DoubleDown Interactive Co., Ltd.

Good afternoon and welcome to Double Down Interactive's earnings conference call for the fourth quarter and full year ended December 31st, 2024. My name is Marvin and I'll be your operator this afternoon. Prior to this call, Double Down issued its financial results for the fourth 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. 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. N. Cook, Kim, and its CFO, Mr. Joe Sigris. Following their remarks, we'll open the call for questions. Before we begin, Richard Land, the company investor relations advisor, will begin a brief introductory statement. Mr. Land.

Thank you, Marvin. 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 meeting 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 that 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 Double Down's annual report on Form 20-F filed with the 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 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. As noted in this afternoon's press release, beginning with the 2024 fourth quarter, Double Down is reporting its financial results in accordance with IFRS. As such, the financial results for the 2024 fourth quarter and full year periods reflect IFRS, as do the comparable periods for 2023. Previously, the company reported its financial results in accordance with GAAP accounting standards. The change to IFRS aligns Double Down's financial reporting with the financial reporting standards of its controlling shareholder in Korea. During today's call, management will discuss non-IFRS financial 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 IFRS. A full reconciliation of these measures to the most directly comparable IFRS measure is available in the earnings release issued this afternoon. 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. With that, it's now my pleasure to turn the call over to Double Down CEO, Inko Kim.

Thank you, Richard. Good afternoon, everyone. Thank you for joining us on our 2024 first quarter earnings call. This afternoon, we reported financial results for the first quarter with consolidated revenue down slightly year-over-year to $82 million. and adjusted EBITDA of $35.1 million. Total Q4 revenue was comprised of $73 million generated by our social casino free-to-play games and $9 million generated by SuperNation, our iGaming business acquired in Q4 2023. Importantly, we continue to drive a high conversion of revenue profit and cash flow, the hallmark of our operating priorities. We again generated significant cash flow from operations in the quarter, contributing to our ability to generate over $148 million of cash flow from operations in full year 2024. Double Down Casino continues to have a solid competitive position in the social casino industry. While average DAU and MAU were down in Q4 from Q3 2024, we again generated strong year-over-year increases in some of our most important monetization KPIs, including ARP DAU, average monthly revenue per payer, and payer conversion rate. These strong monetization metrics largely reflect the success of our focus on continued enhancement of the entertainment value of Double Down Casino, including from the introduction of meta features, which have proven popular with players. 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. Turning to SuperNation, Q4 revenues of $9 million represent the highest quarterly performance of the business since our acquisition in late 2023. In fact, SuperNation's Q4 revenue was more than 30% higher than our estimate. of what the business quarterly loan rate was prior to our acquisition. We are continuing to gain experience and expertise in operating SuperNation and believe we can further grow the business top line in 2025 as we increase our investment in new players' acquisitions. With their year of owning and operating SuperNation as an example, We are increasingly confident that we can leverage our core strengths, financial discipline, and strong balance sheet to further diversify our company into new gaming categories that have a highly addressable market opportunity. This diversification can include internally developed new games such as a casual match-three-style game. As you know, we are very cautious with our approach to launching products in new gaming categories as we conduct extensive player trialing prior to committing to invest in a commercial launch. As the beta trial period for our Match Street game has continued, we are refining and optimizing features around both player retention and monetization based on the feedback we've received. 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. With the success we are achieving with SuperNation, we are optimistic that we can identify, acquire, and integrate companies that can be long-term drivers of revenue, cash flow, and growth for the company. The strengths of our balances give us the foundation to pursue additional opportunities that bring with them more scale compared to super nations as we generally believe that The effort to integrate a company two or three times the size of SuperNation is essentially the same as what we have already proven we can do successfully. If the right value-creating opportunity presents itself, we are ready to act. 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. As was highlighted at the beginning of this call, we are now reporting our financial results in accordance with IFRS. The impacts on our financial statements and switching to IFRS from GAAP are generally insignificant. The biggest change is how our leases are treated, as some amounts are now included in depreciation and amortization under IFRS. This makes our reported adjusted EBITDA slightly higher. And from an income statement presentation perspective, depreciation and amortization is not called out as a separate line item. Rather, items associated with depreciation and amortization are included in their functional expense categories. This is a presentation change only and, again, is consistent with IFRS. Our revenues for the fourth quarter of 2024 were $82.0 million and were comprised, as Ikay mentioned, of $73 million in revenues from our social casino free-to-play games and $9 million of revenue from SuperNation. This compares the total company revenues of $83.1 million last year. In the fourth quarter, several KPI metrics for our social casino business improved again compared to the year-ago period, including Average revenue per daily active user, or ARPDAU, increased to $1.30 in Q4 2024 from $1.24 in Q4 2023. Payer conversion ratio, which is the percentage of players who pay within the social casino apps, increased to 6.9% in Q4 2024 compared to 6.4% in Q4 2023. And average monthly revenue per payer increased to $282 in Q4 2024 from $279 in Q4 2023. For the full year 2024, total revenue was $341.3 million, a 10% increase from $308.9 million in full year 2023. Most of this increase reflects the acquisition of SuperNation which closed on October 31, 2023. Our social casino business grew slightly in 2024 as compared to 2023, even as overall industry revenues were estimated to have declined. Analysts are forecasting industry revenues to decline again in 2025. These industry forecasts, combined with our comps for 2024, will make year-over-year growth within the social casino category challenge in 2025. That being said, you can expect us to continue to strive for improvements in the retention and monetization of our players through the ongoing focus on product development and live ops enhancements, allowing us to generate attractive margins and strong free cash flow. Operating expenses were $47.8 million compared to $47.4 million in the fourth quarter of 2023. essentially flat. Operating expenses for the 2024 fourth quarter include the operating expenses associated with our full quarter of SuperNation operations as compared to the 61 days we owned the business in the 2023 fourth quarter. The somewhat higher expenses of operating SuperNation were partially offset by lower marketing and research and development expenses for our social casino free-to-play operations. Sales and marketing expenses for the fourth quarter of 2024 were $10.4 million in line with the fourth quarter of 2023 and slightly higher than the third quarter of 2024. In Q4, we continue to focus on optimizing spending to acquire new players for our flagship social casino app, Double Down Casino. 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. At the same time, we increased our sales and marketing efforts for SuperNation as we focus on ramping the top line. As IK noted, SuperNation had its highest quarterly revenue under our ownership in Q4. With a full year of operating SuperNation under our belt, we are focused on growing its market share this year in their main UK and Sweden markets. Profit excluding non-controlling interest for the fourth quarter of 2024 was $35.6 million or $14.37 per diluted share and $0.72 per ADS compared to net income of $29.9 million or $10.47 per diluted share and $0.52 per ADS in the fourth quarter of 2023. Adjusted EBITDA for the fourth quarter of 2024 was $35.1 million compared to $37 million for the prior year quarter. Adjusted EBITDA margin was 42.8% for Q4 2024 as compared to 44.5% in Q4 2023. For the full year of 2024, adjusted EBITDA was $141.9 million compared to $122.1 million in 2023, with an adjusted EBITDA margin in 2024 of 41.6% compared to 39.5% in 2023. While I highlighted that the full-year revenue increase was primarily due to the acquisition of SuperNation, the full-year increase in adjusted EBITDA was entirely due to our ability to generate higher profitability from our social casino operations. For the full year, net cash flows provided by operating activities were $148.5 million in 2024, compared to $24.1 million in 2023. As you may recall, 2023 cash flow from operation included a final $95.3 million payment for the Benson legal settlement. And finally, turning to our balance sheet, as of December 31, 2024, we had $415 million in cash, cash equivalents, and short-term investments with a net cash position at quarter end of approximately $381 million or approximately $7.69 per ADS. That completes my financial summary. Now I'll turn the call back to IK for closing remarks.

Thank you, Joe. We are proud of our results in 2024 with total revenue of $341 million, up 10% compared to 2023, and adjusted EBITDA up nearly 16% year-over-year to $141.9 million. And as we highlighted earlier, we generated more than $148 million in cash from operations. For both our social casino and iGaming operations, our strategy in 2025 is to continue driving player engagement and monetization while maintaining our capital position We recognize that the social casino category is much worse, and this sets up some challenging comparisons for 2025. That said, we are confident that our continued focus on enhancing the entertainment value of downtown casino will help us maintain our competitive position, while our discipline around user acquisition and R&D stance will result in continued strong profitability and free cash flow. We will also continue to focus on increasing direct-to-consumer revenue, which will further enhance the profitability of our Fisher Casino operations as we offer players different ways to make purchases. We made good progress with these efforts in 2024 and expect additional success this year. With a full year of experience operating SuperNation, we expect to achieve additional top line growth this year. We are encouraged by SuperNation results in 2024 and see opportunities to increase our investment in acquiring new players in both Sweden and the UK SuperNation main market. In closing, we expect to extend our track record of consistently generating attractive cash flow this year. As we do so, we will further strengthen our balances and the foundation we have established to pursue growth by exploring 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. Marvin.

Thank you. At this time, we'll conduct the question and answer session. As a reminder to ask a question, you'll 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 while we compile the Q&A roster. And our first question comes from the line of Aaron Lee of McGuire. Your line is now open.

Hey, guys. Thanks for taking my question. I want to start with SuperNation. As you pointed out, it's been a year since the acquisition. So could you just reflect on your accomplishments with that over the past year? You know, what went right? Maybe what's been surprising? And you talked about increasing SuperNation's market share with increased marketing spend. Any other initiatives you would highlight maybe from a live ops or content standpoint? Thank you.

Yeah, I think marketing, I'll speak to the marketing execution, and maybe, Ike, you want to talk about product content or product development. But I highlight the marketing execution because what we've learned and found is that the ROI associated with acquiring new users has room to run. And as we have continued to test various different ways of acquiring new users, we have optimized around a set of channels and techniques that seem to be working. And this has allowed us to acquire more users, spend more money, but most importantly, do it profitably with the return that is well within our target. And so that gives us increased – as the year went on, really gave us increased confidence that we could spend more money in the acquisition of new players. I mean, if you look at Q3 versus Q4 of this year, we as a company spent somewhat more money in marketing, and that was entirely in spending more money with SuperNation. And that just reflects the – confidence we have that that'll pay off, and it has almost immediately in the sense of ramping the revenue.

Yeah, to support Joe's comment, the most important thing for us now is to find scalability to get a bigger market share. Geo-expansions and brand enhancement and marketing UA investment are the priorities. Given that now we have three attractive scalable brands, We are seeing these brands' potential to grow recently. And in addition, we will seek additional differentiated opportunity by offering compelling features as we are doing in social casino platform. Currently, we will focus more on improving our users' lifetime value as we develop social casino KPIs. That's our core strength in recent years. So this virtual cycle should be essential to scale up the business from ROI perspective as well. Thank you.

Great, thank you. That's good color. And then as a follow-up, over the last couple of quarters, we've seen the success you've had with introducing new meta features and growing monetization. With regard to the product roadmap, can you just help us understand how you're positioning yourself to continue the momentum, given that you'll be lapping some tough comps from your success this year?

Yeah, let me start first. You know, most effective event features combination are mainly, for example, these three combinations in DDC. Actually, the first one is daily, weekly, missions, like mission passes. plus leaderboard challenges. This encourages daily logins and fuel competitive spree. The second one is card collection events like Wonder Cards plus seasonal events like VIP races and journeys. This maintains long-term retention and attracts less users. Actually, the third one is we are researching now personalized experiencing using AI systems. This can enhance our users' interaction and boost user engagement. So we believe, as a result, this kind of efforts, our ongoing efforts, will help us maintain user attraction and longevity. And we are working very hard to bring and refresh them.

Yeah. That's great. Thank you. Appreciate all the call there.

Thanks, Aaron. Thank you. One moment for our next question. And our next question comes from the line of Greg Givas of North End Security. Your line is now open.

Hey, good afternoon, IK and Joe. Thanks for taking the questions. One of the follow-up on SuperNation, you know, you discussed, I guess, the efforts and investments you're making for market share growth. You talked about UK and Sweden. What kind of investments are you making there to grow your market share? And then kind of separately, do you expect to expand SuperNation into new iGaming markets?

Yeah, I think the major investment, as I mentioned a minute ago, that is very visible and has almost, frankly, an immediate impact is in marketing and in acquiring new users. And the The monetization of new users, especially in the UK, but also in Sweden, is incredibly fast. And so our ROI targets, our payback period targets, the ones that we have from our social casino business, are almost too modest compared to what we're seeing with the iGaming business. And so we really feel good about, within reason, of course, spending more money there. And that's why you saw, for instance, in Q4, the fact that we increased marketing as a company pretty much solely on the back of the investment in SuperNation. And Ike mentioned also leveraging the brands and product development. I mean, all of that is really in the focus on... kind of the high entertainment iGaming player, one of the things that you'll perhaps recall is the thing that attracted us most, or one of the things that attracted us most to SuperNation is, you know, they just weren't looking for the, you know, the churn and burn, you know, gambler. They also had this idea of the entertainment style online, you know, slot player. And that really speaks to the fact that there's been a good investment in product development and feature development and brand development around the, you know, the three major brands that they have.

Got it. That's helpful. And, and as it relates to your commentary on, you know, future games, um, you know, what, what categories maybe make the most sense for, for development and, um, you know, wanted to get a sense of if you could share any timing of potential new titles to come.

Well, um, The most near term is the Match 3 game that we have currently in beta. That's a totally internally developed game that we're working on now. And as Ike mentioned, we're tweaking, optimizing during its beta period. And then the pipeline of additional games that we have fall into other casual gaming categories that I can't be too specific about relative to the schedule or timing. From an organic standpoint, we are focused on the casual gaming category. From M&A perspective, of course, the aperture widens. We're looking at all sorts of different types of gaming opportunities, both in the regulated side of the business as well as, of course, in the casual game category or even hyper-casual category. But that's also kind of an ongoing focus of the company.

Got it. Thanks for the call.

Thank you. This 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.