Welcome to the DraftKings Q1 2022 Earnings Conference Call. My name is John. I'll your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] I will now turn the call over to 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 risks or from our forecast. We assume no responsibility to update forward-looking statements, other than as required by law. During this call, management will 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. Reconciliation 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, Chief Executive Officer and Chairman of DraftKings, who will share some opening remarks and an update on our business; and Jason Park, Chief Financial Officer of DraftKings, 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. On today's call, I will cover the following topics. First, we are very excited to welcome the Golden Nugget Online Gaming team to DraftKings. Since the announcement of the proposed acquisition in August 2021, our excitement around bringing these companies together has only increased. The acquisition closed yesterday, and we are well prepared to integrate our respective businesses, begin executing on our multi-brand strategy and capture adjusted EBITDA synergies, which we expect to reach approximately $300 million long-term. Second, we'll discuss our first quarter financial achievements. Revenue for the first quarter exceeded the midpoint of our guidance by $7 million, and adjusted EBITDA significantly outperformed our expectations, finishing more than 12% better than the midpoint of our guidance. Third, we see a stronger top and bottom line outlook for the year and are raising both our 2022 revenue and adjusted EBITDA guidance. Despite broader concerns around the macroeconomic environment and inflation, our cohort level data has remained very healthy and our path to profitability has become more clear. Legislative momentum has remained robust as well. Looking forward, we see strong top line growth continuing through the remainder of the year and beyond, coupled with continued optimization of our margin profile overall cost structure. Finally, I will touch on recent product developments in adjacent growth verticals. We are continuing to innovate and improve the customer experience by consistently adding new games and features, which we believe will ultimately support customer acquisition, retention and by extension player LTV. Additionally, we continue to make progress in media and marketplace, and we are very excited about the future prospects for both. Let's start with our acquisition of Golden Nugget Online Gaming. We are very excited to welcome the Golden Nugget Online Gaming team to DraftKings and have a well-designed integration plan…

Thank you, Jason, and good morning, everyone. We are really pleased to announce our Q1 results of $417 million of revenue and negative $290 million of adjusted EBITDA. Our B2C revenue grew 44% versus prior year as we saw a strong performance across our states. Our customers are very strong, with handle per active up in every single state versus prior year and no discernible sign of macroeconomic factors impacting our customers' engagement with our products. It's worth noting our revenue would have been roughly $25 million better, if not for some customer-friendly sport outcomes. MUPs increased by 29% to 2.0 million and ARPMUP increased 11% to $67. MUPs were up in all states with mobile registration available in both Q1 2021 and Q1 2022 as we continue to retain well and acquire new customers, and we're buoyed by new states we've launched since Q1 2021. ARPMUP was strong as well and would have been $71 were it not for tough hold. As most of you saw in the state data and in press reports, hold was lower than typical for the industry in Q1 due to sport outcomes. B2B was as expected, generating $13 million in the quarter due to the termination of our Asian reseller agreement. Gross margin rate on an adjusted EBITDA basis was 32%. Q1 gross margin rate was heavily impacted by the launch of New York, which had negative gross margin in the quarter due to Q1 being its launch quarter and, of course, the state having the highest tax rate in the country. New York accounted for more than half of our year-over-year decline in gross margin rate. Continued mix shift out of high-margin daily fantasy sports also impacted our year-over-year change in gross margin rate. Looking forward, I expect gross margin rate to…

[Operator Instructions] Our first question is from Thomas Allen from Morgan Stanley.

So in the first quarter, revenue came a little bit ahead of expectations while marketing was much lower. Can you just talk about what's going on with marketing? Where you're finding efficiencies? Where you're seeing opportunities?

Thanks, Tom. It's a great question. I think we're starting to enter the phase where national advertising is going to be more and more of our mix and we are able to, through a series of tests that we've been conducting over the past few quarters, optimize out of some of the local television and other local marketing that we're doing. So, I think that's been a big source of efficiency there, and we expect it to increase, of course, as more states launch.

Our next question is from Jed Kelly from Oppenheimer.

Just circling back to GNOG and in some of their remarks, how should we think about what GNOG is going to do for MUPs and ARPMUP? And then Jason, I appreciate the commentary on all the state legislation. You didn't mention Massachusetts. I know, there's two competing bills. Could you give us an update on what you think about what's going on there as well?

Sure. So on GNOC, just to remind everybody, the rationale -- strategic rationale behind the deal was really for us to be able to increase the audience that we'd be able to reach. What we found is that the DraftKings brand is very strong with a certain demographic of customers, particularly those that are sports fans. It's really more as a sports brand. We have had some success getting casino-first customers on, and we feel really good about the state of the product and have really great LTVs once we do get those customers on, but we think there might be a more efficient way to do it. And we also think there might be audience that we're not getting to right now. So that's really the goal is to go after that other segment to the iGaming market. And I think having a strong brand like Golden Nugget that really appeals to that segment of audience will help us increase our MUPs. As far as Massachusetts goes, we continue to be hopeful that there will be something done. This is obviously our backyard. So having our products be legal in the Commonwealth is very important to us. And just like any legislative process, even one in our backyard, it's always impossible to predict what's going to happen. And we continue to be hopeful and we continue to be ready and available to work with lawmakers should we be able to be of assistance.

And just following up on Golden Nugget. The gross margin guidance you called out, that does not include any impacts from Golden Nugget.

No. We separately are guiding to the combined impact of Golden Nugget and Ontario. We want to provide more of an apples-to-apples view, so that we could highlight some of the cost efficiencies and also revenue outperformance we're seeing in the core business. And we -- separately, Jason Park shared some numbers around what we expect the combined effect of Golden Nugget and Ontario to be this year.

Our next question is from Shaun Kelley from Bank of America.

I just want to go back to some of the comments around gross margin. Obviously, some clear one-time impacts in this quarter due to New York, and it sounds like hold as well. But Jason, if I caught the comment correctly, I think you mentioned 40% for the full year. I think your longer-term target, how's that number getting into the mid or even high 50s? Could you help us think about like the bridge and some of the pieces to see that step function or improve materially in the medium to long-term?

Sure. So I think the biggest factor will be the lowering of promotional intensity, promotional intensity as both an impact to net revenue and margin because a lot of the costs that we see in the COGS lines come as a function of gross revenue. So naturally, having less contra revenue will bring up margin. Also, there are a number of other cost initiatives that we have underway, some focused on COGS, some focused on other parts of the P&L that we believe will improve COGS over time. So we think between the internal initiatives that we have as well as just the natural change to gross margin, due to lower in promotional intensity, you'll see us reach the long-term targets that we've set out.

Our next question is from Bernie McTernan from Needham & Company.

Jason, I was just wondering, are you seeing any change in the promotional or competitive intensity in the U.S.? And is that impacting your strategy at all? And would love -- if intensity is falling off, just how you think about kind of like the diminishing terms of advertising spend, whether it's an opportunity for you guys to be more aggressive or keep your spend and keep share? Or is the opportunity to pull back and have more flow through to the bottom line?

I think that's a great question. I would separate that into two things. One would be new user offers and the second would be tentpole events, such as start of NFL or Super Bowl. I think we'll always run promotions around those events. Those events are great for reactivating people. They're great for acquiring. I think that will always be a part of our strategy. And what we see is that a lot of the promotional dollars end up being put back into play, which increases the longevity of a customer, which is great. And it also is just really great for activating people during key times. So, that I think will continue. I do think that some of the very aggressive new user offers have started to taper off significantly. And we always stay disciplined. We never went nearly as far as we saw some of our competitors going with the aggression of new user offers. But certainly, a softening there will help, I think, the overall market and could lead to faster-than-expected reduction in promotional intensity versus previous -- previously what we may have thought.

Our next question is from Joe Stauff from Susquehanna.

Two questions, if I could. One is on Golden Nugget. And just wondering, it's always a well-managed company. As you suggested, it gives you access to a new consumer demographic and a high proportion of digital slots. They did rent all three pieces of their tech stack. And I'm wondering how quickly that software integration would take? And then maybe the second question is just on sports hold kind of going forward and maybe some of the product mix changes that you have and how to think about that the rest of the year.

Can you repeat the second question, please?

Sure. I was just wondering for your OSB product offering and the product mix that you've realized to date, some of maybe the newer products that you would have that could move the sports margin higher going forward.

Great. Thank you. So on your first question around Golden Nugget and the integration plan, one of the nice things about having a bit of a period between the announcement and the close of the deal is we have a really strong integration plan. So everybody knows exactly what they need to do to perform that migration. --: But certainly, by the time of our next earnings call in August, we will be able to do that and intend to do so. And we expect that there will be a lot of synergy realized once we complete that migration. On the product side, I think it continues to be about pushing parlay and same-game parlays. We've only had the same-game parlay product for about six months or so now. It's been doing very well. We've added a lot to that offering. So, we're going to continue to find ways to improve that product and also continue to find ways to introduce it to our audience and ensure that they know how fun it can be. And I think that will be the biggest driver of upward hold. When we look at where we see some opportunities based on observations of competitors, almost all of the opportunity, we believe, is in driving higher parlay mix.

Our next question is from Jason Bazinet from Citi.

I just had a quick question on the 10 states contributing or generating positive contribution margin this year. But is there -- would those just be the states that we would expect based on the launch date? And then given the lower promotions, the faster customer ramp you talked about on the last earnings call in advertising efficiency, has the rule of thumb sort of tightened in terms of how long it takes the state to generate contribution profits?

That's a great question. On the first topic, we specifically list the states out in our March Investor Day presentation, which can be found on our Investor Relations website. I must confess, I will probably lose track if I try to cite all 10 off memory here, but we list them out. So I encourage you to go take a look there. On the second question, I think it's a great point. We are seeing faster ramp, which has resulted in more meaningful marketing and promotional investment upfront in some of our earlier states, but also appears to be leading to a faster path to profitability. So, we haven't put a new sort of game plan out there yet, but we are seeing that. And in the coming months, we may be able to say something about what that path to profitability time line can look like, but it certainly is moving in a positive direction.

Our next question is from Carlo Santarelli from Deutsche Bank.

I just want to go back to -- Jason Park, something you talked about a little bit about the growth rates on products and technology and G&A expenses. Obviously, in the quarter, and I'm making the adjustments for some of the noncash items, but core G&A was down fairly nicely sequentially. I'm assuming that's where some of the timing stuff lies?

Yes. On a sequential basis, Q4 versus Q1, I think the G&A reduction is more about the accrual of annual bonuses for the employees. That's going to be the big driver. In terms of timing shift, that was probably a bit more than half of the Q1 beat. And you'll see that come back in as recognized costs throughout the remainder of the year. It was throughout multiple cost categories, Carlo. It wasn't any -- it wasn't sort of disproportionately focused on any one category.

Okay. Great. And then just as you talked about kind of moving into '23, the comment was we would see kind of meaningfully slower expense growth. At some point in this year, do we anticipate perhaps some of those items start to level off on a sequential basis at least, and then you start to kind of straight line from there?

So -- that's a great question, Carlo. Thank you. I think that we will see that start to happen a bit, but a lot of the growth that we're seeing year-over-year and, for example, compensation costs, comes from hires that were made throughout '21, which didn't have a full year of salary and benefits in '21, but due in '22. We already are focusing on leveling off headcount expense and also looking for other areas that we can manage expense better. So there are a number of initiatives underway. We don't have anything yet that we are ready to say is going to yield results, but there's a lot of effort focused there, and we'll have more to say on that in the coming quarter.

Our next question is from Michael Graham from Canaccord.

Jason, you mentioned the New Jersey profitability profile, it was improving. And I just wonder if you could give a little more depth around like is that more on the revenue side or the marketing side? Or just kind of what are some of the moving pieces there? And sort of a related question, you're seeing nice ARPMUP expansion, and maybe just it'd be interesting to learn a little bit of kind of about the components of that ARPMUP expansion, like our players engaging across more sports? Are there wager sizes going up? Just sort of what are you seeing in terms of player behavior there?

Thanks. I'll take the first question and Jason Park can take the second. So, on your New Jersey question, it's really up and down the P&L. We're seeing strong revenue growth that's a bit better than our expectations. And we're also seeing some of the cost initiatives that we've put in place play out throughout all the states, particularly the national advertising efficiencies that we're achieving. So, it's really up and down the P&L. And JP, do you want to take the second question?

Yes. Great question on ARPMUP deconstruction. First off, I'd just remind you that, that Q1 ARPMUP was impacted by that roughly $25 million sport outcome hold results. So when I think about normalized ARPMUP year-over-year, I adjust for last year's hold and this year's hold in terms of a growth rate. In terms of deconstructing it a bit more in terms of frequency or bet size, we're seeing it in both places. We're seeing our existing players, which give you a great baseline on a true full quarter versus full quarter, improving -- increasing frequency. Every customer is a little bit different, but we're seeing health in both frequency and average bet size.

The next question is from Dan Politzer from Wells Fargo.

Just a couple of state-specific questions. I was wondering if you can maybe quantify the drag New York was in the quarter. What would EBITDA have been at New York? And also one in Illinois, to the extent you can talk about any impact from the mobile registration restriction being lifted.

You are right that those two things were EBITDA headwinds in the quarter. We think that both will lead to revenue outperformance down the road. So both are good things, but in the quarter certainly had negative EBITDA impact. At this time, we're not quantifying that specifically. We think that sharing how much we're investing in individual states would be of a competitively sensitive nature. So, we haven't done that. But you can certainly conclude that they were meaningful, and that our adjusted EBITDA would have been meaningfully better if we had not had those two events.

Our next question is from Chad Beynon from Macquarie.

Wondering, if you could touch broadly on trends within DFS either growth or contribution. I believe, in the back half of the year, you noted that it was still growing. I think it's probably more of a growth business during the NFL. But wondering how that business has changed and kind of how that's contributing to your 2022 guidance.

It's a good question. So what we sometimes see with DFS is when state launches, there's so much excitement around sports betting that there's a bit of cannibalization. And we did see that in New York. Now in other states, we've seen that level off or even come back, which is why Daily Fantasy Sports continues to be a growing product, but too early to say whether that will continue in New York. We have no reason to think it will be different than other states though. But certainly, given the size of the DFS customer base and revenue in New York, it did have a meaningful impact on the quarter. And I think going forward, we're not necessarily assuming it will come back, but both, based on historical trends as well as innovations and expansion of that product such as the F1 racing games that we added, we do think there's no reason to believe that DFS will not continue to grow. But certainly, based on cadence of state launch timing, there can be in-quarter impacts to DFS, which are meaningfully cannibalistic because the new state often comes with lots of excitement over sports betting. And it also depends on the time of the year. As you noted, football is really great time for DFS, early NBA season. Back half of the NBA season tends to be a little lighter. So, I think that New York launch, coupled with that, led to a little bit of softness in DFS in the quarter, which, again, we're not assuming will come back. But based on historical trends, we believe it will.

Our next question is from Stephen Glagola from Cowen.

Jason, following four NFL seasons, the industry remains concentrated around you, FanDuel and BetMGM, with some fragmentation largely around the remaining operators on a state-by-state basis. With the backdrop of depressed share prices, do you see further consolidation in the industry coming near term? And given the scrutiny around your EBITDA losses and to reach profitability, how does DraftKings balance exploring further M&A with executing on your current playbook?

It's a great question. I think that certainly, it is quite possible that there will be further consolidation. I think that from our standpoint, we just made a very significant acquisition in Golden Nugget Online Gaming. We're very excited about that. And I think that's a template that fits the profile of what types of things we'd look for, something that's strategically complementary, not just a pure consolidation play, something that comes with a great team, which we're very excited about, Thomas and Warren and the team as well as, of course, Tillman and the contributions that he'll make and then also a strong business, a healthy business. Golden Nugget Online gaming is not one of these businesses that was burning a tremendous amount of cash. So it didn't come with a drag on our EBITDA of any significance. So those are the types of things that we would look for. I obviously can't speak to what other operators, who might be considering themselves consolidators, would look for, but that's the type of thing that we would look for.

I appreciate that. And then if I can squeeze in one more. Could you provide any update on what you're seeing on iGaming legislation? Or do you see any catalyst to increase states going live with iGaming over the next 12 to 24 months?

Yes. That's another great question. So we've obviously seen tremendous momentum in the sports betting legislative world. iGaming, we've seen several bills introduced but haven't seen much movement since Connecticut legalized back in Q4 of last year, so -- or launched, I should say, back in Q4 of last year. So we are continuing to press forward there. But as we've always said, we expect sports betting to be the main focus for legislators. And then as those states get more comfortable, I think, more iGaming bills will come through. And that's been a pretty consistent view we've had for a while. And we actually have been pleased to see that there's been some acceleration there given that several states have just decided to do sports betting and iGaming together. But we continue to believe that it will be sports betting-led for the next year or two and that more and more momentum will begin to build around iGaming over the coming years.

Our next question is from Robert Fishman from MoffettNathanson.

Can you expand on how building out your media vertical with the new personalities and the exclusive content that they bring helps drive the incremental engagement to your platform? And maybe how you measure the return on this investment? And then on a related note, is your preference to keep building out your media strategy organically? Or are you open to new formal partnerships with media companies or even expanding the existing ones?

Thank you for asking. So I think we've always thought there were strong synergies between media and what we traditionally do on the gaming side. It's no secret that a lot of our customer acquisition comes from the marketing we do on media channels. So being able to drive some of that traffic organically, I think, is of great interest to us. And at the same time, we want the business to be able to stand on its own and to be able to make a profit. So that's the media business. So that's really how we're looking at it as can we build a business that works on both ends, both as a business that makes money and generate positive cash flow, as well as a business that will help create great synergies for us on the customer acquisition and retention side. As far as how we are exploring and are actively partaking in all those routes, some of what we do is organic. We also have great partnerships with several media outlets. We also have content partnerships with companies like Meadowlark Media. And I think for us, we recognize that there's a large world out there, and there's a lot of value in cross-pollination with content. So we remain very flexible on that front. I think there are certainly large scale, all the way down to medium-scale partnerships that we would consider that would add to some of the organic efforts that we're putting into this space.

Our next question is from Noah Naparst from Goldman Sachs.

This is on Noah Naparst for Stephen Grambling. As we look towards this summer and fall, are there any differences in the sports calendar we should be aware of when that comes to mind as the World Cup, which you touched on a bit? Any color on what those events could look like in terms of betting activity or hold? And then I have one follow-up.

Sure. Yes, it's a great question. So I think the World Cup is the big one. I think there should be some decent betting on it. Obviously, around the world, soccer is a much more popular sport at this point than in the U.S., but it's been growing with popularity in the U.S., and I think that the World Cup often spikes that interest. So, we do have some hope that we'll see an increased volume there this year, and we'll just have to see. But naturally, there are other things that are a little bit different here and there, extra weeks of seasons and days and games, but nothing else that I see is very material.

Got it. And can you remind us of the NOLs you're carrying forward at this point in time?

Do you want to take that one, Jason?

Yes. I'll have to get back to you on the latest and greatest number.

Our next question is from Ryan Sigdahl from Craig-Hallum Capital Group.

Looking at guidance for Ontario and GNOG, it seems to imply minimal net revenue from Ontario. One, is that right? And then two, if you can deconstruct the two on revenue and loss expectations, that would be great.

I think at this point, we are not planning to deconstruct it to because particularly, with GNOG, I mean we just closed it yesterday. And while we've certainly done a lot of diligence, there is some variance there. And so we felt it was better to kind of manage the two together as far as impact. I do want to point out that even when you take the most conservative end of our guidance for those two, we are still -- even with those impacts, which were not contemplated in our guidance last quarter, we're still better with our new guidance plus those impacts than we were last quarter. So great to see that some of the cost efficiencies that we're identifying are able to effectively fund new state or, in this case, province launches as well as the absorption of an acquisition. So we're going to continue to look for ways to try to neutralize the impact of new state launches through identification of further cost efficiencies up and down the business.

Great. One more, if I may. New York, I would assume it was decremental to average ARPMUP. Are you able to quantify that?

So New York, we are not quantifying any specific state impacts at this point. I do think you are correct that, due to it being a launch quarter and having promotional investment, that there was some negative impact. That said, we've also seen a fairly high level of handle per active come from New York as well. So, it may not have been as significant as you think, but it certainly did have some impact.

And our next question is from Barry Jonas from Truist Securities.

Jason, how are you thinking about DraftKings entering Nevada retail and OSB now?

Well, we've been very interested in Nevada. And right now, we're exploring opportunities there. It's obviously a state that attracts a lot of attention because of its association with gaming. There's a decent-sized market there in terms of online sports betting. That said, there's also some things that make it a little bit less integrated with our business, such as the need to have in-person registration to open a mobile account as well as some processes that make it difficult to connect wallets and apps with the rest of the country. But we are certainly interested in Nevada. We are looking into it. And I think that if the opportunity presents itself, we'd love to be able to offer customers in Nevada, our products.

Just to jump in on the question on NOLs, I was just checking ensuring that we did not disclose the latest NOL number for the Q. But if you refer back to our 10-K filed in mid-February that was just around $800 million.

Our next question is from Clark Lampen from BTIG.

I have one on Marketplace. Jason, you talked about Marketplace really hitting its stride around the NFL season. I'm going to guess that, that's not because you expect an inflection in sort of more memorabilia-oriented NFTs. So maybe it's the utility focused ones that you were talking about. So, could you give us a sense of maybe, one, whether that factors it; two, the way in which some of those utility-oriented NFPs could actually integrate with the gaming-focused businesses?

Thank you. Yes, I think you're exactly right. So a few things. One, we just recently developed some in-house content creation capabilities and also built some back-end infrastructure to be able to tie benefits on sports betting and Daily Fantasy and even iGaming to ownership of NFT content we create. And the way we're seeing the market move, it really is important to have utility. There are certainly some that are working purely as collectibles, and that will continue to be a segment of the market. But I think a lot of the growth will be in utility-based NFTs. The second thing is, in addition to our in-house content we're producing, we also, just a little while ago, announced a partnership with the NFLPA to create NFT-based Fantasy games. So we think given the size of our Fantasy audience and the success we've had early on with NFT, that will be a really big product for us and could be something that really opens up to a much larger audience.

And our next question is from Robin Farley from UBS.

I was wondering if there's a way to quantify how much of the lower hold was maybe kind of marketing like offering more favorable odds rather than just purely the sport outcomes, if you could give us a sense of that?

Sure. What we've shared is that about $25 million of revenue hit came from purely sport outcome. So that's the number we've shared. And I think other things you can attribute if you are identifying any other questions around hold to other factors. But $25 million was the impact that came from game outcomes, which interestingly was the other way in Q1 last year. So, as you look at year-over-year comps, it's affected not only by that $25 million hit in game outcomes this year, but also favorable game outcomes in Q1 of 2021 that had a positive impact on hold.

So, you're not breaking out anything withhold that's related to kind of marketing costs, anything like that?

No. We typically don't share those types of details as some of the promotional and marketing tactics we've tested into over many years are things that we deem to be very competitively advantaged for us. So, we don't typically get into breaking down that element of the business.

Great. And then also the comment on the call, I think you talked about handle per active was up in every state. And I know your ARPMUP is up, but just going back to the states where it was in both periods. Can [Technical Difficulty] amounts of that for net gaming revenue per user on that sort of comparable like same-state basis?

Sorry, you broke up a little at the end there. Can you repeat that last part of the question?

Sure. In the opening comments, there was a mention that handle per active was up in every state, right? In other words, states that were legal in both periods. And so, we're just wondering how that would look for net gaming revenue. Just thinking about there are some states that had net NGR declines, even though handle and GGR was up. And so just wondering if that's showing up on a per user basis as well for you.

The reason that we saw -- ARPMUP, one of our KPIs, is based on net revenue. So the increase we saw there year-over-year is definitely reflective of the positive momentum we see in growth of net gaming revenue in each state. Of course, with anything, there's always places where one or two here or there may be up or down. But usually, those are for explainable reasons. So for example, in Illinois, where we had the re-launch of mobile registration, there was a much more aggressive new user push with contra revenue-generated promotions that didn't exist in Q1 of last year. But for the most part, the ARPMUP increase, which is NGR, is cross forward and cost base.

Our next question is from Joe Greff from JPMorgan.

You mentioned that the year-over-year growth in MUP was driven by retention. I was hoping you can help quantify that on everything, excluding DFS in the quarter and how that trended in 1Q relative to the past few quarters? And then, my second question is probably more for Jason Park. Can you talk about the relationship between EBITDA losses and cash burn? I know this quarter the cash burn was a little bit higher than EBITDA loss. Some of that can be explained by CapEx and some other investing activities. How do you see that trending over the next year?

So on the first question, ARPMUP was definitely up due to both retention and an increase in player handle growth. So, it was both that contributed to that. And we haven't, at this time, deconstructed those, but we can share that both contributed. As far as the product level question, same story, all products were generally up. But DFS, as we noted earlier, did see some cannibalization. So you can infer based on that, that if we excluded DFS, ARPMUP growth would have been higher.

Yes. And in terms of your question on EBITDA to free cash flow conversion, I think you listed out a few of the buckets. Capitalized software, which is really DraftKings' primary CapEx, should be fairly steady, if you look at the quarter quarterly trends for the last few years, I think that's a very extrapolatable number going forward. Other than that, you'll see some one-time upfront state licenses impact free cash flow and any significant vesting of employee stock, which you saw around the low-teen million impact in Q1, but that will purely depend on timing of vesting. I would say that those are the three big things to look for EBITDA to free cash flow conversion.

And we have no further questions at this time. I'll now turn it back over to Jason Robins for final remarks.

Thank you all for joining us on today's call. We had an excellent first quarter. We continue to be very excited about 2022 and look forward to speaking with you all over the next few weeks. The Company continues to be focused on strong top line growth and also on cost optimization, and we're really excited about a number of initiatives we have underway in both those categories and look forward to sharing more with you in the coming quarter. I hope you all stay safe and well, and thank you for joining us today.

Thank you, ladies and gentlemen. That concludes today's call. Thank you for participating, and you may now disconnect.