DoubleDown Interactive Co., Ltd. — Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2020; filed April 30, 2021. The filing is an annual Form 20-F, not a standalone fourth-quarter filing. Financial statements are prepared under U.S. GAAP and reported in U.S. dollars. DoubleDown develops and publishes free-to-play social casino and casual games, led by DoubleDown Casino. DoubleU Games owned 67.7% of the Company at year-end.
Financial performance and key metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Revenue | $358.3 million | $273.6 million | +31.0% |
| Operating income | $88.8 million | $68.3 million | +29.9% |
| Operating margin | 24.8% | 25.0% | -0.2 percentage points |
| Net income | $53.6 million | $36.3 million | +47.7% |
| Adjusted EBITDA | $120.3 million | $101.7 million | +18.3% |
| Adjusted EBITDA margin | 33.6% | 37.2% | -3.6 percentage points |
| Net cash from operating activities | $99.9 million | $76.7 million | +30.2% |
| Cash and cash equivalents | $63.2 million | $42.4 million | +$20.8 million |
Revenue was generated primarily from the sale of virtual chips, with a small subscription component. Mobile revenue increased 39.4% to $257.4 million and represented 71.8% of total revenue, compared with 67.5% in 2019. Web revenue increased 13.5% to $100.9 million. Estimated U.S. revenue was $309.2 million, or approximately 86.3% of total revenue.
DoubleDown Casino accounted for 95.7% of revenue in 2020, compared with 96.3% in 2019. Apple, Facebook and Google represented 50.8%, 27.3% and 18.9% of revenue, respectively. Platform fees were $107.0 million, or 29.9% of revenue.
- Average monthly active users increased to 2.9 million from 2.8 million; average daily active users were approximately 1.2 million in both years.
- Average monthly purchasers increased 6.8% to 156,000.
- Payer conversion increased to 5.4% from 5.2%.
- Average monthly revenue per payer increased 22.5% to $191.
- ARPDAU increased to $0.83 from $0.64.
- Income tax expense increased to $21.6 million from $13.5 million; the effective tax rate was 28.6% versus 27.2%.
Material changes versus 2019
- Revenue growth reflected higher player monetization, product and feature improvements, improved user acquisition performance and an unquantified benefit from COVID-19 stay-at-home restrictions.
- Sales and marketing expense nearly doubled to $71.2 million, including $61.8 million of user-acquisition advertising versus $28.5 million in 2019. This reduced Adjusted EBITDA margin despite higher EBITDA.
- Cost of revenue increased 26.8% to $126.3 million, but declined to 35.2% of revenue from 36.4%, partly due to lower royalties and technology efficiencies.
- Research and development expense decreased slightly to $18.8 million from $19.3 million. The Company expects technology and content-development spending to increase 10% to 15% annually over the following three to five years.
- The Company acquired Double8 Games from DoubleU Games in February 2020 for approximately $1.9 million.
- The 3.50% senior note was repaid in full in April 2020. The remaining 2.5% convertible bonds and non-convertible bonds with warrants were converted or exercised in May and June 2020, increasing outstanding shares to 2,214,522 from 1,192,725 at the end of 2019.
- Debt declined materially from $377.1 million at year-end 2019 to $46.0 million at year-end 2020, consisting of related-party 4.60% senior notes due in 2024.
Cash flow, liquidity and capital structure
Operating cash flow of $99.9 million funded the business. Investing cash outflow was $2.2 million, primarily for the Double8 Games acquisition, while financing cash outflow was $76.3 million due mainly to debt repayments. Year-end current assets were $90.5 million versus current liabilities of $25.6 million. Total liabilities were $107.3 million and shareholders’ equity was $699.5 million.
The Company stated that operating cash flows and borrowing capacity were expected to satisfy ordinary-course cash needs for the next 12 months. It also noted that additional financing could be required for growth initiatives, game development, infrastructure improvements or acquisitions. Contractual operating lease obligations totaled $11.9 million at year-end 2020. No off-balance-sheet arrangements were reported.
The $46.0 million related-party loan matures in 2024, bears fixed interest at 4.60%, and carries an additional 5.0% default rate. The Company does not intend to pay dividends in the foreseeable future.
Outlook, commentary, risks and unusual items
- Management intends to maximize monetization of existing games, expand into adjacent casual-game categories and additional geographies, and pursue selective acquisitions.
- Management expects the COVID-19-related revenue benefit to decline as vaccinations increase and restrictions ease; the specific benefit to 2020 revenue was not quantified.
- Growth remains highly concentrated in DoubleDown Casino, U.S. players, mobile platforms and third-party distribution platforms. Platform providers generally retain approximately 30% of gross receipts and can change terms, fees, access or payment processes unilaterally.
- The Company relies substantially on licensed intellectual property from IGT and DoubleU Games. IGT-related costs were $13.5 million in 2020, while DoubleU Games royalty expense was $3.0 million. Loss or renegotiation of these licenses could materially affect revenue and profitability.
- The Benson putative class action alleges that DoubleDown Casino violated Washington gaming and consumer-protection laws. The case remained unresolved, with discovery continuing and a trial scheduled for November 1, 2021. Management recorded no liability because the likelihood and amount of loss could not reasonably be estimated.
- A December 2020 patent infringement action, NEXRF Corp. v. DoubleU Games Co., Ltd., et al., was pending. The filing states that materiality could not yet be assessed.
- Other significant risks include evolving social-casino regulation, data privacy and cybersecurity requirements, competition, player retention and monetization, seasonality, foreign exchange exposure, dependence on key personnel and conflicts involving the controlling shareholder.
- The filing records a $5.4 million expense for deferred costs related to a postponed and ultimately considered aborted initial public offering.
- Disclosure controls and procedures were deemed effective. The filing did not include management’s internal-control assessment or an external attestation because of the transition period for newly public companies.
Investor verification checklist
- Verify the sustainability of 2020’s elevated payer spending, ARPDAU and COVID-19-related engagement after restrictions eased.
- Assess the impact of increased user-acquisition spending on future revenue growth, payback periods and Adjusted EBITDA margin.
- Review the Benson litigation, related social-casino cases and the NEXRF patent action for potential damages, operating restrictions or game modifications.
- Confirm the terms, repayment capacity and related-party nature of the $46.0 million debt due in 2024.
- Evaluate dependence on DoubleDown Casino, Apple, Facebook, Google, IGT and DoubleU Games, including licensing fees and renewal rights.
- Reconcile non-GAAP Adjusted EBITDA to U.S. GAAP results and consider the effect of marketing costs, amortization, taxes, foreign exchange and the $5.4 million aborted-offering expense.
- Monitor dilution and governance implications of the 2020 bond conversions and the 67.7% voting control held by DoubleU Games.