DoubleDown Interactive(DDI) - 2024 Q2 - Quarterly Report

Condensed Consolidated Statements of Income and Comprehensive Income This section details DoubleDown Interactive's financial performance, showing significant growth in revenue, net income, and earnings per share for recent periods Income and Comprehensive Income Analysis DoubleDown Interactive Co., Ltd. reported significant growth in revenue, net income, operating income, and EPS for Q2 and H1 2024, with comprehensive income also increasing Key Income Statement Highlights (in thousands of U.S. Dollars) | Metric | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :-------------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $88,236 | $75,187 | $176,379 | $152,783 | | Operating income | $36,193 | $27,522 | $67,248 | $52,914 | | Income before income tax | $42,640 | $31,918 | $80,993 | $62,349 | | Net income attributable to DoubleDown Interactive Co., Ltd. | $33,177 | $24,357 | $63,485 | $48,029 | | Comprehensive income attributable to DoubleDown Interactive Co., Ltd. | $31,069 | $24,239 | $58,489 | $46,573 | | Basic Earnings per share | $13.39 | $9.83 | $25.62 | $19.38 | | Diluted Earnings per share | $13.39 | $9.83 | $25.62 | $19.38 | - Revenue increased by 17.36% for the three months ended June 30, 2024, and by 15.44% for the six months ended June 30, 2024, compared to the respective prior year periods[3] - Net income attributable to DoubleDown Interactive Co., Ltd. grew by 36.22% for the three months and 32.18% for the six months ended June 30, 2024, year-over-year[3] Condensed Consolidated Balance Sheets This section presents the company's financial position, showing increased assets and shareholders' equity, alongside a significant decrease in total liabilities Balance Sheet Overview The company's financial position strengthened with increased assets and shareholders' equity, and a significant decrease in total liabilities Key Balance Sheet Highlights (in thousands of U.S. Dollars) | Metric | June 30, 2024 (unaudited) | December 31, 2023 | | :------------------------------------------------------------------- | :------------------------ | :---------------- | | Total assets | $852,642 | $803,344 | | Total liabilities | $66,333 | $75,454 | | Total shareholders' equity attributable to shareholders of DoubleDown Interactive Co. Ltd. | $786,222 | $727,733 | | Cash and cash equivalents | $269,155 | $206,911 | | Total current liabilities | $20,394 | $68,505 | | Long-term borrowings with related party | $35,992 | $0 | - Total assets increased by $49.298 million (6.14%) from December 31, 2023, to June 30, 2024, primarily due to a $62.244 million increase in cash and cash equivalents[4] - Total current liabilities decreased significantly by $48.111 million (70.23%) due to the reclassification of $38.778 million in current portion of borrowings with related party to long-term borrowings[4] Condensed Consolidated Statements of Changes in Shareholders' Equity This section outlines changes in shareholders' equity, primarily driven by net income, with accumulated other comprehensive income decreasing due to foreign currency translation losses Shareholders' Equity Changes Shareholders' equity increased substantially due to net income, though accumulated other comprehensive income decreased from foreign currency translation losses Key Shareholders' Equity Changes (in thousands of U.S. Dollars) | Metric | As of June 30, 2024 | As of April 1, 2024 | As of June 30, 2023 | As of April 1, 2023 | | :------------------------------------------------------------------- | :------------------ | :------------------ | :------------------ | :------------------ | | Total shareholders' equity (3 months) | $786,309 | $755,300 | $672,799 | $648,560 | | Net income (3 months) | $33,177 | N/A | $24,357 | N/A | | Loss on foreign currency translation, net of tax (3 months) | $(2,079) | N/A | $(166) | N/A | | Total shareholders' equity (6 months) | $786,309 | N/A | $672,799 | N/A | | Net income (6 months) | $63,485 | N/A | $48,029 | N/A | | Loss on foreign currency translation, net of tax (6 months) | $(5,165) | N/A | $(1,347) | N/A | - Total shareholders' equity increased by $31.009 million for the three months ended June 30, 2024, and by $58.419 million for the six months ended June 30, 2024[11][15] - Accumulated other comprehensive income decreased from $19,982 thousand at January 1, 2024, to $14,986 thousand at June 30, 2024, primarily due to a $5,103 thousand foreign currency translation loss[15][59] Condensed Consolidated Statements of Cash Flows This section analyzes cash flows, showing significant positive operating cash flow and a considerable increase in cash and cash equivalents for the six months ended June 30, 2024 Cash Flow Analysis The company generated significant positive operating cash flow for H1 2024, a substantial improvement, leading to a considerable increase in cash and cash equivalents Key Cash Flow Highlights (in thousands of U.S. Dollars) | Metric | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :---------------------------------------------- | :----------------------------- | :----------------------------- | | Net cash flows from operating activities | $69,292 | $(37,595) | | Net cash flows from investing activities | $(4,797) | $4,997 | | Net cash flows from financing activities | $(149) | $0 | | Net decrease in cash and cash equivalents | $62,244 | $(32,881) | | Cash and cash equivalents at end of period | $269,155 | $184,471 | - Net cash flows from operating activities dramatically improved from a $(37,595) thousand outflow in 2023 to a $69,292 thousand inflow in 2024 for the six-month period[17] - The company's cash and cash equivalents at the end of the period increased by $62,244 thousand, reaching $269,155 thousand as of June 30, 2024[17] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements, covering various accounting policies and financial instrument specifics Note 1: Description of business This note provides an overview of DoubleDown Interactive's business, including its history, ownership, recent acquisition, and financial statement preparation basis Background and nature of operations - DoubleDown Interactive Co., Ltd. (DDI) was incorporated in 2008 in Seoul, Korea, focusing on casual games and mobile applications[19] - DDI is a subsidiary of DoubleU Games Co., Ltd. (DUG), which holds 67.1% of outstanding shares, with DDI-US being the primary revenue-generating entity[19] - The company develops and publishes digital gaming content, including DoubleDown Casino, DoubleDown Classic, and DoubleDown Fort Knox[20] Acquisition of SuprNation AB - On October 31, 2023, DDI acquired iGaming operator SuprNation AB for approximately $36.5 million, diversifying into real-money iGaming sites in Western Europe[21] Basis of preparation and consolidation - The financial statements are prepared in conformity with U.S. GAAP and SEC rules for interim financial information, with certain disclosures condensed or omitted[22] - The condensed consolidated financial statements include DDI and its controlled subsidiaries, with all significant inter-company transactions eliminated[23] Use of estimates - Preparation of financial statements requires estimates and assumptions, particularly for income taxes, revenue recognition, expense accruals, and valuation of goodwill and intangibles[24] Revenue Concentration Revenue Concentration by Platform | Platform | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Apple | 51.0 % | 55.4 % | 50.6 % | 55.3 % | | Google | 16.1 % | 18.9 % | 16.1 % | 18.8 % | | Facebook | 14.5 % | 16.9 % | 14.6 % | 17.7 % | Accounts Receivable Concentration by Platform | Platform | As of June 30, 2024 | As of December 31, 2023 | | :------- | :------------------ | :---------------------- | | Apple | 57.8 % | 59.3 % | | Xsolla | 11.9 % | 11.3 % | | Google | 9.5 % | 10.3 % | | Facebook | 8.4 % | 9.9 % | Functional currency and translation of financial statements - The company's functional currency is Korean Won (KRW), with subsidiaries using Euro (EUR) and U.S. Dollar (USD); consolidated financial statements are presented in USD[26] Cash and cash equivalents - Cash and cash equivalents include money market funds and short-term investments with maturities of three months or less when acquired, held by high credit quality financial institutions[28] Financial instruments and concentration of credit risk - Financial instruments exposing the company to credit risk primarily include cash and cash equivalents, accounts receivable, and short-term investments[29] - Apple, Facebook, and Google are significant distribution, marketing, and payment platforms, accounting for a substantial portion of revenue and accounts receivable[30] Note 2: Revenue from Contracts with Customers This note details revenue recognition policies for social and mobile apps, including consumption-based virtual currency and subscription revenue, with disaggregated data - Revenue from player purchases of virtual currency is recognized based on the consumption of this currency, determined by analyzing historical play and purchase behavior[33] - A small portion of revenue is generated from prepaid, non-refundable monthly subscription services, recognized on a daily basis[34] Disaggregation of Revenue by Platform (in thousands) | Platform | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Mobile | $60,959 | $62,468 | $121,540 | $125,798 | | Web | $27,277 | $12,719 | $54,839 | $26,985 | | Total | $88,236 | $75,187 | $176,379 | $152,783 | Disaggregation of Revenue by Geographical Location (in thousands) | Region | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | U.S. | $69,943 | $65,629 | $140,129 | $133,831 | | Canada | $5,065 | $5,006 | $9,820 | $10,020 | | United Kingdom | $6,374 | $582 | $13,154 | $1,137 | | International-other | $6,854 | $3,970 | $13,276 | $7,795 | | Total | $88,236 | $75,187 | $176,379 | $152,783 | - Web platform revenue significantly increased by 114.47% for the three months and 103.29% for the six months ended June 30, 2024, year-over-year[35] - Revenue from the United Kingdom saw a substantial increase, growing from $582 thousand to $6,374 thousand for the three months ended June 30, 2024, and from $1,137 thousand to $13,154 thousand for the six months ended June 30, 2024[37] Contract Assets and Liabilities (in thousands) | Metric | As of June 30, 2024 | As of December 31, 2023 | | :----------------- | :------------------ | :---------------------- | | Contract assets | $533 | $756 | | Contract liabilities | $1,777 | $2,520 | Note 3: Short-term investments The company holds short-term investments in marketable securities, primarily fixed time deposits classified as trading, with gains or losses recognized in income - Short-term investments consist of fixed time deposits classified as trading, with gains or losses recognized in the Statements of Income[42] Note 4: Goodwill and intangible assets This note details goodwill and intangible assets, including amortization, showing stable goodwill but significantly increased amortization expense year-over-year - There were no changes to the carrying amount of goodwill in the six months ended June 30, 2024, remaining at $396,236 thousand[44] Intangible Assets Carrying Amounts (in thousands) | Intangible Asset | Net amount (June 30, 2024) | Net amount (December 31, 2023) | | :----------------- | :------------------------- | :----------------------------- | | Goodwill | $396,236 | $396,704 | | Trademarks | $35,000 | $35,000 | | Customer relationships | $7,498 | $8,884 | | Purchased technology | $6,609 | $7,163 | | Software | $452 | $524 | | Total | $445,795 | $448,275 | Amortization Expense (in thousands) | Period | Amortization Expense | | :-------------------------------- | :------------------- | | Three months ended June 30, 2024 | $772.1 | | Three months ended June 30, 2023 | $4.2 | | Six months ended June 30, 2024 | $1,549.8 | | Six months ended June 30, 2023 | $8.2 | - Amortization expense increased significantly from $4.2 thousand to $772.1 thousand for the three months ended June 30, 2024, and from $8.2 thousand to $1,549.8 thousand for the six months ended June 30, 2024, year-over-year[44] Note 5: Debt The company's debt consists of Senior Notes due to a related party, with the entire outstanding principal reclassified to long-term debt due to maturity extension Debt Components (in thousands) | Metric | As of June 30, 2024 | As of December 31, 2023 | | :----------------------------------------- | :------------------ | :---------------------- | | 4.60% Senior Notes due to related party | $35,992 | $38,778 | | Less: Short-term debt | $0 | $38,778 | | Total Long-term debt | $35,992 | $0 | - In May 2024, the maturity of the 4.60% Senior Notes was extended by two years to May 27, 2026, resulting in the reclassification of the entire outstanding principal to long-term debt[46] Note 6: Fair value measurements Financial instruments are measured at fair value, with cash equivalents as Level 1, short-term investments as Level 2, and senior notes valued using Level 3 estimates - Cash equivalents (money market funds and Korean government bonds) totaled $269.2 million as of June 30, 2024, classified as Level 1 in the fair value hierarchy[48] - Short-term investments (fixed time deposits or certificates of deposit with maturities >90 days) totaled $70.0 million as of June 30, 2024, classified as Level 2[48] - The fair value of senior notes (a Level 3 estimate) was approximately $2.1 million lower than face value as of June 30, 2024[49] Note 7: Income taxes The company is subject to income taxes in multiple jurisdictions, with the effective tax rate decreasing to 21.4% for H1 2024 due to FDII benefit and notional interest deduction - The effective tax rate for the six months ended June 30, 2024, was 21.4%, a decrease from 23.7% in the prior year, mainly due to an increase in the FDII benefit and notional interest deduction[52] - The 2024 effective tax rate of 21.4% is higher than the Korean statutory rate of 19%, primarily due to foreign rate differential and state taxes[52] Note 8: Net income per share Basic and diluted net income per share are calculated based on weighted-average common shares outstanding, with no potentially dilutive securities in either period - Basic and diluted net income per share are computed by dividing net income by the weighted-average number of common shares outstanding[53] - There were no potentially dilutive securities outstanding in either period presented, leading to identical basic and diluted EPS[53] Note 9: Leases The company leases corporate office spaces, including related party leases, with operating lease costs decreasing for the six months ended June 30, 2024 - The company leases office spaces in Seattle, Washington (extended to June 2030), Swieqi, Malta (expires October 2024), and Seoul, Korea (sublease with DUG, expires September 2028)[54] Operating Lease Liabilities (in thousands) | Metric | As of June 30, 2024 | As of December 31, 2023 | | :-------------------------------------- | :------------------ | :---------------------- | | Total operating lease right-of-use asset, net | $6,660 | $7,130 | | Short-term operating lease liabilities | $1,362 | $3,157 | | Long-term operating lease liabilities | $5,472 | $4,420 | | Total operating lease liabilities | $6,834 | $7,577 | - Operating lease costs decreased from $3,201 thousand for the six months ended June 30, 2023, to $1,369 thousand for the six months ended June 30, 2024[55] Note 10: Accumulated other comprehensive income Accumulated other comprehensive income decreased for both Q2 and H1 2024, primarily due to foreign currency translation losses, with minor offsetting pension adjustments Changes in Accumulated Other Comprehensive Income (AOCI) (in thousands) | Component | Balance at April 1, 2024 | Foreign Currency Translation Adjustments | Defined Benefit Pension Plan | Balance as of June 30, 2024 | | :---------------------------------------- | :----------------------- | :--------------------------------------- | :--------------------------- | :-------------------------- | | Three months ended June 30, 2024 | $17,095 | $(2,080) | $(29) | $14,986 | | Six months ended June 30, 2024 | $19,982 | $(5,103) | $107 | $14,986 | | Three months ended June 30, 2023 | $18,022 | $(166) | $49 | $17,905 | | Six months ended June 30, 2023 | $19,360 | $(1,347) | $(108) | $17,905 | - Foreign currency translation losses were $(2,080) thousand for the three months and $(5,103) thousand for the six months ended June 30, 2024[58][59] Note 11: Commitments and contingencies This note outlines legal contingencies, including a settled class-action lawsuit, and details publishing and license agreements with DoubleU Games and IGT Legal contingencies - A class-action lawsuit filed in 2018 against DDI-US was settled in June 2023, with a final contribution of $95.25 million to the settlement fund[62] Publishing and license agreements - A new Game License Agreement with DoubleU Games, effective January 1, 2023, grants DDI a non-exclusive, worldwide license for certain social casino game titles, requiring royalty payments based on net sales[63] - DDI incurred $2.1 million in service fees for game maintenance and product planning services from DoubleU Games for the six months ended June 30, 2024[64] - Under an agreement with IGT, DDI pays royalty rates of 7.5% for proprietary assets and 15% for third-party game assets, with costs recognized in cost of revenue[65] - Costs incurred with IGT decreased from $1.9 million to $0.6 million for the three months and from $3.9 million to $2.4 million for the six months ended June 30, 2024, year-over-year[65] Note 12: Related party transactions This note summarizes transactions with DoubleU Games, including expenses for IP, borrowings, and subleases, showing a shift in borrowings to long-term Summary of Expenses Charged by DoubleU Games (in thousands) | Expense Type | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :--------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Royalty expense | $622 | $698 | $1,241 | $1,450 | | Interest expense | $411 | $436 | $843 | $881 | | Rent expense | $323 | $307 | $657 | $624 | | Other expense | $1,194 | $38 | $2,319 | $135 | Amounts Due to DoubleU Games (in thousands) | Item | As of June 30, 2024 | As of December 31, 2023 | | :--------------------------------------------------- | :------------------ | :---------------------- | | 4.6% Senior Notes due to related party (current) | $0 | $38,778 | | 4.6% Senior Notes due to related party (long-term) | $35,992 | $0 | | Royalties and other expenses | $1,353 | $1,618 | | Short-term lease liability | $1,222 | $1,298 | | Accrued interest on 4.6% Senior Notes (current) | $0 | $9,501 | | Accrued interest on 4.6% Senior Notes (non-current) | $158 | $0 | | Long-term lease liability | $3,597 | $4,414 | - Other expenses charged by DoubleU Games increased significantly from $38 thousand to $1,194 thousand for the three months and from $135 thousand to $2,319 thousand for the six months ended June 30, 2024, year-over-year[66] Note 13: Defined benefit pension plan The company operates a funded defined benefit pension plan in Korea, providing final wage-based benefits, with the total benefit obligation decreasing to $3.4 million - The company operates a funded defined benefit pension plan in Korea, providing final wage-based benefits to employees[69] - The total benefit obligation was $3.4 million as of June 30, 2024, a decrease from $4.4 million as of December 31, 2023[69] Note 14: Acquisition This note details the acquisition of SuprNation for $30.6 million, expanding the company into the i-Gaming market, contributing $16.2 million in revenue for H1 2024 - On October 31, 2023, the company acquired SuprNation, a European i-Gaming operator, for a total cash purchase price of $30.6 million, plus potential deferred payments[70] - The acquisition is expected to enable the company to expand into the i-Gaming market[70] - SuprNation contributed $16.2 million in revenue and a pre-tax loss of $2.3 million to the company's consolidated statement of operations for the six months ended June 30, 2024[71]