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spk03: The conference will begin shortly. To raise your hand during Q&A, you can dial star 1 1. The conference will begin shortly. To raise your hand during Q&A, you can dial star.
spk01: Good afternoon and welcome to Double Down's earnings conference call for the financial results for the third quarter ended September 30th, 2022. My name is Lauren and I will be your operator this afternoon. Prior to this call, Double Down issued its unaudited financial results for the third quarter 2022 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 at www.doubledowninteractive.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. In-Kook Kim, and its CFO, Mr. Joe Segrist. Following their remarks, we will open the call for questions. Before we begin, Mr. Gramp, the company's outside investor relations advisor, will make a brief introductory statement. Mr. Gramp?
spk04: Thank you, Lauren. 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 in 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 our 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 Dan's annual report on Form 20F filed with the SEC on April 4, 2022, 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 the call, management will discuss non-GAAP measures, which are believed by the 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 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 Investor Relations section of Double Down's website. Now I would like to turn the call over to Double Down's CEO, Inko Kim.
spk02: Thank you, Jeff. Good afternoon, everyone. Thank you for joining us on the earning call for our third quarter 2022 results. Our third quarter results represent another solid quarter of performance and demonstrate the thickness of our customer base and long-term engagement of our players. We ended another quarter with adjusted EBITDA margin being over 30% and generated $22.2 million in cash flow from operations, or 45 cents per ADS. Our high margin capitalized business model coupled with low debt allowed us to continue generating positive free cash flow, which resulted in an increase in our cash and equivalents at the end of the third quarter to over $310 million. Third quarter revenue of $78.8 million is up 14% from the third quarter of 2019, the most recent comparable quarter prior to the COVID pandemic, but was down from $87 million for the same quarter of last year. We believe our ability to maintain revenue levels above our pre-COVID results is the validation of our success in capturing and retaining growth in our customer base and player spending over the past few years. Our revenue decrease relative to the third quarter of last year is primarily due to the lifting of COVID-related restrictions that more positively impacted our 2021 results, combined with global inflation and recessionary concerns that are impacting player behavior. Despite these dynamics, we were still able to generate positive business KPIs, including average revenue per daily active user, or ARPDAU, of 96 cents, which is unchanged from the third quarter of last year, and average monthly revenue per payer of $225, which is comparable to the third quarter of last year at $224. Furthermore, during the third quarter, we reached an agreement in principle to settle the Benson class action complaint and associated proceedings, which we announced on August 29th. We agreed to contribute $145.25 million into a settlement fund with IGT. Another party to the Benson case contributed $269.5 to the settlement fund. As a result of this agreement, which remains subject to court approval, we recorded $70.25 million charged to our general and administrative expenses in the third quarter, representing the incremental charge related to the Benson case in addition to amounts accrued in previous quarters of an aggregate of $75 million. As of today, the $145.25 million required contribution has been fully expensed. We are pleased to have the Benson case resolved in principle and do not expect to record any further charges related to Benson, of course, subject to final court approval. Now I will turn it over to our CFO, Joe Sigris, to walk us through our financials before providing my closing remarks. Joe?
spk05: Thank you, I.K., and good afternoon, everyone. Revenues for the third quarter of 2022 decreased 9% to $78.8 million from $87 million for the third quarter of 2021. As I.K. mentioned, we believe revenue was impacted relative to the prior year period due to player concerns about inflation and a slowdown in the global economy, combined with the lifting of stay at home or work from home COVID prevention initiatives in 2022 that were still positively impacting the business during the third quarter of 2021. Despite these dynamics, we generated overall solid key monetization metrics for the third quarter of 2022. In particular, Average revenue per daily active user, or ARPDAU, was 96 cents in the third quarter of 2022, in line with the third quarter of 2021. Average monthly revenue per payer was $225 in the third quarter, a year-over-year increase from $224 in the third quarter of 2021. Lastly, payer conversion, which is the percentage of players who paid Double Down, was 5.2% in the third quarter, compared to 5.7% in the third quarter of 2021. Total operating expenses for the third quarter of 2022 increased 110% to $124.1 million from $59.2 million for the third quarter of 2021. The increase was primarily due to a charge of $70.25 million recorded in general and administrative expenses reflecting the incremental charge associated with the agreement in principle to settle the Benson class action complaint and associated proceedings that we announced back on August 29th. In accordance with the agreement in principle, which remained subject to court approval, Double Down has agreed to contribute $145.25 million to the settlement. The incremental charge for the third quarter is in addition to amounts accrued in previous quarters of an aggregate of $75 million. As I came mentioned, While the settlement remains subject to court approval, we do not expect to record any further charges related to this class action complaint. When excluding the legal accrual related to Benson, our operating costs decreased 9% from the prior year period in line with our revenue decrease, demonstrating the flexible cost structure intrinsic to our business. As it relates to certain operating costs, Sales and marketing expenses in the third quarter of 2022 were $17.2 million, representing a nearly $1 million sequential decrease compared to the second quarter of 2022 and consistent with the third quarter of 2021. As we discussed last quarter, we have slightly moderated this year to acquire iOS users related to IDFA changes and reallocated some of that spending to Android and internal markets. We still expect a modest increase in sales and marketing expenses late in Q4 and into 2023 with the pending release of Spinning in Space, our newest title, noting, of course, we have the utmost flexibility in investing in sales and marketing depending upon the success of Spinning in Space and other overall market changes. It is also worth noting that depreciation and amortization expenses in the third quarter of 2022 were $45,000 compared to $2.4 million in the third quarter of 2021. The decrease from the quarter a year ago was due to the completion of amortization of certain identifiable and tangible assets that we acquired in the 2017 Double Down Interactive Acquisition. Net income for the third quarter of 2022 reflected a loss of $24 million or a loss of $9.69 per diluted common share and a loss of 48 cents per ADS compared to net income of $22.8 million or positive $9.91 per diluted common share and 50 cents per ADS in the third quarter of 2021. This decrease is almost exclusively due to the charge-related to the Benson case. Next, I want to discuss adjusted EBITDA. Adjusted EBITDA and adjusted EBITDA margin are non-GAAP measures, which we believe are useful in evaluating our operating performance. A full reconciliation of these measures to the most directly comparable GAAP measure is available in the earnings release. Adjusted EBITDA for the third quarter of 2022 was $25 million compared to $30.2 million in the third quarter of 2021. adjusted EBITDA margin for the third quarter of 2022 was 31.7%, down from adjusted EBITDA margin of 34.7% for the third quarter of 2021. The year-over-year decline in adjusted EBITDA and adjusted EBITDA margin is primarily attributable to the lower revenue in the third quarter of 2022, which was previously described. Cash flow from operations for the third quarter of 2022 was $22.2 million compared to $33.7 million for the third quarter of 2021. Note that the non-cash accrual related to Benson had no impact on our operating cash flow. We did not incur any material capital expenditures during the third quarter. Finally, turning to our balance sheet, at the end of the third quarter of 2022, we had $310.5 million of cash and cash equivalents compared to $284.4 million of cash, cash equivalents, and short-term investments at the end of the second quarter. We elected to convert all of our short-term investments to cash during the third quarter. Our total debt at the end of the third quarter of 2022 was $34.8 million. This translates to a net cash position of approximately $130 million after excluding our outstanding debt and the Benson legal accrual. Our cash position continued to improve as we remained solidly in a cash generative position. This completes my financial summary. Now I'll turn the call over to IK for closing remarks.
spk02: Thank you, Joe. Looking ahead, we plan to better launch our newest title, Spinning Space, later this month. If you recall, Spinning Space had both casino and non-casino non-casino elements so we think it will be a compelling title for both our existing social casino demographic and new users who prefer non-casino casual gaming we also have multiple gaming apps under development by our internal studios planned for launch during 2023 which news we are excited to share with you as we finalize the calendars for their releases. It is important to highlight that the development of our pipeline of new titles outside of the social casino segment and continued reinvestment into our flagship Double Down Casino app to introduce new meta features and slot games are accomplished within our existing R&D budget. In addition, our team is continuing to evaluate strategic M&A opportunities that can strengthen our overall business while providing new growth opportunities to diversify our business. Any M&A opportunity should also have strong synergy potential where we can leverage our existing platform and capabilities including product development, marketing, user acquisitions, and live ops capabilities. We are cognizant of the investor interest in seeing a transaction taking place but believe that we should remain patient until we find the right opportunity at the right valuation. Considering the overall movement in equity market since our IPO, we believe patience has been the correct move. optimistic about the availability of alternative opportunities to us, but of course, we cannot make any assurances about timing of any potential future transaction should an appropriate opportunity arise. We believe Double Down has an attractive business model and M&A transactions must be complementary to our key tenets and not compromise the strong business we have created. We have a capitalized and flexible cost structure that is largely correlated to revenue or discretionary. We have high margins with low debt, and we have a tenured and dedicated customer base that provides healthy visibility into long-term recurring tight revenue. We are in strong position to remain a leading gaming company swing margins, positive cash flow, and keep low debt almost irrespective of market conditions. We are now happy to take your questions. Operator?
spk01: Thank you. At this time, we will conduct the question and answer session. To ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A roster. One moment, please. Our first question comes from the line of Aaron Lee of Macri. Your line is now open.
spk06: Hey, good afternoon. Congrats on the quarter, and thanks for taking my question. In the release, you called out the macro impact on consumers. Did the macro impact in 3Q get better or worse relative to 2Q? And what do you think could happen in 4Q and beyond? Thanks.
spk05: Yeah, thanks, Aaron. Thanks for... joining us today you know we talked about same factors in in our q2 call relative especially to year-over-year comparison at the time and while we certainly don't think things have necessarily improved sequentially from q2 we do do not think things have significantly worsened from what we saw in the Q2 quarter. Of course, there is a little bit of seasonality in our business. Summer is generally a little bit softer. But if we try to set that aside, we think the environment is, at least from a player engagement standpoint, pretty similar or was pretty similar in Q3 versus Q2. As it relates to Q4, I mean, time will tell, obviously. There are a number of other seasonal factors in play here. Obviously, we hope to benefit from, you know, holiday play as we have in the past, but also are still, you know, considering the fact that inflation and general concerns about the economy, you know, remain in play.
spk06: Great. Got it. Thank you. And as we enter 2023, clearly we're stepping into a different environment than a year ago. As you think about your product roadmap heading into this year versus last year, are there any things you're focused on doing differently?
spk05: Well, maybe I can start, and then if IK has any comments about our roadmap and how maybe we're approaching it now versus how we did a few months or quarters ago. I would say that our desire to continue to benefit from a strong presence that we have in social casino with Double Down Casino as our flagship app remains. We believe there are opportunities to continue to improve Double Down Casino, especially with the addition of new meta features that we continue to test and implement. And at the same time, we're very excited about the roadmap that we have for non-social casino apps. I would say from my standpoint, the only thing that's really different is that we're further down the path in fully engaging in some of these new apps. And we're looking forward to the launch of some of these new non-social casino apps in 2023.
spk02: Yes, supporting Joe's comment. Internally, we are preparing for project M, G, K, G. Those are our code names. And actually, we designed the synergy between social casino and non-social casino elements and demo grip. So hopefully, we can have lots of restaurants run from that word. Hopefully, we can launch more apps 2023. Great.
spk06: Thank you very much.
spk05: Yeah. Thanks, Aaron. Appreciate it.
spk01: One moment for our next question. Our next question comes from the line of Greg Gibbous with Northland Securities. Your line is open.
spk07: Great. Thanks for taking the questions. I guess I first wanted to ask about OPEX. You talked about it, you know, expense in case being down 9%. Just wondering, you know, do you expect that trend to continue? And maybe when do you expect operating costs to level out?
spk05: Yeah, I think the, you know, thanks, Greg. I think as we've said in the past and during this call, I mean, the good news is we have a very flexible cost model. and we can scale it pretty much to our revenue as we wish. And that's especially true with marketing investment, which is very, very flexible. And so as we look at the launches, we just discussed the launches of new games into 2023, that will require us to spend more in sales and marketing. Now we fully expect to see the return in revenue and in gross margin. But by the same token, it will require an investment in acquiring new players, and we would expect to see greater sales and marketing investment in 2023. Got it. Makes sense.
spk07: And I apologize if I missed this, but if we could just go over the new game development front. I think you said spinning in space either later this month or next month. But I don't know if you've discussed any months further out. You talked about how you're excited for additional titles in 2023. Could we maybe go over that? And do you expect maybe new game launches to almost offset or, yeah, I guess offset some of the Mac-related headwinds that you're seeing year over year?
spk05: Sure. So relative to spinning in space, we are planning to enter into open beta by the end of this month. And then if that goes well to potentially launch by the end of this year. As it relates to other apps, we haven't been specific about launch dates, but as we mentioned, there are several that are teed up for launch in 2023. And certainly if you look at our strategy, which is to continue to benefit from the strength that we have with Double Down Casino and Social Casino, we will very hopefully be able to layer on top of that continued strength, additional new revenue from the launch of these new apps, which will continue to be released as we, as I said, go forward into 2023. Okay.
spk07: Makes sense. And if I could just follow up on the M&A prospects, just sounded like
spk05: know the idea right now is be a little more patient is that kind of for just improving valuations or is it maybe waiting for targets that are you know have more synergies to offer well we've gone through um a process or which continues greg which um is very thoughtful and and you know we think very complete in the sense of evaluating um not only um what sellers want and what their desires are, but also what we believe we can do with the business relative to Synergy and certainly what we can do in the sense of augmenting our current strategy, especially around internal development of non-social casino apps. And so I wouldn't say things have changed. We're continuing through a pretty rigorous process that's thoughtful, and, you know, that continues forward.
spk06: Okay. Thanks again.
spk05: Thanks, Greg.
spk01: Thank you. As a reminder, to ask a question, you'll need to press star 1-1 on your telephone. One moment, please. At this time, this concludes our question and answer session. I'd now like to turn the call back over to Mr. Segrist.
spk05: Great. Thanks, Lauren. And thanks, everyone, for joining us today and for your interest in Double Down. We look forward to sharing future updates with you as we continue to innovate and grow the company in the global digital gaming business. Thanks so much. Have a great rest of your day.
spk01: Thank you for joining us today for Double Down's earnings call. You may now disconnect.
spk03: The conference will begin shortly. To raise your hand during Q&A, you can dial star 11.
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