Q2 2022 DoubleDown Interactive Co Ltd Earnings Call
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Good afternoon, and welcome to double down on the earnings conference call for the financial results for the second quarter ended June 32022.
My name is Gary and I'll be your operator this afternoon.
Prior to this call double down issued its unaudited financial results for the second quarter 2022 in our press release, a copy of which has been furnished in our report on form 6K filed with the SEC and is available in the Investor Relations section of the company's website at www dot double down into.
<unk> Dot com you can find the 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 its CFO , Mr. Jos cigarettes.
Following their remarks, we will open the call for questions before we begin Mr. Graham the company's outside Investor Relations adviser will make a brief introductory statement Mr. Graham.
Thank you Gary.
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, a of the Securities Act of 1933 as amended and section 21 E 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.
Warm act of 1995 forward looking statements are statements about future events and include expectations and projections not present and historical facts and can be identified by use of the words such as May might will expect assume believe intend estimate continue should anticipate or other similar terms.
Forward 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 forward looking statements are subject to numerous risks and uncertainties that could cause actual results to differ materially and adversely from what the company expects there.
You should exercise caution in interpreting and relying on them. We refer you to double Downs 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 condition.
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 are believed by the by management to be useful in evaluating the <unk>.
<unk> 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'd like to remind everyone that this call is being recorded and will be made available for replay via a link available in the Investor Relations section of <unk> website, now I would like to turn the call over to double down CEO Mr. Ken.
Thank you Jeff.
Good afternoon, everyone. Thank you for joining us on the unencumbered pool for our second quarter 2022 result.
During the second quarter of 2022, we've continued our legacy of track record.
And as a result.
In transit to our high margin capital light business model.
Yes.
Evidenced by the $21 $1 billion in cash flow generated from operations in the quarter or <unk> 43, or avs and.
Adjusted EBITDA margin of 32.4%.
It improved from the fourth quarter of 2022.
This result also.
Illustrate what we consider.
Ability of our business model to bearing industry and macro economy conditions.
Positive operating cash flows driving an increase in our cash and cash equivalents and short term investments to $284 million.
While revenue was down from the prior year period from $93 2 million to 80.
$6 million, our results continue to be above pre COVID-19 levels.
In the first half of 2022 exceeding 2019 level by over 20%.
We believe this shows our ability to have both.
Higher product shipped new players and expanded opera paying behavior.
During the pandemic period.
Compared to the prior year period, we believe our revenue was down for two primary reasons.
The first is that tiny tiny one results benefited from albeit related restrictions that positively impact a player engagement and has since had a lesser impact on our results as those restrictions have been lifted.
The second is that global inflation and potential economy slowdown and things seem to be impacting us patent for certain users.
This dynamics are certainly not that big to double down and we are continuing to see positive metrics in the context of these.
Dynamics as payer conversion remain above 5% and average monthly revenue per payer increased almost 4% year over year.
Given our flexible operating model, we also reduced operating expenses, excluding a noncash charge to income in the second quarter by 20% from the prior year, partially due to a reduction in overall salaries and marketing costs.
Given the ATT IVF.
<unk> situation with patterns led to higher than U S players, while investing more in the execution of new Android mobile users.
So have begun investing more to high your players outside of North America.
We can see it as an opportunity, especially for <unk> casino.
We believe that this trend away from advertising to Apple users is consistent with that of the overall mobile gaming industry and.
We will continue to monitor that.
Hi, This is Pat.
Our marketing channels to ensure we are meeting or exceeding our internal targets.
As we have discussed in the past, we maintain ethylene approach to our marketing investments and we will not ramp ending nearly to grow users at the Paris show her to value.
The other factor at reducing our operating expenses was our decision to moderate user acquisition investments for our first non social casino app on that sure so bipolar.
As you May recall, we began counting back marketing activity or that were in.
In the first quarter of 2020 to enable us to pass new monetization enhancements.
While we are sure on improvements to monetization metrics with these enhancements.
Analytics suggest high totally not yet we're in it to be.
Accordingly, we plan to continue optimizing feature development in the App and as a result, do not envision increasing marketing investment in <unk>.
It is important to keep in mind that developing successful new games is not a risk release process as not all titles can be game changing.
It is also important to note that we can develop these new titles within our existing financial model, which allow us to continue generating higher margins positive cash flow and release new games that have a symmetric risk return profile.
Looking ahead, we continue to develop a robust pipeline of new titles outside of the social Casino segment as we look to diversify our revenue and growth opportunities we have.
We plan on run Qing new games in the future, which can be accomplished within our existing R&D budget, all while continuing to reinvest in our flagship double down casino app to introduce new meta features and slot game.
For example, we are continuing to work towards the open beta release outstanding space. Later this quarter, followed by a worldwide launch targeted in the fourth quarter of 2022 spending space has both casino and casino elements.
And therefore attract users within our existing social casino demographic and new users, who prefer non casino casual gaming.
We also have several other gaming F under development by our internal studios planned for launch during 2023.
Now I will turn it over to our CFO Jos degrees to walk you through our financials before providing my closing remarks.
Joe.
Thank you <unk> and good afternoon, everyone.
Revenues for the second quarter of 2022 decreased 13, 5% to $86 million from $93 $2 million for the second quarter of 2021.
As I can't mentioned, we believe that during the second quarter players became increasingly concerned about inflation and a slowdown in the global economy and adjusted spending on our apps. It is also important to note that the continuation of stay at home or work from home Covid prevention initiatives, we're still.
Positively impacting the business during the second quarter of 2021.
<unk> in 2022.
These initiatives have significantly abated since then.
Our key monetization metrics for the second quarter of 2020 to reflect the trends noted above with respect of player behavior in particular.
Average revenue per daily active user or DAU was 95 cents in the second quarter down from 99 cents in the second quarter of 2021.
Average monthly revenue per payer.
$226 in the second quarter, a year over year increase from $218 in the second quarter of 2021.
And up slightly from 2025 in the first quarter.
2022.
Lastly.
Payer conversion, which is the percentage of players who pay double down was two five or five 2% in the second quarter compared to five 8% in the second quarter of 2021.
Total operating expenses for the second quarter of 2022 increased 71% to $128 $6 million from $71 5 million for the second quarter of 2021.
The increase was due to a noncash accrual of $71 $5 million in the quarter, which was included in general and administrative expenses, reflecting an increase in the low end of the reasonably possible range of loss.
Of $75 million two.
One $5 million associated with the legal proceedings related to the Benson class action complaint.
You may recall that the low end of the range set in the financial statements of our quarter ended June 32021 was $3 $5 million.
As we have noted in our financial statements. The company continues to review this charge periodically and the preparation of its quarterly financial statement and we consider it appropriate to adjust the possible range of loss at this time <unk>.
Excluding the $71 5 million charge operating expenses for the second quarter of 2022 were down 20% from the second quarter of 2021 and down 6% sequentially from Q1 of 2022.
Of note sales and marketing expenses in the second quarter of 2022 were $18 1 million, representing a nearly $2 million sequential decrease compared to the first quarter of 2022 and lower than the 20.0 million.
Dollars recorded in the second quarter of 2021.
Sales and marketing reduction was based on a combination of continued minimal investment in undead World heroes survival as well as a moderation of spending and double down casino in the quarter to acquire iOS users as I mentioned.
Going forward, we expense expect sales and marketing expenses to continue at the Q2 level until later in Q4 with the pending release of spinning in space.
It is also worth noting that depreciation and amortization expenses in the second quarter of 2022, or one 5 million compared to $5 $9 million in the second quarter of 2021, the decrease from the quarter a year ago was due to the completed amortization of certain identifier.
<unk> intangible assets for which we used to purchase price allocation at the time of the 2017 doubled down interactive acquisition.
Net income for the second quarter of 2022 reflected a loss of $34 $1 million or a loss of $13 75 per diluted common share and a loss of 69 cents per <unk> compared to net income of $18 $4 million.
Or $8.32 per diluted common share and 42 cents per <unk> in the second quarter of 2021.
The weighted average number of Aes as in the second quarter of 2022 were $49 6 million an increase from the second quarter of 2021 of $44 3 million due to our August 2021 IPO.
Next I wanted to just I want to discuss adjusted EBITDA adjusted EBITDA and adjusted EBITDA margin are non-GAAP 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 second quarter of 2022.
$26 $1 million compared to $31 $1 million in the second quarter of 2021 adjusted.
Adjusted EBITDA margin for the second quarter of 2022 was 32, 4% down from adjusted EBITDA margin of 33, 4% for the second quarter of 2021, the year over year decline in adjusted EBITDA and adjusted EBITDA margin is primarily attributable to the lower revenue in the second.
<unk> 2022, which I previously described.
Adjusted EBITDA decreased slightly sequentially from $26 $9 million in the first quarter of 2022.
$26 1 million in the second quarter of 2022.
Adjusted EBITDA margin increased sequentially from 31 five.
From 31, 5% in the first quarter of 2022 to 32, 4% in the first quarter of 2022 due to the reduction of cost and revenue and marketing and R&D costs.
As I mentioned, the overall reduction in our operating costs, excluding the noncash accrual compared to the second 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.
<unk> correlated to our revenue and sales and marketing costs, which are to a great extent discretionary. We believe this gives us an adaptable business model that can generate relatively consistent adjusted EBITDA and cash inflows across many different industry conditions and the ability to react on a timely basis to changes and Mac.
So economic cycles.
Cash flow from operations for the second quarter of 2022 was $21 1 million compared to $21 8 million for the second quarter of 2021.
Note that the noncash accrual had no impact on our operating cash flow.
We did not incur any material capital expenditures during the quarter.
Finally, turning to our balance sheet at the end of the second quarter of 2022, we had $284 $4 million of cash and cash equivalents and short term investments compared to $268 2 million of cash and cash equivalents and short term investments at the end of the first quarter of 2022, our total <unk>.
At the end of the second quarter of 2022 was $38 7 million or.
Our cash position continued to improve as we continue to generate positive cash flows from operations.
That completes my financial summary, now I'll turn the call back over to <unk> for his closing remarks.
Thank you Joe.
In closing I want to reiterate the attractiveness, our flexible business model, which we believe enables us to employee and timely with PON to changes in industry and macroeconomic conditions.
The majority of our operating costs being either directly correlate to revenue or discretionary. We believe we have significant flexibility and a strong ability to maintain high margins.
Additionally, we currently have essentially no capital obligation and minimal of that.
Net cash building minimal fixed costs in the context of all.
Our current cash flow and capitalization position.
These factors.
Allow us to maintain favorable adjusted EBITDA margins positive net income and positive free cash flow, which we believe are highly it'd be silly yet.
Even in downside scenarios, we believe this.
<unk> business model, coupled with our strong balance sheet of $171 million of cash and equivalence and short term investments net of debt and the contingent loss of cohort Puerto Rico complaint.
S K.
Compelling investment opportunity as we have discussed before we are targeting.
Maintain our business through strategic M&A opportunities, while we of course cannot make any assurances about the timing of a potential transaction. If any we are optimistic about the opportunities. We are currently seeing in the market as our patient.
Approach since our IPO has put us in an optimal buying position given the overall put back in valuations and associated heightening of Tech Center market.
As a reminder.
While we intend to exploit and logistics opportunities, we would if pack to leverage our current product development marketing user acquisition and live ops capabilities with good growth prospects strong assets and a healthy business model. We are now happy to.
Take your questions.
Operator.
Thank you we will.
We'll now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
If you are using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Our first question is from David Bain with B Riley. Please go ahead.
Great. Thank you and congratulations on managing the <unk> cash flow.
I was hoping to start with and as you know IGT recently took $150 million expense for Benson as well and they own double down I believe for most of the years of the complaint period.
That would be covered.
I'm wondering if it's one that reserve amount you reserve amount versus IGT.
If that's contemplated that ownership period second.
Does double you also have any exposure here and then lastly.
You know you identified.
You know a number that's more narrow and range does that.
Provide some kind of visibility to more closely look at shareholder return of capital options.
Sorry for the multiple part question, but let's say we're excited about the movement in the case.
Yeah no. Thanks, so much for your questions, obviously, our accrual was.
Something we want everyone to understand.
There is.
Unfortunately, not a lot that I can say about igt's.
Decision with there.
With their reserve.
Yeah.
As most people I think know who are familiar with the case, both IGT and double down our co defendants in the complaint that has been brought by the class or prospective class.
And.
So I really can't comment or do frankly, I have any insight or we have any insight into igt's decision.
With their reserve.
As it relates to double your exposure.
I can say is is I think what I, just said a minute ago, which is the co defendants in in the complaint are.
US double down and IGT W is not a named.
Our party.
And the complaint.
And as it relates to the.
The accrual we have taken.
And how it could be.
Viewed relative to.
Our cash and to potential capital returns to shareholders.
Let me just state again that.
Shareholder return.
<unk> is a primary.
The focus of the company.
And we recognize.
The importance of communicating with shareholders.
Plans and strategies around our cash balance.
As we've talked about before.
Before.
We're very focused.
On.
Growing our business Inorganically and I cant made some comments.
On it during his remarks about the status of the M&A market.
And so we're.
Obviously focused on that and have been continuing to be focused on potential.
Acquisition.
Clearly.
Cash is important as it relates to protecting ourselves.
And not only fighting whatever legal activities.
We're faced with but also.
If a settlement has to occur.
We have to be mindful of that as well.
So.
I think I'll finish by saying.
<unk>.
Echoing what you said de which as we look forward to having this behind us.
<unk> complaint behind us as soon as possible as well.
Awesome that was really helpful.
Okay. It was encouraging to hear you speak about M&A valuations rationalizing when you're reviewing categories. How broad are you in that search at this point do you look at Pte. The play to earn I gaming or can you give us some ideas as to what category cant concepts, you're either most of the track.
Two or would rule out at this point.
Hi, thank.
Okay.
We definitely look.
C.
Our candidates around hyper casual gaming.
Industry, and including I gaming and actually we are in.
Mobile gaming space, So we do.
Two more wider gaming industry as well so.
It has helped.
It helps you.
Okay. Thanks.
So pretty broad base or are you narrowing it at all like in saying.
Certain categories.
Are less attractive than others or just very open.
So I have.
I'm sorry.
Yes, we actually very open to.
Focus on our candidates but.
Especially.
We continue to look for hyper casual gaming industry and gaming industry as well so it helped.
Okay. Yeah, no. Thank you very helpful.
The next question is from Greg gave us with Northland Securities. Please go ahead.
Hey, Joe Thanks for taking the questions.
Regarding I guess the trend of.
The inflationary pressures concerning players and spending less on apps.
Pretty wide.
Any thoughts on what that will mean for <unk>.
As that continues for sales in the back half of 2022.
I guess as we layer in maybe what other game or two how are you kind of thinking about.
Would it be kind of similar to what we saw in terms of a decline year over year in Q2 or is there anything else you are taking into account there.
Yes, Greg Thanks for the question.
Certainly the trend that we've seen in our social casino business.
Is.
Impacted we think by.
Certain level of.
Payer concerned about inflation in.
Their pocket books.
That being said it's it's.
Really very positive to see.
That even compared to Q1 of 2022.
Average monthly spend for payers was was up was up slightly and as you can see up considerably year over year. So the desire for players who are very engaged.
You know to play our game to the point where.
They are willing to invest and spend.
It's still very much seems to be there.
The goal that we have in order to grow our social casino business revenue in the back half of the year.
Is is really around.
Turning to acquire high quality payers, that's why for us.
Really continuing to monitor our.
User acquisition spend.
And focusing on return on advertising spend.
Metrics, so that we can get a high quality not not just engaged players, but payers is extremely important so I K and I talked a little bit about.
Spending more focus and actually spending more dollars on the Android side.
And certainly looking at international opportunities, we can get it.
Important as we continue to look at ways to acquire strong strong new payers and I think if we do that successfully we do have an opportunity to.
Two.
Start to turnaround what has been a trend.
Downward trend that we've seen in our social casino business.
And so that's what it's going to take.
As it relates to new apps.
We've always said that layers on top of our social casino business.
It's additive to our revenue there and so.
The launch its finian space, our ability ultimately to.
<unk> improved the metrics on that world.
And then of course, if you're looking at 2023, we're pretty excited about the pipeline of games that.
That we have in development.
And so that's.
That's additive to kind of the baseline or foundation of revenue we have four four.
Our social casino business.
Great very helpful. Joe and kind of leads into my next question too if you could expand a little bit more on some of those recent efforts to attract higher value players.
And kind of rightsize their ad spend.
Based on what Youre seeing.
It sounds like targeting new markets, you mentioned Android.
Players too I'm, just wondering if you could expand on those efforts.
Pardon me. This is the conference operator, it appears that your speakers connection has.
Dropped from their location kind of try and get them back in here momentarily. Thank you.
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Hello.
Pardon me everybody. The speaker's line has reconnected Mr. Davis. Your line is open again, if you would like to repeat your question for them.
Sure. Thank you.
Yes.
A follow up was just wondering if you could maybe expand on those recent efforts to attract some higher value players you mentioned I think targeting new markets, but then also Android based players too.
Just trying to understand how you're maybe maximizing your AD spend and what youre targeting.
Yes sure.
And again I apologize to everyone for the drop yeah, I mean, so as we mentioned.
It's important for us to continue to optimize our spend from an ROI standpoint.
But we're also looking to expand.
Not only the number of advertising channels, but also to optimize.
The channels that we have and to re.
Really.
Provide to them.
What they need to be successful so one of the things that we're working very hard to improve our creative.
And the advertising content that we have.
And can be used to really excite.
Our players.
And potential new players so the focus on new creative.
Is really really important and we're looking to leverage both new features and new slots.
Because the ability for us to kind of leverage the excitement of the new slot release.
As critical as we've seen.
A pretty nice bump in the cases of new player engagement and new Payor engagement. Most importantly, when we are able to really lean into high performing new slot game.
And so those are some of the things that we're doing of course in addition to.
This.
Focus on Google and Android players and expanding beyond the.
The U S market.
Okay.
Great very helpful. Last one for me just wanted to follow up on the M&A strategy and great to hear kind of your comments on <unk>.
Seeing good opportunities.
Has I guess has the M&A strategy changed at all during this kind of period of industry wide headwinds, whether it's just from a from a targets that youre looking at perspective.
Or just timing.
It sounds like valuations are getting better so I just wanted to see if anything's changed at all there.
Yeah, no. Thanks, Greg I mean in general I mean, as I said, we haven't ruled out any categories as a result of.
What's happened in the macroeconomic environment more recently.
I think the biggest change is.
The fact that valuations have become frankly more reasonable now obviously there are some targets well at least potential targets I'll be honest and say no. One that we had really in our sites, but certainly in general what we are hearing from bankers is that some people.
Who where sellers before have decided theyre going to wait it out a bit while hopefully things improved from their perspective in the markets.
And you know that.
That said.
That doesn't mean that there is a lag there certainly isn't a lack of opportunity and again I think it's only to the good relative to.
The valuations that we can ultimately secure company for.
Got it thank you.
The next question is from Aaron Lee with Macquarie. Please go ahead.
Hi, Thanks for taking my question.
Wanted to dig into the quarter a bit more could you describe the cadence of trends through the quarter April may and June were pretty consistent or was there a point, where you saw trends drop off more steeply just given your comments around.
No macro impacting players thanks.
Yes, I think.
<unk>.
The quarter was pretty consistent relative to what we saw I mean, there is always a bit of seats.
Seasonality, if you will in the in the second quarter in the sense that as summer approaches.
June June generally just becomes.
A little different because schools out and people are generally more active.
Away from their devices, perhaps a bit more but again, that's fairly typical and.
Relative to some of these other factors.
That we expressed in the call I think.
Yes, it was a fairly consistent set of trends over the 90 days.
Got it okay, and can you share, which users are being impacted by.
These macro concerns.
And when did you start noticing any impact.
Well I think it is.
Uh huh.
I'll answer the first question. The second question is little harder, but I do.
Especially and again, if you look and do the math I mean, if you think about our.
Average revenue per month per payer.
Going up actually sequentially.
Yeah.
More engaged payer.
It certainly is still engaged.
And it's the kind of the lower value payer.
Which.
It is generally.
Kind of less long lived as it relates to its paying behavior anyway.
That appears to be where we.
We're seeing.
The macroeconomic and inflationary concerns.
Impacting us the most.
The good news is that those those players are the ones that generally get replaced.
In in a kind of a.
A larger way.
Bye bye, new new players and new Payors.
And that's why the focus is on acquiring really good new new players and Payors.
Okay understood. Thank you.
At this time. This concludes our question and answer session I would now like to turn the call back over to Mr. Cigarettes.
Yes. Thank you operator, and thanks, everyone again for your interest in the company and for your participation in the earnings call. Today, we look forward to providing more updates over the next.
Several weeks to the Companys progress and look forward to hopefully having you on our call next quarter. Thank you.
Thank you for joining us today for <unk> earnings call you may now disconnect.
Yeah.
Yes.
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Good afternoon, and welcome to double down to earnings conference call for the financial results for the second quarter ended June 30th 2022.
My name is Gary and I'll be your operator this afternoon.
Prior to this call double down issued its unaudited financial results for the second quarter 2022 in our press release, a copy of which has been furnished in our report on form 6K filed with the SEC It is available in the Investor Relations section of the company's website at Www Dot double down.
<unk> Dot com.
You can find the link to the Investor Relations section at the top of the homepage.
Joining us on today's call are double down CEO , Mr ankle, Kim and its CFO Mr. Jos cigarettes. Following their remarks, we will open the call for questions before.
Before we begin Mr. Graham the company's outside Investor Relations adviser will make a brief introductory statement Mr. Graham.
Thank you Gary.
For 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, a of the Securities Act of 1933 as amended and section 21 E of the Securities Exchange Act of banking 34, as amended and we hereby claim the protection of the Safe Harbor provisions of the private Securities Litigation Reform Act.
A 1995 forward looking statements are statements about future events and include expectations and projections not present or historical facts and can be identified by use of the words such as may might will expect assume believes intend estimate continue should anticipate or other similar terms.
Forward 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 forward 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 Downs annual report on form 20-F filed with the SEC on April four 2022, and other SEC filings for more detailed discussion of the risks that could impact future operating results and financial condition.
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 are believed by the by management to be useful in evaluating the <unk>.
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'd like to remind everyone that this call is 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 and pet Chem.
Thank you Jeff.
Good afternoon, everyone. Thank you for joining us on the <unk> for our second quarter 2022 result.
During the second quarter of 'twenty, two we continued our track record as a <unk>.
And as a result.
In transit to our high margin capital light business model.
Is evident.
When you won $1 billion in cash flow generated from operations in the quarter or 43 cents per avs and an adjusted EBITDA margin of 32, 4%, which is improved from the fourth quarter of 2022.
<unk> results also illustrate what we'd consider.
The ability of our business model to bearing industry and macro economy conditions with a positive operating cash flows driving an increase in our cash and cash equivalents.
Short term investments Alice to $284 million.
While revenue was down from the prior year period from $93.2 million to 86.
$6 million, our results continued to be above great Colby rebels revenue in the first half of 2022 exceeding 2019 level by over 20%.
We believe this shows our ability to have both a pirate product shipped new players and expanded opera paying behavior during the pandemic period.
Compared to the prior year period, we believe our revenue was down for two primary reasons.
Is that Fannie 'twenty, one results benefited from hobbyists related restrictions.
Totally impacted player engagement and has since had a lesser impact on our results as those restrictions have been lifted.
The second is that global inflation and potential economy slowdown concerns.
To be impacting user for our search and users.
This dynamics are certainly not specific to double down and we're continuing to see positive metrics in the context of these dynamics as payer conversion remain above 5% and average monthly revenue per payer increased almost porphyry.
Year over year.
Given our flexible operating model, we also reduced operating expenses.
Clothing, a noncash charge to income in the second quarter by 20% from the prior year, partially due to a reduction in overall salaries and marketing costs.
Given the ATT IVF depreciation situation with patterns led to higher than U S. Players, while investing more in the execution of new Android mobile users. We also have begun investing more to hire new players outside.
North America as we can see it as an opportunity, especially for <unk> casino.
We believe that this trend away from advertising to Apple users is consistent with that of the <unk>.
Overall mobile gaming industry, and we will continue to monitor that.
In all other.
Hi, this pan itself, our marketing channels to ensure we are meeting or exceeding our internal targets.
As we have discussed in the past, we maintain holding approach to our marketing investments and will not ramp spending nearly to grow users FTE pass our shale hurt those values.
The other factor, reducing our operating expenses was our decision to moderate user acquisition investments for our non social casino app and that sure so bipolar.
As you May recall, we began scaling back marketing activity for and Thats, where it is.
The first quarter of 2020 to enable us to pass new monetization enhancements, while real chart on improvements to monetization metrics, which is in the past months.
It takes suggest.
Not yet we are in mid to beat Accordingly, we plan to continue optimizing feature development.
And as a result, do not envision increasing marketing investments on that or if.
It is important to keep in mind that developing successful new games is not a risk list process as not all Tycho can be game changing here.
It is also important to note that we can develop these new titles within our existing financial model, which allow us to continue generating higher margins positive cash flow and release new games that have a symmetric risk return profile.
Looking ahead, we continue to develop a robust pipeline.
Hi tools outside of the social Casino segment, as we look to diversify our revenue and growth opportunities.
We plan on running new games in the future.
It can be accomplished within our existing R&D budget, all while continuing to reinvest in our flagship dealt with that casino app to introduce new matter features as slot game. For example, we are continuing to work towards the outcome better release of spinning.
Space later this quarter, followed by a worldwide launch targeted in the fourth quarter of 2022, Spanish space has both casino and casino elements.
And therefore attract users within our existing social casino demographic and new users, who prefer non casino casual gaming.
We also have several other gaming apps under development by our internal studios.
And for launch during 2023.
Now I will turn it over to our CFO Jos degrees to walk you through our financials before providing my closing remarks.
Joe.
Thank you <unk> and good afternoon, everyone.
Revenues for the second quarter of 2022 decreased 13, 5% to $86 million from $93 $2 million for the second quarter of 2021.
As I K mentioned, we believe that during the second quarter players became increasingly concerned about inflation and a slowdown in the global economy and adjusted spending on our apps. It is also important to note that the continuation of stay at home or work from home Covid prevention initiatives, we're still.
Positively impacting the business during the second quarter of 2021.
<unk> in 2022.
These initiatives have significantly abated since then.
Our key monetization metrics for the second quarter of 2020 to reflect the trends noted above with respect of player behavior in particular.
Average revenue per daily active user or DAU was 95 cents in the second quarter down from 99 in the second quarter of 2021.
Average monthly revenue per payer was $226 in the second quarter of year over year increase from $218 in the second quarter of 2021 and up slightly from 2025 in the first quarter of 2022.
Lastly.
Payer conversion, which is the percentage of players who pay double down was $2 five two.
2% in the second quarter compared to five 8% in the second quarter of 2021.
Total operating expenses for the second quarter of 2022 increased 71% to $128 6 million from $71 5 million for the second quarter of 2021 <unk>.
The increase was due to a noncash accrual of.
$71 $5 million in the quarter, which was included in general and administrative expenses, reflecting an increase in the low end of the reasonably possible range of loss.
Of $75 million $201 $5 million associated.
David with the legal proceedings related to the bench and class action complaint.
You may recall that the low end of the range set in the financial statements of our quarter ended June 32021 was $3 5 million.
As we have noted in our financial statements. The company continues to review this charge periodically and the preparation of its quarterly financial statement and we consider it appropriate to adjust the possible range of loss at this time <unk>.
Excluding the $71 5 million charge operating expenses for the second quarter of 2022 were down 20% from the second quarter of 2021 and down 6% sequentially from Q1 of 2022.
Of note sales and marketing expenses in the second quarter of 2022 were $18 1 million, representing a nearly $2 million sequential decrease compared to the first quarter of 2022 and lower than the 20.0 million.
Dollars recorded in the second quarter of 2021.
Sales and marketing reduction was based on a combination of continued minimal investment in undead world hero survival as well as a moderation of spending and double down casino in the quarter to acquire iOS users as I mentioned.
<unk> forward, we expend expect sales and marketing expenses to continue at the Q2 level until later in Q4 with the pending release of spinning in space.
It is also worth noting that depreciation and amortization expenses in the second quarter of 2022, or $1 5 million compared to $5 9 million in the second quarter of 2021.
The decrease from the quarter a year ago was due to the completed amortization of certain identifiable intangible assets for which we used to purchase price allocation at the time of the 2017 double down interactive acquisition.
Net income for the second quarter of 2022 reflected a loss of $34 $1 million or a loss of $13 75 per diluted common share and a loss of 69 cents per <unk> compared to net income of $18 $4 million.
Or $8.32 per diluted common share and 40 <unk> per aes in the second quarter of 2021.
Note the weighted average number of Etfs as in the second quarter of 2022 were $49 6 million an increase from the second quarter of 2021 of $44 3 million due to our August 2021 IPO.
Next I wanted to just I want to discuss adjusted EBITDA adjusted EBITDA and adjusted EBITDA margin are non-GAAP measures, which we believe are useful in evaluating our operating performance.
Full reconciliation of these measures to the most directly comparable GAAP measure is available in the earnings release.
Adjusted EBITDA for the second quarter of 2022.
Was $26 1 million compared to $31 $1 million in the second quarter of 2021.
Adjusted EBITDA margin for the second quarter of 2022 was 32, 4% down from adjusted EBITDA margin of 33, 4% for the second quarter of 2021.
The year over year decline in adjusted EBITDA and adjusted EBITDA margin is primarily attributable to the lower revenue in the second quarter of 2022, which I previously described.
Adjusted EBITDA decreased slightly sequentially from $26 $9 million in the first quarter of 2022.
$26 $1 million in the second quarter of 2022, while adjusted EBITDA margin increased sequentially from 31, 5%.
From 31, 5% in the first quarter of 2022 to 32, 4% in the first quarter of 2022 due to the reduction of cost and revenue and marketing and R&D costs.
As I mentioned, the overall reduction in our operating costs, excluding the noncash accrual compared to the second 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 direct.
Lead correlated to our revenue and sales and marketing costs, which are to a great extent discretionary. We believe this gives us an adaptable business model that can generate relatively consistent adjusted EBITDA and cash inflows across many different industry conditions and the ability to react on a timely basis to changes in macro.
Economic cycles.
Cash flow from operations for the second quarter of 2022 was $21 1 million compared to $21 8 million for the second quarter of 2021.
Note that the noncash accrual had no impact on our operating cash flow.
We did not incur any material capital expenditures during the quarter.
Finally, turning to our balance sheet at the end of the second quarter of 2022, we had $284 $4 million of cash and cash equivalents and short term investments compared to $268 2 million of cash and cash equivalents and short term investments at the end of the first quarter of 2022, our total debt.
At the end of the second quarter of 2022 was $38 7 million our cash position continued to improve as we continued to generate positive cash flows from operations.
That completes my financial summary, now I'll turn the call back over to <unk> for his closing remarks.
Thank you Joe.
In closing I want to reiterate the attractiveness, our flexible business model, which we believe enables us to exploit and timely respond to changes in industry and <unk>.
Great economy conditions.
The majority of our operating costs being either directly correlate to revenue or discretionary. We believe we have significant flexibility and a strong ability to maintain high margins.
Additionally, we currently have essentially no capital obligation and minimal debt.
Net cash building minimal fixed cost in the context of our.
Our current cash flow and capitalization position.
These factors.
<unk> to maintain favorable adjusted EBITA margins positive net income and positive free cash flow, which we believe are highly resilient.
Even in downside scenarios, we believe.
Attractive business model, coupled with our strong balance sheet of $171 million of cash and equivalence and short term investments net of debt and the contingent loss of <unk> <unk> compliant.
Yes.
<unk> investment opportunity as we have discussed before.
We are targeting.
<unk>, our business through strategic M&A opportunities, while we of course cannot make any assurances about the timing of a potential transaction. If any we are optimistic about the opportunities. We are currently seeing in the market as our patients.
Approach since our IPO has put us in a tomorrow buying position given the overall back in valuations at associated heightening, our pet care market.
As a reminder, while.
While we intend to exploit.
Opportunities, we would if pack to elaborate our current product development marketing user acquisition and leave us capabilities with good growth prospects strong assets and a half.
As the business model.
We are now happy to take your questions.
Operator.
Thank you we will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
If you are using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Our first question is from David Bain with B Riley. Please go ahead.
Great. Thank you and congratulations on managing the <unk> cash flow.
I was hoping to start with Benson.
IGT recently took $150 million expense for Benson as well and they own double down I believe for most of the years of the complaint period.
That would be covered.
I'm wondering if one that reserve amount Youre reserve amount versus IGT.
If that is contemplated that ownership period second.
Does double you also have any exposure here and then lastly.
You identified.
A number that's more narrow and range does that.
Provide some kind of visibility to more closely look at shareholder return of capital options.
Sorry for the multiple part question, but it's a.
We're excited about the movement in the case.
Yes, no did day. Thanks, so much for your questions obviously, our accrual was.
Something we want everyone to understand.
There is.
Unfortunately, not a lot that I can say about igt's.
Decision with there.
With their reserve.
As most people I think know who are familiar with the case, both IGT and double down our co defendants in the complaint that has been brought by the class or prospective class.
And.
So I really can't comment or do frankly, I have any insight or we have any insight into.
<unk> decision.
With their reserve.
As it relates to double your exposure all I can say is is I think what I, just said a minute ago, which is the codefendants.
In in the complaint are.
US double down and IGT.
<unk> is not a named.
Our party.
And the complaint.
And as it relates to.
<unk>.
The accrual we've taken.
And how it could be.
Viewed relative to Q.
Our cash and to potential capital returns to shareholders.
Let me just state again.
Shareholder return.
<unk> is a primary.
The focus of the company.
And we recognize.
The importance of communicating with shareholders.
Plans and strategies around our cash balance.
As we've talked about.
Before.
We're very focused.
On.
Growing our business Inorganically and I cant made some comments.
On it during his remarks about the status of the M&A market.
And so we're.
Obviously focused on that and have been continued to be focused on potential.
Acquisition.
Clearly.
Cash is important as it relates to protecting ourselves.
And not only fighting whatever legal activities.
We're faced with but also.
If a settlement has to occur.
We have to be mindful of that as well and so.
I think I'll finish by saying, yes.
Echoing what you said, Dave which is we look forward to having this behind us.
<unk> complaint behind us as soon as possible as well.
That was really helpful.
It was encouraging to hear you speak about M&A valuations rationalizing when you're reviewing categories. How broad are you in that search at this point do you look at Pte. The play to earn I gaming or can you give us some ideas as to what category concepts youre either most attract.
Two or would rule out at this point.
Hi, Thank you for question.
We definitely look.
C.
Our candidate.
Hyper casual gaming into.
Industry, and including I gaming and actually we are in.
Goldberg gaming.
So we do.
Two more wider gaming industry as well so.
It has helped.
It helps you.
Okay. Thanks.
So pretty broad base or are you narrowing it at all like in saying.
Certain categories.
There are less attractive than others or just very open.
It's all I have.
I'm sorry.
Yeah, we actually very open to.
Our focus on our candidates, but especially.
Surely we continue to look for hyper casual gaming industry and gaming industry as well so it got it.
Okay. Yeah, no. Thank you very helpful.
The next question is from Greg gave us with Northland Securities. Please go ahead.
Hey, Joe Thanks for taking the questions.
Regarding I guess the trend of the year.
Equation, Harry pressures concerning players and spending less on apps.
Industry wide.
Any thoughts on what that will mean for us.
That continues for sales in the back half of 2022.
I guess as we layer and maybe what other game or two how are you kind of thinking about.
Would it be kind of similar to what we saw in terms of a decline year over year in Q2 or is there anything else you're taking into account there.
Yes, Greg Thanks for the question.
Certainly the trend that we've seen in our social casino business.
Is.
Impacted we think by.
Certain level of pay.
Payer concerned about.
<unk>.
Their pocket books.
That being said.
It's.
Really very positive to see.
That even compared to Q1 of 2022.
Average monthly spend for payers was up was up slightly and as you can see up considerably year over year. So the desire for players who are very engaged.
Typical player game to the point, where they are willing to invest and spend.
Very much seems to be there.
The goal that we have in order to grow our social casino business revenue in the back half of the year is is really around continuing to acquire high quality payers, that's why for us.
Really continuing to monitor our.
User acquisition spend.
And focusing on return on advertising spend.
Metrics, so that we can get high quality not not just engaged players, but payers is extremely important so RK and I talked a little bit about.
Spending more focus in <unk>.
Spending more dollars on the Android side.
And certainly looking at international opportunities. We can guess is important as we continue to look at ways to acquire strong strong new payers and I think if we do that successfully.
We do have an opportunity to.
Two.
Start to turnaround what has been a trend.
Downward trend that we've seen in our social casino business.
And so thats whats going to take as it relates to new apps.
We've always said that layers on top of our social casino business.
It's additive to our revenue there and so.
The launch finian space, our ability ultimately to.
Improve the metrics on that world.
Then of course, if you're looking at 2023, we're pretty excited about the pipeline of games.
That we have in development.
And so that's.
That's <unk>.
Added to this baseline or foundation of revenue we have four.
For our social casino business.
Great very helpful. Joe.
Kind of leads into my next question too if you could expand a little bit more on some of those recent efforts to attract higher value players.
And kind of rightsize their ad spend.
Based on what Youre seeing.
It sounds like targeting new markets, you mentioned Android.
Kind of players to just wondering if you could expand on those efforts.
Pardon me. This is the conference operator, it appears that your speakers connection has draw.
Dropped from their location kind of trying to get them back in here momentarily. Thank you.
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Okay.
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Okay.
Yes.
Yes.
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Yes.
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Let me say we were in.
Hello.
Pardon me everybody. The speaker's line has reconnected Mr. Davis. Your line is open again, if you would like to repeat your question for them.
Sure Yeah. Thank you.
Kind of a follow up I was just wondering if you could maybe expand on those recent efforts to attract some higher value players you mentioned I think targeting new markets, but then also Android based players too.
Just trying to understand how you're maybe maximizing your AD spend and what you are targeting.
Yes sure.
And again I apologize to everyone for the drop yes, I mean, so as we mentioned.
It's important for us to continue to optimize our spend from an ROI standpoint.
But we're also looking to expand.
Not only the number of advertising channels, but also to optimize.
The channels that we have and two.
<unk>.
Provide to them.
What they need to be successful so one of the things that we're working very hard to improve our creative.
And the advertising content that we have.
And can be used to really excite.
Our players.
And potential new players so their focus on new creative.
Is really really important and we're looking to leverage both new features and new slots.
Because the ability for us to kind of leverage the excitement of the new slot release is critical as we've seen.
A pretty nice bump in the cases of new player engagement and new Payor engagement. Most importantly, when we are able to really lean into high performing new slot games.
And so those are some of the things that we're doing of course in addition to.
This.
Our focus on Google and Android players and expanding beyond the.
The U S market.
Okay.
Great very helpful. Last one for me just wanted to follow up on the M&A strategy and great to hear kind of your comments on <unk>.
And good opportunities.
Has I guess.
The M&A strategy changed at all during this period of industry wide headwinds, whether it's just from a from a targets that youre looking at perspective.
We're just timing.
Sounds like valuations are getting better so I just wanted to see if anything's changed at all there.
Yes, no. Thanks, Greg I mean in general I mean, as <unk> said.
We havent ruled out any categories as a result of.
What's happening in the macro economic environment more recently.
I think the biggest change is.
Yes.
The fact, the valuations have become frankly more reasonable now obviously there are some targets well at least potential targets I'll be honest and say no. One that we had really in our sites, but certainly in general what we're hearing from bankers is that some people.
Who were sellers before decided theyre going to wait it out a bit while hopefully things improved from their perspective in the markets.
And.
That said.
That doesn't mean that there is a lag there certainly isn't a lack of opportunity and again I think it's only to the good relative to.
The valuations that we can ultimately secure company for.
Got it thank you.
The next question is from Aaron Lee with Macquarie. Please go ahead.
Hi, Thanks for taking my question.
I wanted to dig into the quarter.
We're a bit more could you describe the cadence of trends through the quarter did April may and June look pretty consistent or was there a point, where you saw trends drop off more steeply just given your comments around.
Macro impacting players thanks.
Yes, I think.
The quarter was pretty consistent relative to what we saw I mean, there is always a bit of.
Seasonality, if you will in that.
In the second quarter in the sense that as summer approaches.
June June generally just becomes.
A little different because schools out and people are generally more active.
Away from their devices, perhaps a bit more but again, that's fairly typical and <unk>.
Relative to some of these other factors.
That we expressed in the call I think.
Yes, it was a fairly consistent set of trends over the 90 days.
Got it okay and can you share which users are.
Being impacted by.
These macro concerns.
And when did you start noticing impact.
Well I think it is.
Hi.
I'll answer the first question. The second question is a little harder, but I do.
Especially and again, if you look in and do the math I mean, if you think about our.
Average revenue per month per payer.
Going up actually sequentially.
Yes.
Yes.
More engaged payer.
It certainly is still engaged.
And it's the kind of the.
The lower value payer.
Which.
It is generally.
Kind of less long lived as it relates to its paying behavior anyway.
That appears to be where we are seeing.
The macroeconomic and inflationary concerns.
Packaging is the most.
The good news is that those those players are the ones that generally get replaced.
And in a kind of a.
A larger way if you will by by new new players and new payers.
And Thats why the focus is on acquiring really good new new players and Payors.
Okay understood. Thank you.
At this time. This concludes our question and answer session I would now like to turn the call back over to Mr. Cigarettes.
Yes. Thank you operator, and thanks, everyone again for your interest in the company and for your participation in the earnings call. Today, we look forward to providing more updates over the next.
Several weeks to the company's progress and look forward to hopefully having you on our call next.
Next quarter. Thank you.
Thank you for joining us today for <unk> earnings call you may now disconnect.