Q3 2024 DraftKings Inc Earnings Call

November 8, 2024

Hmm.

Yeah.

Speaker Change: Good day and thank you for standing by welcome to Draft Kings third 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 the session will need to press star one on your telephone you didn't hear an automated message advising your hand is raised to withdraw your question. Please press star one again please.

Speaker Change: Be advised todays conference is being recorded I would now like to turn the conference over to your speaker today I would now like to <unk> Chief Financial Officer. Please go ahead.

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

Speaker Change: Statements, we make during this call may constitute forward looking statements that are subject to risks uncertainties and other factors as discussed further 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.

Speaker Change: During this call management will also discuss certain non-GAAP financial measures that we believe may be useful in evaluating drapkin operating performance. These measures should not be considered in isolation or as a substitute for tracking 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.

Hosting the call today, we have Jason Robins, co founder and Chief Executive officer of tracking well.

Speaker Change: I will share some opening remarks, and an update on the business. Following Jason's remarks, I will provide a review of our financials.

Speaker Change: We'll then open the line to questions I will now turn the call over to Jason Robins.

Good morning, and thank you all for joining.

Jason Robins: As you can see in our results our core value drivers are strong.

Jason Robins: In the third quarter, we acquired more online sports book and I gaming customers year over year, while CAC declined nearly 20% structural support for coal percentage continue to increase.

Trajectory here is encouraging with NFL parlay mix tracking up more than 500 basis points year over year.

Jason Robins: Our promotional reinvestment rate improved by 300 basis points year over year as a percentage of gross gaming revenue, even though we acquired more customers in that higher new customer promotion.

Jason Robins: These core value drivers collectively contributed to a 300 basis point year over year improvement in adjusted gross margin for the third quarter of 2024.

While we experienced the most customer friendly stretch of NFL support outcomes, we've ever seen early in the fourth quarter, which pressures our revenue and adjusted EBITDA in the short term the overall trajectory of our business is strong.

Jason Robins: We are excited to reiterate our fiscal year 2025, adjusted EBIT guidance range of $900 million to $1 billion in.

Jason Robins: And introduce our inaugural of fiscal year, 2025 revenue guidance, which calls for 31% year over year growth at our guidance midpoint.

Jason Robins: Even more importantly, our sportswear product is continuing to improve which positions us well for the NBA season and beyond.

Jason Robins: This fall, we launched new and exclusive NBA market, specifically designed to engage customers at key game storylines and expanded our in house team gained parlay offering to more than 50, new MBA market.

Jason Robins: We also appreciate being recognized in a recent third party report as the number one overall sports book App in the U S ranking first in the user experience betting interface and features categories. Our apps now ranked number one in sports book a numbers, one and two in gaming with the tracking casino on Golden Nugget Casino brands, respectively.

Jason Robins: Lastly, I'd like to touch on about initiatives in Missouri.

Jason Robins: Earlier this week, Missouri voters passed about initiative legalizing online sports betting and the state following a productive and efficient campaign that was backed by a wide consortium of sports teams and gaming operators, Missouri represents approximately 2% of the U S population and we expect to launch our sports book product in the state pending market access licensure.

Jason Robins: <unk> regulatory approvals and contractual approvals in closing our business fundamentals are healthy and we are excited about our financial trajectory into 2025 and beyond.

Speaker Change: With that I will turn it over to our Chief Financial Officer, Alan <unk>.

Thank you Jason ill hit the highlights, including our third quarter performance and our fiscal year 2024, and 2025 guidance. Please note that all income statement measures discussed except for revenue are on a <unk>.

Speaker Change: non-GAAP adjusted EBITDA basis.

Speaker Change: As Jason mentioned, our business fundamentals were healthy in the third quarter.

Speaker Change: Grew revenue, 39% year over year to $1 billion $95 million and generated $59 million adjusted EBITDA loss.

Speaker Change: Our online sports for gross gaming revenue increased 39% and argument gross gaming revenue grew 26% when compared to the third quarter of 2023.

Speaker Change: Newly acquired online sports book, an argument customers increased 14% year over year.

Speaker Change: Our CAC for these customers improved nearly 20% year over year.

Speaker Change: Structural sportswear hold percentages increased year over year as customers continue to enjoy our parlay offerings.

Promotional reinvestment rates for our online sports book and <unk> improved by 300 basis points year over year, as we reduce promotions for lower value customer segments and began to mitigate the impact of the Illinois tax increase.

Speaker Change: Adjusted gross margin was above our expectations at 40% and increased 300 basis points year over year.

Speaker Change: Looking ahead I'll briefly comment on our fiscal year 2024 guidance before discussing our expectations for fiscal year 2025.

Speaker Change: On August one 2024, we guided fiscal year 2020 core revenues of $5 5 billion to $5 5 billion.

Speaker Change: And adjusted EBITDA of $340 million to $420 million.

Speaker Change: Our third quarter financial performance was consistent with our expectations.

Speaker Change: And Thats all outcomes early in the fourth quarter. However have resulted in the headwinds to revenue and adjusted EBITDA of $250 million and $175 million respectively.

Speaker Change: We have also made significant progress in identifying customers with lower lifetime values across our footprint and are improving our expectation for promotions for the remainder of the fiscal year 2024 Accordingly.

Speaker Change: And we are continuing to drive expense efficiency throughout the organization as we balance growth and profitability.

Speaker Change: As a result, we now expect fiscal year 2020 core revenues of $4 85 billion to $4 95 billion.

Speaker Change: In fiscal year, adjusted EBITDA of $240 million to $280 million.

Speaker Change: Moving on to our fiscal year 2025 guidance.

Speaker Change: In November 2023.

Speaker Change: David our expectation that fiscal year 2025, adjusted EBITDA would be in the range of $900 million to $1 billion.

Speaker Change: We reiterated this expectation in August.

Speaker Change: Given the strong underlying momentum in our core value drivers. We continue to expect fiscal year 2025, adjusted EBITDA of $900 million to $1 billion.

Speaker Change: Today, we are introducing a fiscal year 2025 revenue guidance range of $6 2 billion to $6 6 billion.

Speaker Change: Which equates to year over year growth of 27% to 35% compared to our updated fiscal year 2020 core revenue guidance midpoint.

Speaker Change: We expect structural sports for coal percentage of 11% in fiscal year 2025, with further upside in fiscal year 2026 and beyond.

Speaker Change: We expect our fiscal year 2025, adjusted gross margin to be in the range of 45% to 47%.

Speaker Change: We expect stock based compensation expense to represent approximately 6% of revenue in fiscal year 2025.

Speaker Change: Additionally, we expect the bridge between adjusted EBITDA and free cash flow to be $100 million.

Speaker Change: And therefore expect to generate free cash flow of approximately $850 million in fiscal year 2025.

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

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

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: Our first question comes from Shaun Kelly with Bank of America. Your line is open.

Speaker Change: Hi, Good morning, everyone. Thanks for taking my question.

Speaker Change: Jason if we could start off I think most of our questions. This morning from investors have really kind of been around the flow through assumptions for next year. So obviously, some pros and cons, but where we left it a quarter ago. I think you had spoken about about a 50% flow through kind of on a long term basis, and I think thats. Some of the long term objectives had had kind of pinpointed two.

Speaker Change: This year for next year Youre looking at 39% could you just talk.

Speaker Change: Some of the puts and takes behind those variables as well as sort of how it interacts with what youre seeing on the revenue and customer acquisition side at this point. Thanks.

Speaker Change: Thanks, Sean Yes, so definitely feel 50% is about the right number long term for flow through I think next year, what youre seeing around 40% rather than 50 is that we have as we've noted in the last couple of quarters has been seeing.

Speaker Change: Unexpectedly strong customer acquisition, and that's a really great thing for the long term potential and the Tam in the industry, but obviously, we want to be cautious next year that we don't end up underestimating customer acquisition promotions, and therefore, having a higher flow through guide than what actually materializes. So that's really the thinking behind.

Speaker Change: As we've noted in the past should customer acquisition slow I think whenever that happens there'll be some short term adjusted EBITDA upside that could very well be the case in 25, obviously, we want to see the continued customer acquisition, because that bodes well for 2006 and beyond but should there be less than expected or I should say a slowdown in customer acquisition could definitely be some upside.

Did that flow through rate that you mentioned.

Speaker Change: Thank you very much.

One moment for our next question.

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

David Katz: Good morning, everyone. Thanks for taking my question.

So just rolling through the rest of the year one of the discussions we've been having.

David Katz: How do we get comfortable.

David Katz: <unk> per month.

David Katz:

David Katz: Quarter to quarter.

David Katz: Kinds of impacts that we see.

Speaker Change: You don't recur and or flip back in the more positive direction I guess, what I'm asking is if you could talk about some of the levers that you have at your disposal and how the business evolves to mitigate some of the loss factor that that showed up here.

Speaker Change: No. It's great question, obviously, the shorter the period more of that volatility in sport outcomes can affect things so only being about a month into Q4, I think just the timing of when Youre seeing the guide. It's obviously going to you know a month period is going to have more volatility and as you noted it could swing either way just last night tangles make that too.

Speaker Change: Conversion in that last touchdown doesn't go in for a fourth part of leg.

Speaker Change: Leg to hit parlay leg to hit for.

Speaker Change: The touchdown parlay than would have been very different outcomes. So you know things can swing either way I think certainly over longer periods of time, it normalizes it with a little bit of a down year. This year. This year, we were around I will expect to be around 10, 5% structural hold and will finish just over 10% actual at least that's what we're tracking now maybe sport outcomes improve but.

Speaker Change: Typically over the course of the year, a pretty big number so I think over a year, it's pretty smooth and what youll see I think as the business evolves right now our adjusted EBITDA is a small percentage of our revenue as that continues to go up and we approach our long term 30, plus percent margins youre going to see the impact of sport outcomes because they have.

Speaker Change: That revenue flow through at a much excuse me affect the EBITDA at a much lower percentage and think about it. This way next year, our adjusted EBITDA is going to double at the top end of our guidance range, but we expect revenue to grow at just over 30% pace. So the impact.

Speaker Change: Sport outcome on revenue is obviously going to be the same but on EBITDA could be seen it will be about 30 little over 30% higher but on EBITDA. It will be on a number thats four times bigger so as we scale in the business generates more and more EBITDA. These impacts will become more rounding errors, but obviously now in a year, where we're just turning positive adjusted EBITDA for the first time in company history.

Speaker Change: <unk>, it's going to be a bigger impact.

Speaker Change: Understood. It looked like pass interference to me. Thank you very much.

Speaker Change: One moment for our next question.

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

Great.

Small thing just wondering I don't know if you said the hold percentage in Q3, and then take your questions.

Speaker Change: Illinois, you've talked about.

Speaker Change: Changing the promotional.

Speaker Change: Activity to kind of offset by higher tax can you talk a little bit about do you feel like you sort of fully figured out how to do that or is that still a work in progress. In other words are you are you where you want to be with that tradeoff.

And so our whole was as expected in Q3, we didn't see any it was nice to actually have a neutral quarter, especially with NFL, starting and then as far as Illinois goes I think we've begun to implement some things we're still figuring out exactly what the right levels are but if you see sort of in the bridge that we shared we included.

Speaker Change: On promo efficiency and within that one of the components as some mitigation in Illinois. So we have begun to implement that but I wouldn't say that we fully realized it and it's not a huge component of the guide next year, so potentially some upside there depending on how things evolve.

Speaker Change: Okay, great. Thank you.

Speaker Change: One moment for our next question.

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

Speaker Change: Okay.

Speaker Change: Hey, guys. Thanks, good morning.

Jason Robins: Jason I was wondering so within the context of the 31% revenue guidance for next year to the extent you can like how would you parse that between market growth across both gaming and sports betting market share and promotional extraction. If you can kind of bucket, maybe the growth across those three verticals.

Speaker Change: Or any kind of direction you can give on that.

Speaker Change: Sure. So we do bottoms up build so we typically will look at cohort data implicit in that I think is that market share doesn't change because we're basing our cohort data on what we've seen in the past and we're basing our customer acquisition estimates on what we've seen in the past so I think thats going to be basically implying.

Speaker Change: Flat market share that said, we don't actually forecast it that way, it's more of a top down exercise, we say, okay. If we kept market share flat what would this imply for market growth and sanity check it that way.

Speaker Change: On the promotional side, we've been I think as I noted a little cautious with customer acquisition environment, having been so hot so.

Speaker Change: That one I think could be potential upside if there is slower customer acquisition, but of course, that's not us.

Speaker Change: Much.

Speaker Change: Benefit in 2026 and beyond but it could be some upside on the EBITDA front for next year.

Speaker Change: But we weren't too aggressive with that number so it's not a huge component of it. So really it's more about just kind of natural market growth handle growth on our side and then a little bit of structural hold improvement.

Speaker Change: Great and then just on the promotional side is obviously 300 was the number this quarter or is that kind of in the ballpark of what youre looking to extract next year for the entirety of the year or is it something a little more muted just based on on what you just said already the customer acquisition environment.

Speaker Change: Yes, it's a little more muted just because we've been cautious on the customer acquisition environment.

Speaker Change: It's really going to depend on that I mean.

Speaker Change: The decline is going to happen just based on the fact that that base is maturing and it's more existing users. It's just a question of how hot customer acquisition is so I think we've been a little more cautious and have had a bit more muted of an assumption.

Speaker Change: See how that plays out.

Speaker Change: Great. Thank you and if I could just one follow up.

Speaker Change: You guys, obviously provided some some good disclosure around.

Speaker Change: Youre mops and arm ups in the period ex Jack pocket.

Speaker Change: The arm up growth I believe was 8%.

That just a mix issue of some of the newer customers you are bringing in or is that something that maybe relates to some of the legacy customers and you guys getting a little bit smarter with.

Speaker Change: Managing volatility and whatnot.

Speaker Change: Yes, I think it's more of the latter.

Speaker Change:

Obviously as we bring on new customers Jack pocket Theres, a lot of moving parts. So one of the things that we noted in our letter is that we do intend to make some additional disclosures at the product level next year, we're still sort of sorting out exactly what those are but I realize its kind of confusing with the way we have it now, especially with all the different.

Speaker Change: Product lines that we have so.

Speaker Change: That's something we're taking a look at so that we can hopefully provide some more useful disclosures for all of you.

Great. Thank you very much.

Speaker Change: One moment for our next question.

Speaker Change: The next question comes from Joe Greff with Jpmorgan. Your line is open.

Speaker Change: Hi, good morning, everybody.

Speaker Change: I'll start with the <unk>.

Speaker Change: Carla just ask maybe ask it somewhat differently. If you can look back at the <unk> and parse between OSB and gaming.

Speaker Change: Segment can you talk about spend per existing user versus.

Speaker Change: Newly acquired users how much of a delta or maybe lower spend new users might have relative to some of your longer term maybe more VIP customers.

Speaker Change: Sure. So obviously with the caveat that it's still early I do think that their users. We acquired in Q3 look a lot like customers. We've been acquiring recently certainly maybe not.

Speaker Change: First year in a stage cohort, but very similar to the more recent cohorts. So it seems like really the story is that after the first year or two you do get some decline in customer LTV, but then it seems to plateau. It doesn't really seem to be lower in years 456 and beyond.

Speaker Change: So thats kind of what we're seeing but again very early we're basing this on.

Speaker Change: Most of these customers only a month or two of data.

Speaker Change: Obviously, we will see how that plays out his MBA progresses, and things like that but from what we can tell it seems like theyre very similar quality to who we've been acquiring.

Speaker Change: Great. Thank you and then with respect to your 2025 revenue and EBITDA guidance range, what's contemplated at the high end versus what's baked into the low end, what's what's that $100 million EBITDA bridge, what's the delta there.

Speaker Change: The biggest difference is just customer acquisition environment, because that's kind of the hardest thing for us to predict at this point, we feel very good about the models, we have for our existing cohorts and have been very accurate in forecasting knows obviously other levers like fixed costs and marketing spend are controllable. So it's really much more what it is.

Speaker Change: A new customer volume look like and how does that end up affecting new customer promotion levels.

Speaker Change: Okay and then one final question here given the.

Speaker Change: Aforementioned customer friendly results in October.

Speaker Change: Your handle expectations versus a quarter ago called changed in other words.

For Q handle actually have gone up relative to three months ago given these outcomes.

Speaker Change: What might be stronger engagement.

Speaker Change: And we have seen a little bit.

Speaker Change: Evidence that handle can go up or down based on where their customers are winning or not it's actually not really that big a number if it is an impact at all I think much more of what we see is that people don't need to deposit is much more but they tend to keep their betting levels at a pretty similar level.

Speaker Change: On the margins you see some incremental batting but for the most part people just continue to kind of better <unk> been betting at this point.

Speaker Change: So not something that we built into our assumptions. If there is any of that it could be upside.

Speaker Change: There could be some upside on the payment processing cost side, because you don't need to have people depositing again, if they have money in their account. So all of those things could potentially create upside, but I think if it is it's not very significant so we haven't built it into the guidance.

Speaker Change: Thanks, Jason.

Speaker Change: Ladies and gentlemen, as a friendly reminder, we ask that you keep it to one question one moment for our next question.

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

Ben Miller: Great. Thanks for taking the questions.

Ben Miller: Just on the 25 EBITDA Guide I was wondering if you could expand on what some of the embedded assumptions are in there versus last quarter.

And what some of those moving pieces are that leave the range unchanged against factors that may or may not be new this quarter. Obviously, you have a revenue guide versus.

Versus prior expectations. It seems like you are mitigating some tax in Illinois are there any assumptions from Missouri and any color around that would be helpful. Thank you.

Speaker Change: Sure, Yes, so I mean, I think the general story is that in Q3, we kind of performed as expected and Q4 outside of sport outcomes. All the fundamentals are pointing towards exactly kind of what we thought maybe even a little better going into Q3 and Q4. So.

Speaker Change: There is maybe some reason to feel more optimism. Obviously, we also got standby sport outcome. So I think between that and also I'd be cautious on customer acquisition, we didn't feel comfortable raising the guide at this point, but we do see some really interesting things with parlay mix being up 500 basis points year over year in NFL and NBA off to a very strong start.

Speaker Change: From a mix perspective that do give us some confidence that there could be some upside but right now we feel like with the data. We have this is the right place to be and felt like the real macro story was maybe a little upside, but more so that we really reaffirmed over the last couple of quarters. All of the key fundamentals that led us to feel of 900 to a $1 billion was the right number.

Speaker Change: Great and then maybe just a big picture one Jason I'm curious your thoughts on the non sports betting prediction markets and.

Speaker Change: And whether that's an opportunity or how you think about that from a product standpoint.

Speaker Change: From a competition standpoint, as either cannibalizing or an opportunity for OSB and <unk>. Thanks.

Speaker Change: Yes, it's a very interesting thing.

Speaker Change: The market within that that's dominant as election markets of course, and particularly during presidential election. So I know, there's a lot of attention on and over the last few weeks.

Speaker Change: I do think there could be a place for it outside of elections, but thats really where the interest seems to be now from a demand customer demand side. So.

Speaker Change: Definitely something we're looking at in advance of next presidential election, and potentially there will be an opportunity to look at something sooner. It is a different framework.

Not license the bedding product its license the financial market.

Speaker Change: So it's definitely a very different thing so we'll have to see where it fits in the priority list, but it is something we will plan on looking at ahead of next election for sure.

Speaker Change: Great. Thanks, so much.

Speaker Change: One of them for our next question.

Speaker Change: Yeah.

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

Hey, Thanks, I'm going to try to roll through into one here. One is just on the guidance for 2025, I guess what level of customer acquisition or user growth you have embedded in the revenue guide and then secondarily you talked about the 500 basis points increase in parlays within the football season, I guess, what is what do you think is explicitly.

Speaker Change: Driving that and is that going to carryover into other.

Speaker Change: Sports into next year. Thanks.

Speaker Change: Yes, it's a great question I think on the first one.

Speaker Change: As we noted we are fairly cautious with customer acquisition from promotional budgeting perspective, but we also are not counting on a lot of volume from customers that we acquire it's mostly existing customers. So.

Speaker Change: And that's really been built up from years and years of cohort data and we feel very good about those assumptions and then of course as we noted we expect structural hold to be around 11% next year. So that's another key assumption that we have and then I think I'm sorry, what was your second question.

Speaker Change: As you think about what's the drivers of the 500 basis points.

Speaker Change: Increase in parlays into does that carryover into other sports as or specific product changes.

Speaker Change: Yes, it's a great. So I mean, a lot of it is product we've introduced a lot of new features we have live SGP markets across NFL NBA and other sports now so a lot of it is just product and product availability I think we've really increased our abilities around merchandising and creating.

Speaker Change: Interesting player props and combinations of player props into Prepack parlays.

Speaker Change: And that's been a factor so it's a number of things our marketing approach, there's a lot of different pieces moving towards that objective that have driven it as far as does that carryover. Another sports definitely have some encouraging early signs in MBA that we're seeing.

Speaker Change: And for US that's the other big one right because Nate the other big sport, but also it's the sport that has such a heavy SGP mix in general and is just naturally player oriented as a sport. So that's a big one and then baseball. We're also very excited about that being a driver of parlay mix in baseball too.

We really pushed on touchdowns. This year I think homeruns.

Speaker Change: Is it good analogy for that in baseball so definitely a lot of translatable insights I think but obviously each sport is different too. So we'll have to see as each season starts how it goes.

Speaker Change: Great. Thank you.

Speaker Change: One moment for our next question.

Speaker Change: Our next question comes from venture Ken with Mizuho. Your line is open.

Speaker Change: Hey, Thanks, Jason the elevated external marketing for 25 totally makes sense, but I guess the question is in 'twenty. Four you had a similar opportunity to acquire customers that you didn't see coming at the beginning of the year. How are you estimating that opportunity in <unk> 25, a year plus out.

Speaker Change: And I know you I think you said you are taking a conservative angle, but again just more so how did you quantify the magnitude of the opportunity for something that seems maybe hard to predict.

Yes, I mean, I think we because it is hard to predict we really tried to from a cost perspective approach. It cautiously, but then in terms of the revenue we would be counting on not count on a huge year for customer acquisition. So we tried to kind of be cautious on both sides of the equation and Thats. How you approach anything I think when it's hard to predict.

Speaker Change: The only thing I noticed that the addition of Jack pocket, which really we only had for about half a year a little over half a year also makes a big difference in this year there were no big jackpots. So.

Speaker Change: Think thats not normal last year, there were three <unk> billion plus dollar jackpot. So we also wanted to make sure that if we get some big jackpots in the lottery next year, we have some customer acquisition budget for that and just to remember even that alone going from half a year ish or a little more than half a year to a full year is also more marketing and more new customers. So.

Speaker Change: That's part of the story as well.

Gotcha, and then just some back of the envelope math is it fair to say you held a light by about 500 basis points in October and basically saying the $2 50 of hold divided by an estimated October handle on our end.

Speaker Change: Got you.

Speaker Change: <unk> you are about right good map good math work.

Speaker Change: One moment for our next question.

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

Thanks for taking the question Jason I wanted to follow up on structural hold rates you called out 11 for next year, you are pacing towards 10 and a half.

Speaker Change: Hopefully without sounding too myopic, why only 50 basis points of increase expected Gwen I think a lot of the conversations we've had so far around product mix shifts and the momentum that you guys are seeing with.

Speaker Change: Packaging product and stuff like that it all feels quite positive.

Speaker Change: Yes, I think thats, what we feel we have the line of sight to commit to right now and it's more of how we view our commitment than what we really want to achieve our internal goals that will certainly be higher than that.

Speaker Change: But as we think about what we want a guide and not even being into 2025 yet.

Speaker Change: Just wanted to make sure that we really only committed to something that we are highly confident and based on what we know right now.

Speaker Change: All of those.

Speaker Change: How does micro lending I guess sort of factor into that if at all also next year I'm curious if you could give us an update maybe on the simple that integration and perhaps when we might start to see.

Speaker Change: I guess some of the product that's sort of in the pipeline.

Speaker Change: Starting to rollout thank you.

Speaker Change: Yes, it's a great question. So I mean simple thats been a partner of ours for a while so a lot of this was one about bringing our cost in house and to really being able to take it to the next level. So.

Speaker Change: We do have a lot of micro betting offerings now, but I think a lot of what we're going to develop going into next year will really be at the top of the market.

Speaker Change: And we will separate us and really differentiate us in the live betting side.

Speaker Change: Just be micros, they're all sorts of live betting and derivative market that simple that will help us with so we're very excited about that I think as you think about the impact on whole live betting does have lower hold rate. So as we mix more into live betting it will naturally have some impact on lowering the overall average hold but obviously, we believe it's highly incremental.

So that's a good thing and at the same time. The other lever is we do believe that there's places that we have the opportunity to move live betting hold rate up so while as a whole it's lower we might be able to offset any of the mix shift and maybe even offset it to the positive with having actually higher hold rates within the live betting in pockets, where it's not high enough today. So.

Speaker Change: Those are all things I think simple that will really help us with and then obviously on the pre match side, we'll continue to push hard on parlay mix.

Speaker Change: Overall, we expect as we noted structural hold to go up but it will certainly be a mix of live betting and overall kind of.

Speaker Change: Performance on the pre match side.

Speaker Change: Thank you.

Speaker Change: Obama for next question.

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

Speaker Change: Okay.

Speaker Change: <unk>.

Speaker Change: Jason.

Jason Robins: I had a question maybe if you could describe maybe retention levels and what they look like between say in OSB and casino customer and the reason I ask is.

Speaker Change: Certainly within OSB.

Speaker Change: Have a significantly larger.

Larger competitive advantage given your product.

Speaker Change: Number of iterations, and so forth and the amount of share that you have versus the casino market that certainly seems finite today and more competitive and so I was just curious about.

Speaker Change: What those retention levels look like between yeah.

Speaker Change: Both of those customer cohorts.

Speaker Change: Yes, it's actually not too different.

Speaker Change: The retention and sports betting is naturally a little bit better, but it's not as different as you might think and.

Speaker Change: From our perspective, we view our I gaming offering is top of the market we have.

Speaker Change: We've noted been rated the number one and number two ranked apps and product quality for draft Kings and the Golden Nugget brands respectively.

Speaker Change: And we think our I gaming App is clearly head and shoulders, the best products. So.

Speaker Change: I do think that youre right its a bit more competitive and internationally. There is a little bit more fragmentation, but if you look at our share in gaming, it's not that much lower than our share in sports betting and we expect that to have some upside too as we continue to improve the product.

Speaker Change: One moment for our next question.

Speaker Change: Thank you.

Speaker Change: Yeah.

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

Speaker Change: Hey, good morning, everyone and thanks for taking my question.

Speaker Change: I know a lot of the focus has been on the 2025.

Speaker Change: But one of the things I was looking back at your Investor Day last year, you actually forecast revenue of 2020 picked the $6 2 billion. So as you think about that relationship and maybe that could be just stay out at this point, but as we think about kind of the.

Speaker Change: Path forward outside of 2025, the flow through and maybe the leverage as maybe you kind of look to exceed those prior targets given there seems to be upside on revenue how should we think about that kind of going forward and along with that sales and marketing you guys did a lot of deals in 2000 22021, probably rolling off soon so I mean is that.

Speaker Change: Also an opportunity as we think about kind of the flow through as we move past 2025.

Speaker Change: I do think to your last point that is an opportunity in <unk>.

Speaker Change: You brought up the Investor day I think.

Speaker Change: We were a little conservative in the Investor day in terms of the overall industry growth I believe we're around 9%.

Speaker Change: <unk> and flat share so.

Speaker Change: What we're seeing is that the growth is just much stronger and as you noted we're actually going to be where we thought we'd be in 2026, and 2025 with much stronger customer acquisition and continued growth. So I think there is some upside there and obviously that means that the flow through is going to have to catch up as the growth slows down in the outer years, but I.

Speaker Change: I think right now, we're seeing really encouraging signs that the Tam is bigger than probably we thought when we did the investor day and as you noted we're already a year ahead of where we thought we'd be.

Speaker Change: Sure.

Speaker Change: Thanks, so much.

Speaker Change: One moment for our next question.

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

Speaker Change: Good morning, everybody I'd like to dig in a little bit more on the 11% hold number.

Speaker Change: How do you think about that 50 bps lift in terms of average Parlaimint parlay mix versus average number of leg count improvement and could you get there just by Anniversarying. The parlay mix lift youre seeing today understanding that there is differences in your.

Product across sports and then the last part of this question is with regards to your main competitor in the hold that I know that you see that they do what would it take to get to something a little bit closer to what they're doing next year is that even possible like a 12%, 13% what would that take.

Speaker Change: Yes.

Speaker Change: To your first question, it's really mix driven and I think we can get there based on just the mix shifts we're seeing albeit.

Speaker Change: Now obviously, there are some assumptions around which sports theyre likely to trans transfer into for example.

Speaker Change: We're not expecting next year nearly the mixed shift in college sports because they tend to be less player prop oriented and therefore less parlay heavy but.

Speaker Change: With the kind of nuances aside I think yes, we can we can get there based on the mix shift we're seeing.

Speaker Change: And I think that.

Speaker Change: The path to 12% to 13% is really mix driven I mean, there is other things of course on the margin you can always do to improve your sharp modeling improve your risk mitigation things like that but 90 plus percent of it is just mix. So we're continuing to focus on that it's been a real great point of success. This year, we feel like we have a great plan going into next year drive it even higher.

It's exciting to know that there is a clear path to getting much higher on whole right and we think that is actually a big upside lever of the business that maybe people aren't counting on.

Speaker Change: Excellent. Thank you.

Speaker Change: One moment for our next question.

Speaker Change: Yeah.

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

Speaker Change: Hey, great. Thanks for taking my questions.

Speaker Change: Just thought I gaming can you sort of talk about the promotional velocity, how that's trended over the last couple of quarters, where that's going into 'twenty five and then just on the you had a king of the Corp promotion I thought it was really good can you talk about any learnings or engagement.

The ability to sort of do some type of a social par layla our social promotion again thanks.

Speaker Change: Thanks, Yes, so I mean.

Speaker Change: First on the Cana core promotion, it's been a real big success for US we've been very pleased with the results and I do think to your point, it's something we can build on in the future.

Speaker Change: He's trying different things, sometimes they work, sometimes they don't but we try to build on principles of what works. So if we see certain types of promotions are working we don't just say hey run the same promotion, we ask ourselves why.

Speaker Change: Try to come up with other promotions with similar mechanics. So this is really a creation of a number of other things that we had seen working and we had high confidence running at going into the season. So far it's been a huge success.

Speaker Change: And then sorry, what was the first question that you asked.

Speaker Change: I gaming promotional philosophy.

Speaker Change: Yes, its been pretty steady year over year, new customer acquisition has been up as we noted so with that adjusted out it's been pretty steady year over year. Each year, though we continue to see a decline because famous sports book as you have less and less new customers as the overall percentage of the mix or you're just going to naturally see decline.

Thank you.

Speaker Change: One moment for our next question.

Speaker Change: Yeah.

Speaker Change: Our next question comes from Barry Jonas with true Securities. Your line is open.

Barry Jonas: Hey, good morning.

Barry Jonas: Missouri approving OSB curious what space, you're up next for OSB or even a gaming and maybe specifically wanted to get your thoughts on Florida, given recent comments from the Seminoles, maybe opening the door for others. Thank you.

Speaker Change: I mean, it's always hard to predict states at this point.

Speaker Change: Everybody is kind of now finally, turning their attention from the election to the upcoming legislative session next year and so starting to have a lot of those discussions, but I didn't give you kind of look at where we left off last year and some of the bills that got close obviously you got the one house in Texas still.

Speaker Change: Still some big hurdles, there, but hoping that we can figure out a path.

Georgia is same thing got through the Senate.

Speaker Change: Hoping there's a path there, Minnesota got very close to the goal line last year.

Speaker Change: We're hoping that we can get that one across this year and then on the gaming side I think New York and Illinois are obviously, two big ones, we're keeping an eye on and I think could potentially have some momentum and then some others that I think could potentially get there in the next year or two our Maryland and North Carolina. So those are all states that we're looking at.

Speaker Change: But always going into that you think it's going to be a few and then inevitably some of the ones. You felt good about don't Pan out and then there is some that you didn't see coming in that ended up having a real chance of success and may be getting over the line. So it's early just came off the election, but based on kind of where the momentum was and where we were last session. The.

Speaker Change: The last set of sessions I think those are some of the ones to keep an eye on.

Speaker Change: Great and then any thoughts on Florida.

Speaker Change: Oh very encouraged to hear those comments, we really have ton of respect for hard rock and further stamina.

Speaker Change: Jim Allen has done a fantastic job and enjoyed spending time getting to know him and his team. So.

Speaker Change: We'll see how that all plays out obviously, Florida is a big state.

Something that we'd be very excited if there was a path to be able to offer our product to customers there but.

Speaker Change: Not not really up to us we'll have to see what they want to do and how the discussions progressing.

Speaker Change: Obviously, if theres any material will kind of talk about it but at this point I wouldn't say that it's very far along and it's been a lot of speculation in the press, but really I think it's pretty early stage.

Speaker Change: Great. Thank you very much.

Speaker Change: Number four our next question.

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

Great. Good morning, Thanks for taking the question.

Speaker Change: Maybe just to start with the expectation of $850 million of free cash flow for 25% how should investors think about the use of cash, particularly for buybacks next year and then just a follow up on hold.

Speaker Change: We all can track what happens with certain game outcomes and how that with favorites, winning how that can negatively impact hold is it possible to disaggregate.

The total impact on the whole between what was going on with.

Speaker Change: Team outcomes versus player perhaps in the quarter.

Speaker Change: Yes, let me quickly touch on the latter and then I'll have Alan take your first question, we're not at this time breaking down the hole, but.

Speaker Change: You can probably guess is that.

Speaker Change: It's a mix of both so.

Speaker Change: Typically when favorites win it's good for the customer and typically when the big name players get lots yards and score touchdowns. It's good for the customer so.

Speaker Change: When you see in the backup tight ends and running backs get in the end zone and low scoring games. We're the underdogs are winning and typically that's good for the house. So that's how I'd think about it but it was it was a mix.

Speaker Change: And if youre going to see the type of result that we saw to start the quarter. It has to be because it was that bad but.

Speaker Change: When it swings the other way it could swing the other way hard to sell.

Speaker Change: Time left in the quarter and obviously a lot of time left in the season and Alan do you want to touch on that $850 million in free cash flow and how we're thinking about that yes, we feel really good about having positive free cash flow not just in 2024.

Speaker Change: You mentioned that we're expecting in 2025.

Speaker Change: We're keeping our eyes on the markets, we expect to act responsibly, but you should expect us to be more active with repurchases in future quarters, as we scale into our free cash flow and as we have more liquidity.

Speaker Change: Fair enough. Thank you both.

Speaker Change #100: One moment for our next question.

Speaker Change #101: Our next question comes from Michael Graham with Canaccord. Your line is open.

Michael Graham: Thank you I just wanted to ask you about one of your slides.

Speaker Change #103: The deck you show you have $3 6 million at the end of the quarter.

Speaker Change #103: $9 3 million total customers I just wanted to ask if you could update us on your strategies for reactivating.

Customers, who have not engaged recently is it just a matter of promotional spend or is there are there other things you're doing.

Speaker Change #104: Yes, I'd say, it's a great question is that you really important thing as obviously just core retention as important as the base gets bigger and we view tension activation monetization as the ultimate keys to winning obviously acquisition is very important too but over the long term it is about retaining and getting great usage and game play out of your.

Speaker Change #104: So definitely an important topic I kind of look at it on two dimensions. So wanted to just the constant always on type of tactics were.

Speaker Change #104: If we see particular things that we believe either going to lead to attrition or recent lapses and customers. We can trigger different types of CRM treatments and re targeting treatments that will go and try to get them to reactivate and then the other factor I would say is really more seasonal around like.

Speaker Change #104: Event driven activation so.

Speaker Change #104: Think like startup NFL season, as an example, or or Super Bowl and so really thinking about how do you use those moments. When you know there is going to be a lot of natural reactivation in the market to get not only additional reactivation, but also to make sure. The natural activation youre getting as much of that as possible I kind of think of the start of NFL season, and a lot of people who maybe at one point.

Speaker Change #104: Signed up for more than one book are going to decide where they want to start planting. This season. So you want to make sure. It's with you and obviously as you do that season. After season, they tend to not think about it and just come back to their favorite App. So that's a lot of what we try to do is really use those big moment to win our share of the activation and also try to drive incremental activation through CRM.

Jason Robins: Thank you Jason.

One moment for our next question.

Speaker Change #105: Our next question comes from Chad Beynon with Macquarie. Your line is open.

Speaker Change #106: Alright. Good morning, Thanks for taking my question, obviously with the 30% growth for 25, you have a lot of focus areas that you need to be dialed into well, Jason I Wonder if anything has changed just in terms of beginning to look at some international markets or more importantly, when is the right time.

Speaker Change #106: To start considering growing in other markets.

As topline might begin to slow if theres no.

Speaker Change #106: Legislation here in North America.

Speaker Change #106: Yes.

Speaker Change #106: Definitely don't feel like there is a need it's more of an opportunistic thing at this point. So it's not to say that if the right opportunity came about we wouldn't pursue and international expansion.

Speaker Change #106: Strategy, but I don't think we feel like it's a need we are still you noted growth.

Speaker Change #106: And even without a ton of new states launching next year, we're still well easily into a rule of 40 company with over 30% growth.

Speaker Change #106: Around 15% EBITA margin, so definitely feel really good about.

Where we are from a growth perspective, and don't need to look to those things, but also if the right opportunity comes along we would be open to it and.

Speaker Change #106: I think we're staying patient and waiting for the right thing.

Speaker Change #107: Thank you very much.

Speaker Change #108: One moment for our next question.

Speaker Change #109: Our next question comes from Justin <unk> with Stifel. Your line is open.

Speaker Change #110: Great. Good morning, everyone. Thanks for taking our question, Jason I wanted to drill down into a comment you made early on in the call. If I caught it correctly you said both the volume of users acquired in the sign up offer per user acquired were both up year on year, though promotional reinvestment is as you would note in the letter was down about 300 bps year on year is that is that mostly retention bonus.

Optimization and structural hold expansion that's driving that.

Speaker Change #110: <unk> and then strategically should we think about the higher nominal sign up offer of being mostly opportunistic in the current user acquisition environment or how much is informed by.

What certain competitors are offering thanks.

Speaker Change #111: Sure. So couple of things I'd point to one.

Speaker Change #111: Definitely have seen some improvement year over year on the retention side and two even though yes, we did see an increase year over year and new customer mix excuse me new customer volume the mix actually shifted more towards existing customers just because of the growth of the retention side of the universe. So.

Speaker Change #111: We did see.

Speaker Change #111: Both I think which is great and increase but also a shift towards a more mature customer base and so those combinations ended up netting into some decline in overall promotion rate as well. So those are the big factors.

But really for us the expectation is that even if we do continue to see more new customers in a rapidly increasing.

Speaker Change #111: Industry, we don't actually think that it will be at a level even in our most kind of.

Speaker Change #111: Aggressive or I guess from promotion standpoint Conservative estimate we don't think it will reach a level where the overall mix is still not going to continue to shift more and more towards mature existing users. Each year. So we should continue to expect to see that drive down promotion rate. Each subsequent year barring maybe a new large state opening up like if a California opened up our Texas that could.

Speaker Change #111: Obviously in the short term sway it but from an existing state basis, we don't see that being the case.

Speaker Change #112: Great and then just in terms of the second part of that question.

Speaker Change #112: The offer levels per user acquired is that just you know.

Speaker Change #112: <unk> leaning in with the fish are biting or is there kind of another reason to raise the per use our offer.

Speaker Change #112: We're always.

Speaker Change #112: <unk> I mean, our overall new user offer in the overall promotion rate for new users has not gone up.

Speaker Change #112: But we're always kind of shifting in and out of different offers in it.

Speaker Change #112: Changing things around based on what test results.

Speaker Change #113: Great. Thanks very much.

Speaker Change #114: For our next question.

Speaker Change #115: Our next question comes from Jordan Bender with citizens JMP. Your line is open.

Speaker Change #116: Good morning, Thanks for taking my question. The original gross margin guidance for 'twenty four was 45% to 47%. So as we think through the bridge on one hand, Illinois is a negative which you've noted there should be some offset scheme outcomes are onetime and Jack pocket should be actually positive to gross margin. So.

Speaker Change #116: Just struggling to get why gross margins are essentially in the same place in 25 kind of blending those factors together is there anything else that we're missing here.

Speaker Change #117: I mean, it's really a new user growth.

Speaker Change #118: That's been the thing that's been driving the overall promotion level to a point, where we didn't see.

Speaker Change #118: Quite the level of gross margin improvement, we want if I remember Q3, we did see a 300 basis point year over year improvement in gross margin. So you know it is definitely trending in the right direction.

Thank you very much.

Speaker Change #119: One moment for our next question.

Speaker Change #120: Our next question comes from Ryan <unk> with Craig Hallum Capital Group. Your line is open.

Speaker Change #121: Hey, good morning.

How much of the $55 million of promotion optimization was because of customer friendly sports outcomes and you just didn't have to retention promote quite as much to them versus an actual structural change in the promo strategy and playbook that we can run with going forward.

Speaker Change #122: No it really nothing to do with sport outcomes, it's really two things one.

Speaker Change #122: Mitigation of Illinois from the tax increase into <unk>.

Speaker Change #122: We've recently made some real progress in identifying customers that a lower LTV that needed a lower level of promotion in order to.

Speaker Change #122: Makes sense from an LTV perspective, so we made some optimizations, there and actually very happy to say that that resulted in basically no change to revenue, but it did drive significant adjusted EBITDA. So that's something that we really think should be more permanent but obviously we.

Speaker Change #122: We will keep an eye on what happens in and continue to adjust and test it accordingly.

Jason Robins: Thanks, Jason.

Speaker Change #123: I'm showing no further questions at this time I'd like to turn the call back to Jason Robinson for any closing remarks.

Speaker Change #123: Great. Thank you all for joining us on today's call.

Jason Robins: Looking forward to a really strong finish in 2024 and are really excited and optimistic about 2025 and beyond. Thank you for your continued support and we look forward to speaking with you again soon ladies and gentlemen. This does conclude today's presentation. You may now disconnect and have a wonderful day.

Speaker Change #123: Yeah.

Speaker Change #123: [music].