DraftKings (DKNG) Q1 2023 Earnings Call Transcript

DraftKings (DKNG 4.96%)
Q1 2023 Earnings Call
May 05, 2023, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day and thank you for standing by. Welcome to the DraftKings Q1 2023 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation there will be a question-and-answer session.

Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. Stanton Dodge. You may begin.

Stanton Dodge -- Chief Legal Officer

Good morning, everyone, and thanks for joining us today. Certain statements we make during this call may constitute forward-looking statements that are subject to risks, uncertainties, and other factors as discussed further in our SEC filings that could cause our actual results to differ materially from our historical results or from our forecasts. We assume no responsibility to update forward-looking statements other than as required by law. During this call, management will also discuss certain non-GAAP financial measures that we believe may be useful in evaluating DraftKings operating performance.

These measures should not be considered in isolation or as a substitute for DraftKings financial results prepared in accordance with GAAP. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are available in our earnings presentation, which can be found on our website and in our quarterly report on Form 10-Q filed with the SEC. Hosting the call today, we have Jason Robins, co-founder and chief executive officer of DraftKings, who will share some opening remarks and an update on our business; and Jason Park, chief financial officer of DraftKings, who provide a review of our financials. We will then open the line to questions.

I will now turn the call over to Jason Robins.

Jason Robins -- Co-Founder and Chief Executive Officer

Good morning and thank you all for joining. I'm excited to be with you today and share that DraftKings is off to an excellent start in 2023. Revenue growth has been outstanding, supported by strong customer retention, acquisition, and engagement, as well as better structural hold percentage than anticipated. First quarter revenue increased 84% year over year, and we are increasing our full year revenue guidance to a range of $3.135 billion to $3.235 billion, implying growth of 42% year over year at the midpoint, which is pretty remarkable off of a revenue base Of $2.2 billion in full year 2022.

At the same time, achieving efficiency remains a relentless focus. Our mantra of revenue growth and cost efficiency is gaining even more momentum throughout the organization. Due to both our strong revenue growth and our ongoing efforts to capture efficiency, primarily within external marketing and our fixed costs, we are on the cusp of achieving profitability on an adjusted EBITDA basis. We expect to be approximately breakeven on an adjusted EBITDA basis in the second quarter and we expect to achieve nearly $150 million of positive adjusted EBITDA in the fourth quarter.

For the full year, we are improving our adjusted EBITDA guidance to a range of negative $290 million to negative $340 million, or an increase of 21% at the midpoint versus our February full year guidance. Turning to our product offerings, DraftKings has continued to introduce unique sports wagering opportunities by most recently launching live game parlays for MLB supported by our in-house trading platform. We continue to invest in our in-house trading capabilities and technology in advance of the NFL season this fall. In iGaming, we estimate that we achieved No.

1 GGR share in the U.S. at 26% in the first quarter. Our homegrown games continue to function as a key differentiator. For example, our exclusive DraftKings jackpot product is now live in three states across more than 100 slots and table games.

We also launched DK Horse, our stand-alone horse racing app at the end of March, which offers wagering on races from hundreds of domestic and international tracks, including all three Triple Crown races beginning with this weekend's Kentucky Derby. I am proud of the team and culture we have in place. In particular, I am proud of our team for the relentless focus on efficiency and expense management over the past 12 months. Our work on achieving ends is not done and we feel great about the trajectory of our business.

With that, I will turn it over to Jason Park, chief financial officer.

Jason Park -- Chief Financial Officer

Thank you, Jason. I'll hit on the highlights, including our Q1 performance and our new and improved 2023 guidance. Please note that all income statement measures discussed except for revenue are on a non-GAAP adjusted EBITDA basis. As Jason mentioned, the organization is executing very well and that is showing up in our results.

We achieved $770 million of revenue in the quarter, which is 84% higher than our first quarter 2022 revenue. And our adjusted EBITDA of negative $222 million in Q1 significantly outperformed our expectations. Structural hold percentage was better than anticipated with parlay handle mix up 400 basis points year over year, while promotional intensity declined, together supporting a more than 600-basis-point improvement in our adjusted gross margin rate. We were particularly pleased with the results in our order state vintages.

In each of our 2018, 2019, and 2020, 2021 state vintages, first quarter 2023 handle grew more than 25% compared to the same period in 2022. GAAP revenue grew at least 80% year over year, adjusted gross margin rate increased at least 1,200 basis points year over year, and external marketing spend declined at least 10% year over year. These strong results and our visibility into continued improvement have enabled us to raise our full year 2023 revenue guidance range to $3.135 billion to $3.235 billion from $2.85 billion to $3.05 billion. We are also improving our full year 2023 adjusted EBITDA guidance range to negative $290 million to $340 million from negative $350 million to $450 million or by $85 million at the midpoint.

The bridge from our February full year 2023 guidance to our May full year 2023 guidance includes increases due to stronger customer retention, acquisition, and engagement, structural sportsbook improvement, and favorable sport outcomes in the first quarter, which were partially offset by the timing of our recognition of a loyalty program expense. Customer retention, acquisition, and engagement are exceeding expectations and account for approximately $195 million of the revenue improvement and approximately $80 million of the adjusted EBITDA improvement. Our structural sportsbook hold percentage forecast is also higher, supported by our introduction of in-house team game parlay capabilities. This trend accounts for approximately $20 million of the revenue improvement and approximately $15 million of the adjusted EBITDA improvement.

Favorable sport outcomes in the first quarter contribute approximately $20 million to the revenue improvement and approximately $15 million to the adjusted EBITDA improvement. Last, expense recognition timing is a $25 million headwind to our improved full year adjusted EBITDA guidance. As a result of greater visibility into our new loyalty program, costs that were originally expected to be expensed in the first quarter of 2024 are now expected to be expensed throughout 2023. This additional expense accrual in 2023 will not result in additional cash outflow.

In terms of our full year 2023 adjusted gross margin percentage, we continue to expect to land in the range of 42% to 45%. With regard to our balance sheet, we ended the first quarter with $1.1 billion of cash and now plan to end the year with more than $800 million of cash before our expected inflection to generating positive adjusted EBITDA for the full year 2024 under any reasonable new state launch scenario. In sum, we had a strong first quarter and underlying drivers are improving our outlook for 2023 and beyond. That concludes our remarks and we will now open the line for questions.

Questions & Answers:

Operator

[Operator instructions] And our first question will come from Shaun Kelley of Bank of America. Your line is open.

Shaun Kelley -- Bank of America Merrill Lynch -- Analyst

Hi. Good morning, everyone, and thank you for taking my question. For either Jason or Jason, just obviously I wanted to talk about the revenue performance, excellent in the quarter. And I wanted to get your sense on if the thesis here is around improved customer retention, engagement.

What products or product changes in your suite are continuing that? And kind of how did this play out through the first quarter? I think from what we understand, it sounds like March was just an exceptional pick up for DraftKings. So can you talk a little bit about both that cadence and your product mix that may be helping continue engagement beyond traditional NFL season?

Jason Robins -- Co-Founder and Chief Executive Officer

Thank you, Shaun. I appreciate it. And I think you're right. It really -- the theme on the revenue side has been customer retention, monetization.

Also, we've had tremendous acquisition results. We acquired 57% more first time players year over year on a 27% lower cost of acquisition. So really pleased on that front too. It's been our OSB and iGaming products that have been carrying the load for us.

We've been seeing really the big trend difference year over year is last year we saw a bigger drop off after the NFL season ended after the Super Bowl. And this year, I think due to some CRM optimization, some product enhancements on the sports betting side, as well as some of similar things that we've been doing on the iGaming side, we've just seen much stronger retention flowing into late Feb and March and it seems to be continuing into Q2 as well.

Shaun Kelley -- Bank of America Merrill Lynch -- Analyst

Great and maybe just as a quick follow up, as we think about the revenue outlook and the increase in the quarter, what -- are faster paybacks contemplated in that as well as we think about just kind of what you're seeing on the individual state level. I think that's been a thesis around, particularly the Ohio and Massachusetts launches, but is that contemplated in the revenue outlook increase here or is that an opportunity going forward?

Jason Robins -- Co-Founder and Chief Executive Officer

No, absolutely, I mean really and the way to think about it is the strong acquisition we've been seeing and have been continuing to see in those new state launches and the speed with which we penetrated into the mid to high single digits of population -- adult population. I think that sets up for both a faster payback, meaning what used to be a two- to three-year time to profitability is being pulled in. And also we think that there will be more revenue contribution from those states in year as well. So it's absolutely a driver of the increased revenue forecast.

Jason Park -- Chief Financial Officer

I would add, Shaun, as we indicated the increase in our Q4 EBITDA, I think that a big part of that improvement is exactly what you're referring to.

Shaun Kelley -- Bank of America Merrill Lynch -- Analyst

Thank you both.

Operator

And one moment for our next question. And our next question will come from Bernie McTernan of Needham and Company. Your line is open.

Bernie McTernan -- Needham and Company -- Analyst

Great. Good morning. Thanks for taking the questions. Maybe to start, just the reiteration of the 42% to 45% gross margin guide for the year, just given the strong performance of 1Q, just any puts and takes we should be thinking about for the remainder of the year here?

Jason Robins -- Co-Founder and Chief Executive Officer

I think the biggest thing is the increased acquisition that we've seen -- customer acquisition. As we've noted in the past, new users or where a lot of the promotion dollars are spent and that, therefore, drives up the promotion dollars. That said, we are reiterating the same guide of 42% to 45%. We don't see that being any different on the year, but certainly you'll see some fluctuations quarter to quarter.

You'll see some things, some of that show up in the flow through rate, so that's probably the biggest moving part. But overall, we don't expect it to change outside of that range this year for gross margin percentage.

Bernie McTernan -- Needham and Company -- Analyst

Understood and not wanting to step on the toes of any maybe future potential Investor Day, but now that you've posted back to back quarters of really strong results on profitability, any changes to thoughts on long-term profitability or maybe getting to those long-term targets sooner?

Well, you're right, we are planning on covering that at the Investor Day, so I'll hold off on comment on that until then. But we will certainly have more to say about that later this year.

Fair enough. Thank you.

Jason Robins -- Co-Founder and Chief Executive Officer

Thank you.

Operator

One moment for our next question. And our next question will come from Ed Young of Morgan Stanley. Your line is open.

Ed Young -- Morgan Stanley -- Analyst

Hi. My question relates to Slide 6, about the increasing pace of customer acquisition. The 6% you've achieved in Massachusetts in the first, I guess, 50 to 60 days suggests that the pace is continuing to improve even further with the 23 cohort you talked to the drivers of this. How much of that is related to your playbook? How much is that the sort of stage you're at in terms of the market.

And particularly, I wonder if you could comment on to what extent any of that is reflective of the competitive situation and the actions of others that are informing those faster paybacks? Thanks.

Jason Robins -- Co-Founder and Chief Executive Officer

I mean I do think it's all of the above. I think all of the factors you just mentioned, all three factors are contributing in our tailwinds right now. So, one, I think we've very much optimized our go to market. We now are close to two dozen states at this point.

So I think we've had a lot of time to really optimize that and feel very good about our new state playbook. Secondly, you're seeing the effects of national advertising and that really, I think, especially in the case of Ohio and Massachusetts and Maryland, which came late, or shortly following in the case of Massachusetts, the NFL season. A lot of that probably quick ramp was at least in part the result of a switch to national advertising which made it more that these states that in the past maybe for a new state launch hadn't seen as much of the advertising during an NFL season. Ohio and Maryland and Massachusetts saw advertising on our national -- advertising all year, all NFL season long.

I think also there's a lot of momentum in the industry. People travel to different states. They have friends playing. So I think that's helped with faster ramp.

And I do think that competitively you're right that there's been a lot more consolidation in the last few state launches to the top two players in the sportsbook market. And I think that that's also driving it as well.

Ed Young -- Morgan Stanley -- Analyst

Great. Thank you. Just a quick follow up on iGaming. You talked about some of the internal improvements in terms of retention through the end of the NFL season into March.

But I wonder if you could just again broaden the competitive environment question there on iGaming. Are you seeing anything particularly different in that environment? Is that informing the market share as well or do you think it's sort of primarily sort of internal actions that share increase? Thanks.

Jason Robins -- Co-Founder and Chief Executive Officer

I think it's again a mix of both. I think that you're certainly seeing both. I also think that because the cross-sell is so strong between sports betting and iGaming, that as we gain share in sports betting, we're naturally going to gain some share in iGaming as well. If we continue to do a good job with the cross-sell, which we have been doing.

So I think that's a big factor to consider also.

Ed Young -- Morgan Stanley -- Analyst

Great. Thank you.

Operator

One moment for our next question. And our next question will come from Carlo Santarelli of Deutsche Bank. Your line is open.

Carlo Santarelli -- Deutsche Bank -- Analyst

Hey, guys. Good morning and thanks for taking my question. Jason, you mentioned in your prepared remarks that handle was up about 400 basis points year over year. Could you maybe put some parameters around, A, kind of the influence that had on hold? On a stabilized basis, maybe not in the quarter but maybe some sensitivity around that? And B, could you perhaps give us kind of an estimate of what that number looks like at an absolute level?

Jason Park -- Chief Financial Officer

The hold rate?

Carlo Santarelli -- Deutsche Bank -- Analyst

Sorry, the mix, the parlay mix.

Jason Park -- Chief Financial Officer

I don't -- yeah, we haven't disclosed that. I think we are looking right now at least for Q1 a hold rate that was in the mid-eights. It was roughly a 250-basis-point year-over-year increase and that was a combination of outcomes, which were unfavorable last year and a little bit favorable this year, as well as that increased parlay mix that drove the increase.

Carlo Santarelli -- Deutsche Bank -- Analyst

Great. OK. And then as a follow up, I believe last year your marketing was a little bit over $800 million. In steady state, how do you guys think about that number relative to revenue as a percentage of revenue? [Inaudible]

Jason Park -- Chief Financial Officer

Yeah, I think you're right, it does depend in the short term of course on state launches, but long term in our Investor Day, I think we -- what do we say, about 7% to 8% of revenue?

Jason Robins -- Co-Founder and Chief Executive Officer

A little bit more.

Jason Park -- Chief Financial Officer

About 10%, I believe, of revenue on our Investor Day. So I think for now as I noted on earlier question, we'll be updating some of those metrics later this year at our new Investor Day. But for now, I think we're comfortable saying we think that that's the right number. And I think that potentially as revenue grows, it doesn't mean that marketing would need to continue up from there.

So I think if you sort of take the snapshot that we put in our last Investor Day, I think at that level of scale, it looks about right. But I also think that to the extent that revenue continues to grow from there, I don't think marketing has to grow linearly either.

Jason Robins -- Co-Founder and Chief Executive Officer

Yeah, Carlo, I think marketing as a percentage of sales is a perfectly good sort of outside in-metric. Internally, we'll just continue to look at LTV to CAC as a state is in that fifth -- seventh year and adjust the marketing -- total marketing expense dollars to reflect the adults that are left to be acquired. And as we've provided those statistics on our order states, you can see that there was -- the absolute marketing dollars are declining in the order states.

Carlo Santarelli -- Deutsche Bank -- Analyst

Got it. Thank you, guys. Appreciate it.

Operator

And one moment for our next question. And our next question will come from Barry Jonas of Truist Securities. Your line is open.

Barry Jonas -- Truist Securities -- Analystw

Oh, Great. Thanks. We've seen some deals across the space recently. Curious how you're thinking about M&A here?

Jason Robins -- Co-Founder and Chief Executive Officer

Right now it's not really a focus of ours. We feel like we've had really strong organic growth. We're executing very well competitively. We're seeing natural consolidation of market share happen in the U.S.

So I think right now that's our focus and it doesn't mean that down the road M&A couldn't become more interesting, but at the moment we're very focused on execution.

Barry Jonas -- Truist Securities -- Analystw

Great. And just as a follow up, curious where you think from a state legalization perspective where the biggest opportunities for OSB and maybe iGaming expansion exist today? Thanks.

Jason Robins -- Co-Founder and Chief Executive Officer

Yeah, it's a great question. I think right now the states that we are seeing active bills that I think have a shot of moving, Texas, which we'll see. It's different by the day, what I hear there. North Carolina, Minnesota and I think Vermont are the ones that that have the best shots of moving.

Kentucky, of course, already passed this year. We don't have any update yet on the timing of launch, but we expect by our August call, we'll have a little bit more clarity there and can factor that into any future guidance to the extent that it's relevant to this year. And then on the iGaming side, I think there's a lot of bills right now. I don't know that most of them have a good shot of moving this year, but the state that I think probably has the best chance on the iGaming front this year would be Illinois.

Barry Jonas -- Truist Securities -- Analystw

Thank you so much.

Operator

And one moment for our next question. And our next question will come from Daniel Politzer of Wells Fargo. Your line is open.

Daniel Politzer -- Wells Fargo Securities -- Analyst

Hey, good morning, everyone. I just wanted to dive a little bit more into the gross margin. Obviously, it came in nicely as well. I was wondering if you could maybe unpack this a bit and talk to the puts and takes here in terms of gaming taxes as the platform costs, processing costs, and the rev share.

I mean, which of these pieces are tied to EGR versus handle? And what kind of moves around quarter over quarter, because this is obviously was a big source of the upside and we've already talked about that a little bit. But any more color there would be great.

Jason Robins -- Co-Founder and Chief Executive Officer

Yeah, good question. I mean I think gross margin rate was obviously higher on a year over year basis by 600 basis points. Underneath of that is a bunch of state complexion Dan. So you've got investment through promo dollars, which is a headwind to gross margin rate in Ohio and Massachusetts.

At the same time we're laughing a heavy promotional Q1 with the New York and Louisiana launches in Q1 of 2022. That's probably one of the largest factors that impact gross margin rate in any given period. Bigger picture, the other elements, taxes, those are fairly well known from a statutory tax rate. Platform costs, we continue to be very thoughtful about vendors that sit within our platform costs and you hear us talking about bringing in-house more of our game offerings both on the OSB and iGaming side.

And then in terms of market access, as a scale operator, we believe we get fantastic rates in states that do require market access fees. So I think those are the biggest levers and elements of our gross margin rate.

Daniel Politzer -- Wells Fargo Securities -- Analyst

Got it, thanks. Just one quick follow up, if I may. On third quarter, I don't think expectations really changed much there. Is there an expectation that you -- maybe for Massachusetts, Ohio, maybe even Maryland, you have the first football season and there's -- we should expect an uptick in promotions there? Or is there some element that I'm missing that maybe you should be aware of?

Jason Robins -- Co-Founder and Chief Executive Officer

Yeah, I think you're right in the sense that we expect that given some of the early acquisition trends we've seen in those states and knowing that Massachusetts hasn't even had any football yet and it was -- March Madness, but there's still probably a significant audience out there. We are baking in an increased acquisition assumption, which results in Q3 even though there might be sort of similar to what Jason was saying on the gross margin side. There's a lot of puts and takes there too. And it'll probably net out slightly better than we thought, but I think that's really going to depend on how strong the customer acquisition is and overall H2 should definitely be better.

So it's really just a question of depending on acquisition trends, which are a little hard to predict in these states at that early stage of the NFL season, how much falls in Q4 versus how much falls in Q3.

Daniel Politzer -- Wells Fargo Securities -- Analyst

Got it. Thanks so much. Nice quarter.

Jason Robins -- Co-Founder and Chief Executive Officer

Thank you so much.

Jason Park -- Chief Financial Officer

Thank you.

Operator

One moment for our next question. And our next question will come from Benjamin Chaiken of Credit Suisse. Your line is open.

Benjamin Chaiken -- Credit Suisse -- Analyst

Hey, how's it going? Thanks for taking my questions. I think in the -- in your previous comments last quarter you targeted fixed cost for '23 to be up 10# to 15% year over year. I know Jason in a letter and prepared remarks you talked about low single digit cadence in 2Q. How are you thinking about the full year fixed cost guidance? It's still that 10% to 15% or has it moved around at all?

Jason Park -- Chief Financial Officer

Yeah, absolutely maintaining the 10% to 15% on a full year basis and we call it out single digit for Q2 as you could see that the fixed costs in Q1 were higher than that. So yes, maintaining the 10% to 15% full year fixed cost growth.

Benjamin Chaiken -- Credit Suisse -- Analyst

OK. and then I'm kind of doing this on the fly, but that implies roughly low single digit -- flat to low single digit decline in external marketing year over year. To Carlos question, you have some new state launches in there which implies that the legacy states, if you will, external marketing is coming down pretty dramatically. Is this national advertising better product? How do you think about it? And then are you pleasantly surprised or is this all kind of according to plan? Thanks.

Jason Robins -- Co-Founder and Chief Executive Officer

No, I think this is according to plan and certainly I think the speed with which we're seeing it happen is a pleasant surprise. But I think the trends are what we expected. Where we land on the year will be roughly flat, I believe. I think there some plus or minus that could occur based on results.

As Jason Park noted earlier, we very much treat this fluidly and are looking at the data real time. And so as we see how -- especially Q2 I think is pretty we're pretty certain where we'll be there. I think Q3 is a little bit of flexibility depending on results, but I think we expect to be in the flattish range year over year. And if we spend a little more, I think that would also probably come with an incremental revenue expectation in Q4.

So I don't think anything would change on the adjusted EBITDA front.

Benjamin Chaiken -- Credit Suisse -- Analyst

Understood. Thank you.

Operator

One moment for our next question. And our next question will come from Jed Kelly of Oppenheimer and Company. Your line is open

Jed Kelly -- Oppenheimer and Company -- Analyst

Hey, great. Thanks for taking my question. Two, if I may, one longer term. Jason, how do you think about the right approach in terms of managing the optimal hold percentage you want to generate with the maximum number of users? And then my follow up is you saw very strong growth in the vintage states, I think you said 10% unique user growth.

Where are those unique users coming from? Is that more consumers being of legal age or are you actually getting new users And does that include Golden Nugget or is that all organic? Thank you.

Jason Robins -- Co-Founder and Chief Executive Officer

Yeah, thanks. So on the first question, I think the answer is we don't know yet. If you look around the world, there's markets that have significantly higher hold rate than any anyone in the U.S. I've heard is targeting simply due to some of the legal frameworks there.

And there's -- so the point is there's a variety of data points. I know there's a lot of moving parts if one were to want to try to put that puzzle together, but I think we're very much going to treat it iteratively. And the key for us is really product market fit. So driving hold up by increasing the take, meaning making worse odds for players is not something that I think is really being considered right now.

Creating products that people want and that they retain well on and that they continue to use and get enjoyment out of is the method. So I think to the extent that we are able to keep doing that and I think we have a lot of ideas. Obviously, we've talked a lot about parlay and driving that, but there's other products like cash out and things like that where there's certainly opportunity. So these are -- the way we think about it internally is not, hey, let's drive hold up.

It's how do we get more adoption and how do we make sure we're retaining and getting satisfaction from customers on these products and the outcome. The consequence of that is higher hold rate. And so I think if we continue to approach it that way, there's probably a good deal of still upside there. I mean where it ends is anyone's guess.

We're going to watch the data and continue to be very data-driven as a company. And then I'm sorry, what was the second question?

Jed Kelly -- Oppenheimer and Company -- Analyst

Where is the 10% unique user growth coming from in vintage states?

Jason Robins -- Co-Founder and Chief Executive Officer

There's always new people coming into the market. We still haven't reached, we think, the ultimate TAM. So meaning, in a given older vintage state. We have to remember, we're still, even in the oldest of states, less than five years into this thing.

So -- I mean, iGaming I guess in New Jersey has been around longer, but for OSB and outside of New Jersey, iGaming hasn't been around for more than four or five years anywhere either. I think four years is the most. So really, it's still early innings. And I think that at this stage of most any market you'd expect to see continued user growth and continued penetration of the population.

So there are under the coverage, right, there's always people that are reaching legal age. So always people moving in and out of state, there are moving parts. But I think a lot of it is just like with any product, you don't get 100% of the adoption on day one. You get some of the most avid and excited users, and that's something we consider when we're setting our CAC targets that you do get more casual customers as time goes on.

But there's still a lot of market out there. And I think a lot of this is product driven to the more that we create products that can appeal to the mainstream and it can be easier and less intimidating, I think, for the average customer to understand the more that user growth will continue.

Jed Kelly -- Oppenheimer and Company -- Analyst

Thank you.

Operator

One moment for our next question. And our next question will come from Robert Fishman of MoffettNathanson. Your line is open.

Robert Fishman -- MoffettNathanson -- Analyst

Good morning. Given the current week ad market backdrop, can you just discuss how that's helping with your additional ad buying efficiencies both on the national and local basis. Maybe, I don't know if possible to compare, how much you're paying for an ad spot in the playoffs this year compared to last year?

Jason Robins -- Co-Founder and Chief Executive Officer

Yeah, no doubt that there's been a reduction in market rate for advertising. It's been different in different channels. But if you look at it from a macro perspective, it's definitely happening across the board. There is some offset in certain channels of that because there are limits placed on inventory specifically for our categories.

So as an example, the NFL has put a restriction on, I believe it's five spots per game. Don't quote me on the number, but there's some -- I think it's five per game. So naturally that changes things. It doesn't have the same effect maybe in other forms of media where auto and insurance and others are competing and driving the market.

But no doubt, if you look at it on a kind of macro basis, there's been a reduction in ad rate and that's part of alongside optimization, why we've been able to have such a significant increase in CAC -- excuse me, in customers. But actually to get that with a decrease in CAC. You usually don't see that usually when you have a 50-plus percent increase in customers, your CAC goes up a little bit and we saw 27% year over year decline in Q1.

Robert Fishman -- MoffettNathanson -- Analyst

That makes a lot of sense. Thank you. And just maybe big picture, with the current competitive landscape, it seems clear to us at least that we've set -- you've cemented DraftKings as a winner for this long term opportunity. So can you just talk about plans to keep growing your market share from here and maybe even potentially close the gap with FanDuel?

Jason Robins -- Co-Founder and Chief Executive Officer

Yeah, I mean, first, we don't take anything for granted. So we assume that there's always going to be a very competitive market and that we don't assume we've won anything or that we have anything that we can bank on yet. And I think that keeps a lot of the edge and the competitive drive with the company. No doubt having a big competitor in FanDuel, also is helpful.

It gives us somebody on the OSB side to feel like we can chase down. And I think similarly on the iGaming side, we've been chasing down BetMGM. And for the first time in Q1 we're able to pass them for number one market share in iGaming, which we're very proud of. So definitely I think having that competitive landscape is helpful in keeping our employees focused on who we need to beat.

And at the same time, we also understand that new competitors can enter the market at any time and we can't take anything for granted and have to assume that we always have to be serving the customer and innovating and creating new products and new features. And over time we believe that that's the key to driving loyalty is just best product, best customer experience.

Robert Fishman -- MoffettNathanson -- Analyst

Got it. Thank you.

Jason Park -- Chief Financial Officer

I would add if you look at the market share relative to FanDuel on a year over year basis, our handle -- both of our handle share increases are fairly comparable. And it just reiterates that hold rate is -- continues to be a very large focused area of DraftKings and again hold rates through product mix and bringing customers additional products that they enjoy. So I think as we continue to make progress on hold rate that that's going to help with relative market share vis a vis FanDuel.

Robert Fishman -- MoffettNathanson -- Analyst

Thank you both.

Operator

And one moment for our next question. And our next question will come from Joseph Stauff of SIG. Your line is open.

Joseph Stauff -- Susquehanna International Group -- Analyst

Jason, question about just frame how much wider say your product depth is this year versus last, especially in the second quarter. So I don't know how you can frame for us, like how much wider NBA product is, especially second quarter versus last, especially as I see it kind of going into May, five states still in play. Obviously, Knicks and Celtics, which have huge size and probably betting handle.

Jason Robins -- Co-Founder and Chief Executive Officer

No, I think, I mean -- first, you're right that the product is really night and day year over year. I think particularly as you look at the sports book product, not that we haven't made as much progress in iGaming, but it was starting from a standpoint where last Q2 we were, about six or seven months removed going into the quarter from our migration. And now we've had a full extra year under our belt and we've introduced micro markets for NBA baseball and several other sports that are really a unique feature that nobody else has. We're the only company in the space now with live same-game parlay.

We didn't even have same game parlay a year and a half ago. Now we have the only live NBA same-game parlay and also the only live MLB same game parlay in the market. And we're continually innovating on a number of features. We added parlay insurance in just many, many other markets that didn't exist last year.

So I think you're exactly right that depth and -- not just in terms of the markets, although certainly there's been a tremendous amount of breadth and depth increase in the markets. But of the features and the capabilities as well has been very transformational in terms of our ability to compete for market share and to win the customer.

Joseph Stauff -- Susquehanna International Group -- Analyst

And then you just remind us on so and your efforts and your initiatives to GNOG in particular and just remind us of maybe to be fully implemented in the market?

Jason Robins -- Co-Founder and Chief Executive Officer

Yeah, so GNOG is -- we are still focusing on the migration there and believe that we are on track. I think that GNOG has certainly been a good addition in terms of it's part of the story of why we've been able to get to number one market share. I will say that I think that the best is really still ahead there because as long as it's not on our platform, we're not realizing the vast majority of the synergies that we put out when we did the deal. And I think those are all still on the come.

So we're very excited about the migration. And I think when I say synergies, not just the cost, obviously, there's cost savings, but also just having a superior product with better revenue and monetization on the players, smoother customer experience, easier to use, superior merchandizing, driving more cross-sell between games. I think all of that easier flows on the customer acquisition side. We know for a fact that our TAM is converting at a better rate on new users than the GNOG conversion rate.

So lots of good things there, but we haven't realized them yet. So very excited about that and hope to start to see some of that materialize in the back half of the year.

Joseph Stauff -- Susquehanna International Group -- Analyst

Really impressive results.

Jason Robins -- Co-Founder and Chief Executive Officer

Thank you so much.

Operator

And one moment for our next question. And our next question will come from Clark Lampen of BTIG. Your line is open.

Clark Lampen -- BTIG -- Analyst

Hi, good morning. Thanks very much, Jason. Given a lot of the positive things that are happening now with the U.S. business that we've covered already on the call so far, I'm curious whether we're at a point where either near or medium term you'd feel more comfortable entertaining opportunities to expand the business.

Maybe a little bit more broadly in overseas markets?

Jason Robins -- Co-Founder and Chief Executive Officer

For us, right now the opportunity in the U.S. is so significant and we are so well positioned here that that has to be the focus. At some point, down the road, international become of interest. But right now, we're very focused on the US and at the same time obviously we understand that the capabilities that we're building on the product side, the technology side, these will be things that will give us high leverage and create really strong EBITDA margins where we'd expand into international markets because a lot of the same tech and product is usable without having to add a ton of incremental costs.

So it's something down the road we consider, but right now we think the U.S. is still in the very infancy stages. We are so strongly positioned. We're growing our market share, we're growing at a faster clip.

The investments we're making are working and we want to continue to fuel that as much as possible.

Clark Lampen -- BTIG -- Analyst

Understood. And then maybe coming back to product, we've seen some of your peers of late looking to bolster their first-party offerings. I'm curious understanding that the priority is really building in-house. There is sort of bigger picture, a widening gap between you, FanDuel, and the rest of the sports betting market.

Would you consider additional acquisitions as a means of sort of both improving the offering and magnifying that trend? Or is there one market whether it's OSB or iGaming, where that makes more sense?

Jason Robins -- Co-Founder and Chief Executive Officer

At this point, I don't think that that's really a focus either. We're seeing market share consolidate organically and I think at a certain point down the road that'll reach some sort of ceiling and then we'll evaluate that at that point. But right now, I think we feel like the similar answer to your prior question that what we're doing is working. And companies all the time make mistakes by getting distracted when they have something that's really working instead of just focusing.

And I think that's something that we feel is really important to just continue to keep the team focused on -- eye on the prize right now.

Clark Lampen -- BTIG -- Analyst

Thanks very much.

Operator

One moment for our next question. And our next question will come from Chad Beynon of Macquarie. Your line is open.

Chad Beynon -- Macquarie Group -- Analyst

Morning. Thanks for taking my question. As we think about the revenue guidance, Q1 was 24% of that, which I believe is slightly higher than normal and you called out all the items that led to that strong performance. But as we think about normal seasonality, understanding that it's a moving target with these structural hold changes, is there anything that you're comfortable with providing to us just in terms of how that could look, what's really hinged on that fourth quarter, or what the middle of the year could look like? Thanks.

Jason Robins -- Co-Founder and Chief Executive Officer

Yeah, it's a great question. I mean I think that if you're comparing to last year, we had unusually low hold last Q1 because of unfavorable sport outcomes. So in any given quarter that can swing you and that's part of why we really focused more on annual guidance and giving some color around relatively how much we expect to fall in different halves or quarters. But it does vary a little bit based on that, although over the course of the year, it tends to even out.

So you will see some fluctuations in terms of the revenue distribution. Also you'll see some changes depending on timing of state launches and other things like that. So I think that's really why it was a bit different is that last year we had really low hold was still outcome driven and there have been some structural hold changes that have improved too. But we did see really poor sport outcomes in Q1 last year relative to this year and that's been a big difference.

As far as anything baked into future quarters, a lot of what we also improve throughout last year was already taking effect in the back half of the year. We have other initiatives that we think could lead to some upside this year. But of the things that we know we have that we've baked into our forecast, a lot of that was already realized in the back half of last year. So you see a bigger impact in Q1 and potentially in the first part of Q2 as well.

Whereas, as we get closer to H2, some of that is kind of lapping year over year.

Chad Beynon -- Macquarie Group -- Analyst

OK. Helpful. Thanks, Jason. And then with respect to just media tie-ins, you've done some of these exclusive live broadcasting partnerships.

It appears that there will be more opportunities if you want to kind of expand with other partners in the media space. Just wondering what you've seen from a success or failure with some of these exclusive deals that you've had? If the engagement is higher, then maybe it's worth exploring some of those opportunities that could come up in the next 12 to 24 months?

Jason Robins -- Co-Founder and Chief Executive Officer

Yeah, I mean I think for us continuing to optimize theirs is a big part of optimizing our marketing and really the -- it's a deal-by-deal thing. So at this point we have tremendous data not just from our decade plus of daily fantasy sports, but now from almost five years of sports betting on what types of media deliver what types of results. It's been a big part of our year over year optimization. I also think that the market environment has improved, which we noted earlier on a previous question.

So there's a lot to like in the media space and from the standpoint of deals, we evaluate each deal on a deal-by-deal basis and the hurdle is if we were to take those same dollars and spend them on the open market, could we do at Least as well. And if we think we can do at least as well, then why tie them up? So it has to be a deal where we feel like we have some sort of strategic advantage, either access to good efficient spend and it increased scale, it wouldn't be achievable elsewhere. Or some sort of deal that would give us favorable pricing or something that would make it, so that having a tie-in -- a tie up of dollars versus flexibility in the dollars would make sense for us?

Chad Beynon -- Macquarie Group -- Analyst

Makes sense. Thank you very much.

Operator

One moment for our next question. And our next question will come from Robin Farley of UBS. Your line is open, Robin.

Robin Farley -- UBS -- Analyst

Great, thanks. I have two questions. One is just a follow up. I'm sorry, I don't know if you clarified how much of the GNOG acquisition contributed to that -- the 10% increase in users.

And then I had a question also on your guidance for this typically includes every year being 7% to 9% of the population. And that would take quite a few of those smaller states you mentioned having to legalize this year to kind of achieve that increased access to the population for 2024. If you're -- if you don't see those sort of multiple legalization, I mean, obviously, if it's Texas not an issue, but really referring to the other one. Is there enough organic growth from your existing states to maintain guidance even if you don't get multiple legalization this year for 2024? Thanks.

Jason Robins -- Co-Founder and Chief Executive Officer

So thank you, Robin. On the first question, we actually -- it's like for like. So it wasn't just we took GNOG and added it in and kept GNOG in the base. In fact, if you look at GNOG, it's actually a little bit of a downward drag on that 10% number.

So it would have actually been higher if you just looked at the DraftKings brand, but it's all included. So that's in there. And on the second question, as far as -- like it's going to vary year to year, right? And right now, I think if you look at bills that are live, you could see a scenario where it's above what we forecasted below or right on. Obviously, if Texas comes through then that plus Kentucky alone is already over the target.

If Texas does not, you still get into that sort of range that we've said is an expectation if North Carolina, Minnesota, and Vermont end up passing alongside Kentucky. So I think either of those are potential scenarios to get at or above. And obviously if some or none of those bills pass, then we won't. So I think too early in the year to kind of call that.

As far as the implications and what they would be, I mean we were still seeing nearly double year-over-year revenue growth in our older state vintages in Q1. We mentioned that earlier. And I think, again, people need to remember that even the oldest of states are still less than five years into this thing. And so there's still a ton of just organic growth happening.

I do think long term TAM, we need to continue to see state legalization, but I wouldn't make too much out of whether we're above or below in any year. In fact, one of the interesting implications is really on the specific 2024 numbers. If we see less legalization, I don't really expect a tremendous difference to 2024 revenue because a lot of the states that might legalize this year would end up launching throughout '24. There will be new user acquisition and things like that.

So it probably won't really move the needle a whole lot on revenue, maybe a little bit, but not a ton. Where it really would have an effect would be on the EBITDA, which obviously we want to see more state legalization. But in the short term less would mean more EBIT -- less state legalization would mean more EBITDA in 2024. So it's kind of an interesting way to look at it as well, I think.

Robin Farley -- UBS -- Analyst

Great. Thanks very much.

Jason Robins -- Co-Founder and Chief Executive Officer

Thank you.

Operator

And one moment for our next question. And our next question will come from Jordan Bender of JMP Securities. Your line is open.

Jordan Bender -- JMP Securities -- Analyst

Great, thanks for taking my question. If we think about your legacy customers, there's promotional intensity of those players maybe consistent with more international markets or do you think there's still more room to save on promotions coming from those cohorts?

Jason Robins -- Co-Founder and Chief Executive Officer

I mean, I think definitely there's more room. And it's similar to how we look at hold. It can't be something where we create a worse customer value proposition, a worse experience when you don't need to. There's plenty of levers just by making sure we get the right things targeted to the right people so that they're actually generating incremental GGR alongside the promotional dollars and having the effect that we want.

There's optimization of bonus hunters still out there, which we've been very focused on. There's all sorts of levers that you can pull. And then there's still just the natural decline that you're going to see over time as the market matures. And I think you can look across Europe and see that trend in a number of different markets.

So no doubt there's still room there and that's still a focus area for the team. And at the same time, we feel like there's no real absolute target. It's certainly about maximizing long term NPV and player value. So we're also leaving the flexibility to say that if you can find wins, where you can really drive increased revenue and retention through promotions that pay back quickly, then we want you to pursue that as well.

Jordan Bender -- JMP Securities -- Analyst

Great, thanks. And then for my follow up, on DK Horse, should we be thinking about that as a revenue driver for you guys or is that more of kind of a cross-sell opportunity into other areas of the business? Thanks.

Jason Robins -- Co-Founder and Chief Executive Officer

I mean, it'll have a revenue impact, but it'll be fairly de minimis on the year. We're still rolling it out. It's in, I think, 15 states now. So still in the process of doing that.

I think we'll have more to say probably and more information on that once we get through the Triple Crown, particularly the Kentucky Derby, which I think will give us a sense of what kind of customer acquisition we can expect. And I think really it's still new enough that I wouldn't necessarily ascribe a whole lot of revenue this year to it. But as we get smarter about how to utilize that product and cross-sell between it and Sportsbook and iGaming, I think you'll continue to see a bigger and bigger impact and is something that we felt was important to add to our product portfolio, then we'll also work to better integrate long term.

Jordan Bender -- JMP Securities -- Analyst

Great. Thanks, Jason. Nice quarter.

Jason Robins -- Co-Founder and Chief Executive Officer

Thank you.

Operator

And one moment for our next question. And our next question will come from Ryan Sigdahl of Craig-Hallum Capital Group. Your line is open.

Ryan Sigdahl -- Craig-Hallum Capital Group -- Analyst

Good morning, guys. Nice job. Curious on Massachusetts. So you guys defended your home turf very nicely there, took No.

1 handle share by a commanding lead. How important was that psychologically to win the early battleground? And I guess did you change your spend and your strategy versus running the normal playbook that you say applied in Maryland or Ohio?

Jason Robins -- Co-Founder and Chief Executive Officer

I think really, the only thing that we changed in terms of strategy was just making it clear that we're a hometown company and obviously that's unique to here. So other than that, it was pretty much the same playbook. I think New England in particular, we tend to love our own here. So we feel like that was a really good angle for this market and it worked.

It was very effective from a market share perspective and a new customer acquisition perspective. So we'll continue to do that. But otherwise it's the same state playbook that we've been optimizing over the last 20-plus states. And I think that was the biggest reason that we've had success in penetrating because you saw a similar adult penetration, maybe not quite as much market share, but similar  acquisition in adult penetration in Ohio and Maryland as well.

Ryan Sigdahl -- Craig-Hallum Capital Group -- Analyst

And then just for my follow up, with the live same-game parlay products for the NBA, Major League Baseball, has that accelerated in game betting in total or is it just a shift in what people are betting on live and being margin accretive rather than incremental?

Jason Robins -- Co-Founder and Chief Executive Officer

No, it's definitely incremental. I mean, I think that right now we're seeing both parlay. I know we talk about parlay a lot, but we're also seeing in-game grow. So there's a lot of upside there.

I think the biggest upside in in-game is just figuring out how to get the video feeds lower latency for people who want to do that play-by-play type of betting. But no doubt live same-game parlays has driven an increase in engagement in game.

Ryan Sigdahl -- Craig-Hallum Capital Group -- Analyst

Thanks. Good luck, guys.

Jason Robins -- Co-Founder and Chief Executive Officer

Thank you.

Operator

And one moment for our next question. And our next question will come from John DeCree of CBRE. Your line is open.

John DeCree -- CBRE Group -- Analyst

Good morning, everyone. Thanks for taking my questions. Maybe the first one, which is probably a little bit of summary from a couple components that we've talked about this morning already, but with structural hold rate going up and then particularly in vintage cohorts that promotional intensity is moderating are coming down, but yes your customer retention seems to be increasing nicely, which is a really nice tailwind. I was wondering if you can kind of talk about what you think is kind of driving that, that success for you.

So presumably customer values going up or if they're spending more but also coming back more frequently?

Jason Robins -- Co-Founder and Chief Executive Officer

I think it really starts with product, better product will create stickier customers and I think customer experience has been a big focus. We've had significant improvements in our CX year over year, including the introduction of chat and other things that I think have helped a lot. Our CRM on the marketing front has been optimized for several years now and I think we've made a lot of year-over-year improvements in that, especially as it relates to some of the post-Super Bowl retention and cross-sell into iGaming. I think the CRM team has done a fantastic job, really it's been execution across the business.

I think it's been a lot of really good work by a lot of great people across the whole company.

John DeCree -- CBRE Group -- Analyst

That's great. That's helpful. And maybe an easy one for Jason Park. I think cash at the end of the year is expected to be around $800 million in the past.

I think you've been comfortable with capitalization, but is it fair to assume with that cash balance and profitability trajectory improving that you're still comfortable with your capitalization at this point?

Jason Park -- Chief Financial Officer

Very comfortable with our capitalization, no need for additional capital.

John DeCree -- CBRE Group -- Analyst

Sure. Thanks, Jason. Great quarter, guys. Congratulations.

Jason Robins -- Co-Founder and Chief Executive Officer

Thank you.

Operator

And I would now like to turn the conference back to Jason for closing remarks.

Jason Robins -- Co-Founder and Chief Executive Officer

Thank you all for joining us on today's call. We're off to a strong start in 2023 and are excited about the rest of the year and beyond. I look forward to speaking with you over the next few weeks and hope you all stay safe and well. Thank you.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Stanton Dodge -- Chief Legal Officer

Jason Robins -- Co-Founder and Chief Executive Officer

Jason Park -- Chief Financial Officer

Shaun Kelley -- Bank of America Merrill Lynch -- Analyst

Bernie McTernan -- Needham and Company -- Analyst

Ed Young -- Morgan Stanley -- Analyst

Carlo Santarelli -- Deutsche Bank -- Analyst

Barry Jonas -- Truist Securities -- Analystw

Daniel Politzer -- Wells Fargo Securities -- Analyst

Benjamin Chaiken -- Credit Suisse -- Analyst

Jed Kelly -- Oppenheimer and Company -- Analyst

Robert Fishman -- MoffettNathanson -- Analyst

Joseph Stauff -- Susquehanna International Group -- Analyst

Clark Lampen -- BTIG -- Analyst

Chad Beynon -- Macquarie Group -- Analyst

Robin Farley -- UBS -- Analyst

Jordan Bender -- JMP Securities -- Analyst

Ryan Sigdahl -- Craig-Hallum Capital Group -- Analyst

John DeCree -- CBRE Group -- Analyst

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