filings.toolsItem 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021*. This discussion contains forward-looking statements that are based on current plans, expectations, and beliefs that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, those identified below and those discussed in the section titled “Risk Factors” and other sections of this Quarterly Report on Form 10-Q. Our historical results are not necessarily indicative of the results that may be expected for any period in the future.*
Overview
DoorDash, Inc. is incorporated in Delaware with headquarters in San Francisco, California. We provide a local commerce platform that enables local businesses to address consumers’ expectations of ease and immediacy and thrive in today’s convenience economy.
We operate a local commerce platform that connects merchants, consumers, and Dashers. Our primary offerings are the DoorDash Marketplace, which operates in four countries including the United States, and the Wolt Marketplace, which operates in 23 countries, most of which are in Europe. Both the DoorDash Marketplace and the Wolt Marketplace (our "Marketplaces") provide a suite of services that enable merchants to establish an online presence, generate demand, seamlessly transact with consumers, and fulfill orders primarily through independent contractors who use our platform to deliver orders (“Dashers”). Dashers that use our DoorDash Marketplace and Wolt Marketplace are referred to as "DoorDash Dashers" and "Wolt courier partners," respectively, in this Quarterly Report on Form 10-Q. As part of our Marketplaces, we also offer Pickup, which allows consumers to place advance orders, skip lines, and pick up their orders conveniently with no consumer fees, as well as DoorDash for Work, which provides merchants on our platform with large group orders and catering orders for businesses and events. The DoorDash Marketplace also includes DashPass and the Wolt Marketplace includes Wolt+. DashPass and Wolt+ are our membership products, which provide members with unlimited access to eligible merchants with zero delivery fees and reduced service fees on eligible orders.
In addition to our Marketplaces, we offer Platform Services, which primarily includes DoorDash Drive and Wolt Drive ("Drive"), which are white-label delivery fulfillment services that enable merchants that have generated consumer demand through their own channels to fulfill this demand using our platform. Platform Services also includes DoorDash Storefront ("Storefront"), which enables merchants to create their own branded online ordering experience, providing them with a turnkey solution to offer consumers on-demand access to e-commerce without investing in in-house engineering or fulfillment capabilities, and BBot, which offers merchants solutions for their in-store and online channels, including in-store digital ordering and payments.
Financial and Operational Highlights
In addition to the measures presented in our condensed consolidated financial statements, we use the following financial and operational metrics to help us evaluate our business, identify trends affecting our business, formulate business plans, and make strategic decisions:
| Three Months Ended June 30, | ||||||||||||||
| (In millions, except percentages) | 2021 | 2022 | ||||||||||||
| Total Orders | 345 | 426 | ||||||||||||
| Marketplace GOV | $ | 10,456 | $ | 13,081 | ||||||||||
| Revenue | $ | 1,236 | $ | 1,608 | ||||||||||
| GAAP Gross Profit | $ | 657 | $ | 686 | ||||||||||
| Contribution Profit(1) | $ | 290 | $ | 381 | ||||||||||
| Contribution Profit as a % of Marketplace GOV | 2.8 | % | 2.9 | % | ||||||||||
| GAAP Net Loss | $ | (102) | $ | (263) | ||||||||||
| Adjusted EBITDA(1) | $ | 113 | $ | 103 | ||||||||||
| Adjusted EBITDA as a % of Marketplace GOV | 1.1 | % | 0.8 | % |
*(1)*Contribution Profit and Adjusted EBITDA are non-GAAP financial measures. For more information regarding our use of these measures and reconciliations to the most directly comparable financial measures calculated in accordance with GAAP, see the section titled “Non-GAAP Financial Measures".
Total Orders. We define Total Orders as all orders completed through our Marketplaces and Platform Services businesses over the period of measurement.
In the second quarter of 2022, Total Orders increased to 426 million, or 23% growth compared to the same quarter of 2021. The increase in Total Orders was driven primarily by growth in consumers and increased consumer engagement.
Marketplace GOV. We define Marketplace GOV as the total dollar value of orders completed on our Marketplaces, including taxes, tips, and any applicable consumer fees, including membership fees related to DashPass and Wolt+. Marketplace orders include orders completed through Pickup and DoorDash for Work. Marketplace GOV does not include the dollar value of orders, taxes and tips, or fees charged to merchants, for orders fulfilled through Drive, Storefront, or Bbot.
In the second quarter of 2022, Marketplace GOV increased to $13.1 billion, or 25% growth compared to the same quarter of 2021, driven primarily by the growth in Total Orders.
Contribution Profit (Loss). We define Contribution Profit (Loss) as our gross profit (loss) less sales and marketing expense plus (i) depreciation and amortization expense related to cost of revenue, (ii) stock-based compensation expense and certain payroll tax expense included in cost of revenue and sales and marketing expenses, and (iii) allocated overhead included in cost of revenue and sales and marketing expenses. Gross profit (loss) is defined as revenue less (i) cost of revenue, exclusive of depreciation and amortization and (ii) depreciation and amortization related to cost of revenue.
We use Contribution Profit (Loss) to evaluate our operating performance and trends. We believe that Contribution Profit (Loss) is a useful indicator of the economic impact of orders fulfilled through DoorDash as it takes into account the direct expenses associated with generating and fulfilling orders.
In the second quarter of 2022, Contribution Profit increased to $381 million, compared to $290 million in the same quarter of 2021, driven primarily by growth in Marketplace GOV, an increase in Net Revenue Margin, defined as revenue expressed as a percentage of Marketplace GOV, and leverage on sales and marketing expenses.
Contribution Profit (Loss) is a non-GAAP financial measure with certain limitations regarding its usefulness. It does not reflect our financial results in accordance with accounting principles generally accepted in the United States of America ("GAAP") as it does not include the impact of certain expenses that are reflected in our condensed consolidated statements of operations. Accordingly, Contribution Profit (Loss) is not indicative of our overall results or an indicator of past or future financial performance. Further, it is not a financial measure of total company profitability and it is neither intended to be used as a proxy for total company profitability nor does it imply profitability for our business.
Adjusted EBITDA. We define Adjusted EBITDA as net income (loss), adjusted to exclude (i) certain legal, tax, and regulatory settlements, reserves, and expenses, (ii) loss on disposal of property and equipment, (iii) transaction-related costs (primarily consists of acquisition, integration, and investment related costs), (iv) impairment expenses, (v) restructuring charges, (vi) inventory write off related to restructuring, (vii) provision for (benefit from) income taxes, (viii) interest income and expense, (ix) other income (expense), net, (x) stock-based compensation expense and certain payroll tax expense, and (xi) depreciation and amortization expense. Adjusted EBITDA is a performance measure that we use to assess our operating performance and the operating leverage in our business.
In the second quarter of 2022, Adjusted EBITDA decreased to $103 million from $113 million in the same quarter of 2021, as growth in Revenue was offset by increases in Adjusted Cost of Revenue, Adjusted Research and Development expenses, and Adjusted General and Administrative expenses, in part due to the acquisition of Wolt on May 31, 2022.
Components of Results of Operations
Revenue
We generate a substantial majority of our revenue from orders completed through our Marketplaces and the related commissions charged to partner merchants and fees charged to consumers. Commissions from partner merchants are based on an agreed-upon rate applied to the total dollar value of goods ordered in exchange for using our Marketplaces to sell the partner merchants’ products. Fees from consumers are for use of our Marketplaces to arrange for delivery services. We recognize revenue from Marketplace orders on a net basis as we are an agent for both partner merchants and consumers. Our revenue therefore reflects commissions charged to partner merchants and fees charged to consumers less (i) Dasher payout and (ii) refunds, credits, and promotions, which includes certain discounts and incentives provided to consumers, including those for referring a new customer. Revenue from our Marketplaces is recognized at the point in time when the consumer obtains control of the merchant’s products.
We also generate revenue from membership fees paid by consumers for DashPass and Wolt+, which is recognized as part of our Marketplace revenue. Revenue generated from our DashPass and Wolt+ memberships is recognized on a ratable basis over the contractual period, which is generally one month to one year depending on the type of membership purchased by the consumer.
In addition, we generate revenue from other sources, including from our Platform Services business, which primarily consists of our Drive, Storefront, and Bbot offerings. We generate revenue from Drive by collecting per-order fees from merchants to arrange for delivery services that fulfill demand generated through their own channels. Revenue from Drive is recognized at the point in time when the consumer obtains control of the merchant’s products.
Cost of Revenue, Exclusive of Depreciation and Amortization
Cost of revenue primarily consists of (i) order management costs, which include payment processing charges, net of rebates issued from payment processors, costs associated with cancelled orders, insurance expenses, and costs related to placing orders with non-partner merchants, and costs related to first party product sales, for which we take control of inventory, (ii) platform costs, which include costs for onboarding merchants and Dashers, costs for providing support for consumers, merchants, and Dashers, and technology platform infrastructure costs, and (iii) personnel costs, which include personnel-related compensation expenses related to our local operations, support, and other teams, and allocated overhead. Personnel-related compensation expenses primarily include salary, bonus, benefits, and stock-based compensation expense. Allocated overhead is determined based on an allocation of shared costs, such as facilities (including rent and utilities) and information technology costs, among all departments based on employee headcount.
Sales and Marketing
Sales and marketing expenses primarily consist of advertising and other ancillary expenses related to merchant, consumer, and Dasher acquisition, including certain consumer referral credits and Dasher referral fees paid to the referrers to the extent they represent fair value of acquiring a new consumer or a new Dasher, brand marketing expenses, personnel-related compensation expenses for sales and marketing employees, and commissions expense including amortization of deferred contract costs, as well as allocated overhead.
Research and Development
Research and development expenses primarily consist of personnel-related compensation expenses related to data analytics and the design of, product development of, and improvements to our platform, as well as expenses associated with the licensing of third-party software and allocated overhead.
General and Administrative
General and administrative expenses primarily consist of legal, tax, and regulatory expenses, which include litigation settlement expenses and sales and indirect taxes, personnel-related compensation expenses related to administrative employees, which include finance and accounting, human resources and legal, chargebacks associated with fraudulent credit card transactions, professional services fees, transaction-related costs, restructuring charges, bad debt expense, and allocated overhead.
Depreciation and Amortization
Depreciation and amortization expenses primarily consist of depreciation and amortization expenses associated with our property and equipment and intangible assets. Depreciation primarily includes expenses associated with equipment for merchants, computer equipment and software, office equipment, and leasehold improvements. Amortization includes expenses associated with our capitalized software and website development costs, as well as acquired intangible assets.
Interest Income
Interest income consists of interest earned on our cash, cash equivalents, and marketable securities.
Interest Expense
Interest expense consists of interest costs related to our revolving credit facility and payment-in-kind interest on our Convertible Notes issued in February 2020.
Other (Expense) Income, Net
Other (Expense) income, net primarily consists of gains and losses from transactions denominated in a currency other than the functional currency.
Provision for Income Taxes
Provision for income taxes primarily consists of U.S. federal and state income tax and franchise tax, as well as international taxes from foreign operations.
Results of Operations
The following table summarizes our historical condensed consolidated statements of operations data:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| (In millions) | 2021 | 2022 | 2021 | 2022 | ||||||||||||||||||||||
| Revenue | $ | 1,236 | $ | 1,608 | $ | 2,313 | $ | 3,064 | ||||||||||||||||||
| Costs and expenses:(1) | ||||||||||||||||||||||||||
| Cost of revenue, exclusive of depreciation and amortization | 555 | 880 | 1,118 | 1,643 | ||||||||||||||||||||||
| Sales and marketing | 427 | 421 | 760 | 835 | ||||||||||||||||||||||
| Research and development | 100 | 205 | 182 | 353 | ||||||||||||||||||||||
| General and administrative | 216 | 294 | 385 | 539 | ||||||||||||||||||||||
| Depreciation and amortization(2) | 37 | 81 | 66 | 140 | ||||||||||||||||||||||
| Total costs and expenses | 1,335 | 1,881 | 2,511 | 3,510 | ||||||||||||||||||||||
| Loss from operations | (99) | (273) | (198) | (446) | ||||||||||||||||||||||
| Interest income | — | 5 | 2 | 6 | ||||||||||||||||||||||
| Interest expense | (1) | (1) | (13) | (1) | ||||||||||||||||||||||
| Other (expense) income, net | — | (3) | — | 2 | ||||||||||||||||||||||
| Loss before income taxes | (100) | (272) | (209) | (439) | ||||||||||||||||||||||
| Provision for (benefit from) income taxes | 2 | (9) | 3 | (9) | ||||||||||||||||||||||
| Net loss | $ | (102) | $ | (263) | $ | (212) | $ | (430) |
(1)Costs and expenses included stock-based compensation expense as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| (In millions) | 2021 | 2022 | 2021 | 2022 | ||||||||||||||||||||||
| Cost of revenue, exclusive of depreciation and amortization | $ | 12 | $ | 30 | $ | 21 | $ | 42 | ||||||||||||||||||
| Sales and marketing | 14 | 29 | 24 | 43 | ||||||||||||||||||||||
| Research and development | 47 | 95 | 82 | 150 | ||||||||||||||||||||||
| General and administrative | 65 | 77 | 108 | 125 | ||||||||||||||||||||||
| Total stock-based compensation expense | $ | 138 | $ | 231 | $ | 235 | $ | 360 |
(2)Depreciation and amortization related to the following:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| (In millions) | 2021 | 2022 | 2021 | 2022 | ||||||||||||||||||||||
| Cost of revenue | $ | 24 | $ | 42 | $ | 45 | $ | 73 | ||||||||||||||||||
| Sales and marketing | 6 | 14 | 8 | 20 | ||||||||||||||||||||||
| Research and development | 5 | 22 | 10 | 40 | ||||||||||||||||||||||
| General and administrative | 2 | 3 | 3 | 7 | ||||||||||||||||||||||
| Total depreciation and amortization | $ | 37 | $ | 81 | $ | 66 | $ | 140 |
The following table sets forth the components of our condensed consolidated statements of operations data as a percentage of revenue:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2021 | 2022 | 2021 | 2022 | |||||||||||||||||||||||
| Revenue | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||||||||||||
| Costs and expenses: | ||||||||||||||||||||||||||
| Cost of revenue, exclusive of depreciation and amortization | 45 | % | 55 | % | 48 | % | 54 | % | ||||||||||||||||||
| Sales and marketing | 35 | % | 26 | % | 33 | % | 27 | % | ||||||||||||||||||
| Research and development | 8 | % | 13 | % | 8 | % | 11 | % | ||||||||||||||||||
| General and administrative | 17 | % | 18 | % | 17 | % | 18 | % | ||||||||||||||||||
| Depreciation and amortization | 3 | % | 5 | % | 3 | % | 5 | % | ||||||||||||||||||
| Total costs and expenses | 108 | % | 117 | % | 109 | % | 115 | % | ||||||||||||||||||
| Loss from operations | (8) | % | (17) | % | (9) | % | (15) | % | ||||||||||||||||||
| Interest income | — | % | — | % | — | % | — | % | ||||||||||||||||||
| Interest expense | — | % | — | % | — | % | — | % | ||||||||||||||||||
| Other (expense) income, net | — | % | — | % | — | % | — | % | ||||||||||||||||||
| Loss before income taxes | (8) | % | (17) | % | (9) | % | (15) | % | ||||||||||||||||||
| Provision for (benefit from) income taxes | — | % | (1) | % | — | % | — | % | ||||||||||||||||||
| Net loss | (8) | % | (16) | % | (9) | % | (15) | % |
Comparison of the Three and Six Months Ended June 30, 2021 and 2022
Revenue
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||
| (In millions, except percentages) | 2021 | 2022 | % Change | 2021 | 2022 | % Change | ||||||||||||||||||||||||||||||||
| Revenue | $ | 1,236 | $ | 1,608 | 30 | % | $ | 2,313 | $ | 3,064 | 32 | % | ||||||||||||||||||||||||||
Revenue increased by $372 million, or 30%, during the second quarter of 2022, compared to the same quarter of 2021. The increase was primarily driven by 25% growth in Marketplace GOV. On a year-over-year basis, revenue for the second quarter of 2022 grew at a faster rate than Marketplace GOV primarily due to improvements in Dasher supply.
Revenue increased by $751 million, or 32%, during the first six months of 2022, compared to the same period of 2021. The increase was primarily driven by a 25% increase in Marketplace GOV. For the first six months of 2022, revenue grew at a faster rate than Marketplace GOV primarily due to improvements in Dasher supply.
Cost of Revenue, Exclusive of Depreciation and Amortization
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||
| (In millions, except percentages) | 2021 | 2022 | % Change | 2021 | 2022 | % Change | ||||||||||||||||||||||||||||||||
| Cost of revenue, exclusive of depreciation and amortization | $ | 555 | $ | 880 | 59 | % | $ | 1,118 | $ | 1,643 | 47 | % |
Cost of revenue, exclusive of depreciation and amortization, increased by $325 million, or 59%, for the second quarter of 2022, compared to the same quarter of 2021. The increase was primarily driven by an increase of $208 million in order management costs and an increase of $55 million in platform costs, driven by growth in Total Orders, increases in insurance reserves and costs associated with our first-party distribution business.
Cost of revenue, exclusive of depreciation and amortization, increased by $525 million, or 47%, during the first six months of 2022, compared to the same period of 2021. The increase was primarily attributable to an increase of $344 million in order management costs, an increase of $106 million in platform costs, driven by growth in Total Orders, increases in insurance reserves and costs associated with our first-party distribution business.
Sales and Marketing
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||
| (In millions, except percentages) | 2021 | 2022 | % Change | 2021 | 2022 | % Change | ||||||||||||||||||||||||||||||||
| Sales and marketing | $ | 427 | $ | 421 | (1) | % | $ | 760 | $ | 835 | 10 | % |
Sales and marketing expenses decreased by $6 million, or 1%, for the second quarter of 2022, compared to the same quarter of 2021. The decrease was primarily driven by a decrease of $51 million in advertising expenses, partially offset by an increase of $40 million in personnel-related compensation expenses and allocated overhead driven by increased headcount.
Sales and marketing expenses increased by $75 million, or 10%, during the first six months of 2022, compared to the same period of 2021. The increase was primarily driven by an increase of $65 million in personnel-related compensation expenses and allocated overhead driven by increased headcount.
Research and Development
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||
| (In millions, except percentages) | 2021 | 2022 | % Change | 2021 | 2022 | % Change | ||||||||||||||||||||||||||||||||
| Research and development | $ | 100 | $ | 205 | 105 | % | $ | 182 | $ | 353 | 94 | % |
Research and development expenses increased by $105 million, or 105%, for the second quarter of 2022, compared to the same quarter of 2021. The increase was primarily driven by an increase of $127 million in personnel-related compensation expenses and allocated overhead due to increased headcount, partially offset by an increase in capitalized software and website development costs of $30 million.
Research and development expenses increased by $171 million, or 94%, during the first six months of 2022, compared to the same period of 2021. The increase was primarily driven by an increase of $209 million in personnel-related compensation expenses and allocated overhead due to increased headcount, partially offset by an increase in capitalized software and website development costs of $54 million.
General and Administrative
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||
| (In millions, except percentages) | 2021 | 2022 | % Change | 2021 | 2022 | % Change | ||||||||||||||||||||||||||||||||
| General and administrative | $ | 216 | $ | 294 | 36 | % | $ | 385 | $ | 539 | 40 | % |
General and administrative expenses increased by $78 million, or 36%, for the second quarter of 2022, compared to the same quarter of 2021. The increase was primarily driven by an increase of $44 million in transaction-related costs, primarily associated with the recent acquisition of Wolt, and an increase of $42 million in personnel-related compensation expenses and allocated overhead due to increased headcount, partially offset by a decrease in bad debt expense of $23 million.
General and administrative expenses increased by $154 million, or 40%, during the first six months of 2022, compared to the same period of 2021. The increase was primarily driven by an increase of $70 million in personnel-related compensation expenses and allocated overhead due to increased headcount, and an increase of $58 million in transaction-related costs primarily associated with the recent acquisition of Wolt.
Depreciation and Amortization
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||
| (In millions, except percentages) | 2021 | 2022 | % Change | 2021 | 2022 | % Change | ||||||||||||||||||||||||||||||||
| Depreciation and amortization | $ | 37 | $ | 81 | 119 | % | $ | 66 | $ | 140 | 112 | % |
Depreciation and amortization expenses increased by $44 million, or 119%, for the second quarter of 2022, compared to the same quarter of 2021. The increase was primarily driven by an increase of $21 million in amortization expense related
to increased capitalized software and website development costs, and an increase of $15 million of amortization expenses for acquired intangible assets.
Depreciation and amortization expenses increased by $74 million, or 112%, during the first six months of 2022, compared to the same period of 2021. The increase was primarily driven by an increase of $43 million in amortization expense related to increased capitalized software and website development costs, and an increase of $15 million of amortization expenses for acquired intangible assets.
Interest Income
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||
| (In millions, except percentages) | 2021 | 2022 | % Change | 2021 | 2022 | % Change | ||||||||||||||||||||||||||||||||
| Interest income | $ | — | $ | 5 | 100 | % | $ | 2 | $ | 6 | 200 | % |
Interest income was not material in the periods presented.
Interest Expense
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||
| (In millions, except percentages) | 2021 | 2022 | % Change | 2021 | 2022 | % Change | ||||||||||||||||||||||||||||||||
| Interest expense | $ | (1) | $ | (1) | — | % | $ | (13) | $ | (1) | (92) | % |
Interest expense was not material in the periods presented.
Other (Expense) Income, Net
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||
| (In millions, except percentages) | 2021 | 2022 | % Change | 2021 | 2022 | % Change | ||||||||||||||||||||||||||||||||
| Other (expense) income, net | $ | — | $ | (3) | (100) | % | $ | — | $ | 2 | 100 | % |
Other (expense) income, net was not material in the periods presented.
Non-GAAP Financial Measures
We use adjusted cost of revenue, adjusted sales and marketing expense, adjusted research and development expense, adjusted general and administrative expense, Contribution Profit (Loss), Contribution Margin, Adjusted Gross Profit (Loss), Adjusted Gross Margin, Adjusted EBITDA, and Adjusted EBITDA Margin in conjunction with GAAP measures as part of our overall assessment of our performance, including the preparation of our annual operating budget and quarterly forecasts, to evaluate the effectiveness of our business strategies and to communicate with our board of directors concerning our business and financial performance. We believe that these non-GAAP financial measures provide useful information to investors about our business and financial performance, enhance their overall understanding of our past performance and future prospects, and allow for greater transparency with respect to metrics used by our management in their financial and operational decision making. We are presenting these non-GAAP financial measures to assist investors in seeing our business and financial performance through the eyes of management, and because we believe that these non-GAAP financial measures provide an additional tool for investors to use in comparing results of operations of our business over multiple periods with other companies in our industry.
Our definitions may differ from the definitions used by other companies and therefore comparability may be limited. In addition, other companies may not publish these or similar metrics. Further, these metrics have certain limitations in that they do not include the impact of certain expenses that are reflected in our condensed consolidated statements of operations. Thus, our adjusted cost of revenue, adjusted sales and marketing expense, adjusted research and development expense, adjusted general and administrative expense, Contribution Profit (Loss), Contribution Margin, Adjusted Gross Profit, Adjusted Gross Margin, Adjusted EBITDA, and Adjusted EBITDA Margin should be considered in addition to, not as substitutes for, or in isolation from, measures prepared in accordance with GAAP.
We compensate for these limitations by providing a reconciliation of adjusted cost of revenue, adjusted sales and marketing expense, adjusted research and development expense, adjusted general and administrative expense,
Contribution Profit (Loss), Contribution Margin, Adjusted Gross Profit, Adjusted Gross Margin, Adjusted EBITDA, and Adjusted EBITDA Margin to their respective related GAAP financial measures. We encourage investors and others to review our business, results of operations, and financial information in its entirety, not to rely on any single financial measure, and to view adjusted cost of revenue, adjusted sales and marketing expense, adjusted research and development expense, adjusted general and administrative expense, Contribution Profit (Loss), Contribution Margin, Adjusted Gross Profit, Adjusted Gross Margin, Adjusted EBITDA, and Adjusted EBITDA Margin in conjunction with their respective related GAAP financial measures.
Adjusted Cost of Revenue
We define adjusted cost of revenue as cost of revenue, exclusive of depreciation and amortization, excluding stock-based compensation expense and certain payroll tax expense, allocated overhead, and inventory write off related to restructuring. We exclude stock-based compensation as it is non-cash in nature and we exclude allocated overhead as it is generally a fixed cost and is not directly impacted by Total Orders.
The following table provides a reconciliation of cost of revenue, exclusive of depreciation and amortization, to adjusted cost of revenue:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| (In millions) | 2021 | 2022 | 2021 | 2022 | ||||||||||||||||||||||
| Cost of revenue, exclusive of depreciation and amortization | $ | 555 | $ | 880 | $ | 1,118 | $ | 1,643 | ||||||||||||||||||
| Adjusted to exclude the following | ||||||||||||||||||||||||||
| Stock-based compensation expense and certain payroll tax expense | (13) | (31) | (22) | (43) | ||||||||||||||||||||||
| Allocated overhead | (6) | (8) | (11) | (17) | ||||||||||||||||||||||
| Inventory write off related to restructuring | — | $ | (2) | — | (2) | |||||||||||||||||||||
| Adjusted cost of revenue | $ | 536 | $ | 839 | $ | 1,085 | $ | 1,581 |
Adjusted Sales and Marketing Expense
We define adjusted sales and marketing expense as sales and marketing expenses excluding stock-based compensation expense and certain payroll tax expense, and allocated overhead. We exclude stock-based compensation as it is non-cash in nature and we exclude allocated overhead as it is generally a fixed cost and is not directly impacted by Total Orders.
The following table provides a reconciliation of sales and marketing expense to adjusted sales and marketing expense:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| (In millions) | 2021 | 2022 | 2021 | 2022 | ||||||||||||||||||||||
| Sales and marketing | $ | 427 | $ | 421 | $ | 760 | $ | 835 | ||||||||||||||||||
| Adjusted to exclude the following | ||||||||||||||||||||||||||
| Stock-based compensation expense and certain payroll tax expense | (14) | (29) | (24) | (43) | ||||||||||||||||||||||
| Allocated overhead | (3) | (4) | (7) | (9) | ||||||||||||||||||||||
| Adjusted sales and marketing | $ | 410 | $ | 388 | $ | 729 | $ | 783 |
Adjusted Research and Development Expense
We define adjusted research and development expense as research and development expenses excluding stock-based compensation expense and certain payroll tax expense, and allocated overhead. We exclude stock-based compensation as it is non-cash in nature and we exclude allocated overhead as it is generally a fixed cost and is not directly impacted by Total Orders.
The following table provides a reconciliation of research and development expense to adjusted research and development expense:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| (In millions) | 2021 | 2022 | 2021 | 2022 | ||||||||||||||||||||||
| Research and development | $ | 100 | $ | 205 | $ | 182 | $ | 353 | ||||||||||||||||||
| Adjusted to exclude the following: | ||||||||||||||||||||||||||
| Stock-based compensation expense and certain payroll tax expense | (47) | (95) | (83) | (151) | ||||||||||||||||||||||
| Allocated overhead | (3) | (4) | (6) | (8) | ||||||||||||||||||||||
| Adjusted research and development | $ | 50 | $ | 106 | $ | 93 | $ | 194 |
Adjusted General and Administrative Expense
We define adjusted general and administrative expense as general and administrative expenses excluding stock-based compensation expense and certain payroll tax expense, certain legal, tax, and regulatory settlements, reserves, and expenses, transaction-related costs (primarily consists of acquisition, integration, and investment related costs), impairment expenses, restructuring charges, and including allocated overhead from cost of revenue, sales and marketing, and research and development. We exclude stock-based compensation as it is non-cash in nature and we exclude certain legal, tax, and regulatory settlements, reserves, and expenses, transaction-related costs, as well as impairment expenses, as these costs are not indicative of our operating performance.
The following table provides a reconciliation of general and administrative expense to adjusted general and administrative expense:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| (In millions) | 2021 | 2022 | 2021 | 2022 | ||||||||||||||||||||||
| General and administrative | $ | 216 | $ | 294 | $ | 385 | $ | 539 | ||||||||||||||||||
| Adjusted to exclude the following: | ||||||||||||||||||||||||||
| Stock-based compensation expense and certain payroll tax expense | (65) | (76) | (110) | (124) | ||||||||||||||||||||||
| Certain legal, tax, and regulatory settlements, reserves, and expenses(1) | (36) | (15) | (49) | (39) | ||||||||||||||||||||||
| Transaction-related costs(2) | — | (44) | — | (58) | ||||||||||||||||||||||
| Restructuring charges | — | (3) | — | (3) | ||||||||||||||||||||||
| Allocated overhead from cost of revenue, sales and marketing, and research and development | 12 | 16 | 24 | 34 | ||||||||||||||||||||||
| Adjusted general and administrative | $ | 127 | $ | 172 | $ | 250 | $ | 349 |
(1)We exclude certain costs and expenses from our calculation of adjusted general and administrative expense because management believes that these costs and expenses are not indicative of our core operating performance, do not reflect the underlying economics of our business, and are not necessary to operate our business. These excluded costs and expenses consist of (i) certain legal costs primarily related to worker classification matters, (ii) reserves for the collection of sales and indirect taxes that we do not expect to incur on a recurring basis, (iii) costs related to the settlement of an intellectual property matter, (iv) expenses related to supporting various policy matters, including those related to worker classification and price controls, and (v) donations as part of our relief efforts in connection with the COVID-19 pandemic and Russia's invasion of Ukraine. We believe it is appropriate to exclude the foregoing matters from our calculation of adjusted general and administrative expense because (1) the timing and magnitude of such expenses are unpredictable and thus not part of management’s budgeting or forecasting process, and (2) with respect to worker classification matters, management currently expects such expenses will not be material to our results of operations over the long term as a result of increasing legislative and regulatory certainty in this area, including as a result of Proposition 22 and similar legislation.
(2)Consists of acquisition, integration, and investment related costs, primarily related to Wolt acquisition for the three and six months ended June 30, 2022.
Contribution Profit (Loss)
We use Contribution Profit (Loss) to evaluate our operating performance and trends. We believe that Contribution Profit (Loss) is a useful indicator of the economic impact of orders fulfilled through DoorDash as it takes into account the direct expenses associated with generating and fulfilling orders. We define Contribution Profit (Loss) as our gross profit (loss) less sales and marketing expense plus (i) depreciation and amortization expense related to cost of revenue, (ii) stock-based compensation expense and certain payroll tax expense included in cost of revenue and sales and marketing expenses, (iii) allocated overhead included in cost of revenue and sales and marketing expenses, and (iv) inventory write
off related to restructuring. We define gross margin as gross profit (loss) as a percentage of revenue for the same period and we define Contribution Margin as Contribution Profit (Loss) as a percentage of revenue for the same period.
Gross profit (loss) is the most directly comparable financial measure to Contribution Profit (Loss). The following table provides a reconciliation of gross profit to Contribution Profit:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| (In millions, except percentages) | 2021 | 2022 | 2021 | 2022 | ||||||||||||||||||||||
| Revenue | $ | 1,236 | $ | 1,608 | $ | 2,313 | $ | 3,064 | ||||||||||||||||||
| Less: Cost of revenue, exclusive of depreciation and amortization | (555) | (880) | (1,118) | (1,643) | ||||||||||||||||||||||
| Less: Depreciation and amortization related to cost of revenue | (24) | (42) | (45) | (73) | ||||||||||||||||||||||
| Gross profit | $ | 657 | $ | 686 | $ | 1,150 | $ | 1,348 | ||||||||||||||||||
| Gross Margin | 53.2 | % | 42.7 | % | 49.7 | % | 44.0 | % | ||||||||||||||||||
| Less: Sales and marketing | $ | (427) | $ | (421) | $ | (760) | (835) | |||||||||||||||||||
| Add: Depreciation and amortization related to cost of revenue | 24 | 42 | 45 | 73 | ||||||||||||||||||||||
| Add: Stock-based compensation expense and certain payroll tax expense included in cost of revenue and sales and marketing | 27 | 60 | 46 | 86 | ||||||||||||||||||||||
| Add: Allocated overhead included in cost of revenue and sales and marketing | 9 | 12 | 18 | 26 | ||||||||||||||||||||||
| Add: Inventory write off related to restructuring | — | 2 | — | 2 | ||||||||||||||||||||||
| Contribution Profit | $ | 290 | $ | 381 | $ | 499 | $ | 700 | ||||||||||||||||||
| Contribution Margin | 23.5 | % | 23.7 | % | 21.6 | % | 22.8 | % |
Adjusted Gross Profit (Loss)
We define Adjusted Gross Profit (Loss) as gross profit (loss) plus (i) depreciation and amortization expense related to cost of revenue, (ii) stock-based compensation expense and certain payroll tax expense included in cost of revenue, (iii) allocated overhead included in cost of revenue, and (iv) inventory write off related to restructuring. Gross profit (loss) is defined as revenue less (i) cost of revenue, exclusive of depreciation and amortization and (ii) depreciation and amortization related to cost of revenue. Adjusted Gross Margin is defined as Adjusted Gross Profit (Loss) as a percentage of revenue for the same period.
The following table provides a reconciliation of gross profit to Adjusted Gross Profit:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| (In millions, except percentages) | 2021 | 2022 | 2021 | 2022 | ||||||||||||||||||||||
| Gross profit | $ | 657 | $ | 686 | $ | 1,150 | $ | 1,348 | ||||||||||||||||||
| Add: Depreciation and amortization related to cost of revenue | 24 | 42 | 45 | 73 | ||||||||||||||||||||||
| Add: Stock-based compensation expense and certain payroll tax expense included in cost of revenue | 13 | 31 | 22 | 43 | ||||||||||||||||||||||
| Add: Allocated overhead included in cost of revenue | 6 | 8 | 11 | 17 | ||||||||||||||||||||||
| Add: Inventory write off related to restructuring | — | 2 | — | 2 | ||||||||||||||||||||||
| Adjusted Gross Profit | $ | 700 | $ | 769 | $ | 1,228 | $ | 1,483 | ||||||||||||||||||
| Adjusted Gross Margin | 56.6 | % | 47.8 | % | 53.1 | % | 48.4 | % |
Adjusted EBITDA
Adjusted EBITDA is a measure that we use to assess our operating performance and the operating leverage in our business. We define Adjusted EBITDA as net income (loss), adjusted to exclude (i) certain legal, tax, and regulatory settlements, reserves, and expenses, (ii) loss on disposal of property and equipment, (iii) transaction-related costs (primarily consists of acquisition, integration, and investment related costs), (iv) impairment expenses, (v) restructuring charges, (vi) inventory write off related to restructuring, (vii) provision for (benefit from) income taxes, (viii) interest income and expense, (ix) other income (expense), net, (x) stock-based compensation expense and certain payroll tax expense, and (xi) depreciation and amortization expense. Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA by revenue for the same period.
The following tables provide a reconciliation of net loss to Adjusted EBITDA and a calculation of net margin and Adjusted EBITDA Margin:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| (In millions) | 2021 | 2022 | 2021 | 2022 | ||||||||||||||||||||||
| Net loss | $ | (102) | $ | (263) | $ | (212) | $ | (430) | ||||||||||||||||||
| Certain legal, tax, and regulatory settlements, reserves, and expenses(1) | 36 | 15 | 49 | 39 | ||||||||||||||||||||||
| Transaction-related costs(2) | — | 44 | — | 58 | ||||||||||||||||||||||
| Restructuring charges | — | 3 | — | 3 | ||||||||||||||||||||||
| Inventory write off related to restructuring | — | 2 | — | 2 | ||||||||||||||||||||||
| Provision for (benefit from) income taxes | 2 | (9) | 3 | (9) | ||||||||||||||||||||||
| Interest income and expense | 1 | (4) | 11 | (5) | ||||||||||||||||||||||
| Other (income) expense, net | — | 3 | — | (2) | ||||||||||||||||||||||
| Stock-based compensation expense and certain payroll tax expense | 139 | 231 | 239 | 361 | ||||||||||||||||||||||
| Depreciation and amortization expense | 37 | 81 | 66 | 140 | ||||||||||||||||||||||
| Adjusted EBITDA | $ | 113 | $ | 103 | $ | 156 | $ | 157 |
(1)We exclude certain costs and expenses from our calculation of Adjusted EBITDA because management believes that these costs and expenses are not indicative of our core operating performance, do not reflect the underlying economics of our business, and are not necessary to operate our business. These excluded costs and expenses consist of (i) certain legal costs primarily related to worker classification matters, (ii) reserves for the collection of sales and indirect taxes that we do not expect to incur on a recurring basis, (iii) costs related to the settlement of an intellectual property matter, (iv) expenses related to supporting various policy matters, including those related to worker classification and price controls, and (v) donations as part of our relief efforts in connection with the COVID-19 pandemic and Russia's invasion of Ukraine. We believe it is appropriate to exclude the foregoing matters from our calculation of Adjusted EBITDA because (1) the timing and magnitude of such expenses are unpredictable and thus not part of management’s budgeting or forecasting process, and (2) with respect to worker classification matters, management currently expects such expenses will not be material to our results of operations over the long term as a result of increasing legislative and regulatory certainty in this area, including as a result of Proposition 22 and similar legislation.
(2)Consists of acquisition, integration, and investment related costs, primarily related to Wolt acquisition for the three and six months ended June 30, 2022.
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| (In millions, except percentages) | 2021 | 2022 | 2021 | 2022 | ||||||||||||||||||||||
| Revenue | $ | 1,236 | $ | 1,608 | $ | 2,313 | $ | 3,064 | ||||||||||||||||||
| Net loss | $ | (102) | $ | (263) | $ | (212) | $ | (430) | ||||||||||||||||||
| Net margin | (8.3) | % | (16.4) | % | (9.2) | % | (14.0) | % |
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| (In millions, except percentages) | 2021 | 2022 | 2021 | 2022 | ||||||||||||||||||||||
| Revenue | $ | 1,236 | $ | 1,608 | $ | 2,313 | $ | 3,064 | ||||||||||||||||||
| Adjusted EBITDA | $ | 113 | $ | 103 | $ | 156 | $ | 157 | ||||||||||||||||||
| Adjusted EBITDA Margin | 9.1 | % | 6.4 | % | 6.7 | % | 5.1 | % |
Credit Facilities
On November 19, 2019, we entered into a revolving credit and guaranty agreement with JPMorgan Chase Bank, N.A., an affiliate of J.P. Morgan Securities LLC, and Goldman Sachs Lending Partners LLC, an affiliate of Goldman Sachs & Co. LLC, which, as amended and restated on August 7, 2020, provides for a $300 million unsecured revolving credit facility maturing on August 7, 2025, increasing to $400 million in aggregate revolving commitments upon the consummation of an initial public offering of our common stock on or prior to August 7, 2021. Loans under the credit facility bear interest, at our option, at (i) a base rate equal to the highest of (A) the prime rate, (B) the higher of the federal funds rate or a composite overnight bank borrowing rate plus 0.50%, or (C) an adjusted LIBOR rate for a one-month interest period plus 1.00%, or (ii) an adjusted LIBOR rate plus a margin equal to 1.00%. We are also obligated to pay other customary fees for a credit facility of this size and type, including letter of credit fees, an upfront fee, and an unused commitment fee. As of June 30, 2022, we were in compliance with the covenants under the revolving credit and guaranty agreement. As of December 31, 2021 and June 30, 2022, no amounts were drawn from the credit facility.
We maintain letters of credit established primarily for real estate leases and insurance policies. As of December 31, 2021 and June 30, 2022, we had $60 million and $130 million of issued letters of credit outstanding, respectively, of which $39 million and $99 million were issued from the revolving credit and guaranty agreement.
Liquidity and Capital Resources
In December 2020, we completed our IPO in which we received net proceeds of $3.3 billion from sales of shares of our Class A common stock in the IPO, after deducting underwriting discounts and commissions.
As of June 30, 2022, our principal sources of liquidity were cash, cash equivalents, and marketable securities of $4.5 billion, which consisted of cash and cash equivalents of $2.7 billion, short-term marketable securities of $1.3 billion and long-term marketable securities of $495 million. Additionally, funds held at payment processors of $246 million represent cash due from our payment processors for cleared transactions with merchants and consumers, as well as funds remitted to payment processors for Dasher payout. Cash and cash equivalents consisted of cash on deposit with banks as well as institutional money market funds, commercial paper, U.S. Treasury securities, and U.S. government agency securities. Marketable securities consisted of commercial paper, corporate bonds, U.S. government agency securities, U.S. Treasury securities, and mutual funds.
We have generated significant operating losses from our operations as reflected in our accumulated deficit of $2.5 billion as of June 30, 2022. To execute on our strategic initiatives to continue to grow our business, we may incur operating losses and generate negative cash flows from operations in the future, and as a result, we may require additional capital resources. We believe our existing cash, cash equivalents, and marketable securities, along with the $400 million in available borrowings under our unsecured revolving credit facility, will be sufficient to meet our working capital and capital expenditures needs for at least the next 12 months and beyond.
In May 2022, our board of directors authorized the repurchase of up to $400 million of our Class A common stock. Repurchases may be made from time to time through open market purchases or through privately negotiated transactions subject to market conditions, applicable legal requirements, and other relevant factors. Open market repurchases may be structured to occur in accordance with the requirements of Rule 10b-18. We may also, from time to time, enter into Rule 10b5-1 plans to facilitate repurchases of our Class A common stock under this authorization. The timing and actual number of shares repurchased may depend on a variety of factors, including price, general business and market conditions, and alternative investment opportunities.
Our future capital requirements will depend on many factors, including, but not limited to our growth, our ability to attract and retain merchants, consumers, and Dashers that utilize our platform, the continuing market acceptance of our offerings, the timing and extent of spending to support our efforts to develop our platform, and the expansion of sales and marketing activities, the timing and extent of spending for policy and worker classification initiatives. Further, we may in the future enter into arrangements to acquire or invest in businesses, products, services, and technologies. We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, financial condition, and results of operations could be adversely affected.
The following table summarizes our cash flows for the periods indicated:
| Six Months Ended June 30, | ||||||||||||||
| (In millions) | 2021 | 2022 | ||||||||||||
| Net cash provided by operating activities | $ | 418 | $ | 145 | ||||||||||
| Net cash (used in) provided by investing activities | (936) | 80 | ||||||||||||
| Net cash (used in) provided by financing activities | (492) | 8 | ||||||||||||
| Foreign currency effect on cash, cash equivalents, and restricted cash | — | (8) | ||||||||||||
| Net (decrease) increase in cash, cash equivalents, and restricted cash | $ | (1,010) | $ | 225 |
Operating Activities
Cash provided by operating activities was $145 million for the six months ended June 30, 2022. This consisted of a net loss of $430 million, offset by non-cash stock-based compensation expense of $360 million, non-cash depreciation and amortization expense of $140 million, non-cash reduction of operating lease right-of-use assets and accretion of operating lease liabilities of $35 million, and other net non-cash expenses of $14 million. The changes in assets and liabilities, net of
assets acquired and liabilities assumed from acquisitions, was the result of a decrease of $109 million in funds held at payment processors, an increase of $38 million in accounts payable, and a decrease of $20 million in accounts receivable, net, offset by an increase of $51 million in prepaid expenses and other current assets, an increase of $44 million in other assets, $32 million paid for operating lease liabilities, a decrease of $8 million in other liabilities, and a decrease of $6 million in accrued expenses and other current liabilities. The change in cash provided by operating activities for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was mainly due to increase in net loss and the net changes in operating assets and liabilities for the six months ended June 30, 2022.
Cash provided by operating activities was $418 million for the six months ended June 30, 2021. This consisted of a net loss of $212 million, offset by non-cash stock-based compensation expense of $235 million, non-cash depreciation and amortization expense of $66 million, non-cash bad debt expense of $31 million, non-cash reduction of operating lease right-of-use assets and accretion of operating lease liabilities of $23 million, non-cash interest expense of $11 million related to our convertible notes, and other non-cash expenses of $11 million. The changes in assets and liabilities, net of assets acquired and liabilities assumed from acquisitions, was the result of an increase of $153 million in accrued expenses and other current liabilities, primarily related to accrued advertising, insurance reserves, contract liabilities, accrued operations related expenses, and Dasher and merchant payables, a decrease of $77 million in prepaid expenses and other current assets, a decrease of $26 million in funds held at payment processors, and a decrease of $14 million in accounts receivable, net, offset by $18 million paid for operating lease liabilities, an increase of $17 million in other assets.
Investing Activities
Cash provided by investing activities was $80 million for the six months ended June 30, 2022, which primarily consisted of maturities and sales of marketable securities of $1.2 billion, net cash acquired in acquisitions of $71 million, partially offset by purchases of marketable securities of $1.1 billion, purchases of property and equipment of $77 million, and cash outflows for capitalized software and website development costs of $73 million.
Cash used in investing activities was $936 million for the six months ended June 30, 2021, which primarily consisted of purchases of marketable securities of $1.1 billion, purchases of property and equipment of $63 million, and cash outflows for capitalized software and website development costs of $45 million, partially offset by proceeds from maturities of marketable securities of $292 million.
Financing Activities
Cash provided by financing activities was $8 million for the six months ended June 30, 2022, which was the proceeds from exercise of stock options.
Cash used in financing activities was $492 million for the six months ended June 30, 2021, which consisted of $333 million of repayment of the convertible promissory notes, $172 million of cash outflows for taxes paid related to net share settlement of equity awards, and $10 million of payment of deferred offering costs, partially offset by $23 million of proceeds from exercise of stock options.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q are prepared in accordance with GAAP. The preparation of condensed consolidated financial statements in accordance with GAAP requires us to make certain estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities and the related disclosures at the date of the financial statements, as well as the reported amounts of revenue and expenses during the period presented. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from our estimates. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows could be affected.
There have been no material changes to our critical accounting policies and estimates as described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
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