Good day, and thank you for standing by. Welcome to DraftKings Fourth Quarter 2024 Earnings Call. At this time all participants are in a listen-only mode. After the speakers’ presentation there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Alan Ellingson, DraftKings' Chief Financial 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 annual report on Form 10-K 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. Following Jason's remarks, I’ll 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. Today, I'm excited to share our strong 2024 results, our areas of focus for 2025 and why I'm enthusiastic about the next few years. We just wrapped up our 13th year of DraftKings, and I am more confident than ever in our growth trajectory and ability to capitalize on the substantial opportunity ahead of us. My confidence begins with the year we had in 2024. For the year, revenue increased 30% year-over-year to $4.8 billion. Adjusted EBITDA improved $332 million year-over-year to $181 million, and free cash flow was positive for the first time in our history. We acquired 3.5 million new customers at record low customer acquisition costs and increased our total customer base 42% year-over-year to $10.1 million. I am also proud that our business is demonstrating strong operating leverage. While revenue grew 30% in fiscal year 2024, our adjusted operating expenses increased only 5% year-over-year as we normalize for costs related to our acquisition. We expect this to continue as our revenue growth remains strong while our expenses approach scale as we continue to exert discipline and leverage new technologies across the organization. Looking further ahead to the future, I'm excited about a number of vectors that could even further accelerate our growth. Our structural Sportsbook hold percentage is continuing to increase, and the long-term ceiling could prove higher than we forecast. Additional online gaming legalization in the U.S. appears inevitable; it is more a question of when, not if. Our newer verticals such as digital lottery courier are only in their infancy. DraftKings is at the epicenter of a megatrend. Real money online gaming is a large growing industry with secular tailwinds behind it. We believe we are well-positioned to capture significant share, and we haven't even begun to expand outside the U.S. and Canada, which we could explore as a longer-term opportunity. In 2025, one area of focus is extending our lead in live betting. Our recent acquisitions of Simplebet, Sports IQ Analytics, and Mustard Golf provide us with proven technology and analytical tools that will accelerate our product roadmap and bring the live betting experience to another level. We will also focus on growing and further integrating our emerging verticals. For instance, Jackpocket, the number one digital lottery courier app, has proven to be an efficient acquisition channel for the DraftKings ecosystem. The app recently cracked the top 5 in the entertainment category of the App Store during the Mega Millions jackpot which reached $1.2 billion. Jackpocket is positioned to benefit from larger prizes, more states, and an expanded product offering that includes scratcher games. Lastly, we are focused on how we can intelligently deploy capital as our balance sheet grows. Now that we are generating significant positive free cash flow, we have more options available to us to maximize shareholder returns. 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 capital to our shareholders, considering all options available to us in targeting the highest risk-adjusted returns. 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 Ellingson.

Thank you, Jason. I'll start with the highlights, including our fourth quarter 2024 performance and our fiscal year 2025 guidance. Please note that all income statement measures discussed except for revenue, are on a non-GAAP adjusted EBITDA basis. As Jason mentioned, we had an excellent 2024, and I'm pleased to share that our fourth quarter was strong across our core value drivers. In the fourth quarter, we generated $1.393 billion of revenue, representing 13% year-over-year growth and $89 million of adjusted EBITDA. Customer acquisition exceeded our expectations as newly acquired Sportsbook and iGaming customers continued to increase year-over-year, and our new digital lottery courier vertical benefited from the Mega Millions jackpot reaching $1.2 billion in late December. Customer engagement and retention were strong; the structural Sportsbook hold percentage also continued to improve, increasing 80 basis points year-over-year to 11.2% for the quarter as our NFL parlay handle mix improved more than 600 basis points year-over-year. Promotional reinvestment outperformed our expectations in dollar terms. Adjusted gross margins of 45% reflects our improving structural Sportsbook hold percentage and our optimization of promotional offers despite a headwind from customer-friendly outcomes. I'd also like to take a couple of minutes to comment on the first quarter of 2025. We are off to an excellent start, which provides us incremental confidence in our fiscal year 2025 revenue and adjusted EBITDA guidance ranges. In January, our core value drivers resulted in revenue and adjusted EBITDA that exceeded our expectations for the month with an actual Sportsbook hold percentage of 11%. Additionally, month-to-date through February 11, our acquisition, retention, and engagement continue to be strong, and our actual Sportsbook hold percentage was 13%. The Super Bowl, one of our tentpole acquisition and engagement days, was a successful event for the company. On Super Bowl Sunday, our customer acquisition was a bright spot as DraftKings Sportsbook app reached number one in the App Store in the sports category and number three across all apps. From an engagement standpoint, we set our own daily record for Sportsbook handle at $436 million. Finally, debt mix trends were favorable as same-game Parlay handle increased approximately 40% year-over-year, resulting in the highest Sportsbook gross gaming revenue day in the history of the company. Now moving on to our fiscal year 2025 guidance. In November, we stated our expectation that fiscal year 2025 revenue would be in the range of $6.2 billion to $6.6 billion. Today, we are raising the low end and midpoint of our range due to the investments that we are making into our live betting offering, including our acquisition of Simplebet. We expect our live betting initiatives will be neutral to adjusted EBITDA in 2025 and positive to adjusted EBITDA in 2026 and beyond. We now expect 2025 revenues of $6.3 billion to $6.6 billion, which represents year-over-year growth of 32% to 38%. We had also shared in November our expectation that fiscal year 2025 adjusted EBITDA would be in the range of $900 million to $1 billion. Today, we are reaffirming that guidance range. It is early in the year, but the performance so far has been excellent across our core value drivers. 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. In terms of additional fiscal year 2025 detail, we continue to expect structural sportsbooks hold percentage of approximately 11% and now anticipate a Sportsbook net revenue margin in the range of 7% to 7.5%. We now expect our adjusted gross margin to be in the range of 46% to 47%, which is slightly higher than midpoint relative to our expectations last quarter. We continue to expect stock-based compensation expense to represent approximately 6% of revenue. Finally, we expect the bridge between adjusted EBITDA and free cash flow to be $100 million and therefore expect to generate free cash flow of approximately $850 million in fiscal year 2025. That concludes our remarks, and we will now open the line for questions.

Thank you. Our first question comes from the line of Shaun Kelley with Bank of America. Your line is now open.

Hi, good morning everyone. And thank you for taking my question. Jason or Alan, I wanted to start off with trends on the volume and handle growth side of the business. So we saw handle growth across the industry slow a bit in the fourth quarter. And I just wanted to know how much of a concern is that for you? What do you think can drive reacceleration in 2025? And is a pickup necessary to reach your outlook as you stated here?

Thanks, Shaun. I appreciate the question. A lot of factors can affect numbers that really are masking reality, so it's not a huge concern. But for example, in the fourth quarter, there was one less NFL game this year than the year before, which can make a difference. I think the biggest impact was just distraction around the election. Handle growth is still good, but it was a little less than what we are seeing now. The reason I believe we have confidence in 2025 is that we've seen a pretty rapid acceleration in handle growth. You saw the same thing with some of the ratings. NBA was down a little bit, but it has bounced back significantly in the first quarter. So I think we are seeing the same thing on our end, with handle growth accelerating since the elections passed, especially into the new year.

Great. And if I could just a follow-up on the strategic side, Jason. There has been a lot of news flow around events contracts and prediction markets during the sports landscape. So appreciate that it is very early here, and this has been a moving target. But what's DraftKings' initial take here? Is this something you'd consider getting into? Or what can set you apart from that kind of offering?

Yes. You are right, it is early. We are watching it very actively and have a keen interest in seeing how it plays out. There will be a CFTC ruling in the next couple of months, so I think we will know a lot more over that time.

Thank you. Our next question comes from the line of Stephen Grambling with Morgan Stanley. Your line is now open.

Hi. Thanks for the incremental detail on the Sportsbook. The net revenue target looks like you're assuming a fairly modest reduction in promotional intensity at least as a percentage of GGR. If we zoom out, what are some of the major factors that will influence the promotional reinvestment here and how that intensity may evolve longer term?

Yes, you're talking about 2025. I think we are expecting a meaningful decline in promotional intensity in 2025. I think our analysts can work with you offline and help you on that.

Got it. So I will follow up with that. Maybe just one more I’ll sneak in. You started the buyback during a period of tougher hold. How does volatility and hold impact your willingness to buy back? Is there any specific approach to buy back either consistently or opportunistically as we think about how you will deploy capital going forward?

Yes, Stephen, I'll take that. We're going to be fairly programmatic with it. We've communicated in the past that we'd like to tie it to our free cash flow, and we're just going to be very consistent quarter-over-quarter.

Thank you. Our next question comes from the line of David Katz with Jefferies. Your line is now open.

Thanks good morning everyone. Going back to a question I've asked multiple times, but it feels more appropriate now which is around in-play betting. Can you just discuss the factors and trajectory around in-play betting in the U.S. as you see it, towards getting to the kind of volume levels that we see in Europe?

Yes. There are obviously product considerations, and we've made significant headway there, but I still feel we have a lot more to do. I'm proud that we had the highest uptime for markets, including in-play during the Super Bowl. That's a major focus for us. Additionally, we are working with broadcasters and streamers to get low latency broadcasts and streams available for customers who want to bet in play on a more micro basis. It's hard when you're 20, 30 seconds behind; it limits the betting experience. So it’s really an effort of both creating an ecosystem that maximizes the customer experience and ensuring we build the best products that maintain uptime.

Perfect. If I can just follow up quickly for Alan. My sense is there may have been an urge to raise the guidance given the strong start we've seen year-to-date. How did you manage to resist that urge?

I think it is very early in the year, and we don't feel any obligation to get ahead of the numbers. We are seeing some positive strong trends, but we want to remain consistent with our past statements and see how the year progresses.

Yes. And just remember that we are providing a range too, so there's already some movement built into that. So as Alan noted, it is early in the year. We're comfortable with the range we provided on the EBITDA side and hopefully, there is some upside there too.

Thank you. Our next question comes from the line of Carlo Santarelli with Deutsche Bank. Your line is now open.

Hi guys. Good morning. Jason, Alan, whoever wants to take this one. If you look at the 35% revenue guidance, factoring in the improvement in structural hold, it seems like you have a 17% head start on OSB revenue for the year. I would imagine the handle component plus the promotional savings and impact on your net revenue will likely be higher than the 35% aggregate target, with potentially a drag from OSB. Is that a fair assessment?

Yes, I think that is a fair assessment. I mean, we do feel there is some upside. Obviously, we provided a range on the guidance, and we always aim to beat it. We have a number of initiatives planned throughout the year both to improve top-line handle in GGR and also to improve our promotional efficiency. Customer acquisition has been better than expected, which is great for the long-term but can drive promotions up in the meantime. So, there's a lot to consider, but also a lot of upside. It is important for us to manage this carefully while providing a prudent guide, along with initiatives to potentially help us surpass those targets.

Helpful. Thank you. One follow-up on the adjusted sales and marketing. Clearly, some activity later in the year drove those costs up year-over-year. How are you guys thinking about that line for 2025? Could we expect it to come down somewhat or even meaningfully as we move through the year?

The way we think about some of those costs is we aim to optimize around an EBITDA margin ultimately of close to 30%. You will see some fluctuations as we pick up acquisitions, but we will continue optimizing the organization and our fixed costs to generate the EBITDA margins we've communicated.

Thank you. Our next question comes from the line of Robin Farley with UBS. Your line is now open.

Just looking at your guidance, this is the second quarter in a row you've raised revenue guidance for '25, but the EBITDA guidance hasn't changed. Can you help us think about what impact that might have on 2026?

That's a great question, Robin. We haven't quantified that yet, but as Alan mentioned, we do think that while EBITDA will be neutral this year, the investments in live betting will positively impact EBITDA in 2026 and beyond. We just haven't quantified it at this time.

Okay. One more quick follow-up in your shareholder letter. You discussed exploring opportunities in the debt markets now that you have cash flow. Is that for share repurchase or how should we think about that opportunity to use debt?

Initially, it will just be for general corporate purposes and establishing our presence in the debt market without a specific focus in mind. Long-term, we will consider the optimal way of growing the business and the right way to utilize our balance sheet.

Thank you. Our next question comes from the line of Robert Fishman with MoffettNathanson. Your line is now open.

Hi, good morning. Given the continued strength in customer acquisition, can you share more about the current levels of population penetration in some older states? How does that compare to newer states? What is the runway for higher penetration in the years ahead?

Hi, as you may remember, earlier states didn't ramp as quickly as new states have. They took longer to reach that population penetration. Right now, our oldest states typically are at the highest penetration levels, particularly New Jersey, which has been around for a while. That said, they are still growing, and I don't have a clear ceiling for that. For us, it's about continuing to build products that appeal to a wide variety of customers and provide great entertainment, hoping to grow the audience. Younger generations tend to participate in online and mobile gaming, so time is on our side.

A quick follow-up: Can you discuss the ROI of your sponsorship strategies? You had record sign-ups during the Tyson-Paul Netflix fight. How does this change your approach for 2025?

We're always looking for opportunities like that. The Tyson-Paul fight was a surprise, given its mainstream appeal and traffic, making it hard to keep up. We want to establish relationships with companies that know how to host great events. If they hit big, then that’s great, but we don't want to rely on that happening. Establishing a solid framework that yields great ROI is key for us.

Thank you. Our next question comes from the line of Ben Miller with Goldman Sachs. Your line is now open.

Thanks for taking the question. I wanted to follow up on live betting, since it was highlighted as a focus in 2025. How do you think this greater adoption will translate between wallet share growing with existing customers versus potentially unlocking new customer cohorts?

I think it's a significant aspect; most customers start with pre-match bets. So it is about getting existing customers to continue to adopt live betting. Trends overseas indicate that existing customer adoption grows year over year. U.S. sports are well built for in-play betting, as we saw a lot more in the Super Bowl this year compared to prior years. I believe we can create compelling products appealing to customers, and the natural evolution within the customer base will introduce them to new sports and bet types, leading to more live betting.

A follow-up on the DraftKings Plus subscription. Any early learnings from the pilot in New York regarding customer behavior? How do you view the economics of that offering between subscribers and non-subscribers?

It is early, and we have a limited pilot, so we don’t yet have enough data. We are cautious about the economics, which is why we kept it limited. We'll gather data and assess whether to continue or tweak the program before a broader rollout.

Thank you. Our next question comes from the line of Joe Stauff with Susquehanna. Your line is now open.

Thank you. Good morning, Jason. Can you share your views on the state budget process concerning new markets or efforts to reduce gray and black markets? And how should we think about the timing of new live products throughout 2025?

This is a critical time where lots of news can arise, and our lobbying team is engaged in promoting our approach: broad legalization with reasonable regulations so that companies like us can compete with legal markets generating billions. We're seeing increased attention on the illegal online casino market, and I believe this will encourage more states to consider legalization. I expect some wins this year, as election cycles typically hinder progress.

How should we view the timing for introducing new live products in 2025? Is it staggered, such as before March Madness?

Yes. We will stagger launches throughout the year, aiming for big rollouts before major events like the NFL season. That's when we'll introduce many updates to ensure products are primed for peak engagement.

Thank you. Our next question comes from the line of Clark Lampen with BTIG. Your line is now open.

Good morning. Thanks for taking the question. Jason, can you elaborate on the assumptions around structural hold trends for 2025? What's embedded in the mix, especially regarding same-game parlay trends?

It has been a bit better than our expectations to date, especially regarding NFL and NBA trends. The structural hold improvement aligns with the enhancements we made in our products and marketing strategies. We anticipate continued improvement and are very optimistic about the outlook for structural hold in 2025.

On capital allocation and potential international expansion, you've mentioned DraftKings should be a global enterprise. Is this response to new market movements or just timing?

International interest has always been there. Our primary focus stays on the U.S. market. We’ve explored digital lottery courier and believe there’s significant potential. While our technology could be utilized overseas, we aim to be opportunistic if the right chances arise, but there’s no urgent need to push international expansion.

Thank you. Our next question comes from the line of Dan Politzer with Wells Fargo. Your line is now open.

How do you view the strength of your brand for both Sports and iGaming? Is there a digital opportunity for additional brands?

The DraftKings brand is very strong, not just in sports but also in iGaming. The Golden Nugget has been a great success, and we see potential in plugging new brands into our proven model. However, we focus more heavily on iGaming than sports for brand expansion.

Thank you. Our next question comes from the line of Jed Kelly with Oppenheimer. Your line is now open.

It seems like your Jackpocket cross-sell is effective. Does that suggest investing more in Jackpocket in states where sports betting or iGaming is not legal? Also, where do you think your NBA product stands relative to competitors?

Jackpocket has been effective, and we believe there’s room to invest more. It’s more effective in states with legal sports betting. For the NBA product, we believe it is as good as any in the market right now, thanks to progress made by our product and technology team.

Thank you. Our last question comes from the line of Brandt Montour with Barclays. Your line is now open.

Good morning everyone. Thanks for taking my question. Jason, can you elaborate on your comment in prepared remarks that the long-term ceiling for hold is higher than you thought?

The amount of increase we saw this year suggests we may not be realizing our full potential, and it seems to be accelerating. We haven’t quantified the ceiling yet but acknowledging the recent trends gives us increased confidence in reaching those numbers down the line.

What about promotional intensity concerns in iGaming? Could that heat up if there’s no new legislation soon?

I don't have concerns there. iGaming promotional intensity has actually declined year-over-year because new iGaming legislation has been scarce recently. I expect iGaming to continue to decline in promotional intensity for 2025.

Thank you. Our last question comes from the line of Barry Jonas with Truist Securities. Your line is now open.

With the new Illinois tax in place, can you talk about what you've done to offset that hit?

We reduced promotional intensity and marketing in the state, which helped. While it hasn't completely offset the impact, the business has performed well due to other perspectives, allowing us to maintain our guidance.

Thanks. What about the Missouri launch? Could you frame the expected investment this year?

We are not providing an exact number now because the timing is still uncertain. The earlier we launch, the less overall EBITDA impact we’ll face. Once the launch date is set, we will share our plans.

Thank you. Our last question comes from the line of Ben Chaiken with Mizuho. Your line is now open.

I have a couple of questions. With the political acceptance of cryptocurrency, do you envision a time when DraftKings would accept stable coins as payment to reduce expenses associated with banking? Any thoughts are appreciated.

It’s something we are looking at. However, getting regulators comfortable with it is crucial, as they tend to be cautious around crypto. Only a handful of states are open to it right now, but we will take it seriously as the landscape develops.

You mentioned promotional intensity is down, but are you allocating more to external marketing spend in '25? Are you focusing on Jackpocket with new customer acquisition?

We have just a bit more budget for Jackpocket, dependent on jackpot opportunities. OSB and iGaming costs will remain steady year-over-year.

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.

Thanks, everybody for joining us on today's call. We're really excited about the trajectory for 2025 and beyond, and thank you for your continued support.

This concludes today's conference call. Thank you for your participation. You may now disconnect.