Good afternoon, and welcome to DoubleDown Interactive's Earnings Conference Call for Second Quarter (sic) [Third Quarter] ending September 30, 2023. My name is James, and I will be your operator this afternoon. Prior to this call, DoubleDown issued its financial results for the third quarter 2023 in a press release, a copy which has been furnished in a report on a Form 6-K filed with the SEC and is available in the Investor Relations section at the website www.doubledowninteractive.com. You can find the link in the Investor Relations section at the top of the home page. 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 be open for questions. Before we begin, Richard Land, the company's outside Investor Relations adviser, will make a brief introductory statement. Mr. Land?

Thank you, James. 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, 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, 2023, 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 obligations to update or alter the forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. During the call, management will discuss non-GAAP measures, which are believed by management to be useful in evaluating the company's operating performance. These measures should not be considered superior to, in isolation or as a substitute for the financial results prepared in accordance with GAAP. A full reconciliation of these measures to the most directly comparable GAAP measure is available in the earnings release and on our Form 6-K filed with the SEC prior to this call. I would like to remind everyone that this call is being recorded and will be made available for replay via a link in the Investor Relations section of DoubleDown's website. With that, it's my pleasure to turn the call over to DoubleDown's CEO, In Keuk Kim.

Thank you, Rich. Good afternoon, everyone. Thank you for joining us on our 2023 third quarter earnings call. Q3 revenue of $73 million was down slightly, on a quarterly sequential basis, from $75.2 million in Q2 2023. The decline to a significant expense reflect our continued focus on optimizing our advertising spend to deliver profitable revenue. As such, we continue to generate consistent profit and adjusted EBITDA in the third quarter. Adjusted EBITDA for the third quarter rose both year-over-year and on quarterly sequential basis to $29.7 million, while cash flow from operations for the third quarter increased from $6.5 million year-over-year to $28.7 million. Our flagship DoubleDown Casino, or DDC, continues to be the driver of our solid results. This includes contribution to operating cash flow of approximately $86 million through the first nine months of the year, excluding the final payment to the Benson class action settlement earlier this year. DDC continues to be very sticky with its existing core paying players, as evidenced by the increase. We were achieving an average monthly revenue per payer, which have established the foundation for our consistent financial results, including attractive adjusted EBITDA margins and cash flow from operations. As many of you know, DDC revenue is primarily driven by those who have been playing our single style games for several years as opposed to newly acquired players, with the majority of revenue in any quarter generated by players acquired in previous periods. As we have discussed, this is supported by our marketing spend refinement and optimization as we focus on generating attractive and appropriate returns. Going forward, our marketing investment in the social casino business will depend on our ability to intelligently forecast improvement in the ROI of the application of new players and in the retention of existing payers.…

Thank you, IK, and good afternoon, everyone. Our revenues for the third quarter of 2023 were $73.0 million compared to $78.8 million last year. As IK mentioned, Q3 revenue was down 3% sequentially from the second quarter of 2023, primarily reflecting the lower marketing expense, coupled with our belief that consumers remain somewhat cautious about the global economic environment and the prospects for continued inflationary pressures. That said, our current quarter, the fourth quarter of the year, is historically a seasonally positive one, and we have seen encouraging payer behavior trends since early October of this year. In the third quarter, several KPI metrics improved compared to the year-ago period, including average revenue per daily active user, or ARPDAU, increased to $1.06 in Q3 2023 from $0.96 in Q3 2022. Payer conversion ratio, which is the percentage of players who pay DoubleDown, was up 70 basis points to 5.9% in Q3 2023 compared to 5.2% in Q3 of 2022. Average monthly revenue per payer increased 9% from $225 in Q3 of 2022 to $245 in Q3 of 2023. On a quarterly sequential basis, total operating expenses decreased sequentially and from $47.7 million in the second quarter of 2023 to $43.3 million in the third quarter of 2023. The decrease was primarily due to lower cost of revenue and lower sales and marketing expenses. Sales and marketing expenses for the third quarter of 2023 were $10.6 million, a decline of 39% compared to Q3 of 2022 and 19% lower on a quarterly sequential basis. Our efforts to acquire new players through advertising, which represents the primary cost in the sales and marketing category, continue to reflect our focus on spending to ensure we deliver the best return on this investment. At this point, we believe that near-term sales and marketing expenses…

Thank you, Joe. Our core social casino platform continues to generate attractive adjusted EBITDA margins and strong cash flow. And with the recent acquisition of SuprNation, we are investing in a new high-growth gaming category that we believe will be a long-term growth driver for the business. For our core social casino business, we will remain disciplined in our focus to drive ongoing improvements in player entertainment value, driving higher engagement and greater monetization. As I highlighted earlier, with the application of SuprNation now complete, we are moving quickly to integrate the business to bring our combined expertise in game creation, marketing, player engagement and monetization to bear to execute on the - executing growth opportunity we see. As Joe highlighted, we have a very strong and committed cash position and continue to generate consistent high levels of free cash flow. This provides us with the foundation and flexibility to evaluate other M&A opportunities that would leverage our existing strength in game development, engineering, marketing and business intelligence, allowing DoubleDown to further grow our top and bottom lines and create new value for our shareholders. We are now happy to take your questions. Operator?

[Operator Instructions] And our first question comes from Aaron Lee from Macquarie.

Hi, guys. Thanks for taking my question. I wanted to start with SuprNation. First, congratulations on closing the deal. And second, I think you said SuprNation has been running at EBITDA breakeven. Can you help us think about the EBITDA contribution you expect for 2024? And any color on the synergy opportunity?

Sure. Thanks, Aaron. I appreciate that. Relative to 2024, the main focus is for the business is to help them scale. We think they have a really strong product and certainly with - especially their Duelz brand, strong brand and feature capability. And we really want to help them light the fire to gain more players. To that end, we will be assisting them in investing more in marketing, both on the dollar side and also with the assistance of our marketing acumen and capability that we have created over the last 10-plus years with our social casino business. To that end, we do see them in 2024, becoming EBITDA positive. But I think, that would be more towards the back half of the year. And that is kind of the focus of how we're looking at the business, at least over the next 15 months or so.

Understood. That's great. And then, now that SuprNation is in the fold, I guess, how are you thinking about the allocation of your development and marketing resources and time and effort? Is it roughly split between SuprNation and the legacy social casino portfolio? Or does it kind of lean one way over the other?

Well, I mean, if you look at - even after the acquisition closes, I mean, SuprNation's business is still less than 10% the size of our social casino business. So from an allocation standpoint, the main "business" is our core business, simply from a volume standpoint. That being said, we do see, as I mentioned previously, growth opportunities that are significant with, a, the small market share they have now; and b, the ramp that we see analysts suggest as far as how large the opportunity is in iGaming, in general. So we definitely will be leaning into them relative to, especially, marketing, as I said before. But there's no doubt that from just a sheer volume standpoint, the social casino business is still the largest, by far, part of our company.

Okay. Got it. Thank you very much. I'll hand it off. Thank you.

Please stand by for our next question. Our next question comes from Greg Gibas from Northland Securities.

Thanks for taking the questions. If I could follow up on SuprNation, I thought you mentioned positive performance. I don't know if it was for the most recent period, but just curious, how they performed maybe year-to-date relative to their 2022 revenue of $24 million?

Yes. I made a comment, Greg, that from a 9-month perspective in 2023 versus 2022, their revenue was up about 5%. They are still - at least for the first nine months and throughout the 2023 year, we'll be operating in the same markets that they were operating in and have been operating in, in 2022, with the largest being, by far, in the U.K. and in Sweden. They've been making good progress in those markets. And as I mentioned to the answer to Aaron's question, as we go into 2024, the scale, we believe, is going to come from assistance that they need, and we will be giving them relative to acquiring new players in their current markets, with, of course, Estonia being a little bit of frosting on the cake as they now have an additional market they could add to the business.

Perfect. Yes. Thanks for clarifying. And if I could follow up there, too, as well, could you maybe speak to some of the levers or the strategies that you're aiming to use to improve their operations? I mean, I guess, if you could just maybe readdress the synergies, that would be helpful.

Yes. No, it's good. I mean, IK summarized at the end of his comments, I think, well, which is game creation, which is development and assistance relative to slot games. I mean we have slot games that we are working on now to convert to the iGaming model that they'll be using but also really technology that is the - as well that is the underpinning of their games. And I think we've used in the past example of - they don't have native mobile apps yet. So when you log on to any either - any of the three sites that they have on your phone, you're going through Safari, if it's an iPhone, and playing essentially at website. And we think that it will be very helpful to help them develop a native app, for instance, for iPhone and for Android as well. So that's one area. The second is around marketing, which includes the - primarily the acquisition of new players but also retention, which is an extremely important part of the DoubleDown business and how we believe we can assist them in marketing creative and different strategies as far as the various partners that we use that we could bring to bear for them relative to digital ads to, again, acquire but as well retain players. And then the entire, let's call it, live ops category, so everything that starts with business intelligence and analyzing the player base and then taking the appropriate action relative to sales and offers and even how that feeds into product development relative to new meta features, et cetera, those are all things that we're working very closely with them from the very start of the close of this acquisition.

Great. Extremely helpful. I guess last one, regarding the pullback in sales and marketing spend, seems to have really driven the improvement in adjusted EBITDA and - just wondering if I could get your thoughts on that decision maybe retroactively or like after the fact - did it confirm kind of your ROI expectations that you had regarding the decision to pullback?

Well, did it confirm - I mean the reality is that the - if I can use the word tuning of our marketing spend is - it's almost like a real-time process. So we don't go in necessarily saying it's going to be at this level or that level. We go in saying we need to achieve a certain ROAS, return on ad spend, or ROI. And then we tune, essentially in real-time, based on what we see from the results, from 3-day and 7-day returns on various campaigns we run, various partners that are engaged in those campaigns, et cetera. So as IK highlighted in his comments, the focus is - and I think we've been very consistent when we talked about that, is on getting the return, not on spending X or Y or Z amount of money because if you get the return, then we're happy to spend the money. But if we're not - I don't know how to say this, but we're happy not to spend the money because the return is the most important thing.

To support Joe's comment, so basically, marketing environment and platform are changing rapidly like AppleCare and so on. And we have been maintaining our efficiency very well. We use our own analysis and forecast tools based on our internal AI models. This is an ongoing process that we are going to keep leveraging AI for internal tools. Within our internal platforms, based on a lot of DSP data and partner data, based on MMFPs accumulated attributions, we do see some improvement so far, and we will keep refining efficient processes to avoid repetition between marketing channel. So I hope it helps.

Got it. Yes, it does. That makes sense. Thanks guys.

Thanks Greg.

[Operator Instructions] And our next question comes from Aaron Lee from Macquarie.

Just a couple of quick follow-ups. Just on SuprNation's seasonality, does it roughly match the seasonality of your social casino business?

At this point, the size of their revenue and how they've been ramping their revenue makes it hard for us to predict or to look back even over the last couple of years and say this is their seasonality. I mean we know that iGaming, in general, like most mobile gaming and gaming products in general, do have a bit of a summer dropoff, especially in August, in Western Europe. But at this point, it's hard to know what the exact seasonal pattern will be for SuprNation, and we'll be learning as we go forward.

Okay. Yes. Fair enough. Yes, with ramping assets. You kind of have to throw seasonality at the window sometimes. And just one more for me. In the past, you've talked about your development pipeline. Is there anything on the horizon that we should be mindful of? Or is this - should we consider this more on the back burner as you focus on the SuprNation integration?

Yes. No. I mean I wouldn't say it's on the back burner. We definitely have new gaming apps under development, and we're actively testing concepts and are hard at work on our organic app activities and projects. And we'll give you more information about those, especially as those products launch.

Okay. Perfect. Thank you very mcuh.

Thank you. I show no further questions at this time, and this does conclude the question-and-answer session. DoubleDown Interactive thanks you for participating in today's conference. This does conclude the program, and you now may disconnect.