DoubleDown Interactive Co., Ltd.

Good afternoon and welcome to Double Down Interactive's earnings conference call for the first quarter ended March 31, 2024. My name is Brianna and I will be your operator this afternoon. Prior to this call, Double Down issued its financial results for the first quarter of 2024 in a press release, a copy of which has been furnished in a report on Form 6K filed with SEC and is available in the investor relations section of the company's website at .doubledowninteractive.com. You can find the link to the investor relations section at the top of the home page. Joining us on today's call are Double Down CEO Mr. N. Cook Kim and CFO Mr. Joe Sigrist. Following the remarks, we will open the call for questions. Before management begins their formal remarks, we need to remind everyone that some of the 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 the company hereby claims 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 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, acquisition strategies, 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 Down's annual report on Form 20F filed with SEC on March 28, 2024, and other SEC filings for a more detailed discussion of the risks that could impact future operating results and financial conditions. 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 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, the most directly comparable GAAP measure is available in the earnings release and on Double Down's Form 6K filled 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. It's now my pleasure to turn the call over to Double Down's CEO, In-Kook Kim.

Thank you, Brianna. Good afternoon, everyone.

Thank you for joining us on our 2021st quarter earnings call. Today, we announced that total Q1 revenue was $88.1 million, with $79.8 million generated by our social casino -to-play games, and $8.3 million coming from the operations of SuperNation, our recent iGaming acquisition. Q1 revenue from our social casino -to-play games was up 1% on a quarterly sequential basis, and up 3% compared to Q1 2023. And we continue to do an excellent job in converting revenue to profit and cash flow with adjusted EBITDA for the first quarter rising 26% year over year to $31.9 million, and cash flow from operations at $35 million. Our flesh social casino game Double Down Casino, or DDC, continues to be the driver of our strong results as we generated year over year increases in our sum of our most important KPIs, including average monthly revenue per payer and payer conversion rate. More specifically, we are growing monetization with our core paying players as they continue to recognize the great entertainment experience and compelling value that we offer. We believe our revenue growth reflects the benefits we are seeing from the introduction of new meta features within Double Down Casino. These features, such as lucky orb and playing power, which I mentioned during last quarter's call, add to the fun of playing DDC, thereby driving player engagement and retention, and we believe leading to higher over monetization. In addition, during this second quarter, we plan to launch Mission Pass, which offers players daily, weekly, and monthly quests alongside their casino game play. Our strategy in social casino is to continue enhancing the entertainment value of DDC, while remaining disciplined in user acquisition and R&D spending to drive strong profitability and free cash flow. Turning to Super Nation, Q1 represented our first full quarter of operation of this iGaming business. Our focus at this early stage is to scale the business, and we were pleased with the results so far with Super Nation's Q1 revenue contribution of $8.3 million. The iGaming sector represents an exciting growth opportunity for Double Down, and we are very pleased to be up to such a strong start with plans for continued improvement. The Super Nation acquisition is just an initial step in our goal to diversify our business into new gaming categories that have highly addressable market opportunities. Given our excellent financial foundation, we continue to evaluate ways to expand into these markets, both organically and through M&A. As we execute on this strategy, we will apply the same capital discipline we have exhibited over the years. As an example, on our first quarter call, I highlighted the launch of our first game in the skill-based gaming category. However, after ramping up marketing investment to acquire players in Q1, its performance metrics did not meet our requirements, and as such, we have decided not to proceed with additional user acquisition activities going forward. We are continuing to invest in new internally developed mobile games, including those we expect to launch in 2024, but our overriding principle when we undertake these new game is to ensure we

are

deploying our capital and expertise in a manner that creates additional value for shareholders. If that proves not to be the case, we have demonstrated that we will quickly move on. 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. Our revenues for the first quarter of 2024 were $88.1 million, comprised of $79.8 million in revenues from our social casino -to-play games and $8.3 million of revenues from Super Nation. This compares to total company revenues of $77.6 million in Q1 2023. As IK mentioned, social casino -to-play revenue in the first quarter of 2024 was up 1% sequentially from the fourth quarter of 2023 and 3% -over-year. In the first quarter, several KPI metrics for our social casino business again improved compared to the year-ago period, including average revenue per daily active user, or Q1 2024 from $1.03 in Q1 2023, marking a 22% increase. Payer conversion ratio, which is the percentage of players who pay within the social casino apps, increased to .4% in Q1 of 2024 compared to .8% in Q1 of 2023. And average monthly revenue per payer at $281 in the first quarter of 2024 increased 27% from $221 in Q1 of 2023. Operating expenses rose on both a -over-year and quarterly sequential basis to $57.1 million compared to $52.2 million in the first quarter of 2023 and $47.5 million in the fourth quarter of 2023. The OPEX increase in Q1 was primarily due to the inclusion of Supernation's operating expenses, as this was the first full-quarter consolidation of its financial results into those doubled down. Sales and marketing expenses for the first quarter of 2024 were $14.8 million, a decline of 8% compared to Q1 2023, and up nearly 50% on a quarterly sequential basis. The sequential increase was comprised of the first-time full-quarter inclusion of Supernation sales and marketing expenses, as well as the acquisition of players for the skill-based gaming app IK noted earlier. Sales and marketing costs directed at acquiring new social casino players continue to reflect our focus on spending to ensure we deliver the best return on this investment. For the next several quarters, we anticipate that overall sales and marketing expenses for the company will stay relatively close to or below the Q1 level. Net income for the first quarter of 2024 was $30.4 million, or $12.23 per diluted share, and $0.61 per ADS, a rise of 28.3%, 28.1%, and 27.1%, respectively, compared to the net income of $23.7 million, or $9.55 per diluted share, and $0.48 per ADS in the first quarter of 2023. Adjusted EBITDA for the first quarter of 2024 increased 26% to $31.9 million, compared to $25.4 million for the prior year quarter. Adjusted EBITDA margin was .2% for Q1 2024, representing an from .8% in Q1 2023. Net cash flows from operations were $34.9 million for the first quarter of 2024, compared to net cash flow from operations of $19.2 million in the prior year period. Finally, turning to our balance sheet, as of March 31, 2024, we had $310 million in cash, cash equivalents, and short-term investments, with a net cash position at quarter end of approximately $272 million, or approximately $5.50 per ADS, excluding the outstanding loans with our controlling shareholder W Games. That completes my financial summary. Now I'll turn the call over to IK for closing remarks.

Thank you, Joe. We began 2024 demonstrating our ability to further extend the operating and financial performance momentum of the company with strong Q1 results in our core social casino business and an excellent start to our new iGaming business. In our core social casino business, we will continue enhancing and improving Double Down Casino through ongoing product development, marketing initiatives, and live ops efforts. We see this as a capital-efficient way to continue driving engagement and monetization that also delivers high cash flow. As we mentioned during last quarter's call, we also are focused on enhancing our already strong margins by increasing our direct consumer payment volume. While it is early days with this initiative, we are beginning to expand the options that players have to purchase for Double Down Casino. In the near term at SuperNation, our focus is to invest to grow the player base in both the UK and Sweden. We look forward to the continued positive impact of these efforts to scale the business. And we will continue to pursue growth through participation in adjacent categories of gaming through both our organic efforts and as we continue to evaluate M&A opportunities. We're now happy to take your questions. Rihanna?

Thank you. At this time, we will conduct the question and answer session. To ask a question, you will need to 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 of Macquarie. Your line is now open.

Great. Thanks for taking my question and congrats on the quarter. So I wanted to get some more color on the SuperNation business and get a sense for first how the quarter performed relative to expectations. Sounds like it came in above. And secondly, how should we be thinking about the balance of the year? I believe there's some summer seasonality in there. But do you expect momentum to build sequentially as we go through 2Q to 4Q? Thank you.

Yeah, thanks, Aaron. Appreciate the questions. So with regards to the Q1 performance of SuperNation, we are pleased with the results. We feel like now, I guess after the end of the first quarter the first five quarters of having their business as part of ours has been very positive. As we mentioned, the focus initially has been on scaling new user acquisition activity. And we have been pleased to see the fairly quick ability to acquire players and then turn them into meaningful revenue contributors. As it relates to the rest of the year, we'll have to see if we can continue to see that quick conversion, if you will, from marketing investment into playing, depositing, and ultimately revenue. And we'll see how it plays out. But as Ikea said, we're very pleased with the start of this.

Got it. Understood. And then just a quick housekeeping item. With this being the first full quarter of SuperNation within your results, how should we think about your cost structure? Is 1Q OPEX a good level to run forward for expenses like R&D and G&A?

Yeah, by and large, I think everything is kind of full quarter included in Q1. And relative to the expense categories, the only variability is going to be on the marketing side. As I mentioned, marketing will likely be at or below where we have been or where we were in Q1 for the rest of the year on a quarterly basis, primarily because of the fact that we won't be investing in our first skill-based game any longer to acquire new players. But other than that, I think the run rates will hold true. Got it. Very helpful. Thank you. Sure. Thanks, Aaron.

Thank

you. And one moment

for our next question. Our next question comes from Greg Gibbis of Northland Securities. Your line is

now open.

Hey, good afternoon, Ikea and Joe. Congrats on the results. I wanted to follow up on just the core business exuberance. Nice to see that up here over the year considering it's been challenging for Social Casino as a whole. Just kind of curious if you could discuss what you think growth is.

Yeah, I think as we mentioned last quarter, which also we were pretty pleased with relative to our results within the core business, it's a lot about the product and product differentiation and being able to incent players to continue to play and then ultimately, we know that leads into monetization. So Ikea mentioned the ongoing development of new meta features. These are features that span the various individual casino and slot games that we have in Double Down Casino. And we're continuing to focus on that and developing additional, really fun. I mean, at the end of the day, people have fun when they play Double Down Casino. And certainly they have fun when they play our individual games, individual slots. But we also want them to have fun as they return to play and they have additional journeys and quests and things that we add on, if you will, on top of the individual games that add to the fun. And at least over the last couple of quarters, we think that's been a good part of why people are so excited to be with us and continue to play and to pay.

Great. That's good to hear. Cool. And then, switching over to Super Nation, my understanding is pretty strong results out of them. Wondering if you could just kind of talk about your rough expectations there. And you have kind of how that performance compares to a year ago quarter with them and if you could maybe just discuss kind of seasonality and if it differs from your core business.

Yeah, I mean, it's early days with Super Nation being part of us. I mean, we're learning the iGaming business. But we also do know that the initiatives that we and they have been working on with their business and for their business on the marketing side has contributed to the strong results that we reported today in their business. And that's why we want to continue those. And they're also very focused on product differentiation as well. So their focus, I think we've described in the past, not just on the hardcore iGaming player, but also on the more entertainment oriented and kind of fun oriented gambler is important. So their main brand called Duals is an important part of their product differentiation strategy, which allows not just, as I said, the really committed gambler, but also other folks who want to have fun, obviously attempting to win money, but also to be competing against their friends who are also playing and winning the so-called Duals or competitions with a group of players. It's all part of the strategy they have, which seems to be working out quite well relative to the focus on players going to their brand.

Interesting.

Got it. I guess last one, just wanted to get your updated thoughts on buybacks going forward. Are you kind of seeing better uses of cash? I just wanted to get your updated thoughts there.

Well, as we've described in the past, we absolutely, we, the board, our controlling shareholder absolutely believe the best use of cash, at least for the foreseeable future, our cash, our strong balance sheet is in potential acquisition, M&A activity, doing the things that we have done with SuperNation again. We are continuing to look toward opportunities and we have our screens and our filters and our actions that allow us to take a look at the market and see what companies or businesses are available to help us grow the

business. Great. Thank you. Thanks, Greg.

Thank you. And as a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11

again. Please stand by.

This now concludes the question and answer session. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank

you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you.

Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you.

were $88.1 million, comprised of $79.8 million in revenues from our Social Casino -to-play games and $8.3 million of revenues from SuperNation. This compares to total company revenues of $77.6 million in Q1 2023. As IK mentioned, Social Casino -to-play revenue in the first quarter of 2024 was up 1% sequentially from the fourth quarter of 2023 and 3% -over-year. In the first quarter, several KPI metrics for our Social Casino business again improved compared to the year-ago period, including average revenue per daily active user or ARPDAU increased to $1.26 in Q1 2024 from $1.03 in Q1 2023, marking a 22% increase. Payor conversion ratio, which is the percentage of players who pay within the Social Casino apps, increased to .4% in Q1 2024 compared to .8% in Q1 2023. And average monthly revenue per payer at $281 in the first quarter of 2024 increased 27% from $221 in Q1 of 2023. Operating expenses rose on both a -over-year and quarterly sequential basis to $57.1 million compared to $52.2 million in the first quarter of 2023 and $47.5 million in the fourth quarter of 2023. The OPEX increase in Q1 was primarily due to the inclusion of Supernation's operating expenses, as this was the first full quarter consolidation of its financial results into those of Double Down. Sales and marketing expenses for the first quarter of 2024 were $14.8 million, a decline of 8% compared to Q1 2023 and up nearly 50% on a quarterly sequential basis. The sequential increase was comprised of the first-time full quarter inclusion of Supernation sales and marketing expenses, as well as the acquisition of players for the skill-based gaming app IK noted earlier. Sales and marketing costs directed at acquiring new social casino players continue to reflect our focus on spending to ensure we deliver the best return on this investment. For the next several quarters, we anticipate that overall sales and marketing expenses for the company will stay relatively close to or below the Q1 level. Net income for the first quarter of 2024 was $30.4 million or $12.23 per diluted share and $0.61 per ADS, a rise of 28.3%, 28.1%, and .1% respectively, compared to the net income of $23.7 million or $9.55 per diluted share and $0.48 per ADS in the first quarter of 2023. Adjusted EBITDA for the first quarter of 2024 increased 26% to $31.9 million, compared to $25.4 million for the prior year quarter. Adjusted EBITDA margin was .2% for Q1 2024, representing an improvement from .8% in Q1 2023. Net cash flows from operations were $34.9 million for the first quarter of 2024, compared to net cash flow from operations of $19.2 million in the prior year period. Finally, turning to our balance sheet, as of March 31, 2024, we had $310 million in cash, cash equivalents, and short-term investments, with a net cash position at quarter end of approximately $272 million or approximately $5.50 per ADS, excluding the outstanding loans with our controlling shareholder W Games. That completes my financial summary. Now I'll turn the call over to IK for closing remarks.

Thank you, Joe. We began 2024 demonstrating our ability to further extend the operating and financial performance momentum of the company with strong Q1 results in our core social casino business and an excellent start to our new iGaming business. In our core social casino business, we will continue enhancing and improving Double Down Casino through ongoing product development, marketing initiatives, and live ops efforts. We see this as a capital-deficient way to continue driving engagement and monetization that also delivers high cash flow. As we mentioned during last quarter's call, we also are focused on enhancing our already strong margins by increasing our direct consumer payment volume. While it is early days with this initiative, we are beginning to expand the options that players have to purchase chips for Double Down Casino. In the near term at SuperNation, our focus is to invest to grow the player base in both the UK and Sweden. We look forward to the continued positive impact of these efforts to scale the business. And we will continue to pursue growth through participation in adjacent categories of gaming through both our organic efforts and as we continue to evaluate M&A opportunities. We are now happy to take your questions. Brianna?

Thank you. At this time, we will conduct the question and answer session. To ask a question, you will need to 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 of Macquarie. Your line is now open.

Great. Thanks for taking my question and congrats on the quarter. So, I wanted to get some more color on the SuperNation business and get a sense for first, how the quarter performed relative to your expectations. Sounds like it came in above. And secondly, how should we be thinking about the balance of the year? I believe there is some summer seasonality in there. But do you expect momentum to build sequentially as we go through 2Q to 4Q? Thank you.

Yeah, thanks, Aaron. Appreciate the questions. So, with regards to the Q1 performance of SuperNation, we are pleased with the results. We feel like now, I guess after the end of the first quarter to the first five quarters of having their business as part of ours has been very positive. As we mentioned, the focus initially has been on scaling new user acquisition activity. And we have been pleased to see the fairly quick ability to acquire players and then turn them into meaningful revenue contributors. As it relates to the rest of the year, we will have to see if we can continue to see that quick conversion, if you will, from marketing investment into playing, depositing, and ultimately revenue. And we will see how it plays out. But as IK has said, we are very pleased with the start of this.

Got it. Understood. And then just a quick housekeeping item. With this being the first full quarter of SuperNation within your results, how should we think about your cost structure? Is 1Q OPEX a good level to run forward for expenses like R&D and G&A?

Yeah, by and large, I think everything is kind of full quarter included in Q1 and relative to the expense categories. I mean, the only variability is going to be on the marketing side. As I mentioned, marketing will likely be at or below where we have been or where we were in Q1 for the rest of the year on a quarterly basis, primarily because of the fact that we won't be investing in our first skill-based game any longer to acquire new players. But other than that, I think the run rates will pretty much hold true. Got it. Very helpful. Thank you. Sure. Thanks,

Aaron. Thank you. And one moment

for our next question. Our next question comes from Greg Gibbis of Northland Securities.

Your line is now open.

Hey, good afternoon, IK and Joe. Congrats on the results. I wanted to follow up on just the core business exuberance. Nice to see that up here over the year considering it's been challenging for Social Casino as a whole. Just kind of curious if you could discuss what you think drove that.

Yeah, I think as we mentioned last quarter, which also we were pretty pleased with relative to our results within the core business, it's a lot about the product and product differentiation and being able to incent players to continue to play and then ultimately, you know, we know that leads into monetization. So, IK mentioned the ongoing development of new meta features. These are features that span the various individual casino and slot games that we have in Double Down Casino and we're continuing to focus on that and developing additional really fun. I mean, at the end of the day, you know, people have fun when they play Double Down Casino and certainly they have fun when they play our individual games, individual slots, but we also want them to have fun as they return to play and they have additional journeys and quests and things that we add on, if you will, on top of the individual games that add to the fun and at least over the last couple of quarters, you know, we think that's been a good part of why people are so excited to still be with us and continue to play and to pay.

Great, that's good to hear. Cool, and then, you know, switching over to Super Nation, you know, my understanding, pretty strong results out of them. You know, wondering if you could just kind of talk about your rough expectations there and do you have kind of how that performance compares to a year ago quarter with them and if you could maybe just discuss kind of seasonality and if it differs from your core business?

Yeah, I mean, it's early days with Super Nation being part of us. I mean, we're learning the iGaming business, but we also do know that the initiatives that we and they have been working on with their business and for their business on the marketing side has contributed to the strong results that we reported today in their business and that's why we want to continue those. And, you know, they're also very focused on product differentiation as well. So their focus is, I think we've described in the past, not just on the hardcore iGaming player, but also on the more entertainment oriented and kind of fun oriented gambler is important. So their main brand called Duals is an important part of their product differentiation strategy which allows, you know, not just as I said, the really committed gambler, but also other folks who, you know, want to have fun, obviously attempting to win money, but also to be competing against their friends who are also playing and winning the so-called Duals or competitions with a group of players. It's all part of the strategy they have, which seems to be working out quite well relative to, you know, the focus on players, you know, going to their brand.

Interesting,

got it. You know, I guess last one, just wanted to get your updated thoughts on buybacks going forward. Would, you know, are you kind of seeing better uses of cash? I just wanted to get your updated thoughts there.

Well, as we've described in the past, we absolutely, we, the board, our controlling shareholder absolutely believe the best use of cash, at least for the foreseeable future. Our cash, our strong balance sheet is in, you know, potential acquisition, M&A activity, doing the things that we have done with SuperNation again. And, you know, we are continuing to look toward opportunities and, you know, we have our screens and our filters and our actions that allow us to take a look at the market and see what companies or businesses are available to help us, you know, grow the

business. Great, thank you. Thanks, Greg.

Thank you. And as a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.

Please stand by.

This now concludes the question and answer session. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.