Q4 2022 DraftKings Inc Earnings Call

The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.

[music].

Yeah.

Operator: Good day, and thank you for standing by. Welcome to the fourth-quarter 2022 DraftKings earnings conference call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during this session, you'll need to press star one one on your telephone.

Operator: Good day, and thank you for standing by. Welcome to the fourth-quarter 2022 DraftKings earnings conference call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during this session, you'll need to press star one one on your telephone.

At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During this session you'll need to press star one one on your telephone.

Operator: You will then hear an automated message advising you your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now -- I would now like to turn the conference over to Stanton Dodge, Chief Legal Officer. Please go ahead.

-- I would now like to turn the conference over to Stanton Dodge, Chief Legal Officer. Please go ahead.

I would now like to turn the conference over to Stanton Dodge Chief Legal Officer. Please go ahead.

Stanton Dodge: 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 SEC filings that could cause our actual results to differ materially from our historical results or from our forecast. We assume no responsibility to update forward-looking statements other than as required by law. During this call, management will also discuss certain non-GAAP financial measures that we believe may be useful in evaluating DraftKings' operating performance.

No responsibility to update forward looking statements other than as required by law. During this call management will also discuss certain non-GAAP financial measures that we believe may be useful in evaluating draft Kings operating performance.

Stanton Dodge: These measures should not be considered in isolation or as a substitute for DraftKings' financial results prepared in accordance with GAAP. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are available in our earnings presentation, which can be found on our website and in our filings with the SEC. Hosting the call today, we have Jason Robins, co-founder and chief executive officer of DraftKings, who will share some opening remarks and an update on our business; and Jason Park, chief financial officer of DraftKings, who will provide a review of our financials. We will then open the line to questions. I will now turn the call over to Jason Robins.

Reconciliations 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 filings with the SEC hosting the call today, we have Jason Robins co founder and Chief Executive Officer drafting wish you. Some opening remarks, and then update on our business and Jason Park Chief.

H lobster droppings who'll provide a review of our financials.

<unk> opened July two questions I will now turn the call over to Jason Robins.

Jason Robins: Good morning, and thank you all for joining. First off, I am very excited about 2023. We are more focused than ever on expense management. Since our previous earnings call in November, we have made surgical decisions backed by strong analysis about our expenses and have actioned items that totaled an expected $100 million of adjusted EBITDA relative to our prior guide.

We are more focused than ever on expense management since our previous earnings call. In November we have made surgical applications backed by strong analysis about our expenses and an action item could total an expected $100 million adjusted EBITDA relative to our prior guidance.

Jason Robins: Including the impact of the increase in our 2023 revenue guidance, we have improved our adjusted EBITDA guide from a range of negative $475 million to negative $575 million to a range of negative $350 million to negative $450 million, and notably expect to generate more than $100 million of adjusted EBITDA in the fourth quarter of 2023. As you can see, we are in a great spot and are seeing an acceleration in our contribution profit and adjusted EBITDA. And we will continue to explore ways to drive efficiencies, both in our compensation and noncompensation expense categories.

$75 million to a range of negative $350 million to negative $450 million.

Notably, we expect to generate more than $100 million of adjusted EBITDA in the fourth quarter of 2020.

As you can see we are in a great spot and are seeing an acceleration in our contribution profit and adjusted EBITDA.

We'll continue to explore ways to drive efficiencies, both in our compensation and non compensation expense categories.

Jason Robins: To be clear, the top line is performing very well, and we have strong momentum heading into 2023. We grew revenue 81% year over year in the fourth quarter and had an adjusted gross margin rate of 49%. Jason Park will speak more about what drove our strong fourth-quarter results.

<unk> Park will speak more about what drove our strong fourth quarter results.

Jason Robins: Turning to our product offerings. It's mobile sports book with the number one most downloaded for GAAP in the United States on Super Bowl Sunday. Great sportswear, one of our key product highlights with the launch of our own in House live same day, and parlay product, making us the first operator to deliver this capacity end to end for the MBA. This continues our focus on enhancing our parlay offering which drives increased hold rate. And for I gaming, we launched tracking jackpot. Unique type of progressive jackpot that are shared across more than 100 slots and table games. We also received approval for our first slide Casino game developed entirely in house, which we expect to launch in the coming months in New Jersey.

It's mobile sports book with the number one most downloaded for GAAP in the United States on Super Bowl Sunday.

Great sportswear, one of our key product highlights with the launch of our own in House live same day, and parlay product, making us the first operator to deliver this capacity end to end for the MBA.

This continues our focus on enhancing our parlay offering which drives increased hold rate. And for I gaming, we launched tracking jackpot.

And for I gaming, we launched tracking jackpot.

Unique type of progressive jackpot that are shared across more than 100 slots and table games.

We also received approval for our first slide Casino game developed entirely in house, which we expect to launch in the coming months in New Jersey.

Jason Robins: I am proud of the team and culture we have in place. In particular, I am proud of our team for their relentless focus on efficiency and expense management over the past 12 months. While our work here is not done, we feel great about our trajectory and the ability the team has shown in driving strong revenue growth, while also managing our expenses better than ever before. I also noted that it is critical for top management to not take their eye off the ball in this area. And I am personally very focused on ensuring that goals, compensation, and accountability are all aligned toward this very important objective.

In particular, I am proud of our team for their relentless focus on efficiency and expense management over the past 12 months.

While our work here is not done we feel great about our trajectory and the ability of the team has shown and driving strong revenue growth, while also managing our expenses better than ever before.

I also noted that it's critical for top management did not take their eye off the ball in this area and I am personally very focused on ensuring that coal compensation and accountability are all aligned towards its very important objective.

Jason Robins: With that I will turn it over to Jason Park.

Jason Park: Thank you, Jason. Yes, let me hit on some of the highlights, including our Q4 performance, our new and improved 2023 guidance, and some information on our underlying state vintages. Please note that all income statement measures, except for revenue, are on a non-GAAP adjusted EBITDA basis. As Jason mentioned, we have great momentum coming out of Q4.

As Jason mentioned, we have great momentum coming out of Q4.

Jason Park: In Q4, we posted 855 million of revenue, which represents 81% growth versus Q4 2021. This brought our full-year revenue growth to 73%. Adjusted EBITDA was positive in October and was positive for the entire quarter after adjusting for the roughly $75 million investment we made in our recent launches in Maryland and Ohio.

Represents 81% growth versus Q4 2021, this brought our full year revenue growth to 73% adjusted.

Adjusted EBITDA was positive in October and was positive for the entire quarter. After adjusting for the roughly $75 million investment we made in our recent warrant, Maryland and Ohio.

Jason Park: Our revenue was better than our prior guidance, primarily because of structural improvement in our sportsbook hold and fundamentally better customer trends than we expected. Customers are engaging more with our products and are less reliant on promotions. We also managed out approximately 25 million of expenses in Q4. 2023 is off to a great start. This will be a year of continued revenue growth and expense management; strong customer trends, including customer retention, handle per player, hold rate and better promotion reinvestment are enabling us to increase the midpoint of our revenue guidance from 2.9 billion to 2.95 billion.

Also managed out approximately $25 million of expenses in Q4.

2023 is off to a great start this will be a year of continued revenue growth and expense management strong customer trends, including customer retention handle per player hold rate and better promotion reinvestment are enabling us to increase the midpoint of our revenue guidance from $2 9 billion to $2 $95 billion and our <unk>.

Jason Park: And our expense management programs have already identified 100 million of cost savings for 2023, roughly 50 million from scale marketing efficiencies and another 50 million from people-related costs. These two factors, along with our higher revenue outlook, allow us to confidently increase our adjusted EBITDA guidance range from negative 475 million to negative 575 million to negative 350 million to negative 450 million.

These two factors along with our higher revenue outlook allow us to confidently increase our adjusted EBITDA guidance range from negative <unk> 75 to negative 575 million to negative 350 to negative $450 million.

Jason Park: I also wanted to spend a bit of time on foundational state economics. At any given point in time, our company results are a reflection of a combination of mature states, newer states, and brand new states. Our states are performing very well, and we are seeing faster paths to positive contribution profit than we expected. 

Contribution profit than we expected for.

Jason Park: For example, when we look at our 2018 to 2019 vintages states, which represent roughly 10% of the U.S. population, we are seeing great results. In 2022, those states grew net revenue by 50% versus 2021. This continued growth is due to several factors. We are seeing great customer retention, handle for retained player is growing, promotional reinvestment is coming down, and hold percentage is going up. And because much of the net revenue growth is coming from less promotions and higher hold, our adjusted gross margin rate in that vintage was up more than 400 basis points in 2022 versus 2021. Finally, our absolute marketing dollars in those states decreased by more than 15%.

Pension handle per retain players growing promotional reinvestment is coming down and hold percentage is going up.

And because much of the net revenue growth is coming from less promotion and higher hold our adjusted gross margin rate in that vintage was up more than 400 basis points.

2000 22021.

Finally, our absolute marketing dollars.

Decreased by more than 15% these.

Jason Park: These are important statistics and they are the foundational drivers of continued contribution profit expansion and acceleration across our states. This increase in total contribution profit, combined with much slower growth in fixed costs, results in an acceleration of our adjusted EBITDA profitability and clear progress toward achieving our long-term adjusted EBITDA goals. That concludes our prepared remarks, and we will now open the line for questions.

This increase in total contribution profit combined with much slower growth in fixed costs resulted in an acceleration of our adjusted EBITDA profitability and clear progress towards achieving our long term adjusted EBITDA goals.

That concludes our prepared remarks, and we will now open the line for questions.

Operator: Thank you. As a reminder, to ask a question press star one one on your telephone and wait for your name to be announced. To withdraw your question, press star one one again. Please standby while we compile the Q&A roster.

on your telephone and wait for your name to be announced. To withdraw your question, press star one one again.

Please standby while we compile the Q&A roster.

Operator: Our first question comes from Shaun Kelley with Bank of America. Your line is open.

Shaun Clisby Kelley: Hi, good morning, everyone. Thanks for taking my question. Jason or Jason, I was wondering if we could just drill down a little bit on some of what you're seeing on the kind of structural hold improvement. That seems to be a really big story and one that you called out, yeah, mix shift. Can you just give us a sense about two things? What's the underlying assumption for kind of 2023 as you think about what you saw results wise in the fourth quarter? And then secondarily, what's some of the kind of product road map? How do you think you can kind of continue to migrate customers into those types of products in the medium and long term? Thank you.

Jason or Jason I was wondering if we could just drill down a little bit on some of what youre seeing on the kind of structural hauled improvement that seems to be.

Really big story, and one that you called out mix shift can you just give us a sense about two things what's the underlying assumption for kind of 2023 as you think about what you saw at results wise in the fourth quarter, and then secondarily whats some of the kind of product roadmap. How do you think you can kind of continue to migrate customers.

Those types of products.

In the medium and long term thank you.

Jason Robins: Great question. So, really, I think it made a ton of progress in this area, which I think has been enabled by having migrated toward the beginning of last NFL -- excuse me, the previous NFL season to our own platform, and really, I think NFL 2022, with the culmination of a year's worth of work, which has continued through. We just launched live SGP for MBA, which I think was the first stop. We were the first operator to do so, and that was an entirely in-house built and traded product.

So really I think it made a ton of progress in this area, which I think has been enabled by having migrated towards the beginning of last NFL excuse me the previous NFL season into our own platform and really I think NFL 2022, with the culmination of a year's worth of work, which has continued through we just launched live <unk>.

For NBA, which I think was the first off we are the first operator to do so and that was an entirely in house built in traded product.

Jason Robins: So, really, I think we should expect to continue to see more and more effort toward driving a better parlay product offering. And I think that will continue to drive more mix shift. Also, we are making other changes. Certainly, mix shift is the largest driver of what we're referring to as structural hold increase. But we are also making other adjustments to our models, rolling out new and improved models, improving our data environment, and doing a lot of other things that are helping us improve our trading performance. So, I do think there's some additional upside. We continue to be able to execute against those things on the product road map.

Also we are making other changes certainly mix shifted the largest driver of what we're referring to as structural hold increase but we're also making other adjustments to our model is rolling out new and improved model is improving our data environment and doing a lot of other things that are helping us improve our trading performance. So I do think there is some additional upside as we continue to be.

Well to execute against those things on the product roadmap.

Jason Park: Yeah. And I would add, Shaun, in terms of your question for guidance. As we saw the empirical structural hold flow-through in Q3, late Q3 and Q4, we've embedded that into our 2023 revenue guidance, which is a big part of the increase in our revenue guidance that we provided today.

Shaun Clisby Kelley: Thank you very much.

Operator: Thank you. One moment for our next question. That question comes from David Katz with Jefferies. Your line is open. Okay.

That question comes from David Katz with Jefferies. Your line is open.

David Brian Katz: Good morning, everyone. Thanks for taking my question, and congrats on the quarter. So, with respect to this kind of updated operating platform or the updates that you've made, if hypothetically, we were to see -- and I know we've talked so much about sports betting, if we were to see iGaming hypothetically go live in New York, can you shed a little light on how that might impact what the guide is, both on the loss and the cash flow side?

Thanks for taking my question.

And congrats on the quarter so.

With respect to this kind of updated operating platform are the updates that you've made if hypothetically we were to see and I know we've talked so much about sports betting if we were to see gaming Hypothetically go live in New York can you shed a little light on how that might impact.

Whats the guide is both on the loss and the cash flow side.

Jason Robins: Absolutely so. I think. Obviously, theres a lot of moving parts. How big is the market. Structure around the tax rate promotional deductions the sorts of things I think in general. What we said in the past is we assume roughly 7% to 8% of the U S population with 7% to 9%. Our new sports betting markets, each year, and 3% to 4% for I gaming. So New York, obviously, it would be on the upper end of that but overall those those assumptions are baked into our 2024 guidance I don't think even if new York did pass the Bill this year I think it's unlikely that it will go live this year remember they passed a bill. The year before they went live it was early the following year, but it took until the following year to go live for mobile sports betting. So some states have been faster, but I think most have generally been the following calendar year. We're looking at 2024 and as I mentioned, we built in some assumption around that but this would be a bigger I gaming market than we had assumed.

I think.

Obviously, theres a lot of moving parts.

How big is the market.

Structure around the tax rate promotional deductions the sorts of things I think in general.

What we said in the past is we assume roughly 7% to 8% of the U S population with 7% to 9%.

Our new sports betting markets, each year, and 3% to 4% for I gaming. So New York, obviously, it would be on the upper end of that but overall those those assumptions are baked into our 2024 guidance I don't think even if new York did pass the Bill this year I think it's unlikely that it will go live this year remember they passed a bill.

The year before they went live it was early the following year, but it took until the following year to go live for mobile sports betting. So some states have been faster, but I think most have generally been the following calendar year.

We're looking at 2024 and as I mentioned, we built in some assumption around that but this would be a bigger I gaming market than we had assumed.

David Brian Katz: And just to follow that up, if I may, is it a fair assumption that the negative impact, both to earnings and cash flow from an iGaming state of size, would be less than it would be from a sports betting? Or is that not a correct assumption?

Is it a fair assumption that.

The negative impact both to earnings and cash flow from an I gaming state of size would be less than it would be from a sports betting or is that not a correct assumption.

Jason Robins: No, I think that is correct, particularly if it's a state that already has sports betting where we've already had a lot of customer acquisition investment like New York. So, we've acquired hundreds and hundreds of thousands of players in New York already. I think the cross-sell opportunity there would be enormous. We know that some of these players are going to Connecticut, to New Jersey, to Pennsylvania to do iGaming now. So, I do think there is some incremental customer acquisition spend, but it's not the same as a fresh market where we haven't had hundreds of thousands of customers that we've acquired already. So, it's an accurate assessment, I think. Got it thank you very much.

We have acquired hundreds and hundreds of thousands of players in New York already I think the cross sell opportunity there would be enormous we know that some of these players are going to Connecticut, New Jersey, Pennsylvania to do I gaming now so I do think there is some incremental customer acquisition spend but it's not the same as a fresh market, where we haven't had.

The one thousands of customers that we've acquired already so that's an accurate assessment I think got.

David Brian Katz: Got it. Thank you very much.

Operator: Thank you. One moment. We have a question from Jason Bazinet with Citi. Your line is open.

We have a question from Jason Bazinet with Citi. Your line is open.

Jason Boisvert Bazinet: I just have a high-level question. You guys, obviously, are making a lot of progress improving the operations, and every metric seems to be moving in the right direction. At the highest level, when you think about how these improvements compare to some of the long-term targets that you've laid out at prior Investor Days, is the implication that the goals are the same, but you'll just maybe get there faster? Or do you -- if things keep going as well, is there scope for some of those to move up? Thanks.

When you think about how these improvements compared to some of the long term targets that you've laid out at prior investor days.

Is the implication that the goals are the same but youll, just maybe get there faster.

If things keep going as well is there scope for some of those to move up.

Jason Robins: That's a great question. You know, we will, later this year, be providing an updated long-term outlook at an Investor Day. So, stay tuned for that. But speaking to it conceptually, I do think there's some upside there. We certainly have some upside on the hold rate front. I think promotions will probably end up somewhere in line with where we think they'll be long term. And then on the cost side, I think there's always effort that needs to be going. That's something, I think, that really has resonated with the team is, yes, obviously, we're all cognizant of the market environment we're in. But we also understand that to build the most profitable long-term company. We need to be as efficient as we possibly can. And that's a message that everyone on leadership has really taken to. The board conducted a thorough review of management incentives toward the end of 2021 and starting in '22. It's continued to '23, completely realigned management incentives. So, there was an equivalent focus on EBITDA and profitability to what we previously had on revenue. So, I think that when we look at the long term, and like I said, we'll provide more specific updates later this year, I do think there's some upside if we can continue to find the efficiencies that we've been finding over the past 12 months.

We will later this year be providing an updated long term outlook at an investor day, So stay tuned for that but speaking to conceptually I do think there is some upside there.

We certainly have some upside on the hold rate front. I think promotions will probably end up somewhere in line with where we think they'll be long term. And then on the cost side, I think there's always effort that needs to be going. That's something, I think, that really has resonated with the team is, yes, obviously, we're all cognizant of the market environment we're in. But we also understand that to build the most profitable long-term company. We need to be as efficient as we possibly can. And that's a message that everyone on leadership has really taken to. The board conducted a thorough review of management incentives toward the end of 2021 and starting in '22. It's continued to '23, completely realigned management incentives. So, there was an equivalent focus on EBITDA and profitability to what we previously had had on revenue. So, I think that when we look at the long term, and like I said, we'll provide more specific updates later this year, I do think there's some upside if we can continue to find the efficiencies that we've been finding over the past 12 months.

I think promotions will probably end up somewhere in line with where we think there will be long term and then on the cost side I think theres always effort that needs to be going.

That's something I think that really has resonated with the team is yes, obviously, we're all cognizant of the market environment. We're in but we also understand that to build the most profitable long term company, we need to be as efficient as we possibly can and that's a message that everyone on leadership has really taken to the.

The board conducted a thorough review of management incentives towards the end of 2021 and starting in 'twenty. Two it has continued to 'twenty three completely realigned management incentives. So that there was an equivalent focus on EBITDA and profitability to what we previously had add on revenue.

So I think when.

When we look at the long time and like I said, we'll provide more specific updates later this year I do think there's some upside if we can continue to find the efficiencies that we've been finding over the past 12 months.

Jason Boisvert Bazinet: That's super helpful. Thank you.

Operator: Thank you. And our next question comes from Carlo Santarelli with Deutsche Bank. Your line is open.

Our next question comes from Carlo Santarelli with Deutsche Bank. Your line is open.

Carlo Santarelli: Hey, guys. Thank you. Jason, Jason, whoever wants to take this one, as you guys think about kind of the structural hold improvements that you're making and you think about kind of the new parlay product, relative to retention and acknowledging, it's early with a lot of this stuff. But you obviously had some growth over the course of 2022 with your addressable TAM, with new states that have come online. I believe your monthly unique payers, was up high 20s this year. I'm not sure if that is in line with kind of the addressable TAM that you brought up, but it seems similar, at least. As you think about like kind of that retention effort, as holds are rising, how could you kind of comment around the balance between how to retain and kind of how to improve efficiency on a per customer basis?

Jason Jason whoever wants to take this one as you guys think about kind of the structural hold improvements that you're making and you think about kind of the new parlay product relative to retention and acknowledging it's early with a lot of this stuff but.

You, obviously had some some growth over the course of 2022 with your addressable Tam with new states that have come online.

I believe your monthly unique payers was up high <unk> this year I'm not sure.

If that is in line with kind of the addressable Tam that you brought up but it seems similar at least as you think about like kind of that retention effort.

As holds are rising how could you kind of comment around the balance between.

How to retain and kind of how to improve efficiency on a per customer basis.

Jason Robins: I think that's an extremely important question. And, you know, really, in the end, it's all about the customer. We start there. What's nice about the parlay product is customers love it.

Really in the end, it's all about the customer we start there what's nice about the <unk> product is customers love it.

Jason Robins: It's something that I think helps with retention of the product offering keeps getting stronger. So, we don't view it as a trade-off at all. We look at it and start with the customer, find the products that the customers want and then, ideally, construct those products in a way that is both really exciting and benefits the customer and also create attractive economics for the company. And I think parlay is a great example of that.

So we don't view it as a trade off at all we look at it I'd start with the customers find the products that the customers want.

And then ideally construct those products in a way that is both really exciting and benefit the customer and also create attractive economics for the company and I think parlay is a great example of that.

Jason Robins: We've had DFS for years. And while certainly, DFS is a skill game, while certainly people do win, it's not as common. But when they win, they have an opportunity in these big tournaments to win very large prices. And I think the parlay product functions the same way. If somebody does a very large parlay with lots of legs, they have an opportunity to turn a very small bet into a large payday. And I think that's really the value prop that's unique about the parlay product relative to the singles bets.

It is not as common but when they when they have an opportunity in these big tournaments to win very large prices and I think the parlay product functions. The same way if somebody does a very large parlay with lots of legs. They have an opportunity to turn a very small.

That into a large pay day and I think that's really the value prop that's unique about the <unk> product relative to the singles beds.

Carlo Santarelli: Great. Thank you. And then if I could, just one follow-up. In terms of adjusted sales and marketing, I think the external marketing in '22 was a little over 800 million, you guys disclosed. The total was a little over 1.1 billion. Should we expect, as soon as '23, that that line starts to -- that that expense starts to come down a little bit this year? Or is that relatively flat this year and maybe you leverage a little bit of the revenue growth? And then, maybe, in subsequent years is where we start to see that sales and marketing kind of chip away and go lower?

In terms of adjusted sales and marketing I think the external marketing in 'twenty, two with a little over $800 million you guys disclosed.

The total was a little over 1.1 billion. Should we expect, as soon as '23, that that line starts to -- that that expense starts to come down a little bit this year? Or is that relatively flat this year and maybe you leverage a little bit of the revenue growth? And then, maybe, in subsequent years is where we start to see that sales and marketing kind of chip away and go lower?

Should we expect as soon as 23 that line starts to that expense starts to come down a little bit this year or is that relatively flat this year and maybe your leverage a little bit of the the revenue growth and then maybe in subsequent years is where we start to see that sales and marketing kind of chip away and go lower.

Jason Robins: I think that's right. I think we'll be relatively flat this year. I think that we're -- obviously, some of this will depend on the cadence of state launches. But based on sort of a baseline expectation, I think will be relatively flat this year. And as you noted, I think as more and more states mature, as the market overall matures, you'll start to see it tail down a little bit. But this year, I think we're expecting to be basically flat year over year. Thank you guys.

<unk>.

Obviously some of this will depend on the cadence of state launches, but based on sort of a baseline expectation I think will be relatively flat. This year and as you noted I think as more and more states mature is the market overall maturities youll start to see it tail down a little bit.

But this year I think we're expecting to be basically flat year over year.

Carlo Santarelli: Perfect. Thank you, guys.

Operator: Thank you. One moment. Our next question comes from Ed Young with Morgan Stanley. Your line is open.

Operator: Our next question comes from Ed Young with Morgan Stanley. Your line is open.

Our next question comes from Ed Young.

With Morgan Stanley Your line is open.

Edward Young: Thank you for taking my question. And first of all, just to say thank you for some of the extra disclosure in the presentation. It's really very useful and appreciated. I want to ask about the statement you've reiterated really, which is around producing your first adjusted EBITDA positive quarter in the fourth quarter of this year and then how that set up '24. Given as you mentioned that you were there this Q4, except for the new state investment, can you just help us sort of think about that statement? Is that due to the cadence of the cost savings that you mentioned? Is that due to conservatism around the new state launches and not having perfect line of sight to that? Or is there anything else? Is there a reason particularly why that couldn't come earlier, you just maybe just want to commit yourself to that? Thanks.

I want to ask about the statement, you've reiterated ready which is around producing your first adjusted EBITDA positive quarter in the fourth quarter of this year and how that sets up to 24.

Given that you mentioned.

This Q4.

Except for the new state investment can you just help us sort of think about that statement is that due to the cadence of the cost savings that you've mentioned is that due to conservatism around.

The new state launches and not having perfect line of sight to that.

Or was there anything is there a reason, particularly why.

That couldnt commodity or you just may be totally commit yourself to that thanks.

Jason Robins: Yeah. I think -- so, it's a great question, Ed. Certainly, there's seasonality of the business, and there are quarters where there's deeper marketing investment like Q1 and Q3. I think that, for us right now, especially given Ohio, Maryland, or brand-new Massachusetts, we expect to launch, hopefully, sometime in March.

So it's a great question, Ed certainly there is seasonality to the business and.

There are quarters, where theres deeper marketing investment in Q1 and Q3.

I think that for US right now, especially given Ohio, Maryland are brand, new Massachusetts, we expect to launch hopefully sometime in March.

Jason Robins: I do think that, that's really the reason behind us staying with the Q4 message. I think because of those launches, we expect an even better Q4. And what we're seeing is that those states so far, Maryland and Ohio, at least are ramping faster, even in Arizona. Arizona was the fastest-ramping state we had, and some of our more recent states like Maryland and Ohio have really even been faster.

Jason Robins: So, I think the good news is that, that's going to contribute more contribution profit sooner. I just don't know if Q2 is too soon to expect that. But either way, I think that we'll be continuing to focus on efficiency, continuing to focus on trying to get profitable sooner. That's the goal of the company. And right now, I think we're comfortable to committing to 100 million plus in EBITDA in Q4. But we're trying to get that number up, and we're trying to get every quarter to do better than what we're thinking right now. And there's a number of efficiency-oriented initiatives around the Company that I think could potentially contribute some upside. Thank you.

I just don't know if Q2 is too soon to expect that but either way I think that will be continuing to focus on efficiency continuing to focus on trying to get profitable sooner.

Thats the goal of the company and right now I think we're comfortable committing to $100 million plus in EBITDA in Q4, but we're trying to get that number up and we're trying to get every quarter to do better than what we're thinking right now and Theres a number of efficiency oriented initiatives around the company that I think could potentially contribute some upside.

Edward Young: Thank you.

Operator: One second. Our next question comes from Jed Kelly with Oppenheimer. Your line is open.

Our next question comes from Jed Kelly with Oppenheimer. Your line is open.

Jed Kelly: Hey, great. Thanks for taking my question. Maybe following up on Carlo's question. Can you just talk about your churn rate this football season, I guess, with the higher holds, and you did have a better football outcome, too, versus last year? And what's kind of driving the underlying churn rate? And then just question just on 1Q. Can you talk about sort of some of the dynamics around the first quarter? I think last year, March Madness was a negative or lower than you thought. So, can you talk about sort of some of the comps we should be thinking about for 1Q? Thank you. Yes, I think so.

Can you just talk about your churn rate. This football season, I guess was the higher holds and you did have a better output ball outcome two versus last year, and what's kind of driving the underlying churn rate and then just a question just on <unk>.

Can you talk about sort of some of the dynamics around the first quarter I think last year March madness was negative.

While we are than you thought so can you talk about sort of some of the costs, we should be thinking about for <unk>.

Thank you.

Jason Robins: Yeah. I think -- so, on the first question, we've seen really strong retention rates. Obviously, we've been keeping an eye on this as hold has increased. We have other market comps that we see at even higher hold levels than us that has, I think, had decent retention. So, we feel confident there's still room to increase hold without affecting churn. And thus far, we've seen only positive trends on the retention rate side. As far as March Madness, I think it's been a weird last few years. You had the cancellation of March Madness in 2020.

Obviously, we've been keeping an eye on this as hold has increased we have other market comps.

But we see it even higher hold levels than us that have I think had decent retention. So we feel confident there is still room to increase hold without affecting churn.

And thus far we've seen only positive trends in our retention rate side.

As far as March Madness, I think it's been a week.

Weird last few years, you had the cancellation of March madness in 2020.

Jason Robins: And I think college basketball is really coming back in a big way now in terms of popularity. We're seeing more adoption in the regular season than we had in the previous couple of seasons. So, we think it's going to be a great March Madness, and I'm really looking forward to it. It will be -- hopefully, if Massachusetts gets live, it will be the first time that residents in Massachusetts will be able to bet and stay. So, I think that will be a big opportunity. And then, obviously, continuing to learn more and get better on figuring out ways to drive better bet mix. That said, college sports, I will say, is one of the tougher ones on the bet mix side because a number of states don't allow player props and also people are generally just less familiar with the players, so they're more likely to combine parlays on multiple teams. So, we'll be focusing there, obviously, still trying to drive the same game parlay product, too, but I think college sports, multi-game parlay is a little bit easier than same-game parlay, given some of the dynamics I described. Great and then just one quick.

Coming back in a big way now in terms of popularity, we're seeing more adoption in the regular season than we had in the previous couple of season. So.

We think it's going to be a great March madness.

I am really looking forward to it it'll be hopefully if Massachusetts gets live it'll be the first time.

Residents of Massachusetts will be able to bet in state. So I think that'll be a big opportunity.

And then obviously continuing to learn more and get better on figuring out ways to drive better mix that said College sports I will say is one of the tougher ones on the <unk> side, because a number of states don't allow player.

And also people are generally just less familiar with the players. So they are more likely to combine parlays of multiple teams. So we'll be focusing there obviously still trying to drive the same game parlay product too, but I think college sports.

Multi game parlay is a little bit easier than same game parlay given some of the dynamics I described.

Jed Kelly: Great. And then just one quick follow-up. Is there anything to call out from the World Cup in 4Q that won't be in there this year? Thanks.

From the World Cup in <unk> that won't be in there this year. Thanks.

Jason Robins: World Cup was great, I mean, no doubt about it. That said, it was low single-digits percentage of our revenue. And I think we don't believe that there's anything really that you should adjust accordingly from World Cup. I think that was a nice little boost but didn't have a tremendously material impact on our financials last quarter. I would just thank you Ed.

That said it was low single digits percentage of our revenue and.

Thank.

We don't believe that there is anything really that you should adjust accordingly from World Cup I think that.

It's a nice little boost but didn't have a tremendously material impact on our financials last quarter.

Multiple: [Jed Kelly]  Thank you.  [Jason Park] And I would just add, Jed -- I would just add, on World Cup that was obviously already included in the Q4 guidance that we provided in November. And when we look at the data on a customer-by-customer level, it felt more as much like a handle shift between sports that were very prevalent in Q4 as it was sort of true incrementality.

More as much like a <unk>.

Handle shift between sports that we're very prevalent in Q4, there was sort of true incremental <unk>.

Jed Kelly: Thank you.

Operator: Thank you. And our next question comes from Robert Fishman with MoffettNathanson. Your line is open. Okay.

Robert S. Fishman: Hi. Good morning. You called out how you're looking for more efficiencies around not renewing certain team league and media rights going forward. I'm just wondering if you can expand upon these different relationships and maybe how they've changed over the past year or two since you first signed the deals now that some of the other OSB players have pulled back. 

Jason Robins: Yeah. I think, you know, what you're describing is one of the many efforts around the Company aimed at becoming more efficient. And, obviously, marketing being a big expense category, team and league deals being a big expense category, we feel there's room there. We've had a number of partners that have been very constructive and have agreed to reductions that would make these deals efficient in a way that we need them to be. And there's others that we will be discontinuing when the deals come up and have discontinued as they've come up over the past year. So, it's really been a mix. There's been a lot of really great partners, though. They recognized that the market's changed, have said, Look, we want long term to be in business with DraftKings. And we realize that this is not an efficient part of the portfolio right now, and we need to rework it. And there have been others that we've had to unfortunately discontinue the deals with. So, it will be a mix of things, but it's really part of an overall effort that we have to be more efficient as a company. And I think there is an opportunity in this category to get even better.

We've had a number of partners that have been very constructive and they've agreed to reductions.

Would make these deals efficient in the way that we need them to be and there is others that we will be discontinuing when the deals come up and have discontinued as they've come up over the past year. So it's really been a mix theres been a lot of really great partners, though to recognize that the market's changed have said look we want long term to be in business.

So draft Kings and we realize that this is not an efficient part of the portfolio right now and we need to rework it and.

Yes, there have been others that we've had unfortunately discontinue to deals with so it'll be a mix of things, but it's really part of an overall effort that we have to be more efficient as a company and I think there is an opportunity in this category to get even better.

Robert S. Fishman: If I could just ask one quick follow-up. Any update you'd care to make about the future partnership with Disney? And whether the relationship has changed at all since the early days since Bob Iger is back? No I mean, we've continued to have a great relationship with Disney.

Bob I goes back.

Jason Robins: No. I mean we've continued to have a great relationship with Disney. ESPN, Jimmy Pitaro and his team have been great partners. So, we've really enjoyed that relationship, gotten a lot out of the partnership. And we always talk to our partners about ways that we can improve and extend and grow the relationship. And Disney and ESPN have been a great partner thus far. 

We've really enjoyed that really should have gotten a lot out of the partnership.

We always talk to our partners about ways that we can improve and extend and grow the relationship.

And Disney and ESPN has been a great partner thus far.

Operator: Our next question comes from Clark Lampen with BTIG. Your line is open.

Clark Lampen: Hey, thanks. Good morning. I've got just one for Jason Park. Jason, if we assume you guys are finishing '23 with, I guess, let's just say, it's a wide range, 600 million to 800 million of cash, and you're going to be at that point, a lot closer to breakeven on a cash flow basis, does it make sense to be a little bit more aggressive with cash usage or explore debt financing options in a market where so many of your competitors are now leaning out, at least on the sports betting side, and you're past the point of having to illustrate to the market that you won't need to raise capital just to remain a going concern? Thank you. Yes.

Jason if we assume you guys are finishing 23 with I guess, let's just say at the wide range $6 million to $800 million of cash and youre going to be.

At that point, a lot closer to breakeven on a cash flow basis.

Does it make sense to be a little bit more aggressive with cash usage or explore debt financing option.

Where so many of your competitors are now leaning out at least on the sports betting side and Youre past the point of having to illustrate to the market that you won't need to.

Raise capital just to sort of remain a going concern. Thank you.

Jason Park: Yeah. Appreciate the question, Clark. Yes, just to clarify, I would not say that we're like 600 to 800. I would say, greater than 700 million ending 2023. So, maybe 700 plus is probably a better way to think about it. Yeah. And look, I think the most important thing is we're in a great place where we can just focus on operating the business, finding efficiencies, not having to worry about any type of financing needs. And in terms of broader questions around debt's role at DraftKings, we'll continue to evaluate the entire capital structure, obviously, the macro environment on potential instruments like that. And we'll come back to you if anything comes to fruition. I'd just add that I think.

So maybe 700 plus is probably a better way to think about it.

And look I think the most important thing is we're in a great place, where we can just focus on operating the business finding efficiencies not having to worry about any type of financing needs.

And in terms of broader questions around debt deaths role draft Kings will continue to evaluate the entire capital structure, obviously, the macro environment on potential instruments like that and.

And we will come back to you if anything comes to fruition.

Jason Robins: Yeah. I'd just add that I think that because of our cash position, were there an opportunity to be aggressive in places, we don't need capital, whether equity or debt financing. So, it's something, I think, if there was some strategic opportunity or something like that, perhaps we would explore. But from an organic standpoint, we don't need to. So, I think it's unlikely you'll see us take out any debt and any -- I mean, any equity capital at all. And I think it's virtually impossible to imagine a scenario where we do so for organic purposes. As far as leaning in more, we are trying to be surgical, and that means not just cutting and being efficient in places that we know we need to be more efficient, but also leaning in, in places where we have the data and the conviction. That said, you asked the wrong guy in Jason Park. I don't think he's met a cost he's liked in the last year. So, sometimes we have to tell Jason, you can't cut everything. But definitely, the team is, I think, as a result of having a great analytically driven culture and a great amount of data, very confident that there are places that, yes, we certainly are cutting but we also need to be leaning into as well. Thanks, John .

Any debt in any.

Any equity capital at all and I think it's virtually impossible to imagine a scenario, where we do so for organic purposes.

As far as leaning in more we are trying to be surgical and that means not just cutting and being efficient and places that we know we need to be more efficient, but also leaning in in places, where we have the data and that conviction.

That said you asked the wrong Guy adjacent park I don't think he has met or costs. These liked in the last year or so.

Yes, sometimes we have to tell Jason you can't cut everything but.

<unk>. The team is I think as a result of having a great analytically driven culture and a great amount of data very confident that there are places that yes, we certainly are cutting but we also need to be leaning into as well.

Thanks, John .

Clark Lampen: Thanks, guys.

Operator: Thank you. Our next question comes from Ben Chaiken with Credit Suisse. Your line is open. Yes. Hey, How's it going.

Yeah.

Our next question comes from Ben Chaiken with Credit Suisse. Your line is open.

Benjamin Nicolas Chaiken: Hey, how's it going? On the SG&A side, the guide for '23 suggests maybe up 10% or 12% year over year, '23 versus '22. I'm kind of bucketing everything between contribution profit and EBITDA. Does that growth rate continue -- and that's relative to a 40% growth rate between '22 and '21. Does that growth rate continue to decelerate even as you add new states? The growth rate.

<unk>, 40% growth rate between 22% and 21 does that growth rate continue to decelerate, even as you add new states.

It's just the whole SG&A bucket, so everything between contribution profit and EBITDA that's growing.

Jason Robins: The growth rate of fixed costs?

Benjamin Nicolas Chaiken: Just the whole SG&A bucket, so everything between contribution profit and EBITDA that's growing in 10 to 12 range.

12 range.

Jason Robins: No. Yeah. I think there's really very little fixed cost impact of launching new states. There's some customer service sometimes, but we're also working hard to find ways to be more efficient there. So, hopefully, we're able to offset any need to grow there with other efficiencies that we find. So, really, it's mostly variable cost COGS that we see with new revenue coming in from new states. There's obviously marketing expense, but not really fixed cost. I think most of our functions are at scale, are pretty close. So, that's why you're seeing moderate fixed cost growth this year, a significant reduction in fixed cost growth year over year. And I also think that the team is working hard to be more efficient. I think that there's been a real light bulb that's gone off here that we can do more and actually grow revenue faster if we become more efficient. And there's a connection between being better focused on expense management and efficiency with revenue growth, with doing better for the customer.

So really it's mostly.

Variable cost Cogs that we see with new revenue coming in from New State Theres, obviously marketing expense.

But not really fixed cost I think most of our functions are at scale are pretty close so thats why youre seeing moderate fixed cost growth. This year, a significant reduction in fixed cost growth year over year and I also think the team is working hard to be more efficient I think that there has been a real.

Light bulb Thats gone off here that we can do more and actually grow revenue faster, if we become more efficient and there is a connection between being better focused on expense management and efficiency with revenue growth with doing better for the customer.

Jason Robins: And I think making that connection and realizing that actually these things feed off of each other, that the better we do to manage our expenses and be more efficient as an organization, the more that we're going to be able to deliver value for the customer. And that will actually lead to market share gains and revenue growth. I think that's been a real rallying cry for the team over the past year, and it continues to be in 2023.

Sally and cry for the team over the past year and it continues to be in 2023.

Benjamin Nicolas Chaiken: Got it. That's super helpful. Thanks.

Operator: Thank you. Our next question comes from Michael Graham with Canaccord Genuity. Your line is open.

Yeah.

Our next question comes from Michael Graham.

With Canaccord Genuity your line is open.

Michael Graham: Hey, thanks a lot. I just wanted to ask about some of the disclosures you had around the growth in your mature states, that 2018 to 2019 cohort. You referenced 50% year-over-year growth, and you gave some good reasons for that growth around retention and increased hold. I just wanted to ask about like what you are seeing in terms of customer growth, player growth in some of those mature states. And are you -- do you feel like you're getting close to terminal penetration? Or like what are you learning about the way the model works as you kind of get a little bit deeper into some of these mature states? Yeah, Great question so.

The growth in your mature states that 2018 to 2019 cohort you referenced 50% year over year growth and you gave some good reasons for that growth around retention.

Greased hold I just wanted to ask about like what you are seeing in terms of customer growth clear growth in some of those mature states.

Or do you feel like Youre getting close to terminal penetration or like what are you learning about the way the model works as you kind of get a little bit deeper into some of these mature states.

Jason Park: Yeah, great question. So -- and thanks for calling that part of the letter out. I'd say if you unpack the 50% revenue growth that we experienced in that 2018, 2019 vintage, probably 70% was from existing customers and, call it, 20% to 30% was from new customers. So, point is even though those states were in their third or fourth full year, they were -- we were still acquiring new customers. So, we haven't found a ceiling yet even in those more mature states in terms of total population penetration.

I'd say, if you unpack that 50% revenue growth that we experienced in 2018 2019 vintage probably.

70% was from existing customers and then call it 20% to 30% was from new customers. So point is even though those states are in their third or fourth full year. They were we were still acquiring new customers. So we haven't found a ceiling yet even in the more mature states in terms of total population.

Penetration.

Jason Robins: And I think also, if you look at comps around the world, other markets, I mean, growth typically occurs decades. And so, obviously, growth rates go down. It's not going to continue growing at 50% forever, but I don't expect we've hit any sort of ceiling there. I know different dynamics, but the iGaming market in New Jersey, which is now coming up on almost a decade, still growing. So, I think lots of comps around really not just the world. But if you look at the U.S. lottery market and other sorts of comparisons, it's just very much a market that I think always has new customers coming into it. And I think there's an expectation that we should have that there will be a pretty steady growth for at least another decade or so.

So.

Obviously growth rates go down it's not going to continue growing at 50% forever, but I don't expect we've had any sort of ceiling there.

I know different dynamics, but the I gave me market in New Jersey, which is now coming up on almost a decade still growing so I think lots of comps around really not just the world, but if you look at the U S lottery market and other sorts of comparison, it's just very much a market that I think always had new customers coming into it and I.

I think there is an expectation that we should have that there'll be.

Pretty steady growth for at least another decade or so.

Multiple: [Jason Park] And just super important, Mike, like the source of growth is -- the point is it's much more than just new customer acquisition. It is existing customer handle growth, that whole improvement and continued promo reduction that drives that net revenue growth. [Jason Robins] And we're still in the phase of the market where we're finding big wins on the product front. We're finding ways that we can be more smart operationally, that we can reach customers in a more effective way. So, I think there's still many years of just innovation that will drive growth in our consumer wallet share. And when we think about wallet share, we don't just think about it within our own industry. We think about our customers' entertainment wallet share. And we believe that customers will be willing to spend more time with us and spend more with us if we create better products that they find more entertaining than other things they could be doing for fun.

Reduction that drive that net revenue growth and we're still in the phase of the market, where we're finding big wins on the product front, we're finding ways that we can be more smart operationally that we can reach customers in a more effective way.

So I think there is still many years of just innovation that will drive growth in our consumer wallet share and when we think about wallet share. We don't just think about it within our own industry, we think about our customers' entertainment wallet share and.

And we believe that customers will be willing to spend more time with us and spend more with us if we create better products that they find more entertaining and other things they could be doing for fun.

Okay. Thank you guys and congrats on all the progress.

Clark Lampen: Great. Thank you, guys. Congrats on all the progress.

Operator: Thank you. And our next question comes from Bernie McTernan with Needham & Company. Your line is open.

Bernard Jerome McTernan: Great. Thank you for taking the questions. Jason, I want to take your pulse on the M&A market. And just given everything you've talked about in the shareholder letter on profitability, does that impact your philosophy on using your stock as a currency?

Jason Robins: You know, I think they're somewhat independent. Obviously, the more that we can get some momentum behind the stock, the more attractive it becomes as a currency. But I don't think that it's really something that we really are focused on right now. We're very focused on our internal operations, focused on getting more efficient.

Jason Robins: Obviously, there will be a time in the market -- and hard to predict because we're in such a rapid phase of evolution right now. There will be a time in the market where those things really make sense, and we can focus more on it. But right now, there's a lot of focus on just how we can make sure that this company is on a clear path to profitability and that we're operating in the most efficient and cost-effective way we can.

Phase.

Evolution right now there'll be a time in the market, where those things really make sense and we can focus more on it but right now theres a lot of focus on just how we can make sure that this company is on a clear path to profitability and that were operating in the most efficient and cost effective way we can.

Bernard Jerome McTernan: Understood. And then just a follow-up on parlays. I think a big question, just given the success, is where could it go? Do you guys have a sense in terms of just what the U.S. penetration of parlays is relative to the rest of the world or more mature markets?

Jason Robins: You know, I think that's a great question, and it's tough to compare to rest of world. I think the U.S. is a bit unique. My belief is that the U.S. consumer and the gaming market, a lot of the roots of it are in the lotteries where there have been lotteries across states for a lot longer than casinos and other sorts of gaming products. And that lottery mentality of big jackpots, I think, is carried over into other products. We even see it in DFS where our most attractive offerings are the large tournaments that you can enter for anywhere from $3 to $20 and win hundreds of thousands or million plus in prices. So, I think that's carrying over into the U.S. market. And I actually think for that reason, parlays have more upside than they would in other parts of the world, not to say that they're not popular in other parts of the world. They call them accumulators in Europe. And certainly, that's been a big growth area overseas. But I think the U.S. customer is uniquely oriented toward the kind of proposition of bet a little to win a lot. So, I think there's a lot more upside. And we're still at the infancy stages of this product. I mean there's so much we can do to innovate and make it more exciting and more fun for the consumer.

My belief is that the U S consumer in the gaming market a lot of the roots of it are in Nevada, where there had been lotteries across states for a lot longer than casinos and other sorts of gaming products and that lottery mentality of big Jackpots I think has carried over into other products, we even see it in DFS, where most attractive offer.

Are there large tournaments that you can enter for anywhere from $3 to $20 and one hundreds of thousands or millions plus and prizes.

So I think that's carrying over into the U S market and I actually think for that reason parlays have more upside than they would in other parts of the world not to say that they're not popular in other parts of the world. They call them accumulators in Europe , and certainly thats been a big growth area overseas, but I think the U S customer is uniquely oriented towards the kind of.

A proposition of better little to win a lot.

So I think theres, a lot more upside and we're still at the infancy stages of this product I mean, there is so much we can do to innovate and make it more exciting and more fun for the consumer.

Bernard Jerome McTernan: Great. Thanks for taking my questions.

Operator: Thank you. And our next question will come from Ryan Sigdahl with Craig-Hallum. Your line is open. Good morning, guys.

Thank you.

And our next question will come from Brian <unk> with Craig Hallum. Your line is open.

Ryan Sigdahl: Good morning, guys. Curious to get your thoughts on the current competitive dynamics. We've seen several operators pulling back more notably on online sports betting and iGaming. But then, you have fanatics with the most notable high profile. I guess, new incumbent coming or entrant coming. How do you think about promotional and marketing intensity from an industry standpoint in 2023, better or worse year over year?

Then you have fanatics with.

Most notable high profile I guess, new incumbent come in or entering coming how do you think about promotional and marketing intensity from an industry standpoint in 2023, better worse year over year.

Jason Robins: I think it will be better. There will be more mature states. I think that natural kind of promotional reduction that happens as states mature, we'll continue to see a tailwind from that. Obviously, there's always going to be new entrants coming in and out of the market.

I think that natural kind of promotional reduction that happens as states mature, we'll continue to see a tailwind from that.

Obviously, there is always going to be new entrants coming in and out of the market.

Jason Robins: I think one thing we've seen, though, is that -- and I expect the same would apply to any new entrant. The market competitively has become much more rational. We talked about this in the letter. There was a period of time in 2020 and part of 2021, where there was really a message from the market that market share and revenue growth were all that mattered. And I think you saw some rational behaviors from some of our competition coming about as a result. And I think once the market started to change their tune, and there was more of a demand on accountability for efficiency and profitability, you saw that change. And I don't see that changing again. I think that we're in a new phase of the market where competing on a much more rational playing field is the norm. And I think that you'll continue to see that, whether it be existing operators or any new operators that come into the market.

The market competitively has become much more rational.

We talked about this in the letter there was a period of time in 2020 and part of 2021, where there was really a message from the market the market share and revenue growth were all that mattered and I think you saw some irrational behaviors from some of our competition coming about as a result, and I think once the market start.

Good.

Change their tune and there was more of a demand on accountability for efficiency and profitability you saw that change and I don't see that changing again I think that we're in a new phase of the market where.

Competing on a much more rational playing field as the norm and I think that Youll continue to see that whether it be existing operators or any new operators that come into the market.

Ryan Sigdahl: Thanks, Jason.

Operator: One moment. Our question comes from Dan Politzer with Wells Fargo. Your line is open.

<unk>.

Our question comes from Dan Pulitzer with Wells Fargo. Your line is open.

Daniel Brian Politzer: Hey. Good morning, everyone. Jason, I was hoping just to clarify on the 2023 revenue guidance. I think for the fourth quarter, you guys had 30 million uptick in revenue from the structural improvement in the hold. I just want to clarify, your 2023 guide that you issued at the same time that did include the hold benefit? And then just for my follow-up, just the pace of the fixed opex deceleration, if you could maybe parse that out in terms of the G&A, product and tech and other corporate marketing, and I guess, where you're seeing the most efficiencies. Thanks.

Then just for my follow up just the pace of the fixed Opex deceleration. If you could maybe parse that out in terms of the.

The G&A product and tech and other corporate marketing and I guess, where you're seeing the most efficiencies. Thanks.

Jason Park: Yeah. So, in terms of your first question on hold percentage, yes, that's all embedded within the guide and the H1, H2 revenue split that we provided. So, any type of empirical pattern that we're seeing that we have confidence will continue, we'll embed into our guidance. And in terms of further breakdown of P&T, S&M, G&A, fixed cost growth, I think someone earlier mentioned 10% to 12% growth, I would say that, that's pretty similar across all three of those areas.

Pattern that we're seeing that we are confident we will continue we will embed into our guidance.

And in terms of further breakdown of PMT <unk> G&A fixed cost growth I think someone earlier mentioned, 10% to 12% growth.

Would say that that's pretty pretty similar across all three of those areas.

Daniel Brian Politzer: Got it. Thanks.

Operator: Thank you. One moment for our next question. Our next question comes from Brandt Montour with Barclays. Your line is open.

Our next question comes from Brent <unk> with Barclays. Your line is open.

Brandt Antoine Montour: Hey, good morning, everybody. Thanks for taking my question. I wanted to ask about iGaming. Looks like you guys have had really good success gaining share on the DraftKings side In New Jersey in the fourth quarter, Pennsylvania in the fourth quarter or Michigan in the third quarter. I was just curious if you're able to sort of break down that success between some of the things you mentioned in terms of product, like progressive jackpot or success you've had in cross-selling during this NFL season? Or if there's any sort of cross learnings you're able to -- you're leveraging from GNOG. Any color could be helpful for us. Thank you. Thank you I appreciate it.

It looks like you guys have had really good success gaining share on the draft King side.

In New Jersey, and the fourth quarter.

Pennsylvania in the fourth quarter of Michigan in the third quarter.

Just curious if youre able to sort of break down that success between some of the things you mentioned in terms of product like progressive jackpot or success, you've had in cross selling during this NFL season, or if theres any sort of cross learnings youre able to youre leveraging from gena.

Any color can.

Can be helpful for us thank you.

Jason Robins: Thank you. I appreciate it. Yeah, we -- I mean, we are really pleased that in January, we had the number one market share in iGaming in New Jersey for the first time since we launched in December of 2018. So, great culmination of over four years of effort from the team, building products, optimizing our analytics and obviously, on-boarding a new brand in GNOG. And I think the most exciting thing is that we feel the biggest upside is yet to come when we migrate GNOG to the DraftKings' platform and product suite. That's going to hopefully happen later this year. And I think that will be -- give us an additional boost, as well as provide ongoing cost savings, due to not having to pay revenue share to as many third parties. So, lots of benefit there and I think already seeing some great results from the product side. And also, you mentioned, too, I think we've gotten even more effective at cross-sell, I think, especially as we get more data. That's sort of our sweet spot. The more data we have, the more effective and efficient we can become. So, not only have we gotten more effective at increasing cross-sell, we've been able to do it more efficiently as well. So, that's something that I'm very proud of that the team has been able to make great progress on.

<unk> share in gaming in New Jersey for the first time since we launched in December of 2018. So.

Great combination of over four years of effort from the team building products optimizing our analytics.

Obviously, onboarding, a new brand in Jinan and I think the most exciting thing is that we feel the biggest upside is yet to come when we migrate Gina to the draft kings platform and product suite.

That's going to hopefully happen later this year and I think that will give us an additional boost as well as provide ongoing cost savings due to not having to pay revenue share. It as many third parties. So lots of benefit there and I think already seeing some great results from the product side and also you mentioned two I think we've gotten even more.

<unk> at cross sell I think, especially as we get more data.

Jason Robins: That's sort of our sweet spot. The more data we have, the more effective and efficient we can become. So, not only have we gotten more effective at increasing cross-sell, we've been able to do it more efficiently as well. So, that's something that I'm very proud of that the team has been able to make great progress on.

Brandt Antoine Montour: And if I may just quickly follow up on that. Is it fair to assume that 2023 guidance assumes that you're able to hold the share gains that you just recently enjoyed?

Jason Robins: Well, there's always seasonality in the business. So, naturally, we're going to do best during heavy sports periods on the cross-sell fronts, more activity in the platform. So, we've embedded that in. But yes. I think as far as like when you adjust for that and look at where we are today, I would say, yes, although the January report is brand-new. So, I can't say that we necessarily like looked at the implications of that. But more so, what we do is we look at the underlying cohort data, and we bake in adjustments for seasonality, as well as any other initiatives or efforts or actions that we plan on taking.

I'd say, yes, although the January report is brand new.

So I can't say that we've necessarily looked at the implications of that but more so what we do is we look at the underlying cohort data.

Bacon adjustments for seasonality as well as any other initiatives or efforts are actions that we plan on taking.

Brandt Antoine Montour: Excellent. Thanks.

Operator: Thank you. Our next question comes from Joe Stauff with SIG. Your line is open.

Joe Stauff: Thank you. Good morning. Thanks for all the information. I wanted to follow up and ask on user growth. Jason, you had mentioned, and certainly, we can observe this that states are -- they're ramping so much faster. And so, I guess, what is the right way to think about kind of how long it takes you to reach that sort of golden cohort now it is, I guess, maybe versus a year, 1.5 years ago? And then I had one follow-up, please. Well, it's a great question, Joe I think.

Thanks for all the information I wanted to follow up and ask.

On user growth.

And you had mentioned and certainly we can observe this that states are ramping so much faster.

So I guess what is the right way to think about kind of how long.

It takes you to reach that sort of Golden cohort.

Now it is I guess maybe.

Versus a year year and a half ago.

And then I had one follow up please.

Jason Robins: That's a great question, Joe. I think this is a tricky one because as we compare states, there's differences in time of year. So, we talk about Arizona ramping quickly. That was in September. And then you try to compare that to a state like Ohio or Maryland that launched Maryland toward the end of the year, Ohio Jan 1st, or Massachusetts that we expect to launch in March. And you have to -- there's only a limited number of data points when you have all those different variables to really be able to say. But I think that's sort of a big-picture level. The implication is, one, there's probably some deeper investment upfront. No.

State like Ohio, or Maryland, launched Maryland towards the end of the year, Ohio Jan first.

Or in Massachusetts that we expect to launch in March Ann.

You have to.

Theres only a limited number of data points. When you have all those different variables to really be able to say, but I think thats sort of a big picture level.

The implication is one there is probably some deeper investment upfront.

Jason Robins: So, I think that what we've been really happy to see is that we've actually, at least through 2022, been able to absorb that by finding efficiencies throughout the rest of the business. If you look at the letter, we basically funded all of the state launches in 2022 through finding cost efficiencies elsewhere in the business. But then the other implication of it is that the inflection toward contribution profit positive happens sooner. You get greater operating leverage sooner, which means more upside from a revenue and profitability standpoint sooner.

Basically funded all of the state launches in 2022 through finding cost efficiencies elsewhere in the business.

But then the other implication of it is that the inflection towards contribution profit positive happens sooner you get greater operating leverage sooner.

Which means more upside from a revenue and profitability standpoint sooner.

Jason Robins: So, I think that's kind of the way to think about it. Exactly how it ends up netting out over the course of the year, I think we need a little bit more data to see. But at a macro level, that's kind of how I describe it. And it is -- no matter what, whether you take seasonality, anything else, it is unequivocally observably true that states are ramping much faster than they were three, four years ago.

Exactly how it ends up netting out over the course of the year I think we need a little bit more data to see.

But.

At a macro level, that's that's kind of how I describe it and it is no matter, what whether you take seasonality thing.

Unequivocably observable true that states are ramping much faster than they were three or four years ago.

Joe Stauff: That makes sense. And then maybe just a follow-up on structural hold in general. You certainly mentioned that the new in-house NBA same-game parlay sort of capabilities that you had launched. And I was wondering I know at least for part of your NFL product, you do outsource same-game parlay. I'm wondering if your '23 guide includes bringing that in-house.

That the new in house NBA same game poorly.

Sort of capabilities that you had launched and I was wondering.

I know at least for for part of your NFL product you do outsource same game poorly and wondering if your 23 guide includes bringing that in house.

Jason Robins: So, the team is working at bringing that in-house now. As far as our '23 guide, we do expect, at some point in 2023, that, that will be the case and that is built into the guide, but it won't affect the entirety of 2023. And I noted this earlier, we have already started to roll out some of our own in-house SGP -- most recently, the live SGP MBA product we rolled out, which was the first in the industry to -- we were the first in the industry to have it. So, I think that's a good signal that we're reaching a period where we have now with over a 1.5 years under our belt, lots of data to build out some of these new models. We've gotten to a point where we feel like we can put out models that are as good or better than what we can get off the shelf from third parties.

As far as our 'twenty three guide we do expect at some point in 2023 that that will be the case and that is built into the guide.

But it won't affect the entirety of 2023.

And I noted this earlier, we have already started to roll out some of our own in house SGP.

Recently, the live SGP MBA product, we rolled out which is the first in the industry. We are the first in the industry to have it.

So I think thats.

A good signal of that.

We're reaching a period, where we have.

Now with over a year.

Half under our belt lots of data to build out some of these new models we have.

Got into a point, where we feel like we can put out models that are as good or better than what we can get off the shelf from third parties.

Multiple: [Joe Stauff] Thanks very much. Great quarter. [Jason Robins] Thank you, Joe.

Thank you Joe.

Operator: Our next question comes from Chad Beynon with Macquarie.

With Macquarie.

Chad C. Beynon: Good morning. Thanks for taking my question. First, just wanted to ask about opportunities or aspirations in non-North American markets. Given your data science and kind of all the learnings that you've had in the past couple of years, it seems like you're in a pretty good position to make it then in some of those markets, obviously, a lot to do still here in North America, but wondering if anything has changed in other markets. Thanks.

First just wanted to ask about opportunities or aspirations and non north American markets, given your data science and kind of all the learnings that <unk> had in the past couple of years. It seems like youre in a pretty good position.

<unk> mentioned that in some of those markets, obviously, a lot to do still here in North America, but wondering if anything has changed in other markets. Thanks.

Jason Robins: I do think you're right that the technology we've built is going to be very portable to the global gaming market. And we believe that when we do decide to expand overseas, we'll have advantages over incumbent competition when it comes to product, when it comes to hold rate, things like that. That said, we are laser focused on the U.S. and on Ontario right now.

Is going to be very portable to the.

The global gaming market and we believe that when we do decide to expand overseas will have advantages over incumbent competition. When it comes to product when it comes to hold rate things like that.

That said, we are laser focused on the U S and in Ontario, right now I think that.

Jason Robins: I think that the opportunity here remains very significant and growing. We have a lot of work to do to become more efficient as an organization that we need to focus on. There will be a time and a place to focus on international expansion, but it's not going to be right now. Doesn't mean that we won't look at it and start to do some exploratory work this year behind the scenes. I think we have to always be thinking about what future things we want to do and start laying some of the research and groundwork for that. But on the whole, the team is very focused on how do we continue to make progress and do better for the customer in the U.S., and how do we continue to become more efficient and cost effective as an organization.

It doesn't mean that we won't look at it and start to do some exploratory work this year behind the scenes I think we have to always be thinking about what.

<unk> things, we want to do and start laying some of the research and groundwork for that but.

On the whole of the team is very focused on how do we continue to make progress and do better for the customer in the U S and how do we continue to become more efficient and cost effective as an organization.

Chad C. Beynon: Thanks, Jason. And then a follow-up to that, just on the iGaming, iCasino legislation, I know you and your competitors on the mobile side are doing a lot of work communicating the story, but it also seems like a lot of the land-based operators are as well, as they've seen probably lower cannibalization than they may have feared. So, do you think there will be more momentum? Do you think that's more based on kind of what happens in the economy? What's really going to start kind of the rolling stone for more iCasino discussions? Thanks. Discussions thanks.

Communicating the story, but it also seems like a lot of the land based operators are as well as they have seen probably lower cannibalization than they may have feared. So do you think there will be more momentum do you think thats more based on kind of what happens in the economy whats really going to start kind of rolling stone for.

More casino discussions.

Jason Robins: Yeah, it's a great question. And I think that there are -- you noted one. I think, certainly, the opportunity for tax revenue, and should states find themselves more in need of that, that could have an effect. I also think that as an industry, we need to do a better job getting the story out there.

The opportunity for tax revenue and should states find themselves more in need of that that could have an effect.

I also think that as an industry, we need to do a better job getting the story out there.

Jason Robins: There's a lot of great work that's been done by the EGA and other groups to really put the data out there about just how significant and large the illegal sports betting market is. And I think that's been a big driver of policymakers saying, Look, we got to do something here. I don't think there's been nearly as much coverage of the illegal iGaming market, even though it exists. I mean if you go to pretty much any of the mobile sportsbooks and online sportsbooks that you see overseas that are operating illegally, they -- almost all of them have an online casino.

Great work, that's been done by the <unk> and other groups.

Really put the data out there about just how significant and largely illegal sports betting market is and I think thats been a big driver of policymakers, saying look we got to do something here I don't think theres been nearly as much coverage of the illegal gaming market, even though it exists I mean, if you go to pretty much any of the mobile sports books.

Online sports books that you see overseas that are operating illegally almost all of them have an online casino.

Jason Robins: It's just not talked about as much. I think inherently, it's a less social product. People talk about it less. And then like I said, the industry probably just hasn't focused as much as we could have on really making that data clear. So, I think it's a combination of those two things of states that see the tax opportunity and realize that there's a real way to take something that's happening already, just like sports betting is in the illegal market and bring it into the light and protect consumers and also generate revenue for the state.

On on really making that data clear. So I think it's a combination of those two things of states that see the tax opportunity and realize that there is a real way to take something thats happening already just like sports betting is in the illegal market and bring it into the light and protect consumers and also generate revenue.

For the state.

Chad C. Beynon: Appreciate it. Thank you.

Operator: Thank you. And our next question comes from Robin Farley with UBS. Your line is open. Great. Thank you.

Robin Margaret Farley: Great. Thank you. I wonder, if you could give us a little bit of color on your guidance for states that are contribution-positive? It was 11 states getting to 105 million last year. For the 500 million this year, how many states will that be to generate that 500 million? And is it still -- at one point, you talked about a three-year payback period for when a new state legalizes until it's profitable. Is that faster now, given the ramp-up in Arizona? What would you say that timeline is? And then last, little clarification. You talked about the percent of population that your long-term guidance is 7% to 9% of new OSB every year. It's fair to say, though, right, that your '23 and '24 guidance, doesn't rely on your '24 guidance, doesn't rely on any states that haven't already actually legalized just not operational yet, right? In other words, no new legislation needs to happen for that to be hit? Thanks.

And a new state legal license until its profitable is that is that faster now given the ramp up in Arizona. What would you say that timeline is and then last little clarification.

You talked about.

Percent of population.

Long term guidance is 79%.

OSB every year, it's fair to say that right that Youre 23, and 24 guidance.

I guess when you forward guidance doesn't rely on any states that haven't already actually legalized just not operational yet right in other words, no need legislation needs to happen for that to be.

Thanks.

Jason Robins: That last point is correct. The only state that's not even live yet that we did assume in the guidance is Massachusetts. And the reason is it's pretty far down the line. So, we felt it was more helpful to investors to get a view with Massachusetts included.

Jason Robins: But we have not assumed any other state launches from new legalization that happens this year. As far as -- I'm going to try to remember that. I think the first one, on a sort of state-by-state basis, we have not disclosed which states are contribution profit-positive for '23 yet. We plan on covering that in more detail at our Investor Day later this year. So, we will be providing additional disclosure and data on that. We had to save something for that to keep -- to get you to show up, Robin. And then on -- I'm sorry, what was your second question? Speed and -- Yes. oh, speed and profitability inflection. Yeah. So, I think you're absolutely correct. One of the implications of faster ramping with new states, that the inflection to profitability and the degree of operating leverage that you get earlier is greater than what we had seen in some of the earlier states that launched in more of the 2018, '19, '20 time frame.

As far as I'm trying to remember I think the first one.

State by state basis, we have not disclosed which states are contribution profit positive for 23, yet we plan on covering that in more detail at our Investor Day. Later this year. So we will be providing additional disclosure and data on that we have to save something for that to keeping to get you to show up Robyn.

I'm sorry, what was your second question.

oh, speed and profitability inflection. Yeah. So, I think you're absolutely correct. One of the implications of faster ramping with new states, that the inflection to profitability and the degree of operating leverage that you get earlier is greater than what we had seen in some of the earlier states that launched in more of the 2018, '19, '20 time frame.

I think youre, absolutely correct, one of the implications of faster ramping with new state that the inflection to profitability and the degree of operating leverage that you get earlier is greater than what we had seen in some of the earlier states that launched in more of a 2018 1920 timeframe.

Jason Robins: So, there is that implication, and I think that could potentially have an effect not just with the states we're seeing launch in recent months, as well as Massachusetts, but with future states that launched that again, something I think we'll address at the Investor Day. But in a nutshell, to answer your question directly, I do think it brings in the timeline to path to profitability for a new state. And we'll be providing a more specific update on that later this year. Alright, thanks very much.

And again, something I think we'll address at the Investor day, but in a nutshell to answer your question directly I do think it brings in.

The timeline to path to profitability for a new state.

And we will be providing a more specific update on that later this year.

Robin Margaret Farley: Great. Thanks very much.

Multiple: [Jason Park] I just want to be clear, Robin, that 2024 EBITDA does include an assumption of more states legalized. [Jason Robins] Yes. Sorry. So, '23 does not. '24, we have assumed 7% to 9% or 7% to 8%, I forget, if the population launches for sports betting and 3% to 4% for iGaming.

As for sports betting and <unk>, 3% to 4% for I gaming.

Okay. So that would so that would be.

Multiple: [Robin Farley] OK. So, that would -- so, that would be -- that some new states in this legislative session, right, would have to -- [Jason Robins] That would be, yeah. And the implication, if that comes in high or low or if it's less so, while it may mean less TAM, it actually means we're probably going to have faster profitability ramp. So, you know, I think either way, it's a good story for the company. But, obviously, we're pushing hard to get more legislation passed.

That will be yes, and the implication if that comes in higher lower or if it's less so while it may mean less.

It actually means we're probably going to have faster profitability ramp.

So I think either way, it's a good story for the company, but obviously were pushing hard to get more legislation passed.

Robin Margaret Farley: And then also, that would mean that your 2023 guidance includes the losses from those new states, right? If the profitability is in your '24 guidance, the losses would be in the '23 guidance already. In theory, that would be the part --

Jason Robins: No, no, sorry. We did not -- no. We assumed, other than Massachusetts, no more state launches in '23. So, there will be no effect in '23 if that occurs. If we do see more states launch in '23, yes, that will happen. But what I was referring to was launches in '24. So, what that would mean is that the investment period for those states would be in '24. And it would have a downward -- sorry, if there were not launches, it would have a positive impact on EBITDA in 2024.

Four.

Would have a downward.

Sorry, if there were not launches would have a positive impact on EBITDA in 2024.

Robin Margaret Farley: Okay. Alright, thank you.

Operator: Thank you. And our next question comes from Joe Greff with JPMorgan. Your line is open.

Our next question comes from Joe Greff with Jpmorgan. Your line is open.

Joseph Richard Greff: Good morning, guys. Just with regard to the incremental benefit in '23 -- or '23 updated guidance versus three months ago and the benefit coming from more efficient promotional activity and more efficient promotional reinvestment, how broad-based is that? Or how market concentrated is that? And then how much of a benefit from a market like New York is driving that improvement? Well the bulk of our.

Just with regard to the incremental benefit in 'twenty three.

23.

Dated guidance versus three months ago.

And the benefit coming from.

More efficient promotional activity and more efficient.

<unk> reinvestment, how broad based is that or how market concentrated is that then.

How much of a benefit from from a market like New York is that is driving that improvement.

Jason Robins: Well, the bulk of our guidance increase on the EBITDA side came from direct management. So, about half of it came -- or about 50 million of it, I should say, came from compensation expense, about 50 million came from marketing. So, definitely a big impact there, some of the revenue increase was hold rate and promotion optimization. Some of it was some underlying handle/retention metrics we're seeing in our cohorts.

About $50 million of that I should say came from compensation expense about $50 million came from marketing.

Definitely big impact there some of the revenue increase was hold rate and promotion optimization. Some of it was some underlying handle slashed retention metrics, we're seeing in our cohorts.

Jason Robins: You know, as far as state by state, I don't think there's anything in particular at the state level that's different. States are maturing as expected. And the increases we're seeing, the hold rate are happening across the board. We do see in some of the newer states that we've launched that we have faster adoption of parlays and same-game parlays. I think that's largely because our product offering is in such a better place than it was a couple of years ago. But that, I think, is probably the one example. Other than that, I think the increases that we're making to hold rate and other things that are driving underlying performance on the retention and monetization front are really across state vintages.

As in such a better place than it was a couple of years ago, but.

That I think is probably the one example, other than that I think the increases that we're making to hold rate and other things that are driving underlying performance on the retention and monetization front or really across states state vintages.

Joseph Richard Greff: Thank you. 

Okay.

Operator: Thank you. And that's all the time we have for questions. I'd like to turn the call back to Jason Robins for closing remarks.

Jason Robins: Thank you all for joining us on today's call. We had a really great finish to 2022 and are excited about 2023 and beyond. I look forward to speaking with you over the next few weeks and hope you all stay safe and well. Thank you.

Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.

The conference will begin shortly to raise and lower Johan during Q&A you can dial one one.

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