Draftkings Inc (DKNG) 2021 Q1 法說會逐字稿

Good day, and thank you for standing by, and welcome to the DraftKings Q1 2021 Earnings Call. (Operator Instructions) I would now like to introduce your host for this conference call, Stanton Dodge. You may begin.

Good morning, everyone, and thank you 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 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. 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 Robins, 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, DraftKings, who will provide a review of our financials. We will then open up the line to questions. I will now turn the call over to Jason Robins.

Good morning, everyone. To start today's call I want to touch on a few recent examples of how DraftKings, our employees and our customers are giving back to our communities. In March, DraftKings celebrated International Women's Day, our newest global company holiday, and launched a free-to-play pool celebrating female athletes. About 100,000 people participated and each entry raised money for U.S. and global organizations supporting and empowering female leaders and entrepreneurs.

We also recently announced the appointment of Gisele Bündchen, environmental activist and philanthropist, as a special adviser to me and our Board of Directors for ESG initiatives. Gisele is a global icon who has utilized the platform she established in fashion entertainment to lead and advocate for vital environmental causes and social causes. The strategic counsel and unique global perspective that Gisele brings to the Board will be indispensable. She is already making an impact as we have collaborated to set a goal of planting 1 million trees by Earth Day 2022. We launched several opportunities for customers to directly support the effort, including through charity daily fantasy sports contest and free-to-play pool. And in coordination with the Arbor Day Foundation, DraftKings has pledged to plant the first 100,000 trees in several U.S. states.

May is military appreciation month in the U.S. During this month, we also recognize Military Spouse Day and Memorial Day. DraftKings is proud to continue to support service members, veterans and their families. We are launching our second Tech for Heroes class of 2021, providing veterans and military spouses with free high-tech skills and training to support their post-service career goals. DraftKings customers will also have the opportunity to show their support through charity DFS contests to benefit our Tech for Heroes initiative.

All of these initiatives are part of our overarching CSR program, DraftKings [Serves], which is a catalyst to facilitate meaningful relationships between our employees, our customers and the causes they feel passionate about in order to create a better world for everyone. At DraftKings, we're committed to creating inclusive pathways for people to build, create, imagine and innovate. Through DraftKings Serves, we're advancing that mission with a focus on service, equity, responsibility, vitality, entrepreneurship and sports. I am very proud of these initiatives and our ability to encourage our global community of customers to really make an impact where it is needed.

On today's call, we will cover the following topics: our first quarter results and recent accomplishments, our recent state launches and legalization trends, our product and technology investments as well as the migration to our in-house bet engine. And before turning it over to Jason Park, I will talk about the acquisitions we have completed.

DraftKings is off to an outstanding start in 2021. Revenue for the first quarter increased 175% year-over-year to $312 million on a pro forma basis. MUPs grew 114%, and ARPMUP grew 48%. These results reflect continued overperformance of our core business due to strong customer acquisition and retention as well as the successful launches of mobile sports betting and iGaming in Michigan and mobile sports betting in Virginia. Our first quarter results also benefited from external factors that once again broke our way, including better-than-expected online sports betting hold percentage and the extension of an executive order through April 3 that allowed for mobile registration in Illinois, which was our largest online sports betting state in the terms they handle in the first quarter. Please note that the executive order was not renewed following April 3, which may negatively affect the growth rate of the overall Illinois sports betting market, though we are relatively well positioned, given the large number of mobile registrants we have already captured.

In the first quarter, we continued to make progress with the migration to our own in-house bet engine and are on track to complete the migration by the end of the third quarter of 2021. We expanded our relationships with the NFL and PGA TOUR. As an official sports betting partner of the NFL, DraftKings will have the right to integrate relevant sports betting content directly into NFL media properties, including nfl.com and the NFL app. We will also be able to enhance the fan experience with NFL highlights and footage. We also renewed our rights as the official and exclusive daily fantasy sports partner of the NFL. As part of the continued DFS agreement, we will have exclusive rights to NFL IP and marks with plans to collaborate with the lead on a variety of content and product offerings that fans can engage with on the DraftKings' DFS app.

Following the legalization of sports betting and fantasy sports in Arizona, we expanded our existing commercial relationship with the PGA TOUR to provide market access for retail and mobile sports betting in Arizona, pending necessary approvals. We also plan to operate with the PGA TOUR premium retail sports book at TPC Scottsdale, home of the Waste Management Phoenix Open, pending necessary approvals. We secured partnerships with the UFC and WWE to reach broader fan bases across sports. DraftKings is the UFC's first sportsbook and daily fantasy partner in the United States and Canada. Combat sports and UFC, in particular, have grown into a high demand category. While DraftKings and UFC have previously collaborated on specific events, we are proud to become official partners and launch impactful integration. We became an official gaming partner of WWE. Our collaboration with WWE centers on our free-to-play pools product and launched with inaugural free-to-play pools at Wrestlemania in April that had over 100,000 combined entries.

In March, we raised approximately $1.1 billion in net proceeds by selling 0% coupon convertible notes that will mature in 2028. We will not see any dilution until our stock is at $135.50 per share. This capital raise is another example of our proactive approach to ensuring we are well financed to pursue our growth objectives.

In terms of acquisitions, we announced and closed 2: Vegas Sports Information Network, Inc., or VSiN, which is a multi-platform broadcast and content company that has delivered trusted sports betting news, analysis and data to U.S. sports bettors since 2017. And Blue Ribbon Software, which is a leading global jackpot and gamification company that provides platform-agnostic real-time gamification tools that allow for fully customizable jackpot promotions.

I also want to provide a few highlights from 3 significant sporting events in 2021: the Super Bowl, the Masters and March Madness. For the Super Bowl, DFS entry fees grew 66% and paid active users grew 60% compared to the Super Bowl in 2020. Also for the Super Bowl, New Jersey OSB handle grew 70% and active users grew 44% compared to Super Bowl in 2020.

For the Masters, DFS entry fees grew 21%, though there were only 5 months separated this year's Masters from last year's event in November 2020. Also for the Masters, New Jersey handle grew 30% and active users grew 9% compared to the event held just 5 months earlier in November of 2020.

For March Madness, New Jersey handle grew 181% in 2021 versus 2019 and active users grew 80%. We are raising our revenue outlook for 2021 due to our expectation for continued growth in the outperformance of our core business. Jason Park will provide more details in a few minutes.

Turning to new U.S. states for DraftKings and legalization trends. In the first quarter, we launched mobile sports betting and iGaming in Michigan, and we launched mobile sports betting in Virginia. When comparing our mobile sports betting handle in Michigan from our launch on January 22 through March 31, 2021, on a per capita basis with New Jersey mobile sports betting for the same time period in 2019, Michigan outperformed New Jersey by 3% in OSB and 291% in iGaming. As a reminder, by this time in 2019, we were already live in New Jersey for 5 months prior to this period, including the entire NFL season, which is a very important time for customer acquisition.

The same is true for our mobile sports betting handle per capita in Virginia from January 24 to March 31, 2021. This data outperformed New Jersey by 7% for the same time period in 2019. As with Michigan, Virginia had just launched while New Jersey was already live for 5 months, including the entire NFL season. When considered with the information we presented at our Investor Day in March, these results in non-New Jersey states further confirm our view that New Jersey is a reasonable and perhaps conservative proxy for the performance of other states in the U.S. Also, by generating $95 million in only its second full month, the Michigan iGaming market is on an annual run rate of over $1.1 billion in gross revenue, a mark that New Jersey did not hit until December 2020, 7 years after its launch. In Michigan, our cross-selling efforts are also working well, with 66% of sportsbook players in the state also engaging with our iGaming product offering from launch through March 31.

It is now just about 3 years since PASPA was struck down by the U.S. Supreme Court. 26 jurisdictions representing 44% of the population of legalized sports betting and 18 jurisdictions representing 35% of the population of legalized mobile sports betting, 15 of which are currently live, representing 27% of the population. DraftKings is live with online sports betting in 12 states that collectively represent 25% of the U.S. population. 6 states representing approximately 11% of the U.S. population have legalized some form of iGaming. DraftKings is live in 4 states, representing approximately 10% of the U.S. population. We believe the outlook for further legalization is very promising.

In 2021, more than 20 state legislatures have introduced legislation to legalize online sports betting, 5 state legislatures have introduced legislation to expand their existing sports wagering framework and 1 state legislature introduced legislation to legalize sports betting limited to retail locations. In addition, 4 states have introduced iGaming legislation and 3 states have introduced online poker legislation.

3 of the states that introduced legislation to legalize mobile sports betting this year -- Wyoming, Arizona and New York -- have already enacted mobile sports wagering laws. Maryland has made significant progress with a mobile and retail sports wagering bill passed by the legislature and now pending action from the governor. The 3 states that have enacted laws this year represent 8% of the U.S. population and bring the percentage of population with legalized mobile sports betting to 35%.

We also continue to believe that Canada represents a very meaningful opportunity for DraftKings. Most progress to date has been made in Ontario, as the government's 2020 provincial budget has been adopted and amends existing laws to remove the Ontario lottery and gaming corporation statutory monopoly on Internet gaming in the province. We look forward to further progress in Ontario and in Canada as a whole.

I'd now like to comment on our progress with the integration and migration to our in-house bet engine and discuss our new product and content initiatives. I continue to be pleased with the progress we are making with our organizational integration and the migration to our proprietary in-house back-end technology for trading. We have been testing our in-house bet engine on an ongoing basis. The migration remains on track to be complete by the end of the third quarter in 2021. As we have previously discussed, being vertically integrated is important and will help with innovation, speed to market, site stability and availability. We will also realize gross margin synergies associated with the migration, starting in the fourth quarter of this year.

In terms of the product innovation, we announced an agreement with DISH Network to bring DraftKings Sportsbook and Daily Fantasy experiences directly to DISH's customers nationwide. The service launched on March 3 with a first of its kind, patent-pending DraftKings app integration on the DISH TV Hopper platform. Since launching, more than 600,000 unique devices have used the DraftKings app on a DISH box. The agreement also provided for the subsequent launch of Sling TV's new exclusive sports betting information channels in collaboration with DraftKings.

Sling TV subscribers and Sling Free users can now view real-time game scores and betting odds on the DraftKings basketball, baseball and hockey channel. Sling TV will continue to bring the DraftKings sports betting experience to customers with more sports and expanded offerings in the future.

We continue to build differentiating iGaming content to increase engagement with our customers. In April, we added Spanish 21, a DraftKings-built unique casino game, to our product suite. Spanish 21 was available immediately to customers in New Jersey, and we plan to expand it to Michigan, Pennsylvania, and West Virginia, pending regulatory approval. Spanish 21 has always been a popular land-based casino game. We are currently the only operator offering Spanish 21 and are proud to bring the blackjack variant exclusively to our casino product.

We are also very excited to announce the upcoming launch of a first of its kind social functionality to both our DFS and Sportsbook app. The launch of DraftKings Social, which is expected to roll out over the next few weeks, marks an industry first innovation to create an integrated social community across sports betting and daily fantasy sports as fans can interact with each other within this shared peer-to-peer environment. With daily fantasy and sports betting already being predominantly online, this launch both enhances the digital engagement possibilities of these products while also leaning further into the inherently social spirit of sports fandom and competition.

The product is particularly unique because it amplifies our ability to create an interconnected ecosystem across our consumer products. In addition to functionality like shared log-in and wallets that we already offer, features like universal profiles, friends lists, commenting and loyalty/rewards will also allow DraftKings to connect users across products in a way that no other company is currently doing.

Turning to M&A, our acquisition of VSiN allows us to benefit from the explosion and appetite for sports betting content as more states legalize and to participate in media content creation for this rapidly growing adjacency to the sports betting market. VSiN not only provides additional revenue streams through subscriptions and advertising, but also has a highly engaged and growing audience that may provide CAC advantages and help with engagement with sports betting customers. We welcome Brian Musburger and his team to the DraftKings family.

We broadened our sports entertainment footprint by completing a content distribution, monetization and sponsorship agreement with Meadowlark Media. As part of the deal, Meadowlark Media and DraftKings will distribute The Dan Le Batard Show with Stugotz and the Le Bartard and Friends Network across a wide range of audio, TV, digital and social channels. Additionally, the network of shows will prominently feature DraftKings odds, betting trends and general sportsbook and daily fantasy information.

We continue to be big believers in the intersection of content and gaming as the consumption of each benefits the other. With the hiring of Brian Angiolet as our Chief Media Officer, we are accelerating our plans to establish ourselves as both a product provider and resource for fans. As our media presence grows with the acquisition of VSiN, partnership with Meadowlark Media and integration agreements with Turner Sports and ESPN, Brian's creative ideas will expand the possibilities for DraftKings content. We look forward to sharing more in the coming quarters.

We also completed the acquisition of Blue Ribbon Software. DraftKings will now be able to enhance the customer experience by integrating Blue Ribbon's unique jackpot functionality, including personalized promotions and rewards tailored to the individual customer or jackpots across DraftKings' various product offerings. We expect to launch our jackpot technology in the second half of 2021 in our iGaming product.

We are strengthening our capabilities to rapidly integrate these acquisitions while also staying focused on winning in this rapidly growing industry and migrating to our in-house bet engine. In conclusion, we are off to a great start in 2021. We performed exceptionally well in the first quarter, saw legislative advancements in several states, continued to make progress with the migration to our own in-house bet engine, expanded and initiated relationships with important organizations and advanced new product technology and content initiatives.

I will now turn the call over to DraftKings' CFO, Jason Park, who will discuss our first quarter results and revised expectations for 2021.

Thank you, Jason. Good morning, everyone. Before I begin, I want to remind everyone that we will be discussing our results on the combined company pro forma basis to improve comparability as if we had owned our BW business starting on January 1, 2020, rather than on April 23, 2020.

We are pleased to announce that we generated $312 million in revenue for the quarter, representing a 175% increase versus Q1 2020 revenue of $113 million. A portion of this amazing growth is due to the sports postponements that occurred in Q1 2020 due to COVID-19. Our B2C business generated $281 million for the quarter, representing a 217% increase versus prior year. B2C monthly unique payers in the quarter increased 114% year-over-year to 1.5 million. The increase reflects strong unique payer retention and acquisition across DFS, OSB and iGaming, as well as the lack of traditional sports in the last 3 weeks of March 2020.

Average revenue per monthly unique payer, or ARPMUP, was $61 in Q1, representing a 48% increase versus the same period in 2020. Our ARPMUP was positively impacted by increased engagement with our iGaming and online Sportsbook product offerings and our excellent cross-selling capability.

Our B2B business generated $31 million for the quarter, up 26% versus prior year due to the positive impact of FX as well as last March being impacted by COVID. First quarter revenue exceeded our expectations due to a number of factors, including the extension of an executive order that allowed for continued mobile registration in Illinois through Q1; higher than forecast OSB hold percentage; over performance in our core business as a result of continued strong customer acquisition, retention and monetization; and strong launches in Michigan and Virginia.

We generated $155 million of gross profit dollars on an adjusted EBITDA basis for the entire business in the quarter, representing a 135% increase versus the prior year period. Gross margin rate on an adjusted EBITDA basis for the business declined as expected to 50% in the quarter. As we have noted in the past, our gross margin rate has been impacted and will continue to be impacted by a mix shift out of our more mature and thus higher-margin DFS product offering and into higher growth rates and lower margin OSB and iGaming product offerings.

In addition, gross margin rate within a period is impacted by promotional intensity, typically most intense when a new state launches and at the beginning of a major sports season, as we aim to acquire customers. Gross margin rates will be positively impacted by the conversion to our own bet engine, which will be complete by the end of Q3, as well as several gross margin rate improvement initiatives.

Our sales and marketing expenses were $220 million, which include our external marketing. External marketing was higher than prior year due to being live in 12 total states versus 7 in Q1 2020, including the launch of mobile sports betting and iGaming in Michigan and mobile sports betting in Virginia, which occurred in the quarter. The governor of Illinois also extended an executive order that allowed for mobile registrations in Illinois through April 3, which allowed us to continue to acquire during that period. Additionally, we continue to see accretive LTV to CAC opportunities, which allowed us to invest deeper in marketing, in part due to the stay-at-home nature of COVID.

Our general and administrative and product and technology costs on an adjusted EBITDA basis were $41 million and $34 million, respectively, as we continued to invest to achieve scale in our back-office functions, such as finance and accounting, legal and human resources as well as adding to our technology team. Adjusted EBITDA for the quarter was negative $139 million as we rolled out our new state playbook in multiple jurisdictions and continue to invest in our product, technology and G&A functions.

In the quarter, we expensed $186 million in items that we exclude from adjusted EBITDA but are included in GAAP operating income. Notably, $152 million for stock-based compensation and $34 million for amortization of acquired intangibles, depreciation and other amortization, as well as transaction-related expenses. Our stock-based compensation expense reflects accruals related to equity awards based on our anticipated revenue performance in 2021.

Moving on to our balance sheet and liquidity, we ended the quarter with $2.8 billion of cash on our balance sheet following our issuance of 0% coupon convertible notes that will mature in 2028. We raised approximately $1.1 billion in net proceeds from this offering. We are well capitalized to execute our multiyear 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&A.

Looking at the rest of 2021, on our fourth quarter earnings call in February, we provided a range for 2021 revenue of $900 million to $1 billion. Given our strong start to 2021 and underlying acquisition, retention and monetization of players, we are increasing our guidance to $1.05 billion to $1.15 billion of revenue for 2021, which equates to year-over-year growth of 63% to 79% and a 16% increase compared to the midpoint of our prior guidance.

The 16% increase in the midpoint of our 2021 revenue guidance reflects strong performance in Q1, which has continued in Q2, continued strong user activation due to our marketing spend, well-executed launches of mobile sports betting in Michigan and Virginia and iGaming in Michigan and a modest impact of VSiN and Blue Ribbon on 2021 revenue. We assume that all professional and college sports calendars that have been announced come to fruition and that we continue to operate in states in which we are live today. These states collectively represent 25% of the U.S. population for mobile sports betting and 10% of the U.S. population for iGaming.

Though Wyoming, Arizona and New York have legalized, we do not know the exact date these states will launch and are not including them in our revenue guidance. In addition, for the past several quarters, our financial results benefited from the stay-at-home nature of COVID and the unique sports calendar in the second half of 2020. We expect both MUPs and ARPMUPs to grow in 2021, with MUPs increasing at a higher rate than ARPMUP.

Regarding our 2021 quarterly revenue cadence, all things being equal, which means no new states launch beyond Michigan and Virginia, we expect Q1 to represent 28% of full year 2021 revenue, Q2 to be slightly more than 20% and Q3 to be slightly below 20% of full year revenue. We currently expect the fourth quarter to account for slightly more than 30% of our revenue for the year.

While we are not providing guidance for 2021 adjusted EBITDA, sales and marketing expense is a key input. As discussed, sales and marketing in older vintage states will begin to moderate as we continue to invest in accretive LTV to CAC opportunities. 2020 and 2021 vintage states will have increased sales and marketing as we lap partial years for 2020 launches, execute our new state playbook in Michigan and Virginia well into the second quarter and invest in customer acquisition in Iowa, given the launch of mobile registration on January 1.

We have also announced new relationships, including our expanded agreement to become an official sports betting partner of the NFL. The net effect is that we continue to expect to spend significantly more on sales and marketing in 2021 compared to 2020. The significant number of customers we are acquiring also results in an increase in variable costs, such as customer service.

From a quarterly perspective, we continue to expect our Q3 adjusted EBITDA loss to be deepest and meaningfully wider than last year's Q3 loss as we ramp up external marketing substantially for the start of the NFL season, especially since we will have 3 states in their first full NFL season. We expect our Q2 loss to be somewhat better than Q1, though still heavily impacted by investments associated with our launches in Michigan and Virginia.

In the fourth quarter, we expect a slightly narrower loss than the second quarter as we benefit from higher seasonal revenue. As a reminder, our marketing spend is impacted by the launch of new states. Our spend is also highly flexible and can be reduced or paused altogether if the sports calendar shifts. That concludes our remarks, and we will now open the line for questions.

(Operator Instructions) Our first question comes from Stephen Grambling with Goldman Sachs.

In the release, you highlighted the launch of social aspects on the app. Can you just help us maybe think longer-term about maybe social? And what do you envision as a potential opportunity? Does this include effectively user-led content?

Thanks, Stephen. Great question. So we're very excited about some of the new social features we'll be releasing. We have a dedicated team on that, led by a guy named Jordan Mendell. And we're very excited that we'll be able to really be an innovator in this space. I think the idea is to, yes, allow some user-generated content, but obviously, there will be moderation. And then the bigger picture is just to allow people to connect specifically around the experience they're having on DraftKings.

Obviously, a lot of social platforms out there; this isn't attempting to substitute for what the Facebooks and Twitters and Instagrams of the world are doing. It's really more meant to enhance the actual experience on DraftKings. And a lot of requests we get from people, how do I better see what my friends are betting on and what they're playing? How do I interact, if I like a bet my friend makes and let them know? How do I understand what my friends are playing, so I can play contests against them on our private leagues product? So lots of requests we've gotten, and we're trying to do our best to facilitate those interactions in a way that makes users stickier, but more importantly, improves the customer experience.

The next question comes from Jed Kelly of Oppenheimer.

Great. So we're seeing a big media push by all the sportsbooks in the industry. So Jason, just a bigger picture question for you. I mean, how do you see media transforming DraftKings? I mean do you kind of see yourselves eventually becoming more a sports entertainment product? And just how should we view how you look at the media opportunity over the next 2 to 3 years?

It's a great question, Jed. Really, it starts with 2 important principles. One, there's a ton of synergy between media and content and what our core products offer. We all know this. Clearly, there's a demand that gets driven for content by our products and then in turn, content drives further demand on the gaming products. So tremendous synergy there.

Secondly, we have a good track record of being able to launch new product lines and monetize our customer base as well as utilize them to acquire a broader customer base. We've done that with multiple products now. So we think between our data science capabilities and other analytics that we've employed, we're going to be really effective at targeting the right content to the right customers at the right time and also using what we see consumption on content looking like to be able to better target gaming offers. So that's really the crux of the strategy is to be able to take advantage of those synergies and to be able to add new revenue streams and new sources of user acquisition and engagement.

And then as a follow-up, I guess, with the VSiN acquisition, I mean, do you plan to create your own channel or put it on more streaming services? I know it's on NESN and a couple other services. But how do you view VSiN into that overall strategy?

Well, VSiN provides a really important capability, creating content around sports betting, which is obviously a very core area that our audience focuses on. They do have a channel currently. We're exploring broader distribution, and we'll also be creating content for a variety of other services, so lots of plans with them. They have an incredibly talented team, and we're really lucky and fortunate to have them on our side now and look forward to collaborating with them to create great content for customers.

Our next question comes from Ben Chaiken with Crédit Suisse.

Just a follow-up on Vegas Sports Network. Is there a plan to work some of that functionality into the sports betting platform itself? So whether it's news, analysis, help making picks? Or should we think about it as being kind of a separate entity that helps drive traffic?

I think it will be a little bit of both. I do think that the nice thing about VSiN is that we get a capability. So that capability can be utilized, as you noted, in multiple ways. Some of it can be utilized directly within the gaming experience in order to enhance that. Other ways can be utilized, as you noted, are to drive customer acquisition, engagement, adoption of new products through external media and other channels that we'll distribute through. So we're going to use it in both ways. And really, the important thing we look at is we got a capability to create great content in an area that's very meaningful and important to our customers and our target customers.

Got it. Is there a -- is there any like hesitation with adding more functionality to the OSB platform? Or is it more -- /iGaming? Or is it more just kind of like on the come, I guess?

Well, we always test everything. So you never know. I'm routinely surprised at things that I thought would perform in a certain way, good or bad, and don't. That's why we always let the data do the talking. So we'll test adding different things and if we find that it's enhancing the customer experience and not distracting people, then we'll add more. And if not, then we'll pare back. And really, it will be an evolution based on what we're seeing in the data.

Our next question comes from Thomas Allen with Morgan Stanley.

So just on revenue, first quarter revenue was obviously really strong. With your fourth quarter earnings you suggested first quarter revenues would be in the low 20s percent, and now you're saying 28%. Are you more like tempered on the rest of the year because of results you're seeing in the second quarter so far? Is it seasonality? Is it -- can you just unlock it a little bit more?

Sure. So I think it really starts with Q1 was an absolutely amazing quarter for us. And some of the reasons why, certainly, there was strong performance in the business and that should carry through for the rest of the year. But there were other reasons such as higher hold than we typically get. That's just random fluctuations in supporting outcomes. Really can't count on that for the rest of the year. And also, of course, the Illinois executive order, which ran through Q1, but in the first few days of Q2 was not renewed.

Illinois, as we noted, had become our largest state for sports betting handle. And while we think we're continuing to be really well positioned there in terms of market share, I don't expect the overall market to grow as substantially as it could have otherwise, in absence of new legislation or a renewal of that executive order. So that's another example of something that we know won't continue through the rest of the year, and that's skewing a little bit how much Q1 will be as a percentage of the overall year.

And then just in general, when you have a great quarter like that, we think it's prudent not to assume every single quarter will be a blowout. So we're taking a cautious approach and saying that we think that other quarters will be more in line with what a typical quarter might look like. And obviously, if some things break our way or just if the underlying business continues to perform as strongly as it has been, and we might see some upside there.

And just a quick one. What was the hold benefit?

So -- sorry, what? The question was on the hold?

Yes. How much was it?

I don't think we shared -- no, we haven't shared exactly what those numbers will, but we can consider sharing some more detail there. What we have said is that there was definitely a higher-than-average hold rate due to random fluctuations in sports outcomes. I think that that's something that generally we've seen evens out over the course of the year but can definitely month-to-month or quarter-to-quarter sometimes have some lumpiness.

Our next question comes from Michael Graham with Canaccord.

Yes. Impressive results. I wanted to ask about MUP growth. I think typically, Q1 would be seasonally a little bit down sequentially, and you were able to grow. And you have a few things under the hood there between new activations and retention engagement and potentially threading in more iGaming acquisitions. And so I just wanted to ask like if you could deconstruct the MUP performance a little bit.

And as a follow-on, when you're out there in the marketing, especially in digital channels, can you just make a comment on how crowded some of those channels are from OSB and iGaming competitors? Or are you more competing against other types of players? Or just any color you can provide on that environment would be great.

Thanks, Mike. So first on the MUPs question, certainly, we saw a much stronger activation and customer acquisition in Q1. So both had a pretty significant contribution to the MUPs increased. I think that what we're seeing is there's just a lot of momentum in the industry right now. And I think that we are finding that our marketing is performing just as it did towards the back half of last year, really at record levels and our response is incredibly high. Our CACs continue to be low despite the fact that we've ramped up our spend, and we're just getting excellent return on our marketing. So that's helping to drive a lot of activation of new users as well. So really, those were the main drivers. And then -- sorry, what was the second question?

Just wanted to ask if you could comment on the marketing environment. When you're out there acquiring players in digital channels, like how intense is the competition from your competitors?

Well, what's interesting on digital channels is, yes, there is certainly competition within our core market. But also a lot of where we are competing previously for impressions was with mobile games, and those games I think have been hurt more so than maybe we would be by the IDFA changes. So we've actually seen some softening in the digital markets due to some of the traditional mobile games companies pulling back a bit, and that's created a favorable environment for us. I wouldn't say it's tremendously favorable. It's really kind of more similar to what it looked like before. But to answer your question directly, we're not really seeing a hyper competitive environment right now relative to anything we've seen before. It looks pretty normal. And I think it's kind of an offset of, yes, you are seeing better performance for companies like DraftKings, but it's also offset by maybe some pullback in the traditional mobile gaming companies.

Our next question comes from Carlo Santarelli with Deutsche Bank.

Appreciating the fact that you guys don't want to disclose the hold benefit in the period. If we could kind of just break down the old guidance midpoint and kind of that low 20s range, it would imply you kind of beat the implied guidance within the guidance by about $100 million in the quarter. Any chance you guys would be willing to maybe bucket where that outperformance came? If it's iCasino relative to OSB, relative to DFS. I'm assuming that the 2 former categories are the lion's share, but maybe even just if you could split out kind of the delta of the upside in -- relative to that guidance between kind of OSB and iCasino in the period given the very strong start in Michigan.

Thanks, Carlo. I appreciate the nice words. We're not disclosing any breakout of iGaming versus OSB revenue right now. Given some of the trends that have occurred recently with Michigan being so strong on the iGaming side, we certainly saw some benefit from that. I think that really exceeded our expectations. And as we noted in the earnings call, the growth of -- or the revenue per capita in Michigan on the iGaming side greatly outperformed New Jersey in a similar time period in its first year. And OSB did, too, but not by nearly as much, so that was certainly a factor.

We mentioned the hold rate; that drove OSB revenue a little bit higher than what we would normally have seen based on the betting volumes. So we're not breaking it out, but I would say -- I think it's fair to say that really all products across the board, including DFS, we had record numbers for the last several years for DFS if you look at some of the stats that we disclosed from Super Bowl and March Madness and otherwise. We haven't seen growth in that product at these levels since 2015. So really pleased with how everything is performing across the board and everything contributed to the beat.

Great. And then if I could, just one follow-up. As it pertains to the integration, the SBTech stuff at the end of the 3Q, will that basically for the 4Q be your functioning back end for every state? Or does it kind of go state-by-state and you take it slowly?

Well, we are going state by state, but we're saying by the end of Q3, we will be fully complete with every state. So to answer your question, in fourth quarter, we will be on our own proprietary platform in every state. And between now and then, we will take it on a state-by-state basis. This is, of course, assuming we get all the necessary regulatory approvals. That's obviously a process, and that's part of why we are going state by state. But assuming we get all the approvals from just a pure product and tech standpoint, we feel like we're well on track for end of Q3 and maybe even a little bit earlier.

Great. And then, guys, I'm sorry, if you could just take one more. Any commentary around New York and the strategy there, given kind of the cloudy regulation as it currently stands?

Well, first of all, really exciting that New York has moved forward with mobile sports betting legislation. I know for years there's been speculation about it, and it's really great to see that it got done. And not only got done, but has strong support from the legislature, from the governor's office. And really want to thank the legislature and Governor Cuomo for moving that bill through the budget. As far as our strategy, we're going to wait and see when the RFP comes out, what it looks like, and we're going to put our best foot forward. And I think we feel, like I said, very excited about the opportunity in New York, and we're looking forward to participating in the process. And hopefully, it will be a good outcome.

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

You mentioned the 600,000 unique devices with DISH. I was just wondering how the customer is using this product. Do you think it's going to be an important part of the customer experience long-term or more niche? Just because watching TV, already everyone already has a second screen next to them with access to the app. And then within that, is the MVPD the more advantageous position to be able to execute the strategy relative to a cable network? Or is it the other way around?

I think that there's different ways you can execute the strategy. The device makers provide potentially another way in addition to the ones you named. And I think the cable networks are a little more challenging. It would have to be something that we're more directly connected to the device or to the network, I would think.

The first part of your question, I think really what we're trying to do is to create something that makes the convenience of being able to consume whatever you're watching, sports on the screen, as well as playing the games and checking your bets and all that as easy as possible. I think people will have a mix of things they use. Part of the sort of proliferation of devices all around us has been people don't typically just do things one way or another.

Even as I think about my own behavior, sometimes I use my phone to turn my TV on because it's connected. Sometimes I just grab the remote and it's just sort of whatever feels convenient at the moment. So I think you'll see some people exclusively using that or primarily using that. I think you'll see some people not using it at all. And I think you'll see some people going back and forth. But what we're going to do is just keep looking at the data, keep optimizing the customer experience and listen to what our users are saying and what makes their experience more entertaining and more convenient.

(Operator Instructions) Our next question comes from David Katz with Jefferies?

I know we're still a couple of quarters away but I wondered if there were any testing or any learnings or any interesting surprises one way or the other around that in advance?

Sorry, around what?

The SBTech go live, which is still a couple of quarters away. Yes.

Yes. So we have begun the process. We've done a tremendous amount of testing. We test everything internally. And then, of course, as we go state by state, we'll get more and more data. And so far what we're seeing is very encouraging. There's been really only kind of minor things around the edges that we've had to clean up. Otherwise, our internal testing has been really strong at predicting things, and we've been able to get everything in order. So, so far, so good. It is still early. And as you -- to answer your question, yes, as we get closer to the full migration, we'll have more and more states that are migrated over, and we'll have more and more data to look at and be able to get a sense of how things are going. But from what we're seeing so far, everything is going great.

Our next question comes from Stephen Glagola with Cowen.

I just want to touch base on Illinois a little bit more. It seems like you ended Q1 with the #1 market share in terms of handle. With remote registration ending in early April, have you seen any impact in your market share so far? And do you expect to maintain that share throughout the year until it goes back to remote registration in early 2022?

Yes, it's a great question. I think really hard to say for sure. But given I don't expect there to be nearly the volume of sign-ups. And I use Iowa, for example, as a comparison. In Iowa, where for the first 18 months after going live, there was no mobile registration. In the first, I think it was like 5 days of January this year when mobile registration was turned on, we exceeded the entire previous year in terms of registrants. So I think the volume that comes in when there is mobile registration is just so significant compared to when there's not, that my suspicion would be that market shares sort of stabilize until that returns and hopefully when it returns, if it returns.

And as you noted, we've been #1 in handle, I think since August, every month in Illinois. So we feel like we're in a great position. Obviously disappointing that we won't be able to take mobile registrants, at least for some time. But I think if we -- if that were to be the case as it is, then I think we couldn't be in a stronger position and feel very good about where we are from a market share standpoint in that state.

Our next question comes from Vasily Karasyov with Cannonball Research.

I wanted to follow-up on your comments about online sports betting and media content converging. So there is a situation developing. I'm sure you're very aware of that between Flutter, Fox Broadcast Corporation, which could lead to all kinds of structural outcomes in the market. So with FanDuel becoming a stand-alone publicly traded company in the U.S., maybe some combinations with PokerStars, FOX Bet and so on. So I was wondering if you are -- if you could share your thoughts with us how that would impact your strategy and your market position?

Thank you. So I know there's a lot of rumor and speculation about that right now. One, we don't really have any insight, so it's hard for me to really have any opinion. But even if I did, we don't really think that what others are doing in terms of corporate structure and how that all plays out, really has much of anything to do with our strategy. We're going to continue to pursue the strategy that we've set out that we believe will position us to have the best long-term value and continue to be able to consistently meet or exceed the expectations that we set.

And I think being able to focus internally on driving those types of results has been part of what's driven our previous strong performance. So we're going to continue down that path. And there will be a lot of activity in the market. I think when you have an exciting industry with so much potential, tens of billions of dollars, maybe more potential, you're going to see a lot of different moves by competitors. Obviously, we pay attention to them, but it doesn't really change what we're doing.

Our next question comes from Joe Stauff with Susquehanna.

Jason, I'm wondering if you could comment or -- on overall engagement maybe thus far in the quarter, second quarter, April, May -- early May. And the reason I ask, obviously, is that I realize online sports betting is seasonally softer, just given the number of sporting events. And just wondering kind of where engagement is or how it changes, maybe commenting specifically on iCasino engagement in terms of just how that may change.

It's a great question. You are right that there is seasonality to the sporting calendar. Typically, back half of the year is always greater. It's been a little bit disruptive, whatever that typical seasonality has been by all the calendar shifts. So this is a little bit of a unique year for sure. And I think as a result of some of that, there's actually quite a bit on the slate for Q2. NBA and NHL regular seasons are ending in the next week and 2 -- or 2, and that will begin the playoffs. This year, the NBA and NHL playoffs are going to run into July, which I don't think has ever happened before. So that will create some additional content that hasn't been there in previous years.

Obviously, baseball is off to a great start. The PGA has 2 majors in Q2. The PGA Championship in May and the U.S. Open in June. 2 majors also on the tennis front with the French Open in May going into early June and then Wimbledon is obviously starting towards the end of the quarter. And then there's some exciting things going on in other sports as well. UFC, we recently signed a partnership with, has 2 big fights coming up, one on May 15 and one on June 12, UFC 262 and 263, respectively.

And then this year, there's a lot going on on the soccer side. EuroCup is happening. It starts towards the middle of June. That will obviously run into Q3, Champions League, Premier League. So lots of exciting stuff on the sport calendar. I think more so maybe this year than prior years, you're going to get a full quarter because of the season -- the shifting, excuse me, of the sport calendars.

And we're going to have to see how that all plays out. Much like last year, we're in a bit of uncharted territory with how the sports are overlapping. And obviously, a little tough to predict how NBA does in July when -- NBA finals do, I should say, in July when that's never happened before. So it'll be fun to see, and we're just excited there's a lot of great content out there to provide our customers with.

Our next question comes from Shaun Kelley with Bank of America.

Just wanted to ask about some of the marketing efficiency in the quarter. It looked like things were a lot more efficient on sort of a per user basis, sequentially from the fourth quarter and from what we saw throughout last year. And I'm just wondering, is that a direct product of efficiency gains? Or is there some seasonality attached to that as we just think about the balance of 2021?

There's always seasonality to marketing performance. Typically, though, what that results in is us just dialing up or down where we're investing based on the ROI we're seeing. I think Q1 was very similar to Q3 and Q4, where we spent more than we thought and had lower CACs than we thought. So it was almost like we couldn't spend enough to hit our CAC targets. And I think that efficiency was consistent, but a lot of what you see is that the customers that were acquired in Q3 and Q4 that remained active into Q1 boosted the MUPs numbers.

And obviously, we continue to add more, but more exciting to me is the retention that we're seeing of the customers we acquired in the back half of last year. I think that was the largest driver of what we saw on the MUPs front. And as far as future quarters and seasonality go, I think you'll see typical seasonal patterns. But as I mentioned, there is still this wildcard of the shift in sport calendar.

So I think it will be a bit different this year than in previous years. Typically, for example, we've seen good activity during the NBA and NHL playoffs. Having that overlap with baseball should provide better than, I think, typically what we've seen activity in the July time frame and late June time frame. And then I think also, we'll have to see in the back half of the year what the leagues do, the NBA and NHL in particular, in terms of when they start their new seasons. Do they try to go back to the typical schedule in early Q4? Or do they go with the late December, January schedule that they went with this past year? So I think that will also drive some activity. And then, of course, NFL, assuming that goes according to plan, which right now we see no reason to believe it won't, and now that's obviously going to be a big driver of activity as well.

Our next question comes from Chad Beynon with Macquarie.

Even with your recent acquisitions of VSiN and Blue Ribbon, which are sub-$100 million in the quarter, following your convertible raise, you're still sitting with a ton of cash at the end of the quarter. And based on your projections for 2021 and how the business should ramp to become more profitable, how are you thinking about the best use of this cash, whether it be bigger acquisitions, more partnerships or even considering something like a share repurchase given the sell off?

That's a great question. I think right now, we're actively exploring multiple opportunities, some of which you mentioned. And I think that really, we're going to try to do whatever returns best on that capital. That's -- when you take in capital, even when we did the note at 0%, not a high bar there, but still, we have our own internal thresholds for what we want to get return on -- what level of return we want to get on the capital we deploy. And we're very disciplined about that. So I think really, it's going to come down to us just rigorously evaluating different opportunities. And if we see great uses of capital that drive really strong returns, then we'll do it. If not, we'll be patient and deploy the capital as those things emerge.

And then separately, just wanted to revisit Canada. I understand that there's a federal bill that's kind of hung up right now. There's a separate one in Ontario, and it seems like, from a provincial standpoint, they're extremely interested. If the federal bill doesn't pass, is there a path for you guys to be in the Ontario market? I guess, from a limited basis, it won't be a comprehensive product, but it still could have some type of a parlay? Or would you wait for a federal build to pass for you guys to enter that market?

It's a great question. I think, as you noted, parlays are still possible under current federal law. Obviously, it would be great to get single event betting were the federal law to change. But parlays are still obviously very popular. And I think perhaps, more importantly, iGaming will be allowable in Canada or at least -- sorry, excuse me, in Ontario, and that does not have any impact from federal law. So I think those 2 things, both parlay, sports betting and iGaming, are products we intend to launch regardless of what happens. We're not waiting. And assuming the federal law does change, then we'll also offer a single event wagering as well.

Our next question comes from Daniel Adam with Loop Capital Markets.

Jason, when you think about the long-term opportunity for DraftKings, does it make sense at some point to start thinking about the global TAM instead of just North America? Just for context, there was a daily fantasy company in India that reported 100 million users in March. So when I think about your 1.5 million MUPs, it would seem the international opportunity for DraftKings could be massive, which no one is really talking about right now. Is that something that factors into your long term vision?

Absolutely. It's a great question. So as you noted, there's a huge global opportunity. And as excited as we are in the U.S. and as much as we believe the U.S. will be the largest in the world, the rest of world will certainly be larger combined. And our ambitions are to be a global company. So we think there's a lot of exciting opportunity out there. We're obviously closely following that daily fantasy company you mentioned, and also following regulatory developments in markets around the world. Lots of things are opening up, not just the U.S. So I think that provides a huge runway for our growth and it's something we haven't talked as much about because we have been so focused on the U.S., but I think you're very smart to point out that there's a huge opportunity there that can keep our growth rolling for many years to come.

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

Just curious, you mentioned Michigan and Virginia, they're ramping faster than New Jersey; really strong GGR per capita. But other states haven't ramped quite as well: Indiana, Pennsylvania, Iowa, West Virginia, et cetera. So I guess what gives you confidence that Michigan and Virginia are the better proxies for future states versus the other ones I mentioned?

Yes, it's a great question. I mean, what we showed in our Investor Day is New Jersey is kind of right around the middle of the pack. So there will be states that grow faster, there'll be states that grow slower. But I think what's really interesting with both Michigan and Virginia is it kind of further validates this notion that New Jersey is not some outlier that's just bigger than everything else. And we didn't have those 2 states in our Investor Day; even without those 2, New Jersey was already slightly below the median for the other states. So this just kind of brings that up even a little bit more and widens that gap more and gives us further confidence that New Jersey is, at worst, a good proxy and, at best, maybe a conservative proxy when you're trying to size the rest of the states. And then there's a few examples where it's hard to compare apples-to-apples. So you mentioned Iowa, for example. Iowa's tough to compare because Iowa for the first 18 months had no mobile registration. So clearly, that would make it get off to a slower start. And I think once we saw mobile registration kick in earlier this year in Iowa, we start to see really strong ramp there.

So I think it will definitely depend. Pennsylvania is another interesting one. Pennsylvania, we have not invested as deeply in from a customer acquisition standpoint due to the tax rates there. It's just not as profitable as a market for us. So that's another one where I think perhaps been a different setup, it might have been the place that we could invest more. But really, if you look at it, like I said, from the macro standpoint, New Jersey is right around the middle of the pack. And that was just a question we used to get a lot in the earlier days when everybody is using New Jersey as a proxy for what the rest of the U.S. could look like. And I think the data that we've seen emerge further validates that it's a pretty good proxy, maybe even a conservative one.

Ladies and gentlemen, this does conclude the Q&A portion of the call. I'd like to turn the call back over to our host for any closing remarks.

Thank you, and thank you all for joining us on today's call. We really appreciate your questions and look forward to continuing our conversations with you. We had a very strong start to 2021 and continue to be excited about the future. DraftKings is well positioned with $2.8 billion in cash to enter new states as soon as practical to drive continued product innovation, to acquire customers and to explore opportunistic M&A. I hope you all stay safe and well, and we look forward to speaking with you on our next earnings call in August.

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