DoubleDown Interactive Co., Ltd.

Given the consistency of the cash flow Dobudan Casino delivers, we believe we have significant flexibility to allocate capital towards establishing a presence in new gaming categories with highly addressable market opportunities. The new gaming categories that are of interest to us are ones that would be complementary to our core social casino operations. where we can leverage our game developers' expertise in game creation and our marketing platform to scale those businesses profitably. One example of our focus on expanding our addressable market is our pending acquisition of SuperNation, which operates three real-money iGaming sites in Western Europe. We continue to make progress towards gaining the required regulatory approvals to complete this transaction and now expect to close the position by the end of the year. We believe the position of SuperNation will diversify our revenue sources as it will mark our entry into the high-growth high-gaming sector. We are excited to be moving closer to completing this transaction, and once we do, We will provide additional information for you on our plan to drive growth in this business and build from there. iGaming is just one game category adjacent to our core social casino business that we are evaluating for opportunity to leverage our expertise in player engagement and monetization with our game development expertise to drive growth. We continue to invest in our own app development initiatives outside of the social casino category to address the very large casual mobile game category, including four games in the Action, Casual Casino, Match, and Adventure genres. Over the balance of the year, we expect to introduce new gaming apps outside of the social casino category and will support them in a capital-efficient manner to deliver appropriate returns. Now I turn it over to our CFO, Joe Sigris, to walk us through our financials before providing my closing remarks.

Joe? Thank you, Ike, and good afternoon, everyone. Our revenues for the second quarter of 2023 were $75.2 million compared to $80.6 million for Q2 2022. As IK mentioned, Q2 revenue was down 3% sequentially from the first quarter of 2023, primarily reflecting the seasonality in the business. Several KPI metrics improved compared to the year-ago period, including average revenue per daily active user, or ARPDAU, increased to $1.05 in Q2 2023 from $0.95 in Q2 2022. Payer conversion ratio which is the percentage of players who pay Double Down, was up 80 basis points to 6.0% in Q2 2023 compared to 5.2% in Q2 2022. Average monthly revenue per payer increased 4% from $226 in Q2 2022 to $235 in Q2 2023. On a quarterly sequential basis, Total operating expenses decreased from $52.2 million in the first quarter of 2023 to $47.7 million in the second quarter of 2023. The decrease was primarily due to lower cost of revenue and lower sales and marketing depreciation expenses. Sales and marketing expenses for the second quarter of 2023 were $13.1 million. a decline of 27% compared to Q2 2022, and 18% lower on a quarterly sequential basis. We believe that our advertising efforts to acquire new and retain existing players, the primary cost in the sales and marketing category will continue to be in this Q2 range over the next several quarters. But as IK 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 $100,000 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 the time of the 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 ADS, compared to a net loss of $34.1 million, or $13.75 per diluted share and 69 cents per ADS, 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 Benson class action complaint. Adjusted 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% in Q2 2022 and 32.8% in Q1 2023. Net cash flows used for operations were $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. Our total debt as of the 30th of June was $38.1 million. With regard to our current cash position, with the final payment for the Benson settlement now behind us and excluding cash for closing of our pending Supernation acquisition and payment for our debt, our balance sheet currently reflects a total uncommitted cash and cash equivalents and short-term investment position of well over $150 million or over $3 per ADS. This completes my financial summary now. I'll turn it over to IK for closing remarks.

Thank you, Joe. We believe the financial power of our social casino platform, including attractive adjusted EBITDA margins and strong cash flow, positions us to continue investing in multiple areas of potential growth through both organic development and M&A. For our core social casino business, we are focused on driving order and consistent player entertainment value and engagement, which drives higher monetization. Our development team continues to make enhancements to our flagship app, Double Down Casino. This development focus includes additional slot game launches as well as the introduction of new monetizing features such as jackpot and in-game activities. As I highlighted earlier, we are making progress towards completing our acquisition of SuperNation following which we plan to work to ramp up the business in the high-growth iGaming market. At the same time, we are continuing to evaluate other M&A opportunities that would leverage our existing strengths in game development, engineering, marketing, and business intelligence to enter new gaming categories in order to further grow our top and bottom line. As Joe highlighted, we have a very strong uncommitted cash position and have continued to generate consistent high levels of free cash flow. We are confident to believe that these positions double down to act on opportunities that will create new value for our shareholders. We are now happy to take your questions. Operator?

Thank you. We'll now conduct the question and answer session. As a reminder, 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 1-1 again. Please stand by while we compile the Q&A roster. Our first question comes from Aaron Lee with Macquarie.

Hi, good afternoon. Thanks for taking my question, and congrats on the nice result. Wanted to touch on the SuperNation 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 iGaming or your confidence in the size of the opportunity?

Yeah, thanks, Aaron. Thanks for the question. I guess the short answer is no. We're still extremely excited about iGaming. The premise around the acquisition, the basis for the acquisition continue to hold, and we just look forward to getting through the regulatory approval process And, you know, as IK mentioned, you know, hope to have that done certainly by the end of this year.

Understood. Thank you. And then just on on 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 the cash flow, you know, build up cash and just given the strength of your balance sheet. Can you just update us on how you're thinking about any potential capital returns?

Sure, Aaron. As we've discussed, our primary objective, and we believe the thing that will provide the greatest return to shareholders over time, is growth. And that's why the focus is on growing the business through various investments that we are looking at relative to, as Ike mentioned, new gaming areas and certainly also investing in our current business and the social casino business. And so, again, 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 our next question.

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

Great. Thank you. Congrats on the EBITDA free cash flow result, as always. The first question I had related to the core social casino growth Do you think we could see MAU growth quarter over quarter in this current quarter? And, I mean, player conversion and ARPDAL looks great. I mean, you guys clearly know how to monetize. I look at side play out tonight. Margins were 30%. Yours were 37%. But their growth was higher. It seemed like IK 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 not? Did I misread that?

Well, I can start, and Ikea, you can chime in if you want. I mean, certainly from a player engagement standpoint, and, you know, if you look at this industry over the last many quarters, as it's matured, the MAUDAU numbers for the industry as a whole and for most of the major players, you know, has contracted. And the focus of Double Down, as as well as I think of our major peers, has been less on growing the number of players per se, MAU, DAU, and making sure that we're being efficient in how we acquire new and retain existing payers as it relates to the payer and monetization metrics. So we are continuing to do what we can certainly do relative to player acquisition, but both in the way we're using our marketing dollars and especially 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 we have the ability now for players to to wager large, large numbers of chips per spin, even more than they could in the past. And those kinds of features are very much focused not on your, let's call it casual player, but certainly on your engaged player slash payer. And those are the kinds of objectives that we have relative to both, again, in how we're spending our marketing dollars, but especially as we invest in new enhancements to the product itself.

Okay, great. And just to be clear, though, then, we should continue to see just kind of stability and, you know, a continuation on a real focus on monetization relative to any kind of uptick in sales and marketing to promote growth.

Yeah. And just to be clear also, I mean, I did say that, you know, relative to our marketing spend over the next few quarters, I think I mentioned that, you know, we see the level of spend for at least the next couple of quarters to be consistent, all else being equal to be consistent with where we were in Q2.

Got it. Okay, great. And then have you begun to look to your content portfolio and build a strategy with regard to game conversion for SuperNation? I don't know if that's a relatively seamless technical transition to put it to RMG Games from Social Casino. And then if you could touch on your ability to kind of port what you've done in Social Casino in terms of sales and marketing promos. how's that going to look different than most B2C real money gaming companies out there?

Yeah. Well, starting with the content, I, you know, it has taken quite a while to get through the regulatory process and, and we have, uh, folks champing at the bit to, uh, you know, to, to help, uh, uh, super nation, uh, take, take our existing content. Um, So yeah, we're as ready as we can be recognizing the deal hasn't closed yet. And we're very excited. And there's a number of folks in our slot development team who are very excited about bringing the content to SuperNation as soon as possible. Relative to the marketing, I think that's going to take a little bit more time to figure out. I mean, certainly the The way players are acquired in iGaming is somewhat different than in social casino. And I think as we mentioned in the past, for instance, SuperNation, like a lot of iGaming companies, you know, heavily use affiliates for player acquisition. And so, you know, there's, I think, a lot of leverage. And certainly, you know, from a marketing content and from just a general perspective, you know, social media promotion perspective, there's a lot of overlap. But, you know, we're going to have to, it's probably going to take a little bit more time, frankly, on the marketing side than I'd say on the content side.

Awesome. Thanks, Joe. Thanks, IK.

One moment for our next question. And our next question comes from Greg Gibbous with Northland Securities.

Hey, good afternoon. I can Joe, thanks for taking the questions. Um, if I could just follow up, uh, you know, I think you said sales and marketing was kind of going to trend, uh, near Q2 is like a baseline, um, for the coming quarters. Um, you know, wondering just cause you don't guide, if you could touch on other OPEX trends, um, VNA and then R and D and then maybe rough, like kind of seasonality for the top line that, that you would expect to see in Q3 and Q4.

Yeah, sure. So, um, Relative to the other OpEx lines, I mean, we don't see much change going forward in Q2, or from Q2, excuse me. If you look at our EBITDA result, it really was the highest EBITDA margin that we've had in actually several years. And that's thanks to the fact that obviously we spent less than sales and marketing, but for instance, we also spent less than we have done in the last few quarters on GNA. Now, part of that is because, thank goodness, we're not spending a lot of money on legal fees for the Benson case any longer. And, you know, so I think that, you know, GNA will continue to be at the Q2 level 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 forward. I'm sorry, Greg, there was a second part of your question, I think.

Oh, yeah, sorry. I guess it's kind of seasonality expectations.

Oh, yeah.

You know, obviously, you know, it kind of depends on how the whole peer group trends, right, social casino. But just general, maybe if you'd expect anything different in the second half relative to typical.

Well, I mean, Q2 is generally a bit of a, again, if you just look historically, it's a bit different. lower than Q1, primarily because Q1, there's 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 are some great holidays where people love to play social casino, like on St. Patrick's Day, for instance, and Valentine's Day even, that you don't have in Q2. And then, of course, You know, Q4 is generally, like Q1, you know, quite strong. Again, holiday-driven and people, you know, having, you know, less time outside and more time inside. So, you know, those are kind of the main trends that we see, you know, generally, and we think those will hold.

Okay. Makes sense. You know, apologies if I missed this, but do you have an updated timing on the SuperNation acquisition and closing? Like, is that going to be a late Q3 event, or do you think it kind of pushes into Q4? And then just how is that business trended maybe since you first announced that acquisition?

Yeah, so listen, I'd love to think we could close it in Q3. I mean, the regulators who are going through hopefully the final phases of their approvals are in Europe, and you know, August is a tough time to get much done in Europe with the holiday season, et cetera. So, you know, generally believe that it's more likely a Q4 event to close the deal. And generally, I'd say, you know, we're, as I mentioned earlier, excited about the business. We're excited about what SuperNation has developed and They're continuing to, you know, to leverage what they have done and are doing now to continue that forward. So, you know, I just, you know, we all just, you know, can't wait to get it closed.

Great. Thank you. One moment for our next question. And our next question comes from Bryant Riley with B. Riley.

Hey, guys. I'm representing the investment side, just FYI. So W went public in 15, I think, and it's down 30%. You're cut in half. STIC put a proposal in front of your company that was voted down. I've told you that I think this is probably the worst experience I've had in an investment of my 27 years of owning B. Reilly. What's your response to that? Why do you think your stock trades? Obviously, you're going to make acquisitions and nobody knows what you're going to make and it's very much run like a fiefdom. What's your reaction to that?

Well, Brian, thanks for being on the call. As it relates to the shareholder vote, obviously W owns a majority of the shares of the company, and we can't speak for them or how or why they vote the way they vote. So it's not possible to comment on what W does. Obviously, from a share price perspective, we think the share price is undervalued. I mean, as I mentioned in my comments earlier, we have well over $3 per share per ADS in the bank, essentially. And the stock is trading around $9. So a third of our value is in cash. And we believe that, and that absolutely are committed to growing the business and showing that with growth that, in fact, the stock is considerably undervalued?

Well, I guess I would say this. As I run a public company, my shareholders are really important to me. I talk to them all the time. I consider them partners. This is not a partnership, it's you've made a decision, or not you, your owner has made a decision to act independently, I think, from what shareholders would like. Namely, at least a dollar dividend or something that while you go out and make your acquisitions or while you do things, at least we get paid part of the cash flow that you generate for our business. And that decision hasn't been made. It's been met with resistance. And I actually, I honestly think it's like the worst I've seen. So I know you guys are managing the business. I commend how you run it. You run it tight. You run it for cash flows. 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 tendered 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, maybe I'm speaking to you or maybe I would speak to your owner. I think it's a shame and I think it could be fixed really quickly by treating your shareholders like partners.

I don't have anything else operator. I'm showing no further questions at this time.

I'd now like to turn the conference back to Mr. Segrist for closing remarks.

Great. Thanks, Sean, 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.