DoubleDown Interactive Co., Ltd. (DDI) on Q1 2022 Results - Earnings Call Transcript
Operator: Good afternoon, ladies and gentlemen and welcome to DoubleDown's Earnings Conference Call for the Financial Results for the First Quarter Ended March 31, 2022. My name is Olivia and I'll be your conference operator this afternoon. Prior to this call, DoubleDown issued an unaudited financial results for the first quarter 2022 in a press release, a copy of which has been furnished in a report on Form 6-K filed with the SEC and is available on the Investor Relations section of the company's website at www.doubledowninteractive.com. You can find a link to the Investor Relations section at the top of the home page. Joining us on today's call are DoubleDown CEO; Mr. In Keuk Kim; and its CFO; Mr. Joe Sigrist. Following their remarks, we will open the call for questions. Before we begin, Mr. Grampp, the company outside Investor Relations Advisers will make a brief introductory statement. Mr. Grampp?
Jeff Grampp: Thank you. 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 Exchange 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 it can be identified by the use of words such as may, might, will, expect, assume, believe, intend, estimate, continue, should, anticipate or other similar terms. Forward-looking statements include and are not limited to those regarding our 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 we expect. Therefore, you should exercise caution in interpreting and relying on them. We refer you to DoubleDown's annual report on Form 20-F filed with the SEC on April 4, 2022 and other SEC filings for a more detailed discussion of the risks that could impact future operating results and financial condition. These forward-looking statements are made only as of the date of this 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. During the call, management will discuss non-GAAP 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 GAAP. A full reconciliation of these measures to the most directly comparable GAAP measures is available in the earnings release and on our Form 6-K filed with the SEC prior to this call. I would like to remind everyone that this call is being recorded and will be made available for replay via a link available in the investor relations section of DoubleDown’s website. Now, I would like to turn the call over to DoubleDown’s CEO, Mr. In Keuk Kim.
In Keuk Kim: Thank you, Jeff. Good afternoon, everyone. Thank you for joining us on the earnings call for our first quarter 2022 results. Our first quarter results for 2022 continue to demonstrate the attractiveness of our business model while revenue was down sequentially from the fourth quarter of 2021. This was primarily due to our decision to scale back sales and marketing costs for our first nonsocial casino app and that was Hero Survival, as we make certain product changes to improve the app's monetization metrics. This reduction in sales and marketing costs led to a corresponding decrease in revenue generated from Undead World during the period. Despite the revenue decrease, our adjusted EBITDA and adjusted EBITDA margin improved sequentially with a reduction in cost, illustrating the adaptability of our business model, the varying industry and macroeconomic conditions. We also continued to generate positive operating cash flow, ending the quarter with a cash equivalent balance of $268 million and have – and we hope to continue generating positive operating cash flows in the future. Our decision to scale down sales and marketing costs for Undead World in the near-term also demonstrate our commitment to being good source of capital. While we continue to focus on growing our business, we will not sacrifice or overlook the importance of generating returns on our investment for our shareholders for the sole purpose of achieving goals. By scaling back our investment for Undead World in the near time to revisit, our monetization strategy for the app, we have been able to introduce better test of several improvements for the app. If the monetization KPIs for the game trend positively we may increase marketing spending for Undead World during the current second quarter and beyond. As a leader in the social casino network through our flagship title DoubleDown Casino, we believe that we have the team in place to successful monetization strategy of gaming app adjacent to social casino. Now I will turn it over to our CFO, Joe Sigrist, to walk you through our financial, before providing my closing remarks. Joe?
Joe Sigrist: Thank you, I.K. and good afternoon, everyone. Let me start with revenues. Revenues for the first quarter of 2022 decreased 11.6% to $85.5 million from $96.7 million for the first quarter of 2021. It is important to note, that the prior year period benefited from the continuation of stay at home or work from home COVID prevention initiatives, which have significantly abated since then. Compared to the fourth quarter of 2021, revenue in the first quarter of 2022 declined by only 0.9%, primarily due to a decrease in Undead World revenue, based on our intentional reduction in user acquisition spending for the app. Our key monetization metrics for the first quarter of 2022, include average revenue per daily active user or ARPDAU was $0.97 in the first quarter, down slightly from $0.99 in the first quarter of 2021 and up sequentially from $0.96 for the fourth quarter of 2021. Average monthly revenue per payer was $225 in the first quarter, a year-over-year increase from $212 in the first quarter of 2021 and up sequentially from $216 in the fourth quarter of 2021. Lastly, payer conversion, which is the percentage of players, who pay DoubleDown was 5.5% in the first quarter compared to 5.7% in the first quarter of 2021 and remained stable sequentially. Operating expenses in total for the first quarter of 2022, decreased 14.4% to $60.8 million from $71.0 million for the first quarter of 2021. The decrease was primarily due to decreases in cost of revenue, sales and marketing expenses and depreciation and amortization expenses. Of note, sales and marketing expenses in the first quarter of 2022, were $19.8 million essentially flat over the first quarter of 2021, but representing an over $2 million sequential decrease compared to the fourth quarter of 2021. This sequential reduction was primarily due to the aforementioned decrease, in sales and marketing spending for Undead World: Hero Survival. Going forward we expect our overall sales and marketing expenses to rise incrementally as we increased investment in acquiring and retaining players in our new apps as well as for DoubleDown Casino. It is also worth noting, that depreciation and amortization expenses in the first quarter of 2022, were $2.2 million compared to $7.5 million in the first quarter of 2021 and essentially flat sequentially. The decrease from the year ago quarter, was due to the completed amortization of certain identifiable intangible assets for, which we use purchase price allocation at the time of the 2017 DoubleDown Interactive acquisition. Net income for the first quarter of 2022 decreased to $18.5 million or $7.46 per diluted common share compared to $19.4 million or $8.77 per diluted common share, in the first quarter of 2021. Next, I want to discuss adjusted EBITDA. Adjusted EBITDA and adjusted EBITDA margin are non-GAAP measures, which we believe are useful in evaluating our operating performance. A full reconciliation of these measures to the most directly comparable GAAP measure, is available in the earnings release. Adjusted EBITDA for the first quarter of 2022 was $26.9 million compared to $33.1 million, in the first quarter of 2021. Adjusted EBITDA margin for the first quarter of 2022 was 31.5%, lower than the adjusted EBITDA margin of 34.2% for the first quarter of 2021. The year-over-year decline in adjusted EBITDA and adjusted EBITDA margin, is primarily attributable to the lower revenue in the first quarter of 2021, which I previously discussed. I'll note, that as IK mentioned earlier, adjusted EBITDA increased sequentially from $25.8 million in the fourth quarter of 2021 to $26.9 million in the first quarter of 2022 and adjusted EBITDA margin also increased sequentially, from 22.9% in the fourth quarter of 2021 to 31.5% in the first quarter of 2022, primarily due to the reduction in sales and marketing costs. The overall reduction in our operating costs compared to the first quarter of 2021, illustrates the variable and discretionary cost structure we have. Our most significant costs or cost of revenue, which is comprised mostly of platform fees and royalties that are directly correlated to our revenue and sales and marketing costs, which are to a great extent discretionary. This gives us a highly adaptable business model that can generate relatively consistent adjusted EBITDA and cash inflows across many different industry and macroeconomic cycles. Cash flow from operations for the first quarter of 2022 was $28.4 million compared to $22.0 million, for the first quarter of 2021. We did not incur any material capital expenditures during the first quarter. Finally, turning to our balance sheet. At the end of the first quarter of 2022, we had $268.2 million of cash and cash equivalents and short-term investments, compared to $242.1 million of cash and cash equivalents at the end of 2021. Our total debt at the end of the first quarter of 2022 was $41.3 million, compared to $42.2 million at the end of the 2021 full year. Our cash position continued to improve, as we continue to generate positive cash flows from operations. This completes my financial summary. Now, I'll turn the call back over to I.K. for closing remarks.
In Keuk Kim: Thank you, Joe. As we move forward in 2022, the priority for DoubleDown is to profitability growth of business. This starts with our continuous effort to improve the performance of DoubleDown Casino, through a combination of product enhancements, marketing and live optimization. The social casino gaming business is still the backbone of our company and hence whether we are able to implement and realize such improvements remain crucial for our success. We also see opportunities to grow our business outside of traditional social casino network. And as such, we expect introducing adjacent mobile gaming app remains a high priority. In addition to the introduction of Undead World: Hero Survival in 2021, we are planning to launch additional nonsocial casino games this year. For example, we have been working very hard on a new hyper-casual game Save My Zombies, which just began open beta in April 2022. Also as previously discussed, we have been working on Spinning in Space, which has both casino and noncasino elements that we think can be attractive to both our existing social casino demographic and new demographics that may be more attractive to non-casino casual gaming. Spinning in Space remains on track to start its open beta this summer. We will continue to work on having a robust pipeline of new games to launch and it is also important to note that, these new games are being developed using our existing R&D budget. We backed by our strong balance sheet position, of course, have also considered pursuing growth through potential M&A opportunity. In this regard, we will continue to look at potential acquisition targets using our key assessment criteria. These criteria include: the strength of our target gaming and creative assets; our ability to create synergies, using our product development, marketing and live app capabilities and an attractive pro forma financial model. We are now happy to take your questions. Operator?
Operator: Thank you. [Operator Instructions] The first question coming from the line of Greg Gibas from Northland Securities. Your line is open.
Operator: Our next question is coming from David Bain with B. Riley. Your line is open.
Operator: [Operator Instructions] Our next question is coming from the line of [indiscernible]. Your line is open.
Operator: [Operator Instructions] And at this time, this concludes our question-and-answer session. I would now like to turn the call back over to Mr. Sigrist, for any closing remarks.
Joe Sigrist: Thanks Olivia. And thank you all for joining our call today and your interest in DoubleDown. We look forward to sharing future updates with you, as we continue to innovate and grow within the global digital gaming industry. And have a great rest of your evening.
Operator: Ladies and gentlemen, thank you for joining us today for DoubleDown's earnings conference call. You may now disconnect.
