there might be some slowdown in performance due to the reopening we're not seeing that so based on what we're seeing today I would expect we're going to get very good results going into NSO and <unk>.
<unk> is basically like our holiday season, it's when we acquire the most new players and reactivate large portions of the player base.
But we do have a lower cash target as the players that we acquire tend to be a little bit more casual than the ones that we acquire in say Q2.
So we're going to manage that cash target and we'll dial of the investment up or down accordingly based on results, which is really hard to predict I mean, we always learn a lot the first weeks going into NFL.
Based on what we've seen recently I would expect strong results will continue and we want to invest into it but it's really hard to say and we'll be monitoring of the data on an hourly basis.
Turning campaigns on and off accordingly.
Thank you very much.
Our next question on come from the line of Stephen Grambling from Goldman Sachs You may begin.
Hey, Thanks, I guess just following up on the outlook I think that you referenced that the dollar guidance is roughly unchanged.
When we think about the math I guess what are some of the puts and takes the think about the could drive numbers above or below I guess as we think about the strong growth that you've seen in the it looks like thats move, adding some deceleration.
Are you talking about Q3, specifically.
I guess, both Q3 Q4.
I think we raised a little bit in the back half of the year, but you are right, we arent necessarily banking on the over performance. We've seen in Q1 and Q2 carrying over I think that continues to be a being a bit cautious about what the NFL season might look like obviously COVID-19 has been up and down and we could see the swing either.
The way but.
Based on what we see today everyone's going to be back in the stadium gatherings will be back to normal generally in most places. So we're just being a bit cautious given how significant the NFL period is for customer acquisition and activation about what we think will happen in the back half of the year also theres only 3 weeks of NFL in Q3 so.
It's not it's an interesting period because of you activate a lot of players, but a lot of their spending comes in Q4. So the art market is typically not as high in Q3 as we see in other quarters. So that's something we're also paying attention to.
Got it and I guess the <unk>.
Ta being back with the immediate partial offset I guess, 1 follow up I guess on the SD Tech integration.
I know that you talked about some of the the increased functionality. How are you thinking about the the kind of milestones do you feel like the the most challenging aspects are behind you or do you still have the kind of test it through the NFL season. Thank you.
Yes, that's of Great question. So we've definitely tested it quite extensively over the last few weeks we've migrated in all but 1 day not 1 is pending approval. So we feel pretty good. Obviously, you know we want to see how NFL book from a trading perspective, but we've done a pretty rigorous testing throughout the other sports on the calendar and we see.
Feel pretty good about it.
We launched <unk> game Parlays last week, which was a big feature of that our customers have been asking for also typically has the higher margin. So we have not built in any additional revenue or any additional hold percentage based on new features we're launching we don't sort.
Sort of building off of what you said, we want to test those things and see how they look going into NFL before we would promise any more revenue based on it but we do think that there is some potential upside in the new features that we'll be launching in the coming weeks and months.
Thanks Best of luck.
Yes.
Our next question will come from line of Jed Kelly from Oppenheimer you may begin.
Hey, great. Thanks for taking my question just following back up on the SP X.
In the same game parlays.
Do you plan to market that product in the NFL and do you think that that will close the yield gap with some of your competitors at a little more vertically integrated and then another question just on the seasonality of the decline in sports betting Jason how do you think of sort of.
Making sports betting a year round phenomenon and not as seasonally dependent on the football. Thank you.
So on the first question I think that we we certainly have seen evidenced across other companies in the marketplace that same game parlays have a higher yield so.
We could certainly see that we have not built that into any of our forward looking guidance. So.
We're not counting on it but it's something that we're certainly hoping will be the case.
In General I would say, we're not really trying to maximize hold percentage at this stage, we're onboarding a lot of new customers. It's the early days of the industry.
So really we're focusing on getting people onto the platform getting them active in and there'll be a timing of place where we'll focus more attention on on increasing the whole percentage, it's just not right now.
And then sorry.
Sorry, what was the second question.
Just on just on <unk>, we saw a seasonal decline I mean, how do you think about.
Sort of making sports betting more year round and not as dependent on football it might be impossible, but.
Do you think about fourth yeah.
Certainly we think the as more people try more sports the it'll smooth out a little bit there are certain sports like soccer, which are very popular among the younger generations, which I think over time on increase but youre right.
On the sports themselves of seasonal so it's very hard for us the control anything when there is popularity differences between different sports and the only certain times of the year.
As hard as we May try we're not anytime soon going to be able to get more people to bet on basketball or baseball than they do on NFL.
Just based on the fan base side so.
That's something that I think will always have the kind of live with on the sports, but what we can do.
As continue to launch other types of products. So obviously I gaming has been a good 1 for us that's something that people can play around.
The cross selling very effectively on to that product. So while certainly we see bumps when theres more actives, we do think of the bit smoother seasonally we recently announced that we're launching in the marketplace. So in Ftes I think will be a year round thing there might be some seasonality given the sports focus, but we're also going to branch into Ftes from.
Other things outside of sports. So I think as that product continues to grow in the coming years, we will see that helps smooth out. So I think really that the the way that we're looking at moving out seasonality is just trying to diversify into other products that we can effectively cross sell of our customers into and might have.
A little bit less seasonal variation.
Thank you.
Our next question comes from the line of Michael Graham from Canaccord.
Net.
Yes, Thank you and congrats on the great performance I wanted to ask 2.1 on on art.
Jason if you could just.
Take us under the hood of little bit on what's driving that strength.
You mentioned cross selling of a minute ago as it is it gaming is it more.
More sports being engaged in by each player or bigger bets from players or just can you tell us anything that help us understand that and then.
You had mentioned.
Long time ago that when you've got to 1 third coverage of the United States that you would switch of lot of resources towards National ads and I know you sort of like almost there, but not quite there just wondering if you can update us on sort of how youre thinking about the marketing mix going forward.
Thanks for the question.
Regarding <unk>.
Certainly there is some seasonality to Q3, because the high activation quarter, but only a few weeks of NFL to monetize I think we'll have lower arm up in Q2.
But even relatively speaking meaning.
Year over year, and actually given the sports calendar change really looking at 2019. It can be helpful versus Q2 of 2021.
Debt.
We're cautiously optimistic that we might just have a higher LTV player than we thought and I think thats, probably the biggest driver beyond anything else. We have also improved cross sell rate. So I gaming is helping but even on the course.
Warts bedding products I think that it's still looking like all of them up with higher than expected again with the caveat debt.
It's hard to compare anything in Q2 versus 2020 of Q2 and looking back at 2019. It was a very different time than only a few states that we had I think live with sports betting at that point, So actually I think it might have just been new Jersey at that point.
Although it could be wrong on that there might have been 1 or 2 others.
And then Brian I'm, sorry, It was new Jersey, West, Virginia, and Indiana at that point. So there were only a few.
So it's a little hard to compare but that's why we have also not changed our cash targets were not counting on higher ltvs, but were certainly optimistic cautiously that that could be the case and we're going to be monitoring that in the coming quarters and hopefully we'll have more data.
The court schedule stabilizes and it's easier to make year over year comparison.
And then the second question was sorry can you remind me what the second question last year.
On National AD spend right so.
We're at right now 25% of the population I do think there's the possibility that some new states will launch either right before during the NFL season.
Wyoming in Arizona being 2 of that seem like they're on a good track and I think others like Louisiana on me.
Getting there as well on.
If that happens I still don't think we're quite be at 33%.
I do think you'll see us start to mix from national advertising in this year. The test I think it's important that if we're planning on shifting quite a bit as we get into the mid thirty's and forty's level international advertising that we have some data in this NFL season to look at to be able to optimize for next year. So you will see us start to test.
And to that this NFL season.
Great. Thank you.
Our next question will come from the line of <unk>.
Arnie Mclaren sorry Bernie.
Bernie Mcternan from Needham <unk> company, maybe it great.
Great. Good morning, Thanks for taking the question.
Just a follow up before Jason you mentioned a bit more cautious on the NFL I was hoping you could dive into that a little bit more is it competitive environment or something else of youre, referring to.
Well I think we're still waiting to see what a year potentially people on stadiums and more of an open.
<unk> it looks like the biggest factor of course that could change and we also don't know that so I think theres a lot of moving variables and we're just trying to exercise caution and not getting overly bullish based on results that we've seen.
Early on suggesting that the reopening as having no adverse effect on the momentum we've seen.
Get an NFL season under our belt with the economy generally open around the country on around the states. We have online sports betting and gaming I think then we start to feel really good debt, we're not going to see any adverse impact in the it's really just truly momentum in the industry and with drafting.
Understood and then just to drill down the NFC marketplace for a second could you just talk about like what the economics of the transaction in the marketplace or the.
The level of investment of time and money that it will take and kind of whats the upside opportunity I think there's there's 3 or 4 major NFC marketplaces right now do you need to be of top operator to really move the needle for the company or is that the right way to think about it.
I think it I think it is the right way to think about it because you know being a marketplace. Having liquidity is important that said, we also have exclusive rights that we've secured through our relationship with autograft.
Are you able to sell and Ftes that are for top athletes like Tom Brady Wayne Gretzky.
Sakai Tiger Woods, Derek Jeter in many other Tony Hawk, many others. So we.
We feel pretty good debt, having that exclusivity no matter, how our liquid our marketplaces. Initially it will drive a lot of traffic, but over the long term I think being of marketplace. It's important to have the highest or close to highest level of liquidity people are going to go where there's the most buying and selling when theyre posting secondary transactions and things like that.
Is true of any to any marketplace really so.
I think that is how we're looking at it we do have a much larger user base and any of the other marketplaces that exist today. So we feel like we're starting from a position of strength on much like the daily fantasy user base has helped us with the relaunch of online sports betting into other states.
Having a big database with millions of active customers will really be a leg up for us and it just comes down to how effectively can we cross sell and.
Think we feel pretty good about that given our track record of selling other cross selling other products. But this is also our first foray into something that's a little bit different. So we're not just the other day to shakes out.
Understood. Thanks for taking the questions.
Thank you.
Our next question on comes from the line of Ben Chaiken from Credit Suisse May begin.
Hey, How's it going on.
Looks like the it seems like the media angled, particularly interesting you talked about Mlps streaming I think you mentioned exploring some subscription revenues if I caught that I.
I guess when it comes to the unique sporting events that require a 1 time payment or some type of exclusive access I guess I'm thinking like boxing or out of out of network game why not offer of promotion that allows access upon sign up and deposit with traffic at high level of it just seems like the cost of that versus your normal the AC is.
<unk> relative to other channel is that something you could do and then forgive me. If this question lacks awareness in some way and there is an obvious answer why it wouldn't work.
I think it's a great idea that's definitely something we've talked about.
In order to do it depends on the event, but most of the time you have to have the right. So.
That's something that we'll look into exploring as well on those rights of course cost money. So while giving it away is 1 way to look at it is actually really the cost of the rights that matters.
On which of course are lower than the cost of the pay per view because.
Thats how money is made by companies that traditionally do that so that's something that we're absolutely looking at amongst other things. We're still very early in developing our media strategy. Our goal is to have.
Much more of it flushed out by the end of the year and have explored some of those opportunities in the marketplace such as the 1 that you mentioned to see if you're on could be something that works for us we do want the media vertical to on its own the profit generating.
The vertical certainly over the long term.
I think we have the flexibility to not do that if we wanted to but as of today. We believe that we can both make a profit directly in the vertical and have the synergistic benefit of being able to acquiring.
<unk> retained users using the content that we put out there as well.
Gotcha that makes sense and then just quickly follow up the second question would be.
I think.
Canada is not in your numbers, but it sounds like Ontario is gonna be alive, maybe by the end of this year October November who knows but.
Will that fall that will Canada fall of similar cadence to how you've launched new states I think you've provided some guidance around new Jersey and other states about how you think about promotion on external marketing is that a reasonable way to think about Canada or is there of different format. Just because this is a little.
The size of lives of different.
I think we look at it the same way, it's an LTV to CAC question.
We have plenty of daily fantasy customers in Canada, and we don't see really of any differences between their spend levels in the customers that we have in the U S. So I don't really have any reason to believe it different the interesting thing about Canada is that most major operators around the world have been in Canada for quite some time so.
It's a little bit different than new U S States, where they are opening up in.
In some ways I think we have.
The focus on taking customers that have already been playing as much as trying to convert new customers, which is why we projected of lower long term market share for Canada than we have for the U S.
1 thing I wanted to just on your previous question note as well that occurred to me after I answered.
A lot of pay per views the distribute through multiple platforms. They actually have in their contracts with the platforms. They distribute on that no 1 can give away for free or even under a certain price because it undermines the other platforms. They would say why would anyone pay to the.
Per our pay per view on my platform, if theyre getting it free elsewhere very common in the media industry Theres lots of things like this you know MSN very very common thing and also restrictions on what you can and can't sell things for very common.
So that's something we would have to work around unless we had exclusive rights to distribute of pay per view.
Makes sense. Thank you.
Thank you.
Our next question comes from the line of Robin Farley from UBS.
Maybe you can alright, great. Thanks.
Can you quantify a little bit on how much of the revenue range for the year.
The new initiatives like the marketplace.
Hi, Robyn we have not built in any additional revenue expectation from new initiatives.
Really don't have enough day.
Data, we have no data to base it on so.
We haven't assumed any new states, we haven't assumed any new initiatives generating revenue.
Those are all things that once we have a little bit more clarity on the state side as to which states and when might might go live we would be able to update and then as we get a little bit of data on new initiatives I think we'd be able to update that.
That said I wouldn't expect new initiatives to generate a huge amount of revenue. This year. This will be very early days of us launching them obviously.
<unk>.
The strong conviction and are very excited about the long term prospects and think that the markets that we're entering like on ftes could be really really large, but it will take a little time for those new products to ramp.
Okay. Thanks, and then the other question is on the agreement that you signed with Keith Keith You mentioned you have access to all of their other data outside of the on.
NFL or debt that was part of the deal.
Sure.
In some way for things outside of the NFL in other words the was it packaged with other things that lower the cost that you've been paying for that debt elsewhere.
The great question.
We arent really able to give any specifics on that contract, but what we will say is that we.
We do not expect any adverse effect to our long term gross margin projections based on the.
The pricing that we receive so.
You know I think you can kind of read between the lines based on that but.
Due to confidentiality, we're not able to disclose any details of the contract.
Okay, great. Thank you.
As a reminder, please ask 1 question and you're asking the question in the interest of time.
And our next question will come from the line of Jeff from Jefferies. You may begin.
Hi, good morning, everyone.
My 1 question.
That's 1 of the last few quarters talked about lately.
It is around in the mortgage REIT.
Breadth of offerings there obviously the reminder.
Paul.
Indication if you think.
Just talk about the breadth of offerings, where you are today and what we can reasonably expect in the.
Future and is that something that's entirely driven within the confines of atrophy chockfull of other other.
CDB services or tuck ins or other homes, you may need to fully built out now.
Yes.
Thank you 1 of.
Of the thing that really we've noted we're excited about with now having migrated to our in house platform is the ability to drive innovation in things like in game wagering and other innovative types of debt.
Previously we had a lot more dependence on our.
Our partner can be for.
So we're really excited about that and.
It's been an all consuming thing the migration as you can imagine it was a large project the largest we've ever done from a product and technology perspective, and it's a real testament to the great people on our product and engineering team to be able to of not only done that a little bit ahead of schedule, but also to have continued to launch new things, including.
Coming launch of marketplace, but also several new states and other.
Other sorts of things along the way, including Dk crafts and many other gaming games that we've released so really just I'm. So proud of that team for not only ahead of schedule of completing a very smooth migration, but also continuing to innovate, but it is true that it was very all consuming and so I think now that that's mostly behind US we do still have 1.
State left.
We're really in a position to start focusing on driving innovation and launching new things as far as third parties much like our I gaming product.
We're going to do both.
There is just a speed to market aspect of being able to integrate different providers and also at the same time launch things ourselves and much like what we're doing with other gaming will look at things that either we can't get to the third party providers or economically it just makes sense for us to bring in house.
And we'll do that over time with the goal of being most things are in house over the long term, but there's just such a long tail of different types of debt and the same thing on high gaming different types of gains the.
Theres always going to be a mix of things that we've completely built on our own and things that we built either partially or in partnership with third parties.
Okay perfect. Thank you.
Our next question on kind of a line of Joe Stauff from Susquehanna.
You may begin.
Good morning, Jason and Jason.
1 other question.
Ted on regarding your product offering.
How do you think about especially.
Especially given your newfound flexibility on the in house platform.
The extending out to different consumer segments again, whether they be offshore or something I know, it's not an immediate thing, but how do you think about extending your product into those other consumer segments say overtime.
So I definitely think that.
There is an opportunity as you noted to expand globally and that's something that we're looking at doing either inorganically or organically or a combination of the 2.
But I think within sports betting the opportunity to maybe branch into other sports that we haven't had as deep of an offering that could reach different types of people is interesting and I think something.
Something that we're exploring.
And then outside of sports, which we've always.
Is it specific to the migration of of course.
We definitely feel in the gaming segment that we do better with people who are sports fans that we can cross sell and we've been working hard to try to.
And our brand and extend our reach into the non sports fan I gaming audience.
That's something I think we've been getting a bit of traction on but really need to continue to invest I think that's probably the biggest opportunity for us now in terms of consumer segments that were just not penetrating at the moment.
Thank you.
Our next question on comes from the line of soon on that goal.
<unk> from Cowen you may begin.
Alright. Thanks for the question I, just wanted to unpack the announcement with genius yesterday of a bit more on same game parlays, where.
Over the same game Parlays launched on the App a product built in house by draft Kings or are using geniuses backfill the product and if it is geniuses product.
Why are you using their product and I believe that MGM is also using that same product and <unk> is developed.
<unk> part of light products. So if you can just talk around that please.
Yes, I mentioned this.
Few moments ago, but we're going to put out of mix of different things that are organically developed and things, where we're partnering in kind of depend on a variety of factors such as the opportunity cost of building them in the short term the actual cost of of using a third party. In this particular case it was packaged up with a <unk>.
<unk> deal. So we felt like it was the.
Good way to get same game parlays into the market really quickly in advance of NFL and it frees up our engineering time to focus on other things. So that's a lot of how on the short term we're going to look at it as if there is a good solution that gets us something that's as good or better than what our competitors have and we can free up engineering bandwidth to folk.
<unk> on other things that maybe our competitors don't have that's going to be the initial focus and then over time I think we will take things that proved to be large.
Parts of our offering that we think there is an economic benefit to vertically integrating and focused on those but in the short term, it's really about as quickly as possible, having the broadest and deepest product offerings. Since we think at this stage of game of getting maximum activation and retention of consumers is the most important thing alright.
Alright, thanks, Jason but just to be clear. So that is it is the that youre working on that as the budgeting as product on that that has on the app right now from the <unk>.
<unk>.
I believe so I know we were using because we just announced the deal.
I think yesterday and we had the same game Parlays, we launched earlier. This week I know we are using another provider I'm not sure if we fully switched over to vet genius, yet, but that's the plan.
Okay. Thank you.
Our next question on some of the lineup of Barry Jonas from choice Securities You may begin.
All states have been slower to legalize gaming than say sports betting I know your expectations there arent the.
The sports betting, but what do you think needs to happen to get more momentum on the gaming legalization front.
I think.
We've always felt and they think of said that it's going to be sports first and then I gaming.
I think that that's just.
The kind of natural evolution of things that states are going to be more comfortable in many cases going sports first and then once they get used.
He used to the tax revenues coming in and see more and more states doing I gaming, we think more and more states, where we are comfortable with other gaming as well some states such as Connecticut. This year chose to do them all at once Michigan did the same thing in Pennsylvania did the same thing so.
We may see that here and there and then we may see states like West Virginia for example of it.
<unk> bedding first and then a year or 2 later did I gaming, so I think it'll be a mix but.
We certainly expect the momentum to be first with sports betting legalization and then gaming to be.
Something that follows that.
In terms of your question about how to get them comfortable I think theres really 2 things 1 is just.
Most states don't want to be the Guinea pigs, so more and more.
The day see other states, particularly it tends to be regional and the Jia.
Geographic areas doing it and the more of that they feel like everything is going well and on the playbook on how to regulate it is clear the more I think comfort they'll get I think also seeing how much tax revenue can be generated and back to the kind of regional point, if theres bleed from states like you know right neighboring them because they have high gaming.
And our state debt chosen to do sports betting does not I think that could be a reason the.
They move faster, but it's really just time.
And we're going to continue to.
Push the message out there that this is something that can be done in a safe manner and we have great guardrails in place and are continuing to invest in getting better at responsible gaming and theres real meaningful tax revenue the coins that can be generated by adding that product.
Thank you.
Yeah.
The next question will come from the line of Brian signal from Craig.
And the capital maybe.
Good morning, guys. Thanks for squeezing me in.
The nice metrics on New Jersey, I gave me that you gave really strong performance there what's the.
Or you think is driving that accelerated market share gains recently here versus the past several quarters and then secondly, why do you think you're having more success taking share on I gave me versus the OSB. Thanks.
Great question, I mean, I think I gaming is actually and hopefully it foreshadows OSB.
A great example of where we've invested and launching our own games and enhancing our own products and.
For example, we mentioned we had launched our own in house Craps game last quarter, and I think that that's really helped.
<unk> momentum and gain market share and we've been really consumed with the migration and also of course there are many things we couldnt do on the product front before migrating so I think now that we're finally in a position where we control our own destiny, there and we're able to innovate.
I hope to be able to do many of the same things that we've done in the last several quarters on the <unk> gaming from product wise, and we hope that that helps us gain more share and retain and acquire customers more effectively.
Great. Thanks, guys. Good luck.
Thank you.
And our last question for today will come from the line of Mike Hickey from benchmark company moving yet.
Nice.
1 on Jason Jason Nice quarter guys.
Guys Congrats.
The 2.
So from here.
Sort of just 1 just on any progress made on the sort of adding social layers to your app I think that was sort of of the theme on here.
On your last call with the tie in on retention there on your user base.
And the second question.
On the N F T. Just curious obviously the cross sell opportunity it seems like a no brainer.
Curious on the user acquisition side.
You know thinking about key offerings, maybe tied into live events in the second.
Bring players into the ecosystem.
Thank you.
Social is off to a great start it's very early I mean, we launched an MVP only a few months ago and so.
We still feel like we have a very lengthy and exciting roadmap there, but the early results have been very strong we've seen great adoption, we monitor daily and monthly active users on the social features separate from daily and monthly active users on the product on the other products and we've seen that continually increasing since we've launched and I think we'll learn a lot in.
NFL season based on how many of our customers that we acquire and activate we're able to get in adopting the social features so very excited about it I think it's too early to share any metrics, but we're starting to flesh out what metrics, we might be comfortable sharing on the coming in the coming quarters on the NFC side I definitely feel.
It'll be of Great Cross sell product, we will know when we get the data, but we've done enough market research and on our customers to know the quite a few of them are interested in it and there is good overlap with our current customer base and I do agree that it could also potentially have some upside on the customer acquisition side, just like we do with the every product in our portfolio.
We test, which are the best products to most efficiently bring people on to the platform and then once they are on the platform, we try to cross sell of them across everything we do.
And I think there could be some upside on that front for sure, but we're going to have to wait and see.
Really we will do whatever the data suggests but it's something that we've talked about is the potential upside and in general I think just having the broadest product portfolio gives us the most options for how we can acquire different pockets of customers. So not only does it increase LTV, but also has a positive effect on our tax efficiency.
Over time to just have the broadest and deepest product portfolio of possible.
Yeah.
Thank you.
That's all the time, we have for questions today.
Thank you all for joining us on today's call. We appreciate your questions and look forward to continuing our conversations with you. Our performance in 2021 continues to be very strong and we're excited for what the rest of the year on beyond holds for us.
<unk> is well positioned with $2.6 billion in cash to capitalize on legislative advancements in several states complete the migration to our own in house debt engine, expanding initiate relationships with important organization and advance new product technology and content initiatives I Hope you all stay safe and well and we look forward to speaking with you on our next earnings call on Nov.
Remember.
Yeah.
This concludes today's conference call. Thank you for participating you may now disconnect.
Correct.
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