DoubleDown Interactive(DDI) - 2023 Q1 - Quarterly Report

Financial Performance Overview Fourth Quarter 2022 Performance Summary The company's Q4 2022 revenue declined, resulting in a significant net loss due to a large goodwill impairment charge Q4 2022 vs Q4 2021 Key Financials (in millions) | Metric | Q4 2022 | Q4 2021 | Change | | :--- | :--- | :--- | :--- | | Revenues | $76.2 | $86.3 | -11.7% | | Operating Costs | $321.4 | $62.7 | +412.6% | | Adjusted EBITDA | $24.7 | $25.8 | -4.3% | | Net Income (Loss) | ($194.4) | $17.4 | N/A | | Adjusted EBITDA Margin | 32.4% | 29.9% | +2.5 pts | - Operating costs surged primarily due to a one-time, non-cash goodwill impairment of $269.9 million[5] Q4 2022 vs Q4 2021 Key Operating Metrics | Metric | Q4 2022 | Q4 2021 | | :--- | :--- | :--- | | Average Revenue Per Daily Active User (ARPDAU) | $0.98 | $0.96 | | Average monthly revenue per payer | $227 | $216 | Full Year 2022 Performance Summary Full-year 2022 performance was marked by lower revenue and a substantial net loss from litigation and impairment charges Full Year 2022 vs 2021 Key Financials (in millions) | Metric | FY 2022 | FY 2021 | Change | | :--- | :--- | :--- | :--- | | Revenues | $321.0 | $363.2 | -11.6% | | Operating Costs | $634.9 | $264.5 | +140.0% | | Adjusted EBITDA | $101.6 | $120.1 | -15.4% | | Net Income (Loss) | ($234.0) | $78.1 | N/A | | Adjusted EBITDA Margin | 31.6% | 33.1% | -1.5 pts | - Operating costs for FY 2022 were significantly impacted by two one-time charges: a $141.75 million charge for the Benson class action settlement and a $269.9 million goodwill impairment[5][7] Full Year 2022 vs 2021 Key Operating Metrics | Metric | FY 2022 | FY 2021 | | :--- | :--- | :--- | | Average Revenue Per Daily Active User (ARPDAU) | $0.97 | $0.97 | | Average monthly revenue per payer | $226 | $218 | Management Commentary & Outlook Management highlighted a resilient business model and outlined strategic growth initiatives, including acquisitions and new game launches - Management emphasizes the company's high-margin, capital-light business model, citing solid cash flow and strong Adjusted EBITDA margins in Q4[6] - Full-year 2022 revenue of $321.0 million represents over 17% growth compared to the pre-COVID period of full-year 2019, indicating customer retention[6] - Future growth drivers include the acquisition of SuprNation to enter the European i-Gaming market, the soft launch of the new game 'Spinning in Space', and additional game launches planned for 2023[6] - The company ended 2022 with a strong cash position of over $150 million (net of debt and the Benson settlement accrual)[6] Detailed Financial Results Summary Operating Results This section presents a consolidated view of key financial and operational metrics for Q4 and the full year 2022 versus 2021 Key Performance Metrics (Q4 & FY 2022 vs 2021) | Metric | Q4 2022 | Q4 2021 | FY 2022 | FY 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenue (millions) | $76.2 | $86.3 | $321.0 | $363.2 | | Net income (loss) (millions) | $(194.4) | $17.4 | $(234.0) | $78.1 | | Adjusted EBITDA (millions) | $24.7 | $25.8 | $101.6 | $120.1 | | Average MAUs (000s) | 2,084 | 2,432 | 2,247 | 2,444 | | ARPDAU | $0.98 | $0.96 | $0.97 | $0.97 | | Payer conversion | 5.4% | 5.5% | 5.3% | 5.7% | Fourth Quarter 2022 Financial Results (Detailed) Q4 revenue declined 12% while operating expenses surged due to a non-cash goodwill impairment, leading to a net loss - Q4 revenue decreased by 12% YoY to $76.2 million, primarily due to normalization of player activity post-pandemic and economic concerns[9] - The 413% increase in operating expenses was driven by a non-cash goodwill impairment, which has no fundamental impact on the business[10] - Net cash used in operating activities was $20.9 million; excluding a $50 million litigation settlement payment, operating cash flow would have been $29.1 million[13] Full Year 2022 Financial Results (Detailed) Full-year revenue fell 12%, and a net loss was recorded due to significant one-time litigation and impairment charges - Full-year revenue declined 12% to $321.0 million due to post-COVID normalization and macroeconomic factors[14] - Operating expenses increased 140% due to two one-time, non-recurring charges: a $141.75 million litigation settlement and a $269.9 million goodwill impairment[15] - Net cash from operating activities for FY 2022 was $50.8 million; excluding the $50 million Benson settlement payment, it would have been $100.8 million[18] Non-GAAP Financial Measures Reconciliation of Net Income to Adjusted EBITDA This section provides a detailed reconciliation from GAAP net income to the non-GAAP measure of Adjusted EBITDA for 2022 and 2021 Reconciliation of Net Income (Loss) to Adjusted EBITDA (in millions) | Line Item | Q4 2022 | Q4 2021 | FY 2022 | FY 2021 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) | $(194.4) | $17.4 | $(234.0) | $78.1 | | Income tax (expense) benefit | 60.3 | (5.8) | 71.2 | (22.5) | | Depreciation and amortization | 0.1 | 2.2 | 3.8 | 17.9 | | Loss contingency | — | — | 141.8 | 3.5 | | Impairment of intangibles | 269.9 | — | 269.9 | — | | Interest expense | 0.5 | 0.5 | 1.8 | 2.0 | | Other adjustments | 8.8 | 0.0 | (10.7) | (3.9) | | Adjusted EBITDA | $24.7 | $25.8 | $101.6 | $120.1 | Consolidated Financial Statements Condensed Consolidated Balance Sheets The balance sheet reflects a decrease in total assets due to goodwill impairment and an increase in liabilities from a loss contingency Selected Balance Sheet Items (in thousands) | Account | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $217,352 | $242,060 | | Goodwill | $379,072 | $633,965 | | Total Assets | $792,052 | $969,808 | | Loss Contingency (Current) | $95,250 | $— | | Total Liabilities | $165,826 | $105,930 | | Total Shareholders' Equity | $626,226 | $863,878 | Condensed Consolidated Statement of Income The income statement details the significant operating loss for 2022, driven by large impairment and loss contingency expenses Full Year 2022 vs 2021 Income Statement (in thousands) | Account | FY 2022 | FY 2021 | | :--- | :--- | :--- | | Revenue | $321,027 | $363,205 | | Cost of revenue | $109,305 | $126,612 | | Sales and marketing | $71,911 | $78,821 | | Loss contingency | $141,750 | $3,500 | | Impairment of goodwill | $269,893 | $— | | Total operating expenses | $634,900 | $264,472 | | Operating income (loss) | $(313,873) | $98,733 | | Net income (loss) | $(233,978) | $78,108 | | Diluted EPS | $(94.43) | $33.91 | Condensed Consolidated Statement of Cash Flows Operating cash flow decreased in 2022 primarily due to a $50 million litigation settlement payment Cash Flow Summary (in thousands) | Account | FY 2022 | FY 2021 | | :--- | :--- | :--- | | Net cash from operating activities | $50,791 | $96,105 | | Net cash (used in) investing activities | $(67,830) | $(1,806) | | Net cash from financing activities | $— | $86,041 | | Net (decrease) increase in cash | $(24,708) | $178,872 | | Cash at end of period | $217,352 | $242,060 | - The reconciliation from net loss to operating cash flow shows significant non-cash add-backs for impairment ($269.9 million) and a cash use for loss contingency ($91.75 million)[33] Other Information Conference Call Information The company provided details for its Q4 and full-year 2022 earnings conference call and webcast held on February 7, 2023 - A conference call to discuss the financial results was scheduled for February 7, 2023, at 5:00 p.m. Eastern Time[19] - Access details for the call and webcast were provided, with a replay to be made available on the company's Investor Relations website[20][21] About the Company DoubleDown Interactive is a developer and publisher of digital social casino games for casual players on mobile and web platforms - DoubleDown Interactive is a leading developer of digital games on mobile and web platforms, focusing on casual players[22] - The company's main product is the flagship title, DoubleDown Casino, which provides an online social casino experience[22]