DraftKings : Q1 2024 Shareholder Letter

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To Our Shareholders:

DraftKings is off to an outstanding start in 2024 and we are excited to be raising our outlook for the fiscal year. There are five important takeaways as we reflect on the first quarter and the rest of 2024:

• First, our revenue growth rate is strong as we continue to efficiently acquire new customers, deepen our engagement with existing customers, improve our structural sportsbook hold percentage, and optimize promotional deployment. Revenue grew 53% year-over-year in the first quarter, and our increased revenue guidance midpoint implies 34% year-over-year growth for fiscal year 2024.
• Second, we delivered successful sportsbook launches in Vermont and North Carolina. We acquired customers efficiently at population penetration rates consistent with prior launches and expect both states to contribute positively to Adjusted EBITDA for the second half of 2024.
• Third, we continue to focus on driving product innovation and customer-centricity.Our platform and overall customer experience are rapidly improving, and as a result, we are achieving excellent customer retention and participation across sports and games.
• Fourth, we continue to focus on driving operational efficiency across the organization. We expect an Adjusted EBITDA Flow-through Percentage1 of 53% for fiscal year 2024 due to our largely at-scale fixed cost structure and continued optimization of marketing and promotions.
• Fifth, we are continuing to explore capital allocation options given the strong trajectory of our Free Cash Flow2. We anticipate that we will be able to share more details next quarter.

First Quarter 2024 Results

In the first quarter, we generated $1,175 million of revenue, representing 53% year-over-year growth, and $22 million of Adjusted EBITDA3, representing an Adjusted EBITDA Flow-through Percentage of 60%.

Relative to our own expectations for the first quarter, we achieved strong results across our core value drivers:

• Excellent customer acquisition, retention, and engagement resulted in higher-than-expectedhandle in the first quarter. Customer acquisition was approximately 10% higher than we had forecasted, driven primarily by outperformance in North Carolina where our customer acquisition cost improved by more than 20% compared to our customer acquisition cost in Massachusetts, which had been live for a similar duration in March of 2023.

1. Adjusted EBITDA Flow-through Percentage is a non-GAAP financial measure that we calculate and define as the year-over-year change in Adjusted EBITDA, which is a non-GAAP financial measure, divided by the year-over-year change in revenue. Please refer to the end of this document for the definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to its most directly comparable GAAP financial measure, net income (loss).
2. Free Cash Flow is a non-GAAP financial measure that we calculate and define as Adjusted EBITDA less investments into property and equipment and capitalized software, adjusted for sources or uses of cash from changes in net working capital and sources or uses of cash from net cash interest, and less corporate cash taxes paid.
3. Adjusted EBITDA is a non-GAAP financial measure. Please refer to the end of this document for the definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to its most directly comparable GAAP financial measure, net income (loss).

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• Structural sportsbook hold percentage was slightly ahead of expectations at 9.8% and increased approximately 150 basis points year-over-year.Sport outcomes were customer-friendlyin the latter weeks of the quarter in particular as NCAA men's basketball favorites won a high percentage of games during the early rounds of this year's March Madness tournament.
• Promotional reinvestment for OSB and iGaming continued to become more efficient year-over-year and improved by more than 700 basis points as a percentage of GGR. The reinvestment rate also improved on an existing state basis (states that launched between 2018 and 2022).

Adjusted Gross Margin4 increased more than 550 basis points year-over-year to 44% in the first quarter as a result of higher structural sportsbook hold and improved promotional efficiency.

Sales and marketing, product and technology, and general and administrative expenses were consistent with our expectations. We are continuing to exert cost discipline across the organization while simultaneously increasing revenue rapidly on a year-over-year basis.

Improved Fiscal Year 2024 Guidance

On February 15, 2024, we guided to fiscal year 2024 revenue of $4.65 billion to $4.90 billion and Adjusted EBITDA of $410 to $510 million. Today, we are improving our fiscal year 2024 revenue guidance range to $4.8 billion to $5.0 billion and our fiscal year 2024 Adjusted EBITDA guidance range to $460 million to $540 million.

Importantly, the midpoints of our updated 2024 revenue and Adjusted EBITDA guidance ranges imply a year-over-yearAdjusted EBITDA Flow-throughPercentage of 53% based on continued excellent performance across our core value drivers as we rapidly expand our gross margin and exert discipline on our cost structure, while simultaneously investing in promotions and marketing in accordance with our LTV to CAC targets. We will continue to focus on our dual goals of improving our financial expectations while also investing in customer acquisition and our product and technology capabilities.

The $125 million improvement in our fiscal year 2024 revenue guidance midpoint and $40 million improvement in our Adjusted EBITDA guidance midpoint break down as follows:

• Customer acquisition, retention, and engagement continue to exceed expectations due to marketing optimization initiatives and product advancements. These trends account for $165 million of the revenue improvement and $68 million of the Adjusted EBITDA improvement.
• Structural sportsbook hold percentage is increasing primarily as a result of momentum into our same game parlay offering. We now expect our structural sportsbook hold percentage to approach 10.5% in fiscal year 2024, which accounts for $20 million of the revenue improvement and $14 million of the Adjusted EBITDA improvement.
• Customer-friendlyoutcomes in late March and April resulted in headwinds of $60 million and $42 million to our fiscal year 2024 revenue and Adjusted EBITDA guidance, respectively.

4 Adjusted Gross Margin is a non-GAAP financial measure that we calculate and define as Adjusted Gross Profit divided by revenue. Please refer to the end of this document for a reconciliation of Adjusted Gross Margin to its most directly comparable GAAP financial measure.

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We continue to expect our Adjusted Gross Margin to be in the range of 45% to 47% for the year, an improvement of 350 basis points at the midpoint compared to fiscal year 2023.

We continue to expect Adjusted Sales and Marketing Expense5 to decline modestly in fiscal year 2024.

We also continue to expect 2024 stock-basedcompensation expense to be flat-to-down in dollar terms and to represent approximately 8% of revenue in fiscal year 2024 compared to 11% in fiscal year 2023 and 26% in fiscal year 2022.

We now expect to generate approximately $400 million in Free Cash Flow in fiscal year 2024 based on approximately $120 million of annual capital expenditures and capitalized software development costs as well as a modest source of cash from changes in net working capital combined with interest income. As a result, we expect that our year-end2024 cash and cash equivalents will be approximately $1.6 billion before our expected use of approximately $413 million in cash, subject to certain customary purchase price and other adjustments, to fund our proposed acquisition of Jackpocket upon closing.

From an intra-yearperspective, we expect year-over-year revenue growth of approximately 25% in the second quarter and approximately 30% in each of the third and fourth quarters. We continue to expect Adjusted EBITDA to be nearly $150 million in the second quarter. We now expect Adjusted EBITDA to be nearly breakeven in the third quarter and more than $325 million in the fourth quarter.

Our revenue and Adjusted EBITDA guidance for fiscal year 2024 includes all our existing jurisdictions. Our revenue and Adjusted EBITDA guidance for fiscal year 2024 excludes the estimated impact of our proposed acquisition of Jackpocket.

Other Items on Our Mind

• Responsible Gaming has always been important to DraftKings and building products that our customers can enjoy responsibly is rooted in our DNA. We believe we are at the forefront in Responsible Gaming initiatives - including technology, processes, industry affiliations, and internal leadership - and we will continue to drive these initiatives in conjunction with our regulatory partners and industry participants to responsibly grow this industry to its full potential.
• We continue to innovate on our products while focusing differentially on proprietary technology solutions. In Sportsbook, we made substantial progress on our efforts to shift our highest-impactcontent onto our in-housetechnology and modeling platforms, while expanding unique offerings like our Progressive Parlay product across all states and all major sports. We are also launching cash out for Same Game Parlays, a critical addition to our offering. In iGaming, with the completion of the migration of the Golden Nugget Online Gaming platform onto our in-housetechnology stack we achieved important milestones touching both content and technology expansion. We launched "Must Hit By" jackpots, another popular variant powered by our proprietary jackpots platform. We also continued to expand our homegrown casino games portfolio with the launch of eight new, unique-to-DraftKingstitles in the first quarter of 2024, including Rocket 2, the sequel to our popular original Rocket game.
• We are progressing along the path to closing our proposed acquisition of Jackpocket and now expect to consummate the acquisition near the middle of 2024. We are very excited to enter the rapidly growing U.S. digital

5 Adjusted Sales and Marketing Expense is a non-GAAP financial measure that we calculate and define as sales and marketing expense before the impact of depreciation and amortization and stock-based compensation. Please refer to the end of this document for a reconciliation of Adjusted Sales and Marketing Expense to its most directly comparable GAAP financial measure.

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lottery vertical. We expect Jackpocket to create significant value for DraftKings by giving our customers another differentiated product to enjoy and improving our overall marketing efficiency similar to how our daily fantasy sports database creates an advantage for DraftKings in OSB and iGaming.

In closing, we expect 2024 to be another fantastic year for DraftKings. Thank you for your continued support.

Sincerely,

Jason D. Robins

Chief Executive Officer and Co-founder

Alan Ellingson

Chief Financial Officer

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Webcast and Conference Call Details

As previously announced, DraftKings Inc. ("DraftKings" or the "Company") will host a conference call and audio webcast tomorrow, Friday, May 3, 2024, at 8:30 a.m. ET, during which management will discuss the Company's results for the quarter and provide commentary on business performance. A question and answer session will follow the prepared remarks.

To listen to the audio webcast and live question and answer session, please visit DraftKings' investor relations website at investors.draftkings.com. A live audio webcast of the earnings conference call will be available on the Company's website at investors.draftkings.com, along with a copy of this business update, the Company's Quarterly Report on Form 10-Q, a slide presentation and our earnings press release. The audio webcast will be available on the Company's investor relations website until 11:59 p.m. ET on June 30, 2024.

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Forward-Looking Statements

This document contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, including statements about the Company and its industry that involve substantial risks and uncertainties. All statements, other than statements of historical fact, contained in this document, including statements regarding guidance, DraftKings' future results of operations or financial condition, strategic plans and focus, user growth and engagement, product initiatives, and the objectives and expectations of management for future operations (including launches in new jurisdictions and the expected timing thereof), are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as "anticipate," "believe," "confident," "contemplate," "continue," "could," "estimate," "expect," "forecast," "going to," "intend," "may," "plan," "poised," "potential," "predict," "project," "propose," "should," "target," "will," or "would" or the negative of these words or other similar terms or expressions. DraftKings cautions you that the foregoing may not include all of the forward-looking statements made in this document.

You should not rely on forward-looking statements as predictions of future events. DraftKings has based the forward- looking statements contained in this document primarily on its current expectations and projections about future events and trends, including the current macroeconomic environment, that it believes may affect its business, financial condition, results of operations, and prospects. These forward-looking statements are not guarantees of future performance, conditions or results, and involve a number of known and unknown risks, uncertainties, assumptions and other important factors, many of which are outside DraftKings' control and that could cause actual results or outcomes to differ materially from those discussed in the forward-looking statements. Important factors, among others, that may affect actual results or outcomes include, but are not limited to, DraftKings' ability to manage growth; DraftKings' ability to execute its business plan and meet its projections; potential litigation involving DraftKings; changes in applicable laws or regulations, particularly with respect to gaming; general economic and market conditions impacting demand for DraftKings' products and services; economic and market conditions in the media, entertainment, gaming, and software industries in the markets in which DraftKings operates; market and global conditions and economic factors, as well as the potential impact of general economic conditions, including inflation, rising interest rates and instability in the banking system, on DraftKings' liquidity, operations and personnel, as well as the risks, uncertainties, and other factors described in "Risk Factors" in DraftKings' filings with the Securities and Exchange Commission (the "SEC"), which are available on the SEC's website at www.sec.gov. Additional information will be made available in other filings that DraftKings makes from time to time with the SEC. The forward-looking statements contained herein are based on management's current expectations and beliefs and speak only as of the date hereof, and DraftKings makes no commitment to update or publicly release any revisions to forward-looking statements in order to reflect new information or subsequent events, circumstances or changes in expectations, except as required by law.

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		DRAFTKINGS INC.
		CONDENSED CONSOLIDATED BALANCE SHEETS
		(Amounts in thousands, except par value)
				March 31, 2024
				(Unaudited)
	Assets
	Current assets:
	Cash and cash equivalents	$	1,192,662
	Restricted cash			12,454
	Cash reserved for users			278,141
	Receivables reserved for users			265,961
	Accounts receivable			53,321
	Prepaid expenses and other current assets			135,434
	Total current assets			1,937,973
	Property and equipment, net			59,797
	Intangible assets, net			682,350
	Goodwill			886,373
	Operating lease right-of-use assets			90,554
	Equity method investments			11,380
	Deposits and other non-current assets			132,226
	Total assets	$	3,800,653

Liabilities and Stockholders' equity

Current liabilities:

December 31, 2023

$ 1,270,503

11,700

341,290

301,770

47,539

98,565

2,071,367

60,695

690,620

886,373

93,985

10,280

131,546

$ 3,944,866

Accounts payable and accrued expenses Liabilities to users

Operating lease liabilities, current portion Other current liabilities

Total current liabilities

Convertible notes, net of issuance costs Non-current operating lease liabilities Warrant liabilities

Long-term income tax liability

Other long-term liabilities

Total liabilities

Commitments and contingent liabilities (Note 11)

Stockholders' equity:

$605,880

770,535

11,274

53,921

1,441,610

1,254,408

78,930

35,485

71,283

87,958

$ 2,969,674

$639,599

851,898

11,499

46,624

1,549,620

1,253,760

80,827

63,568

72,810

83,975

$ 3,104,560

Class A common stock, $0.0001 par value; 900,000 shares authorized as of March 31, 2024 and
December 31, 2023; 488,750 and 484,598 shares issued and 476,067 and 472,697 outstanding as
of March 31, 2024 and December 31, 2023, respectively	$	46	$	46
Class B common stock, $0.0001 par value; 900,000 shares authorized as of March 31, 2024 and
December 31, 2023; 393,014 shares issued and outstanding as of March 31, 2024 and
December 31, 2023			39			39
Treasury stock, at cost; 12,683 and 11,901 shares as of March 31, 2024 and December 31, 2023,
respectively			(445,681)			(412,182)
Additional paid-in capital			7,316,598			7,149,858
Accumulated deficit			(6,076,511)			(5,933,943)
Accumulated other comprehensive income			36,488			36,488
Total stockholders' equity	$	830,979	$	840,306
Total liabilities and stockholders' equity		$	3,800,653		$	3,944,866

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DRAFTKINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Amounts in thousands, except loss per share data)

		Three months ended March 31,
		2024			2023
Revenue	$	1,174,996		$	769,652
Cost of revenue		710,069			521,740
Sales and marketing		340,699			389,133
Product and technology		88,815			88,088
General and administrative		174,251			160,476
Loss from operations		(138,838)			(389,785)
Other income (expense):
Interest income		15,067			11,795
Interest expense		(649)			(655)
Loss on remeasurement of warrant liabilities		(18,094)			(17,035)
Other (loss) gain, net		(735)			19
Loss before income tax (benefit) provision and (income) loss from equity method investment		(143,249)			(395,661)
Income tax (benefit) provision		(351)			1,368
(Income) loss from equity method investment		(330)			119
Net loss attributable to common stockholders	$	(142,568)		$	(397,148)
Loss per share attributable to common stockholders:
Basic and diluted	$	(0.30)		$	(0.87)

DRAFTKINGS INC.

NON-GAAP FINANCIAL MEASURES

(Unaudited)

(Amounts in thousands, except loss per share data)

	Three months ended March 31,
	2024			2023
Adjusted EBITDA	$	22,390		$	(221,611)
Adjusted Earnings (Loss) Per Share	$	0.03		$	(0.51)

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DRAFTKINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Amounts in thousands)

			Three months ended March 31,
			2024			2023
	Cash Flows from Operating Activities:
	Net loss attributable to common shareholders	$	(142,568)		$	(397,148)
	Adjustments to reconcile net loss to net cash flows used in operating activities:
	Depreciation and amortization		53,180			48,213
	Non-cash interest expense, net		59			157
	Stock-based compensation expense		93,535			117,400
	Loss on remeasurement of warrant liabilities		18,094			17,035
	(Gain) loss from equity method investment		(330)			119
	Loss on marketable equity securities and other financial assets, net		-		136
	Deferred income taxes		540			2,254
	Other expenses, net		627			(2,726)
	Change in operating assets and liabilities:
	Receivables reserved for users		35,809			35,547
	Accounts receivable		(5,782)			9,674
	Prepaid expenses and other current assets		(29,572)			(10,069)
	Deposits and other non-current assets		(202)			(3,464)
	Operating leases, net		34			1,864
	Accounts payable and accrued expenses		(14,341)			(6,292)
	Liabilities to users		(81,363)			(15,717)
	Long-term income tax liability		(1,527)			(620)
	Other long-term liabilities		3,412			2,145
	Net cash flows used in operating activities	$	(70,395)		$	(201,492)
	Cash Flows from Investing Activities:
	Purchases of property and equipment		(3,025)			(7,094)
	Cash paid for internally developed software costs		(22,665)			(19,419)
	Acquisition of gaming licenses		(11,594)			(1,362)
	Other investing activities, net		(1,915)			311
	Net cash flows used in investing activities	$	(39,199)		$	(27,564)
	Cash Flow from Financing Activities:
	Purchase of treasury stock		(33,499)			(27,358)
	Proceeds from exercise of stock options		2,857			2,192
	Net cash flows used in financing activities	$	(30,642)		$	(25,166)

Net decrease in cash and cash equivalents, restricted cash, and cash reserved for users		(140,236)

(254,222)

Cash and cash equivalents, restricted cash, and cash reserved for users at the beginning of period	1,623,493	1,778,825

Cash and cash equivalents, restricted cash, and cash reserved for users at the end of period		$	1,483,257
Disclosure of cash and cash equivalents, restricted cash, and cash reserved for users

$ 1,524,603

Cash and cash equivalents	$	1,192,662		$	1,087,668
Restricted cash			12,454			-
Cash reserved for users			278,141			436,935
Cash and cash equivalents, restricted cash, and cash reserved for users at the end of period		$	1,483,257		$	1,524,603
Supplemental Disclosure of Noncash Investing and Financing Activities:
Investing activities included in accounts payable and accrued expenses	$	688		$	(679)
Decrease of warrant liabilities from cashless exercise of warrants	$	46,181		$	-
Supplemental Disclosure of Cash Activities:
Decrease in cash reserved for users	$	(63,149)		$	(32,718)
Cash paid for interest	$	-	$	-

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