DoubleDown Interactive Co., Ltd. (DDI) Q2 2025 Earnings Report, Transcript and Summary

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 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 home page. Joining us on today's call are DoubleDown's CEO, Mr. IK Kim; and its CEO, Mr. Joe Sigrist. Following their remarks, we will open the call for questions. Before we begin, Joe Jaffoni, the company's Investor Relations adviser will make a brief introductory statement. Mr. Jaffoni.

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 27A of the Securities Act of 1933 as amended and Section 21E of the Securities 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 words. 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 upon them. We refer you to DoubleDown's annual report on Form 20-F 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 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'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's website. With that, it's now my pleasure to turn the call over to DoubleDown's CEO, IK Kim. Please go ahead.

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 SuprNation, 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, SuprNation. In Q2, we again delivered on our key operating priority of driving a high conversion of revenue to cash flow even as we comp against our strong social casino performance in the second quarter of 2024. Cash flow from operations were $19.7 million, bringing our total for the first half of 2025 to $60.1 million, and we are able to continue delivering this profit and cash flow results even as we continue to prudently increase marketing spend to acquire new players at SuprNation. Our [ Flexiti ] 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 ARPU down 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's recently completed acquisition of WHOW Games, a social casino operator based in Hamburg, Germany. With this acquisition which closed on July 15, DDI is further expanding its presence in Europe as WHOW's revenue is primarily generated in Germany using casino game content that is familiar and appealing to local players. The integration of WHOW games further geographically diversifies DDI's top line, which historically has been concentrated in the U.S. And we are excited to begin leveraging DoubleDown's knowledge and expertise in a number of key operational areas to accelerate WHOW's success going forward. Turning to SuprNation. 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, SuprNation's quarterly revenue run rate has more than doubled since DoubleDown closed this acquisition. SuprNation's second quarter growth reflects our strategy to prudently scale investment to acquire new players for their 3 iGaming online casinos. Our investment continues to generate excellent payback and strong returns even as the number of new players increased. At this time, we believe that such expenditure can drive further success and growth for SuprNation in the second half of 2025. Our experience in owning and operating SuprNation over the last few quarters and our success with integrating its operations and driving very healthy level 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 by focusing on new gaming categories and underserved geographies. This priority is reflected in our acquisition of WHOW Games 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, Joe Sigrist, to walk us through our financials before providing my closing remarks. Joe?

Thank you, IK, 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 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. As IK 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 SuprNation. 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 IK stated, we were 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. And 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 IK 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. And with the acquisition of WHOW Games, 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 SuprNation to focus on new player acquisitions. Profit, excluding noncontrolling 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 noncontrolling 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 noncontrolling 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 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 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 IK for closing remarks.

Thank you, Joe. In summary, DoubleDown Interactive is delivering strong cash flow from its 2 meaningful and exciting businesses, social casino and iGaming. Our strong balance sheet and cash position allow us to continue to make disciplined investments in each of our business while continually evaluating new opportunities to enhance the growth of each. This includes investments through both organic means as we leverage the strength of our talented teams and through our evaluation of potential future acquisitions. We are now happy to take your questions. Michelle?

[Operator Instructions] Your first question comes from Aaron Lee with Macquarie.

Maybe to start with WHOW Games. Any color on how you're thinking about balancing growth versus profitability for that business? And I guess, generally, how do you see the drivers of growth for that business going forward?

Yes. Thanks, Aaron. WHOW Games for us is a very exciting opportunity because on one hand, of course, we understand the Social Casino business quite well. And on the other hand, it's incremental to what we're doing today relative to their strength in Europe and specifically in Germany and their use of more of a white -- 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. . So 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, and that's through this acquisition and through the ways that we can help them help WHOW Games grow and take advantage of what they're already doing well.

Okay. Got it. And then on direct-to-consumer, you previously talked about D2C surpassing 15% as a 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?

Yes. Thanks for making that comparison. I appreciate that, Aaron. Yes, I mean, we're really pleased just to lean into that a little bit on the progress we've made -- well, really since we started this initiative in earnest 1.5 years ago, but especially what we've been able to do in the last 6 months. And we look to do more. I mean, relative to the target, I know some of our peers have put targets out there. I mean, certainly, it's going to grow from -- continue to grow from here. I guess we have to update our end of year target now. But relative to continued progress, I mean, we have initiatives from a product and a marketing perspective that will allow us to grow from the 15-plus percent 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.

Our next question comes from David Bain with [ Axis ] Capital Bank.

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, it's just a great priced bolt-on fit with the core business? And then going forward, does that shift the spectrum of the M&A genre focus, size, timing as you look to digest WHOW and grow SuprNation?

Yes. 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. And 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. And 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. So 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. And I don't think it delays our excitement or what we think we can execute on if the right thing comes across.

Okay. So 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 play? Is it too early to monitor or see that? And are you trying to anticipate in some of those territories to make marketing changes?

Well, I mean, just to be clear to everybody on the call, I mean, we're not involved in the Sweepstakes business. We do not have anything akin to Sweepstakes casinos. And I think your question is, do we see upside because of the -- yes, 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.

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 DoubleU and they have a history of returning capital to shareholders, as you know, like in this July news, if I'm reading it right, of a buyback of KRW 35 billion. Is there any kind of just high-level thoughts regarding the parent's return of capital activity versus DoubleDown's thought process towards their own or the parent's 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 the view of the differential, if you have one?

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

Our next question comes from Josh Nichols with B. Riley.

Just wanted to double-click really quick on the WHOW 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-plus percent. But overall, like 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, DoubleU or IGT to WHOW and potential positives that, that could have on the business as you integrate that?

Yes, Josh, 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 team. And from a content standpoint, while perhaps not all of our content are -- not all of the traditional DoubleDown or DoubleDown casino content will be appropriate given the European player, some of it very well may be. And so those are also other discussions that we're starting to have with the WHOW 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. So yes, I mean, 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.

And then 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 '25. 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? Or what are the expectations for the back half, excluding the acquisition, but on an organic basis?

Yes. Well, obviously, we don't give specific guidance, but I'll say that your observation is right relative to, obviously, the flattening of the revenue here over the last couple of quarters. And 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. And 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 will 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.

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

Josh, let me take the question. About SuprNation's sustainable growth. From a marketing payback perspective, our current operations consistently with our ROI targets making these investments accretive rather than dilutive to profitability. Based on our experience, scaling remains the priority in the iGaming business. Looking at larger market peers, we believe that once we achieve sufficient scale, SuprNation can start to deliver a profit margin of over 2 digits. To drive further revenue growth, we are planning to launch fourth and fifth brand sites in addition to our existing 3 sites, along with native apps on each site. So these initiatives are expected to enhance retention and bring additional efficiencies within the SuprNation ecosystem. Lastly, beyond our existing slots and table games, we are also exploring entry into the verticals as well as geographic expansion within Europe and into Canada. With focuses execution, we aim to accelerate both growth and operational efficiency. I hope this helps.

Our next question comes from Eric Handler with ROTH Capital.

I want to dig in a little bit on what you were just saying there. Are you saying you're looking to expand beyond U.K. and Sweden at this point? And I'm just curious what sort of -- 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?

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

And Eric, I just want to be clear, when IK had mentioned the fourth and fifth, he was talking about potential brands, meaning additional -- essentially additional websites that could be additional or additive to the 3 online casinos they have today. And then, of course, there's potential for regional expansion as well.

Got it. And just as a follow-up, as I said, what do you -- I mean, these are highly competitive markets. 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 market a little bit. That's just resonating well.

Yes. I think, honestly, we're bringing a certain amount of discipline and professionalism and improvement to what had previously been going on. And so 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.

Yes, yes, actually a combination of production enhancement and real-time marketing enhancements as well. If we look for iGaming business, it is about a bit traditional marketing style related to affiliate marketing sources. So our experience in social casino industry, it helped a lot to increase our short-term ROI level and long-term retention level as well from a product standpoint. So we see nowadays a bit better performance compared to recent 2 or 3 years ago.

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.