Q3 2023 DoubleDown Interactive Co Ltd Earnings Call
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Okay.
Good afternoon, and welcome to double down interact as earnings conference call for its second quarter ending September September 30th 2023. My name is James and I will be your operator. This afternoon. Prior to this call double down issued its financial results for the third quarter 2023, and a press release a copy.
It's been furnished in a report on our form 6K filed with the FCC and its available in the Investor Relations section at the website Ww not dumb.
<unk> doubled down the interactive Dot com you can find the link in the Investor Relations section at the top of the homepage joining us on today's call are double down CEO Mr. Kim.
Thank you James before management begins their formal remarks, we need to remind everyone that someone's management's comments today will be forward looking statements within the meaning of section 27 day 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.
The safe Harbor provisions of the private Securities Litigation Reform Act of 1995 forward looking statements or statements about future events that 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 believes intend estimate continue should anticipate or other similar.
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We're looking statements include and 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 March 31, 2023, 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 obligations to update or alter the forward looking statements, whether as a result of new information future events or otherwise except as required by law.
During the call management will discuss non-GAAP measures, which I believe by management to be useful in evaluating the company's operating performance.
These measures should not be considered superior to an isolation or as a substitute for the financial results prepared in accordance with GAAP. A full reconciliation of these measures to the most directly comparable GAAP measure is available in the earnings release and on our form 6K filed with the SEC. Prior to this call I would like to remind everyone that this call is.
And recorded and will be made available for replay via a link in the Investor Relations section of double Downs website with that it's my pleasure to turn the call over to double down C. E O N called Kim.
Thank you rich.
Good afternoon, everyone. Thank you for joining us on our tiny tiny three third quarter earnings call.
Q3 revenue of $73 million was down slightly on a parallel basis from $75 $2 million in Q2, 2023, a decline to a significant extent lap our continued focus on optimizing our advertising spend.
To deliver profitable revenue.
As such we continue to generate consistent profit and that's it.
Adjusted EBITDA in the third quarter.
Adjusted EBITA for the third quarter it rose.
Year over year and on a quarterly sequential basis to $29.7 billion cash flow from operations.
<unk> increased $6 5 million.
Year over year to $28.7 billion.
Our flagship <unk> casino or DDC.
To be the driver of our solid results.
It includes contribution to operating cash flow.
The $86 million through the first nine months of the year if clothing.
The final payment to the best in class action settlement.
It is it continues to be very sticky.
Its existing core paying players as evidenced by the increase.
Achieving an average monthly revenue per payer, which have established the foundation for our consistent financial results, including attractive adjusted EBITDA margins and cash flow from operations.
As many of you are now is if the revenue is primarily driven by those who have been buying our English style games for several years.
As opposed to a newly hired players.
With the majority of revenue in any quarter regenerated by players have hired in previous periods.
As we have discussed this is supported by our marketing refinements and optimizations as we focus on generating attractive and appropriate returns.
Going forward, our marketing investment in the social casino business.
And on our ability to intelligently forecast improvement in DIY.
Jason.
Players and in the retention of existing payers.
In place that we are managing the business for.
Appropriate ROI on marketing spend to deliver the high cash flows.
We've previously discussed that the consistent cash flow generated by DTC provides us greater flexibility to allocate capital towards establishing a presence in new gaming categories that have highly addressable market opportunities and that are complementary.
Two our core social casino business.
In this regard last week, we completed the acquisition of Superannuation, which operates three we are money I gaming sites, primarily focused on online gambling in western Europe.
So part of nation has strong and growing our player base in markets such as Sweden.
In the UK and we believe they are poised for growth.
In fact wire superordination generated unaudited revenue.
$24 million in 2022 it is estimated that a European online gambling market will be at rate will reach $48 billion. This year. So we do see a lot of opportunity for us.
Section.
We are working to quickly leverage those with down's product development expertise to enhance a franchisee. It online casino player experience subordination offers on their doors and ice creams and <unk> sites.
We also expect to take advantage of both Allen excellence in player engagement.
And monetization.
Let me provide a little color on some of our nation recent progress and the opportunities.
We seek to scale that business.
For the first nine months of tiny tiny three air revenue rose approximately 5% compared to the same period, a year ago and they continue to operate at essentially adjusted EBITDA breakeven Aldi.
Earlier this year the company obtained licenses to operate in Estonia, and we've packed a lunch in this market in the first half of 'twenty 'twenty four.
Along the oxidation, we see opportunities to enhance our marketing efforts to accelerate growth, especially in our nation's largest current market of the U K and Sweden.
At the same time, we will be fine tuning, so foundations operational processes and coding with compliance tools, which will help position.
The business to handle a larger player base as they scale.
Robust that double down are excited to come to <unk>.
Foundation came to the company.
And I'm personally looking forward to working closely with so that comes up man and Anderson <unk> co chief executive officers of superannuation and their entire team to help bring the business to the next level.
The I gaming sector is just one of several of our complementary gaming categories that are of interest to us additional heico's gaming categories, where we can leverage our core competencies.
A very large casual mobile games category, which has gangs into puzzle CASM and skill match and adventures on this week.
We plan to support these apps in a capital efficient manner to deliver appropriate returns.
Now I will turn it over to our CFO Jos decreased to walk you through our financials before providing my closing remarks.
No.
Thank you I Kay and good afternoon, everyone. Our revenues for the third quarter of 2023 were $73.0 million compared to $78 $8 million last year.
I cant mentioned Q3 revenue was down 3% sequentially from the second quarter of 2023, primarily reflecting the lower marketing expense, coupled with our belief that consumers remain somewhat cautious about the global economic environment and the prospects for continued inflationary pressures that.
Said, our current quarter the fourth quarter of the year is historically a seasonally positive one.
And we have seen encouraging payer behavior trends since early October of this year.
In the third quarter, several kpis metrics improved compared to the year ago period.
Including average revenue per daily active user or opt out increased to $1.06. In Q3 2023 from 96 cents in Q3 2022.
Payer conversion ratio, which is the percentage of players who pay double down.
70 basis points to five 9% in Q3 2023 compared to five 2% in Q3 of 2022.
Average monthly revenue per payer increased 9% from 2200 $25 in Q3 of 2022 to $245 in Q3 of 2023.
On a quarterly sequential basis total operating expenses decreased sequentially.
From $47.7 million in the second quarter of 2023 to $43 $3 million in the third quarter of 2023. The decrease was primarily due to lower cost of revenue and lower sales and marketing expenses.
Sales and marketing expenses for the third quarter of 2023 were $10 6 million a decline of 39% compared to Q3 of 2022 and 19% lower on a quarterly sequential basis.
Our efforts to acquire new players through advertising, which represents the primary cost in the sales and marketing category continued to reflect our focus on spending to ensure we deliver the best return on this investment.
At this point, we believe that near term sales and marketing expenses for the core social casino business will remain consistent with the trend over the last few quarters.
Net income for the third quarter of 2023 was $26 $9 million or $10.87 per diluted share and 54 cents per <unk> compared to a net loss of $24.0 million or a loss of $9 60.
<unk> per diluted share and 48 cents per <unk> in the third quarter of 2022.
Note that Q3 2022 results were impacted by a noncash accrual of $71 million related to legal proceedings for the bench and class action.
As a reminder settlement of the Benson matter was finalized including all settlement payments in June of this year.
Adjusted EBITDA for the third quarter of 2023 was $29 $7 million compared to 25.0 million for the prior year quarter. Adjusted EBITDA margin was 47% for Q3 2023, representing an improvement from 31, 7%.
In Q3, 2022, and 36, 7% in Q2 2023.
Through the first nine months of the year, we have generated adjusted EBITDA of $82 $8 million up 8% compared to the same period in 2022.
And the adjusted EBITDA margin for the first nine months of this year.
Is 36, 7%.
530 basis points compared to the same period last year.
Net cash flows from operations were $28 $7 million for the third quarter of 2023 compared to $22 $2 million in the prior year period, primarily reflecting higher operating income.
And finally, turning to our balance sheet.
As of September 32023, we had $271 $2 million in cash cash equivalents and short term investments.
Our total debt as of September 30 was $37 $2 million.
After the payment of $36 $5 million in cash to acquire Super nation at the end of the month.
<unk> of October and excluding the debt our net cash position is approximately $200 million or $4 per <unk>.
This completes my financial summary, now I'll turn the call over to <unk> for closing remarks. Thank.
Thank you Joe.
Our core social casino platforms continues to generate attractive adjusted EBITDA margins and strong cash flow and with the recent acquisition of superannuation.
We are investing in a high cost gaming category that we believe there'll be wrong, Tom gross driver for the business.
For our core social casino business, we will remain disciplined disciplined in our focus to drive ongoing improvements in Playa entertainment value driving higher engagement and greater monetization.
As I highlighted earlier.
With the expiration of Supination now complete we are moving quickly to integrate our business to bring our combined expertise in game creation marketing.
Player engagement and monetization to bear two <unk>.
On the executing growth opportunity we see.
As Joe highlighted rehab.
We have a very strong accommodate cash positions and continue to generate consistent high levels of free cash flow.
It provides us.
With the foundation and flexibility.
Evaluate other M&A opportunities.
Leverage our existing strengths and game development engineering, marketing and business intelligence, allowing double down to further grow our top and bottom lines and create new value for our shareholders.
We are now happy to take your questions operator.
Thank you at this time, we will conduct a question answer session. As a reminder to ask a question you need to press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Please standby, while we compile the Q&A roster.
Yes.
And our first question comes from Aaron Lee for Macau Corey.
Hey, guys. Thanks for taking my question I wanted to start with Super Nation first congratulations on closing the deal and.
And second I think you said Super nation has been running at EBITDA breakeven.
Can you help us think about the EBITDA contribution you expect for 2024 and any color on the synergy opportunity.
Sure. Thanks, Eric I appreciate that.
Relative to 2024 that the main focus is.
The business is to help them scale.
We think they have.
Really strong product.
And certainly with especially their duals brand strong.
Brand.
And.
And and feature capability.
And we really want to help them.
Like the fire to gain more players.
To that end, we will be assisting them in.
Investing more in marketing both on the dollar side and also with the assistance of our marketing acumen and capability that we have created over the last 10 plus years with our social casino business.
To that end, we do see them.
In 2024, becoming EBITDA.
Positive, but I think that would be more towards the back half of the year end.
That is.
Kind of the focus of.
How we're looking at at the business at least over the next 15 months or so.
Understood Thats great.
And then.
Now that Super nation as in the fold.
I guess, how are you thinking about the allocation of your development and marketing resources and time and effort is it roughly split between Super nation in the legacy social casino portfolio or does it kind of lean one way over the other.
Well I mean, if you look at even after the acquisition closes I mean Super Nations business is still less than 10% the size of our social casino business.
So from a from an allocation standpoint.
Okay.
The main quote businesses, our core business simply from a volume standpoint that being said, we do see.
As I mentioned previously growth opportunities that are significant with with a small market share. They have now and b that the ramp that we see analysts suggest as far as how large the opportunity is I gaming in general So we definitely will be leaning into them.
Relative to especially the marketing as I said before but there is no doubt that from a just a sheer volume standpoint.
The social casino business is still the.
The largest by far part of our company.
Okay got it thank you very much and I'll hand, it off.
Thank you. Please standby for our next question. Our next question comes from Greg give us from Northland Securities.
Yes.
Hey, guys. Thanks for taking my questions.
If I could follow up on Super nation.
Todd you mentioned positive performance I don't know if it was one of the most recent period, but just curious how they performed maybe year to date relative to 2022 revenue of $24 million.
Yes, I made a comment Greg that from a nine months.
Perspective in 2023 versus 2022 their revenue was up about 5%.
They are.
Are still at least for the first nine months and throughout the 2023 year.
We'll be operating in the same markets that they were operating in and have been operating in in 2022 with the largest being by far in the U K and Sweden, they've been making good progress in those markets.
As I mentioned to the answer to Aaron's question as we go into 2024.
The scale, we believe is going to come from.
Since that.
They need and we will be giving them relative to acquiring new players in there in their current markets with of course the Estonia.
A little bit of a frosting on the cake as they now have an additional market they could add to the business.
Perfect. Thanks for clarifying and if I could follow up there too as well could you maybe speak to some of the levers are the strategies that you're aiming to use to improve their operations I mean, I guess, if you could just maybe readdress the synergies that'd be helpful. Yeah, No. It's good.
Okay summarized at the end of his comments, I think well, which which is.
Game creation, which is development and assistance relative to.
Slot games I mean, we have slot games that we are working on now to convert to.
The I gaming.
Model that they'll be using but also.
Really.
Technology and as the as well as that is the underpinning of their games and I think we've used in the past example, they don't have native mobile apps, yet so when you log onto any either well any of the three sites that they have on your phone you're going through.
Safari, if it's an iPhone and.
Playing essentially a web site and we think that it will be very helpful to help them develop a native app for instance.
I found it and for Android as well so thats one area. The second is around marketing, which includes the <unk>.
Primarily the acquisition of new players, but also retention which is in.
Extremely important part of the double down business and how we believe we can assist them in.
Marketing creative and different strategies as far as.
The various <unk>.
Partners that we use that we can bring to bear for them relative to digital ads.
Again acquire but as well retain players and then the entire.
Let's call it live ops category, so everything that starts with business intelligence and analyzing the player base and then taking the appropriate action relative to sales and offers.
Even how that feeds into product development relative to new meta features et cetera.
They're all things that we're working.
Very closely with them from the very start of the close of this acquisition.
Great extremely helpful and I guess last one.
Regarding the pullback in sales and marketing spend seems to have really driven the improvement in adjusted EBITDA and.
Just wondering if I could get your thoughts on that decision, maybe retroactively or like after the fact did it confirm kind of your ROI expectations that you had regarding the decision to pull it back.
Well did it confirmed I mean, the reality is that the if I can use that we're tuning.
Our marketing spend is.
It's almost like a real time process.
We don't go in necessarily saying.
It's going to be at this level or that level. We go in saying we need to achieve a certain ROE as return on AD spend our ROI and then we tune.
Essentially in real time.
Based on on what we see from from the results from three day and seven day returns on various campaigns. We run various partners that are engaged in those campaigns et cetera.
So.
As I highlighted in his comments the focus is and I think we've been very consistent we talked about that is on getting the return.
Not on spending.
X or y or Z amount of money.
Because if you get the return then we're happy to spend the money, but if we're not.
I don't know how to say this but were happy not to spend the money.
The return is the most important thing.
That makes sense.
Oh, yes.
To support Joe's comment, so basically marketing environment and platform are changing rapidly.
Efforts, Ken and so on and we have been maintaining our efficiency very well.
He used our own analysis and forecast told based on our internal AI models. This is an ongoing process that we are going to keep leveraging AI for our internal tools within our internal platforms.
Based on a lot of ESP data and partner SATA based on amendment piece accumulated attributions, we do see some improvement so far and we will keep refining efficient processes to avoid a petition between marketing channel.
So hope that helps.
Got it yeah that makes sense thanks, guys.
Thanks, Greg.
As a reminder to ask a question you need to press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.
Please standby.
And our next question comes from Aaron Lee from Macquarie.
Yeah.
Hey, just a couple of quick follow ups.
Yeah, just on Super Nation seasonality does it roughly match the seasonality of your social casino business.
At this point.
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The size of their revenue and how they've been ramping their revenue makes it hard for us to predict or to look back even over the last couple of years and say this is their their seasonality I mean, we know that I gave me in general like most mobile gaming and gaming products in general do have.
A bit of a summer drop off, especially in August and Western Europe, but.
At this point, it's hard it's hard to know what the exact seasonal pattern will be for.
For Super Nation and.
Well, we'll be learning as we go forward.
Okay, Yes fair enough.
Ramping assets, Yeah, you kind of have to throw seasonality out the window sometimes.
Just one more for me.
You know in the past we've talked about your development pipeline is there anything on the horizon that we should be mindful of or is this should we consider this more on the back burner as you focus on the supination integration. Thanks.
Yeah, No I mean, I wouldn't say, it's on the back burner, and we definitely have new gaming.
Apps under development.
And where.
We're actively testing concepts.
Yeah.
Our.
Hard at work on our organic.
Activities and projects and.
Well, we'll give you more information about those especially as those products launch.
Okay perfect. Thank you very much.
Thank you.
I show no further questions at this time and this does conclude the question and answer session double down interactive. Thanks, you for participating in today's conference. This does conclude the program and you now may disconnect.
Thanks, everyone.
Okay.
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Yeah.
Okay.
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