DoubleDown Interactive Co. Ltd. Q1 2023 Earnings Call
Speaker 1: You you.
Speaker 2: afternoon and welcome to Double Down Interactive's earnings conference call for the first quarter and it's March 31st, 2023. My name is Sean and I will be your operator this afternoon.
Speaker 2: Prior to this call, Double Down issued its financial results for the first quarter 2023 in a press release, a copy of which has been furnished in a report on Form 6K filed with the SEC and is available in the investor relations section of the company's website.
Speaker 2: at www.doubledowninteractive.com. You can find the link to the Investor Relations section at the top of the homepage.
Speaker 2: we will open the call for questions. Before we begin, Richard Land, the company's outside investor relations advisor, will make a brief introductory statement. Mr. Land.
Speaker 3: Thank you, Sean. 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 meeting of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended.
Speaker 3: and we hereby claim the protection of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements about future events and include expectations and projections, not present or historical facts, and can be identified by the use of words such as may, might, will, expect, assume, believe, intend, and so on.
Speaker 3: 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.
Speaker 3: F, filed with the SEC on March 31, 2023, and other SEC filings for a more detailed discussion of the risks that could impact future operating results in financial condition.
Speaker 3: 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.
Speaker 3: During today's call management we'll discuss non-GAT measures which are believed by management to be useful in evaluating the company's operating performance. These measures should not be considered superior to in isolation or as a substitute for the financial results prepared in accordance with GAP.
Speaker 3: A full reconciliation of these measures to the most directly comparable GAT 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 is being recorded and will be made available for Replay via a link in the Restorrelation section of Double Downs website.
Speaker 3: Thank you for your patience with that. It's now my pleasure to turn the call over to Double Down CEO , Enkho Kim.
Speaker 4: Thank you, Richard. Graffin and everyone, thank you for joining us on our 2023 First Quarter earnings call.
Speaker 4: The true revenue of $77.6 million was up on a quarterly sequential basis marking our first quarterly sequential revenue increase since the peak of the COVID pandemic period.
Speaker 4: We also continue to generate consistent, attractive adjusted EVP margins.
Speaker 4: and operating cash flow with adjusted EBITDA in the first quarter or so rising on a coral risk control basis to $25.4 million and cash flow from operations of $19.2 million.
Speaker 4: Our solid financial results are based on the ongoing strengths of our flagship Dogtown casino or DDC gaming app.
Speaker 4: who chose to pay, which has established the foundation for our consistent financial results.
Speaker 4: As many of you know, DDC revenue is primarily driven by those who have been playing our games for several years, as opposed to newly acquired players.
Speaker 4: For example, 92% of our 2022 annual revenue was generated by players who were acquired in prior years.
Speaker 4: In January , we announced a definitive agreement for Double Down to acquire Super Nation, which operates three iGaming sites in Western Europe .
Speaker 4: We are working towards gaining the required regulatory approvals and currently expect to close this transaction later this year.
Speaker 4: The position of coordination will further diverse by our sources of revenue by type and geography while marking our entry into the high-growth iGaming sector.
Speaker 4: This acquisition will also allow Double Down to leverage its core competency of creating games that entertain and engage users.
Speaker 4: In that regard, along with our MNA activities, we continue to invest in our own app development initiatives, primarily focused outside the social casino category.
Speaker 4: This includes multiple projects running in parallel that are supported by our game developers in Thor and Seattle.
Speaker 4: During last quarter's conference call, we mentioned that a new gaming app, SpinningSpace,
Speaker 4: During last quarter's conference call, we mentioned that a new gaming app, Spinning Space, had reached soft-runches status.
Speaker 4: While we were optimistic for the potential of this game throughout its development process and approach, the performance metrics seen during the soft launch did not meet our criteria. As a result, we have determined not to move forward.
Speaker 4: with a full global introduction of the game and are refocusing related resources on other game development activities.
Speaker 4: This includes adding these resources to gains that we expect to launch later in 2023. I will highlight that our decision not to move forward with the global launch of CineSpace sticks to our commitment to invest capital only when we are confident that we can achieve appropriate retirements.
Speaker 4: Now I will turn it over to our CFO Joe Segris to walk you through our financials before providing my closing remarks. Thank you, IK. And good afternoon, everyone.
Speaker 5: Our revenues for the first quarter of 2023 were $77.6 million compared to $85.5 million last year. However, as IK mentioned, Q1 revenue increased sequentially from the fourth quarter of 2022, primarily driven by an increase in double down casino revenue.
Speaker 5: KPI highlights for the company include average revenue per daily active user or ARP Dow increased to $1.03 in Q1 2023 from 97 cents in Q1 2022.
Speaker 5: Pair conversion ratio, which is the percentage of players who pay double down, also increased to 5.8% in Q1 2023 from 5.5% in Q1 2022. An average monthly revenue per payer decreased from $225 in Q1 2022.
Speaker 5: Sales and marketing expenses for the first quarter of 2023 were $16.0 million. A 19% reduction compared to Q1 2022 and a 5% lower on a quarterly sequential basis. We believe that our advertising efforts to acquire new players
Speaker 5: expense has been less than $100,000 in the last three quarters, a significant decline from prior periods due to the completed amortization of certain identifiable and tangible assets for which we use purchase price allocation at the time of the 2017 Double Down Interactive acquisition.
Speaker 5: Net income for the first quarter of 2023 was $23.7 million or $9.55 per diluted share and 48 cents per ADS.
Speaker 5: an increase from net income of $18.5 million or $7.46 per diluted share and $0.37 per ADS in the first quarter of 2022.
Speaker 5: The increase was primarily driven by lower marketing and depreciation and amortization expenses.
Speaker 5: Adjusted EBITDA for the first quarter of 2023 was $25.4 million compared to $26.9 million for the prior year quarter. Adjusted EBITDA margin was 32.8% for Q1 2023, representing an improvement from 31.5% for the prior year quarter.
Speaker 5: Q1 2022 and 32.4% in Q4 2022.
Speaker 5: Net cash flows from operations were $19.2 million for the first quarter of 2023, compared to net cash flows from operations of $28.4 million in the prior year period. The decline is primarily due to the timing of accounts receivable payments.
Speaker 5: And finally, turning to our balance sheet, as of March 31, 2023, we had $304.8 million in cash, cash equivalents, and short-term investments, compared to $285.2 million at the end of last quarter.
Speaker 5: Our total debt as of March 31, 2023 was $38.3 million. With regard to our current cash position, we expect to make the final payment for the Benson settlement of $95.25 million by the end of June .
Speaker 5: excluding cash for this payment, cash for our pending supernation acquisition,
Speaker 5: and our debt position, our balance sheet currently reflects a total uncommitted cash and short-term investment position of approximately $136 million, which amounts to approximately $2.74 per ADS.
Speaker 4: Thank you, Joe. The financial power of our social casino platform positions to continue to make return-focused investments in multiple areas of potential growth through both organic developments and M&A.
Speaker 4: Within the core of our social casino business, our development teams are working hard to
Speaker 4: make ongoing enhancements to our flagship app Double Down Casino. In addition to our normal new slot launches, we are also developing new monetization features, such as enhancements to our hybrid mid-room, to drive consistent player entertainment and engagement.
Speaker 4: In the near term, we are excited to close the Super Nation of Patricia.
Speaker 4: which will allow us to quickly enter a new growth market and expand Double Down's gaming reach.
Speaker 4: We believe this position will create strong synergy opportunities between Super Nation and Double Down, and we look forward to starting this work as soon as the current winner of the Yeito Team's B
Speaker 4: acquisition is complete. At the same time, we are continuing to evaluate other M&A opportunities that would leverage our existing strengths in game development, engineering, marketing, and business intelligence to grow our top and bottom lines.
Speaker 4: As you highlighted, we have a very strong uncommitted cash position which, combined with our ability to generate consistent high levels of free cash flow, provides a company with significant optionality to enhance shareholder value.
Speaker 4: We are now happy to take your questions.
Speaker 4: happy to take your questions. Sean.
Speaker 2: Thank you. At this time, we will conduct the question and answer session. As a reminder to ask a question, you will need to press star 1 1 on your telephone and wait for your name to be announced.
Speaker 2: To withdraw your question, please press star 11 again.
Speaker 2: One moment for our first question.
Speaker 2: And our first question comes from David Bane with B. Riley. David, go ahead.
Speaker 6: Hi, IK and Joe. Nice execution on the first quarter. I was hoping first you could maybe unpack and I know maybe following up with what you were just talking about, IK, on the Super Nation strategy just a little bit more maybe near term, long term. What's on the to-do list for the near term synergy execution?
Speaker 6: have you left and incorporate your content, any strategies immediately for customer acquisition that you're going to be implementing near-term and then longer term. Is this something you replicate with other acquisitions similar to SuperNation or do you really just need one?
Speaker 6: kind of horse or platform to potentially tackle other geographies, just kind of big picture roadmap on supernation from a strategic standpoint would be helpful. So Dave, this is Joe. I'm going to start and let IK wade in afterward. So
Speaker 5: As we mentioned in our comments, we're very excited about getting this closed. And we are able to do some preparation work, although not certainly as much as we'd like, because we're chomping at the bit to get going.
Speaker 5: I think, and I'll have IK specifically focused on the product side because we do, as you mentioned, believe that there are great opportunities for us to bring content and technology sharing and that kind of thing to their business. But we also believe that from a marketing
Speaker 5: the ROI of those investments and those kinds of things that we are very interested in leveraging right away and sharing that with the team at Supernation almost immediately. And that's where the kind of day one focus will be.
Speaker 5: As far as you know trying to make an impact Immediately, but you know as I think you alluded to the product side is I think where the real upside is Maybe I can you want to talk a little bit about content technology. Yeah. Hi Dave. This is IK. Hi. Yeah As soon as the occasion is complete we will support
Speaker 4: We will explore B2B business and B2C business.
Speaker 4: We understand social casino user demo and slot contents, how we can make the slot contents, and we understand US user demo. So we look forward to expanding our user demo and geography and slot contents broadly in B2C and B2B areas.
Speaker 6: Okay, perfect. Thank you.
Speaker 6: Yeah, no, definitely. And then my follow up has to be on capital allocation. Thank you for citing the 100 million of uncommitted capital and optionality. You know, I'm hoping to understand it just a little bit more deeply from a technical and strategic standpoint. So I know you made the change on the reserve and your financials, which to my understanding allows for dividends or buybacks in their career.
Speaker 6: Have talks around capital return policy become more substantive? Because by calling this out, it seems like that may be the case. But I just wanted to confirm.
Speaker 5: Yeah, sure. No, I understand. And to answer the first question, you're right, we did make those moves last year to ensure that we weren't beholden to any specific timing.
Speaker 5: impediment if the board chose to do something on the capital return side and at least at this point we know of no other impediment that we would have in case the board wanted to act you know quickly to do something like a buyback or a dividend.
Speaker 5: As it relates to discussions, I mean the board's discussions are ongoing. There is definitely certainly with what occurred with the vote on the dividend.
Speaker 5: and certainly discussions that we've had with investors, a top of mind aspect to the capital return topic from a board standpoint. And like I said, it's definitely something that's...
Speaker 5: you know, a topic that we wanted to really highlight here today.
Speaker 6: about the topic that we wanted to really highlight here today. Awesome. Thanks, OK. Thanks, Joe.
Speaker 2: Sure. One moment for our next question. And as a reminder, if you do have a question, press star 1, 1 on your phone to be put into the queue.
Speaker 2: Our next question comes from Jeff Henriksen with Thorp-Abbot's Capital.
Speaker 7: Jeff, go ahead. Hey Jeff, are you there?
Speaker 7: Jeff, go ahead. Hey, Jeff, are you there? Hello, everyone.
Speaker 8: I'm not hearing Jeff. Can you hear me now? Hi, Jeff. Yes. Okay, great. Yeah, so a couple questions for me. Congratulations on the quarter and the return to sequential growth. First question, year on year, you're still falling whatever it was, 8%. Some of your peers are
Speaker 8: are growing at this point. Why is the disconnect there? Why, I mean, I'm thinking a side play had a pretty significant year on your growth in their quarter. Are you guys not just investing aggressively enough on the marketing side, or maybe get a little bit of color on why we're still kind of seeing negative year on year comps there? I guess maybe start with that question.
Speaker 5: Yeah, I can't comment on what's in the revenue from others, especially those that you mentioned. Clearly one of the focuses that we've had is to both grow in social casino, which is, as you probably know, is a fairly mature.
Speaker 5: flattish industry overall, as well as the layer on top, you know, new businesses that we would, you know, either enter organically or through acquisitions. And so I think the first question, you know, in comparison would be.
Speaker 5: with other companies is what's their social casino business versus other businesses that they may have more recently acquired. That's the first comment. We also are very focused on continuing to manage and maintain.
Speaker 5: you know, our profitability, our even margins. And I think actually not inconsistent with what some of our peers have done, but perhaps not all. We have decided not to be as aggressive in spending on the marketing side to acquire new users as we have seen, you know, CPIs increase.
Speaker 5: And as a result, our overall ROI related to acquiring new users fall. And so, you know, there's a balance between continuing to acquire new users and, you know, bringing those new users along as payers and not overspending as the cost of those users go up.
Speaker 8: Okay, no, fair enough. And I mean, in terms of the stabilization of social casino, I mean, do you think now that we've kind of seen sequential growth, that this is, you know, something we should kind of continue to see it normalized in the quarters ahead coming, you know, post pandemic, the normalization we've seen in terms of One, that is not a Vive.
Speaker 5: how people spend their time and their money, et cetera. Are we kind of getting to a more normalized environment in your view? Well, I mean, it's great that we were able to break the string of sequential declines from a quarterly revenue standpoint. And our focus is to grow from here, not just as a company, but...
Speaker 5: for overall revenue, but also for our social casino business. And, you know, we'll obviously have to see how it goes. But, you know, certainly that's our objective is to continue to grow our social casino business from here.
Speaker 8: Okay, fantastic. And I mean, look, anybody that looks at your business can do some pretty simple calculations and realize how ridiculously cheap this stock appears to be. Do you, is this an internal discussion among, you know, board members of just about kind of how you're being valued relative to peers relative, you know, to the market in general? Is this something that is on?
Speaker 8: your guys's radar and I mentioned it because you know I think I said in the past that you know you kind of get this um you know the market implied cost of equity is really high when you're trading it three times kind of net of cash is this something that is is on your radar in terms of trying to resolve or any color there would be fantastic thanks.
Speaker 5: Yeah, sure, Jeff. Well, I would definitely reinforce the fact that we understand how
Speaker 5: how low our valuation is. And we believe that we are executing on the company's strategy to increase that valuation. And we look forward to that happening. And
Speaker 5: Certainly, you know, there's a recognition that, you know, that's important for us to do. No doubt. Okay. Well, fantastic. Congrats on the quarter, guys. And I have a wonderful rest of your day. Thank you. Yeah. Thanks, Jeff.
Speaker 2: One moment while we bring up our next question. And our next question comes from Aaron Lee with Macquarie. Aaron, go ahead. Hi, good afternoon. Thanks for taking my question. I got dropped from the call, so I apologize if I missed this. But understanding the pause in new game launches.
Speaker 2: How are you thinking about possibly investing to accelerate the internal development of new slot content or maybe striking partnerships for more third-party content? Thank you. Yeah, so thanks Aaron. We spend a significant amount of our…
Speaker 5: development resources on a combination of new content to refresh Double Down Casino, as well as, as we said in the remarks today, the parallel projects that we have going on in the new app area. And that includes apps that are...
Speaker 5: metagame features, et cetera, for Double Down Casino, and then development of new apps, parallel projects to develop new apps outside of Social Casino. We, to date, haven't announced or haven't
Speaker 5: We are able actually to do some potential work in leveraging our controlling shareholder W if we need to, to use their resources potentially if we find that makes sense for us. And we would definitely be willing to do that as well. So we're open to other.
Speaker 5: options beyond our own resources. But at this point, we're primarily focused in using the resources that we've built up in our studios in Seattle and in Seoul.
Speaker 2: Got you. Awesome. Thank you. And yeah, congrats on the nice progress, this quarter.
Speaker 2: Gotcha awesome. Thank you and congrats on the nice progress this quarter. Thank you.
Speaker 2: One moment for our next question. And our next question comes from Greg Gibbous with Northland Securities.
Speaker 2: Hey, good afternoon, Joe and IK. Thanks for taking the questions.
Speaker 5: Sorry if I missed this, just jumping between a few calls, but did you discuss maybe more specifics on the timing of Supernation closing? Well, we didn't, we weren't very specific because it's not possible to be specific. As you know, we need to get regulatory approval.
Speaker 5: from various jurisdictions in Europe , and we are making good progress down those various paths to get approval. And we certainly believe that we will get approval here within the next.
Speaker 5: I'll say short number of months. But it unfortunately there's no way to handicap an exact date or time. But you know we're working very hard with our various advisors to do everything that we can to get it close as quickly as possible. Okay fair enough. Yeah, I was just kind of referring to the
Speaker 5: expected to close later this year in the release. So I just wanted to see if there was anything else, but that's helpful. And you know, wanted to be clear, there's no real change there. I mean, it's inherently, you know, an uncertain timeline when you get started. And so we just keep plugging along. Right, understood. Great. And then, you know, wondering if you could just maybe discuss a little bit more of the specifics.
Speaker 5: relating to the new features that you're adding to Double Down Casino?
Speaker 5: Yeah, sure. So, as you know, one of the most important things that we do as
Speaker 5: as a social casino company, is provide chips to players, both purchase chips, as well as free chips that we give out. And it's important for us to have players enjoy those and...
Speaker 5: and consume them as quickly as they can. And so we are working on new features and I think IK mentioned some enhancements that we plan on rolling out here later this quarter on for instance, our high limit room and the structure of that and how that would work.
Speaker 5: because very much like jackpot features and other features that and sent players to bed up with their virtual chips, and as a result, consume chips faster. That's something that we're excited about.
Speaker 5: you know, providing to Double Down Casino users specifically. Got it. Great. And then I guess lastly, just wanted to follow up on, you know, anything within your control, right, other than kind of, you know, the general trend of the social casino category.
Speaker 5: wanted to get a sense of if there's anything you can maybe specifically do on the sales and marketing side, because I know it's been a little bit tougher on the return that you're seeing there. And also maybe just kind of how that return on sales and marketing has trended over the last several quarters. Is it improving, kind of staying the same, worsening, just trying to get your high level thoughts on that.
Speaker 5: Yeah, as I mentioned earlier, the general trend in costs are they're going up. We have generally seen that
Speaker 5: all else being equal, the ROIs are not there. And if we just have this rising tide of higher costs associated with acquiring new users. Now, if you look inside of that, I mean, one of the things that is kind of the skill and the
Speaker 5: the focus of our marketing team is to find agencies, to find sources of new user advertising partners, et cetera, that can provide pockets of new players that will, you know, will, you know, will.
Speaker 5: be supportive of our ROI targets. And we do find those, and we are spending a considerable amount of money still to acquire new users. But in general, there is a kind of a headwind of rising costs that make us cautious about
Speaker 5: overspending on the sales and marketing side. And you can see that reflective of our sales and marketing costs, especially over the last couple of quarters.
Speaker 5: Got it. Appreciate the color. Congrats on the quarter and I'll follow up offline. Thanks.
Speaker 5: Okay, thank you, Rick. And at this time, I would like to turn the call over to Mr. Sigress for some closing comments. Great, thank you, Sean. And thanks to everybody for joining our call today and your continued interest in double down. We look forward to sharing future updates as we continue to innovate and grow within both the sorts of casino business and certainly the...
Speaker 5: General Mobile Gaming Arena. Thanks again, have a great afternoon. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.