6-K
DoubleDown Interactive Co., Ltd. (DDI)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of November, 2023
Commission File Number 001-39349
DoubleDown Interactive Co., Ltd.
(Translation of registrant’s name into English)
Joseph A. Sigrist, Chief Financial Officer
c/o DoubleDown Interactive, LLC
605 5 th Avenue, Suite 300
Seattle, WA 98104
+1-206-408-4545
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
☒ Form 20-F ☐ Form 40-F
Table of Contents
INFORMATION CONTAINED IN THIS FORM 6-K REPORT
Issuance of Press Release; Financial Statements
On November 8, 2023, DoubleDown Interactive Co., Ltd. (the “ Company ”) issued a press release announcing its financial results for the third quarter ended September 30, 2023 and its unaudited interim condensed consolidated financial statements for the three and nine months ended September 30, 2023.
The press release furnished in this report as Exhibit 99.1 shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, and shall not be deemed to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act, as amended, except to the extent specifically provided in such a filing.
The unaudited condensed consolidated financial statements furnished in this report on Exhibit 99.2 is hereby incorporated by reference into the Company’s Registration Statement on Form F-3 (File No. 333-267422), to be a part there of from the date on which this report is submitted, to the extent not superseded by documents or reports subsequently filed or furnished.
EXHIBIT INDEX
| Exhibit<br>No. | Description |
|---|---|
| 99.1 | Press release of the Company, dated November 8, 2023 |
| 99.2 | Unaudited condensed consolidated financial statements of the Company for the three and nine months ended September 30, 2023 |
| 101.SCH | XBRL Taxonomy Extension Schema Document |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| DOUBLEDOWN INTERACTIVE CO., LTD. | ||
|---|---|---|
| Date: November 8, 2023 | ||
| By: | /s/ Joseph A. Sigrist | |
| Name: | Joseph A. Sigrist | |
| Title: | Chief Financial Officer |
EX-99.1
Exhibit 99.1
DoubleDown Interactive Reports Third Quarter 2023 Financial Results
SEATTLE, WASHINGTON – November 8, 2023 — DoubleDown Interactive Co., Ltd. (NASDAQ: DDI) (“DoubleDown” or the “Company”), a leading developer and publisher of digital games on mobile and web-based platforms, today announced its unaudited financial results for the third quarter ended September 30, 2023.
Third Quarter 2023 vs. Third Quarter 2022 Summary:
| • | Revenues of $73.0 million in the third quarter of 2023 compared to $78.8 million in the third quarter<br>of 2022. |
|---|---|
| • | Operating costs of $43.3 million in the third quarter of 2023, a decline from $124.1 million in the<br>third quarter of 2022, primarily due to a $70.25 million non-cash accrual (associated with legal proceedings related to the previously disclosed Benson litigation) in general and administrative<br>expense in the third quarter of 2022 which did not recur in the third quarter of 2023, with the balance of the reduction primarily reflecting lower cost of revenue and decreased marketing expenses. |
| --- | --- |
| • | Adjusted EBITDA of $29.7 million for the third quarter of 2023, an increase from $25.0 million for the<br>third quarter of 2022, primarily due to lower sales and marketing expenses. The adjusted EBITDA margin increased to 40.7% in the third quarter of 2023 from 31.7% in the third quarter of 2022. |
| --- | --- |
| • | Net income of $26.9 million, or earnings per fully diluted common share of $10.87 ($0.54 per American<br>Depositary Share (“ADS”)), in the third quarter of 2023, compared to a loss of $24.0 million, or a loss of $9.69 per fully diluted common share ($(0.48) per ADS), in the third quarter of 2022. Note each ADS represents 0.05<br>share of a common share. |
| --- | --- |
| • | Average Revenue Per Daily Active User (“ARPDAU”) increased to $1.06 in the third quarter of 2023<br>from $0.96 in the third quarter of 2022. |
| --- | --- |
| • | Average monthly revenue per payer increased to $245 in the third quarter of 2023 from $225 in the third quarter<br>of 2022. |
| --- | --- |
“DoubleDown generated solid third quarter results including a nearly 19% year-over-year increase in Adjusted EBITDA to $29.7 million and $28.7 million in operating cash flow,” said In Keuk Kim, Chief Executive Officer of DoubleDown. “Payer engagement remains strong, in particular for our flagship social casino game DoubleDown Casino, as ARPDAU and average monthly revenue per payer rose 10% and 9%, respectively compared to the third quarter of 2022. Our business model and prudent management of operating expenses continues to deliver strong Adjusted EBITDA margins which through the first nine months of 2023 is up 530 basis points compared to the same period in 2022.
“Our solid cash generation continues to strengthen our balance sheet as inclusive of debt, we have approximately $200 million in net cash and short-term investments even after the cash payment of approximately $36.5 million to complete the acquisition of SuprNation at the end of October. We are excited to have completed the SuprNation acquisition as it marks our entrance into the European iGaming market, which, we believe, is a high-growth gaming category that is complementary to our core operations. We are confident we can leverage our game development expertise and marketing platform to profitably scale SuprNation. With this acquisition completed, we are continuing to evaluate opportunities to deploy capital to further expand our business into high-growth gaming categories with attractive addressable markets to create new value for our shareholders.”
Summary Operating Results for DoubleDown Interactive (Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | 2023 | 2022 | |||||||||
| Revenue ($ MM) | $ | 73.0 | $ | 78.8 | $ | 225.8 | $ | 244.9 | ||||
| Total operating expenses | 43.3 | 124.1 | 143.2 | 313.5 | ||||||||
| Loss contingency | — | 70.3 | — | 141.8 | ||||||||
| Adjusted EBITDA ($ MM) | $ | 29.7 | $ | 25.0 | $ | 82.8 | $ | 76.9 | ||||
| Net income ($ MM) | $ | 26.9 | $ | (24.0 | ) | $ | 75.0 | $ | (39.6 | ) | ||
| Net income margin | 36.9 | % | (30.5 | )% | 33.2 | % | (16.2 | )% | ||||
| Adjusted EBITDA margin | 40.7 | % | 31.7 | % | 36.7 | % | 31.4 | % | ||||
| Non-financial performance metrics | ||||||||||||
| Average MAUs (000s) | 1,675 | 2,267 | 1,837 | 2,301 | ||||||||
| Average DAUs (000s) | 749 | 907 | 794 | 941 | ||||||||
| ARPDAU | $ | 1.06 | $ | 0.96 | $ | 1.05 | $ | 0.96 | ||||
| Average monthly revenue per payer | $ | 245 | $ | 225 | $ | 234 | $ | 225 | ||||
| Payer conversion | 5.9 | % | 5.2 | % | 5.9 | % | 5.3 | % |
Third Quarter 2023 Financial Results
Revenue in the third quarter of 2023 was $73.0 million, a decline of 7% from the third quarter of 2022. The decrease was primarily due to changes in player behavior as a result of inflation and global economic concerns and the Company’s decreased marketing activities to attract a higher user base.
Operating expenses in the third quarter of 2023 were $43.3 million, a 65% decrease from the third quarter of 2022. The decrease in operating expenses was primarily due to lower cost of revenue and decreases in marketing expenses in the third quarter of 2023, as compared to the third quarter of 2022 and reflects the $70.25 million non-cash accrual in the third quarter of 2022 noted above which did not recur in the comparable 2023 period.
The Company recorded net income of $26.9 million in the third quarter of 2023, or $10.87 per fully diluted common share ($0.54 per ADS), as compared to a net loss of $24.0 million, or a loss of $9.69 per fully diluted common share ($(0.48) per ADS) in the third quarter of 2022. The net loss in the third quarter of 2022 included the impact of the $70.25 million non-cash accrual noted above. Net income for the third quarter of 2023 reflects lower marketing expenditures, partially offset by a decline in revenue. Note each ADS represents 0.05 share of a common share.
Adjusted EBITDA in the third quarter of 2023 was $29.7 million, compared to $25.0 million in the third quarter of 2022. The increase was primarily due to lower sales and marketing expenses, partially offset by a decline in revenue.
Net cash flows from operating activities for the third quarter of 2023 were $28.7 million, compared to net cash flows provided by operating activities of $22.2 million in the third quarter of 2022. The increase was primarily driven by higher operating income.
Conference Call
DoubleDown will hold a conference call today (November 8, 2023) at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time) to discuss these results. A question-and-answer session will follow management’s presentation.
To access the call, please use the following link: DoubleDown Third Quarter 2023 Earnings Call. After registering, an email will be sent, including dial-in details and a unique conference call access code required to join the live call. To ensure you are connected prior to the beginning of the call, please register a minimum of 15 minutes before the start of the call.
A simultaneous webcast of the conference call will be available with the following link: DoubleDown Third Quarter 2023 Earnings Webcast, or via the Investor Relations page of the DoubleDown website at ir.doubledowninteractive.com. For those not planning to ask a question on the conference call, the Company recommends listening via the webcast.
A replay will be available on the Company’s Investor Relations website shortly after the event.
About DoubleDown Interactive
DoubleDown Interactive Co., Ltd. is a leading developer and publisher of digital games on mobile and web-based platforms. We are the creators of multi-format interactive entertainment experiences for casual players, bringing authentic Vegas entertainment to players around the world through an online social casino experience. Our flagship title, DoubleDownCasino, has been a fan-favorite game on leading social and mobile platforms for years, entertaining millions of players worldwide with a lineup of classic and modern games.
Safe Harbor Statement
Certain statements contained in this press release are “forward-looking statements” about future events and expectations for purposes of the safe harbor provisions under the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on our beliefs, assumptions, and expectations of industry trends, our future financial and operating performance, and our growth plans, taking into account the information currently available to us. These statements are not statements of historical fact. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. Therefore, you should not place undue reliance on such statements. Words such as “anticipates,” believes,” “continues,” “estimates,” “expects,” “goal,” “objectives,” “intends,” “may,” “opportunity,” “plans,” potential,” “near-term,” long-term,” “projections,” “assumptions,” “projects,” “guidance,” “forecasts,” “outlook,” “target,” “trends,” “should,” “could,” “would,” “will,” and similar expressions are intended to identify such forward-looking statements. We qualify any forward-looking statements entirely by these cautionary factors. We assume no obligation to update or revise any forward-looking statements for any reason or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.
Use and Reconciliation of Non-GAAP Financial Measures
In addition to our results determined in accordance with the accounting principles generally accepted in the United States of America (“GAAP”), we believe the following non-GAAP financial measure is useful in evaluating our operating performance. We present “adjusted earnings before interest, taxes, depreciation andamortization” (“Adjusted EBITDA”) because we believe it assists investors and analysts by facilitating comparison of period-to-period operational performance on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. The items excluded from the Adjusted EBITDA may have a material impact on our financial results. Certain of those items are non-recurring, while others are non-cash in nature. Accordingly, the Adjusted EBITDA is presented as supplemental disclosure and should not be considered in isolation of, as a substitute for, or superior to, the financial information prepared in accordance with GAAP, and should be read in conjunction with the financial statements furnished in our report on Form 6-K to be filed with the SEC.
In our reconciliation from our reported GAAP “net income before provision for taxes” to our Adjusted EBITDA, we eliminate the impact of the following seven line items: (i)depreciation and amortization; (ii) loss contingency related to the Benson case; (iii) interest income; (iv) interest expense; (v) foreign currency transaction/remeasurement (gain) loss; (vi) short-term investments (gain) loss; and (vii) other (income) expense, net. The below table sets forth the full reconciliation of our non-GAAP measures:
| Reconciliation of non-GAAP measures | September 30, | September 30, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in millions, except percentages) | 2023 | 2022 | 2023 | 2022 | ||||||||
| Net income (loss) | $ | 26.9 | $ | (24.0 | ) | $ | 75.0 | $ | (39.6 | ) | ||
| Income tax benefit (expense) | (7.8 | ) | 4.9 | (22.1 | ) | 10.9 | ||||||
| Income (loss) before tax | 34.7 | (28.9 | ) | 97.1 | (50.5 | ) | ||||||
| Adjustments for: | ||||||||||||
| Depreciation and amortization | 0.1 | 0.0 | 0.2 | 3.8 | ||||||||
| Loss contingency | — | 70.3 | — | 141.8 | ||||||||
| Interest income | (3.1 | ) | (1.9 | ) | (10.5 | ) | (2.7 | ) | ||||
| Interest expense | 0.4 | 0.4 | 1.3 | 1.4 | ||||||||
| Foreign currency transaction/remeasurement gain | (2.3 | ) | (9.3 | ) | (5.4 | ) | (17.0 | ) | ||||
| Short-term investments (gain) loss | 0.0 | (5.7 | ) | 0.1 | 0.2 | |||||||
| Other (income) expense, net | (0.1 | ) | 0.0 | 0.0 | 0.1 | |||||||
| Adjusted EBITDA | $ | 29.7 | $ | 25.0 | $ | 82.8 | $ | 76.9 | ||||
| Adjusted EBITDA margin | 40.7 | % | 31.7 | % | 36.7 | % | 31.4 | % |
We encourage investors and others to review our financial information in its entirety and not to rely on any single financial measure.
Company Contact:
Joe Sigrist
ir@doubledown.com
+1 (206) 773-2266
Chief Financial Officer
https://www.doubledowninteractive.com
Investor RelationsContact:
Joseph Jaffoni or Richard Land
JCIR
+1 (212) 835-8500
DDI@jcir.com
DoubleDown Interactive Co., Ltd.
Condensed Consolidated Balance Sheets
(In thousands of U.S. dollars, except share and per share amounts)
| September 30, | December 31, | |||
|---|---|---|---|---|
| 2023 | 2022 | |||
| (unaudited) | ||||
| Assets | ||||
| Current assets: | ||||
| Cash and cash equivalents | $ | 233,936 | $ | 217,352 |
| Short-term investments | 37,231 | 67,891 | ||
| Accounts receivable, net | 27,834 | 21,198 | ||
| Prepaid expenses, and other assets | 6,307 | 6,441 | ||
| Total current assets | $ | 305,308 | $ | 312,882 |
| Property and equipment, net | 440 | 436 | ||
| Operating lease right-of-use assets, net | 1,726 | 3,858 | ||
| Intangible assets, net | 35,046 | 35,051 | ||
| Goodwill | 379,072 | 379,072 | ||
| Deferred tax asset | 37,683 | 59,290 | ||
| Other non-current assets | 1,308 | 1,463 | ||
| Total assets | $ | 760,583 | $ | 792,052 |
| Liabilities and Shareholders’ Equity | ||||
| Accounts payable and accrued expenses | $ | 10,358 | $ | 13,830 |
| Short-term operating lease liabilities | 2,020 | 3,050 | ||
| Income taxes payable | 15 | — | ||
| Contract liabilities | 2,044 | 2,426 | ||
| Loss contingency | — | 95,250 | ||
| Current portion of borrowings with related party | 37,180 | — | ||
| Other current liabilities | 1,158 | 1,926 | ||
| Total current liabilities | $ | 52,775 | $ | 116,482 |
| Long-term borrowings with related party | — | 39,454 | ||
| Long-term operating lease liabilities | 176 | 1,625 | ||
| Other non-current liabilities | 9,772 | 8,265 | ||
| Total liabilities | $ | 62,723 | $ | 165,826 |
| Shareholders’ equity | ||||
| Common stock, KRW 10,000 par value - 200,000,000 Shares authorized; 2,477,672 issued and<br>outstanding | 21,198 | 21,198 | ||
| Additional paid-in-capital | 359,280 | 359,280 | ||
| Accumulated other comprehensive income | 16,036 | 19,360 | ||
| Retained earnings | 301,346 | 226,388 | ||
| Total shareholders’ equity | $ | 697,860 | $ | 626,226 |
| Total liabilities and shareholders’ equity | $ | 760,583 | $ | 792,052 |
DoubleDown Interactive Co., Ltd.
Condensed Consolidated Statement of Income and Comprehensive Income
(Unaudited, in thousands except share and per share amounts)
| Three months ended September 30, | Nine months ended September 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | 2023 | 2022 | |||||||||
| Revenue | $ | 72,983 | $ | 78,801 | $ | 225,766 | $ | 244,857 | ||||
| Operating expenses: | ||||||||||||
| Cost of revenue^(1)^ | 23,658 | 27,119 | 74,282 | 83,464 | ||||||||
| Sales and marketing^(1)^ | 10,585 | 17,214 | 39,733 | 55,056 | ||||||||
| Research and development^(1)^ | 4,361 | 4,691 | 14,473 | 13,704 | ||||||||
| General and administrative^(1)^ | 4,644 | 4,821 | 14,526 | 15,771 | ||||||||
| Loss Contingency^(1)^ | — | 70,250 | — | 141,750 | ||||||||
| Depreciation and amortization | 55 | 45 | 158 | 3,751 | ||||||||
| Total operating expenses | 43,303 | 124,140 | 143,172 | 313,496 | ||||||||
| Operating income (loss) | $ | 29,680 | $ | (45,339 | ) | $ | 82,594 | $ | (68,639 | ) | ||
| Other income (expense): | ||||||||||||
| Interest expense | (443 | ) | (431 | ) | (1,341 | ) | (1,356 | ) | ||||
| Interest income | 3,132 | 1,948 | 10,511 | 2,742 | ||||||||
| Gain on foreign currency transactions | 1,177 | 541 | 3,907 | 856 | ||||||||
| Gain on foreign currency remeasurement | 1,096 | 8,748 | 1,484 | 16,163 | ||||||||
| Gain (loss) on short-term investments | (7 | ) | 5,651 | (76 | ) | (155 | ) | |||||
| Other, net | 91 | (42 | ) | (4 | ) | (98 | ) | |||||
| Total other income (expense), net | $ | 5,046 | $ | 16,415 | $ | 14,481 | $ | 18,152 | ||||
| Income (loss) before income tax | $ | 34,726 | $ | (28,924 | ) | $ | 97,075 | $ | (50,487 | ) | ||
| Income tax (expense) benefit | (7,796 | ) | 4,925 | (22,116 | ) | 10,926 | ||||||
| Net income (loss) | $ | 26,930 | $ | (23,999 | ) | $ | 74,959 | $ | (39,561 | ) | ||
| Other comprehensive income (expense): | ||||||||||||
| Pension adjustments, net of tax | (48 | ) | 102 | (156 | ) | (185 | ) | |||||
| Loss on foreign currency translation | (1,821 | ) | (6,115 | ) | (3,168 | ) | (11,087 | ) | ||||
| Comprehensive income (loss) | $ | 25,061 | $ | (30,012 | ) | $ | 71,635 | $ | (50,833 | ) | ||
| Earnings (loss) per share: | ||||||||||||
| Basic | $ | 10.87 | $ | (9.69 | ) | $ | 30.25 | $ | (15.97 | ) | ||
| Diluted | $ | 10.87 | $ | (9.69 | ) | $ | 30.25 | $ | (15.97 | ) | ||
| Weighted average shares outstanding: | ||||||||||||
| Basic | 2,477,672 | 2,477,672 | 2,477,672 | 2,477,672 | ||||||||
| Diluted | 2,477,672 | 2,477,672 | 2,477,672 | 2,477,672 | ||||||||
| ^(1)^ | Excluding depreciation and amortization. | |||||||||||
| --- | --- |
DoubleDown Interactive Co., Ltd.
Condensed Consolidated Statement of Cash Flows
(Unaudited, in thousands of U.S. dollars)
| Nine months ended September 30, | ||||||
|---|---|---|---|---|---|---|
| 2023 | 2022 | |||||
| Cash flow from (used in) operating activities: | ||||||
| Net income (loss) | $ | 74,959 | $ | (39,561 | ) | |
| Adjustments to reconcile net income to net cash from operating activities: | ||||||
| Depreciation and amortization | 158 | 3,751 | ||||
| Gain on foreign currency remeasurement | (1,484 | ) | (16,163 | ) | ||
| Loss on short-term investments | 76 | 155 | ||||
| Deferred taxes | 21,110 | (26,716 | ) | |||
| Working capital adjustments: | ||||||
| Accounts receivable | (6,847 | ) | 703 | |||
| Prepaid expenses, other current and non-current assets | 1,090 | (1,391 | ) | |||
| Accounts payable, accrued expenses and other payables | (3,381 | ) | 1,033 | |||
| Contract liabilities | (382 | ) | (80 | ) | ||
| Income tax payable | 15 | — | ||||
| Loss Contingency | (95,250 | ) | 141,750 | |||
| Other current and non-current liabilities | 1,055 | 8,215 | ||||
| Net cash flows from (used in) operating activities | $ | (8,881 | ) | $ | 71,696 | |
| Cash flow from (used in) investing activities: | ||||||
| Purchases of intangible assets | — | (3 | ) | |||
| Purchases of property and equipment | (173 | ) | (164 | ) | ||
| Disposals of property and equipment | 27 | |||||
| Issuance of note receivable | (1,086 | ) | — | |||
| Purchases of short-term investments | (47,465 | ) | (366,449 | ) | ||
| Sales of short-term investments | 75,633 | 366,293 | ||||
| Net cash flows from (used in) investing activities | $ | 26,909 | $ | (296 | ) | |
| Cash flow from (used in) financing activities: | ||||||
| Net cash flows from (used in) financing activities: | $ | — | $ | — | ||
| Net foreign exchange difference on cash and cash equivalents | (1,444 | ) | (2,992 | ) | ||
| Net decrease in cash and cash equivalents | $ | 16,584 | $ | 68,408 | ||
| Cash and cash equivalents at beginning of period | $ | 217,352 | $ | 242,060 | ||
| Cash and cash equivalents at end of period | $ | 233,936 | $ | 310,468 | ||
| Cash paid during year for: | ||||||
| Interest | — | — | ||||
| Income taxes | $ | 20 | $ | 11,415 |
EX-99.2
Exhibit 99.2
DoubleDown Interactive Co., Ltd.
Condensed Consolidated Financial Statements (unaudited)
September 30, 2023 and September 30, 2022
Contents
| Consolidated Financial Statements as of and for the three and nine months ended September 30, 2023 and 2022 | |
|---|---|
| Condensed Consolidated Statements of Income and Comprehensive Income | F-2 |
| Condensed Consolidated Balance Sheets | F-3 |
| Condensed Consolidated Statements of Changes in Shareholders’ Equity | F-4 |
| Condensed Consolidated Statements of Cash Flows | F-5 |
| Notes to Condensed Consolidated Financial Statements | F-6 |
Table of Contents
DoubleDown Interactive Co., Ltd.
Condensed Consolidated Statements of Income and Comprehensive Income
(unaudited, in thousands of U.S. Dollars, except share and per share amounts)
| Three months ended September 30, | Nine months ended September 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | 2023 | 2022 | |||||||||
| Revenue | $ | 72,983 | $ | 78,801 | $ | 225,766 | $ | 244,857 | ||||
| Operating expenses: | ||||||||||||
| Cost of revenue<br>(1) | 23,658 | 27,119 | 74,282 | 83,464 | ||||||||
| Sales and marketing<br>(1) | 10,585 | 17,214 | 39,733 | 55,056 | ||||||||
| Research and development<br>(1) | 4,361 | 4,691 | 14,473 | 13,704 | ||||||||
| General and administrative<br>(1) | 4,644 | 4,821 | 14,526 | 15,771 | ||||||||
| Loss Contingency<br>(1) | — | 70,250 | — | 141,750 | ||||||||
| Depreciation and amortization | 55 | 45 | 158 | 3,751 | ||||||||
| Total operating expenses | 43,303 | 124,140 | 143,172 | 313,496 | ||||||||
| Operating income (loss) | $ | 29,680 | $ | (45,339 | ) | $ | 82,594 | $ | (68,639 | ) | ||
| Other income (expense): | ||||||||||||
| Interest expense | (443 | ) | (431 | ) | (1,341 | ) | (1,356 | ) | ||||
| Interest income | 3,132 | 1,948 | 10,511 | 2,742 | ||||||||
| Gain on foreign currency transactions | 1,177 | 541 | 3,907 | 856 | ||||||||
| Gain on foreign currency remeasurement | 1,096 | 8,748 | 1,484 | 16,163 | ||||||||
| Gain (loss) on short-term investments | (7 | ) | 5,651 | (76 | ) | (155 | ) | |||||
| Other, net | 91 | (42 | ) | (4 | ) | (98 | ) | |||||
| Total other income (expense), net | $ | 5,046 | $ | 16,415 | $ | 14,481 | $ | 18,152 | ||||
| Income (loss) before income tax | $ | 34,726 | $ | (28,924 | ) | $ | 97,075 | $ | (50,487 | ) | ||
| Income tax (expense) benefit | (7,796 | ) | 4,925 | (22,116 | ) | 10,926 | ||||||
| Net income (loss) | $ | 26,930 | $ | (23,999 | ) | $ | 74,959 | $ | (39,561 | ) | ||
| Other comprehensive income (expense): | ||||||||||||
| Pension adjustments, net of tax | (48 | ) | 102 | (156 | ) | (185 | ) | |||||
| Loss on foreign currency translation | (1,821 | ) | (6,115 | ) | (3,168 | ) | (11,087 | ) | ||||
| Comprehensive income (loss) | $ | 25,061 | $ | (30,012 | ) | $ | 71,635 | $ | (50,833 | ) | ||
| Earnings (loss) per share: | ||||||||||||
| Basic | $ | 10.87 | $ | (9.69 | ) | $ | 30.25 | $ | (15.97 | ) | ||
| Diluted | $ | 10.87 | $ | (9.69 | ) | $ | 30.25 | $ | (15.97 | ) | ||
| Weighted average shares outstanding: | ||||||||||||
| Basic | 2,477,672 | 2,477,672 | 2,477,672 | 2,477,672 | ||||||||
| Diluted | 2,477,672 | 2,477,672 | 2,477,672 | 2,477,672 | ||||||||
| (1) | Excluding depreciation and amortization. | |||||||||||
| --- | --- |
See accompanying notes to consolidated financial statements.
Table of Contents
DoubleDown Interactive Co., Ltd.
Condensed Consolidated Balance Sheets
(in thousands of U.S. Dollars, except share amounts)
| September 30, | December 31, | |||
|---|---|---|---|---|
| 2023 | 2022 | |||
| (unaudited) | ||||
| Assets | ||||
| Current assets: | ||||
| Cash and cash equivalents | $ | 233,936 | $ | 217,352 |
| Short-term investments | 37,231 | 67,891 | ||
| Accounts receivable, net | 27,834 | 21,198 | ||
| Prepaid expenses, and other assets | 6,307 | 6,441 | ||
| Total current assets | $ | 305,308 | $ | 312,882 |
| Property and equipment, net | 440 | 436 | ||
| Operating lease <br>right-of-use<br> assets, net | 1,726 | 3,858 | ||
| Intangible assets, net | 35,046 | 35,051 | ||
| Goodwill | 379,072 | 379,072 | ||
| Deferred tax asset | 37,683 | 59,290 | ||
| Other <br>non-current<br> assets | 1,308 | 1,463 | ||
| Total assets | $ | 760,583 | $ | 792,052 |
| Liabilities and Shareholders’ Equity | ||||
| Accounts payable and accrued expenses | $ | 10,358 | $ | 13,830 |
| Short-term operating lease liabilities | 2,020 | 3,050 | ||
| Income taxes payable | 15 | — | ||
| Contract liabilities | 2,044 | 2,426 | ||
| Loss contingency | — | 95,250 | ||
| Current portion of borrowings with related party | 37,180 | — | ||
| Other current liabilities | 1,158 | 1,926 | ||
| Total current liabilities | $ | 52,775 | $ | 116,482 |
| Long-term borrowings with related party | — | 39,454 | ||
| Long-term operating lease liabilities | 176 | 1,625 | ||
| Other <br>non-current<br> liabilities | 9,772 | 8,265 | ||
| Total liabilities | $ | 62,723 | $ | 165,826 |
| Shareholders’ equity | ||||
| Common stock, KRW 10,000 par value - 200,000,000 Shares authorized; <br>2,477,672<br>issued and outstanding | 21,198 | 21,198 | ||
| Additional <br>paid-in-capital | 359,280 | 359,280 | ||
| Accumulated other comprehensive income | 16,036 | 19,360 | ||
| Retained earnings | 301,346 | 226,388 | ||
| Total shareholders’ equity | $ | 697,860 | $ | 626,226 |
| Total liabilities and shareholders’ equity | $ | 760,583 | $ | 792,052 |
See accompanying notes to consolidated financial statements.
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DoubleDown Interactive Co., Ltd.
Condensed Consolidated Statements of Changes in Shareholders’ Equity
(unaudited, in thousands of U.S. Dollars, except share amounts)
| Common shares | Common stock | Additional paid-<br><br> <br>in- capital | Accumulated other<br> comprehensive<br> income/(loss) | Retained earnings<br> (deficit) | Total shareholders’<br> equity | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Three months ended September 30, 2023 | ||||||||||||||||
| As of July 1, 2023 | 2,477,672 | 21,198 | 359,280 | 17,905 | 274,416 | 672,799 | ||||||||||
| Net income | — | — | — | — | 26,930 | 26,930 | ||||||||||
| Pension adjustments, net of tax | — | — | — | (48 | ) | — | (48 | ) | ||||||||
| Loss on foreign currency translation, net of tax | — | — | — | (1,821 | ) | — | (1,821 | ) | ||||||||
| As of September 30, 2023 | 2,477,672 | 21,198 | 359,280 | 16,036 | 301,346 | 697,860 | ||||||||||
| Three months ended September 30, 2022 | ||||||||||||||||
| As of July 1, 2022 | 2,477,672 | 21,198 | 671,831 | 17,774 | 132,254 | 843,057 | ||||||||||
| Net loss | — | — | — | — | (23,999 | ) | (23,999 | ) | ||||||||
| Pension adjustments, net of tax | — | — | — | 102 | — | 102 | ||||||||||
| Loss on foreign currency translation, net of tax | — | — | — | (6,115 | ) | — | (6,115 | ) | ||||||||
| Reduction of Capital Reserve | — | — | (52,361 | ) | — | 52,361 | — | |||||||||
| As of September 30, 2022 | 2,477,672 | 21,198 | 619,470 | 11,761 | 160,616 | 813,045 | ||||||||||
| Common shares | Common stock | Additional paid-<br><br> <br>in- capital | Accumulated other<br> comprehensive<br> income/(loss) | Retained earnings<br> (deficit) | Total shareholders’<br> equity | |||||||||||
| Nine months ended September 30, 2023 | ||||||||||||||||
| As of January 1, 2023 | 2,477,672 | 21,198 | 359,280 | 19,360 | 226,388 | 626,226 | ||||||||||
| Net income | — | — | — | — | 74,959 | 74,959 | ||||||||||
| Pension adjustments, net of tax | — | — | — | (156 | ) | — | (156 | ) | ||||||||
| Loss on foreign currency translation, net of tax | — | — | — | (3,168 | ) | — | (3,168 | ) | ||||||||
| As of September 30, 2023 | 2,477,672 | 21,198 | 359,280 | 16,036 | 301,346 | 697,860 | ||||||||||
| Nine months ended September 30, 2022 | ||||||||||||||||
| As of January 1, 2022 | 2,477,672 | 21,198 | 671,831 | 23,033 | 147,816 | 863,878 | ||||||||||
| Net loss | — | — | — | — | (39,561 | ) | (39,561 | ) | ||||||||
| Pension adjustments, net of tax | — | — | — | (185 | ) | — | (185 | ) | ||||||||
| Loss on foreign currency translation, net of tax | — | — | — | (11,087 | ) | — | (11,087 | ) | ||||||||
| Reduction of Capital Reserve | — | — | (52,361 | ) | — | 52,361 | — | |||||||||
| As of September 30, 2022 | 2,477,672 | 21,198 | 619,470 | 11,761 | 160,616 | 813,045 |
See accompanying notes to consolidated financial statements.
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DoubleDown Interactive Co., Ltd.
Condensed Consolidated Statements of Cash Flows
(unaudited, in thousands of U.S. Dollars)
| Nine months ended September 30, | ||||||
|---|---|---|---|---|---|---|
| 2023 | 2022 | |||||
| Cash flow from (used in) operating activities: | ||||||
| Net income (loss) | $ | 74,959 | $ | (39,561 | ) | |
| Adjustments to reconcile net income to net cash from operating activities: | ||||||
| Depreciation and amortization | 158 | 3,751 | ||||
| Gain on foreign currency remeasurement | (1,484 | ) | (16,163 | ) | ||
| Loss on short-term investments | 76 | 155 | ||||
| Deferred taxes | 21,110 | (26,716 | ) | |||
| Working capital adjustments: | ||||||
| Accounts receivable | (6,847 | ) | 703 | |||
| Prepaid expenses, other current and <br>non-current<br> assets | 1,090 | (1,391 | ) | |||
| Accounts payable, accrued expenses and other payables | (3,381 | ) | 1,033 | |||
| Contract liabilities | (382 | ) | (80 | ) | ||
| Income tax payable | 15 | — | ||||
| Loss Contingency | (95,250 | ) | 141,750 | |||
| Other current and <br>non-current<br> liabilities | 1,055 | 8,215 | ||||
| Net cash flows from (used in) operating activities | $ | (8,881 | ) | $ | 71,696 | |
| Cash flow from (used in) investing activities: | ||||||
| Purchases of intangible assets | — | (3 | ) | |||
| Purchases of property and equipment | (173 | ) | (164 | ) | ||
| Disposals of property and equipment | 27 | |||||
| Issuance of note receivable | (1,086 | ) | — | |||
| Purchases of short-term investments | (47,465 | ) | (366,449 | ) | ||
| Sales of short-term investments | 75,633 | 366,293 | ||||
| Net cash flows from (used in) investing activities | $ | 26,909 | $ | (296 | ) | |
| Cash flow from (used in) financing activities: | ||||||
| Net cash flows from (used in) financing activities: | $ | — | $ | — | ||
| Net foreign exchange difference on cash and cash equivalents | (1,444 | ) | (2,992 | ) | ||
| Net decrease in cash and cash equivalents | $ | 16,584 | $ | 68,408 | ||
| Cash and cash equivalents at beginning of period | $ | 217,352 | $ | 242,060 | ||
| Cash and cash equivalents at end of period | $ | 233,936 | $ | 310,468 | ||
| Cash paid during year for: | ||||||
| Interest | — | — | ||||
| Income taxes | $ | 20 | $ | 11,415 |
See accompanying notes to consolidated financial statements.
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DoubleDown Interactive Co., Ltd.
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 1: Description of business
Background and nature of operations
DoubleDown Interactive Co., Ltd. (“DDI,” “we,” “us,” “our” or the “Company”) was incorporated in 2008 in Seoul, Korea as an interactive entertainment studio, focused on the development and publishing of casual games and mobile applications. DDI is a subsidiary of DoubleU Games Co., Ltd. (“DUG” or “DoubleU Games”), a Korean company and our controlling shareholder holding 67.1% of our outstanding shares. The remaining 32.9% of our outstanding shares are held by STIC Special Situation Private Equity Fund (“STIC”, 20.2%) and the remainder by participants in our IPO (12.7%). In 2017, DDI acquired DoubleDown Interactive, LLC (“DDI-US”) from International Gaming Technologies (“IGT”) for approximately $825 million. DDI-US, with its principal place of business located in Seattle, Washington, is our primary revenue-generating entity.
We develop and publish digital gaming content on various mobile and web platforms through our multi-format interactive all-in-one game experience concept. We host DoubleDown Casino, DoubleDown Classic, DoubleDown Fort Knox and Undead World within various formats.
The American Depositary Shares, each representing 0.05 share of our common share, trade on the NASDAQ Stock Market under the symbol “DDI.”
Capital Reserve Reallocation
On August 26, 2022, the shareholders approved the reduction of the Company’s capital reserve in the amount of W 70,000,000,000 pursuant to Article 461-2 of the Korean Commercial Code at an Extraordinary General Meeting of Shareholders.
On December 28, 2022, the shareholders approved the reduction of the Company’s capital reserve in the amount of W 330,000,000,000 pursuant to Article 461-2 of the Korean Commercial Code at an Extraordinary General Meeting of Shareholders.
Basis of preparation and consolidation
Our unaudited condensed consolidated financial statements include all adjustments of a normal, recurring nature necessary for the fair presentation of the results for the interim periods presented. The results for the interim period presented are not necessarily indicative of those for the full year. The condensed consolidated financial statements should be read in conjunction with our consolidated financial statements for the year ended December 31, 2022.
The condensed consolidated financial statements include the balances and accounts of DDI and our controlled subsidiaries. All significant inter-company transactions, balances and unrealized gains or losses have been eliminated. We view our operations and manage our business as one operating segment.
Use of estimates
The preparation of financial statements in conformity with Generally Accepted Accounting Principles (GAAP) requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures. We regularly evaluate estimates and assumptions related to provisions for income taxes, revenue recognition, expense accruals, deferred income tax asset valuation allowances, valuation of goodwill and intangibles, and legal contingencies. We base our estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and the actual results, future operating results may be affected.
Functional currency and translation of financial statements
Our functional currency is the Korean Won (“KRW”) and the U.S. Dollar (“dollar,” “USD,” “US$,” or “$”) is the functional currency of our United States subsidiaries. The accompanying consolidated financial statements are presented in USD. The consolidated balance sheets have been translated at the exchange rates prevailing at each balance sheet date. The consolidated statement of comprehensive income and statement of cash flows have been translated using the weighted-average exchange rates prevailing during the periods of each statement. The equity capital is denominated in the functional currency, KRW, and is translated at historical exchange rates. All translation adjustments resulting from translating into the reporting currency are accumulated as a separate component of accumulated other comprehensive income in shareholders’ equity. Gains or losses resulting from foreign currency transactions are included in other income (expense).
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Intercompany monetary items denominated in foreign currencies are translated into the functional currency at the exchange rate at the reporting date with the gain or loss arising on translation recorded to other income (expense). Intercompany non-monetary items that are measured at historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions.
Cash and cash equivalents
We consider all money market funds and short-term investments with a maturity of three months or less when acquired to be cash and cash equivalents. Cash and cash equivalents are held by high credit quality financial institutions and balances may exceed limits of federal insurance. We have not experienced any losses resulting from these excess deposits.
Financial instruments and concentration of credit risk
Financial instruments, which potentially expose us to concentrations of credit risk, consist primarily of cash and cash equivalents, accounts receivable and short-term investments.
Accounts receivable are recorded and carried at the net invoiced amount, which is net of platform payment processing fees, unsecured, and represent amounts due to us based on contractual obligations where an executed contract exists. We do not require collateral and have not recognized an allowance as management estimates the net receivable is fully collectible. Apple, Inc. (“Apple”), Facebook, Inc. (“Facebook”), and Google, LLC (“Google”) represent significant distribution, marketing, and payment platforms for our games. A substantial portion of our revenue was generated from players who accessed our games through these platforms and a significant concentration of our accounts receivable balance is comprised of balances owed to us by these platforms.
The following table summarizes the percentage of revenues and accounts receivable generated via our platform providers in excess of 10% of our total revenues and total accounts receivable:
| Revenue Concentration | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Three months ended September 30, | Nine months ended September 30, | |||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||
| Apple | 56.5 | % | 54.1 | % | 55.7 | % | 54.2 | % | ||||
| 16.2 | % | 24.2 | % | 17.2 | % | 24.2 | % | |||||
| 18.1 | % | 18.6 | % | 18.6 | % | 18.7 | % | |||||
| Accounts Receivable Concentration | ||||||||||||
| --- | --- | --- | --- | --- | --- | --- | ||||||
| As of September 30, | As of December 31, | |||||||||||
| 2023 | 2022 | |||||||||||
| Apple | 62.5 | % | 55.8 | % | ||||||||
| 9.4 | % | 20.4 | % | |||||||||
| 10.5 | % | 17.7 | % |
Note 2: Revenue from Contracts with Customers
Our social and mobile apps operate on a free-to-play model, whereby game players may collect virtual currency free of charge through the passage of time or through targeted marketing promotions. If a game player wishes to obtain virtual currency above and beyond the level of free virtual currency available to that player, the player may purchase additional virtual currency. Once a purchase is completed, the virtual currency is deposited into the player’s account and is not separately identifiable from previously purchased virtual currency or virtual currency obtained by the game player for free.
Once obtained, virtual currency (either free or purchased) cannot be redeemed for cash nor exchanged for anything other than gameplay within our apps. When virtual currency is played on any of our games, the game player could “win” and would be awarded additional virtual currency or could “lose” and lose the future use of that virtual currency. We have concluded that our virtual currency represents consumable goods, because the game player does not receive any additional benefit from the games and is not entitled to any additional rights once the virtual currency is substantially consumed.
Control transfers when the virtual currency is consumed for gameplay. We recognize revenue from player purchases of virtual currency based on the consumption of this currency. We determined through a review of play behavior that game players generally do not purchase additional virtual currency until their existing virtual currency balances, regardless of source (e.g., bonus currency, gifted currency through social media channels, daily free chips, etc.), have been substantially consumed.
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Based on an analysis of customers’ historical play behavior, purchase behavior, and the amount of virtual currency outstanding, we are able to estimate the rate that virtual currency is consumed during gameplay. Accordingly, revenue is recognized using a user-based revenue model with the period between purchases representing the timing difference between virtual currency purchase and consumption. This timing difference is relatively short.
We continuously gather and analyze detailed customer play behavior and assess this data in relation to our judgments used for revenue recognition.
We generate a small portion of our revenue from subscription services. All monthly subscription fees are prepaid and non-refundable for a one-month period and auto-renew until the end customer terminates the service with the platform provider the subscription services originated. The subscription revenue is recognized on a daily basis beginning on the original date of purchase and has no impact on a customer purchased virtual currency.
Disaggregation of revenue
We believe disaggregation of our revenue based on platform and geographical location are appropriate categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.
The following table represents our disaggregation of revenue between mobile and web platforms (in thousands):
| Three months ended September 30, | Nine months ended September 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | 2023 | 2022 | |||||
| Mobile | $ | 61,130 | $ | 59,150 | $ | 186,928 | $ | 184,033 |
| Web | 11,853 | 19,651 | 38,838 | 60,824 | ||||
| Total | $ | 72,983 | $ | 78,801 | $ | 225,766 | $ | 244,857 |
The following table presents our revenue disaggregated based on the geographical location of our players (in thousands):
| Three months ended September 30, | Nine months ended September 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | 2023 | 2022 | |||||
| U.S.<br>(1) | $ | 63,719 | $ | 70,044 | $ | 197,551 | $ | 214,394 |
| International | 9,264 | 8,757 | 28,215 | 30,463 | ||||
| Total | $ | 72,983 | $ | 78,801 | $ | 225,766 | $ | 244,857 |
| (1) | Geographic location is presented as being derived from the U.S. when data is not available. | |||||||
| --- | --- |
Principal-agent considerations
Our revenue contracts are with game players who are our customers. We have exclusive control over all content, pricing, and overall functionality of games accessed by players. Our games are played on various third-party platforms for which the platform providers collect proceeds from our customers and remit us an amount after deducting a fee for processing and other agency services. We record revenue at the gross amount charged to our customers and classify fees paid to platform providers (such as Apple, Facebook, and Google) within cost of revenue, contract assets, contract liabilities and other disclosures.
Contract assets, contract liabilities and other disclosures
Customer payments are based on the payment terms established in our contracts. Payments for purchase of virtual currency are required at time of purchase, are non-refundable and relate to non-cancellable contracts that specify our performance obligations. All payments are initially recorded as revenue, as the player has no right of return after the purchase, consistent with our standard terms and conditions. Based on our analysis, at each period end, we estimate the number of days to consume virtual currency. This represents the revenue amount where the performance obligation has not been met and is deferred as a contract liability until we satisfy the obligation. The contract asset consists of platform fees for which revenue has not been recognized. For subscription revenue, the remaining portion of the daily ratable monthly subscription is recorded as a contract liability and the applicable platform fees as a contract asset.
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The following table summarized our opening and closing balances in contract assets and contract liabilities (in thousands):
| As of September 30, | As of December 31, | |||
|---|---|---|---|---|
| 2023 | 2022 | |||
| Contract assets<br>(1) | $ | 613 | $ | 728 |
| Contract liabilities | 2,044 | 2,426 | ||
| (1) | Contract assets are included within prepaid expenses and other assets in our consolidated balance sheet. | |||
| --- | --- |
Note 3: Short-term investments
The Company holds investments in marketable securities with the intention of selling these investments within a relatively short period of time (3-6 months). As such, gains or losses from holding or trading these securities were recognized in the Statements of Income. At September 30, 2023, short term investments comprised of fixed time deposits classified as trading.
Note 4: Goodwill and intangible assets
There were no changes to the carrying amount of goodwill in the three months and nine months ended September 30, 2023. We recognized an aggregate $269.9 million impairment of goodwill and intangibles in 2022. Changes in the carrying amount of intangible assets were as follows (in thousands):
| September 30, 2023 | December 31, 2022 | |||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Useful life | Gross<br> amount | Accumulated<br> amortization | Impairment | Net amount | Gross amount | Accumulated<br> amortization | Impairment | Net amount | ||||||||||||||
| Goodwill | indefinite | $ | 633,965 | $ | — | $ | (254,893 | ) | $ | 379,072 | $ | 633,965 | $ | — | $ | (254,893 | ) | $ | 379,072 | |||
| Trademarks | indefinite | 50,000 | — | (15,000 | ) | 35,000 | 50,000 | — | (15,000 | ) | 35,000 | |||||||||||
| Customer relationships | 4 years | 75,000 | (75,000 | ) | — | — | 75,000 | (75,000 | ) | — | — | |||||||||||
| Purchased technology | 5 years | 45,423 | (45,423 | ) | — | — | 45,423 | (45,423 | ) | — | — | |||||||||||
| Development costs | 3 years | 9,486 | (9,486 | ) | — | — | 9,486 | (9,486 | ) | — | — | |||||||||||
| Software | 4 years | 2,467 | (2,421 | ) | — | 46 | 2,462 | (2,411 | ) | — | 51 | |||||||||||
| Total | $ | 816,341 | $ | (132,330 | ) | $ | (269,893 | ) | $ | 414,118 | $ | 816,336 | $ | (132,320 | ) | $ | (269,893 | ) | $ | 414,123 |
The following reflects amortization expense related to intangible assets included with depreciation and amortization (in thousands):
| Three months ended September 30, | Nine months ended September 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | 2023 | 2022 | |||||
| Amortization Expense | $ | 4.2 | $ | 3.7 | $ | 12.5 | $ | 3,624 |
Note 5: Debt
The components of debt at September 30, 2023 and December 31, 2022 are as follows (in thousands):
| As of September 30, | As of December 31, | |||
|---|---|---|---|---|
| 2023 | 2022 | |||
| 4.60% Senior Notes due to related party due 2024 | $ | 37,180 | $ | 39,454 |
| Total debt | 37,180 | 39,454 | ||
| Less: Short-term debt | 37,180 | — | ||
| Total Long-term debt | $ | — | $ | 39,454 |
4.60% Senior Notes due to related party due 2024
The 4.60% Senior Notes due to related party, which collectively total KRW100 billion (US$74 million) at inception, accrue 4.60% interest quarterly on the outstanding principal amount until maturity. Interest and principal are due in full at maturity (May 27, 2024).
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Note 6: Fair value measurements
The carrying values of our accounts receivable, prepaid expenses and other current assets, accounts payable, accrued liabilities and short-term borrowings approximate their fair values due to the short-term nature of these instruments.
Our cash equivalents (Level 1 of fair value hierarchy) consist of money market funds and Korean government bonds totaling $233.9 million, and short-term investments (Level 2 of fair value hierarchy) comprised of fixed time or certificates of deposit with maturity periods greater than 90 days totaling $37.2 million as of September 30, 2023. As of December 31, 2022, our cash equivalents (Level 1 of fair value hierarchy) consisted of money market funds and Korean government bonds totaling $217.4 million, and short-term investments (Level 2 of fair value hierarchy) comprised of fixed time or certificates of deposit with maturity periods greater than 90 days totaling $67.9 million. We rely on credit market data to track interest rates for other entities with similar risk profiles.
We record all debt at inception at fair value. We perform subsequent analysis on available data to evaluate the fair value of our borrowing as of the balance sheet date. We rely on credit market data to track interest rates for other entities with similar risk profiles. As of September 30, 2023, we believe the fair value of our senior notes (a Level 3 estimate) would be $1.1 million lower than face value due to the overall increase in interest rates during the past year. We do not believe the difference between carrying value and fair value has changed materially due to foreign exchange exposure or our credit worthiness.
Note 7: Income taxes
We are subject to federal and state income taxes in Korea and the United States. We account for our provision for income taxes in accordance with ASC 740, Income Taxes, which requires an estimate of the annual effective tax rate for the full year to be applied to the interim period, taking into account year-to-date amounts and projected results for the full year.
Our effective tax rate varies from the statutory Korean income tax rate due to the effect of foreign rate differential, withholding taxes, state and local income taxes, research and development credits, and a valuation allowance on Korean deferred tax assets. Our effective tax rate could fluctuate significantly from quarter to quarter based on variations in the estimated and actual level of pre-tax income or loss by jurisdiction, changes in enacted tax laws and regulations, and changes in estimates regarding non-deductible expenses and tax credits. As of September 30, 2023, and December 31, 2022, we have provided a valuation allowance against certain foreign net deferred tax assets that we believe, based on the weight of available evidence, are not more likely than not to be realized.
The income tax expense of $7.8 million for the three months ended September 30, 2023, reflects an effective tax rate of 22.4% which is higher than the effective tax rate of 17.0% for the three months ended September 30, 2022. The increase in rate from 2022 to 2023 is primarily due to foreign currency gains.
The effective tax rate of 22.8% for the nine months ended September 30, 2023, is higher than the Korean statutory rate of 19%, primarily due to foreign rate differential and state taxes. The effective rate of 22.8% includes a change in the state tax rate and withholding taxes.
Note 8: Net income per share
Basic net income per share is computed by dividing net income by the weighted-average number of common shares outstanding for the period, without consideration for potentially dilutive securities. Diluted net income per share is computed by dividing net income by the weighted-average number of common shares and dilutive common share equivalents outstanding for the period determined using the treasury-stock and if-converted methods. There were no potentially dilutive securities outstanding in either period presented.
Note 9: Leases
We are lessee for corporate office space in Seattle, Washington and Seoul, Korea. The lessor for our Seoul, Korea leases is our parent, DoubleU Games (see Note 12). Our leases have remaining terms of thirteen to sixty months. We do not have any finance leases. Our total variable and short-term lease payments are immaterial for all periods presented.
The Seattle, Washington lease originated in July 2012 and consists of 49,375 square feet. The lease will expire in October 2024.
In September 2023, we executed a new sublease with our parent, DUG, for 28,497 square feet of office space in Gangnam-gu, Seoul, Korea. The lease term commences in October 2023, and will expire in September 2028.
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Supplemental balance sheet and cash flow information related to operating leases is as follows (in thousands):
| As of September 30, 2023 | As of December 31, 2022 | |||
|---|---|---|---|---|
| Operating lease <br>right-of-use<br> asset | $ | 2,196 | $ | 4,675 |
| Accrued rent | 470 | 817 | ||
| Total operating lease <br>right-of-use<br> asset, net | $ | 1,726 | $ | 3,858 |
| Short-term operating lease liabilities | 2,020 | 3,050 | ||
| Long-term operating lease liabilities | 176 | 1,625 | ||
| Total operating lease liabilities | $ | 2,196 | $ | 4,675 |
Supplemental cash flow information related to leases was as follows (in thousands):
| Nine months ended September 30, | ||||
|---|---|---|---|---|
| 2023 | 2022 | |||
| Cash paid for amounts included in the measurement of operating lease liabilities | $ | 2,547 | $ | 2,352 |
Note 10: Accumulated other comprehensive income
Changes in accumulated other comprehensive income (AOCI) by component for the three and nine months ended September 30, 2023 and 2022 were as follows (in thousands):
| Three months ended September 30, 2023 | Currency Translation<br> Adjustments | Defined Benefit<br> Pension Plan | Total | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Balance at July 1, 2023 | $ | 19,444 | $ | (1,540 | ) | $ | 17,904 | ||
| Foreign currency translation loss, net of tax | (1,821 | ) | — | (1,821 | ) | ||||
| Actuarial gain/(loss), net of tax | — | (48 | ) | (48 | ) | ||||
| Balance as of September 30, 2023 | $ | 17,624 | $ | (1,588 | ) | $ | 16,036 | ||
| Three months ended September 30, 2022 | Currency Translation<br> Adjustments | Defined Benefit<br> Pension Plan | Total | ||||||
| Balance at July 1, 2022 | $ | 19,339 | $ | (1,565 | ) | $ | 17,774 | ||
| Foreign currency translation loss, net of tax | (6,115 | ) | — | (6,115 | ) | ||||
| Actuarial gain/(loss), net of tax | — | 102 | 102 | ||||||
| Balance as of September 30, 2022 | $ | 13,224 | $ | (1,463 | ) | $ | 11,761 | ||
| Nine months ended September 30, 2023 | Currency Translation<br> Adjustments | Defined Benefit<br> Pension Plan | Total | ||||||
| Balance at January 1, 2023 | $ | 20,792 | $ | (1,432 | ) | $ | 19,360 | ||
| Foreign currency translation loss, net of tax | (3,168 | ) | — | (3,168 | ) | ||||
| Actuarial gain/(loss), net of tax | — | (156 | ) | (156 | ) | ||||
| Balance as of September 30, 2023 | $ | 17,624 | $ | (1,588 | ) | $ | 16,036 | ||
| Nine months ended September 30, 2022 | Currency Translation<br> Adjustments | Defined Benefit<br> Pension Plan | Total | ||||||
| Balance at January 1, 2022 | $ | 24,311 | $ | (1,278 | ) | $ | 23,033 | ||
| Foreign currency translation loss, net of tax | (11,087 | ) | — | (11,087 | ) | ||||
| Actuarial gain/(loss), net of tax | — | (185 | ) | (185 | ) | ||||
| Balance as of September 30, 2022 | $ | 13,224 | $ | (1,463 | ) | $ | 11,761 |
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We do not tax effect foreign currency translation gain/(loss) because we have determined such gain/(loss) is permanently reinvested and actuarial gain/(loss) is not tax effected due to a valuation allowance applied to our deferred tax assets.
Note 11: Commitments and contingencies
Legal contingencies
On April 12, 2018, a class-action lawsuit was filed against DDI-US demanding a return of unfair benefit under the pretext that the Company’s social casino games are not legal in the State of Washington, United States. Similar class-action lawsuits were concurrently filed with certain of our competitors, certain of which, announced settlements which the court has recently approved. On April 25, 2021, plaintiffs filed their Second Amended Complaint, changing their allegations to include an additional corporate entity of co-defendant, IGT.
IGT tendered its defense of the lawsuit to DDI-US and sought indemnity for any damages from the lawsuit, based on various agreements associated with IGT’s sale of DDI-US.
DDI-US had previously tendered its defense to IGT and sought indemnity from it.
On August 29, 2022, DDI-US entered into an agreement in principle to settle the aforementioned Benson class action and associated proceedings, pursuant to which, among other things, IGT and DDI-US would contribute $269.75 million and $145.25 million, respectively, to the settlement fund. This agreement in principle received final court approval with the final contribution to the settlement fund made in June, 2023. The Company had an accrual of $95.25 million for the year ended December 31, 2022, which was cleared by a $95.25 million payment in the second quarter of 2023.
Publishing and license agreements
DoubleU Games
We entered into the DoubleU Games License Agreement on March 7, 2018, and it was subsequently amended on July 1, 2019 and November 27, 2019. Pursuant to the DoubleU Games License Agreement, DoubleU Games grants us an exclusive license to develop and distribute certain DoubleU Games social casino game titles and sequels thereto in the social online game field of use. We are obligated to pay a royalty license fee to DoubleU Games in connection with these rights, with certain customary terms and conditions. The agreement remains in effect until either DUG no longer holds an interest, directly or indirectly, in DDI, or DDI no longer holds an interest, directly or indirectly, in DDI-US. In such event, the agreement provides that the parties will mutually renegotiate the terms of the agreement. As of September 30, 2023, we licensed approximately 49 game titles under the terms of this agreement.
International Gaming Technologies (“IGT”)
In 2017, we entered into a Game Development, Distribution, and Services agreement with IGT, and it was subsequently amended on January 1, 2019. Under the terms of the agreement, IGT will deliver game assets so that we can port (a process of converting the assets into functioning slot games by platform) the technology for inclusion in our gaming apps. The agreement includes game assets that are used to create new games. Under the agreement, we pay IGT a royalty rate of 7.5% of revenue for their proprietary assets and 15% of revenue for third-party game asset types. We also pay a monthly fee for porting. The initial term of the agreement is ten (10) years with up to two additional five-year periods. Costs incurred in connection with this agreement for the three months ended September 30, 2023 and 2022 totaled $1.5 million and $2.2 million, respectively, and are recognized as a component of cost of revenue. Costs incurred in connection with this agreement for the nine months ended September 30, 2023 and 2022 totaled $5.4 million and $7.2 million, respectively, and are recognized as a component of cost of revenue.
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Note 12: Related party transactions
Our related party transactions comprise of expenses for use of intellectual property, borrowings, and sublease previously described. We may also incur other expenses with related parties in the ordinary course of business, which are included in the consolidated financial statements.
The following is a summary of expenses charged by our parent, DoubleU Games (in thousands):
| Three months ended September 30, | Nine months ended September 30, | Statement of | |||||||
|---|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | 2023 | 2022 | Income and Comprehensive Income Line Item | |||||
| Royalty expense (see Note 11) | $ | 513 | $ | 832 | $ | 1,963 | $ | 2,522 | Cost of revenue |
| Interest expense (see Note 5) | 442 | 431 | 1,323 | 1,356 | Interest expense | ||||
| Rent expense (see Note 9) | 308 | 300 | 932 | 955 | General and administrative expense | ||||
| Other expense | 41 | 59 | 176 | 173 | General and administrative expense |
Amounts due to our parent, DUG, are as follows (in thousands):
| At September 30, | At December 31, | Statement of Consolidated | |||
|---|---|---|---|---|---|
| 2023 | 2022 | Balance Sheet Line Item | |||
| 4.6% Senior Notes with related party | $ | 37,180 | $ | — | Current portion of borrowings with related party |
| 4.6% Senior Notes with related party | — | 39,454 | Long-Term borrowing with related party | ||
| Royalties and other expenses | 176 | 315 | A/P and accrued expenses | ||
| Short-term lease liability | — | 1,066 | Short-term operating lease liabilities | ||
| Accrued interest on 4.6% Senior Notes with related party | 8,679 | 7,852 | Other <br>non-current<br> labilities | ||
| Long-term lease liability | — | — | Long-term lease liabilities |
Note 13: Defined benefit pension plan
We operate a defined benefit pension plan under employment regulations in Korea. The plan services the employees located in Seoul and is a final wage-based pension plan, which provides a specified amount of pension benefit based on length of service. The total benefit obligation of $3.6 million and $4.0 million was included in other non-current liabilities as of September 30, 2023 and December 31, 2022, respectively, and the change in actuarial gains or losses, which is not significant, was included in other comprehensive income. The plan is funded.
Note 14: Subsequent Event
On October 31, 2023, the Company closed its previously announced acquisition of iGaming operator, SuprNation AB (“SuprNation”), for a total cash consideration €34.3 million (or approximately $36.5 million based on an exchange rate of €1 = $1.064 as of October 27, 2023). The acquisition diversifies the digital games categories that the Company addresses with the addition of three real-money iGaming sites in Western Europe. Following the closing, SuprNation AB is now a direct, wholly-owned subsidiary of DDI-US. Due to the recency of the transaction, it was impracticable to reflect the acquisition of SuprNation in the Company’s third quarter financials.