DoubleDown Interactive Co. - Earnings Call - Q2 2025

Transcript

Speaker 1

Good afternoon and welcome to DoubleDown Interactive's earnings conference call for the second quarter ended June 30, 2025. My name is Michelle, and I'll be your operator this afternoon. Prior to this call, DoubleDown Interactive Co., Ltd. issued its financial results for the second quarter 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 Interactive's CEO, Mr. In Keuk Kim, and its CFO, Mr. Joseph Sigrist. Following their remarks, we will open the call for questions. Before we begin, Joseph Jaffoni, the company's Investor Relations Advisor, will make a brief introductory statement. Mr. Jaffoni?

Speaker 4

Thank you, Michelle, and good afternoon, everyone. 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 27(a) of the Securities Act of 1933 as amended, and Section 21(e) of the Securities Act of 1934 as amended, and will 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 words. Forward-looking statements include and are not limited to those regarding the company's future plans, M&A 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 upon them. We refer you to DoubleDown Interactive Co., Ltd.'s annual report on Form 20F filed with the SEC on April 21, 2025, and other SEC filings for a more detailed discussion of risks that could impact future operating results and financial condition. These forward-looking statements are made only as of the date of today's 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, DoubleDown Interactive Co., Ltd. is reporting its financial results in accordance with IFRS.

As such, the financial results for the 2025 second quarter reflect IFRS, as do the comparable period for 2024. Previously, the company reported its financial results in accordance with GAAP accounting standards. The change to IFRS aligns DoubleDown Interactive Co., Ltd.'s financial reporting with financial reporting standards of its controlling shareholders 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 on DoubleDown Interactive Co., Ltd.'s website. With that, it's now my pleasure to turn the call over to DoubleDown Interactive Co., Ltd.'s CEO, In Keuk Kim. Please go ahead.

Speaker 3

Thank you, Joe. Good afternoon, everyone. We are delighted to be with you today to discuss not only our strong 2025 second quarter results and our continued progress with SuperNation, but also our other recent initiatives intended to enhance shareholder value. Let's start with the quarterly results. This afternoon, we reported second quarter consolidated revenue of $84.8 million and adjusted EBITDA of $33.5 million. Q2 revenue was comprised of $69.3 million generated by social casino operations and $15.5 million generated by our iGaming business, SuperNation. In Q2, we again delivered on our key operating priority of driving a high conversion of revenue to cash flow, even as we come against our strong social casino performance in the second quarter of 2024. Cash flow from operations was $19.7 million, bringing our total for the first half of 2025 to $60.1 million.

We are able to continue delivering this profit and cash flow results even as we continue to prudently increase margin spend to acquire new players at SuperNation. Our flexible DoubleDown Casino app continues to be the engine of cash flow generation for the company. Monetization metrics for the second quarter reflect this performance with ARPDAU at $1.33 equal to that of Q2 2024, as well as payer conversion rate at 7%, increasing from both Q2 2024 and Q1 2025. In Q2, we again increased the proportion of our social casino revenue generated by direct-to-consumer purchases. With this progress, DTC revenue is now running at over 15% of total social casino revenue. As you know, the ability to convert more social casino revenue to DTC further enhances our profitability as we offer players different ways to make purchases.

As I mentioned a moment ago, we are complementing our strong free cash flow profile and financial position through other initiatives intended to build new value for shareholders. Our ongoing commitment to the social casino business is highlighted by DoubleDown Interactive Co., Ltd.'s recently completed acquisition of WHOW Games GmbH, a social casino operator based in Hamburg, Germany. With this acquisition, which closed on July 15, DoubleDown Interactive Co., Ltd. is further expanding its presence in Europe as WHOW Games GmbH's revenue is primarily generated in Germany using casino game content that is familiar and appealing to local players. The integration of WHOW Games GmbH further geographically diversifies DoubleDown Interactive Co., Ltd.'s top line, which historically has been concentrated in the U.S. We are excited to begin leveraging DoubleDown's knowledge and expertise in a number of key operational areas to accelerate WHOW Games GmbH's success going forward.

Turning to SuperNation, Q2 revenue of $15.5 million yet again represented the highest quarterly performance of the business since our acquisition in late 2023 and grew by $2.3 million from the first quarter of 2025. For perspective, SuperNation's quarterly revenue run rate has more than doubled since DoubleDown closed this acquisition. SuperNation's second quarter growth reflects our strategy to prudently scale investments to acquire new players for their three iGaming online casinos. Our investment continues to generate excellent payback and strong returns even as the number of new players increases. At this time, we believe that such expenditure can drive further success and growth for SuperNation in the second half of 2025.

Our experience in owning and operating SuperNation over the last few quarters and our success with integrating its operations and driving very healthy levels of top-line growth make us increasingly confident that we can leverage our core strengths, financial discipline, and strong balances to further diversify our company by focusing on new gaming categories and underserved geographies. This priority is reflected in our acquisition of WHOW Games GmbH and our ongoing search for other acquisition targets that meet our criteria for expanding our operations into new markets while further diversifying our revenue and cash flow sources to create value for shareholders. Now I will turn it over to our CFO, Joseph Sigrist, to walk us through our financial reporting remarks. Joe.

Speaker 2

Thank you, I.K., and good afternoon, everyone. As was earlier mentioned, beginning with the fourth quarter of 2024, we are now reporting our financial results in accordance with IFRS, and the comparisons of our 2025 second quarter results to 2024 second quarter results reflect that change from 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. As I.K. mentioned, revenues for the second quarter of 2025 were $84.8 million and were comprised of $69.3 million in revenues from our social casino business and $15.5 million of revenues from SuperNation. This compares to total company revenues of $88.2 million for Q2 2024.

On a year-over-year basis, as expected, given our strong social casino performance in Q2 last year, social casino revenues declined 14% and were down approximately 1.5% from Q1 2025. At the same time, iGaming revenues nearly doubled, increasing 96% from the second quarter of 2024, and as I.K. stated, we're up $2.3 million on a sequential basis. With our focus on leveraging our platform and driving free cash flow, we continue to generate strong monetization in the social casino business in Q2. Average revenue per daily active user, or ARPDAU, at $1.33 in Q2 2025 was equal to that in Q2 2024. Payer conversion rate, which is the percentage of players who pay within the social casino apps, increased to 7% in Q2 2025 compared to 6.7% in Q2 2024.

Average monthly revenue per payer continued to be strong at $286 in Q2 2025, which is down just slightly from $288 in the prior year period. As reviewed on recent quarterly calls, industry revenues are forecasted to decline in 2025. These industry forecasts, combined with our strong performance throughout 2024, will make year-over-year social casino comps challenging in 2025. As I.K. described, we remain steadfast in our commitment to the social casino business. With our flagship DoubleDown Casino, we have the right strategies in place, including a focus on product development improvements, live operations enhancements, and payer-based marketing initiatives to support its strong industry position. With the acquisition of WHOW Games GmbH, we look forward to taking our social casino business to the next level. In the second quarter of 2025, operating expenses of $52.4 million were essentially flat compared to $51.9 million in the second quarter of 2024.

Lower research and development expenses and a decline in the cost of revenue were partially offset by higher sales and marketing and G&A expenses. Sales and marketing expenses for the second quarter of 2025 were $13.1 million compared to $11.6 million in the second quarter of 2024. In Q2, we continued to optimize spending to acquire new players for DoubleDown Casino, while at the same time increasing sales and marketing spend for SuperNation to focus on new player acquisition. Profit excluding non-controlling interest for the second quarter of 2025 was $21.9 million, or $8.82 per diluted share and $0.44 per ADS, compared to profit excluding non-controlling interest of $33.2 million, or $13.35 per diluted share and $0.67 per ADS in the second quarter of 2024.

This decline in profit excluding non-controlling interest was primarily driven by lower revenue and especially increased unrealized loss on foreign currency due to the weakening of the U.S. dollar in Q2. Adjusted EBITDA for the second quarter of 2025 was $33.5 million compared to $37.5 million for the prior year quarter. Adjusted EBITDA margin was 39.5% for Q2 2025 as compared to 42.5% in Q2 2024. Net cash flows provided by operating activities in Q2 2025 were $19.7 million compared to $34.8 million in Q2 2024 and $41.1 million in Q1 2025. The decline in net cash flows in Q2 was primarily attributed to income tax payment timing. For the first half of 2025, net cash flows provided by operating activities were approximately $60 million.

Finally, turning to our balance sheet, as of June 30, 2025, we had $481.2 million in cash, cash equivalents, and short-term investments, with a net cash position at quarter end of approximately $444 million, or approximately $8.97 per ADS. Our current cash position has, of course, been subsequently reduced due to the approximate $64 million payment made in July for the WHOW Games GmbH acquisition. As a final note, I'd like to acknowledge the sale of shares during the second quarter by our private equity investor in Korea, our second largest shareholder. The successful completion of this process has expanded our shareholder base and increased the liquidity of our publicly traded stock. I'd like to take this opportunity to welcome these new investors to DoubleDown. Now, I'll turn it back to I.K. for closing remarks.

Speaker 3

Thank you, Joe. In summary, DoubleDown Interactive is delivering strong cash flow from its two meaningful and exciting businesses, social casino and iGaming. Our strong balances and cash position allow us to continue to make disciplined investments in each of our businesses while continually evaluating new opportunities to enhance the growth of each. This includes investments through both organic means as we leverage the strengths of our talented team and through our evaluation of potential future acquisitions. We are now happy to take your questions, Michelle.

Speaker 1

Thank you. If you'd like to ask a question, please press star-1-1. If your question hasn't been answered and you'd like to remove yourself from the queue, please press star-1-1 again. Our first question comes from Aaron Lee with Macquarie. Your line is open.

Speaker 5

Hi, good afternoon. Thanks for taking my question. Maybe to start with WHOW Games GmbH, any color on how you're thinking about balancing growth versus profitability for that business? I guess generally, how do you see the drivers of growth for that business going forward? Thank you.

Speaker 2

Yeah, thanks, Aaron. WHOW Games GmbH, for us, is a very exciting opportunity because on one hand, of course, we understand the social casino business quite well. On the other hand, it's incremental to what we're doing today relative to their strength in Europe, specifically in Germany, and their use of more of a, I'll call it, a white-label model relative to how they work with some of their major partners, especially partners that are strong with content and land-based gaming. For us, we want to lean into what they do well. As you may know, Europe relative to the rest of the world has had some growth more recently in the social casino industry, and we want to take full advantage of that.

That's through this acquisition and through the ways that we can help them, help WHOW Games GmbH, grow and take advantage of what they're already doing well.

Speaker 5

Okay, got it. On direct-to-consumer, you previously talked about DTC surpassing 15% as the target for 2025, and you guys have already achieved that. I guess looking further out, what do you think is an appropriate medium or long-term target? Thank you.

Speaker 2

Yeah, thanks for making that comparison. I appreciate that, Aaron. I'm really pleased just to lean into that a little bit on the progress we've made, really since we started this initiative in earnest a year and a half ago, especially what we've been able to do in the last six months. We look to do more. Relative to the target, I know some of our peers have put targets out there. Certainly, it's going to continue to grow from here. I guess we have to update our end-of-year target now. Relative to continued progress, we have initiatives from a product and a marketing perspective that will allow us to grow from the 15+% of social casino revenue that we are now. I don't have a target for you specifically, but I certainly believe that we'll be higher by the end of the year than we are now.

Speaker 5

Okay, understood. Congrats on the quarter. Nice job. Good luck with WHOW Games.

Speaker 2

Yeah, thanks, Aaron.

Speaker 1

Thank you. Our next question comes from David Bain with Texas Capital Bank. Your line is open.

Speaker 0

Great, thanks. I was hoping to get a little bit of background on the WHOW Games M&A process. If you were looking for a social casino opportunity or if it was more opportunistic, is just a great priced bolt-on fit with the core business? Then going forward, does that shift the spectrum of the M&A genre focus, size, timing, you know, as you look to digest WHOW Games and grow SuperNation?

Speaker 2

Yeah, great question, Dave. I mean, we definitely have been looking, as you know, for ways to leverage our strong balance sheet to grow the business, to grow the company. While our first acquisition was an iGaming business, and we've been looking primarily outside of social casino, this was opportunistic. It's something that came across the desk. The more we looked into it, the more we realized it was, as I mentioned earlier to Aaron, kind of a little bit of what we knew and incremental opportunity based on what they could add to the current social casino business that is our strength. It was a really nice thing to execute on, and I'd say it was opportunistic.

Because of that, it doesn't take our focus away from the other searches that we're doing and our other looks relative to future and potential new ways to use our strong balance sheet. I don't think it delays our excitement or what we think we can execute on if the right thing comes across.

Speaker 0

Okay, I got it. I guess the next one would be on the regulatory action towards sweeps in markets where some of the larger players have at least abided by cease-and-desist letters, and I know a lot haven't yet. Are you seeing any increase in trend for sign-ups or plays? Is it too early to monitor or see that? Are you trying to anticipate, you know, in some of those territories to make marketing changes?

Speaker 2

Just to be clear to everybody on the call, we're not involved in the sweepstakes business. We do not have anything akin to sweepstakes casinos. I think your question is, do we see upside because of the, yeah, I just want to be clear, upside because of potential action that's been taken or is being taken against them? The short answer is no, we haven't. There's nothing I can quantify or tell you that is a positive impact, if you will, to whatever has been occurring legislatively or on the regulatory side with those games. It's not something that we can say has had a specific impact.

Speaker 0

Okay, and if I could, just one more. I'm sorry, I know I'm going over by one, but I was checking news on WHOW Games GmbH, and they have a history of return of capital to shareholders, as you know, like in this July 8 news, if I'm reading it right, of a buyback of ₩35 billion. Is there any kind of just high-level thoughts regarding the parents' return of capital activity versus DoubleDown Interactive Co., Ltd.'s thought process towards their own or the parents' thought process? I mean, understanding valuation considerations between companies and things like that, but I would actually think that would work towards us. I'm just trying to understand, like, you know, if the view of the differential, if you have one.

Speaker 2

Yeah, I mean, you know.

Speaker 0

Sorry, I'm not supposed to tell you.

Speaker 2

No, it's okay, Dave. We can't comment on their actions or their activity. I mean, obviously, they're a separate company. Yes, they're our controlling shareholder, and, you know, obviously, that's an important part of our corporate structure, but I can't comment on what they're doing with their company.

Speaker 0

Fair enough. Thanks, guys.

Speaker 1

Thank you. Our next question comes from Michael Joshua Nichols with B. Riley Securities. Your line is open.

Speaker 0

Yeah, thanks. Just wanted to double-click real quick on the WHOW Games GmbH acquisition. I guess, one, in terms of the revenue to EBITDA profitability, is that relatively comparable where you're looking at something that's like 30+%? Overall, just as you integrate this acquisition, I'm thinking about some of the potential synergies and expanding direct-to-consumer. Is that something that they're doing or even potentially expanding your content agreements with like DoubleDown, DoubleDown Casino, or IGT to WHOW Games GmbH and potential pauses that that could have on the business as you integrate that?

Speaker 2

Yes, certainly there are synergy opportunities relative to growing the business and improving profitability. Some of those things you mentioned, such as our direct-to-consumer initiatives that we're seeing success with, that we're going to be discussing with the WHOW Games team. From a content standpoint, while perhaps not all of our content or not all of the traditional DoubleDown or DoubleDown Casino content will be appropriate given the European player, some of it very well may be. Those are also other discussions that we're starting to have with the WHOW Games team, especially that content, by the way, that we've developed internally in our Korean studios, which then, of course, would be royalty-free revenue for us and for WHOW Games.

Yes, we've started to have discussions about a number of those initiatives, both to grow the top line or accelerate their growth on the top line, as well as improve profitability.

Speaker 0

Thanks. Just looking at the cadence here, social casino revenue attrition seems to be attenuating at least sequentially when you look at the trajectory. I know it's expected to be down year over year in 2025, but do you think that that business could start to be closer to flat sequentially or maybe up sequentially by the end of this calendar year? What are the expectations for the back half, excluding the acquisition, but on an organic basis?

Speaker 2

Obviously, we don't give specific guidance, but I'll say that your observation is right relative to the flattening of the revenue here over the last couple of quarters. We're really feeling good about the initiatives that we've enacted in the first half of the year to create that flattening, if you will. We've got additional monetization features, retention features, features that will enhance the continued payment from players that we're continuing to introduce. In fact, we'll be continuing to introduce this summer that we think all lend towards our continued trajectory, if you will, of where the kind of DoubleDown traditional social casino business is trending right now.

Speaker 0

Thanks. The last question for me, very high growth, right, that we're seeing on the iGaming business from SuperNation. I think you mentioned previously that was running around break-even. When we think of this, you know, you're close to 100% year-over-year growth. Is that type of cadence something that you think is sustainable? Are you still expecting that that business would be positive as it scales next year to EBITDA contribution and to what extent potentially?

Speaker 3

Hi Jason. Let me take the question about SuperNation's sustainable growth. From a marketing payback perspective, our current operations consistently meet our ROI targets, making these investments accretive rather than dilutive to profitability. Based on our experience, scaling remains a priority in the iGaming business. Looking at larger market peers, we believe that once we achieve sufficient scale, SuperNation can start to deliver a profit margin of over 10%. To drive further revenue growth, we are planning to launch fourth and fifth brand sites in addition to our existing three sites, along with native apps on each site. These initiatives are expected to enhance retention and bring additional efficiencies within the SuperNation ecosystem. Lastly, beyond our existing slot and table game, we are also exploring entry into the vertical, as well as geographic expansion within Europe and into Canada.

With focused execution, we aim to accelerate both growth and operational efficiency.

Speaker 0

Yes, it does. Thank you.

Speaker 1

Thank you. Our next question comes from Eric Handler with ROTH Capital Partners. Your line is open.

Speaker 2

Good afternoon. Thank you for the question. I want to dig in a little bit on what you were just saying there. Are you saying you're looking to expand beyond the UK and Sweden at this point? I'm just curious, as you look at scaling that business, what are you finding that's working well, more so than others, and some of your other findings in the last couple of quarters?

Speaker 3

It depends on regulatory direction changing. Currently, we are seeing additional licensing into Finland, Spain, and additional other Western Europe countries, including Canada, we'll tell you.

Speaker 2

Eric, I just want to be clear, when I.K. mentioned the fourth and fifth, he was talking about potential brands, meaning additional web, essentially additional websites that could be additional or additive to the three online casinos they have today. Of course, there's potential for regional expansion as well.

Speaker 0

Got it. As a follow-up, what are you doing that is specifically, you think, allowing you to sort of grow and maybe outpace the market a little bit? It's something that you're finding with marketing that's just resonating well?

Speaker 2

I think, honestly, we're bringing a certain amount of discipline and professionalism and improvement to what had previously been going on. To that extent, it's been a little bit of low-hanging fruit in that we're just doing better as a marketing team in acquiring new players.

Speaker 3

Yeah, it's actually a combination of production enhancements and real-time marketing enhancements as well. If we look for iGaming business, it is about a bit of the traditional marketing style related to affiliate marketing sources. Our experience in the social casino industry helps a lot to increase our short-term ROI level and long-term retention levels as well from a product standpoint. We see nowadays a bit better performance compared to recent two or three years ago.

Speaker 0

Great, very helpful. Thank you.

Speaker 2

Thanks, Eric.

Speaker 1

Thank you. There are no further questions at this time. This does conclude today's conference call, and you may now disconnect. Everyone, good day.