DoubleDown Interactive Co., Ltd. (DDI) Earnings Call Transcript

Good afternoon, and welcome to DoubleDown Interactive's Earnings Conference Call for the Second Quarter ended June 30, 2026. My name is Liz, and I will be your operator this afternoon. Prior to this call, DoubleDown issued its financial results for the second quarter of 2026 in a press release, a copy of which is available in the Investor Relations section of the company's website at www.doubledowninteractive.com. You can find the link to the Investor Relations section at the top of the homepage. Joining us on today's call are DoubleDown's CEO, Mr. In Keuk 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?

Thank you, Liz. 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 can be identified by the use of words such as may, might, will, expect, assume, believe, intend, estimate, continue, should, anticipate or other such similar terms. 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 and adversely from what the company expects. 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 March 31, 2026, 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 today's call, management will discuss non-IFRS financial measures, which management believes 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. Full reconciliation of these measures to the most directly comparable IFRS measure is available in the earnings release issued this afternoon. In addition, on April 29, 2026, DoubleDown issued a press release acknowledging the receipt of a nonbinding expression of interest from W Games, its controlling shareholder, to acquire all the outstanding DoubleDown common shares, including ADRs not currently owned by them at a price of $11.25 per ADS in cash. As noted in that press release, the company has formed a special committee to evaluate and negotiate with a controlling shareholder and determine the next steps that would be in the best interest of the company and its unaffiliated shareholders. As a result of this ongoing process, the company has no additional updates or further comments to discuss on today's call. I would like to remind everyone that today's call is being recorded and will be made available for replay via a link in the Investor Relations section of DoubleDown's website. Thank you for your patience with that. And it's now my pleasure to turn the call over to DoubleDown's CEO, IK Kim. Please go ahead.

Thank you, Joe. Good afternoon, everyone. We are delighted to be with you today to discuss DoubleDown Interactive Second Quarter 2026 results. Key highlights include delivering revenue consistency and resiliency as we execute on our growth and geographical diversification strategies marked by solid contributions across both social casino and iGaming, delivering a record contribution of over 50% of our total social casino revenue from direct-to-consumer payer activity and delivering another quarter of strong profitability and significant free cash flow generation. These results further reinforce our confidence in our business model as we drive operational excellence across our portfolio. Let's start with the financial results. This afternoon we reported second quarter consolidated revenue of $94.3 million, up approximately 11% year-over-year. This top line growth helped drive second quarter adjusted EBITDA of $39.3 million, marking 17% year-over-year growth. In Q2, we extended our track record of driving a high conversion of revenue to profit and cash flow. Net cash flow from operations was $24.6 million in the quarter, up 25% from the same period 1 year ago. As a result, we generated a total of $71 million in net cash flow from operations for the first half of 2026. Our social casino segment remains the primary engine of DoubleDown's profit and cash flow generation. In the second quarter, social casino revenue grew 11.5% year-over-year to $77.3 million driven by the contribution from WHOW Games as well as the strong performance of the DoubleDown's traditional social casino business. A key highlight this quarter is the continued growth of our direct-to-consumer, or DTC, component, a major contributor to our strong growth in profitability. In the second quarter, DTC accounted for 52% of total social casino revenue compared to just over 15% in the second quarter of 2025 and 44% in the first quarter of 2026. At the same time, industry analysts at Adler and credit recently forecast that the global social casino market declined over 5% in 2026. That said, our focus continues to be on outperforming the overall market through precise execution of our product development initiatives around player and payer retention, optimization of marketing and LiveOps activity to maximize payer conversion and purchasing activity and continued maximization of the direct-to-consumer opportunity. Turning to our iGaming business. SuprNation's Q2 2026 revenue was [ $17 million ], an increase of 10% year-over-year. Our newest iGaming casino title, Los Vegas, again contributed to the strong supernation results in the quarter. During the second quarter, the SuprNation team did an excellent job in managing around the recently introduced higher U.K. gambling tax rate through a combination of product changes, marketing adjustments and expense controls. This allowed our iGaming business to effectively mitigate much of the impact of tax increase. Our second quarter results highlight how prudent targeted investments are uncovering growth opportunities, which is enabling DoubleDown to extend our long-term record of our strong profitability and cash flow generation. We are successfully integrating previous applications, while optimizing our core DoubleDown business. M&A remains a strategic priority as we continue to evaluate opportunities in online gaming and mobile entertainment that meet our criteria to enhance long-term shareholder value. Now I will turn the call over to our CFO, Joe Sigrist, to walk us through the financials before providing my closing remarks. Joe?

Thank you, IK, and good afternoon, everyone. To review revenues for the second quarter of 2026 were $94.3 million. This compares to total company revenues of $84.8 million in the second quarter of 2025 and $94.1 million in Q1 of 2026. Our social casino segment grew 11.5% from the second quarter of 2025 to $77.3 million, reflecting the inclusion of revenue from WHOW Games, which we acquired in July of last year. iGaming revenues grew by $1.5 million or 10% year-over-year to $17 million. Regarding our overall social casino KPIs, we previously mentioned that the metrics from WHOW Games are somewhat different from those of DoubleDown Casino, specifically WHOW Games experiences a higher payer conversion rate and lower average monthly revenue per payer. With this in mind, overall social casino KPI highlights for the second quarter include the payer conversion rate, which is the percentage of players who pay within the social casino apps increased to 9.4% in Q2 2026 compared to 7.0% in Q2 2025. The average revenue per daily active user, or ARPDAU, of $1.42, up from $1.33 in Q2 2025 and an average monthly revenue per payer at $218 in Q2 2026, down from $286 in the prior year period. In the second quarter of 2026, operating expenses were $57.8 million compared to $52.4 million in the second quarter of 2025. The increase primarily reflects the inclusion of WHOW Games expenses. Sales and marketing expenses for the second quarter of 2026 were $13.9 million compared to $13.1 million in the second quarter of 2025, which again did not include WHOW Games. Conversely, sales and marketing expenses in the second quarter were down from Q1 2026 primarily due to a reduction in player acquisition spending at SuprNation in light of the revised iGaming tax rate in the U.K. Profit, excluding noncontrolling interest for the second quarter of 2026 increased 50% to $32.9 million or earnings per fully diluted common share of $13.27 or $0.66 per ADS in the second quarter of 2026 compared to profit for the interim period of $21.8 million or earnings per fully diluted common share of $8.82 or $0.44 per ADS in Q2 2025. The increase primarily reflects higher revenue, the lower cost of revenue attributable to a higher proportion of DTC revenue and a higher unrealized gain on foreign currency, partially offset by higher overall operating expenses primarily due to the inclusion of WHOW Games and increased costs associated with revenue growth from SuprNation. Adjusted EBITDA for the second quarter of 2026 rose to $39.3 million compared to $33.5 million for the second quarter of 2025 and $38.2 million for Q1 2026. Adjusted EBITDA margin was 41.6% for Q2 2026 as compared to 39.5% in Q2 2025 and 40.6% in Q1 2026. Net cash flows provided by operating activities in Q2 2026 were $24.6 million compared to $19.7 million in Q2 2025 due to higher profit and lower income tax paid. And as IK mentioned, net cash flows provided by operations were $71 million for the first half of 2026. Inclusive of Q2 2026 is meaningful cash generation. At quarter's end, we had $553.8 million in cash, cash equivalents and short-term investments with a net cash position of approximately $521.3 million or approximately $10.52 per ADS. Now I'll turn the call back to IK for closing remarks.

Thank you, Joe. DoubleDown Interactive powered by our core social casino and iGaming businesses delivered another quarter of strong profitability and cash flow. Building on our solid first half of 2026, we remain committed to innovation and discipline high ROI investments and to drive DTC revenues which collectively optimize social casino margin. Finally, our strong balance sheet and cash position provides us the financial flexibility to pursue strategic growth opportunities as well as additional value building initiatives and transactions for our shareholders. We are now happy to take your questions. Liz?

[Operator Instructions] Our first question comes from Eric Handler with ROTH Capital.

This is Jack Weisberger on for Eric. I want to focus on iGaming. Is there anything in particular that drove down the quarter-over-quarter decline could have been related to user acquisition costs maybe the U.K. tax changes? Anything on that would be helpful.

Yes. Sure, Jack. That's fine. I mean essentially, Q2 was down very slightly -- essentially flat from Q1. And we certainly, in Q1, as IK earlier expressed, had to, as we started Q2, deal with the significant increase in the tax rate starting on April 1 in the U.K. And so we made certain product adjustments and marketing adjustments, as I think I mentioned, we spent significantly less in player acquisition investment in Q2 as we wanted to see how the various competitive larger competitors played out as they also dealt with the U.K. tax change. And so all that put together, kind of, moderated our -- certainly moderated our sequential growth in revenue. But at the same time, we're quite pleased with the impact on player retention and how we remain, I think, very cost conscious during the quarter, recognizing the increase in the tax rate. So that, as I think it was earlier mentioned, we were able to mitigate, at least on the expense side and certainly on the profit side, the impact of the tax increase.

That all makes sense. And then also on free cash flow. You had a nice year-over-year improvement in the first half. I know you mentioned some income tax timing or maybe there is some seasonality as well. Should we see more of a headwind due to that income tax timing year-over-year in 2H? How should we think about free cash flow for the year?

Yes. I mean Q2 generally is when we have tax payments due. So it really is, I guess, you could call it, seasonality. I mean we've seen this over the last few years that from a cash flow generation standpoint because of tax payment timing, Q2 tends to be kind of a low watermark when it comes to quarterly cash flow.

Our next question comes from Aaron Lee with Macaquarie.

I'm curious to hear more about the U.K. tax increase. Can you just talk a bit about how trends were post the tax increase as you layer on your mitigation? Has there been any change in how you're thinking about mitigation and maybe to tie it all together, how should we be thinking about the trajectory of SuprNation going forward in terms of both revenues and profits.

Yes. No, it's really important to understand that we're trying to balance with a significant change essentially increase in the cost of doing business in the U.K., trying to balance revenue growth with profit and with returns on the business that we purchased a few years ago. And so as we look over the last, well now, it's been what, 4.5 months since the tax increase occurred and since we're able to observe what -- again, some of our larger iGaming competitors are doing in the market, we feel like we've struck a good balance between revenue and profit, and we don't want to lose sight of the fact that we are going to still invest in acquiring players, but we're also going to make sure that we appropriately spend the money to get the returns that we need relative to that investment and make the right product adjustments, whether it be RTP, bonus rates, those kinds of things, to also, kind of, balance the revenue and profit equation.

Okay. Got it. That makes sense. And then with regard to marketing, especially with -- for SuprNation marketing, do you expect to stay at these reduced marketing levels? Or do you see opportunities to kind of increase that in the back half? And just any general thoughts on how you're thinking about marketing in the second half of the year would be helpful.

Yes. I mean if you look at our marketing spend over the last 2 quarters, it's really been fairly constant and we're -- as a company. And we see that being true for the rest of the year, at least, and we are looking, again, to kind of balance what we need to invest on our iGaming side versus on the social casino side and recognizing that we have to invest to acquire new players in both businesses. And a lot of what we -- as I've mentioned in the past, what we do is make real -- literally real-time adjustments based on the ROIs that we are seeing from various markets with various agencies, et cetera, et cetera. But I do think that our, kind of, more recent run rate is pretty much where we're going to be for the rest of the year.