Q3 2024 DoubleDown Interactive Co Ltd Earnings Call
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Daniel: Good afternoon and welcome to Double Down Interactives, Earnings Conference Call for the third quarter and it's September 30th, 2024. My name is Daniel and I will be your operator this afternoon.
Daniel: Prior to this call, Double Down issued its financial results for the third quarter of 2024 in a press release, a copy of which is available in the investor relations section of the company's website at www.doubledowninteractive.com.
Daniel: You can find the link to the Investor Relations section at the top of the homepage.
Speaker Change: Joining us on today's call are Double Down CEO Mr. In Kook Kim and its CFO Mr. Joe Sigrist. Following their remarks we will open the call for questions.
Speaker Change: Before we begin, Richard Land, the company's Investor Relations Advisor, will make a brief introductory statement. Mr. Land?
Thank you, Daniel, before management begins their formal remarks.
Speaker Change: We need to remind everyone that some of Management's comments today will be forward-looking statements within the meaning of Section 27a
Speaker Change: of the Securities Act of 1933 is amended, and Section 21E of the Securities Exchange Act of 1934 is amended, and we hereby claim the protection of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Speaker Change: forward-looking statements are statements about future events and include expectations and projections not present or historical facts
Speaker Change: and can be identified by the use of words such as may, might, will, expect, assume, believe, intend, estimate, continue, should, anticipate, or other similar terms.
Speaker Change: Forward-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.
Speaker Change: 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 Change: 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 Change: During the call, management will discuss non-gap financial measures, which are believed by management to be useful in evaluating the company's operating performance.
Speaker Change: These measures should not be considered superior to, in 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 issued this afternoon.
Speaker Change: I would like to remind everyone that this call is being recorded and will be made available for replay via a link in the Investor Relations section of Double Down's website.
Speaker Change: With that, it's now my pleasure to turn the call over to Double Down CEO in Cook, Kim.
Thank you, Richard.
Kim Cook: Good afternoon, everyone. Thank you for joining us on our 2024 third quarter earnings call.
This afternoon, we reported strong financial results.
Kim Cook: with a third quarter with consolidated revenue rising 14% year-over-year to $83 million, which helped drive a 22% increase in adjusted EBITDA to $36.1 million.
Kim Cook: Total Q3 revenue was comprised of $75.2 million dollars generated by our social casino, Free2Play Games.
Kim Cook: and 7.8 million dollars generated by SuperNation, our iGaming business acquired in Q4 2023.
Kim Cook: Q3 was the fourth consecutive quarter of year-over-year revenue growth for our free-to-play social casino business.
as it was up 3% compared to Q3 2023.
Importantly, our top line growth.
is being achieved within our criteria of consistently converting.
Revenue to Profit and Cash Flow
Regenerated
cash flow from operations of $31.8 million.
Kim Cook: in the third quarter of 2024 and for the first three quarters of 2024 we have generated in aggregate more than $101 million of cash flow from operations.
Double Down Casino consistently drives our growth and results.
as we again generated strong year-over-year increases.
Kim Cook: and some of our most important KPIs, including ARPDAU, average monthly revenue per payer, and payer conversion rate.
Kim Cook: The growth of our social casino business over the last four consecutive quarters has been in part driven by continuous release of new meta features for Dover Down Casino.
Kim Cook: Focusing on player and payer retention, we continue to adjust and enhance these features to deliver high levels of excitement and engagement among Double Down Casino players.
Kim Cook: Turning to Supernation, Q3 revenues of $7.8 million for Supernation was again above our estimates of what the business quarterly run rate was prior to our acquisition in late 2023.
Kim Cook: In Q3, we continue to be disciplined with spending on player positions in line with our approach for our social casino business.
Kim Cook: The industry-wide margins for iGaming businesses are attractive once scale is achieved.
as we continue to gain experience in operating this business.
Kim Cook: We see a strong path towards scaling supernation's top line, and we believe we can do so in a manner that is consistent with our focus on driving positive cash flow.
as we have previously discussed.
Kim Cook: Our approach towards scaling supernation will include leveraging our strengths, such as our product development expertise.
Kim Cook: and our marketing platform to improve Supernation profitably. We continue to believe that Supernation will be a long-term driver of top-line growth and cash flow generation for Double Down.
Kim Cook: With a year of owning and operating SuperNation as an example, we are increasingly confident that we can leverage our core strengths.
Kim Cook: financial discipline and strong balance sheet to further diversify our company to new gaming categories.
that have a highly addressable market opportunity.
Kim Cook: And we have a pipeline of additional internally developed mobile games that we hope to launch in 2025.
Kim Cook: We also continue to evaluate M&A opportunities that would meet our criteria for expanding operations into new markets while further diversifying our sources of revenue and cash flow.
thereby creating new value for shareholders.
Kim Cook: Now, I will turn it over to our CFO, Joe Sigrist, to walk us through our financials before providing my closing remarks. Joe?
Thank you IK and good afternoon everyone.
Joe Sigrist: Our revenues for the third quarter of 2024 were $83.0 million and were comprised of $75.2 million in revenues from our Social Casino free-to-play games and $7.8 million of revenues from SuperNation.
Joe Sigrist: This compares to total company revenues of $73.0 million last year.
Speaker Change: As I.K. mentioned, Q3 social casino free-to-play revenue was up 3% year-over-year, our fourth consecutive quarter of year-over-year growth.
Speaker Change: In the third quarter, several KPI metrics for our social casino business improved, again, compared to the year-ago period, including
Speaker Change: Average revenue per daily active user, or ARPDAU, increased to $1.30 in Q3 2024 from $1.06 in Q3 2023, marking a 23% increase.
Speaker Change: Payer conversion ratio, which is the percentage of players who pay within the social casino apps, increased to 6.8% in Q3 2024 compared to 5.9% in Q3 2023.
Speaker Change: And average monthly revenue per payer increased 15% to $281 in Q3 2024 from $245 in Q3 2023.
Speaker Change: Double Down's continued growth in social casino requires ongoing focus on product development and marketing execution, as well as a continuation of the positive macro effects that has driven the U.S. economy more recently.
Speaker Change: Given our recent performance, we anticipate that year-over-year comps will become more challenging going forward.
Speaker Change: Operating expenses rose on a year-over-year basis and declined on a quarterly sequential basis.
Speaker Change: to $47.7 million, compared to $43.3 million in the third quarter of 2023 and $52 million in the second quarter of 2024.
Speaker Change: Operating expenses for the 2024 third quarter include the operating expenses associated with our ownership of SuperNation, which we did not own in Q3 2023.
Speaker Change: These were partially offset by lower sales and marketing and research and development expenses for our social casino free-to-play operations.
Speaker Change: Sales and marketing expenses for the third quarter of 2024 were $8.9 million, a decline of 16% compared to Q3 2023, and down 20% on a quarterly sequential basis.
Speaker Change: In Q3, we continue to focus on optimizing spending to acquire new players for our flagship social casino app, Double Down Casino.
Speaker Change: This is particularly important as the cost to acquire new players continues to rise due to the large investments now being made by sweepstakes games publishers.
Speaker Change: We also continue to be measured in our approach to ramping the top line of Supernation as we manage this business to establish the foundation to generate consistent profitability and cash flow.
Speaker Change: Debt income for the third quarter of 2024 was $25.1 million, or $10.11 per diluted share and $0.51 per ADS.
Speaker Change: compared to net income of $26.9 million or $10.87 per diluted share and $0.54 per ADS in the third quarter of 2023.
Adjusted EBITDA for the third quarter of 2024, increased 22%.
Speaker Change: to $36.1 million compared to $29.7 million for the prior year quarter. Adjusted EBITDA margin was 43.5% for Q3 2024, representing a 280 basis point improvement from 40.7%
in Q3 2023.
Speaker Change: The improved margin mainly reflects the third quarter year-over-year revenue increase.
Speaker Change: Net cash flows provided by operating activities for the third quarter of 2024 were $31.8 million compared to $28.7 million in the third quarter of 2023. The increase is again driven by higher comparable revenue.
Speaker Change: And finally, turning to our balance sheet, as of September 30, 2024,
Speaker Change: We had $373 million in cash, cash equivalents, and short-term investments.
Speaker Change: with a net cash position at quarter end of approximately $335 million or approximately $6.76 per ADS.
Speaker Change: That completes my financial summary. Now I'll turn the call back over to I.K. for closing remarks.
Thank you, Joe.
Speaker Change: Our operating momentum remained on track in Q3, with year-over-year growth in our core social casino business and continued solid performance of our SuperNation iGaming business.
Speaker Change: In closing, I want to reiterate that for both our social casino and iGaming operations,
Speaker Change: Our strategies to continue driving higher player engagement and monetization are being implemented consistently with our capital efficiency discipline.
Speaker Change: We will continue to enhance the entertainment value of Double Down Casino while remaining a death point in our user acquisition.
Speaker Change: and R&D stand to drive strong profitability and free cash flow.
Speaker Change: As previously mentioned, we have also focused this year on increasing direct-to-consumer revenue, thereby enhancing social casino profitability as we offer players different ways to make purchases.
Speaker Change: These efforts have progressed well so far, and this will be an ongoing area of attention for the company.
Speaker Change: And our strategies to scale supernation are being implemented and we expect the positive result of these efforts to become more evident in 2025.
Speaker Change: Double Down has established a track record of consistently generating attractive free cash flow.
Opportunities in Adjacent Gaming Categories
through our in-house development efforts and through potential M&A opportunities.
We are now happy to take your questions.
operator.
Speaker Change: To ask a question, please press star 1 1 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 compile the Q&A roster.
Speaker Change: Our first question comes from David Bain with B Riley. Your line is open.
David Bain: Great, thank you, IKHL, appreciate the commentary. First, I was hoping, I know IK touched on it towards the end of prepared remarks, but the direct-to-consumer piece. It looks like cost of revenue is down 60 basis points, quarter of a quarter, 120 basis points from
David Bain: One Q, I assume that drops a profit and it's largely reflective of D to C efforts. Unless there was something going on with third party content versus your proprietary mix in a big way. And I'm just hoping we can...
David Bain: Unpack that just a little bit more today, like the mix, where it is, versus longer term goals, and then I have some follow-ups on it as well. I'll keep it with that subject.
Great, thanks Dave. Yeah, as I.K. said, D2C
Speaker Change: efforts are a big part of our strategic focus and has been since, really, the end of last year. As he mentioned, we're making very good progress.
I do believe it
Speaker Change: The progress has contributed some, at least to the improvement in roast margins. There are, as you said, other factors like
Speaker Change: a mix of royalty, games, et cetera, but it definitely is a contributor, and we think it will continue to be a contributor.
Speaker Change: to gross margin improvement as we move forward. We're on a journey that, as I said, began late last year in earnest.
Speaker Change: We continue to improve every quarter as we look to get players to be more interested in the alternative to purchasing chips. And, you know, we're working hard on various product and marketing levers to get that done.
Speaker Change: Okay, great. Is there any way you can give us an idea of what...
Speaker Change: you know, the mixed shift has looked like. I know that...
Speaker Change: sort of the market share leader in the space is close to 30% at this point, I assume you're
Speaker Change: Not at that level, but maybe, you know, if you can give us a broad-based idea of where you are. And, you know, how do you hedge creating play or fiction? And then my last question around this, I promise, is, you know, processors, what they're charging,
Speaker Change: versus the typical platform fee of 30%, that would be really helpful.
Speaker Change: Great. Well, I'm glad you highlighted the risk, and as you mentioned, we are behind, if you can even use that word, what others may be
Speaker Change: doing as far as their conversion, if you will, to D2C revenue, and we are
Speaker Change: We're being careful. I mean, we don't want to create the friction. I mean, as I think we all know on this call,
Speaker Change: We get more out of our players from a payment standpoint than anyone. And so we're especially
sensitive and
Speaker Change: are respectful of our players as it relates to adding friction.
Speaker Change: and so we want to do this, and we believe are doing it in the right way and at the same time we are going to take our time and we're going to do it in a way that generates greater margins but at the same time doesn't negatively impact revenue.
Okay, fair enough. Thank you. Great execution again.
Thanks Dave. Thanks.
Speaker Change: Thank you. Our next question comes from Aaron Lee with Macquarie. Your line is open.
Hey, good afternoon. Thanks for taking the question.
Speaker Change: I wanted to touch on Supernation, you know, understanding that your strategy here is still, you know, focused on growth mode and player acquisition and converting.
Speaker Change: those players to payers. Just curious, when do you think is the right time to start pursuing some of the synergies that you've talked about, like game development, like live ops?
Is that something you see yourself tackling in 2025? Thanks.
Speaker Change: kicked off, and in some cases began, in earnest, executing on programs to bring games to the
Speaker Change: to their platform, games from a social casino perspective to their platform.
And also from an engineering standpoint, we have
Speaker Change: We have initiated work there. We do, in fact, have folks in Malta, where they're based, from our Korean offices as we speak, assisting in implementing these projects.
Speaker Change: So, you know, real work has gone on. As far as the payoff, if you will, for those, I think I.K. had mentioned that we're excited to really start seeing the benefit of some of this Synergy work in 2025, and that's really been our focus.
Okay, understood. That's helpful. As a quick follow-up...
Speaker Change: Touching on monetization, you've obviously done a really good job making gains this year. It seems like the product roadmap is really working out.
Speaker Change: Have there been any learnings that you can apply next year to kind of keep the momentum going here just in terms of meta features or events or balancing the game economy, anything of the sort? Thank you.
Yes, it's okay. Hi, Aaron.
Speaker Change: Actually, Lucky Orbs, Flame Power, Wonder Cards, and Mission Pass, all these kinds of meta features and rewards could always satisfy users and give them motivation to play more. You know, DVC has been one of the pioneers in the social casino space for over 14 years.
Speaker Change: We focused on providing our users with fun elements through slot content and meta content. However, as we introduced more features and benefits for the users in recent years,
Speaker Change: The content flow and economy became complicated, so last year we refactored and reformed many flows and features from the user experience perspective.
Speaker Change: So, we will continue to experiment with fun retention features as we've been working hard in the past.
Thanks.
Great, thank you. Nice quarter.
Thanks, Eric.
Speaker Change: Thank you. And our next question comes from Greg Gibbous with Northland Securities. Your line is open.
Speaker Change: Great, good afternoon IK and Joe. Congrats on the quarter, thanks for taking the questions. You know regarding your commentary on having increased confidence in your ability to leverage your core strengths to newer gaming categories, I just
Speaker Change: You know, and I guess expand to further diversify revenues and cash flows, you know, would you say, I just wonder if you could speak to maybe does that mean, you know, you're looking more at kind of M&A prospects there in terms of diversifying revenue further or.
Speaker Change: maybe how it relates to your organic growth pursuits as well.
Speaker Change: Sure, Greg. I mean, we believe that growing the top line
important and a very important, you know, part of the
Speaker Change: studios to expand as we've been focused over the last few years beyond social casino. And, you know, we continue to look at various, especially free to play categories beyond social casino that we where we can leverage our technology, our
creative assets, our artists, etc.
Speaker Change: But by the same token, you know, the focus is definitely also on
Speaker Change: the M&A options. Obviously, we have a lot of dry powder.
Speaker Change: and the M&A focus that we have had, you know, post-IPO.
Speaker Change: continues, you know, we pulled the trigger once with Supernation, it's been just about a year since that
Speaker Change: That close, we're very happy with the progress we've made. I think we've continued to show that we can execute in acquiring and operating an acquired company going forward. And, you know, we're very serious on our ongoing quest to look...
for and find the right thing there as well.
Speaker Change: Got it. That's helpful. And, you know, I was hoping to dive in just a little deeper on kind of what drove the upside, you know, first relating to, you know, really nice improvement across those KPI metrics that you spoke to.
Speaker Change: You know, wanted to see if there's anything worth calling out that's kind of driving those nice improvements in metrics and, you know, separately kind of, you know, once again, I think internal expectations will be the super nation and.
Speaker Change: want to just get a sense of what that kind of relates to. Is it just an increased player count? I mean, obviously, there's more engagement than you anticipated, but is there anything kind of worth calling out or specific that you think that upsides related to?
Speaker Change: Well, firstly on the social casino business, there has been a real focus on player and especially payer retention.
Speaker Change: As I mentioned earlier, we have the best payers in the category.
Existing players, but especially existing payers
are incredibly valuable to us.
And so, from a marketing perspective,
Speaker Change: from an awareness, from a new game launch standpoint, etc. We're always very focused, but I think over the last few quarters I'd say even we've been even more focused on
Speaker Change: player and pair retention and, you know, continuing to reach out to them to
Speaker Change: make them excited about continuing to play. And to a great extent, that's what these meta features we've been talking about are. There are ways to reward players for their repeat play and their repeat connection, if you will, to Double Down Casino.
Speaker Change: As it relates to Supernation, you know, Supernation's scale is really about acquiring new players.
and our ability to, you know, lean into marketing investments.
Speaker Change: where the ROI makes sense, and, you know, we're excited about both the markets they serve in, both in the UK and Sweden, and we think, especially given the relatively small market share they have in both countries, that, you know, it's...
Speaker Change: It's definitely time for us to start leaning in to acquire new players for that business.
Got it. Congrats again. Thanks.
Speaker Change: Thank you. I'm showing no further questions at this time. This concludes today's conference call.
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