What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-08-05 compared with 2022-05-06 · 137 added, 75 removed, 173 unchanged (55% of the section changed)

16 unchanged sentences

• our inability to recognize deferred tax assets and tax loss carryforwards;

• market and global conditions and economic factors beyond our control, including the potential adverse effects of the ongoing global coronavirus (“COVID-19”) pandemic on capital markets, general economic conditions, unemployment and our liquidity, operations and personnel;

• market and global conditions and economic factors beyond our control, including the potential adverse effects of the ongoing global coronavirus (“COVID-19”) pandemic on capital markets, general economic conditions, including inflation, unemployment and our liquidity, operations and personnel;

• intense competition and competitive pressures from other companies worldwide in the industries in which we operate;

7 unchanged sentences

We are a digital sports entertainment and gaming company.

We provide users with daily fantasy sports (“DFS”), sports betting (“Sportsbook”) and online casino (“iGaming”) products, as well as media and other online consumer products.

We are also involved in the design, development, and licensing of sports betting and casino gaming software for online and retail Sportsbooks and casino gaming products, as well as other online consumer products.

On May 5, 2022, we acquired GNOG in an all-stock transaction.

We provide users with sports betting (“Sportsbook”), online casino (“iGaming”) and daily fantasy sports (“DFS”) products, as well as media and other online consumer products.

We are also involved in the design and development of sports betting and casino gaming software for online and retail Sportsbooks and casino gaming products, as well as other online consumer products.

On May 5, 2022, we acquired GNOG in an all-stock transaction to enable us to leverage Golden Nugget’s established brand to broaden our reach into new customer segments and enhance the combined company’s iGaming product offerings through our vertically-integrated tech stack and GNOG’s unique capabilities, including live dealer.

For further details regarding the GNOG Transaction, please see the section entitled “Acquisition of Golden Nugget Online Gaming, Inc.” contained within Note 3 of our condensed consolidated financial statements.

Our mission is to make life more exciting by responsibly creating the world’s favorite real-money games and betting experiences.

We accomplish this by creating an environment where our users can find enjoyment and fulfillment through DFS, Sportsbook and iGaming, as well as media and other online consumer products.

We accomplish this by creating an environment where our users can find enjoyment and fulfillment through Sportsbook, iGaming and DFS, as well as media and other online consumer products.

We are also highly focused on our responsibility as a steward of this new era in real-money gaming.

1 unchanged sentence

We make deliberate and substantial investments in support of our mission and long-term growth.

For example, we have invested in our products and technology in order to continually launch new product innovations, improve marketing, merchandising, and operational efficiency through data science, and deliver a great user experience.

For example, we have invested in our products and technology in order to continuously launch new product innovations, improve marketing, merchandising, and operational efficiency through data science, and deliver a great user experience.

We also make significant investments in sales and marketing and incentives to grow and retain our paid user base, including personalized cross-product offers and promotions, and promote brand awareness to attract the “skin-in-the-game” sports fan.

11 unchanged sentences

our business-to-consumer (“B2C”) business and our business-to-business (“B2B”) business.

Our B2C business is comprised of the legacy business of DraftKings Inc., a Delaware corporation (“DK DE”), which includes our DFS, Sportsbook and iGaming products, as well as our other online consumer products.

Across these principal offerings, we offer users a single integrated product that provides one account, one wallet, a centralized payment system and responsible gaming controls.

Our B2C business is comprised of the legacy business of DK Crown Holdings Inc.

(formerly DraftKings Inc.), a Delaware corporation (“DK DE”), which includes our DraftKings-branded Sportsbook, iGaming and DFS products, as well as our other online consumer products, and our GNOG brand.

Across our DraftKings-branded products, we offer users a single integrated product that provides one account, one wallet, a centralized payment system and responsible gaming controls.

Currently, we operate our B2C segment primarily in the United States.

1 unchanged sentence

Our B2B segment’s principal activities involve the design and development of sports betting and casino gaming software.

Our B2B services are delivered through our proprietary software, and our complementary service offerings include trading and risk

management and support for reporting, customer management and regulatory reporting requirements.

Our B2B services are delivered through our proprietary software, and our complementary service offerings include trading and risk management and support for reporting, customer management and regulatory reporting requirements.

The operations of our B2B segment are concentrated mainly in Europe and the United States.

Impact of COVID-19

The COVID-19 pandemic has adversely impacted global commercial activity, disrupted supply chains and contributed to significant volatility in financial markets.

Beginning in 2020 and continuing into 2022, the COVID-19 pandemic adversely impacted many different industries.

The ongoing COVID-19 pandemic could have a continued material adverse impact on economic and market conditions and trigger a period of global economic slowdown.

The rapid development and fluidity of this situation precludes any prediction as to the extent and the duration of the impact of COVID-19.

The COVID-19 pandemic therefore presents material uncertainty and risk with respect to us and our performance and could affect our financial results in a materially adverse way.

Since the start of the COVID-19 pandemic, the primary impacts to us have been the suspension, cancellation and rescheduling of sports seasons and sporting events.

Beginning in March 2020 and continuing into the first month of the third quarter of 2020, many sports seasons and sporting events, including the MLB regular season, domestic soccer leagues and European Cup competitions, the NBA regular season and playoffs, the NCAA college basketball tournament, the Masters golf tournament, and the NHL regular season and playoffs, were suspended or cancelled.

Beginning in 2020 and continuing into 2022, the novel coronavirus (“COVID-19”) pandemic has adversely impacted global commercial activity, disrupted supply chains and contributed to significant volatility in financial markets.

The primary impacts of the COVID-19 pandemic on us were the suspension, cancellation, rescheduling and shortening of sports seasons and sporting events, particularly between March 2020 and July 2020, when many sports seasons and sporting events, including the MLB regular season, domestic soccer leagues and European Cup competitions, the NBA regular season and playoffs, the NCAA college basketball tournament, the Masters golf tournament, and the NHL regular season and playoffs, were suspended or cancelled.

The suspension of sports seasons and sporting events reduced customers’ use of, and spending on, our Sportsbook and DFS products.

Starting in the third quarter of 2020 and continuing into the fourth quarter of 2020, major professional sports leagues resumed their activities, many of which were held with shortened seasons.

MLB began its season after a three-month delay and also completed the World Series, the NHL resumed its season and completed the Stanley Cup Playoffs, the Masters golf tournament was held, most domestic soccer leagues resumed and several European cup competitions were held, and the NFL season began on its regular schedule.

During this period, the NBA also resumed its season, completed the NBA Finals and commenced its 2020-2021 season.

In the three months ended March 31, 2022, sports seasons continued and sporting events were held as planned, including the NFL regular season, the NFL Playoffs and Superbowl LVI, the NBA regular season, the NHL regular season, the NASCAR Cup Series, various NCAA football bowl games and the NCAA college basketball regular season and tournament.

The continued return of major sports and sporting events has generated significant user interest and activity in our Sportsbook and DFS products.

However, the possibility remains that sports seasons and sporting events may be suspended, cancelled or rescheduled due to COVID-19 outbreaks.

Beginning in July 2020, major professional sports leagues started to resume their activities, many of which with shortened seasons, and gradually resumed regular activities.

In the six months ended June 30, 2022, sports seasons continued and sporting events were held as planned, including the NFL regular season, the NFL Playoffs and Superbowl LVI, the NBA regular season and playoffs, the NHL regular season and playoffs, the NASCAR Cup Series, various NCAA football bowl games, the NCAA college basketball regular season and tournament, the MLB regular season and several golf tournaments.

The continued return of major sports and sporting events generated significant user interest and activity in our Sportsbook and DFS products.

However, the possibility remains that sports seasons and sporting events may be suspended, cancelled, rescheduled or shortened due to COVID-19 outbreaks.

Our revenue varies based on sports seasons and sporting events amongst other factors, and cancellations, suspensions or alterations resulting from COVID-19 have the potential to adversely affect our revenue, possibly materially.

3 unchanged sentences

As steps taken to mitigate the spread of COVID-19 necessitated a shift away from a traditional office environment for many employees, we implemented business continuity programs to ensure that employees were safe and that our business continued to function with minimal disruptions to normal work operations while employees worked remotely.

During the second quarter of 2022, our primary offices, including our corporate headquarters in Boston, Massachusetts, re-opened with many of our employees returning to work onsite in various capacities.

We will continue to monitor developments relating to disruptions and uncertainties caused by COVID-19.

1 unchanged sentence

The following table sets forth a summary of our financial results for the periods indicated:

Three months ended March 31,

Three months ended June 30, Six months ended June 30,

(amounts in thousands)

1 unchanged sentence

$ 466,185 $ 297,605 $ 883,390 $ 609,881

(217,103) (305,526) (684,796) (651,870)

Adjusted EBITDA (1)

2 unchanged sentences

See “— Non-GAAP Information ” below for additional information about this measure and a reconciliation of this measure to the most directly comparable financial measure calculated in accordance with U.S.

Revenue increased by $104.9 million in the three months ended March 31, 2022 compared to the three months ended March 31, 2021, primarily due to the strong performance of our B2C segment as a result of robust customer acquisition and retention and the successful launches of our Sportsbook and iGaming products in additional jurisdictions since the first quarter of 2021.

These increases were partially offset by planned promotional investments associated with the launch of our Sportsbook product in new states in the first quarter of 2022 (primarily New York) and atypically low hold rates (primarily attributable to NCAA college basketball wagering).

Revenue increased by $168.6 million in the three months ended June 30, 2022 compared to the three months ended June 30, 2021 primarily due to the strong performance of our B2C segment as a result of robust customer acquisition and retention and the successful launches of our Sportsbook and iGaming products in additional jurisdictions since the second quarter of 2021.

Revenue increased by $273.5 million in the six months ended June 30, 2022 compared to the six months ended June 30, 2021 primarily due to the strong performance of our B2C segment as a result of robust customer acquisition and retention and the successful launches of our Sportsbook and iGaming products in additional jurisdictions since the second quarter of 2021.

These increases were partially offset by an increase in promotional intensity (primarily due to the launch of our Sportsbook product in New York), as well as atypically low hold rates (primarily attributable to NCAA basketball wagering) in the three months ended March 31, 2022.

Key Performance Indicators – B2C Operations

12 unchanged sentences

however, the number of such users has not been material to date.

The chart below presents our MUPs for the three months ended March 31, 2021 and 2022:

The chart below presents our MUPs for the three and six months ended June 30, 2021 and 2022:

Average Revenue per MUP (“ARPMUP”).

ARPMUP is the average B2C segment revenue per MUP, and this key metric represents our ability to drive usage and monetization of our B2C products.

The chart below presents our ARPMUP for the three months ended March 31, 2021 and 2022:

The chart below presents our ARPMUP for the three and six months ended June 30, 2021 and 2022:

We define and calculate ARPMUP as the average monthly B2C segment revenue for a reporting period, divided by MUPs ( i.e.

, the average number of unique payers) for the same period.

Our period-on-period increase in MUPs for the three months ended March 31, 2022, compared to the same periods in 2021, primarily reflects strong unique payer retention and acquisition across our Sportsbook and iGaming products as well as the expansion of our Sportsbook and iGaming products into new states, partially offset by a decline in DFS MUPs.

ARPMUP increased in the three months ended March 31, 2022, compared to the same period in 2021, primarily due to strong customer engagement, a continued mix shift into our iGaming product and an increase in DFS activity on a per MUP basis, partially offset by atypically low hold rates (primarily attributable to NCAA basketball wagering) and an increase in promotional intensity (primarily in New York).

Our period-on-period increase in MUPs for the three and six months ended June 30, 2022, compared to the same periods in 2021, reflects strong unique payer retention and acquisition across our Sportsbook and iGaming products, as well as the expansion of our iGaming and Sportsbook products into new jurisdictions, partially offset by a decline in DFS MUPs.

ARPMUP increased in the three months ended June 30, 2022, compared to the same period in 2021, primarily due to strong customer engagement, a continued mix shift into our iGaming and Sportsbook products and reduced promotional intensity compared to the same period in 2021.

ARPMUP increased in the six months ended June 30, 2022, compared to the same period in 2021, primarily due to strong customer engagement and a continued mix shift into our iGaming and Sportsbook products, which was partially offset by an increase in promotional intensity (primarily due to the launch of our Sportsbook product in New York), as well as atypically low hold rates in the three months ended March 31, 2022 (primarily attributable to NCAA basketball wagering).

Non-GAAP Information

5 unchanged sentences

As calculated, it may not be comparable to other similarly titled measures of performance of other companies in other industries or within the same industry.

We define and calculate Adjusted EBITDA as net loss before the impact of interest income or expense (net), income tax provision or benefit, depreciation and amortization, and further adjusted for the following items:

stock-based compensation, transaction-related costs, litigation, settlement and related costs, gain or loss on remeasurement of warrant liabilities, and certain other non-recurring, non-cash or non-core items, as described in the reconciliation below.

We define and calculate Adjusted EBITDA as net loss before the impact of interest income or expense (net), income tax provision or benefit, and depreciation and amortization, and further adjusted for the following items:

stock-based compensation, transaction-related costs, litigation, settlement and related costs, advocacy and other related legal expenses, gain or loss on remeasurement of warrant liabilities and other non-recurring and non-operating costs or income, as described in the reconciliation below.

We include non-GAAP financial measures because they are used by management to evaluate our core operating performance and trends and to make strategic decisions regarding the allocation of capital and new investments.

Adjusted EBITDA excludes certain expenses that are required in accordance with U.S.

GAAP because they are non-recurring items (for example, in the case of transaction-related costs), non-cash expenditures (for example, in the case of depreciation and amortization, remeasurement of warrant liabilities and stock-based compensation), or are not related to our underlying business performance (for example, in the case of interest income and expense and litigation, settlement and related costs).

GAAP because they are non-recurring items (for example, in the case of transaction-related costs and advocacy and other related legal expenses), non-cash expenditures (for example, in the case of depreciation and amortization, remeasurement of warrant liabilities and stock-based compensation), or

non-operating items which are not related to our underlying business performance (for example, in the case of interest income and expense and litigation, settlement and related costs).

Adjusted EBITDA

1 unchanged sentence

GAAP, for the periods indicated:

Three months ended March 31,

Three months ended June 30, Six months ended June 30,

(amounts in thousands) 2022 2021 2022 2021

4 unchanged sentences

Interest income, net (1,929) (1,642) (2,077) (2,627)

Income tax provision (benefit) 469 (4,595)

Income tax (benefit) provision (81,226) 2,404 (80,757) (2,191)

Stock-based compensation (2)

1 unchanged sentence

Transaction-related costs (3)

10,505 7,890 14,279 10,913

Litigation, settlement, and related costs (4)

2,446 3,599 4,396 4,221

Advocacy and other related legal expenses (5)

— 11,035 — 11,035

(Gain) loss on remeasurement of warrant liabilities (14,315) (16,984) (26,996) 9,996

Other non-recurring costs and non-operating (income) costs (5)

Other non-recurring and non-operating costs (income) (6)

5,652 2,132 (28,830) 4,133

3 unchanged sentences

B2C $ (98,904) $ (92,259) $ (368,075) $ (233,613)

(1) The amounts include the amortization of acquired intangible assets of $19.2 million and $19.1 million for the three months ended March 31, 2022 and 2021, respectively.

(1) The amounts include the amortization of acquired intangible assets of $27.1 million and $20.6 million for the three months ended June 30, 2022 and 2021, respectively, and $46.3 million and $39.7 million for the six months ended June 30, 2022 and 2021, respectively.

(2) Primarily reflects stock-based compensation expenses resulting from the issuance of awards under long-term incentive plans.

1 unchanged sentence

(4) Primarily includes external legal costs related to litigation and litigation settlement costs deemed unrelated to our core business operations.

(5) Primarily includes the change in fair value of certain financial assets, as well as our equity method share of the investee’s losses and other costs relating to non-recurring items.

(5) Includes certain non-recurring costs relating to advocacy efforts and other legal expenses in jurisdictions where we do not operate certain products and are actively seeking licensure, or similar approval, for those products.

For the three and six months ended June 30, 2021, those costs primarily related to our activities in Florida.

The amounts presented exclude other costs relating to advocacy efforts and other legal expenses incurred in jurisdictions where related legislation has been passed and we currently operate.

(6) Primarily includes the change in fair value of certain financial assets, as well as our equity method share of the investee’s losses and other costs relating to non-recurring and non-operating items.

Due to the timing of the consummation of the GNOG Transaction, the above periods, to the extent applicable, exclude GNOG’s operations prior to the closing date of May 5, 2022.

Results of Operations

Three Months Ended March 31, 2022 Compared to the Three Months Ended March 31, 2021

Three Months Ended June 30, 2022 Compared to the Three Months Ended June 30, 2021

The following table sets forth a summary of our consolidated results of operations for the interim periods indicated, and the changes between periods.

Three months ended March 31,

Due to the timing of the consummation of the GNOG Transaction, the below periods, to the extent applicable, exclude GNOG’s operations prior to the closing date of May 5, 2022.

Three months ended June 30,

(amounts in thousands, except percentages) 2022 2021 $ Change % Change

6 unchanged sentences

Interest income, net 1,929 1,642 287 17.5 %

Gain on remeasurement of warrant liabilities 14,315 16,984 (2,669) (15.7) %

Other expense, net (5,573) — (5,573) (100.0) %

Loss before income tax (benefit) provision and loss from equity method investment (298,251) (302,928) 4,677 1.5 %

Income tax (benefit) provision (81,226) 2,404 83,630 (3,478.8) %

Loss from equity method investment 78 194 116 59.8 %

Net loss $ (217,103) $ (305,526) $ 88,423 28.9 %

Revenue increased $168.6 million, or 56.6%, to $466.2 million in the three months ended June 30, 2022, from $297.6 million in the three months ended June 30, 2021.

The increase was attributable to $184.5 million in incremental B2C segment revenue, partially offset by a decrease in B2B segment revenue of $16.0 million.

The $184.5 million increase in our B2C segment revenue was primarily attributable to our online gaming revenues which increased $175.9 million, or 68.1%, to $434.1 million in the three months ended June 30, 2022, from $258.2 million in the three months ended June 30, 2021.

The remaining increase in our B2C segment revenue was attributable to “Other” revenue, which primarily includes media, Marketplace and retail Sportsbooks.

Online gaming revenue grew in the three months ended June 30, 2022 primarily due to MUPs increasing by 29.7% and ARPMUP also increasing by 29.7% as compared to the three months ended June 30, 2021.

These key performance indicators increased primarily due to strong customer engagement, a continued mix shift into our iGaming and Sportsbook products and reduced promotional intensity compared to the same period in 2021.

Cost of Revenue .

Cost of revenue increased $125.8 million, or 67.2%, to $312.8 million in the three months ended June 30, 2022, from $187.0 million in the three months ended June 30, 2021.

Our B2C segment accounted for substantially all of this increase, reflecting growth in revenue from our expanded product and geographic footprint, including the launch of our Sportsbook product in Arizona, Connecticut, Louisiana, New York and Ontario, Canada and the launch of our iGaming product in Connecticut and Ontario, Canada since the three months ended June 30, 2021.

The cost of revenue increase was primarily attributable to an increase in our variable expenses such as product taxes and payment processing fees, which increased by $65.8 million and $16.7 million, respectively, relative to the expenses incurred during the three months ended June 30, 2021.

The remaining increase was primarily attributable to variable platform costs and revenue share arrangements resulting from additional customer activity.

B2C segment cost of revenue as a percentage of B2C revenue increased by 5.4 percentage points to 62.1% in the three months ended June 30, 2022, as compared to 56.7% in the three months ended June 30, 2021, reflecting our changed revenue mix from our more mature DFS product to our iGaming and Sportsbook products as well as higher promotional investment in the launches of our products in new states, principally the launch of our Sportsbook product in New York in January 2022.

In addition, as a result of customer activity in these new states, we incurred variable expenses that are not based on net revenue, including payment processing fees, and revenue share arrangements.

In general, our iGaming and Sportsbook products produce revenue at a higher cost per revenue dollar relative to our more mature DFS product.

Sales and Marketing.

Sales and marketing expense increased $26.8 million, or 15.7%, to $197.5 million in the three months ended June 30, 2022, from $170.7 million in the three months ended June 30, 2021.

Our B2C segment accounted for substantially all of this increase.

Of the $26.8 million increase, $21.7 million resulted from activities to acquire and retain players in new states that we operate in, such as marketing costs including advertising and the development of marketing campaigns, as well as headcount and technology associated with analyzing, developing and deploying those campaigns.

The remainder of the increase primarily resulted from an increase in various team and league sponsorships.

Product and Technology.

Product and technology expense increased $14.6 million, or 23.3%, to $77.2 million in the three months ended June 30, 2022, from $62.6 million in the three months ended June 30, 2021, of which $1.3 million was attributable to our B2B segment.

The remaining increase of $13.3 million primarily reflects additions to our product operations and engineering headcount in our B2C segment.

General and Administrative.

General and administrative expense decreased $11.2 million, or 5.6%, to $187.6 million in the three months ended June 30, 2022, from $198.8 million in the three months ended June 30, 2021.

Our B2C segment accounted for substantially all of this decrease, primarily driven by a decrease in stock-based compensation expense of $32.8 million, which was partially offset by an increase of $17.2 million in compensation costs due to an increase in headcount.

Gain on Remeasurement of Warrant Liabilities.

We recorded a gain on remeasurement of warrant liabilities of $14.3 million in the three months ended June 30, 2022, compared to a gain of $17.0 million in the three months ended June 30, 2021 primarily due to changes in the underlying share price of our Class A common stock.

Other Expense .

Other expense, net was $5.6 million in the three months ended June 30, 2022, as compared to no other expense, net in the three months ended June 30, 2021.

This increase was primarily attributable to a change in the fair value of certain financial assets.

Income tax (benefit) provision .

We recorded an income tax benefit of $81.2 million in the three months ended June 30, 2022, as compared to an income tax provision of $2.4 million in the three months ended June 30, 2021.

This increase was primarily due to a discrete income tax benefit of $76.8 million recorded during the second quarter of 2022, which was attributable to non-recurring partial releases of the Company’s U.S.

valuation allowance as a result of the preliminary purchase accounting for GNOG.

Net loss decreased by $88.4 million to $217.1 million in the three months ended June 30, 2022, as compared to a net loss of $305.5 million in the three months ended June 30, 2021, for the reasons discussed above.

Six Months Ended June 30, 2022 Compared to the Six Months Ended June 30, 2021

The following table sets forth a summary of our consolidated results of operations for the interim periods indicated, and the changes between periods.

Due to the timing of the consummation of the GNOG Transaction, the below periods, to the extent applicable, exclude GNOG’s operations prior to the closing date of May 5, 2022.

Six months ended June 30,

(amounts in thousands, except percentages) 2022 2021 $ Change % Change

Revenue $ 883,390 $ 609,881 $ 273,509 44.8 %

Cost of revenue 626,146 370,231 (255,915) (69.1) %

Sales and marketing 518,981 399,398 (119,583) (29.9) %

Product and technology 158,554 118,794 (39,760) (33.5) %

General and administrative 404,215 367,803 (36,412) (9.9) %

Loss from operations (824,506) (646,345) (178,161) (27.6) %

Interest income, net 2,077 2,627 (550) (20.9) %

Gain (loss) on remeasurement of warrant liabilities 26,996 (9,996) 36,992 370.1 %

Other income, net 32,309 — 32,309 100.0 %

Loss before income tax provision (benefit) and loss from equity method investment (464,873) (350,786) (114,087) (32.5) %

Income tax provision (benefit) 469 (4,595) (5,064) (110.2) %

Loss before income tax (benefit) provision and loss from equity method investment (763,124) (653,714) (109,410) (16.7) %

Income tax benefit (80,757) (2,191) 78,566 3,585.9 %

Loss from equity method investment 2,429 347 (2,082) (600.0) %

Net loss $ (684,796) $ (651,870) $ (32,926) (5.1) %

Revenue increased $104.9 million, or 33.6%, to $417.2 million in the three months ended March 31, 2022, from $312.3 million in the three months ended March 31, 2021.

Revenue increased $273.5 million, or 44.8%, to $883.4 million in the six months ended June 30, 2022, from $609.9 million in the six months ended June 30, 2021.

The increase was attributable to $307.4 million in incremental B2C segment revenue, partially offset by a decrease in B2B segment revenue of $33.9 million.

The $122.9 million increase in our B2C segment revenue was primarily attributable to our online gaming revenues which increased $114.0 million, or 41.8%, to $386.7 million in the three months ended March 31, 2022, from $272.7 million in the three months ended March 31, 2021.

The remaining increase in our B2C segment revenue was attributable to “Other Revenues”, which primarily includes media and retail Sportsbooks.

Online gaming revenue grew in the three months ended March 31, 2022 primarily due to MUPs increasing by 29.2% and ARPMUP increasing by 10.5%, in each case, as compared to the three months ended March 31, 2021.

These key performance indicators increased primarily due to the launch of our online Sportsbook product in Arizona, Connecticut, Louisiana and New York, the launch of our iGaming product in Connecticut and a continued increase in customer engagement with our Sportsbook and iGaming products in previously launched states.

These increases were partially offset in the three months ended March 31, 2022 by planned promotional investments in the launches of our Sportsbook product in new states (primarily in New York) and atypically low hold rates (primarily attributable to NCAA college basketball wagering).

The $307.4 million increase in our B2C segment revenue was primarily attributable to our online gaming revenues which increased $289.9 million, or 54.6%, to $820.8 million in the six months ended June 30, 2022, from $530.9 million in the six months ended June 30, 2021.

The remaining increase in our B2C segment revenue was attributable to “Other” revenue, which primarily includes media, Marketplace and retail Sportsbooks.

Online gaming revenue grew in the six months ended June 30, 2022 primarily due to MUPs increasing by 29.4% and ARPMUP increasing by 19.9% as compared to the six months ended June 30, 2021.

These key performance indicators increased primarily due to strong customer engagement and a continued mix shift into our iGaming and Sportsbook products, which was partially offset by an increase in promotional intensity (primarily due to the launch of our Sportsbook product in New York), as well as atypically low hold rates in the three months ended March 31, 2022 (primarily attributable to NCAA basketball wagering).

Cost of Revenue .

Cost of revenue increased $130.2 million, or 71.0%, to $313.4 million in the three months ended March 31, 2022, from $183.2 million in the three months ended March 31, 2021.

Our B2C segment accounted for substantially all of this increase, reflecting growth in revenue from our expanded product and geographic footprint, including the launch of our Sportsbook product in Arizona, Connecticut, Louisiana and New York and the launch of our iGaming product in Connecticut, in each case, since the three months ended March 31, 2021.

The cost of revenue increase was primarily attributable to an increase in our variable expenses such as product taxes and payment processing fees, which increased by $80.4 million and $21.5 million, respectively, relative to the expenses incurred during the three months ended March 31, 2021.

Cost of revenue increased $255.9 million, or 69.1%, to $626.1 million in the six months ended June 30, 2022, from $370.2 million in the six months ended June 30, 2021.

Our B2C segment accounted for substantially all of this increase, reflecting growth in revenue from our expanded product and geographic footprint, including the launch of our Sportsbook product in Arizona, Connecticut, Louisiana, New York and Ontario, Canada and the launch of our iGaming product in Connecticut and in Ontario, Canada since the six months ended June 30, 2021.

The cost of revenue increase was primarily attributable to an increase in our variable expenses such as product taxes and payment processing fees, which increased by $146.2 million and $38.2 million, respectively, relative to the expenses incurred during the six months ended June 30, 2021.

The remaining increase was primarily attributable to variable platform costs and revenue share arrangements resulting from additional customer activity.

B2C segment cost of revenue as a percentage of B2C revenue increased by 16.2 percentage points to 70.1% in the three months ended March 31, 2022, as compared to 53.9% in the three months ended March 31, 2021, reflecting our changed revenue mix from our more mature DFS product to our iGaming and Sportsbook products as well as higher promotional investment in the launches of our products in new states, principally the launch of our Sportsbook product in New York.

In addition, as a result of customer activity in these new states, we incurred variable expenses that are not based on net revenue,

including payment processing fees and revenue share arrangements.

B2C segment cost of revenue as a percentage of B2C revenue increased by 10.5 percentage points to 65.8% in the six months ended June 30, 2022, as compared to 55.3% in the six months ended June 30, 2021, reflecting our changed revenue mix from our more mature DFS product to our iGaming and Sportsbook products as well as higher promotional investment in the launches of our products in new states, principally the launch of our Sportsbook product in New York.

In addition, as a result of customer activity in these new states, we incurred variable expenses that are not based on net revenue, including payment processing fees, and revenue share arrangements.

In general, our iGaming and Sportsbook products produce revenue at a higher cost per revenue dollar relative to our more mature DFS product.

Sales and Marketing.

Sales and marketing expense increased $92.8 million, or 40.6%, to $321.5 million in the three months ended March 31, 2022, from $228.7 million in the three months ended March 31, 2021.

Sales and marketing expense increased $119.6 million, or 29.9%, to $519.0 million in the six months ended June 30, 2022, from $399.4 million in the six months ended June 30, 2021.

Our B2C segment accounted for substantially all of this increase with $94.1 million of the increase resulting from activities to acquire and retain players in new states that we operate in, such as marketing costs including advertising and the development of marketing campaigns, as well as headcount and technology associated with analyzing, developing and deploying those campaigns.

1 unchanged sentence

Product and Technology.

Product and technology expense increased $25.2 million, or 44.9%, to $81.4 million in the three months ended March 31, 2022, from $56.2 million in the three months ended March 31, 2021, of which $5.3 million was attributable to our B2B segment.

Product and technology expense increased $39.8 million, or 33.5%, to $158.6 million in the six months ended June 30, 2022, from $118.8 million in the six months ended June 30, 2021, of which $6.6 million was attributable to our B2B segment.

The remaining increase of $33.2 million primarily reflects additions to our product operations and engineering headcount in our B2C segment.

General and Administrative.

General and administrative expense increased $47.6 million, or 28.2%, to $216.6 million in the three months ended March 31, 2022, from $169.0 million in the three months ended March 31, 2021.

Our B2C segment accounted for substantially all of this increase, primarily driven by an increase in stock-based compensation expense of $22.6 million, as well as an increase of $12.5 million in compensation costs due to an increase in headcount.

The remainder of the increase was primarily attributable to an increase in software and facility fees.

General and administrative expense increased $36.4 million, or 9.9%, to $404.2 million in the six months ended June 30, 2022, from $367.8 million in the six months ended June 30, 2021.

Our B2C segment accounted for substantially all of this increase, primarily driven by an increase of $29.7 million in compensation costs due to an increase in headcount, as well as an increase in software and facility fees, which were partially offset by a decrease in stock-based compensation expense of $10.2 million.

Gain (Loss) on Remeasurement of Warrant Liabilities.

We recorded a gain on remeasurement of warrant liabilities of $12.7 million in the three months ended March 31, 2022, compared to a loss of $27.0 million in the three months ended March 31, 2021 primarily due to changes in the underlying share price of our Class A common stock.

We recorded a gain on remeasurement of warrant liabilities of $27.0 million in the six months ended June 30, 2022, compared to a loss of $10.0 million in the six months ended June 30, 2021 primarily due to changes in the underlying share price of our Class A common stock.

Other Income .

Other income was $37.9 million in the three months ended March 31, 2022, as compared to no other income in the three months ended March 31, 2021.

Other income, net was $32.3 million in the six months ended June 30, 2022, as compared to no other income, net in the six months ended June 30, 2021.

This increase was primarily attributable to a change in the fair value of certain financial assets.

Net loss increased by $121.3 million to $467.7 million in the three months ended March 31, 2022, as compared to a net loss of $346.3 million in the three months ended March 31, 2021, for the reasons discussed above.

Income tax benefit .

We recorded an income tax benefit of $80.8 million in the six months ended June 30, 2022, as compared to an income tax benefit of $2.2 million in the six months ended June 30, 2021.

valuation allowance as a result of the preliminary purchase accounting for GNOG.

Net loss increased by $32.9 million to $684.8 million in the six months ended June 30, 2022, as compared to a net loss of $651.9 million in the six months ended June 30, 2021, for the reasons discussed above.

Liquidity and Capital Resources

We had $1.8 billion in cash and cash equivalents as of March 31, 2022 (excluding player cash, which we segregate from our operating cash balances on behalf of our paid users for all jurisdictions and products).

We believe our cash on hand is sufficient to meet our current working capital and capital expenditure requirements for a period of at least twelve months, irrespective of the continuing impact of COVID-19.

We had $1.5 billion in cash and cash equivalents as of June 30, 2022 (excluding player cash, which we segregate from our operating cash balances on behalf of our paid users for all jurisdictions and products).

We believe our cash on hand is sufficient to meet our current working capital and capital expenditure requirements for a period of at least twelve months.

We will continue to evaluate our long-term operating performance and cash needs and believe we are well positioned to continue to fund the operations of the business long-term.

5 unchanged sentences

We have lease arrangements for certain corporate office facilities, data centers, and motor vehicles.

As of March 31, 2022, the Company had lease obligations of $67.4 million, with $12.9 million payable within 12 months.

As of June 30, 2022, the Company had lease obligations of $83.9 million, with $5.7 million payable within 12 months.

Other Purchase Obligations .

We have certain non-cancelable contracts with vendors, licensors and others requiring us to make future cash payments.

As of March 31, 2022, these purchase obligations were $1,913.5 million, with $349.1 million payable in the remainder of 2022.

The following table summarizes our cash flows for the periods indicated:

Three months ended March 31,

As of June 30, 2022, these purchase obligations were $1,913.5 million, with $267.7 million payable in the remainder of 2022.

The table below summarizes our cash flows for the periods indicated.

Due to the timing of the consummation of the GNOG Transaction, the below periods, to the extent applicable, exclude GNOG’s operations prior to the closing date of May 5, 2022.

Six months ended June 30,

(amounts in thousands) 2022 2021

7 unchanged sentences

Operating Activities .

Net cash used in operating activities in the three months ended March 31, 2022 was $356.7 million, compared to $59.7 million in the three months ended March 31, 2021, mainly reflecting a decrease in operating working capital of $148.1 million primarily due to an increase in cash used in accounts payable, accrued expenses, liabilities to users, prepaid expenses and other current assets.

Net cash used in operating activities in the six months ended June 30, 2022 was $529.3 million, compared to $176.4 million in the six months ended June 30, 2021, mainly reflecting a decrease in operating working capital of $199.0 million primarily due to an increase in cash used in accounts payable, accrued expenses, liabilities to users, prepaid expenses and other current assets.

In addition, we incurred a $32.9 million higher net loss, for the reasons discussed above, net of non-cash cost items.

Non-cash cost items decreased $27.5 million period-over-period, primarily driven by a gain on remeasurement of warrants liabilities and a gain on various financial assets, partially offset by an increase in stock-based compensation expense and depreciation and amortization.

Non-cash cost items decreased $121.0 million period-over-period, primarily driven by deferred income taxes, a gain on remeasurement of warrants liabilities and a gain on various financial assets.

Investing Activities.

Net cash used in investing activities during the three months ended March 31, 2022 decreased by $28.9 million to $23.1 million from $51.9 million during the same period in 2021, mainly reflecting the cash portion of consideration paid to shareholders of entities that the Company acquired during the first quarter of 2021, which were not incurred in the first quarter of 2022.

Net cash used in investing activities during the six months ended June 30, 2022 increased by $46.9 million to $147.5 million from $100.6 million during the same period in 2021, mainly reflecting an increase in cash paid for acquisitions during the six months ended June 30, 2022 when compared to the six months ended June 30, 2021.

Financing Activities.

Net cash provided by (used in) financing activities during the three months ended March 31, 2022 decreased by $1,141.1 million to $(12.3) million from $1,128.8 million during the same period in 2021, mainly reflecting the completion of our issuance of Convertible Notes during the three months ended March 31, 2021.

Net cash provided by (used in) financing activities during the six months ended June 30, 2022 decreased by $1,144.4 million to $(12.5) million from $1,131.9 million during the same period in 2021, mainly reflecting the completion of our issuance of Convertible Notes during the three months ended March 31, 2021.

Commitments and Contingencies

Refer to Note 13 of our unaudited condensed consolidated financial statements included elsewhere in this Report for a summary of our commitments as of March 31, 2022.

Refer to Note 13 of our unaudited condensed consolidated financial statements included elsewhere in this Report for a summary of our commitments as of June 30, 2022.

Critical Accounting Policies

4 unchanged sentences

Actual results could differ materially from these estimates.

During the three months ended March 31, 2022, there were no changes to the critical accounting policies discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the SEC on February 18, 2022.

During the six months ended June 30, 2022, there were no changes to the critical accounting policies discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the SEC on February 18, 2022.

Quantitative and Qualitative Disclosures About Market Risk

There have been no significant changes in our exposure to market risk during the three months ended March 31, 2022.

There have been no significant changes in our exposure to market risk during the six months ended June 30, 2022.

Refer to Item 7A.

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis