DoubleUGames Co., Ltd. (A192080) Earnings Call Transcript & Summary

[Interpreted] Good morning. We'd like to thank the analysts and domestic and foreign investors who are attending the 2024 Q4 earnings presentation conference call of DoubleUGames. Prior to the presentation, I'd like to pass along a few requests. The performance data is prepared for the convenience of investors based on the provisional financial statements for the 2024 Q4. This data was written with reference to objective standards. However, please note that some predictions, forecasts or expressions based on subjective judgment may be included and numbers and interpretations that do not match this data may be derived due to changes in the future environment and future data aggregation standards. Today's earnings presentation on Q4 highlights and the Q&A session will be conducted by our CFO, Mr. Hyung-Soon Choi, and more detailed explanations on performances will be followed and will be led by the Head of our IR Division, [ Mr. Shin Yong-Jun ].

[Interpreted] Good morning. This is Hyung-Soon Choi from DoubleUGames. I'd like to brief on our Q4 and annual performances. Today's presentation will be consisted of Q4 highlights, earnings summary, revenue analysis and cost analysis and business updates as shown on Page 3. We will also have a separate Q&A session after all presentations. Our Q4 highlights are presented on 2 pages separated by growth and profitability. First, please let me turn to growth maximization on Page 4. Our revenue in 2024 was KRW 633.5 billion, the highest level since 2020, representing 8.8% Y-o-Y growth and a return to revenue in the KRW 600 billion range. Solid revenue from social casinos and growth in iGaming were the main drivers. In 2025, new business expansion in the iGaming and casual genres is expected to accelerate, resulting in continued apparent growth. iGaming recorded NGR of KRW 5.7 billion in January 2025, which is up 41% from the monthly average in Q4. As mentioned in the Q3 earnings presentation, the full-scale marketing investments made since last November have resulted in rapid revenue recovery. As a result, we are consistently breaking the maximum monthly NGR record. Now let me explain about Paxie Games in the casual genre. The Paxie Games monthly payments are also breaking records every month. Following 2024 Q4, we achieved the highest monthly payment in January 2025. Our flagship game, Merge Studio is driving the growth, and we expect steep growth in the future with new games coming soon, which are currently in development. The corporate combination review by the Turkish Competition Authority is currently underway and is expected to be finalized within Q1. Therefore, we expect the consolidation of the subsidiary to be completed thereafter. Now let us turn to Page 5, which is about profitability. Operating profit in 2024 reached KRW 248.7 billion, which is the highest level since our inception, and it is an increase of 17% Y-o-Y. This was the result of maintaining stable operating and EBITDA margins as we continue to streamline operating expenses, including marketing expenses. The social casino business achieved both profitability improvement and revenue growth. In particular, despite a 42% Y-o-Y reduction in marketing expenses, revenue growth drove the increase in operating profit, reflecting the stability of social casino businesses based on a loyal user base. As part of cost efficiency, we reduced the marketing expenses from 15% of revenue in 2023 to 8% in 2024. We aim to outperform the market this year while maintaining the current percentage of revenue used as marketing expenses. Meanwhile, growth in DTC's own platform is contributing to improve the profitability. The share of payment from DTC's own platform, which is now in full swing from the second half of 2024, is expected to increase to 8.2%, which will improve profitability while reducing platform cost at the same time. In 2025, we will further promote DTC and continue upgrading and optimizing our own platform for all users. Meanwhile, there has been no significant changes in the U.S. regarding fees for global platforms, but it is understood that discussions of fee issues are now underway in China as well as Europe.

[Interpreted] This is Shin Yong-Jun of the IR division. Now let us turn to Page 6, the Q4 consolidated results summary. Revenue on a consolidated basis for 2024 Q4 was KRW 155.8 billion, which is up 1.1% Q-o-Q. This is a result of continued stable operating revenue generated from the social casino and iGaming businesses. Operating income was KRW 60.5 billion with a margin of 38.8%, which is up 1.7% Q-o-Q. EBITDA was KRW 63.5 billion with a margin of 40.8%, which is up 1.6% Q-o-Q. Net income was KRW 72.3 billion with a margin of 46.4% (sic) [ 46.3% ], which is an increase of 76.5% Q-o-Q, and it is the highest quarterly net income in our history. The increase in net income was mainly due to an increase in foreign exchange gains as a result of the approximately 10% appreciation in the exchange rate by the end of the quarter, especially as the majority of our cash assets are held in the U.S. dollars. Now let us continue with the 2024 consolidated results summary on Page 7. Revenue on a consolidated basis in 2024 was KRW 633.5 billion, an increase of 8.8% Y-o-Y. Operating income was KRW 248.7 billion with a margin of 39.3%, an increase of 16.6% Y-o-Y. EBITDA was KRW 261.1 billion with a margin of 41.2%, which is an increase of 17.6% Y-o-Y. This was the result of a stable business operations and major cost reductions, including marketing in order to achieve revenue growth and profit maximization. Net income was KRW 237.7 billion with a margin of 37.5%, which is an increase of 23.2% Y-o-Y, and it is the highest annual net income in our history. This was possible, thanks to a significant increase in nonoperating income due to the appreciation of the period-end exchange rate as well as an increase in foreign currency assets. Now please turn to Page 8 on revenue analysis. Consolidated operating revenue for 2024 Q4 was KRW 155.8 billion. By business segment, social casino and casual games recorded KRW 143.2 billion, with mobile revenue accounting for 85.1%. iGaming revenue was KRW 12.6 billion, which is an increase of 18.9% Q-o-Q. This was due to the gradual marketing expansion since last November. Marketing investments have a fast payback rate because of the nature of iGaming business, and it led to an increase in revenue. The effects of market expansion are now being fully reflected at sales, the NGR of January 2025 reached the highest level ever. Franchise games, DoubleDown Casino and DoubleU Casino accounted for 90% of the total revenue with DoubleDown Casino generating KRW 100.3 billion and DoubleU Casino KRW 39.4 billion, with DoubleU Casino grown by 2.9% Q-o-Q. SuprNation's iGaming revenue accounted for 8% and revenue diversification is ongoing. Total revenue was KRW 155.8 billion, which is up 1.1% Q-o-Q and 1.5% Y-o-Y. While the overall growth rate of the social casino market was plus 0.2% Q-o-Q, but our social casino business outperformed the market with plus 0.8% Q-o-Q. I will now explain the 2024 Q4 cost analysis on Page 9. Platform costs were KRW 41.1 billion, which is a variable cost of 30% of revenue paid to platform companies such as Google and Apple. It has been steadily decreasing because of the reduction of in-app payment fees in Europe as well as an increase in the proportion of DTC's own platform. Recently, global platform companies have been reducing in-app payment fee rates, and we expect to benefit from increased profit margins if these changes continue. Marketing expenses amounted to KRW 16.2 billion, up 15.7% Q-o-Q, 5.9% Y-o-Y and 10.4% of revenue, mainly due to increased marketing investments in SuprNation and DoubleU Casino. The proportion of marketing expenses by business is 77% for social casino and 23% for iGaming and additional marketing investments are expected in the SuprNation and casual genres in 2025. Marketing investments are made only when ROI criteria are satisfied and are strictly operated in line with our payment growth. Personnel expenses were KRW 22.9 billion, up 1.8% Q-o-Q and 4.6% Y-o-Y. By the end of Q4, our consolidated headcount was approximately 590 comprised of 400 employees at DoubleUGames, 130 employees at DoubleDown Interactive, and 60 employees at SuprNation. In order to minimize the burden of labor cost, we operate the total number of employees in a conservative manner while actively introducing AI and other work automation tools, continuously improving operational efficiencies. Royalties amounted to KRW 3.0 billion, up 11.1% Q-o-Q. The increase was due to the inclusion of IGT royalties and fees for the use of iGaming's external slot IP, while the recent increase was mainly due to the increase in iGaming's royalty expenses. Amortization of tangible and intangible assets was KRW 3.0 billion, similar to the level of last quarter. Approximately KRW 2.0 billion of office lease accounting expenses and approximately KRW 1.0 billion, reflecting PPA accounting expenses from the acquisition of SuprNation. Additional PPA accounting expenses will be reflected after the closing of the Paxie Games acquisition. We will share more details later. The total dividend for 2024 is set to be the largest ever at KRW 23.8 billion, up 44% from KRW 1.65 billion (sic) [ KRW 16.5 billion ] in 2023. Dividend per share is KRW 1,200. Our dividend policy is to calculate dividends based on consolidated EBITDA, and our consolidated EBITDA in 2024 was KRW 261.1 billion, which is an increase of 18% Y-o-Y. The dividend-related decision that exceeded the EBITDA growth shows our commitment to an active dividend policy. And we plan to constantly expand the dividends through stable business operations as well as maximizing profitability. Now please let me explain the social casino DTC platform optimization on Page 11. We will accelerate the improvements of DTC Zone platform through website upgrades, which will contribute to reducing the overall platform fees. In early January, a major update to the DUC website was executed, and 2 or 3 additional updates are now scheduled. The share of DTC payments began to increase in 2023 Q3 and continued to grow in Q4, reaching 9.8% of payments in the quarter. On a full year basis, DTC payments were 8.2% of total payments in 2024. Currently, DTC payments are centered on DoubleDown Casino, but we are planning to utilize the DTC platform for DoubleU Casino through revamping the DUC website. Our goal is to further enhance profitability. Page 12 describes our iGaming and casual gaming businesses. In the iGaming segment, NGR continued to grow based on increased marketing investments. NGR increased to KRW 5.6 billion in January 2025, and we aim to achieve 10% of consolidated revenue by 2025. Considering the current growth trend, we are more likely to achieve this goal, especially since iGaming users are mostly comprised of paid users, which has a high return on marketing investment, and it will enable rapid growth. Paxie Games, which is currently in the process of finalizing its acquisition, recorded the highest payment in December 2024, and its payment rose to KRW 3.2 billion in January 2025. Currently, it is growing mainly with Merge Studio games and further growth is expected this year with new games in preparation. Meanwhile, the corporate combination review is ongoing at the Turkish Competition Authority, and we will share with the market when it is finalized. So this concludes our presentation of our Q4 performances up to Page 12. And now we will begin the Q&A session.

[Interpreted] [Operator Instructions] The first question will be provided by Kim So-Hye from Hanwha Investment & Securities.

[Interpreted] So I'd like to ask you to share more information about your sales-related strategies per game segment as well as the marketing expenses guidance. So I hope that you can divide into social casino and new businesses.

[Interpreted] Thank you for your questions. I'd like to give you answer to your first question. I will explain by dividing into social, iGaming and casual games of Paxie. So first of all, for the social games. As we explained, our goal is not to go back or retrieve our growth compared to the previous year, and we aim to grow by at least a single digit this year. However, rather than paying massive marketing expenses, we want to maintain the current level of marketing expenses so that we can improve more efficiency for the marketing. And then for the second part, iGaming, we started our marketing activities in full scale from last November, and then we recorded KRW 5.6 billion in January this year. And for the annual target, I'd like to give you the number, that we are targeting inside our company that is KRW 50 billion to KRW 60 billion this year. So we aim to grow by the double-digit percent compared to previous year. And regarding the Paxie Games, we also aim to grow our revenue for this casual genres as well. And then we expect to close the acquisition deal by February or March, and we will be able to share more information after that. And then our goal is to maintain the current level of the monthly revenue that we witnessed in January and then calculate it to the annual basis for the Paxie Games this year. And then we will also work on other games such as like Merge or [ Mass Merge ] or Tile Star. And then we believe that we will be able to achieve our annual goal based on our good performances that we saw in January this year. Regarding your second question about the marketing expenses, for the social casino segment, we aim to maintain the current level of marketing expenses so that we can improve the efficiency in our investment. So this year, the number was 8%, and we plan to maintain the 8% level this year as well. And then we also expect to increase our profitability additionally by utilizing DTC. And regarding the iGaming, we see that we are spending about 30% to 40% out of our revenue, and we are promoting the scale of economy strategy for this. And for the Paxie, we will also apply the same strategy because we see that the payback period is about 6 to 7 months, even though this is a casual game. So in summary, in 2025, we aim to maximize our sales and profitability while not compromising the quality in our profits. And then we will make a business structure in which we can promote the increase of the operating profit as well as EBITDA at the same time.

[Interpreted] The following question will be presented by [ Tom LiHung ] from Eugene Investment & Securities.

[Interpreted] As you explained in your earnings presentation, the currency rate changes in Q4 impacted your performances, and we believe that, that trend may continue this year. So my question is, how much impact was given to the sales or operating profit in 2024? And how is your forecast for Q1 2025? And then also, I hope that you can explain about the cash assets that are owned by your company by the end of 2024 and the proportion of U.S. dollars out of it and your plan to utilize the U.S. dollar assets in the future.

[Interpreted] So thank you for your question, and I will divide my answer into 2 parts. First of all, regarding the currency rate, we saw increase in the currency rate mostly by the end of last year, December. And then, however, the average currency rate was reflected to the operating revenue. So it was not impacted that much. When it comes to PL, by 2024 Q4, but we saw the nonoperating related impact that was given based on the BS. And so we saw that impact by Q4. However, you can see that this happened not only to our company, but also to other companies that made the earnings presentation mostly this year, which have a very big amount of the foreign currency, like U.S. dollar. So you saw similar results in other companies as well. And by 2025 Q1, we see even higher average currency rate compared to the previous quarter, which is about 5% to 7% up Q-o-Q. So we expect to see more impact on the Q1 this year also based on the PL. And when it comes to the cash assets, we have KRW 820.0 billion, and then we saw the increase of it by reinforcing like EBITDA or our foreign currency-based cash assets inside our company. And then as you heard from our earnings presentation, we are promoting M&A deal flows, and we acquired the company Paxie Games last year. The deal size was not big as we expected. However, we are now promoting to acquire more social casino businesses in order to ensure stable cash flow and profitability, and we are looking for more M&A targets in the future. But we are proud that we have tried and completed cross-border M&A over 3x, and then this is one of the highest numbers among game companies in Korea. And by achieving successful PMI, when it comes to cross-border deals, we will continue our efforts to size up our deals, and we are also aiming cash top line conversion so that we can maximize our profitability in the future. And then last year, we also tried and we expanded our networks with some countries like Turkiye or Cyprus or some countries in the Eastern Europe, which have game companies hubs. And we will continue our effort this year so that we will be able to complete more meaningful M&A deals this year.

[Interpreted] The following question will be presented by Nam Hyo Ji from SK Securities.

[Interpreted] I have a question about DTC. So the proportion of your own platform payment last year was 8%. And what is your target for this year? And if you achieve the target, how it will impact the margin?

[Interpreted] Thank you for your question. As you mentioned, we recorded 8% in 2024. But when you see the numbers of our competitor like Playtika, so they are recording the letter of 20%. And then our target is to double the percentage of 2024 in the future. And if we can increase, let's say, by 10%, we expect to see an increase of 2% to 3% margin in terms of EBITDA. And then if we see the increase of the margin, we believe that, that can be used as the buffer for the additional marketing investment for iGaming and new gaming businesses. And then the additional margin by utilizing DTC will be used as a driving force for our new businesses.

[Interpreted] Currently, there are no participants with questions. [Operator Instructions]

[Interpreted] If there is no more question, we'd like to close today's earnings presentation. However, before closing, I'd like to make one more comment. You can see that not only in the casual games, but also in iGaming, we are displaying tangible performances in terms of ROI or revenues. And then we are currently reviewing any possibilities of the additional M&A or new investments in the new brands. And so as I explained earlier, we will do our best this year to keep our quality in the profit making, but at the same time, increase our revenue.

[Interpreted] The following question will be presented by [ Dan Kim ] from Morgan Stanley.

[Interpreted] I'd like to learn more about your plan for repurchasing treasury stocks, and it was 1.3x of the dividend last year. So how is your plan for this year?

[Interpreted] Thank you for your question. So when we discussed and then completed the acquisition of the Paxie deal, we gave our stocks and dispose them to co-founders, and then we will be able to start buyback after 3 months. So our policy has not changed yet, but we will be able to communicate more information with you by the time of the deal closing, that is coming soon. Once again, thank you very much for attending today's earnings call, analysts and investors. As mentioned, we will do our best to show better and higher performances this year. And if you have any questions, please feel free to contact our IR team, and we will be happy to assist you. Thank you very much. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]