DoubleDown Interactive Co., Ltd. (NASDAQ:DDI) Q1 2023 Earnings Call Transcript May 12, 2023
Operator: Good afternoon and welcome to DoubleDown Interactive’s Earnings Conference Call for the First Quarter ended March 31, 2023. My name is Sean, and I will be your operator this afternoon. Prior to this call, DoubleDown issued its financial results for the first quarter 2023 and a press release, a copy of which has been furnished in a report on Form 6-K filed with the SEC and is available in the Investor Relations section of the company’s website at www.doubledowninteractive.com. You can find a link to the Investor Relations section at the top of the home page. Joining us on today’s call are DoubleDown’s CEO, Mr. In Keuk Kim; and its CFO, Mr. Joe Sigrist. Following their remarks, 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.
Richard Land: 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 meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended, and we hereby claim the protection of the Safe Harbor provisions of the Private Securities Litigation Reform 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, estimate, continue, 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 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 DoubleDown’s 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 obligation to update or alter the forward-looking statements whether as a result of new information future events or otherwise except as required by law. During today’s call management will discuss non-GAAP 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 GAAP. A full reconciliation of these measures to the most directly comparable GAAP measure is available in the earnings release and on our Form 6-K 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 Investor Relations section of DoubleDown’s website.
Thank you for your patience. With that, it’s now my pleasure to turn the call over to DoubleDown CEO, In Keuk Kim.
In Keuk Kim: Thank you, Richard. Good afternoon, everyone. Thank you for joining us on our 2023 first quarter earnings call. Current revenue of $77.6 million was up on a quarterly sequential basis, marking our first quarterly sequential revenue increase since the pick of the COVID pandemic period. We also continued to generate consistent attractive adjusted EBITDA margins and operating cash flow with adjusted EBITDA in the first quarter also rising on a quarterly sequential basis to $25.4 million and cash flow from operations of $19.2 million. Our solid financial results are based on the ongoing strength of our flagship DoubleDown casino or DDC gaming app. We continue to benefit from the fitness and loyalty of DDC players, who choose to pay, which has established the foundation for our consistent financial results.
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. For example, 92% of our 2022 annual revenue was generated by players who were acquired in prior years. In January, we announced a definitive agreement for DoubleDown to acquire Super Nation, which operates three iGaming sites in Western Europe. We are working towards gaining the required regulatory approvals and currently expect to close this transaction later this year. The acquisition of Super Nation will further diversify our sources of revenue by type and geography while marking our entry into the high-growth iGaming sector. This acquisition will also allow DoubleDown to leverage its core competency of creating games that entertain and engage users.
In that regard, along with our M&A activities, we continue to invest in our own app development initiatives, primarily focused outside the social casino category. This includes multiple projects running in parallel that are supported by our game developers in Seoul and Seattle. During last quarter’s conference call, we mentioned that a new gaming app Spinning in Space has reached soft launch status. 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 with a full global introduction of the game and are refocusing related resources on other game development activities.
This includes adding these resources to games that we expect to launch later in 2023. I will highlight that, our decision not to move forward with the global launch of Spinning in Space speaks to our commitment to invest capital only when we are confident that we can achieve appropriate returns. Now, I will turn it over to our CFO Joe Sigrist, to walk you through our financials before providing my closing remarks.
Joe Sigrist: Thank you, I think, and good afternoon, everyone. 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 DoubleDown Casino revenue. KPI highlights for the company, include average revenue per daily active user or ARPDAU increased to $1.03 in Q1 2023 from $0.97 in Q1 2022. Payer conversion ratio, which is the percentage of players who pay DoubleDown also increased to 5.8% in Q1 2023 from 5.5% in Q1 2022. And average monthly revenue per payer decreased from $225 in Q1 2022 to $221 in Q1 2023. Total operating expenses decreased from $60.8 million in the first quarter of 2022 to $52.2 million in the first quarter of 2023.
The decrease was primarily due to lower cost of revenue, decreased marketing expenses and lower depreciation expense. Sales and marketing expenses for the first quarter of 2023 were $16.0 million, a 19% reduction compared to Q1 2022, and 5% lower on a quarterly sequential basis. We believe that, our advertising efforts to acquire new players the primary cost component in our sales and marketing expenses will remain fairly flat over the next couple of quarters, inclusive of our decision not to proceed with the Spinning in Space global launch. It is also worth noting that, depreciation and amortization 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 intangible assets for which we use purchase price allocation at the time of the 2017 DoubleDown Interactive acquisition.
Net income for the first quarter of 2023 was $23.7 million or $9.55 per diluted share and $0.48 per ADS, 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. The increase was primarily driven by lower marketing and depreciation and amortization expenses. 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% in Q1 2022 and 32.4% in Q4 2022. 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.
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. 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, excluding cash for this payment cash for our pending Super Nation acquisition 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. This completes my financial summary. Now I’ll turn it over to IK for closing remarks.
In Keuk Kim: Thank you, Joe. The financial power of our social casino platform positions us to continue to make return-focused investments in multiple areas of potential growth through both organic development and M&A. Within the core of our social casino business, our development teams are working hard to make ongoing enhancements to our flagship app DoubleDown casino. In addition to our normal new slot launches we are also developing new monetization features such as enhancements to our hybrid rooms to drive consistent player entertainment and engagement. In the near-term, we are excited to close the Super National position which will allow us to quickly enter a new growth market and expand DoubleDown’s gaming reach. We believe this acquisition will create strong synergy opportunities between Super Nation and DoubleDown and we look forward to starting this work as soon as the acquisition is complete.
At the same time, we are continuing to evaluate other M&A opportunities that would leverage our existing strength in game development, engineering, marketing and business intelligence to grow our top and bottom lines. 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 allocate capital to enhance shareholder value. We are now happy to take your questions. Sean?
Q&A Session
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Operator: Thank you. At this time, we will conduct a question-and-answer session. [Operator Instructions] One moment for our first question. And our first question comes from David Bain with B. Riley. David, go ahead.
Operator: [Operator Instructions] Our next question comes from Jeff Henriksen with Thorpe Abbotts Capital. Jeff, go ahead.
Operator: One moment while we bring up our next question. And our next question comes from Aaron Lee with Macquarie. Aaron, go ahead.
Operator: One moment for our next question. And our next question comes from Greg Gibas with Northland Securities.
Operator: And at this time, I would like to turn the call over to Mr. Sigrist for some closing comments.
Joe Sigrist: Great. Thank you Sean, and thanks everybody for joining our call today and your continued interest in DoubleDown. We look forward to sharing future updates, as we continue to innovate and grow within both the social casino business and certainly the general mobile gaming arena. Thanks again. Have a great afternoon.
Operator: Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.
