Q2 2023 DoubleDown Interactive Co Ltd Earnings Call

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Yeah.

Good afternoon, and welcome to double down interact as earnings conference call for the second quarter ended June 22023, My name is Sean and I will be your operator this afternoon.

Prior to this call double down issue with its financial results for the second quarter of 2023, and our press release.

A copy of which has been furnished in our report on form 6K filed with the SEC.

Billable in the Investor Relations section of the company's website at Www Dot double down interactive 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. Kim our CFO Mr. Joe Siegrist following their remarks, we will open the call for questions before we begin Richard land the company's outside Investor Relations adviser will make a brief introductory statement.

Sure.

Yes.

Thank you Sean before management begins their formal remarks, we need to remind everyone that some with management's comments today will be forward looking statements within the meaning of section 27 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.

And some of the private Securities Litigation Reform Act of 1995.

Forward looking statements or statements about future events and include expectations and protections not present or historical facts and can be identified by the use of words such as May might will expect assume believe intend estimate continued should anticipate or other similar terms.

Forward looking statements include and are not limited to those regarding the company's future plans mergers and acquisition strategy strategic and financial objectives as expected performance and financial outlook.

Forward looking statements are subject to numerous restaurant 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 FCC on March 31, 2023, and other SEC filings for a more detailed discussion of the risks that could impact future operating results and financial condition.

Dollars with balance slightly on a <unk> basis.

$77.6 million in two 120 20th Street.

Klein if not a typical given the historical Mallory in our business.

We continue to generate consistent property and cash flow.

<unk> in the second quarter rising on a <unk> basis to $27.6 million in cash flow from operations almost doubling your over a year to $38.4 million when the final payment for the <unk>.

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Our flagship doubled down casino or D. V. C gaming App continues to be a driver of our solely financial Rachel.

This is very sticky with its core paying players, which has established the foundation for our consistent financial results, including attractive <unk> and cash flow from operations.

As many of you know.

Revenue is primarily driven by those who have been players for several years.

<unk> described in the past, 92% of our tiny tiny two revenue was generated by players pirate themed years prior to a tiny tiny too.

<unk> from our regional that we have scaled back on our marketing.

Pakistan generating attractive and appropriate return.

Going forward, our marketing investment may increase in the social casino business plan B C improvement any R Y O <unk> help new players and in the retention of existing players.

Given the consistency of the cash flow <unk> casino delivers.

We have significant flexibility too L. O K kept October is establishing a presence in do gaming categories with highly addressable market opportunity.

The new gaming categories that are of interest to us or one that would be complementary to our core social casino operations.

We can leverage our game developers expertise in game creation, and our marketing platform to scale dose.

Faith profitability.

Our one example of our focus on expanding our address for <unk> are pending or <unk> <unk> <unk> <unk> money I gaming sites in Western Europe .

We continue to make progress toward is gaining the required regulatory approval to complete a transaction and now if that too close to petition by the end of the year. We believe the <unk> all the Super Nation, Bill diversify our revenue Thursday at it will mark our entry.

Hi, gross gaming sector.

<unk> to be moving closer to completing the congestion and once we do we will provide additional information for you on our plan to drive cause in this business and build from there.

I gaming is just one game category adjacent to our core social <unk> that we are evaluating or opportunity to leverage our expertise and play your engagement.

And when they <unk> with our game development expertise to dry cough.

We continue to invest in our own App development initiative <unk>.

Doctor switched to a casino category to address the large casual a mobile game category, including four games in the action casual casino.

Adventure genre.

Over the balance of the year.

To introduce new gaming App outside of the switch a casino category and we will support them in a <unk> manner to deliberate appropriate return.

Now your turn it over to our C. F O theory to walk us through our financial risk before providing by closing remarks.

Thank you I K and good afternoon, everyone <unk>.

Revenues for the second quarter of 2023 $75.2 million compared to $88.6 million for Q2 2022 as I came mentioned two two revenue was down three per cent sequentially from the first quarter of 2023, primarily reflecting the seasonality in the business.

Several K P I metrics improved compared to the year ago period, including.

Average revenue per daily active user or opt out increased to one dollar and five cents and two 220 23 from 95 cents to 220 22.

<unk> conversion ratio, which is a percentage of players who pay double down was up 80 basis points to 6.0 per cent into 220 23 compared to 5.2% to 220 22.

Average monthly revenue prepare increased 4%.

$226 and two 220 22 to $235 and Q2 2023.

On a quarterly sequential basis total opry operating expenses decreased from $52.2 million in the first quarter of 2000 $23 million to $47.7 million in the second quarter of 2023 D.

The decrease was primarily due to lower cost of revenue and lower sales and marketing and depreciation expenses.

Sales and marketing expenses for the second quarter of 2023 were $13.1 million a decline of 27% compared to two 220, 22, and 18 per cent lower on a quarterly sequential basis.

We believe that our advertising efforts to acquire new and retain existing players the primary cost and the sales and marketing category will continue to be in this queue to range over the next several quarters.

<unk> K indicated we will continue to evaluate such spend with a focus on delivering the best return of these investments, including with the launch of new gaming apps.

It is also worth noting that depreciation and amortization expense has been consistently staying below $100000 for the last four quarters, a significant decline from prior periods due to the completed amortization of certain identifiable intangible assets for which we used purchase price allocation at.

Time, with a 2017 double down interactive acquisition.

Net income for the second quarter of 2023 was $24.4 million or $9.83 per diluted share and 49 cents per a D S compared to a net loss of $34.1 million or $13.75.

<unk> per diluted share and 69 cents per a D. S. In the second quarter of 2022, which at the time included the impact of a non-cash accrual of $71.5 million related to legal proceedings for the Benton class action complaint.

Jested EBITDA for the second quarter of 2023 was $27.6 million compared to $25.0 million for the prior year quarter.

Accordingly, adjusted EBITDA margin rose to 36.7% for Q2, 2023, representing an improvement from 31.0% and Q2 2022.

And 32.8% in Q1 2023.

Net cash flows used for operations or $56.8 million for the second quarter of 2023, which primarily reflects the payment of $95.3 million towards the litigation settlement.

This was our final payment for this matter and excluding this payment net cash flows from operations was $38.4 million almost double the net cash flows from operations in the prior year period.

Finally, turning to our balance sheet as of June 30th 2023, we had a total of $245.1 million in cash and cash equivalents and short term investments.

Total debt as of the 30th of June was $38.1 million.

With regard to our current cash physician with the final payment for the Vincent settlement now behind us and excluding cash for closing of our pending Super nation acquisition in payment for our that our balance sheet. Currently reflects a total uncommitted cash and cash equivalents in short term investment <unk>.

<unk> of well over $150 million or over $3 <unk>.

This completes my financial summary, now I'll turn it over <unk> K for closing remarks.

Thank you Joe.

We believe the finish our power ops, our social casino platform, including attractive adjusted EBITDA approaches and strong cash flow <unk> to continue investing in multiple areas of potential goes through <unk> organic development and M&A.

For our <unk>, we are focused on driving further and consistent pleasure entertainment value and engagement, which drives higher monetization.

Our development team continues to make enhancement to our flagship App that was done casino development focus includes additional slot gained lunchy as all that the introduction of <unk> features such as Japan and game and pay per view.

As I highlighted earlier.

We are making progress toward completing our <unk> following which we plan to work too.

<unk> the heico's gaming market.

At the same time, we are continuing to <unk> other M&A opportunity at with elaborate <unk> in game development engineering marketing and business intelligence to enter a new gaming category in order to Arthur.

Throw our top and bottom Ryan.

Joe highlighted we have a very strong accommodate <unk> and have continued to generate consistent high level of free cash flow.

We are confident to believe that this position double down to ask an opportunity that will create new value for our shareholders.

We are now happy to take your questions.

<unk>.

Thank you will know conduct a question and answer session.

As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again.

Please stand by while we compiled a Q and a roster.

Our first question comes from Aaron Lee with Macquarie.

[noise] Hi, good afternoon. Thanks for taking my question and congrats on the next result.

Wanted to touch on the Super Nation deal, even though it hasn't closed yet it has been almost eight months since the announcement. So just curious whether there's been any updates or changes with regard to how you're thinking about your strategy around real money I gaming or your confidence in the size of the opportunity.

Yeah, Thanks, Sir and thanks for the question.

I guess the short answer is no you're still extremely excited about <unk> gaming the premise around the acquisition the basis for the acquisition continue.

The hold and we just look forward to you know getting through the regulatory approval process.

And you know put it S. I K mentioned hope to have that done certainly by the end of this year.

Understood. Thank you and then just on.

And capital returns. So you guys have been patient and disciplined with your growth investments and I know you guys have said that you're still looking at other M&A opportunities, but as you guys continue to generate cash flow you know build up cash and just give me the strength of your balance sheet can you just update us on how you're thinking about any potential capital returns.

Sure Erin as as we've discussed our <unk> our primary objective and we believe the thing that will provide the greatest return to to.

<unk> shareholders over time is is growth.

And that's why the focus is on growing the business through various investments that we're looking at relative to as I mentioned, new gaming areas and and certainly also investing in our current business in the social casino business and so again that's.

<unk>, that's our prime objective and that's where we have continued to focus and will be continuing to focus for the foreseeable future.

Got it I appreciate the color thanks, Joe.

One moment for next question.

And our next question comes from David Bain with be Riley.

Great. Thank you uhm congrats on the EBITDA free cash flow result is always the first question I had related to the core social casino growth.

Do you think we could see M. A your growth quarter over quarter, and this quarter and I mean, <unk> conversion and harped, Alex Great. I mean, you guys clearly know how to monetize I look at <unk> play out Tonight margins for 30 per cent, here's where 37, but their growth was higher it seemed like I K indicated.

We may see more offense on sales and marketing is that a sign you're seeing some stability and opportunity in the core social casino market from a growth perspective or deimos read that.

Well I can start and Ikea you can chime in if you want I mean, certainly from Ah Ah Ah.

Player engagement standpoint, and if you look at this industry over the last many quarters.

As it's mature the M. A U D. A U numbers for the industry as a whole and for most of the major players. You know has has contracted and the focus of.

Double down.

As well as I think of our major peers has been less on uhm.

Growing the number of players per se M. A U D a U and making sure that we're being efficient and how we acquire new and retain existing payers as it relates to you know the the the pair and monetization metrics. So we are continuing to do what we can.

Certainly do relative to a player acquisition, but both in the way, we're using our marketing dollars and and especially in in our new features.

And the things that we're doing for double down casino, we're very focused on monetization I'll give you. An example, we rolled out very recently something called the Super high limit room, where the we have the ability now for players two two wage or large large numbers of chips per.

<unk>, even more than they could in the past and those kinds of features that are very much focused not on your.

Let's call it casual player, but certainly on your engage player slash <unk> and and those are the kinds of objectives that would be you know that we have relative to both again and how we're spending our marketing dollars, but especially as we investing in new <unk>, new enhancements to the product itself.

Okay, great. So <unk> and just to be clear, though then we should continue to so you just kind of stability and you know a continuation as a real focus on monetization relative to any kind of uptick in sales and marketing to to promote <unk>.

<unk>.

Yeah, and and just to be clear also I mean, I I did say that relative to our our marketing spend over the next few quarters.

I think I mentioned that we see the the level of spin.

Or at least the next couple of quarters to be consistent almost being equal to be consistent with where we were in Q2.

Got it okay, great and then.

Have you begun to look at your look to your content portfolio and build a strategy with regard to a game conversion. The first Super nation I don't know if that's a relatively seamless technical transition to put it to R. M. G games from social Casino and then if you could touch on your ability to kind of port what you've done.

John and social casino in terms of sales and marketing promos how's that gonna look different than most b to see real money gaming companies out there.

Yeah, <unk>, starting with the content I I you know it has taken quite a while to get through the regulatory process and and we have folks champing at the bit.

To.

You know to help Super nation take take our existing content. So yeah. We're we're we're as ready as we can be recognizing the deal as in clothes, yet and and you know we're very excited and there was a number of folks.

Our our slot development team, who were very excited about bringing the content two two super nation as as soon as possible uhm relative to the the marketing I think that's gonna take a little bit more time to you know to figure out I mean, certainly the the way players are acquired in I gaming is <unk>.

Somewhat different than in social casino and I think as we mentioned in the past for instance, Super nation like a lot of I'd gaming companies heavily use affiliates for <unk> for player acquisition and so you know there's a I think a lot of leverage and and certainly you know from a marketing content and <unk>.

Just a general no social media promotion perspective, there's a lot of overlap, but you know.

We're gonna have to it's probably can't get a little bit more time frankly in the marketing side, then I'd say on the on the content side.

Awesome. Thanks, Joe Thanks, Okay.

One moment for next question.

And our next question comes from Greg give us with Northland Securities.

Good afternoon, and I can enjoy all thanks for taking the questions.

Yeah, if I could just follow up on you know I think he said sales and marketing was kind of get a trend near Q2 weeks like a baseline for the coming quarters wondering.

I'm wondering just because you don't get it if you could put it on other opex trends Uhm VNA and then are the and then maybe roughly kind of seasonality put the top line that you would expect to see and to thank you for.

Yeah sure so relative to the other opex lines I mean, we.

We we don't see much change going forward in queue to from T. Two excuse me you know if you look at or even a result, it. It really was you know the.

The highest EBIT margin that we've had in in actually several years and and that's thanks to the fact that you know obviously, we spent less in sales and marketing, but but for instance, we also spent less than we have done in the last few quarters on G&A now part of that is because.

Thank goodness, we're not spending a lot of money on legal fees for the bench in case any any longer.

And you know so I I think that G&A will continue to be.

At at the queue to level for for the next few quarters, and then R&D at around $5 million, a quarter has been pretty constant and I see that being.

The same going going forward.

I'm sorry, Greg there was a second part of your question I think I mean, I guess it.

Kind of seasonality expectation Oh, Yeah, obviously, you know it kind of depends on how the.

The whole peer group trends right, social casino, but uhm, just general maybe if you'd expect anything different in the second half relevant the typical.

Well I mean Q2 is generally a bit of again, if you <unk> if.

If you just look historically.

A bit lower than Q1, primarily because Q1, there's a there's a you know a lot of.

General.

Engagement with players in January after the Christmas season people get new devices people get excited about using them and playing there's some great holidays, where people love to play social casino like like on Saint Patrick's Day for instance, and Valentine's day, even that you don't have in Q2, and then of course you know.

Q for is generally like Q1 quite strong again holiday driven and people you know, having you know less time outside and more time inside so those are the kind of the main trends that we see you know generally when you think those will hold.

Okay makes sense.

No apologies if I Miss it but do you have an updated timing on the Super Nation acquisition Inclosing like is that gonna be a late Q3 event or do you think it kind of pushes in the queue for and then just how is that <unk> may be sent to first announced that acquisition.

Yeah, So listen I'd love to think we could close it in in Q3, I mean, the the regulators who are going through hopefully the final.

Uhm phases of their approvals are in Europe .

August is a tough time to get much done in Europe with the holiday season et cetera. So you know generally believe that it it's more likely a cue for <unk> to close the deal and and generally I I'd say you know we're right now as I mentioned earlier excited about the business. We're excited about what Super <unk>.

Nation has has developed in their continuing to to leverage what they they have done and are doing can.

Can you that forward so.

You know I just.

We we all just you can't wait to get it close.

Great. Thank you.

One moment for our next question.

And our next question comes from Bryant Riley with be Riley.

Hey, guys I'm, representing the investment side to supply so okay. So.

So W. When public and 15, I think and it's 30 per cent your cut in half.

<unk> put a proposal in front of.

Sure Company that was voted down I've told you that I think this is probably the worst experience I've had an investment in my 27 years.

I've only be Riley.

What's your response to that like what why do you think.

Your stock trades.

You know, obviously, you're gonna make acquisitions, nobody knows which would American it's very much while I'm like a fiefdom, but I just figured like what's your reaction to that.

Well, Brian Thanks for being on the call.

You know as as it relates to the the shareholder vote you know obviously.

W owns a majority of the shares of the company and I I can't we can't speak for them or how or why they both the way they vote. So I mean I just it's not possible to comment on on the W. Does obviously, we from our share price perspective, we we think.

You know.

The share prices is is undervalued I mean as I mentioned in my comments earlier, we have well over $3 per per share <unk> in the bank essentially and the stock is trading around $9. So a third of our value as in cash and we we <unk>.

Believes that.

<unk>, absolutely are committed to growing the business and showing that with growth that in fact, the the stock is considerably undervalued.

Well I guess I would say this is <unk>.

Not a public company with shareholders are really important to me I I talked to them. All the time I consider them partners. This is not a partnership it's you've made a decision not you. Your order has made a decision to act independently I think from what shareholders with like namely.

You know at least a dollar dividend or something that while you go out and make your acquisitions or why you do things with at least we get paid part of the cash for that you generate for our business and that decision hasn't been made his phone number with the resistance and I actually I honestly think it's like the worst I've seen so I know you.

Guys are manage the business I commend how you want it you want it you want it for cash flows and but it's just I don't think you're ever going to get incremental shareholders based on the relationship you have with current shareholders being the underwriter, who actually tender because I was so kind of.

Embarrassed by the communication that the company had with their shareholders. So I just think I really think that I I, maybe I'm speaking to you or maybe it was figure out I think it's a shame and I think it can be fixed really quickly by treating your shareholders like partners.

I don't have anything else opera.

I'm showing no further questions at this time I'd now like to turn the conference back to Mister Seagrass for closing remarks.

Thank John and thanks, everyone for joining the call and we look forward to continuing to update you with.

Progress towards the growth of the company and look forward to.

Talking to you all again soon.

Thanks.

And this concludes today's conference call. Thank you for participating you may now disconnect.

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