Earnings Call: Q3 2020

Nov 13, 2020

Ladies and gentlemen, thank you for standing by, and welcome to the DraftKings Q3 2020 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. I would now like to introduce your host for today's conference call, Mr. Stan Dodge. You may begin. Good morning, everyone, and thanks for joining us today. Statements we make during this call that are not statements of historical fact constitute forward looking statements that are subject to risks, uncertainties and other factors that could cause our actual results to differ materially from our historical results or from our forecast. We assume no responsibility for updating forward looking statements. For more information, please refer to the risks, uncertainties and other factors discussed in our SEC filings. During the call, management will also discuss certain non GAAP measures, which we believe may be useful in evaluating Drought King's operating performance. These measures should not be considered in isolation or as a substitute for Draught King's financial results prepared in accordance with GAAP. A reconciliation of these non GAAP measures to the most directly comparable GAAP measures is available in our quarterly report on Form 10 Q filed today with the SEC and in our earnings presentation, which is available on our website at investors. Draftkings.com. Hosting the call today, we have Jason Robbins, Co Founder, Chief Executive Officer and Chairman of DraftKings, who will share some opening remarks and an update on our business. And Jason Park, Chief Financial Officer of DraftKings, will provide a review of our financials. We will then open up the line to questions. I will now turn the call over to DraftKings' Co Founder, Chief Executive Officer and Chairman, Jason Robbins. Good morning, everyone. Before I begin my remarks, in recognition of Veterans Day this week, I would like to thank our country's veterans for their sacrifices and service. In order to more directly support our veterans and their families, DraftKings launched Tech for Heroes in 2018, a company wide initiative that provides veterans and military spouses with free comprehensive high-tech job skills training and connects veterans to DraftKings employees who provide mentoring. Since launching the Tech for Heroes program, we have invested over $1,000,000 in providing free accredited training to veterans and their spouses across the country. I'm proud to announce that in 2021, we will be expanding the reach of our Tech for Heroes program and are committing to training approximately 250 veterans in 2021, double the number we train this year. We want to give veterans and their spouses the tools they need to start a new career in tech or advance in their current position. Everyone at DraftKings is proud to do our part to thank veterans and their families for the sacrifices they make on our behalf. I would also like to thank our investors for their continued First, I want to share some insight into our Q3 accomplishments. First, I want to share some insight into our Q3 accomplishments. Next, I will provide an update on our recent state launches in the pipeline of new states. 3rd, I will discuss our product and technology investments as well as the migration to our in house proprietary sports betting technology. Then before turning it over to Jason Park, I will share some insights into our sales and marketing approach and our recent equity offering. DraftKings had a very productive Q3 on a number of different fronts. First, our Q3 performance confirms what we foreshadowed on our previous earnings call. The return on major sports has generated tremendous customer engagement. 3rd quarter revenue of $133,000,000 was at the high end of the range we outlined in our recent S1 and grew 42% year over year. In Q3, we also had more than 1,000,000 monthly unique payers, which means the average for the months of July, August September was greater than 1,000,000. Dollars Given the impact COVID had in July, monthly unique payers in August September were higher than in July. We expect these positive trends to continue as shown by the very encouraging outlook for the Q4 that our 2020 guidance suggests. As noted last quarter, there have been and may continue to be disruptions in the sports calendar due to COVID. We are optimistic that sports will continue to be played and believe any disruptions will be short term in nature and not impact the long term prospects of the sports gaming industry or our competitive positioning. Looking ahead to 2021, we are likely to see another unique sports calendar with the NBA and NHL expected to kick off their season either later this year or early next year as compared to their typical start dates in October. 2nd, we continue to build smart and effective relationships with media companies, including ESPN and Turner Sports as well as with professional sports teams, including the Chicago Cubs, the New York Giants and the Philadelphia Eagles. These commercial and strategic agreements provide us with access to unique and valuable content, intellectual property and marketing assets as well as highly relevant target audiences in markets where sports betting has recently been legalized. We evaluate these opportunities with the same data driven approach we use to guide other areas of our business. We also strengthened our corporate foundation by appointing 2 new Board members, Jocelyn Moore and Valerie Mosley, and we also added Michael Jordan to our team as a special advisor on our Board. I am excited to welcome Jocelyn and Valerie to our Board as they each bring unique skills, experiences and ideas, and they will each play an important role in shaping the future of DraftKings and helping us achieve our long term goals. Jocelyn's former roles, which include serving as Executive Vice President of Communications and Public Affairs for Football League equipped her with valuable insights into our customers as well as with respect to government and regulatory affairs. Valerie's experience in the investment management industry, which includes 20 years plus at Wellington, provides us with an important voice on the capital markets front. The addition of Michael Jordan to the DraftKings team is also a great fit. Both Michael and DraftKings live and love to compete. Michael will provide input on a variety of dimensions, including a focus on brand strategy, product development, inclusion, equity and belonging, marketing activities and other key initiatives. Turning to new U. S. States for DraftKings and legalization trends. In the Q3, we launched iGaming in West Virginia and sports betting in Illinois. Illinois, given its size and passionate sports fan base, is a large and important market. The state was the focus of our Q3 marketing Q3 sales and marketing expense. The governor's suspension of the state's in person registration requirement has enabled us to acquire players directly onto our mobile product. Our investments in technology, regulatory affairs and compliance put us in a great position to market to customers passionate sports fans and highly competitive teams, both the collegiate and professional level. With our launch in Tennessee, DraftKings is now live in 10 states for mobile sports betting and live in 3 states for iGaming. As you also know, Virginia has legalized sports betting and Michigan has legalized both sports betting and iGaming. Those two states account for approximately 6% of the U. S. Population. We are working together with state officials in Virginia and Michigan on regulations and licensing and are hopeful that we will launch in each state at the earliest practical opportunity. Last week, on Election Day, Maryland, South Dakota and the majority of parishes in Louisiana passed referendums in favor of sports betting. These 3 states in total account for approximately 3.5% of the U. S. Population. The margins approving the referendums were decisive, showing that public support for sports betting is strong, and we are hopeful that this will help the momentum continue across the U. S. As a reminder, launching in a new state is a multistep process. Legislatures need to pass bills, regulations need to be written and licenses need to be granted. Last week's votes were certainly a good first step, though it is probable that these states will not have a material impact on our financials in 2021 and may not even launch until 2022. In addition, Ontario's government recently presented its annual budget, which included language that would modify the long standing statutory Internet gaming framework to allow private operators offering sports betting and iGaming products to operate in the province. This is exciting because Ontario is a large market for us. If it were a U. S. State, it would rank as 5th largest state by population, and we have offered our DFS product in Canada since 2012. We are now 2.5 years in since PASPA was struck down by the U. S. Supreme Court. 21 states representing about 40% of the population of legalized sports betting. 14 states representing 26% of the population of legalized mobile sports betting, 12 of which representing 21% of the population currently have operators live. DraftKings is now live with mobile sports betting in 10 of those states, which is more than any other operator. These 10 states collectively represent about 20% of the U. S. Population. We continue to be very excited with the product and technology investments we are making as well as with our progress on the technology migration and business integration of SVTECH. We anticipate completing the technology migration by the Q3 of 2021. And once we do so, our vertically integrated proprietary sports betting technology will create a sustainable and differentiated advantage for DraftKings. We also expect to benefit from a long term improvement in our gross margin percentage once the migration is complete. As a reminder, with the acquisition of SVTECH, we now have almost 1100 engineers worldwide dedicated to creating best in class technology and games and experiences for our users. During the Q3, we launched our standalone casino app for iGaming in Pennsylvania and West Virginia. We also launched Best Ball, which is our first season long product for DFS. In addition, we introduced several new DraftKings created games for online casino, including new versions of Blackjack, Roulette and Baccarat. Beyond our customer facing investments, we continue to prioritize our internal capabilities around data science, which drive our cross sell and LTV to CAF metrics. With our technology talent and resources as well as with our proprietary betting engine, we will be able to clearly differentiate our offering in the United States from any other gaming provider and create a sustainable advantage for DraftKings, both as a B2C and B2B company. Regarding B2B, we continue to obtain new business in international markets. In October, we announced the launch of Palace Bet, a mobile and online sportsbook powered DraftKings B2B technology through our relationship with Piermont in South Africa. We also announced the renewal and extension of our relationship with Mansion Bet, the Gibraltar based sports betting brand of Mansion Group, which is a leading provider of online gaming with a portfolio of well known online casino brands and a sports book. In the Q3, we saw a significant increase in customer activity as evidenced by our 64% year over year increase in MUPS for the quarter. On average, more than 1,000,000 monthly unique paying customers engage with DraftKings each month during Q3. A number of the factors we have discussed, including the unique Q3 sports calendar, pent up demand, the earlier than expected mobile registration opportunity in Illinois and the stay at home nature of COVID that made this a unique and valuable time for customer acquisition, and our CAC came in better than our expectations. We have confidence that our CAC levels are appropriate given our insight into our customers and revenue retention, which are the bedrock of our LTV calculation. Our sales and marketing approach is data driven. We base our decisions on the return on ad spend we are seeing, not on what our competitors are doing, and leverage our data to optimize customer acquisition spending based on player profiles and preferences. This approach means that we will spend more if the data indicates that we should, as was the case in Q3. We will take the same data driven approach always to our commercial and strategic agreements. For example, states with sports betting and iGaming generate higher customer LTVs, which informed our agreement with the Philadelphia Eagles. In our agreement with the Chicago Cubs, we considered the value associated with the potential to open a world class drafting sports book at Wrigley Field. Our agreements with sports media organizations like ESPN and Turner allow us to integrate our content into programming and collaborate on new content, which we believe will improve our overall marketing performance while advancing mainstream adoption of sports betting. Finally, our relationship with Bryson DeChambeau, the world's 6th ranked golfer and 2020 U. S. Open Champion, underscores the significance of golf within the gaming industry. Golf remains DraftKings 4th most popular daily fantasy sport, while our golf sportsbook handle has grown over 10x year over year. I would also like to talk about our recent equity offering, which is the second one we have completed since going public, including the rationale behind it and how I see things going forward. We conducted the October offering for 2 primary reasons. First, the process we are going through is part of the reality of transitioning from a VC backed company to a publicly traded company. It is only natural for early private investors to exit their investment and realize a return for their investors. The offering allowed us to smooth this process out by facilitating an organized and orderly process in anticipation of the lock up restrictions on many shareholders that were set to come up on October 20. In fact, now 80% of our common shares are unlocked at this point and all of our shares will be unlocked at the beginning of January after January 5. We have provided more specific information regarding the unlocking of our shares in the earnings presentation, which can be found on our investor website. Secondly, DraftKings has always been proactive with ensuring we are well financed to pursue our growth objectives. We see a number of attractive avenues to deploy the capital we raise in ways that will create long term value for our shareholders. This may include continued investment in customer acquisition, especially while the cap remains very CAC remains very efficient, as well as positioning the business for the hopeful acceleration of state legalization. In addition, while we have no specific M and A targets at this time, we are always considering companies that may help us fuel our growth and bring more excitement to the Skin and the Game fan. As I look to the future, I am very confident in the continued growth of the online sports betting and iGaming market in the U. S. Though not a proxy for revenue, the handle growth figures we disclosed in our S1 support our OSB and iGaming TAM estimates as do the number of new users we are adding and the data that the states are reporting. DraftKings is well positioned to capitalize on the U. S. Market growth as we extend our leadership position with live operations in more states than any competitor. I will now turn the call over to DraftKings CFO, Jason Park, who will discuss our Q3 results and how we are currently thinking about the rest of 2020 2021. Thank you, Jason, and good morning, everyone. Before I begin, I want to remind everyone that we will be discussing our results on a combined company pro form a basis to improve comparability as if the business combination had closed on January 1, 2019. Pro form a means that we are including B2B for the 9 months ended September 30 for both 2019 2020 rather than just from April 24 through September 30 in 2020. In Q3 2020, we delivered $133,000,000 of revenue, a 42% year over year increase. These results were fantastic and would have been roughly $15,000,000 stronger were it not for the unusually low hold for NFL games during the 1st 3 weeks of the season. On a year to date basis, we have generated $321,000,000 of pro form a revenue, representing 19% year over year growth, which obviously includes several months that were deeply impacted by COVID. Our B2C segment, which represents our U. S. Product offerings of daily fantasy sports, sportsbook and iGaming generated $104,000,000 of revenue in Q3, up 55% compared to the same period in 2019. We launched iGaming in West Virginia and online sports betting in Illinois during the Q3, and we were live in 7 new states for NFL week 1 versus Q3 2019. These factors combined with the packed sports calendar were the major drivers of our growth. On a year to date basis, our B2C segment has grown 29%. B2C monthly unique payers in the quarter increased 64% year over year to 1 dollars The increase reflects strong unique payer retention and acquisition across DFS, OSB and iGaming. On a year to date basis, mops have increased 20%. MUPS also grew at an impressive year over year rate in October as we continue to realize the positive impact of our external marketing spend. Average revenue per monthly unique payer or ARPMUP was $34 in Q3, representing a 6% decrease versus the same period in Our ARPMOP was impacted by the aforementioned low NFL hold and promotional activity, offset by increased engagement with our iGaming and online sports book product offerings. On a year to date basis, ArtMop has increased 7% versus 2019. Turning to our B2B results. Our B2B business generated $29,000,000 of revenue in the quarter, a very solid eleven percent growth rate compared to the same period in 2019. Adjusted EBITDA for the quarter widened to negative 197,000,000 dollars as we rolled out our new state playbook in multiple jurisdictions and continued to invest in our product technology and G and A functions. Gross margin rate for the business declined as we shifted our business away from higher margin DFS as well as increased promotional activity. GAAP gross margin rate declined more due to the amortization of acquired intangibles related to the business combination. Our sales and marketing spend was $203,000,000 on a GAAP basis and $191,000,000 after excluding stock based compensation and depreciation and amortization. The year over year increase in marketing investment had a positive impact as you can see from the increase in our MUPS. The majority of the $191,000,000 in Q3 sales and marketing spend was for external marketing. The primary driver for our year over year increase in external marketing is that we had 7 states where we were live for the first time for NFL week 1, including Illinois. In addition, the pent up demand and unique sports calendar combined for strong engagement and return on advertising spend. Product and technology and general and administrative expenses were $54,000,000 $127,000,000 on a GAAP basis, respectively, and $31,000,000 $36,000,000 respectively, after excluding stock based compensation, transaction expenses and other non cash and non recurring charges. The year over year growth in these cost categories was primarily from headcount increases, including the annualization of hires we made in 2019. Moving on to our balance sheet and liquidity, we are well capitalized to execute our multi year plan and address our key priorities of taking advantage of this unique time for customer acquisition, entering new states as they legalize, continuing to lead the market on product innovation and exploring opportunistic and accretive M and A. We ended the 3rd quarter with $1,100,000,000 of cash on our balance sheet and no debt, Taking into account our follow on equity offering in October as well as a $295,000,000 use of cash to net settle restricted stock units, we expect our cash balance to be approximately $1,700,000,000 at year end. Regarding the net share settlement, the RSUs divested on October 20 resulted in a requirement for the company to withhold taxes. The company held back shares to satisfy the withholding obligation, delivered only the net shares to the participants and paid the taxes. As a result, we reduced our diluted share count by about 2%. I want to reiterate that no shares of Class A common stock were transferred or sold by our officers in connection with the vesting of these RSUs or the October offering, other than the shares withheld by the company, which are reported as disposition of shares. Having now generated $321,000,000 of pro form a revenue in the 1st 9 months of 2020, we are increasing our guidance from $500,000,000 to $540,000,000 to $540,000,000 to $560,000,000 of pro form a revenue for the full year, which equates to year over year growth of 25% to 30%. This increase reflects strong performance in October and substantial user activation due largely to our Q3 marketing spend. We assume that all sports calendars will continue as announced and that we continue to operate in states in which we are live today. The range also assumes that the Governor of Illinois does not extend the suspension of the in person registration requirement. Future revenues and marketing spend will be higher for each month Illinois chooses to extend the suspension. In terms of MUPS and ARP MUP, we expect MUP growth for the full year 2020 to exceed 20 nineteen's growth rate, while ARP M up growth for 2020 is expected to be below 20 nineteen's growth rate, but slightly higher than our year to date growth rate. Turning to pro form a adjusted EBITDA. We are continuing to invest in marketing given the strong marketing spend efficacy we are seeing as well as our investment in the launch of sports betting in Tennessee. As a result, we expect our adjusted EBITDA loss in Q4 to be a little more than half of the loss recorded in Q3, again, based on the states in which we are live today. As a reminder, our marketing spend is highly flexible and can be reduced or paused altogether if the sport calendar shifts. In the future, we expect to provide full year guidance only once annually on our year end call. However, since we provided a 2021 revenue outlook of $700,000,000 during the de SPAC process and because we are seeing strong results from recent marketing investments, we want to provide an update on our 2021 revenue outlook on this call. Though we are still in the process of finalizing our 2021 plans, we believe that our 2021 revenues will likely be in the range from $750,000,000 to 850,000,000 dollars This range is based on the same assumptions we use for our 2020 guidance, in particular that all professional and college sports calendars that have been announced come to fruition, including the commencement of their 2020 to 2021 seasons and that we continue to operate in states in which we are live today, which collectively represent 20% of the U. S. Population for mobile sports betting and 7% of the U. S. Population for iGaming. We will continue to refine and update our internal budgets as we move through Q4 and we'll issue formal 2021 revenue guidance on our Q4 and full year earnings call. That concludes our remarks and we will now open the line up for questions. Our first question comes from Michael Byrne with Canaccord. Hey, thanks so much for the question and impressive numbers. Can you just please talk about your 2021 guidance for a second? And thanks for giving us that. And just maybe at a high level, talk about the relative contribution from MUPS and ARP MUPS. And then Jason, did you say that that only includes states where you're live today? So should we expect that as you can add more states potentially that could drift higher? Thanks for the great question. So yes, this only includes we have continued to follow philosophy of only including states where we are either live or have a certain launch date. And while we are hopeful that we will be able to add states like Michigan and Virginia next year, we don't know yet. So that's not included. Those states are not included in those numbers. The results were really driven by or excuse me, the increased guidance is really driven by the results we've seen in the last quarter, particularly on the customer acquisition side, which is going to give us more revenue and hopefully continue to have more mops as well into next year. Okay. Thanks a lot. Our next question comes from Vin Sheikhan with Credit Suisse. Hey, how's it going? Thanks for taking my question. Ontario seems like a great opportunity. I don't know if you have any color on steps or timing. And then with regard to OSB versus iGaming, not sure if either segment has momentum or if it's an all or nothing dynamic? So, Ontario, for those who are not familiar, added to their budget, a basically allowance for private operators to offer both sports betting and iGaming in the province. Ontario previously had only had a single operator, province lottery that was operating sportsbook and iGaming, although some have been operating in the gray there for quite some time as well. Ontario is a very large province. It's Canada's largest province. If it were a U. S. State, it would be a top 5 state. DraftKings has been present in Canada, including, of course, Ontario, for almost a decade now. So we have a very nice sized user base there, and we think it could be a really great opportunity. As far as timing, I think similar to some of the other processes you see with U. S. States, it's always not not always very clear exactly what the timing or process will be. But we think it was a great step to see Ontario put forth what they did and we're very hopeful that we'll be able to have both sports betting and iGaming in Ontario sometime next year. Got you. And just a quick one. Is that something you anticipate needing a partner like most states in the U. S? Or is this going to be more similar to maybe how Tennessee is structured for the U. K? The indications we've been given is it will be a direct license. Obviously, anything could change, but that's what we've been so far told. So that's our expectation that we'd be able to like Tennessee obtain our own license. Got you. I appreciate it. Thanks. I will say though that a lot, has been left to the regulator. It was a very sort of brief change in terms of the budget and the law. So a lot is still left up to the discretion of the regulator, including questions like that. Got you. The next question comes from Chad Beynon with Macquarie. Good morning. Thanks for taking my question. From a product standpoint on your sports wagers in the quarter, can you kind of help us think about what you learned about your database, meaning are your customers skewing more towards football than what you were originally thinking just because of the DFS? Or were there any surprises just in terms of kind of how the proportion split out with different sports? Thanks. Great question. One of the challenges in even answering that is the sports schedule itself has been so strange this year. So looking at things like year over year comparisons or even comparing sports to sport has been challenging to draw conclusions from. From what we can see, the balance of sports is quite similar to what we've seen in the past, and less in sports betting skewed towards NFL than in daily fantasy sports. However, NFL is definitely the largest sport, both in daily fantasy sports and sports betting. It's just the gap is a little bit smaller, in part because things like college sports make up a little bit more of the room on sports betting and they're not as popular on the daily fantasy sports side. But really tough to tell if anything's kind of changed this year as more states have done sports betting. From what we can tell, it hasn't. But that's what the caveat that typically when we look at things, we look at year over year comparisons to control for seasonality and that obviously was not very possible this year. Okay, great. And then, can you elaborate a little bit more on the ESPN Sportsbook link out, the timing of that and when the full integration will be in place? We're very excited about that. We have a great relationship with ESPN. Disney continues to be one of our largest shareholders. So we think there's a great long term relationship that we hope to build upon there. As far as timing of any individual features, we plan to announce anything that we do want to announce in sort of our normal course as things roll out. So we don't have at this time anything that we're publicly saying about timing of any sort of direct integrations or other things. But, teams are working very hard on it. So we hopefully will start to see, some of those things very soon. Thank you, Jason. Best of luck. Thank you. Our next question comes from Kevin Ritchie with Evercore ISI. Hey, good morning guys. Thanks for taking the question. I just had one on sort of marketing spend and the efficiencies you're seeing there. It looks like marketing spend per mop addition came down quite a bit. Wondering if you could help us parse out how much of that comes by way of pent up demand, given the unique sports calendar and how much of it is coming by way of internal efficiencies that you're driving? Thanks. That's a great question. That is a $1,000,000 question that I don't know that I do have an answer for you. It's hard to quantify how much pent up demand is driving increased response, how much the stay at home nature of COVID is driving increased response, how much the overlap in sports calendar is affecting things. All of those are new data points for us, so very tough to compare to other periods. Overall, we are seeing great performance. The efficiency, the CAC is actually better than what we expected and we were able to spend deeper at a lower CAC. So, well, it's hard to pinpoint exactly how much is sort of relic or not relic, but a function of the current environment versus just better optimization. While that's tough to tell, we do know it's better and I'm certain it's some combination of the 2, just hard to kind of parse apart how much is each. But the team is always optimizing the marketing. So I would always expect continued improvement. And then also, we're getting close. We're not quite there yet, but we're getting close to that 30 plus percent level of population having of the U. S. Population having sports betting, which then will allow those national marketing efficiencies to start to kick in. And I think that's part of why you're seeing us start to do some of these more national media deals. Great. Thank you. Thank you. Our next question comes from Stephen Grambling with Goldman Sachs. Hey, this is Stephen Grambling. I guess one just following up on the ESPN deal and maybe I missed this, but are there any potential implications as you think about the impact to customer acquisition costs? And then also, if you can just touch on more broadly how you think about content and media as a future area of growth? So our expectation when we do any strategic deal is that it will have a positive effect on our customer acquisition costs. And the true win win is when you're able to actually spend more at better efficiencies that benefits both the media company that's on the other side of the deal as well as us. And I think the ESPN deal is a perfect example of that where they're allowing us access inventory like link outs and integrations that normally you can't buy on the open market. And those are very high performing from past experience that we've had in similar deals as well as deals we've done on the daily fantasy side with ESPN in the past. So we have a high degree of confidence that this is a win win deal that should improve our customer acquisition efficiency over time. And certainly, we're excited about partnering with ESPN as well as other great media partners like Turner that we form relationships with over the last quarter. Great. Maybe one quick follow-up on marketing and promotion. Can you just remind us of where you're kind of targeting the win rate and does your flexible marketing approach try to manage around that? Sorry, can you repeat the question one more time? It's a question on marketing and promotions and where you kind of target win rate, and does your flexible marketing and promotion approach effectively enable you to manage around that? So should we be generally thinking that the win rate if it's higher, you maybe promote a little more and if it's lower, promote a little bit less? Yes, it's a great question. I think in effect, it sort of works that way. It's not exactly how we manage it. We look at promotions much like external marketing based on an LTV analysis and the cost on the other side. And we look at whether we think that whatever value we're generating on an MPV basis exceeds whatever cost the promotion has. And that's applied very similarly like our external media to new customer promotions as well as promotions designed to reactivate or generate new sport play and things like that. I think the effect though just practically is similar probably to what you're saying because promotions will certainly work better in times where maybe the company is holding more and players are seeing less wins come forth versus in times where they're winning a lot. That's not really the driving force behind how we manage it. That's just more of kind of a correlated output. That's helpful. Thanks so much. Thank you. Our next question comes from Jed Kelly with Oppenheimer. Hey, great. Thanks for taking my question. Just a couple. Can you sort of share how October is trending right now relative to your overall guidance? And then just with Illinois, you immediately launched there, you put some promotions. Is that state now starting to move the needle in revenue wise? Or is it still not as much with some of the promotions? And then I have a follow-up. So the first question sorry, I got Illinois. What was the first question again? Just how is October trending relative to your overall 4Q guidance? I don't we haven't really said much about October, but as you see, we raised our Q4 guidance. So prior to today, we had been guiding to a midpoint that would represent 22% year over year growth. We are now guiding to a midpoint that would represent 40% year over year growth. So fairly substantial increase to the Q4 guidance. So without commenting specifically on October, I can tell you we feel very good about the way Q4 is trending. And as far as Illinois goes, Illinois has now become our 2nd largest state by handle behind New Jersey. It's also our fastest growing state. So we're pretty excited about it. I think you'll start to see some contribution on the revenue side in Q4, usually the 1st couple of months of a new state launch. We don't see a whole lot of contribution on the revenue side. Tennessee is a great example of that where we just launched Tennessee, but we don't actually expect it to have a ton of any impact on revenue this year. Illinois, I think, will start to have some impact on Q4 and that is part of why we think that we're going to be better than where we thought we were previously in Q4 this year. Great. And then just a longer term question for you, Jason. You mentioned product development, your integration with SB Tech. As we kind of get into next year, what do you think is ultimately going to drive the customer stickiness in this industry? More CRM management where you know how to manage the customer, provide them bonuses? Just how do you see long term stickiness with the consumer? Well, we definitely try to have best in class product and CRM programs. We have a great data science team and a lot of what we do is model driven. But I think if you want to kind of simplify it, we believe that promotions drive trial and activation, product drives long term stickiness and monetization. And I think really we feel that it's also a stage of the industry thing. We are just starting, haven't even migrated yet. We are just starting to put the investments behind building out the best live betting and new forms of teasers, process, other things that you're going to see us develop in the coming years. And so, I also think as the industry progresses and we have more time and more energy that we'll have been able to put behind that, we feel we'll be able to put more and more distance between our product and customer experience and what else is out there. And I think that will increase the effect of that on stickiness over time. Right now, it's very much so many new states opening up. It's customer acquisition mode for everybody and that's an important part of it too. But people we believe will ultimately stick with the best experience and that's what we're working hard to build. Thank you. Our next question comes from Thomas Allen with Morgan Stanley. Hey, good morning. There's a lot of investor focus on gross and net win margins and concerns that they'll be impaired long term because of how competitive the market is right now. Can you discuss your thoughts on the topic? Thanks. I mean, we're 2 years into the industry. Just to put in perspective, we had exactly 2 states, New Jersey and West Virginia live at the start of last NFL season. We're in 10 states now. So I think the long term margins and other aspects of the industry are going to shake out over time. And we saw this in DFS. So it doesn't surprise me that those questions are coming up in the early days of daily fantasy sports. We ran at much lower margins than what we did longer term and it ended up once we moved to more of the harvesting stage pretty quick being a pretty easy change. And then the last point I make is the margins are actually pretty good right now. Even when you factor in a lot of the promotional activity in FreeBet, that all comes out of our net revenue and net revenue is up significantly 42% in Q3. We're guiding to 40% growth in Q4, 45% growth next year. So if there is any upside on the margin, it should be on top of what is already a very healthy growing net revenue number. Thanks. And just a follow-up on a similar topic. Where are you in terms of profitability in the more mature markets? We are planning so more mature markets are really New Jersey and West Virginia. Those are the only that we were even present in last year at the start of NFL. So, we have in the past, provided some projections, multi year projections on New Jersey. Obviously COVID threw things for a loop. But, we actually think we're pretty similar spot to where we had hoped to be. That said, we still have another month and a half of the year. So what we're planning to do is in our next earnings call in Q1, we will provide an update on New Jersey specifically and we'll talk about how that's tracking versus what we have previously talked about. Helpful. Thank you. Thank you. Our next question comes from Shaun Kelley with Bank of America. Hi, good morning everyone. Jason, just a follow-up on that last question about the promotional piece because just should we think about modeling this a lot like the way the cadence of the way that external marketing spend works? So obviously, as you're in the early phases of launch, those numbers are going to accelerate a lot and then it comes down over time? Or will the promotional piece, again, I'm really thinking about this net versus gross, will that actually come down faster, just given that it really applies more to sort of initial bonusing and like you said activation? I think that's a really, I wish I thought of that. That's a great way to describe it. It's very correlated to the acquisition. Certainly, some promotions are aimed at activation or getting people to try new sports or new products, but the bulk of the promotional dollars are aimed at acquisition. So as acquisition in any given state becomes less of a focus and even if we do continue to spend there just as kind of we build our user base naturally, new customers will be a smaller percentage of the total user base. Absolutely would expect promotional dollars to follow a similar trend. And it's really as you kind of alluded to a new repeat mix thing that's driving it. It's not us deliberately doing anything differently. Obviously, if we see things in the data that suggest something's not working or working, we'll alter. But even if that doesn't happen, the simple shift between new customers being a very high percentage of our current actives and eventually repeat being the much higher percentage for new sports book states that will obviously change the promotional dollars as well as the external marketing spend. Very helpful. And then just as a follow-up, in some of these more mature markets and really it's pretty much probably a case study around New Jersey, Are you seeing any change in retention rates one direction or another? How is this all kind of how is the cohort trend like working relative to the some of the guidance and initial things that you laid out, call it back in March April? We're seeing positive news on retention across the board. Virtually every state that we were present in last year, again, with the caveat that it was a small number, for sports book, we're seeing growth. New Jersey is way up year over year. Even just the Masters, which yesterday started, New Jersey had a 181% increase in handle year over year for the Masters. So really tremendous growth in existing states and retention has been strong. Some of that might be due to COVID and people staying home and so many sports on the calendar, but a lot of it I think is also due to optimized for having another year to have optimized our CRM efforts. Thank you very much. Our next question comes from Vasily Karasyov with Cannonball Research. Thank you. Good morning. So, Beck, early this year at the Analyst Day, you argued that a good proxy for us to model states that you are rolling out in is New Jersey and that the revenue and gross profit and marketing spend indexed to 1% of the population should be more or less similar. So I was wondering if you could give us an update of if that is holding true right now in the states for comparable period compared to a period in New Jersey and if it's still a good assumption on average going forward. And if not, whether it's do you think driven by the sports calendar or it's just something, systemic there? Thank you. Yes. I mean, I think you mentioned the sports calendar. It's hard to compare this year. This has been such an unusual year. And we had only 2 states, New Jersey and West Virginia live at the start of last NFL. So most of the data we have is from a COVID impacted 2020 and really tough, I think. There's a difference obviously in New Jersey and that it had iGaming. So some of the states that had sports betting only that fell off a cliff in Q2, very different story in New Jersey where iGaming was still there to carry a lot of the weight during that period. So very hard to compare. We are planning if we can and we're certainly working hard analytically to do so to have a more definitive viewpoint on that at our next Analyst Day, which will be in Q1 of next year. So hopefully, we'll have enough data and things sort of back to, I guess, normal as far as you can call anything normal to be able to do that. But right now, we don't feel that we have enough data to really be able to compare state to state effectively, and we don't want to put anything out there that we're not very confident in it. Thank you very much. Our next question comes from Brad Erickson with Needham and Company. Hi, thanks. Can you just talk about the relative profitability levels you expect between sports betting and iGaming and if they're different? And then I guess just philosophically, when you're looking at your P and L for iGaming next to sports betting in particular state, do you run them together more or less given the cross sell synergies that they can drive and see where you kind of less about 1 or the other being more profitable? Or are they just looked at separately? Just maybe talk about your philosophy on that. We look at everything together. So, we view it as we have a platform, the user has an account and a wallet and we want to maximize the amount of value that we can generate over the lifetime of that user and we direct the team to do that in whatever way the data is suggesting is going to accomplish that goal. So in doing so, we don't really view product level economics as something that's relevant to how we analyze. There are some things that you can attribute directly to a particular product, but a lot of things like promotion dollars, marketing spend, things like that are very hard to attribute to a particular product and we don't want to unnecessarily and falsely attribute it to 1 or the other and make something look misleading or different that really isn't at all representative at all representative of how we think about it internally. If you take only the things that you can directly attribute to sports betting and iGaming and take some of those other things out, the products actually have almost identical margins. I think there could be some evidence growing that iGaming might be a larger TAM ultimately, but I don't think aside from that there'll be a difference in profitability at least in the things that you can directly attribute to each product, which of course is not the entire P and L. Got it. That's really helpful. And then maybe just a follow-up, if I can. But recognize most sports betting and iGaming are huge contributors to the growth right now, Can you just talk about DFS and just what the growth trajectory looks like there and sort of any sort of help on magnitudes we're seeing both in the results as well as the outlook for DFS growth? Thanks. Yes. DFS has had a great year. Obviously, COVID impacted the sports calendar. So Q2, we didn't see as much DFS activity as we typically do, but it really came roaring back in Q3, in particular, the August September timeframes after NBA, NHL and of course, eventually college football and professional football became live. Just as an example, the Masters was up way year way up year over year for DFS. And right now, it's new the team is trying to kind of parse apart how much of that is true growth and how much of that is the masters came on a different in a different part of the calendar this year. And oftentimes what we see is when we have more activity, everything goes up. It's interesting because a lot of people had asked us, not to deviate from your question, but it's related. A lot of people had asked us, hey, do you expect iGaming just really grew in Q2 because there weren't a lot of sports and is it going to go down in Q3 and it's actually been the opposite because we've had more activity on the platform and that just lifts everything. So DFS, I think similarly when you have so much sporting event overlap like the Masters for example and you know the part of the NFL season, I'm not surprised we saw growth. So the team is working now to try to parse apart how much of that is natural growth that we feel will continue into future years and how much of it is really a function of just a very unique sports calendar this year. That's great. Thanks. Our next question comes from David Katz with Jefferies. Hi, good morning and thank you. I wanted to ask about in game wagering in sports. And I hope you can accept the sports references, but what inning would you say that we're in, 1, in terms of educating your customer base and in terms of the breadth of offering that you're at today and where you expect to be? And are there any particularly interesting learnings so far with the NFL season to date? Well, continuing with your sports analogy, your baseball analogy, I think we're in spring training. I don't think we're even in the first inning yet. It is super early. We have not even rolled out, a lot of what we are developing on our own platform because we haven't migrated over to our owned and operated platform yet. So, there's a lot. It's going to take years to build. And then, it will obviously also be alongside just the customers naturally finding in game bet. The 2 things will work together where as the product offering improves, more customers will adopt it. But I think even if you just froze the product offering as is, you'd see more adoption over time as well. So both those things we think will have a very positive effect on each other and create a flywheel that will increase adoption of in game betting at a rapid pace once we're able to migrate over to our own platform. And if you don't mind, I'd like to follow that up, which is do you expect or do you have any intelligence about the degree to which that brings new players in or expands wallets on existing players or some combination thereof? Just, I guess, prevent me from getting carried away, prevent us from getting carried away as to how big, how it ultimately could be? I think it will have a combination, you'll see a combination of both of those things and there's other parts of the ecosystem that will affect that too. Our hope is that the sports leagues become increasingly comfortable with integrating fun little prop bets and in game bets into their actual sports broadcast. And I think the more things like that you see, the ESPN effect that makes these things mainstream, the more adoption that you'll see and the more it will have an effect on new customers. I'm very confident that it's an increased retention and monetization play. And I think that it can have an impact on new customers as well. But a lot of that will depend on to what degree the rest of the ecosystem evolves alongside and how quickly that happens. Understood. Thanks very much. Thank you. Our next question comes from Mike Hickman with Benchmark Company. Hey, good morning, Jason, Jason, Joe. Congrats on your quarter guys. Awesome. Great guide too. I guess, I was just curious if you could, I guess, pull back a layer on Tennessee. They had a sort of a rather barbaric 10% hold mandate within their regulatory constructs. I'm just curious of how that sort of shapes your success or not in that market and sort of moving over players from the black market? I'm guessing you have some workarounds there. And then related, when you look at Michigan and Virginia and you get a sense of their regulatory construct, how much cleaner is that for players and operators and what you've seen in Tennessee? And then I have a follow-up. Thanks. Tennessee will be an interesting one because I think our in going belief is that by having higher mandated whole percentage, it will be harder as you noted to compete with the illegal market and we might not see as much adoption therefore and we've factored that into our numbers next year. We are assuming Tennessee for that reason doesn't perform as well as it otherwise would have as a comparison to states that don't have that. That said, it could go the other way. It could be because there is an increased whole percentage. It could be that that's enough to offset whatever drop you see in adoption and migration from the illegal market. And we just don't know. So it will be an interesting experiment. And like I said, our in going view is that it will have a negative effect and that's why we've assumed that in our numbers for next year. But it could go the other way and we'll have to see. And I think that's one of the interesting aspects of this industry is it's going state by state. Different states are going to try different models. They're going to have different mixes of products. And our belief is that that will lead to much faster and much more obvious determination of what the optimal model is. And it will lead to other states kind of gravitating in that direction. And certainly, I think Virginia and Michigan are more approaching it the way that other states across the U. S. Have done. But I'm actually kind of excited that Tennessee is we love to test here. We love data. So it's an opportunity that we have to see how a different model could work and use that to inform what we think is appropriate going forward. Nice. The second one for me, just an update, if you would, maybe on the SB Tech integration. I think you launched the app, your app in Ireland in combination with SB Tech as sort of the test market, if I remember that correctly. Curious sort of how that's unfolding for you. And I know your deal with Kambi, I think is the Q3 2021, but when you look at new markets coming live here hopefully early 2021, Michigan, Virginia, are you sort of at the moment now where you think you could launch in those markets with SVtech versus Kandi? So everything is on track. We have previously said that we believe we will migrate in the second half of next year. And as you noted, our CAMBI contract goes through end of September. So as of now, we are still feeling good about committing to that timeline. There might be an opportunity to accelerate it and we'd certainly look at that. And that's been kind of leading to your question on Michigan and Virginia. It really depends on the timing of those. If they launch early next year as expected, I would expect that we will utilize Kambi. If they launch much later in the year, then it might be that we go on the platform that we now own and operate the SB Tech platform. So we'll just have to see what the timing is on that, but we do feel like we continue to be on track for our migration commitments of second half of next year, and we feel very good about either being able to meet that or exceed that expectation. Nice. Thanks, guys. Our last question comes from Carlo Santarelli with Deutsche Bank. Hey, guys. Acknowledging there's a lot of ambiguity in the outlook, but the $750,000,000 to $850,000,000 revenue guidance. Could you guys talk a little bit about kind of what defines the end post of that guidance and kind of what are some of the key things that would put you towards the high end and or towards the lower end acknowledging that states like Michigan and Virginia are not in there at this point? Yes. So you hit an important point. It is not any assumption around any new states. That's all upside. So that isn't it. I think it's just us being generally still at an early stage of this industry. We have several states that we've only recently launched. There are things like right now, Illinois has the governor has temporarily suspended a requirement to register in person at a casino that has taken Illinois from barely a market that registers for us to our 2nd largest market behind New Jersey and our fastest growing. So I think pretty big deal whether that continues to be extended for several months and that could have a significant impact on our acquisition and therefore on our revenue for next year. So it's really a function of just some of those types of variables and just being so new in so many states and not having the confidence and the precision yet to be able to pinpoint a tighter range. Great, Jason. If I could just ask one follow-up. As it pertains to your customer acquisition, one thing that I think has stood out with you guys relative to peers has been kind of your aggressiveness towards the higher end, more VIP type of sports betting customers specifically. Have you seen any of your competitors start to change their strategy at all around kind of seeking that type of action or those types of players, especially in some of newer markets like in Illinois, for example? I think right now, we're seeing a pretty competitive market overall and that includes the VIP higher end segment of customers. I appreciate you saying that we're doing a good job there. I think a lot of that comes from having very strong analytics and discipline around using that data to make determinations on where we invest and where we don't. And I don't necessarily think we're being that much more aggressive than any competitors. I think we're just hopefully being a little bit smarter about where we choose to push and where we don't. And as we get more data, we should get better and better at that. We feel like time is our friend and we should be able to widen that much the same as we feel like we should be able to continually put distance between ourselves and the competitors on the actual experience we can give those customers once they do join the platform. Great. Thank you very much. Thank you. Ladies and gentlemen, this does conclude the Q and A portion of today's conference. I'd like to turn the call back to Jason Robbins for any closing remarks. Thank you all for joining us on today's call. We really appreciate your insightful questions and look forward to continuing our conversations with you. At DraftKings, we are excited about the future. We continue to build the quintessential sports brand and align with well known media organizations such as ESPN and Turner Sports as well as many major professional sports leagues and iconic franchises. We are well positioned with a strong debt free balance sheet to capitalize on unique customer acquisition opportunities, enter new states as soon as practicable, drive continued product innovation to stay ahead of the competition and explore opportunistic and accretive M and A. I hope all of you stay safe and well, and we look forward to speaking with everyone again soon. Thank you. Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.