DOUBLEDOWN INTERACTIVE THIRD QUARTER EARNINGS CALL - DOUBLEDOWN INTERACTIVE CO LTD

Financial Performance:

• Consolidated revenue for Q3 2026 was $94.3 million, a 1.6% year-over-year decline; year-over-year comparison affected by the inclusion of acquired WoW Games revenue in Q3 2025 (except for two weeks).
• Adjusted EBITDA reached a record $40.2 million, up 7.2% year-over-year, with an adjusted EBITDA margin of 42.7%.
• Social casino revenue declined 3.5% year-over-year to $76.8 million, while iGaming (SuperNation) revenue grew 7.4% to $17.4 million.
• Net cash flow from operations was $23.6 million in Q3 and $94.7 million for the first nine months of 2026.
• Cash, cash equivalents, and short-term investments stood at $582.1 million, with a net cash position of approximately $545.3 million after deducting $36.8 million in borrowings from the controlling shareholder.
• Profit excluding non-controlling interest dropped 43.9% to $18.4 million ($0.37 per ADS) due to net foreign currency losses, though operating profit increased to $37.5 million.
• Key KPIs showed payer conversion rates rising to 9.5%, ARPDAU at $1.44, while average monthly revenue per payer decreased to $216.
• Sales and marketing expenses were $15.1 million in Q3 2026, down slightly from $15.7 million in the prior year period but up from $13.9 million in Q2 2026.

Guidance and Future Outlook:

• Management confirmed that Direct-to-Consumer (DTC) revenue currently accounts for 58% of total social casino revenue and remains a key strategic focus, though further gains are expected to be challenging at these levels.
• Future growth strategies include launching fifth and sixth iGaming brands to diversify revenue streams and mitigate UK tax/regulatory headwinds.
• AI integration is planned to expand in 2027, focusing on content velocity, player monetization via predictive models, and targeted precision in user acquisition.
• A new simplified mobile lobby is in development to enhance UX/UI and better integrate slot and meta content.
• M&A remains a strategic priority for evaluating opportunities in online gaming and mobile entertainment that enhance shareholder value.
• Management expects the broader social casino market to decline approximately 7% in 2026, aiming to outperform this decline through operational excellence and player retention optimization.

Business Segments and Product Lines:

• Social Casino: Primary profit engine; highlighted strong performance of the flagship DoubleDunk app and successful integration of WoW Games (acquired July 2025).
• Direct-to-Consumer (DTC): DTC revenue share grew from ~21% in Q3 2025 to 58% in Q3 2026, driving margin expansion; new slot launches and jackpot systems introduced weekly.
• iGaming (SuperNation): Revenue growth driven by the "ROSVEGAS" brand; successfully managed higher UK gambling tax rates through product changes, marketing adjustments, and expense control.
• New Brands: "Las Vegas" brand launched to blend traditional casino nostalgia with modern UX for broader appeal, acting as a funnel for incremental players.
• Product Enhancements: Ongoing focus on DTC messaging, promotion, and product enhancements to maximize payer conversion and purchasing activity.

Market and Competitive Landscape:

• The global social casino market is maturing and projected to decline by nearly 7% in 2026; Double Down aims to achieve "alpha" over the market decline through execution.
• Competitive advantage cited includes a loyal, passionate player base and superior "stickiness" compared to peers, supported by continuous meta features and content updates.
• iGaming operations continue to navigate a challenging regulatory environment, specifically higher UK gambling tax rates, by leveraging portfolio expansion and real-time data analytics.
• Analysts note Double Down as a peer leader in DTC mix, approaching 60% DTC revenue share, a unique position in the industry.

Risks and Challenges:

• Ongoing decline in the overall social casino market and maturity of the industry leading to fewer active players.
• Regulatory and tax headwinds in the UK affecting the iGaming segment, though currently being mitigated.
• Significant net foreign currency losses impacting reported profit, stemming from unrealized and realized losses on USD-denominated assets.
• Pending tender offer from controlling shareholder (W Games Co. Ltd.) at $16.25 per ADS; transaction completion is subject to conditions including minimum tender and majority of minority approval.
• Complexity in UX/UI due to layered meta content, necessitating a new simplified mobile lobby.

Management Commentary and Tone:

• Management expressed strong confidence in the business model, emphasizing "operational excellence," "resiliency," and "discipline" in high ROI investments.
• Tone was positive regarding financial stability, citing record operating profit and significant free cash flow generation despite a modest top-line decline.
• CEO Inko Kim highlighted the successful transition to DTC as a primary driver of margin expansion and long-term value.
• CFO Joe Sigrist provided detailed reconciliation of metrics, noting the strategic value of the WoW Games acquisition and the company's strong balance sheet flexibility.

Analyst Questions and Answers:

• David Bain (Texas Capital Bank): Asked about the DTC ceiling and margin flow-through.
  • Response: Management noted they are nearing a sustainable run rate close to 60% DTC; while a specific ceiling number wasn't provided, they confirmed further incremental gains are possible but will be harder to achieve as the percentage rises. AI initiatives are expected to further enhance efficiencies in 2027.
• Aaron Lee (McCurry): Inquired about outperforming the market decline and the success of the "Las Vegas" brand.
  • Response: Success attributed to player loyalty, stickiness, and specific product roadmap improvements (e.g., weekly slot launches, new jackpot systems). Las Vegas is succeeding due to its broader appeal compared to niche brands, supported by real-time data optimization and plans to launch two additional brands to diversify.
• Note: No questions regarding the W Games tender offer were addressed as per management's prior announcement.

Other Key Points:

• The company has entered a tender offer agreement with controlling shareholder W Games Co. Ltd. to acquire all non-controlled ADSs at $16.25 per share.
• A new "simplified" mobile lobby is being developed to address UX complexity and improve the player journey by reinforcing slot and meta content interactions.
• The company continues to operate in the ordinary course of business while the tender offer proceeds.
• Forward-looking statements were accompanied by standard safe harbor disclosures regarding risks, uncertainties, and the non-binding nature of future projections.