0001104659-21-062743.txt : 20210507 0001104659-21-062743.hdr.sgml : 20210507 20210507070956 ACCESSION NUMBER: 0001104659-21-062743 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 73 CONFORMED PERIOD OF REPORT: 20210331 FILED AS OF DATE: 20210507 DATE AS OF CHANGE: 20210507 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DraftKings Inc. CENTRAL INDEX KEY: 0001772757 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990] IRS NUMBER: 844052441 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-38908 FILM NUMBER: 21900215 BUSINESS ADDRESS: STREET 1: 222 BERKELEY STREET STREET 2: 5TH FLOOR CITY: BOSTON STATE: MA ZIP: 02116 BUSINESS PHONE: (617) 986-6744 MAIL ADDRESS: STREET 1: 222 BERKELEY STREET STREET 2: 5TH FLOOR CITY: BOSTON STATE: MA ZIP: 02116 FORMER COMPANY: FORMER CONFORMED NAME: Diamond Eagle Acquisition Corp. \ DE DATE OF NAME CHANGE: 20190403 10-Q 1 deac-20210331x10q.htm FORM 10-Q
0001772757--12-312021Q1393014000393014000393014000393014000DraftKings Inc.P1YP2Y2false0001772757us-gaap:TreasuryStockMember2021-01-012021-03-310001772757deac:LongTermIncentivePlanOptionsMember2021-01-012021-03-310001772757us-gaap:CommonClassAMemberus-gaap:CommonStockMember2020-01-012020-03-310001772757us-gaap:TreasuryStockMember2021-03-310001772757us-gaap:RetainedEarningsMember2021-03-310001772757us-gaap:AdditionalPaidInCapitalMember2021-03-310001772757us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-03-310001772757us-gaap:TreasuryStockMember2020-12-310001772757us-gaap:RetainedEarningsMember2020-12-310001772757us-gaap:AdditionalPaidInCapitalMember2020-12-310001772757us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-12-310001772757us-gaap:RetainedEarningsMember2020-03-310001772757us-gaap:AdditionalPaidInCapitalMember2020-03-310001772757us-gaap:RetainedEarningsMember2019-12-310001772757us-gaap:AdditionalPaidInCapitalMember2019-12-310001772757us-gaap:CommonClassBMemberus-gaap:CommonStockMember2021-03-310001772757us-gaap:CommonClassAMemberus-gaap:CommonStockMember2021-03-310001772757us-gaap:CommonClassBMemberus-gaap:CommonStockMember2020-12-310001772757us-gaap:CommonClassAMemberus-gaap:CommonStockMember2020-12-310001772757us-gaap:CommonClassAMemberus-gaap:CommonStockMember2020-03-310001772757us-gaap:CommonClassAMemberus-gaap:CommonStockMember2019-12-310001772757us-gaap:RestrictedStockUnitsRSUMember2021-01-012021-03-310001772757us-gaap:RestrictedStockUnitsRSUMember2021-03-310001772757us-gaap:EmployeeStockOptionMember2021-03-310001772757us-gaap:RestrictedStockUnitsRSUMember2020-12-310001772757us-gaap:EmployeeStockOptionMember2020-12-310001772757deac:TimeBasedRestrictedStockUnitsMember2021-03-310001772757deac:TimeBasedOptionsMember2021-03-310001772757deac:PerformanceSharePlanRestrictedStockUnitsMember2021-03-310001772757deac:PerformanceSharePlanOptionsMember2021-03-310001772757deac:LongTermIncentivePlanRestrictedStockUnitsMember2021-03-310001772757deac:LongTermIncentivePlanOptionsMember2021-03-310001772757deac:TimeBasedRestrictedStockUnitsMember2020-12-310001772757deac:TimeBasedOptionsMember2020-12-310001772757deac:PerformanceSharePlanRestrictedStockUnitsMember2020-12-310001772757deac:PerformanceSharePlanOptionsMember2020-12-310001772757deac:LongTermIncentivePlanRestrictedStockUnitsMember2020-12-310001772757deac:LongTermIncentivePlanOptionsMember2020-12-310001772757deac:PerformanceSharePlanRestrictedStockUnitsMember2021-01-012021-03-310001772757deac:TimeBasedRestrictedStockUnitsMember2021-01-012021-03-310001772757deac:TimeBasedOptionsMember2021-01-012021-03-310001772757deac:PerformanceSharePlanOptionsMember2021-01-012021-03-310001772757deac:LongTermIncentivePlanRestrictedStockUnitsMember2021-01-012021-03-310001772757srt:MinimumMemberus-gaap:PerformanceSharesMember2021-01-012021-03-310001772757srt:MaximumMemberus-gaap:PerformanceSharesMember2021-01-012021-03-310001772757us-gaap:ProductAndServiceOtherMember2021-01-012021-03-310001772757us-gaap:NonUsMember2021-01-012021-03-310001772757deac:OnlineGamingMember2021-01-012021-03-310001772757deac:GamingSoftwareMember2021-01-012021-03-310001772757country:US2021-01-012021-03-310001772757us-gaap:ProductAndServiceOtherMember2020-01-012020-03-310001772757us-gaap:NonUsMember2020-01-012020-03-310001772757deac:OnlineGamingMember2020-01-012020-03-310001772757country:US2020-01-012020-03-310001772757deac:MediaPurchaseAgreementMember2021-01-012021-03-310001772757deac:MediaPurchaseAgreementMember2020-01-012020-03-310001772757deac:SbTechMember2021-01-012021-03-310001772757deac:DbdkVentureFundMemberus-gaap:EquityMethodInvesteeMember2021-01-012021-03-310001772757us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-01-012021-03-310001772757us-gaap:RetainedEarningsMember2021-01-012021-03-310001772757us-gaap:RetainedEarningsMember2020-01-012020-03-310001772757deac:CaseFiledByInteractiveGamesLlcMemberdeac:SportsbookProductMember2019-06-142019-06-140001772757deac:CaseFiledByInteractiveGamesLlcMemberdeac:DailyFantasySportsMember2019-06-142019-06-140001772757deac:MassArbitrationDemandsFiledByOneLawFirmMember2020-11-062020-11-060001772757deac:MassArbitrationDemandsFiledByOneLawFirmMember2019-10-212019-10-210001772757us-gaap:RevolvingCreditFacilityMember2020-09-300001772757us-gaap:RevolvingCreditFacilityMember2021-03-310001772757us-gaap:RevolvingCreditFacilityMember2020-12-310001772757us-gaap:LetterOfCreditMemberdeac:PacificWesternBankMember2021-03-310001772757us-gaap:LetterOfCreditMemberdeac:PacificWesternBankMember2020-12-310001772757srt:MaximumMemberdeac:CorporateOfficeFacilitiesMember2021-03-310001772757deac:MediaMember2021-01-012021-03-310001772757deac:MediaMember2021-03-310001772757deac:B2cSegmentsMember2021-03-310001772757deac:B2bSegmentsMember2021-03-310001772757deac:B2cSegmentsMember2020-12-310001772757deac:B2bSegmentsMember2020-12-310001772757us-gaap:TrademarksAndTradeNamesMember2021-01-012021-03-310001772757us-gaap:SoftwareDevelopmentMember2021-01-012021-03-310001772757us-gaap:LicensingAgreementsMember2021-01-012021-03-310001772757us-gaap:DevelopedTechnologyRightsMember2021-01-012021-03-310001772757us-gaap:CustomerRelationshipsMember2021-01-012021-03-310001772757us-gaap:TrademarksAndTradeNamesMember2020-01-012020-12-310001772757us-gaap:SoftwareDevelopmentMember2020-01-012020-12-310001772757us-gaap:LicensingAgreementsMember2020-01-012020-12-310001772757us-gaap:DevelopedTechnologyRightsMember2020-01-012020-12-310001772757us-gaap:CustomerRelationshipsMember2020-01-012020-12-310001772757us-gaap:TrademarksAndTradeNamesMember2021-03-310001772757us-gaap:SoftwareDevelopmentMember2021-03-310001772757us-gaap:LicensingAgreementsMember2021-03-310001772757us-gaap:DevelopedTechnologyRightsMember2021-03-310001772757us-gaap:CustomerRelationshipsMember2021-03-310001772757us-gaap:TrademarksAndTradeNamesMember2020-12-310001772757us-gaap:SoftwareDevelopmentMember2020-12-310001772757us-gaap:LicensingAgreementsMember2020-12-310001772757us-gaap:DevelopedTechnologyRightsMember2020-12-310001772757us-gaap:CustomerRelationshipsMember2020-12-310001772757deac:PublicWarrantsAndPrivateWarrantMember2021-01-012021-03-310001772757deac:ShareholdersAndDirectorsMember2021-03-310001772757deac:ShareholdersAndDirectorsMember2020-12-310001772757deac:MediaPurchaseAgreementMember2021-03-310001772757us-gaap:CommonClassBMember2021-03-310001772757us-gaap:CommonClassAMember2021-03-310001772757us-gaap:CommonClassBMember2020-12-310001772757us-gaap:CommonClassAMember2020-12-310001772757deac:PublicWarrantsMember2021-03-310001772757deac:PrivatePlacementWarrantsMember2021-03-310001772757deac:PublicWarrantsMember2019-05-1400017727572020-03-3100017727572019-12-310001772757deac:BlueRibbonSoftwareLtdMemberus-gaap:SubsequentEventMember2021-04-012021-04-300001772757deac:VegasSportsInformationNetworkInc.Member2021-03-242021-03-240001772757us-gaap:WarrantMember2021-01-012021-03-310001772757us-gaap:ConvertibleDebtSecuritiesMember2021-01-012021-03-310001772757deac:StockOptionsAndRestrictedStockUnitsMember2021-01-012021-03-310001772757us-gaap:WarrantMember2020-01-012020-03-310001772757us-gaap:ConvertibleDebtSecuritiesMember2020-01-012020-03-310001772757deac:StockOptionsAndRestrictedStockUnitsMember2020-01-012020-03-310001772757us-gaap:AdditionalPaidInCapitalMember2020-01-012020-03-310001772757deac:VegasSportsInformationNetworkInc.Memberus-gaap:TrademarksAndTradeNamesMember2021-03-242021-03-240001772757deac:VegasSportsInformationNetworkInc.Memberus-gaap:DevelopedTechnologyRightsMember2021-03-242021-03-240001772757deac:VegasSportsInformationNetworkInc.Memberus-gaap:CustomerRelationshipsMember2021-03-242021-03-240001772757deac:VegasSportsInformationNetworkInc.Memberus-gaap:TrademarksAndTradeNamesMember2021-03-240001772757deac:VegasSportsInformationNetworkInc.Memberus-gaap:DevelopedTechnologyRightsMember2021-03-240001772757deac:VegasSportsInformationNetworkInc.Memberus-gaap:CustomerRelationshipsMember2021-03-240001772757us-gaap:EquityMethodInvesteeMember2021-03-310001772757us-gaap:EquityMethodInvesteeMember2020-12-310001772757deac:SbTechMember2021-03-310001772757deac:SbTechMember2020-12-310001772757us-gaap:CommonClassBMember2021-05-050001772757us-gaap:CommonClassAMember2021-05-050001772757us-gaap:RevolvingCreditFacilityMemberus-gaap:PrimeRateMember2016-10-310001772757deac:B2cSegmentsMember2021-01-012021-03-310001772757deac:B2bSegmentsMember2021-01-012021-03-310001772757deac:B2cSegmentsMember2020-01-012020-03-310001772757us-gaap:CommonClassAMemberus-gaap:CommonStockMember2021-01-012021-03-310001772757us-gaap:EmployeeStockOptionMember2021-01-012021-03-310001772757us-gaap:RevolvingCreditFacilityMemberus-gaap:PrimeRateMember2016-10-012016-10-310001772757deac:PublicWarrantsMember2019-05-142019-05-140001772757deac:PrivatePlacementWarrantsMember2019-05-142019-05-140001772757us-gaap:ConvertibleNotesPayableMember2021-01-012021-03-310001772757us-gaap:ConvertibleNotesPayableMember2021-03-3100017727572021-03-3100017727572020-12-310001772757deac:VegasSportsInformationNetworkInc.Member2021-03-240001772757deac:MediaPurchaseAgreementMember2021-03-310001772757deac:MediaPurchaseAgreementMember2021-12-310001772757us-gaap:PerformanceSharesMember2020-01-012020-03-310001772757deac:TimeBasedAwardsMember2020-01-012020-03-310001772757deac:LongTermIncentivePlanMember2020-01-012020-03-3100017727572020-01-012020-03-310001772757us-gaap:PerformanceSharesMember2021-01-012021-03-310001772757deac:TimeBasedAwardsMember2021-01-012021-03-310001772757deac:LongTermIncentivePlanMember2021-01-012021-03-310001772757us-gaap:AdditionalPaidInCapitalMember2021-01-012021-03-3100017727572021-01-012021-03-31iso4217:USDiso4217:USDxbrli:sharesxbrli:purexbrli:sharesdeac:itemdeac:claimdeac:patentdeac:segment

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from__________ to ___________.

Commission file number 001-38908

Graphic

DRAFTKINGS INC.

(Exact name of registrant as specified in its charter)

Nevada

84-4052441

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

222 Berkeley Street, 5th Floor

Boston, MA 02116

(Address of principal executive offices) (Zip Code)

(617) 986-6744

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report).

Securities Registered Pursuant to Section 12(b) of the Act:

Title of each class

    

Trading symbol

    

Name of each exchange on which registered

Class A Common Stock, $0.0001 par value

DKNG

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of May 5, 2021, there were 400,980,887 shares of the registrant’s Class A common stock, par value $0.0001 per share, and 393,013,951 shares of the registrant’s Class B common stock, par value $0.0001 per share, outstanding.

PART I. - FINANCIAL INFORMATION

Item 1. Financial Statements.

DRAFTKINGS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except par value)

March 31, 2021

(Unaudited)

December 31, 2020

Assets

    

  

Current assets:

 

  

Cash and cash equivalents

$

2,818,128

$

1,817,258

Cash reserved for users

305,732

287,718

Receivables reserved for users

24,036

30,249

Accounts receivable

48,359

44,522

Prepaid expenses and other current assets

 

15,226

14,558

Total current assets

 

3,211,481

2,194,305

Property and equipment, net

42,985

40,827

Intangible assets, net

 

532,077

555,930

Goodwill

612,479

569,603

Operating lease right-of-use assets

73,022

68,077

Equity method investment

2,802

2,955

Deposits and other non-current assets

8,305

7,632

Total assets

$

4,483,151

$

3,439,329

Liabilities and Stockholders’ equity (deficit)

Current liabilities:

Accounts payable and accrued expenses

$

295,306

$

223,633

Liabilities to users

 

329,742

317,942

Operating lease liabilities, current portion

13,370

12,837

Total current liabilities

638,418

554,412

Convertible notes

1,247,113

Non-current operating lease liabilities

66,811

68,775

Warrant liabilities

90,862

65,444

Long-term income tax liability

70,296

72,066

Other long-term liabilities

48,421

47,287

Total liabilities

$

2,161,921

$

807,984

Commitments and contingent liabilities

Stockholders' equity (deficit):

Class A common stock, $0.0001 par value; 900,000 shares authorized as of March 31, 2021 and December 31, 2020; 406,747 and 403,110 shares issued and 399,892 and 396,303 outstanding as of March 31, 2021 and December 31, 2020, respectively

 

40

40

Class B common stock, $0.0001 par value; 900,000 shares authorized as of March 31, 2021 and December 31, 2020; 393,014 shares issued and outstanding as of March 31, 2021 and December 31, 2020

 

39

39

Treasury stock, at cost; 6,855 and 6,807 shares as of March 31, 2021 and December 31, 2020, respectively

(291,908)

(288,784)

Additional paid-in capital

 

5,133,806

5,067,135

Accumulated deficit

 

(2,576,963)

(2,230,619)

Accumulated other comprehensive income

56,216

83,534

Total stockholders’ equity (deficit)

 

2,321,230

2,631,345

Total liabilities and stockholders’ equity (deficit)

$

4,483,151

$

3,439,329

See accompanying notes to unaudited condensed consolidated financial statements.

2

DRAFTKINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Amounts in thousands, except loss per share data)

Three months ended March 31,

    

2021

2020

Revenue

$

312,276

$

88,542

Cost of revenue

 

183,225

 

43,416

Sales and marketing

228,686

53,706

Product and technology

56,159

18,041

General and administrative

168,997

39,496

Loss from operations

 

(324,791)

 

(66,117)

Other income (expense):

 

 

Interest income (expense), net

 

985

 

(2,351)

Loss on remeasurement of warrant liabilities

(26,980)

Loss before income tax (benefit) provision and loss from equity method investment

(350,786)

(68,468)

Income tax (benefit) provision

(4,595)

9

Loss from equity method investment

153

203

Net loss attributable to common stockholders

$

(346,344)

$

(68,680)

Loss per share attributable to common stockholders:

 

 

Basic and diluted

$

(0.87)

$

(0.37)

See accompanying notes to unaudited condensed consolidated financial statements.

Due to the timing of the Business Combination, the above periods, to the extent applicable, exclude B2B/SBTech activity which occurred prior to April 24, 2020.

3

DRAFTKINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

(Amounts in thousands)

    

Three months ended 

March 31,

2021

2020

Net loss

$

(346,344)

$

(68,680)

Other comprehensive loss:

 

 

Foreign currency translation adjustments arising during period, net of nil tax

 

(27,318)

 

Comprehensive loss

$

(373,662)

$

(68,680)

See accompanying notes to unaudited condensed consolidated financial statements.

Due to the timing of the Business Combination, the above periods, to the extent applicable, exclude B2B/SBTech activity which occurred prior to April 24, 2020.

4

DRAFTKINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

(Amounts in thousands)

    

    

Accumulated Other

Treasury

Total

Class A Common Stock

Class B Common Stock

Additional

Accumulated

Comprehensive

Stock

Stockholders'

    

Shares

    

Amount

    

Shares

    

Amount

    

Paid in Capital

    

Deficit

    

Income

Amount

    

(Deficit)/Equity

Balances at December 31, 2020

396,303

$

40

393,014

$

39

$

5,067,135

$

(2,230,619)

$

83,534

$

(288,784)

$

2,631,345

Exercise of stock options

 

2,857

 

7,638

7,638

Stock-based compensation expense

151,843

151,843

Purchase of capped call options

(123,970)

(123,970)

Equity consideration issued for acquisition

 

464

 

 

 

 

29,399

 

29,399

Shares issued for exercise of warrants

 

138

 

 

 

 

1,761

 

1,761

Purchase of treasury stock

 

(48)

 

 

 

 

 

(3,124)

(3,124)

Restricted stock unit vesting

178

Foreign currency translation

(27,318)

(27,318)

Net loss

(346,344)

(346,344)

Balances at March 31, 2021

399,892

$

40

393,014

39

$

5,133,806

$

(2,576,963)

$

56,216

$

(291,908)

$

2,321,230

    

    

Total

Class A Common Stock

Class B Common Stock

Additional

Accumulated

Stockholder’s

    

Shares

    

Amount

    

Shares

    

Amount

    

Paid-in Capital

    

Deficit

    

(Deficit)/Equity

Balances at December 31, 2019

 

184,626

$

18

 

$

$

949,186

$

(998,784)

$

(49,580)

Issuance of Series F preferred stock

1,526

11,000

11,000

Exercise of stock options

456

467

467

Stock-based compensation expense

4,842

4,842

Net loss

(68,680)

(68,680)

Balances at March 31, 2020

186,608

$

18

$

$

965,495

$

(1,067,464)

$

(101,951)

See accompanying notes to unaudited condensed consolidated financial statements.

Due to the timing of the Business Combination, the above periods, to the extent applicable, exclude B2B/SBTech activity which occurred prior to April 24, 2020.

5

DRAFTKINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Amounts in thousands)

Three Months ended March 31,

    

2021

2020

Operating Activities:

 

  

Net loss

$

(346,344)

$

(68,680)

Adjustments to reconcile net loss to net cash flows used in operating activities:

 

Depreciation and amortization

28,193

4,704

Non-cash interest expense

112

2,583

Stock-based compensation expense

151,843

 

4,842

Loss from equity method investment

153

 

203

Loss on remeasurement of warrant liabilities

26,980

 

Deferred income taxes

(8,104)

 

9

Change in operating assets and liabilities, net of effect of business combinations:

 

Cash reserved for users

(18,014)

29,135

Receivables reserved for users

6,213

9,302

Accounts receivable

(4,180)

 

Prepaid expenses and other current assets

(519)

4,091

Deposits and other non-current assets

(1,527)

 

(411)

Operating leases, net

(239)

 

(88)

Accounts payable and accrued expenses

71,392

(2,410)

Other long-term liabilities

2,968

3,627

Long-term income tax liability

1,522

 

Liabilities to users

11,800

 

(37,669)

Net cash flows used in operating activities

(77,751)

 

(50,762)

Cash Flows from Investing Activities:

 

Purchases of property and equipment

(2,389)

 

(1,871)

Cash paid for internally developed software costs

(8,686)

 

(3,887)

Acquisition of gaming licenses

(305)

(571)

Cash paid for acquisition, net of cash acquired

(40,541)

 

Net cash flows used in investing activities

(51,921)

 

(6,329)

Financing Activities:

Proceeds from term notes, net

37,750

Proceeds from issuance of convertible notes, net

1,248,025

39,440

Purchase of capped call options

(123,970)

Proceeds from shares issued for warrants

199

Purchase of treasury stock

(3,124)

 

Proceeds from exercise of stock options

7,638

467

Net cash flows provided by financing activities

1,128,768

77,657

Effect of foreign exchange rates on cash and cash equivalents

1,774

Net increase in cash, cash equivalents and restricted cash

1,000,870

20,566

Cash and cash equivalents at the beginning of period

1,817,258

76,533

Cash and cash equivalents, end of period

$

2,818,128

$

97,099

Supplemental Disclosure of Noncash Investing and Financing Activities

Equity consideration issued for acquisition

$

29,399

$

Increase in accounts payable and accrued expenses from property and equipment and internally developed software costs

680

Increase in accounts payable and accrued expenses from convertible notes financing costs

1,024

Decrease of accounts payable and accrued expenses from gaming licenses

(100)

(1,000)

Extinguishment of promissory notes for Series F Redeemable Convertible Preferred Stock

(11,000)

Supplemental Disclosure of Cash Activities

Cash paid for interest

$

$

80

Due to the timing of the Business Combination, the above periods, to the extent applicable, exclude B2B/SBTech activity which occurred prior to April 24, 2020.

6

DRAFTKINGS INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except loss per share data, unless otherwise noted)

1.

Description of Business

DraftKings Inc., a Nevada corporation (the “Company” or “DraftKings”), was incorporated in Nevada as DEAC NV Merger Corp., a wholly owned subsidiary of our legal predecessor, Diamond Eagle Acquisition Corp. (“DEAC”), a special purpose acquisition company. On April 23, 2020, DEAC consummated the transactions contemplated by the Business Combination Agreement (the “Business Combination”) dated December 22, 2019, as amended on April 7, 2020 and, in connection therewith, (i) DEAC merged with and into the Company, whereby the Company survived the merger and became the successor issuer to DEAC by operation of Rule 12g-3(a) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), (ii) the Company changed its name to “DraftKings Inc.,” (iii) the Company acquired DraftKings Inc., a Delaware corporation (“Old DK”), by way of a merger and (iv) the Company acquired all of the issued and outstanding share capital of SBTech (Global) Limited (“SBTech”). Upon consummation of the preceding transactions, Old DK and SBTech became wholly owned subsidiaries of the Company.

DraftKings is a digital sports entertainment and gaming company. The Company’s business-to-consumer (“B2C”) segment provides users with daily fantasy sports (“DFS”), sports betting (“Sportsbook”) and online casino (“iGaming”) products. The Company’s business-to-business (“B2B”) segment is involved in the design, development and licensing of sports betting and casino gaming software for its Sportsbook and casino gaming products.

In May 2018, the Supreme Court (the “Court”) struck down on constitutional grounds the Professional and Amateur Sports Protection Act of 1992 (“PASPA”), a law that prohibited most states from authorizing and regulating sports betting. Since the Court’s decision, many states have legalized sports betting. As of March 31, 2021, the U.S. jurisdictions with statutes legalizing online sports betting are Colorado, Illinois, Indiana, Iowa, Michigan, Nevada, New Hampshire, New Jersey, Oregon, Pennsylvania, Puerto Rico, Rhode Island, Tennessee, Virginia, Washington, D.C and West Virginia. The jurisdictions with statutes legalizing sports betting at certain land-based retail locations are Arkansas, Colorado, Delaware, Illinois, Indiana, Iowa, Michigan, Mississippi, Montana, Nevada, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Puerto Rico, Rhode Island, Virginia, Washington, Washington, D.C and West Virginia. A few jurisdictions have enacted laws authorizing sports betting in retail locations but have yet to begin operations in those jurisdictions. The jurisdictions with statutes legalizing online casinos are Delaware, Michigan, New Jersey, Pennsylvania and West Virginia.

As of March 31, 2021, the Company operates online Sportsbooks in Colorado, Illinois, Indiana, Iowa, Michigan, New Hampshire, New Jersey, Oregon (B2B), Pennsylvania, Tennessee, Virginia and West Virginia and has retail Sportsbooks in Colorado, Illinois, Iowa, Mississippi, New Hampshire, New Jersey and New York. As of March 31, 2021 the Company offers iGaming products in Michigan, New Jersey, Pennsylvania and West Virginia. The Company also has arrangements in place with land-based casinos to expand operations into additional states upon the passing of the relevant legislation, the issuance of related regulations and the receipt of required licenses.

The novel coronavirus (“COVID-19”) has adversely impacted global commercial activity, disrupted supply chains and contributed to significant volatility in financial markets. In 2020 and continuing into 2021, 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. COVID-19 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 the Company have been the suspension, cancellation and rescheduling of sports seasons and sporting events. Beginning in March 2020 and continuing through the end of the second 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. The suspension of sports seasons and sporting events reduced customers’ use of, and spending on, the Company’s Sportsbook and DFS product offerings. 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 at limited or reduced capacity. MLB began its season after a three-month delay and also completed the World Series, the NHL resumed its season and

7

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 first quarter of 2021, many sports seasons continued and multiple sporting events were held as planned, including the NFL regular season, the NFL Playoffs and Superbowl LV, the NBA regular season, the NHL regular season, the NASCAR Cup Series, various NCAA football bowl games and the NCAA college basketball season and tournament. The continued return of major sports and sporting events generated significant user interest and activity in our Sportsbook and DFS product offerings. However, the possibility remains that sports seasons and sporting events may be suspended, cancelled or rescheduled due to COVID-19 outbreaks. The suspension and alteration of sports seasons and sporting events earlier in 2020 reduced customers’ use of, and spending on, the Company’s Sportsbook and DFS product offerings and caused the Company to issue refunds for canceled events. Additionally, while retail casinos where the Company has branded Sportsbooks have reopened, they continue to operate with reduced capacity.

The Company’s revenues vary based on sports seasons and sporting events amongst other things, and cancellations, suspensions or alterations resulting from COVID-19 have the potential to adversely affect its revenue, possibly materially. However, the Company’s product offerings that do not rely on sports seasons and sporting events, such as iGaming, may partially offset this adverse impact on revenue. DraftKings is also innovating to develop more products that do not rely on traditional sports seasons and sporting events, for example, products that permit wagering and contests on events such as eSports, simulated NASCAR and League of Legends.

A significant or prolonged decrease in consumer spending on entertainment or leisure activities would likely have an adverse effect on demand for the Company’s product offerings, reducing cash flows and revenues, and thereby materially harming the Company’s business, financial condition and results of operations. In addition, a recurrence of COVID-19 cases or an 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 have necessitated a shift away from a traditional office environment for many employees, the Company has business continuity programs in place to ensure that employees are safe and that the business continues to function with minimal disruptions to normal work operations while employees work remotely. The Company will continue to monitor developments relating to disruptions and uncertainties caused by COVID-19.

2.    Summary of Significant Accounting Policies and Practices

Basis of Presentation and Principles of Consolidation

These unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and accounting principles generally accepted in the United States (“U.S. GAAP”) for interim reporting. Accordingly, certain notes or other information that are normally required by U.S. GAAP have been omitted if they substantially duplicate the disclosures contained in the Company’s annual audited consolidated financial statements. Accordingly, the unaudited condensed consolidated financial statements should be read in connection with the Company’s audited financial statements and related notes as of and for the fiscal year ended December 31, 2020, which are included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 as filed with the SEC on February 26, 2021 and as amended by the Form 10-K/A filed with the SEC on May 3, 2021. The accompanying unaudited condensed consolidated financial statements are unaudited; however, in the opinion of management, they include all normal and recurring adjustments necessary for a fair presentation of the Company’s unaudited condensed consolidated financial statements for the periods presented. Results of operations reported for interim periods are not necessarily indicative of results for the entire year, due to seasonal fluctuations in the Company’s revenue as a result of timing of the various sports seasons, sporting events and other factors.

As the Company completed its acquisition of SBTech on April 23, 2020, the presented financial information for the three months ended March 31, 2021 includes the financial information and activities for SBTech; whereas, the financial information for the three months ended March 31, 2020 excludes the financial information and activities for SBTech.

The accompanying unaudited condensed consolidated financial statements include the accounts and operations of the Company. All intercompany balances and transactions have been eliminated. Certain amounts from a prior period, which are not material, have been reclassified to conform with the current period presentation.

8

Cash and cash equivalents

Cash and cash equivalents consist of highly liquid, unrestricted savings, checking and other bank accounts. The Company also utilizes short-term certificates of deposit and money market funds, each with original maturities of three months or less.

Recently Adopted Accounting Pronouncements

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) to simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. ASU 2020-06 is effective January 1, 2022 and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021. The Company elected to early adopt the new standard as of January 1, 2021 using the modified retrospective approach. In the first quarter of 2021, the Company issued convertible senior notes, whereby the entire proceeds from issuance were recognized as a liability, net of any  lender fees and debt financing costs, on our condensed consolidated balance sheet as there is no longer a discount from separation of the conversion feature within equity. Please refer to Note 5 included herein for additional information.

In December 2019, the FASB issued ASU 2019-12, Income Taxes—Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU 2019-12 is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company adopted this standard as of January 1, 2021. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements and related disclosures.

3.    Business Combinations

On March 24, 2021, the Company acquired 100% of the equity of Vegas Sports Information Network, Inc. (“VSiN”). The following summarizes the consideration transferred at closing for the VSiN acquisition:

Cash consideration

$

40,599

Share consideration (1)

 

29,399

Total consideration

$

69,998

(1)Represents the issuance of 0.5 million shares of the Company’s Class A common stock at a fair value of $63.32 per share to the former stockholders of VSiN.

The acquired assets and assumed liabilities of VSiN were recorded at their estimated fair values. The purchase price allocation is preliminary and as additional information becomes available, we may further revise the preliminary purchase price allocation during the remainder of the measurement period, which will not exceed 12 months from the closing of the acquisition. Measurement period adjustments will be recognized in the reporting period in which the adjustment amounts are determined. Any such adjustments may be material.

9

The purchase price of the VSiN acquisition was allocated on a preliminary basis as follows:

Operating lease right-of-use assets

    

$

6,120

Intangible assets

 

14,628

Other assets

 

4,516

Liabilities

 

(7,910)

Goodwill

 

52,644

Total

$

69,998

Goodwill represents the excess of the gross considerations transferred over the fair value of the underlying net assets acquired and liabilities assumed. Goodwill associated with the VSiN acquisition is assigned as of the acquisition date to the Company’s Media reporting unit. Goodwill recognized is not deductible for local tax purposes.

The intangible assets acquired as part of the VSiN acquisition were as follows:

    

    

Weighted-Average 

Fair Value

Useful Life (in years)

     

    

Developed technology - software

$

558

 

3.0

Customer relationships

 

11,170

 

6.0

Trademarks and trade names

 

2,900

 

6.0

Total

$

14,628

 

  

As VSiN’s financial results are not material to the Company’s condensed consolidated financial statements, the Company has elected to not include pro forma results.

4.    Intangible Assets and Goodwill

Intangible Assets

The Company has the following intangible assets, net as of March 31, 2021:

    

Weighted-

    

    

    

Average 

Remaining 

Gross

Amortization 

Carrying

Accumulated 

    

Period

    

Amount

    

Amortization

    

Net

Developed technology

 

7.1 years

$

420,349

$

(49,121)

$

371,228

Internally developed software

 

2.2 years

 

80,727

 

(37,068)

 

43,659

Gaming licenses

 

3.3 years

 

23,851

 

(8,397)

 

15,454

Trademarks and tradenames

 

3.9 years

 

9,215

 

(1,565)

 

7,650

Customer relationships

 

4.3 years

 

113,186

 

(19,100)

 

94,086

Intangible Assets, net

$

647,328

$

(115,251)

$

532,077

10

The Company has the following intangible assets, net as of December 31, 2020:

    

Weighted-

    

    

    

 Average  

Remaining

Gross

  Amortization  

 Carrying

Accumulated

Period

 Amount

  Amortization

Net

Developed technology

 

7.3 years

$

439,624

$

(37,704)

$

401,920

Internally developed software

 

2.3 years

 

72,268

 

(33,179)

 

39,089

Gaming licenses

 

3.5 years

 

23,685

 

(6,354)

 

17,331

Trademarks and tradenames

 

2.8 years

 

6,537

 

(1,123)

 

5,414

Customer relationships

 

4.3 years

 

106,836

 

(14,660)

 

92,176

Intangible Assets, net

$

648,950

$

(93,020)

$

555,930

Amortization expense was $25.2 million and $3.3 million for the three months ended March 31, 2021 and 2020 respectively.

Goodwill

The changes in the carrying amount of goodwill for the three months ended March 31, 2021 by reporting unit are:

    

B2C

    

B2B

    

Media

    

Total

Balance as of December 31, 2020

$

353,083

$

216,520

$

$

569,603

Goodwill resulting from acquisitions*

 

 

52,644

 

52,644

Cumulative translation adjustment

 

 

(9,768)

 

(9,768)

Balance as of March 31, 2021

$

353,083

$

206,752

$

52,644

$

612,479

* = Preliminary allocation

5.

Current and Long-term Liabilities

Convertible Notes

In March 2021, the Company issued zero-coupon convertible senior notes in an aggregate principal amount of $1,265.0 million, which includes proceeds from the full exercise of the over-allotment option (collectively the “Convertible Notes”). In connection with the issuance of the Convertible Notes, the Company incurred $17.0 million of lender fees and $1.0 million of debt financing costs. The Convertible Notes represent senior unsecured obligations of the Company. The Convertible Notes mature on March 15, 2028, subject to earlier conversion, redemption or repurchase.

The Convertible Notes are convertible at an initial conversion rate of 10.5430 shares of the Company’s Class A common stock per $1,000 principal amount of Convertible Notes, which is equivalent to an initial conversion price of approximately $94.85 per share of Class A common stock. The conversion rate is subject to adjustment upon the occurrence of certain specified events and includes a make-whole adjustment upon early conversion in connection with a make-whole fundamental change (as defined within the indenture agreement).

Prior to September 15, 2027, the Convertible Notes will be convertible only upon satisfaction of certain conditions and during certain periods, and thereafter, at any time until the close of business on the second scheduled trading day immediately preceding the maturity date. The Company will satisfy any conversion election by paying or delivering, as the case may be, cash, shares of Class A common stock or a combination of cash and shares of Class A common stock. During the three months ended March 31, 2021, the conditions allowing holders of the Convertible Notes to convert were not met.

In connection with the pricing of the Convertible Notes and the exercise of the option to purchase additional notes, the Company entered into a privately negotiated capped call transaction (“Capped Call Transactions”). The Capped Call Transactions have a strike price of $94.85 per share, subject to certain adjustments, which corresponds to the initial conversion price of the Convertible Notes. The Capped Call Transactions have an initial cap price of $135.50 per share, subject to certain adjustments. The Capped Call Transactions

11

are expected generally to reduce potential dilution to the Company's Class A common stock upon any conversion of Convertible Notes. As the transaction qualifies for equity classification, the net cost of $124.0 million incurred in connection with the Capped Call Transactions was recorded as a reduction to additional paid-in capital on the Company's consolidated balance sheet during the quarter ended March 31, 2021.

Revolving Line of Credit

In October 2016, the Company entered into an amended and restated loan and security agreement with Pacific Western Bank, which was most recently amended in September 2020 (as amended, the “Credit Agreement”). The Credit Agreement provides a revolving line of credit of up to $60.0 million. The Credit Agreement has a maturity date of March 1, 2022.

Borrowings under the Credit Agreement bear interest at a variable annual rate equal to the greater of (i) 1.00% above the prime rate then in effect and (ii) 6.50%, and the Credit Agreement requires monthly, interest-only payments. In addition, the Company is required to pay quarterly in arrears a fee equal to 0.25% per annum of the unused portion of the revolving line of credit. As of March 31, 2021 and December 31, 2020, the Credit Agreement provided a revolving line of credit of up to $60.0 million. There was no principal outstanding as of March 31, 2021 or December 31, 2020. Net facility available from the Credit Agreement as of March 31, 2021 and December 31, 2020 totaled $55.8 million, which, in each case, excludes the letters of credit outlined in Note 12. The Company is also subject to certain affirmative and negative covenants until maturity. In connection with the issuance of the Convertible Notes and the entry into the Capped Call Transactions, the Company obtained a waiver from Pacific Western Bank for any breach of the credit agreement that would have resulted from entering into these financing transactions. The Company obtained a waiver from Pacific Western Bank for any breach of the credit agreement that would have resulted from its Form 10-K/A filed with the SEC on May 3, 2021.

Indirect Taxes

Taxation of e-commerce is becoming more prevalent and could negatively affect the Company’s business as it pertains to DFS and its users. The ultimate impact of indirect taxes on the Company’s business is uncertain, as is the period required to resolve this uncertainty. The Company’s estimated contingent liability for indirect taxes represents the Company’s best estimate of tax liability in jurisdictions in which the Company believes taxation is probable. The Company frequently reevaluates its tax positions for appropriateness.

Indirect tax statutes and regulations are complex and subject to differences in application and interpretation. Tax authorities may impose indirect taxes on Internet-delivered activities based on statutes and regulations which, in some cases, were established prior to the advent of the Internet and do not apply with certainty to the Company’s business. The Company’s estimated contingent liability for indirect taxes may be materially impacted by future audit results, litigation and settlements, should they occur. The Company’s activities by jurisdiction may vary from period to period, which could result in differences in the applicability of indirect taxes from period to period.

As of March 31, 2021 and December 31, 2020, the Company’s estimated contingent liability for indirect taxes was $47.3 million and $45.9 million, respectively. The estimated contingent liability for indirect taxes is recorded within other long-term liabilities on the consolidated balance sheets and general and administrative expenses on the consolidated statements of operations.

Warrant Liabilities

As part of DEAC’s initial public offering on May 14, 2019, DEAC issued 13.3 million warrants each of which entitles the holder to purchase one share of Class A common stock at an exercise price of $11.50 per share (the “Public Warrants”). Simultaneously with the closing of the IPO, DEAC completed the private sale of 6.3 million warrants to DEAC’s sponsor (the “Private Warrants”). As of March 31, 2021, there were no Public Warrants outstanding. The fair value of the Company’s warrant liability as of March 31, 2021 was measured utilizing a binomial lattice model (level 2). As of March 31, 2021, 1.8 million Private Warrants remained outstanding at a fair value of $90.9 million. Due to fair value changes throughout the three months ended March 31, 2021, the Company recorded a loss on remeasurement of warrant liabilities of $27.0 million.

12

6.

Revenue Recognition

Deferred Revenue

The Company included deferred revenue within accounts payable and accrued expenses and liabilities to users in the consolidated balance sheets. The deferred revenue balances were as follows:

Three months ended March 31, 

    

2021

    

2020

Deferred revenue, beginning of the period

$

30,627

$

20,760

Deferred revenue, end of the period

 

41,849

 

24,094

Revenue recognized in the period from amounts included in deferred revenue at the beginning of the period

 

24,493

 

5,470

Deferred revenue primarily represents contract liabilities related to the Company’s obligation to transfer future value in relation to in period transactions in which the Company has received consideration. Such obligations are recognized as liabilities when awarded to users and are recognized as revenue when those liabilities are later resolved. The Company included deferred revenue within accounts payable and accrued expenses and liabilities to users on its consolidated balance sheets.

Revenue Disaggregation

Disaggregation of revenue for the three months ended March 31, 2021 and 2020 is as follows:

    

Three months ended March 31, 

    

2021

    

2020

Online gaming

$

272,661

$

83,705

Gaming software

 

31,429

Other

 

8,186

 

4,837

Total Revenue

$

312,276

$

88,542

The following table presents the Company’s revenue by geographic region for the periods indicated:

Three months ended March 31, 

    

2021

    

2020

United States

$

280,117

$

90,810

International

 

32,159

 

(2,268)

Total Revenue

$

312,276

$

88,542

7.

Stock-Based Compensation

The Company, historically, has issued three types of stock-based compensation: Time-Based awards, Long Term Incentive Plan (“LTIP”) awards and Performance-Based Stock Compensation Plan (“PSP”) awards. Time-Based awards are options which generally vest over a 4-year period. LTIP awards are performance-based equity awards that are used to establish longer-term performance objectives and incentivize management to meet those objectives. PSP awards are short-term performance-based equity awards which establish performance objectives related to one or two particular fiscal years. LTIP awards generally vest when longer-term revenue, adjusted EBITDA or share price targets are achieved amongst other conditions, while PSP awards generally vest upon achievement of revenue or adjusted EBITDA targets amongst other conditions.

13

The following table shows stock option activity for the three months ended March 31, 2021:

    

Weighted

    

Weighted

Average 

Average 

Exercise

FMV

Price of

of

    

Time-based

    

PSP

    

LTIP

    

Total

    

Options

    

RSUs

Options

RSUs

Options

RSUs

Options

RSUs

Outstanding at December 31, 2020

    

20,519

    

3,548

    

3,023

    

907

    

13,854

    

12,800

    

54,651

    

$

3.57

    

$

47.01

Granted

 

150

 

1,276

 

 

548

 

 

5,682

 

7,656

 

60.91

 

53.53

Exercised options / vested RSUs

 

(2,049)

 

(178)

 

(287)

 

 

(521)

 

 

(3,035)

 

2.67

 

33.28

Forfeited

 

(41)

 

(29)

 

(1)

 

 

 

(14)

 

(85)

 

4.19

 

41.02

Outstanding at March 31, 2021

 

18,579

 

4,617

 

2,735

 

1,455

 

13,333

 

18,468

 

59,187

$

3.41

 

$

49.09

As of March 31, 2021, total unrecognized stock-based compensation expense of $1,087.1 million related to granted and unvested share-based compensation arrangements is expected to be recognized over a weighted-average period of 2.1 years. The following table shows stock compensation expense for the three months ended March 31, 2021 and 2020:

Three months ended March 31, 2021

    

Three months ended March 31, 2020

    

Options

RSUs

Total

    

Options

RSUs

Total

Time Based

$

2,433

$

14,268

$

16,701

$

1,634

$

$

1,634

PSP

 

16,314

 

16,314

 

1,633

 

1,633

LTIP

 

118,828

 

118,828

 

1,575

 

1,575

Total

$

2,433

$

149,410

$

151,843

$

4,842

$

$

4,842

8.

Income Taxes

Three months ended March 31, 2021 and 2020 is as follows:

Three months ended March 31,

    

2021

    

2020

(Benefit) provision for income taxes

$

(4,595)

$

9

The effective tax rates for the three months ended March 31, 2021 and 2020 were 1.3% and (.01)%, respectively. The difference between the Company’s effective tax rates for the 2021 and 2020 periods and the U.S. statutory tax rate of 21% was primarily due to a full valuation allowance related to the Company’s net US deferred tax assets, offset partially by current state tax and current foreign tax. Additionally, the Company recorded a discrete income tax benefit of $6.8 million during the quarter, which is attributable to a non-recurring partial release of the Company's U.S. valuation allowance recorded with VSiN's preliminary purchase price accounting. The Company regularly evaluates the realizability of its deferred tax assets and establishes a valuation allowance if it is more likely than not that some or all the deferred tax assets will not be realized.

9.

Segment Information

The Company operates its business and reports its results through two operating and reportable segments: B2C and B2B, in accordance with ASC Topic 280, Segment Reporting. The Company’s B2C segment is comprised of the Old DK business and the Company’s B2B segment is comprised of SBTech in its entirety. The B2C segment primarily provides users with DFS, Sportsbook and iGaming products while the B2B segment is involved in the design, development and licensing of sports betting and casino gaming software for its sportsbook and casino gaming products.

Operating segments are components of the Company for which separate discrete financial information is available to and evaluated regularly by the chief operating decision maker (“CODM”), who is the Company’s Chief Executive Officer, in making decisions regarding resource allocation and assessing performance. The CODM assesses a combination of metrics such as revenue and Adjusted EBITDA to evaluate the performance of each operating and reportable segment.

Any intercompany revenues or expenses are eliminated in consolidation. All of the Company’s operating revenues and expenses, other than those excluded from Adjusted EBITDA as detailed below, are allocated to the Company’s reportable segments. We define

14

and calculate Adjusted EBITDA as net loss before the impact of interest income or expense, income tax expense and depreciation and amortization, and further adjusted for the following items: stock-based compensation, transaction-related costs, litigation, settlement and related costs and certain other non-recurring, non-cash and non-core items, as described in the reconciliation below.

A measure of segment assets and liabilities has not been currently provided to the Company’s CODM and therefore is not shown below. Summarized financial information for the Company’s segments is shown in the following tables:

Summarized financial information for the Company’s segments is shown in the following tables:

Three months ended March 31, 

    

2021

    

2020

Revenue:

 

  

 

  

B2C

$

280,847

$

88,542

B2B

 

31,429

 

Total revenue

 

312,276

 

88,542

Adjusted EBITDA:

 

  

 

  

B2C

 

(141,355)

 

(49,460)

B2B

 

2,093

 

Total adjusted EBITDA

 

(139,262)

 

(49,460)

Adjusted for:

 

  

 

  

Depreciation and amortization

 

28,193

 

4,704

Interest (income) expense, net

 

(985)

 

2,351

Income tax (benefit) provision

 

(4,595)

 

9

Stock-based compensation

 

151,843

 

4,842

Transaction-related costs

 

3,023

 

5,652

Litigation, settlement and related costs

 

622

 

1,330

Loss on remeasurement of warrant liabilities