Travelers Companies Q2 2024 Earnings Call Transcript

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Provided by Quartr
August 12, 2024

There are 6 speakers on the call.

Operator

Good afternoon, and welcome to Double Down's Interactive Earnings Conference Call for the 2nd Quarter Ending in June 30, 2024. My name is Lisa, and I will be your operator for this afternoon. Prior to this call, Double Down issued its financial results for the Q2 of 2024 in a press release, a copy of which has been furnished in the report on Form 6 ks filed with the SEC and 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.

Operator

Joining us on today's call are Double Down CEO, Mr. In Kook Yin and its CFO, Mr. Joe Siegrist. Following their remarks, we will open the call for questions. 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 the company hereby claims the protection of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Operator

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 and 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 can cause actual results to differ materially and adversely from what the company expects. Therefore, you should exercise caution in interpreting and relying on this. The company refers you to Double Down's annual report on Form 20F filed with the SEC March 28, 2024 and other SEC filings for more detailed discussion of the risks that could impact future operating results and financial conditions.

Operator

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 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 in the Form 6 ks filed with the SEC prior to this call.

Operator

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 Double Down's website. It's now my pleasure to turn the call over to Double Down's CEO, Ingo Kim. You may begin.

Speaker 1

Thank you, Lisa. Good afternoon, everyone. Thank you for joining us on our 2024 Q2 earnings call. This afternoon, we reported total Q2 revenue of 88 $200,000 comprised of $80,300,000 generated by our social casino free to play games and $7,900,000 generated by Super Nation, our iGaming business. Q2 was the 3rd consecutive quarter of year over year revenue growth for our free to play social casino business as it was up 7% compared to Q2 2023.

Speaker 1

Our social casino revenue growth reflects our ability to gain market share and outperform the industry as idler and credit gaming recently reported an estimated year over year overall top line decline for the social casino segment at large. Importantly, our top line growth is being achieved within our criteria of consistently converting revenue to profit and cash flow. Adjusted EBITDA for the 2nd quarter rose 34% year over year to $37,000,000 and cash flow from operations was $34,400,000 Double Down Casino continues to be the driver of our strong results as we again generated year over year increase in some of our most important KPIs, including ARPDAU, average monthly revenue per payer and payer conversion rate. As we've previously discussed, we believe the recent growth of our social casino business is in part due to last year's release of new meta features for Double Down Casino. These features are consistent with our focus on player and payer retention as we continue to deliver even more excitement to Double Down Casino players.

Speaker 1

In this Q2, the social casino business also benefited from our initiative to provide players with greater options to buy chips from direct channels. Revenues from these efforts, which benefit our profitability, are beginning to ramp noticeably. In summary, our strategy for Social Casino is to continue enhancing the entertainment value of Double Down Casino, while remaining disciplined in our user acquisition and R and D spend to drive strong profitability and free cash flow. Turning to Superannation. Q2 was the 2nd full quarter of our ownership of this iGaming business.

Speaker 1

Revenues of $7,900,000 for Super Nation in Q2 continued to be above our estimate of what the business quarterly run rate was prior to our acquisition in late 2023. In Q2, we pulled back somewhat on player acquisition spending compared to Q1. As we've gained more experience with the business, we are beginning to fine tune our plans and efforts to scale Spur Nation. In this business, we believe we have many opportunities to leverage our core strengths, including our game developers' expertise in game creation and our marketing platform to scale Super Nation profitably. And over the next several quarters, we expect to continue to find the investment sweet spot in the business to optimize both top line growth and cash flow generation.

Speaker 1

The only progress we are having with Super Nation confirms our activities that we can leverage our core strengths and balance sheet to further diversify our business into new gaming categories that have a highly addressable market opportunity. We are continuing to invest in new internally developed mobile games, including those we expect to launch in the second half of this year with the commitment to undertake these efforts in a manner that creates additional value for shareholders. Given our excellent financial foundation, we will continue to evaluate opportunity to expand into new markets, both organically and through M and A. Now I will turn it over to our CFO, Joe Siegrist, to walk us through our financials before providing my closing remarks. Joe?

Speaker 2

Thank you, IK, and good afternoon, everyone. Our revenues for the Q2 of 2024 were $88,200,000 and were comprised of $80,300,000 in revenues from our social casino free to play games and $7,900,000 of revenues from Super Nation. This compares to total revenues from our social casino free to play games of $75,200,000 last year. As IK mentioned, Q2 social casino free to play revenue was up 7% year over year, which is in contrast to EILERS recently published estimate of a Q2 year over year social casino industry top line decline. Going forward, our goal is to continue to outperform the overall social casino market as we monitor and react to changes in the macroeconomic environment and overall consumer sentiment.

Speaker 2

In the Q2, 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 $1.33 in Q2 2024 from $1.05 in Q2 2023, marking a 27% increase. Payer conversion ratio, which is the percentage of players who pay within the social casino app environment increased to 6.7% in Q2 twenty 24 compared to 6.0% in Q2 2023. And average monthly revenue per payer increased 23% to $2.88 in Q2 2024 from $2.35 in Q2 2023. Operating expenses rose on a year over year basis to $52,000,000 compared to $47,700,000 in the Q2 of 2023. Operating expenses for the 2024 Q2 include the operating expenses associated with our operation of Super Nation, which we did not own in Q2 of last year, and which were partially offset by lower sales and marketing and research and development expenses for our social casino operations.

Speaker 2

Sales and marketing expenses for the Q2 of 2024 were $11,100,000 a decline of 15% compared to Q2 2023 and down 25% on a quarterly sequential basis. In Q2, we began to fine tune our approach to ramping the top line of Super Nation, while at the same time managing this business to establish the foundation to generate consistent profitability and cash flow. Our sales and marketing costs focused on acquiring new social casino players continue to reflect our focus on spending to ensure we deliver the best return on this investment. For Q3, we anticipate that overall sales and marketing expenses will be in line with Q2 levels. Net income for the Q2 of 2024 was $33,300,000 or $13.39 per diluted share and $0.61 per ADS compared to net income of $24,400,000 or $9.83 per diluted share and $0.49 per ADS in the Q2 of 2023.

Speaker 2

Adjusted EBITDA for the Q2 of 2024 increased 34 percent to $37,000,000 compared to $27,600,000 for the prior year quarter. Adjusted EBITDA margin was 41.9 percent for Q2 2024, representing a 520 basis point improvement from 36.7% in Q2 of 2023. Net cash flows provided by operating activities for the Q2 of 2024 were $34,400,000 compared to net cash flows used in operating activities of $37,600,000 in the Q2 of 2023. The increase is primarily due to higher net income and a lower deferred tax asset impact as well as the final payment of $95,250,000 towards the Benson litigation settlement that occurred in the Q2 of last year. And finally, turning to our balance sheet.

Speaker 2

As of June 30, 2024, we had $339,000,000 in cash, cash equivalents and short term investments with a net cash position at quarter end, including the outstanding loan with our controlling shareholder W Games of approximately $303,000,000 or approximately $6.12 per ADS. While we had previously indicated that we intended to pay off loan amounts of approximately $35,000,000 from our controlling shareholder in May, we made the decision to instead extend this loan for an additional 2 years at the same 4.6% interest rate of the original loans. That completes my financial summary. Now I will turn the call over to IK for closing remarks.

Speaker 1

Thank you, Joe. The strong Q2 result in our core social casino business and the continued solid performance of our supernation iGaming business extended our operating performance momentum. Over the balance of this year, we will remain focused on driving further improvement in Double Down Casino through the continued introduction of new slot content, our ROI based marketing spend and our ability to deliver real time value to players through our live ops expertise. Our strategies to continue to drive higher player engagement and monetization will be undertaken in a manner that is consistent with our capital efficiency discipline. In addition, we expect our efforts to increase direct consumer payment volumes, whereby Double Down Casino players have an expanded number of options to purchase chips.

Speaker 1

Beyond the app stores, we'll continue to benefit our already strong margins going forward. As we have discussed today, as we gain more operational experience with our Super Nation business. We expect to make additional progress on fine tuning our new player acquisition strategies, so that we can both grow the player base in the U. K. And Sweden, while also focusing on setting the foundation for this business to deliver consistent positive cash flow contributions in the near and long term.

Speaker 1

Finally, I will highlight that the consistency with which we generate attractive free cash flow and our strong balance sheet provides us with financial flexibility to continue to pursue growth by exploring opportunities in adjacent gaming categories through our in house development efforts and through potential M and A opportunities. We are now happy to take your questions. Lisa?

Operator

Thank Our first question for today will be coming from David Bain of B. Riley. Your line is open.

Speaker 3

Hello.

Speaker 1

Hi, Dave.

Speaker 3

Sorry, I didn't know what happened there. Anyway, thanks, Joe. First, I really do want to acknowledge an excellent 2Q execution that was really well done. My first question would be on EBITDA margins. I know you went through a lot of this, but obviously several 100 basis points better than we had anticipated.

Speaker 3

I'm trying to think about the near and long term on go forward. You mentioned the downtick in sales and marketing are likely maintained in the 3Q. So one, I mean, percentage of revenue in 2Q, that's a likely level sustained beyond 3Q. And then I. K.

Speaker 3

Mentioned D2C having a positive impact in 2Q. Maybe if there's anything more as a percentage of revenue, what D2C transactions were, if you can compare it to quarter over quarter, frame it in any way that you can, that'd be really helpful.

Speaker 2

Sure. Appreciate the comments and the questions. As far as EBITDA margins, we've had now a couple more recent quarters over 40%, as you know. And I think that to a certain extent, it's been driven by the efficiency in spend that we have always shown, but more recently, especially because as you mentioned, sales and marketing is something we've been very focused on in being very, very mindful of the ROI associated with especially the social casino business. I do believe, as I mentioned, that from an on an absolute dollars basis, Q3 marketing spend will be pretty consistent with where we ended up in Q2.

Speaker 2

And from end of the year standpoint, as IK mentioned, we are looking to launch a new organically developed game later in the year. And so that might create an uptick in the absolute amount of spend in marketing towards the end of the year. But from a Q3 perspective, we think Q2 and Q3 look pretty much the same. As far as direct to consumer, as we've said, while we said 2 things, I think, pretty consistently over the last couple of quarters. 1, it's early days for us.

Speaker 2

We really just started with it as a focus. And 2, it is a big focus of ours in this year, in 2024. And with that in mind, we have made good progress in last couple of quarters. I can't quantify it yet for you because frankly, it is still early days, but it has made somewhat of an impact and certainly look to have it be even more impactful over the rest of the year and certainly into 2025.

Speaker 3

Okay, awesome. And then my follow-up would be, I know you guys are gaining share relative to the industry. And you mentioned an industry publication that's calling the Social Casino Industry slightly down. And one reason they cited was the concept of sweepstakes maybe taking from Social Casino. Can you offer any big picture as it relates to the industry or any specifics around that in particular that you're seeing?

Speaker 2

It's a little difficult for us to comment on what's going on with our peers, because what we see is what's happening in our business and we're obviously very happy with where especially Double Down Casino is right now. And we've done a lot, as IK mentioned, in the investment in meta features and then continuing to bring great new content to our players. And all of that we think has created an environment where the Blonde Casino is even more entertaining than ever and it makes our players want to play and our payers want to pay as they have been. So I can't comment on what might be happening around us because we're very focused on running our business and continuing to be successful within the social casino market.

Speaker 3

Awesome. All right. Thanks again, guys.

Speaker 2

Thanks, Dave.

Operator

Thank you. One moment for the next question. And our next question today will be coming from Greg Gibas of Northland Securities. Your line is open.

Speaker 4

Great. Thanks. Good afternoon, IK and Joe. Thanks for taking the questions. Congrats on the nice results.

Speaker 4

Appreciate the color on the cost dynamics and everything there. If I could, what do you maybe believe is driving the upside with Super Nation? You noted the last couple of quarters have been ahead of your expectations. Maybe what you attribute that to? And what is maybe there in terms of estimated run rate expectations going forward?

Speaker 2

Thanks, Greg. Yes, I mean, we certainly have seen their business ramp since we bought them in this quarter we just announced being the 2nd full quarter that we've been operating the business. We believe that our investment in additional marketing has really helped. And when we started operating the business, we realized that there was definitely opportunity to invest more in marketing and still get a very positive ROI with that incremental spend. And from that standpoint, again, in Sweden and the UK, which are their 2 main markets, we're excited to be spending money to acquire new players.

Speaker 2

Obviously, the dynamics are much different and KPIs are much different than our social casino business. But as we learn more about the iGaming business and work with our partners at Super Nation, I think you can expect us to continue to lean into that marketing spend, acquire new players. And then layer on top the things that we've talked about as far as synergies in the past, which is game development, technology platform and live ops and the things that we do well from our Social Casino legacy.

Speaker 4

Great. That's helpful. And if I could follow-up just within Social Casino, nice to see the growth there and especially considering the aforementioned sweepstakes games kind of maybe pressuring some peers. You note some meta features that you think are kind of driving growth there. And I wanted to just follow-up and see kind of what's working well in terms of what you've implemented and what's kind of showing the strong consumer response?

Speaker 1

Hi, Greg. This is IK. How are you? Yes. Let me start first.

Speaker 1

Yes. DVC has been one of the pioneers in the sister casino space for over 14 years. We actually focused on providing our players with lots of fun elements through slot content and meta content. However, as we introduced more features and benefits for those users in recent years, The content flow and economy became very complicated. So last year, we started to refactor and performed many flows and features from the user experience perspective.

Speaker 1

At the same time, it enabled us to provide attractive retention meta features. Those meta features are newer features like luckier, flame power, wonder cars, etcetera, as we described last quarter. So as users play more, simply those could help slot playing users retention. We will continue to experiment with fun retention features like Mission Pass, Mintable, Welcome Back and so on. So hope this helps.

Speaker 4

Great. Yes, that does. And good to hear that you're seeing success with them. Thanks.

Speaker 1

Thanks, Greg.

Operator

Thank you. One moment for the next question. And our next question for the day will be coming from Aaron Lee of Macquarie. Your line is open.

Speaker 5

Hi, good afternoon. Thanks for taking my question and congrats on the quarter. So you talked about your balance sheet, it's still in great shape, net cash of $300,000,000 to $3,000,000 You talked about you remain focused on evaluating M and A. Where do you see the most opportunity for M and A? Is it within Social Casino, within iGaming or diversifying into another adjacency?

Speaker 5

Thanks.

Speaker 2

Yes. No, I'm just kidding. We continue to look at opportunities across those categories and more in some of the more, I guess, I'd call them non casino oriented mobile gaming categories. And certainly there are categories, puzzle, match 3, other categories that we obviously have been playing in the past, but which are still very large categories and categories which still have incredible power from

Speaker 1

a payer

Speaker 2

perspective. So we really haven't crossed anything off the list. We obviously, when we announced that we were buying Super Nation, we said that we were excited about iGaming, but certainly aren't turning ourselves into solely an iGaming company. And we're willing to look at areas that meet our criteria, which aren't just about what kind of a game is it, but also a number of other factors that are consistent with what we're looking for from an efficiency standpoint.

Speaker 5

Got it. That's great to hear. A quick follow-up, a competitor recently announced a licensing agreement with IGT to use some of their real world content, which they expect to go live by the end of the year. I know you have an exclusive license for a large portion of IGT's content, which should insulate you. But can you comment on that at all and whether you see that having any impact on your business?

Speaker 5

Thanks.

Speaker 2

Yes. I'm familiar with the announcement. We're familiar with what our partner IGT has been doing. And in fact, they've been looking for additional partners to license in the social casino category for several years. And the short answer is, it doesn't affect our business at all.

Speaker 2

As you rightfully mentioned, Greg, the games most of the games that we use, we have perpetual license and perpetual exclusive license to. In fact, as we've said in some of our filings, any game that we started to use from IGT prior to 2020, we do have a perpetual exclusive license to. And those are all of the kind of best IGT games that frankly our players love, the Cleopatras and Golden Goddesses and Da Vinci Diamonds and games that we have taken after 2022, new games that we started to use, we don't have exclusive license to, but we still have a perpetual license to offer to our players. I guess I'd finally say that over the last few years, we've as I think we've discussed many times in the past, really pivoted more towards content that we've developed ourselves internally as well as content that we've licensed from our controlling shareholder WU. So as a consequence, the amount of new content that we've taken from IGT has fallen quite a bit.

Speaker 2

And that adds to certainly the lack of concern we have about what IGT has been doing more recently.

Operator

Thank you. And this does conclude today's Q and A session. It also concludes today's conference call. You may all disconnect and thank you so much for joining.

Speaker 2

Thank you, Lisa. Thanks everyone.

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Earnings Conference Call
Travelers Companies Q2 2024
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