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

Good afternoon, and welcome to DoubleDown Interactive's earnings conference call for the third quarter ended September 30, 2026. My name is Victor, and I'll be your operator this afternoon. Prior to this call, DoubleDown issued its financial results for the third 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 up the call for questions. Before we begin, Joe Jaffoni, the company's investor relations advisor, will make a brief introductory statement. Mr. Jaffoni, please go ahead.

Thank you, Victor, 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 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 similar terms. Forward-looking statements include and are not limited to those regarding the company's future plans, merger 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, including risks related to the non-binding proposal from our controlling shareholder described below. Therefore, 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 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 today's 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. A full reconciliation of these measures to the most directly comparable IFRS measure is available in the earnings release issued this afternoon. In addition, as previously announced on November 9, 2026, the company entered into a tender offer and post-offer cooperation agreement with DoubleU Games Co., Ltd., the company's controlling shareholder. Pursuant to the agreement, DoubleU Games Co., Ltd. has commenced a tender offer to acquire all the outstanding ADSs of the company not owned by DoubleU Games Co., Ltd. and its affiliates at a price of $16.25 per ADS in cash, without interest, less any applicable withholding taxes. The company's board of directors, following the recommendation of a special committee of independent and disinterested directors, has unanimously approved the agreement and the transactions contemplated thereby, and determined to recommend that holders of the ADSs accept the offer and tender their ADSs. The offer is subject to various conditions, including a minimum tender condition and a majority-of-the-minority condition as described in the offer documents. There can be no assurance that the offer or the transactions contemplated by the agreement will be completed. For further information, please refer to the company's report on Form 6-K and solicitation/recommendations on Schedule 14D-9 filed with the SEC on November 10, 2026. Meanwhile, the company continues to conduct its business and operations in the ordinary course. Given this development, management will not be taking questions this afternoon regarding DoubleU Games' tender offer, and we refer you to the tender offer agreement and tender offer filings for additional details. I'd 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 on DoubleDown's website. Thank you for your patience with that. It's now my pleasure to turn the call over to DoubleDown's CEO, In Keuk Kim. Please go ahead.

Thank you, Joe. Good afternoon, everyone. We are delighted to be with you today to discuss DoubleDown Interactive's third quarter 2026 results. Key highlights include solid contributions across our social casino and iGaming segments as we continue delivering revenue consistency and resiliency by executing on our growth and geographical diversification strategies, delivering a record contribution of 58% of our total social casino revenue from direct-to-consumer payer activity, and delivering another quarter of strong operating profit and significant free cash flow generation. These results again reinforce our confidence in our business model as we continue to benefit from operational excellence across our portfolio. Let's start with the financial results. This afternoon we reported third quarter consolidated revenue of $94.3 million, down approximately 1.6% year-over-year. Despite this modest top-line decline, we delivered third-quarter adjusted EBITDA of $40.2 million, marking 7.2% year-over-year growth. In Q3, net cash flow from operations was $23.6 million. And in the first nine months of 2026, we generated $94.7 million in net cash flow from operations. In the third quarter, social casino revenue declined 3.5% year-over-year to $76.8 million, reflecting the continued decline in the overall social casino market. Our social casino segment remains the primary engine of DoubleDown's profit and cash flow generation, and the third quarter marked the anniversary of our acquisition of WHOW Games, which closed on July 14, 2025. A key highlight of DoubleDown's third quarter was the continued growth of our direct-to-consumer, or DTC, channel, a major contributor to the increase in adjusted EBITDA. In the third quarter, DTC accounted for 58% of total social casino revenue compared to approximately 21% in the third quarter of 2025 and approximately 52% in the second quarter of 2026. Our product enhancement initiatives focused on messaging and promotion on DTC, especially in our flagship DoubleDown Casino app, continue to support our successful DTC transition. Given the ongoing maturation of the social casino gaming segment, industry analysts at Eilers & Krejcik recently forecast that the global social casino market will decline almost 7% in 2026. That said, our focus continues to be on outperforming the overall market through execution of our product development initiatives around player and payer retention, optimization of our marketing and live operation activities to maximize payer conversion and purchasing activity, and continued maximization of direct-to-consumer operations. Turning to our iGaming business, SuprNation's Q3 2026 revenue was $17.4 million, an increase of 7.4% year-over-year, primarily as a result of the continued success of our newest brand, Las Vegas. During the third quarter, the SuprNation team again did an excellent job managing around the higher UK 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 the tax increase in the third quarter. Our third quarter results highlight how present targeted investments combined with precise operating execution are enabling DoubleDown to extend our long-term record of strong operating profit and cash flow generation. We are successfully integrating previous acquisitions while optimizing our core DoubleDown business through consistent DTC conversion. 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 turn the call over to our CFO, Joe Sigrist, to walk us through the financials before providing my closing remarks.

Thank you, IK, and good afternoon, everyone. To review, revenues for the third quarter of 2026 were $94.3 million. This compares to total company revenues of $95.8 million in the third quarter of 2025 and $94.3 million in Q2 of 2026. You'll recall that the revenue of WHOW Games, which was acquired on July 14, 2025, was included in Q3 2025 for all but two weeks of the year-ago period. Our social casino segment declined 3.5% from the third quarter of 2025 to $76.8 million, while iGaming revenues grew by $1.2 million or 7.4% year-over-year to $17.4 million. Regarding our overall social casino KPIs, we've previously highlighted that the metrics from WHOW Games are somewhat different than those from DoubleDown Casino. Specifically, the WHOW Games business experiences a higher payer conversion rate and lower average monthly revenue per payer. And as a reminder and for comparison purposes, WHOW Games metrics were included in overall social casino metrics starting in Q4 of 2025, not in Q3 2025. With all this in mind, overall social casino KPI highlights for the third quarter include: the payer conversion rate, which is the percentage of players who pay within the social casino apps, increased to 9.5% in Q3 2026 compared to 7.8% in Q3 2025; the average revenue per daily active user, or ARPDAU, of $1.44, up from $1.39 in Q3 of 2025; and an average monthly revenue per payer of $216 in Q3 2026, down from $272 in the prior-year period. In the third quarter of 2026, operating expenses were $56.8 million compared to $60.9 million in the third quarter of 2025. Sales and marketing expenses for the third quarter of 2026 were $15.1 million compared to $15.7 million in the third quarter of 2025. Sales and marketing expenses in the third quarter were up approximately $1.2 million from $13.9 million in Q2 of 2026. Net profit excluding non-controlling interest for the third quarter of 2026 decreased 43.9% to $18.4 million, or earnings per fully diluted common share of $7.41 ($0.37 per ADS) in the third quarter of 2026, compared to net profit excluding non-controlling interest of $32.7 million, or earnings per fully diluted common share of $13.21 ($0.66 per ADS) in Q3 of 2025. The decrease primarily reflects net foreign currency losses recognized in the third quarter of 2026, mainly unrealized and realized losses on U.S. dollar-denominated financial assets, partially offset by higher operating profit, which increased to $37.5 million from $35.0 million, driven by lower cost of revenue attributed to the higher proportion of DTC revenue. Adjusted EBITDA for the third quarter of 2026 rose 7.2% to $40.2 million compared to $37.5 million for the third quarter of 2025 and $39.3 million for Q2 2026. Adjusted EBITDA margin was 42.7% for Q3 2026 as compared to 39.1% in Q3 2025 and 41.6% in Q2 of 2026. Net cash flows provided by operating activities in Q3 2026 were $23.6 million compared to $33.4 million in Q3 2025, with the decrease primarily due to higher income taxes paid in the quarter. And as IK mentioned, net cash flows provided by operations were $94.7 million for the first nine months of 2026, slightly higher than the $94.1 million for the first nine months of 2025. And at quarter's end, we had $582.1 million in cash, cash equivalents, and short-term investments, with a net cash position of approximately $545.3 million, representing cash, cash equivalents, and short-term investments less borrowings from our controlling shareholder of $36.8 million. I will now 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 adjusted EBITDA and cash flow. Building on solid results delivered in the first nine months of 2026, we remain committed to innovation, disciplined high-ROI investments, and driving DTC revenues, which collectively optimize social casino margins. Finally, our strong balance sheet and cash position provide us the financial flexibility to pursue growth opportunities as well as additional value-building initiatives and transactions for our shareholders. We are now happy to take your questions. Victor?

[Operator Instructions] Our first question will come from David Bain from Texas Capital Bank.

Awesome. Thank you. IK and Joe, nice execution once again. I guess the first question I had was, this is now the peer leader in D2C mix. What do you think the practical, sustainable direct-to-consumer run rate ceiling is? And how much incremental margin flow-through can we think about as you kind of increase it from here?

Sure. Yes, thanks, Dave, and thanks for joining. You know, good question that we've been considering and I think you and others have been asking over this journey that we've been on for two plus years. As you'll recall, I think it was at the beginning of 2024, we were at less than 5% of social casino revenue as DTC, and now, you know, we're nearing 60%. The limit will occur at some point. I mean, I think we're really executing well. I don't know of anyone else in the industry who's approaching what we've done here more recently. I can't give you a number, but I can tell you that, you know, it's an important part. It has been over the last two plus years an important part of our strategy, and it's really helped relative to, you know, even margin and dollars and margins. And you know, we continue to optimize the incentives, whether it be product-based incentives, communication and messaging incentives. And just in the last quarter, what we gained from 52% in Q2 to 58% in Q3. And I don't think we'finish, but obviously, it's harder to make gains as we get higher and higher.

And then I guess the second one would be, you know, if you can maybe, maybe IK, for you on this one, if you could review the AI across live ops, whether it's dynamic pricing or personalizing gaming economies, whatever, the coin package pricing. If there's been a measurable lift that you've seen in ARPDAU from AI initiatives to date, and what we can think about as we look into '27 from AI.

Yeah, good question, Dave. At DDI, our AI strategy centers on driving measurable capital and operating efficiencies across three core pillars. The first one is content velocity, accelerating 2D and 3D asset pipelines, localization, and prototyping to bring meta features to market faster. The second one is player monetization, utilizing behavioral predictive models to dynamically tune in-game economies, personalized offers, and retention mechanics. So yeah, it is easier for us to maximize those leverages using AI tools and our internal server-side. And number three is actually targeting precision, automating ad creative iteration and spend allocation to safeguard our UA margins and improve ROAS. So overall, AI is already embedded into our day-to-day workforce. So in '27, we will leverage our AI skills more. So hope this helps.