Q1 2025 DraftKings Inc Earnings Call
Good day, and thank you for standing by welcome to the drafting as first quarter 2025 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 you'll need to press star one on your telephone you will then hear an automated message devices in your hand is raised to withdraw your question.
Michael: Please press Star one again, please be advised today's conference is being recorded I would now like to hand, the conference over to your speaker today, Michael <unk> Senior director of Investor Relations. Please go ahead.
Okay.
Speaker Change: Good morning, everyone and thank you for joining us today.
Speaker Change: Certain statements we make during this call may constitute forward looking statements that are subject to risks uncertainties and other factors as discussed further in our SEC filings that could cause our actual results to differ materially from our historical results or from our forecast.
Speaker Change: We assume no responsibility to update forward looking statements other than as required by law.
Speaker Change: During this call.
Speaker Change: We will also discuss certain non-GAAP financial measures that we believe may be useful in evaluating drop things operating performance.
Speaker Change: These measures should not be considered in isolation or as a substitute for <unk> financial results prepared in accordance with GAAP.
Speaker Change: Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are available in our earnings release and presentation, which can be found on our website and in our quarterly report on Form 10-Q filed with the SEC.
Speaker Change: During the call today, we have Jason Robins co founder and Chief Executive Officer of Draft Kings, who will share some opening remarks, and an update on our business.
Speaker Change: Following Jason's remarks, our Chief Financial Officer, Alan Ellingson will provide a review of our financials. We will then open the line for questions I will now turn the call over to Jason Robins.
Mike: Thank you Mike.
Speaker Change: Everyone and thank you all for joining.
Speaker Change: We're off to a strong start to the year.
Speaker Change: If not for customer friendly sport outcomes in March we will be raising our fiscal year 2025 revenue and adjusted EBITDA guidance.
Speaker Change: There are four important takeaways that we are sharing today.
Speaker Change: First our core value drivers are outperforming our expectations our product enhancements are driving higher structural sports book hold percentage of more efficient deployment of promotions, while splitsville candle is strong and consistent with our expectations. We now expect revenue to grow 32% year over year in fiscal year 2025 and 30.
Speaker Change: 6% year over year spanning the second through fourth quarters.
Speaker Change: Secondly, sport outcomes are once again customer friendly in the first quarter.
Speaker Change: Favorable Super Bowl was more than offset by favorite is dominating the managed NCWA basketball tournament.
Speaker Change: The first time in tournament history, all four number one fees reached the final four and three number two seats and one number to <unk> reached the elite eight.
Speaker Change: Across the entire appointment higher seeds wanted an 82% rate, which is the highest rate in history.
Speaker Change: We acknowledge a customer friendly sport outcomes are impacted in recent quarters and are continuously analyzing our data, including historical performance buyback tied to fully understand the gap between our structural and actual whole percentage our analysis provide a strong confidence that the recent volatility we've experienced is random in nature.
Speaker Change: Third we are well positioned for the evolving macroeconomic environment online gaming was resilient and more mature jurisdiction globally during the global financial crisis and today, our customer metrics continue to be strong consistent with forecasted trend.
Speaker Change: We are also beginning to realize efficiencies broader corporate demand softens in areas such as advertising.
Speaker Change: Or we have a healthy balance sheet, we completed the first quarter with $1 $1 billion of cash after repurchasing $3 7 million of our shares.
Speaker Change: and I'm a senior financial advisor at the University of Michigan. We have been able to secure $1.3 million of cash after repurchasing 3.7 million of our shares. Looking ahead, we expect our balance sheet to strengthen further as free cash flow accumulates.
Speaker Change: Please note that all income statement measures discuss except for revenue or on the <unk>.
Speaker Change: non-GAAP adjusted EBITDA basis.
Speaker Change: Susan mentioned, our core value drivers are outperforming our expectations.
Speaker Change: In the first quarter, we generated $1 billion and $409 million of revenue, representing 20% year over year growth.
Speaker Change: $103 million of adjusted EBITDA.
Speaker Change: New customer acquisition was consistent with our expectations and highly efficient as we continue to leverage our brand and scale, while optimizing our marketing channel mix.
Speaker Change: Handle increased 16% year over year to $13 9 billion and.
Speaker Change: And with consistent with our expectations as the NCAA men's and women's College basketball tournament attracted strong customer activity.
In the jurisdictions, where we were alive and sports spoke before 2024 handle increased 11% year over year.
Speaker Change: Structural supports for coal percentage of 10, 4% outperformed our expectations and was an increase of 60 basis points year over year, driven by partly handled mix increase of 370 basis points year over year.
Speaker Change: Actual sports book hold percentage was nine 5% as a favorable Super Bowl was more than offset by customer friendly NCAA basketball tournament outcome.
Speaker Change: <unk> reinvestment as a percentage of gross gaming revenues with more efficient year over year, even with the previously mentioned customer friendly support outcomes at the end of the quarter.
Speaker Change: Alright, adjusted gross margin increased more than 100 basis points year over year to 45% as a result of both the higher structural sports book hold percentage and the improved promotional efficiency.
Speaker Change: Adjusted operating expenses slightly outperformed our expectations as we work to integrate recent acquisitions, while maintaining cost discipline across the organization.
Speaker Change: Now I'll touch on our fiscal year 2025 guidance.
Speaker Change: In February we guided fiscal year 2025 revenue of $6 3 billion.
Speaker Change: $6 6 billion.
Speaker Change: And adjusted EBITDA of $900 million to $1 billion.
Speaker Change: Today in light of Q1 results, we are revising our fiscal year 2025 revenue guidance to $6 2 billion to $6 4 billion.
Speaker Change: And adjusted EBITDA of 800 million to $900 million.
Speaker Change: Importantly, if Tom for customer friendly outcomes in March we would be raising our fiscal year 2025 revenue and adjusted EBITDA guidance ranges at this time.
Speaker Change: Core value drivers continue to improve reflected in a higher structural sports book hold percentage and the optimization of the deployments with promotions.
Speaker Change: Sportswear Campbell has been strong and consistent with our expectations.
Speaker Change: These trends account for $50 million higher revenue and $37 million higher adjusted EBITDA across the full year.
Speaker Change: Customer friendly support outcomes year to date were a headwind of $170 million to revenue.
Speaker Change: And $111 million to adjusted EBITDA.
Speaker Change: Maryland, increasing its tax rate on sports betting and Jack Parker shutting down digital lottery operations in Texas, and New Mexico are a combined headwind of $30 million to revenue and $26 million to adjusted EBITDA.
Speaker Change: We are also providing additional fiscal year 2025 guidance detail. We continue to expect <unk> net revenue margin of 7% to seven 5% as we anticipate higher structural sports book hold percentage and increased promotional efficiency to offset the impact from customers frankly support outcomes year to date.
Speaker Change: We now expect our adjusted gross margin to be 46% an improvement of more than 300 basis points year over year compared to fiscal year 2024.
Speaker Change: We continue to expect stock based compensation expense to represent 6% of revenue in fiscal year 2025.
Speaker Change: We expect the bridge between adjusted EBITDA and free cash flow to be approximately $100 million.
Speaker Change: And therefore expect to generate free cash flow of about $750 million in fiscal year 2025.
Speaker Change: For the second quarter, we expect revenues to increase approximately 25% year over year and for adjusted EBITDA to exceed $200 million.
Speaker Change: That concludes our remarks, we will now open the line for questions.
Speaker Change: Thank you ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your telephone. If your question has been answered you were seeing with 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: Our first question comes from David Katz with Jefferies. Your line is open.
David Katz: Good morning, Thanks for taking my question.
David Katz: I wanted to just raise the issue of M&A not from a perspective of will you or want to but rather what are the boundaries as we see them today and our use of equity.
David Katz: Tolerance for leverage trajectory to accretion.
David Katz: Anything that you can give us some perspective on flex.
Speaker Change: Thank you David.
Speaker Change: I think the best way to think about it as M&A like anything is just part of an overall evaluation of what's the best way to create value for our shareholders and I think including the questions. You asked around how if you did do M&A you would ultimately think about equity versus debt versus cash on the balance sheet and a good example.
Speaker Change: Ample of that would be some of the acquisitions made last year like simple bat.
Speaker Change: <unk> and mustard golf, which really were now seeing pay dividend and our increase in live handle as well as the cost reductions we've seen by bringing those costs in house, which alone were enough to pay for the deal. So that we thought was a great use of shareholder capital because even with no revenue upside, which we do believe is there we were easily.
Speaker Change: Paying back at our thresholds.
Speaker Change: Our cost of capital so.
Speaker Change: Things like that I think may make sense, but they are really part as I said of an overall evaluation, including buybacks and other organic investments that we can be making as well.
Speaker Change: And quickly as my follow up.
Speaker Change: Wonder if you all share some of the stress that we have over the conversation of holes.
Speaker Change: So a hold versus actual whole.
Speaker Change: No.
Speaker Change: Sure we have the right structural old.
Speaker Change: Do we get there.
Speaker Change: Well.
Speaker Change: I suppose there is a bunch of discussions.
Speaker Change: Yes.
Speaker Change: I mean listen I'd be asking the same things with that a couple of really bad quarters in a row in terms of outcomes. This quarter. This past quarter was looking great until March madness. So.
Speaker Change: That does happen we have analyzed as we always do everything thoroughly and we are 100% confident that these are random outcomes.
Speaker Change: Another way to think about it too is that.
Speaker Change: Even if there were something that fundamentally changed like Ive heard theories like Nio is driving more.
Speaker Change: Winning amongst the top ranked teams in college sports first of all we didn't see that in college football.
Speaker Change: But certainly this year there were a lot of favorites that one in the college basketball tournament, 82%, which was an all time high one year does not a trend make but it is something of course that has an illegitimate theory behind it but in that case it wouldn't change through the fee rates are it wouldn't change the customers are betting on fee rates.
Speaker Change: Optimize the lines a little bit so to your question if that is something thats going on the models will pick that up.
Speaker Change: Converge so.
Unless there's fundamental changes that are happening on a frequent basis and sport.
Speaker Change: Structural hold and hold should converge over time, but part of sport is that there are randomness to outcomes and things happen. That's why people watch sports and won a bet on sports. It's part of what makes the customer experience great. So there are periods, where youre going to have quarters. Two three in a row, sometimes with bad outcomes may be even more but obviously there could be the opposite too. So we'll just have to kind of way.
Speaker Change: And see if things normalize I expect they will because they always seem to.
Speaker Change: Thank you very much.
Speaker Change: One moment for our next question.
Shaun Kelley: Our next question comes from Shaun Kelley with Bofa. Your line is open.
Shaun Kelley: Hi, Good morning, everyone and thank you for taking my questions.
Speaker Change: Jason maybe we could just start with the Big question. We received across the board is around handle growth and sort of what we've seen it broadly across the market a lot of your commentary in the letter.
Speaker Change: It was really positive around that but just to put a fine point on it have we seen a deceleration as you kind of move through Q1 and into April as we've lapped North Carolina and two do you expect trends to pick up from here and what would drive that if you do.
Speaker Change: Yes, it's great question, I mean, we seem pretty pretty strong oil growth this year.
Speaker Change: Definitely a little bit of a slowdown in April relative to Q1, but still seeing strong growth in April it's only down a bit but I think that as much of a sports seasonality type thing.
Speaker Change: NBA with a little bit weaker this year than some but the playoffs have actually been picking up so I don't expect Q2 to be too bad.
Speaker Change: I think it's probably going to end up being high single digits to low double digits growth would be my guess in terms of overall handle but is it a perspective March was 14% up year over year for us in the quarter. As you know is up 16% and then baseball year to date is up about 16%.
Speaker Change: So those are some data points that might be helpful. In thinking about where things are headed.
Speaker Change: That's great and just for a quick follow up I gaming was an area that sort of tracked a little bit behind what we were thinking a little bit behind state reported GDR figures, if we get the math right. So your comments there was there something going on as it relates to promotion or bonuses and sort of what are you doing to kind of get that product on an NTR basis back up to the growth rates you might have.
Speaker Change: Spec, which might be a little closer to high teens than the 14% that was in the quarter.
Speaker Change: I mean, we believe it should be even higher April we are in the mid twenties percentage growth year over year, 26%, So really feel like Thats, where we should be trending we.
Speaker Change: We made some significant changes and improvements I think in both the product as well as the marketing and operations and promotion deployment and I think the combination of those things have led to accelerated growth in April and we expect that to continue.
Speaker Change: Thank you.
Speaker Change: One moment for our next question.
Speaker Change: Our next question comes from Stephen Grambling with Morgan Stanley. Your line is open.
Stephen Grambling: Hey, Thank you maybe following up on both David and Sean's questions, but tying in promotions. It looks like they were down as a percentage of handle year over year, how should we be thinking about promotions as a percentage of handlers would shake out in the year <unk> longer term and any impact you think about that having on handle as well.
Speaker Change: Yes, I think it's going to be a balance.
Speaker Change: As structural hold rises to think about it in terms of handle I think thinking about it as a percentage of whole of GTR or even.
Speaker Change: Structural hold I think is a good way to think about it as well.
Speaker Change: But I do we've said this for a time and it will continue to go down even if nothing else changes in terms of.
Speaker Change: Other optimizations because of the mix of new users, becoming less and less of the total user pool over time total customer pool.
Speaker Change: So that I think is part of what happened in Q1 and.
Speaker Change: I think the other point I made is that <unk>, we expect sorry hold rate, we expect to continue to rise as the product continues to develop and as more and more customers shift into parlays and things like that so.
Speaker Change: If that happens then I think you could potentially see a flattening or even a slight rise in terms of promo as a percentage of hold but it should definitely continue to decline as a percentage of GTR.
Speaker Change: That's helpful and maybe an unrelated follow up in the release and in the letter you talked about an AI first strategy with the business. We are the biggest opportunities to leverage and deploy AI or where is it currently being used.
Speaker Change: I think this has been a real.
Speaker Change: Big win for us over the last quarter, So maybe two.
Speaker Change: It's gone from something where pockets of the company, we're utilizing it to becoming a company wide movement. It's.
Speaker Change: It's really great to see I mean, one.
Speaker Change: Example, I point to is that.
Speaker Change: All the time, we would see people thinking about what can I do if I had more head count and now people are totally shifting that mindset to what can I do with AI.
Speaker Change: Just an amazing thing and as far as where opportunities are it's really across the board on both the revenue and cost side.
Speaker Change: There is not a place that you cant see efficiency gains throughout the company everything from documents being created and summarized in.
Speaker Change: Customer service not having to spend.
Speaker Change: 45 minutes to an hour tracking down dozens and dozens of E mails or other communications customer sent because an AI tool can summarize everything that's been happening in a case to date in two seconds actually less.
Speaker Change: It's just really a remarkable thing to see how much people are really starting to understand how this can be life changing and business changing.
Speaker Change: Leaning in really hard.
Speaker Change: That's great. Thank you.
Speaker Change: One moment for our next question.
Robin Farley: Our next question comes from Robin Farley with UBS. Your line is open.
Robin Farley: Great. Thanks, I Wonder if you could talk a little bit about your market share in basketball it seem like given the strength of the acceleration of your handle growth overall in the quarter.
Speaker Change: Some others talked about softness in handling basketball, so I wonder if you could tell us a little bit about maybe if there were some share shifts there. Thanks.
Robin Farley: Yes, I do think we believe we gained some share.
Robin Farley: I think the big part of the story here has been live betting live betting is up significantly for us year over year.
Robin Farley: Really I think some of the investments we alluded to earlier.
Simple debt and some of the others I think have really helped us accelerate our live betting options.
Robin Farley: I think also those are coming with better hold and stronger adoption at the same time, which is the perfect combination. So that's been a big part of the story of what's driving our handle up and I do think we've gained some share.
Speaker Change: Okay, and then just as my follow up.
Speaker Change: Wonder if you could help us think about how.
Speaker Change: Growth rates should look you talked about.
Speaker Change: Handle being up 16% in the quarter and for the pre 2004 states up 11% so.
Speaker Change: Not a surprise right.
Speaker Change: Maybe some of his initial growth rates slow that we should expect that mill is there can you help us also think about even more.
Speaker Change: What that what that rate of growth looks like.
Speaker Change: Over a period of Q3 years right. If we looked at like the 20 states that started in 2021 versus states in 2014.
Speaker Change: What is that rate of.
Speaker Change: Sort of maybe maturing handle would look like.
Speaker Change: Yes, it's hard to look at handle in isolation, because remember one of the thing as a state mature there's a number of metrics that move together to drive increasing contribution profit handle growth is obviously one of them, but also our hold rate is going up promotions continue to decline as states mature and marketing spend.
Speaker Change: Continues to go down.
Speaker Change: As states mature so those things all combined to create significant inflection of contribution profit obviously, we'd like our handle growth to be as strong as possible, but we don't really look at it in isolation, we look at it as one of multiple things that we're monitoring.
Speaker Change: Sometimes when youre doing things like reducing promo and increasing hold rate, that's not going to always maximize the handle growth, but it still might be the optimal cocktail. So that's always how we looked at it.
Speaker Change: Okay very helpful. Thank you.
Speaker Change: 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, so much for taking the questions.
Ben Miller: Can you just talk about the underlying dynamics around the handle acceleration versus the deceleration when you exclude Jack pocket and just any color you can provide on what youre seeing in the cohort data by vintage around handle versus users would be helpful. Thanks.
Speaker Change: Yes, I think that Q1 marks were actually consistent with our expectations, but we did see that handle acceleration you mentioned so as.
Speaker Change: As I said, a big part of that is live betting live betting in Q1 was actually up to greater than 50% of our total handle the first time that's ever happened, we think there's even more upside from there as we said we've seen stats that it's as high as 70% to 80% of GG or in some cases for operators and more mature market. So we think there's a ton of opportunity there but really.
Speaker Change: Happy to see that MLP live handle it's early in the season, but it is up 36% year over year for April really great to see so we think there's a ton of upside there and as we noted in the last couple of quarters, that's where we've been leaning in but certainly also continue to focus on driving pre match handle in that mix and also been a great story on that mix.
Speaker Change: Side, we've had.
Speaker Change: <unk> had a tremendous year over year gains in terms of both SGP and partly mix and overall average Lake County.
Speaker Change: Great and then just on the prediction markets, obviously, a lot of moving pieces, there, but I'm curious how your conversations with state legislators and tribes have evolved in the context of prediction markets, whether thats Catalyzing states that are not legal to refocus efforts in somewhat.
Speaker Change: It's definitely something that Theyre talking about.
Speaker Change: And it's early days so it's hard to say at this point that it's really catalyzed anything because we haven't seen any states. They're like yes, we're going to do this now but definitely I think step one which as you noted is getting their attention and making them start having those conversations we are seeing that happen.
Speaker Change: And I think as it continues to grow that's just going to continue to be a powerful lever that.
Speaker Change: This is happening kind of whether you want to or not so do you want to do it in a way that makes sense, if you're a California tribe or if you're a state that hasnt legalized it yet.
Speaker Change: It allows you to prosper or do you want to watch it happen somewhere else and I think thats something.
Speaker Change: Everybody is talking about right now.
Speaker Change: Great. Thanks, so much.
Speaker Change: One moment for our next question.
Brian: Our next question comes from Brian <unk> with Barclays. Your line is open.
Brian: Good morning, everybody. Thanks for taking my question. So first one on OSB could you remind us.
Brian: What is implied for structural hold in the second half of 'twenty five guidance, particularly NFL and maybe talk through the lens of parlay mix. What are you looking for in terms of parlay mix lift year over year in the second half versus the trajectory that you that you were on as of the first quarter year over year.
Brian: Yes, so in terms of the back half structural hold should be.
Brian: Little North of 11, it's going be a bit lower like just below 11% in Q3 and then over.
Brian: Over 11% in Q4, so that's I think the best way to think about it and really the driver of that as you've kind of alluded to is NFL, but also MBA, which are the two best sports in terms of structural hold.
As far as the major sports go because of the heavy SGP and partly mix.
Speaker Change: That's really helpful. Jason and then just more of a near term near term modeling question the release.
Speaker Change: Says adjusted EBITDA that <unk> should exceed $200 million.
Speaker Change: A reasonable ways off from what's currently implied in the consensus numbers. So maybe you could just talk about the way that you split up the.
Speaker Change: Hold impact between the first quarter in April and then anything else. We should think about in terms of comparisons for the next couple of quarters.
Speaker Change: Yes, I mean, that's part of why we set it because we haven't always provided color on a quarter by quarter basis at the beginning of the year, we typically don't but.
Speaker Change: I wanted to obviously how.
Since we saw that.
Speaker Change: The Q2 numbers and consensus were a little bit off as far as outcomes go about $50 million or sorry, excuse me $30 million of outcome headwinds were in April so not a huge number.
Speaker Change: And that's sorry, that's on the revenue side, so obviously less impact on the on the EBITDA side.
Speaker Change: Probably 2000 $21 million of that flows through so yes, it's definitely somewhat of the impact, but it's not really it was more just the allocation across quarters was a little bit different in our model and what what the street had.
Speaker Change: Great. Thanks, everybody.
Speaker Change: One of them before our next question.
Speaker Change: Our next question comes from Jordan Bender with citizens. Your line is open.
Speaker Change: Yeah, Hi, good morning, everyone.
Speaker Change: Parameters around M&A.
Speaker Change: Do you think about potentially getting that done, but curious to get your thoughts around.
Becoming larger on a global scale through M&A and just more broadly maybe your updated thoughts around your ambitions for international expansion. Thank you.
Speaker Change: Yes, I mean, I think we continue to feel the same way we've been articulating over the past years when it comes to international it's something that we don't need but we do believe that if the right opportunity emerges, it's something that fits well and could create synergies, but we don't feel like we need it right. Now we think we have a ton of growth in the U S.
Speaker Change: So that's our focus.
Speaker Change: But if the right opportunity came about internationally, we think it's something we should look at because we do have global ambitions, one day, but obviously, we'll be very selective there and the bar is very high given our focus on the U S and our opportunity in the U S and we understand that and we know that anything we might do elsewhere, we have to do at a very high bar because.
Speaker Change: The opportunity here and any any distraction from that is costly too.
Speaker Change: Great and then just a follow up you just gave the back half of the year expected hold.
Speaker Change: What I can tell is below 11% in the third quarter above.
Speaker Change: Of a percent in the fourth quarter implies a potential slowdown in that growth year over year, just curious if thats correct and what could be driving that.
Speaker Change: No I don't think its a slowdown we're seeing structural hold increases and expect to see that in the back half of the year as well.
Speaker Change: Okay. Thank you very much.
Speaker Change: One moment for our next question.
Joe Stauff: Our next question comes from Joe Stauff with Susquehanna. Your line is open.
Joe Stauff: Thanks, Good morning, Jason Alan.
Speaker Change: Jason your comment on online betting and the improvement in the product.
Speaker Change: A lot of those acquisitions tuck in acquisitions that you have made.
Speaker Change: Largely occurred within the last year, So just wondering kind of wind.
Speaker Change: You felt as though like you have got the live product at a point now where you can really start to accelerate and see growth from that.
Speaker Change: And then I have a follow up after.
Speaker Change: Yes.
Speaker Change: I really think this past quarter was the first time I have felt like Wow, I'm actually really seeing impact on the life side start to materialize in the way that we had planned in.
Speaker Change: It was exciting to see and it's continued and actually accelerated into Q2 with MLB being up 36% year over year in life. So really excited to see that and still think there's a ton of upside as I noted, but I think it's really just this last quarter. We started to see those impacts we knew the work that was being done before but the actual impact in the numbers.
Speaker Change: Yeah.
Speaker Change: Got it thank you.
Speaker Change: And then a follow up on on Jack pocket.
Speaker Change: In terms of the database can you give us a rough split of the percentage of users and non OSB states.
Speaker Change: And do you think you have a path and Texas for them to reconsider your offering there.
Speaker Change: So I don't have an exact stat for you on percent of customers and non OSB states, but they're certainly and quite a few states that have OSB in them.
Speaker Change: Texas, obviously, it was not one of them and as far as that question.
Speaker Change: I don't know.
Speaker Change: We will have to see there is certainly.
Speaker Change: Some momentum about.
Speaker Change: Around legislation at one point, but I don't know if thats going to go through given the Senate in Texas will probably oppose it and so.
Speaker Change: I'm not sure what's going to happen there but.
Speaker Change: If it ends up that there is a stalemate in the legislature that would have to be through the courts and right now we're not pursuing that but one of Jack pocket one of the competitors.
Speaker Change: I believe a lot of dot com is doing so and recently won an injunction. So yeah. That's certainly signal if there might be something but I think early days and hard to know and obviously, we're watching closely and we'll make any decisions accordingly.
Speaker Change: Thanks, a lot.
Speaker Change: One moment for our next question.
Speaker Change: Our next question comes from Robert Fishman with Moffett Nathanson Your line is open.
Robert Fishman: Good morning.
Robert Fishman: You guys talk about getting to realize efficiency as demand softens in areas such as advertising. So just curious if you can share any levels of the AD efficiency as you've seen to date and talk more about how you can benefit or how that is going to impact your planned advertising spend for the rest of Asia.
Robert Fishman: Sure so.
Robert Fishman: What we're starting to see some is on the digital side.
Robert Fishman: Haven't really seen anything on the offline side in terms of softening yet.
Robert Fishman: A lot of the places that are <unk>.
Robert Fishman: Premium sport property are going to continue to command prices because of the scarcity of inventory, but on the digital side, we are definitely seeing some softening.
Robert Fishman: Okay. Thank you and.
Robert Fishman: Maybe on taxes.
Speaker Change: Clearly, we saw Illinois increase and with Maryland set to increase can you just take a step back and share what you've learned about the right strategy to help mitigate future tax increases and how investors should think about the risk for additional state increasing taxes in the year ahead.
Speaker Change: Yes, I mean, I think what's unfortunately happening in states increased taxes as alternate options are gaining share and so that's something that we're making sure people understand the illegal market is bigger than ever in terms of I gaming and obviously thats, mostly in states that don't have legal.
Speaker Change: I gaming, but those companies are going to create competitive offerings and push them in states that do have legalized gaming if taxes are too high. So that's something that we think certainly is resonating and then also.
Speaker Change: I think that there is an element of just making sure that they do understand that there is ultimately a cost to the consumer whether it's weaker product promotion things like that.
Speaker Change: So it's something that we're certainly cognizant is out there we are operating in quite a few states now so.
Speaker Change: At any point in time, there is probably going to be some positive developments going on in any given state and some challenges and we're just going to have to stay on top of everything.
Speaker Change: Thank you.
Speaker Change: One moment for our next question.
Speaker Change: Our next question comes from Jed Kelly with Oppenheimer. Your line is open.
Speaker Change: Hey, great. Thanks for taking my question just getting to touch the lives betting if that becomes a larger percentage of your hand of your handle would we expect that handle reaccelerate, but be at a lower hold because you don't want to maximize.
Speaker Change: Maximize your hold of live betting and then just looking at your RMB.
Speaker Change: A bit is that being more deployed the product in development or is that from acquisitions because we've noticed.
Speaker Change: Huge product improvement and your NDA product, so any color there would be great. Thanks.
Speaker Change: Yes. So on the latter question is some of the recent acquisitions that I noted or what that is being driven by and I think definitely appreciate the comments on the MBA.
Speaker Change: You know a product that we worked hard on and Im really excited about our baseball product as well as our golf, but we haven't we have a lot of great updates that are coming.
Speaker Change: Coming through the summer as well so.
Speaker Change: Pretty pumped about where we're at from a product perspective.
Speaker Change: And then as far as the first question I think it depends on the kind of live betting if youre talking about micro back next basket next patch I do think you are correct that you don't want to hold too high on those if you are talking about customers that are at half time.
Speaker Change: Betting on what the end outcome of the game is.
Speaker Change: Thats fine to have them, making parlays and having higher hold products. So I think it really depends.
Speaker Change: But that's how we think about it.
Speaker Change: Thank you.
Speaker Change: One moment for our next question.
Speaker Change: Our next question comes from Clark <unk> with <unk>. Your line is open.
Clark: Thanks, very much Jason I wanted to go back to the structural hold topic, and maybe you could help us understand or unpack I guess, what sort of contributes or drives this.
Clark: This quarter I think you guys saw a 300 basis points mix shift towards par life is that.
Clark: Largely a function of new cohorts that you're on boarding that are significantly more parlay inclined or is it coming largely from.
Clark: Your existing player cohorts, where youre able to gradually shift them over towards higher margin better retention.
Clark: Retention promo or does one of those I guess sort of offer you a bigger opportunity or a bigger value driver down the road.
Clark: It's really both.
Clark: We're seeing progress on both new customers coming in and immediately.
Clark: <unk>.
Clark: AVR.
Clark: A higher part of that mix, but also existing customers, increasing their parlay mix and partly betting.
Clark: So definitely both but as far as going forward I think the same story, both theyre going to be levers for us Theres still a lot of room. There I believe in the great thing is the customers love the product. So it is very sticky. So even if you have to utilize promo to try to get people to try it and.
Clark: Here and there continue to promo just for pure engagement, we're seeing a lot of the customers that initially adopted parlay betting through promo continue to make parlays, even when they're not getting promo. So that's really a great sign for us.
Speaker Change: That's that's helpful and if I could ask a separate follow up around AI I'm curious how much I guess, you sort of integrated that tech into the pricing and risk management framework at this stage.
Speaker Change: Are you are you using that as a means of sort of better understand the elasticity youre, capturing inferences from sort of ticket flow on the fly that might be I guess, a little bit less obvious to human that was looking at the same data.
Speaker Change: A little bit, but it is pretty early I think that's actually a huge opportunity for us I'm glad you mentioned it we are still very early days in terms of implementing but it's an area. We've identified that we think theres a lot of opportunity for sure.
Speaker Change: Thanks again.
Speaker Change: One moment for our next question.
Steven: Our next question comes from Steven <unk> with Citi. Your line is open.
Speaker Change: Hi, Thanks for taking my question.
Speaker Change: There were a few months into the launch of dress Kings Plaza in New York I was hoping you could comment on your initial learnings from that offering and if you anticipate maybe expanding that product into other states down the line.
Speaker Change: Thanks, Yes, so we had a very limited launch because we werent sure. If we're going to make changes to the product and didn't want to have a bunch of people sign up and have to do that so.
Speaker Change: As a result, it's taken a little longer to get there.
Excuse me specifically significant results on some of the things that we're looking at.
Speaker Change: That said so far we've been very encouraged by what we've seen it's been a very small user cohort as I mentioned by design, but.
Speaker Change: It's been really a success amongst those customers, we've had really high satisfaction ratings from people.
Speaker Change: People are not cancelling the subscription and theyre seeing value in it and it's also generating value for us. So we are cautiously optimistic it's something that we can do on a more broad basis, but we also like I said don't want to roll it out more broadly until we've done quite a bit of testing because we don't want to have to make changes to the program. After we've gotten hundreds of thousands or even millions of customers to sign up for it.
Speaker Change: Great. Thank you.
Speaker Change: Number four our next question.
Speaker Change: Our next question comes from Barry Jonas with true Securities. Your line is open.
Barry Jonas: Hey, guys. Good morning, I. Appreciate the chart you made showing the historical resiliency of digital gaming and Thats, the great recession, but I guess as you look at the database today are there certain segments or cohorts doing better than others worth highlighting.
Speaker Change: No not really we haven't we've actually looked at that quite a bit and we haven't seen anything to suggest that there's different cohorts no matter. How you slice. It that are performing differently. We've looked at it by state we've looked at it by higher versus lower spend customers, who have looked at it by tenure.
Speaker Change: Quite a few different ways with data by sport preference and we really aren't seeing a big change in anything everything looks pretty much as we expect so.
Speaker Change: So far we're seeing no signs that there is any macroeconomic effects happening on our customer base and as you noted I think based on other data we've seen from third parties. It really has been a trend in gaming that you don't see actually much impact if any at all from any sort of recession or economic downturn.
Speaker Change: Great and then just how are you thinking about capital allocation here, specifically share repurchases. Thanks.
Speaker Change: As we noted we did repurchase.
Speaker Change: What was it a 140 under $40 million of shares in Q1 so.
Speaker Change: <unk> pleased that we were able to do that and we have as you also know committed to $1 billion as a buyback that's been authorized by the board. So.
Speaker Change: That continues to be something that we're planning, but obviously.
Speaker Change: If anything changes in terms of either that or additional buybacks, we'll certainly let you know.
Speaker Change: Thank you.
Speaker Change: One moment for our next question.
Speaker Change: Our next question comes from Vincent <unk> with Mizuho. Your line is open.
Speaker Change: Hey, good morning, Thanks for taking my questions.
Speaker Change: My first is on external marketing spend how are you thinking about the magnitude of this spend this year relative to maybe the start of the year has it changed at all and I guess I would preface it with two dynamics as I see it number one Jack pocket exiting Texas, and then number two the softer digital AD spend environment.
Speaker Change: You referenced earlier I guess it was the combination of those two change anything for you and not sure. If there's any other dynamics that you would flag or if I captured it all.
Speaker Change: Yes, it's a good question so.
Speaker Change: At this point, it's pretty much where we expect it to expected it to be.
Speaker Change: There has been as you noted a little bit of softening on the digital side. So we're certainly looking at opportunities to maybe spend a little bit more there, but that is more than offset alright, sorry that is offset by the reduction that we see in Texas from Jack pocket exiting so it's kind of a wash and we're sort of right on track with where we thought we'd be.
Speaker Change: Sorry, maybe just a follow up there I guess, if it's softer digital AD spend wouldn't that be a less expensive for you and then wouldn't Jack.
Texas got alright.
Speaker Change: It's softer sometimes as an opportunity to lean in a little bit more right. Because you have to spend that wasn't efficient before that now is sufficient.
Speaker Change: Understood makes sense and then.
Speaker Change: If youre buying literally the same volume of ads, though youre correct, but when the market softened, sometimes that's an opportunity to spend a little bit deeper, but like I said. This is these are low double digit flat.
Speaker Change: Flex is either way so it's kind of a rounding error, even even if you didn't include either of them were pretty much right, where we expect it to be and expect that it'll be the trend for the rest of the year.
Speaker Change: Understood. That's helpful. And then on just one more on Jack bucket I guess.
Speaker Change: What's the desire to integrate this into the draft Kings App and then any updated thoughts on profitability I think in the past there was some medium term kind of bogeys out there you'd provided should we expect an update here at some point just given the changes in a few markets.
Speaker Change: So on the first question, we're actually actively working on that so I do expect it will be integrated sometime I believe in the back half of the year.
Speaker Change: And we will have it fully on our platform on our Pan So that will also hopefully help with conversion and other metrics on the wallet.
Speaker Change: As far as profitability goes we said that it would be profitable. This year, we do expect that it will be probably about breakeven, maybe slightly up or down from a profitability level largely due to the Texas exit.
Speaker Change: So it's something that obviously.
Speaker Change: We hope to get over the profit line, but also it is a growth asset and we want to make sure we're properly investing in it to it's still growing very quickly even with Texas. So I think a lot of opportunity on that front.
Speaker Change: Thanks I appreciate it.
Speaker Change: Ladies and gentlemen, this does conclude the Q&A portion of today's conference I would like to turn the call back over to Jason for any further remarks.
Speaker Change: Thank you all for joining us on today's call. We are really optimistic about the rest of 2025 and are well positioned for continued success in the future. Thank you for your continued support.
Speaker Change: Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
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