DoubleDown Interactive Co. - Earnings Call - Q1 2025

Transcript

Operator (participant)

Good afternoon and welcome to DoubleDown Interactive Earnings Conference Call for the Q1 ended 31 March 2025. My name is Michelle and I will be your operator this afternoon. Prior to this call, DoubleDown issued its financial results for the Q1 of 2025 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 DoubleDown CEO Mr. In-Keuk Kim and its CFO Mr. Joe Sigrist. Following their remarks, we will open the call for your questions. Before we begin, Richard Land, the company's investor relations advisor, will make a brief introductory statement. Mr. Land?

Richard Land (Head of Investor Relations)

Thank you, Michelle. Before management begins their formal remarks, we need to remind everyone that some of management's comments today will be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended, and Section 21E of the Securities Exchange Act of 1934 as amended, and we hereby claim the protection of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements about future events and include expectations and projections, not present or historical facts, and can be identified by the use of words such as may, might, will, expect, assume, believe, intend, estimate, continue, should, anticipate, or other similar terms. Forward-looking statements include and are not limited to those regarding the company's future plans, mergers and acquisition strategy, strategic and financial objectives, expected performance, and financial outlook.

Forward-looking statements are subject to numerous risks and uncertainties that could cause actual results to differ materially and adversely from what the company expects. Therefore, you should exercise caution in interpreting and relying on them. We refer you to DoubleDown's annual report on Form 20F filed with the SEC on 21 April, 2025, 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 Q4 , DoubleDown is reporting its financial results in accordance with IFRS.

As such, the financial results for the 2025 Q1 reflect IFRS, as does the comparable period for 2024. Previously, the company reported its financial results in accordance with GAAP accounting standards. The change to IFRS aligns DoubleDown'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 DoubleDown's website.

With that, it's now my pleasure to turn the call over to DoubleDown CEO, In-Keuk Kim.

In-Keuk Kim (CEO)

Thank you, Rich. Good afternoon, everyone. Thank you for joining us on our 2025 Q1 earnings call. This afternoon, we reported Q1 results with consolidated revenue of $83.5 million and adjusted EBITDA of $30.8 million. Q1 revenue was comprised of $70.3 million generated by our social casino free-to-play games and $13.2 million generated by our iGaming business Super-nation. In Q1, we again executed on our key operating priority of driving a high conversion of revenue to profit and cash flow, as cash flow from operations were $41.1 million, up more than $5 million from Q1 2024. This strong conversion of revenue to cash flow is a hallmark for DoubleDown, and we will continue to focus on it this year, even as we comp against the strong social casino performance we had last year.

We also continue to expect strong cash flow conversion, even as we continue to increase marketing to acquire new players at Super-nation. Despite the decline in revenue from our social casino business, our flagship DoubleDown Casino app continues to be the engine for profit and cash flow generation. In Q1, while average DAU and MAU were down from last year, we continued to have strong performance in our most important monetization KPIs, including ARPDAU and payer conversion rate, which both increased compared to Q1 2024 and were in line with Q4 2024. While average monthly revenue per payer was down slightly year over year and sequentially, it remains at a level we believe is at or near the top of the industry.

The key driver of our strong monetization metrics continues to be our consistent focus on enhancing the entertainment value of DoubleDown Casino to drive player and payer retention. We continue to invest in marketing activities focused on the retention of existing players and reactivation of lapsed payers. We also continue to focus on increasing direct-to-consumer revenue in our social casino operations, which further enhances profitability as we offer players different ways to make purchases. In Q1, direct-to-consumer revenue was over 10% of our social casino business as we work to achieve our target for 2025, which is to exceed 15%. Turning to Super-nation, Q1 revenues of $13.2 million represent the highest quarterly performance of the business since our acquisition in late 2023 and was up over $4 million from the Q1 of 2024.

Super-nation continues to see success in both the UK . and Sweden, driven by increases in our new player acquisition investment. The success we have had to date with scaling Super-nation confirms our rationale for the acquisition, and we see additional significant opportunity to further scale in existing markets, even as we look to expand in other regulated European iGaming markets. Our experience in owning and operating Super-nation over the last 18 months and our success with integrating the operations and more recently driving very healthy results of top-line growth makes us 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 highly addressable market opportunities.

Along those lines, we continue to engage in discussions regarding potential acquisitions that meet our criteria for expanding our operations into new markets while further diversifying our revenue and cash flow sources to create new value for shareholders. Regarding our internal game development efforts, after extensive testing, we have decided to not move forward with a commercial launch of a new match-three style game. Given our mantra of focusing on ensuring we can deliver strong player engagement and monetization to ensure we drive cash flow generation, we will be very disciplined around the launch of new games in new categories and will do so only when our extensive testing provides the evidence that a new game fits our broader business priorities. We continue to develop new game concepts and look forward to evaluating them in trials over the next several months.

Now, I will turn it over to our CFO, Joe Sigrist, to walk us through our financials before providing my closing remarks. Joe.

Joseph A. Sigrist (CFO)

Thank you, Ikei. Good afternoon, everyone. As Rich mentioned earlier, beginning with the Q4 of 2024, we are now reporting our financial results in accordance with IFRS. The comparisons of our 2025 Q1 results to 2024 Q1 results reflect that change for the prior year period under IFRS. The financial statement implications in switching to IFRS from GAAP are generally insignificant, with the biggest change being how our leases are treated, as some amounts are now included in depreciation and amortization under IFRS. This generally makes our reported adjusted EBITDA slightly higher. Our revenues for the Q1 of 2025, as Ikei mentioned, were $83.5 million, and were comprised of $70.3 million in revenues from our social casino free-to-play games and $13.2 million of revenues from Super-nation. This compares to total company revenues of $88.1 million last year.

On a year-over-year basis, as expected, given our strong social casino performance in Q1 last year, social casino revenues declined 12%, while our iGaming revenues increased 59%. As In-Keuk Kim noted, we continue to generate strong monetization in the business, with several KPI metrics for our social casino business improving again compared to the year-ago period, including average revenue per daily active user, or ARPDAU, increased to $1.29 in Q1 2025 from $1.26 in Q1 2024. Payer conversion, which is the percentage of players who pay within the social casino apps, increased to 6.9% in Q1 2025 compared to 6.4% in Q1 2024. Average monthly revenue per payer continued to be strong at $276 in Q1 2025, which is down just slightly from $281 in the prior year period. As noted on the Q4 call, industry revenues were forecast to decline in 2025.

These industry forecasts, combined with our strong performance throughout 2024, will make year-over-year social casino growth a challenge in 2025. However, we have the right strategies in place, including our focus on product development improvements, live operation enhancements, and marketing initiatives to support player retention and monetization to help us maintain our industry position. As is our hallmark, our operating priorities for the social casino business will emphasize our focus on generating attractive margins and strong free cash flow. Operating expenses were $53.9 million for the Q1 of 2025 compared to $57.0 million in the Q1 of 2024. We had lower research and development expenses for our social casino free-to-play operations and a decline in the cost of revenue reflecting the lower revenue in the period, which were partially offset by higher general and administrative expenses.

Sales and marketing expenses for the Q1 of 2025 were $14.3 million compared to $15.1 million in the Q1 of 2024. In Q1, we continue to focus on optimizing spending to acquire new players for our flagship social casino app, DoubleDown Casino. This focus helps us maintain margins in the business as the cost to acquire new players continues to rise due to, we believe, the large investments now being made by Sweepstakes Games publishers. At the same time, we continue to increase sales and marketing spending for Super-nation, focused on the acquisition of new players primarily in the UK . and Sweden, and you can see the positive impact in the recent results we've seen with Super-nation.

Profit excluding non-controlling interest for the Q1 of 2025 was $23.9 million, or $9.65 per diluted share and $0.48 per ADS, compared to profit excluding non-controlling interest of $30.3 million, or $12.24 per diluted share and $0.61 per ADS in the Q1 of 2024. Adjusted EBITDA for the Q1 of 2025 was $30.8 million compared to $32.7 million for the prior year quarter. Adjusted EBITDA margin was 36.9% for Q1 2025 as compared to 37.1% in Q1 2024. Net cash flows provided by operating activities in Q1 2025 were $41.1 million compared to $35.7 million in Q1 2024. Finally, turning to our balance sheet, as of 31 March, 2025, we had $455.7 million in cash, cash equivalents, and short-term investments, with a net cash position at quarter-end of approximately $422 million, or approximately $8.51 per ADS. That completes my financial summary.

Now I'll turn the call back to In-Keuk Kim for closing remarks.

In-Keuk Kim (CEO)

Thank you, Joe. As highlighted in our Q1 results, our discipline in investing as appropriated in our two main businesses allows DoubleDown to continue generating strong profitability and free cash flow. We will maintain our capital efficiency discipline going forward as we focus on both product improvements and live ops enhancements in DoubleDown Casino to maintain its strong competitive position. For Super-nation, we will continue to selectively increase our investments in new player acquisition as we target additional top-line growth this year. It is important to note that at scale, iGaming businesses can be highly profitable, and our execution today is moving us closer and closer toward achieving that needed level of scale. In closing, we expect to extend our track record of consistently generating attractive free 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. Michelle? Joe Sigrist?

Hi, Michelle. Are you there?

Joseph A. Sigrist (CFO)

No, Michelle, we cannot hear you.

Richard Land (Head of Investor Relations)

I'll just ask if you want to stand by. The operator's just having trouble with her phone, so we'll just give her a minute to try and fix that, and then we'll get to Q&A.

Joseph A. Sigrist (CFO)

Okay. Thanks, Rich.

Operator (participant)

I'm sorry about that. Ladies and gentlemen, if you would like to ask a question at this time, please press star one one on your telephone. It looks like our first question is going to come from the line of Erin Lee with McCrory. Your line is open. Please go ahead.

Hey, good afternoon. Thanks for taking my question. Nice job on the Super-nation growth this quarter. Can you just speak to what trends you're seeing in Super-nation's markets, and are there any major sporting events we should be mindful of that are important from either a handle or customer acquisition standpoint? Thanks.

Joseph A. Sigrist (CFO)

I mean, the continued benefit of the quick ROI attributed to the investment in acquiring new players has been what's allowed us to continue to feel good about investing in marketing and to scale that. We spent quite a bit of money from a marketing perspective in Q1 on Super-nation. You'll actually see that sequentially, the sales and marketing spend for the company went up quite a bit. The bulk of that increase from Q4 was in what we spent with Super-nation. Again, the really good news is the very rapid payback that we've seen with that, and that includes both in Sweden and in the UK . Given that they're really a very small fish in both those markets, it gives them kind of room to run relative to growing market share from a very small current number.

From that standpoint, I think we're just really, really pleased with the execution of the monetization of new players. I'm sorry, Erin, could you repeat your question about sporting events?

Yeah. Just wondering if there's any major events we should be mindful of that are coming up that are either important from a handle or customer acquisition standpoint.

Actually, our revenue portion is lots of portion of slots.

It's all iGaming, so.

Gotcha.

Yeah. There's no event-based, I don't know. From a marketing promotion standpoint, there may be some tie-in from an advertising perspective, but this is all slots. So it's just really the engagement of our players and their excitement to be playing slot games.

Gotcha. Okay. That makes sense. And then just looking for an update from an M&A perspective, has anything changed in terms of the opportunities or your focus, especially given all the experience you have now growing Super-nation? And can you speak to the dynamics of the M&A environment? Has the current macro uncertainty changed anything there? Thank you.

Yeah. No, I think the flow of opportunities continues. That is inclusive of both free-to-play or kind of mobile gaming, if you will, as well as iGaming. We have had a few iGaming opportunities cross our desk recently, albeit small ones. There has been interest. I think as we get our name as Super-nation and DoubleDown gets its name more well-known in the iGaming space, I think we are going to see potentially even more opportunities on the iGaming side. As we have said in the past, we are not only looking at iGaming, although we do now have, I think, with Super-nation, a really nice platform to build from, especially in Western Europe. We are also obviously looking at the casual game opportunities as well, and those continue. Yeah, I do not think anything has changed recently.

I do not see a drop-off in either interest or certainly in people pitching us, which I think is always a good thing.

Okay. Thank you. Appreciate the color.

Richard Land (Head of Investor Relations)

Sure. Thank you.

Operator (participant)

Thank you. One moment for our next question. Our next question is going to come from the line of Josh Nichols with B. Riley. Your line is open. Please go ahead.

In-Keuk Kim (CEO)

Yeah. Thanks for taking my question. Just to dig a little bit deeper on the Super-nation iGaming piece of the business, again, pretty phenomenal growth of almost 60%. Do you feel that this level of north of $13 million for the quarter is kind of like a base, and you would expect to expand that and commensurate with that? You expect that this elevated level of sales and marketing to kind of persist for the foreseeable future? Effectively, do you think that the Super-nation business is going to be growing throughout the rest of the year from this current base that you just hit in one Q? That's a new record.

Joseph A. Sigrist (CFO)

As I said, we are excited about what the returns have been in our investment in acquiring new players and, frankly, have not seen a drop from that more recently. We would expect, unless something changes, to continue to be investing at or even above this level and to be seeing the requisite revenue result from that investment.

In-Keuk Kim (CEO)

That's still running, to your point, I think, EBITDA break-even this year, then flipping to EBITDA positive. Is this higher revenue base going to push you to EBITDA profitability a little bit earlier than previously anticipated?

Joseph A. Sigrist (CFO)

As we said in our remarks, I mean, we know that iGaming businesses at some point can be quite profitable at scale. We're not there yet, to your point, on being kind of at or even at this point, at least slightly below EBITDA break-even. The way to both grow revenue and get to EBITDA positive is to continue to scale the business. That's what we're really excited about doing the rest of the year.

In-Keuk Kim (CEO)

Yep. Thanks. Just touching on the social casino, I think you have a pretty tough comp, right, looking at this for the first half of the year. They get a bit better in the second half. Any color on the expectations for what you're thinking in terms of the rate of decline for that business? I know you said it would be difficult to grow, right, year over year, given that it was expected to shrink. Overall, is this 12% decline that you saw in Q1 expected to kind of abate a little bit and ultimately in the back half get to kind of like a low single-digit decline or maybe even growth by the time we get to Q4?

Joseph A. Sigrist (CFO)

There is no doubt you have got it exactly right, Josh. There is no doubt that the first half of the year is the toughest comp for us, and specifically the Q1 . I think that lends itself to the 12% compare with the most recently concluded quarter. The comps definitely do get easier in the second half of the year. I mean, given what we have seen in the results of our peers even more recently, I think it is going to be a challenge to grow even in the second half of the year, quarter over quarter. I do think the compares do get better as we look to Q3 and certainly to Q4.

In-Keuk Kim (CEO)

Just last question for me. You mentioned it on the prepared remarks. The user acquisition cost has been getting a little bit more expensive on the social casino side, presumably because of elevated investments being made by some of these sweepstakes competitors. Are you seeing that? Is it really just impacting new user acquisition costs, or are you seeing a little bit more churn of some of the existing legacy base that you guys have moving over to sweepstakes as opposed to social casino? Or is it just more on user acquisition costs for trying to bring new users into the funnel?

Joseph A. Sigrist (CFO)

It's really hard. I mean, it's a really good question, Josh. I mean, it's really hard for us to tell what we may be losing from a player perspective to sweepstakes. We just know that there's been no abatement in the aggressiveness that advertisers are using to price, especially for social casino companies, because they know how well we monetize, and they, frankly, use that to set their pricing. Although it can't be scientifically confirmed, we do believe that part of that is because we are competing with those that are also doing sweepstakes. That's really our theory around the impact of the sweepstakes apps on the pricing for new user acquisition.

In-Keuk Kim (CEO)

Thank you.

Joseph A. Sigrist (CFO)

Great. Thanks, Josh.

Operator (participant)

Thank you. One moment for our next question. Our next question is going to come from the line of Greg Gubbis with Northland Securities. Your line is open. Please go ahead.

Hey, good afternoon. I'm Kate and Joe. Congrats on the strong Super-nation results. Thanks for taking the questions here. If I could just follow up on that, given that nice strength, nice year-over-year growth, you spoke to liking the spend efficiency. Would you say it's improving or kind of leveled out here? I guess I would just ask, other than kind of the attractive return on your spend for player acquisition, could you maybe speak to any of the other drivers of strength of Super-nation?

Joseph A. Sigrist (CFO)

Sure. Yeah. Listen, I think the marketing story is such a good story and such a short-term driver that I appreciate you asking me about other things that are going well with Super-nation, including product and some of the continued good work the team in Malta are doing from a product development standpoint. We've also really benefited from the fact that the company has three brands. I know when we acquired the company, we talked about Dual. There is and continues to be a lot of excitement around Dual. They have two other brands that have shown to be quite strong as well. They're kind of more—I don't want to use the term legacy brands, but brands that have been around and associated with the company for a little longer. The life of those brands has not dissipated, frankly.

We have been able to lean in, as we applied additional marketing dollars, lean into those brands as well as the Dual brand. We are continuing to do product improvements and, of course, refreshes and the various things that we do from a live ops standpoint to, as I said, to lean into all three of those brands.

Got it. Very helpful. If I could follow up too on your prepared remarks, you talked about now moving forward with the commercial launch of a new game. Maybe could you discuss what you're not happy with there? Do you have any other kind of in-house developments over the foreseeable future? How should we maybe think about the timeline of kind of new development?

Yes, correct. We currently have several new game concepts in development, and we've been expanding our capabilities, particularly in casual genres, by incorporating AI-assisted production pipelines. These tools allow us to iterate faster and test more ideas, which is especially valuable in today's environment where user acquisition costs remain elevated. That said, we continue to take a very disciplined approach to greenlighting new titles, as we saw with the recent Legacy Project. Even well-developed concepts may not meet our internal threshold for player engagement or monetization. We believe that long-term success in new categories requires patience, rigorous testing, and a willingness to walk away when the data doesn't support a commercial launch. While we are optimistic about the tools and teams we are building, we remain cautious and metrics-driven in our execution. Our goal is not just to launch games; it's to launch games that can scale profitably.

Thank you.

In-Keuk Kim (CEO)

Understood. Thanks.

Operator (participant)

Thank you. This is going to conclude today's question and answer session. This is also going to conclude today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.

Joseph A. Sigrist (CFO)

Thank you, Michelle. Thanks, everyone.