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Operator: Good afternoon, and welcome to DoubleDown’s Earnings Conference Call for the Financial Results for the Fourth Quarter and Full Year Ended December 31, 2022. My name is Victor, and I will be your operator this afternoon. Prior to this call, DoubleDown issued its unaudited financial results for the fourth quarter and full year 2022 and a press release, a copy of which has been furnished in a report on Form 6-K filed with the SEC and is available in the Investor Relations section of the company’s website at www.doubledowninteractive.com. You can find a link to 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 open the call for questions. Before we begin, Mr. Grampp, the company’s outside Investor Relations adviser, will make a brief introductory statement. Mr. Grampp?

Jeff Grampp: Thank you. 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 of1995. 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 April 4, 2022, 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 the call, management will discuss non-GAAP measures, which are believed by the 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.

Now, I would like to turn the call over to DoubleDown’s CEO, In Keuk Kim.

In Keuk Kim: Thank you, Jeff. Good afternoon, everyone. Thank you for joining us on the earnings call for our fourth quarter and full year 2022 financial results. We had another solid quarter as we finished the first quarter with strong cash flow generation of $29.1 million, when excluding a $50 million payment associated with the Benson settlement, and an adjusted EBITDA margin of over 30%, which has continued to demonstrate the effectiveness of our high-margin, capital-light business model. During 2022, we were able to achieve our full year revenue of $321 million, representing an increase of over 17% compared to full year 2019 revenue, the most recent prepandemic comparable period. We believe, our proven ability to maintain our revenue above the pre-COVID level is a validation of our success in capturing and retaining growth in our customer base and player handing over the past several years.

In addition to maintaining a strong base business in social casino, we also recently announced our accounting entry into the iGaming space in Europe with our planned position of SuprNation which we announced last month. SuprNation is a European-based iGaming company that provides differentiated online casino gaming experiences. We entered into a purchase agreement to acquire the business for approximately $35 million in cash, subject to certain closing assessments with closing expected during the second quarter of 2023. SuprNation generated estimated revenue of a $10.3 million in the first nine months of 2022. We were impressed by their game development in particular, their flash title us.com which offers real money gaming with unique peer-to-peer gamification and social features that we believe will improve monetization and engagement.

The acquisition of SuprNation is a key strategic move for us as we diversify our revenue streams into new geographies and gaming subsectors for which we can still leverage our core competency, basically, our deep online game experience, marketing and customer acquisition capabilities and the development of engagement — engaging gaming experience, for our loyal customers. We look forward to working with the SuprNation team to quickly initiate projects to capture synergy and growth opportunities once the execution is closed. Currently, SuprNation’s largest markets are Sweden and Great Britain, although it also maintains licenses in . After closing, we intend to continue to support SuprNation in its existing markets, and we may also evaluate additional strategic expansions into other regulated gaming jurisdiction.

Additionally, we have been focused on our own app development and DoubleDown, as we recently initiated the soft branch of our use pinning gaming app following its recent open better period, spanning space has both single and non-casino elements. So we believe it can be an engaging game both for our existing customer base, as well as new customers. Looking further ahead, we plan for additional launches of new games in 2023, while continuing our lengthy track record of positive cash generation based on our strength in social casino. Now, I will turn it over to our CFO, Joe Sigrist to walk you through our financial before providing my closing remarks. Joe?

Joe Sigrist: Thank you, I.K., and good afternoon, everyone. Our revenues for the fourth quarter of 2022 decreased 12% to $76.2 million from the prior year period. For the full year of 2022, revenue also decreased 12% to $321.0 million. These decreases were primarily due to the further normalization of player activities after the lifting of stay-at-home orders and other COVID-related restrictions compared to the prior year as well as changes in player behaviors relating to inflation and global economic concerns during 2022. Despite this revenue decrease, we still generated very healthy key monetization metrics. Specifically, average revenue per daily active user or ARPDAU, increased from $0.96 in Q4 2021 to $0.98 in Q4 2022. And ARPDAU for the full year 2022 stayed consistent at $0.97 compared to the full year 2021.

Average monthly revenue per payer increased from $216 in Q4 2021 to $227 in Q4 2022. And average monthly revenue per payer for the full year 2022 increased to $226, compared to $218 for the full year 2021. Lastly, payer conversion ratio, which is the percentage of players who pay DoubleDown, was down slightly from 5.5% in Q4 2021 to 5.4% in Q4 2022. For the full year 2022, payer conversion ratio decreased to 5.3% from 5.7% in 2021. Total operating expenses increased from $62.7 million in the fourth quarter of 2021 to $321.4 million in the fourth quarter of 2022. The increase was due primarily to a $269.9 million non-cash impairment of goodwill. This impairment was made in accordance with US GAAP, which requires us to regularly evaluate the value we ascribe to the goodwill on our balance sheet.

The non-cash goodwill impairment was a result of the decrease in the market price of our ADSs in 2022. It is important to note that this impairment is purely driven by accounting principles is non-cash and has no fundamental impact to our business. The overall increase in fourth quarter 2022 operating expenses was partially offset by lower cost of revenues and decreased marketing expenditures. Excluding the one-time goodwill impairment charge, operating costs for the fourth quarter would have decreased to $51.5 million, primarily due to lower cost of revenues and decreased marketing expenditures. For the full year 2022, total operating expenses were $634.9 million, an increase from $264.5 million in the prior year period. The increase was primarily driven by the non-cash goodwill impairment I previously mentioned, along with a charge of $141.75 million, reflecting the incremental charge in 2022 associated with the agreement in principle to settle the Benson class action complaint and associated proceedings.

As many of you know, DoubleDown agreed to contribute $145.25 million in the settlement of the Benson case, which was announced on August 29th of last year. Excluding these one-time non-recurring charges, operating expenses in 2022 would have decreased to $233.3 million primarily due to lower cost of revenues decreased marketing expenditures and lower depreciation and amortization expenses. Sales and marketing expenses for the fourth quarter of 2022 were $16.9 million, a 23% reduction compared to Q4 2021. You may recall that in Q4 2021, we ramped up spending for Undead World: Hero Survival, but have since reduced investment on that title. For the full year 2022, sales and marketing expenses were $71.9 million compared to sales and marketing expenses of $78.8 million for full year 2021.

It is also worth noting that depreciation and amortization expenses in Q4 2022 were $50,000 compared to $2.2 million in Q4 2021 and were $3.8 million for the full year 2022 compared to $17.9 million for the full year 2021. The decreases were due to the completed amortization of certain identifiable intangible assets for which we use purchase price allocation at the time of the 2017 DoubleDown Interactive acquisition. We recorded a net loss of $194.4 million for the fourth quarter of 2022 or a loss of $78.47 per diluted share and $3.92 per ADS compared to a net income of $17.4 million or $7.04 per diluted share and $0.35 per ADS in the fourth quarter of 2021. The decrease is due almost entirely to the non-cash Goodwill impairment. For the full year of Net income decreased to a loss of $234.0 million or a loss of $94.43 per diluted share and $4.72 per ADS compared to a net income of $78.1 million or $33.91 per diluted share and $1.70 per ADS for the full year 2021.

The decrease is due almost entirely to the non-cash Goodwill impairment and the Benson accrual. Adjusted EBITDA for the fourth quarter of 2022 was $24.7 million, compared to $25.8 million for the prior year quarter. Adjusted EBITDA margin was 32.4% for Q4 2022. And representing an improvement from 29.9% in Q4 2021. The decrease in adjusted EBITDA was primarily due to lower revenue in the fourth quarter of 2022 and with a higher adjusted EBITDA margin attributable to lower marketing expenditures. For the full-year of 2022, adjusted EBITDA decreased to $101.6 million compared to 2021 at approximately $120.1 million. 2022 full year adjusted EBITDA margin was 31.6%, a reduction from 33.1% for full year 2021. Adjusted EBITDA and adjusted EBITDA margin are non-GAAP measures, which we believe are useful in evaluating our operating performance, especially given the non-cash impairment in Goodwill that has effective traditionally used metrics for valuation valuations like net income.

A full reconciliation of these measures to the most directly comparable GAAP measure is available in the earnings release. Net cash flows used in operations were $20.8 million for the fourth quarter of 2022 compared to net cash flows generated from operations of $20.6 million in the prior year period. The change is entirely the result of the $50 million payment we made during the fourth quarter of 2022 towards the Benson settlement. Excluding this payment, we generated $29.1 million in net cash flows from operations in the quarter. You will notice that the loss contingency line item on our balance sheet associated with the Benson settlement had a corresponding decrease associated with this payment compared to that of the third quarter 2022.

For the full year, net cash flows from operations were $50.8 million compared to net cash flows from operations of $96.1 million for full year 2021. The year-over-year decrease is again due to the $50 million payment towards the Benson settlement. Excluding the $50 million payment towards the Benson settlement, net cash flows from operations in 2022 were $100.8 million. And we did not incur any material capital expenditures during the year. Finally, turning to our balance sheet. At the end of 2022, we had $285.2 million in cash, cash equivalents and short-term investments compared to $242.1 million at the end of 2021. The increase in our cash position was primarily due to net cash flows generated from operations during the year, partially offset by the payment made for the Benson settlement.

Our total debt at the end of 2022 was $39.5 million. That completes my financial summary. Now I will turn the call back over to IK for closing remarks.

In Keuk Kim: Thank you, Joe. Looking ahead, we are eagerly working towards a full global launch of Spinning in Space in the coming weeks, as we execute on our strategy to provide compelling and innovative gaming options for our players. It is also important to remember that the development of our pipeline of new titles outside of the social casino segment and continued reinvestment into our flagship DoubleDown casino app to introduce new meta features and slot games are accomplished within our existing R&D budget during 2022. We are also excited to close and integrate the SuprNation acquisition as we enter a new growth market and expand DoubleDown’s reach. We see strong synergy opportunities between the two companies, as we bring our leading online gaming experience and track record to the compelling games the SuprNation team has developed to establish a solid presence in their core markets.

While this acquisition will provide us with new growth opportunities, we will continue to look for other M&A opportunities that can provide exposure to other growing gaming segments, diversify our business outside social casino and strengthen our overall company. We will continue to evaluate acquisition targets that have strong synergy potential, where we can leverage our existing technology platform and strength and experiencing product development, marketing user acquisition and live operations while maintaining an attractive financial model. We ended 2022 in a strong financial position of over $150 million in cash, cash equivalents and short-term investments, net of debt and the accrual on our balance sheet associated with our Benson Case action settlement.

We believe DoubleDown continues to offer an attractive business model with a capital-light and flexible cost structure that is largely correlated to revenue or discretionary. We have high adjusted EBITDA margins, and we have tenured and dedicated customer base that provides healthy visibility into long-term recurring revenue. We are in a strong position to remain a leading gaming company that generated strong margins, positive cash flow and keeps low debt. We are now happy to take your questions. Operator?

Operator: Thank you. Our first question will come from the line of David Bain from B. Riley. Your line is open.

David Bain: Great. Thanks so much and very nice EBITDA and free cash flow results, quarterly navigation, as always. I guess my first question would be kind of a multi-part question on one topic. But I’m really hoping you could expand the Super Nation strategy and impact the strategy, maybe touch on some of the content synergies from both the top line and cost perspective as an operator now? And what specific expertise maybe you can bring in so also the real money wagering market to help customer acquisition? And if one of those licensed markets or regulated markets, IK that you mentioned would be the US?

Joe Sigrist: Yes, I’ll start, and IK, as always, will chime in when I make a mistake. By the way

In Keuk Kim: I hope you’re having a good time today.

David Bain: Thank you.

Joe Sigrist: I would maybe start by saying that Super Nation has a really compelling business by themselves. And that was really actually very important to us. We’re really excited about bringing the synergies and leverage the expertise and the capabilities that we have to make it even better. But I want to start by saying that their business right now in Western Europe and particularly the strength in in Sweden and the UK is actually quite strong. Where we think we can leverage the benefits of DoubleDown towards them are well, there are several fold. First, as you mentioned, content is king for slot-based apps, whether they’d be real money gaming or social casino. We have a very long history of choosing and developing our own slot games to really excite players.

Super Nation has done that as well, as they have partnered with several of the B2B players in iGaming content. We think that there are great opportunity for us to take the several dozen games that we’ve developed ourselves and including games that we can source through DoubleU that we can also bring to bear in their business. And of course, if they are the games that we develop ourselves, there is a significant benefit from a reduction, reduction in cost of revenue, reduction or elimination of royalties, specifically for those games. So we’re excited to start working with them as soon as possible, which is when the deal closes, to look into that further. Relative to technology, they have a very thin engineering team, as you might expect for a company of their size.

And we have very capable, very experienced engineers especially back office and server side engineers that we can bring to bear and we think quite quickly into the equation for them. And we’re looking forward to determining exactly where and how we can do that, as we get closer to closing the deal. And then finally, from a marketing standpoint, not unlike our business, marketing is the number one cost of iGaming, just like Social Casino. And we have a lot of experience there. And we are really excited about, especially having experience on the performance marketing side, our ability to have them benefit from what we know and what we can bring on that side.

David Bain: Awesome. And I’m sorry, just as part of that question, just on the U.S. eventually perhaps. And I assume the focus will also sort of continue to be on EBITDA with that acquisition relative to kind of what we’ve seen in the U.S.? I mean, I know it’s a more mature market that you’re entering, but which is great from that perspective, I just wanted to confirm that. And then if I could, I just had one follow-up.

Joe Sigrist: Sure. Well, I’d say that before we, — I mean, the U.S. is obviously something that’s out there. But before we really would even consider the entering into the U.S., there are opportunities in other jurisdictions in Western Europe and other parts of the world that would be potentially, I guess, lower-hanging fruit or maybe specifically less costly than entering the U.S. market. Who knows what will happen down the road. But to your point, I mean, we’re always focused on growing revenue with an eye on, profitability in our EBITDA and EBITDA margin. And that doesn’t necessarily match with quick entry into the U.S. But there are other opportunities within Europe and as I said, other parts of the world. And by the way, including growing their market share just in Sweden and U.K., we’re — they’ve done very well, but they’re still a small player relative to some of the big iGaming providers?

David Bain: Awesome. Okay. And then the last one, I’m sorry. The extraordinary general meeting that you held during the fourth quarter to reclassify which is $260 million on your balance sheet. What does that structurally allow for or what does that change? And I asked this in relation to, how we’re viewing capital return optionality to shareholders at this point in terms of either buybacks or dividends?

Joe Sigrist: Sure. Yeah. Thanks, Dave. So as per Korean law, the ability for a Korean company of which, of course, we are to provide a return to shareholders, whether it be a dividend or stock buyback is calculated on ensuring there’s enough retained earnings based on — and this is the important part, the stand-alone Korean-only balance sheet. And so when we had it in last year, we looked into this and you’ve got the experts involved, the calculation of the Korean-only balance sheet was determined to not have, well, frankly, enough retained earnings for us to have any flexibility on shareholder returns if the Board chose to do that. And that’s why we made that reclassification.

David Bain: Awesome. Thank you, Joe. Thank you, IK.

Joe Sigrist: Thanks, Dave.

Operator: One moment for our next question. Our next question will come from the line of Aaron Lee from Macquarie. Your line is open.

Aaron Lee: Hi. Thanks for taking my question. As you noted, your margins expanded to over 32% in the quarter, which I think is a good example of the flexibility in your business. How should we think about margins in 2023, just thinking about any growth investments, UA support for new launches and the Super Nation integration? Can you maintain margins in the 30%-plus level you’ve been running at for the last few years?

Joe Sigrist: Thanks, Aaron. Nice to talk to you. There’s a number of factors that we look at as we balance the desire, as I mentioned earlier, to maintain our profitability with the desire, of course, to grow. And we also recognize that — as I mentioned also earlier, the biggest cost to a social casino company to a gaming company is the sales and marketing, is the acquisition of new users. And so as we launch new apps, we will obviously be investing in those apps. And so I would expect that we will spend somewhat more in sales and marketing in the fact that we would be investing in those new apps. However, two things that I think you can balance relative to that comment. The first is that we believe we can even be more efficient in how we invest in sales and marketing for DoubleDown casino.

So we believe we have an opportunity, especially as we continue to look at our ROAs and look at our various channels that are used to acquire new users that we can be more efficient on the DDC, on the DoubleDown casino side to help offset as you will what we will be investing in new apps. And secondly, I will say that we learned from the launch of Undead World and that we believe that we can be more strategic and more efficient in how we — even at the outset of launching a new app, how we can invest to get new users in a way that doesn’t overly impact our profitability even — as I said, even at the beginning of the launch. So I think from a sales and marketing standpoint, we’re very focused on efficiency, effectiveness and managing ROAs. And that, I think, will allow us to continue to deliver the EBITDA margins that people expect from us.

Aaron Lee: Great. And that’s helpful. And I know you guys aren’t giving guidance, but any high level thoughts just in terms of the market competition and growth in the year ahead? And should we expect to see a continuation of some of the trends we’ve seen over the past few years of declining DAUs, but growing ARPDAU or could we possibly see some user growth as well? Thanks.

Joe Sigrist: Sure. Well, I think there certainly has not been a lot of change in the last several quarters as far as the competitive landscape. And the social casino market, as we all know, has been maturing over the last several quarters, even in the post-COVID period. So we expect to continue to do very, very well in managing our very sticky user base and maintaining our players as players. But as always, most importantly, maintaining our payers as payers and continuing to, if at all possible, grow monthly average revenue per payer, which we’ve been really fortunate to be able to do over the last several quarters. And so we will, first and foremost, can focus on taking care of our existing payers and through our user acquisition activity, acquiring new players, but most importantly, new payers.

Aaron Lee: Got you. Perfect. Thanks, Joe. And congrats on the quarter and congrats on SuprNation, looking forward to see you guys doing that well.

Joe Sigrist: Yeah. Thanks, Aaron.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Greg Gibas from Northland Capital. Your line is open.

Greg Gibas: Hey, good afternoon, In Keuk and Joe. Thanks for taking the questions. I was wondering if you could maybe rank and discuss the European markets where SuprNation operates right now and maybe where you see the greatest opportunities for growth there, whether it’s further penetrating existing markets or entering new ones?

Joe Sigrist: Sure, Greg. Thanks. It’s good to talk to you. So as I mentioned, right now, Sweden and Great Britain are their largest markets. And they, as In Keuk mentioned, hold licenses elsewhere. As far as growth of some of in Western Europe in addition to Sweden and Great Britain, I mean there are some large markets and each of these markets — this is not like Social Casino, where you launch an app and you’re in 200-plus countries because of the app stores the next day. It’s definitely by jurisdiction, by the laws and the policies associated with those jurisdictions. So we’re still very excited, they are still very excited about growth in those two main markets that they have. And if you look at larger markets that are potentially enterable within a reasonable period of time in Western Europe, Italy is a large market.

There are other markets that we could enter. I don’t want to make a prediction or get too far into what’s next discussion because we do need to focus them on what they’re doing right now, first and foremost, work on the synergies that we believe they could benefit from. And then in the course of those discussions, we certainly will talk about new markets and new jurisdictions.

Greg Gibas: Got it. Very helpful. And if I could maybe just follow-up on expectations outside of the core social casino or what it means to the model. I think you said it was $18 million or so in revenue for SuprNation in the first nine months of 2022. Is that a good run rate to use going forward? And then second, on Spinning in Space, I think IK said release time frame, upcoming weeks here. What are maybe your financial expectations of that game?

Joe Sigrist: Yes. Well, as far as the run rate, I think you can annualize the run rate, and that’s probably a good estimation at this point. I will say that as it relates to close of the deal, we’re still — it’s a process. As you know, regulators where they hold licenses today need to approve the deal. So, it’s not a quick close. We’re expecting aQ2 close, but it would certainly be towards — right now, we’re thinking towards the end of Q2, so — for your model, let’s say. As it relates to growth in other areas, I mean, I think that the Spinning in Space soft launch just happened early last week based on a successful open beta period in January. And it’s early days, but we like what we see relative to the app, and there’s definitely interest in this kind of app.

It’s kind of hybrid, social casino/journey progression, achievements-type app. And so we’re excited about seeing how it grows. And then as IK mentioned, we do have other apps that we — nothing that we’ll discuss — be able to discuss today, but we do have other apps that are teed up for launch in 2023.

Greg Gibas: Okay, great. Thanks for taking the question.

Joe Sigrist: Yes, thanks Greg.

Operator: Thank you. And at this time, this concludes our question-and-answer session. I’d now like to turn the callback over to Mr. Sigrist.

Joe Sigrist: Victor, thanks very much, and thank you for joining our call today and your interest in DoubleDown. We look forward to sharing our future updates as we continue to innovate and grow within the global digital gaming industry, and have a great rest of your day.

Operator: Thank you for joining us today for DoubleDown’s earnings call. You may now disconnect.