DoubleDown Interactive Co., Ltd. (DDI) Q1 2025 Earnings Report, Transcript and Summary

Good afternoon, and welcome to DoubleDown Interactive's Earnings Conference Call for the First Quarter ended March 31st, 2025. My name is Michelle, and I'll be your operator this afternoon. Prior to this call, DoubleDown issued its financial results for the first 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 a link to the Investor Relations section at the top of the home page. Joining us on today's call are DoubleDown's CEO, Mr. In Keuk Kim and its CFO, Mr. Joe Sigrist. Following their remarks, we will open the call for questions. Before we begin, Richard Land, the company Investor Relations adviser, will begin a brief introductory statement. Mr. Land?

Thank you, Mitchelle. 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 20-F filed with the SEC on April 21st, 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, fourth quarter, DoubleDown 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 to the comparable periods for 2023. 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.

Thank you, Rich. Good afternoon, everyone. Thank you for joining us on our 2025, first quarter earnings call. This afternoon, we reported first quarter results with consolidated revenue of $83.5 million and adjusted EBITDA of $30.8 million. Q1 revenue was comprised of $17.3 million generated by our Social Casino, free-to-play games and $13.2 million generated by our iGaming business, SuperNation. In Q1, we again executed on our key operating priority of driving a high conversion of revenue to profit and cash flow. And 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 this year. Even as we comp against the strong Social Casino performance we had last year. And we also continue to expect strong cash flow conversion even as we continue to increase marketing to acquire new players at SuperNation. Despite the decline in revenue from our Social Casino business, our afflicted DoubleDown Casino app continues to be the engine for profit and cash flow generation. In Q1, while average DAUs and MAUs 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 of 2024 and were in line with Q4 2024. And 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. And we continue to invest in marketing activities focused on the retention of existing players and reactivation of left 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 SuperNations. 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 first quarter of 2024. SuperNation 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 SuperNation 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 SuperNation over the last 18 months and our success with integrating the operations and more recently driving very healthy levels 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 opportunity. 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 our new match three type 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 disappointed 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 games concepts and look forward to evaluating them in trials over the next several months. Now I will turn it over to our CFO, Joseph Sigrist, to walk us through our financials before providing my closing remarks. Joe?

Thank you, IK, and good afternoon, everyone. As Rich mentioned earlier, beginning with the fourth quarter of 2024, we are now reporting our financial results in accordance with IFRS and the comparisons of our 2025 first quarter results to 2024 first quarter 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 first quarter of 2025, as IK 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 SuperNation. 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 IK 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. And 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 fourth quarter 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. And 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 first quarter of 2025, compared to $57 million in the first quarter 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 first quarter of 2025 were $14.3 million, compared to $15.1 million in the first quarter 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 SuperNation 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 SuperNation. Profit excluding non-controlling interest for the first quarter 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 first quarter of 2024. Adjusted EBITDA for the first quarter 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. And finally, turning to our balance sheet, as of March 31st, 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 IK for closing remarks.

Thank you, Joe. As highlighted in our Q1 results, our discipline in investing is appropriate in our two main business 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 comparative position. For SuperNation, we will continue to selectively increase our investments in new player position, 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 to date is moving us closer and closer toward achieving that needed level of scale. In closing, we expect to expand our track record of consistently generating attractive free cash flow this year. As we do so, we will further strengthen our balance sheet 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? Operator?

Hi, Michelle. Are you there?

No, Michelle. We cannot hear you. The operator is 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.

Okay. Thanks, Rich.

I'm sorry about that. [Operator Instructions] And it looks like our first question is going to come from the line of Aaron Lee with Macquarie. Your line is open. Please go ahead.

Hi, good afternoon. Thanks for taking my question. Nice drop on the SuperNations growth this quarter. Can you just speak to what trends you're seeing in SuperNations 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.

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 SuperNation. And you'll actually see that sequentially, the sales and marketing spend for the company went up quite a bit and the bulk of that increase from Q4 was in what we spent with SuperNation. But 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, gives them kind of room to run relative to growing market share from a very small current number. And so, from that standpoint, I think we're just really, really pleased with the execution of the monetization of new players. I'm sorry, Aaron, could you repeat your question about sporting events?

Yes. 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 slot.

It's all iGaming. So, that is 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.

Got you. 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 SuperNation? And can you speak to the dynamics of the M&A environment? Has the current macro uncertainty changed anything there? Thank you.

Yes. No, I think the flow of opportunities continues. And that is inclusive of both free-to-play or kind of, call it, mobile gaming, if you will, as well as iGaming. And we've had a few iGaming opportunities across our desk recently, albeit small ones, but there's been interest. And I think as we get our name, as SuperNation and DoubleDown gets its name more well known in the iGaming space, I think, we're going to see potentially even more opportunities on the iGaming side. But as we've said in the past, we're not only looking at iGaming, although we do now have, I think, with SuperNation a really nice platform to build from, especially in Western Europe. But, we're also obviously looking at the casual game opportunities as well and those continue. So, I don't think anything has changed recently. I don't see a drop-off in either interest or certainly in people pitching us, which I think is always a good thing.

Thank you. And 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.

Yes. Thanks for taking my question. Just to dig a little bit deeper on the SuperNation 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? Do you expect that this like elevated level of sales and marketing to kind of persist for the foreseeable future? Effectively, do you think that the SuperNation business is going to be growing throughout the rest of the year from this current base that you just hit in 1Q that's a new record?

As I said, we are excited about what the returns have been in our investment in acquiring new players and frankly haven't seen a drop from that more recently. So, 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.

And that's still running to your point, I think, like EBITDA breakeven this year, then flipping to EBITDA positive or is this higher revenue base going to push you to EBITDA profitability a little bit earlier than previously anticipated?

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 breakeven. But, the way to both grow revenue and get to EBITDA positive is to continue to scale the business and that's what we're really excited about doing the rest of the year.

Thanks. Just touching on the Social Casino, I think you're pretty tough comp, looking at this for like 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 like the rate of decline for that business? I know you said, it would be difficult to grow by year-over-year, given that it was expected to shrink. But overall, is this 12% decline that you saw in 1Q expected to kind of abate a little bit and ultimately in the back half gets a kind of like below single-digits decline or maybe even growth by the time you get to like 4Q?

There's no doubt. You've got it exactly right, Josh. There's no doubt that the first half of the year is the toughest comp for us and specifically the first quarter. And so, 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've seen in the results of our peers even more recently, I think it's going to be a challenge to grow even in the second half of the year, quarter-over-quarter. But I do think that the compares do get better as we look to Q3 and certainly to Q4.

And 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 like 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 we're trying to bring new users into the funnel?

It's 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. And 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. So, that's really our theory around the impact of the sweepstakes apps on the pricing for new user acquisition.

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

Hey, good afternoon, IK and Joe. Congrats on the strong SuperNation 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? And 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 SuperNation?

Sure. 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 at SuperNation, 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 Duelz. There's a lot there is and continues to be a lot of excitement around Duelz, but 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. And the life of those brands has not dissipated frankly. And so, we've been able to lean in as we applied additional marketing dollars, lean into those brands as well as the Duelz brand. And so ,we're continuing to do product improvements, and, of course, refreshes and the various things that we do from a live off standpoint to, as I said, to lean into all three of those brands.

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

Yes, Greg. We currently have several new game concepts in development, and we have been expanding our capabilities, particularly in casual genres by incorporating AI-assisted production pipelines. These tools allow us to iterate faster and pass more ideas, which is especially valuable in today's environment, where user acquisition costs remain elevated. That said, we continue to take a very disappointing approach to green lighting new titles. As we saw with the recent X3 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 our willingness to walk away when the data doesn't support a commercial launch. So 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 profitable. Thank you.

And 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.