20-F
falseFY0001799567Common Shares, par value W10,000 per sharetruetrueExcluding depreciation and amortization Contract assets are included within prepaid expenses and other assets in our consolidated balance sheet. Geographic location is presented as being derived from the U.S. when data is not available 0001799567 2021-01-01 2021-12-31 0001799567 2021-12-31 0001799567 2019-01-01 2019-12-31 0001799567 2020-01-01 2020-12-31 0001799567 2020-12-31 0001799567 2017-01-01 2017-12-31 0001799567 2012-07-01 0001799567 2021-09-02 0001799567 2018-12-31 0001799567 2019-12-31 0001799567 dei:AdrMember 2021-01-01 2021-12-31 0001799567 ddi:CommonSharesMember 2021-01-01 2021-12-31 0001799567 dei:BusinessContactMember 2021-01-01 2021-12-31 0001799567 us-gaap:RetainedEarningsMember 2021-01-01 2021-12-31 0001799567 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2021-01-01 2021-12-31 0001799567 us-gaap:CommonStockMember 2021-01-01 2021-12-31 0001799567 us-gaap:AdditionalPaidInCapitalMember 2021-01-01 2021-12-31 0001799567 us-gaap:ConvertibleDebtMember 2021-01-01 2021-12-31 0001799567 ddi:NonConvertibleDebtMember 2021-01-01 2021-12-31 0001799567 srt:MaximumMember 2021-01-01 2021-12-31 0001799567 us-gaap:ForeignCountryMember 2021-01-01 2021-12-31 0001799567 us-gaap:TrademarksMember 2021-01-01 2021-12-31 0001799567 us-gaap:CustomerRelationshipsMember 2021-01-01 2021-12-31 0001799567 ddi:PurchasedTechnologyMember 2021-01-01 2021-12-31 0001799567 ddi:DevelopmentCostsMember 2021-01-01 2021-12-31 0001799567 ddi:SoftwareMember 2021-01-01 2021-12-31 0001799567 us-gaap:CostOfSalesMember 2021-01-01 2021-12-31 0001799567 us-gaap:InterestExpenseMember 2021-01-01 2021-12-31 0001799567 us-gaap:GeneralAndAdministrativeExpenseMember 2021-01-01 2021-12-31 0001799567 ddi:DoubleuGamesLicenseAgreementMember 2021-01-01 2021-12-31 0001799567 ddi:InternationalGamingTechnologiesMember 2021-01-01 2021-12-31 0001799567 us-gaap:AccumulatedTranslationAdjustmentMember 2021-01-01 2021-12-31 0001799567 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2021-01-01 2021-12-31 0001799567 ddi:GangnamguMember 2021-01-01 2021-12-31 0001799567 ddi:AppleMember us-gaap:SalesRevenueNetMember us-gaap:CustomerConcentrationRiskMember 2021-01-01 2021-12-31 0001799567 us-gaap:CustomerConcentrationRiskMember us-gaap:SalesRevenueNetMember ddi:FacebookMember 2021-01-01 2021-12-31 0001799567 us-gaap:CustomerConcentrationRiskMember us-gaap:SalesRevenueNetMember ddi:GoogleMember 2021-01-01 2021-12-31 0001799567 us-gaap:CustomerConcentrationRiskMember ddi:AccountReceivableConcentrationMember ddi:AppleMember 2021-01-01 2021-12-31 0001799567 us-gaap:CustomerConcentrationRiskMember ddi:AccountReceivableConcentrationMember ddi:FacebookMember 2021-01-01 2021-12-31 0001799567 us-gaap:CustomerConcentrationRiskMember ddi:AccountReceivableConcentrationMember ddi:GoogleMember 2021-01-01 2021-12-31 0001799567 us-gaap:NonUsMember 2021-01-01 2021-12-31 0001799567 country:US 2021-01-01 2021-12-31 0001799567 ddi:WebMember 2021-01-01 2021-12-31 0001799567 ddi:MobileMember 2021-01-01 2021-12-31 0001799567 ddi:OnTheOnePercentageOfEmployeeContributionsMember 2021-01-01 2021-12-31 0001799567 ddi:OnTheNextFivePercentageOfEmployeeContributionsMember 2021-01-01 2021-12-31 0001799567 ddi:EmployeeContributionsPercentageTwoMember 2021-01-01 2021-12-31 0001799567 ddi:EmployeeContributionsPercentageOneMember 2021-01-01 2021-12-31 0001799567 ddi:FourPointSixPercentSeniorNotesDueToRelatedPartiesInTwoThousandAndTwentyFourMember 2021-01-01 2021-12-31 0001799567 ddi:SticMember ddi:TwoPointFivePercentConvertibleBondsDueTwoThousandAndTwentyFourMember 2021-01-01 2021-12-31 0001799567 ddi:TwoPointFivePercentNonConvertibleBondsDueTwoThousandAndTwentyFourMember ddi:SticMember 2021-01-01 2021-12-31 0001799567 us-gaap:RetainedEarningsMember 2020-01-01 2020-12-31 0001799567 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-01-01 2020-12-31 0001799567 us-gaap:AdditionalPaidInCapitalMember 2020-01-01 2020-12-31 0001799567 us-gaap:CommonStockMember 2020-01-01 2020-12-31 0001799567 srt:MaximumMember 2020-01-01 2020-12-31 0001799567 us-gaap:CostOfSalesMember 2020-01-01 2020-12-31 0001799567 us-gaap:InterestExpenseMember 2020-01-01 2020-12-31 0001799567 us-gaap:GeneralAndAdministrativeExpenseMember 2020-01-01 2020-12-31 0001799567 us-gaap:AccumulatedTranslationAdjustmentMember 2020-01-01 2020-12-31 0001799567 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2020-01-01 2020-12-31 0001799567 us-gaap:CustomerConcentrationRiskMember ddi:GoogleMember ddi:AccountReceivableConcentrationMember 2020-01-01 2020-12-31 0001799567 ddi:AccountReceivableConcentrationMember ddi:FacebookMember us-gaap:CustomerConcentrationRiskMember 2020-01-01 2020-12-31 0001799567 ddi:AccountReceivableConcentrationMember ddi:AppleMember us-gaap:CustomerConcentrationRiskMember 2020-01-01 2020-12-31 0001799567 us-gaap:SalesRevenueNetMember ddi:GoogleMember us-gaap:CustomerConcentrationRiskMember 2020-01-01 2020-12-31 0001799567 us-gaap:SalesRevenueNetMember ddi:FacebookMember us-gaap:CustomerConcentrationRiskMember 2020-01-01 2020-12-31 0001799567 us-gaap:CustomerConcentrationRiskMember ddi:AppleMember us-gaap:SalesRevenueNetMember 2020-01-01 2020-12-31 0001799567 us-gaap:NonUsMember 2020-01-01 2020-12-31 0001799567 country:US 2020-01-01 2020-12-31 0001799567 ddi:WebMember 2020-01-01 2020-12-31 0001799567 ddi:MobileMember 2020-01-01 2020-12-31 0001799567 ddi:InternationalGamingTechnologiesMember 2020-01-01 2020-12-31 0001799567 us-gaap:MoneyMarketFundsMember us-gaap:FairValueInputsLevel1Member 2021-12-31 0001799567 us-gaap:ForeignCountryMember 2021-12-31 0001799567 us-gaap:TrademarksMember 2021-12-31 0001799567 us-gaap:CustomerRelationshipsMember 2021-12-31 0001799567 ddi:PurchasedTechnologyMember 2021-12-31 0001799567 ddi:DevelopmentCostsMember 2021-12-31 0001799567 ddi:SoftwareMember 2021-12-31 0001799567 ddi:LongTermBorrowingWithRelatedPartyMember 2021-12-31 0001799567 ddi:AccountsPayableAndAccruedExpensesMember 2021-12-31 0001799567 ddi:ShortTermOperatingLeaseLiabilitiesMember 2021-12-31 0001799567 us-gaap:OtherNoncurrentLiabilitiesMember 2021-12-31 0001799567 ddi:LongTermLeaseLiabilitiesMember 2021-12-31 0001799567 ddi:SeoulLeaseMember 2021-12-31 0001799567 ddi:SeattleLeaseMember 2021-12-31 0001799567 srt:MaximumMember ddi:InternationalGamingTechnologiesMember 2021-12-31 0001799567 ddi:InternationalGamingTechnologiesMember srt:MinimumMember 2021-12-31 0001799567 ddi:DoubleuGamesCoLtdMember 2021-12-31 0001799567 ddi:SticSpecialSituationPrivateEquityFundMember 2021-12-31 0001799567 ddi:InternationalGamingTechnologiesMember us-gaap:IPOMember 2021-12-31 0001799567 ddi:SticMember 2021-12-31 0001799567 ddi:GangnamguMember 2021-12-31 0001799567 ddi:PrepaidExpensesAndOtherAssetsMember 2021-12-31 0001799567 ddi:FourPointSixPercentSeniorNotesDueToRelatedPartiesInTwoThousandAndTwentyFourMember 2021-12-31 0001799567 ddi:SticMember ddi:TwoPointFivePercentConvertibleBondsDueTwoThousandAndTwentyFourMember 2021-12-31 0001799567 ddi:TwoPointFivePercentNonConvertibleBondsDueTwoThousandAndTwentyFourMember ddi:SticMember 2021-12-31 0001799567 srt:MaximumMember 2021-12-31 0001799567 srt:MinimumMember 2021-12-31 0001799567 ddi:MarketableMember 2021-12-31 0001799567 ddi:LiquidFinancialInstrumentsMember 2021-12-31 0001799567 us-gaap:FairValueInputsLevel1Member ddi:KoreanMarketGovernmentBondsMember 2020-12-31 0001799567 us-gaap:ForeignCountryMember 2020-12-31 0001799567 us-gaap:TrademarksMember 2020-12-31 0001799567 us-gaap:CustomerRelationshipsMember 2020-12-31 0001799567 ddi:DevelopmentCostsMember 2020-12-31 0001799567 ddi:PurchasedTechnologyMember 2020-12-31 0001799567 ddi:SoftwareMember 2020-12-31 0001799567 ddi:LongTermBorrowingWithRelatedPartyMember 2020-12-31 0001799567 ddi:AccountsPayableAndAccruedExpensesMember 2020-12-31 0001799567 ddi:ShortTermOperatingLeaseLiabilitiesMember 2020-12-31 0001799567 us-gaap:OtherNoncurrentLiabilitiesMember 2020-12-31 0001799567 ddi:LongTermLeaseLiabilitiesMember 2020-12-31 0001799567 ddi:PrepaidExpensesAndOtherAssetsMember 2020-12-31 0001799567 ddi:FourPointSixPercentSeniorNotesDueToRelatedPartiesInTwoThousandAndTwentyFourMember 2020-12-31 0001799567 ddi:LiquidFinancialInstrumentsMember 2020-12-31 0001799567 ddi:MarketableMember 2020-12-31 0001799567 ddi:TwoPointFivePercentNonConvertibleBondsDueTwoThousandAndTwentyFourMember 2017-05-31 2017-05-31 0001799567 ddi:TwoPointFivePercentConvertibleBondsDueTwoThousandAndTwentyFourMember 2017-05-31 0001799567 ddi:TwoPointFivePercentNonConvertibleBondsDueTwoThousandAndTwentyFourMember 2017-05-31 0001799567 ddi:TwoPointFivePercentNonConvertibleBondsDueTwoThousandAndTwentyFourMember ddi:SticMember 2017-05-31 0001799567 ddi:TwoPointFivePercentNonConvertibleBondsDueTwoThousandAndTwentyFourMember 2017-05-31 0001799567 ddi:SticMember ddi:TwoPointFivePercentConvertibleBondsDueTwoThousandAndTwentyFourMember 2017-05-31 0001799567 ddi:FourPointThreePercentSeniorNoteMember 2019-05-01 2019-05-31 0001799567 ddi:ThreePointFivePercentSeniorNotesDueInTwoThousandAndTwentyMember ddi:SticMember 2019-05-31 0001799567 ddi:FourPointThreePercentSeniorNoteMember 2019-05-31 0001799567 ddi:ThreePointFivePercentSeniorNotesDueInTwoThousandAndTwentyMember 2019-05-31 0001799567 ddi:ThreePointFivePercentSeniorNotesDueInTwoThousandAndTwentyMember 2019-08-01 2019-08-31 0001799567 ddi:ThreePointFivePercentSeniorNotesDueInTwoThousandAndTwentyMember 2019-08-01 2019-08-01 0001799567 ddi:TwoPointFivePercentNonConvertibleBondsDueTwoThousandAndTwentyFourMember 2019-08-01 2019-08-01 0001799567 ddi:FourPointSixPercentSeniorNotesDueToRelatedPartiesInTwoThousandAndTwentyFourMember ddi:PrincipalMember 2020-06-01 2020-06-30 0001799567 ddi:InterestMember ddi:FourPointSixPercentSeniorNotesDueToRelatedPartiesInTwoThousandAndTwentyFourMember 2020-06-01 2020-06-30 0001799567 ddi:PrincipalMember ddi:FourPointSixPercentSeniorNotesDueToRelatedPartiesInTwoThousandAndTwentyFourMember 2020-09-01 2020-09-30 0001799567 ddi:InterestMember ddi:FourPointSixPercentSeniorNotesDueToRelatedPartiesInTwoThousandAndTwentyFourMember 2020-09-01 2020-09-30 0001799567 ddi:SticMember ddi:TwoPointFivePercentConvertibleBondsDueTwoThousandAndTwentyFourMember 2020-05-01 2020-06-30 0001799567 ddi:SticMember ddi:TwoPointFivePercentConvertibleBondsDueTwoThousandAndTwentyFourMember 2020-06-30 0001799567 ddi:TwoPointFivePercentConvertibleBondsDueTwoThousandAndTwentyFourMember 2020-05-15 2020-05-15 0001799567 ddi:TwoPointFivePercentNonConvertibleBondsDueTwoThousandAndTwentyFourMember 2020-05-15 2020-05-15 0001799567 ddi:TwoPointFivePercentNonConvertibleBondsDueTwoThousandAndTwentyFourMember ddi:SticMember 2020-05-15 2020-05-15 0001799567 ddi:TwoPointFivePercentConvertibleBondsDueTwoThousandAndTwentyFourMember ddi:SticMember 2020-05-15 2020-05-15 0001799567 ddi:InternationalGamingTechnologiesMember 2017-12-31 0001799567 ddi:TwoPointFivePercentConvertibleBondsDueTwoThousandAndTwentyFourMember ddi:SticMember 2017-12-31 0001799567 ddi:SticMember ddi:TwoPointFivePercentNonConvertibleBondsDueTwoThousandAndTwentyFourMember 2017-12-31 0001799567 us-gaap:RetainedEarningsMember 2019-01-01 2019-12-31 0001799567 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-01-01 2019-12-31 0001799567 us-gaap:AdditionalPaidInCapitalMember 2019-01-01 2019-12-31 0001799567 srt:MinimumMember 2019-01-01 2019-12-31 0001799567 us-gaap:CostOfSalesMember 2019-01-01 2019-12-31 0001799567 us-gaap:InterestExpenseMember 2019-01-01 2019-12-31 0001799567 us-gaap:GeneralAndAdministrativeExpenseMember 2019-01-01 2019-12-31 0001799567 us-gaap:AccumulatedTranslationAdjustmentMember 2019-01-01 2019-12-31 0001799567 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2019-01-01 2019-12-31 0001799567 us-gaap:SalesRevenueNetMember ddi:GoogleMember us-gaap:CustomerConcentrationRiskMember 2019-01-01 2019-12-31 0001799567 us-gaap:CustomerConcentrationRiskMember ddi:FacebookMember us-gaap:SalesRevenueNetMember 2019-01-01 2019-12-31 0001799567 us-gaap:SalesRevenueNetMember ddi:AppleMember us-gaap:CustomerConcentrationRiskMember 2019-01-01 2019-12-31 0001799567 ddi:MobileMember 2019-01-01 2019-12-31 0001799567 ddi:WebMember 2019-01-01 2019-12-31 0001799567 country:US 2019-01-01 2019-12-31 0001799567 us-gaap:NonUsMember 2019-01-01 2019-12-31 0001799567 ddi:SeattleMember 2019-10-01 2019-10-01 0001799567 ddi:SeattleMember 2019-10-01 0001799567 ddi:InternationalGamingTechnologiesMember 2018-12-31 0001799567 ddi:DoubleEightGamesCoLtdMember 2020-02-25 2020-02-25 0001799567 ddi:AmericanDepositarySharesMember us-gaap:IPOMember 2021-09-02 0001799567 ddi:AmericanDepositarySharesMember 2021-09-02 0001799567 ddi:SticSpecialSituationPrivateEquityFundMember 2021-09-02 0001799567 us-gaap:IPOMember 2021-09-02 2021-09-02 0001799567 ddi:SticMember ddi:FourPointSixPercentSeniorNotesDueToRelatedPartiesInTwoThousandAndTwentyFourMember 2021-01-01 0001799567 ddi:FourPointSixPercentSeniorNotesDueToRelatedPartiesInTwoThousandAndTwentyFourMember 2021-01-01 0001799567 srt:MaximumMember 2019-01-01 2019-01-01 0001799567 us-gaap:AccumulatedTranslationAdjustmentMember 2021-12-31 0001799567 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2021-12-31 0001799567 us-gaap:RetainedEarningsMember 2021-12-31 0001799567 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2021-12-31 0001799567 us-gaap:AdditionalPaidInCapitalMember 2021-12-31 0001799567 us-gaap:CommonStockMember 2021-12-31 0001799567 us-gaap:AccumulatedTranslationAdjustmentMember 2020-12-31 0001799567 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2020-12-31 0001799567 us-gaap:RetainedEarningsMember 2020-12-31 0001799567 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-12-31 0001799567 us-gaap:AdditionalPaidInCapitalMember 2020-12-31 0001799567 us-gaap:CommonStockMember 2020-12-31 0001799567 us-gaap:CommonStockMember 2018-12-31 0001799567 us-gaap:AdditionalPaidInCapitalMember 2018-12-31 0001799567 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-12-31 0001799567 us-gaap:RetainedEarningsMember 2018-12-31 0001799567 us-gaap:AccumulatedTranslationAdjustmentMember 2018-12-31 0001799567 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2018-12-31 0001799567 us-gaap:AccumulatedTranslationAdjustmentMember 2019-12-31 0001799567 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2019-12-31 0001799567 us-gaap:RetainedEarningsMember 2019-12-31 0001799567 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-12-31 0001799567 us-gaap:AdditionalPaidInCapitalMember 2019-12-31 0001799567 us-gaap:CommonStockMember 2019-12-31 xbrli:shares iso4217:USD xbrli:pure utr:Year iso4217:KRW utr:sqft utr:Month iso4217:USD xbrli:shares ddi:titles ddi:segment iso4217:KRW xbrli:shares
Table of Contents
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM
20-F
 
 
(Mark One)
Registration Statement Pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934
 
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the Fiscal Year Ended December 31, 2021
 
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
Shell Company Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number:
001-39349
 
 
DoubleDown Interactive Co., Ltd.
(Exact name of registrant as specified in its charter)
 
 
Republic of Korea
(Jurisdiction of incorporation or organization)
13F, Gangnam Finance Center
152, Teheran-ro Gangnam-gu
Seoul 06236, Republic of Korea
+82-2-501-7216
(Address of principal executive offices)
Joseph A. Sigrist, Chief Financial Officer
c/o DoubleDown Interactive, LLC
605 5th Avenue, Suite 300
Seattle, Washington 98104
+1-206-408-1545
(Name, Telephone,
E-mail
and/or Facsimile Number and Address of Company Contact Person)
 
 
Securities registered or to be registered pursuant to Section 12(b) of the Act: None
Securities registered or to be registered pursuant to Section 12(g) of the Act:
American Depositary Shares, or ADSs, each twenty (20) ADSs representing the right to receive one (1) Common Share
Common Shares, par value
W
10,000 per share
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
 
 
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:
As of December 31, 2021, there were 2,477,672 Common Shares, par value
W
10,000 per share, issued and outstanding.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     ☐  Yes    
  
No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.     ☐  Yes    ☒  No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     ☒  Yes    ☐  No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     ☐  Yes    ☒  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, or an emerging growth company. See definition of “large accelerated filer, accelerated filer, and emerging growth company” in Rule
12b-2
of the Exchange Act.:
 
Large accelerated filer      Accelerated filer    
Non-accelerated filer
 
           
                 Emerging growth company  
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.  
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
 
U.S. GAAP  ☒   International Financial Reporting Standards as Issued             Other  ☐
    by the International Accounting Standards Board            
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.    ☐  Item 17    ☐  Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2
of the Exchange Act).     ☐  Yes      
No
 
 
 

Table of Contents
TABLE OF CONTENTS
 
  
 
iv
 
   
  
 
1
 
   
  
 
1
 
  
 
1
 
  
 
1
 
  
 
27
 
  
 
45
 
  
 
46
 
  
 
68
 
  
 
73
 
  
 
77
 
  
 
79
 
  
 
80
 
  
 
96
 
  
 
96
 
   
  
 
99
 
   
  
 
99
 
  
 
99
 
  
 
99
 
  
 
99
 
  
 
100
 
  
 
100
 
  
 
100
 
  
 
100
 
  
 
100
 
  
 
101
 
  
 
101
 
  
 
101
 
   
  
 
102
 
   
  
 
102
 
  
 
102
 
  
 
102
 
   
  
 
102
 

Table of Contents
About this annual report
As used in this annual report, unless the context otherwise requires or otherwise states, (a) references to “we,” “us,” “our,” the “Company,” “our Company” and similar references refer to DoubleDown Interactive Co., Ltd., a corporation with limited liability organized under the laws of Korea, which is sometimes referred to in this annual report as “DDI,” its Korean subsidiary, Double8 Games Co., Ltd. (“Double8 Games”), and its U.S. subsidiaries, DoubleUDiamond, LLC, a Delaware limited liability company (“DUD”), and DoubleDown Interactive, LLC, a Washington limited liability company
(“DDI-US”),
and (b) references to “DoubleU Games” or “DUG” refer to DoubleU Games Co., Ltd., a Korean company and our controlling shareholder.
References herein to “STIC” refer to STIC Special Situation Private Equity Fund and its wholly-owned affiliate, unless the context otherwise requires.
We have made rounding adjustments to some of the figures included in this annual report. Accordingly, numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that precede them. The terms “dollar,” “USD,” “US$” or “$” refer to the legal currency of the United States. Currency amounts in this annual report are stated in dollars, unless otherwise indicated. Our reporting currency is the U.S. dollar, and our functional currency is the Korean Won, or KRW or “(Won).” Unless otherwise indicated, convenience translations included in this annual report of Korean Won into U.S. dollars have been made at the rate of
W
1,188.59 = US$1.00, as reported by the Board of Governors of the Federal Reserve System on December 31, 2021. Historical and current exchange rate information of the Korean Won against the U.S. dollar may be found at https://www.federalreserve.gov/releases/h10/hist/dat00_ko.htm.
Our financial statements are prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP. Our fiscal year ends on December 31 of each year as does our reporting year. Therefore, any references to 2021, 2020 and 2019 are references to the fiscal and reporting years ended December 31, 2021, December 31, 2020 and December 31, 2019, respectively. See Note 2 to our Consolidated Financial Statements for a discussion of the basis of presentation, functional currency and translation of financial statements.
Non-GAAP
measures
In addition to U.S. GAAP measures, we also use Adjusted EBITDA, as described under “Item 5. Operating and financial review and prospects—Other key performance indicators and
non-GAAP
metrics and trends—Adjusted EBITDA,” and Adjusted EBITDA margin in various places in this annual report. These financial measures are presented as supplemental disclosure and should not be considered in isolation of, as a substitute for, or superior to, the financial information prepared in accordance with U.S. GAAP, and should be read in conjunction with the financial statements included elsewhere in this annual report. Adjusted EBITDA and Adjusted EBITDA margin may differ from similarly titled measures presented by other companies.
Please see “Item 5B. Operating results—Reconciliation of
non-GAAP
measures” for a reconciliation of
non-GAAP
financial measures to the most directly comparable financial measure calculated in accordance with U.S. GAAP.
Market and industry data
This annual report contains references to industry market data and certain industry forecasts. Industry market data and industry forecasts are obtained from publicly available information and industry publications. Industry publications generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of that information is not guaranteed. Although we believe industry information to be accurate, it is not independently verified by us. In general, we believe there is less publicly available information concerning international social gaming industries than the same industries in the United States. Some data is also based on our good faith estimates, which are derived from our review of internal
 
ii

Table of Contents
surveys or data, as well as the independent sources referenced above. Assumptions and estimates of our and our industry’s future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Item 3D. Risk factors.” These and other factors could cause future performance to differ materially from our assumptions and estimates. See “Cautionary note regarding forward-looking statements.”
 
iii

Table of Contents
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Various statements contained in this annual report, including those that express a belief, expectation or intention, as well as those that are not statements of historical fact, are forward-looking statements. These forward-looking statements may include projections and estimates concerning our possible or assumed future results of operations, financial condition, business strategies and plans, market opportunity, competitive position, industry environment, and potential growth opportunities. In some cases, you can identify forward-looking statements by terms such as “may”, “will”, “should”, “believe”, “expect”, “could”, “intend”, “plan”, “anticipate”, “estimate”, “continue”, “predict”, “project”, “potential”, “target,” “goal” or other words that convey the uncertainty of future events or outcomes. You can also identify forward-looking statements by discussions of strategy, plans or intentions. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, because forward-looking statements relate to matters that have not yet occurred, they are inherently subject to significant business, competitive, economic, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. These and other important factors, including, among others, those discussed in this annual report under the headings “Risk Factors”, “Operating and Financial Review and Prospects” and “Our Business”, may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by the forward-looking statements in this annual report. Some of the factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements in this annual report include:
 
   
the impact of the
COVID-19
pandemic and any resulting social, political, economic and financial complications;
 
   
our ability to attract and retain players;
 
   
our expectations regarding the growth rates of our active users, payer conversion rate and revenue per daily active user;
 
   
our reliance on third-party platforms;
 
   
our ability to continue to launch and enhance games that attract and retain a significant number of paying players;
 
   
our reliance on a small percentage of our players for nearly all of our revenue;
 
   
our ability to adapt to, and offer games that keep pace with, changing technology and evolving industry standards;
 
   
competition;
 
   
our ability to use the intellectual property rights of our controlling shareholder, DoubleU Games, and other third parties, including the third-party intellectual property rights licensed to us by International Game Technology PLC (“IGT”);
 
   
protection of our proprietary information and intellectual property, inability to license third-party intellectual property and the intellectual property rights of others;
 
   
security and integrity of our games and systems;
 
   
security breaches, cyber-attacks or other privacy or data security incidents, challenges or disruptions;
 
   
reliance on or failures in information technology and other systems;
 
   
the impact of legal and regulatory restrictions on our business, including significant opposition in some jurisdictions to interactive social gaming, including social casino gaming, and how such opposition could lead these jurisdictions to adopt legislation or impose a regulatory framework to govern interactive social gaming or social casino gaming specifically, and how this could result in a
 
iv

Table of Contents
 
prohibition on interactive social gaming or social casino gaming altogether, restrict our ability to advertise our games, or substantially increase our costs to comply with these regulations;
 
   
laws and government regulations, both foreign and domestic, and to data privacy and security, including with respect to the collection, storage, use, transmission, sharing and protection of personal information and other consumer data, and those laws and regulations that affect companies conducting business on the internet, including ours;
 
   
the continuing evolution of the scope of data privacy and security regulations, and our belief that the adoption of increasingly restrictive regulations in this area is likely within the U.S. and other jurisdictions;
 
   
our ability to complete acquisitions and integrate businesses successfully;
 
   
our ability to pursue and execute new business initiatives; and
 
   
U.S. and international economic and industry conditions.
Given the foregoing risks and uncertainties, you are cautioned not to place undue reliance on the forward-looking statements in this annual report. The forward-looking statements contained in this annual report are not guarantees of future performance and our actual results of operations and financial condition may differ materially from such forward-looking statements. In addition, even if our results of operations and financial condition are consistent with the forward-looking statements in this annual report, they may not be predictive of results or developments in future periods.
Any forward-looking statement that we make in this annual report speaks only as of the date of this annual report. Except as required by law, we do not undertake any obligation to update or revise, or to publicly announce any update or revision to, any of the forward-looking statements in this annual report, whether as a result of new information, future events or otherwise, after the date of this annual report.
 
v

Table of Contents
PART I.
 
ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
 
ITEM 2.
OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
 
ITEM 3.
KEY INFORMATION
 
 
A.
[RESERVED]
 
 
B.
Capitalization and Indebtedness
Not applicable.
 
 
C.
Reasons for the Offer and Use of Proceeds
Not applicable.
 
 
D.
Risk Factors
We operate in a dynamic and rapidly changing industry that involves numerous risks and uncertainties. You should carefully consider the factors described below, together with all of the other information contained in this annual report, including the audited and unaudited financial statements and the related notes included in this annual report. These risk factors are not presented in the order of importance or probability of occurrence. If any of the following risks actually occurs, our business, financial condition and results of operations could be materially and adversely affected. Some statements in this annual report, including statements in the following risk factors, constitute forward-looking statements. Please refer to the section entitled “Cautionary Note Regarding Forward-Looking Statements.”
As used in this annual report, the terms “the Company”, “our Company”, “DDI”, “we”, “our” or “us” may, depending upon the context, refer solely to the Company, to one or more of the Company’s consolidated subsidiaries or to all of them taken as a whole.
Summary Risk Factors
The following is a summary of some of the risks and uncertainties that could materially adversely affect our business, financial condition and results of operations. You should read this summary together with the more detailed description of each risk factor contained below.
 
   
Our profitability may be affected by the rate and manner at which we successfully manage our current and future growth.
 
   
We rely on a small percentage of our players for all of our revenue.
 
   
To date, we have been reliant upon our DoubleDown Casino game for substantially all of our revenue.
 
   
We rely substantially on third-party platforms to make our games available to players and to collect revenue.
 
   
Legal proceedings may have a material adverse impact on our business.
 
   
Social opposition to interactive gaming could limit our growth and impact the future of our business.
 
1

Table of Contents
   
We rely on the ability to use the intellectual property of third parties, particularly IGT and DUG, for a substantial portion or our content and other features incorporated into our games.
 
   
Our business depends on our ability to protect proprietary information and our owned and licensed intellectual property.
 
   
The intellectual property rights of others may prevent us from developing new games and/or entering new markets, or may expose us to costly litigation.
 
   
Our success depends upon our ability to adapt to and offer games that keep pace with changing technology and evolving industry standards.
 
   
Data privacy and security laws and regulations could increase the cost of our operations and subject us to possible sanctions or penalties.
 
   
We operate in a highly competitive industry, and our success depends on our ability to effectively compete.
 
   
Our success depends on the security and integrity of the games we offer, and cyber-attacks, security breaches, or other disruptions could compromise our information or the information of our players and expose us to liability, which would cause our business and reputation to suffer.
Risks Related to Our Business and Industry
Our profitability may be affected by the rate at which we grow our business. The inability to successfully manage our current and future growth may materially and adversely affect our results of operations and financial condition.
We have grown the business since the acquisition of
DDI-US
from IGT in 2017 and we intend to continue to expand the scope and geographic relevance of the games we provide. Our total revenue increased to $363.2 million in 2021 from approximately $358.3 million in 2020. Achieving our growth strategy will depend, in large part, upon the rate at which we are able to attract and retain paying players to our games, create engaging content, and expand geographically.
Our ability to increase the number of players of our games will depend on continued player adoption of online social casino and other forms of casual online gaming. Growth in the online gaming industry and the level of demand for and market acceptance of our games are subject to a high degree of uncertainty. We expect that the overall number of our customers and the amount they are willing to invest in our games will fluctuate from time to time. The rate at which we acquire paying players may be affected by increased competition, general economic conditions, or other factors. In addition, we may not be successful in providing sufficient incentives and creating engaging content to retain our existing customers and attract new customers. If we are unable to successfully acquire, retain, and monetize players who make purchases in our games, our operations and financial condition will be adversely affected and our profitability may decline.
In addition, we hope to grow our player base through geographic expansion of our markets, particularly in Asia-Pacific and Western Europe. However, significant growth in such markets may not be successful if we do not plan the timing of the expansion appropriately, understand the social and other factors driving player participation in such markets so that we can adapt our content accordingly, and effectively navigate the regulatory environment in which we may be required to operate. If we are unable to properly and prudently manage our operations as we continue to grow, if the quality of our games deteriorates, or if we are unable to provide suitable incentives and content, our name and reputation could be severely harmed, and our business, prospects, financial condition, and results of operations could be adversely affected.
We rely on a small percentage of our players for all of our revenue.
Our games are available to players for free, and we generate revenue from players only if they voluntarily purchase virtual chips above and beyond the level of free virtual chips provided periodically as part
 
2

Table of Contents
of the games. In particular, we monitor the number of players who make a purchase to assess any periodic changes in behavior and associated trends. Average MPUs, or the average number of players who made a purchase at least once in a month, decreased from 2020 to 2021. Further, our overall payer conversion rate during fiscal years 2020 and 2021 has increased from 5.4% in 2020 to 5.7% in 2021. Our paying players may stop making purchases in our games or playing our games altogether at any time. In order to sustain or increase our revenue levels, we must increase the amount our players spend in our games and/or increase the number of players who purchase virtual chips. To retain paying players, we must devote significant resources so that the games they play retain their interest and motivate them to purchase virtual chips through incentives and engaging content. If the average amount spent by our paying players declines, if we fail to offer games that sufficiently incentivize players to purchase our virtual chips, or if we fail to properly manage the economics of free versus paid chips, our business, financial condition, and results of operations could be materially and adversely affected.
Our DoubleDown Casino game has generated substantially all of our revenue, and we intend to continue to refresh content and launch new games in order to attract and retain a significant number of paying players to grow our revenue and sustain our competitive position.
Historically,
DoubleDown Casino
has accounted for substantially all our revenue (2021: 96.6%; 2020: 95.7%), and we expect that this dependency will continue for the foreseeable future while we endeavor to further diversify our portfolio through the addition of new games. See “Item 4B. Business overview—Our games.” Our growth will depend, in part, on our ability to consistently refresh content for our existing games to promote engagement with our players, as well as launch new games that achieve significant popularity. However, as we add new games to our portfolio, certain of our players may leave existing games, such as
DoubleDown Casino
, and move to a new offering. As we refresh content and develop new games, we expend significant resources in research and development, analytics, marketing, and others to design, test, and launch refreshed content and our new games.
Our ability to successfully and timely design, test, and launch our games and provide refreshed content, as well as attract and retain paying players, largely depends on our ability to, among other things:
 
   
analyze player demographics and effectively respond to changing player interests and preferences and the competitive landscape;
 
   
enhance existing games with refreshed content and develop new games that, in each case, are interesting and compelling and that incentivize players to purchase virtual chips on a regular basis;
 
   
effectively develop new social and geographic markets for our games;
 
   
minimize delays and cost overruns on development and launch of refreshed content for existing games and of new games; and
 
   
expand our proprietary portfolio of games through organic growth and licensed third-party content.
If we do not successfully extend the life of our existing games and launch games that attract and retain a significant number of paying players, our market share, reputation, and financial results could be harmed. In addition, if the popularity of any of our most successful games decreases significantly, it would have a material adverse effect on our results of operations, cash flows, and financial condition. We cannot assure that our initiatives to improve our player experience will always be successful.
We rely substantially on third-party platforms to make our games available to players and to collect revenue.
Our games are distributed through several main platform providers, including Apple, Facebook, Google, and Amazon, which also provide us valuable information and data, such as the rankings of our games. Substantially all of our revenue is generated by players using those platforms. Consequently, our expansion and prospects depend on our continued relationships with these providers, and any emerging platform providers that are widely adopted by our target player base in the geographic markets in which we operate.
 
3

Table of Contents
We are subject to the standard terms and conditions that these platform providers have for application developers, which govern the promotion, distribution and operation of games and other applications on their platforms, and which the platform providers can change unilaterally on short or no notice. Our business would be harmed if:
 
   
the platform providers discontinue or limit our access to their platforms;
 
   
governments or private parties, such as internet providers, impose bandwidth restrictions, increase charges, or restrict or prohibit access to those platforms;
 
   
the platforms modify their current discovery mechanisms, communication channels available to developers, respective terms of service, or other policies, including fees;
 
   
the platforms adopt changes or updates to their technology that impede integration with other software systems, such as Adobe Flash or others, or otherwise require us to modify our technology or update our games in order to ensure players can continue to access our games and content with ease;
 
   
the platforms impose restrictions or make it more difficult for players to buy our virtual chips; or
 
   
the platforms develop their own competitive offerings.
If alternative platforms increase in popularity, we could be adversely impacted if we fail to create compatible versions of our games in a timely manner, or if we fail to establish a relationship with such alternative platforms. Likewise, if our existing platform providers alter their operating platforms or browsers, we could be adversely impacted as our offerings may not be compatible with the altered platforms or browsers or may require significant and costly modifications in order to become compatible. If our platform providers were to develop competitive offerings, either on their own or in cooperation with one or more competitors, our growth prospects could be negatively impacted. If our platform providers do not perform their obligations in accordance with our platform agreements, we could be adversely impacted.
In the past, some of these providers’ platforms have been unavailable for short periods of time or experienced issues with certain features. If such events occur on a prolonged basis or other similar issues arise that impact players’ ability to download our games, access social features, or purchase virtual chips, it could have a material adverse effect on our revenue, operating results, and reputation.
Depending on their outcomes, certain legal proceedings can materially adversely affect our business and our results of operations, cash flows, and financial condition.
We have been party to, are currently party to, and in the future may become subject to additional, legal proceedings in the operation of our business, including, but not limited to, with respect to consumer protection, gaming-related matters, employee matters, alleged service and system malfunctions, alleged intellectual property infringement, and claims relating to our contracts, licenses, and strategic investments.
For example, in 2015, a plaintiff commenced a putative class action in the United States District Court for the Western District of Washington against Churchill Downs Incorporated, one of our competitors, alleging that Churchill Downs’ virtual game platform, “Big Fish Casino,” violated Washington’s Recovery of Money Lost at Gambling Act (“WRMLGA”) and Consumer Protection Act (“CPA”). The District Court dismissed plaintiff’s action. On March 28, 2018, the United States Court of Appeals for the Ninth Circuit reversed the District Court’s holding, concluding that, because Big Fish Casino’s virtual chips are a “thing of value,” Big Fish Casino falls under the WRMLGA. The Ninth Circuit remanded the action to the District Court for further proceedings consistent with its opinion. On March 4, 2020, plaintiff’s motion for class certification was denied by the District Court without prejudice to refile. Additional class actions have been commenced against other of our competitors on similar grounds, certain of which, including Churchill Downs, have finalized settlements which the court approved on February 11, 2021 in amounts of $6.5 million, $38.0 million, and $155.0 million. These settlements included requirements for modifications to the games that allowed them to continue to operate.
 
4

Table of Contents
We have assessed these required modifications and have already implemented these changes to the ways our DoubleDown Casino game operates. Such amounts are illustrative only and are not indicative of, and provide no certainty with respect to, amounts at which other cases, including the
Benson
case discussed below, may settle, if at all, or amounts that may be rendered in a judgment after trial on the merits.
In April 2018, a putative class action lawsuit,
Benson, et al. v. DoubleDown Interactive and International Game Technology
, was filed against DDI-US in the United States District Court for the Western District of Washington based upon the theory, like Big Fish Casino, that the use of the DoubleDown Casino Facebook and mobile applications violated the WRMLGA and CPA. The plaintiffs make their allegations on behalf of themselves and “all persons in the United States who purchased and lost chips by wagering at the DoubleDown Casino.” Plaintiffs seek to recover, on behalf of themselves and the class, among other things, (i) all money they wagered and lost playing DDI-US games; and (ii) treble damages. Plaintiffs also seek injunctive and/or declaratory relief as necessary to protect the interests of Plaintiff and the class. On November 13, 2018, the District Court denied DDI-US’s motion to compel arbitration. DDI-US filed an appeal to the United States Court of Appeals for the Ninth Circuit, arguing that plaintiff’s action should have been dismissed because their individual cases are subject to the arbitration agreement in the applicable Terms of Use. On January 29, 2020, DDI-US’s appeal to the Ninth Circuit was denied and the case was remanded to the District Court for further proceedings. On June 17, 2020, the Company filed a motion in the United States District Court for the Western District of Washington, which, if granted, would certify certain questions of state law to the Washington State Supreme Court for interpretation in accordance with applicable state law. On August 11, 2020, the District Court denied DDI-US’s motion to certify certain questions to the Washington State Supreme Court. DDI-US subsequently filed a motion asking the court to reconsider this decision. On January 15, 2021, this motion for reconsideration was denied. On August 13, 2020, DDI-US filed a motion to strike the plaintiffs’ nationwide class allegations. On March 19, 2021, this motion was denied. On September 10, 2020, DDI-US filed a complaint in Washington State court against the two plaintiffs in the federal court case arguing that, since the gambling law referenced in the federal action is a Washington state law, any complaint should be litigated in Washington State court. On February 25, 2021, plaintiffs filed a motion for class certification and for preliminary injunction. Discovery in the federal court case has commenced and is continuing. On July 19, 2021, the court ordered that the parties hold a settlement conference by September 7, 2021. On April 25, 2021, plaintiffs filed their Second Amended Complaint, changing their allegations to include an additional corporate entity of co-defendant, IGT. DDI-US served plaintiffs with its expert disclosures and filed an Opposition to Plaintiffs’ Motion for Class Certification and Preliminary Injunction on May 11, 2021. On June 29, 2021, the court denied the Company’s motion for the certification of an interlocutory appeal from the court’s order denying the Company’s Motion to Strike Nationwide Class Action Allegations. No trial date has been set at this time. We dispute any allegation of wrongdoing and will continue to vigorously defend ourselves in this matter.
In connection with the Benson case, IGT tendered us its defense of the lawsuit and sought indemnity from us and certain of our affiliates for any damages from the lawsuit, based on various agreements associated with IGT’s sale of DDI-US to us. We had previously tendered IGT our defense and sought indemnity from it. The parties have entered into a standstill or tolling agreement, which expired on September 1, 2021, and was extended by agreement until October 1, 2021. On December 20, 2021, IGT submitted a demand for mediation to DDI-US.
We have incurred and expect to continue to incur significant expense defending the
Benson
lawsuit, and we may incur in the future significant expense with respect to any other lawsuits to which we may become a party. In general, subject to certain terms and conditions, insurance coverage for our litigation expenses and losses arising out of legal proceedings is assessed by our insurers on a case by case basis and there can be no guarantee that coverage will be available in any particular case. However, in connection with the
Benson
lawsuit, our insurer will not cover such expenses or any losses that could arise for any settlement amount or damages award.
The resolution of the
Benson
lawsuit, whether through the court or through settlement, could have a material adverse effect on our operating results and financial condition. As set out in Note 11 to the audited
 
5

Table of Contents
consolidated financial statements for the years ended December 31, 2021, 2020 and 2019, the Company has recorded a charge to income for this litigation, which is included in general and administrative expenses. However, the Company may experience a loss in excess of the amount recorded, which could be material; the ultimate outcome cannot be known at this time due to the significant incomplete, uncertain, and unknown variables inherent with this stage of the pending litigation. The amount recorded represents management’s estimate, in accordance with applicable accounting standards, of the low end of the reasonably possible range of loss of $3.5 million to $201.5 million. Management will continue to evaluate the reasonably possible range of loss and the amount recorded as the litigation proceeds over time, potentially resulting in a material adjustment thereto. As noted above, our operating results and financial condition could be materially adversely impacted by the resolution of the
Benson
case. We continue to dispute any allegation of wrongdoing and we intend to continue our vigorous defense in this matter. There can be no guarantee that, in such an event, we will be able to recover all or any part of any damages award or, if applicable, settlement amount, or obtain a contribution with respect thereto, from any other defendant. Additionally, there can be no guarantee as to what, if any, additional modifications any judgments or settlements might impose on one or more of our games.
In the future, additional legal proceedings or regulatory investigations targeting our social casino games and claiming violations of state or federal laws could also occur in other states, based on the unique and particular laws of each jurisdiction. We could, in connection with any such proceedings or regulatory actions, including as a result of the
Benson
case, be restricted from operating social casino games in certain states, or be required to make modifications to the operation of one or more of our games, or have to pay significant damage awards or settlement amounts. We cannot predict the likelihood, timing, or scope of the consequences of such an outcome, or the outcome of any other legal proceedings to which we may be a party, any of which could have a material adverse effect on our results of operations, cash flows, or financial condition.
In addition, in December 2020, a patent infringement claim,
NEXRF Corp. v. DoubleU Games Co., Ltd., et al.
, was filed against DoubleU Games, DDI-US and us in the United States District Court for the Western District of Washington. The plaintiff alleges that the defendants are infringing certain patents related to certain of its games and is seeking monetary damages. On April 29, 2021, we, DoubleU Games, and DDI-US filed a motion to dismiss the case as well as a motion to stay discovery pending adjudication of motion to dismiss. The parties agreed to an interim stay of discovery pending resolution of the motion to stay. During the pendency of the defendants’ motions, however, a federal court in Nevada issued an order invalidating the asserted patents on the basis of patent ineligibility. The plaintiff has appealed this ruling to the federal circuit. The parties agreed to stay the litigation pending the outcome of the plaintiff’s appeal of the Nevada decision. The case is now stayed, effective September 3, 2021. We intend to defend the case vigorously.
On May 14, 2021, Hanover Insurance Co. filed a declaratory judgment action alleging that its insurance policy does not cover the claims made by
NEXRF Corp. v. DoubleU Games Co., Ltd., et al.
The plaintiff requested that defendants sign a waiver of service. The defendants have responded to the plaintiff’s request.
Certain social opposition to interactive gaming or potential issues relating to social casino games could adversely impact our business and limit the growth of our operations.
There is certain opposition in some jurisdictions to interactive online gaming, including social casino games. In September 2018, the World Health Organization added “gaming disorder” to the International Classification of Diseases, defining the disorder as a pattern of behavior characterized by impaired control over gaming and an increase in the priority of gaming over other interests and daily activities. Some states or countries have anti-gaming groups that specifically target social casino games. Such opposition could lead these jurisdictions to adopt legislation or impose a regulatory framework to govern interactive social gaming or social casino games specifically and which could require us to comply with stringent regulations and/or require us to modify our operations in order to comply. These could result in a prohibition on interactive online gaming or social casino games altogether, restrict our ability to advertise our games, encourage our existing platform partners to restrict our ability to deploy our games through their media, or substantially increase our costs to comply with these regulations, all of which could have an adverse effect on our results of operations, cash flows, and financial condition. We cannot predict the likelihood, timing, scope, or terms of any such legislation or
 
6

Table of Contents
regulation or the extent to which they may affect our business. In addition, certain third-party distribution platforms on which we rely have had lawsuits brought against them for servicing social casino games, which may limit our access to such platforms.
On September 17, 2018, 15 international gambling regulators, plus the Washington State Gambling Commission, signed a declaration expressing concern “with the risks posed by the blurring of lines between gambling and other forms of digital entertainments such as video gaming,” including, among others, social casino gaming. The regulators committed to work together to analyze the characteristics of video games and social gaming, and to engage in an informed dialogue with the video game and social gaming industries to ensure the appropriate and efficient implementation of applicable laws and regulations. The regulators also indicated they would work closely with their consumer protection enforcement agencies. We cannot predict the likelihood, timing, scope, or terms of any actions taken as a result of the declaration.
Consumer protection concerns regarding games such as ours have been raised in the past and may again be raised in the future. These concerns include (i) whether social casino games may be shown to serve as a gateway for adolescents to monetary gambling, and (ii) a concern that social casino gaming companies are using big data and advanced technology to predict and target “vulnerable” users who may spend significant time and money on social casino games in lieu of other activities. Such concerns could lead to increased scrutiny, including the potential imposition of a regulatory framework, over the manner in which our games are designed, developed, distributed, and presented. It is difficult for us to monitor and enforce age or other jurisdictional restrictions with respect to players who download or play our games, as we rely on third-party distribution platforms such as Apple App Store, Facebook, Google Play Store, and Amazon Appstore. We cannot predict the likelihood, timing, or scope of any concern reaching a level that will impact our business, or whether, as a result, we would suffer any adverse impacts to our results of operations, cash flows, financial condition, and reputation.
We rely on the ability to use the intellectual property rights of third parties, and we may lose the benefit of some of the intellectual property licensed to us if the license agreements are terminated.
Substantially all of the content and related intellectual property incorporated into our games are licensed from third parties, in particular IGT and DUG. Since June 2017, we have been party to a Game Development, Distribution and Services Agreement with IGT (which we refer to as the “IP License Agreement”), pursuant to which we are granted the right to develop and distribute certain IGT game titles and related intellectual property. Under the IP License Agreement, we expect, but cannot guarantee, that we will be able to continue to receive those rights on favorable or reasonable terms. In addition, although IGT has the right to terminate the IP License Agreement for cause, we will retain exclusive, perpetual, and irrevocable use of any IGT intellectual property already used by us for games launched before June 1, 2020 (excluding third party rights that IGT no longer has rights to itself), except in limited circumstances. For each slot game first launched in the social online game field starting on June 1, 2020, the license from IGT is
non-exclusive,
perpetual and irrevocable. See “Item 4B. Business overview—Intellectual property.” In addition, we have licensing arrangements with our controlling shareholder, DUG, since March 2018, pursuant to which we are granted an exclusive license to develop and distribute certain of their social casino game titles and sequels, subject to our payment of customary terms and license fees. As of December 31, 2021, we license approximately 42 game titles that are actively offered to players. As amended to date, the agreement remains in effect until either DUG no longer holds an interest, directly or indirectly, in DDI, or DDI no longer holds an interest, directly or indirectly, in
DDI-US.
In such event, the agreement provides that the parties will mutually renegotiate the terms of the agreement. We expect, but cannot guarantee, that we will be able to continue to receive those rights on favorable or reasonable terms. See “Item 4B. Business overview—Intellectual property.”
The future success of our business will depend, in part, on our ability to retain or expand intellectual property licenses. We cannot assure that these third-party licenses will continue to be available to us on commercially reasonable terms, if at all. Further, existing and future license arrangements containing royalty provisions could cause us to incur impairment charges in connection with minimum guarantees. To address these
 
7

Table of Contents
risks, we have increased our research and development capabilities in order to create proprietary intellectual property, including content, although there is no guarantee we will be able to create content that receives sufficient acceptance from the market or that is developed in a timely manner. In the event that we are unable to create such content and, in addition, if we lose the benefit of, or cannot renew and/or expand existing licenses with IGT and DUG, we may be required to discontinue or limit our use of certain game titles and related technologies that include or incorporate the licensed intellectual property.
Our business depends on the protection of our proprietary information and our owned and licensed intellectual property.
We believe that our success depends in part on protecting our owned and licensed intellectual property in the United States and other countries. Our intellectual property includes certain patents, trademarks and copyrights relating to our games, and proprietary or confidential information that is not subject to formal intellectual property protection. Much of our intellectual property that is significant to our business is owned by DoubleU Games or IGT and licensed to us, and we do not control the protection and maintenance of such intellectual property from third parties, and must rely on them to protect and maintain such intellectual property. Our success may depend, in part, on our and our licensors’ ability to protect the trademarks, trade dress, names, logos, or symbols under which we market our games and to obtain and maintain patent, copyright, and other intellectual property protection for the technologies, designs, software, and innovations used in our games and our business. We cannot assure that we will be able to build and maintain consumer value in our proprietary trademarks and copyrights or otherwise protect our technologies, designs, software, and innovations or that any patent, trademark, copyright, or other intellectual property right will provide us with competitive advantages.
We also rely on trade secrets and proprietary knowledge. We enter into confidentiality agreements with our employees and independent contractors regarding our trade secrets and proprietary information, but we cannot assure that the obligation to maintain the confidentiality of our trade secrets and proprietary information will be honored by such individuals.
In the future we may make claims of infringement against third parties or make claims that third-party intellectual property rights are invalid or unenforceable. These claims could cause us to incur greater costs and expenses in the protection of our intellectual property and could potentially negatively impact our intellectual property rights, for example, by causing one or more of our intellectual property rights to be ruled or rendered unenforceable or invalid.
Despite our efforts to protect our intellectual property rights, the steps we take in this regard might not be adequate to prevent or deter infringement or other misappropriation of our intellectual property by competitors or other third parties.
The intellectual property rights of others may prevent us from developing new games and/or entering new markets, or may expose us to liability or costly litigation.
Our success depends in part on our ability to continually adapt our games to incorporate new technologies as well as intellectual property related to game mechanics and procedures, and to expand into markets that may be created by these new developments. If technologies are protected by the intellectual property rights of our competitors or other third parties, we may be prevented from introducing games based on these technologies or expanding into markets created by these technologies.
We cannot assure that our business activities and games will not infringe upon the proprietary rights of others, or that other parties will not assert infringement claims against us. A successful claim of infringement by a third party against us, our games or one of our licensees in connection with the use of our technologies, game mechanics or procedures, or an unsuccessful claim of infringement made by us against a third party or its products or games, could adversely affect our business or cause us financial harm. Any such claim and any resulting litigation, should it occur, could:
 
   
be expensive and time-consuming to defend or require us to pay significant amounts in damages;
 
8

Table of Contents
   
result in invalidation of our proprietary rights or render our proprietary rights unenforceable;
 
   
cause us to cease making, licensing, or using games that incorporate the intellectual property;
 
   
require us to redesign, reengineer, or rebrand our games or limit our ability to bring new games to the market in the future;
 
   
require us to enter into costly or burdensome royalty, licensing, or settlement agreements in order to obtain the right to use a product or process;
 
   
impact the commercial viability of the games that are the subject of the claim during the pendency of such claim; or
 
   
require us to stop offering the infringing games.
Our success depends upon our ability to acquire and retain players, as well as adapt to and offer games that keep pace with changing technology and evolving industry standards.
Our ability to acquire and retain players is largely driven by our success in maintaining and increasing the quantity and quality of games in our portfolio. To satisfy players, we need to continue to improve their online gaming experience and innovate and introduce games that our players find more rewarding to play than those of our competitors. This will require us to, among other things, continue to improve our technology, game mechanics, and procedures to optimize search results for our games, tailor our game offerings to additional geographic and demographic market segments, and improve the user-friendliness of our games, while working to minimize the risk that players will be diverted from our existing games to one of our new games resulting in reduced purchases by those players. Our ability to anticipate or respond to changing technology and evolving industry standards and to develop and introduce new and enhanced games on a timely basis, or at all, is a significant factor affecting our ability to remain competitive and expand and attract new players. We cannot assure that we will have the financial and technical resources needed to introduce new games on a timely basis, or at all.
Further, as technological or regulatory standards change and we modify our games to comply with those standards, we may need players to take certain actions to continue playing, such as downloading a new game, performing
age-gating
checks or accepting new terms and conditions. Players may stop using our games at any time, including if the quality of the player experience on our games and our support capabilities in the event of a problem do not meet their expectations or keep pace with the quality of the player experience generally offered by competitive games and services.
Our players depend on our support organization to resolve any issues relating to our games. Our ability to provide effective support is largely dependent on our ability to attract, resource, and retain employees who are not only qualified to support players of our games, but are also well versed in our games. Any failure to maintain high-quality support, or a market perception that we do not maintain high-quality support, could harm our reputation, adversely affect our ability to sell virtual chips within our games to existing and prospective players, and adversely impact our results of operations, cash flows, and financial condition.
Our global operations expose us to business and legal risks, which could restrict or limit our ability to execute our strategy.
Substantially all of our revenues are currently generated through
DDI-US
in the United States. Our headquarters and significant game development operations are based in Seoul, Korea. We are subject to risks customarily associated with such global operations, including: the complexity of laws, regulations, and markets in the countries in which we operate; the uncertainty of enforcement of remedies in certain jurisdictions; the effect of currency exchange rate fluctuations; export control laws; the impact of foreign labor laws and disputes; the ability to attract and retain key personnel; the economic, tax, and regulatory policies of local governments;
 
9

Table of Contents
compliance with applicable anti-money laundering, anti-bribery, and anti-corruption laws, including the Foreign Corrupt Practices Act, The Improper Solicitation and Graft Act of Korea, and other anti-corruption laws that generally prohibit persons and companies and their agents from offering, promising, authorizing, or making improper payments to foreign government officials for the purpose of obtaining or retaining business; and compliance with applicable sanctions regimes regarding dealings with certain persons or countries. Certain of these laws also contain provisions that require accurate recordkeeping and further require companies to devise and maintain an adequate system of internal accounting controls.
If we adopt policies and controls that are ineffective or an employee or intermediary fails to comply with the applicable regulations, we may be subject to criminal and civil sanctions and other penalties. Any such violation could disrupt our business and adversely affect our reputation, results of operations, cash flows, and financial condition. In addition, our business operations could be interrupted and negatively affected by terrorist activity, political unrest, or other economic or political uncertainties. Moreover, countries, including in particular Korea and the United States, could impose tariffs, quotas, trade barriers, and other similar restrictions that adversely impact the international nature of our business.
Further, our ability to expand successfully in other countries involves other risks, including difficulties in integrating local operations, risks associated with entering jurisdictions in which we may have little experience and the
day-to-day
management of a growing and increasingly geographically diverse company. We may not realize the operating efficiencies, competitive advantages or financial results that we anticipate from our investments in countries other than Korea and the United States.
Data privacy and security laws and regulations in the jurisdictions in which we do business could increase the cost of our operations and subject us to possible sanctions and other penalties.
We collect, process, store, use, and share data, some of which contains limited personal information. Consequently, our business is subject to a number of U.S. and international laws and regulations governing data privacy and security, including with respect to the collection, storage, use, transmission, sharing, and protection of personal information. Data privacy protection laws are rapidly changing and likely will continue to do so for the foreseeable future and may be inconsistent from jurisdiction to jurisdiction.
We are subject to U.S. federal and state and foreign laws related to the privacy and protection of player data. Such regulations such as the General Data Protections Regulation (“GDPR”) from the European Union (“EU”), the United Kingdom’s Data Protection Act of 2018, the UK GDPR, and the California Consumer Privacy Act are new, untested laws and regulations that could affect our business, and the potential impact is unknown. See “Item 4B. Business overview—Regulation of the industry.” We are also subject to evolving laws and regulations that dictate under what circumstances we can transfer, process and/or receive certain data that is critical to our operations, including data shared between countries or regions in which we operate. For example, in July 2020, the European
Union-U.S.
Privacy Shield was invalidated by the Court of Justice of the European Union (“CJEU”). Other bases to legitimize the transfer of such data, such as Standard Contractual Clauses (“SCCs”), have been subjected to regulatory and judicial scrutiny. If one or more of the legal bases for transferring data from Europe to the United States is invalidated or the transfer frameworks are amended, if we are unable to transfer data between and among countries and regions in which we operate, or if we are restricted from sharing data among our products and services, it could affect the manner in which we operate and require us to change our data processing policies and measures, which may be burdensome and difficult to undertake successfully, and could adversely affect our financial results.
There currently are a number of other proposals related to data privacy and security pending before several legislative and regulatory bodies. For example, the European Union is contemplating the adoption of the Regulation on Privacy and Electronic Communications (the
“e-Privacy
Regulation”). While this regulation was planned to take effect simultaneously with GDPR, it is currently still being debated and discussed by the EU member states. The
e-Privacy
Regulation focuses on the privacy of electronic communications and, in that
 
10

Table of Contents
respect, it contains new rules for direct marketing activities. It is highly likely that these rules will lead to new consent requirements.
Due to the rapidly changing nature of these data privacy protection laws, there is not always clear guidance from the respective governments and regulators regarding the interpretation of the law, which may create the risk of an inadvertent violation. Efforts to comply with these and other data privacy and security restrictions that may be enacted could require us to modify our data processing practices and policies, incorporate privacy by design into our games, and will significantly increase the cost of our operations. Failure to comply with such restrictions could subject us to criminal and civil sanctions and other penalties. In part due to the uncertainty of the legal climate, complying with regulations, and any applicable rules or guidance from self-regulatory organizations relating to privacy, data protection, information security, and consumer protection, may result in substantial costs and may necessitate changes to our business practices, which may compromise our growth strategy, adversely affect our ability to attract or retain players, and otherwise adversely affect our business, financial condition, and operating results.
Any failure or perceived failure by us to comply with our posted privacy policies or terms of use, our privacy-related obligations to players or other third parties, or any other legal obligations or regulatory requirements relating to privacy, data protection, or information security may result in governmental investigations or enforcement actions, litigation, claims, or public statements against us by consumer advocacy groups or others, and could result in significant liability, cause our players to lose trust in us, and otherwise materially and adversely affect our reputation and business. Furthermore, the costs of compliance with, and other burdens imposed by, the laws, regulations, and policies that are applicable to us may limit the adoption and use of, and reduce the overall demand for, our games.
Additionally, if third parties we work with violate applicable laws, regulations, or agreements, such violations may put our players’ data at risk, or result in governmental investigations or enforcement actions, fines, litigation, claims, or public statements against us by consumer advocacy groups or others, and could result in significant liability, cause our players to lose trust in us, and otherwise materially and adversely affect our reputation and business. Further, public scrutiny of, or complaints about, technology companies or their data handling or data protection practices, even if unrelated to our business, industry, or operations, may lead to increased scrutiny of technology companies, including us, and may cause government agencies to enact additional regulatory requirements or to modify their enforcement or investigation activities, which may increase our costs and risks.
Security breaches or other disruptions could compromise our information or the information of our players. If we sustain cyber-attacks or other security incidents that result in data breaches, we could suffer a loss of players and associated revenue, increased costs, exposure to significant liability, reputational harm, and other negative consequences.
Our business sometimes involves the storage, processing, and transmission of certain proprietary, confidential, and personal information of our players. We also maintain certain other proprietary and confidential information relating to our business and personal information of our personnel. Despite our security measures, our information technology may be subject to cyber-attacks, viruses, malicious software,
break-ins,
theft, computer hacking, employee error or malfeasance, or other security breaches. Hackers and data thieves are increasingly sophisticated and operate large-scale and complex automated attacks. Experienced computer programmers and hackers may be able to penetrate our security controls and misappropriate or compromise sensitive personal, proprietary, or confidential information, create system disruptions, or cause shutdowns. They also may be able to develop and deploy malicious software programs that attack our systems or otherwise exploit any security vulnerabilities.
Our systems and the data stored on those systems may also be vulnerable to security incidents or security attacks, acts of vandalism or theft, coordinated attacks by activist entities, misplaced or lost data, human errors, or other similar events that could negatively affect our systems, the data stored on those systems, and the
 
11

Table of Contents
data of our business partners. Further, third parties, such as hosted solution providers, that provide services to us, could also be a source of security risks in the event of a failure of their own security systems and infrastructure. An increasing number of online services have disclosed security breaches, some of which have involved sophisticated and highly targeted attacks on portions of their services. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and often are not foreseeable or recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. Any security breach or incident that we experience could result in unauthorized access to, misuse of, or unauthorized acquisition of our or our players’ data, the loss, corruption or alteration of this data, interruptions in our operations, or damage to our computers or systems or those of our players or third-party platforms. Any of these could expose us to claims, litigation, fines, and potential liability.
The costs to eliminate or address the foregoing security threats and vulnerabilities before or after a cyber incident could be significant. Our remediation efforts may not be successful and could result in interruptions, delays or cessation of service, and loss of existing or potential suppliers or players. As threats related to cyber-attacks develop and grow, we may also find it necessary to make further investments to protect our data and infrastructure, which may impact our operations. Although we have insurance coverage for protecting against cyber-attacks, it may not be sufficient to cover all possible claims, and we may suffer losses that could have a material adverse effect on our business. We could also be negatively impacted by existing and proposed laws and regulations, and government policies and practices related to cybersecurity, data privacy, data localization, and data protection in the United States, Korea, the European Union, and other countries.
If an actual or perceived breach of our security occurs, public perception of the effectiveness of our security measures for our games and content could be harmed, and we could lose players. Data security breaches and other data security incidents may also result from
non-technical
means, for example, actions by employees or contractors. Any compromise of our security could result in a violation of applicable privacy and other laws, regulatory or other governmental investigations, enforcement actions, and legal and financial exposure, including potential contractual liability that is not always limited to the amounts covered by our insurance. Any such compromise could also result in damage to our reputation and a loss of confidence in our security measures. Any of these effects could have a material adverse impact on our results of operations, cash flows, and financial condition.
Our business depends on our ability to collect and use data to deliver relevant content and advertisements, and any limitation on the collection and use of this data could cause us to lose revenues.
When our players use our games, we may process, store, use, and share data about our players, some of which contains limited personal information. We use some of this data to provide a better experience for the player by delivering relevant content and advertisements. Our players may decide not to allow us to collect some or all of this data or may limit our use of this data. Any limitation on our ability to collect data about players and game interactions would likely make it more difficult for us to deliver targeted content and advertisements to our players. Interruptions, failures or defects in our data collection, mining, analysis and storage systems, as well as privacy concerns and regulatory restrictions regarding the collection of data, could also limit our ability to aggregate and analyze player data. If that happens, we may not be able to successfully adapt to player preferences to improve and enhance our games, retain existing players and maintain the popularity of our games, which could cause our business, financial condition, or results of operations to suffer.
Additionally, Internet-connected devices and operating systems controlled by third parties increasingly contain features that allow device users to disable functionality that allows for the delivery of advertising on their devices, including through Apple’s Identifier for Advertising, or IDFA, or Google’s Advertising ID, or AAID, for Android devices. Device and browser manufacturers may include or expand these features as part of their standard device specifications. For example, when Apple announced that UDID, a standard device identifier used in some applications, was being superseded and would no longer be supported, application developers were required to update their apps to utilize alternative device identifiers such as universally unique identifier, or, more
 
12

Table of Contents
recently, IDFA, which simplifies the process for Apple users to opt out of behavioral targeting. If players elect to utilize the
opt-out
mechanisms in greater numbers, our ability to deliver effective advertisements would suffer, which could adversely affect our revenues from
in-game
advertising.
We are subject to certain risks as an environmental, social and governance driven company.
We believe that a contributor to our success has been our commitment to environmental, social and governance based values, and we strive to operate our gaming business in a socially responsible manner. Internally, attracting, developing, and retaining top talent in an environment that promotes employee well-being, safety, development, diversity and inclusion is a part of our long-term strategy. However, we may be affected by negative reports or publicity if we fail, or are perceived to have failed, to live up to these values. For example, providing a safe and responsible online gaming environment for users is central to our operations. As a result, our brands and reputation may be negatively affected by the actions of users that are deemed to be irresponsible while using our apps. Similarly, any negative publicity about activity in the business that is perceived to be contrary to our human capital management policies would negatively affect our brands and reputation.
In addition, we may make decisions regarding our business and games in accordance with our values that may negatively impact our short- or medium-term operating results if we believe those decisions are consistent with such values and will improve the aggregate user experience or promotes employee well-being, safety, development, diversity and inclusion. Although we expect that our commitment to environmental, social and governance based values will, accordingly, improve our financial performance over the long term, these decisions may not be consistent with the expectations of investors and any longer-term benefits may not materialize within the time frame we expect or at all, which could harm our business, revenue and financial results.
If the use of mobile devices as gaming platforms and the proliferation of mobile devices generally do not increase, our business could be adversely affected.
The number of people using mobile devices has increased significantly over time and we expect that this trend will continue. However, the mobile market, particularly the market for mobile games, may not grow in the way we anticipate. Approximately 73% of our revenue for the year ended December 31, 2021 and 72% for the year ended December 31, 2020 were attributable to mobile device use. If the mobile devices on which our games are available decline in popularity or become obsolete faster than anticipated, we could experience a decline in revenue and may not achieve the anticipated return on our development efforts. Any such decline in the growth of the mobile market or in the use of mobile devices for games could harm our business, financial condition, or results of operations.
We operate in a highly competitive industry, and our success depends on our ability to effectively compete.
Online gaming is a rapidly evolving industry with low barriers to entry. Businesses can easily launch online or mobile platforms and applications at nominal cost by using commercially available software or partnering with various established companies in these markets, but may not offer the same level of sophistication or capabilities as our games. The market for our games is also characterized by rapid technological developments, frequent launches of new games and content, changes in player needs and behavior, disruption by innovative entrants, and evolving business models and industry standards. As a result, our industry is constantly changing games and business models in order to adopt and optimize new technologies, increase cost efficiency, and adapt to player preferences.
We face competition for leisure time and discretionary spending of our players. Other forms of leisure activities, such as offline, traditional online, personal computer and console games, television, movies, sports, and the internet, offer much larger and more well-established options for consumers. Consumer tastes and preferences for leisure activities are also subject to sudden or unpredictable change due to new innovations. If
 
13

Table of Contents
consumers do not find our games to be compelling or if other existing or new leisure activities are perceived by our players to offer greater variety, affordability, interactivity, and overall enjoyment, our business could be materially and adversely affected.
We also compete with online gaming companies, including those that offer social casino games such as Playtika, Zynga, SciPlay, Aristocrat, and others, and some of these companies have a base of existing players that is larger than ours. In addition, our controlling shareholder, DoubleU Games, also creates and markets online games and represents a potential source of competition for talent, content development, and players. The interests of DoubleU Games may, from time to time, conflict or compete with our interests. Some of our current and potential competitors, including DoubleU Games, enjoy substantial competitive advantages, such as greater financial, technical, and other resources and, in some cases, the ability to rapidly combine online platforms with traditional staffing solutions. These companies may use these advantages to develop different platforms and services to compete with our games, spend more on advertising and marketing, invest more in research and development or respond more quickly and effectively than we do to new or changing opportunities, technologies, standards, regulatory conditions, or player preferences or requirements. If we are not able to respond to and manage competitive pressure on our business effectively, it could adversely impact our results of operations, cash flows, and financial condition.
If we do not successfully invest in, establish and maintain awareness of our games, if we incur excessive expenses promoting and maintaining our games, or if our games contain defects or objectionable content, our business, financial condition, results of operations, or reputation could be harmed.
We believe that establishing and maintaining our awareness of our games is critical to developing and maintaining favorable relationships with players, platform providers, advertisers, and content licensors, as well as competing for key management and technical talent. Increasing awareness and recognition of our games is particularly important in connection with our strategic focus on developing games based on our own intellectual property and successfully cross-promoting our games. In addition, globalizing and extending awareness and recognition of our games require significant investment and extensive management time to execute successfully. Although we make significant sales and marketing expenditures in connection with the launch of our games, these efforts may not succeed in increasing awareness of our existing or new games. In addition, if a game contains objectionable content or the messaging functionality of our games is abused, our reputation could be damaged. Despite reasonable precautions, some consumers may be offended by certain of our game content or by treatment of other players. If consumers believe that a game we published contains objectionable content, consumers could refuse to play it and could pressure the platform providers to remove the game from their platforms. Further, if we fail to increase and maintain awareness and consumer recognition of our games, our potential revenues could be limited, our costs could increase, and our business, financial condition, results of operations, or reputation could suffer.
Our applications enable us to track certain performance metrics with internal and third-party tools and we do not independently verify such metrics. Certain of our performance metrics are subject to inherent challenges in measurement, and real or perceived inaccuracies in such metrics may harm our reputation and adversely affect our business.
We track certain performance metrics, including the number of active and paying players of our games. Our
all-in-one
app strategy, in particular, provides us with large amounts of data on users and participation rates, among other things. Our performance metrics tools have a number of limitations and our methodologies for tracking these metrics may change over time, which could result in unexpected changes to our metrics, including the metrics we report. If the internal or third-party tools we use to track these metrics undercount or overcount performance or contain algorithm or other technical errors, the data we report may not be accurate. In addition, limitations or errors with respect to how we measure data (or the data that we measure) may affect our understanding of certain details of our business, which could affect our longer-term strategies.
 
14

Table of Contents
Furthermore, our performance metrics may be perceived as unreliable or inaccurate by players, analysts, or business partners. If our performance metrics are not accurate representations of our business, player base, or traffic levels, if we discover material inaccuracies in our metrics, or if the metrics do not provide an accurate measurement of our business, our reputation may be harmed and our business, prospects, financial condition, and results of operations could be materially and adversely affected.
We rely on information technology and other systems, and any failures in our systems or errors, defects, or disruptions in our games could diminish our reputation, subject us to liability, disrupt our business, and adversely impact our results.
We rely on information technology systems that are important to the operation of our business, some of which are managed by third parties. These third parties are typically under no obligation to renew agreements and there is no guarantee that we will be able to renew these agreements on commercially reasonable terms, or at all. These systems are used to process, transmit, and store electronic information, to manage and support our business operations, and to maintain internal control over our financial reporting. In addition, we collect and store certain data, including proprietary business information, and may have access to confidential or personal information in certain of our businesses that is subject to privacy and security laws, and regulations. We could encounter difficulties in developing new systems, maintaining and upgrading current systems, and preventing security breaches. Among other things, our systems are susceptible to damage, outages, disruptions, or shutdowns due to fire, floods, power loss,
break-ins,
cyber-attacks, network penetration, denial of service attacks, and similar events. Any failures in our computer systems or telecommunications services could affect our ability to operate our games or otherwise conduct business.
Portions of our information technology infrastructure, including those operated by third parties, may experience interruptions, delays or cessations of service or produce errors in connection with systems integration or migration work that takes place from time to time. We may not be successful in implementing new systems and transitioning data, which could cause business disruptions and be more expensive, time-consuming, disruptive, and resource-intensive. We have no control over third parties that provide services to us and those parties could suffer problems or make decisions adverse to our business. We have contingency plans in place to prevent or mitigate the impact of these events. However, such disruptions could materially and adversely impact our ability to deliver games to players and interrupt other processes. If our information systems do not allow us to transmit accurate information, even for a short period of time, to key decision-makers, the ability to manage our business could be disrupted and our results of operations, cash flows, and financial condition could be materially and adversely affected. Failure to properly or adequately address these issues could impact our ability to perform necessary business operations, which could materially and adversely affect our reputation, competitive position, results of operations, cash flows, and financial condition.
Substantially all of our games rely on data transferred over the internet, including wireless internet. Access to the internet in a timely fashion is necessary to provide a satisfactory player experience to the players of our games. Third parties, such as telecommunications companies, could prevent access to the internet or limit the speed of our data transmissions, with or without reason, causing an adverse impact on our player experience that may materially and adversely affect our reputation, competitive position, results of operations, cash flows, and financial condition. In addition, telecommunications companies may implement certain measures, such as increased cost or restrictions based on the type or amount of data transmitted, that would impact consumers’ ability to access our games, which could materially and adversely affect our reputation, competitive position, results of operations, cash flows, and financial condition. Furthermore, internet penetration may be adversely affected by difficult global economic conditions or the cancellation of government programs to expand broadband access.
 
15

Table of Contents
Our games and other software applications and systems, and the third-party platforms upon which they are made available, could contain undetected errors.
Our games and other software applications and systems, as well as the third-party platforms upon which they are made available, could contain undetected errors, bugs, flaws, corrupted data, defects, and other vulnerabilities that could adversely affect the performance of our games. For example, these errors could prevent the player from making
in-app
purchases of virtual chips, which could harm our operating results. They could also harm the overall game-playing experience for our players, which could cause players to reduce their playing time or in game purchases, discontinue playing our games altogether, or not recommend our games to other players. Such errors could also result in our games being
non-compliant
with applicable laws or create legal liability for us.
Some of these errors may only become apparent after a game is launched, particularly as we often launch new content and release new features to existing games under tight time constraints. Any such errors may be exploited by cheating programs and other forms of misappropriation, disrupt our operations, adversely affect the gaming experience of our players, harm our reputation, cause our players to stop playing our games, divert our resources, and delay market acceptance of our games, any of which could result in legal liability to us or harm our business, financial condition, or results of operations.
We may use open source software in a manner that could be harmful to our business.
We use open source software in connection with our technology and games on a limited basis. The original developers of the open source code provide no warranties on such code. Moreover, some open source software licenses require players who distribute open source software as part of their proprietary software to publicly disclose all or part of the source code to such software and/or make available any derivative works of the open source code on unfavorable terms or at no cost. We try to use open source software in a manner that will not require the disclosure of the source code to our proprietary software or prevent us from charging fees to our players for use of our proprietary software. However, we cannot guarantee that these efforts will be successful, and thus, there is a risk that the use of such open source code may ultimately preclude us from charging fees for the use of certain software, require us to replace certain code used in our games, pay a royalty to use some open source code, make the source code of our games publicly available, or discontinue certain games. Our results of operations, cash flows, and financial condition could be adversely affected by any of the above requirements.
Our inability to complete potential acquisition opportunities and integrate those businesses successfully could limit our growth or disrupt our plans and operations.
In the future, we may pursue additional strategic acquisitions to further expand our operations. Our ability to succeed in implementing our strategy will depend to some degree upon our ability to identify and complete commercially viable acquisitions. We cannot assure that acquisition opportunities will be available on acceptable terms, or at all, or that we will be able to obtain necessary financing or regulatory approvals to complete potential acquisitions.
We may not be able to successfully integrate any businesses that we acquire or do so within the intended timeframes. We could face significant challenges in managing and integrating our acquisitions and our combined operations, including acquired assets, operations, and personnel. In addition, the expected cost synergies associated with such acquisitions may not be fully realized in the anticipated amounts or within the contemplated timeframes or cost expectations, which could result in increased costs and have an adverse effect on our prospects, results of operations, cash flows, and financial condition.
Our business may be adversely impacted by reductions in discretionary consumer spending as a result of downturns in the economy, global pandemics, or other factors beyond our control.
Consumer demand for entertainment and social casino games, such as ours, is sensitive to downturns in the economy and the corresponding impact on discretionary spending on leisure activities. Changes in
 
16

Table of Contents
discretionary consumer spending or consumer preferences brought about by factors such as perceived or actual general economic conditions, effects of declines in consumer confidence in the economy, public health concerns or pandemics, such as the
COVID-19
coronavirus, the impact of high energy and food costs, the increased cost of travel, decreased disposable consumer income and wealth, political and regulatory uncertainty, or fears of war and future acts of terrorism could further reduce customer demand for the games that we offer and the amounts, if any, our players are willing to spend. These factors could impose practical limits on pricing and negatively impact our results of operations and financial condition.
With respect to
COVID-19,
we have followed guidance by the Korean government and the state government in Washington to protect our employees and our operations during the pandemic and have effectively implemented a remote environment for our business. To date, we have not incurred any interruptions in operations. We continuously monitor performance and other industry reports to assess the risk of future negative impacts should the disruption of the economy progress.
The online gaming industry, in particular, has been identified in industry and media reports, such as
Eilers
 & Krejcik
and
AppsFlyer
, as an unintended beneficiary of this pandemic as people are quarantined in their homes, and we are not an exception to this benefit. Our monthly revenue benefited from the effects of the pandemic, particularly in those months when
stay-at-home
orders and quarantines were broadly imposed across the United States. However, we expect such benefit to decrease as vaccinations become more widely available and restrictions are eased. Consequently, any change resulting in a diversion of player discretionary income to other uses, including for essential items, could adversely impact our cash flows, operating results, and financial condition. See “Item 5. Operating and financial review and prospects—Recent developments.”
We rely on skilled employees with creative and technical backgrounds.
We rely on our highly skilled, technically trained, and creative employees to develop new technologies and create innovative games. Such employees, particularly game designers, engineers, and project managers with desirable skill sets are in high demand, and we devote significant resources to identifying, hiring, training, successfully integrating, and retaining these individuals. A lack of skilled technical workers could delay or negatively impact our business plans, ability to compete, results of operations, cash flows, and financial condition.
Our results of operations, cash flows, and financial condition could be affected by natural events in the locations in which we or our key platform providers or content suppliers operate.
We may be impacted by severe weather and other geological events, including hurricanes, earthquakes, floods or tsunamis that could disrupt our operations or the operations of our key platform providers or content suppliers. Natural disasters or other disruptions at any of our facilities, those of our key providers, such as Apple, Google, Facebook, and Amazon, or those of our content suppliers, may impair the operation, development or provision of our games. While we insure against certain business interruption risks, we cannot assure that such insurance will compensate us for any losses incurred as a result of natural or other disasters. Any serious disruption to our operations, or those of our key providers or suppliers could have a material adverse effect on our results of operations, cash flows, and financial condition.
Our results of operations fluctuate due to seasonality and other factors and, therefore, our periodic operating results are not guarantees of future performance.
Our results of operations can fluctuate due to seasonal trends and other factors. Player activity is generally slower in the second and third quarters of the year, particularly during the summer months. Certain other seasonal trends and factors that may cause our results to fluctuate include:
 
   
holiday and vacation seasons;
 
17

Table of Contents
   
climate and weather conditions that could cause players to pursue other activities;
 
   
economic and political conditions; and
 
   
the timing of the release of new games or refreshed content, including those of our competitors.
Consequently, results for any quarter are not necessarily indicative of the results that may be achieved in another quarter or for the full fiscal year. We cannot assure that the seasonal trends and other factors that have impacted our historical results will repeat in future periods as we do not have the ability to influence these factors.
We are subject to a variety of laws worldwide, many of which are still untested and still developing and which could subject us to further extensive governmental regulation, claims, or otherwise, as well as federal, state, and local laws affecting business in general, which may harm or restrict our business.
We are subject to a variety of laws in the United States, Korea, and other jurisdictions, including laws regarding consumer protection, intellectual property, virtual items and currency, export, and national security, all of which are continuously evolving and developing. The scope and interpretation of the laws that are or may be applicable to us are often uncertain and may be conflicting, particularly laws outside of Korea and the United States. It is also likely that as our business grows and evolves and our games are played in larger volume in a greater number of countries, we will become subject to laws and regulations in additional jurisdictions. If we are not able to comply with these laws or regulations or if we become liable under these laws or regulations, we could be directly harmed, and we may be forced to implement new measures to reduce our exposure to this liability. This may require us to expend substantial resources, modify our games, or block users from a particular jurisdiction, each of which would harm our business, financial condition, and results of operations. In addition, the increased attention focused upon liability issues as a result of lawsuits and legislative proposals could harm our reputation or otherwise impact the growth of our business. Any costs incurred as a result of this potential liability could harm our business and operating results.
It is possible that a number of laws and regulations may be adopted or construed to apply to us in the United States, Korea, and elsewhere that could restrict the online and mobile industries, including player privacy, advertising, taxation, gaming, copyright, distribution, and antitrust. Our ability to access potentially key markets in the future, such as Korea and China, which currently restrict or otherwise limit entry for social casino gaming companies, will be dependent in part upon changes to the current legal and regulatory environment.
Furthermore, the growth and development of electronic commerce, social gaming, and virtual items and currency may lead to more stringent consumer protection laws that may impose additional burdens on or limitations on operations of companies such as ours conducting business through the internet and mobile devices. If scrutiny and regulation of our industry increases, we will be required to devote additional legal and other resources to addressing such regulation. Such new compliance costs or jurisdictional restrictions on our ability to offer online games could have a material adverse effect on our business, financial condition, and operating results. See “Item 4B. Business overview—Regulation of the industry.”
Changes in tax laws or tax rulings, or the examination of our tax positions, could materially affect our financial condition and results of operations.
Tax laws are dynamic and subject to change as new laws are passed and new interpretations of the law are issued or applied. In 2017, the United States enacted comprehensive tax legislation that includes significant changes to the taxation of business entities. These changes include, among others: (i) a permanent reduction to the corporate income tax rate, (ii) a partial limitation on the deductibility of business interest expense, (iii) a shift of the U.S. taxation of multinational corporations from a tax on worldwide income to a territorial system (along with certain rules designed to prevent erosion of the U.S. income tax base), and (iv) a
one-time
tax on accumulated offshore earnings held in cash and cash equivalents and illiquid assets, with the latter taxed at a
 
18

Table of Contents
lower rate. Because these tax law changes are relatively new, we are still evaluating the impact that they may have on our business and results of operations in the future. Although at this time we do not expect that the changes will have an overall significant adverse impact on our business and financial condition, we cannot assure you that our business and results of operations will not be adversely affected by these or other changes to tax laws.
Our existing corporate structure and intercompany arrangements have been implemented in a manner we believe is in compliance with current prevailing tax laws and related regulatory guidance. However, the tax benefits that we intend to eventually derive could be undermined due to changing tax laws. In addition, the taxing authorities in Korea and the United States regularly examine income and other tax returns and we expect that they may examine our income and other tax returns. The ultimate outcome of these examinations cannot be predicted with certainty.
There can be no assurance that we will not be classified as a passive foreign investment company, which could result in adverse U.S. federal income tax consequences to United States Holders of ADSs.
A non-U.S. corporation is classified as a passive foreign investment company (“PFIC”) for any taxable year in which, after applying relevant look-through rules with respect to the income and assets of its subsidiaries, either: (i) 50% or more of the value of the corporation’s assets either produce passive income or are held for the production of passive income, based on the quarterly average of the fair market value of such assets; or (ii) at least 75% of the corporation’s gross income is passive income. For purposes of the asset test, any cash and cash equivalents (such as bank deposits) will count as passive assets, and goodwill should be treated as an active asset to the extent that it is associated with activities that produce or are intended to produce active income. “Passive income” generally includes, for example, dividends, interest, certain rents and royalties, certain gains from the sale of stock and securities, and certain gains from commodities transactions.
Based upon our current and projected income and assets and the valuation of our assets, including goodwill, we do not expect to be a PFIC for our current taxable year or the foreseeable future. However, the determination of whether any corporation was, or will be, a PFIC for a taxable year depends, in part, on the application of complex U.S. federal income tax rules, which are subject to differing interpretations. In addition, because the determination of whether a corporation will be a PFIC for any taxable year can only be made after the close of such taxable year, there can be no assurance that we will not be a PFIC for our current taxable year or any future taxable year.
If we are a PFIC for any year during which you hold the common shares or ADSs, then U.S. investors could be subject to adverse U.S. federal income tax consequences (regardless of whether we continue to be a PFIC), including increased tax liability on disposition gains and certain “excess distributions” and additional reporting requirements. U.S. investors should consult their tax advisers regarding our PFIC status for any taxable year and the potential application of the PFIC rules to an investment in our common shares or ADSs, including the availability and the advisability of making certain elections under the PFIC rules.
We may be subject to additional tax liabilities in connection with our operations or due to future legislation, which may include a “global minimum tax,” each of which could materially impact our financial position and results of operation.
We are subject to federal and state income, sales, use, value added, and other taxes in Korea, the United States and other countries in which we conduct business and such laws and rates vary by jurisdictions. In recent years, non-U.S. jurisdictions have imposed or proposed digital services taxes, including in connection with the Organisation for Economic Co-Operation and Development’s (OECD) Base Erosion and Profit Shifting (BEPS) Project. In addition, there is growing international support for a so-called “global minimum tax” applicable to
 
19

Table of Contents
certain companies that, if enacted, could apply to us. These taxes, whether imposed unilaterally by non-U.S. jurisdictions or in response to multilateral measures (e.g., the BEPS Project), could result in taxation of companies that have customers in a particular jurisdiction but do not operate there through a permanent establishment. Changes to tax law or administration such as these, whether at the state level or the international level, could increase our tax administrative costs and tax risk, and negatively affect our overall business, results of operations, financial condition and cash flows. We are currently unable to predict whether such changes will occur and, if so, the ultimate impact on our business.
Our insurance may not provide adequate levels of coverage against claims.
We believe that we maintain insurance customary for businesses of our size and type. However, there are types of losses we may incur that cannot be insured against or that we believe are not economically reasonable to insure. Moreover, any loss incurred could exceed policy limits and policy payments made to us may not be made on a timely basis. Such losses could adversely affect our business prospects, results of operations, cash flows and financial condition.
Risks related to doing business in Korea
Escalations in tensions with North Korea could have a material adverse effect on our business, prospects, financial condition, and results of operations.
We are incorporated in Korea and certain of our operations are located in Korea. As a result, we are subject to geopolitical uncertainties and risks involving Korea and North Korea.
Relations between Korea and North Korea have been tense throughout Korea’s modern history. The level of tension between the two Koreas has fluctuated over the years and may increase or change abruptly as a result of current and future events. In particular, there have been heightened security concerns in recent years stemming from North Korea’s nuclear weapons and ballistic missile programs as well as its hostile military actions against Korea. For example, North Korea renounced its obligations under the Nuclear
Non-Proliferation
Treaty in January 2003 and has conducted several rounds of nuclear tests since October 2006, including claimed detonations of hydrogen bombs, which are more powerful than plutonium bombs, and warheads that can be mounted on ballistic missiles. Over the years, North Korea has also conducted a series of ballistic missile tests, including missiles launched from submarines and intercontinental ballistic missiles that it claims can reach the United States mainland. In response, the Korean government has repeatedly condemned the provocations and flagrant violations of relevant United Nations Security Council resolutions. In February 2016, the Korean government also closed the inter-Korea Gaesong Industrial Complex in response to North Korea’s fourth nuclear test in January 2016. Internationally, the United Nations Security Council has passed a series of resolutions condemning North Korea’s actions and significantly expanding the scope of sanctions applicable to North Korea, most recently in December 2017 in response to North Korea’s intercontinental ballistic missile test in November 2017. Over the years, the United States and the European Union have also expanded their sanctions applicable to North Korea.
North Korea’s economy also faces severe challenges, which may further aggravate social and political pressures within North Korea. In recent years, a series of bilateral summit meetings were held between Korea and North Korea in April, May, and September 2018 and between the United States and North Korea in June 2018 and February and June 2019. The United States-North Korea meeting in February 2019 ended abruptly and without an agreement after the United States refused to lift sanctions until North Korea relinquished all of its nuclear weapons. In June 2019, the United States and North Korea had another
one-day
summit at the Korean Demilitarized Zone, following which both sides announced a resumption of denuclearization talks. However, North Korea has since resumed its missile testing, heightening tensions, and the outlook of such discussions remains uncertain.
Further tensions in North Korean relations may develop due to events such as North Korea’s leadership crisis, breakdown in high-level inter-Korea contacts, or any military hostilities. Alternatively, tensions may be
 
20

Table of Contents
resolved through reconciliatory efforts, which include peace talks, alleviation of sanctions, or reunification. There can be no assurance that future negotiations will result in a final agreement on North Korea’s nuclear program, including critical details such as implementation and timing, or that the level of tensions between Korea and North Korea will not escalate. Any increase in tensions, an outbreak in military hostilities or other actions or occurrences, could have a material adverse effect on the Korean economy and on our business, prospects, financial condition, and results of operations.
It may not be possible for investors to enforce U.S. judgments against us.
Our headquarters facility is located in Seoul, Korea. In addition, two of our directors are
non-residents
of the United States, and all or a substantial portion of the assets of these
non-residents
are located outside the United States. As a result, it may be difficult for U.S. investors to serve process within the United States upon us (other than our subsidiaries) or our directors and officers or to enforce a judgment against us for civil liabilities in U.S. courts. In addition, you should not assume that courts in Korea (i) would enforce judgments of U.S. courts obtained in actions against us or our subsidiaries based upon the civil liability provisions of applicable U.S. federal and state securities laws or (ii) would enforce, in original actions, liabilities against us or our subsidiaries based on those laws.
Risks related to our relationship with DoubleU Games
As a foreign private issuer, we intend to follow “home country” practice even though we may be considered a “controlled company” under NASDAQ corporate governance rules since DoubleU Games is our majority shareholder and has voting control over key decisions affecting our Company and our shareholders.
As of April 1, 2022, DoubleU Games holds approximately 67.1% of our shares. We have not entered into any voting agreement with DoubleU Games with respect to its voting of our shares in the future. Consequently, DoubleU Games, as our major shareholder, is able to exercise voting control over most decisions upon which shareholders are entitled to vote.
As a result, we are a “controlled company” within the meaning of the NASDAQ corporate governance rules. Under the NASDAQ rules, a company of which more than 50% of the voting power is held by an individual, group, or another company, is a “controlled company” and may elect not to comply with certain NASDAQ corporate governance standards, including the requirements that:
 
   
a majority of its board of directors consist of independent directors;
 
   
its director nominations be made, or recommended to the full board of directors, by its independent directors or by a nominations committee that is comprised entirely of independent directors and that it adopt a written charter or board resolution addressing the nominations process; and
 
   
it has a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.
However, as a “foreign private issuer,” NASDAQ corporate governance rules allow us to follow our “home country,” Korea, rules and practice with respect to appointments to our board of directors and committees. We intend to follow home country practice as permitted by NASDAQ rather than rely on the “controlled company” exception to the corporate governance rules. Two members of our board of directors are considered “independent” under NASDAQ corporate governance rules, although we do intend to
phase-in
an additional independent director for our Audit Committee as permitted by NASDAQ.
The interests of DoubleU Games may differ significantly from those of our Board and our other shareholders. As a result, decisions by DoubleU Games could materially affect our continuing activities, including the sale of our Company to a third party or the ability of our shareholders to obtain a premium on any such sale or on a sale by DoubleU Games of all or part of its shareholding.
 
21

Table of Contents
Our relationship with DoubleU Games could create potential conflicts of interest in management decisions, which could adversely impact our shareholders.
Although we have substantial contractual arrangements with our controlling shareholder, DoubleU Games, no person is serving concurrently as a director of both companies. Consequently, we have not entered into any agreement intended to govern any conflicts of interest between the two companies. However, under the Korean Commercial Code, or KCC, if a company, such as DDI, intends to enter into any arrangement with any of its major shareholders, such as DUG, such company is required to disclose the intended arrangement to its board of directors and obtain a resolution from the board approving such arrangement. Such approval requires the consent of not less than
two-thirds
of the board members. Under the KCC, a person would constitute a company’s major shareholder if such person holds 10% or more of equity interests in such company (without taking into account any
non-voting
shares issued by the company) or makes
de facto
influence on such company’s key managerial decisions (such as appointment and removal of directors and statutory auditors). Accordingly, in order for the Company and DUG to enter into any arrangement, the Company must seek and obtain a resolution from its board of directors approving the intended arrangement. Given the current board structure, the Company’s board resolution would be adopted independently from DUG. To date, the Company and DUG have entered into certain license agreements and loan agreements, all of which have been approved by the Company’s board in accordance with the KCC.
Further, unlike U.S. corporate law, Korean law does not recognize the concept of the controlling shareholder’s fiduciary duty to a company or any of such company’s minority shareholders. Under the KCC, only such company’s directors owe a fiduciary duty to the company. However, to the extent such controlling shareholder provides any instruction to a director of such company and any action or inaction taken by such director based on such instruction is found to be in violation of law, such action or inaction taken by the director may be regarded as that taken by such controlling shareholder. In such a case, the controlling shareholder would be required to indemnify the company for any loss incurred as a result of such action or inaction.
We are subject to certain loan agreements with DoubleU Games that could impede our available working capital and adversely impact our business operations and growth strategy.
We entered into several loans with DoubleU Games as our lender in 2018 and 2019, and the aggregate outstanding principal amount as of December 31, 2021 of such loans was US$42.2 million (KRW50 billion). These loans mature in 2024, subject to certain prepayment rights. Each loan has a fixed interest rate of 4.60% per annum, with a default interest rate of an additional 5.0% per annum. Interest accrues quarterly, commencing as of May 2019, and is due and payable in full upon maturity. Further, if we are unable to repay the loans at maturity in 2024, we may not be able to continue our operations if we are unable to secure additional financing or otherwise restructure the loans. Although these loans are unsecured, we could nonetheless be forced by DoubleU Games to liquidate our operations and dissolve. See “Item 5B. Liquidity and capital resources—Short-term and long-term borrowings.”
A significant portion of our intellectual property portfolio is subject to license agreements with DoubleU Games and our operations could be adversely affected by the amount of royalty payments we are required to make under the agreements.
We are subject to a number of licensing and research and development agreements with DoubleU Games. As of April 1, 2022, DoubleU Games controlled approximately 67.1% of our shares. DoubleU Games has granted us exclusive rights during the term of the agreements for development and distribution of social casino game titles and sequels in social online gaming. As of December 31, 2021, we license approximately 42 slot gaming intellectual property rights from DoubleU Games that are actively offered to end users through our games. We are obligated to pay royalties and license fees to DoubleU Games in connection with these rights. The agreement remains in effect until either DUG no longer holds an interest, directly or indirectly, in DDI, or DDI no longer holds an interest, directly or indirectly, in
DDI-US.
In such event, the
 
22

Table of Contents
agreement provides that the parties will mutually renegotiate the terms of the agreement. If the parties decide to terminate, it could materially adversely affect our ability to continue to use and exploit these rights and the associated gaming content we distribute through our channels. In such event, our business operations, including our revenues and profitability, could be materially harmed unless and until we are able to create or acquire new revenue streams of comparable financial impact. In addition, our reputation would suffer from the loss of this content and we could lose all or a substantial portion of our players for an indefinite period.
Risks related to the ownership of our common shares and ADSs
As a “foreign private issuer” we are permitted, and intend, to follow certain home country corporate governance and other practices instead of otherwise applicable SEC and stock exchange requirements, which may result in less protection than is accorded to investors under rules applicable to domestic U.S. issuers.
Our status as a foreign private issuer exempts us from compliance with certain SEC laws and regulations and certain regulations of NASDAQ, including certain governance requirements such as independent director oversight of the nomination of directors and executive compensation. Two members of our board of directors are considered “independent” under NASDAQ corporate governance rules, although we do intend to
phase-in
an additional independent director for our Audit Committee as permitted by NASDAQ. In addition, we are not required under the Exchange Act to file current reports and financial statements with the SEC as frequently or as promptly as U.S. domestic companies whose securities are registered under the Exchange Act and we are generally exempt from filing quarterly reports with the SEC. Also, we are not required to provide the same executive compensation disclosures regarding the annual compensation of our five most highly compensated senior executives on an individual basis as are required of U.S. domestic issuers. As a foreign private issuer, we are permitted to disclose executive compensation on an aggregate basis and need not supply a Compensation Discussion & Analysis, as is required for domestic companies. Furthermore, as a foreign private issuer, we are also not subject to the requirements of Regulation FD (Fair Disclosure) promulgated under the Exchange Act.
The requirements of being a public reporting company require significant resources and management attention and affect our ability to attract and retain executive management and qualified board members.
As a public reporting company, we incur legal, accounting, and other expenses that we did not previously incur as a private company. We are subject to the Exchange Act, including the reporting requirements thereunder, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the NASDAQ rules, and other applicable securities rules and regulations. Compliance with these rules and regulations has increased our legal and financial compliance costs, make some activities more difficult, time-consuming or costly, and increase demand on our systems and resources, particularly after we are no longer an “emerging growth company.” Further, these rules and regulations may make it more difficult and more expensive for us to obtain directors’ and officers’ liability insurance, which could make it more difficult for us to attract and retain qualified members of our board of directors.
Pursuant to Section 404 of the Sarbanes-Oxley Act, once we are no longer an emerging growth company, we may be required to furnish an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. When our independent registered public accounting firm is required to undertake an assessment of our internal control over financial reporting, the cost of complying with Section 404 of the Sarbanes-Oxley Act will significantly increase, and management’s attention may be diverted from other business concerns, which could adversely affect our business and results of operations. We may need to hire more employees in the future or engage outside consultants to comply with the requirements of Section 404 of the Sarbanes-Oxley Act, which will further increase our cost and expense. In addition, enhanced legal and regulatory regimes and heightened standards relating to corporate governance and disclosure for public companies result in increased legal and financial compliance costs and make some activities more time-consuming.
 
23

Table of Contents
As a result of disclosure of information in this annual report and in filings required of a public reporting company, our business and financial condition has become more visible, which may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and operating results could be adversely affected, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and adversely affect our business and operating results.
If we fail to put in place appropriate and effective internal control over financial reporting and disclosure controls and procedures, we may suffer harm to our reputation and investor confidence level.
We are in the early stages of the process of designing, implementing, and testing our internal control over financial reporting, which process is time consuming, costly, and complex. If we fail to implement the requirements of Section 404(b) of the Sarbanes-Oxley Act in the required timeframe once we are no longer an emerging growth company, we may be subject to sanctions or investigations by regulatory authorities, including the SEC and NASDAQ. Furthermore, if we are unable to conclude that our internal control over financial reporting is effective, we could lose investor confidence in the accuracy and completeness of our financial reports, and we could be subject to sanctions or investigations by regulatory authorities. Failure to implement or maintain effective internal control over financial reporting and disclosure controls and procedures required of public companies could also restrict our future access to the capital markets.
We do not currently intend to pay dividends on our common shares for the foreseeable future.
We currently do not intend to pay any dividends to holders of our common shares for the foreseeable future. We currently intend to invest our future earnings, if any, to fund our growth. Any determination to pay dividends in the future will be at the discretion of our board of directors and subject to limitations under applicable law. Therefore, you are not likely to receive any dividends for the foreseeable future. Moreover, any ability to pay dividends will be restricted by the terms of the current term loan and may be restricted by the terms of any future credit agreement or any future debt or preferred equity securities of us or our subsidiaries. Consequently, investors may need to sell all or part of their holdings of our common shares after price appreciation, which may never occur, as the only way to realize any future gains on their investment.
Holders of ADSs have fewer rights than shareholders under Korean law, and their voting rights are limited by the terms of the deposit agreement.
The rights of shareholders under Korean law to take actions, including voting their shares, receiving dividends and distributions, bringing derivative actions, examining our accounting books and records, and exercising appraisal rights, are available only to shareholders of record. Because the depositary, through its custodian agents, is the record holder of our common shares underlying the ADSs, only the depositary can exercise those rights under Korean law in connection with the deposited shares. ADS holders will not be able to bring a derivative action, examine our accounting books and records, or exercise appraisal rights through the depositary.
Holders of ADSs may exercise their voting rights only in accordance with the provisions of the deposit agreement. Upon receipt of voting instructions from them in the manner set forth in the deposit agreement, the depositary will make efforts to vote the shares underlying the ADSs in accordance with the instructions of ADS holders. The depositary and its agents may not be able to send voting instructions to holders of ADSs or carry out their voting instructions in a timely manner. Furthermore, the depositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast, or for the effect of any such vote. As a result, holders of ADSs may not be able to exercise their right to vote.
 
24

Table of Contents
If Korea experiences certain economic, political or other events, the government may restrict holders of our ADSs and the depositary from converting and remitting dividends and other amounts in U.S. dollars.
Under the Korean Foreign Exchange Transaction Law, if the Korean government deems that certain emergency circumstances, including sudden fluctuations in interest rates or exchange rates, extreme difficulty in stabilizing the balance of payments or substantial disturbance in the Korean financial and capital markets, are likely to occur, it may impose any necessary restrictions as requiring Korean or foreign investors to obtain prior approval from the Minister of Economy and Finance of Korea for the acquisition of Korean securities or the repatriation of interest, dividends, or sales proceeds arising from disposition of such securities or other transactions involving foreign exchange.
We may be subject to securities class actions, which may harm our business and operating results.
Companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and damages and divert management’s attention from other business concerns, which could seriously harm our business, results of operations, financial condition, or cash flows.
We may also be called on to defend ourselves against lawsuits relating to our business operations and/or the industry in which we operate. Some of these claims may seek significant damage amounts due to the nature of our business. Due to the inherent uncertainties of litigation, we cannot accurately predict the ultimate outcome of any such proceedings. A future unfavorable outcome in a legal proceeding could have an adverse impact on our business, financial condition, and results of operations. In addition, current and future litigation, regardless of its merits, could result in substantial legal fees, settlement or judgment costs, and a diversion of management’s attention and resources that are needed to successfully run our business.
We may amend the deposit agreement without consent from holders of ADSs and, if such holders disagree with our amendments, their choices will be limited to selling the ADSs or withdrawing the underlying common shares.
We may agree with the depositary to amend the deposit agreement without consent from holders of ADSs. If an amendment increases fees to be charged to ADS holders or prejudices a material right of ADS holders, it will not become effective until 30 days after the depositary notifies ADS holders of the amendment. At the time an amendment becomes effective, ADS holders are considered, by continuing to hold their ADSs, to have agreed to the amendment and to be bound by the amended deposit agreement. If holders of ADSs do not agree with an amendment to the deposit agreement, their choices will be limited to selling the ADSs or withdrawing the underlying common shares. No assurance can be given that a sale of ADSs could be made at a price satisfactory to the holder in such circumstances.
The right of holders of ADSs to participate in any future rights offerings may be limited, which may cause dilution to their holdings and holders of ADSs may not receive cash dividends if it is impractical to make them available to them.
We may, from time to time, distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make any such rights available to our ADS holders in the United States unless we register such rights and the securities to which such rights relate under the Securities Act or an exemption from the registration requirements is available. In addition, the deposit agreement provides that the depositary bank will not make rights available to ADS holders unless the distribution to ADS holders of both the rights and any related securities are either registered under the Securities Act or exempted from registration under the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act. Accordingly, you may be unable to participate in our rights offerings in the future and may experience dilution in your holdings.
 
25

Table of Contents
The depositary has agreed to pay ADS holders the cash dividends or other distributions it or the custodian receives on our common shares or other deposited securities after deducting its fees and expenses. However, because of these deductions, ADS holders may receive less, on a per share basis with respect to their ADS than they would if they owned the number of shares or other deposited securities directly. ADSs holders will receive these distributions in proportion to the number of common shares the ADSs represent. In addition, the depositary may, at its discretion, decide that it is not lawful or practical to make a distribution available to any holders of ADSs. For example, the depositary may determine that it is not practicable to distribute certain property through the mail or that the value of certain distributions may be less than the cost of mailing them. In these cases, the depositary may decide not to distribute such property and ADS holders will not receive such distribution.
Holders of ADSs may not receive distributions on our common shares or any value for them if it is illegal or impractical to make them available to such holders.
The depositary of our ADSs has agreed to pay holders of ADSs the cash dividends or other distributions it or the custodian for our ADSs receives on our common shares or other deposited securities after deducting its fees and expenses. Holders of ADSs will receive these distributions in proportion to the number of our common shares that such ADSs represent. However, the depositary is not responsible for making such payments or distributions if it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act, but that are not properly registered or distributed pursuant to an applicable exemption from registration. The depositary is not responsible for making a distribution available to any holders of ADSs if any government approval or registration required for such distribution cannot be obtained after reasonable efforts made by the depositary. We have no obligation to take any other action to permit distributions on our common shares to holders of ADSs. This means that holders of ADSs may not receive the distributions we make on our common shares if it is illegal or impractical to make them available to such holders. These restrictions may materially reduce the value of our ADSs.
Holders of ADSs may be subject to limitations on transfer of their ADSs.
ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer, or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason.
ADS holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could result in less favorable outcomes to the plaintiff(s) in any such action.
The deposit agreement governing the ADSs representing our common shares provides that, to the fullest extent permitted by law, ADS holders waive the right to a jury trial for any claim they may have against us or the depositary arising out of or relating to our shares, the ADSs, or the deposit agreement, which may include any claim under the U.S. federal securities laws.
If we or the depositary were to oppose a jury trial based on this waiver, the court would have to determine whether the waiver was enforceable based on the facts and circumstances of the case in accordance with applicable state and federal law. To our knowledge, the enforceability of a contractual
pre-dispute
jury trial waiver in connection with claims arising under the federal securities laws has not been finally adjudicated by the United States Supreme Court. However, we believe that a contractual
pre-dispute
jury trial waiver provision is generally enforceable, including under the laws of the State of New York, which govern the deposit agreement, or by a federal or state court in the City of New York, which has jurisdiction over matters arising under the
 
26

Table of Contents
deposit agreement. In determining whether to enforce a contractual
pre-dispute
jury trial waiver, courts will generally consider whether a party knowingly, intelligently, and voluntarily waived the right to a jury trial. We believe that this would be the case with respect to the deposit agreement and the ADSs. It is advisable that you consult legal counsel regarding the jury waiver provision before investing in the ADSs.
If you or any other holders or beneficial owners of ADSs bring a claim against us or the depositary in connection with matters arising under the deposit agreement or the ADSs, including claims under federal securities laws, you or such other holder or beneficial owner may not be entitled to a jury trial with respect to such claims, which may have the effect of limiting and discouraging lawsuits against us or the depositary. If a lawsuit is brought against us or the depositary under the deposit agreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may result in different outcomes than a trial by jury would have, including outcomes that could be less favorable to the plaintiff(s) in any such action.
Nevertheless, if this jury trial waiver is not permitted by applicable law, an action could proceed under the terms of the deposit agreement with a jury trial. No condition, stipulation, or provision of the deposit agreement or the ADSs serves as a waiver by any holder or beneficial owner of ADSs or by us or the depositary of compliance with any substantive provision of the U.S. federal securities laws and the rules and regulations promulgated thereunder.
Dividend payments and the amount you may realize upon a sale of our common shares or ADSs that you hold will be affected by fluctuations in the exchange rate between the U.S. dollar and the Korean Won.
Cash dividends, if any, in respect of our common shares represented by our ADSs will be paid to the depositary in Korean Won and then converted by the depositary into U.S. dollars, subject to certain conditions. Accordingly, fluctuations in the exchange rate between the Korean Won and the U.S. dollar will affect, among other things, the amounts a holder of ADSs will receive from the depositary in respect of dividends, the U.S. dollar value of the proceeds that a holder of ADSs would receive upon sale in Korea of our common shares obtained upon surrender of ADSs, and the secondary market price of ADSs. Such fluctuations will also affect the U.S. dollar value of dividends and sales proceeds received by holders of our common shares.
 
ITEM 4.
INFORMATION ON THE COMPANY
 
 
A.
History and Development of the Company
Our Company was originally established as The8Games Co., Ltd., in Seoul, Korea in 2008, an interactive entertainment studio focused on the development and publishing of casual games and mobile applications. In 2016, DUG acquired a controlling stake in our Company and, in 2017, DUG acquired the remaining stake in our Company, making us a wholly-owned subsidiary of DUG. Later in 2017, DUG also acquired
DDI-US
through our Company, believing that our strengths could be highly complementary to
DDI-US
for creating more powerful social casino gaming content. We changed our name to DoubleDown Interactive Co., Ltd. in December 2019. In February 2020, we acquired Korea-based Double8 Games from DoubleU Games. Our ADSs representing common shares have been listed and traded on The NASDAQ Stock Market under the symbol “DDI” since August 31, 2021.
Our agent for service of process in the United States is DoubleDown Interactive, LLC, 605 5th Avenue, Suite 300, Seattle, Washington 98104. Our principal executive offices are located at 13F, Gangnam Finance Center, 152,
Teheran-ro
Gangnam-gu,
Seoul 06236, Korea. Our main telephone number is
+82-2-501-7216.
The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that make electronic filings through its Electronic Data Gathering, Analysis, and Retrieval (“EDGAR”) system. All our Exchange Act reports and other SEC filings will be available through the EDGAR system. Our internet website is https://doubledowninteractive.com. The information contained in, or that can be accessed through, our website is not incorporated by reference into, and is not a part of, this annual report. We have included our website address in this annual report solely for informational purposes.
 
27

Table of Contents
 
B.
Business Overview
We are a leading developer and publisher of digital games on mobile and
web-based
platforms. We are the creators of multi-format interactive entertainment experiences for casual players. Our flagship game,
DoubleDown Casino
, has been in the top 25 grossing mobile games annually on Apple App Store (iPhone) since 2015, according to
App Annie
.
We have been an early pioneer in the social casino gaming segment of casual gaming and were among the initial publishers to launch a social casino game on the Facebook platform in 2010 with the release of
DoubleDown Casino
. As the market has shifted materially to mobile platforms in recent years, we have also embraced new distribution channels for our games, which have significantly expanded our overall reach and market opportunity. Our games attract players of social casino and casual games, and have been installed over 115 million times to date. During 2021, an average of 2.4 million players played our games each month.
Our market opportunity includes casual gaming globally, which includes slots, puzzle, card, match three and other similar games.
Sensor Tower
estimated that the global market for mobile casual games was $22.4 billion in 2021, an increase of approximately 13% from 2020. Within the social casino segment of casual gaming, which includes
free-to-play
online slots, poker, table games, and bingo,
DoubleDown Casino
was ranked third among the top game titles by revenue during 2021, according to
Eilers
 & Krejcik
. The global social casino market was $7.6 billion in 2021, and is estimated to grow at 2.7% over the next four years to reach $8.5 billion by 2025, according to
Eilers
 & Krejcik
. As one of the leading players in social casino today, we believe we are well-positioned to combine our social casino expertise with additional game elements to deliver entertaining playing experiences for our players.
We believe that success in casual gaming requires a combination of creativity and data science to acquire, engage and retain players. We have a deep understanding of our players which allows us to hone our game development, content strategy, and live game operations. Our
all-in-one
approach that combines numerous pieces of content within a single game streamlines the player experience while our
best-in-class
gaming elements, including graphics, user interface, and meta-features, such as daily challenges and loyalty programs, keep our players engaged. Collectively, our players exhibit higher monetization compared to that of our social casino peers, which we believe reflects our successful approach. Our ARPDAU was $0.97 during 2021.
We believe our access to content is among the broadest in the gaming industry. In addition to our internally-developed content, we also have access to content from IGT, one of the largest casino equipment suppliers in the world, and creator of well-known slot games such as
Cleopatra, Wolf Run
, and
Megabucks,
as well as from DoubleU Games, our controlling shareholder and a leading developer and publisher of social casino games based in Korea. Since 2008, we have had access to over 2,000 slot titles through our partnerships with IGT and DUG and we have internally developed a catalogue of over 44 original slot titles. We continue to provide our players with a superior gaming experience by leveraging our three content pillars: DDI, IGT, and DUG.
 
28

Table of Contents
The roots of our business
Our Company was originally established as The8Games Co., Ltd., in Seoul, Korea in 2008, an interactive entertainment studio focused on the development and publishing of casual games and mobile applications. In 2016, DUG acquired a controlling stake in our Company and the remaining stake was acquired by DUG in 2017, making us a wholly-owned subsidiary. Later in 2017, DUG also acquired
DDI-US
through our Company, believing that our strengths are highly complementary to
DDI-US
for creating more powerful social casino gaming content. We hold
DDI-US
through DUD, which is our wholly-owned subsidiary that fully owns
DDI-US.
We changed our name to DoubleDown Interactive Co., Ltd. in December 2021.
 
Through the acquisition of
DDI-US,
we have transformed into one of the world’s leading social casino publishers.
DDI-US,
our principal operating subsidiary, has been one of the early pioneers of social casino games on mobile and
web-based
platforms since the origination of the genre in the late-2000s.
DDI-US
was founded in 2010 with the launch of its flagship game,
DoubleDown
Casino
. The company was among the initial publishers to launch a social casino game on Facebook, where
DoubleDown Casino
rapidly gained popularity and became the fourth most user-recommended Facebook game across all genres in 2011, according to Facebook.
DoubleDown Casino
was subsequently launched on the Apple and Google platforms in 2012, which greatly expanded its distribution and player reach. In addition to being an industry pioneer,
DDI-US
has also proven to be an early innovator. For example,
DDI-US
was among the first to leverage authentic land-based content in mobile and
web-based
games.
DDI-US
was also the first to introduce a tournament feature with the introduction of
Social Slot Tournament
in 2011, which offered a real-time competitive environment for players to play against other players instead of against the house. With constant innovation, our games continue to perform well over time.
Prior to our acquisition of
DDI-US
in 2017, it had been a wholly-owned subsidiary of IGT since 2012, which at the time was the global leader in the design, development, and manufacture of gaming machines. Following IGT’s acquisition,
DDI-US
began to leverage IGT’s expansive selection of land-based casino content, which we continue to utilize through a licensing agreement, to release proven slot titles that enrich the authentic playing experience of our games.
Since our acquisition of
DDI-US
in 2017, DUG has brought our Company powerful casino content and the operating expertise of an early mover and leader in social casino gaming. DUG’s strong execution capabilities in post-
 
29

Table of Contents
merger integration have delivered a seamless assimilation post-acquisition and optimized synergies. Particularly, DUG’s operating
know-how
has helped us enhance our data analytics, incorporate
best-in-class
meta-features into our games, and develop more efficient marketing and user acquisition capabilities.
Our proprietary capabilities, coupled with our access to IGT’s content and DUG’s content and capabilities, give rise to three fundamental pillars through which we provide our players with high-quality content and superior gaming experiences.
 
 
   
Proven creative and technological competencies of DDI
: We have a sophisticated approach in developing original slot content and have demonstrated our innovation and creativity across social casino and casual mobile games. Furthermore, our centralized slot research and development function can quickly and efficiently incorporate slot content from IGT and DUG through a process known as “porting,” in which existing slot content from a third-party library is adapted into our games. Our technological competencies extend to live game operations, our use of data and analytics to tailor the gaming experience on a player segment-specific level to improve user acquisition, drive increased gameplay, and boost player spending in the
in-game
economy.
 
   
Proven authentic land-based content from IGT
: IGT offers us access to over 2,000 slot titles that we can port into our games. We closely monitor their land-based market performance and select
top-performing
titles to incorporate into our games. Content from IGT features iconic slot titles and authentic casino gameplay mechanics that appeal to a large audience of loyal players, with a particular focus on those who enjoy land-based slot machines. Current and future land-based slot titles from IGT provide a large and growing pipeline of slot content.
 
   
Exclusive original social casino content and proven execution capabilities from DUG
: DUG has built a collection of over 300 original slot titles that have been optimized for social casino experiences. We have exclusive access to DUG’s growing slot content that appeals to both authentic and casual players. In addition, DUG provides expertise in operating social casino mobile games, which enables us to improve execution across numerous aspects of our business including game development, marketing and user acquisition, and live game operations.
 
30

Table of Contents
Industry overview and market opportunity
Gaming has gained widespread popularity over the last decade and has become one of the largest forms of entertainment globally. Consumer spending on gaming was projected to be approximately $176 billion in 2021, according to data from
Newzoo 2021
, which would be more than two times the actual combined consumer spending in 2021 on music and at the global cinematic box office, $47.4 billion and approximately $21.4 billion, respectively, according to
The Business Research Company and Gower Street Analytics
. As consumers spend an increasing amount of time and money on digital devices, digital gaming has become the fastest growing segment within gaming according to
ResearchandMarkets.com
. According to
Newzoo 2020
, it was estimated that there will be 3.0 billion gamers in 2021. This has been driven by a number of technology and consumer trends:
 
   
Growth of mobile platforms and entertainment increasingly consumed through mobile
. According to data from Newzoo Online, the number of active smartphone users globally was expected to grow by 6.1% to 3.9 billion users in 2021. According to data from eMarketer, an average U.S. adult spent an average time of 4 hours and 23 minutes per day on a smartphone
(non-voice)
in 2021; time spent on consuming content via mobile devices was expected to surpass time spent watching TV for the first time in 2019. We believe this trend presents an opportunity for greater engagement with players on mobile devices.
 
   
Role of app stores as distribution and payment gateways
. Developers are now able to distribute apps to global audiences and regularly update the apps with new content and features. App stores are now a popular destination for users to find and access content, and also serve as integrated payment systems where users can conveniently make purchases in a trusted and secure setting. According to Sensor Tower, mobile games accounted for 69.3% of total revenue worldwide across Apple App Store, Google Play Store, and other third-party platforms in 2021.
 
   
Success of the
free-to-play
model has widened appeal of gaming to the masses
.
Free-to-play
games have significantly increased the revenue potential of mobile and
web-based
games by eliminating upfront barriers and facilitating purchases throughout the player lifecycle.
Free-to-play
games allow for a wider audience, increasing the number of potential paying players and enhancing the overall game experience by facilitating greater social interaction among players. Through offering a variety of
in-game
purchase options, players can spend according to their entertainment value derived from the game which allows developers to maximize revenue from their existing player base.
We also believe that the competencies required to succeed in the market have evolved:
 
   
Scale is increasingly important
. While developer tools and app store distribution have lowered the technical barriers to entry, long-term success generally favors larger gaming companies. Only a small fraction of games reaches meaningful scale. Through 2021, only 1,394 games of more than a million games available on Google Play Store and Apple App Store generated over $5 million of revenue, according to Sensor Tower. As games compete for limited playing time, gaming companies with an ability to invest significant amounts of resources to marketing, research and development, and ongoing costs are able to improve the probability of success. There is also a virtuous cycle whereby
top-ranked
games drive greater organic growth, which promotes higher social engagement and sharing. This translates to a potential larger player base which provides more data from which more effective user acquisition and engagement strategies can be formulated.
 
   
Content is a key differentiator
. Gaming companies face significantly higher costs to develop, market, and operate games. As greater resources are invested in these games, players have become more engaged and deeply invested in the games they play, resulting in higher switching costs. We believe both new and existing games have shown a higher inclination towards proven and recognizable content as a key form of differentiation to improve the likelihood of success in the long-term.
 
   
Increasing longevity of games
. Games have evolved into services, significantly extending the lifecycles of successful games. According to data from SensorTower and Cowen and Company, the top 25 grossing games on Apple App Store were first released an average of over five years ago. It is generally considered more efficient to grow an existing game with an established player base than to
 
31

Table of Contents
 
develop a new game and acquire players. Facilitated by a shift in monetization strategy towards more
in-game
purchases, greater ability to update games post-launch via app store platforms, and the incorporation of social aspects into the games, players stay engaged longer, which in turn drives higher and more stable monetization. As the lifecycles of games continue to increase, we believe that strong, data-driven live operations capabilities are crucial to optimize games to drive long-term and sustainable value.
We believe that our market opportunity includes casual gaming globally, which includes slots, puzzle, card, match three and other similar games.
Eilers
 & Krejcik
defines casual games as games that have simple decision-making with the ability for players to start or stop playing at any time without heavily impacting the overall experience.
Sensor Tower
estimated that the global market for mobile casual games was $22.4 billion in 2021, an increase of approximately 13% from 2020. The global social casino market was $7.6 billion in 2021, and is estimated to grow at 2.7% over the next four years to reach $8.5 billion by 2025, according to
Eilers
 & Krejcik
. We believe that casual and social casino genres are converging, blending elements into new games. As one of the leading players in social casino gaming today, we believe we are well-positioned to combine our social casino expertise with additional game elements to deliver entertaining playing experiences for our players. Our management and development teams have experience developing both social casino and casual games.
Our value proposition to players
Each of our games is targeted at a broad and diverse set of players, ranging from social casino enthusiasts to casual gamers. Our games are evergreen in nature, in known formats, self-directed in pace and session length, and incorporate a regular cadence of
in-game
events. We believe that our gameplay style unlocks an audience that has historically been underserved by gaming, as our data reflects our average player skews female, older, and with higher income compared to the gaming industry average according to data from the
Entertainment Software Association
, thereby potentially supporting higher retention and monetization.
While the majority of our players engage with our authentic land-based casino content, we believe significant opportunity exists in broader casual and social segments. Our
all-in-one
approach to each game allows for all types of players to engage with our content within the same game. In addition, we believe that engaging graphics, innovative meta-features, and a mobile-first experience will expand the range of player segments we address. Our diversity of content within one game, ranging from authentic to casual, appeals to numerous types of players. Our longest-standing game,
DoubleDown Casino
contains over 200 titles.
Our
All-in-One
Approach
 
 
32

Table of Contents
We believe that our games offer a compelling value proposition to players that drives their loyalty and continued engagement and monetization:
Proven library of content:
We have a diverse library of content to entertain and engage players, including proven social casino gaming content developed by DUG; authentic, land-based casino content from IGT; and innovative, original content developed internally. DUG and IGT’s content libraries include widely-known titles with strong player affinities that drive player interest and engagement. The breadth of our content allows us to target a wide spectrum of player segments. Based on continual analysis of
in-market
performance of DUG titles and IGT land-based machines, we are able to carefully select top performing content to port to our games.
Cross-platform playability:
Our players can play our games anytime and anywhere on mobile and
web-based
platforms. Our games are available on all major platforms including Apple App Store, Facebook, Google Play Store, and Amazon Appstore. The accessibility of our games allows players to engage with our content in their preferred format.
All-in-one
approach:
Each of our games provides a
one-stop
shop for gaming entertainment with diversified content. We believe that users prefer fewer apps on their smartphones, not more. According to a 2017
comScore
study, smartphone and tablet users, age 18 or older, spent 96% of their time on their personal top ten apps. To play a multitude of our content, players are only required to download one game. The content choices available within each game allow the player to tailor the experience to their preferences, and the unified environment lowers the barrier to new content discovery, enhancing entertainment and engagement for our players. Additionally, players are able to earn rewards and spend currency in one environment rather than being fragmented across multiple apps, thereby enhancing loyalty.
Enhanced player experience
: Our social casino games are designed to deliver a
best-in-class
mobile gaming experience, including engaging graphics, user interface and meta-features. For example, features such as
DoubleDown Casino
’s Megabucks room give players an opportunity to win large jackpots while playing iconic, authentic slots.
 
33

Table of Contents
Our data-driven approach
We employ a data-driven approach throughout our business, from new game strategy to live operations of existing games. We have been operating in this manner for over ten years, and have developed a system of analysis leveraging our longevity and depth of player information. Our analytic capabilities allow for real-time and more accurate analysis, thereby reducing our reliance on third-party providers. We continually analyze and test granular changes to features, content, and live game operations to hone our offering.
 
Feature development
We build features that are designed to enhance the gaming experience for our players and drive engagement and monetization. Prior to full launch, we employ a variety of testing processes, including alpha testing, beta testing, and targeted launches, to estimate granular impacts on player behavior. Based on our analysis of test results, we are able to predict whether implementation of the feature will drive increased playing time or session frequency, or generate additional purchases in the
in-game
economy for particular player segments. We hone our features in an iterative process prior to full release. We develop features to continue to grow our player base, increase our current players’ engagement with our games, and boost player monetization within our games. For example, to drive higher monetization of players, we tested an enhanced jackpot feature designed to provide greater jackpot wins during a limited period of time. Our testing confirmed that such a feature motivated higher wager levels and related purchases. As a result, the Jackpot Happy Hour feature was introduced to all players in
DoubleDown Casino
.
Content strategy
We release new content with a high velocity cadence, typically every 1.5 weeks. Fresh content is important in heightening player engagement, providing new opportunities for players to utilize virtual chips, and motivating additional purchases. We continually analyze in real-time how our slot titles are performing across our games to provide insights into which content in our development pipeline is optimal to introduce next. We extend our performance analysis to all
in-market
titles, and our development speed enables us to be a fast-follower for any type of content gaining traction in the market. If our data analytics show a particular style of content driving increases in monetization or number of playing sessions per player, we believe we can quickly
 
34

Table of Contents
and efficiently introduce related content. For example, our decision to expand the scope of our content beyond authentic slot titles to include more original social casino content was based on the strong positive data trends seen in the performance of initial content launches of this type.
Live game operations
We use our data and analytics to tailor the application of meta-features on a player segment-specific level to improve user acquisition, drive increased gameplay, and boost spend in the
in-game
economy. Based on our real-time analysis of how a specific player reacts to specific changes in gameplay mechanics or communications, we can tailor the gaming experience of the player or the special offers the player receives. We can utilize these insights to optimize our user acquisition spend, gameplay mechanics, and monetization efforts to other players with similar behavior. Our customized analytics improve over time as we optimize these live operations functions daily. Our data-driven live game operations is a core capability that we believe helps to boost our marketing efficiency and increase engagement and monetization of existing players. For example, we are able to deliver optimized purchase offers to first-time payers based on initial playing behavior of each new player cohort.
Our strengths
All-in-one
strategy offers scalability, player insights, and operational efficiency
Our
all-in-one
approach allows our players to access our extensive library of slot content through a single game download. We believe that by consolidating players of multiple slot titles into fewer games, we have built a larger and more connected player base, fostering a stronger sense of loyalty among players and promoting higher levels of engagement with our content. Additionally, we believe that the singular environment of our games facilitates discovery of new content and leads to increases in the number of playing sessions over time. For 2021, the average number of playing sessions per day increased 17.3% compared to 2020.
The
all-in-one
approach provides an enhanced understanding of our players as all of their behaviors take place within the same game. We leverage our proprietary,
in-house
developed analytic tools to capture rich data insights we can leverage throughout our entire game development and operation process. Additionally, our players self-select slot content that they want to play within our game, thereby revealing their preferences and playing style over time, which we can utilize to effectively introduce new content and features for further monetization opportunities.
By centralizing our content into fewer games, we can also adopt a more focused and efficient approach to user acquisition. Our
all-in-one
approach improves our marketing efficiency, promotes awareness of our games, and reduces cannibalization across multiple games.
Access to deep content libraries and proven track record of developing new content
We believe our content library, underpinned by our three pillars for content access and development, is among the deepest in casual gaming and allows us to target a wide audience of players globally. We have access to hundreds of highly recognizable, branded land-based slot titles through our partnership with IGT which enables us to deliver an authentic casino floor experience to our players. In addition to deep content libraries of
IGT-developed
slots such as
Cleopatra, Wolf Run,
and
Megabucks,
the IP License Agreement with IGT allows us to gain access to other iconic third-party slots, such as
Wheel of Fortune
. Our parent company, DUG, also has deep experience in developing social casino games. More than 300 titles are available to us exclusively, further enriching our content library. Both IGT and DUG’s content further extends the range of player segments we can address, which we believe is a competitive advantage over our peers.
In addition to IGT and DUG content, our
in-house
research and development team develops proprietary slot content. Collectively, we have had access to over 2,000 slot titles through our partnerships with IGT and DUG and we have internally developed a proprietary catalogue of over 44 original slot titles.
 
35

Table of Contents
Comprehensive player lifecycle management
We employ a rigorous, data-driven approach to player lifecycle management from user acquisition to ongoing engagement and monetization. We use internally-developed analytic tools to segment and target players and to optimize user acquisition spend across multiple channels. Once a player is acquired, our proprietary analytic tools dissect their playing behavior on a granular level. We build a sophisticated understanding of our players that allows us to tailor game mechanics, features, and offers to drive increased gameplay or number of playing sessions. Greater engagement from our players has a flywheel effect of further improving our data analytics and ability to retain those players through customized game elements. As the players progress in their lifecycle, we also use our data analytics capabilities to boost monetization. We strategically deploy personalized special offers and tune gameplay to drive additional player spend. We believe our comprehensive, data-driven approach to managing players throughout the entirety of their lifecycle drives better monetization than our competitors, resulting in ARPDAU of $0.97.
Robust technology platform
We operate on a centralized, cloud-based technology platform which enables us to consistently launch high-quality slot content and operate our games on a global level. Our robust infrastructure allows us to capture and analyze player data in real-time, which fuels our development and operations. In addition, we have proprietary porting capabilities that allow us to implement content from DUG and IGT quickly and efficiently, which enables our high velocity approach to content development. Our shared code base also increases speed to market for new content, features, and services while minimizing development costs, as we are able to
roll-out
software and content updates across all of our games simultaneously. Lastly, our high-capacity servers minimize loading time and service outage risks, contributing to a streamlined and consistent gaming experience for our players.
Deep talent pool and shareholder support
We have a global development team with extensive experience across multiple geographies and functions. Our management team and employee base have a proven track record of creating and scaling social casino and casual games. For example, in 2016, our senior management launched
Catch Monsters,
a casual game for the Facebook platform. Our talent pool of 219 employees is comprised of highly experienced engineers, creative artists, product managers, data scientists and market researchers. We also benefit from our controlling shareholder DUG, a leader in the social casino gaming industry, with whom we regularly engage to share best practices.
Our strategies
Maximize
We plan to develop new content and features within our existing games to grow the number of active players in our existing player segments. We intend to improve engagement and monetization of our existing players by leveraging enhanced data insights gained from our analytic capabilities. In addition, we aim to utilize our rich data to hone our development, marketing, and live game operations efforts to drive additional player engagement and monetization. We also aim to efficiently deploy our marketing spend to attract new players to our platform for both our existing games and future new games in our existing gaming categories.
Expand
We intend to build, launch and scale additional games in adjacent gaming segments using our skilled and experienced creative and technical experts many of who have worked on successful mobile games outside social casino. This includes expansion into new gaming categories such as action role-playing games, or RPG, casual casino, and hyper-casual to capture an increased share of the fast-growing mobile games market. For example, we launched our first action RPG game,
Undead World: Hero Survival
, in the United States and Canadian markets in the second
 
36

Table of Contents
half of 2021. We believe we can further leverage our existing content to grow in regions that share familiarity with our current content and gameplay features, such as Australia and Western Europe.
Acquire
We intend to pursue selective merger and acquisition opportunities to expand our capabilities and grow our industry and geographic footprint. Our management team has a demonstrated track record of execution and integration for strategic mergers and acquisitions, having been successful in integrating content and capabilities from our controlling shareholder, DUG. We believe we can further maximize the value of acquired assets by leveraging our scalable platform and deep talent pool.
Our games
DoubleDown Casino
(launched in April 2010)
 
  
Start screen
  
Lobby
  
Slot game start screen
  
Hall of Fame History showing player ranking
DoubleDown Casino
, our flagship game, targets social casino gamers who value authentic Vegas-style gameplay. The game replicates the land-based casino environment and utilizes our internally-developed slot titles, as well as those from IGT and DUG. A pioneer in the social casino gaming industry,
DoubleDown Casino
was first introduced in April 2010 on Facebook and achieved 10 million cumulative downloads in just 23 months.
In February 2012, the
DoubleDown Casino
mobile app was launched on Apple App Store, Google Play Store, and Amazon Appstore. In 2018, we fully renewed the game by incorporating additional content, including from DUG, along with additional engaging
in-app
features such as High Limit Room, Jackpot Happy Hour, vouchers and coupon systems, and more granular membership segmentation.
DoubleDown Casino
features 180
free-to-play
slots as of December 31, 2021. Almost a decade after its initial launch,
DoubleDown Casino
remains one of the most recognized social casino games, and ranked third among the top game titles by revenue during 2021, according to
Eilers
 & Krejcik
.
 
37

Table of Contents
DoubleDown Fort Knox
(launched in April 2018)
 
  
  
  
Start screen
  
Lobby
  
Slot game start screen
  
Time-based bonuses
DoubleDown Fort Knox
is offered as a mobile app on Apple App Store and Google Play Store.
DoubleDown Fort Knox
utilizes an advanced technology platform allowing for an immersive experience which appeals to a younger player demographic. Additionally,
DoubleDown Fort Knox
offers a suite of compelling meta-features, including daily bingo challenges and progress boosters.
DoubleDown Fort Knox
features 99 slots and had recorded over 3.9 million cumulative installations as of December 31, 2021.
DoubleDown Classic
(launched in July 2017)
 
  
Start screen
  
Lobby
 
  
Slot game start screen
  
Daily Bonus
 
38

Table of Contents
DoubleDown Classic
focuses on players with a strong appetite for classic wheel-based slot games, who prefer an
old-fashioned,
mechanical, reel-based gaming experience. In this game, players can find some of the most traditional and popular
3-reel
and
5-reel
slots seen in land-based casinos, which are designed to maximize authenticity of the gaming experience.
DoubleDown Classic
is offered through Apple App Store and Google Play Store, with over 2.0 million cumulative installations as of December 31, 2021.
Undead World: Hero Survival
(launched in September 2021)
 
  
  
  
Start screen
  
Lobby
  
Character placement screen
  
PvE game play screen
Undead world:
Hero Survival
is offered as our first RPG style, a turn-based mobile adventure game which appeals to younger generations. This game allows players to collect heroes and build a team to battle zombie hordes. Heroes can be gained via gameplay or can be unlocked as
in-game
rewards. Heroes level up by gaining experience by completing quests or battles.
Undead world: Hero Survival
offers meta-features, including daily feature quests and idle rewards.
Undead world: Hero Survival
had recorded over 670,000 cumulative installations as of December 31, 2021.
Technology infrastructure
We operate our games on robust technology infrastructure. We utilize an Amazon Web Service-based data infrastructure that enables stable and agile data management. We designed our platform with multiple layers of redundancy to guard against data loss and to deliver high availability. Our data centers are currently located in Virginia and California. Our high-capacity servers support our data and analytics capabilities.
Our technology platform enables us to port new content ourselves. Our systematic ability to port gaming content from both DUG and IGT has enabled us to customize content for our gaming environment, so that we can provide a more consistent interface with improved aesthetics to ensure a seamless experience for our players.
We operate using a shared code base. Our shared code base improves speed to market and minimizes development costs. Our shared global architecture enables every innovation and upgrade to our infrastructure to be simultaneously available to all of our games and development teams. We are able to continuously incorporate learnings across our platform to optimize performance.
 
39

Table of Contents
Our platform partners
Our games are primarily distributed, marketed, and promoted through third party platform providers, primarily Apple App Store, Facebook, Google Play Store, and Amazon Appstore. Most of the virtual chips we sell are purchased using the payments processing systems of these platform providers. These platforms generally charge us approximately 30% of the gross receipts they collect from our players.
Our use of mobile and
web-based
platforms and data derived from such platforms is subject to each platform provider’s standard terms and conditions for application developers, which govern the promotion, distribution and operation of games and other applications on their platforms. Our platform providers have the ability to make unilateral changes to their platforms, their terms of service, the amounts of or method by which our players obtain content and make payments, how they are paid, and any other aspect of their platforms and services. Those changes may negatively impact how our games work, how players interact with our games, and our ability to attract and monetize players.
Technology and content development
We have a dedicated technology and content development team that works to expand our player reach, and impact with new, innovative games
.
Since the acquisition of
DDI-US
from IGT in 2017, we have endeavored to strengthen our
in-house
development capabilities to enable us to be less reliant on third-party licensing arrangements, primarily with IGT and DUG, by developing proprietary intellectual property. We consider it important to create new and innovative games on a continuing basis in order to attract and retain players and, ultimately, to increase our market share.
Our development operations are based in our Seoul headquarters facility, which includes a Korea game development center. The Korea center has approximately 147 employees who focus on the design, development, testing and delivery of our social casino games as well as the integration of our gaming platform with other internet applications and platforms. Our expenditures on technology and content development were approximately $18.5 million in 2021 and approximately $18.8 million in 2020. We anticipate that our expenditures will increase 10~15% annually over the next three to five years.
Marketing
We focus our marketing efforts on acquiring new players and retaining existing players. We acquire players both organically and through paid channels. Our paid marketing includes performance marketing and dynamic media buying on Facebook, Google, and other channels such as mobile ad networks. Underlying our paid marketing efforts are our data analytics that allow us to estimate the expected value of a player and adjust our user acquisition spend to a targeted payback period. Our broad capabilities in promotions allow us to tailor promotional activity around new releases, execute differentiated multi-channel campaigns, and reach players with preferred creative content. In addition to our paid player acquisition efforts, we acquire players organically. Our expansive base of players attracts other players to our games through the viral and sharing features provided by social networks, the social innovations in our games, and the network effects of our business. The social innovations in our games include tournaments, bonuses for friend invites, and social network leaderboards. Our games’ prominent rankings on app store distribution channels also boost organic installations.
Our player retention marketing includes advertising on Facebook as well as outreach through email, push notifications, and social media posts on channels such as Facebook, Instagram, and Pinterest. Our data and analytics also inform our retention marketing efforts. Campaigns are specially designed for each channel based upon player preferences for dimensions such as time of day and creative content. We consistently monitor marketing results and return on investment, replacing ineffective marketing tactics to optimize and improve channel performance.
 
40

Table of Contents
Competition
We face significant competition in all aspects of our business. Our primary social casino game competitors include Playtika (acquired by a group of investors led by Shanghai Giant Network Technology Co.), Product Madness/Big Fish Games (subsidiaries of Aristocrat), Zynga Inc., and SciPlay. Our principal competitors in the broader casual game market include Electronic Arts, Activision Blizzard, Electronic Arts, Take Two Interactive, Kabam, Rovio, and Tencent Holdings. On the broadest scale, we compete for the leisure time, attention, and discretionary spending of our players versus other forms of online entertainment, including social media, reading, and other video games on the basis of a number of factors, including:
 
   
quality of player experience,
 
   
breadth and depth of gameplay,
 
   
innovative game mechanics,
 
   
ability to create or license compelling content,
 
   
ability to invest in leading technology,
 
   
game awareness and reputation, and
 
   
access to distribution channels.
We believe these factors, among other things, enable us to compete favorably in the market. Our industry and the markets for our games, however, are highly competitive, rapidly evolving, fragmented, and subject to changing technology, shifting needs, and frequent introductions of new games, development platforms, and services. Successful execution of our strategy depends on our continuous ability to attract and retain players, expand the market for our games, maintain a technological edge, and offer new capabilities to players.
Many of our current and potential competitors enjoy substantial competitive advantages, such as greater name recognition, longer operating histories, greater financial, technical, and other resources, and, in some cases, the ability to rapidly combine online platforms with full-time and temporary employees. Internationally, local competitors may have greater recognition than us in their local country and a stronger understanding of local culture and commerce. They may also offer their products and services in local languages we do not offer.
Intellectual property
We rely on a combination of patent, copyright, trademark, and trade secret laws to protect our intellectual property rights. As of December 31, 2021, we have six registered patents in the United States, one pending patent application in Canada, 14 registered trademarks in the United States, five trademarks pending in the United States, and 75 registered trademarks in jurisdictions outside of the United States.
We also license a significant amount of the intellectual property that we use in our business from IGT pursuant to the IP License Agreement. We entered into the IP License Agreement with IGT on June 1, 2017, and it was subsequently amended on October 4, 2018 and May 30, 2020. Pursuant to the IP License Agreement, as amended, IGT has granted us an exclusive, perpetual and irrevocable license to license and distribute certain IGT social casino game titles in the social online game field of use launched before June 1, 2020. For each slot game first launched in the social online game field by
DDI-US
starting on June 1, 2020, the license from IGT is
non-exclusive,
perpetual and irrevocable. The IP License Agreement has an initial term of ten years, and may be renewed, if certain conditions are met, for two additional five-year periods. The IP License Agreement may be terminated by either us or IGT for cause. Pursuant to the IP License Agreement, as of December 31, 2021, we license from IGT approximately 320 slot gaming intellectual property rights that are actively offered to end users through our game titles.
 
41

Table of Contents
We entered into the DoubleU Games License Agreement on March 7, 2018, and it was subsequently amended on July 1, 2019 and November 27, 2019. Pursuant to the DoubleU Games License Agreement, DoubleU Games grants us an exclusive license to develop and distribute certain DoubleU Games social casino game titles and sequels thereto in the social online game field of use. Pursuant to the DoubleU Games License Agreement, as of December 31, 2021, we license approximately 44 game titles that are actively offered to end users. The exclusive license is subject to our payment of license fees. As amended to date, the agreement remains in effect until either DUG no longer holds an interest, directly or indirectly, in DDI, or DDI no longer holds an interest, directly or indirectly, in
DDI-US.
In such event, the agreement provides that the parties will mutually renegotiate the terms of the agreement.
Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use our technology. In addition, third parties may initiate litigation against us alleging infringement of their proprietary rights or declaring their
non-infringement
of our intellectual property rights.
Regulation of the industry
We are subject to foreign and domestic laws and regulations that affect companies operating online, including over the internet and mobile networks, many of which are still evolving and could be interpreted in ways that could negatively impact our business, revenue, and results. Our social casino games, like many of those operated by our competitors, are not regulated under gambling or gaming laws. Certain jurisdictions, such as China, prohibit the operation of online social casino games completely within their country.
There is certain opposition in some jurisdictions to interactive online gaming, including social casino games. In September 2018, the World Health Organization added “gaming disorder” to the International Classification of Diseases, defining the disorder as a pattern of behavior characterized by impaired control over gaming and an increase in the priority of gaming over other interests and daily activities. Some states or countries have anti-gaming groups that specifically target social casino games. Such opposition could lead these jurisdictions to adopt legislation or impose a regulatory framework to govern interactive social gaming or social casino games specifically and which could require us to comply with stringent regulations and/or require us to modify our operations in order to so comply. These could result in a prohibition on interactive online gaming or social casino games altogether, restrict our ability to advertise our games, encourage our existing platform partners to restrict our ability to deploy our games through their media, or substantially increase our costs to comply with these regulations, all of which could have an adverse effect on our results of operations, cash flows, and financial condition. We cannot predict the likelihood, timing, scope, or terms of any such legislation or regulation or the extent to which they may affect our business.
On September 17, 2018, 15 international gambling regulators, plus the Washington State Gambling Commission, signed a declaration expressing concern “with the risks posed by the blurring of lines between gambling and other forms of digital entertainments such as video gaming,” including, among others, social casino gaming. The regulators committed to work together to analyze the characteristics of video games and social gaming and to engage in an informed dialogue with the video game and social gaming industries to ensure the appropriate and efficient implementation of applicable laws and regulations. The regulators also indicated they would work closely with their consumer protection enforcement agencies. We cannot predict the likelihood, timing, scope, or terms of any actions taken as a result of the declaration.
Consumer protection concerns regarding games such as ours have been raised in the past and may again be raised in the future. These concerns include (i) whether social casino games may be shown to serve as a gateway for adolescents to money gambling, and (ii) a concern that social casino gaming companies are using big data and advanced technology to predict and target “vulnerable” users who may spend significant time and money on social casino games in lieu of other activities. Such concerns could lead to increased scrutiny, including the potential imposition of a regulatory framework, over the manner in which our games are designed, developed, distributed, and presented. It is difficult for us to monitor and enforce age restrictions with respect to
 
42

Table of Contents
players who download or play our games, as we rely on third-party distribution platforms such as Apple App Store, Facebook, Google Play Store, and Amazon Appstore. We cannot predict the likelihood, timing, or scope of any concern reaching a level that will impact our business, or whether we would suffer any adverse impacts to our results of operations, cash flows, and financial condition.
In a recent case, the United States Court of Appeals for the Ninth Circuit decided that a social casino game produced by one of our competitors should be considered illegal gambling under Washington state law. Similar lawsuits have been filed against other defendants, including
DDI-US.
See “Item 8. Financial information—Consolidated statements and other financial information—Legal and administrative proceedings.”
Data privacy and security
We collect, process, store, use, and share data, some of which contains personal information. Consequently, our business is subject to a number of U.S. and international laws and regulations governing data privacy and security, including with respect to the collection, storage, use, transmission, sharing, and protection of personal information. Data privacy protection laws are rapidly changing and likely will continue to do so for the foreseeable future and may be inconsistent from jurisdiction to jurisdiction.
The European Union, or EU, has adopted strict data privacy and security regulations. The “GDPR”, effective May 2018, created new compliance obligations applicable to even
non-EU
businesses that offer their services to individuals located in the European Union. Companies that fail to comply with their GDPR obligations can face large financial penalties (including fines of up to four percent of global annual revenue for the preceding financial year or €20 million (whichever is higher) for the most serious violations).
In addition, rulings from the Court of Justice of the European Union (“CJEU”) may have a great impact on how companies subject to the GDPR process EU personal data. For example, in July 2020 the CJEU ruled that the EU—U.S. Privacy Shield certification was no longer a valid mechanism for transferring personal data from the European Union to the United States. We have taken appropriate steps to legitimize the transfer of such data that previously relied on EU—U.S. Privacy Shield certification.
In addition, the scope of data privacy regulations worldwide continues to evolve. New, increasingly restrictive regulations are coming into force all around the world, such as in Thailand and Brazil, but also within the United States. The California Consumer Privacy Act, or CCPA, became effective on January 1, 2020.
In short, the CCPA:
 
   
provides California consumers with new rights—specifically the right to notice, access, deletion, and to
opt-out
of sales of their personal information,
 
   
will affect several marketing activities due to the CCPA’s broad definitions of personal information and sale, and
 
   
provides for private actions and permits for class action which could result in businesses being subject to substantial statutory fines in cases involving thousands of impacted consumers where the business is found to have failed to implement and maintain reasonable and appropriate security procedures.
The interpretation and practical implication of several provisions remain somewhat uncertain. Moreover, the California Privacy Rights Act, which was passed by ballot proposition in November 2020, amends the CCPA to provide even more expansive rights to California residents, and takes effect on January 1, 2023. It is clear that the effects of the CCPA/CPRA are significant and that they will require us to modify our data, security, and marketing practices and policies, and to incur substantial costs and expenses in an effort to comply with the CCPA and other applicable data protection laws.
 
43

Table of Contents
In addition, there currently are a number of other proposals related to data privacy and security pending before several legislative and regulatory bodies. For example, the European Union is contemplating the adoption of the Regulation on Privacy and Electronic Communications (the
“e-Privacy
Regulation”). While this regulation was planned to take effect simultaneously with GDPR, it is currently still being debated and discussed by the EU member states. The
e-Privacy
Regulation focuses on the privacy of electronic communications and within that respect, it contains new rules for direct marketing activities. It is highly likely that these rules will lead to new consent requirements.
Due to the rapidly changing nature of these data privacy protection laws, there is not always clear guidance from the respective governments and regulators regarding the interpretation of the law, which may create the risk of an inadvertent violation. Efforts to comply with these and other data privacy and security restrictions that may be enacted could require us to modify our data processing practices and policies and to incorporate privacy by design into our games and website, as well as significantly increase the cost of our operations. Failure to comply with such restrictions could subject us to criminal and civil sanctions and other penalties. In part due to the uncertainty of the legal climate, complying with regulations, and any applicable rules or guidance from self-regulatory organizations relating to privacy, data protection, information security, and consumer protection, may result in substantial costs and may necessitate changes to our business practices, which may compromise our growth strategy, adversely affect our ability to attract or retain players, and otherwise adversely affect our business, financial condition, and operating results.
Any failure or perceived failure by us to comply with our posted privacy policies, our privacy-related obligations to players or other third parties, or any other legal obligations or regulatory requirements relating to privacy, data protection, or information security may result in governmental investigations or enforcement actions, litigation, claims, or public statements against us by consumer advocacy groups or others, and could result in significant liability, cause our players to lose trust in us, and otherwise materially and adversely affect our reputation and business. Furthermore, the costs of compliance with, and other burdens imposed by, the laws, regulations, and policies that are applicable to us may limit the adoption and use of, and reduce the overall demand for, our games.
Additionally, if third parties we work with violate applicable laws, regulations, or agreements, such violations may put our players’ data at risk, or result in governmental investigations or enforcement actions, fines, litigation, claims, or public statements against us by consumer advocacy groups or others, and could result in significant liability, cause our players to lose trust in us, and otherwise materially and adversely affect our reputation and business. Further, public scrutiny of, or complaints about, technology companies or their data handling or data protection practices, even if unrelated to our business, industry, or operations, may lead to increased scrutiny of technology companies, including us, and may cause government agencies to enact additional regulatory requirements or to modify their enforcement or investigation activities, which may increase our costs and risks.
As we offer our games worldwide, foreign jurisdictions may claim we are required to comply with local laws, including in jurisdictions where we have no local presence, offices, or other equipment. We are subject to a variety of laws in the United States and other
non-U.S.
jurisdictions, including laws regarding consumer protection, intellectual property, virtual items and currency, export, and national security, all of which are continuously evolving and developing. The scope and interpretation of the laws that are or may be applicable to us are often uncertain and may be conflicting, particularly laws outside the United States. It is also likely that as our business grows and evolves and our games are played in a greater number of countries, we will become subject to laws and regulations in additional jurisdictions. If we are not able to comply with these laws or regulations or if we become liable under these laws or regulations, we could be directly harmed, and we may be forced to implement new measures to reduce our exposure to this liability. This may require us to expend substantial resources, modify our games, or block users from a particular jurisdiction, each of which would harm our business, financial condition, and results of operations. In addition, the increased attention focused upon liability issues as a result of lawsuits and legislative proposals could harm our reputation or otherwise impact the
 
44

Table of Contents
growth of our business. Any costs incurred as a result of this potential liability could harm our business and operating results.
It is possible that a number of laws and regulations may be adopted or construed to apply to us in the United States, Korea, Europe, and elsewhere that could restrict the online and mobile industries, including player privacy, advertising, taxation, gaming, copyright, distribution, and antitrust. Furthermore, the growth and development of electronic commerce, social gaming, and virtual items and currency may lead to more stringent consumer protection laws that may impose additional burdens on or limitations on operations of companies such as ours conducting business through the internet and mobile devices. If scrutiny and regulation of our industry increase, we will be required to devote additional legal and other resources to addressing such regulation. For example, certain jurisdictions may seek to regulate social games. If a jurisdiction important to our business regulates social games, we would incur additional costs associated with compliance with such regulation, or depending on the nature of the regulation, we could be prohibited from providing social games in such jurisdiction altogether. Such new compliance costs or jurisdictional restrictions on our ability to offer social games could have a material adverse effect on our business, financial condition, and operating results.
Our employees
As of December 31, 2021, we had approximately 219 full-time employees worldwide, of whom approximately 147 are based in our Seoul facility and 72 are based in our Seattle facility. We have 174 employees dedicated to technology and content development, 34 in marketing, and 11 in general administration. We do not have any part-time employees nor do we have any unions or collective bargaining agreements with any of our employees.
 
 
C.
Organizational Structure
Our principal operating subsidiaries as of December 31, 2021 are as follows:
 
Legal Entity Name
  
Jurisdiction
  
Percentage Interest Held
DoubleUDiamond, LLC
   Delaware    100%
DoubleDown Interactive, LLC
   Washington    100%
Double8 Games Co., Ltd.
   Republic of Korea    100%
 
 
D.
Property, Plants and Equipment
We currently lease two facilities located in Seoul, Korea, and Seattle, Washington, which comprise approximately 2,939 square meters and 49,375 square feet, respectively. The Seoul facility is our principal office, serving as our management headquarters and providing research and development activities. The Seattle facility serves as our center of research and development, human resources and administrative activities for the U.S. operations. We lease our principal office from DoubleU Games, and
DDI-US
leases the Seattle office from an independent third party. Our Seoul lease expires on September 30, 2023, but is renewable annually on the same terms unless express prior written notice of
non-renewal
is given by either party, providing us the flexibility to seek alternative facilities in light of prevailing market conditions. Our Seattle lease was originally entered into in July 2012 and expires on October 31, 2024. The terms of the Seattle lease provide for annual rent increases of $49,375, or an increase of approximately 2.5% per year.
We believe our existing facilities are sufficient for our current needs. We may add new facilities or expand our existing facilities as we continue to add employees and expand into new markets. We expect that suitable additional space will be available to us as and when needed to accommodate our future growth.
 
ITEM 4A.
UNRESOLVED STAFF COMMENTS
None.
 
45

Table of Contents
ITEM 5.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with “Item 4. Information on the Company” of this annual report, and our consolidated financial statements and related notes thereto, included elsewhere in this annual report. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our current plans, expectations, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report, particularly in the sections entitled “Item 3D. Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.”
Overview
We are a leading developer and publisher of digital games on mobile and
web-based
platforms. We are the creators of multi-format interactive entertainment experiences for casual players. Our flagship game,
DoubleDown Casino
, has been in the top 25 grossing mobile games annually on Apple App Store (iPhone) since 2016, according to
SensorTower
.
We have been an early pioneer in the social casino gaming segment and were among the initial publishers to launch a social casino game on the Facebook platform in 2010 with the release of
DoubleDown Casino
. As the market has shifted materially to mobile platforms in recent years, we have also embraced new distribution channels for our games, which has significantly expanded our overall reach and market opportunity. Our games attract players of social casino and casual games, and have been installed over 115 million times to date. During 2020 and 2021, an average of 2.9 million players and 2.4 million players, respectively, played our games each month. We believe that success in casual gaming requires a combination of creativity and data science to acquire, engage, and monetize players, and we have invested in our platform to build capabilities in game development and live game operations to capitalize on our opportunity.
All of our games are downloadable and playable for free on mobile platforms, and
DoubleDown Casino
is also available on web platforms. We designed our games to provide free virtual chips to players at various time intervals based on our players’ playing behaviors and patterns. We generate substantially all of our revenue from the sale of additional virtual chips, which players can choose to purchase at any time to enhance their playing experience. Our virtual chips cannot be withdrawn from the game, transferred from one game to another or from one player to another, or be redeemed for monetary value. We also generate a small portion of our revenue from our recently-launched subscription model, which allows subscribers to further enhance their gaming experience by gaining early access to new content and earning free virtual chips at a faster rate.
We have achieved consistent revenue growth and strong profitability. Our revenue was $363.2 million in 2021, up from $358.3 million in 2020. Our net income was $78.1 million in 2021, up from $53.6 million in 2020. Our Adjusted EBITDA was $120.1 million in 2021, compared with $120.3 million in 2020. See “Item 5. Operating and financial review and prospect—Other key performance indicators and
non-GAAP
metrics and trends” below for a description of Adjusted EBITDA and for a reconciliation to net income, the most directly comparable financial measure calculated in accordance with U.S. GAAP.
Recent developments
The global pandemic associated with
COVID-19
has caused major disruption to all aspects of the global economy and societies in recent months, particularly as quarantine and
stay-at-home
orders have been imposed by all levels of government. We have followed guidance by the Korean government and the state government in Washington to protect our employees and our operations during the pandemic and have effectively implemented a remote environment for our business. To date, we have not incurred any interruptions in operations. We continuously monitor performance and other industry reports to assess the risk of future negative impacts should the disruption of the economy progress.
 
46

Table of Contents
The online gaming industry, in particular, has been identified in industry and media reports, such as
Eilers
 & Krejcik
and
AppsFlyer
, as an unintended beneficiary of this pandemic as people are quarantined in their homes, and we are not an exception to this benefit. Our monthly revenue benefited from the effects of the pandemic, particularly in those months when
stay-at-home
orders and quarantines were broadly imposed across the United States. However, we expect such benefit to decrease as vaccinations become more widely available and restrictions are eased. Consequently, any change resulting in a diversion of player discretionary income to other uses, including for essential items, could adversely impact our cash flows, operating results, and financial condition.
Our cohort dynamics
The success of our business model depends on our ability to acquire, retain and monetize players over time. We have a history of driving sustained monetization, or player spend, within our games. We measure this by tracking annual cohorts of players. We define an annual cohort as all of the game installs in a given year. We then track the total revenue amount of all players in each cohort over time. If a player installs a different game in two different years or the same game on two different devices, they may, in certain circumstances, be included in two different cohorts.
We believe that cohort behavior provides insight into the overall revenue retention dynamics of our business, reflecting our ability to convert players into paying players and drive monetization of our games over time. In 2021, 92% of our revenue was generated by installations prior to 2020. Our 2010 to 2020 cohorts experienced a 89% revenue retention in 2020, demonstrating our ability to consistently retain and monetize players. The chart below represents our quarterly gross player purchases by yearly installations subsequent to our acquisition by DUG in June 2017.
 
Our marketing efficiency
 
Year ended December 31,
  
2018
    
2019
    
2020
 
DoubleDown Casino payback period (days)
     123        138        162  
New players contributing in payback period (%)
     2.9        2.3        2.8  
 
47

Table of Contents
We acquire players efficiently and at scale through organic and paid channels. We measure the effectiveness of our strategy using average payback period, whether they were acquired through organic or paid channels. We define average payback period as the amount of time it takes for the cumulative revenue generated by all of the players in a given install period to exceed the dollar amount spent on sales and marketing during the same install period. The payback periods shown are the number of days required to generate revenue equal to the cost of a new install for the stated cohort. As noted in the above table, this measurement of our marketing efficiency is based solely on results for
DoubleDown Casino
, which currently provides substantially all of our revenue.
Our payback period fluctuates based on our total cost of acquiring new players for a given period and our ability to subsequently monetize those players. In recent years, we have experienced decreases in our payback period as our monetization of players has increased, resulting in a corresponding decrease in the percentage of players required in a given cohort to account for cumulative revenues in the payback period. Following our acquisition by DUG in 2017, we have shifted more third-party marketing initiatives
in-house
and have made significant investments in modernizing our technology platform that have allowed us to improve our paid marketing efforts, better predict the monetization potential of new players, and monitor new player acquisition cost across marketing channels in real-time. We believe these investments position us to invest more resources in sales and marketing in the near-term while maintaining payback periods near the lower end of historical ranges. The new technology platform has also enabled us to improve monetization through dynamic and more targeted
in-game
offers, contributing to further reductions in the payback period. Our ability to effectively manage our new player acquisition cost, which represents fees paid to our marketing partners for new installs, is a key competitive advantage to our business.
Other key performance indicators and
non-GAAP
metrics and trends
In addition to the measures presented in our consolidated financial statements, we use the following key performance indicators and
non-GAAP
financial metrics to help us evaluate our business, identify trends affecting our business, formulate business plans, and make strategic decisions.
 
   
Three months ended
 
   
December 31,
2021
   
September 30,
2021
   
June 30,
2021
   
March 31,
2021
   
December 31,
2020
   
September 30,
2020
   
June 30,
2020
   
March 31,
2020
   
December 31,
2019
   
September 30,
2019
   
June 30,
2019
   
March 31,
2019
 
Average MAU (000s)
    2,433       2,447       2,544       2,647       2,704       2,894       3,083       3,004       2,791       2,844       2,779       2,873  
Average DAU (000s)
    1,022       1,033       1,057       1,082       1,131       1,169       1,239       1,195       1,168       1,154       1,169       1,221  
Payer Conversion Rate (%)
    5.5     5.7     5.8     5.7     5.5     5.4     5.4     5.0     5.0     5.0     5.3     5.3
ARPDAU ($)
  $ 0.97     $ 0.96     $ 0.99     $ 0.99     $ 0.87     $ 0.86     $ 0.89     $ 0.70     $ 0.64     $ 0.64     $ 0.64     $ 0.62  
Adjusted EBITDA
($ in millions)
(1)
  $ 25.8     $ 30.2     $ 31.1     $ 33.1     $ 29.7     $ 28.9     $ 36.3     $ 25.4     $ 27.0     $ 24.8     $ 25.1     $ 24.8  
Adjusted EBITDA margin (%)
(1)
    29.9     34.7     33.4     34.2     32.6     31.4     36.6     33.4     39.0     36.5     36.9     36.3  
 
(1)
For a reconciliation of net income to Adjusted EBITDA, see “—Reconciliation of
non-GAAP
measures” below.
Average monthly active users (MAU)
We define Monthly Active Users, or MAU, as the average number of players who played one of our games in a particular month during the period presented. An individual who plays two different games or from two different devices may,
 
48

Table of Contents
in certain circumstances, be counted twice. However, we use third-party data and registration for our loyalty program to limit the occurrence of double counting. Average MAU for a period is the average of MAUs for each month for the period presented.
MAU is one key indicator of the scale of our player base and the potential number of paying players. Our MAU has fluctuated as we have reduced investment in our web platform and moderated our sales and marketing spend as we made investments to modernize our technology platform. We expect MAU to continue to fluctuate in the future, with the potential to increase in the near-term, as we adjust our sales and marketing spend, create new content in new and existing market segments, and invest in new games. We also expect external factors to further cause MAU to fluctuate, including market growth, shift to mobile comprising a larger portion of our active player base, and competition.
Average daily active users (DAU)
We define Daily Active Users, or DAU, as the average number of players who played one or more of our games on each day during the period presented. As with MAU, an individual who plays two different games or from two different devices may, in certain circumstances, be counted twice. Average DAU for a period is the average of the monthly average DAUs for the period presented. Our use of third-party data and registration for our loyalty program enables us to limit the occurrence of double counting. DAU is one key indicator of our ability to drive engagement of our player base. Our DAU has fluctuated over time in line with MAU trends.
Payer conversion rate
We define payer conversion rate as the percentage of MAU that made at least one purchase in a month during the same period. Payer conversion rate is a key indicator of our ability to monetize our active player base. Our payer conversion rate has remained relatively stable over time due to the ongoing engagement of our active players and the consistent introduction of new content and features into our games. Increases in payer conversion in recent periods have been primarily driven by increases in our mobile penetration.
Average revenue per daily active user (ARPDAU)
We define ARPDAU as quarterly revenue divided by quarterly average DAU. ARPDAU is a key indicator of our ability to monetize our paying players. Our ARPDAU has increased over time as we have increased our player engagement, payer conversion, and monetization of paying players. Increases in our monetization of paying players has been driven by several factors, including enhanced meta-features in our games, higher registration rates for our player loyalty program, greater variety of content across our games that appeals to a wider range of players, and significant investments in our technology platform that enables the release of new content more quickly and improves our live game operations capabilities.
Adjusted EBITDA
We define Adjusted EBITDA as operating income before interest expense, income tax expense, depreciation and amortization, foreign currency transaction and remeasurement gains and losses, and other income (expense), net (including interest income). Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA for a period by revenue for the same period. Management has presented the performance measure Adjusted EBITDA because it monitors performance at a consolidated level and believes that this measure is relevant to an understanding of the Company’s financial performance. In addition, we believe this metric provides useful information in understanding our operating performance and trends in our business. Adjusted EBITDA is not a defined performance measure in U.S. GAAP. The Company’s definition of Adjusted EBITDA may not be comparable with similarly titled performance measures and disclosures by other entities. For a reconciliation of Adjusted EBITDA to net income, see “—Reconciliation of
non-GAAP
measures” below.
 
49

Table of Contents
Key factors affecting our performance
Monetizing our active players
While our games are
free-to-play,
we generate substantially all of our revenue from players’ purchases of
in-game
virtual chips. Our financial performance will be dependent on our ability to increase monetization of existing paying players and our effectiveness in converting more active players to paying players. Our players’ willingness to pay for the virtual chips is driven by our ability to deliver engaging content and meta-features combined with our sales and marketing strategies. Our subscription model is designed to further improve our monetization of active players.
Sustaining and growing our player network
Establishing and maintaining a loyal network of players is vital for our business as the size of the network determines our maximum addressable audience for engagement and purchase of virtual chips. In order to grow our player network, we will spend on sales and marketing across various user acquisition channels and invest in content development to attract and engage players. In the near-term, as the market backdrop for user acquisition channels continues to be favorable, we may increase spend on sales and marketing as a percentage of revenue to grow our player network. The scale of our player network is determined by a number of factors, including our ability to strengthen player engagement by producing content that players play regularly and our effectiveness in acquiring new players, both of which may in turn affect our financial performance.
Strategic relationships with DUG and IGT
We have access to over 2,000 slot titles from DUG and IGT in addition to our self-developed titles. Our parent company, DUG, has expertise in developing social casino games, which are available to us on an exclusive basis. We have a long-term relationship with IGT, which includes access to IGT’s library of highly recognizable authentic land-based content. Slot titles that we license from DUG and IGT generally require ongoing royalty payments. Our strategic relationships with DUG and IGT also allow for valuable knowledge sharing across numerous aspects of our operations. Our financial results may be affected by our relationship with DUG and IGT and our ability to create self-developed titles.
International growth and expansion
We currently generate most of our revenue from the United States, though we plan to expand our reach internationally over time, particularly in Asia-Pacific and Western Europe. Our international expansion will require us to devote additional resources to marketing, user acquisition, and localization of content. Our financial performance may be impacted by our geographic expansion initiatives.
Investments in our technology platform
As we further develop the content and features for our games, we plan to continue investing in technology infrastructure. A robust technology platform will enable us to further scale our business and improve the efficiency of our operations. A powerful technology platform also allows for more agile product development and optimized live game operations, which further supports our growth. Continued investment in our technology platform may affect our financial performance.
Relationships with third-party distribution platforms
We derive nearly all of our revenue from the sale of our virtual chips through third-party distribution platforms such as Apple App Store, Facebook, Google Play Store, and Amazon Appstore. These platforms have policies that may impact our reachability to our potential audience. Apple, Facebook, Google, and Amazon have discretion to amend their terms of service which might affect our current operations and in turn impact our financial performance. As we expand to new markets, we anticipate similar relationships with additional distribution partners that could similarly impact our performance.
 
50

Table of Contents
Summarized consolidated results
Revenue
We generate substantially all of our revenue from the sale of
in-game
virtual chips, which players of our games can use to enhance their game-playing experience. We also generate a small portion of our revenue from our recently-launched subscription model, which offers early access to new slot contents and daily bonus virtual chips to certain of our
DoubleDown Fort Knox
users
for a monthly subscription fee. Purchases of virtual chips by individual players are made on mobile and
web-based
platforms, such as the Apple, Facebook, Google, and Amazon platforms. These platforms typically charge us a fixed percentage fee for their payment processing and other services, and remit payments to us net of their fees. We recognize revenue on a gross basis for amounts we charge to players and record a corresponding cost of revenue for the amount paid to our platform partners.
Operating expenses
Operating expenses consist primarily of cost of revenue, sales and marketing expenses, research and development expenses, general and administrative expenses, and depreciation and amortization, each as more fully described below.
Cost of revenue
Cost of revenue includes payment processing fees, royalties, customer service, and hosting fees. Platform providers (such as Apple, Facebook, Google, and Amazon) charge a transactional payment processing fee to accept payments from our players for
in-app
consumable virtual goods purchased. Royalty fees are incurred and paid in accordance with the license agreements of the applicable intellectual property. Customer service consists of salaries, bonuses, benefits, and general and administrative expenses incurred to operate this service to our players. Depreciation and amortization expenses are excluded from cost of revenue and are separately presented on the consolidated statements of income and comprehensive income.
We expect cost of revenue to fluctuate proportionately with revenue; however, such proportionality may fluctuate as a percentage of revenue depending on our mix of games with royalty-bearing content.
Sales and marketing
Sales and marketing consists of costs related to advertising, player acquisition, engagement and retention, including costs related to salaries, bonuses, benefits, severance payments, and other compensation.
We plan to continue to invest in sales and marketing to retain and acquire users. However, sales and marketing expenses may fluctuate as a percentage of revenue depending on the timing and efficiency of our performance marketing.
Research and development
Research and development, or R&D, consists of salaries, bonuses, benefits, severance payments, and other compensation related to engineering, research, maintenance, development, and ongoing technical support.
We expect R&D expenses will increase in absolute dollars as our business expands and as we increase our personnel headcount to support the expected growth in our technical development and operating activities.
General and administrative
General and administrative consists of salaries, bonuses, benefits, severance payments, and other compensation for all our corporate support functional areas including our executives. In addition, general and
 
51

Table of Contents
administrative expenses include outsourced professional services such as consulting, legal and accounting services, taxes and dues, insurance premiums, as well as costs associated with maintaining our property and infrastructure.
We expect general and administrative expenses will increase in absolute dollars due to the additional administrative and regulatory burden of being a public reporting company.
Depreciation and amortization
Depreciation and amortization expenses primarily relate to the amortization of identifiable intangible assets, such as technology development, game development, software, and customer relationships, associated with our acquisition of
DDI-US
in 2017. For the game development we acquired as part of our acquisition of
DDI-US,
the costs incurred up to initial launch, that are directly attributable to the design and testing of such games, are capitalized and recorded as intangible assets, and amortized as depreciation and amortization expenses over a period of 36 months. Depreciation expense also includes the depreciation of property and equipment, each of which is computed using the straight-line method based on the depreciable amount of the assets over their respective useful lives.
Other income and other expenses
Our other income consists of interest revenues earned on our cash and cash equivalents, gains on foreign currency transactions, and gains on foreign currency remeasurement of intercompany item.
Our other expenses consist primarily of interest expense, driven primarily by the 4.6% Senior Notes due to a related party with an aggregate principal amount of KRW100 billion (US$84 million) at inception. The 4.6% Senior Notes accrue 4.60% interest quarterly on the outstanding principal amount until maturity. Interest and principal are due in full at maturity date on May 27, 2024. Voluntary principal and interest payments were made in June and September 2020. Principal of KRW20 billion (US$17 million) and interest of KRW1.2 billion (US$1.1 million) was paid in June 2020 and principal of KRW30 billion (US$25 million) and interest of KRW3.1 billion (US$2.7 million) was paid in September 2020.
Income tax expense
Income tax expense consists of current income taxes in the various jurisdictions where we are subject to taxation, primarily the United States, as well as deferred income taxes and changes in the related assessment of the recoverability of deferred tax assets reflecting the net tax effects of temporary differences between the carrying amounts of assets and liabilities in each of these jurisdictions for financial reporting purposes and the amounts used for income tax purposes. Under current U.S. tax law, the federal statutory tax rate applicable to corporations is 21%. Our operations in Korea do not report income taxes as we have sufficient net operating loss carryforwards for local tax purposes. Our annual effective tax rate fluctuates based on our financial results, as well as the product mix and geographic breakdown of operations and sales. Additionally, future effective tax rates are subject to the tax regimes in which we operate remaining consistent with their current arrangements.
 
52

Table of Contents
 
A.
Operating Results
Summarized consolidated results of operations
 
    
Year ended December 31,
   
Change
 
($ in millions)
  
2021
   
2020
   
2019
   
2021 vs. 2020
   
2020 vs. 2019
 
Revenue
   $ 363.2     $ 358.3     $ 273.6     $ 4.9       1.4   $ 84.7       31.0
Operating expenses
   $ 264.5     $ 269.6     $ 205.3     $ (5.1     (1.9 )%    $ 64.3       31.3
Operating income
   $ 98.7     $ 88.7     $ 68.3     $ 10.0       11.3   $ 20.4       29.9
Net income
   $ 78.1     $ 53.6     $ 36.3     $ 24.5       45.7   $ 17.3       47.7
Adjusted EBITDA
(1)
   $ 120.1     $ 120.3     $ 101.7     $ (0.2     (0.2 )%    $ 18.6       18.3
Operating margin
     27.2     24.8     25.0     2.4 pp      nm       (0.2 )pp      nm  
Adjusted EBITDA margin
(1)
     33.1     33.6     37.2     (0.5 )pp      nm       (3.6 )pp      nm  
 
(1)
For reconciliation of net income to Adjusted EBITDA, see “—Reconciliation of
non-GAAP
measures” below.
nm=not meaningful.
pp=percentage points.
 
Reconciliation of
non-GAAP
measures
(in millions, except percentages)
  
Year ended
December 31,
 
  
2021
   
2020
   
2019
 
Net income
   $ 78.1     $ 53.6     $ 36.3  
Income tax expense
     22.5       21.6       13.5  
Income before tax
     100.6       75.2       49.8  
Adjustments for:
      
Depreciation and amortization
     17.9       31.6       33.4  
Loss Contingency
     3.5       —         —    
Interest expense
     2.0       10.8       26.6  
Foreign currency transaction/remeasurement (gain) loss
     (3.0     (2.1     (7.3
Other income (expense), net
     (0.9     4.8       (0.8
Adjusted EBITDA
   $ 120.1     $ 120.3     $ 101.7  
Adjusted EBITDA margin
     33.1     33.6     37.2
Year ended December 31, 2021 compared to year ended December 31, 2020
Revenue and key performance indicators
 
    
Year ended
December 31,
    
Change
 
($ in millions)
  
2021
    
2020
    
2021 vs 2020
 
Revenue
           
Mobile
   $ 264.9      $ 257.4      $ 7.5        2.9
Web
     98.3        100.9      $ (2.6      (2.6 )% 
Total revenue
   $ 363.2      $ 358.3      $ 4.9        1.4
 
53

Table of Contents
Revenue information by geography
(1)
 
    
Year ended
December 31,
    
Change
 
($ in millions)
  
2021
    
2020
    
2021 vs 2020
 
Revenue
           
US
(1)
   $ 317.6      $ 309.2      $ 8.4        2.7
International
     45.6        49.1      $ (3.5      (7.1 )% 
  
 
 
    
 
 
    
 
 
    
 
 
 
Total revenue
   $ 363.2      $ 358.3      $ 4.9        1.4
 
(1)
Revenue by geography is an estimate based on available information. When location data cannot be validated, the location is assumed to be in the United States.
Key performance indicators
 
    
Year ended
December 31,
   
Change
 
(in millions, except ARPDAU and percentage)
  
2021
   
2020
   
2021 vs 2020
 
Key performance indicator
        
Mobile penetration
     72.9     71.8     1.1 pp      1.5
Average MAU
     2.4       2.9       (0.5     (17.2 )% 
Average DAU
     1.0       1.2       (0.2     (16.7 )% 
ARPDAU
   $ 0.97     $ 0.83     $ 0.14       16.9
nm=not meaningful.
pp=percentage points.
Our revenue increased by 1.4% from $358.3 million in 2020 to $363.2 million in 2021, primarily due to our continued efforts to monetize our players, product feature improvements, a positive return on our user acquisition advertising business strategy and benefits from the effect of the
COVID-19
pandemic. During 2021,
COVID-19
pandemic restrictions remained in effect; however, we are unable to quantify the specific positive impact on revenues resulting therefrom.
Approximately 72.9% of our revenue was attributable to players on mobile platforms in 2021 compared with 71.8% in 2020, representing an increase of 1.1 percentage points. The increase in mobile penetration for the year ended December 31, 2020 and for the year ended December 31, 2021 was related to our strength in mobile user acquisition and game content that optimizes the experience for the mobile user and the continued shift in players migrating from web to mobile platforms to play our games.
Average MAU decreased 17.2% for the year ended December 31, 2021 compared to 2020.
While MAU and DAU are indicators of the scale of our player base and the potential number of paying players, we consider these metrics to be more reflective of the Company’s decisions on how to allocate marketing spend and less significant to our revenue than the total amount that paying users spend. We review and assess the impact of our marketing spend, in particular, on these metrics and makes adjustments as we consider necessary to grow total revenue.
 
54

Table of Contents
Other metrics
 
    
Year ended
December 31,
   
Change
 
    
2021
   
2020
   
2021vs 2020
 
Average MPUs (in thousands)
(1)
     139       156       (17     (10.9 )% 
Average monthly revenue per payer
(2)
   $ 218     $ 191     $ 27       14.1
Payer conversion rate
     5.7     5.4     0.3 pp      5.2
 
(1)
We define Average MPUs as the average number of players who made a purchase at least once in a month during the applicable time period. However, as with our calculation of average MAU, an individual who plays two different games or from two different devices may, in certain circumstances be counted as multiple MPUs. We use third-party data and registration for our loyalty program to assist us in the limiting occurrences of multiple-counting.
(2)
Average monthly revenue per payer is calculated by dividing the average monthly revenue for the period by the Average MPUs in that period.
nm=not meaningful.
pp=percentage points
In addition to the key performance indicators noted above, we also monitor the number of players who make a purchase to assess any periodic changes in behavior and associated trends.
For the year ended December 31, 2021, Average MPU decreased 10.9% and average monthly revenue per payer increased 14.1% when compared to December 31, 2020, with our payer conversion rate increasing 0.3 percentage point for the comparative period. Our average monthly revenue per payer increased due to the decrease in Average MPU which contributed to the increase in average monthly revenue per payer. The average monthly revenue per payer benefited from an increase in playing time attributable, in part, to our enhanced meta-features and
in-game
content released during 2021 and other benefits of the
COVID-19
pandemic during 2021.
Operating expenses
Cost of revenue
 
    
Year ended
December 31,
    
Change
   
Percentage of revenue
 
($ in millions)
  
2021
    
2020
    
2021 vs. 2020
   
2021
   
2020
   
2021
vs.
2020
change
 
Cost of revenue
(1)
                
Platform
   $ 108.0      $ 107.0      $ 1.0       0.9     29.7     29.9     (0.2 )pp 
Data center
     2.4        1.9        0.5       26.3     0.7     0.5     0.2 pp 
Royalty
     15.5        16.4        (0.9     (5.5 )%      4.3     4.6     (0.3 )pp 
Customer service
     0.7        1.0        (0.3     (30.0 )%      0.2     0.2     nm  
Total cost of revenue
   $ 126.6      $ 126.3      $ 0.3       0.2     34.9     35.2     (0.3 )pp 
 
(1)
 
Excluding depreciation and amortization.
nm=not meaningful.
pp=percentage points.
Cost of revenue increased by 0.2% from $126.3 million in 2020 to $126.6 million in 2021, primarily as a result of increased platform fees that generally correspond with an increase in revenues. Cost of revenue as a percentage of revenue decreased by 0.3 percentage point from 35.2% in 2020 to 34.9% in 2021, due to the success of our internally developed original slot games resulting in lowered royalties and improved technology efficiencies.
 
55

Table of Contents
Sales and marketing
 
    
Year ended
December 31,
    
Change
   
Percentage of revenue
 
($ in millions)
  
2021
    
2020
    
2021 vs. 2020
   
2021
   
2020
   
2021
vs.
2020
change
 
Sales and marketing
(1)
   $ 78.8      $ 71.2      $ 7.6        10.7     21.7     19.9     1.8 pp 
 
(1)
Excluding depreciation and amortization.
pp=percentage points.
Sales and marketing expenses increased by 10.7% from $71.2 million in 2020 to $78.8 million in 2021, primarily due to an increase in user acquisition advertising spend. Total user acquisition advertising costs in 2020 was $61.8 million, representing 17.3% of revenue in 2020, and was $74.2 million in 2021, representing 20.4% of revenue in 2021, and an increase of 3.2 percentage points from 2020. Total sales and marketing expenses as a percentage of revenue increased by 1.8 percentage points from 19.9% in 2020 to 21.7% in 2021.
Research and development
 
    
Year ended
December 31,
    
Change
   
Percentage of revenue
 
($ in millions)
  
2021
    
2020
    
2021 vs. 2020
   
2021
   
2020
   
2021
vs.
2020
change
 
Research and development
(1)
   $ 18.5      $ 18.8      $ (0.3     (1.6 )%      5.1     5.2     (0.1 )pp 
 
(1)
Excluding depreciation and amortization.
pp=percentage points.
Research and development expenses decreased by 1.6% from $18.8 million in 2020 to $18.5 million in 2021, due to the elimination of outsourced research and development costs with all other research and development related expenses remaining stable. Research and development as a percentage of revenue decreased by 0.1 percentage point from 5.2% in 2020 to 5.1% in 2021.
General and administrative
 
    
Year ended
December 31,
    
Change
   
Percentage of revenue
 
($ in millions)
  
2021
    
2020
    
2021 vs. 2020
   
2021
   
2020
   
2021
vs.
2020
change
 
General and administrative
(1)
   $ 22.6      $ 21.7      $ 0.9        4.1     6.2     6.1     0.1 pp 
 
(1)
Excluding depreciation and amortization.
pp=percentage points.
General and administrative expenses increased by 4.1% from $21.7 million in 2020 to $22.6 million in 2021, due to an increase in administrative, professional, and outside services, including legal fees. General and administrative expenses as a percentage of revenue increased by 0.1 percentage point from 6.1% in 2020 to 6.2% in 2021.
 
56

Table of Contents
Depreciation and amortization
 
    
Year ended
December 31,
    
Change
 
($ in millions)
  
2021
    
2020
    
2021 vs.
2020
 
Depreciation and amortization
   $ 17.9      $ 31.6      $ (13.7      (43.4 )% 
Depreciation and amortization decreased by 43.4% from $31.6 million in 2020 to $17.9 million in 2021, primarily resulting from the completed amortization of certain identifiable intangible assets.
Other income and other expenses
 
    
Year ended
December 31,
    
Change
 
($ in millions)
  
2021
    
2020
    
2021 vs. 2020
 
Other income
           
Gain on foreign currency transaction
   $ 1.1      $ 2.3      $ (1.2      (52.2 )% 
Gain on foreign currency remeasurement of intercompany item
     1.9        (0.2      2.1        (1050 )% 
Interest income
     0.2        0.2        —          (0.0 )% 
Miscellaneous income
     0.7        nm        0.7        (100.0 )% 
  
 
 
    
 
 
    
 
 
    
 
 
 
Total other income
   $ 3.9      $ 2.3      $ 1.6        (69.6 )% 
Other expenses
           
Interest expense
   $ 2.0      $ 10.8      $ (8.8      (81.5 )% 
Miscellaneous expenses
     nm        5.0        (5.0      (100.0 )% 
  
 
 
    
 
 
    
 
 
    
 
 
 
Total other expenses
   $ 2.0      $ 15.8      $ (13.8      (87.4 )% 
  
 
 
    
 
 
    
 
 
    
 
 
 
Total other income/(expense), net
   $ 1.9      $ (13.5    $ 15.4        (114.1 )% 
nm=not meaningful.
Other income/expenses decreased 114.1% from $13.5 million recognized as expenses in 2020 to $1.9 million recognized as income in 2021, primarily due to a reduction in interest and miscellaneous expenses. Interest expense decreased due to the full repayment of all amounts owed on our 3.50% Senior Note. See “—Liquidity and capital resources—Short-term and long-term borrowings” below.
Income tax expense
 
    
Year ended
December 31,
    
Change
 
($ in millions)
  
2021
    
2020
    
2021 vs. 2020
 
Income tax expense
   $ 22.5      $ 21.6      $ 0.9        4.2
Income tax expense increased by 4.2% from $21.6 million in 2020 to $22.5 million in 2021, primarily due to an increase in taxable income primarily related to our revenue growth. Our effective income tax rate of 22.3% and 28.6% for the year ended 2021 and 2020, respectively, differed from our statutory tax rate of 20.0% primarily due to foreign rate differential, withholding taxes offset by tax credits, and an increase in the valuation allowance on Korean deferred tax assets.
For further information regarding our income tax expenses, see Note 6 to our audited consolidated financial statements appearing elsewhere in this annual report.
 
57

Table of Contents
Net income
Net income increased by 45.7%, or $24.5 million, from $53.6 million in 2020 to $78.1 million in 2021, primarily due to our revenue increase of $4.9 million and a decrease in both our miscellaneous and interest expenses by $5.1 million and $8.8 million, respectively. Our operating margin increased by 2.4 percentage points, from 24.8% in 2020 to 27.2% in 2021.
Adjusted EBITDA
Adjusted EBITDA decreased by 0.2% from $120.3 million in 2020 to $120.1 million in 2021, primarily due to our increase in operating expenses. Adjusted EBITDA margin decreased from 33.6% in 2020 to 33.1% in 2021 primarily due to an increase in sales and marketing expenses.
For a reconciliation of net income to Adjusted EBITDA, see “—Reconciliation of
non-GAAP
measures” above.
Year ended December 31, 2020 compared to year ended December 31, 2019
Revenue and key performance indicators
 
    
Year ended
December 31,
    
Change
 
($ in millions)
  
2020
    
2019
    
2020 vs 2019
 
Revenue
           
Mobile
   $ 257.4      $ 184.7      $ 72.7        39.4
Web
     100.9        88.9      $ 12.0        13.5
Total revenue
   $ 358.3      $ 273.6      $ 84.7        31.0
Revenue information by geography
(1)
 
    
Year ended
December 31,
    
Change
 
($ in millions)
  
2020
    
2019
    
2020 vs 2019
 
Revenue
           
US
(1)
   $ 309.2      $ 237.7      $ 71.5        30.1
International
     49.1        35.9      $ 13.2        36.8
  
 
 
    
 
 
    
 
 
    
 
 
 
Total revenue
   $ 358.3      $ 273.6      $ 84.7        31.0
 
(1)
Revenue by geography is an estimate based on available information. When location data cannot be validated, the location is assumed to be in the United States.
Key performance indicators
 
    
Year ended
December 31,
   
Change
 
(in millions, except ARPDAU and percentage)
  
2020
   
2019
   
2020 vs 2019
 
Key performance indicator
         
Mobile penetration
     71.8     67.5     4.3pp        6.4
Average MAU
     2.9       2.8       0.1        3.6
Average DAU
     1.2       1.2       0        0.0
ARPDAU
   $ 0.83     $ 0.64     $ 0.19        29.7
nm=not meaningful.
pp=percentage points.
 
58

Table of Contents
Our revenue increased by 31.0% from $273.6 million in 2019 to $358.3 million in 2020, primarily due to our continued efforts to monetize our players, product feature improvements, a positive return on our user acquisition advertising business strategy and benefits from the effect of the
COVID-19
pandemic. During 2020,
COVID-19
pandemic
stay-at-home
orders and other restrictions were in effect from time to time; however, we are unable to quantify the specific positive impact on revenues resulting therefrom.
Approximately 71.8% of our revenue was attributable to players on mobile platforms in 2020 compared with 67.5% in 2019, an increase of 4.3 percentage points. The increase in mobile penetration for the year ended December 31, 2019 and for the year ended December 31, 2020 was related to our strength in mobile user acquisition and game content that optimizes the experience for the mobile user and the continued shift in players migrating from web to mobile platforms to play our games.
Average MAU increased 3.6% for the year ended December 31, 2020 compared to 2019.
While MAU and DAU are indicators of the scale of our player base and the potential number of paying players, we consider these metrics to be more reflective of the Company’s decisions on how to allocate marketing spend and less significant to our revenue than the total amount that paying users spend. We review and assess the impact of our marketing spend, in particular, on these metrics and makes adjustments as we consider necessary to grow total revenue.
Other metrics
 
    
Year ended
December 31,
   
Change
 
    
2020
   
2019
   
2020 vs 2019
 
Average MPUs (in thousands)
(1)
     156       146       10       6.8
Average monthly revenue per payer
(2)
   $ 191     $ 156     $ 35       22.5
Payer conversion rate
     5.4     5.2     0.2 pp      3.8
 
(1)
We define Average MPUs as the average number of players who made a purchase at least once in a month during the applicable time period. However, as with our calculation of average MAU, an individual who plays two different games or from two different devices may, in certain circumstances be counted as multiple MPUs. We use third-party data and registration for our loyalty program to assist us in the limiting occurrences of multiple-counting.
(2)
Average monthly revenue per payer is calculated by dividing the average monthly revenue for the period by the Average MPUs in that period.
nm=not meaningful.
pp=percentage points
In addition to the key performance indicators noted above, we also monitor the number of players who make a purchase to assess any periodic changes in behavior and associated trends.
For the year ended December 31, 2020, Average MPU increased 6.8% and average monthly revenue per payer increased 22.5% when compared to December 31, 2019, with our payer conversion rate increasing 0.2 percentage point for the comparative period. Our average monthly revenue per payer increased due to the increase in Average MPU which contributed to the increase in average monthly revenue per payer. The average monthly revenue per payer benefited from an increase in playing time attributable, in part, to our enhanced meta-features and
in-game
content released during 2020 and other benefits of the
COVID-19
pandemic during 2020.
 
59

Table of Contents
Operating expenses
Cost of revenue
 
    
Year ended
December 31,
    
Change
   
Percentage of revenue
 
($ in millions)
  
2020
    
2019
    
2020 vs. 2019
   
2020
   
2019
   
2020 vs. 2019
change
 
Cost of revenue
(1)
                 
Platform
   $ 107.0      $ 81.3      $ 25.7        31.6     29.9     29.7     0.2 pp 
Data center
     1.9        1.8        0.1        5.6     0.5     0.7     (0.2 )pp 
Royalty
     16.4        15.5        0.9        5.8     4.6     5.7     (1.1 )pp 
Customer service
     1.0        1.0        0        0.0     0.2     0.4     (0.2 )pp 
Total cost of revenue
   $ 126.3      $ 99.6      $ 26.7        26.8     35.2     36.4     (1.2 )pp 
 
(1)
Excluding depreciation and amortization.
nm=not meaningful.
pp=percentage points.
Cost of revenue increased by 26.8% from $99.6 million in 2019 to $126.3 million in 2020, primarily as a result of increased platform fees that generally correspond with an increase in revenues. Cost of revenue as a percentage of revenue decreased by 1.2 percentage points from 36.4% in 2019 to 35.2% in 2020, due to the success of our internally developed original slot games resulting in lowered royalties and improved technology efficiencies.
Sales and marketing
 
    
Year ended
December 31,
    
Change
   
Percentage of revenue
 
($ in millions)
  
2020
    
2019
    
2020 vs. 2019
   
2020
   
2019
   
2020 vs. 2019
change
 
Sales and marketing
(1)
   $ 71.2      $ 35.8      $ 35.4        98.9     19.9     13.1     6.8 pp 
 
(1)
Excluding depreciation and amortization.
pp=percentage points.
Sales and marketing expenses increased by 98.9% from $35.8 million in 2019 to $71.2 million in 2020, primarily due to an increase in user acquisition advertising spend. Total user acquisition advertising costs in 2019 was $28.5 million, representing 10.4% of revenue in 2019, and was $61.8 million in 2020, representing 17.3% of revenue in 2020, and an increase of 6.9 percentage points from 2019. Total sales and marketing expenses as a percentage of revenue increased by 6.8 percentage points from 13.1% in 2019 to 19.9% in 2020.
Research and development
 
    
Year ended
December 31,
    
Change
   
Percentage of revenue
 
($ in millions)
  
2020
    
2019
    
2020 vs. 2019
   
2020
   
2019
   
2020 vs. 2019
change
 
Research and development
(1)
   $ 18.8      $ 19.3      $ (0.5     (2.6 )%      5.2     7.0     (1.8 )pp 
 
(1)
Excluding depreciation and amortization.
pp=percentage points.
 
60

Table of Contents
Research and development expenses decreased by 2.6% from $19.3 million in 2019 to $18.8 million in 2020, due to the elimination of outsourced research and development costs with all other research and development related expenses remaining flat. Research and development as a percentage of revenue decreased by 1.8 percentage points from 7.0% in 2019 to 5.2% in 2020.
General and administrative
 
    
Year ended
December 31,
    
Change
   
Percentage of revenue
 
($ in millions)
  
2020
    
2019
    
2020 vs.
2019
   
2020
   
2019
   
2020 vs. 2019
change
 
General and administrative
(1)
   $ 21.7      $ 17.2      $ 4.5        26.2     6.1     6.3     (0.2 )pp 
 
(1)
Excluding depreciation and amortization.
pp=percentage points.
General and administrative expenses increased by 26.2% from $17.2 million in 2019 to $21.7 million in 2020, due to an increase in administrative, professional, and outside services, including legal fees. General and administrative expenses as a percentage of revenue decreased by 0.2 percentage points from 6.3% in 2019 to 6.1% in 2020.
Depreciation and amortization
 
    
Year ended
December 31,
    
Change
 
($ in millions)
  
2020
    
2019
    
2020 vs. 2019
 
Depreciation and amortization
   $ 31.6      $ 33.4      $ (1.8      (5.4 )% 
Depreciation and amortization decreased by 5.4% from $33.4 million in 2019 to $31.6 million in 2020, primarily resulting from the completed amortization of certain identifiable intangible assets.
Other income and other expenses
 
    
Year ended
December 31,
    
Change
 
($ in millions)
  
2020
    
2019
    
2020 vs. 2019
 
Other income
           
Gain on foreign currency transaction
   $ 2.3      $ 4.1      $ (1.8      (43.9 )% 
Gain on foreign currency remeasurement of intercompany item
     (0.2      3.2        (3.4