DoubleDown Interactive Co., Ltd. — 2022 Form 20-F Summary
Business context and reporting period
DoubleDown Interactive Co., Ltd. is a Korean developer and publisher of free-to-play social casino and casual games, principally through its U.S. subsidiary, DoubleDown Interactive, LLC. Its flagship DoubleDown Casino generated 96.7% of 2022 revenue. The company operates primarily through Apple, Facebook, Google and Amazon platforms and recognizes revenue mainly from purchases of virtual chips.
This annual report covers the fiscal year ended December 31, 2022, with comparative results for 2021 and 2020. The financial statements are prepared under U.S. GAAP and reported in U.S. dollars. The filing was signed March 31, 2023.
Financial performance and key metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Revenue | $321.0 million | $363.2 million | Down 11.6% |
| Operating income (loss) | $(313.9) million | $98.7 million | Down $412.6 million |
| Net income (loss) | $(234.0) million | $78.1 million | Down $312.1 million |
| Adjusted EBITDA | $101.6 million | $120.1 million | Down 15.4% |
| Operating margin | (97.8%) | 27.2% | Down 125.0 percentage points |
| Adjusted EBITDA margin | 31.6% | 33.1% | Down 1.4 percentage points |
| Cash flow from operations | $50.8 million | $96.1 million | Down $45.3 million |
| Cash and cash equivalents | $217.4 million | $242.1 million | Down $24.7 million |
Mobile revenue was $241.9 million, or 75.4% of total revenue, versus 72.9% in 2021. Web revenue was $79.1 million. Estimated U.S. revenue was $282.0 million, or approximately 87.8% of total revenue.
- Average monthly active users declined 8.3% to approximately 2.2 million.
- Average monthly purchasing users declined 13.7% to approximately 120,000.
- Payer conversion declined to 5.3% from 5.7%.
- Average monthly revenue per payer increased 3.7% to $226.
- Annual average revenue per daily active user was $0.97.
- Technology and content development expense was $18.2 million, compared with $18.5 million in 2021.
Liquidity, debt and cash flow
Operating cash flow was $50.8 million, investing cash flow was $(67.8) million and financing cash flow was nil. Investing outflows primarily reflected purchases of short-term time deposits. Cash and cash equivalents were $217.4 million, supplemented by $67.9 million of short-term investments.
Total debt was $39.5 million at year-end, consisting of related-party 4.6% senior notes due May 27, 2024. The notes have a fixed 4.6% interest rate, with principal and accrued interest due at maturity. The company states that operating cash flow and borrowing capacity should cover anticipated ordinary-course requirements for the next 12 months, but it may seek additional financing for growth, acquisitions or other business needs.
Material contractual obligations included approximately $4.7 million of operating lease payments, including $3.1 million due within one year. No off-balance-sheet arrangements were reported.
Material changes versus the prior comparable period
- Revenue fell 11.6%, primarily as pandemic-related stay-at-home benefits diminished, player behavior normalized and inflation and broader economic concerns affected spending.
- Operating expenses increased 140.0%, principally because of a $141.8 million Benson litigation loss contingency and a $269.9 million impairment of goodwill and intangibles.
- The impairment included $254.9 million of goodwill and $15.0 million of trademarks. Goodwill declined to $379.1 million from $634.0 million.
- Operating cash flow declined largely because the company paid $50.0 million toward the Benson settlement in the fourth quarter of 2022.
- Cost of revenue declined to $109.3 million from $126.6 million, and its percentage of revenue improved to 34.0% from 34.9%, partly due to lower royalties and technology efficiencies.
- Adjusted EBITDA remained positive but declined to $101.6 million, reflecting lower revenue.
- The company reduced its capital reserve by KRW400 billion in two transactions during 2022, reallocating the amount within shareholders’ equity.
Guidance, outlook, commentary, risks and unusual items
The filing does not provide formal quantitative revenue or earnings guidance. Management expects COVID-related benefits to continue diminishing as consumers return to pre-pandemic routines. The company plans to maximize existing games, expand into adjacent categories and geographies, and pursue selective acquisitions. It also expects to continue investing in content, technology, marketing and live-game operations.
In January 2023, the company agreed to acquire SuprNation AB for approximately €33 million in cash, subject to customary conditions and regulatory approvals. Closing was expected in the second quarter of 2023. SuprNation operates regulated real-money gaming businesses in parts of Europe.
The Benson class action settlement remains subject to final court approval in the filing. The proposed settlement fund totals $415.0 million, with IGT subsidiaries contributing $269.75 million and DoubleDown contributing $145.25 million. DoubleDown accrued $145.25 million in total, paid $50.0 million in 2022 and expected approximately $95.25 million to be paid in 2023.
- Revenue is highly concentrated in DoubleDown Casino, a small percentage of paying players and third-party platforms.
- Apple, Facebook and Google accounted for approximately 54.4%, 24.1% and 18.7% of 2022 revenue, respectively.
- Platform providers generally charge approximately 30% of gross receipts and can change terms, fees, discovery mechanisms and access rights.
- The business depends substantially on licensed content from IGT and controlling shareholder DoubleU Games, which owns approximately 67.1% of the company.
- Social casino games face litigation, consumer-protection scrutiny and potential regulation, including restrictions or prohibitions in certain jurisdictions.
- Privacy, cybersecurity, data-transfer and consumer-protection requirements may increase costs or limit data-driven advertising and game operations.
- The company has not determined whether it was a passive foreign investment company for the relevant U.S. tax years.
- The company does not currently intend to pay dividends, although STIC proposed a $50 million cash dividend at the 2023 annual meeting.
- Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2022. No auditor attestation was required because the company remained an emerging growth company and non-accelerated filer.
Most important facts for investors to verify
- Final court approval, payment timing and any residual exposure related to the Benson settlement.
- Whether the decline in users and revenue stabilizes after the post-COVID normalization period.
- The sustainability of the $101.6 million Adjusted EBITDA and 31.6% margin after excluding unusual items.
- Liquidity available after the remaining Benson payment, the SuprNation acquisition consideration and the $39.5 million related-party debt due in 2024.
- Revenue concentration by game, payer and platform, particularly dependence on DoubleDown Casino and Apple.
- Renewal, economics and termination provisions for IGT and DoubleU Games licenses.
- Regulatory developments and additional litigation involving social casino games.
- Completion, regulatory approval, financing and integration performance of the SuprNation acquisition.