Good afternoon, and welcome to DoubleDown Interactive conference call for the third quarter ended September 30, 2021. My name is Buena, and I will be your operator this afternoon. Before this call, DoubleDown issued its financial results for the third quarter of 2021 in a press release, a copy of which has been furnished in a report on Form 6-K filed with 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 homepage. Joining us on today's call are DoubleDown Chief Executive Officer, Mr. In Keuk Kim, Chief Financial Officer, Mr. Joe Sigrist. Following their remarks, we will open the call for questions. Before we begin, Jeff Grampp, the company's outside investor relations advisor, will make a brief introductory statement. Mr. Jeff Grampp?
Thank you, Buena. 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. 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 it 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 our 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 we expect. Therefore, you should exercise caution in interpreting and relying on them. We refer you to DoubleDown's annual report on Form 20-F and other SEC filings for a more detailed discussion of these 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 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 measures is available in the earnings release and on Form 6-K filed with the SEC. I would like to remind everyone that this call is being recorded and will be made available for replay following the instructions in the company's earnings release. Now, I would like to turn the call over to DoubleDown Chief Executive Officer, Mr. In Keuk Kim.
Thank you, Jeff Grampp. Good afternoon, everyone. Thank you for joining us on our inaugural earnings call following our successful IPO in the third quarter. I'd also like to welcome our new shareholders. We are appreciative for your support. Before we discuss the results of our third quarter, I'd like to first provide some background on DoubleDown for those of you who are newer to our company. We are a leading developer and publisher of digital games on mobile and web-based platforms. We were an early pioneer in the social casino gaming segment as one of the initial publishers to launch a social casino game on Facebook in 2010. Our goal is to become one of the world's leading global gaming companies by delivering differentiated content and playing experiences to our users.
Our flagship game, DoubleDown Casino, has been among the top 20 grossing mobile games annually on the App Store since 2016 according to App Annie. We believe we have a deep understanding of our users, which allows us to refine our game development, content strategy, and game operations. We also have unique access to content through our relationship with IGT and our parent, DoubleU Games. We are able to leverage their slot games, many of which are exclusive to DoubleDown, while also developing our own content to provide a wide array of new and exciting casino-style games for players. We have what we call an all-in-one approach with our DoubleDown Casino app. We believe that users prefer fewer apps on their smartphones, not more, so having an all-in-one solution creates better retention, lower user acquisition costs, and higher lifetime value.
DoubleDown Casino provides a diverse set of offerings to our players, ranging from authentic land-based slots to more casual slots games, as well as other casino-style games such as bingo and table games. A key part of our strategy is to augment our revenue streams by launching gaming apps outside of traditional social casino. Our first effort in this regard is Undead World: Hero Survival, which is an RPG that was launched globally at the end of September.
While it is very early, we are pleased with initial player retention results and excellent rating scores in the App Store and Play Store. For the remainder of this quarter, we will focus on further improving player engagement as we continue to acquire new users, and we are continuing to tune the game economics and the operation of its heroes. We expect to release additional non-social casino gaming apps like Undead World in 2022.
Our next such game is in the later stages of development and is currently planned to be released in open beta in Q1 of next year. We will also continue to make updates to our core DoubleDown Casino platform to enhance customer engagement and strengthen customer lifetime value. Regarding our financial results, we are pleased with our third quarter performance, our first as a public company. While revenue decreased 6% from Q3 2020 due to the easing of stay-at-home initiatives during the height of COVID-related restrictions last year, Adjusted EBITDA increased 4%. We were able to grow Adjusted EBITDA despite lower revenue as we focused on optimizing returns from our sales and marketing spending, which our Chief Financial Officer, Joe Sigrist, will discuss in more detail momentarily.
Also, during the quarter, we generated $33.7 billion in net operating cash flows and ended the quarter with a cash balance of $223.1 billion, providing us with a strong financial position. Importantly, our business model should continue to be one that produces significant positive free cash flow each quarter. Now I will turn it over to our Chief Financial Officer, Joe Sigrist, to walk you through our financials before providing my closing remarks. Joe?
Thank you, In Keuk Kim, and good afternoon, everyone. As a reminder, DoubleDown Interactive completed its initial public offering on September 2, 2021, issuing approximately 6.31 million American depository shares, which we will refer to as ADSs on this call, each representing 0.05 of a common share at a price of $18 per ADS. Of this, the company sold 5.26 million ADSs, and STIC Special Situation Diamond Limited sold 1.05 million ADSs. DoubleDown received net proceeds from the offering of $86.5 million after deducting underwriting fees and commissions and certain offering expenses, which we plan to use to fund our growth initiatives. Our revenues for the third quarter of 2021 decreased 6% to $87.0 million from the prior year period.
As In Keuk Kim mentioned, Q3 2020 benefited from the widespread stay-at-home COVID prevention initiatives in place at that time, which have significantly abated since then. Despite the revenue decrease, we are encouraged with several key monetization metrics that improved from the comparable period last year. Average revenue per daily active user, or ARPDAU, increased from $0.86 to $0.96. Payer conversion, which is the percentage of players who pay DoubleDown, increased from 5.4% to 5.7%. Average monthly revenue per payer increased from $196 to $224. At a high level, we would characterize these trends in our KPIs as indicative of our disciplined focus on growing wallet share of paying players while allowing attrition of non-paying players.
Accordingly, we believe KPIs that are aligned with paying players are more useful in evaluating our progress rather than aggregate user metrics. Total operating expenses for the third quarter of 2021 decreased 17% to $59.2 million from the prior year period. The decrease was primarily due to a combination of lower sales and marketing costs and lower depreciation and amortization expenses. Specifically, sales and marketing expenses declined 18% from the comparable period a year ago to $17.2 million as we continue to optimize our investments to acquire new players in light of Apple's new App Tracking Transparency framework and changes to IDFA, Apple's identifier for advertisers. In addition, cost per install, or CPI, for mobile users trended higher during the summer, which caused us to be more cautious in advertising spend during this period.
Overall, we feel confident about our ability to continue to measure and track the efficiency of our new player acquisitions. Optimizing the ROI of our sales and marketing expenses is at the core of our financial framework to diligently manage our P&L. Depreciation and amortization expenses declined to $2.4 million in the quarter compared to $8.0 million in Q3 2020 as the useful life schedules from assets acquired as part of DoubleU Games' 2017 purchase of DoubleDown Interactive LLC continue to end. Net income for the third quarter of 2021 totaled $22.8 million or $9.91 per diluted share, which was higher than the prior period of $8.3 million or $3.75 per diluted share.
Note that our common share count at the end of the third quarter was approximately 2.5 million shares. As a reminder, each of our American depositary shares that trade on Nasdaq represents 0.05 of a common share. Adjusted EBITDA for the third quarter of 2021 increased 4% to $30.2 million from the prior year period. Adjusted EBITDA margin of 34.7% represents an approximate 330 basis point improvement from the prior year period. The improvement in Adjusted EBITDA and Adjusted EBITDA margin is primarily attributable to the lower sales and marketing costs I previously mentioned. Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP measures, which we believe are useful in evaluating our operating performance. A full reconciliation of these measures to the most directly comparable GAAP measure is available in the earnings release.
Cash flow from operations for the third quarter of 2021 increased 49% to $33.7 million compared to the prior year period, primarily due to the timing of payments from our platform partners. We did not incur any material capital expenditures during the quarter. Finally, turning to our balance sheet, at quarter end, we had $223.1 million of cash and cash equivalents. The improvement in our net cash position was due to the aforementioned net cash flows from operations and the proceeds from our initial public offering. That completes my financial summary. Now I will turn it back over to In Keuk Kim for closing remarks.
Thank you, Joe. We are excited about our entry into the public market and our pipeline of new games, both within our core DoubleDown Casino franchise and outside of traditional social casino segment. Regarding our core DoubleDown Casino franchise, we are continuing to make it an exciting gaming destination for our users by launching new slot content approximately every one to two weeks. We will also be introducing new DoubleDown Casino meta features over the next few months, such as new collection features. Finally, we are excited about the early start to Undead World: Hero Survival. We look to increase its player base in Q4 and beyond while continuing to monitor monetization metrics as we plan to acquire new users. We are now happy to take your questions. Operator?
Thank you, sir. As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Once again, to ask a question, please press star one on your telephone. Your first question comes from the line of David Bain at B. Riley, y our line is open.
Great. Thank you. In Keuk Kim, Joe, very nice execution on the quarter. I guess my first question, could you offer any broad commentary surrounding the potential reduction of platform fees from Apple or others? I mean, is that something that you think could possibly impact margins next year? Are there certain strategies you're testing internally or planning for at this point?
Yeah, David. Thanks so much for the question and your comment. I can start and then In Keuk Kim can comment, perhaps. You know, obviously the entire gaming and mobile gaming industry is excited about the potential, and I'll stress potential, for the lowering of platform fees based on the court rulings. We are interested to see not only how Apple reacts to it, but also, and I think more importantly in the shorter term, to how other gaming companies might be changing their games to execute on how they would implement non-Apple ways of collecting payments.
I think that's gonna be the key for us, which is to you know kind of decide how we implement you know which I think is on one level pretty straightforward these alternative you know payment processors, but in a way that you know we believe based on you know what others in the industry frankly who are larger than us do as far as you know what they think will you know be acceptable frankly to Apple.
Yeah. To support Joe's comment, from a development standpoint, we are already ready for taking those advantages. It will depend on other game companies' implementation. From December, if we take a look at our other competitors or other mobile gaming companies implementations, we will right now. We will be ready right now. I hope this helps.
Okay. Yeah, no, absolutely. Thank you. My next question would be, we get this question/topic a lot, so maybe you can save me some phone time. You know, wondering if you could give your broader view on M&A first, you know, as it relates to several social casino competitors acquired in your space, GSN Games, Bold Games, SciPlay. I mean, they all seem to obviously highlight your own valuation. Does that indicate any kind of competitive marketing shift under new ownership? Are you seeing or hearing anything? Then as it relates to M&A also, we get this question, if you could discuss your own strategies and, I mean, the $220 million plus of cash flow generation. Is there a strong supply out there? Acquisition valuations rational?
I know this is a multi-part question, but if you don't find anything significant, would the board consider return of capital opportunities over the longer term?
So, uh-
First part two. The first one was M&A as it relates in your own core space and then your own strategies.
Great. Thanks for the cliff notes on the long question there.
Sorry.
Yeah, no. I think, you know, let's start with M&A and, you know, what. First of all, what's out there, I think you asked, perhaps, to comment on some of the more recent activity. I mean, it's not a lot that we can say about what others have done, you know, except maybe to say it's interesting how, I don't know if I can say social casino is hot again, but it's interesting how there have been some, you know, you mentioned the GSN deal specifically and others that are social. You know, the acquisition of social casino companies or companies that are primarily social casino, that have been bought for some pretty, you know, pretty nice valuations.
Where I think over the last at least two or three years, you know, there had been fewer of those types of transactions, at least in social casino. Now, you know, I think there still is great interest among social casino companies to purchase companies outside of social casino to expand. I just will comment that what you said about social casino companies being purchased is kind of an interesting thing that's happened, you know, since the summer. As far as what we're looking for, I mean, you know, we've said this during the roadshow. You know, we're looking, you know, potentially for companies to acquire that could really move the needle for us.
You know, companies that have revenue, companies that have games in you know, in market with players. Obviously, there are fewer of those than perhaps you know, studios that are just developing a game or just launched a game. There are a number of folks out there who you know, maybe have a game in beta or something that are looking for someone to help them fund the marketing. There are a number of those out there as well. I think for us, and this may mean it takes us a little longer than perhaps if we had you know, if we look at other of those companies.
You know, we are looking for companies that can really help us, you know, move the needle.
Got it. Okay.
Oh.
Yep.
the question about, you know, what happens if we don't.
Yep.
You know. Other uses of cash, I think. You know, certainly we, you know, shareholder value and maximization of shareholder value is the most important objective, you know, for us. As a result, you know, given our cash balance, you know, we definitely need to look at all ways and all methods to maximize shareholder value. You know, we won't take anything off the table.
Okay. Awesome.
Of course, yeah.
Thank you. Congratulations again. I'm sorry. In Keuk Kim, did I cut you off?
Yeah, sorry. Just to further comment, related to M&A opportunity.
Yes.
We also look at additional opportunities related to NFT, non-fungible token, opportunity and metaverse. Actually, it will fit a lot to our gaming content. We look forward to taking those advantages for M&A. Hope this helps.
Yep, definitely. All right. Thank you, guys.
Thanks, David.
Your next question is from Greg Gibas of Northland Securities, y our line is open.
Hey, good afternoon, In Keuk Kim and Joe. Thanks for taking the questions and, congrats on the nice EBITDA improvement. Wanted to ask, I guess on kind of new developments, how the rollout of Undead World is maybe going so far relative to your expectations initially. Kind of how you're marketing it differently relative to DoubleDown Casino. And then just wanted to, you know, kind of gauge you on timing and kind of general cadence of new launches and then kind of how development is going for the space-related game, Spinning in Space, I believe it's called.
Yeah, I'll just quickly describe, you know, how we believe the game is going in the market, and then I'm gonna ask In Keuk Kim to talk about the marketing of the game, which I think is interesting. Relative to results, I mean, it is early days. We just launched about five weeks ago, global launch. Consistent with what we saw during the open beta period, you know, we're really pleased with player retention, which means, you know, repeat play once we acquire a user. Ultimately, that's the first step in getting players to convert and then ultimately to continue to monetize over time and maximize LTVs.
Right now we're continuing, as I believe In Keuk Kim said in his comments, to not only acquire players but also to continue to enhance the game, tweak the game from a monetization standpoint so we can continue to drive up monetization, which is important. I, you know, I think, you know, for us, it's very encouraging to see player retention at this early stage in the release of the game.
Yeah, related to marketing difference of Undead World. Fundamentally, performance marketing uses similar targeting mechanism regardless of the genre. However, each channel's inventory is totally different, and it will take time to get meaningful volume based on different genres. To get and test larger volume, we are testing influencer marketing for Undead World. It is one of the different inventory compared to social casino app. Related to user player retention, actually we now see above 20%-25% for D7 retention, which is huge number compared to other competitors. We will focus on how to utilize those retention to monetize going forward. Hope this helps.
I think, Greg, you also asked about the final part of that, the next game in the expanding beyond social casino category that we have. That's the space game that I think you referenced, which we had said in our comments here that we're planning open beta to be in the first quarter of 2022.
Okay, great. Yeah, nice to hear that it's on track. Yeah, I think you previously said first half of next year, so good to hear, and I appreciate the additional color there. You know, just wondering too, as we kinda think about the fourth quarter, how kind of seasonality impacts the business and, you know, how you're thinking about kind of the holiday season and maybe year-over-year impacts, 'cause I know you said kinda Q3 was impacted by more stay at home, a year ago. How you're thinking about that?
Yeah, I mean, you know, there's several or a couple, I guess, you know, important seasonal factors in, you know, in the fourth quarter. Certainly one is the fact that there are more people at home, you know, separate from COVID, of course. There are more people at home during the holidays and generally the holiday period is good for mobile gaming. We've seen that especially compared to, again, the seasonality that we've seen in past years in the third quarter, which includes the summer, which has, you know, kind of people not at home and as a result, not playing as much. Again, this is all ex-COVID. I think that's, you know, that's one positive factor. The other seasonal factor in the fourth quarter is CPIs, which tend to go up.
You know, I'd mentioned that CPIs in the especially the latter part of the third quarter, we had seen increase. Now in October, late September, October, we had actually seen CPIs both for Android and for iOS users to decrease somewhat, which was good. But we certainly anticipate, you know, essentially starting now, if history is any guide, that as we, you know, get into the holidays, that CPIs will increase. That's something we have to be mindful of as, you know, we are always acquiring new players, but we certainly don't wanna overspend. As you know, ROI of acquired users is one of our most important metrics that we follow.
Okay, great. You know, I was gonna ask on M&A, but I think you covered that pretty well. I guess the last one from me just relating to kind of OpEx trends going forward. I know you said you pulled back your spend a little bit, just seeing the trends on player acquisition costs. Any thoughts on that, I guess, going forward?
Yeah, I mean, I think just actually following on to what I said a minute ago, I mean, we do have the seasonal increase second half of the quarter that we have to be mindful of in CPIs that would, you know, cause us maybe to pull back a bit. At the same time, we will have this quarter the first kind of full quarter impact of the launch of Undead World. You know, we definitely will see, you know, investments in that area, as we wanna make sure we launch the game strongly. You know, I would expect that would mean that overall, you know, we would be spending more this quarter.
Great. Thanks again.
Once again, to ask a question, please press the star then the number one on your telephone keypad. At this time, this concludes our question and answer session. I would now like to turn the call back to Mr. Joe Sigrist.
Great, Amanda. Thanks again. Thank you, guys, all for joining us on our call today and for your interest in DoubleDown. We look forward to sharing future updates with you as we continue to innovate and grow the business and take advantage of you know, a truly exciting global digital gaming industry. Thanks again. Have a great rest of your day.
Thank you for joining us today for DoubleDown's earnings call, y ou may now disconnect.