Earnings Call Transcript - DDI Q2 2025

Operator, Operator

Good afternoon, and welcome to DoubleDown Interactive's Earnings Conference Call for the second quarter ended June 30, 2025. My name is Michelle, and I'll be your operator this afternoon. Prior to this call, DoubleDown issued its financial results for the second quarter of 2025 in a press release, a copy of which is available in the Investor Relations section of the company's website. You can find the link to the Investor Relations section at the top of the home page. Joining us on today's call are DoubleDown's CEO, Mr. IK Kim; and its CFO, Mr. Joe Sigrist. Following their remarks, we will open the call for questions. Before we begin, Joe Jaffoni, the company's Investor Relations adviser will make a brief introductory statement. Mr. Jaffoni.

Joseph Jaffoni, Investor Relations Advisor

Thank you, Michelle, and good afternoon, everyone. Before management begins their formal remarks, we need to remind everyone that some of management's comments today will be forward-looking statements. Forward-looking statements include, and are not limited to, those regarding the company's 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. You should exercise caution in interpreting and relying upon them. We refer you to DoubleDown's annual report on Form 20-F filed with the SEC on April 21, 2025, for a more detailed discussion of risks that could impact future operating results and financial condition. These forward-looking statements are made only as of the date of today's call. The company does not undertake and expressly disclaims any obligation to update or alter the forward-looking statements. As noted in this afternoon's press release, beginning with the 2024 fourth quarter, DoubleDown is reporting its financial results in accordance with IFRS. During today's call, management will discuss non-IFRS financial 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 IFRS. A full reconciliation of these measures to the most directly comparable IFRS measure is available in the earnings release issued this afternoon. I would like to remind everyone that this call is being recorded and will be made available for replay via a link in the Investor Relations section on DoubleDown's website. With that, it's now my pleasure to turn the call over to DoubleDown's CEO, IK Kim. Please go ahead.

In Keuk Kim, CEO

Thank you, Joe. Good afternoon, everyone. We are delighted to be with you today to discuss not only our strong 2025 second quarter results but also our continued progress with SuprNation and our other recent initiatives intended to enhance shareholder value. Let's start with the quarterly results. This afternoon, we reported second quarter consolidated revenue of $84.8 million and adjusted EBITDA of $33.5 million. Q2 revenue was comprised of $69.3 million generated by social casino operations and $15.5 million generated by our iGaming business, SuprNation. In Q2, we again delivered on our key operating priority of driving a high conversion of revenue to cash flow even as we comp against our strong social casino performance in the second quarter of 2024. Cash flow from operations were $19.7 million, bringing our total for the first half of 2025 to $60.1 million, and we are able to continue delivering these profit and cash flow results even as we prudently increase marketing spend to acquire new players at SuprNation. Our DoubleDown casino app continues to be the engine of cash flow generation for the company. Monetization metrics for the second quarter reflect this performance with ARPU down at $1.33, equal to that of Q2 2024, as well as payer conversion rate at 7%, increasing from both Q2 2024 and Q1 2025. In Q2, we again increased the proportion of our social casino revenue generated by direct-to-consumer purchases. With this progress, DTC revenue is now running at over 15% of total social casino revenue. The ability to convert more social casino revenue to DTC further enhances our profitability as we offer players different ways to make purchases. We are complementing our strong free cash flow profile and financial position through initiatives intended to build new value for shareholders. Our commitment to the Social Casino business is highlighted by DoubleDown's recently completed acquisition of WHOW Games, a social casino operator based in Hamburg, Germany. This acquisition, which closed on July 15, allows DDI to further expand its presence in Europe, as WHOW's revenue is primarily generated in Germany. The integration of WHOW games further geographically diversifies DDI's top line, which historically has been concentrated in the U.S. We are excited to begin leveraging DoubleDown's knowledge and expertise to accelerate WHOW's success going forward. Turning to SuprNation, Q2 revenue of $15.5 million represented the highest quarterly performance of the business since our acquisition in late 2023 and grew by $2.3 million from the first quarter of 2025. SuprNation's quarterly revenue run rate has more than doubled since DoubleDown closed this acquisition. Our investment continues to generate excellent payback and strong returns as the number of new players increased. We believe this expenditure can drive further growth for SuprNation in the second half of 2025. Our experience with SuprNation over the last few quarters and our success with integrating its operations makes us increasingly confident that we can leverage our core strengths, financial discipline, and strong balance sheet to diversify our company. This priority is reflected in our acquisition of WHOW Games and our ongoing search for other acquisition targets that meet our criteria. Now I will turn it over to our CFO, Joe Sigrist, to walk us through our financials before providing my closing remarks. Joe?

Joseph A. Sigrist, CFO

Thank you, IK, and good afternoon, everyone. As mentioned earlier, we are now reporting our financial results in accordance with IFRS. The financial statement implications of switching to IFRS from GAAP are generally insignificant, with the biggest change being how our leases are treated. Revenues for the second quarter of 2025 were $84.8 million, comprised of $69.3 million from our Social Casino business and $15.5 million from SuprNation. This compares to total company revenues of $88.2 million for Q2 2024. Social casino revenues declined 14%, and iGaming revenues nearly doubled, increasing 96% from the second quarter of 2024. Average revenue per daily active user or ARPDAU at $1.33 in Q2 2025 was equal to that in Q2 2024. Payer conversion rate increased to 7% in Q2 2025 compared to 6.7% in Q2 2024. Profit, excluding noncontrolling interest for the second quarter of 2025 was $21.9 million or $8.82 per diluted share, compared to $33.2 million or $13.35 per diluted share in Q2 2024. This decline in profit was primarily driven by lower revenue and unrealized losses on foreign currency due to the weakening of the U.S. dollar in Q2. Adjusted EBITDA for the second quarter of 2025 was $33.5 million compared to $37.5 million for the prior year quarter. Adjusted EBITDA margin was 39.5% for Q2 2025 as compared to 42.5% in Q2 2024. Net cash flows provided by operating activities in Q2 2025 were $19.7 million compared to $34.8 million in Q2 2024. The decline in net cash flows in Q2 was primarily attributed to income tax payment timing. For the first half of 2025, net cash flows provided by operating activities were approximately $60 million. As of June 30, 2025, we had $481.2 million in cash and cash equivalents. Our current cash position has been reduced due to the payment made for the WHOW Games acquisition. I would like to acknowledge the sale of shares during the second quarter by our private equity investor in Korea, which has expanded our shareholder base and increased liquidity of our publicly traded stock. Now I'll turn it back to IK for closing remarks.

In Keuk Kim, CEO

Thank you, Joe. In summary, DoubleDown Interactive is delivering strong cash flow from its two meaningful and exciting businesses, social casino and iGaming. Our strong balance sheet and cash position allow us to continue to make disciplined investments in each of our businesses while evaluating new opportunities to enhance growth. This includes investments through both organic means as we leverage the strength of our talented teams and through potential future acquisitions. We are now happy to take your questions. Michelle?

Operator, Operator

Your first question comes from Aaron Lee with Macquarie.

Aaron Lee, Analyst

Maybe to start with WHOW Games. Any color on how you're thinking about balancing growth versus profitability for that business? And generally, how do you see the drivers of growth for that business going forward?

Joseph A. Sigrist, CFO

WHOW Games is a very exciting opportunity because we understand the Social Casino business well. It's incremental to what we're doing today, especially with their strengths in Europe and specifically in Germany. European markets have seen some growth in the social casino industry, and we want to take full advantage of that through this acquisition and by helping WHOW Games grow further.

Aaron Lee, Analyst

Okay. Got it. And then on direct-to-consumer, you previously talked about D2C surpassing 15% as a target for 2025, and you guys have already achieved that. Looking further out, what do you think is an appropriate medium or long-term target?

Joseph A. Sigrist, CFO

We're really pleased with the progress we've made over the last 6 months, and we look to do more. I believe we'll be higher than the current 15% by the end of the year.

Unidentified Analyst, Analyst

I was hoping to get a little bit of background on the WHOW Games M&A process. If you were looking for a social casino opportunity or if it was more opportunistic?

Joseph A. Sigrist, CFO

We have been looking for ways to leverage our strong balance sheet to grow the business. While our first acquisition was an iGaming business, this was opportunistic. It aligned well with our current strengths and capabilities.

Unidentified Analyst, Analyst

Are you seeing any increase in trend for sign-ups or play in response to regulatory action towards sweeps?

Joseph A. Sigrist, CFO

Just to be clear, we are not involved in the Sweepstakes business. We don't have anything akin to Sweepstakes casinos. Therefore, we can't say there's been a specific impact.

Unidentified Analyst, Analyst

If I could just one more, I know I'm going over by one. But I was checking news on DoubleU and their return of capital. Is there any high-level thoughts regarding the parent's return of capital activity?

Joseph A. Sigrist, CFO

We can't comment on DoubleU's actions or activity. They are a separate company, and I can't comment on what they're doing with their company.

Michael Joshua Nichols, Analyst

Wanted to double-click on the WHOW acquisition. In terms of revenue to EBITDA profitability, is that relatively comparable?

Joseph A. Sigrist, CFO

Yes, there are synergy opportunities relative to growing the business and improving profitability. We're seeing improvements in our direct-to-consumer initiatives that will assist WHOW Games.

Michael Joshua Nichols, Analyst

And do you think that business could start to be closer to flat sequentially or maybe up sequentially by the end of this calendar year?

Joseph A. Sigrist, CFO

Your observation is right regarding the flattening of revenue over the last couple of quarters. We feel good about our initiatives to create that flattening. We think they will drive continued positive momentum for our business.

Michael Joshua Nichols, Analyst

Very high growth with your iGaming business from SuprNation. Is that type of cadence sustainable?

In Keuk Kim, CEO

From a marketing payback perspective, our current operations are meeting our ROI targets, making these investments accretive. We believe SuprNation can start to deliver a profit margin above 10%. Additionally, we plan to launch new brand sites and explore vertical and geographic expansion.

Eric Owen Handler, Analyst

Are you looking to expand beyond the U.K. and Sweden? What are you finding that's working well?

In Keuk Kim, CEO

Currently, we are looking into additional licenses in Finland, Spain, and other Western European countries including Canada.

Joseph A. Sigrist, CFO

IK mentioned the potential for additional brands and regional expansion as we integrate more services into our offerings.

Eric Owen Handler, Analyst

What do you think is allowing you to outpace the market?

Joseph A. Sigrist, CFO

We're bringing a certain amount of discipline and professionalism to our marketing team, which is yielding positive results in acquiring new players.

In Keuk Kim, CEO

A combination of production enhancements and real-time marketing improvements from our experience in the social casino industry has increased performance compared to a few years ago.

Operator, Operator

Thank you. There are no further questions at this time. This does conclude today's conference call, and you may now disconnect. Everyone, good day.