DoubleDown Interactive(DDI) - 2023 Q3 - Quarterly Report

Condensed Consolidated Financial Statements This section presents the company's interim financial statements, including income, balance sheet, equity, and cash flow, along with detailed explanatory notes Condensed Consolidated Statements of Income and Comprehensive Income The company reported a significant turnaround to net income in 2023, primarily due to the absence of a large loss contingency expense from the prior year, despite a slight revenue decline Q3 Financial Performance (Three months ended September 30) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change | | :--- | :--- | :--- | :--- | | Revenue | $72,983 | $78,801 | -7.4% | | Operating Income (Loss) | $29,680 | $(45,339) | N/A | | Net Income (Loss) | $26,930 | $(23,999) | N/A | | Diluted EPS | $10.87 | $(9.69) | N/A | Year-to-Date Financial Performance (Nine months ended September 30) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change | | :--- | :--- | :--- | :--- | | Revenue | $225,766 | $244,857 | -7.8% | | Operating Income (Loss) | $82,594 | $(68,639) | N/A | | Net Income (Loss) | $74,959 | $(39,561) | N/A | | Diluted EPS | $30.25 | $(15.97) | N/A | - The significant improvement in profitability in 2023 is primarily due to the absence of the 'Loss Contingency' expense, which amounted to $70.25 million in Q3 2022 and $141.75 million for the first nine months of 2022[2] Condensed Consolidated Balance Sheets The company's financial position strengthened with increased shareholders' equity and a significant reduction in liabilities due to a loss contingency settlement Key Balance Sheet Items (in thousands) | Account | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $233,936 | $217,352 | +7.6% | | Total Assets | $760,583 | $792,052 | -4.0% | | Loss contingency | $0 | $95,250 | -100% | | Total Liabilities | $62,723 | $165,826 | -62.2% | | Total Shareholders' Equity | $697,860 | $626,226 | +11.4% | Condensed Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity increased significantly, primarily driven by net income, partially offset by other comprehensive loss from foreign currency translation Shareholders' Equity Reconciliation (Nine months ended Sep 30, 2023, in thousands) | Item | Amount (in thousands) | | :--- | :--- | | Balance as of Jan 1, 2023 | $626,226 | | Net income | $74,959 | | Other comprehensive loss | $(3,324) | | Balance as of Sep 30, 2023 | $697,860 | Condensed Consolidated Statements of Cash Flows Operating cash flow shifted to an outflow due to a significant loss contingency payment, while investing activities generated cash Cash Flow Summary (Nine months ended September 30, in thousands) | Cash Flow Activity | 2023 (in thousands) | 2022 (in thousands) | | :--- | :--- | :--- | | Net cash from operating activities | $(8,881) | $71,696 | | Net cash from investing activities | $26,909 | $(296) | | Net cash from financing activities | $0 | $0 | | Net increase in cash | $16,584 | $68,408 | - The significant decrease in operating cash flow in 2023 was driven by a $95.25 million payment for a Loss Contingency, which offset the reported net income of $75.0 million[6] Notes to Condensed Consolidated Financial Statements Detailed notes explain accounting policies, revenue recognition, debt, legal contingencies, and a significant subsequent acquisition event Note 1: Description of business DDI is an interactive entertainment company, a subsidiary of DoubleU Games, with its primary revenue entity DDI-US based in Seattle - DDI is a subsidiary of DoubleU Games Co., Ltd. ("DUG"), a Korean company that holds 67.1% of outstanding shares[8] - The primary revenue-generating entity is DDI-US, located in Seattle, which was acquired from IGT in 2017[8] Note 2: Revenue from Contracts with Customers Revenue is generated from virtual currency sales on a free-to-play model, with significant concentration on major platforms and a shift from web to mobile Revenue Concentration (Nine months ended Sep 30, 2023) | Platform | Revenue % | | :--- | :--- | | Apple | 55.7% | | Facebook | 17.2% | | Google | 18.6% | Revenue by Platform (Nine months ended Sep 30, in thousands) | Platform | 2023 (in thousands) | 2022 (in thousands) | Change | | :--- | :--- | :--- | :--- | | Mobile | $186,928 | $184,033 | +1.6% | | Web | $38,838 | $60,824 | -36.1% | Revenue by Geography (Nine months ended Sep 30, in thousands) | Region | 2023 (in thousands) | 2022 (in thousands) | Change | | :--- | :--- | :--- | :--- | | U.S. | $197,551 | $214,394 | -7.9% | | International | $28,215 | $30,463 | -7.4% | Note 4: Goodwill and intangible assets No goodwill impairment occurred in 2023, following a significant impairment charge recognized in the prior year - The company recognized an aggregate $269.9 million impairment of goodwill and intangibles in 2022, with no further impairment in the first nine months of 2023[33] Note 5: Debt The company's debt comprises $37.2 million in 4.60% Senior Notes due to its parent, maturing in May 2024 - The company has $37.18 million in 4.60% Senior Notes due to a related party, with the full amount maturing on May 27, 2024[34][35] Note 11: Commitments and contingencies The company settled the Benson class-action lawsuit, clearing a significant liability, and maintains ongoing license and royalty agreements - The Benson class-action lawsuit was settled, with the final contribution to the settlement fund made in June 2023. The company's accrual of $95.25 million as of December 31, 2022, was cleared by this payment[51] - For the nine months ended September 30, 2023, costs related to the IGT agreement totaled $5.4 million, recognized as part of the cost of revenue[53] Note 12: Related party transactions The company conducts significant related party transactions with its parent, DUG, including royalty, interest, and rent expenses, and outstanding debt Expenses Charged by Parent, DoubleU Games (Nine months ended Sep 30, 2023, in thousands) | Expense Type | Amount (in thousands) | | :--- | :--- | | Royalty expense | $1,963 | | Interest expense | $1,323 | | Rent expense | $932 | Amounts Due to Parent, DUG (At Sep 30, 2023, in thousands) | Liability | Amount (in thousands) | | :--- | :--- | | 4.6% Senior Notes | $37,180 | | Accrued interest on Notes | $8,679 | Note 14: Subsequent Event Post-quarter, the company acquired iGaming operator SuprNation AB for $36.5 million, diversifying its portfolio into real-money gaming - On October 31, 2023, the company acquired SuprNation AB for approximately $36.5 million (€34.3 million) in cash[56] - The acquisition adds three real-money iGaming sites in Western Europe to the company's portfolio[56]