What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-03 compared with 2023-08-04 · 60 added, 60 removed, 198 unchanged (38% of the section changed)

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Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section entitled “Risk Factors” included elsewhere in this Report.

Any statements contained herein that are not statements of historical fact may be forward-looking statements.

Any statements contained herein that are not statements of historical fact may be forward-looking statements, such as:

• factors relating to our business, operations and financial performance, including:

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New factors may emerge, and it is not possible to predict all factors that may affect our business and prospects.

We are a digital sports entertainment and gaming company that provides users with online sports betting (“Sportsbook”), online casino (“iGaming”) and daily fantasy sports (“DFS”) product offerings, as well as DraftKings Marketplace ("Marketplace"), retail sportsbook, media and other consumer product offerings.

We are a digital sports entertainment and gaming company that provides users with online sports betting (“Sportsbook”), online casino (“iGaming”) and daily fantasy sports (“DFS”) product offerings, as well as retail sportsbook, media and other consumer product offerings.

We are also involved in the design and development of sports betting and casino gaming software for online and retail sportsbooks and iGaming operators.

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

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

Three months ended September 30, Nine months ended September 30,

(amounts in thousands)

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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 $408.7 million and $761.2 million in the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 2022, respectively, primarily due to the strong performance of our Sportsbook and iGaming product offerings as a result of robust customer acquisition and retention, the successful launches of those product offerings in additional jurisdictions and reduced promotional intensity.

Revenue increased by $288.0 million and $1,049.2 million in the three and nine months ended September 30, 2023 compared to the three and nine months ended September 30, 2022, respectively, primarily due to the strong performance of our Sportsbook and iGaming product offerings as a result of robust customer acquisition and retention, the successful launches of those product offerings in additional jurisdictions, and improved promotional reinvestment for Sportsbook and iGaming.

Key Performance Indicators

Monthly Unique Payers (“MUPs”) .

We define MUPs as the number of unique paid users per month who had one or more real-money, paid engagements across one or more of our Sportsbook, iGaming, DFS, or Marketplace product offerings via our technology.

We define MUPs as the number of unique paid users per month who had one or more real-money, paid engagements across one or more of our Sportsbook, iGaming, DFS, or other consumer product offerings via our technology.

For reported periods longer than one month, we average the MUPs for the months in the reported period.

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We expect the number of MUPs to grow as we attract, retain and re-engage users in new and existing jurisdictions and expand our product offerings to appeal to a wider audience.

The charts below present our average MUPs for the three and six months ended June 30, 2022 and 2023:

The charts below present our average MUPs for the three and nine months ended September 30, 2022 and 2023:

Average Revenue per MUP (“ARPMUP”).

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ARPMUP is a key indicator of our ability to drive usage and monetization of our product offerings.

The charts below present our ARPMUP for the three and six months ended June 30, 2022 and 2023:

The increase in MUPs for the three and six months ended June 30, 2023, compared to the same periods in 2022, 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 and six months ended June 30, 2023, compared to the same periods in 2022, primarily due to structural improvement in our Sportsbook hold rate and reduced promotional intensity.

The charts below present our ARPMUP for the three and nine months ended September 30, 2022 and 2023:

The increase in MUPs for the three and nine months ended September 30, 2023, compared to the same periods in 2022, primarily reflects strong unique payer retention and acquisition across our Sportsbook and iGaming product offerings, as well as the expansion of our Sportsbook and iGaming product offerings into new states, partially offset by a decline in DFS MUPs.

ARPMUP increased in the three and nine months ended September 30, 2023, compared to the same periods in 2022, primarily due to structural improvement in our Sportsbook hold rate and improved promotional reinvestment for Sportsbook and iGaming.

Non-GAAP Information

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GAAP, for the periods indicated:

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

Three months ended September 30, Nine months ended September 30,

(amounts in thousands) 2023 2022 2023 2022

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Advocacy and other related legal expenses (5)

— 16,558 — 16,558

Loss (gain) on remeasurement of warrant liabilities 7,751 6,797 44,827 (20,199)

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Adjusted EBITDA $ (153,414) $ (264,211) $ (302,053) $ (671,854)

(1) The amounts include the amortization of acquired intangible assets of $28.9 million and $27.1 million for the three months ended June 30, 2023 and 2022, respectively, and $58.8 million and $46.3 million for the six months ended June 30, 2023 and 2022, respectively.

(1) The amounts include the amortization of acquired intangible assets of $29.2 million and $29.8 million for the three months ended September 30, 2023 and 2022, respectively, and $88.0 million and $76.1 million for the nine months ended September 30, 2023 and 2022, respectively.

(2) Reflects stock-based compensation expenses resulting from the issuance of awards under incentive plans.

(3) Includes capital markets advisory, consulting, accounting and legal expenses related to evaluation, negotiation and integration costs incurred in connection with proposed, pending or completed transactions and offerings, including costs relating to the GNOG Transaction for the three and six months ended June 30, 2022.

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

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

For the three and six months ended June 30, 2023 and 2022, we did not incur any such costs.

This adjustment excludes (i) costs relating to advocacy efforts and other legal expenses in jurisdictions where we do not operate that are incurred in the ordinary course of business and (ii) costs relating to advocacy efforts and other legal expenses incurred in jurisdictions where related legislation has been passed and we currently operate.

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Results of Operations

Three Months Ended June 30, 2023 Compared to the Three Months Ended June 30, 2022

Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022

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 June 30,

Three months ended September 30,

(amounts in thousands, except percentages) 2023 2022 $ Change % Change

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Net loss $ (283,103) $ (450,494) $ 167,391 37.2 %

Revenue increased by $408.7 million, or 87.7%, to $874.9 million in the three months ended June 30, 2023, from $466.2 million in the three months ended June 30, 2022.

The increase was primarily attributable to our online gaming revenues, which increased $415.7 million, or 95.8%, to $849.8 million in the three months ended June 30, 2023, from $434.1 million in the three months ended June 30, 2022, due to MUPs increasing by 44.3% as compared to the three months ended June 30, 2022.

The increase in MUPs was due to strong player retention and acquisition across our Sportsbook and iGaming product offerings, as well as the expansion of our Sportsbook and iGaming product offerings into new jurisdictions.

Online gaming revenues also increased due to structural improvement in our Sportsbook hold rate and reduced promotional intensity, which contributed to ARPMUP growth of 33.4% compared to the three months ended June 30, 2022.

Revenue increased by $288.0 million, or 57.4%, to $790.0 million in the three months ended September 30, 2023, from $501.9 million in the three months ended September 30, 2022.

The increase was primarily attributable to our online gaming revenues, which increased $299.8 million, or 64.0%, to $768.3 million in the three months ended September 30, 2023, from $468.5 million in the three months ended September 30, 2022, due to MUPs increasing by 40.0% as compared to the three months ended September 30, 2022.

The increase in MUPs was due to strong player retention and acquisition across our Sportsbook and iGaming product offerings as well as the expansion of our Sportsbook product offering into new jurisdictions.

Online gaming revenues also increased due to structural improvement in our Sportsbook hold rate and improved promotional reinvestment for Sportsbook and iGaming, which contributed to ARPMUP growth of 14.0% compared to the three months ended September 30, 2022.

Cost of Revenue .

Cost of revenue increased $197.6 million, or 63.2%, to $510.3 million in the three months ended June 30, 2023, from $312.8 million in the three months ended June 30, 2022.

Our online gaming product offerings accounted for substantially all of this increase, reflecting growth in revenue from our expanded product and jurisdictional footprint, including the launch of our Sportsbook product offering in Kansas, Maryland, Massachusetts, and Ohio since June 30, 2022.

Cost of revenue increased $170.8 million, or 45.8%, to $543.5 million in the three months ended September 30, 2023, from $372.7 million in the three months ended September 30, 2022.

Our online gaming product offerings accounted for substantially all of this increase, reflecting growth in revenue from our expanded product and jurisdictional footprint, including the launch of our Sportsbook product offering in Kentucky, Maryland, Massachusetts, and Ohio since September 30, 2022.

In particular, 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 $111.6 million and $32.3 million, respectively.

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

Cost of revenue as a percentage of revenue decreased by 8.8% percentage points to 58.3% in the three months ended June 30, 2023, as compared to 67.1% in the three months ended June 30, 2022, reflecting, in part, structural improvement in our Sportsbook hold rate and reduced promotional intensity, partially offset by a change in revenue mix from our more mature DFS product offering to our Sportsbook and iGaming product offerings, which, in general, produce revenue at a higher cost per revenue dollar relative to our more mature DFS product offering.

The remaining increase was primarily attributable to an increase in our variable platform costs resulting from additional customer activity.

Cost of revenue as a percentage of revenue decreased by 5.5% percentage points to 68.8% in the three months ended September 30, 2023, as compared to 74.3% in the three months ended September 30, 2022, reflecting, in part, structural improvement in our Sportsbook hold rate, partially offset by a change in revenue mix from our more mature DFS product offering to our Sportsbook and iGaming product offerings, which, in general, produce revenue at a higher cost per revenue dollar relative to our more mature DFS product offering.

Sales and Marketing.

Sales and marketing expense increased $10.0 million, or 5.0%, to $207.5 million in the three months ended June 30, 2023, from $197.5 million in the three months ended June 30, 2022.

The increase was primarily attributable to activities related to acquiring and retaining players, such as advertising and the development of marketing campaigns.

Sales and marketing expense decreased $8.4 million, or 2.6%, to $313.3 million in the three months ended September 30, 2023, from $321.7 million in the three months ended September 30, 2022.

The decrease was primarily attributable to lower advertising costs, primarily related to a reduction in league and team partnerships of $5.3 million, as well as reduced stock-based compensation expense of $2.2 million.

Product and Technology.

Product and technology expense increased $12.7 million, or 16.5%, to $89.9 million in the three months ended June 30, 2023, from $77.2 million in the three months ended June 30, 2022.

Product and technology expense increased $12.7 million, or 16.7%, to $89.0 million in the three months ended September 30, 2023, from $76.3 million in the three months ended September 30, 2022.

The increase primarily reflects additions to our product operations and engineering headcount.

General and Administrative.

General and administrative expense decreased $51.4 million, or 27.4%, to $136.3 million in the three months ended June 30, 2023, from $187.6 million in the three months ended June 30, 2022.

This decrease was primarily driven by a reduction in stock-based compensation expense of $42.5 million and a reduction in transaction-related costs of $10.1 million.

General and administrative expense decreased $55.5 million, or 29.8%, to $130.8 million in the three months ended September 30, 2023, from $186.3 million in the three months ended September 30, 2022.

This decrease was primarily driven by a reduction in stock-based compensation expense of $44.9 million and a reduction in advocacy expense of $16.6 million, partially offset by an increase in cash-based compensation expense due to an increase in headcount.

(Loss) Gain on Remeasurement of Warrant Liabilities.

We recorded a loss on remeasurement of warrant liabilities of $20.0 million in the three months ended June 30, 2023, compared to a gain of $14.3 million in the three months ended June 30, 2022 primarily due to changes in the underlying share price of our Class A common stock.

We recorded a loss on remeasurement of warrant liabilities of $7.8 million in the three months ended September 30, 2023, compared to a loss of $6.8 million in the three months ended September 30, 2022, due to changes in the underlying share price of our Class A common stock.

Other Income, Net .

We recorded a de minimis amount of other income, net in the three months ended June 30, 2023, as compared to a loss of $5.6 million in the three months ended June 30, 2022.

This increase was primarily attributable to a change in the fair value of certain financial assets recorded in the three months ended June 30, 2022.

Net loss decreased by $139.8 million to $77.3 million in the three months ended June 30, 2023, as compared to a net loss of $217.1 million in the three months ended June 30, 2022, for the reasons discussed above.

Six Months Ended June 30, 2023 Compared to the Six Months Ended June 30, 2022

We recorded a loss of $1.2 million in the three months ended September 30, 2023, as compared to income of $8.3 million in the three months ended September 30, 2022.

This change was primarily attributable to the receipt of income pursuant to a tax indemnity in the three months ended September 30, 2022.

Net loss decreased by $167.4 million to $283.1 million in the three months ended September 30, 2023, as compared to a net loss of $450.5 million in the three months ended September 30, 2022, for the reasons discussed above.

Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022

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

Six months ended June 30,

Nine months ended September 30,

(amounts in thousands, except percentages) 2023 2022 $ Change % Change

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Net loss $ (757,521) $ (1,135,290) $ 377,769 33.3 %

Revenue increased by $761.2 million, or 86.2%, to $1,644.6 million in the six months ended June 30, 2023, from $883.4 million in the six months ended June 30, 2022.

The increase was primarily attributable to our online gaming revenues, which increased $764.2 million, or 93.1%, to $1,585.0 million in the six months ended June 30, 2023, from $820.8 million in the six months ended June 30, 2022, primarily due to MUPs increasing by 41.4% as compared to the six months ended June 30, 2022.

Revenue increased by $1,049.2 million, or 75.7%, to $2,434.5 million in the nine months ended September 30, 2023, from $1,385.3 million in the nine months ended September 30, 2022.

The increase was primarily attributable to our online gaming revenues, which increased $1,064.0 million, or 82.5%, to $2,353.3 million in the nine months ended September 30, 2023, from $1,289.3 million in the nine months ended September 30, 2022, primarily due to MUPs increasing by 40.9% as compared to the nine months ended September 30, 2022.

Online gaming revenues also increased due to structural improvement in our Sportsbook hold rate and reduced promotional intensity, which contributed to ARPMUP growth of 35.7% compared to the six months ended June 30, 2022.

Online gaming revenues also increased due to structural improvement in our Sportsbook hold rate and improved promotional reinvestment, which contributed to ARPMUP growth of 25.8% compared to the nine months ended September 30, 2022.

Cost of Revenue .

Cost of revenue increased $405.9 million, or 64.8%, to $1,032.1 million in the six months ended June 30, 2023, from $626.1 million in the six months ended June 30, 2022.

Cost of revenue increased $576.7 million, or 57.7%, to $1,575.5 million in the nine months ended September 30, 2023, from $998.8 million in the nine months ended September 30, 2022.

Our online gaming product offerings accounted for substantially all of this increase, reflecting growth in revenue from our expanded product and jurisdictional footprint, including the launch of our Sportsbook product offering in Kentucky, Maryland, Massachusetts, and Ohio since September 30, 2022.

In particular, 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 $368.3 million and $74.3 million, respectively.

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

Cost of revenue as a percentage of revenue decreased by 8.1% percentage points to 62.8% in the six months ended June 30, 2023, as compared to 70.9% in the six months ended June 30, 2022, reflecting, in part, structural improvement in our Sportsbook hold rate and reduced promotional intensity, partially offset by a change in revenue mix from our more mature DFS product offering to our Sportsbook and iGaming product offerings, which in general, produce revenue at a higher cost per revenue dollar relative to our more mature DFS product offering.

Cost of revenue as a percentage of revenue decreased by 7.4% percentage points to 64.7% in the nine months ended September 30, 2023, as compared to 72.1% in the nine months ended September 30, 2022, reflecting, in part, structural improvement in our Sportsbook hold rate and improved promotional intensity, partially offset by a change in revenue mix from our more mature DFS product offering to our Sportsbook and iGaming product offerings, which in general, produce revenue at a higher cost per revenue dollar relative to our more mature DFS product offering.

Sales and Marketing.

Sales and marketing expense increased $77.6 million, or 15.0%, to $596.6 million in the six months ended June 30, 2023, from $519.0 million in the six months ended June 30, 2022.

The increase was primarily attributable to an increase of $57.8 million from activities related to acquiring and retaining players, such as advertising and the development of marketing campaign s.

Sales and marketing expense increased $69.2 million, or 8.2%, to $909.9 million in the nine months ended September 30, 2023, from $840.7 million in the nine months ended September 30, 2022.

The increase was primarily attributable to an increase of $51.5 million in advertising costs .

Product and Technology.

Product and technology expense increased $19.4 million, or 12.3%, to $178.0 million in the six months ended June 30, 2023, from $158.6 million in the six months ended June 30, 2022.

Product and technology expense increased $32.1 million, or 13.7%, to $267.0 million in the nine months ended September 30, 2023, from $234.9 million in the nine months ended September 30, 2022.

The increase primarily reflects additions to our product operations and engineering headcount.

General and Administrative.

General and administrative expense decreased $107.5 million, or 26.6%, to $296.7 million in the six months ended June 30, 2023, from $404.2 million in the six months ended June 30, 2022.

This decrease was primarily driven by a reduction in stock-based compensation expense of $108.8 million and a reduction in transaction-related costs of $13.9 million, partially offset by an increase in cash-based compensation expense due to an increase in headcount.

General and administrative expense decreased $163.0 million, or 27.6%, to $427.5 million in the nine months ended September 30, 2023, from $590.5 million in the nine months ended September 30, 2022.

This decrease was primarily driven by a reduction in stock-based compensation expense of $153.7 million, a reduction in transaction-related costs of $14.0 million and a reduction in advocacy expense of $16.6 million partially offset by an increase in cash-based compensation expense due to an increase in headcount.

(Loss) Gain on Remeasurement of Warrant Liabilities.

We recorded a loss on remeasurement of warrant liabilities of $37.1 million in the six months ended June 30, 2023, compared to a gain of $27.0 million in the six months ended June 30, 2022 primarily due to changes in the underlying share price of our Class A common stock.

We recorded a loss on remeasurement of warrant liabilities of $44.8 million in the nine months ended September 30, 2023, compared to a gain of $20.2 million in the nine months ended September 30, 2022 due to changes in the underlying share price of our Class A common stock.

Other Income, Net .

We recorded a de minimis amount of other income, net in the six months ended June 30, 2023, as compared to $32.3 million in the six months ended June 30, 2022.

This decrease was primarily attributable to a change in the fair value of certain financial assets recorded in the six months ended June 30, 2022.

Net loss decreased by $210.4 million to $474.4 million in the six months ended June 30, 2023, as compared to a net loss of $684.8 million in the six months ended June 30, 2022, for the reasons discussed above.

We recorded a loss of $1.2 million in the nine months ended September 30, 2023, as compared to income of $40.6 million in the nine months ended September 30, 2022.

This decrease was primarily attributable to a change in the fair value of certain financial assets recorded in the nine months ended September 30, 2022.

Net loss decreased by $377.8 million to $757.5 million in the nine months ended September 30, 2023, as compared to a net loss of $1,135.3 million in the nine months ended September 30, 2022, for the reasons discussed above.

Liquidity and Capital Resources

We had $1.1 billion in cash and cash equivalents as of June 30, 2023 (excluding player cash, which we segregate from our operating cash balances on behalf of our paid users for all jurisdictions and product offerings).

We had $1.1 billion in cash and cash equivalents as of September 30, 2023 (excluding player cash, which we segregate from our operating cash balances on behalf of our paid users for all jurisdictions and product offerings).

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.

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The net cost of $124.0 million incurred to enter into the Capped Call Transactions was recorded as a reduction to additional paid-in capital on the Company’s consolidated balance sheet.

As of June 30, 2023, the Convertible Notes, net of issuance costs, balance was $1,252.4 million .

As of September 30, 2023, the Convertible Notes, net of issuance costs, balance was $1,253.1 million .

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

As of June 30, 2023, the Company had lease obli gations of $67.7 million, with $3.3 million payabl e within 12 months.

As of September 30, 2023, the Company had lease obli gations of $89.1 million, with $12.1 million payabl e 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 June 30, 2023, these purchase obligations were $1,577.4 million, with $235.2 million payable in the remainder of 2023.

As of September 30, 2023, these purchase obligations were $1,485.7 million, with $126.7 million payable in the remainder of 2023.

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

Six months ended June 30,

Nine months ended September 30,

(amounts in thousands) 2023 2022

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Operating Activities .

Net cash used in operating activities in the six months ended June 30, 2023 decreased $310.1 million to $219.2 million, compared to $529.3 million in the six months ended June 30, 2022, mainly reflecting an improvement in net loss, net of non-cash items, of $284.3 million, as well as a cash outflow from changes in operating assets and liabilities of $83.7 million compared to an outflow of $106.9 million in the six months ended June 30, 2022, primarily due to improved collection of accounts receivable and timing of payments.

Net cash used in operating activities in the nine months ended September 30, 2023 improved $403.2 million to $73.8 million, compared to $477.1 million in the nine months ended September 30, 2022, mainly reflecting an improvement in net loss, net of non-cash items, of $419.9 million, slightly offset by changes in operating assets and liabilities.

Investing Activities.

Net cash used in investing activities during the six months ended June 30, 2023 decreased by $120.5 million to $27.0 million from $147.5 million during the same period in 2022, mainly reflecting $24.4 million of proceeds from the sale of marketable equity securities and other financial assets in 2023 and a reduction of $96.5 million from cash paid for acquisitions, net of cash acquired, related to the GNOG Transaction in 2022.

Net cash used in investing activities during the nine months ended September 30, 2023 improved by $105.0 million to $66.9 million from $171.9 million during the same period in 2022, mainly reflecting $24.4 million of proceeds from the sale of marketable equity securities and other financial assets in 2023 and a reduction of $96.5 million from cash paid for acquisitions, net of cash acquired, related to the GNOG Transaction in 2022, partially offset by an increase in cash paid for internally developed software.

Financing Activities.

Net cash used in financing activities during the six months ended June 30, 2023 increased by $25.3 million to $37.8 million from $12.5 million during the same period in 2022, primarily reflecting purchases of treasury stock related to the satisfaction of withholding taxes due upon the vesting of restricted stock units.

Net cash used in financing activities during the nine months ended September 30, 2023 increased by $33.7 million to $50.5 million from $16.8 million during the same period in 2022, primarily reflecting purchases of treasury stock related to the satisfaction of withholding taxes due upon the vesting of restricted stock units.

Commitments and Contingencies

Refer to Note 12 of our unaudited condensed consolidated financial statements included elsewhere in this Report for a summary of our commitments as of June 30, 2023.

Refer to Note 12 of our unaudited condensed consolidated financial statements included elsewhere in this Report for a summary of our commitments as of September 30, 2023.

Critical Accounting Estimates

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Actual results could differ materially from these estimates.

During the six months ended June 30, 2023, there were no changes to the critical accounting estimates discussed in the 2022 Annual Report.

During the nine months ended September 30, 2023, there were no changes to the critical accounting estimates discussed in the 2022 Annual Report.

Quantitative and Qualitative Disclosures About Market Risk

There have been no significant changes in our exposure to market risk during the six months ended June 30, 2023.

There have been no significant changes in our exposure to market risk during the nine months ended September 30, 2023.

Refer to Item 7A.

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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