The following discussion and analysis should be read in conjunction with our financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q (this "Report") and the section entitled "Risk Factors" in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 , as filed with theSEC onFebruary 18, 2022 . As a result of the GNOG Transaction, which was consummated onMay 5, 2022 , New DraftKings became the going-forward public company and the direct parent company of both Old DraftKings and GNOG. NewDraftKings was renamed "DraftKings Inc. " at the closing of the GNOG Transaction and is the registrant filing this Report as the successor registrant for Old DraftKings. Unless otherwise indicated, the terms "DraftKings ," the "Company," "we," "us," or "our" refer to (i) Old DraftKings for periods preceding the Closing Date and (ii) New DraftKings for periods on and subsequent to the Closing Date, in each case, together with their respective consolidated subsidiaries. Forward-Looking Statements This Report contains forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 that reflect future plans, estimates, beliefs and expected performance. The forward-looking statements depend upon events, risks and uncertainties that may be outside of our control. The words "anticipate," "believe," "continue," "could," "estimate," "expect," "intends," "may," "might," "plan," "possible," "potential," "predict," "project," "should," "would" and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. You are cautioned that our business and operations are subject to a variety of risks and uncertainties, many of which are beyond our control, and, consequently, our actual results may differ materially from those projected. 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.
•factors relating to our business, operations and financial performance, including:
•our ability to effectively compete in the global entertainment and gaming industries;
•our ability to successfully acquire and integrate new operations;
•our ability to obtain and maintain licenses with gaming authorities;
•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, 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;
•our ability to raise financing in the future;
•our success in retaining or recruiting officers, key employees or directors; and
•litigation and the ability to adequately protect our intellectual property rights.
These risks and other factors include those set forth under the caption "Risk Factors" in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 , as filed with theSEC onFebruary 18, 2022 . Due to the uncertain nature of these factors, management cannot assess the impact of each factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any of these statements to reflect events or circumstances occurring after the date of this Report, except as required by applicable law. New factors may emerge and it is not possible to predict all factors that may affect our business and prospects. 28 --------------------------------------------------------------------------------
Our Business
We are a digital sports entertainment and gaming company. 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. OnMay 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 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. Our ethics guide our decision making, with respect to both the tradition and integrity of sports and our investments in regulatory compliance and consumer protection. 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 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. Together, these investments have enabled us to create a leading product built on scalable technology, while attracting a user base that has resulted in the rapid growth of our business. Our priorities are to (a) continue to invest in our products and services, (b) launch our products in new geographies, (c) create replicable and predictable state-level unit economics in sports betting and iGaming and (d) expand our other online consumer products. When we launch Sportsbook and iGaming offerings in a new jurisdiction, we invest in user acquisition, retention and cross-selling until the new jurisdiction provides a critical mass of users engaged across our products. Our current technology is highly scalable with relatively minimal incremental spend required to launch our products in new jurisdictions. We will continue to manage our fixed-cost base in conjunction with our market entry plans and focus our variable spend on marketing, user experience and support and regulatory compliance to become the product of choice for users and maintain favorable relationships with regulators. We also expect to improve our profitability over time through cost synergies and new opportunities driven by the continued optimization of our technology infrastructure. Our path to profitability is based on the acceleration of positive contribution profit growth driven primarily by marketing efficiencies as we continue the transition from local to regional to national advertising as well as scale benefits from investments in our product and technology and general and administrative functions. On a consolidated Adjusted EBITDA basis, we expect to achieve profitability when total contribution profit exceeds the fixed costs of our business, which depends, in part, on the percentage of theU.S. adult population that has access to our products and the other factors summarized in the section entitled "Forward-Looking Statements".
Basis of Presentation
We operate two complementary business segments: our business-to-consumer ("B2C") business and our business-to-business ("B2B") business.
B2C
Our B2C business is comprised of the legacy business ofDK Crown Holdings Inc. (formerlyDraftKings Inc. ), aDelaware corporation ("DK DE"), which includes ourDraftKings -branded Sportsbook, iGaming and DFS products, as well as our other online consumer products, and our GNOG brand. Across ourDraftKings -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 inthe United States . 29 --------------------------------------------------------------------------------
B2B
Our B2B business is primarily comprised of the operations ofSBTech , which we acquired onApril 23, 2020 . 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. The operations of our B2B segment are concentrated mainly inEurope andthe United States .
Impact of COVID-19
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 betweenMarch 2020 andJuly 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, theNCAA 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. Beginning inJuly 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 endedJune 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, variousNCAA football bowl games, theNCAA 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. However, our products that do not rely on sports seasons and sporting events, such as iGaming, may partially offset this adverse impact on revenue. A significant or prolonged decrease in consumer spending on entertainment or leisure activities would also likely have an adverse effect on demand for our products, reducing cash flows and revenues, and thereby materially harming our business, financial condition and results of operations. In addition, a materially disruptive resurgence of COVID-19 cases or the emergence of additional variants or strains of COVID-19 could cause other widespread or more severe impacts depending on where infection rates are highest. 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 inBoston, 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.
Financial Highlights and Trends
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, (amounts in thousands) 2022 2021 2022 2021 Revenue$ 466,185 $ 297,605 $ 883,390 $ 609,881 Net Loss (217,103) (305,526) (684,796) (651,870) Adjusted EBITDA (1) (118,134) (95,302) (407,643) (234,564) (1)Adjusted EBITDA is a non-GAAP financial measure. 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 withU.S. GAAP. 30 -------------------------------------------------------------------------------- Revenue increased by$168.6 million in the three months endedJune 30, 2022 compared to the three months endedJune 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 endedJune 30, 2022 compared to the six months endedJune 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 inNew York ), as well as atypically low hold rates (primarily attributable toNCAA basketball wagering) in the three months endedMarch 31, 2022 .
Key Performance Indicators - B2C Operations
Monthly Unique Payers ("MUPs"). MUPs is the average number of unique paid users ("unique payers") that use our B2C products on a monthly basis.
MUPs is a key indicator of the scale of our B2C user base and awareness of our brand. We believe that year-over-year MUPs is also generally indicative of the long-term revenue growth potential of our B2C segment, although MUPs in individual periods may be less indicative of our longer-term expectations. We expect the number of MUPs to grow as we attract, retain and re-engage users in new and existing jurisdictions and expand our products to appeal to a wider audience. We define MUPs as the number of unique payers per month who had a paid engagement (i.e., participated in a real-money engagement with one of our B2C products such as a DFS contest, sports bet or casino game) across one or more of our products via our technology. For reported periods longer than one month, we average the MUPs for the months in the reported period. A "unique paid user" or "unique payer" is any person who had one or more paid engagements via our B2C technology during the period (i.e., a user that participates in a paid engagement with one of our B2C products counts as a single unique paid user or unique payer for the period). We exclude users who have made a deposit but have not yet had a paid engagement. Unique payers or unique paid users include users who have participated in a paid engagement with only promotional incentives, which are fungible with other funds deposited into their wallets on our technology; however, the number of such users has not been material to date. The chart below presents our MUPs for the three and six months endedJune 30, 2021 and 2022: [[Image Removed: dkng-20220630_g2.jpg]] 31
-------------------------------------------------------------------------------- [[Image Removed: dkng-20220630_g3.jpg]] 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 and six months endedJune 30, 2021 and 2022: [[Image Removed: dkng-20220630_g4.jpg]] 32 -------------------------------------------------------------------------------- [[Image Removed: dkng-20220630_g5.jpg]] 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 and six months ended
ARPMUP increased in the three months endedJune 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 endedJune 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 inNew York ), as well as atypically low hold rates in the three months endedMarch 31, 2022 (primarily attributable toNCAA basketball wagering).
Non-GAAP Information
This Report includes Adjusted EBITDA, which is a non-GAAP financial measure that we use to supplement our results presented in accordance withU.S. GAAP. We believe Adjusted EBITDA is useful in evaluating our operating performance, similar to measures reported by our publicly-listedU.S. competitors, and regularly used by security analysts, institutional investors and other interested parties in analyzing operating performance and prospects. Adjusted EBITDA is not intended to be a substitute for anyU.S. GAAP financial measure. 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, 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 withU.S. 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 33 --------------------------------------------------------------------------------
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
The table below presents our Adjusted EBITDA reconciled to our net loss, which is the most directly comparable financial measure calculated in accordance withU.S. GAAP, for the periods indicated: Three months ended June 30, Six months ended June 30, (amounts in thousands) 2022 2021 2022 2021 Net loss$ (217,103) $ (305,526) $ (684,796) $ (651,870) Adjusted for: Depreciation and amortization (1) 42,315 30,051 74,540 58,244 Interest income, net (1,929) (1,642) (2,077) (2,627) Income tax (benefit) provision (81,226) 2,404 (80,757) (2,191) Stock-based compensation (2) 135,521 171,739 322,598 323,582 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 and non-operating costs (income) (6) 5,652 2,132 (28,830) 4,133 Adjusted EBITDA$ (118,134) $ (95,302) $ (407,643) $ (234,564) Adjusted EBITDA by segment: B2B$ (19,230) $ (3,043) $ (39,568) $ (951) B2C$ (98,904) $ (92,259) $ (368,075) $ (233,613) (1)The amounts include the amortization of acquired intangible assets of$27.1 million and$20.6 million for the three months endedJune 30, 2022 and 2021, respectively, and$46.3 million and$39.7 million for the six months endedJune 30, 2022 and 2021, respectively. (2)Primarily reflects stock-based compensation expenses resulting from the issuance of awards under long-term incentive plans. (3)Includes capital markets advisory, consulting, accounting and legal expenses related to evaluation, negotiation and integration costs incurred in connection with pending or completed transactions and offerings. (4)Primarily includes external legal costs related to litigation and litigation settlement costs deemed unrelated to our core business operations. (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 endedJune 30, 2021 , those costs primarily related to our activities inFlorida . 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
34 --------------------------------------------------------------------------------
Results of Operations
Three Months Ended
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
Three months ended June 30, (amounts in thousands, except percentages) 2022 2021 $ Change % Change Revenue$ 466,185 $ 297,605 $ 168,580 56.6 % Cost of revenue 312,767 187,006 (125,761) (67.2) % Sales and marketing 197,529 170,712 (26,817) (15.7) % Product and technology 77,202 62,635 (14,567) (23.3) % General and administrative 187,609 198,806 11,197 5.6 % Loss from operations (308,922) (321,554) 12,632 3.9 % 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. Revenue increased$168.6 million , or 56.6%, to$466.2 million in the three months endedJune 30, 2022 , from$297.6 million in the three months endedJune 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 endedJune 30, 2022 , from$258.2 million in the three months endedJune 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 endedJune 30, 2022 primarily due to MUPs increasing by 29.7% and ARPMUP also increasing by 29.7% as compared to the three months endedJune 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 endedJune 30, 2022 , from$187.0 million in the three months endedJune 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 inArizona ,Connecticut ,Louisiana ,New York andOntario, Canada and the launch of our iGaming product inConnecticut andOntario, Canada since the three months endedJune 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 endedJune 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 endedJune 30, 2022 , as compared to 56.7% in the three months endedJune 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 inNew York inJanuary 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. 35 -------------------------------------------------------------------------------- Sales and Marketing. Sales and marketing expense increased$26.8 million , or 15.7%, to$197.5 million in the three months endedJune 30, 2022 , from$170.7 million in the three months endedJune 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 endedJune 30, 2022 , from$62.6 million in the three months endedJune 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 endedJune 30, 2022 , from$198.8 million in the three months endedJune 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 endedJune 30, 2022 , compared to a gain of$17.0 million in the three months endedJune 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 endedJune 30, 2022 , as compared to no other expense, net in the three months endedJune 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 endedJune 30, 2022 , as compared to an income tax provision of$2.4 million in the three months endedJune 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'sU.S. valuation allowance as a result of the preliminary purchase accounting for GNOG. Net Loss. Net loss decreased by$88.4 million to$217.1 million in the three months endedJune 30, 2022 , as compared to a net loss of$305.5 million in the three months endedJune 30, 2021 , for the reasons discussed above. 36 --------------------------------------------------------------------------------
Six Months Ended
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
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 (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. Revenue increased$273.5 million , or 44.8%, to$883.4 million in the six months endedJune 30, 2022 , from$609.9 million in the six months endedJune 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$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 endedJune 30, 2022 , from$530.9 million in the six months endedJune 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 endedJune 30, 2022 primarily due to MUPs increasing by 29.4% and ARPMUP increasing by 19.9% as compared to the six months endedJune 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 inNew York ), as well as atypically low hold rates in the three months endedMarch 31, 2022 (primarily attributable toNCAA basketball wagering). Cost of Revenue. Cost of revenue increased$255.9 million , or 69.1%, to$626.1 million in the six months endedJune 30, 2022 , from$370.2 million in the six months endedJune 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 inArizona ,Connecticut ,Louisiana ,New York andOntario, Canada and the launch of our iGaming product inConnecticut and inOntario, Canada since the six months endedJune 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 endedJune 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 10.5 percentage points to 65.8% in the six months endedJune 30, 2022 , as compared to 55.3% in the six months endedJune 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 inNew 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. 37 -------------------------------------------------------------------------------- Sales and Marketing. Sales and marketing expense increased$119.6 million , or 29.9%, to$519.0 million in the six months endedJune 30, 2022 , from$399.4 million in the six months endedJune 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. The remainder of the increase primarily resulted from an increase in various team and league sponsorships. Product and Technology. Product and technology expense increased$39.8 million , or 33.5%, to$158.6 million in the six months endedJune 30, 2022 , from$118.8 million in the six months endedJune 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$36.4 million , or 9.9%, to$404.2 million in the six months endedJune 30, 2022 , from$367.8 million in the six months endedJune 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$27.0 million in the six months endedJune 30, 2022 , compared to a loss of$10.0 million in the six months endedJune 30, 2021 primarily due to changes in the underlying share price of our Class A common stock. Other Income. Other income, net was$32.3 million in the six months endedJune 30, 2022 , as compared to no other income, net in the six months endedJune 30, 2021 . This increase was primarily attributable to a change in the fair value of certain financial assets. Income tax benefit. We recorded an income tax benefit of$80.8 million in the six months endedJune 30, 2022 , as compared to an income tax benefit of$2.2 million in the six months endedJune 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'sU.S. valuation allowance as a result of the preliminary purchase accounting for GNOG.
Net Loss. Net loss increased by
Liquidity and Capital Resources
We had$1.5 billion in cash and cash equivalents as ofJune 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. Debt. InMarch 2021 , we issued zero-coupon convertible senior notes in an aggregate principal amount of$1,265.0 million . The Convertible Notes mature onMarch 15, 2028 , subject to earlier conversion, redemption or repurchase. In connection with the pricing of the Convertible Notes and the exercise of the option to purchase additional Convertible Notes, we entered into privately negotiated Capped Call Transactions. The Capped Call Transactions are expected generally to reduce potential dilution to our Class A common stock upon any conversion of the Convertible Notes. 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.
Leases. We have lease arrangements for certain corporate office facilities, data
centers, and motor vehicles. As of
Other Purchase Obligations. We have certain non-cancelable contracts with vendors, licensors and others requiring us to make future cash payments. As ofJune 30, 2022 , these purchase obligations were$1,913.5 million , with$267.7 million payable in the remainder of 2022. 38 --------------------------------------------------------------------------------
Cash Flows
The table below summarizes our cash flows for the periods indicated. Due to the timing of the consummation of the GNOG Transaction, the below periods, to the extent applicable, exclude GNOG's operations prior to the closing date ofMay 5, 2022 . Six months ended June 30, (amounts in thousands) 2022 2021 Net cash used in operating activities$ (529,303) $ (176,375) Net cash used in investing activities (147,468) (100,579) Net cash (used in) provided by financing activities (12,531) 1,131,911
Effect of foreign exchange rates on cash and cash equivalents and restricted cash
- 824
Net (decrease) increase in cash and cash equivalents and restricted cash
(689,302) 855,781
Cash and cash equivalents and restricted cash at beginning of period
2,629,842 2,104,976
Cash and cash equivalents and restricted cash at end of period
Operating Activities. Net cash used in operating activities in the six months endedJune 30, 2022 was$529.3 million , compared to$176.4 million in the six months endedJune 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$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 six months endedJune 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 endedJune 30, 2022 when compared to the six months endedJune 30, 2021 . Financing Activities. Net cash provided by (used in) financing activities during the six months endedJune 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 endedMarch 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
Critical Accounting Policies
Our financial statements have been prepared in accordance withU.S. GAAP. Our discussion and analysis of the financial condition and results of operations are based on these financial statements. The preparation of these financial statements requires the application of accounting policies in addition to certain estimates and judgments by our management. Our estimates and judgments are based on currently available information, historical results and other assumptions we believe are reasonable. Actual results could differ materially from these estimates.
During the six months ended
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