Q1 2022 DoubleDown Interactive Co Ltd Earnings Call
Okay.
Good afternoon, ladies and gentlemen, and welcome to <unk> earnings Conference call for the financial results for the first quarter ended March 31st 2022.
Name is levien Aveo conference operator this afternoon.
Today's call double down.
Financial results for the first quarter 2022 in our press release, a copy of which has been furnished on form 6K filed with the SEC and Isabelle.
On the Investor Relations section of the company's website at Www.
And interact with dotcom.
You can find a link to the Investor Relations section at the top of the homepage.
Joining us on today's call are double down CEO , Mr. <unk>, Kim and our CFO , Mr. Joe Secret.
Knowing their remarks, we will open the call for questions.
While we begin Mr. Grant the company outside Investor Relations adviser will make a brief introductory statement Mr. Grant.
Thank you before.
Before management begins their formal remarks, we need to remind everyone that some of management's comments today will be forward looking statements within the meaning of section 27 eight.
Securities Act of 1933 as amended and section 20 <unk> of the Securities Exchange Act of 1934 as amended and we hereby claim the protection of the Safe Harbor provisions of the private Securities Litigation Reform Act of 1995 forward looking statements or statements about future events and include expectations and projections not present or historical facts and can be.
<unk> by use of the words, such as May might will expect assume believe intend estimate continue should anticipate or other similar items.
Looking statements include but are not limited to those regarding the company's future plans mergers and acquisition strategy strategic and financial objectives expected performance and financial outlook.
Looking statements are subject to numerous risks and uncertainties that could cause actual results to differ materially and adversely from what the company expects. Therefore, you should exercise caution in interpreting and relying on them. We refer you to double down to annual report on form 20-F filed with the SEC on April 4th 2022, and other SEC filings for a more detailed discussion.
Of the risks that could impact future operating results and financial conditions. These forward looking statements are made only as of the date of this call. The company does not undertake and expressly disclaims any obligation to update or alter the forward looking statements, whether as a result of new information future events or otherwise except as required by law.
During the call management will discuss non-GAAP measures, which I believe by management to be useful in evaluating the company's operating performance. These measures should not be considered superior to an isolation or as a substitute for the financial results prepared in accordance with GAAP. A full reconciliation of these measures to the most directly comparable GAAP measure is available in the earnings release.
And on our form 6K filed with the SEC prior to this call I would like to remind everyone that this call's being recorded and will be made available for replay via a link available in the Investor Relations section of double Downs website, now I would like to turn the call over to double down CEO Mr. In cooking.
Thank you Jeff.
Good afternoon, everyone. Thank you for joining us.
<unk> coal for our first quarter tiny tiny to Rachel.
Our first quarter results for 2022 continues to demonstrate the attractiveness of our business model.
<unk> revenue was down sequentially in the fourth quarter, all tiny tiny one is.
Was primarily due to our decision to scale back sales and marketing costs.
Our first non social casino app on backlog short survival.
They make certain other changes to improve the app monetization metrics.
Sure.
<unk> Corp.
Led to a funding increase in revenue generated from them that's why during the period.
Despite the revenue decrease.
EBITDA and adjusted EBITA margin improved sequentially with a reduction in call it.
Illustrating the adaptability of our business model, the very industry and macro economy conditions.
We also continued to generate positive operating cash flow ending the quarter with cash and cash.
It's the line balance.
$268 million.
Uh huh.
And we hope to continue generating positive operating cash flows in the future.
Our decision to scale down sales and marketing for <unk>.
Well in the Years' time also demonstrate our commitment to being good to at all.
Okay.
Why are we continue to focus on growing our business.
We'll not sacrifice or <unk> the importance of generating.
Our investment for our shareholders with a surplus of achieving goals.
By scaling back our investment for on that award in the near term.
Is it our monetization rate for the for the App.
We have been able to introduce that.
Oh submarine program Lynn for it yet.
If the on monetization kpis or the gain trend positively we may increase modestly Andy for Ambev Award during the current second quarter and beyond.
As a leader in the social casino download through our project I told double down casino. We believed that we have the team in place.
Chip.
Ethel monetization strategies.
Gaining up Jason social casino.
Now I will turn it over to our CFO Jos segue to walk you through our financials before providing my closing remark.
Joe.
Thank you <unk> and good afternoon, everyone. Let me start with revenues revenues for the first quarter of 2022 decreased 11, 6% to $85 $5 million from $96 $7 million for the first quarter of 2021.
It is important to note that the prior year period benefited from the continuation of stay at home or work from home Covid prevention initiatives, which have significantly abated since then.
Compared to the fourth quarter of 2021 revenue in the first quarter of 2022 declined by only 0.9%.
Primarily due to a decrease in undead world revenue based on our intentional reduction in user acquisition spending for the App.
Our key monetization metrics for the first quarter of 2022 include.
Average revenue per daily active user or ARP DAU was 97 cents in the first quarter down slightly from 99 cents in the first quarter of 2021 and up sequentially from 96 cents for the fourth quarter of 2021.
Average monthly revenue per payer was $225 in the first quarter a year over year increase from $212 in the first quarter of 2021 and up sequentially from $216 in the fourth quarter of 2022 2021.
Lastly, payer conversion, which is the percentage of players who pay double down was five 5% in the first quarter compared to five 7% in the first quarter of 2021 and remained stable sequentially.
Operating expenses in total for the first quarter of 2022 decreased 14, 4% to $68 million from $71.0 million for the first quarter of 2021.
The decrease was primarily due to decreases in cost of revenue sales and marketing expenses and depreciation and amortization expenses.
Of note sales and marketing expenses in the first quarter of 2022.
$19 $8 million essentially flat over the first quarter of 2021, but representing an over $2 million sequential decrease compared to the fourth quarter of 2021.
This sequential reduction was primarily due to the aforementioned decrease in sales and marketing spending for undead World Heroes survival.
Going forward, we expect our overall sales and marketing expenses to rise incrementally as we increase investment in acquiring and retaining players and our new apps as well as for double down casino.
It is also worth noting that depreciation and amortization expenses in the first quarter of 2022 or $2 $2 million compared to $7.5 million in the first quarter of 2021, and essentially flat sequentially. The decrease from the year ago.
<unk> was due to the completed amortization of certain identifiable intangible assets for which we use purchase price allocation at the time of the 2017 doubled down interactive acquisition.
Net income for the first quarter of 2022 decreased to $18 $5 million or $7 46 per diluted common share compared to $19 $4 million or $8 77 per diluted common share in the first quarter of 2010.
One.
Next I want to discuss adjusted EBITDA adjusted EBITDA and adjusted EBITDA margin are non-GAAP measure measures, which we believe are useful in evaluating our operating performance a full reconciliation of these measures to the most directly comparable GAAP measure is available in the earnings release.
Adjusted EBITDA for the first quarter of 2022 was $26 $9 million.
Compared to $33 $1 million in the first quarter of 2021 adjust.
Adjusted adjusted EBITDA margin for the first quarter of 2022 was 31, 5% lower than the adjusted EBITDA margin of 34, 2% for the first quarter of 2021 the.
The year over year decline in adjusted EBITDA and adjusted EBITDA margin is primarily attributable to the lower revenue in the first quarter of 2021, which I previously discussed.
I'll note that as I mentioned earlier, adjusted EBITDA increased sequentially from $25 $8 million in the fourth quarter of 2021 to $26 $9 million in the first quarter of 2022 and adjusted EBITDA margin also increased sequentially from 22.
Two 9% in the fourth quarter of 2021 to 31, 5% in the first quarter of 2022, primarily due to the reduction in sales and marketing costs.
The overall reduction in our operating costs compared to the first quarter of 2021 illustrates the variable and discretionary cost structure, we have.
Our most significant costs our cost of revenue, which is comprised mostly of platform fees and royalties that are directly correlated to our revenue and sales and marketing costs, which are to a great extent discretionary. This gives us a highly adaptable business model that can generate relatively consistent <unk>.
<unk> EBITDA and cash inflows across many different industry and macroeconomic cycles.
Cash flow from operations for the first quarter of 2022, with $28 4 million compared to $22.0 million for the first quarter of 2021.
We did not incur any material capital expenditures during the first quarter.
Finally, turning to our balance sheet at the end of the first quarter of 2022, we had $268 $2 million of cash and cash equivalents and short term investments compared to $242 $1 million of cash and cash equivalents.
At the end of 2021.
Our total debt at the end of the first quarter of 2022 was $41 3 million compared to $42 $2 million at the end of the 2021 full year our.
Our cash position continued to improve as we continue to generate positive cash flows from operations.
This completes my financial summary, now I'll turn the call back over to <unk> for closing remarks. Thank you Joe.
As we move forward in 2022, the priority for them without profitability.
Denise.
It starts with our continuous effort to improve the performance of <unk>.
Through a combination of other enhancements marketing and labor optimization.
The social casino game gaming business is still the backbone of our company and whether we are able to implement and realize.
Improvements remain crucial for our success.
We also see opportunities to grow our business outside of traditional social casino Delaware.
And that's it.
Introducing adjacent mobile gaming remains a high priority.
In addition to the introduction of <unk> sure survival in four tiny tiny one.
We are planning to launch additional non social casino games this year.
Temple, we have been working very hard on our new hyper casual game save my zombies. We've just began often better in April tiny tiny too.
So as previously discussed.
We have been working on bidding in space. It has both.
Dino and non casino element.
That we think can be attractive to both our existing.
So it's a casino demographics and new demographics that may be more attractive to none.
Non casino casual gaming.
Turning to space remains on track to its ultimate.
I will combat this summer.
We will continue to work on having a robust pipeline of new games to launch and it is also important to note that these new games are being developed using our existing R&D budget.
Re backed by our strong balance sheet position of cards have also considered pursuing growth through potential M&A opportunities.
In this regard we will continue to look at potential acquisition targets using our T assessment Craig area.
These criteria include that.
<unk> silver target gaming and creative assets.
Our ability to create synergies.
Our product development.
Marketing and LIBOR capabilities.
And attractive pro forma financial model.
We are now happy to take your testing.
Hey, there.
Thank you, ladies and gentlemen to ask a question at this time, you will need to post a squad under one key on your Touchtone telephone.
Please standby, while we compile the Q&A roster.
Our first question coming from the line of Greg you must from Northland Securities. Your line is open.
Hi, Good afternoon, I can't Joe Thanks for taking the questions.
Was just wondering if you maybe just.
Discuss your expectations for the remainder of the year and when you would expect to see a return to year over year growth out of the core portfolio.
Yeah, Greg Thanks, Thanks for joining us and thanks for the question as as we all know the impact of the.
Uh huh.
Reduction lets say in.
People staying at home and staying away from work has has meant that the comps associated with.
Our quarters have been difficult and they will continue to be difficult. If you look at year over year comps for the next.
For the next at least couple of quarters.
As we look forward I mean, the social casino business is as we've discussed.
Fairly flat.
Or very low growth business.
Business as is.
As a whole.
And.
That is why it's so very important for us to not only optimize the presence.
Presence, we have in social casino with double down casino, but also most importantly to expand with non social casino apps. So our expectation is that the.
The.
Ability for us to grow is really tied to our ability to have success.
The non the non social casino apps and that obviously starts with undead world, but also the new hyper casual games save my zombies that I, just mentioned as well as spending in space.
And the other games that we have in our portfolio.
And that.
That's where the growth will.
It really come from if we look at the comparisons to previous year over year quarters and Thats also finally, why the M&A work.
What we're doing in our evaluation of of targets is so very important as well.
Got it very helpful. Yes, I was just going to ask com and if you could discuss those upcoming titles, but I think I K and thanks for going over them again, but.
I would like to save my zombies April's when that beta begin then I think you said spinning in space. The open beta was this summer.
Are you anticipating additional launches I guess in the second half of the year.
Just trying to kind of get a sense of the slate for the remainder of the year.
Yeah, we have some games in the pipeline beyond say my zombies and.
And spinning in space, but at this point I think those are the two that were tracking most closely as far as being.
Launched this year at least.
<unk> from beta to full full release.
And certainly as we have.
More progress in Guinea.
Getting closer to at least open beta with other games in the pipeline, we'll we'll keep you updated.
Okay perfect.
And just going back to on that world.
What enhancements I guess, specifically are you going be making to the game you said trying to improve the monetization and maybe when would you expect those to be completed.
I'm, sorry, Greg could you repeat.
Yes, sorry.
The enhancements I think you were making on dead World.
I think primarily on the monetization front was just wondering if you could discuss what those are and maybe when they would be completed.
Yeah sure. So I can start and if I can I want to provide some detail I'll let him.
Give some specifics, but it's really around payer retention I mean, we were quite as we said from the beginning of our discussion about the App last fall, we were quite happy with player retention.
And then of course as monetization continue to ramp we were very interested in you know payer retention and of course, how much each each payer pays as well, but we.
Have been more recently as we.
Added enhancements to the App been very focused first and foremost on payer retention.
And I can know if you want to give an example for perhaps the kind of enhancements that we've been adding to the App. Yes. Right. For example, you have seen with season pass features and some kinds of new heroes.
Liability.
It was very helpful for higher retention increase.
Yes, and if so if you look at the season.
One the first one that I can't mention that season pass enhancements, which obviously.
Honestly provide benefits to payers.
And players and payers assuming that they you know up for the season pass feature.
We started those enhancements several weeks ago, and we're very closely watching the impact on payer retention kpis and.
That's one of the most important.
Things that we're observing as we determined.
When and how much to increase our marketing investment.
Got it very helpful and I guess, just the last one for me.
Sure how much you can share but was just hoping for an update on those potential M&A opportunities that you are seeing any sense of timing, whether things are getting close and maybe what multiples you expect to pay.
Yeah, well I'll start with the last question first the most interesting one obviously.
Valuations I mean, we have an active process going on.
And we.
Are you looking at a range of different opportunities in the gaming.
Various gaming sectors.
And.
Relative evaluations, obviously as public market valuations.
Uh huh.
Declined.
We believe and we've heard that expectations by by private companies have have moderated that being said I don't think that's consistent across all all gaming categories certain categories have valuations that are at least based on the feedback we received.
So still are quite high so.
We'll just have to continue to Wade through those and see what makes sense for us as far as timing I mean.
I guess all I can say Greg is that we have a very active process, we're very engaged and so we.
Given the importance of growth outside of social casino is something thats the highest priority for the company.
Understood. Thanks, guys.
Thanks, Greg.
And our next question coming from the line of David <unk> with B Riley Your line is open.
Great. Thanks, So I mean my primary question was just asked on the valuations that you're seeing particularly in the private markets maybe building on Greg's question.
Can you provide kind of the mix that you are looking at private versus public.
What.
What's the dynamic generally speaking when.
When you look at synergies, taking a public cost im sure Youre balancing a lot of different factors there I'm just trying to understand.
Size and.
<unk>.
Really what youre seeing out there generally if you can give a little bit more detail since that's a big piece of the thesis it looks like.
Sure sure. Thanks, Thanks, David hopefully you're doing well.
Thank you.
Well, certainly I mean, as you would probably.
Believe me.
Most of the companies that we believe are private companies.
But.
As it relates to size and and.
What we can bring I think as we've said we're not.
Shai and certainly if we find something private public whenever that debt.
That is even I'll use the word transformational for <unk>.
For double down.
If it makes sense for us.
Something that we will embrace.
And so.
Again.
We're not shy.
Obviously it has to work for us however.
And work for US includes what you mentioned about our belief that we can bring synergies to.
Two what we acquire.
And then in many cases.
Uh huh.
That's the parts of this company that we now have that were brought to bear to improve doubled down and.
And that includes our technology platform, the great engineering talent and product development talent that we now have in Korea.
<unk>.
Our ability to acquire new users, so our sales and marketing discipline and processes relationship with partners.
The things that we have learned as we've continued to improve the metrics relative to user newser acquisition with the with double down casino.
And the things that we kind of wrap around those functions as it relates to business intelligence and data analytics.
These are the things that that we know we can bring to improve.
Our target and our business and Thats something that we continue to use too.
To evaluate a potential targets.
Okay Awesome that was that was really helpful.
I guess the other one I would ask would be last on the last call you and I kind of teased us with blockchain in any kind of opportunity there.
Are you.
Give us a little bit more detail on what you could be working on or looking at at this point.
At this point.
I can't give you anything more on that and certainly that's part of the I can't mention the criteria by which we are at the end of the formal remarks by which we are looking at companies.
Certainly another one of those.
Criteria that we're very interested in.
And.
I think that's about all I can say.
At this point.
Okay fair enough. Thanks, so much.
And as a reminder to ask a question. Please press star one.
Next question coming from the line of breakeven <unk> with Macquarie Capital. Your line is open.
Hey, good afternoon congrats on.
Another very strong quarter of free cash flow generation. So my question is on return of capital to shareholders.
If my math is correct more than half of your market cap is in cash and you have a wonderful business that doesn't require much of capital expenditure. So you're back to cash out you are probably trading at 60% free cash flow yield.
Which makes me beliefs that I believe that the market isn't really appreciate on what's going on.
Strong free cash flow of this business, so while you're considering acquisitions.
What is your strategy in terms of maybe accelerated buybacks tender tender offers or dividends that.
Could return some of this capital to shareholders that.
Have been there.
Just curious about that thank you.
Great day.
Thanks.
So much for the question and thanks for <unk>, well I guess.
First acknowledgment, which is.
The incredible cash generative nature of our business.
And certainly.
It's something that we continue to promote as we.
Talk to.
Investors.
I will.
I guess reiterate what we have said on on at least the last couple of earnings calls which is.
Well, we certainly are.
Focus on M&A, and what we do with our cash.
The ability to.
You know maximize shareholder value is is our top priority.
And our.
First and foremost.
We believe that doing that means to create growth for the company and that's where the focus of our.
Strong balance sheet is currently.
That said.
Assuming that that.
That strategy is.
Delayed <unk>.
It's not something that.
We're able to pursue in the in the short to medium term, we definitely will look at other alternatives and other ways to use our balance sheet.
Thank you for that answer I strongly encourage you to do that that maybe there is a way to do both because of everyday that passes you generate more cash and maybe there is a way to acquire synergistic companies, but also.
Provide an exit to two people that doesn't really understand your business in a very accretive way for does that span a bit you. Thank you.
Great. Thank you.
And Dennis or reminder, to ask a question. Please press star one.
And at this time. This concludes our question and answer session I would now like to turn the call back over to Mr. <unk> for any closing remarks.
Thank you Lydia and thank you all for joining our call today and your interest in double down we look forward to sharing future updates with you as we continue to innovate and grow within the global digital gaming industry.
And have a great rest of your evening.
Ladies and gentlemen, thank you for joining us today for <unk> earnings Conference call you may now disconnect.
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