Q1 2024 DraftKings Inc Earnings Call

Operator: Good day, and thank you for standing by. Welcome to DraftKings' first quarter 2024 earnings call. At this time, all participants are in a listen only mode.

Good day, and thank you for standing by and welcome to <unk> first quarter 2024 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During this session will need to press star one on your telephone you will then hear an automated message device in your hand is raised to withdraw your question. Please press star one again.

Operator: After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you need to press star one one on your telephone. You will then hear an automated message device in your hand is raised. To withdraw your question, please press star one one again. Please be advised today's conference is being recorded. I will now attend the conference over the speaker day. Stanton Dodge, Chief Legal Officer, please go ahead.

Speaker Change: Please be advised today's conference is being recorded I would now like to turn the conference Speaker days didn't John Stanton Dodge Chief Legal Officer. Please go ahead.

Stanton Dodge: Good morning, everyone, and thank you for joining us today. Certain statements we make during this call may constitute forward-looking statements that are subject to risks, uncertainties, and other factors, as discussed further in our SEC filings, that could cause our actual results to differ materially from our historical results or from our forecast. We assume no responsibility to update forward-looking statements other than as required by law.

Good morning, everyone and thank you for joining us today.

Certain statements we make during this call may constitute forward looking statements that are subject to risks uncertainties and other factors as discussed further in our SEC filings that could cause our actual results to differ materially from our historical results or from our forecast.

Speaker Change: We assume no responsibility to update forward looking statements other than as required by law.

Stanton Dodge: During this call, management will also discuss certain non-GAAP financial measures that we believe may be useful in evaluating DraftKings operating performance. However, these measures should not be considered in isolation or as a substitute for DraftKings financial results prepared in accordance with GAAP. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are available in our earnings release and presentation, which can be found on our website and in our quarterly report on Form 10-Q filed with the SEC.

Speaker Change: During this call management will also discuss certain non-GAAP financial measures that we believe may be useful in evaluating drafting operating performance. These measures should not be considered in isolation or as a substitute for <unk> financial results prepared in accordance with GAAP.

Speaker Change: Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are available in our earnings release and presentation, which can be found on our website and in our quarterly report on Form 10-Q filed with the SEC.

Stanton Dodge: 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 Alan Ellingson, Chief Financial Officer of DraftKings, who will provide a review of our financials. We will then open the line to questions. I will now turn the call over to Jason Robins. Good morning, and thank you all for joining.

Hosting the call today, we have Jason Robins co founder and Chief Executive Officer Draft Kings, who will share some opening remarks, and an update on our business and Alan Ellington, Chief Financial Officer Drive Kings, who will provide a review of our financials. We will then open the line to questions I'll now turn the call over to Jason Robins.

Jason Robins: DraftKings is off to an outstanding start in 2024, and we're excited to be raising our outlook for the year. Here are five important takeaways as we reflect on our first quarter results and the rest of the year. First, our revenue growth is strong, as we continue to efficiently acquire new customers, deepen our engagement with existing customers, improve our structural sportsbook hold percentage, and optimize promotional deployment. Revenue grew 53% year over year in the first quarter, and our increased revenue guidance midpoint implies 34% year over year growth for fiscal year 2020. Secondly, we delivered successful sportsbook launches in Vermont and North Carolina.

Jason Robins: Good morning, and thank you all for joining.

Jason Robins: <unk> is off to an outstanding start in 2024, and we're excited to be raising our outlook for the year.

There are five important takeaways as we reflect on our first quarter results and the rest of the year first our revenue growth is strong as we continue to efficiently acquire new customers deepen our engagement with existing customers improve our structural support for coal percentage and optimized promotion on the planet.

Jason Robins: Revenue grew 53% year over year in the first quarter and our increased revenue guidance midpoint implies 34% year over year growth for fiscal year 2024 Secondly.

Jason Robins: Secondly, we delivered successful sports book launches in Vermont, and North Carolina, we acquired customers efficiently in a population penetration rates consistent with prior launches we expect both state to contribute positively to adjusted EBITDA for the second half of 2024.

Jason Robins: We acquired customers efficiently and at population penetration rates consistent with prior launches. We expect both states to contribute positively to adjusted EBITDA for the second half of 2020. Third, we continue to focus on driving product innovation and customer centricity. Our platform and overall customer experience are rapidly improving, and as a result, we are achieving excellent customer retention and participation across sports and games. Fourth, we continue to focus on driving operational efficiency across the organization. We expect an adjusted EBITDA flow-through percentage of 53% for fiscal year 2024 due to our largely at-scale fixed cost structure and our continued optimization of marketing.

Jason Robins: Third we continue to focus on driving product innovation and customer Centricity, our platform and overall customer experience and rapidly improving and as a result, we are achieving excellent customer retention and participation across the board thing gain.

Jason Robins: We continue to focus on driving operational efficiency across the organization, we expect adjusted EBIT to percentage of 53% for fiscal year 2024, due to our largely at scale better cost structure, and our continued optimization of marketing and promotion.

Jason Robins: Fifth, we are continuing to explore capital allocation options given the strong trajectory of our free cash. Beyond our financial highlights, there are two important topics I'd also like to briefly discuss. The first is responsible gaming.

Jason Robins: We are continuing to explore our capital allocation options given the strong trajectory of our free cash flow.

Jason Robins: There have been several recent headlines on responsible gaming, a topic that has always been very important to us. Building products that our customers can enjoy responsibly is rooted in our DNA. And we believe that we are at the forefront of responsible gaming initiatives, including technology processes, industry affiliations, and internal leadership. We will continue to drive these initiatives in conjunction with our regulatory partners and industry participants to responsibly grow this industry to its full potential. Second, we continue to innovate on our products while focusing differentially on proprietary technology solutions.

Speaker Change: Beyond our financial highlights there are two important topics I'd also like to briefly discuss the firstly as responsible gaming there have been several recent headlines on responsible gaming a topic that has always been very important to tracking building products that our customers can enjoy responsibly is rooted in our DNA and we believe that we are forefront and responsible gaming.

Speaker Change: Initiatives, including technology processes industry affiliation been internal leadership, we will continue to drive these initiatives in conjunction with our regulatory partners and industry participants to responsibly grow this industry to its full potential.

Speaker Change: We continue to innovate on our products, while focusing differentially on proprietary technology solutions and sports book, We've made substantial progress on our efforts to shift our highest impact content into our in house technology and modeling platforms. While also expanding unique offerings like our progressive part of that product across all states and all major sports. We are also launching in <unk>.

Jason Robins: In Sportsbook, we made substantial progress on our efforts to shift our highest impact content into our in-house technology and modeling platforms, while also expanding unique offerings like our Progressive Parlay products across all states and all major markets. We are also launching a cash out for Same Game Parlay, which is a critical addition to our offer. In iGaming, with the completion of the migration of the GNOG platform onto our in-house technology stack, we achieved important milestones touching both content and technology expansion. We launched Must Hit by Jackpot, another popular variant powered by our proprietary Jackpot platform.

Speaker Change: Our same game part of law, which is a critical addition to our offering and gaming with the completion of the migration of the <unk> platform onto our in house technology stack, we achieved important milestone touching both content and technology expansion, we launched must hit by jackpot and other popular variant powered by our proprietary jackpots platform and we also can.

Jason Robins: And we also continued to expand our homegrown casino games portfolio with the launch of eight new, unique to DraftKings titles in the first quarter of 2024, including Rocket 2, the sequel to our popular original Rocket. In closing, 2024 is shaping up to be another fantastic year for DraftKings. With that, I will turn it over to Alan Ellingson. Thank you, Jason. I'll hit the highlights, including our first quarter 2024 performance and our updated guidance for the year. Please note that all income statement measures discussed, except for revenue, are on a non-GAAP-adjusted EBITDA basis.

Speaker Change: To expand our homegrown casino games portfolio with the launch of eight new unique to drafting titles in the first quarter of 2024, including rocket two the sequel to our popular original rocket game.

In closing 2024 is shaping up to be another fantastic year for drafting with that I will turn it over to Alan Ellington.

Alan Ellington: Thank you Jason.

Alan Ellington: I'll hit the highlights our first quarter 2024 performance and our updated guidance for the year. Please.

Alan Ellington: Please note that all income statement measures discuss except for revenue are on a non-GAAP adjusted EBITDA basis.

Alan Ellingson: As Jason mentioned, we are off to an outstanding start to the year. In the first quarter, we generated $1,175,000,000 of revenue, representing 53% year-over-year growth, and $22,000,000 of adjusted EBITDA, representing adjusted EBITDA's lowest percentage of 60%. We achieved strong results across our core value drivers. Customer acquisition, retention, and engagement were excellent and resulted in higher than expected handle in the first quarter. Our structural sports book hold percentage was slightly ahead of expectations, at 9.8%, and it increased approximately 150 basis points year over year.

Alan Ellington: As Jason mentioned, we are off to an outstanding start to the year in the first quarter, we generated $1 billion $175 million of revenue, representing 53% year over year growth and $22 million of adjusted EBITDA, representing adjusted EBITDA closer to percentage of 60%.

Alan Ellington: We achieved strong results across our core value drivers.

Customer acquisition retention and engagement were excellent and resulted in higher than expected to handle in the first quarter.

Alan Ellington: Structural sports book whole percentage was slightly ahead of expectations at nine 8% and increased approximately 150 basis points year over year.

Alan Ellingson: Promotional reinvestment for OSD and iGaming continued to become more efficient year-over-year and improved by more than 700 basis points as a percentage of TGR. Adjusted gross margin increased more than 550 basis points year-over-year to 44% in the first quarter as a result of higher structural sportsbook hold and improved promotional efficiency. Sales and marketing declined 11% on a year-over-year basis and was consistent with our

Promotional reinvestment for OSB and I gaming continued to become more efficient year over year and improved by more than 700 basis points as a percentage of CJR.

Alan Ellington: Adjusted gross margin increased more than 550 basis points year over year to 44% in the first quarter as a result of higher structural sports book hold and improved promotional efficiency.

Alan Ellington: Sales and marketing declined 11% on a year over year basis and was consistent with our expectations.

Alan Ellingson: Both products and technology, as well as general and administrative expenses, were consistent with our expectations. As you are all aware, we are continuing to exert cost discipline across the organization while simultaneously increasing revenue on a year-over-year basis. Moving to our full year 2024 guidance, we are poised for a rapid increase in adjusted EBITDA due to continued strong revenue growth, coupled with our efficient fixed cost structure. On February 15, 2024, we guided fiscal year 2024 revenue of $4.65 billion to $4.9 billion and adjusted it to $410 million to $510 million.

Alan Ellington: Both product and technology as well as general and administrative expenses were consistent with our expectation.

Alan Ellington: As you are all aware, we are continuing to exert cost discipline across the organization, while simultaneously increasing revenue on a year over year basis.

Alan Ellington: Moving to our full year 2020 guidance, we are poised for a rapid increase in adjusted EBITDA.

Alan Ellington: Continued strong revenue growth, coupled with our efficient fixed cost structure.

On February 15th 2020 quarter.

Alan Ellington: Fiscal year 2020 core revenue at $4 65 billion to $4 9 billion and.

Alan Ellington: And adjusted EBITDA of $410 million to $510 million.

Alan Ellingson: Today, we are improving our fiscal year 2024 revenue guidance to a range of $4.8 billion to $5 billion and our fiscal year 2024 adjusted EBITDA guidance to a range of $460 million to $540 million. Importantly, the midpoints of our updated 2024 revenue and AdjustViva. guidance ranges implies a year-over-year AdjustViva.flow through percentage of 53%. This attractive flow-through percentage is based on continued excellent performance across our core value drivers as we rapidly expand our gross margin and exert discipline on our cost structure, while simultaneously investing in promotion and marketing in accordance with our LTB to CAC targets.

Alan Ellington: Today, we are improving our fiscal year 2020 core revenue guidance to a range of $4 8 billion to $5 billion and our fiscal year 2020 quarter, adjusted EBITDA guidance to a range of $460 million to $540 million.

Importantly, the midpoint of our updated 2020 core revenue and adjusted EBITDA guidance ranges implies a year over year adjusted EBITDA flow through percentage at 53%.

This attractive flow through percentage based on the continued excellent performance across our core value drivers.

Alan Ellington: We rapidly expand our gross margin and exert discipline on our cost structure, while simultaneously investing in promotion and marketing in accordance with our LTV to CAC target.

Alan Ellingson: We will continue to focus on our dual goals of improving our financial expectations while also investing in customer acquisition and our product and technology capabilities. A $125 million improvement in our fiscal year 2024 revenue guidance midpoint and $40 million improvements in our adjusted EBITDA guidance midpoint break down as follows. Customer Acquisition, Retention, and Engagement continue to exceed expectations due to marketing optimization initiatives and product advances. These trends account for $165 million of the revenue improvement and $68 million of the adjusted improvement.

Alan Ellington: We will continue to focus on our dual goals of improving our financial expectations, while also investing in customer acquisition, and our product and technology capabilities.

Alan Ellington: $125 million improvement in our fiscal year, 2020 core revenue guidance midpoint and $40 million improvement in our adjusted EBITDA guidance midpoint breakdown as follows.

Alan Ellington: A smaller acquisition retention and engagement continue to exceed expectations.

Alan Ellington: Marketing optimization initiatives and product.

Alan Ellington: These trends account for $165 million of the revenue improvement and $6 million to $8 million of the adjusted EBITDA equivalent.

Alan Ellingson: Structural Sportsbook Hold PercentageIncreasing primarily as a result of momentum into our Stadium Game Parlay, we now expect our structural sportsbook hold percentage to approach 10.5% in fiscal year 2024, which accounts for $20 million of the revenue improvement and $14 million of the adjusted EBITDA improvement. Customer-Friendly Outcomes in late March and April were a headwind of $60 million and $42 million to our fiscal year 2024 revenue and adjusted EBITDA guidance, respectively.

Alan Ellington: Structural supports the coal percentage increased primarily as a result of momentum into our same game, partly offering we now expect our structural sports book hold percentage to approach 10, 5% in fiscal year, 2024, which accounts for $20 million of the revenue improvement Unfortunately of the adjusted EBITDA improvement.

Alan Ellington: Customer friendly outcomes in late March and April were a headwind of $60 million and $42 million to our fiscal year 2020 core revenue and adjusted EBITDA guidance respectively.

Alan Ellingson: We continue to expect our adjusted gross margin to be in the range of 45% to 47% for the year, an improvement of 350 basis points at the midpoint compared to fiscal year 2023. We also continue to expect adjusted sales and marketing expense to decline modestly in fiscal year 2024.

We continue to expect our adjusted gross margin to be in the range of 45% to 47% for the year, an improvement of 350 basis points at the midpoint compared to fiscal year 2023.

Alan Ellington: We also continue to expect adjusted sales and marketing expense to decline modestly in fiscal year 2024.

Alan Ellington: Finally, we expect to generate approximately $400 million in free cash flow in fiscal year 2024 based on approximately $120 million of annual capitalized expenditures and capitalized software development costs.

Alan Ellington: As well as a modest source of cash from changes in net working capital combined with interest income.

Operator: Finally, we expect to generate approximately $400 million in free cash flow in fiscal year 2024 based on approximately $120 million of annual capitalized expenditures and capitalized software development costs, as well as a modest source of cash from changes in net working capital combined with interest income. As a result, we expect our year-end 2024 cash and cash equivalents will be approximately $1.6 billion before our expected use of approximately $413 million in cash to fund our proposed acquisition of Jackpocket upon closing.

Alan Ellington: As a result, we expect our year end 2024 cash and cash equivalents will be approximately $1 6 billion before our expected use of approximately $413 million in cash to fund our proposed acquisition of Jack pocket with some closing.

Operator: That concludes our remarks. We will now open the line for questions. Thank you, ladies and gentlemen. If you have a question or a comment at this time, please press star 11 on your telephone. If your question has been answered or you wish to unmute yourself from the queue, please press star 11 again.

Speaker Change: That concludes our remarks, we will now open the line for questions.

Speaker Change: Thank you ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your telephone. If your question has been answered you assume yourself from the queue. Please press star one again, we will pause for a moment, while we compile our Q&A roster.

Operator: We'll pause for a moment while we compile our Q&A roster. Our first question comes from Shaun Kelley with BFA. Your line is open. Hi, good morning, everyone.

Speaker Change: Our first question comes from Shaun Kelley with Bofa. Your line is open.

Jason Robins: Welcome, Alan. And thanks for taking my questions. Jason or Alan, you know, just wanted to see if we could dig in on the hold side a little bit, obviously, a couple puts and takes, both in the quarter and, you know, relative to investor expectations out there. So Jason, if you could talk about the evolution of kind of your theoretical hole, you actually said that, you know, overall, I think it came in a little bit better than the management's expectations. So what's driving that?

Shaun Clisby Kelley: Hi, Good morning, everyone welcome Alan and thanks for taking my questions.

Shaun Clisby Kelley: Jason or Alan just wanted to see if we could dig in on the hold side a little bit obviously.

Shaun Clisby Kelley: A couple of puts and takes in the quarter and just for I think relative to investor expectations out there. So Jason if you could talk about like the evolution of kind of your theoretical whole you actually said that your overall I think it came in a little bit better than management's expectations. So what's driving that and how do you think about the product evolution, maybe both this year and.

Jason Robins: And you know, how do you think about product evolution? Maybe, you know, both this year and in the years ahead, what's sort of a good baseline for investors to think about improvement as we get out into 2025 and beyond? Thank you.

Jason Robins: In the out years, what sort of a good baseline for investors to think about improvement as we get out into 2025 and beyond thank you.

Jason Robins: Yeah, I think this has been obviously a big topic for a few years now, and our understanding of it is better than ever. So first, just to explain when we say we think that, you know, structural hold is XYZ, that is based on expected hold, and then any differences are bet mix driven.

Jason Robins: Yes, I think this has been obviously a big topic for a few years now and our understanding of it is better than ever. So first just to explain when we say we think.

Jason Robins: Structural hold is xyz that is be an expected hold and then any differences or bet mixed driven so.

Jason Robins: What that really means is that our debt mix came in better than we expected as it relates to projected hold.

Jason Robins: As far as how we're thinking about it going forward I think we continue to believe that there is a lot of upside here.

Jason Robins: I know everybody wants to know what's the ceiling I think the answer is we don't know we continue to monitor metrics in our customer behavior handle per active rates, our healthy as we continue to driving increased partly mix and average lead count.

Jason Robins: So what that really means is that our bet mix came in better than we expected, as it relates to projected hold. So I think that'll continue to be the focus as long as we continue to see healthy customer metrics and get positive feedback that our customers are enjoying the products we're putting out there. So, you know, we'll see how far we can get it. But right now, we do believe there's a good bit of upside still remaining. Thank you.

Jason Robins: So I think that will continue to be the focus as long as we continue to see healthy customer metrics and get positive feedback that our customers are enjoying the products, we're putting out there. So we will see how far we can get it but right now we do believe there's a good bit of upside still remaining.

Speaker Change: Thank you.

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

Speaker Change: One moment for our next question.

Speaker Change: Our next question comes from Stephen Grambling with Morgan Stanley. Your line is open.

Jason Robins: Hi, thanks. I guess one of the big debates seems to be around flow through versus some of your peers. So I'd love to hear your thoughts on where the company is capturing marketing efficiencies in the first quarter, and then where the biggest opportunities are longer term and whether your philosophy around marketing channels or even national versus local has changed. Yeah, I mean, we had an unbelievably efficient first quarter, and it really continued in April. In fact, April, we had a roughly 40% year over year decrease in our CAC.

Stephen White Grambling: Hi, Thanks.

Stephen White Grambling: I guess one of the big debate seems to be around flow through versus some of your peers.

Stephen White Grambling: So I'd love to hear your thoughts on where the company is capturing marketing efficiencies in the first quarter and then where are the biggest opportunities are longer term and whether your philosophy around marketing channels.

Stephen White Grambling: Or even national versus local exchange.

Yes, I mean, we had an unbelievably efficient first quarter and it really continued into April in fact April we had a 40% roughly 40% year over year decrease in our cash so.

Jason Robins: So I think it's just optimized performance and also, you know, really strong growth in the TAM and addressable markets. So I think all of that is contributing to really healthy and efficient marketing. I give the team a lot of credit.

Stephen White Grambling: I think it's just optimize performance and also.

Stephen White Grambling: Really strong growth in the Tam and addressable market. So I think all of that is contributing to really healthy and efficient marketing and I give the team a lot of credit they've worked hard over the last year or two to optimize.

Operator: They've worked hard over the last year or two to optimize it. And if anything, I think we see maybe some opportunities now to invest a bit deeper. So I'm really excited about the work that's been done. Great, thank you. I'll go back to the queue.

Stephen White Grambling: If anything I think we see maybe some opportunities now to invest a bit deeper so really excited about the work that's been done there.

Speaker Change: Great. Thank you I'll get back in queue.

Operator: One moment, one moment for our next question. Our next question comes from Joe Greff with J.P. Morgan. Your line is open. Hi, good morning, everybody.

Speaker Change: One moment for our next question.

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

Jason Robins: Jason, I was hoping you could update us on your views on M&A from here. Obviously, you have Jackpocket pending and closing in short order here. One, how do you think about M&A? Is it still more domestically focused versus international? And then could you do multiple M&A simultaneously?

Joseph Richard Greff: Hi, good morning, everybody.

Joseph Richard Greff: And I was hoping you can update us with your views on on M&A from here, Obviously, you had Jack pocket.

Joseph Richard Greff: Pending and closing in short order here.

Jason Robins: My question is kind of generated by, you know, within the quarter, there was some, you know, industry chatter, you know, with regard to one publicly traded I-Casino operator. Thank you. Yeah, so, first, we, we, I hope, have been very consistent in saying that we have a very high bar for M&A. We understand there are a lot of ways that we can deploy capital to return value to shareholders. And, you know, M&A and going on an M&A spree is not something that we're like, hey, this is all we can do with our capital.

One how do you think about M&A is it still more domestically focused versus the international.

Joseph Richard Greff: And then could you do multiple and then a simultaneously my question is kind of generated by within the quarter.

Joseph Richard Greff: There were some industry chatter.

Joseph Richard Greff: With regard to one publicly traded casino operator, thank you.

Joseph Richard Greff: So first we have been very consistent in saying that we have a very high bar for M&A. We understand there is a lot of ways that we can deploy capital return value to shareholders.

Joseph Richard Greff: M&A and going on in M&A spree is not something that we're like Hey. This is all we can do with our capital.

Jason Robins: I do think that M&A will be a lever for us. But we're also practical about one, you know, how much of your question we can bite off at a time. I do think it is, you know, obviously, a question of size, but to do two, you know, materially sized transactions simultaneously would be very challenging. So that's certainly something that will weigh in our minds. And I think, secondly, we feel like our organic growth path is really strong right now.

I do think that M&A will be a lever for us, but we're also practical about one.

Joseph Richard Greff: How much to your question, we can bite off at a time I do think it is obviously a question of size, but to do two materially sized transaction simultaneously it would be very challenging so.

Joseph Richard Greff: It's certainly something that way in our mind and I think secondly, we feel like our organic growth path is really strong right. Now. So we don't really feel particularly compelled to do M&A as a source of growth for anything we understand that the integration and other work required with M&A is actually a distraction from that organic growth. So I think.

Jason Robins: So we don't really feel particularly compelled to do M&A as a source of growth; if anything, we understand that, you know, the integration and other work required with M&A is actually a distraction from that organic growth. So I think, by a long way of saying, the bar will continue to be high. Never say never, but I think two at exactly the same time of size would be challenging.

Joseph Richard Greff: Long way of saying bar will continue to be high.

Joseph Richard Greff: Never say never but I take two at exactly the same time.

Joseph Richard Greff: <unk> will be challenging.

Operator: And, you know, I think for us, really, we look at capital allocation as a broader question, as well as resource and time allocation. And we don't just look at it as, hey, you know, M&A is the answer to that. It's also about all the other things, whether it's organic investments we can be making or other methods of earning capital and creating value for our shareholders. So that's something that we're mindful of as well. Thank you.

I think for US really we look at capital allocation as a broader question as well as resource and time allocation and we don't just look at it as Hey, M&A is the answer on that it's also what are all the other things whether it's organic investments, we can be making or other methods of returning capital.

Joseph Richard Greff: Creating value for our shareholders. So that's something that we're mindful of as well.

Speaker Change: Thank you.

Speaker Change: One moment for our next question.

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

Speaker Change: Our next question comes from Ben Miller with Goldman Sachs. Your line is open.

Jason Robins: Thanks so much for taking the question. I'm curious how you think about the playbook around iGaming, CrossSell, and the OS. [inaudible] Transcripts provided by Transcription Outsourcing, LLC.

Ben Miller: Thanks, so much for taking the questions I'm curious how you think about the playbook around gaming cross sell the OSB users over time as we potentially see more states go live with our gaming that currently have OSB are there any updated views on how to think about any incremental investments needed in that scenario and how you think about reinvestment.

Ben Miller: Likely better ltvs and share of wallet into faster customer acquisition versus the flow through to incremental margins. Thanks.

Jason Robins: It's a great question. First, anytime we have multiple products in a market, it's a huge boon to LTV. And, you know, the cost is that you have already acquired the customer. So there might be, you know, a promotion or something associated with getting them to adopt a new product. But it's really a fraction of what it costs to acquire a customer on the platform. And once you've already acquired them, cross selling is an incredibly effective and very fast payback means of increasing not only LTV but also short-term gross profit as well.

Speaker Change: Yes, it's a great question I mean first anytime we have multiple products in a market, it's a huge boon to LTV and.

Speaker Change: The cost is you already acquired the customers so there might be promo or something associated with getting them to adopt a new product, but it's really a fraction of what it cost to acquire a customer on the platform and once you've already acquired them cross selling is an incredibly effective.

Speaker Change: Very fast payback means of increasing not only LTV, but also short term gross profit as well.

Jason Robins: The main funnel we're seeing is really sports to iGaming. We do see some iGaming to sports cross sell be effective. And of course, we are cross-selling between all of our products. But really, when we find markets that have both iGaming and sports, the much more effective funnel is to acquire them in sports and cross-sell them to iGaming. And actually, what I'm really excited about once we close Jackpocket is I think that'll be a really attractive, really effective funnel as well as really efficient funnel, acquiring on lottery and cross selling into OSB and iGaming. I am so very excited about that one.

Main funnel, we're seeing is really sports to I gaming, we do see some gaming sports cross sell be effective and of course, we are cross selling between all of our products.

But really when we find markets have both I gaming and sports that are much more effective funnel is to acquire them on sports and cross sell them to I gaming and actually what I'm really excited about once we closed Jack pocket.

Speaker Change: As I think that'll be a really attract really effective funnel as well really efficient funnel acquiring on lottery and cross selling into OSB ni gaming so very.

Operator: But, you know, the short answer is that we try to cross-sell between all of our products, and it doesn't cost that much more once you've acquired the customer onto the platform to get them to try new products. Great. Thanks.

Speaker Change: Cited about that one but the short answer is we try to cross sell between all of our products and it doesn't cost that much more once you've acquired the customer onto the platform to get them to try new products.

Speaker Change: Great. Thanks, so much.

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

Speaker Change: One moment for our next question.

Speaker Change: Our next question comes from Robin Farley with UBS. Your line is open.

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

Robin Margaret Farley: Great. Thank you.

Robin Margaret Farley: I'm going to ask how you balance your thoughts about capital allocation with M&A, but it sounds like you're already sort of clarified that M&A is kind.

Robin Margaret Farley: Not a major priority right now.

So I wonder if you could talk a little bit about capital allocation options.

Types of things Youre considering thanks.

Alan Ellingson: Yeah, yeah, Robin, I'll speak to that. I think in the last few months, we've developed a lot more confidence than ever in our free cash flow trajectory for 2024 and beyond. To add some color, we recently kicked off our multi-year planning process. This is an exercise that touches all the functions and verticals of the organization.

Speaker Change: Yes, yes, Robyn I'll speak to that I think in the last few months, we have developed a lot more confidence than ever in our free cash flow trajectory for 2024 and beyond.

Speaker Change: To add some color, we recently kicked off our multi year planning process.

Speaker Change: This is an exercise that touches all the functions verticals of the organization and as part of this we do evaluate potential uses of cash within our core business.

Speaker Change: We reevaluate the growth trends of the business and we look to maximize shareholder value that does include potentially returning capital to our shareholders. So we anticipate we'll be able to share more specific details with you in the next quarter.

Alan Ellingson: And as part of this, we do evaluate potential uses of cash within our core business. We re-evaluate the growth trends of the business, and we look to maximize shareholder value. That does include potentially returning capital to our shareholders. So we anticipate we'll be able to share more specific details with you in the next quarter. But we're very comfortable with where we're at right now. Okay, thanks.

But we're very comfortable with where we're at right now.

Speaker Change: Sure.

Speaker Change: Okay. Thanks.

Operator: One moment for our next question. Our next question comes from Carlo Santarelli with Deutsche Bank. Hey guys, thanks.

Speaker Change: One moment for our next question.

Speaker Change: Okay.

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

Yeah.

Speaker Change: Right.

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

Carlo Santarelli: Hey, guys. Thanks.

Carlo Santarelli: You guys look out over kind of 2020 for 2025.

Carlo Santarelli: We're kind of the key focal points or items that youre looking at from a legislative perspective, where you take whether.

Carlo Santarelli: Whether it's gaming or.

You think it will be kind of worse the efforts from your end to kind of make a question.

Carlo Santarelli: Maybe the focus states <unk> focus opportunities in your view.

Carlo Santarelli: Yes.

Jason Robins: You know, obviously, having gotten up and running in 50% of the country, population wise, and roughly 50% of the states in only a little over five years is fast. And so I think, naturally, you're going to see a little bit of a slowdown on the sports side. And also, when you consider the fact that about a little less than half of the remaining population resides in three states, you know, that'll kind of give you a sense of where the focus is. There are a lot of states left, for sure. But you know, there are only a handful of really big ones.

Speaker Change: Yes, it's a great question.

Carlo Santarelli: Obviously.

Carlo Santarelli: Having gotten up and running and 50% of the country population wise offer roughly 50% of the states and only a little over five years as fast and so I think.

Naturally youre going to see a little bit of a slowdown on the sports side and also when you consider the fact that about a little less than half of the remaining population resides in three states.

Carlo Santarelli: That will kind of give you a sense of where the focus is there is a lot of states left for sure but.

Jason Robins: And when you kind of extend beyond the top three into like, you know, five, six, seven states, you're going to capture a lot of that. So obviously, we made a push in Georgia this year but came up a little short in several other states as well. I do think you'll see a couple bills done later in the year on OSB. But as far as thinking out into 2025, I think the big focus will be on Texas. Texas, I think, has a real shot; it got through one chamber last year. And, as you may know, the Texas legislature doesn't meet in 2024.

Carlo Santarelli: The.

Carlo Santarelli: Theres only a handful of really big ones and when you kind of extend beyond the top three and 567 states youre going to capture a lot of that so.

Carlo Santarelli: Obviously, we made a push in Georgia. This year it came up a little short.

Carlo Santarelli: Several other states as well and do you think Youll see a couple of bills done later in the year on OSB, but as far as thinking out into 2025, I think the big focus will be on Texas, Texas I think has a real shot at got through one chamber last year.

Jason Robins: So we're really gearing up for 2025. Also, I think that if you, you know, shift over to iGaming, that's probably where there's going to be a little bit more rapid growth once I think you start to see some momentum legislation, because there is still just a lot of untapped population there who still only live in about 11% of the population. So I think that once the states that, you know, in certain regions start moving on iGaming more, you'll see a more rapid succession of them.

Carlo Santarelli: And as you May know the Texas legislature doesn't meet in 2024, So we're really gearing up for 2025.

Carlo Santarelli: Also I think if you shift over to I gaming, that's probably aware.

Carlo Santarelli: There's going to be a little bit more rapid once once I think you start to see some momentum legislation because.

Carlo Santarelli: Still just a lot of untapped population there are still only live in about 11% of the population so.

Jason Robins: And I also think that the need for tax revenues is going to increase. You know, I think there's been a little bit of a delay in that with some of the COVID relief money that was sent to states.

Carlo Santarelli: Once the states.

Carlo Santarelli: In certain regions start moving on I gaming more youll see a more rapid succession of them and I also think that the need for tax revenues are is going to increase.

Carlo Santarelli: I think theres, a little bit of a delay in that with some of the COVID-19 relief money that was sensitive states.

Carlo Santarelli: I do expect to see some momentum pick up in <unk> and I think that's where you might see the next kind of way.

Wave of states really quickly and then as I noted I think the focus in sports betting will be on a handful of large states. Obviously, we will try to get bill's past wherever we can but the real needle movers there'll be not just the top three I mentioned that states like Georgia that are also very large states population wise.

Jason Robins: So I do expect to see some momentum pick up in iGaming, and I think that's where you might see the next kind of wave of states really quickly. And then, you know, as I noted, I think the focus in sports betting will be on a handful of large states. Obviously, we'll try to get bills passed wherever we can, but the real needle movers will be not just the top three I mentioned but states like Georgia that are also, you know, very large states population wise.

Jason Robins: And then I guess the last thing I'd note is, obviously, as you know, we're in the process of completing our jackpocket transaction. And I think there's a ton of state expansion opportunity there. And the vast majority of it doesn't have to be legislative; it's done without legislative action.

Carlo Santarelli: And then I guess the last thing I had noted.

Carlo Santarelli: Obviously as you know we're in the process of completing our pocket transaction and I think there's a ton of state expansion.

Carlo Santarelli: <unk>, there and the vast majority of it doesn't have to be legislative it's done without legislative action. So really excited about the prospects of getting.

Operator: So really excited about the prospects of getting, you know, that business up and running in a lot of different states. And I think you'll see some additional states get up and running for jackpocket before the end of the year. Great Jason, thank you very much. Thank you. One moment for our next question. Our next question comes from Clark Limpin with BTIG. Your line is open. Hey, good morning.

Carlo Santarelli: That business up and running in a lot of different states.

Carlo Santarelli: I think youll see some additional states come.

Carlo Santarelli: Get up and running for Jack pocket before the end of the year.

Speaker Change: Great Jason Thank you very much.

Speaker Change: Thank you.

Speaker Change: Next question.

Speaker Change: Our next question comes from Clark <unk> with <unk>. Your line is open.

Jason Robins: Thanks for the question. I wanted to come back to marketing efficiency, especially since Jason noted that there's, it seems like now there's an opportunity to invest a little bit deeper. Can you help us understand what's, you know, sort of driving some of the improvements that you noted in the shareholder letter? And, I guess, maybe more importantly, whether what we're seeing now is indicative of ongoing improvements you guys think you can draw out?

Hey, good morning. Thanks.

Clark: Thanks for the question I wanted to come back to marketing efficiency, especially since Jason you noted that there is it seems like now there is an opportunity to invest a little bit deeper can you help us understand what's sort of driving some of the improvements that you noted in the shareholder letter and I guess, maybe more importantly, whether what we're seeing now is indicative of ongoing.

Improvements you guys think you can drive I guess, if I look at the numbers for the year. It seems like the Opex guidance went up a little bit more.

Jason Robins: I guess if I look at the numbers for the year, it seems like the OPEX guidance went up a little bit. And I'm wondering specifically, are you guys seeing better payback periods right now that are leading you to lean in a little bit more aggressively on marketing? I appreciate it. You nailed it. I mean, you know, I think I mentioned earlier the CAC for April was roughly 40% lower year over year. I mean, we are seeing the most efficient marketing as we've seen since, I think, you know, basically launching Sportsbook. So I am really, really excited about that.

Clark: Wondering specifically are you guys seeing better payback periods right now that are leading you to lean in a little bit more aggressively on marketing I appreciate it.

Speaker Change: You nailed it I mean, I think I mentioned earlier the CAC for April was roughly 40% lower year over year I mean, we are seeing.

Speaker Change: As efficient marketing as we've seen since I think basically launching sports book, So really really excited about that.

Jason Robins: I don't, I mean, just to be clear, we're not going to, you know, have a massive increase. I think this is like optimization around the edges where we see an opportunity to maybe invest a little bit deeper in a couple of areas. But, you know, this isn't going to be a major shift in strategy by any means. I think we're going to continue to focus on as markets mature, seeing lower and lower external marketing spend. And at the same time, you know, it's not going to be a straight line.

Speaker Change: Just to be clear, we're not going to have a massive inquiry I think this is like optimization around the edges, where we see an opportunity maybe invest a little bit deeper in a couple of areas but.

Speaker Change: Isn't going to be like a major shift in strategy by any means I think we're going to continue to focus on as markets mature seeing lower and lower external marketing spend and at the same time, it's not going to be.

Jason Robins: There'll be periods where we find, you know, good solid things that we can cut, or just natural market conditions lead to us cutting, you know, certain spend. And then there'll be other times when we identify windows where we can increase. And I think given some of the efficiency we've been seeing, there's an opportunity maybe for a little bit of deeper investment. But, you know, like I said, it's a little bit, as you mentioned, it was not a huge move.

Speaker Change: Late line there'll be periods, where we find good solid things that we can cut or just natural kind of market conditions.

Speaker Change: Lead to us cutting.

Speaker Change: And spend and then there'll be other times, we identify windows, where we can increase.

Speaker Change: Given some of the efficiency, we've been seeing we think theres an opportunity maybe for a little bit of a deeper investment, but like I said, it's a little bit as you mentioned it was not.

Jason Robins: It was just a slight increase in OpEx versus where we were before, and I think that's a sign of the strong revenue growth and unbelievable profits that we're seeing. Thank you.

Speaker Change: Huge move it was just a slight increase in opex versus where we were before and I think thats a sign of the strong revenue growth and unbelievable tax that we're seeing.

Speaker Change: Thank you.

Operator: One moment for our next question. Our next question comes from Joe Stauff with Susquehanna. Your line is open. Thank you. Good morning.

Speaker Change: Number four our next question.

Speaker Change: Our next question comes from Joe Stauff with Susquehanna. Your line is open.

Joseph Robert Stauff: Thank you good morning.

Jason Robins: I wanted to ask maybe, Jason, if you can discuss, um, your more recent customer acquisitions or cohorts versus say, a year ago or whatever kind of time period ago and the lifetime value or the LTVs that you calculate for those. Are you seeing an improvement largely because of marketing efficiency? Or are the economics or the spending levels for the more recently acquired customers similar to, say, a year ago? I was wondering if you could. It's really both sides of the LTV and CAC equation.

Joseph Robert Stauff: I wanted to ask maybe Jason if you can discuss.

Joseph Robert Stauff: Yes.

Joseph Robert Stauff: More recent customer acquisitions or cohorts versus say a year ago or whatever kind.

Joseph Robert Stauff: Time period ago, and and the lifetime value or the Ltvs that you calculate for those are you.

Jason Robins: Are you seeing an improvement largely because of marketing efficiency or are the economics for the spending levels for the more recently acquired customers similar to say a year ago. I was wondering if you could discuss that.

Jason Robins: It's really both sides of the LTV and CAC equation as I noted a moment ago, we had really sharp decrease about 40% better CAC in April of this year than last year and as a continuation of really strong tax through Q4 and Q1.

Jason Robins: You know, as I noted a moment ago, we had a really sharp decrease, about 40% better CAC in April this year than last year, and that's a continuation of really strong CACs through Q4 and Q1. And at the same time, we've also made a tremendous number of improvements to our product, to our CRM, you know, to our customer experience overall, which has led to stickier customers. Our activity rates are higher than ever, and our handle and spend per customer are up.

Jason Robins: And at the same time, we've also made a tremendous number of improvements to our product to our CRM.

Jason Robins: Our customer experience overall, which has lead to stickier customers our activity rates are higher than ever.

Jason Robins: And our handle and spend per customer is up so I think we're just in a period of <unk>.

Jason Robins: So I think we're just in a period of, you know, industry growth and still very early stage in the industry, where a lot of things are just, you know, out there to be optimized and improved upon, and, you know, where I think the team is executing really well against both sides of the LTV and CAC equation. Our next question comes from Robert Fishman with Muffin Nathanson. Your line is open. Hey, good morning.

Jason Robins: Industry growth and still very early stage the industry, where a lot of things are just out there to be optimized and improved upon in.

Jason Robins: I think the team is executing really well against both sides of the LTV and CAC equation right now.

Speaker Change: Thank you.

Speaker Change: One moment for our next question.

Speaker Change: Our next question comes from Robert Fishman with Moffett Nathanson Your line is open.

Jason Robins: Jason, on media rights partnerships, I'm wondering if you can talk about your Amazon relationship and how that's helped drive incremental opportunities for Thursday Night Football. And then, really, any early thoughts on how that partnership can be expanded, if they're able to secure a big NBA package, or maybe any other comments you want to make on the NBA's new media deal, and how that could impact DraftKings. And then, separately, if I can add, I'm wondering if you could just speak to Jason Park's new role and how you could characterize the biggest near-term versus longer-term opportunities with that. Thank you. Yeah, great question. So on the first one, Amazon's been a great partner of ours; we've really gotten a lot of value. And I think they have two out of their relationship.

Robert S. Fishman: Hey, good morning, Jason on media right partnerships I'm wondering if you can talk about your Amazon relationship and how that has helped drive incremental opportunities for Thursday night football and then really any early thoughts on how that partnership can be expanded if they are able to secure a big NBA package or maybe.

Robert S. Fishman: Any other comments you want to make on Nbas, new media deal and how that could impact drafting and then just separately if I can add I'm wondering if you could just speak to adjacent parks new role and how you could characterize the biggest near term versus longer term opportunities with that thank you.

Jason Robins: And, you know, if there's ways we can expand it, depending on what their future plans are, then, you know, it's certainly a discussion we would welcome. And, you know, I'd also note that we have great relationships with a number of different parties that are rumored to be involved in the bidding. So, you know, wherever it lands, I look forward to hopefully finding ways to build relationships and bring great content to customers and partner with other great organizations.

Speaker Change: Yeah, Great question, so on the first one.

Speaker Change: Amazon has been a great partner of ours, we've really gotten a lot of value and I think they have two out of the relationship.

Speaker Change: If there's ways, we can expand it depending on what their future plans are then.

Speaker Change: It is certainly a discussion we would welcome.

Speaker Change: I'd also note we have great relationships with a number of different.

Speaker Change: Parties that are rumored to be involved in the bidding so.

Speaker Change: Wherever it lands I look forward to.

Jason Robins: So we'll have to see how that plays out. And then, you know, in terms of Jason's part, Jason Park's role, as you may know, Jason actually just turned the reins over to Alan officially, I think, like a day or two ago.

Speaker Change: Hopefully finding ways to build relationships and bring great content to customers and partner with other great organization. So we'll have to see how that plays out and then.

Speaker Change: In terms of adjacency adjacent parks roll.

Speaker Change: As you May know, Jason actually just turn the reins over to Alan efficiency efficiently I think like a day or two ago. So he has been working hard on the cue in on everything else just like the rest of us.

Speaker Change: And I think where he's had some spare bandwidth is really dove into the JAK pocket integration, which obviously is a very immediate term thing that we need to really make sure. We do a good job with so.

Speaker Change: That's been his immediate term focused I think as <unk> rolls off the CFO role and Alan roles and I think youll see them start to have more time free up and my expectation is that areas like payments and AI will be a major focus for him in the next six to 12 months, so more to come there, but really I think looking at things.

And that hence the title can be more <unk>.

Speaker Change: Medium to long term transformational for Jack Draft Kings as well as obviously, making sure.

Speaker Change: Given how important the JAK pocket integration is that we do a great job there.

Speaker Change: Sure.

Speaker Change: Yeah.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Our next question comes from David Katz with Jefferies. Your line is open.

Speaker Change: Hey, guys. This is RMS yesterday, David Katz, congrats on the quarter and thanks for taking my question.

David Brian Katz: I wanted to ask you, how you're thinking about maybe high level, but in terms of range of uses and responsible gaming.

Speaker Change: Thanks.

Jason Robins: So he's been working hard on the queue and on everything else, just like the rest of us. You know, and I think where he's had some spare band time, he's really dove into the jackpocket integration, which obviously is a very immediate thing that we, you know, need to really make sure we do a good job with. So that's been his immediate term focus. I think as he rolls off this CFO role and Alan rolls in, I think you'll see him start to have more time free up.

David Brian Katz: Yes, I am excited you asked this is one of the areas that I know a lot of companies are talking about and we certainly agree can really be impactful in a significant and transformational way to draft kings in the future. So.

Speaker Change: We're all in on it I think.

Speaker Change: Some of the early momentum, we've gotten and really the focus for US is utilizing best in class third party applications right now are using multiple tools from about five to 10 vendors and we're testing a variety of different use cases across the company things that improve our product like rapid prototyping and sprint metrics reporting and also ines.

Jason Robins: And my expectation is that areas like payments and AI will be a major focus for him in the next six to 12 months. So there will be more to come there. But really, you know, I think looking at things that hence the title can be, you know, more medium to long-term transformational for Jack DraftKings, as well as obviously making sure, you know, given how important the Jackpocket integration is, that we do a great job there. Thank you.

Speaker Change: <unk> to improve efficiency that code Refactoring code review and marketing asset creation.

Speaker Change: And then obviously being customer centric customer experience is at the center of our AI initiatives, including using AI to help model and detect signs of problem gaming.

Speaker Change: So that we can properly flag things for our player intervention team to go and investigate so lots of really good stuff there.

Speaker Change: I think we're just scratching the surface, it's super early but our focus is not on trying to build proprietary tech as much as it is I mean, we built some on top of it but it's really getting in there and using best in class third party tools and figuring out the proper applications to drive value for draft Kings.

Speaker Change: Great. Thank you.

Operator: One moment for our next question. Our next question comes from Dave Katz with Jeffries. Your line is open. Hey guys, this is Zahra Macias for Dave Katz.

Speaker Change: One moment for our next question.

Jason Robins: Congratulations on the quarter and thanks for taking that question. I wanted to ask how you're thinking about AI, maybe at a high level, but in terms of the range of uses and responsible gaming. Thanks. Yeah, I'm excited you asked that. This is one of the areas that I know a lot of companies are talking about, and we certainly agree it can really be impactful and transformational in a significant and transformational way for DraftKings in the future. So we're all in on it. I think, you know, some of the early momentum we've gotten and really the focus for us is utilizing best-in-class third-party applications. Right now, we're using multiple tools from about five to 10 vendors.

Speaker Change: Your next question comes from Michael Graham Canaccord Genuity. Your line is open.

Jason Robins: And we're testing a variety of different use cases across the company, things that improve our product like rapid prototyping and sprint metrics reporting, and also initiatives to improve efficiency like code refactoring, code review, and marketing asset creation. And then obviously, being customer-centric customer experience is at the center of our AI initiatives, including using AI to help model and detect signs of problem gaming so that we can properly flag things for our player intervention team to go and investigate. So, lots of really good stuff there.

Good morning, Thank you I wanted to help.

Michael Patrick Graham: Ask you to help us think through that.

The platform, becoming more of a mass market entertainment product in some of your more mature states like New Jersey or are you seeing.

Michael Patrick Graham: Penetration slow down there is it hitting the J curve type of dynamic and could you also address.

Michael Patrick Graham: What's going on with GTR concentration at the top end of the customer base is it becoming a little more spread out or more concentrated just hit on some of those dynamics.

Speaker Change: Yes, it's great question I mean, all of our other states.

Speaker Change: You have to remember there is still even new Jersey.

Speaker Change: It's still only five five years and so there are still really growing nicely. In fact, if you take sort of a same store view of our 2018 to 2022 States. We grew net revenue about 40% year over year in Q1, so really healthy growth in our <unk>.

Speaker Change: <unk> fits in.

Speaker Change: I think we will continue to see that as we improve product and also just as the industry develops in the Tam increases.

Speaker Change: As far as the concentration we're seeing it actually trend a little bit away from that so definitely.

Speaker Change: As with any industry. There is a cohort of customers that spent a lot and that drives.

Speaker Change: A decent amount of the revenue, but I think especially relative to other companies in the industry, where we're much more diversified and the trend. We're seeing is more and more casual has come into the market, particularly as you noted an older States I think as more people come into the market.

Speaker Change: That percentage of casuals increases so.

Speaker Change: Definitely something that we're seeing trend in that direction.

Speaker Change: Okay. Thank you Jason.

Jason Robins: And, you know, I think we're just scratching the surface. It's super early, but our focus is not on trying to build proprietary tech as much as we are. I mean, we built some on top of it, but it's really getting in there and using best-in-class third-party tools and figuring out the proper applications to drive value for DraftKings. Great, thank you. One moment for our next question. Your next question comes from Michael Graham with Canada Corp Genuity. Your line is open. Good morning.

Speaker Change: One moment for our next question.

Jason Robins: Thank you. I wanted to ask you to help us think through the platform becoming, you know, more of a mass market entertainment product in some of your more mature states like New Jersey. Are you seeing, you know, penetration slow down there? Is it hitting, you know, a J curve type of dynamic?

Speaker Change: Our next question comes from Ben Schachter with Mizuho. Your line is open.

Ben Schachter: Hey, Thanks for taking my question.

Ben Schachter: You mentioned promo expense was down over 700 basis points year over year, which is clearly generating a lot of operating leverage on net revenue would love to hear your thoughts around maybe what's driving the improvement is it just the natural evolution of the existing customers who are happy to use the product is draft kings, becoming more accurate and efficient in how you target or is it a function of just.

Ben Schachter: Entering what states it'd be great to hear any color on what you think the biggest drivers are of the traction and then the largest opportunity is going forward. Thanks.

Ben Schachter: Yes. The biggest thing is the natural evolution and you mentioned this in your last point a lot of that comes from entering some new states. So last year in Q1, we launched Ohio, Massachusetts. This year, we launched North Carolina, Vermont, which are still two big states that population.

Ben Schachter: Combined population in North Carolina, Vermont is definitely lower than in Massachusetts, and Ohio.

Ben Schachter: Secondly.

Ben Schachter: Just as the customer base matures, we are seeing an increase in the ratio of existing customer volume to new customer volume, which is naturally bringing down the promo rates. So.

Ben Schachter: A lot in fact, the majority of it is just the natural maturity of states and as you noted having a lower percentage of the population launch in Q1 this year than last year.

Ben Schachter: Secondly, we always are working to optimize and the team has done a fantastic job over the last year really finding ways to lean in in places that are working and cut in places that arent and I think that's made a lot of improvement also in the year over year drop and there's still a ton of opportunity. There I mean, we're just scratching the surface on.

Ben Schachter: Some of this stuff and I think the level at which we can kind of personalized experiences will also help us increase return and optimized promo and we're just scratching the surface there too. So there's a lot of upside on that line item.

Speaker Change: Thank you.

Speaker Change: Next question.

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

Brent: Hey, everybody. Thanks for taking my question. So the gaming market accelerated in the <unk> growth rate for the overall market you guys accelerated your gaming growth rate, Jason I'm wondering if you will have any thoughts on.

Brent: What was driving that is that the market level. If it was you and your peers better marketing better cross sell.

Brent: If you think you saw more are you guys at least to do some more acceleration on the.

Brent: The MH side of the <unk> website.

Jason Robins: And could you also address what's going on with GGR concentration at the top end of the customer base? Is it becoming a little more spread out or more concentrated? Or just, you know, here on some of those dynamics? Yeah, it's a great question. I mean, all of our older states and, you know, we have to remember, New Jersey is still only five and a half years in. So they're all still really growing nicely.

Jason Robins: Yes, it's a great question I think that a lot of it is just momentum.

Jason Robins: The industry and we're seeing it in sports too.

Jason Robins: Just a lot of new customers coming in and a lot of people that are crossing over from sports into I gaming.

Jason Robins: I also do think that some of it has been product driven and we made a lot of improvements to our product many of which we noted on our earnings call earlier, so on the scripted part of the earnings call earlier so.

Jason Robins: Definitely a combination of those things and then.

Jason Robins: I think certainly on the marketing side, we have improved as well.

Jason Robins: That's definitely been a little more recent so I don't know how much of that has driven the industry growth, but I think we've found some wins in the recent days that have helped us acquire customers more efficiently as well.

Jason Robins: Okay.

Speaker Change: Great. Thanks, so much.

Speaker Change: One moment for our next question.

Speaker Change: Okay.

Jason Robins: In fact, if you take sort of a same store view of our 2018 to 2022 states, we grew net revenue about 40% year over year in Q1. So really healthy growth in our, you know, existing states. And I think we'll continue to see that as we improve the product and also just as the industry develops and the TAM increases. You know, as far as the concentration, we're seeing it actually trend a little bit away from that. So definitely, you know, as with any industry, there is a cohort of customers that spends a lot, and that drives, you know, a decent amount of revenue.

Speaker Change: Our next question comes from Barry Jonas with Trust your line is open.

Jason Robins: But I think, especially relative to other companies in the industry, we're much more diversified. And the trend we're seeing is more and more casuals coming to the market, particularly, as you noted, in older states. I think as more people come into the market, you know, that percentage of casuals increases. So definitely something that we're seeing trend in that direction. Okay, thank you, Jason.

Barry Jonathan Jonas: Good morning, guys first off congrats Alan on the <unk>.

Barry Jonathan Jonas: New role.

Barry Jonathan Jonas: I wanted to ask you about technology smaller competitors talk about narrowing the gap and we know you are not standing still but are there more specific parts of the product you think youll be able to maintain your competitive edge over time better than others. Thank you.

Operator: One moment for our next question. Our next question comes from Ben Chaiken with Mizzou. Your line is open.

Speaker Change: Absolutely I mean first sports in particular, but really all online game products are incredibly complicated there's a ton going on.

Speaker Change: I think first and foremost having a lot of scale and.

Speaker Change: A very wide customer base gives us an advantage because we have more data and more data points to model and to improve personalization and make other decisions off of <unk>.

Speaker Change: Secondly, as you noted we continue to invest and being at scale gives us a much larger revenue base to invest in product and engineering and so on.

Jason Robins: Hey, thanks for taking my question. You mentioned promo expense was down over 700 basis points year over year, which is clearly generating a lot of operating leverage on net revenue. I would love to hear your thoughts around maybe what's driving the improvement? Is it just the natural evolution of the existing customers who are happy to use the product? Is DraftKings becoming more accurate and efficient in how you target? Or is it a function of just entering less states?

Speaker Change: We continue to lean in there and I think that there is a ton we can do to improve the product.

Speaker Change: We will hopefully be.

Speaker Change: Revenue additive and certainly it will be competitively differentiated.

Speaker Change: The other thing that I would say is that a lot of what we're focused on now.

Speaker Change: Yes, we continue to focus on customer facing features but a lot of what we're focused on now are.

Speaker Change: Kind of behind the curtain type of things.

Speaker Change: Things that help us optimize hold rate and trading things that help us personalize experiences that retain and create stickier customers. Those things that are harder to copy because it's not an obvious consumer facing feature that somebody could say oh, yeah, I'm, just going to figure out how to do that oftentimes, it's invisible to the front end so.

Speaker Change: I think theres a lot of advantage that can be maintained long term and those sorts of things as well as sort of just the inherent advantages of scale and robustness of data size in size and efficacy of product and engineering team.

Speaker Change: That's great. Thank you.

Speaker Change: One moment for our next question.

Jason Robins: It'd be great to hear any color on what you think the biggest drivers are of traction and then the largest opportunities going forward. Thanks. Yeah, I mean, I think the biggest thing is natural evolution.

Speaker Change: Our next question comes from Dan Pulitzer with Wells Fargo. Your line is open.

Daniel Brian Politzer: Hey, good morning, everyone I wanted to touch a bit on gaming again.

Daniel Brian Politzer: One of your closest competitors in that market seems to be gaining some share momentum could you maybe talk about the promotional environment.

Daniel Brian Politzer: And how you think about kind of share outlook.

For yourselves as we look forward. Thanks.

Speaker Change: Yeah, I mean, I think what you are seeing which probably isn't surprising is the same dynamic emerging in gaming as an OSB. So.

Speaker Change: On the one hand, I think that that gives a lot of sort of clarity.

Speaker Change: In terms of investors of what long term market structure could look like which is good.

Speaker Change: I think for us.

Speaker Change: We just continue to focus on trying to deliver the best customer experience.

If we do that will maximize our long term share of the pie, but I do want to note. The share is not the only metric obviously, everybody follows that and Thats a lot of questions but.

Speaker Change: We're focused on being the most profitable company in the space and making the most money. So I think thats ultimately, how we define share the space not GTR share obviously jgr shares a helpful metric to look at the Bottomline shares the most important thing.

Speaker Change: Thanks, and then just one quick housekeeping did you guys give the actual holds for first quarter I know you gave the structural debt.

Speaker Change: Could provide actual that'd be that'd be helpful.

Speaker Change: Yes, I think.

Speaker Change: Is that about nine 5%.

Speaker Change: Got it thanks, so much.

Jason Robins: And, you know, you mentioned this in your last point, a lot of that comes from entering some new states. So last year, in Q1, we launched Ohio and Massachusetts. This year, we launched North Carolina and Vermont, which are still two big states, but the combined population of North Carolina and Vermont is definitely lower than that of Massachusetts and Ohio.

Speaker Change: Martin.

Speaker Change: One moment for our next question.

Okay.

Jason Robins: Secondly, just as the customer base matures, we're seeing an increase in the ratio of existing customer volume to new customer volume, which is naturally bringing down the promo rate. So a lot, in fact, the majority of it is just the natural maturity of states. And as you noted, having, you know, a lower percentage of the population launching Q1 this year than last year. Secondly, we always are working to optimize, and the team has done a fantastic job over the last year, really finding ways to lean in on places that are working and cut in places that aren't.

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

Jason Robins: And I think that's made a lot of improvement also in the year over year drop. And there's still a ton of opportunity there. I mean, we're just scratching the surface on some of this stuff.

Jed Kelly: Hey, great. Thanks for taking my question.

Jed Kelly: Just can you talk about <unk> trends I saw it was down in the first quarter realize you were comping. Some state launches, but can you speak to that and then just as a follow up you're launching your new <unk> product can you talk about how that can help you build your database.

States, where sports betting has not yet.

Speaker Change: Thank you.

Jason Robins: And I think the level at which we can kind of personalize the experiences will also help us increase return and optimize promotion, and we're just scratching the surface there too. So there's a lot of upside on that line. Thank you.

Speaker Change: So on the first one are.

Speaker Change: Are you talking about like versus consensus because we were up on maps here I'm, just I'm talking I'm talking it was down sequentially.

Julie.

Speaker Change: Just last quarter.

Yes, yes.

Julie: Yes, that's just seasonality that typically happens and I think the biggest thing also that drove that was the state launches actually probably even more than seasonality to be honest thats, what youre seeing there is the state launches we had.

Julie: Ohio, Massachusetts launch in Q1 of last year.

Julie: So that drove a lot of Mou in that quarter.

Speaker Change: So I don't there's nothing kind of other than that going on there and then sorry.

Speaker Change: Sorry, what was your second question Jess.

Speaker Change: Just on how does your pick six product help you build up your databases in states, where sports betting is not yet legal.

Speaker Change: Great question, I mean, <unk> is our latest fantasy product.

Speaker Change: I think we're pretty excited about it we think it's something that could definitely as all of our fantasy products have helped us build a database and states that arent yet legal and also just create additional revenue and new ways to engage with our customers. So.

Speaker Change: You know that Thats kind of the go there.

Speaker Change: We haven't done a lot to innovate and fantasy.

Speaker Change: The last year, or so and I think the team is energized and focused on getting back to innovation in the fantasy space as well and this is a great example of that.

Speaker Change: Thank you.

Operator: One moment for the next question. Our next question comes from Brandt Montour with Barclays. Your line is open. Everybody, thanks for taking my question. So the iGaming market accelerated in the 1Q growth rate for the overall market, and you guys accelerated your iGaming growth rate. Jason, I'm wondering if you have any thoughts on, you know, what was driving that at the market level, if it was you and your peers, you know, better marketing, better cross-sell? If you think you saw more, for you guys, at least, if you saw more acceleration on the MAU side or the ARPUPS, Yeah, it's a great question.

Speaker Change: One moment for our next question.

Jason Robins: You know, I think that a lot of it is just the momentum of the industry. And we're seeing it in sports, too. Just a lot of new customers coming in and a lot of people that are crossing over from sports into iGaming. I also do think that some of it has been product driven; we've made a lot of improvements to our product, many of which we noted on our earnings call earlier. So on the scripted part of the earnings call earlier, so definitely a combination of those things. And then you know, I think certainly, on the marketing side, we've improved as well. You know, that's definitely been a little more recent.

Speaker Change: Our next question comes from Bernie Mcternan with Needham <unk> Company. Your line is open.

Jason Robins: So I don't know how much of that's driving industry growth, but I think we've found some wins in the recent days that have helped us acquire customers more efficiently as well. Great. Thanks so much.

Bernard Jerome McTernan: Great. Thanks for taking the questions Jason given the increased news flow this year about state tax rates potentially going higher in some areas. If there wasn't existing a relatively mature states increased taxes, what would the impact be and then what levers do you have to offset that and over what timeframe.

Jason Robins: Yes, So first I do think states understand that.

Jason Robins: There is still a very large illegal market, that's not going away and in order for us to continue to be able to be competitive.

Jason Robins: And not drive customers back to that market and also continue to take customers out of that market because theres still quite a few even in the most mature states.

Jason Robins: That they need to keep tax rates at a reasonable level. So I do expect that that will be the case.

Jason Robins: But we're prepared either way I mean in the end.

Jason Robins: The cost has to get absorbed by the consumer if the government raises taxes. So.

There's various levers to do that.

Jason Robins: Also we could lower external marketing, which I think will be also.

Jason Robins: Really just driven by the fact that if taxes go up.

Jason Robins: We're going to have to create better margins and that will be a lever that we'll have to pull as well.

Jason Robins: But like I said, I think that states do understand that.

Jason Robins: Any sort of negative impacts to the consumer offering that companies would have to take where tax rate increase would really be.

Jason Robins: Counter to the notion that.

Jason Robins: To drive activity from the illegal market to the legal market, which has an enormous number of benefits only one of which is generating taxes. So.

Jason Robins: I think states get that and I expect that maybe there'll be one or two here and there that look to do that but I don't think many of them will and I, even think the ones that are getting a lot more information now in may.

Jason Robins: My expectation is that we'll be able to convince them that it is not a good policy decision.

Speaker Change: Thanks, Jason.

Operator: One moment for our next question. Our next question comes from Barry Jonas with Truist. Your line is open. Good morning, guys. First off, congratulations, Alan, on the new role.

Speaker Change: One moment for our next question.

Speaker Change: Okay.

Jason Robins: I wanted to ask about technology. Smaller competitors talk about narrowing the gap, and we know you're not standing still, but are there more specific parts of the product you think you'll be able to maintain your competitive edge over time better than others? Thank you. Absolutely. I mean, first, sports in particular, but really all online gaming products are incredibly complicated.

Speaker Change: Our next question comes from Jordan Bender with citizens JMP. Your line is open.

Jason Robins: There's a ton going on. I think first and foremost, having a lot of scale and, you know, a very wide customer base gives us an advantage because we have more data and more data points to model and improve personalization and make other decisions on. Secondly, as you noted, we continue to invest, and being at scale gives us a much larger revenue base to invest in product and engineering. And so, you know, we continue to lean in there.

Jordan Maxwell Bender: Great. Good morning, Thanks for taking my question one of the Juicy adjacent parks new role in the payment processing, how should we be thinking about what that looks like to bring your PMA costs more in line with your long term goal is it coming through initiatives like bringing down the interchange rate that you're paying or more strategic like Brady.

Jordan Maxwell Bender: In the.

Some or all of that technology and health.

Speaker Change: And then Jason I just have a follow up in your prepared remarks. Thank you said the new states should add to EBITDA in the back half of the year is that to say that the paybacks are just way ahead of any states that had been launched in the past. Thank you.

Jason Robins: And I think that there's a ton we can do to improve the product that will, you know, hopefully be revenue additive and certainly will be competitively differentiated. You know, the other thing that I would say is that a lot of what we're focused on now, yes, we continue to focus on customer-facing features, but a lot of what we're focused on now are, you know, kind of behind the curtain type of things, things that help us optimize hold rates and trading, things that help us personalize experiences that retain and create stickier customers. Those things are harder to copy because it's not an obvious consumer-facing feature that somebody could say, oh, yeah, I'm just going to figure out how to do that.

Jason Robins: Yes, so on the first question.

Speaker Change: Still early so I don't have a lot of specifics, but I think the types of things that Jason will be looking at.

Consumer facing optimizations like are there ways that.

Speaker Change: We can motivate consumers to use lower cost payment method.

Speaker Change: Well as other sorts of medium to longer term solutions like in housing of certain pieces. So.

Speaker Change: Really don't know, where it's going to go because it's very much an exploratory and as I noted earlier. He just turned over the range down in the last day or two so I haven't really had a chance he hasn't really had a chance to dig in there yet, but I do expect theres a lot of opportunity there and just to clarify one thing you mentioned in order to reach our long term levels right now we are tracking.

Operator: Oftentimes, you know, it's invisible to the front end. So I think there's a lot of advantages that can be maintained long term and those sorts of things. As well as sort of just the inherent advantages of scale and robustness of data size and the size and efficacy of the product and engineering team. That's great. Thank you. Please take a moment for our next question. Our next question comes from Dan Politzer with Wells Fargo. Your line is open. Hey, good morning, everyone.

Speaker Change: <unk> to where we have set expectations long term as far as payment costs go I think this is really looking for opportunities for upside above and beyond that but we feel like already where based on the trajectory of our current business.

Speaker Change: And this isn't just for payment processing it's across.

Speaker Change: All of the different metrics.

Speaker Change: <unk> that we have we feel good about that trajectory. So this is really about looking for additional upside above and beyond what we shared at Investor day last year.

Speaker Change: And then I'm sorry, what was the second question.

Speaker Change: Yes, just to fall.

Speaker Change: In your prepared remarks, I thought you said that the two new states that were just launched should add to EBITDA in the back half of the year. Just is that did I hear that correctly.

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

Speaker Change: You did yes, so that is baked into our guide and.

Jason Robins: Yeah, I mean, I think what you're seeing, which probably isn't surprising is the same dynamic emerging, and iGaming is an OSB. So, you know, on the one hand, I think that that gives a lot of sort of clarity, you know, in terms of investors, about what the long-term market structure could look like, which is good. And I think, you know, for us, we just continue to focus on trying to deliver the best customer experience. And I think if we do that, we'll maximize our long-term share of the pie. But I do want to note that, you know, share is not the only metric. Obviously, everybody follows that.

Speaker Change: You are right I think the last it's really been a trend not just with <unk>, but with the last year or two of states.

Speaker Change: Last year, we noted, Ohio, Massachusetts, both contributed positively by Q4 I think this year our expectation is that the two that we launched North Carolina, Vermont will actually contribute positively to the entire back half of the year.

Speaker Change: So I think its just another example of how we continue to get better and better at optimizing our state launch playbook, we're able to capture tremendous amount of value in a much shorter period of time with a much more efficient level of investment than we did say three or four years ago.

Jason Robins: And that's a lot of questions. But, you know, we're focused on being the most profitable company in the space and making the most money. So I think that's ultimately how we define the space, not GGR share. Obviously, GGR share is a helpful metric to look at.

Speaker Change: Thank you very much.

Speaker Change: One of them before our next question.

Speaker Change: Okay.

Jason Robins: But bottom line share is the most important thing. Thanks. And then just one quick housekeeping question. Did you guys give an actual hold for the first quarter? I know you gave the structural, but if you could provide an actual, that'd be helpful.

Speaker Change: Our next question comes from Chad Beynon with Macquarie. Your line is open.

Jason Robins: Yeah, I think we've said about nine and a half percent. Got it. Thanks so much. One moment, one moment for our next question. Our next question comes from Jed Kelly with Oppenheimer. Your line is open.

Chad C. Beynon: Good morning, Thanks for taking my question.

Chad C. Beynon: Jason I wanted to ask really what gave you the confidence to raise the structural hold.

Chad C. Beynon: 10, 5% obviously, it's early in the year is that just kind of a combination of what youre seeing with pre match legs of parlays in play et cetera, any color around that would be helpful. Thanks.

Jason Robins: Hey, great. Thanks for taking my question. Um, just can you talk about MAU trends? I saw it was down in the first quarter, and realized you were copying some state launches. But can you speak to that?

Speaker Change: That's exactly right, it's really a function of some of the product enhancements we made in.

Speaker Change: What we're seeing that.

Speaker Change: That due to our parlay mix and average life count.

Speaker Change: Progressive Parlay as an example has a much higher average like count than a typical parlay. So that's been one of the many examples of contributors.

Speaker Change: Also are right now in the process of rolling out across states cash out for SGP.

Speaker Change: Another lever I think so.

Speaker Change: It's really a testament to the work the team has done to drive that mix and average life town.

Speaker Change: Thank you.

Speaker Change: One moment for our next question.

Speaker Change: Okay.

Jason Robins: And then just as a follow-up, you're launching your new pick six product. Can you talk about how that can help you build your database in states where sports betting is not yet legal? Thank you. So on the first one, are you talking about like versus consensus? Because we were up, I'm up here. No, I'm just talking, I'm talking.

Speaker Change: Our next question comes from Ryan <unk> with Craig Hallum Capital Group. Your line is open.

Jason Robins: It was down to quite a few people. Oh, from last quarter. Yeah, that's just seasonality. It typically happens.

Ryan: Hey, good morning, guys, how do you think about pricing going forward.

Ryan: <unk> indicated draft Kings offers the most competitive progressed odds for consumers, while also generating industry plus hold due to the mix so kind of a win win there, but how much of a competitive advantage do you think.

Ryan: That is as it relates to customer retention.

Ryan: Yes, I think for most markets the prices the price so.

I think when it comes to like being able to have optimal pricing.

Ryan: For say some of the.

Ryan: Lesser bat market there are some customers that mainline shop I don't think its the majority of them, but some do.

And then Theres other bet types that tend to have more aligned shopping like futures bets.

Ryan: But most of the mainstream that the player props.

Ryan: Game lines the over under us are typically fairly comparable.

Ryan: That said, we always make sure that we're competitive and so we're not trying to win on price, but we're also not trying to have worse pricing than anyone else out there.

Ryan: And I think you noted this but.

Ryan: The real Sweet spot is if you have great models and your pricing is tight you can actually hold better and continue to be super competitive on the pricing side those things are not at odds at all.

Ryan: And the other thing I would mention is.

Ryan: And this is also a really important part about having great models and type pricing the market uptime can be much higher which I think particularly for live betting is a significant advantage of customers are trying to like that and can't get through then theyre going to go somewhere else. So.

Ryan: That's another real advantaged, having type pricing and strong models.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Okay.

Speaker Change: Our next question comes from Joseph <unk> with Stifel. Your line is open.

Jason Robins: And, you know, I think the biggest thing also that drove that was the state launches. Actually, probably even more than seasonality, to be honest, that's what you're seeing there are the state launches. We had Ohio and Massachusetts launch in Q1 of last year. So that drove a lot of MAU in that quarter. So you know, I don't, there's nothing kind of other than that going on there.

Joseph: Hey, good morning, everyone. Thanks for taking my question.

Jason Robins: And then, sorry, what was your second question? Just on how does your PIC6 product help you build up your databases in states where spending is not yet legal? It's a great question. I mean, PIC6 is our latest fantasy product.

Joseph: Hey, Jason it's been several quarters now of pretty meaningful upside from user acquisition retention and monetization trends as time goes on or are you seeing sort of the relative impact for each of those individual driver shift around in other words are you seeing user acquisition surprised to the upside more so than monetization relative to trends last year.

Joseph: Or the inverse or is the relative contribution of each state mostly constant thanks.

Speaker Change: At any point in time, there is definitely something that youre more like Wow that is just crushing than what we expected, but I will say last few years really the last two years in particular, it's been across the board I mean this last quarter.

Speaker Change: Quarter, and particularly in April it's been customer acquisition for sure, which I think was true for Q4 in Q1, but I also have seen significant increases to ltvs made over that period of time to our player activity and retention levels have been higher than ever.

Speaker Change: So I think as we improve the product and also as we just get more data and continue to do the analysis continue to optimize continue to build better tools that allow the teams to trade and also tools on the marketing side that allow the teams to get data to optimize the marketing better same thing with promos. We're just again, we're at that stage I think of the industry of the comes.

Speaker Change: Any where theres just so much that obvious that we can do and it just cranking through all of it and it's really moving metrics across the entire value chain. So.

Speaker Change: I can't point to any one thing overall by EUR correct data at any point in time, you might be like while we had a great quarter from a customer acquisition standpoint.

Speaker Change: But often that comes with a great quarter from a retention standpoint, too because a lot of times. The same things that youre doing that drive acquisition also drive great activation and retention.

Speaker Change: Thanks very much.

Speaker Change: And I'm not showing any further questions to start I'd like to turn the call back over to Jason Robinson for any closing remarks.

Jason Robins: I think we're pretty excited about it. We think it could definitely, as all of our fantasy products have, help us build a database in states that aren't yet legal, and also just create additional revenue and new ways to engage with our customers. So you nailed it. That's kind of the goal there. And I think, you know, we haven't done a lot to innovate in fantasy until the last year or so.

Jason Robins: Thank you all for joining us on today's call as you can see draft kings off to a fantastic start for 2024, and we're really excited about the rest of this year and beyond I look forward to speaking with you over the coming weeks and hope you all stay safe and well thank you Les.

Operator: And I think the team is energized, and folks are really focused on, you know, getting back to innovation in the fantasy space as well. And this is a great example of that. One moment for our next question. Our next question comes from Bernie McTernan with Niedermann Company. Your line is open. Great, thanks for taking the question. Jason, given the increased news flow this year about state tax rates potentially going higher in some areas, if there wasn't an existing or relatively mature state to increase taxes, what would the impact be?

Jason Robins: And then what leverage would you have to offset that? And over what time frame? Yeah, so first, I do think states understand that there is still a very large illegal market that's not going away. And in order for us to continue to be able to be competitive, and not drive customers back to that market, and also continue to take customers out of that market, because there are still quite a few, even in the most mature states, that they need to keep tax rates at a reasonable level.

Jason Robins: So I do expect that that will be the case. But we're prepared either way. I mean, in the end, you know, the cost has to get absorbed by the consumer if the government raises taxes. So there are various levers to do that.

Jason Robins: You know, also, we could lower external marketing, which I think will be also partially just driven by the fact that if taxes go up, we're going to have to create better margins, and that will be a lever that we'll have to pull as well. But you know, like I said, I think that states do understand that any sort of negative impact on the consumer offering that companies would have to take where tax rates increase would really be counter to the notion that, you know, we're trying to drive activity from the illegal market to the legal market, which has an enormous number of benefits, only one of which is generating taxes. So I think states should get that. And I expect that, you know, maybe there'll be one or two here and there that look to do that. But I don't think many of them will go.

Jason Robins: And I even think the ones that are getting a lot more information now and, you know, my expectation is that we'll be able to convince them that it's not a good policy decision. One moment for our next question. Our next question comes from Jordan Bender with Citizens JMP. Your line is open.

Jason Robins: Great, good morning. Thanks for taking my question. Going off of Jason Park's new role in payment processing, how should we be thinking about what that looks like to bring your payment costs more in line with your long-term goal? Is it coming through initiatives like bringing down the interchange rate that you're paying or, you know, more strategic like bringing in some or all of that technology and health? And then Jason, I just have a follow-up question.

Jason Robins: In your prepared remarks, I think you said the new state launch should add evidence in the back half of the year. You know, is that to say that the paybacks are just way ahead of any states that have been launched in the past? Thank you. Yeah, so on the first question, it's still early, so I don't have a lot of specifics.

Jason Robins: But I think the types of things that Jason will be looking at are, you know, consumer-facing optimizations, like are there ways that, you know, we can motivate consumers to use lower cost payment methods, as well as, you know, other sorts of medium to longer term solutions, like in the housing of certain pieces. So really don't know where it's going to go because it's very much based on the trajectory of our current business, you know, and this isn't just for payment processing; it's across all the different metrics, the KPIs that we have. We feel good about that trajectory.

Jason Robins: So this is really about looking for additional upside above and beyond what we shared on Investor Day last. And then, I'm sorry, what was the second question? Yeah, just to follow up. In your prepared remarks, I thought you said that the two new states that were just launched should add to EBITDA in the back half of the year. You just ask, did I hear that correctly? Yes, you did.

Jason Robins: Yeah, so that is baked into our guide. And you're right, I think the last, you know, it's really been a trend, not just with these two, but with the last, you know, year or two of states. Last year, you know, we noted that Ohio and Massachusetts both contributed positively by Q4. I think this year, our expectation is that the two that we launched, North Carolina and Vermont, will actually contribute positively for the entire back half of the year.

Jason Robins: So I think it's just another example of how we continue to get better and better at optimizing our state launch playbook; we're able to capture a tremendous amount of value in a much shorter period of time, with a much more efficient level of investment than we did, you know, say, three, four years ago. Thank you very much.

Operator: And we'll move forward to the next question. Our next question comes from Chad Beynon with Bequia. Your line is open. Morning, thanks for taking my question. Jason, I wanted to really ask what gave you the confidence to raise the structural hold to 10.5%. Obviously, it's early in the year. Is that just kind of a combination of what you're seeing with pre-match, legs of parlays in play, etc.? Any color around that would be helpful.

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

Operator: Thank you. One moment for our next question. Our next question comes from Ryan Sigdahl with the Craig Hallam Capital Group. Your line is open. Hey, good morning, guys.

Jason Robins: I look forward to speaking with you over the coming weeks and hope you all stay safe and well. Thank you. Ladies and gentlemen, this concludes today's presentation. You may now disconnect and have a wonderful day. [inaudible] ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ??

Speaker Change: Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.

Jason Robins: How do you think about pricing going forward? Our checks indicate DraftKings offers the most competitive or best odds for consumers, while also generating industry plus hold due to the bet mix. So, kind of a win-win there.

Jason Robins: But how much of a competitive advantage do you have that relates to customer retention? Yeah, I think for most markets, the price is the price. So, you know, when it comes to, being able to have optimal pricing, for say some of the lesser-bet markets, there are some customers that may line shop. I don't think it's the majority of them, but some do.

Jason Robins: And then there are other bet types that tend to have more line shopping, like futures bets. But most of the mainstream bets, the player props, the game lines, the over-unders, are typically fairly comparable. That said, we always make sure that we're competitive. And so we're not trying to win on price, but we're also not trying to have lower prices than anyone else out there. And I think you noted this, but the real sweet spot is if you have great models and your pricing's tight, you can actually hold better and continue to be super competitive on the pricing side. Those things are not at odds at all.

Jason Robins: And the other thing I would mention is, and this is also a really important part about having great models and tight pricing, the market uptime can be much higher, which I think, particularly for live betting, is a significant advantage. If customers are trying to live bet and can't get through, then they're gonna go somewhere else. So that's another real advantage to having tight pricing and strong models. Thank you. One moment for our next question. Our next question comes from Jeff Stantial with Stiefel. Your line is open.

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

Jason Robins: You know, at any point in time, there's definitely something that you're more like, wow, that is just crushing what we expected. But I will say the last few years, really the last two years in particular, it's been across the board. I mean, this last, you know, sort of quarter, and particularly in April, it's been customer acquisition, for sure, which I think was true for Q4 and Q1. But I also, you know, I've seen significant increases to LTVs made over that period of time, too.

Jason Robins: Our player activity and retention levels have been higher than ever. So I think as we improve the product and also as we just get more data and continue to do the analysis, continue to optimize, and also build better tools that allow the teams to trade, and also tools on the marketing side that allow the teams to get data to optimize the marketing better. Same thing with promos.

Jason Robins: We're just, you know, again, we're at that stage in the industry of the company where there's just so much that's obvious that we can do, and it's just cranking through all of it. And it's really moving metrics across the entire value chain. So I can't point to any one thing, you know, overall, but you can be corrected at any point in time. You might be like, wow, we had a great quarter from a customer acquisition standpoint. You know, but often that comes with a great quarter from a retention standpoint, too, because a lot of times the same things that you're doing that drive acquisition also drive great activation and retention.

Jason Robins: Thanks very much. And I'm not showing any further questions at this time. I'd like to turn the call back over to Jason Robins for any closing remarks. Thank you all for joining us on today's call. As you can see, DraftKings is off to a fantastic start for 2024, and we're really excited about the rest of this year and beyond.

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