DraftKings Inc. Q1 FY2024 Earnings Call

Good day, and thank you for standing by. Welcome to DraftKings First Quarter 2024 Earnings Call. Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Stanton Dodge, Chief Legal Officer. Please go ahead.

Good morning, everyone, and thank you for joining us today. Certain statements we make during this call may constitute forward-looking statements that are subject to risks, uncertainties and other factors as discussed further in our SEC filings that could cause our actual results to differ materially from our historical results or from our forecast. We assume no responsibility to update forward-looking statements other than as required by law. During this call, management will also discuss certain non-GAAP financial measures that we believe may be useful in evaluating DraftKings' operating performance. These measures should not be considered in isolation or as a substitute for DraftKings' financial results prepared in accordance with GAAP. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are available in our earnings release and presentation, which can be found on our website and in our quarterly report on Form 10-Q filed with the SEC. Hosting the call today, we have Jason Robins, Co-Founder and Chief Executive Officer of DraftKings, who will share some opening remarks and an update on our business; and Alan Ellingson, Chief Financial Officer of DraftKings, who will provide a review of our financials. We will then open the line to questions. I will now turn the call over to Jason Robins.

Good morning, and thank you all for joining. DraftKings is off to an outstanding start in 2024, and we're excited to be raising our outlook for the year. There are five important takeaways as we reflect on our first quarter results and the rest of the year. First, our revenue growth is strong as we continue to efficiently acquire new customers, deepen our engagement with existing customers, improve our structural Sportsbook hold percentage and optimize promotional deployment. Revenue grew 53% year-over-year in the first quarter, and our increased revenue guidance midpoint implies 34% year-over-year growth for fiscal year 2024. Secondly, we delivered successful Sportsbook launches in Vermont and North Carolina. We acquired customers efficiently and the population penetration rates consistent with prior launches. We expect both states to contribute positively to adjusted EBITDA for the second half of 2024. Third, we continue to focus on driving product innovation and customer centricity. Our platform and overall customer experience are rapidly improving. And as a result, we are achieving excellent customer retention and participation across sports and games. Fourth, we continue to focus on driving operational efficiency across the organization. We expect adjusted EBITDA flow-through percentage of 53% for fiscal year 2024 due to our largely at-scale fixed cost structure and our continued optimization of marketing and promotions. Fifth, we are continuing to explore capital allocation options given the strong trajectory of our free cash flow. Beyond our financial highlights, there are two important topics I'd also like to briefly discuss. The first is responsible gaming. There have been several recent headlines on responsible gaming, a topic that has always been very important to DraftKings. Building products that our customers can enjoy responsibly is rooted in our DNA. And we believe that we are at the forefront of responsible gaming initiatives, including technology, processes, industry affiliations and internal leadership. We will continue to drive these initiatives in conjunction with our regulatory partners and industry participants to responsibly grow this industry to its full potential. Second, we continue to innovate on our products while focusing differentially on proprietary technology solutions. In Sportsbook, we made substantial progress on our efforts to shift our highest impact content into our in-house technology and modeling platforms, while also expanding unique offerings like our Progressive Parlay products across all states and all major sports. We are also launching a cash out for Same Game Parlay, which is a critical addition to our offering. In iGaming, with the completion of the migration of the GNOG platform onto our in-house technology stack, we achieved an important milestone touching both content and technology expansion. We launched Must Hit By Jackpots, another popular variant powered by our proprietary Jackpots platform. And we also continued to expand our homegrown casino games portfolio with the launch of eight new unique to DraftKings titles in the first quarter of 2024, including Rocket 2, the sequel to our popular original Rocket game. In closing, 2024 is shaping up to be another fantastic year for DraftKings.

Thank you, Jason. I'll hit the highlights including our first quarter 2024 performance and our updated guidance for the year. Please note that all income statement measures discussed except for revenue, are on a non-GAAP adjusted EBITDA basis. As Jason mentioned, we are off to an outstanding start to the year. In the first quarter, we generated $1.175 billion of revenue, representing 53% year-over-year growth and $22 million of adjusted EBITDA, representing adjusted EBITDA flow through percentage of 60%. We achieved strong results across our core value drivers, customer acquisition, retention and engagement were excellent and resulted in higher-than-expected handle in the first quarter. Our structural Sportsbook hold percentage was slightly ahead of expectations at 9.8% and increased approximately 150 basis points year-over-year. Promotional reinvestment for OSB and iGaming continue to become more efficient year-over-year and improved by more than 700 basis points as a percentage of GGR. Adjusted gross margin increased more than 550 basis points year-over-year to 44% in the first quarter as a result of higher structural Sportsbook hold and improved promotional efficiency. Sales and marketing declined 11% on a year-over-year basis and was consistent with our expectations, both products and technology as well as general and administrative expenses were consistent with our expectations. As you are all aware, we are continuing to exert cost discipline across the organization while simultaneously increasing revenue on a year-over-year basis. Moving to our full-year 2024 guidance, we are poised for a rapid increase in adjusted EBITDA due to continued strong revenue growth, coupled with our efficient fixed cost structure. On February 15, 2024, we guided fiscal year 2024 revenue of $4.65 billion to $4.9 billion and adjusted EBITDA of $410 million to $510 million. Today, we are improving our fiscal year 2024 revenue guidance to a range of $4.8 billion to $5 billion and our fiscal year 2024 adjusted EBITDA guidance to a range of $460 million to $540 million. Importantly, the midpoints of our updated 2024 revenue and adjusted EBITDA guidance ranges imply a year-over-year adjusted EBITDA flow-through percentage of 53%. This attractive flow-through percentage is based on continued excellent performance across our core value drivers as we rapidly expand our gross margin and exert discipline on our cost structure, while simultaneously investing in promotion and marketing in accordance with our LTV to CAC targets. We will continue to focus on our dual goals of improving our financial expectations while also investing in customer acquisition and our product and technology capabilities. The $125 million improvement in our fiscal year 2024 revenue guidance midpoint and $40 million improvement in our adjusted EBITDA guidance midpoint breakdown as follows: customer acquisition, retention and engagement continue to exceed expectations due to marketing optimization initiatives and product advancements. These trends account for $165 million of the revenue improvement and $68 million of the adjusted EBITDA improvement. Structural Sportsbook hold percentage is increasing primarily as a result of momentum into our same game parlay offering. We now expect our structural Sportsbook hold percentage to approach 10.5% in fiscal year 2024, which accounts for $20 million of the revenue improvement and $14 million of the adjusted EBITDA improvement. Customer-friendly outcomes in late March and April were a headwind of $60 million and $42 million to our fiscal year 2024 revenue and adjusted EBITDA guidance, respectively. We continue to expect our adjusted gross margin to be in the range of 45% to 47% for the year, an improvement of 350 basis points at the midpoint compared to fiscal year 2023. We also continue to expect adjusted sales and marketing expense to decline modestly in fiscal year 2024. Finally, we expect to generate approximately $400 million in free cash flow in fiscal year 2024 based on approximately $120 million of annual capitalized expenditures and capitalized software development costs, as well as a modest source of cash from changes in net working capital combined with interest income. As a result, we expect our year-end 2024 cash and cash equivalents will be approximately $1.6 billion before our expected use of approximately $413 million in cash to fund our proposed acquisition of Jackpocket upon closing. That concludes our remarks. We will now open the line for questions.

Our first question comes from Shaun Kelley with BofA.

Jason or Alan, either, just wanted to see if we could dig in on the hold side a little bit. Obviously, a couple of puts and takes both in the quarter and just for, I think, relative to investor expectations out there. So Jason, if you could talk about the evolution of kind of your theoretical hold, you actually said that overall, I think it came in a little bit better than management's expectations. So what's driving that? And how do you think about the product evolution maybe both this year and in the out years, what's sort of a good baseline for investors to think about improvement as we get out into 2025 and beyond?

Yes. I think this has been obviously a big topic for a few years now, and our understanding of it is better than ever. So first, just to explain, when we say we think that structural hold is XYZ, that is based on expected hold and then any differences are bet mix driven. So what that really means is that our bet mix came in better than we expected as it relates to projected hold. As far as how we're thinking about it going forward, I think we continue to believe that there's a lot of upside here. I know everybody wants to know what's the ceiling. I think the answer is we don't know. We continue to monitor metrics and all customer behavior, handle per active rates all look healthy as we continue to drive increased parlay mix and average leg count. So I think that will continue to be the focus as long as we continue to see healthy customer metrics and get positive feedback that our customers are enjoying the products we're putting out there. So we'll see how far we can get it. But right now, we do believe there's a good bit of upside still remaining.

Our next question comes from Stephen Grambling of Morgan Stanley.

I guess, one of the big debates seems to be around flow through versus some of your peers. So I'd love to hear your thoughts on where the company is capturing marketing efficiencies in the first quarter. And then where the biggest opportunities are longer term and whether your philosophy around marketing channels or even national versus local has changed?

Yes. I mean we had an unbelievably efficient first quarter and it really continued into April. In fact, April, we had a roughly 40% year-over-year decrease in our CAC. So I think it's just optimized performance and also really strong growth in the TAM and addressable market. So I think all of that is contributing to a really healthy and efficient marketing. And I give the team a lot of credit. They've worked hard over the last year or two to optimize. And if anything, I think we see maybe some opportunities now to invest a bit deeper. So I'm really excited about the work that's been done there.

Our next question comes from Joe Greff with JPMorgan.

Jason, could you share your thoughts on mergers and acquisitions moving forward? With Jackpocket expected to close soon, I'm curious about your perspective on M&A. Is it primarily focused on domestic opportunities rather than international ones? Also, is it possible to pursue multiple M&A deals at the same time? My question stems from some recent industry discussions regarding a publicly traded iCasino operator this quarter.

Yes. We have consistently stated that we set a high standard for mergers and acquisitions. We recognize that there are multiple ways to utilize capital to create value for shareholders, and going on a merger and acquisition spree is not our sole strategy. M&A may be one option for us, but we are also realistic about the limitations, particularly regarding how much we can manage at once. While size is certainly a factor, executing multiple significant transactions at the same time would be quite difficult. This is something we carefully consider. Additionally, our path to organic growth is currently strong, which diminishes our urgency to pursue M&A as a growth strategy. We understand that the integration required with M&A can distract from our organic growth efforts. In summary, while we maintain a high bar for M&A, we are not ruling it out completely; however, managing two significant transactions simultaneously would pose challenges. Our approach to capital allocation encompasses broader considerations, not just M&A but also organic investments and other methods to return capital and create shareholder value. We remain aware of these factors as well.

Our next question comes from Ben Miller with Goldman Sachs.

I'm curious how you think about the playbook around iGaming cross-sell to the OSB users over time as we potentially see more states go live with iGaming that currently have OSB. Are there any updated views on how to think about any incremental investments needed in that scenario? And how you think about reinvestment of likely better LTVs and share of wallet into faster customer acquisition versus the flow-through to incremental margins?

Yes, that's a great question. Having multiple products in a market significantly enhances customer lifetime value. The initial cost has already been incurred when acquiring the customer. There may be promotions or incentives to encourage them to try a new product, but these costs are minimal compared to the original acquisition cost. Once customers are on board, cross-selling becomes highly effective and can quickly boost both lifetime value and short-term gross profit. We're primarily seeing a flow from sports to iGaming, although we also have some successful cross-selling from iGaming to sports and among all our products. In markets with both iGaming and sports, acquiring customers through sports and then cross-selling to iGaming tends to be the most effective approach. I'm particularly excited about our upcoming acquisition of Jackpocket, as I believe it will create a highly efficient pipeline by acquiring customers through lottery and cross-selling into online sports betting and iGaming. Overall, our strategy involves cross-selling across all our products at a relatively low cost once customers are onboarded.

Our next question comes from Robin Farley with UBS.

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

Yes, Robin, I'll speak to that. I think in the last few months, we've developed a lot more confidence than ever in our free cash flow trajectory for 2024 and beyond. To add some color, we recently kicked off our multi-year planning process. This is an exercise that touches all the functions and verticals of the organization. And as part of this, we do evaluate potential uses of cash within our core business. We reevaluated the growth trends of the business and we look to maximize shareholder value. That does include potentially returning capital to our shareholders. So we anticipate we'll be able to share more specific details with you in the next quarter. But we're very comfortable with where we're at right now.

Our next question comes from Carlo Santarelli with Deutsche Bank.

As you look ahead to 2024 or 2025, what are the main legislative priorities or areas you are focusing on, particularly regarding iGaming or sports betting, that you believe are worth pursuing? Additionally, which states or opportunities do you see as the most significant?

Yes, that's a great question. We've successfully expanded to about 50% of the population and approximately half of the states in just over five years, which is quite rapid. Due to this rapid growth, it's natural to expect some slowdown, especially considering that nearly half of the remaining population lives in three states. This context helps us identify where we should focus our efforts. While there are still many states left, only a few are significantly larger. By extending our reach beyond the top three into five, six, or seven states, we can gain a substantial foothold. We made a strong push in Georgia this year but fell short in several other states. I believe we will see progress with a couple of bills related to online sports betting later this year. Looking ahead to 2025, Texas will be a key focus for us, as it has a legitimate chance of passing legislation. It advanced through one chamber last year, but the Texas legislature is not convening in 2024, so we're preparing for 2025. In terms of iGaming, I anticipate a quicker momentum once legislation begins to roll out, as there's still a significant untapped population, with only about 11% currently engaged. As states in certain regions begin to adopt iGaming, we should see a faster succession of legislative efforts. Additionally, I believe the demand for tax revenues will grow, even with some delays linked to COVID-relief funds received by states. Thus, I expect to see a boost in iGaming. The main focus for sports betting will undoubtedly be on several large states. We will strive to have bills passed wherever possible, but the real significant changes will occur not just in the top three states I mentioned, but also in large states like Georgia. Lastly, I want to highlight that we are nearing the completion of our Jackpocket transaction, which presents substantial state expansion opportunities that often do not require legislative action. I'm excited about our potential to launch that business in many different states, and I anticipate additional states will be operational for Jackpocket before the year concludes.

Our next question comes from Clark Lampen with BTIG.

I wanted to revisit the topic of marketing efficiency, especially since you mentioned an opportunity to invest a bit more. Can you explain what is driving the improvements highlighted in the shareholder letter? More importantly, do you believe that what we're witnessing now indicates continued enhancements that you can achieve? From my perspective, it seems like the operating expense guidance has increased slightly. Are you currently observing better payback periods that are prompting you to be more aggressive with marketing? Thank you.

You nailed it. I think I mentioned earlier that the customer acquisition cost for April was approximately 40% lower compared to the previous year. We are seeing the most efficient marketing since we launched the sportsbook, which is very exciting. To be clear, we’re not planning a significant increase; it’s more about optimizing where we see opportunities to invest a little deeper in specific areas. This won’t be a major strategic shift. As markets mature, we will focus on reducing external marketing spend, though it won’t be a steady decline. There will be times when we can cut back on certain expenses due to favorable conditions, and other times when we can ramp up investment. Given the efficiencies we’re experiencing, we believe there’s a chance for a slightly deeper investment. However, it is a modest increase; it’s just a small rise in operating expenses from where we were before, reflecting the strong revenue growth and excellent customer acquisition costs we are currently seeing.

Our next question comes from Joel Stauff with Susquehanna.

I wanted to ask maybe Jason, if you can discuss like your more recent customer acquisitions or cohorts versus, say, a year ago or whatever kind of time period to go? And the lifetime value or the LTVs that you calculate for those, are you seeing an improvement largely because of marketing efficiency? Or are the economics or the spending levels for the more recently acquired customers similar to, say, a year ago? I was wondering if you could discuss that.

It's really both sides of the LTV and CAC equation. As I noted a moment ago, we had a really sharp decrease, about 40% better CAC in April this year than last year. And a continuation of really strong CACs through Q4 and Q1. And at the same time, we've also made a tremendous number of improvements to our product, our CRM and our overall customer experience, which has led to stickier customers. Our activity rates are higher than ever, and our handle and spend per customer is up. So I think we're just in a period of industry growth and still very early stage of the industry where a lot of things are just out there to be optimized and improved upon. And where I think the team is executing really well against both sides of the LTV and CAC equation right now.

Our next question comes from Robert Fishman with MoffettNathanson.

Jason, on media rights partnerships, I'm wondering if you can talk about your Amazon relationship and how that's helped drive incremental opportunities for Thursday Night Football. And then really, any early thoughts on how that partnership can be expanded if they're able to secure a big NBA package or maybe any other comments you want to make on NBA's new media deal and how that could impact DraftKing. And then just separately, if I can add, wondering if you could just speak to Jason Parks' new role and how you could characterize the biggest near-term versus longer-term opportunities with that?

Great question. So on the first one, Amazon has been a great partner of ours. We've really gotten a lot of value, and I think they have too out of the relationship, and if there are ways we can expand it depending on what their future plans are, then that's certainly a discussion we would welcome. And I'd also note we have great relationships with a number of different parties that are rumored to be involved in the bidding. So wherever it lands, I look forward to hopefully finding ways to build relationships and bring great content to customers and partner with other great organizations. So we'll have to see how that plays out. And then in terms of Jason Parks' role, as you may know, Jason actually just turned the reins over to Alan officially, I think, like a day or two ago. So he's been working hard on the queue and on everything else just like the rest of us. And I think where he's had some spare bandwidth, he's really dove into the Jackpocket integration, which obviously is a very immediate term thing that we need to really make sure we do a good job with. So that's been his immediate-term focus. I think as he rolls off this CFO role and Alan rolls in, I think you'll see him start to have more free time. And my expectation is that areas like payments and AI will be a major focus for him in the next six to twelve months. So more to come there, but really, I think, looking at things that, hence the title can be more medium- to long-term transformational for DraftKings as well as obviously making sure given how important the Jackpocket integration is that we do a great job there.

Our next question comes from Dave Katz with Jefferies.

This is Ara Mattias for David Katz. Congrats on the quarter. I wanted to ask how you're thinking about AI, maybe high level, but in terms of range of uses and responsible gaming.

Yes. I'm excited you asked that. This is one of the areas that I know a lot of companies are talking about, and we certainly agree can really be impactful in a significant and transformational way to DraftKings in the future. So we're all in on it. I think some of the early momentum we've gotten and really the focus for us is utilizing best-in-class third-party applications. Right now, we're using multiple tools from about five to ten vendors. And we're testing a variety of different use cases across the company, things that improve our product like rapid prototyping and sprint metrics supporting and also initiatives that improve efficiency like code refactoring, code review and marketing asset creation. And then obviously, being customer-centric, customer experience is at the center of our AI initiatives, including using AI to help model and detect signs of problem gaming. So that we can properly flag things for our player intervention team to go and investigate. So lots of really good stuff there. And I think we're just scratching the surface. It's super early, but our focus is not on trying to build proprietary tech as much as it is. I mean, we may build some on top of it, but it's really getting in there and using best-in-class third-party tools and figuring out the proper applications to drive value for DraftKings.

Your next question comes from Michael Graham with Canaccord Genuity.

I wanted to ask you to help us consider how the platform can evolve into a mass-market entertainment product, particularly in more established markets like New Jersey. Are you witnessing a slowdown in penetration there? Is it displaying a J-curve dynamic? Additionally, could you comment on the GGR concentration at the high end of your customer base? Is it becoming more diversified or more concentrated? Please touch on these aspects.

Yes, it's a great question. I mean, all of our older states, and you have to remember, there's still even New Jersey, it's still only 5.5 years in. So they're all still really growing nicely. In fact, if you take sort of a same-store view of our 2018 to 2022 states, we grew net revenue about 40% year-over-year in Q1. So really healthy growth in our existing states. And I think we'll continue to see that as we improve product and also just as the industry develops and the TAM increases. As far as the concentration, we're seeing it actually trend a little bit away from that. So definitely, as with any industry, there is a cohort of customers that spend a lot. And that drives a decent amount of the revenue. But I think especially relative to other companies in the industry, we're much more diversified. And the trend we're seeing is more and more casual customers are coming to the market, particularly as you noted, in older states. I think as more people come into the market, that percentage of casual increases. So definitely something that we're seeing trend in that direction.

Our next question comes from Ben Chaiken with Mizuho.

You mentioned promo expense was down over 700 basis points year-over-year, which is clearly generating a lot of operating leverage on net revenue. I would love to hear your thoughts around maybe what's driving the improvement? Is it just the natural evolution of the existing customers who are happy to use the product? Is DraftKings becoming more accurate and efficient how you target? Or is it a function of just kind of entering fewer states? It'd be good to hear any color on what you think the biggest drivers are of the traction and then the largest opportunities going forward?

Yes. I mean I think the biggest thing is the natural evolution and you mentioned this in your last point. A lot of that comes from entering some new states. So last year, in Q1, we launched Ohio and Massachusetts. This year, we launched North Carolina and Vermont, which are still two big states, but the combined population in North Carolina and Vermont is definitely lower than Massachusetts and Ohio. Secondly, just as the customer base matures, we're seeing an increase in the ratio of existing customer volume to new customer volume, which is naturally bringing down the promo rate. So a lot. In fact, the majority of it is just the natural maturity of states. And as you noted, having a lower percentage of the population launched in Q1 this year than last year. Secondly, we always are working to optimize, and the team has done a fantastic job over the last year really finding ways to lean in, in places that are working and cut in places that aren't. And I think that's made a lot of improvement also in the year-over-year drop. And there's still a ton of opportunity there. I mean we're just scratching the surface on some of this stuff. And I think the level at which we can kind of personalize the experiences will also help us increase return and optimize promo, and we're just scratching the surface there, too. So there's a lot of upside on that line item.

Our next question comes from Brandt Montour with Barclays.

So the iGaming market saw an increase in growth during the first quarter, and your iGaming growth rate also improved. Jason, I'm curious if you have any insights on what contributed to that growth at the market level. Was it due to you and your competitors, improved marketing, better cross-selling, and did you observe more acceleration in monthly active users or average revenue per monthly user?

Yes, it's a great question. I think that a lot of it is just momentum of the industry, and we're seeing it in sports, too. Just a lot of new customers coming in and a lot of people that are crossing over from sports into iGaming. I also do think that some of it has been product-driven. We've made a lot of improvements to our product, many of which we noted on our earnings call earlier, on the scripted part of the earnings call earlier. So definitely a combination of those things. And then I think certain on the marketing side, we've improved as well. That's definitely been a little more recent. So I don't know how much of that's driven the industry growth. But I think we found some wins in the recent days that have helped us acquire customers more efficiently as well.

Our next question comes from Barry Jonas with Truist.

First off, congrats, Alan, on the new role. I wanted to ask about technology. Smaller competitors talk about narrowing the gap. And we know you're not standing still, but are there more specific parts of the product you think you'll be able to maintain your competitive edge over time better than others?

Absolutely. I mean, first, sports, in particular, but really all online gaming products are incredibly complicated. There's a ton going on. I think, first and foremost, having a lot of scale and a very wide customer base gives us an advantage because we have more data and more data points to model and to improve personalization and make other decisions off of. Secondly, as you noted, we continue to invest and being at scale gives us a much larger revenue base to invest in product and engineering. And so we continue to lean in there. And I think that there's a ton we can do to improve the product that will hopefully be revenue-additive and certainly will be competitively differentiated. The other thing that I would say is that a lot of what we're focused on now. Yes, we continue to focus on customer-facing features, but a lot of what we're focused on now are kind of behind-the-curtain type of things that help us optimize hold rate and trading, things that help us personalize experiences that retain and create stickier customers. Those things are harder to copy because it's not an obvious consumer-facing feature that somebody can say, 'Oh, yes, I'm just going to figure out how to do that.' Oftentimes, it's invisible to the front end. So I think there's a lot of advantage that can be maintained long term and those sorts of things as well as sort of just the inherent advantages of scale and robustness of data size and size and efficacy of product and engineering team.

Our next question comes from Dan Politzer with Wells Fargo.

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

Yes. I mean I think what you're seeing, which probably isn't surprising, it's the same dynamic emerging in iGaming as in OSB. So on the one hand, I think that, that gives a lot of sort of clarity in terms of investors of what long-term market structure could look like, which is good. And I think for us, we just continue to focus on trying to deliver the best customer experience. And I think if we do that, we'll maximize our long-term share of the pie. But I do want to note that share is not the only metric. Obviously, everybody follows that, and that's a lot of questions. But we're focused on being the most profitable company in the space and making the most money. So I think that's ultimately how we define share of the space, not GGR share. Obviously, GGR share is a helpful metric to look at, but bottom line share is the most important thing.

And then just one quick housekeeping. Did you guys give an actual hold for the first quarter? I know you gave the structural, but if you could provide actual, that would be helpful.

Yes, I think we've said about 9.5%.

Our next question comes from Jed Kelly with Oppenheimer.

Great. Just can you talk about MAU trends? I thought it was down in the first quarter, realized you were comping some state launches. But can you speak to that? And then just as a follow-up, you're launching your new Pick6 product. Can you talk about how that can help you build your database in states where sports betting is not yet legal?

In response to your first question, are you referring to the comparison with consensus? We saw an increase in Monthly Unique Players year over year. Yes, for the first quarter, that's mainly due to seasonality, which is something we generally see. However, I believe the primary driver was the state launches, perhaps even more significant than the seasonal effects. Specifically, we launched in Ohio and Massachusetts in the first quarter of last year. So, there aren't any other factors at play there. Now, what was your second question?

Just on how does your Pick6 product help you build up your databases in states where sports betting is not yet legal?

Yes, it's a great question. I mean, Pick6 is our latest fantasy product. I think we're pretty excited about it. We think it's something that could definitely help us build the database in states that aren't yet legal. And also just create additional revenue and new ways to engage with our customers. So you nailed it, that's kind of the goal there. And I think we haven't done a lot to innovate in fantasy until the last year or so. And I think the team is energized and focused on getting back to innovation in the fantasy space as well, and this is a great example of that.

Our next question comes from Bernard McTernan with Needham & Company.

Jason, given the increased news flow this year about state tax rates potentially going higher in some areas, if there was an existing or relatively mature state increased taxes, what would the impact be? And then what levers would you have to offset that and over what time frame?

Yes. So first, I do think states understand that there is still a very large illegal market. That's not going away. And in order for us to continue to be competitive and not drive customers back to that market and also continue to take customers out of that market because there's still quite a few even in the most mature states that they need to keep tax rates at a reasonable level. So I do expect that that will be the case. But we're prepared either way. I mean in the end, the cost has to get absorbed by the consumer if the government raises taxes. So there's various levers to do that. Also, we could lower external marketing, which I think will also be driven by the fact that if taxes go up, we're going to have to create better margins and that will be a lever that we'll have to pull as well. But like I said, I think that states understand that any sort of negative impacts to the consumer offering that companies would have to take where tax rates increase would really be counter to the notion that we're trying to drive activity from the illegal market to the legal market, which has enormous number of benefits, only one of which is generating taxes. So I think states get that, and I expect that maybe there'll be one or two here and there that look to do that, but I don't think many of them will. And I even think the ones that are getting a lot more information now. And my expectation is that we'll be able to convince them that it's not a good policy decision.

Our next question comes from Jordan Bender with Citizens JMP.

Going off at Jason Park's new role in the payment processing, how should we be speaking about what that looks like to bring your payment costs more in line with your long-term goal? Is it coming through initiatives like bringing down the interchange rate that you're paying or more strategic like bringing some or all of that technology in-house? And then, Jason, I just have a follow-up. In your prepared remarks, I think you said the new state launch should add to EBITDA in the back half of the year, is that to say that the paybacks are just way ahead of any states that have been launched in the past?

Yes. So on the first question, it's still early, so I don't have a lot of specifics, but I think the types of things that Jason will be looking at are consumer-facing optimizations, like are there ways that we can motivate consumers to use lower-cost payment methods as well as other sorts of medium- to longer-term solutions like in-housing of certain pieces. So really don't know where it's going to go because it's very much exploratory. And as I noted earlier, he just turned over the reins to Alan in the last day or two. So I haven't really had a chance. He hasn't really had a chance to dig in there yet. But I do expect there's a lot of opportunity there. And just to clarify one thing, you mentioned in order to reach our long-term levels. Right now, we are tracking to where we have set expectations long term as far as payment costs go. I think this is really looking for opportunities for upside above and beyond that. We feel like already we're based on the trajectory of our current business, and this isn't just for payment processing; it's across all the different metrics of the KPIs that we have, we feel good about that trajectory. So this is really about looking for additional upside above and beyond what we shared at Investor Day last year. And then I'm sorry, what was the second question?

Yes. I wanted to clarify something. In your prepared remarks, I thought you mentioned that the two new spaces recently launched should contribute to EBITDA in the latter half of the year. Did I hear that correctly?

Yes, that is included in our guidance. It's been a trend not just with those two, but over the past year or two in several states. Last year, we observed that Ohio and Massachusetts both had a positive impact by Q4. This year, we anticipate that the two states we launched, North Carolina and Vermont, will likely contribute to the entire second half of the year. This illustrates how we are continually improving our state launch strategy, allowing us to capture significant value in a shorter timeframe with a more efficient level of investment compared to three or four years ago.

Our next question comes from Chad Beynon with Macquarie.

Jason, I wanted to ask really what gave you the confidence to raise the structural hold to 10.5%. Obviously, it's early in the year. Is that just kind of a combination of what you're seeing with pre-match, legs of parlays, in-play, etc. Any color around that would be helpful.

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

Our next question comes from Ryan Sigdahl with Craig-Hallum Capital Group.

How do you think about pricing going forward? Our checks indicated DraftKings offers the most competitive or best odds for consumers while also generating industry plus hold due to the bet mix. So kind of a win-win there. But how much of a competitive advantage do you think that is as it relates to customer retention?

Yes. In most markets, the price is usually fixed. While some customers may shop around for better odds in lesser bet markets, they are not the majority. Certain bet types, like futures, tend to attract more line shopping. However, most mainstream bets, such as player props, game lines, and over-unders, are generally similar in price. That said, we always strive to be competitive. Our goal isn't to have the lowest prices, but we also don't want to be outpriced by others. As you've mentioned, the key advantage comes from having strong models and tight pricing, which allows us to maintain better hold and remain competitive on pricing. These objectives align rather than conflict. Additionally, having good models and tight pricing increases our market uptime, which is particularly beneficial for live betting. If customers encounter difficulties while trying to place live bets, they might turn to competitors. Therefore, having tight pricing and robust models gives us a significant edge.

Our next question comes from Jeff Stantial with Stifel.

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

At any given time, there's often something that exceeds our expectations. Over the last couple of years, particularly the last two, we've seen overall improvement. In this last quarter, especially in April, customer acquisition has stood out, which aligns with what we observed in Q4 and Q1. Additionally, we've experienced significant increases in lifetime values during this time; our player activity and retention have reached all-time highs. As we enhance our product, gather more data, and continue optimizing and building better tools for both trading and marketing, we are at a stage where we can identify many clear opportunities for improvement. These efforts are positively influencing metrics across the entire value chain. While I can't highlight a single factor, it's true that at times, we may celebrate strong customer acquisition results, which often correlate with impressive retention results, since the strategies that boost acquisition frequently enhance activation and retention as well.

And I'm not showing any further questions at this time. I'd like to turn the call back over to Jason Robins for any closing remarks.

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

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