DraftKings Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with Q1 2023 unless noted. DraftKings operates online sports betting, iGaming, daily fantasy sports, retail sportsbooks, media and related offerings. Its Sportsbook was live in 25 of 32 U.S. jurisdictions with legalized online sports betting; it also operated iGaming in six U.S. states and Ontario.
Financial performance and liquidity
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $1,175.0 million | $769.7 million | +52.7% |
| Cost of revenue | $710.1 million | $521.7 million | +36.1% |
| Gross profit / margin | $464.9 million / 39.6% | $247.9 million / 32.2% | Margin +7.4 percentage points |
| Operating loss | $138.8 million | $389.8 million | Loss narrowed $250.9 million |
| Net loss | $142.6 million | $397.1 million | Loss narrowed $254.6 million |
| Adjusted EBITDA (non-GAAP) | $22.4 million | $(221.6) million | Improved $244.0 million |
| Operating cash flow | $(70.4) million | $(201.5) million | Outflow reduced $131.1 million |
Revenue growth was led by online gaming revenue, up 56.7% to $1,152.2 million. Management reported average monthly unique payers (MUPs) rose 22.8% and average revenue per MUP rose 25.0%. It attributed higher monetization to improved Sportsbook hold and promotional reinvestment. Cost of revenue rose more slowly than revenue; sales and marketing expense declined 12.4% to $340.7 million, while general and administrative expense increased 8.6% to $174.3 million.
Investing cash outflow was $39.2 million, including $22.7 million for internally developed software and $11.6 million for gaming licenses. Financing cash outflow was $30.6 million, primarily reflecting treasury-stock purchases related to tax withholding on vested restricted stock units. Cash, restricted cash and cash reserved for users together declined $140.2 million to $1,483.3 million. This total includes customer-related funds; cash and cash equivalents alone were $1,192.7 million, excluding restricted cash and cash reserved for users.
At quarter-end, total assets were $3,800.7 million and stockholders’ equity was $831.0 million. Convertible notes had a carrying value of $1,254.4 million, net of issuance costs; the zero-coupon notes mature in March 2028. No amount was outstanding on the $125 million revolving credit facility, with $122.7 million of net borrowing capacity available. Management stated that cash on hand was sufficient for current working capital and capital expenditure needs for at least 12 months.
Material changes, outlook and notable items
- Growth and profitability: Management cited customer acquisition and retention, expansion into new jurisdictions, and improved Sportsbook hold and promotional reinvestment as key growth drivers. It expects profitability to improve over time as markets mature, revenue and gross profit expand, and marketing and fixed costs stabilize or grow more slowly. The filing does not provide numerical full-year guidance.
- Expansion commitments: A February 2024 agreement provides for the planned $750 million acquisition of Jackpocket, approximately 55% cash and 45% DraftKings stock, subject to regulatory approvals and customary closing conditions. The transaction was pending at quarter-end. Non-cancelable vendor commitments totaled $1,329.4 million, including $368.6 million payable during the remainder of 2024.
- Taxes and contingencies: The estimated contingent liability for indirect taxes was $74.9 million, up from $71.2 million at year-end. The company is under IRS audit for prior years, including issues involving fantasy sports excise taxes and information reporting and withholding; the ultimate effect is uncertain.
- Legal matters: The filing describes patent, promotional-practices, DraftKings Marketplace/NFT, and other proceedings. Potential losses generally could not be estimated. The company says adverse outcomes could affect operating results, cash flows or business operations, although it does not currently expect the described matters to materially affect financial condition. The Interactive Games lawsuit was dismissed without prejudice in April 2024; the Turley complaint was dismissed with prejudice in March 2024. The SEC inquiry concerning SBTech-related allegations remains ongoing.
- Other unusual items: Stock-based compensation expense was $93.5 million in the quarter, and warrant remeasurement produced an $18.1 million loss. The filing notes $784.7 million of unrecognized stock-based compensation expense expected to be recognized over a weighted-average 2.8 years. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether MUP and revenue-per-payer growth, improved hold, and promotional reinvestment persist; the filing’s extracted text gives growth rates but not clear absolute MUP or ARPMUP values.
- How operating cash burn and customer-related balances evolve, and whether available cash remains adequate as acquisition, vendor and expansion commitments are funded.
- Jackpocket closing status, final cash-versus-stock consideration, and any effect on liquidity or share count.
- Developments in the IRS audit, indirect-tax exposure, SEC inquiry, NFT-related matters and remaining patent litigation; several outcomes and potential loss ranges are not estimable.
- The trajectory of Adjusted EBITDA alongside GAAP net losses, stock-based compensation, and other excluded costs; Adjusted EBITDA is a non-GAAP measure and should not be viewed as a substitute for GAAP results.