DoubleDown Interactive(DDI) - 2024 Q1 - Quarterly Report

Executive Summary & Business Update DoubleDown Interactive reported strong Q4 and FY 2023 financial performance, driven by core social casino growth, strategic acquisition, and improved profitability, with the CEO emphasizing player monetization and capital efficiency Fourth Quarter 2023 Highlights DoubleDown Interactive achieved strong Q4 2023 results, with core social casino revenue up 3% and Adjusted EBITDA rising 46%, boosted by the SuprNation acquisition and improved player engagement Fourth Quarter 2023 vs. Fourth Quarter 2022 Financial Highlights: | Metric | Q4 2023 | Q4 2022 | Change YoY | | :-------------------------------- | :------ | :------ | :--------- | | Revenue | $83.1 million | $76.2 million | +9% | | Revenue (ex-SuprNation) | $78.8 million | $76.2 million | +3% | | Operating Expenses | $47.5 million | $321.4 million | -85% | | Adjusted EBITDA | $36.2 million | $24.7 million | +46% | | Adjusted EBITDA Margin | 43.5% | 32.4% | +11.1 ppts | | Net Income (Loss) | $25.5 million | $(194.4) million | N/A | | EPS (ADS) | $0.51 | $(3.92) | N/A | | ARPDAU (social casino/free-to-play) | $1.24 | $0.98 | +26% | | Average monthly revenue per payer (social casino/free-to-play) | $279 | $227 | +23% | - Revenue contributed by SuprNation totaled $4.3 million for the 61 days the Company owned and operated the business in Q4 2023[7] Full Year 2023 Highlights Full year 2023 saw DoubleDown Interactive achieve a net income turnaround, driven by lower operating expenses and increased Adjusted EBITDA, improving profitability despite a slight revenue decline Full Year 2023 vs. Full Year 2022 Financial Highlights: | Metric | FY 2023 | FY 2022 | Change YoY | | :-------------------------------- | :------ | :------ | :--------- | | Revenue | $308.9 million | $321.0 million | -4% | | Operating Expenses | $190.7 million | $634.9 million | -70% | | Adjusted EBITDA | $118.9 million | $101.6 million | +17% | | Adjusted EBITDA Margin | 38.5% | 31.6% | +6.9 ppts | | Net Income (Loss) | $100.4 million | $(234.0) million | N/A | | EPS (ADS) | $2.03 | $(4.72) | N/A | | ARPDAU (social casino/free-to-play) | $1.09 | $0.97 | +12% | | Average monthly revenue per payer (social casino/free-to-play) | $245 | $226 | +8% | - Full year 2022 operating expenses included a $141.8 million charge related to the Benson class action settlement and a $269.9 million goodwill and intangibles impairment charge, which were one-time in nature[11] CEO Commentary & Strategic Initiatives CEO In Keuk Kim emphasized consistent profitability and free cash flow from player monetization, with strategic focus on scaling the SuprNation acquisition and exploring further expansion opportunities - Core social casino revenue increased 3% year-over-year to $78.8 million in Q4 2023, with Adjusted EBITDA increasing 46% to $36.2 million[4] - ARPDAU and average monthly revenue per payer for the flagship social casino game DoubleDown Casino rose 26% and 23%, respectively, compared to Q4 2022[4] - The acquisition of SuprNation in Q4 2023 marked the Company's entrance into the European iGaming market, with an initial focus on scaling the business through increased marketing investment and leveraging marketing and product expertise[5] - At 2023 year-end, cash and cash equivalents and short-term investments net of current borrowing were approximately $235 million, equivalent to about $4.75 per ADS, providing significant flexibility for capital deployment[6] Detailed Financial Results This section provides an in-depth analysis of DoubleDown Interactive's financial performance for Q4 and full year 2023, covering revenue, expenses, profitability, and cash flows, alongside key operating metrics Fourth Quarter 2023 Financial Performance Q4 2023 saw DoubleDown Interactive achieve significant financial improvements, including a 9% revenue increase, substantial operating expense reduction, and a strong rebound to net income, reflecting improved operational efficiency Revenue Q4 2023 revenue increased by 9% year-over-year, primarily driven by enhanced engagement of the existing player base and contribution from the SuprNation acquisition Q4 Revenue Performance: | Metric | Q4 2023 | Q4 2022 | Change YoY | | :------------------------ | :------ | :------ | :--------- | | Total Revenue | $83.1 million | $76.2 million | +9% | | Revenue (exclusive of SuprNation) | $78.8 million | $76.2 million | +3% | | SuprNation Contribution | $4.3 million | N/A | N/A | - The increase in revenue was primarily driven by increased engagement of the existing player base[10] Operating Expenses Q4 2023 operating expenses significantly decreased by 85% due to the non-recurrence of a prior year impairment charge and lower cost of revenue and marketing expenses Q4 Operating Expenses: | Metric | Q4 2023 | Q4 2022 | Change YoY | | :----------------- | :------ | :------ | :--------- | | Operating Expenses | $47.5 million | $321.4 million | -85% | - The significant decrease was primarily due to the non-recurrence of a $269.9 million non-cash goodwill and intangibles impairment incurred in Q4 2022, along with lower cost of revenue and marketing expenses in Q4 2023[7][12] Adjusted EBITDA Q4 2023 Adjusted EBITDA increased by 46% to $36.2 million, driven by higher revenue and reduced cost of revenues and sales and marketing expenses Q4 Adjusted EBITDA Performance: | Metric | Q4 2023 | Q4 2022 | Change YoY | | :-------------------- | :------ | :------ | :--------- | | Adjusted EBITDA | $36.2 million | $24.7 million | +46% | | Adjusted EBITDA Margin | 43.5% | 32.4% | +11.1 ppts | - The increase in Adjusted EBITDA was primarily due to higher revenue and lower cost of revenues and sales and marketing expenses, partially offset by higher general and administrative expenses[7][14] Net Income Q4 2023 saw a significant turnaround to a net income of $25.5 million from a prior year net loss, reflecting the absence of impairment charges and lower marketing expenditures Q4 Net Income Performance: | Metric | Q4 2023 | Q4 2022 | | :-------------------------------- | :------ | :------ | | Net Income (Loss) | $25.5 million | $(194.4) million | | Earnings per fully diluted common share | $10.27 | $(78.47) | | Earnings per American Depositary Share (ADS) | $0.51 | $(3.92) | - The net loss in Q4 2022 included the impact of the $269.9 million non-cash impairment; Q4 2023 net income reflects increased revenue and lower marketing expenditures[13] Cash Flow from Operating Activities Q4 2023 net cash flows from operating activities significantly increased to $29.7 million, primarily due to the non-recurrence of a prior year litigation settlement payment Q4 Cash Flow from Operating Activities: | Metric | Q4 2023 | Q4 2022 | | :-------------------------------- | :------ | :------ | | Net cash flows provided by (used in) operating activities | $29.7 million | $(20.9) million | - The increase in cash flow from operating activities was primarily due to the payment of $50 million toward the Benson litigation settlement in Q4 2022, which did not recur in Q4 2023[15] Full Year 2023 Financial Performance Full year 2023 saw DoubleDown Interactive transition from a significant net loss to substantial net income, driven by the absence of prior year one-time charges and improved cost management, despite a slight revenue decline Revenue Full year 2023 total revenue declined by 4%, primarily due to the normalization of player activities post-COVID and changes in player behaviors influenced by economic concerns FY Revenue Performance: | Metric | FY 2023 | FY 2022 | Change YoY | | :------------------------ | :------ | :------ | :--------- | | Total Revenue | $308.9 million | $321.0 million | -4% | | Revenue (exclusive of SuprNation) | $304.6 million | $321.0 million | -5% | - The decline in revenue was primarily due to the normalization of player activities after the lifting of stay-at-home orders and other COVID-related restrictions, as well as changes in player behaviors relating to inflation and global economic concerns during 2023[16] Operating Expenses Full year 2023 operating expenses decreased significantly by 70%, primarily due to the non-recurrence of one-time charges from the Benson class action settlement and goodwill impairment in 2022 FY Operating Expenses: | Metric | FY 2023 | FY 2022 | Change YoY | | :----------------- | :------ | :------ | :--------- | | Operating Expenses | $190.7 million | $634.9 million | -70% | - The decrease was primarily due to the non-recurrence of a $141.8 million charge for the Benson class action settlement and a $269.9 million impairment of goodwill and intangibles in 2022, both of which were one-time charges[11][17] Adjusted EBITDA Full year 2023 Adjusted EBITDA increased by 17% to $118.9 million, with a 6.9 percentage point margin improvement, driven by lower cost of revenues and sales and marketing expenses FY Adjusted EBITDA Performance: | Metric | FY 2023 | FY 2022 | Change YoY | | :-------------------- | :------ | :------ | :--------- | | Adjusted EBITDA | $118.9 million | $101.6 million | +17% | | Adjusted EBITDA Margin | 38.5% | 31.6% | +6.9 ppts | - The increases in Adjusted EBITDA and Adjusted EBITDA margin were primarily due to lower cost of revenues and sales and marketing expenses, partially offset by higher general and administrative expenses[11][18] Net Income Full year 2023 saw a significant improvement to a net income of $100.4 million from a prior year net loss, inclusive of the non-recurring charges from 2022 FY Net Income Performance: | Metric | FY 2023 | FY 2022 | | :-------------------------------- | :------ | :------ | | Net Income (Loss) | $100.4 million | $(234.0) million | | Earnings per fully diluted common share | $40.53 | $(94.43) | | Earnings per American Depositary Share (ADS) | $2.03 | $(4.72) | - The significant improvement from a net loss to net income is inclusive of the Benson class action settlement and goodwill and intangibles impairment charges noted in 2022[11] Cash Flow from Operating Activities Full year 2023 net cash flows from operating activities decreased to $20.8 million, primarily due to a $95.3 million payment towards the Benson litigation settlement FY Cash Flow from Operating Activities: | Metric | FY 2023 | FY 2022 | | :-------------------------------- | :------ | :------ | | Net cash flows provided by operating activities | $20.8 million | $50.8 million | | Net cash flows provided by operating activities (excluding Benson payment) | $116.1 million | N/A | - The decrease in net cash flows from operating activities was primarily due to the payment of $95.3 million toward the Benson litigation settlement in Q2 2023[19] Key Operating Metrics DoubleDown Interactive's social casino games showed improved player engagement and monetization in Q4 and FY 2023, with significant increases in ARPDAU and average monthly revenue per payer, despite a decrease in active users Summary Operating Results for Social Casino/Free-to-Play Games: | Metric (000s, except ARPDAU/Payer) | Q4 2023 | Q4 2022 | FY 2023 | FY 2022 | | :-------------------------------- | :------ | :------ | :------ | :------ | | Average MAUs | 1,488 | 2,084 | 1,750 | 2,247 | | Average DAUs | 703 | 855 | 772 | 919 | | ARPDAU | $1.24 | $0.98 | $1.09 | $0.97 | | Average monthly revenue per payer | $279 | $227 | $245 | $226 | | Payer conversion | 6.4% | 5.4% | 6.0% | 5.3% | - ARPDAU for social casino/free-to-play games increased to $1.24 in Q4 2023 from $0.98 in Q4 2022, and to $1.09 for FY 2023 from $0.97 for FY 2022[7][11] - Average monthly revenue per payer for social casino/free-to-play games increased to $279 in Q4 2023 from $227 in Q4 2022, and to $245 for FY 2023 from $226 in FY 2022[7][11] Company Information This section provides an overview of DoubleDown Interactive, including its core business as a digital game developer and publisher, its recent expansion into European iGaming, and details regarding its Q4 and FY 2023 earnings conference call About DoubleDown Interactive DoubleDown Interactive is a leading digital game developer and publisher, known for its flagship social casino title, which expanded into the European iGaming market with the October 2023 acquisition of SuprNation - DoubleDown Interactive is a leading developer and publisher of digital games on mobile and web-based platforms, known for its flagship social casino title, DoubleDown Casino[23] - Following its acquisition of SuprNation in October 2023, the Company also operates three real-money iGaming sites in Western Europe[23] Conference Call Details DoubleDown Interactive held a conference call on February 13, 2024, to discuss Q4 and FY 2023 financial results, with access details provided for live participation and webcast replay - A conference call was held on February 13, 2024, at 5:00 p.m. Eastern Time to discuss the Q4 and FY 2023 results[20] - Access details for the live call and a simultaneous webcast were provided, with a replay available on the Company's Investor Relations website[21][22] Non-GAAP Financial Measures This section explains DoubleDown Interactive's use of Adjusted EBITDA as a non-GAAP financial measure and provides a detailed reconciliation to GAAP net income (loss) before tax Adjusted EBITDA Reconciliation DoubleDown Interactive utilizes Adjusted EBITDA as a non-GAAP measure for consistent operational performance evaluation, with reconciliation detailing adjustments to GAAP net income (loss) before tax for non-indicative items - Adjusted EBITDA is presented as a non-GAAP financial measure to assist investors and analysts by facilitating comparison of period-to-period operational performance on a consistent basis, excluding items not indicative of core operating performance[25] Reconciliation of Non-GAAP Measures (in millions): | Metric | Q4 2023 | Q4 2022 | FY 2023 | FY 2022 | | :------------------------------------------ | :------ | :------ | :------ | :------ | | Net income (loss) attributable to DDI Co., Ltd. | $25.5 | $(194.4) | $100.4 | $(234.0) | | Income tax (expense) benefit | (8.6) | 60.3 | (30.7) | 71.2 | | Income (loss) before tax | 34.1 | (254.7) | 131.1 | (305.2) | | Adjustments for: | | | | | | Depreciation and amortization | 0.6 | 0.1 | 0.7 | 3.8 | | Loss contingency | — | — | — | 141.8 | | Impairment of goodwill and intangibles | — | 269.9 | — | 269.9 | | Interest income | (3.2) | (2.3) | (13.7) | (5.0) | | Interest expense | 0.5 | 0.5 | 1.8 | 1.8 | | Foreign currency transaction/remeasurement (gain) loss | 4.2 | 11.2 | (1.2) | (5.8) | | Short-term investments (gain) loss | 0.0 | (0.0) | 0.1 | 0.2 | | Other (income) expense, net | 0.0 | 0.0 | 0.0 | 0.1 | | Adjusted EBITDA | $36.2 | $24.7 | $118.9 | $101.6 | | Adjusted EBITDA margin | 43.5% | 32.4% | 38.5% | 31.6% | Consolidated Financial Statements This section presents DoubleDown Interactive's condensed consolidated balance sheets, statements of income and comprehensive income, and cash flows for the reported periods, highlighting key financial positions and performance Condensed Consolidated Balance Sheets The balance sheet reflects increased total assets to $801.57 million in 2023, a significant 55% decrease in total liabilities, and over $100 million growth in shareholders' equity, indicating improved financial health Condensed Consolidated Balance Sheets (in thousands of U.S. dollars): | Metric | Dec 31, 2023 | Dec 31, 2022 | | :------------------------------------ | :----------- | :----------- | | Total Assets | $801,568 | $792,052 | | Current assets: | | | | Cash and cash equivalents | $206,911 | $217,352 | | Short-term investments | $67,756 | $67,891 | | Total current assets | $315,754 | $312,882 | | Intangible assets, net | $51,571 | $35,051 | | Goodwill | $396,596 | $379,072 | | Total Liabilities | $74,261 | $165,826 | | Current liabilities: | | | | Loss contingency | — | $95,250 | | Current portion of borrowing with related party | $38,778 | — | | Total current liabilities | $59,004 | $116,482 | | Total Shareholders' Equity | $727,307 | $626,226 | - Total liabilities decreased significantly by 55% from $165.8 million in 2022 to $74.3 million in 2023, primarily due to the resolution of the $95.25 million loss contingency and changes in related party borrowings[29] Condensed Consolidated Statement of Income and Comprehensive Income The income statement shows a strong 2023 financial recovery, moving from a substantial net loss to $100.46 million net income, driven by dramatically reduced operating expenses due to the absence of prior year one-time charges Condensed Consolidated Statement of Income and Comprehensive Income (in thousands): | Metric | Q4 2023 | Q4 2022 | FY 2023 | FY 2022 | | :------------------------------------------ | :------ | :------ | :------ | :------ | | Revenue | $83,098 | $76,170 | $308,864 | $321,027 | | Total operating expenses | $47,501 | $321,404 | $190,673 | $634,900 | | Operating income (loss) | $35,597 | $(245,234) | $118,191 | $(313,873) | | Income (loss) before income tax | $34,070 | $(254,681) | $131,145 | $(305,168) | | Net income (loss) | $25,496 | $(194,417) | $100,455 | $(233,978) | | Diluted Earnings per share | $10.27 | $(78.47) | $40.53 | $(94.43) | - Total operating expenses decreased by 70% year-over-year for FY 2023, primarily due to the non-recurrence of a $141.75 million loss contingency and a $269.89 million impairment of goodwill and intangibles recorded in FY 2022[31] Condensed Consolidated Statement of Cash Flows The cash flow statement indicates a decrease in FY 2023 net cash from operating activities due to a significant litigation settlement payment, with investing activities showing a net outflow from acquisitions and short-term investments Condensed Consolidated Statement of Cash Flows (in thousands of U.S. dollars): | Metric | FY 2023 | FY 2022 | | :------------------------------------------ | :------ | :------ | | Net cash flows from operating activities | $20,848 | $50,791 | | Net cash flows (used in) investing activities | $(30,269) | $(67,830) | | Net cash flows from (used in) financing activities | — | — | | Net (decrease) in cash and cash equivalents | $(10,441) | $(24,708) | | Cash and cash equivalents at end of period | $206,911 | $217,352 | - Net cash flows from operating activities for FY 2023 were $20.8 million, a decrease from $50.8 million in FY 2022, primarily due to the payment of $95.3 million toward the Benson litigation settlement in Q2 2023[19][33] - Investing activities in FY 2023 included $26.88 million for acquisition, net of cash acquired, and significant purchases ($146.36 million) and sales ($143.16 million) of short-term investments[33] Legal & Disclosures This section includes the Safe Harbor Statement, outlining the forward-looking nature of the press release and the inherent risks and uncertainties associated with such statements Safe Harbor Statement The Safe Harbor Statement clarifies that the press release contains forward-looking statements subject to significant risks and uncertainties, advising readers against undue reliance and noting no obligation for updates - The press release contains "forward-looking statements" about future events and expectations, based on current beliefs, assumptions, and expectations of industry trends, future financial and operating performance, and growth plans[24] - These statements are subject to significant business, economic, competitive, regulatory, and other risks, contingencies, and uncertainties, many of which are beyond the company's control[24] - Readers should not place undue reliance on such statements, and the company assumes no obligation to update or revise any forward-looking statements[24]