Good afternoon and welcome to DoubleDown Interactive's earnings conference call for the third quarter ended September 30th, 2024. My name is Daniel, and I will be your operator this afternoon. Prior to this call, DoubleDown issued its financial results for the third quarter of 2024 in a press release, a copy of which is available in the investor relations section of the company's website at www.doubledowninteractive.com. You can find the link to the investor relations section at the top of the homepage. Joining us on today's call are DoubleDown CEO, Mr. In Keuk Kim, and its CFO, Mr. Joe Sigrist. Following their remarks, we will open the call for questions. Before we begin, Richard Land, the company's investor relations advisor, will make a brief introductory statement. Mr. Land?
Thank you, Daniel. 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 28th, 2024, 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 financial 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 issued this afternoon. 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 now my pleasure to turn the call over to DoubleDown's CEO, In Keuk Kim.
Thank you, Richard. Good afternoon, everyone. Thank you for joining us on our 2024 third quarter earnings call. This afternoon, we reported strong financial results for the third quarter with consolidated revenue rising 14% year-over-year to $83 million, which helped drive a 22% increase in adjusted EBITDA to $36.1 million. Total Q3 revenue was comprised of $75.2 million generated by our social casino free-to-play games and $7.8 million generated by SuprNation, our iGaming business acquired in Q4 2023. Q3 was the fourth consecutive quarter of year-over-year revenue growth for our free-to-play social casino business, as it was up 3% compared to Q3 2023. Importantly, our top-line growth is being achieved within our criteria of consistently converting revenue to profit and cash flow.
We generated cash flow from operations of $31.8 million in the third quarter of 2024, and for the first three quarters of 2024, we have generated in aggregate more than $101 million of cash flow from operations. DoubleDown Casino consistently drives our growth and results as we again generated strong year-over-year increases in some of our most important KPIs, including ARPDAU, average monthly revenue per payer, and payer conversion rate. The growth of our social casino business over the last four consecutive quarters has been in part driven by continuous release of new meta features for DoubleDown Casino. Focusing on player and payer retention, we continue to adjust and enhance these features to deliver high levels of excitement and engagement among DoubleDown Casino players.
Turning to SuprNation, Q3 revenues of $7.8 million for SuprNation was again above our estimates of what the business quarterly run rate was prior to our acquisition in late 2023. In Q3, we continue to be disciplined with spending on player acquisition in line with our approach for our social casino business. The industry-wide margins for iGaming businesses are attractive once scale is achieved. As we continue to gain experience in operating this business, we see a strong path towards scaling SuprNation's top line, and we believe we can do so in a manner that is consistent with our focus on driving positive cash flow. As we have previously discussed, our approach towards scaling SuprNation will include leveraging our strengths, such as our product development expertise and our marketing platform, to improve SuprNation's profitability.
We continue to believe that SuprNation will be a long-term driver of top-line growth and cash flow generation for DoubleDown. With a year of owning and operating SuprNation as an example, we are increasingly confident that we can leverage our core strengths, financial discipline, and strong balance sheet to further diversify our company into new gaming categories that have a highly addressable market opportunity. As an example, we are optimistic for the release of an internally developed Match 3-type game, which is currently in beta trial, and we have a pipeline of additional internally developed mobile games that we hope to launch in 2025. We also continue to evaluate M&A opportunities that would meet our criteria for expanding operations into new markets while further diversifying our sources of revenue and cash flow, thereby creating new value for shareholders.
Now, I will turn it over to our CFO, Joe Sigrist, to walk us through our financials before providing my closing remarks. Joe?
Thank you, IK, and good afternoon, everyone. Our revenues for the third quarter of 2024 were $83.0 million and were comprised of $75.2 million in revenues from our social casino free-to-play games and $7.8 million of revenues from SuprNation. This compares to total company revenues of $73.0 million last year. As IK mentioned, Q3 social casino free-to-play revenue was up 3% year-over-year, our fourth consecutive quarter of year-over-year growth. In the third quarter, several KPI metrics for our social casino business improved again compared to the year-ago period, including average revenue per daily active user, or ARPDAU, increased to $1.30 in Q3 2024 from $1.06 in Q3 2023, marking a 23% increase. Payer conversion ratio, which is the percentage of players who pay within the social casino apps, increased to 6.8% in Q3 2024 compared to 5.9% in Q3 2023.
Average monthly revenue per payer increased 15% to $281 in Q3 2024 from $245 in Q3 2023. DoubleDown's continued growth in social casino requires ongoing focus on product development and marketing execution, as well as a continuation of the positive macro effects that have driven the U.S. economy more recently. Given our recent performance, we anticipate that year-over-year comps will become more challenging going forward. Operating expenses rose on a year-over-year basis and declined on a quarterly sequential basis to $47.7 million compared to $43.3 million in the third quarter of 2023 and $52 million in the second quarter of 2024. Operating expenses for the 2024 third quarter include the operating expenses associated with our ownership of SuprNation, which we did not own in Q3 2023. These were partially offset by lower sales and marketing and research and development expenses for our social casino free-to-play operations.
Sales and marketing expenses for the third quarter of 2024 were $8.9 million, a decline of 16% compared to Q3 2023, and down 20% on a quarterly sequential basis. In Q3, we continued to focus on optimizing spending to acquire new players for our flagship social casino app, DoubleDown Casino. This is particularly important as the cost to acquire new players continues to rise due to the large investments now being made by sweepstakes games publishers. We also continue to be measured in our approach to ramping the top line of SuprNation as we manage this business to establish the foundation to generate consistent profitability and cash flow. Net income for the third quarter of 2024 was $25.1 million, or $10.11 per diluted share and $0.51 per ADS, compared to net income of $26.9 million, or $10.87 per diluted share and $0.54 per ADS in the third quarter of 2023.
Adjusted EBITDA for the third quarter of 2024 increased 22% to $36.1 million compared to $29.7 million for the prior year quarter. Adjusted EBITDA margin was 43.5% for Q3 2024, representing a 280 basis point improvement from 40.7% in Q3 2023. The improved margin mainly reflects the third quarter year-over-year revenue increase. Net cash flows provided by operating activities for the third quarter of 2024 were $31.8 million compared to $28.7 million in the third quarter of 2023. The increase is again driven by higher comparable revenue. Finally, turning to our balance sheet, as of September 30th, 2024, we had $373 million in cash, cash equivalents, and short-term investments, with a net cash position at quarter end of approximately $335 million, or approximately $6.76 per ADS. That completes my financial summary. Now, I'll turn the call back over to IK for closing remarks.
Thank you, Joe. Our operating momentum remained on track in Q3 with year-over-year growth in our core social casino business and continued solid performance of our SuprNation iGaming business. In closing, I want to reiterate that for both our social casino and iGaming operations, our strategies to continue driving higher player engagement and monetization are being implemented consistently with our capital efficiency discipline. We will continue to enhance the entertainment value of DoubleDown Casino while remaining disciplined in our user acquisition and our investment to drive strong profitability and free cash flow. As previously mentioned, we have also focused this year on increasing direct-to-consumer revenue, thereby enhancing social casino profitability as we offer players different ways to make purchases. These efforts have progressed well so far, and this will be an ongoing area of attention for the company.
And our strategies to scale SuprNation are being implemented, and we expect the positive result of these efforts to become more evident in 2025. DoubleDown has established a track record of consistently generating attractive free cash flow. This continues to strengthen our balance sheet and provide additional financial flexibility to continue to pursue growth by exploring opportunities in adjacent gaming categories through our in-house development efforts and through potential M&A opportunities. We are now happy to take your questions, Operator.
To ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from David Bain with B. Riley. Your line is open.
Great. Thank you, IK, Joe. Appreciate the commentary. First, I was hoping you know IK touched on it towards the end of prepared remarks, but the direct-to-consumer piece, it looks like cost of revenue is down 60 basis points quarter-over-quarter, 120 basis points from Q1. I assume that drives profitability, and it's largely reflective of D2C efforts unless there was something going on with third-party content versus your proprietary mix in a big way. And I'm just hoping we can unpack that just a little bit more today, like the mix, where it is versus longer-term goals. And then I have some follow-ups on it as well. I'll keep it to that subject.
Great. Thanks, Dave. Yeah, as IK said, D2C efforts are a big part of our strategic focus and have been since really the end of last year. As he mentioned, we're making very good progress. I do believe that progress has contributed some, at least to the improvement in gross margins. There are, as you said, other factors like a mix of royalty games, et cetera, but it definitely is a contributor, and we think it will continue to be a contributor to gross margin improvement as we move forward. We're on a journey that, as I said, began late last year in earnest, and we definitely expect to continue to improve every quarter as we look to get players to be more interested in the alternative to purchasing chips, and we're working hard on various product and marketing levers to get that done.
Okay, great. That's helpful. Is there any way you can give us an idea of what the mix shift has looked like? I know that sort of the market share leader in the space is close to 30% at this point. I assume you're not at that level, but maybe if you can give us a broad-based idea of where you are. And how do you hedge creating player friction? And then my last question around this, I promise, is processors, what they're charging versus the typical platform fee of 30%? That would be really helpful.
Great. Well, I'm glad you highlighted the risk. And as you mentioned, we are behind, if you can even use that word, what others may be doing as far as their conversion, if you will, to D2C revenue. And we're being careful. We don't want to create the friction. I mean, as I think we all know on this call, we get more out of our players from a payment standpoint than anyone. And so we're especially sensitive and respectful of our players as it relates to adding friction. And so we want to do this, and we believe we are doing it in the right way. And at the same time, we are going to take our time, and we're going to do it in a way that generates greater margins, but at the same time doesn't negatively impact revenue.
Okay, fair enough. Thank you. Great execution again.
Thanks, David.
Thanks.
Thank you. Our next question comes from Aaron Lee with Macquarie. Your line is open.
Hey, good afternoon. Thanks for taking the question. I wanted to touch on SuprNation, understanding that your strategy here is still focused on growth mode and player acquisition and kind of converting those players to payers. Just curious, when do you think is the right time to start pursuing some of the synergies that you talked about, like game development, like live ops? Is that something you see yourself tackling in 2025? Thanks.
We've laid the ground. Thanks, Aaron. We have laid the groundwork for that. We have actually kicked off and in some cases began in earnest executing on programs to bring games to their platform, games from a social casino perspective to their platform. Also from an engineering standpoint, we have initiated work there. We do, in fact, have folks in Malta, where they're based, from our Korean offices as we speak, assisting in implementing these projects. Real work has gone on. As far as the payoff, if you will, for those, I think IK had mentioned that we're excited to really start seeing the benefit of some of this synergy work in 2025, and that's really been our focus.
Okay, understood. That's helpful. As a quick follow-up, touching on monetization, you've obviously done a really good job making gains this year. It seems like the product roadmap is really working out. Has there been any learnings that you can apply next year to kind of keep the momentum going here just in terms of meta features or events or balancing the game economy, anything of the sort? Thank you.
Yeah, it's IK. Hi, Aaron. Actually, like your Flame Power, Wonder Cards, and Mission Pass, all these kinds of meta features and rewards could always satisfy users and give them motivation to play more. DDC has been one of the pioneers in the social casino space for over 14 years. We focused on providing our users with fun elements through slot content and meta content. However, as we introduced more features and benefits for the users in recent years, the content flow and economy became complicated. So last year, we refactored and reformed many flows and features from the user experience perspective. So we will continue to experiment with fun retention features as we've been working hard in the past. Thanks.
Great. Thank you. Nice quarter.
Thanks, Aaron.
Thank you, and our next question comes from Greg Gibas with Northland Securities. Your line is open.
Great. Good afternoon, IK and Joe. Congrats on the quarter. Thanks for taking the questions. Regarding your commentary on having increased confidence in your ability to leverage your core strengths to newer gaming categories, expand to further diversify revenues and cash flows. Would you say, I just wonder if you could speak to maybe, does that mean you're looking more at kind of M&A prospects there in terms of diversifying revenue further, or maybe how it relates to your organic growth pursuits as well?
Sure, Greg. I mean, we believe that growing the top line is an important and a very important part of the continued evolution of this company. To that end, we are on an ongoing journey with our internal development studios to expand as we've been focused over the last few years beyond social casino. We continue to look at various, especially free-to-play categories beyond social casino where we can leverage our technology, our creative assets, our artists, et cetera. By the same token, the focus is definitely also on the M&A options. Obviously, we have a lot of dry powder, and the M&A focus that we have had post-IPO continues. We pulled the trigger once with SuprNation. It's been just about a year since that closed. We're very happy with the progress we've made.
I think we've continued to show that we can execute in acquiring and operating an acquired company going forward. And we're very serious on our ongoing quest to look for and find the right thing there as well.
Got it. That's helpful. And I was hoping to dive in just a little deeper on kind of what drove the upside. First, relating to really nice improvement across those KPI metrics that you spoke to, wanted to see if there's anything worth calling out that's kind of driving those nice improvements in metrics. And separately, kind of once again, I think internal expectations were beat with SuprNation. And I want to just get a sense of what that kind of relates to. Is it just an increased player count? I mean, obviously, there's more engagement than you anticipated, but is there anything kind of worth calling out or specific that you think that upside is related to?
Firstly, on the social casino business, there has been a real focus on player and especially payer retention. As I mentioned earlier, we have the best payers in the category. And so existing players, but especially existing payers, are incredibly valuable to us. And so from a marketing perspective, from an awareness, from a new game launch standpoint, et cetera, we're always very focused. But I think over the last few quarters, I'd say we've been even more focused on player and payer retention and continuing to reach out to them to make them excited about continuing to play. And to a great extent, that's what these meta features we've been talking about are. There are ways to reward players for their repeat play and their repeat connection, if you will, to DoubleDown Casino.
As it relates to SuprNation, SuprNation's scale is really about acquiring new players and our ability to lean into marketing investments where the ROI makes sense. And we're excited about both the markets they serve in, both in the U.K. and Sweden. And we think, especially given the relatively small market share they have in both countries, that it's definitely time for us to start leaning in to acquire new players for that business.
Got it. Congrats again.
Thanks.
Thank you. I'm showing no further questions at this time. This concludes today's conference call. Thank you for participating. You may now disconnect.