DOUBLEDOWN INTERACTIVE THIRD QUARTER EARNINGS CALL - DOUBLEDOWN INTERACTIVE CO LTD

Explicit Guidance:

• No explicit financial guidance (revenue, earnings, margins, or cash flow ranges) provided for FY2026, FY2027, or future periods. Management explicitly stated they "can't give you a number" regarding the "practical, sustainable, direct-to-consumer run rate ceiling."

Business-Segment Outlook:

• Social Casino: Management anticipates a continued decline in the overall social casino market, with analysts (Island Credit) forecasting a ~7% decline globally in 2026. The company plans to "alpha bomb" this shrinking market by optimizing player/payer retention, maximizing DTC conversion, and enhancing marketing/live operations.
• Direct-to-Consumer (DTC): The DTC channel is expected to continue growing beyond the current 58% of social casino revenue, though management noted gains will become "harder to make" as penetration increases. The DTC transition remains a core strategy to optimize margins.
• iGaming (SuperNation): Revenue growth is expected to continue, driven by the newest brand, ROSVEGAS. The segment aims to expand its portfolio by launching a fifth and sixth brand to diversify revenue streams and mitigate UK tax/regulatory headwinds.
• Product Enhancements: Expectations for weekly new slot launches and new "Link Jackpot" systems to amplify user engagement. A "newer mobile lobby" is under development to simplify the user experience (UX/UI) and better integrate meta and slot content.
• W Games Acquisition: The acquisition of WoW Games (closed July 14, 2025) is now fully integrated, with its metrics included in overall social casino KPIs since Q4 2025.

Market and Competitive Outlook:

• Industry Trends: The social casino segment is maturing, leading to a decline in total player counts; the focus is shifting from top-line growth to monetizing a smaller, loyaler base.
• Competitive Position: Management asserts Double Down Casino's "stickiness" allows it to outperform the broader market decline, citing a unique mix of content and player loyalty.
• Pricing and Monetization: AI initiatives are expected to drive "dynamic pricing," personalized offers, and retention mechanics to improve ARPDAL (Average Revenue Per Daily Active User) and ROAS (Return on Ad Spend) in 2027.
• Share Shifts: The iGaming portfolio strategy involves broadening appeal (e.g., the "Las Vegas" brand targeting a wider audience than niche predecessors) to capture incremental player bases.

Macro / Industry Outlook:

• Regulation/Tax: Management acknowledges "evolving regulatory and tax landscape in the UK" and expects higher gambling tax rates to remain a headwind for the iGaming segment, requiring mitigation through product changes, marketing adjustments, and expense control.
• FX Volatility: Future results remain sensitive to FX; Q3 2026 results included net foreign currency losses on USD-denominated financial assets, indicating ongoing volatility risk.
• Market Contraction: The broader social casino market is expected to contract (~7% in 2026), necessitating a focus on efficiency and conversion over volume.

Strategic Initiatives:

• M&A: M&A remains a strategic priority to evaluate opportunities in online gaming and mobile entertainment that meet criteria to enhance long-term shareholder value.
• Tender Offer: A tender offer by controlling shareholder W Games Co. Ltd. to acquire all outstanding ADSs at $16.25 is pending. Completion is subject to minimum tender and majority of minority conditions; no assurance is given for completion.
• AI Integration: AI is being embedded into workflows to accelerate content velocity (2D/3D assets, localization), optimize player monetization via behavioral predictive models, and automate creative iteration for better UA margins.
• Platform Optimization: Launch of a new mobile lobby to streamline the player journey and reinforce content integration.
• Portfolio Expansion: Planned launch of fifth and sixth iGaming brands in the UK to diversify revenue and manage regulatory concentration risk.

Risks and Headwinds to Outlook:

• Market Maturity: Continued decline in the overall social casino market size and a reduction in the total number of players.
• Regulatory/Tax: Potential impacts from higher UK gambling tax rates and an evolving regulatory environment.
• FX Losses: Risk of realized/unrealized losses on USD-denominated assets impacting net profit.
• M&A Uncertainty: The tender offer by W Games is subject to conditions and may not be completed.
• Growth Saturation: Diminishing returns as the DTC conversion rate increases, making incremental gains harder to achieve.
• Product Complexity: User experience (UX/UI) complexity resulting from layered meta content may hinder engagement if not simplified (addressed by the new mobile lobby).

Management Tone on the Future:

• Confidence: High confidence in the "resilience" of the business model and the "strong operating profit and cash flow generation."
• Execution Focus: Tone emphasizes "discipline," "high ROI investments," and "operational excellence" to drive alpha in a declining market.
• Hedges: Management avoids specific forward numerical guidance, citing the difficulty of predicting the DTC ceiling and the impact of macro variables (tax/FX).
• Sentiment: Cautiously optimistic about iGaming expansion and AI-driven efficiencies, while acknowledging the structural headwinds of the maturing social casino sector.

Miscellaneous:

• Non-binding Proposal: Management noted the non-binding nature of the controlling shareholder's proposal (tender offer) during the safe harbor statement.
• Q&A Restrictions: Management will not answer questions regarding the W Games tender offer during the call.
• Financial Health: Strong balance sheet with $582.1M in cash and equivalents (net cash ~$545.3M) provides flexibility for strategic opportunities.