Q4 2024 DraftKings Inc Earnings Call
Good day and thank you for standing by.
Welcome to DraftKings 4th Quarter 2024 Earnings Call.
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Speaker Change: I would now like to hand the conference over to Allen Ellingson, DraftKings Chief Financial Officer. Please go ahead.
Speaker Change: During this call, management will also discuss certain non-GAAP financial measures that we believe may be useful in evaluating DraftKings' operating performance.
Speaker Change: These measures should not be considered in isolation or as a substitute for drafting 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 annual report on Form 10-K filed with the SEC.
Speaker Change: 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.
Speaker Change: Following Jason's remarks, I will provide a review of our financials. We will then open the line to questions.
Speaker Change: We will also focus on growing and further integrating our emerging vertical Brian and Jack pockets. The number one digital lottery carrier App has proven to be an efficient acquisition should help with the drafting ecosystem.
Speaker Change: <unk> recently cracked the top five in the entertainment category of the App store and the Mega millions jackpot reached $1 2 billion.
Speaker Change: Jeff pocket is positioned to benefit from larger prizes more state and an expanded product offering that includes scratch cooking.
Speaker Change: Lastly, we are focused on how we can intelligently deploy capital with our balance sheet growth now that we are generating significant positive free cash flow, we have more options available to us to maximize shareholder return. This includes optimizing our capital structure by exploring opportunities in the debt markets, while maintaining a prudent approach to leverage we will continue to prioritize returning.
Speaker Change: Capital to our shareholders, while considering all options available to us in targeting the highest risk adjusted returns.
Speaker Change: In closing I'm very excited about our trajectory in 2025 and beyond with that I will turn it over to our Chief Financial Officer Alan.
Alan: Thank you Jason.
Alan: The highlights, including our fourth quarter 2024 performance and our fiscal year 2020 guidance. Please.
Alan: Please note that all income statement measures discussed except for revenue are on a non-GAAP adjusted EBITDA basis.
Alan: As Jason mentioned, we had an excellent 2024 and I am pleased to share that our fourth quarter was strong across our core value drivers in the fourth quarter, we generated $1 $393 million of revenue, representing 13% year over year growth and $89 million of adjusted EBITDA.
Alan: Customer acquisition exceeded our expectations as newly acquired sports book and IGN <unk> customers continue to increase year over year, and our new digital lottery cardiac vertical benefited from the Mega millions jackpot, reaching $1 2 billion in late December.
Alan: Customer engagement and retention were strong.
Alan: Sports book hold percentage also continued to improve increasing 80 basis points year over year to 11, 2% for the quarter.
Alan: NFL, partly handled mix improved more than 600 basis points year over year.
Alan: So reinvestment outperformed our expectations in dollar terms.
Alan: Adjusted gross margins of 45% reflects our improving structural supports the coal percentage and our optimization of promotional offers despite a headwind from customer friendly outcomes.
Alan: I'd also like to take a couple of minutes to comment on the first quarter of 2025.
Alan: We are off to an excellent start and that provides us incremental confidence in our fiscal year 2025 revenue and adjusted EBITDA guidance ranges.
Alan: In January our core value drivers resulted in revenue and adjusted EBITDA exceeded our expectations for the month with an actual supports the coal percentage of 11%.
Alan: Additionally month to date through February 11th our acquisition retention and engagement continued to be strong and our actual sports book hold percentage was 13%.
Alan: The Super Bowl one of our tempo acquisition engagement base was a successful event for the company on Super Bowl Sunday, our customer acquisition was the bright spot is drafting sports book App reached number one in the App store in the sports category and number three across all apps.
Alan: From an engagement standpoint, we set our own daily record for sports Foot-candle at $436 million.
Alan: Finally that mix trends were favorable our same game, partly handle increased approximately 40% year over year, which ultimately resulted in the highest sports book gross gaming revenue day in the history of the company.
Alan: Now moving onto our fiscal year 2025 guidance.
Alan: And not to have early stages, our expectation that fiscal year 2025 revenue would be in the range of $6 2 billion to $6 $6 billion.
Alan: Today, we are raising the low end and midpoint of our range due to the investments that we're making into a live betting offering including our acquisition of simple Pat.
Alan: We expect our licensing initiatives will be neutral to adjusted EBITDA in 2025 and positive adjusted EBITDA in 2026 and beyond.
Alan: We now expect 2025 revenues of $6 3 billion to $6 6 billion.
Alan: Which represents year over year growth of 32% to 38%.
Alan: We had also shared in November our expectation that fiscal year 2025, adjusted EBITDA would be in the range of $900 to $1 billion.
Alan: Today, we are reaffirming that guidance range.
Alan: Early in the year, but the performance so far has been excellent across our core value drivers.
Alan: Importantly, our revenue and adjusted EBITDA guidance for fiscal year 2025 does not include the benefit of favorable year to date support outcomes, nor the company launching mobile sports betting in Missouri.
Alan: In terms of additional fiscal year 2025 detail, we continue to expect structural sportswear called percentage of approximately 11% and now anticipate a sports book net revenue margin in the range of 7% to seven 5%.
Alan: We now expect our adjusted gross margin to be in the range of 46% to 47%, which is slightly higher at the midpoint relative to our expectations last quarter.
Alan: We continue to expect stock based compensation expense to represent approximately 6% of revenue.
Alan: Finally, we expect the bridge between adjusted EBITDA and free cash flow to be $100 million.
Alan: And therefore expect to generate free cash flow of approximately $850 million in fiscal year 2025.
Alan: That concludes our remarks, and we'll now open the line for questions.
Speaker Change: Thank you as a reminder to ask a question. Please press star one one of your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Speaker Change: Our first question comes from the line of Shaun Kelley with Bank of America. Your line is now open.
Shaun Kelley: Hi, Good morning, everyone and thank you for taking my question.
Speaker Change: Jason or Alan wanted to start off with trends on the volume and handle growth side of the business. So we saw a handle growth across the industry slow a bit in the fourth quarter and I just wanted to know how.
Speaker Change: How much of a concern is that for you. What do you think can drive reacceleration in 2025 and is a pick up necessary to kind of reach your outlook as you've stated here.
Speaker Change: Thanks, John appreciate the question so.
Speaker Change: Definitely a lot of factors I think can affect numbers that really are kind of masking reality.
Speaker Change: <unk> seen but for example in the fourth quarter. There was one less NFL game this year and in the year or excuse me in 2024 versus 23, so things like that can make a difference, but we think probably the biggest impact was just distraction around the election handle growth is still good but it was a little less than what we're seeing now.
Speaker Change: And I think we have confidence in 25 years, we've seen a pretty rapid acceleration and the growth you saw the same thing with some of the ratings MBA was down a little bit of a bounce back quite a bit in the first quarter.
Speaker Change: So I think same thing INR and we've seen the handle growth accelerates in the <unk>.
Speaker Change: Elections path and especially into new year.
Speaker Change: Great and if I can.
Speaker Change: Just as a follow up but on the strategic side Jason.
Speaker Change: One is theres been a lot of news flow out there and buzz around events contracts in prediction markets entering the sports landscape. So.
Speaker Change: I appreciate it's very early here and this has been a moving target, but just sort of whats draft Kings initial take here is this something you would get into or what can kind of protect or differentiate you from that kind of offering.
Speaker Change: I do think Youre right. Its early we are watching it very actively it's certainly something that we have keen interest in seeing how it plays out so I think there is some.
Speaker Change: In the next couple of months 60 days or so theres going to be a sea FTC ruling and all sorts of other things. So I think we'll know a lot more over the next few months.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from the line of Stephen Grambling with Morgan Stanley. Your line is now open.
Stephen Grambling: Hey, thanks for the incremental detail on the sports book, the net revenue target it looks like you're assuming a fairly modest reduction in promotional intensity.
Speaker Change: As a percentage of <unk>.
Speaker Change: Zoom out what are some of the major puts takes it will influence the promotional reinvestment here and how that.
Speaker Change: Intensely may evolve longer term.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Sorry are you talking on 2025.
Speaker Change: Yes, 2025 versus 2024, and then I guess, if we think about how that will continue to I guess I would imagine trend lower as the industry matures, but just wondering if that's kind of the rate case at quite a decline.
Speaker Change: And our promotional intensity so.
Speaker Change: I think maybe.
Speaker Change: Our analysts can work with you offline and help you on that.
I think we're expecting a pretty meaningful decline in promotional intensity in 2025.
Speaker Change: Got it so I'll follow up with that maybe maybe then one more then I'll sneak in.
Speaker Change: Obviously, you started the buyback during a period, where there was tougher hold.
Speaker Change: How does volatility in hold impact your willingness to buyback and is there any specific approach to buyback either consistent or opportunistic because we think about how you will deploy capital going forward.
Speaker Change: Yeah, Stephen I'll take that we're going to be fairly programmatic with it we've communicated in the past that wed like to tie it to our free cash flow.
<unk>.
Speaker Change: Just going to be very consistent quarter over quarter.
Speaker Change: Great. Thank you.
Speaker Change: Thank you. Our next question comes from the line of David Katz with Jefferies. Your line is now open.
David Katz: Thanks, Good morning, everyone.
David Katz: Going back to a question I've asked a whole bunch of times, but it feels more appropriate now which was around.
David Katz: <unk>.
David Katz: Can you just discuss the.
David Katz: Synthetics trajectory around and play in the U S. As you see it.
David Katz: Towards getting to the kind of volume levels.
David Katz: That mix that we see for example in Europe.
Speaker Change: Yes, I think that there is a couple of things one is obviously the product and we've made a tremendous amount of headway, but also still feel we have a lot more we can do there very proud that we add the by far industry's highest uptime for markets, including in play during the Super Bowl and so Thats a big area of focus obviously the markets are not people camp.
David Katz: Pat.
David Katz: Secondly, I think beyond the product really working with the broadcasters and the streamers to try to get low latency.
David Katz: Broadcast and streams available for customers that want to emulate bad on a more micro basis, its hard when youre 2030 seconds behind.
David Katz: It almost makes the experience you have to play just on the App instead of watching the game, which I don't think of that as good and certainly not with the broadcasters and leagues want.
David Katz: So that's something I think that can help too.
So really for us it's both of those it's working with the.
David Katz: The other stakeholders in the industry to help create an ecosystem that allows the customer to maximize their experience and then making sure NRM were building the best products and making sure they are up and running and when our customers want to make that.
Speaker Change: Perfect and if I can just follow up quickly for Allen.
David Katz: My sense is there may have been.
Urged to reduce the guidance given the really strong start we've seen so far year to date.
David Katz: How did you sort of think about the ERD and resist the urge.
David Katz: I think it's very early in the year.
David Katz: And we don't feel any obligation to get ahead.
David Katz: We're seeing some really good positive strong trends.
David Katz: But let's stay consistent with what we've said in the past and let's see how the year progresses, yes, I remember, we're providing a range too so theres already some kind of.
Speaker Change: There is some moving parts built into that so I think as Alan noted, it's very early in the year. We feel like we still are very comfortable with the range. We provided on the EBIT side.
Speaker Change: Hopefully, there's some upside there, but as we saw in Q4 things can swing the other way too. So I didn't want to get out ahead of our skis.
Speaker Change: I appreciate it thank you.
Speaker Change: Thank you. Our next question comes from the line of Carlo Santarelli with Deutsche Bank. Your line is now open.
Carlo Santarelli: Hey, guys good morning.
Carlo Santarelli: Jason Alan whoever wants to take this one I think if you just look at the 35% revenue guidance.
Carlo Santarelli: Factoring in kind of the improvement in structural hold from a growth perspective, you kind of have a 17% head start on OSB revenue for the year I would imagine that.
Carlo Santarelli: The handle component plus the.
Carlo Santarelli: The promotional savings and the impact that would have on your net revenue is going to be should amount to something that's slightly higher than the 35% aggregate target with a little bit of drag from from perhaps OSB and obviously some moving parts in the other line.
Speaker Change: Is that a fair kind of reconciliation yes.
Carlo Santarelli: Yes.
Carlo Santarelli: That's pretty good I mean listen we do feel there is some upside obviously, we provided a range on the guidance and.
Carlo Santarelli: We're always out there trying to beat it we have a number of initiatives planned throughout the year, both to improve topline handle on GTR and also to improve our promotional efficiency.
Carlo Santarelli: Obviously, we'll have to see how customer acquisition performs that's been something that's been better than expectation, which is great for the long term, but can drive promotions up in the meantime.
Carlo Santarelli: So lots to do I think but also lots of upside and for US I think it's really about making sure that we put a prudent guide out there, but also have a number of initiatives that are lined up to hopefully help us beat it.
Speaker Change: Helpful. Thank you and then if I could just one follow up on the adjusted sales and marketing.
Carlo Santarelli: Clearly some some activity.
Later in the year, some acquisition activity et cetera that kind of drove those costs up year over year. How are you guys kind of thinking about that line for 2025 is that something we could expect that could come down somewhat.
Carlo Santarelli: <unk> been perhaps meaningfully as we move through the year.
Carlo Santarelli: Yes.
Carlo Santarelli: The way, we think about some of those costs, especially in the long term as we are trying to optimize.
Carlo Santarelli: And EBITA margin ultimately of close to 30%.
Carlo Santarelli: And so youre going to see some fluctuations up and down as we pick up acquisitions, and we're going to optimize the organization and continue to focus on streamlining our organization and our fixed costs to get to a place where we can deliver the EBITDA margins we've communicated.
Carlo Santarelli: Helpful. Thank you both.
Speaker Change: Thank you. Our next question comes from the line of Robin Farley with UBS. Your line is now open.
Thank you just looking at your guidance. This is I think the second quarter in row, you raised revenue guidance for 2005, but the EBIT guidance hasn't changed and presumably it's either the.
Your.
Speaker Change: Push into the live betting space can you help us think about what that would be adding presumably to 2026.
Speaker Change: Thanks.
Speaker Change: Yes, it's a great question Robin So we haven't quantified that but as Alan noted on the call. We do think that while EBITA neutral. This year the investments, we're making into live better and we'll be EBITDA positive in 2026 and beyond so youre, absolutely right, but we haven't quantified it at this time.
Speaker Change: Okay and then.
Speaker Change: As a quick follow up I think it was in your shareholder letter you mentioned exploring opportunities in the debt markets now that you have cash flow.
Speaker Change: Suggestion, there would that be.
Speaker Change: Sure could use for additional share repurchase or.
Speaker Change: How should we think about.
Speaker Change: The opportunity set.
Speaker Change: I think initially it will just be for general corporate purposes, and just to establish our presence in that market with no specific.
Speaker Change: In mind on it.
Speaker Change: Long term, we'll obviously look at the optimum way of growing the business in the right way to use our balance sheet to do so.
Speaker Change: Okay, great. Thank you.
Speaker Change: Thank you. Our next question comes from the line of Robert Fishman with Moffett Nathanson. Your line is now open.
Speaker Change: Hi, good morning.
Speaker Change: The continued strength in customer acquisition can you share more about the current levels of population penetration in some of the older vintage state.
Speaker Change: That compares to some of your newer states and maybe just the runway for higher penetration in the years ahead.
Speaker Change: I mean as you may remember and I think this is probably why you're asking some of the earlier state didn't ramp as quickly as the newer states have so.
Speaker Change: It took a little longer to get to that population penetration right now our oldest states typically are at the highest in some cases of our overall states for population penetration, particularly in states like New Jersey, which even though it took a little longer to get there has been around for a while that said there is still growing so I don't know where it is.
Speaker Change: Ceiling could be.
Speaker Change: And for US I think it is just about continuing to build a product that we think appeals to a wide variety of customers and provides great entertainment and hopefully as we do that the audience will grow I do think there's some secular tailwind behind us I think younger generation tend to participate more in these types of activities and also tend to do it more online and on mobile.
Speaker Change: So I think time is on our side on that and.
Speaker Change: In that sense.
Speaker Change: And maybe a quick follow up then can you discuss the ROI of your sponsorship strategies you saw that record sign up from the Titan Paul Netflix fight. So how does this change your approach to thinking about 2025.
Speaker Change: You know, we're always looking for opportunities like that that one to be fair I mean was it.
Speaker Change: It was kind of lightning in a bottle I don't think anyone expected to tighten Jake power fight.
Speaker Change: Have the mainstream appeal and to get the audience, including Netflix.
Speaker Change: Unbelievable traffic to the point, where it was almost hard to keep up so.
Speaker Change: That was one that was sort of a pleasant surprise and you are not going to always hit on that but I think for kind of the way we look at it as how do we make sure that we're establishing relationships with great companies that know how to put on great events, and then getting good deals in.
Speaker Change: If they hit big and great, but we don't want to count on that it's really about establishing a good framework. So that even in a kind of base case scenario, we get great ROI. So that's how we think about it.
And then if you happen to have the upside from something like what happened with the Tyson fight in great, but that's not going to happen all the time. So it can happen very often so you can't count on it.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from the line of Ben Miller with Goldman Sachs. Your line is now open.
Ben Miller: Great. Thanks, so much for taking the question I wanted to follow up on the prior life betting questions. Given it was highlighted as an area of focus in 25 I'm just curious how you think about that.
Speaker Change: You think about greater adoption of live betting translating into the model between wallet share growing wallet share with existing customers versus potentially unlocking new customer cohorts.
Speaker Change: I think it's a big part of it right most customers are not going to come in and make the first bad as alive that theyre going to have that pre match. So it really is as you noted about getting our existing customers to continue to add.
Speaker Change: Live betting in <unk>.
Speaker Change: You look at the trends overseas that sort of the story right.
Speaker Change: Grew each year from more and more existing customer adoption to the point, where now it's 70% to 80% of revenue in the U K.
Speaker Change: For digital sports book So.
Speaker Change: Definitely feel like Theres that kind of upside here the U S sports a very well built for in play betting.
Speaker Change: We saw a lot in the Super Bowl more this year than we had in prior years. So that was a very encouraging sign.
Speaker Change: I think as time goes on we're going to continue to figure out ways to better create products that appeal to customers and I. Just think also the natural evolution and maturity of the customer base people are going to Chinese sports Theyre going to Chinese bat types and that will lead to more like that.
Speaker Change: Great and then maybe just as a follow up I'd love just on the draft Kings plus subscription just any learnings early learnings from the pilot in New York and how that translated into any change customer behavior and the second part of that is just how you think about the economics of that offering between subscribers versus non subscribers.
Speaker Change: Yes, it's a great question so.
Speaker Change: It's really early and it's a very limited pilot. So we don't have enough data yet at this point, but it's something that I think could potentially have.
Speaker Change: Some real interest amongst a broader population from what we're early on theme.
Speaker Change: We wanted to make sure because we don't know what the economics are going to shake out as a part of why we kept at a very limited pilot is we didn't want to have a bunch of customers sign up for something that we then had to materially alter the economics, because it wasn't backing out.
Speaker Change: So that was that was kind of thinking on that end.
Speaker Change: Really we're going to kind of let this one run gather that data and then take a step back and say.
Speaker Change: Is this something we're going to continue to pursue and what tweaks if any do we need to make to the program before we roll it out to a broader audience.
Speaker Change: Great. Thanks, so much.
Speaker Change: Thank you. Our next question comes from the line of Joe Stauff with Susquehanna. Your line is now open.
Joe Stauff: Thank you good morning, Jason.
Joe Stauff: Good morning, Jason I was wondering if you can give us what you can but your summary views on the state budget process. Thus far in terms of new markets potential new markets or efforts to reduce gray and black market some taxes.
Joe Stauff: And then I wanted to ask about how to think about the timing.
Joe Stauff: How do you layer in say new live products throughout 2025 is it chunky for instance, before March madness like what.
Joe Stauff: How to think about that.
Joe Stauff: Yes, so on the first question.
Joe Stauff: This is the.
Joe Stauff: <unk> kind of sausage, making period, where youre going to see lots of news come out.
Joe Stauff: But there's a whole lot of things that happened between now and on the ultimate decisions get made on which states want to move forward with new legislation and anything else that happens in other states, including tax decision. So we're obviously right in effect of it with our lobbying team trying to make sure that we're getting are points made in there.
Joe Stauff: We're helping push forward the policy that we believe is the correct policy.
Joe Stauff: I'll just add.
Rod legalization with reasonable regulations and tax rate. So the operators like us are able to compete with the ramp in the legal market, which as you know.
Joe Stauff: Generating billions and billions of dollars every year.
Joe Stauff: <unk>, what's really been interesting is the degree to which the online casino.
Joe Stauff: Illegal market has grown over the last few years and I think thats catching the attention of a lot of lawmakers on it's actually a very similar story to what happened with sports betting where a lot of the impetus for legalization came from the fact that it was already so.
Joe Stauff: A ramp in activity in the illegal market and so many people were already doing it.
Joe Stauff: Made sense to protect consumers and generate tax revenue. So I do think more and more policymakers are thinking about those things and are becoming aware of the size and scope of that illegal market. So.
Joe Stauff: We're going to see how it plays out over the next few months and obviously there'll be lots of news and headlines.
Joe Stauff: But in the end there is quite a bit between now and when it ultimately resolves in each of these states that said.
Joe Stauff: Do you think we're going to have a little bit better year in terms of legalization last year was a tough year because it was the election.
Joe Stauff: Typically getting votes on gaming during an election year is hard.
Joe Stauff: People are just distracted campaigns and also don't want to take up any sort of issue that they even deemed mildly controversial.
Joe Stauff: So I think there'll be a little bit more success. This year at least that's my hope.
Joe Stauff: And then sorry, what was your second question again.
Joe Stauff: Yes, just just.
Joe Stauff: Knowing the effort.
Joe Stauff: On the large side of things in terms of timing for us.
Joe Stauff: How to think about sort of the timing yes.
Joe Stauff: Yes, so we will introduce things throughout the year.
Joe Stauff: It's certainly though the K.
Joe Stauff: Every year that we try to time certain launches around big events, there or new season launches.
Joe Stauff: Some stuff roll out at the beginning of baseball season, you'll also see some things and this is true across our product. The biggest time of year for us is to roll things out just before the NFL season, a lot of planning and effort goes into making sure that we have the best possible product for NFL and then for NBA after that.
Joe Stauff: So I.
Joe Stauff: I think it'll be pretty steady, but you will see some big rollouts right before the seasons, particularly right before the NFL season.
Speaker Change: And can I squeeze just one quick one could you just remind us March madness of last year.
Speaker Change: Overall kind of hold was say favorable versus unfavorable.
Speaker Change: It was unfavorable last year.
Speaker Change: Thanks, a lot.
Speaker Change: Sure.
Thank you. Our next question comes from the line of Clark <unk> with BTG. Your line is now open.
Speaker Change: Good morning, Thanks for taking the question.
Speaker Change: Jason I wanted to ask a question around structural hold trends I'm curious if you could give us a little bit more color around the assumption for 'twenty, five and what's embedded from a.
Speaker Change: The mix shift standpoint, you, obviously called out some favorable data points around the Super Bowl was same game parlay trends have you seen more traction.
Speaker Change: That product has improved or shifts in engagement just curious if you could give us a framework for the leading edge of player behavior in response to those products and whether thats been consistent with embedded in expectations.
Speaker Change: Yes, actually it's been a little bit better than expectation today, which is why we baked in that structural hole than our last guide I should say better than expectation to do.
Better than expectation this NFL season before it in terms of what we thought would happen before the NFL season, and MBA has continued to we've seen great that mix improvement year over year, and MBA and lot of the learnings that we got in terms of how to better not just what products customers want but also how to market and merchandise those products in a more effective way I think really.
Speaker Change: Paid dividends, both for NFL and thus far in <unk>.
Speaker Change: A season, so that's been a lot of great work on our teams and to do that and it seems like there is still upside because each passing week. The numbers are continuing to improve so we're very bullish on the outlook for structural hold for 2025, and hopefully we can do even better.
Speaker Change: That's great.
Speaker Change: I wanted to as second question addressed I guess capital allocation and potential international expansion, you've been consistent for a while I'm, saying that you think tracking should be a global enterprise, but as I mentioned this time around seemed a little bit more deliberate it came up in your prepared remarks is that in response to.
Speaker Change: Market movements opportunities that are presenting themselves to you now that werent there before or do you believe this is may.
Maybe we're at a point in time.
Speaker Change: The progression of the U S business and where you are over the next couple of years that it's.
Speaker Change: Now just more of a right place right time.
Speaker Change: Situation just curious if you could give us any color on that thank you.
Speaker Change: International has always been of interest I don't think we deliberately meant to.
Speaker Change: Any stronger on it this quarter than we ever have it's kind of the same story actually which is our primary focus of course remains to be the U S OSB and <unk> gaming space.
Speaker Change: Dipped our toe into some other places like digital lottery carrier that we're very excited about and feel like have a lot of upside within that overall U S gaming strategy online gaming strategy.
Speaker Change: It is true that a lot of the technology, we are building could be useful overseas, but it doesn't mean that that's something that we're looking at in the immediate term, we're going to be more deliberate and opportunistic so.
Speaker Change: For us it's less like Hey, do we need to do something on the international front now or should it be five years from now and more let's just continue to keep our eye on that and if the right opportunities emerge be ready to go for it but that doesn't mean that that's something that we have in the near term horizon. It's much more opportunistic than that we're very fortunate that we feel.
Speaker Change: We have a huge runway for us in the U S.
Speaker Change: Also in Canada, So theres really not like a burning need to rush international expansion.
Speaker Change: So there might be a day, where we say look this is something we just have to do and we're going to figure it out over the next 12 months.
Speaker Change: But right now it's much more he is the right opportunity out there and if not we'll just continue to focus on the U S.
Speaker Change: Perfect. Thank you very much.
Dan Pulitzer: Thank you. Our next question comes from the line of Dan Pulitzer with Wells Fargo. Your line is now open hey, good.
Speaker Change: Good morning, everyone.
Speaker Change: First how do you think about the power of your brands right now for both sports and <unk> gaming and do you think there's additional opportunity if at all for.
Speaker Change: Additional brands in either vertical and I think about Golden Nugget and all the success you've had there.
Speaker Change: Obvious example, but I figured I'd just checking here, where you had that there.
Speaker Change: Yes, I think your Golden Nugget has been a great success and also.
Speaker Change: The first part of your question I think the draft Kings brand is incredibly strong not just with sports, but with I gaming as well acclimated ton of headway building our brand in the gaming market and I also think we.
Speaker Change: Really improve the Golden Nugget online product, which I think has helped improve that brand and has really helped the share and the growth trajectory of that brand as well. So I don't see any reason, we couldnt plug that into other front end in terms of I gaming, it's not something we're actively looking at at the moment.
Speaker Change: But I do think we've built that capability and proven out that model on the sports side I think it's probably less proven doesn't mean it couldnt work, but there are reasons to believe that it is more effective strategy in gaming and it isn't supported so that's why we focus more on high gaming to date.
Speaker Change: Got it and then I think in your filings you can.
Speaker Change: Kind of back into what gaming taxes were as a percentage of revenues I was coming up with something around 37, 38%.
Speaker Change: And then thinking about your adjusted gross margin targets for 2025.
Speaker Change: Are you anticipating that gaming taxes go up and maybe do you think about kind of that out your guidance you laid out a while ago.
Speaker Change: As we sit here today, what are you baking in in terms of taxes and maybe even some of the other costs within your cost of goods sold like platform cost market access fees or processing fees.
Speaker Change: It's a bit lower than what you said, so it's not it's not 3700, 38% but.
Speaker Change: What we've assumed for 2025 is no change in taxes. It is kind of the same approach, we're taking on legalization or anything legislatively that until we.
Speaker Change: Have clear line of sight that something needs to be changed in our forecast, we're not going to change it and right. Now there is no reason to bake in higher tax rates because no state has actually increased our tax rate this year.
Speaker Change: So obviously something that could change and something that we are very focused on from a government affairs standpoint, but from a guidance standpoint, we didn't bake in any additional legalization. We don't have the Missouri launching there and we don't have any additional changes in terms of tax and regulation either.
Speaker Change: Thank you so much.
Speaker Change: Thank you. Our next question comes from the line of Jed Kelly with Oppenheimer. Your line is now open.
Jed Kelly: Great. Thanks for taking my question it seems like Youre, Jack pocket cross sell as being pretty effective.
Jed Kelly: Does that give you a sense that you'd want to like invest more in Jack pocket in states, where sports betting our I gaming.
Jed Kelly: Legal and I know you've recently, just just touched on the NBA product earlier can you give us an update on where you think your MBA product is relative to your chief competitor. Thanks.
Jed Kelly: Yes, I think Jeff Park has been great in terms of both.
Jed Kelly: Cross sell and also you had really strong customer acquisition. During this last Mega million $1 2 billion jackpot run.
Jed Kelly: So I do think that there is room to invest more there and I think that for us, it's probably more effective in states, where there is legal sports betting and gaming because the.
Jed Kelly: The ltvs in the immediate term are going to be higher because we can cross sell right away, but certainly if there are states that we think we can efficiently build the customer base similar to what we're doing in DFS.
Jed Kelly: I think Thats also a great opportunity and one of the reasons that we feel excited about chat pocket.
Jed Kelly: In terms of the NBA product, we think our product is as good as anyone in the market right now.
Jed Kelly: I think that that is probably something I wouldn't have said a year or two ago I think definitely not two years ago, maybe a year ago, but right now I think it's as good if not better than anything else out there. So really excited about the progress and proud of the progress our product and technology team has made and I actually think there's a lot of upside, particularly on the life side, where I think we have a best in class.
Jed Kelly: <unk> a clear advantage over the rest of the industry.
Jed Kelly: Thank you.
Speaker Change: Thank you. Our next question comes from the line of branch mature with Barclays. Your line is now open.
Speaker Change: Good morning, everybody. Thanks for taking my question.
Speaker Change: Jason I wanted I wanted to drill in on one of the comments you made in your prepared remarks that the long term ceiling for hold is higher than you thought.
Speaker Change: Could you just maybe flesh that out for US is that just the mix comment is that a comment that you just sort of see your chief competitor sort of growing there.
Speaker Change: Mix ever higher but just the sealing part is the part I'm focused on.
Speaker Change: Yes, it's really because of the amount of increase we saw this year I think that.
Speaker Change: If you sort of look at the curve and how much it's improved and obviously theres a lot of actions. We've taken so its not just natural evolution, but it doesn't look like it's slowing down it looks like it's accelerating so I don't know where the ceiling is but we are fairly conservative in our multiyear plan. So I think.
Speaker Change: We haven't actually quantified it so I don't give a number but we were more conservative certainly than some of the numbers that have been thrown out by by our chief competitor. So.
Speaker Change: That gives us confidence to that Theyre seeing line of sight to that that that's probably achievable for us too.
Speaker Change: Okay, Great and then just a quick follow up on gaming.
Speaker Change: Im curious if youre, having any concerns about what youre seeing in the promotional environment out there and if that's something that could get.
Speaker Change: If that could heat up further if we don't get any new state legislation over the next couple of years.
Speaker Change: I don't think so I mean, I gaming actually has declined year over year and 24 in promotional intensity now it didn't go down as much as sports, but thats more a function of the fact that there hasnt been a lot of new gaming legalization in the last three or four years. So.
Speaker Change: Naturally with more of the newer markets and sports having launched in the last couple of years Theyre going to have much more decline since their customer acquisition relative to existing customers is much stronger in the early years. So.
Speaker Change: I think thats really what youre seeing in terms of the difference between the two but both sports Andi gaming went down and I expect that gaming to continue to decline in 2025.
Edwin Sky: In terms of porcelain, thanks, Edwin Sky, obviously gotcha that gave me to grow.
Speaker Change: Expected decline.
Edwin Sky: Thanks for all of Us.
Speaker Change: Thank you our next.
Speaker Change: Question comes from the line of Barry Jonas with Truth Securities. Your line is now open.
Barry Jonas: Hey, guys good morning.
Speaker Change: New hire Illinois tax in place for a bit now can you talk about or maybe try to quantify what you've been able to do to offset the hit there.
Speaker Change: Well, we've done some things like reduced promotional intensity in marketing in the state. So that has helped obviously it didn't completely offset it but the business has done so well from from other perspectives that we actually were able to continue to maintain that $900 billion to $1 billion guidance, even with the Illinois.
Speaker Change: So feel very good about that and very excited about the overall trajectory of the business and like I said, we were able to mitigate some of it but.
Speaker Change: We weren't able to mitigate all of it in Illinois.
That's helpful. And then just with the Missouri launch could you maybe frame or even quantify what the investment, but we shouldnt.
Speaker Change: Specced for the investment this year and it would be helpful to frame it relative to prior suddenly sized launches.
Speaker Change: In the past from a cash perspective thanks.
Speaker Change: We're not putting an exact number out there now because the timing is still up in the air the earlier in the year. It is the last sort of overall on the year, because we'll have more time to make it up.
Speaker Change: Less of an EBITDA hit.
So we're going to wait until they have a launch date set before we put a number out there but as soon as they do.
Speaker Change: We'll share that with everybody.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our last question comes from the line of Ben Chaiken with Mizuho. Your line is now open.
Ben Chaiken: Hey, Thanks for taking my questions.
Speaker Change: First question was on payments.
Speaker Change: This one might be a little bit out there, but I'll take a shot with what feels like both social and political acceptance of crypto currencies do you envision a time when drafting would accept stable coins as a form of payment the idea of being reduced expenses to move money in and out of wallet. Among other items and fully recognizing you may have other fish to fry, but any color you can provide or thoughts would be great. Thanks.
Speaker Change: Yes, it's a great question I mean, it's certainly something we're looking at.
Speaker Change: It's not entirely a product roadmap question, it's also getting regulators comfortable with it because regulators typically cautious around crypto and the states obviously at a federal level.
Speaker Change: There's a lot of pro crypto.
Speaker Change: <unk>.
Speaker Change: Deregulation, I think coming but.
Speaker Change: It's certainly and that certainly affects the state's perspective, but they still need to get comfortable. So there are only a handful of states that are open to it at the moment.
Speaker Change: So it doesn't feel like a huge opportunity, but if that grows to a larger number of states. It's something that I think we take a more serious look at.
Speaker Change: Understood I appreciate it and then I hear your comments on the promotional intensity being down from earlier in the call, but is it fair to say that you have allocated a little more to external marketing spend in 'twenty five.
Speaker Change: Is that Youre allocating some to Jack pocket and then also to embrace the stronger customer acquisition environment. We've seen the last few quarters I guess am I thinking about that correctly and then any high level cadence are waiting through the year to be aware of.
Speaker Change: Yes, so we have added a little and it's really Jack pocket.
Speaker Change: OSB and <unk> gaming is going to be pretty steady year over year. So it's really Jack pocket.
Speaker Change: That's going to be a little dependent on the jackpot environment, but.
Speaker Change: We saw a pretty strong customer acquisition. During this last mega millions run so we want to make sure. We're prepared to add a lot of really efficient customers if that happens again, which I think it will.
Speaker Change: Or at least there'll be one or two in 2025, hopefully more because I don't know if everybody knows this but they decreased actually increase the price of the ticket, which means that people either spend more which is great or people will spend the same or get less tickets, which then means jackpots I'll hit less which means the roll more and get bigger so I think that's actually really positive.
Speaker Change: Development for the digital lottery market.
Speaker Change: Very helpful. Thank you.
Speaker Change: Thank you. This concludes the question and answer session I would now like to hand, the call back over to Jason Robins for closing remarks.
Jason Robins: Thanks, everybody for joining us on today's call. We are really excited about the trajectory for 2025 and beyond and thank you for your continued support.
Yes.
Jason Robins: This concludes today's conference call. Thank you for your participation you may now disconnect.
Jason Robins: Yeah.
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