Q1 2022 DraftKings Inc Earnings Call
Yeah.
Welcome to the draft 10-Q, one 2022 earnings conference call. My name is John I'll be your operator for today's call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session. During the question and answer session. If you do have a question Chris Zero then one on your Touchtone phone I will now.
Turn the call over to Stanton Dodge Chief legal officer.
Good morning, everyone and thanks for joining us today certain statements. We make during this call may constitute forward looking statements that are subject to risks uncertainties and other factors as discussed further in our SEC filings that could cause our actual results to differ materially from our historical results or from our forecast.
No responsibility to update forward looking statements.
Other than as required by law.
During this call management will discuss certain non-GAAP financial measures that we believe may be useful in evaluating drafting operating performance. These measures should not be considered in isolation or as a substitute for <unk> financial results prepared in accordance with GAAP.
Reconciliation of these non-GAAP measures to the most directly comparable GAAP measures are available in our earnings presentation.
Which can be found on our website and in our quarterly report on Form 10-Q filed with the SEC.
The call today, we have Jason Robins co founder Chief Executive Officer, and Chairman of <unk>, who will share some opening remarks, and an update on our business adjacent Park Chief Financial Officer Draft Kings, who will provide a review of our financials. We will then open up the lines for questions I'll now turn the call over to Jason Robins.
Good morning, everyone.
On today's call I will cover the following topics first we are very excited to welcome the Golden Nugget online gaming team to tracking.
Since the announcement of the proposed acquisition in August 2021, our excitement around bringing these companies together, it's only increased.
The acquisition closed yesterday, and we are well prepared to integrate our respective businesses begin executing on our multi brand strategy and capture adjusted EBITDA synergies, which we expect to reach approximately 300 million Mark.
Second we will discuss our first quarter financial achievements.
For the first quarter exceeded the midpoint of our guidance by $7 million.
And adjusted EBITDA significantly outperformed our expectations, finishing more than 12% better than the midpoint of our guidance.
Third we see a stronger top and bottom line outlook for the year and are raising both our 2022 revenue and adjusted EBITDA guidance.
Despite broader concerns around the macroeconomic environment and inflation a cohort level data has been very healthy and our path to profitability has become more clear ledger.
Legislative momentum has remained robust as well.
Going forward, we see strong top line growth continuing through the remainder of the year and beyond coupled with continued optimization of our margin profile overall cost structure.
Finally, I will touch on recent product developments and adjacent growth vertical we are continuing to innovate and improve the customer experience by consistently adding new games and features which we believe will ultimately support customer acquisition retention and by extension player LTV.
Additionally, we continue to make progress in media and marketplace and we are very excited about the future prospects for growth.
Let's start with our acquisition of Golden Nugget online gaming we.
We are very excited to welcome the Golden Nugget online gaming team to drafts and have a well designed integration plan that is already being implemented.
Acquisition will allow tracking to leverage Golden Nuggets established brand to broaden our reach and new customer segments, particularly within <unk>. It will also enhance the combined company's I gaming product offerings do drafting vertically integrated tech stack and Golden Nugget online gaming unique lab capabilities.
In addition, the transaction increases crafting customer database size through access to the more than $5 5 million members in the database is at the Golden Nugget 24 Day club and Landry Select club on top of the current drafting database of more than 20 million accounts.
We continue to have confidence that the combination of our businesses will result in long term adjusted EBIT synergies of approximately $300 million.
Now, let's turn to our first quarter results.
<unk> generated $417 million of revenue in first quarter, which exceeded the midpoint of our guidance by $7 million revenue growth was primarily driven by our <unk> business, which increased 44% compared to the prior year period adjust.
Adjusted EBITDA of negative $290 million in the quarter also outperformed our expectations by $40 million compared to the midpoint of our guidance.
Part of the reason why we are outperforming our own expectation markets, such as New Jersey have turned highly profitable and continuing to grow at an attractive rate.
We have also identified efficiency opportunities and executed on them, which drove some of the outperformance in first quarter adjusted EBITDA. These.
These efficiencies were up and down the income statement, including in our Cogs marketing and corporate fixed costs.
The primary driver of these cost opportunities with faster growth in state expansion, which has allowed us to accelerate progress towards our plan for our long term cost structure.
Our Q1 adjusted EBITDA also benefited from corporate costs that shifted from Q1 for the remainder of the year. Consequently, some of the reduced costs in Q1 will continue to positively impact drafting going forward, while others are simply due to timing.
Suffice it to say, we will continue to look for opportunities to accelerate the realization of cost efficiencies distracting continues to grow and scale.
Our key performance metrics, including user acquisition retention and engagement also continued to trend well.
Q1 includes two marquee sporting event, the Super Bowl and March Madness.
Basketball, both the NBA and college also drew increased attention and interest throughout the quarter.
The MBA has been strong including when the NFL was still in play while the Super Bowl saw tremendous customer engagement.
The Super Bowl, we set a single day record for first time, OSB batteries, which increased 77% year over year.
For the first weekend of March Madness, or first time, OSB betters increased 42% year over year.
March Madness. This year featured very player friendly results overall, especially the exciting run by St Peters to the elite eight veterans across the country back the peacocks during their surprise rod.
<unk> contributed to our lower than forecasted OSB hold.
Oh very institute of game outcomes resulted in an approximately $25 million of reduced revenue during the quarter.
First quarter monthly unique payers increased to approximately $2 million up 29% versus Q1 2021.
Average revenue per monthly unique player increased 11% year over year to $67.
Notably average revenue per monthly unique player would have grown approximately 26%. If we adjusted both Q1 2022 and Q1 2021 for OSB holds.
Cost of goods sold in marketing spend were both elevated in the first quarter, primarily due to our launch in New York on January <unk>.
Gross margin percentage was also negatively impacted by sports betting hold during the quarter.
With that I will turn to our updated outlook for the business, we have several unique capabilities, including our growing DFS database, which is a great source of OSB customer acquisition, a decade of marketing know how to acquire sports fans are sophisticated data science and analytics organizations are vertically integrated tech stack top rated products across all categories.
In which we operate and single account and wallet.
These capabilities are very difficult to replicate by other operators and are the reasons for very attractive tax strong share, which support our growth outlook for 2022 on deal.
We are raising the midpoint of our 2022 revenue guidance from $1 95 billion to $1 97, $5 billion and improving our 2022 adjusted EBIT guidance to a range of negative $760 million to negative $840.
This increased guidance does not include the contribution of the Golden Nugget online gaming business, nor does it include our contemplated launch not carrier Jason.
Jason Park will touch on our preliminary expectations for G NOG in Ontario.
I also want to spend a few minutes discussing the outlook beyond 2022.
As a starting point the pipeline for new states remains robust.
As you know following our launches in New York in Louisiana tracking is currently live with online sports betting and 17th date that collectively represent approximately 36% of the U S population. Additionally.
Additionally, <unk> is live with high gaming in five states, representing approximately 11% of the U S population.
We also expect to go live in Ontario in the near future pending licensure and regulatory approval.
<unk> represents about 40% of Canada's population in Ontario will be the fifth largest U S state by population if it were in the U S.
Due to the presence of gray market operators, many of which have been present in Ontario for several years, we do not believe that the timing of our launch will have any impact on the share we are able to achieve in that province.
There are three U S jurisdictions that have legalized mobile sports betting in which we are preparing to launch upon licensure and approval from regulators, Maryland, Ohio, and Puerto Rico.
These three jurisdictions represent approximately 7% of the U S population and will bring the percentage of the population, we're drafting expects to offer legalize mobile sports betting to approximately 43%.
In Kansas, which is about 1% of the U S population on mobile and retail sports Wagering Bill that pass the legislature and is now pending executive action.
We are also very excited by momentum in California, the approximately $1 6 million signatures submitted by Californians for solutions to homelessness and mental health support.
Will likely allow us to qualify the ballot measure for the 2022 November about.
This is a really important step.
Once the signatures are clarified and the initiative will be placed on the ballot in November and if the initiative passes with a simple majority in it becomes law from their regulators will implement a framework and we are hopeful that we can get live sometime in 2023 pending licensure and regulatory approval.
California of course represents a significant revenue and adjusted EBITDA opportunity with approximately 12% of the United States population in fact, if California were a country. It would be the fifth largest economy in the world ranked by GDP.
In short from a legalization perspective, there's a lot to look forward to.
Finally, I will touch on recent product developments and adjacent growth verticals.
Our sports betting App continues to score very well in third party surveys <unk> recently published its quarterly report on U S sports betting in Africa.
<unk> tested 41 sports betting apps and rates each end user experience, adding interface features core and aesthetics.
<unk> app with tie for number one overall and was the top three for user experience betting interfaces and features.
We continue to believe that product innovation and quality of customer experience will create strong customer acquisition retention LTV, giving drafting the sustainable competitive advantage over the long term.
Q1 was only the second full quarter since migrating to our own proprietary in house technology platform and we are pleased with the progress we have made not just with our sports betting app, but across our entire product portfolio.
In the first quarter, we continued to deepen our content offering for OSP <unk>.
For example, we added next feel go micro markets for the NBA and college basketball, which offers the ability to wager on the next deal go tight next vehicle team and whether the next two or three point shot will be made by the Homeaway team.
We also added several player market to a college basketball team gained parlay offerings, including point score assessed rebounds, and three pointers made as well as combination to beat the market.
And I gaming, our focus on cross selling and in house content development continued to pay dividend.
In the first quarter, 43% of mobile sports betting users in our I gaming space also engaged with the Ikea product at 54% of I gaming handle came from tracking developed game.
And in April we launched our first draft teams developed slot scheme in New Jersey.
With tracking social we have created an integrated and highly engaged community that allows fans to interact with each other within a peer to peer environment in.
In April we launched betting groups, which are seamless way to collaborate on a sports betting experience.
Users can create a group and distribute a link for others to join once the group has created all actions of the members who elected to share their best will be dropped into the group and real time notifying group members with a link directly to that new bet.
In fact anyone in our lead to remake their league as a sports betting group and our mobile sports book and one tap invite everyone in the lead to their betting group.
Imagine a group of friends watching March madness, or the World Cup from wherever they might be around the country. All engaged in all within rooting interest in all of it happening would be attractive.
Daily Fantasy sports in March we added International Auto Racing League Formula one to our portfolio of sport off.
This offering leverages the experience and success of our NASCAR daily fantasy product as well as the popular Netflix series.
Turning to Jackson's marketplace, we now offer auctions for Nf piece in the marketplace. In addition to regular job. We introduced this additional mechanism for participants to access NFC is to broaden our appeal to a wider audience.
We also now have a proprietary end to end in house and FTE factory, where we create our own content distributed on our marketplace. The primary drops in auction.
Users can buy sell and collect in ftes on our secondary market to add to their collection stats and receive promotions and utility associated with certain NFC.
Prior to March's NCWA basketball tournament drafting marketplace introduced the primetime NFC series, which is designed to deepen engagement with drafting during these defining them.
<unk> Primetime Nf T series collection includes proprietary it homegrown draft since NFC that received cross product utility and bonuses only available the drafting ecosystem such as DFS ticket Dk dollars Crown automatic gold status tier in our loyalty program and sports book feedback.
We will continue to look for opportunities to develop our own content work with high quality third party content suppliers, such as our relationship with autograph and our recently announced deal with met a failure.
We also continued to build out our media vertical through content agreements with prominent voices within the sports industry, such as former ESPN or hosting commentator Microlith senior metalwork media personality Jessica Mcdonald.
And the championship, winning NFL executive Michael Lombardi.
Most recently popular baseball personality and content creator Gerrick, Carrabba's and former Notre Dame football player TV personality might go with junior joined trafficking.
Each of these agreements brings exclusive content such as podcasts in depth commentary, which can only be found attractive.
I look forward to updating you on additional product development throughout the year.
Before I conclude my remarks, I'd like to note that we recently marked our 10 year anniversary as a company.
I want to thank my profound as poly per minute Mac chaos, and all of our stakeholders, including our employees, both past and present, our customers and our investors who help make all of our achievements possible.
We also recently published our second ESG report you can find the report on our Investor Relations website.
The report focuses on our ongoing commitment to environmental social and governance issues, including responsible gaming the wellbeing and vitality of our employees and the communities in which they work in environmental sustainability.
We believe our long term success is sustained by our attentiveness to each and every one of our customers employees shareholders and communities and we look forward to continuing to achieve meaningful ESG progress.
I will now turn the call over to drafting CFO , Jason Park, who will discuss our first quarter results and updated 2022 guys.
Thank you Jason and good morning, everyone. We are really pleased to announce our Q1 results of $417 million of revenue and negative $290 million of adjusted EBITDA. Our <unk> revenue grew 44% versus prior year as we saw strong performance across our suites. Our customers are very strong with handle proactive up in every single state.
Versus prior year and no discernible sign of macroeconomic factors impacting our customers engagement with our products, it's worth noting our revenue would've been roughly $25 billion better if not for some customer friendly sport outcomes.
<unk> increased by 29% to $2 1 million and <unk> increased 11% to $67 <unk> were up in all states with mobile registration available in both Q1 2021 in Q1 2022, as we continued to retain well and acquire new customers and we are buoyed by new States we've launched.
Since Q1 2021.
Up was strong as well and it would've been $71 were it not for tough hold.
Most of you saw in the state data and then press reports hold with lower than typical for the industry in Q1 due to sport outcomes <unk> was as expected generating $13 million in the quarter due to the termination of our Asian reseller agreements.
Yes.
Gross margin rate on an adjusted EBITDA basis was 32% Q1 gross margin rate was heavily impacted by the launch of New York, which had negative gross margin in the quarter due to Q1 being at launch quarter and of course, the state having the highest tax rate in the country.
In New York accounted for more than half of our year over year decline in gross margin with continued mix shift out of high margin Daily Fantasy sports also impacted our year over year change in gross margin rate looking forward I expect gross margin rate to settle at roughly 40% for the full year 2022 as promotional intensity declines in our more mature states and we continue.
To reap the benefits from bringing Europe engine in house.
On adjusted EBITDA I am pleased that we posted negative $290 million, which was $40 million better than the midpoint of our guidance range, our better than expected Q1, adjusted EBITDA was driven by a combination of timing of expenses as well as true cost efficiencies, which will permanently improved our underlying cost structure.
Sales and marketing expenses were up 40% versus prior year due primarily to the additional states in which we operated versus Q1 of 2021 tax continued to be very attractive and in line with our goal of acquiring customers pulling them out less than their cumulative three year gross profit generation.
And technology, and general and administrative expenses were up 53% and 56% respectively versus prior year, mostly due to higher compensation expense.
As I mentioned last quarter, we have clear plans in place to have meaningfully slower growth in our fixed costs, starting in 2023, which supports our overall path to profitability.
During the quarter, we refreshed our multiyear plan and continue to have strong conviction, but under any realistic scenario state launch timing, we have sufficient capital to achieve positive free cash flow comfortably.
As a reminder, we continue to believe that at least 10 states will be contribution profit positive in 2022 meeting those states will generate significant positive contribution profit in 2023. This trend combined with a meaningfully slower growth rate in our fixed cost sets us up for improved cash flow in 2023 and to not need additional capital.
Looking forward on our earnings call in February we increased our 2022 revenue guidance to a range of $1 85 billion to $2 8 billion. Today, we are raising our revenue guidance to a range of $1 95 billion to $2 <unk> 5 billion for 2022 50.
$50 million increase at the midpoint to $1 975 billion equates to year over year revenue growth of 52% largely due to <unk> revenue growth of approximately 60%.
This guidance is based on the strong fundamental customer trends, we are seeing and a return to normal hold for the remainder of the year. This guidance is only for the states in which we are currently lives.
We expect mops and arm up to grow at a roughly equal rate in 2022 in 2021.
Our outlook for marketplace and B to B is unchanged at approximately $70 million and $40 million respectively.
Regarding our 2022 quarterly revenue cadence, we expect Q2 revenue to be between 400 $420 million, which is slightly higher than the implied guidance. We provided in February . We expect Q3 revenue to also be between 400 and $420 million in Q4 to be $730 to $750 million you'll know.
Notice of cadence implies a relatively higher percentage of revenue being generated in the second half of this year compared to 2021. This is due to our expectation that New York and Louisiana. It will ramp up throughout the year and dropped King's marketplace will hit its stride at the beginning of football season.
Today, we are also meaningfully improving our adjusted EBITDA guidance from a range of negative 825 to 925 billion to a range of negative 762, $840 million, which represents a $75 million improvement in the midpoint.
We performed $40 million better than our expectations with Q1 as a result of the timing of expenses that we now expect to recognize through the remainder of the year and efficiency opportunities that we have identified and captured across the P&L.
The net impact of these efficiencies as well as flow through of our increased 2022 revenue guidance results in the $75 million improvement in the midpoint of our 2022 adjusted EBITDA Guide.
From a quarterly perspective for 2022, we expect our adjusted EBITDA in Q2 to be between negative 140, and $160 million due to the timing shift of expenses offset by efficiencies. We expect adjusted EBITDA in Q3, which is impacted by the start of the NFL season to be about double Q2, and we expect our.
Q4 performance to be the best for the year as we benefit from higher seasonal revenue.
It is very important to note that our revenue and adjusted EBITDA guidance for 2022.
<unk> all states in which we were alive as of May States, including New York in Louisiana, but does not include the impact of our acquisition of <unk> or any other new jurisdiction launches such as Ontario.
For the full year, we expect that the acquisition of <unk> combined with our expected launch in Ontario in the second quarter will contribute $130 million to $150 million in revenue and negative $50 million to $70 million and adjusted EBITDA.
For Q2, we expect that the <unk> business combined with our launch in Ontario would contribute between 20 and $25 million in revenue and negative <unk> $35 million to $45 million and adjusted EBITDA, assuming Ontario launches in May.
We are very pleased that underlying customer trends continue to be very positive and that we have identified and captured efficiency opportunities that together have allowed us to improve our 2022 adjusted EBITDA forecast, we feel terrific about our customer cohort gross profit payback as well as state profitability and thus our trajectory for revenue and adjust.
EBITDA in the short and long term that concludes our remarks, and we will now open the line for questions.
Thank you we'll now begin the question and answer session. If you do have a question <unk> and one on your Touchtone phone.
Once again, if you do have a question. That's zero then one on your Touchtone phone standby for questions.
Our first question is from Thomas Allen from Morgan Stanley .
Thank you.
In the first quarter revenue came in a little bit ahead of expectations while marketing.
Was much lower can you just talk about what's going on with marketing, where youre, finding efficiencies where youre seeing opportunities.
Thanks, Tom It's a great question, I think where we're starting to enter the phase where national advertising is going to be more and more of our mix and we.
We were able to through a series of tests that we've been conducting over the past few quarters optimize out of some of the local television and other local marketing that we're doing so I think that's been a big source of efficiency, there and we expect it to increase of course, there's more states launch.
Great. Thank you.
Youre welcome.
Our next question is from Jed Kelly from Oppenheimer.
Hey, great. Thanks, Thanks for taking my question just thumb, just circling back to <unk> and then some of their remarks, how should we think about what gene dog is going to do for <unk>.
Mops and art months, and then Jason I appreciate the commentary on all the state legislation.
You Didnt mentioned, Massachusetts, I know, there's two competing bills could you give us an update what you think about what's going on there as well thanks.
Sure so on Gina.
Just to remind everybody.
The rationale strategic rationale behind the deal it was really for us to be able to increase the audience that we'd be able to reach what we've found is that the drafting brand is very strong with a certain demographic of customers, particularly those that are sports fans. Its viewed more as a sports brand. We have had some success getting casino first customers on and we feel.
Really good about the state of the product and have really great Ltvs and once we do get those customers on so we think there might be a more efficient way to do it and we also think there might be audience that we're not getting too right. Now. So that's really the goal is to go after that other segment of the gaming market and I think having a strong brand like Golden Nugget that really appeal to.
That segment of audience will help us increase our model.
As far as Massachusetts goes.
Continue to be hopeful that there'll be something done. This is obviously our backyard. So.
Having a you know our products be legal in the Commonwealth is very important to us and.
You know just like any legislative process, even when in our backyard its always impossible to predict what's going to happen and.
We continue to be hopeful and we continue to be ready and available to work with lawmakers should we be able to be able assistance.
And just just following up on Golden Nugget. The gross margin guidance you called out that does not include any impacts from Golden Nugget.
No we separately you're guiding to the combined impact of Golden Nugget in Ontario, We wanted to provide more of an apples to apples view. So that we could highlight some of the cost efficiencies and also revenue outperformance, we're seeing in the core business and we separately.
Listen Park shared some numbers around what we expect the combined effect of Golden Nugget in Ontario to be this year.
Thank you.
Youre welcome.
Our next question is from Shaun Kelley from Bank of America.
Hey, good morning, everyone and thank you for taking my question.
I just want to go back to some of the comments around gross margin obviously.
Clear one time impacts.
In this quarter due to New York and it sounds like hold as well, but yes, Jason if I caught the comment correctly I think you mentioned, 40% for the full year I think your longer term target has that number getting into the mid or even high fifties could you help us think about like the bridge in some of the pieces to see that step function or improved materially.
In the medium to long term. Thank you.
Sure. So I think the biggest factor will be the lowering of promotional intensity promotional intensity as both an impact to net revenue and margin because a lot of the costs that.
We see in the Cogs.
Lines have come as a function of gross revenue so naturally having less contra revenue will bring that margin also.
There are a number of other cost initiatives that we have underway some focused on Cogs I'm focused on other parts of the P&L that we believe will improve cogs over time. So we think between the internal initiatives that we have as well as just the natural change to gross margin due to lower promotional intensity youll see.
As reached a long term targets that we've set out.
Thank you very much.
Youre welcome.
Our next question is from Bernie Mcternan from Needham <unk> company.
Great. Good morning, Thanks for taking the question. Jason I was just wondering are you seeing any change in the promotional or competitive intensity in the U S.
And is that impacting your strategy at all and we'd love if intensity is falling off just how you think about kind of like the diminishing turns of advertising spend whether it's an opportunity for you guys to be more aggressive or keep your spend and keep share or.
Or is the opportunity to pull back and have more flow through to the bottom line.
And so that's a great question I would separate that into two things one would be.
New user offers in the second would be tentpole events, such as startup NFL Super Bowl I think will always run promotions around those events. Those events are great for reactivating people, they're great for acquiring.
I think that will always be a part of our strategy.
What we see is that a lot of the promotional dollars and being put back into play which increases the longevity of our customary which is great.
And it also is just really great for activating people during key time, so that I think will continue I do think that some of the very.
Aggressive new user offers have started to taper off significantly.
And we always stay disciplined we never went.
As far as we saw some of our competitors going with the aggression of new user offers but certainly a softening there will help I think the overall market.
Could lead to faster than expected reduction in promotional intensity versus previous previously what we may have thought.
Understood. Thank you.
Our next question is from Joe Stauff from Susquehanna.
Thanks, Good morning.
Two questions if I could.
One is on Golden Nugget.
And just wondering.
As a well managed company as you suggest it gives you access to.
Our new consumer demographic.
A high proportion of digital subs. They did rent all three pieces of their test Tech stack.
And I'm wondering how how quickly that.
Software integration would take and then the second question.
It's just.
On sports hold kind of going forward and maybe.
Some of the product mix.
The changes that you have and how to think about the rest of the year. Thank you.
Can you repeat the second question. Please.
Sure I was just wondering for your OSB product offering and the product mix that you realized to date.
Some of maybe.
The newer products that you would have.
That could that could move the sports margin higher.
Going forward.
Great. Thank you. So on your first question around Golden Nugget and the integration plans.
One of the nice things about having a bit of a period between the announcement and close the deal is we have a really strong integration plan. So everybody knows exactly what they need to do to perform that migration.
That said.
Until we closed which was only yesterday there were limitations to what you know access to their code base and other sorts of things the engineering team here could have so.
A lot of what you learn is in the weeks. After you acquire when you can really get on this.
I think at this point, we're not prepared yet to put a timeline on the migration, but certainly by the time of our next earnings call in August we will be able to do that and intend to do so.
We expect that there will be a lot of synergy realized once we complete that migration.
On the product side.
It continues to be about pushing parlay in same game parlays, we've only had the same game parlay product for about six months or so now it's been doing very well we've added a lot to that offering.
So we're going to continue to find ways to improve that product and also continue to find ways to.
Introduce it to our audience and ensure that they know how fun. It can be and I think that will be the biggest driver of our port hold when we look at where we see some opportunities based on observations of competitors.
Most all of the opportunity we believe in driving higher partly mix.
Thanks, Jason.
Youre welcome.
Our next question is from Jason Bazinet from Citi.
I just had a quick question on the <unk>.
10 states contributing.
They're generating country positive contribution margin this year.
Is there.
Just be the states that we would expect based on the launch date and then given.
Given the lower promotions the faster customer ramp you talked about.
On the last earnings call and advertising efficiency has.
Rule of thumb sort of.
In terms of how long it takes for states to generate contribution profits.
That's great question on the first topic, we specifically list of states out in our March Investor Day presentation, which can be found on our Investor Relations website.
I must confess I will probably lose track if I try to cite I'll turn off memory here, but we.
We list them out so I encourage you to go take a look there on the second question I mean, that's a great point, we are seeing faster ramp which has resulted in more meaningful marketing and promotional investment upfront in some of our earlier stage, but also.
Appears to be leading to a faster path to profitability. So we.
We haven't put a new sort of game plan out there yet, but we are seeing that and in the coming months, we may be able to say something about what that path to profitability timeline can look like.
But it certainly is moving in a positive direction.
That's great. Thank you.
Okay.
Our next question is from Carlo Santarelli from Deutsche Bank.
Hey, guys good morning.
Good morning, I just wanted to go back to Jason part something you talked about a little bit about the growth rates on products and technology and G&A expenses.
Obviously.
And I'm, making the adjustments for some of the noncash items, but core G&A was down fairly nicely sequentially I'm, assuming that's where some of the timing stuff lives.
Yeah on a sequential basis Q4 versus Q1, I think the G&A reduction is more about the accrual of annual bonuses for employees, that's going to be the big driver in terms of timing shift that.
It was probably a bit more than half of the Q1 beat and you'll see that come back in.
As recognized costs throughout the remainder of the year.
It was it was throughout all crop cost categories Carlo it wasn't any it wasn't sort of disproportionately focused on any one category.
Okay, Great and then just as you as you talked about kind of moving into 'twenty three that the comment was we would see kind of meaningfully slower expense growth at some point. This year do we do we anticipate perhaps some of those items start to level off on a sequential basis at least and then you start.
Kind of a straight line from there.
So.
That's a great question Carla. Thank you I think that we will see that start to happen a bit but a lot of the growth that we're seeing year over year. In for example compensation cost comes from hires that were made throughout 'twenty, one which didn't have a full year of salary and benefits in 'twenty, one but due in 'twenty. Two we already are focusing on leveling off head.
<unk> expense and also looking for other areas that we can manage expense better. So there are a number of initiatives underway. We don't have anything yet that we are ready to say, it's going to yield results, but the areas a lot of effort focus there and we'll have more to say on that in the coming quarter.
Great. Thank you guys.
Youre welcome.
Our next question is from Michael Graham from Canaccord.
Yes. Thank you.
Jason You mentioned, the New Jersey profitability profile was it was improving.
And I just wonder if you could give a little more depth around like is that more on the revenue side or the marketing side or just kind of what are some of the moving pieces, there and sort of a related question Youre seeing nice art expansion and maybe just it'd be interesting to learn a little bit.
About the components of that art month expansion like our players engaging across more sports or the way. Your size is going up just sort of what are you seeing in terms of player behavior there.
Thanks, I'll take the first question and then Jason Park can take the second so.
On your New Jersey question, it's really up and down the P&L, we're seeing strong revenue growth that is a bit better than our expectations and we're also seeing some of the cost initiatives that we have.
Put in place.
Out throughout all the states, particularly.
Particularly the national advertising efficiencies that we're achieving.
So, it's really up and down the P&L and J P. Do you want to take the second question Yeah.
Question on arm up deconstruction first off I'd, just remind you that that Q1 arm up was impacted by that roughly $25 million sport outcome hold I'm told results. So when.
And I think about normalized arm up year over year I adjust for last year pulled in this year a toll in terms of a growth rate in terms of deconstructing it a bit more in terms of frequency or bad sides. We're seeing it we're seeing it in both places we're seeing our existing players.
Which which give you a great baseline on a true full quarter versus full quarter, improving increasing frequency.
You know every customer is a little bit different but we're seeing health in both frequency and average bedside.
Okay, great. Thanks, Thanks, Thanks, guys.
Thank you Sir.
Okay.
Our next question is from Dan <unk> from Wells Fargo.
Hey, guys. Good morning, just a couple of states specific questions I was wondering.
If you could maybe quantify the drag New York was in the quarter.
EBITDA ex New York and also in Illinois to the extent you can talk about any impact from the mobile registration restrictions being lifted.
Well you are right that those two things were EBITDA headwinds in the quarter, we think that both will lead to <unk>.
Revenue outperformance down the road so both are good things, but.
In the quarter is certainly a negative EBIT impact.
It does.
This time, we're not quantifying that specifically, we think that sharing how much we're investing in individual states would be competitively sensitive nature. So we haven't I haven't done that but.
You can certainly conclude that they were meaningful.
Our adjusted EBITDA would have been meaningfully better if we had not had those two events.
Got it thanks.
Youre welcome.
Our next question is from Chad Beynon from Macquarie.
Good morning, Thanks for taking my question I'm wondering if you could touch broadly on trends within DFS either growth or contribution I believe in the back half of the year. You noted that it was still growing I think it's probably more of a growth business doing the NFL, but wondering how that business has changed and kind of how.
Thats contributing to your 2022 guidance. Thanks.
That's a good question so.
You know what we sometimes see with DFS is when state launches there. There's so much excitement around sports betting that there is a bit of cannibalization and we did see that New York now in other states, we've seen that level off or even come back which is why it daily fantasy sports continues to be a growing product but.
Too early to say whether that will continue in New York. We have no reason to think it will be different in other states, though but certainly given the size of the DFS customer base and revenue in New York.
Did have a meaningful impact on the quarter and I think going forward, we're not necessarily assuming it will come back, but both based on historical trends as well as innovations and expansion of that products such as the F. One racing games that we added we.
We do think there is no reason to believe the DFS will not continue to grow but certainly you know based on cadence of state launch timing there can be in quarter impacts the DFS, which are you know.
Meaningfully.
Cannibalistic because of new state often comes with lots of excitement over sports betting and it also depends on the time of year. As you noted football is really great time for DFS early NBA season back half of the NBA season tends to be a little lighter. So I think that New York launch coupled with that led to a little bit of softness in DFS in the quarter, which again, we're not assuming will come.
Back, but based on historical trends, we believe it will.
Thank you.
Yeah.
Our next.
Question is from Steven <unk> from Cowen.
Thanks for the question Jason following four NFL season, the industry remains concentrated around view sandal and bet MGM with some fragmentation largely around the remaining operators on a state by state basis.
With the backdrop of depressed share prices do you see further consolidation in industry coming near term and given the scrutiny around your EBITDA losses and liquidity to.
To reach profitability, how does how does drop things balanced exploring further M&A with executing on your current playbook.
It's a great question I think that you know certainly it is quite possible that there'll be further consolidation.
I think that you know.
From our standpoint, we just made a very significant acquisition in Golden Nugget online gaming, we're very excited about that and.
And I think that's a template that fits the profile.
What types of things, we'd look for something that's strategically complimentary not just a pure consolidation play.
That comes with a great team, which we're very excited about Thomas and worn and the team as well as of course tell them in and the contributions that homemade.
And then also a strong business a healthy business Golden Nugget online gaming is not one of these businesses that wood burning a tremendous amount of cash so.
It didn't come with a drag on our EBITDA of any significance. So that those are the types of things that we would look for I, obviously can't speak to what other operators, who might be considering themselves consolidators would look for it but that type of thing that we would look for.
I appreciate that and then if I can squeeze in one more could you provide any update on what youre seeing on gaming legislation.
Or do you see any catalysts to increase state's going live with IBM.
Gaming over the next 12 to 24 months. Thanks.
Yeah. That's another great question. So we've obviously seen tremendous momentum in the sports betting legislative World.
Gaming, we've seen several bills introduced but haven't seen much movement.
Since Connecticut legalized back in Q4 of last year. So our launch I should say back in Q4 of last year.
So you know we are continuing to press forward, there, but as we've always said.
We expect sports betting to be the main focus for legislators and then as those states get more comfortable I think more I gaming bills will come due and that's.
That's been a pretty consistent view, we've had for a while and we've actually been pleased to see that.
There's been some acceleration there given that several states have just decided to do sports betting and I gaming together, but we continue to believe that it'll be sports betting led for the needs of the next year or two in that.
More and more momentum will begin to build around gaming over the coming years.
I appreciate all your color. Thank you.
Thank you.
Our next question is from Robert Fishman from Moffett Nathanson.
Good morning can you expand on how building out your media vertical with the new personalities and exclusive content that they bring helps drive the incremental engagement to your platform and maybe how you measure the return on this investment and then on a related note is your preference to keep building out your media strategy organically.
Are you open to new formal partnerships with media companies or even expanding the existing ones. Thank you.
Thank you for asking so.
I think we've always thought there were strong synergies between media and what we traditionally do on the gaming side.
No secret that a lot of our customer acquisition comes from the marketing we do on media channels, so being able to drive some of that traffic organically I think is of great interest to us and at.
At the same time, we want the business to be able to stand on its own and to be able to make a profit so.
The media business. So that's really how we're looking at it as.
Can we build a business.
That works on both ends both as a business that makes money and generate.
Positive cash flow as well as the business that will help create great synergies for us and the customer acquisition and retention side as.
As far as how we.
We are exploring interactively.
Partaking in all of those routes some of what we do is organic we also have great partnerships with.
With several media outlets and we also have content partnerships with companies like metalwork media.
And I think for us we.
We recognize that there is a large world out there and theres a lot of value and cross pollination with content. So we.
We remain very flexible on that front I think there certainly large scale all the way down to medium scale partnerships that we would consider that would add to some of the organic efforts that we're putting into this space.
Thank you very much.
Our next question is from Noah <unk> from Goldman Sachs.
Good morning. This is known as <unk> on for Stephen Grambling. Thanks for taking the question.
As we look towards the summer and fall are there any differences in the sports calendar, we should be aware of when that comes to mind is the World Cup, which you touched on a bit any color on what those events could look like in terms of bidding activity or hold and then I have one follow up.
Sure Yeah. It's a great question. So I think the World Cup is the big one.
I think there should be some decent betting on it obviously around the world.
<unk> is a much more popular support at this point than in the U S. But it's been growing with popularity in the U S and I think that the World Cup often spikes that interest. So we do have some hope that we will see an increased volume there this year and we'll just have to see but.
Naturally there are other things that are a little bit different here and there you know extra weeks of CS and DS and games, but nothing else.
It is very material.
Got it thanks, and can you remind us of the Nols you are carrying forward at this point in time.
You don't take that one Jason.
Yeah, I'll I'll have to get back to you on the latest and greatest number.
Got it thanks, I'll hop back in the queue best of luck.
Thank you.
Our next question is from Ryan signal from Craig Hallum Capital Group.
Great. Thanks for taking our question.
Looking at guidance for Ontario, and <unk> It seems to imply minimal net revenue from Ontario, what is that right and then two if you can deconstruct the two on revenue and loss expectations that'd be great. Thanks.
Thank you I think at this point, we're not planning to deconstruct it too because particularly.
Particularly with gene out I mean, we just closed at yesterday and while we've certainly done a lot of diligence. There is some variance there and so we felt it was better to kind of manage the two together as far as impact they do want to point out that even when you take the most conservative end of our guidance for those two.
Still even with those impacts which were not contemplated in our guidance last quarter, we're still better with our new guidance plus those impacts than we were last quarter. So great to see that some of the cost efficiencies that we're identifying are able to.
Effectively fund new state or in this case province launches as well as the absorption of an acquisition. So we're going to continue to look for ways to try to neutralize the impact of new state launches.
Identification of further cost efficiencies up and down the business.
Great one more if I may on New York I.
I would assume it was decremental to average RPM up are you able to quantify that thanks.
So New York.
Not quantifying any specific state impact at this point.
I do think you are correct that due to it being a launch quarter.
And having promotional investment that there was some negative impact that said, we've also seen a fairly high level of handle per active come from New York as well.
It may not have been as significant as you think but it certainly did have some impact.
And our next question is from Barry Jonas from tourist Securities.
Great. Thank you Jason how are you thinking about tracking entering Nevada retail in OSB now.
Well, we've been very interested in Nevada.
And right now we're exploring opportunities there.
It's obviously a state that attracts a lot of attention because of its association with gaming.
There is a decent size.
Market there in terms of online sports betting that said.
Theres also some things that make it a little bit less integrated with our business such as the.
They need to have in person registration to open a mobile account as well as some.
Processes that make it difficult to <unk>.
Connect wallets and apps with the rest of the country, but we are certainly interested in Nevada, we are looking into it and you know what.
I think that if the opportunity presents itself, we'd love to be able to offer customers in Nevada our products.
Great. Thank you.
You're welcome.
Just to jump in on the question on NOL, but I was just checking ensuring that we do not disclose the latest NOL number for the Q, but if you refer back to our 10-K filed in mid February that was just around $800 million.
Okay.
Our next question is from Clarke Lamping from BTG.
Hey, guys. Thanks, Good morning, I have one on the marketplace.
Jason you talked about marketplace really hitting its stride around the NFL season.
Im going to guess that that is not because you expect an inflection in sort of more memorabilia oriented and so maybe it's the utility focused ones that you were talking about so.
Could you give us a sense of maybe one whether that's accurate to the way in which some of those utility oriented piece can actually integrate with the gaming focused businesses. Thanks.
Thank you, Yeah, I think you're exactly right.
So a few things one.
We just recently developed.
Some in house content creation capabilities and also build some backend infrastructure to be able to tie benefits on sports betting in daily fantasy and even I gaming to ownership.
NFC content, we create.
The way, we're seeing the market move it really is important to have utility. There are certainly some that are working purely as collectibles and that'll continue to be a segment of the market, but I think a lot of the growth will be in utility based NFC.
Second thing is in addition to our in house content. We're producing we also just a little while ago announced the partnership with the Nflpa to create an FTE based fantasy games. So we.
We think given the size of our fantasy audience and the success. We've had early on with NFC that'll be a really big product for us and it could be.
As something that really opens up to a much larger audience.
And our next question is from Robin Farley from UBS.
Great. Thanks, I was wondering if there's a way to quantify how much of the lower hold was.
Kind of marketing like offering more favorable odds rather than just purely the support outcomes.
Give us a sense of that.
Sure.
We've shared is that about $25 million.
Revenue hit came from purely sport outcome.
So that's.
That's the number we have shared and I think other things.
You know you can attribute if you are identifying any other questions around hold to other factors, but $25 million with the impact that came from game outcomes.
Interestingly with the other way in Q1 last year. So as you look at year over year comps.
It's affected not only by that $25 million hit from game outcomes. This year, but also favorable game outcomes in Q1 of 2021 that had a positive impact on hold.
So you are not breaking out anything.
Withhold that's related to kind of marketing or anything like that.
No. We typically don't share those types of details that some of the promotional and marketing tactics, we've tested into over many years or things that we deem to be very competitively.
Advantaged for us so.
We don't typically get into breaking down that element of the business.
Oh great.
And also the comment on the call I think you've talked about handled per active was up in every state and I know your arm up was up but just going back to the states where it was.
Both periods.
That's about four.
Net gaming revenue per per user in on that sort of comparable like same state basis.
Sorry, you broke up a little at the end there can you repeat that last part of the question.
Sure.
In the opening comments.
There was a mention that handled per active was up in every state and other states that were illegal.
[laughter] periods.
And so we're just wondering how that would look for net gaming revenue or just thinking about you know there are some states that had net.
NGL declines, even though handle and <unk> was up and so I'm just wondering if that's showing up on a per user basis as well for you.
The reason that we saw in art mob.
One of our Kpis is based on net revenue. So the increase we saw there year over year is.
Definitely.
Reflective of the positive momentum we see in growth of net gaming revenue in each state of course with anything there's always places, where one or two here or there may be up or down but.
Usually those are for explainable reasons. So for example in <unk>.
Illinois, where we had.
The relaunch of mobile registration there was a much more aggressive.
Aggressive new user push with Contra revenue generated promotions that didn't exist in Q1 of last year, but for the most part the ARP increase which as MGR is across the board and across state.
Okay, great. Thank you.
Our next question is from Joe Greff from Jpmorgan.
Good morning, guys.
You mentioned that.
The year over year growth in monthly is driven by retention I was hoping you can help quantify that on.
Uh huh.
On everything excluding DSS in the quarter and how that trended in the <unk> relative to the past few.
A few quarters and then my second question is probably more for Jason Park.
Can you talk about the relationship between EBITDA losses, and cash burn I know.
This quarter cash burn was a little bit higher than he sell off some of that can be explained by capex and some other investing activities. How do you see that trending over the next year. Thank.
So on the first question.
Our mob was definitely up due to both retention and an increase in player handle growth.
So it was both that contributed to that and we haven't at this time be constructed those but we can share that both contribute as far as the product level question.
Same story all products were generally up but DFS as we noted earlier did see some cannibalization. So you can infer based on that debt. If we excluded DFS arm up growth would have been higher.
Yeah and in terms of your question on EBITDA to free cash flow conversion I think you listed out a few of the buckets capitalized software, which is really draft team's primary capex should be fairly steady if you look at the quarter quarterly trend for the last few years I think thats, a very extrapolated will number going forward other than that you'll see some one time.
<unk> upfront licenses.
The impact free cash flow.
And.
Any.
<unk> vesting of employee stock, which you saw around the.
The low low low teen million impact in Q1, but that will purely depend on timing of investing I would say that those are the three big things to look forward for EBITDA to free cash flow conversion.
Great. Thank you.
And we have no further questions at this time I'll now turn it back over to Jason Robins for final remarks.
Well. Thank you all for joining us on today's call.
We had an excellent first quarter, we continue to be very excited about 2022 and look forward to speaking with you all over the next few weeks. The company continues to be focused on strong top line growth and also on cost optimization and we're really excited about a number of initiatives. We have underway in both those categories and look forward to sharing more with you in the coming quarter I Hope you also.
Safe and well and thank you for joining us today.
Thank you, ladies and gentlemen that concludes today's call. Thank you for participating and you may now disconnect.
Okay.
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